[WPRT 107-4]
[From the U.S. Government Printing Office]
107th Congress WMCP:
COMMITTEE PRINT
1st Session 107-4
_______________________________________________________________________
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
__________
OVERVIEW AND COMPILATION OF
U.S. TRADE STATUTES
__________
2001 EDITION
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
JUNE 2001
Prepared for the use of Members of the Committee on Ways and Means by
members of its staff. This document has not been officially approved by
the Committee and may not reflect the views of its Members.
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U.S. GOVERNMENT PRINTING OFFICE
71-824 WASHINGTON : 2001
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
----------
ONE HUNDRED SEVENTH CONGRESS
WILLIAM M. THOMAS, California, Chairman
----------
Allison H. Giles, Chief of Staff
This document was prepared by the staff of the Committee on
Ways and Means and is issued under the authority of Chairman
William M. Thomas. This document has not been reviewed or
officially approved by the Members of the Committee.
LETTER OF TRANSMITTAL
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House of Representatives,
Committee on Ways and Means,
Washington, DC
Hon. William M. Thomas
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: In 1987, the Committee first published a
resource document entitled ``Overview and Compilation of U.S.
Trade Statutes'' for use by Committee Members and interested
parties in the international trade community. This document was
unique in that it contained not only an overview of the
operation of foreign trade statutes, but also an overview of
the operation of foreign trade statutes, but also an up-to-date
statutory text of such laws, which integrated numerous separate
acts of Congress into a single statutory compilation.
This document was so well received by Members of Congress,
congressional staff, government officials, the international
trade community and the general public that an updated version
was published in 1989 and updated and expanded versions were
published in 1991, 1993 1995, and 1997. In order to update the
changes in various trade statutes since the publication of the
1997 edition, the staff has prepared a new version,
incorporating all statutory provisions enacted through the
106th Congress.
As was the case with the earlier versions, the statutory
authorities selected are the major provisions of federal law
which are directly related to the conduct of U.S. international
trade. The compilation is not meant to be a comprehensive
treatise of every trade-related law or program, nor does it
cover provisions to regulate domestic commerce. The laws and
programs which are within the jurisdiction of the Committee on
Ways and Means are the main focus of this document and are
discussed in the greatest detail. In addition, some of the laws
and programs described may be within the jurisdiction of other
committees of the House of Representatives. These provisions
are included in order to provide a complete survey of the
principal trade authorities.
The document has been prepared by the Committees' trade
staff with assistance from the Office of the Legislative
Counsel and various government agencies, to which the staff
extends its most sincere thanks.
(III)
IV
Any suggestions on how to improve this document as a
reference tool in subsequent editions of this publication are
always welcome.
Sincerely yours,
Angela Ellard,
Staff Director & Counsel,
Subcommittee on Trade
PREFACE
The role of Congress in formulating international economic
policy and regulating international trade in based on a
specific constitutional grant of power. Article I of the U.S.
Constitution sets forth the various powers and responsibilities
of the legislature. Article I, section 8 lists certain specific
express powers of the Congress. Among these express powers are
the powers:
``to lay and collect taxes, duties, imposts and excises
. . . [and] to regulate commerce with foreign
nations, and among the several states. . . .''
The Congress therefore is the fundamental authority
responsible for federal government regulation of international
transactions. Within the House of Representatives, jurisdiction
over trade legislation lies in the Committee on Ways and Means,
based on its jurisdiction over taxes, tariffs, and trade
agreements, Throughout the history of U.S. trade law and
policy, the Committee on Ways and Means has been at the
forefront of its development. The Committee's jurisdiction
ranges from regulation of tariff affairs, to regulation of non-
tariff trade barriers such as quotas and standards, regulation
of unfair trade practices such as dumping, subsidization, or
counterfeiting, provisions of temporary relief from import
competition and adjustment assistance, providing for bilateral
and multilateral trade agreements with foreign trading
partners, and responsibility for authorizing and overseeing the
departments and agencies charged with implementation of the
trade laws and programs.
The difficulties of retaining and exercising full control
over international trade matters within the legislative branch
were recognized by Congress shortly after enactment of the
Smoot-Hawley Tariff Act of 1930. In 1934, the Congress enacted
the Reciprocal Trade Agreements Act which delegated to the
President authority to negotiate international trade agreements
for the reduction of tariffs. This Act, which marked the
beginning of the trade agreements program for the United
States, represented the first significant delegation of
authority from Congress to the President with respect to
international trade policy.
Since 1934, the delegation of authority from Congress to
the President has varied in scope and degree, reflecting
congressional concern over maintaining careful control of
international trade policy. When the trade agreements
negotiating authority granted to the President expired in 1967,
for example, it was not renewed again until 1974. In the Trade
Act of 1974, presidential negotiating authority was
substantially revised, extended to non-tariff as well as tariff
negotiations, and made subject to specific consultation and
notification requirements both prior to and during the course
of negotiation. The Omnibus Trade and Competitiveness Act of
1988, in addition to providing negotiating authority and
explicit negotiating
(V)
VI
objectives for the Uruguay Round, expands the consultation
requirements between the USTR and the Congress and requires the
formulation of an annual trade policy agenda. Both the Uruguay
Round Agreements Act and the North American Free Trade
Agreement Implementation Act provide for the involvement of
Congress in a number of key trade policy areas. The Trade and
Development Act of 2000 marks important changes in U.S.
preferential benefits for the Canbbean Basin and provides such
benefits for the first time to the nations of sub-Sahanan
Africa. Finally, legislation in 2000 concerning normal trade
relations for the People's Republic of China represents the
congressional views on the accession of this important country
to the World Trade Organization.
Due to the central role of Congress in formulating
international economic policy, an understanding of U.S.
international trade law and policy must begin with the
statutory authorities and programs which provide the foundation
for our trade policy. This document provides two essential
tools for those interested in obtaining a better understanding
of U.S. trade law and policy. Part I contains a general
overview of current provisions of our trade laws. This over
view was prepared by the staff of the Subcommittee on Trade
with the assistance of the Congressional Research Service and
provides a thorough yet understandable explanation of how these
laws operate. Part II contains a compilation of the actual text
of these laws, as amended. This updated statutory compilation
incorporates all major provisions of U.S. trade law and
includes all amendments to theses laws as of the beginning of
the 107th Congress. While this integrated text should not be
treated as a substitute for official public laws or the United
States Code, it is an accurate and highly useful document which
integrates numerous separate Acts of Congress into one text. We
hope this document will prove useful to official policymakers
as well as the interested public.
C O N T E N T S
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Page
Letter of transmittal............................................ iii
Preface.......................................................... v
Subject index.................................................... 1171
PART I: OVERVIEW
Chapter 1: Tariff and customs laws............................... 1
Harmonized Tariff Schedule of the United States.............. 1
Generalized System of Preferences (GSP)...................... 14
Title V of the Trade Act of 1974, as amended............. 14
Caribbean Basin Initiative (CBI)............................. 21
Caribbean Basin Trade Partnership Act........................ 22
Andean Initiative............................................ 34
African Growth and Opportunity Act........................... 37
Customs valuation............................................ 48
The GATT/WTO Customs Valuation Agreement................. 49
Current law.............................................. 51
Customs user fees............................................ 58
Other customs laws........................................... 63
Country-of-origin marking................................ 63
NAFTA rules of origin.................................... 66
Drawback................................................. 67
Protests and administrative review....................... 69
Copyrights and trademark enforcement..................... 71
Penalties................................................ 72
Import prohibitions/restrictions relating to dog and cat
fur products........................................... 74
Commercial operations.................................... 75
Foreign trade zones.......................................... 78
Chapter 2: Trade remedy laws..................................... 83
The antidumping and countervailing duty laws................. 83
CVD law: subsidy determination........................... 83
AD law: less-than-fair-value (LTFV) determination........ 89
AD and CVD laws: material injury determination........... 94
Issues common to AD and CVD investigations............... 95
Enforcement of U.S. rights under trade agreements and
response to certain foreign practices: sections 301-310
of the Trade Act of 1974, as amended................... 108
International consultations and dispute settlement....... 109
Enforcement authority and procedures (section 301)....... 110
Identification of intellectual property rights priority
countries (Special 301)................................ 116
Identification of trade liberalization priorities (Super
301)................................................... 123
Foreign direct investment................................ 127
Foreign anticompetitive practices........................ 128
Unfair practices in import trade (section 337 of the
Tariff Act of 1930, as amended)........................ 128
Import relief (safeguard) authorities.................... 132
Sections 201-204 of the Trade Act of 1974, as amended.... 132
Section 406 of the Trade Act of 1974: market disruption
by imports from Communist countries.................... 139
Sections 421-423 of the Trade Act of 1974, as amended:
market disruption by imports from the People's Republic
of China............................................... 140
Section 1102 of the Trade Agreements Act of 1979: public
auction of import licenses............................. 142
Trade adjustment assistance.................................. 142
Chapters 2, 3, and 5 of title II of the Trade Act of
1974, as amended....................................... 142
TAA program for workers.................................. 144
NAFTA Worker Security Act................................ 149
TAA program for firms.................................... 151
Chapter 3: Other laws regulating imports......................... 153
Authorities to restrict imports of agricultural and textile
products................................................... 153
Section 204 of the Agricultural Act of 1956, as amended.. 153
Multifiber Arrangement (MFA)......................... 153
Uruguay Round Agreement on Textiles and Clothing..... 156
Bilateral textile agreements......................... 158
Textiles and apparel trade under the North American Free
Trade Agreement........................................ 159
Section 22 of the Agricultural Adjustment Act of 1933.... 159
Agriculture trade under the North American Free Trade
Agreement Implementation Act........................... 160
Agriculture trade under the Uruguay Round Agreements Act. 162
Meat Import Act of 1979.................................. 164
Reciprocal meat inspection requirement................... 164
Sugar tariff-rate quotas under Harmonized Tariff Schedule
authorities............................................ 165
Import prohibitions on certain agricultural commodities
under marketing orders (section 8e of the Agricultural
Adjustment Act, as amended)............................ 166
Authorities to restrict imports under certain environmental
laws....................................................... 167
Marine Mammal Protection Act of 1972, as amended......... 167
International Dolphin Conservation Act of 1992........... 168
Endangered Species Act of 1973, as amended............... 169
Tariff Act of 1930, as amended: wild mammals and birds... 169
Section 8 of the Fishermen's Protective Act of 1967, as
amended (``Pelly Amendment'').......................... 170
High Seas Driftnet Fisheries Enforcement Act............. 170
Wild Bird Conservation Act of 1992....................... 171
Atlantic Tunas Convention Act of 1995.................... 171
Conservation of Sea Turtles.............................. 172
National security import restrictions........................ 174
Section 232 of the Trade Expansion Act of 1962........... 174
Section 233 of the Trade Expansion Act of 1962........... 175
Balance of payments authority (section 122 of the Trade Act
of 1974)................................................... 176
Product standards............................................ 178
Agreement on Technical Barriers to Trade................. 179
Uruguay Round Agreement on Technical Barriers to Trade... 181
The North American Free Trade Agreement.................. 182
Title IV of the Trade Agreements Act of 1979, as amended. 182
Government procurement....................................... 183
Buy American Act......................................... 184
1979 GATT Agreement on Government Procurement............ 184
1994 WTO Agreement on Government Procurement............. 186
The North American Free Trade Agreement.................. 187
Title III of the Trade Agreements Act of 1979, as amended 188
Title VII of the Omnibus Trade and Competitiveness Act of
1988, as amended....................................... 189
Chapter 4: Laws regulating export activities..................... 195
Export controls.............................................. 195
Background............................................... 195
Export Administration Act of 1979........................ 196
Export Administration Amendments Act of 1985............. 198
Omnibus Trade and Competitiveness Act of 1988............ 199
Export promotion of goods and services....................... 200
Export Enhancement Act of 1988........................... 200
Fair Trade in Auto Parts Act of 1988..................... 201
Agricultural export sales and promotion...................... 202
Public Law 480........................................... 202
Export credit guarantee and export promotion programs.... 202
Chapter 5: Authorities relating to political or economic security 205
International Emergency Economic Powers Act.................. 205
Trading With the Enemy Act................................... 211
Narcotics Control Trade Act.................................. 214
The International Security and Development Cooperation Act of
1985....................................................... 215
The Iran and Libya Sanctions Act of 1996..................... 215
Embargo on transactions with Cuba............................ 216
The Cuban Liberty and Democratic Solidarity Act.............. 218
Iraq Sanctions Act of 1990................................... 220
Exemptions for food and medicine from U.S. International
Trade Sanctions............................................ 220
The Hong Kong Policy Act..................................... 222
Section 27 of the Merchant Marine Act, 1920 (Jones Act)...... 222
Section 721 of the Defense Production Act of 1950, as amended
(``Exon/Florio'').......................................... 223
Chapter 6: Reciprocal trade agreements........................... 225
Reciprocal trade agreement objectives and authorities........ 225
Trade negotiating objectives............................. 226
General tariff authority................................. 227
Multilateral trade agreement authority................... 228
Bilateral trade agreement authority...................... 229
Reciprocal competitive opportunities..................... 230
Specific trade agreement authorities..................... 230
Trade negotiation procedural requirements................ 232
Congressional fast track implementing procedures............. 232
Uruguay Round Agreements..................................... 235
Uruguay Round Agreements Act............................. 237
Specific foreign trade barriers.............................. 241
Sections 181 and 182 of the Trade Act of 1974, as amended 241
Telecommunications Trade Act of 1988..................... 242
Normal Trade Relations (nondiscriminatory) treatment......... 246
North American trade relations............................... 259
North American Free Trade Agreement...................... 260
North American Free Trade Agreement Implementation Act of
1993................................................... 260
United States-Israel trade relations......................... 261
Title IV of the Trade and Tariff Act of 1984............. 262
United States-Israel Free Trade Area Agreement........... 263
United States-Israel Free Trade Area Implementation Act
of 1985................................................ 264
West Bank and Gaza Strip Free Trade Benefits............. 264
United States-Canada trade relations......................... 265
United States-Canada Free-Trade Agreement................ 266
United States-Canada Free-Trade Agreement Implementation
Act of 1988............................................ 267
Chapter 7: Organization of trade policy functions................ 269
Congress..................................................... 269
Executive branch............................................. 270
Interagency trade process................................ 270
Office of the U.S. Trade Representative.................. 271
Department of Commerce................................... 273
U.S. Customs Service..................................... 274
U.S. International Trade Commission.......................... 275
Private or public sector advisory committees................. 276
PART II: COMPILATION OF U.S. TRADE STATUTES
Chapter 8: Tariff and customs laws............................... 279
A. Implementation of the Harmonized Tariff Schedule of the
United States.............................................. 279
Sections 1201-1217 of the Omnibus Trade and
Competitiveness Act of 1988............................ 279
Section 484(e) of the Tariff Act of 1930, as amended..... 288
B. Excerpts from the Harmonized Tariff Schedule of the United
States (HTS) relating to special duty treatment............ 289
1. American goods returned (HTS item 9801.00.10)......... 289
2. American goods repaired or altered abroad (HTS items
9802.00.40, .50)....................................... 291
American metal articles processed abroad (HTS item
9802.00.60)........................................ 291
American components assembled abroad (HTS item
9802.00.80)........................................ 291
3. Personal (tourist) exemptions (HTS items 9804.00.65,
.70, .72).............................................. 296
4. Noncommercial Importations of Limited Value (HTS items
9816.00.20, and 9816.00.40)............................ 300
3. Classification of Personal Effect of Participants in
International Athletic Events (HTS items 9817.60.00)... 302
6. Products of U.S. insular possessions (General Note
3(a)(iv)).............................................. 304
7. Rates of duty on certain motor vehicles (General Note
3(d)).................................................. 305
C. Generalized System of Preferences......................... 307
Title V of the Trade Act of 1974, as amended............. 307
General Note 4 of the Harmonized Tariff Schedule......... 319
D. Caribbean Basin Initiative (CBI).......................... 321
Caribbean Basin Economic Recovery Act, as amended........ 321
Caribbean Basin Economic Recovery Expansion Act of 1990.. 348
Section 423 of the Tax Reform Act of 1986, as amended
(treatment of imports of ethyl alcohol)................ 354
General Note 7(a) of the Harmonized Tariff Schedule...... 358
E. Andean Initiative (Andean Trade Preference Act, as
amended)................................................... 358
F. African Growth and Opportunity Act........................ 367
G. Customs valuation (Section 402 of the Tariff Act of 1930,
as amended)................................................ 381
H. Customs user fees......................................... 389
Section 13031 of the Consolidated Budget Reconciliation
Act of 1985, as amended................................ 389
Sections 111(f), 112, and 113 of the Customs and Trade
Act of 1990, as amended................................ 402
Section 1893(f) of the Tax Reform Act of 1986, as amended 403
I. Other customs laws........................................ 403
1. Country of origin marking............................. 403
Section 304 of the Tariff Act of 1930, as amended.... 403
Section 1907 (b) and (c) of the Omnibus Trade and
Competitiveness Act of 1988........................ 410
Section 210 of the Motor Vehicle Information and Cost
Savings Act........................................ 411
2. Drawback (section 313 of the Tariff Act of 1930, as
amended)............................................... 415
3. Entry of merchandise (section 484 of the Tariff Act of
1930, as amended)...................................... 424
4. Protests and further administrative reviews........... 429
5. Copyrights and trademark enforcement.................. 435
Section 101 of the Copyright Revision Act of 1976.... 435
Section 526 of the Tariff Act of 1930, as amended.... 436
Section 431 of the Tariff Act of 1930, as amended.... 438
6. Penalties (sections 592 and 592A of the Tariff Act of
1930, as amended)...................................... 440
7. National Customs Automation Program (sections 411-414
of the Tariff Act of 1930, as amended)................. 452
8. Commercial operations................................. 456
Section 9503(c) of the Omnibus Budget Reconciliation
Act of 1987........................................ 456
Section 301 of the Customs Procedural Reform and
Simplification Act of 1978, as amended............. 456
J. Foreign Trade Zones (Act of June 18, 1934, as amended).... 459
K. Implementation of the GATT Agreement on Trade in Civil
Aircraft................................................... 468
Title VI of the Trade Agreements Act of 1979............. 468
Section 234 of the Trade and Tariff Act of 1984.......... 469
General Note 6 of the Harmonized Tariff Schedule......... 470
Chapter 9: Trade remedy laws..................................... 473
A. Authorities to respond to foreign subsidy and dumping
practices.................................................. 473
1. Countervailing duties................................. 473
Section 753 of the Tariff Act of 1930, as amended.... 473
Section 261 (a)-(c) of the Uruguay Round Agreements
Act................................................ 477
Subtitle A of title VII (sections 701-709) of the
Tariff Act of 1930, as amended..................... 478
2. Antidumping duties (subtitle B of title VII (sections
731-739) of the Tariff Act of 1930, as amended)........ 501
3. Administrative review of antidumping and
countervailing duties (subtitle C of title VII
(sections 751, 752, 761, and 762) of the Tariff Act of
1930, as amended)...................................... 527
4. General provisions relating to antidumping and
countervailing duties (subtitle D of the VII (sections
771-782) of the Tariff Act of 1930, as amended)........ 540
5. Continued dumping and subsidies offset................ 597
6. Judicial and panel review of antidumping and
countervailing duty actions............................ 600
Section 516A of the Tariff Act of 1930, as amended... 600
Section 129 of the Uruguay Round Agreements Act...... 613
7. Third-country dumping (section 1317 of the Omnibus
Trade and Competitiveness Act of 1988)................. 616
8. Antidumping petitions by third countries (section 783
of the Tariff Act of 1930, as amended)................. 617
9. Antidumping Act of 1916............................... 618
B. Enforcement of United States rights under trade agreements
and response to certain foreign trade practices............ 621
Sections 301-310 of the Trade Act of 1974, as amended.... 621
Sections 281 and 282 of the Uruguay Round Agreements Act,
as amended............................................. 637
Section 307(b) of the Trade and Tariff Act of 1984....... 645
Foreign air transportation (section 2 of the
International Air Transportation Fair Competitiveness
Act of 1974, as amended, and the Federal Aviation Act
of 1958, as amended)................................... 646
Section 19 of the Merchant Marine Act of 1920, as amended 648
Section 10002 of the Foreign Shipping Practices Act of
1988................................................... 651
C. Unfair practices in import trade (section 337 of the
Tariff Act of 1930, as amended)............................ 654
D. Safeguard actions (sections 201-204 of the Trade Act of
1974, as amended).......................................... 662
E. Relief from market disruption by imports from Communist
countries (section 406 of the Trade Act of 1974, as
amended)................................................... 680
F. Relief from market disruption by imports from the People's
Republic of China.......................................... 682
G. Authority to auction import licenses (section 1102 of the
Trade Agreements Act of 1979).............................. 691
H. Trade adjustment assistance (chapters 2, 3, 4, and 5 title
II of the Trade Act of 1974, as amended)................... 691
I. Sections 401 and 408 of the Trade and Development Act of
2000....................................................... 724
Chapter 10: Other laws regulation imports........................ 727
A. Authorities to restrict imports of agricultural and
textile products........................................... 727
Section 204 of the Agricultural Act of 1956, as amended.. 727
Section 22 of the Agricultural Adjustment Act of 1933, as
amended................................................ 727
Tariff-rate quotas and safeguards (sections 404 and 405
of the Uruguay Round Agreements Act)................... 729
Reciprocal meat inspection requirement (section 20(h) of
the Federal Meat Inspection Act)....................... 732
Sugar tariff-rate quotas under headnote authority........ 732
Import prohibitions on certain agricultural commodities
under marketing orders (section 8e of the Agricultural
Adjustment Act, as amended)............................ 736
B. Authorities to restrict imports under certain
environmental laws......................................... 738
Marine Mammal Protection Act of 1972, as amended
(excerpts)............................................. 738
Section 9 of the Endangered Species Act of 1973, as
amended................................................ 753
Section 527 of the Tariff Act of 1930, as amended........ 757
Section 8 of the Fishermen's Protective Act of 1967, as
amended................................................ 762
High Seas Driftnet Fisheries Enforcement Act (excerpts).. 764
Sections 105 and 108 of the Wild Bird Conservation Act of
1992................................................... 769
Atlantic Tunas Convention Act of 1975, as amended
(excerpts)............................................. 771
Conservation of Sea Turtles.............................. 773
C. National security import restrictions (sections 232 and
233 of the Trade Expansion Act of 1962, as amended)........ 774
D. Balance of payments authority (section 122 of the Trade
Act of 1974)............................................... 777
E. Implementation of the GATT Agreement of Technical Barriers
to Trade (product standards) (title IV of the Trade
Agreements Act of 1979).................................... 780
F. Government procurement.................................... 790
1. Buy American requirements............................. 790
Buy American Act (title III of the Act of March 3,
1933, as amended).................................. 790
Section 833 of the Defense Production Act of 1950, as
amended............................................ 795
Act of October 29, 1949.............................. 795
2. Implementation of the GATT Agreement on Government
Procurement (Title III of the Trade Agreements Act
1979, as amended)...................................... 796
Chapter 11: Laws regulation export activities.................... 811
A. Export controls........................................... 811
Export Administration Act of 1979, as amended............ 811
B. Export financing and promotion............................ 821
1. Agriculture export sales and promotion................ 821
Agricultural Trade Development and Assistance Act of
1954, as amended (excerpts)........................ 821
Agricultural Trade Act of 1978, as amended (excerpts) 821
Section 1123 of the Food Security Act of 1985........ 826
2. Export promotion of goods and services................ 827
Sections 2303, 2306, and 2312 of the Export
Enhancement Act of 1988, as amended................ 827
Chapter 12: Authorities relating to political or economic
security....................................................... 833
A. Economic authorities in national emergencies.............. 833
International Emergency Economic Powers Act, as amended.. 833
Section 5(b) of the Trading With the Enemy Act, as
amended................................................ 837
B. Trade sanctions against uncooperative major drug producing
or drug-transit countires (Narcotics Control Trade Act).... 839
C. Economic sanctions against terrorism or missile
proliferation.............................................. 845
Sections 504 and 505 of the International Security and
Development Cooperation Act of 1985.................... 845
Section 73 of the Arms Export Control Act................ 846
D. Economic sanctions against chemical and biological weapons 848
Chemical and Biological Weapons Control and Warfare
Elimination Act of 1991................................ 848
Section 81 of the Arms Export Control Act................ 856
E. Embargo on trade with Cuba................................ 859
Section 620(a) of the Foreign Assistance Act of 1961, as
amended................................................ 859
Cuban Democracy Act of 1992 (title XVII of the National
Defense Authorization Act for Fiscal Year 1993)........ 860
Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of
1996 (excerpts)........................................ 867
F. Economic sanctions against Iraq, Iran, and Libya.......... 875
Iraq Sanctions Act of 1990 (sections 586-586J of the
Foreign Assistance and Related Programs Appropriation
Act, 1991) (excerpts).................................. 875
Iran-Iraq Arms Non-Proliferation Act of 1992 (title XVI
of the National Defense Authorization Act for Fiscal
Year 1993)............................................. 880
Compliance with United Nations sanctions against Iraq.... 883
Iran and Libya Sanctions Act of 1996..................... 884
G. United States-Hong Kong Policy Act of 1992................ 900
H. Restrictions on transport of merchandise by foreign
vessels (section 27 of the Merchant Marine Act, 1920, as
amended)................................................... 907
I. Authority to review certain mergers, acquisitions, and
takeovers (section 721 of the Defense Production Act of
1950, as amended).......................................... 910
Chapter 13: Reciprocal trade agreements.......................... 913
A. U.S. negotiating objectives............................... 913
Section 1101 of the Omnibus Trade and Competitiveness Act
of 1988................................................ 913
Section 1124 and 3004 of the Omnibus Trade and
Competitiveness Act of 1988............................ 918
Sections 131, 132, 135, and 315 of the Uruguay Round
Agreements Act, as amended............................. 919
Section 409 of the Trade and Development Act of 2000..... 922
Section 108 of the North American Free Trade Agreement
Implementation Act..................................... 924
B. General trade agreement and implementation authorities.... 926
1. ``Fast track'' auhority (expired) (sections 1102,
1103, 1105, and 1107 of the Omnibus Trade and
Competitiveness Act of 1988, as amended)............... 926
2. Uruguay Round/WTO implementation, tariff
modifications, and dispute settlement (sections 101(a),
102, 111(a, c, and e), and 121-130 of the Uruguay Round
Agreements Act......................................... 935
C. Specific trade agreement authorities...................... 951
1. Compensation authority (section 123 of the Trade Act
of 1974, as amended)................................... 951
2. Termination and withdrawal authority (section 125 of
the Trade Act of 1974)................................. 952
3. Accession of State trading regimes to the GATT or the
WTO (section 1106 of the Omnibus Trade and
Competitiveness Act of 1988, as amended)............... 954
4. GATT and WTO authorizations........................... 955
Section 121 of the Trade Act of 1974, as amended..... 955
Section 101(c) of the Uruguay Round Agreements Act... 956
D. Trade negotiation procedural requirements................. 956
Sections 131-134 of the Trade Act of 1974, as amended.... 956
Sections 127(a) and (b) of the Trade Act of 1974......... 959
E. Identification of, and action on, specific foreign trade
barriers................................................... 959
1. National trade estimates report (section 181 of the
Trade Act of 1974, as amended)......................... 959
2. Intellectual property rights (section 182 of the Trade
Act of 1974, as amended)............................... 961
3. Telecommunications trade (Telecommunications Trade Act
of 1988)............................................... 965
F. Normal Trade Relations (nondiscriminatory) treatment...... 974
1. NTR principle......................................... 974
Section 5003 of Public Law 105-206: Clarification of
Designation of Normal Trade Relations.............. 974
Section 251 of the Trade Expansion Act of 1962....... 975
Section 126(a) of the Trade Act of 1974.............. 975
Section 1103(a)(3) of the Omnibus Trade and
Competitiveness Act of 1988........................ 975
2. Trade relations with nonmarket economy countries...... 976
General note 3(b) of the Harmonized Tariff Schedule.. 976
Title IV of the Trade Act of 1974, as amended........ 976
Sections 1 and 2 of Public Law 102-182 (NTR treatment
for Hungary and Czechoslovakia).................... 982
Title I of Public Law 102-182 (NTR treatment for
Estonia, Latvia, and Lithuania).................... 983
Section 1 of Public Law 102-420 (NTR withdrawal from
Serbia and Montenegro)............................. 985
Public Law 104-162................................... 985
Public Law 104-171................................... 986
Public Law 104-203................................... 987
Section 2424 of Public Law 106-36.................... 988
Sections 301-302 of Public Law 106-200............... 989
Public Law 106-286................................... 990
Sections 3001-3002 of Public Law 106-476: Extension
of Nondiscriminatory Treatment to Georgia.......... 1006
G. Trade relations with North America (North American Free
Trade Agreement Implementation Act, as amended)............ 1007
H. Bilateral trade relations with Israel..................... 1071
Section 102(b)(1) of the Trade Act of 1974, as amended... 1071
Title IV of the Trade and Tariff Act of 1984, as amended. 1072
United States-Israel Free Trade Area Implementation Act
of 1985, as amended.................................... 1075
I. Bilateral trade relations with Canada..................... 1081
United States-Canada Free-Trade Agreement Implementation
Act of 1988, as amended................................ 1081
Automotive Products Trade Act of 1965, as amended........ 1107
General note 5 of the Harmonized Tariff Schedule......... 1116
Chapter 14: Organization of trade policy functions............... 1119
A. Congress.................................................. 1119
1. Congressional advisers (section 161 of the Trade Act
of 1974, as amended)................................... 1119
2. Reports to Congress................................... 1121
Sections 162 and 163 of the Trade Act of 1974, as
amended............................................ 1121
Section 2202 of the Omnibus Trade and Competitiveness
Act of 1988........................................ 1124
3. Congressional fast track procedures with respect to
presidential actions (sections 151-154 of the Trade Act
of 1974, as amended)................................... 1125
4. Trade agreement implementation authority and amendment
procedures............................................. 1133
Sections 111(b) and 115 of the Uruguay Round
Agreements Act..................................... 1133
Sections 103 and 104 of the North American Free Trade
Agreement Implementation Act....................... 1134
Sections 2(a) and 3(c) of the Trade Agreements Act of
1979............................................... 1135
B. Executive branch.......................................... 1137
1. Interagency trade organization........................ 1137
Section 242 of the Trade Expansion Act of 1962, as
amended............................................ 1137
Reorganization Plan No. 3 of 1979.................... 1138
Section 306 of the Trade and Tariff Act of 1984...... 1142
2. Office of the United States Trade Representative
(section 141 of the Trade Act of 1974, as amended)..... 1144
C. United States International Trade Commission.............. 1149
1. Organization, general powers, procedures.............. 1149
Sections 330, 331, 333-335, and 339 of the Tariff Act
of 1930, as amended................................ 1149
Section 603 of the Trade Act of 1974................. 1156
Section 175(a)(1) of the Trade Act of 1974........... 1157
2. Investigations (section 443 of the Tariff Act of 1930,
as amended)............................................ 1157
D. Private or public sector advisory committees (section 135
of the Trade Act of 1974, as amended)...................... 1159
APPENDIX
Descriptions of major regional and multilateral trade
organizations.................................................. 1165
World Trade Organization (WTO)............................... 1165
Organization for Economic Cooperation and Development (OECD). 1166
United Nations Conference on Trade and Development (UNCTAD).. 1166
World Customs Organization................................... 1167
European Union (EU).......................................... 1167
Asia-Pacific Economic Cooperation (APEC)..................... 1167
MERCOSUR..................................................... 1168
Association of Southeast Asian Nations (ASEAN)............... 1168
Cairns Group................................................. 1169
PART I: OVERVIEW
----------
Chapter 1: TARIFF AND CUSTOMS LAWS
Harmonized Tariff Schedule of the United States
Historical background
The Harmonized Tariff Schedule of the United States (HTS)
was enacted by subtitle B of title I of the Omnibus Trade and
Competitiveness Act of 1988 \1\ and became effective on January
1, 1989.\2\ The HTS replaced the Tariff Schedules of the United
States (TSUS), enacted as title I of the Tariff Act of 1930 (19
U.S.C. 1202) by the Tariff Classification Act of 1962; \3\ the
TSUS had been in effect since August 31, 1963.
---------------------------------------------------------------------------
\1\ Public Law 100-418, approved August 23, 1988.
\2\ Presidential Proclamation No. 5911, November 19, 1988.
\3\ Public Law 87-456, approved May 24, 1962.
---------------------------------------------------------------------------
The HTS is based upon the internationally adopted
Harmonized Commodity Description and Coding System (known as
the Harmonized System or HS) of the Customs Cooperation
Council. Incorporated into a multilateral convention effective
as of January 1, 1988, the HS was derived from the earlier
Customs Cooperation Council Nomenclature, which in turn was a
new version of the older Brussels Tariff Nomenclature. The HS
is an up-to-date, detailed nomenclature structure intended to
be utilized by contracting parties as the basis for their
tariff, statistical and transport documentation programs.
The United States did not adopt either of the two previous
nomenclatures but, because it was a party to the convention
creating the Council and because of the potential benefits from
using a modern, widely adopted nomenclature, became involved in
the technical work to develop the HS. Section 608(c) of the
Trade Act of 1974 \4\ directed the U.S. International Trade
Commission (ITC) to investigate the principles and concepts
which should underlie such an international nomenclature and to
participate fully in the Council's technical work on the HS.
The ITC, the U.S. Customs Service (which represents the United
States at the Council), and other agencies were involved in
this work through the mid and late 1970's; in 1981, the
President requested that the ITC prepare a draft conversion of
the U.S. tariff into the nomenclature format of the HS, even as
the international efforts to complete the nomenclature
continued. The Commission's report and converted tariff were
issued in June 1983. After considerable review and the receipt
of comments from interested parties, legislation to repeal the
TSUS and replace it with the HTS was introduced. Following the
August 23, 1988 enactment of the Omnibus Trade and
Competitiveness Act, the United States became a party to the HS
Convention, joining over 75 other major trading partners.
---------------------------------------------------------------------------
\4\ Public Law 93-618, approved January 3, 1975.
---------------------------------------------------------------------------
Structure of the HTS
Under the HS Convention, the contracting parties are
obliged to base their import and export schedules on the HS
nomenclature, but the rates of duty are set by each contracting
party. The HS is organized into 21 sections and 96 chapters,
with accompanying general interpretive rules and legal notes.
Goods in trade are assigned in the system, in general, to
categories beginning with crude and natural products and
continue in further degrees of complexity through advanced
manufactured goods. These product headings are designated, at
the broadest coverage level, with 4-digit numerical codes and
are further subdivided into narrower categories assigned 2
additional digits. The contracting parties must employ all 4-
and 6-digit provisions and all international rules and notes
without deviation; they may also adopt still narrower
subcategories and additional notes for national purposes, and
they determine all rates of duty. Thus, a common product
description and numbering system to the 6-digit level of detail
exists for all contracting parties, facilitating international
trade in goods. Two final chapters, 98 and 99, are reserved for
national use (chapter 77 is reserved for future international
use).
The HTS therefore sets forth all the international
nomenclature through the 6-digit level and, where needed,
contains added subdivisions assigned 2 more digits, for a total
of 8 at the tariff-rate line (legal) level. Two final (non-
legal) digits are assigned as statistical reporting numbers
where further statistical detail is needed (for a total of 10
digits to be listed on entries). Chapter 98 comprises special
classification provisions (former TSUS schedule 8), and chapter
99 (former appendix to the TSUS) contains temporary
modifications pursuant to legislation or to presidential
action.
Each section's chapters contain numerous 4-digit headings
(which may, when followed by 4 zeroes, serve as U.S duty rate
lines) and 6- and 8-digit subheadings. Additional U.S. notes
may appear after HS notes in a chapter or section. Most of the
general headnotes of the former TSUS appear as general notes to
the HTS set forth before chapter 1, along with notes covering
more recent trade programs (and the non-legal statistical
notes). These notes contain definitions or rules on the scope
of the pertinent provisions, or set additional requirements for
classification purposes. In addition, the HTS contains a table
of contents, an index, footnotes, and other administrative
material, which are provided for ease of reference and, along
with the statistical reporting provisions, have no legal
significance or effect.
The HTS is not published as a part of the statutes and
regulations of the United States but is instead subsumed in a
document produced and updated regularly by the ITC entitled
``Harmonized Tariff Schedule of the United States: Annotated
for Statistical Reporting Purposes.'' Changes in the TSUS
became so frequent and voluminous that its inclusion in title
19 of the United States Code effectively ceased with the 1979
supplement to the 1976 edition. The Commission is charged by
section 1207 of the 1988 Omnibus Trade and Competitiveness Act
(19 U.S.C. 3007) with the responsibility of compiling and
publishing, ``at appropriate intervals,'' and keeping up to
date the HTS and any related materials. The initial document
appeared as USITC Publication 2030. That document, and
subsequent issuances, have included both the current legal text
of the HTS and all statistical provisions adopted under section
484(f) of the Tariff Act of 1930 (19 U.S.C. 1484(f)). It is
presented as a looseleaf publication so that pages being issued
in supplements to modify the schedule's basic edition for any
year edition may be inserted as replacements. Two or more
supplements may appear between the publication of each basic
edition.
Unlike the TSUS, which applied exclusively to imported
goods, the HTS can, for almost all goods, be used to document
both imports and exports. The small number of exceptions
enumerated before chapter 1 require particular exports to be
reported under schedule B provisions. That schedule, which
prior to 1989 served as the means of reporting all exports, has
been converted to the HS nomenclature structure. For certain
goods that are significant U.S. exports, variations in the
desired product description and detail compel the use of
schedule B reporting provisions that cannot be accommodated in
the HTS under the international nomenclature structure.
The HTS, like its predecessor the TSUS, is presented in a
tabular format containing 7 columns, each with a particular
type of information. A sample page of the HTS is set forth on
the next page.
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (1997)
Annotated for Statistical Reporting Purposes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rates of duty
----------------------------------------------------------------------------------
Heading/ Stat. Article description Units of 1
subheading suffix quantity -------------------------------------------------------- 2
General Special
--------------------------------------------------------------------------------------------------------------------------------------------------------
7213 Bars and rods, hot-rolled, ..........................
in irregularly wound
coils, of iron or non
alloy steel:
7213.10.00 00 Concrete reinforcing kg............ 3.4% Free (E,IL,J) 20%
bars and rods.......... 0.4% (CA)
2.9% (MX)
7213.20.00 00 Other, of free-cutting kg............ 1.3% Free (E,IL,J) 5.5%
steel.................. 0.1% (CA)
1.1% (MX)
Other:..................
7213.91 Of circular cross ..........................
section measuring less
than 14 mm in
diameter:
7213.91.30 00 Not tempered, not kg............ 1.3% Free (E,IL,J) 5.5%
treated and not 0.1% (CA)
partly manufactured.. 1.1% (MX)
Other:
7213.91.45 00 Containing by weight kg............ 1.3% Free (E,IL,J) 5.5%
0.6 percent or more 0.1% (CA)
of carbon........... 1.1% (MX)
7213.91.60 00 Other................ kg............ 1.6% Free (E,IL,J) 6%
0.2% (CA)
1.3% (MX)
7213.99.00 Other.................. .............. 1.3% Free (E,IL,J) 5.5%
0.1% (CA)
1.1% (MX)
30 Of circular cross
section:
With a diameter of 14 kg
mm or more but less
than 19 mm..........
60 With a diameter of 19 kg
mm or more..........
90 Other................. kg
--------------------------------------------------------------------------------------------------------------------------------------------------------
The first column, entitled ``Heading/subheading,''
sets forth the 4-, 6-, or 8-digit number assigned to the
class of goods described to its right. It should be recalled
that 8-digit-level provisions bear the only numerical codes at
the legal level which are determined solely by the United
States, because the 4- and 6-digit designators are part of the
international convention.
The second column is labeled ``Stat. suffix,'' meaning
statistical suffix. Wherever a tariff rate line is annotated to
permit collection of trade data on narrower classes of
merchandise, the provisions adopted administratively by an
interagency committee under section 484(f) of the 1930 Act (19
U.S.C. 1484(f)) are given 2 more digits which must be included
on the entry filed with customs officials. Where no annotations
exist, 2 additional zeroes are added to the 8-digit legal code
applicable to the goods in question. The goods falling in all
10-digit statistical reporting numbers of a particular 8-digit
legal provision receive the same duty treatment.
The third column, ``Article description,'' contains the
detailed description of the goods falling within each tariff
provision and statistical reporting number.
In the fourth column, ``Units of quantity,'' the unit of
measure in which the goods in question are to be reported for
statistical purposes is set forth. These units are
administratively determined under section 484(f) of the Tariff
Act of 1930. In many instances, the unit of quantity is also
the basis for the assessment of the duty. For many categories
of products, two or three different figures in different units
must be reported (e.g., for some textiles, weight and square
meters; for some apparel, the number of garments, value, and
weight), with the second unit of quantity frequently being the
basis for administering a measure regulating imports, such as a
quota. If an ``X'' appears in this column, only the value of
the shipment must be reported.
The remaining columns appear under the common heading
``Rates of duty'' and are designated as column 1 (subdivided
into ``General'' and ``Special'' subcolumns) and column 2.
These columns contain the various rates of duty that apply to
the goods of the pertinent legal provision, depending on the
source of the goods and other criteria. Their application to
goods originating in particular countries is discussed below
under the heading ``Applicable duty treatment.''
A rate of duty generally has one of three forms: ad
valorem, specific or compound. An ad valorem rate of duty is
expressed in terms of a percentage to be assessed upon the
customs value of the goods in question. A specific rate is
expressed in terms of a stated amount payable on some quantity
of the imported goods, such as 17 cents per kilogram. Compound
duty rates combine both ad valorem and specific components
(such as 5 percent ad valorem plus 17 cents per kilogram).
Chapter 98 comprises special classification provisions
permitting, in specified circumstances, duty-free entry or
partial duty-free entry of goods which would otherwise be
subject to duty. The article descriptions in the provisions of
this chapter enunciate the circumstances in which goods are
eligible for this duty treatment. Some of the goods eligible
for such duty treatment include: articles reimported after
having been exported from the United States; goods subject to
personal exemptions (such as those for returning U.S.
residents); government importations; goods for religious,
educational, scientific, or other qualifying institutions;
samples; and, articles admitted under bond.
Chapter 99 contains temporary modifications of the duty
treatment of specified articles in the other chapters.
Additional duties and suspensions or reductions of duties
enacted by Congress are included, as are temporary
modifications (increases or decreases in duty rates) and import
restrictions (quotas, import fees, and so forth) proclaimed by
the President under trade agreements or pursuant to
legislation. Separate subchapters contain temporary special
duty treatment for certain goods of Canada or of Mexico
pursuant to the NAFTA. However, antidumping and countervailing
duties imposed under the authority of the Tariff Act of 1930,
as amended, are not included. These duties are announced in the
Federal Register.
Applicable duty treatment
Column 1--General.--The rates of duty appearing in the
``General'' subcolumn of column 1 of the HTS are imposed on
products of countries that have been extended most-favored-
nation (MFN) or non-discriminatory trade treatment by the
United States, unless such imports are claimed to be eligible
for treatment under one of the preferential tariff schemes
discussed below. The general duty rates are concessional and
have been set through reductions of full statutory rates in
negotiations with other countries, generally under the GATT.
Column 1--Special.--General Note 3 to the HTS sets forth
the special tariff treatment afforded to covered products of
designated countries or under specified measures. These
programs and the corresponding symbols by which they are
indicated in the ``Special'' subcolumn along with the
appropriate rates of duty are as follows:
Generalized System of Preferences [GSP] A or A*
Automotive Products Trade Act [APTA]... B
Agreement on Trade in Civil Aircraft C
[ATCA].
North American Free Trade Agreement:...
Goods of Canada...................... CA
Goods of Mexico...................... MX
Caribbean Basin Economic Recovery Act E or E*
[CBERA].
United States-Israel Free Trade Area... IL
Andean Trade Preference Act [ATPA]..... J or J*
The presence of one or more of these symbols indicates the
eligibility of the described articles under the respective
program. In the case of the GSP (when in effect), a symbol
followed by an asterisk indicates that, although the described
articles are generally eligible for duty-free entry, such
tariff treatment does not apply to products of the designated
beneficiary countries specified in General Note 4(d). In the
case of CBERA and the ATPA, the asterisk indicates that some of
the described articles are ineligible for duty-free entry.
These programs are discussed in greater detail below.
Column 2.--The column 2 rates of duty apply to products of
countries that have been denied MFN status by the United States
(see General Note 3(b)); these rates are the full statutory
rates, generally as enacted by the Tariff Act of 1930. (See
separate description of most-favored-nation treatment and HTS
General Note 3(b) for a list of countries subject to column 2
rates of duty.)
Special duty exemptions and preferences
Certain notable provisions in chapter 98 of the HTS grant
duty-free entry to various categories of American goods
returned from abroad and allow U.S. tourists to import foreign
articles free of duty. Other provisions in the general notes of
the HTS provide duty-free entry to imports from the U.S.
insular possessions, to imports of Canadian auto products under
the Automotive Products Trade Act, and to articles imported for
use in civil aircraft under the Agreement on Trade in Civil
Aircraft.
American goods returned (HTS subheading 9801.00.10).--
American goods not advanced or improved abroad may be returned
to the United States free of duty under HTS subheading
9801.00.10. The courts have interpreted this provision to allow
duty-free entry of American goods which had been exported for
sorting, separating (e.g., by grade, color, size, etc.),
culling out, and discarding defective items and repackaging in
certain containers, so long as the goods themselves were not
advanced in value or improved in condition while abroad.
American goods repaired or altered abroad (HTS subheading
9802.00.40).--HTS subheading 9802.00.40 provides that goods
exported from the United States for repairs or alterations
abroad are subject to duty upon their reimportation into the
United States (at the duty rate applicable to the imported
article) only upon the value of such repairs or alterations.
The provision applies to processing such as restoration,
renovation, adjustment, cleaning, correction of manufacturing
defects, or similar treatment that changes the condition of the
exported article but does not change its essential character.
The value of the repairs or processing for purposes of
assessing duties is generally determined, in accordance with
U.S. note 3 to subchapter II of chapter 98, by--
(1) the cost of the repairs or alterations to the
importer; or
(2) if no charge is made, the value of the repairs or
alterations, as set out in the customs entry.
However, if the customs officer finds that the amount shown in
the entry document is not reasonable, the value of the repairs
or alterations will be determined in accordance with the
valuation standards set out in section 402 of the Tariff Act of
1930, as amended.\5\
---------------------------------------------------------------------------
\5\ 19 U.S.C. 1401a.
---------------------------------------------------------------------------
American metal articles processed abroad (HTS subheading
9802.00.60).--HTS subheading 9802.00.60 provides that an
article of metal (except precious metal) which is exported from
the United States for processing abroad may be subject to duty
on the value of the processing only upon its return to the
United States. To qualify for this duty treatment, the exported
article (1) must have been manufactured or subjected to a
process of manufacture in the United States; and (2) must be
returned ``for further processing'' in the United States.
The term ``processing'' refers to such operations as
melting, molding, casting, machining, grinding, drilling,
tapping, threading, cutting, punching, rolling, forming,
plating, and galvanizing.
As in the case of articles imported under subheading
9802.00.40 (repairs or alterations), discussed above, the duty
on metal articles processed abroad is assessed against the
value of such processing, determined in accordance with U.S.
note 3 to subchapter II of chapter 98.
American components assembled abroad (HTS subheading
9802.00.80).--Articles assembled abroad from American-made
components may be exempt from duty on the value of such
components when the assembled article is imported into the
United States under HTS subheading 9802.00.80. This provision
enables American manufacturers of relatively labor-intensive
products to take advantage of low-cost labor and fiscal
incentives in other countries by exporting American parts for
assembly in such countries and returning the assembled products
to the United States, with partial exemption from U.S. duties.
Subheading 9802.00.80 applies to articles assembled abroad
in whole or in part of fabricated components, the product of
the United States, which--
(1) were exported in condition ready for assembly
without further fabrication;
(2) have not lost their physical identity in such
articles by change in form, shape, or otherwise; and
(3) have not been advanced in value or improved in
condition abroad except by being assembled and by
operations incidental to the assembly process such as
cleaning, lubricating, and painting.
The exported articles used in the imported goods must be
fabricated U.S. components, i.e., U.S.-manufactured articles
ready for assembly in their exported condition, except for
operations incidental to the assembly process. Integrated
circuits, compressors, zippers, and precut sections of a
garment are examples of fabricated components, but uncut bolts
of cloth, lumber, sheet metal, leather, and other materials
exported in basic shapes and forms are not considered to be
fabricated components for this purpose.
To be considered U.S. components, the exported articles do
not necessarily need to be fabricated from articles or
materials wholly produced in the United States. If a foreign
article or material undergoes a manufacturing process in the
United States resulting in its ``substantial transformation''
into a new and different article, then the component that
emerges may qualify as an exported product of the United States
for purposes of subheading 9802.00.80.
The assembly operations performed abroad can involve any
method used to join solid components together, such as welding,
soldering, gluing, sewing, or fastening with nuts and bolts.
Mixing, blending, or otherwise combining liquids, gases,
chemicals, food ingredients, and amorphous solids with each
other or with solid components is not regarded as
``assembling'' for purposes of subheading 9802.00.80.
The rate of duty that applies to the dutiable portion of an
assembled article is the same rate that would apply to the
imported article. The assembled article is also treated as
being entirely of foreign origin for purposes of any import
quota or similar restriction applicable to that class of
merchandise, and for purposes of country-of-origin marking
requirements. All requirements regarding labeling, radiation
standards, flame retarding properties, etc., that apply to
imported products apply equally to subheading 9802.00.80
merchandise.
An article imported under subheading 9802.00.80 is treated
as a foreign article for appraisement purposes. That is, the
full appraised value of the article must first be determined
under the usual appraisement provisions. The dutiable value,
however, is determined by deducting the cost or value of the
American-made fabricated components from the appraised value of
the assembled merchandise entered under subheading 9802.00.80.
Personal (tourist) exemption.--Subchapter IV of chapter 98
of the HTS sets forth various personal exemptions for residents
and non-residents that arrive in the United States from abroad.
The relevant customs regulations are set forth at 19 CFR 148 et
seq. In particular, HTS subheading 9804.00.65 provides that
U.S. residents returning from a journey abroad may import up to
400 dollars' worth of articles free of duty. The articles must
be for personal or household use and may include not more than
1 liter of alcoholic beverages, not more than 200 cigarettes
and not more than 100 cigars.
The technical amendment to the Balanced Budget Act of 1997
(Public Law 105-277) inadvertently removed the personal
exemption relating to domestically produced cigarettes re-
imported into the United States. As a result, travelers
bringing cigarettes puchased outside the United States did not
receive the personal exemption for these cigarettes (i.e., they
were not permitted to bring these cigarettes into the United
States). Section 4003 of the Tariff Suspension and Trade Act of
2000 (Public Law 106-476) re-instated that exemption.
Special rules provide increased duty-free allowances for
U.S. residents returning from U.S. insular possessions or from
beneficiary countries under the Caribbean Basin Economic
Recovery Act (CBERA) and under the Andean Trade Preference Act
(ATPA). An increased duty-free allowance of $1200 is provided
under HTS subheading 9804.00.70 for U.S. residents returning
from the U.S. insular possessions, and an increased duty-free
allowance of $600 is provided under HTS subheading 9804.00.72
for U.S. residents returning from beneficiary countries under
the CBERA and the ATPA. U.S. note 3 to chapter 98 provides
that, in addition to being exempt from customs duty, all such
articles are exempt from any internal revenue taxes as well.
The Tariff Suspension and Trade Act of 2000 (Public Law
106-476) provides for staged reductions of duty rates
applicable to merchandise accompanying persons entering the
United States, and merchandise from American Samoa, Guam, or
the U.S. Virgin Islands. Purchases for personal and household
use accompanying the returning traveler in excess of the $400
duty-free allowance had been subject to flat rate of duty of 10
percent, if the person claiming the benefit had not received
the benefit within the past thirty days. In addition, non-
commercial importations from U.S. insular possessions exceeding
$1200 (American Samoa, Guam, or the U.S. Virgin Islands) were
subject to a 5 percent rate of duty. This legislation provides
a staged reduction of the 10 percent duty-rate as follows: 5
percent effective January 1, 2000, 4 percent effective January
1, 2001, and 3 percent effective January 1, 2002. The
legislation also provides a staged reduction of the 5 percent
rate of duty for articles imported from American Samoa, Guam,
or the U.S. Virgin Islands as follows: 3 percent effective
January 1, 2000, 2 percent effective January 1, 2001, and 1.5
percent effective January 1, 2002.
The Miscellaneous Trade and Technical Corrections Act of
1996 (Public Law 104-295) amended the exemption from duty for
personal and household goods accompanying returning U.S.
residents. Section 321(a)(2)(B) of the Tariff Act of 1930
originally applied to returning residents arriving from foreign
countries other than the insular possessions. Due to a split in
tariff classification numbers, the tariff numbers applicable to
residents returning from a foreign country were inadvertently
dropped. The Miscellaneous Trade and Technical Corrections Act
of 1996 restored HTS number 9804.00.65 to correct the error and
allow the Customs Service to apply administrative exemptions
from duty for personal and household goods of returning
residents arriving from foreign countries other than insular
possessions. It ensures that U.S. residents returning from
foreign countries other than insular possessions are entitled
to bring articles for personal or household use free of duty,
if such articles are valued at not more than $400. The
provision was made retroactive to December 8, 1993, the date on
which the customs provisions within the NAFTA (Public Law 103-
182) became law.
In addition, the Miscellaneous Trade and Technical
Corrections Act of 1996 (Public Law 104-295) amended the
personal allowance exemption for merchandise purchased in duty-
free sales enterprises. Previously, under section 555(b)(6) of
the Tariff Act of 1930 (19 U.S.C. 1555(b)(6)), merchandise
purchased in duty-free sales enterprises which was brought back
to U.S. customs territory was not eligible for a duty-free
exemption under the personal allowance exemption for returning
U.S. residents. The Miscellaneous Trade and Technical
Corrections Act of 1996 amended section 555(b)(6) to make
merchandise purchased by returning U.S. residents in duty-free
enterprises eligible for a duty-free exemption under HTS
subheadings 9804.00.65, 9804.00.70, and 9804.00.72, if the
person meets the eligibility requirements of the exemption.
This provision does not apply in the case of travel involving
transit to, from, or through an insular possession of the
United States.
Duty-free treatment for personal effects of participants in
international sporting events.--The Miscellaneous Trade and
Technical Corrections Act of 1999 (Public Law 106-36) extended
until December 2002 duty-free treatment for the personal
effects of participants in, officials of, and accredited
members of delegations to certain international athletic events
held in the United States provided that these items are not
intended for sale or distribution in the United States. The
provision also exempted the articles covered under this
provision from taxes and fees and gave the Secretary of the
Treasury discretion to determine which athletic events,
articles, and persons are covered under this provision. The
Tariff Suspension and Trade Act of 2000 (Public Law 106-476)
made this exemption permanent under new HTS subheading
9817.60.00.
Products of U.S. insular possessions (General Note
3(a)(iv)).--Imports from the Virgin Islands, Guam, American
Samoa, Wake Island, Kingman Reef, Johnson Island, and Midway
Islands are entitled to duty-free entry under certain
conditions, designed to promote the economic development of
these U.S. insular possessions. This provision does not apply
to Puerto Rico, which is part of the ``customs territory of the
United States.''
As provided in General Note 3(a)(iv) of the HTS, an article
imported directly from a possession is exempt from duty if--
(1) it was grown or mined in the possession;
(2) it was produced or manufactured in the
possession, and the value of foreign materials
contained in that article does not exceed 70 percent of
its total value. Materials of U.S. origin are not
considered foreign for this purpose. Likewise,
materials that could be imported into the United States
duty free (except from Cuba or the Philippines) are not
counted as foreign materials for purposes of the 70
percent foreign-content limitation; or
(3) in the case of any article excluded from duty-
free entry under section 213(b) of the Caribbean Basin
Economic Recovery Act, it was produced or manufactured
in the possession, and the value of foreign materials
does not exceed 50 percent of its total value.
In addition, an article previously imported into the United
States with duty or tax paid thereon, shipped to a possession
without benefit of remission, refund, or drawback of such duty
or tax, may be returned to the United States duty free. General
Note 3(a)(iv) also provides that articles from insular
possessions are entitled to no less favorable duty treatment
than that accorded to eligible articles under the Generalized
System of Preferences and the Caribbean Basin Initiative
described below.
In applying the 70 percent foreign-materials test, Customs
determines the value of the foreign materials by their actual
purchase price, plus the transportation cost to the possession,
excluding any duties or taxes assessed by the possession and
excluding any post-landing charges. The value thus determined
is then compared with the appraised value of the products
imported into the United States, determined in accordance with
the usual appraisement methods. If the differential is 30
percent or more, the foreign materials limitation is satisfied.
This procedure is set out in 19 C.F.R. 7.8(d).
As previously noted, the product imported from a possession
must have been produced or manufactured there (unless grown or
mined there). It is not sufficient for foreign goods to be
shipped to a possession for nominal handling or manipulation,
followed by a price mark-up to meet the 70 percent test.
Extension of United States Insular Possession Program.--The
Miscellaneous Trade and Technical Corrections Act of 1999
(Public Law 106-36) (the Act) amended the U.S. notes to Chapter
71 by adding an additional U.S. Note 3. This amendment extends
to certain fine jewelry the same trade benefits enjoyed by
watch makers in U.S. insular possessions under the Production
Incentive Certificate (PIC) program. U.S. Note 5 allows
producers of watches located in U.S. insular possessions to
benefit from the PIC system, which permits watch producers to
import specified quantities of watches, watch movements, and
watch parts. The benefits provided under Note 5 are based on
the amount of wages paid to produce such watches in insular
possessions. New Note 3(a) permits the inclusion of wages paid
for jewelry production in the insular possessions as an offset
to duties paid on watches, watch movements, and watch parts
imported into the United States. Note 3(b) provides that the
extension of Note 5 benefits to jewelry may not result in any
increase in the authorized amount to benefits established by
Note 5, and Note 3 (c) prohibits diminishing of benefits that
had been available to watch poducers under paragraph (h)(iv) of
Note 5 to Chapter 91.
Canadian motor vehicles and original equipment entry
pursuant to the Automotive Products Trade Act of 1965 (APTA)
(General Note 5).--Throughout the HTS there are a number of
specific provisions which provide for duty-free entry of
imported motor vehicles and specified original equipment parts
that qualify as ``Canadian articles'' under General Note 5.
These provisions were added to the HTS pursuant to the
Automotive Products Trade Act of 1965,\6\ which was enacted to
implement the U.S.-Canadian Automotive Agreement. The purpose
of the Agreement was to create a North American common market
for motor vehicles and original equipment parts (replacement
parts are not covered).
---------------------------------------------------------------------------
\6\ Public Law 89-283, 19 U.S.C. 2001, et seq.
---------------------------------------------------------------------------
The term ``Canadian article'' refers to an article produced
in Canada but does not include any article produced with non-
Canadian or non-U.S. materials unless the article satisfies the
criteria set forth in the NAFTA (General Note 12).
Most of the product categories established by the APTA are
applicable to ``original motor-vehicle equipment,'' which is
defined in General Note 5(a)(ii) as a Canadian fabricated
component intended for use as original equipment in the
manufacture of a motor vehicle in the United States and which
was obtained from a Canadian supplier pursuant to ``a written
order, contract, or letter of intent of a bona fide motor-
vehicle manufacturer in the United States.'' The phrase ``bona
fide motor-vehicle manufacturer'' is defined as a person
determined by the Secretary of Commerce to have produced at
least 15 motor vehicles in the previous 12 months and to have
the capacity to produce at least 10 motor vehicles per week.
Civil aircraft products (ATCA) (General Note 6).--Title VI
of the Trade Agreements Act of 1979 gave the President the
authority to proclaim new headnote 3 to part 6C of schedule 6;
to make specific headnotes to designated TSUS items in order to
implement the Tokyo Round Agreement on Trade in Civil Aircraft;
and to provide duty-free treatment, in accordance with the
annex to the Agreement for the civil aircraft articles
described therein. These changes were implemented by
Presidential Proclamation 4707 of December 11, 1979. This duty
treatment is continued in the ``Special'' rates subcolumn of
the HTS.
The provisions work much like those implementing the APTA
in that a number of specific product breakouts are spread
throughout the HTS providing duty-free entry to specifically
described articles which are ``certified for use in civil
aircraft'' in accordance with General Note 6.
Section 234 of the Trade and Tariff Act of 1984 enacted on
October 30, 1984, gave the President the authority to make
additional tariff breakouts in designated TSUS items in order
to provide duty-free coverage comparable to the expanded
coverage provided by all other signatories to the Aircraft
Agreement pursuant to the extension of the annex to the
Agreement agreed to in Geneva on October 6, 1983. This duty
treatment has been continued in the ``Special'' rates subcolumn
of the HTS for the relevant articles.
The Miscellaneous Trade and Technical Corrections Act of
1996 (Public Law 104-295) significantly amended General Note 6.
The note now requires importers of duty-free civil aircraft
parts to maintain such supporting documentation as the
Secretary of the Treasury may require. Importers must also
certify that the imported article is a civil aircraft, or has
been imported for use in a civil aircraft and will be so used.
The importer may amend the entry or file a written statement to
claim duty-free treatment under General Note 6 at any time
before the liquidation of the entry becomes final, except that
any refund resulting from any such claim shall be without
interest.
The amendment to General Note 6 also changed the definition
of ``civil aircraft'' to mean any aircraft, aircraft engine, or
ground flight simulator (including parts, components, and
subassemblies thereof):
(A) that is used as original or replacement equipment
in the design, development, testing, evaluation,
manufacture, repair, maintenance, rebuilding,
modification, or conversion of aircraft; and
(B)(1) that is manufactured or operated pursuant to a
certificate issued by the Federal Aviation
Administration (FAA), or pursuant to the approval of
the airworthiness authority in the country of
exportation, if such approval is recognized by the FAA
as an acceptable substitute for an FAA certificate;
(2) for which an application for such certificate has
been submitted to, and accepted by, the FAA by an
existing type and production certificate holder; or
(3) for which an application for such approval or
certificate will be submitted in the future by an
existing type and production certificate holder,
pending the completion of design or other technical
requirements stipulated by the FAA. This section
applies only to quantities of parts, components, and
subassemblies as are required to meet the design and
technical requirements stipulated by the FAA. The
Commissioner of Customs may also require the importer
to estimate the quantities of parts, components, and
subassemblies covered under this section.
The term ``civil aircraft'' does not include any aircraft,
aircraft engine, or ground flight simulator purchased for use
by the Department of Defense or the U.S. Coast Guard, unless
such aircraft, aircraft engine, or ground flight simulator
satisfies the requirements outlined above.
Generalized System of Preferences (GSP)
TITLE V OF THE TRADE ACT OF 1974, AS AMENDED
The concept of a Generalized System of Preferences (GSP)
was first introduced in the United Nations Conference on Trade
and Development (UNCTAD) in 1964. Developing countries (LDCs)
asserted that one of the major impediments to accelerated
economic growth and development was their inability to compete
on an equal basis with developed countries in the international
trading system. Through tariff preferences in developed country
markets, the LDCs claimed they could increase exports and
foreign exchange earnings needed to diversify their economies
and reduce dependence on foreign aid.
After several international meetings and long internal
debate, in 1968 the United States joined other industrialized
countries in supporting the concept of GSP. As initially
conceived, GSP systems were to be (1) temporary, unilateral
grants of preferences by developed to developing countries; (2)
designed to extend benefits to sectors of developing country
economies which were not competitive internationally; and (3)
designed to include safeguard mechanisms to protect domestic
industries sensitive to import competition from articles
receiving preferential tariff treatment. In the early 1970's,
19 other members of the Organization for Economic Cooperation
and Development (OECD) also instituted and have since renewed
GSP schemes.
In order to implement their GSP systems, the developed
countries obtained a waiver from the most-favored-nation (MFN)
obligation of article I of the General Agreement on Tariffs and
Trade (GATT), which provides that trade must be conducted among
countries on a non-discriminatory basis. A 10-year MFN waiver
was granted in June 1971 and was made permanent in 1979 through
the ``enabling clause'' of the Texts Concerning a Framework for
the Conduct of World Trade concluded in the Tokyo Round of GATT
multilateral trade negotiations. The enabling clause, which has
no expiration date, provides the legal basis for ``special and
differential treatment'' for developing countries. The enabling
clause also requires that developing countries accept the
principle of graduation, under which such countries agree to
assume ``increased GATT responsibilities as their economies
progress.''
U.S. GSP basic authority
Statutory authority for the U.S. Generalized System of
Preferences program is set forth in title V of the Trade Act of
1974, as amended.\7\ Authority to grant GSP duty-free treatment
on eligible articles from beneficiary developing countries
(BDCs) became effective under that Act on January 3, 1975, for
a 10-year period expiring on January 3, 1985. The program was
actually implemented on January 1, 1976 under Executive Order
11888. Relatively minor amendments to the statute were made
under section 1802 of the Tax Reform Act of 1976 \8\ and
section 1111 of the Trade Agreements Act of 1979.\9\ Title V of
the Trade and Tariff Act of 1984 \10\ renewed the GSP program
for 8\1/2\ years until July 4, 1993, with significant
amendments effective on January 4, 1985, particularly with
respect to the criteria for designating beneficiary countries
and limitations on duty-free treatment.
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\7\ Public Law 93-618, approved January 3, 1975.
\8\ Public Law 94-455, approved October 4, 1976.
\9\ Public Law 96-39, approved July 26, 1979.
\10\ Public Law 98-573, title V, approved October 30, 1984.
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The GSP program was extended without amendment for 15
months, until September 30, 1994, by section 13802 of the
Omnibus Budget Reconciliation Act of 1993.\11\ The program was
again extended without amendment for 10 months, until July 31,
1995, by section 601 of the Uruguay Round Agreements Act.\12\
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\11\ Public Law 103-66, approved August 10, 1993.
\12\ Public Law 103-465, approved December 8, 1994.
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Subtitle J of title I of the Small Business Jobs Protection
Act of 1996 renewed the GSP program for 1 year and 10 months,
through May 31, 1997, with amendments effective October 1,
1996. This law also revised and reorganized title V.\13\ An
additional technical change was made by the Miscellaneous Trade
and Technical Corrections Act of 1996.\14\ Section 1011 of the
Omnibus Appropriations Bill for Fiscal Year 1999 (Public Law
105-277) extended to program through June 30, 1999, and section
508 of the Ticket to Work and Work Incentives Improvement Act
of 1999 (Public Law 106-170) extended it through September 30,
2001. The Africa Growth and Opportunity Act, signed into law by
the President on May 18, 2000 (Public Law 106-200) extended
regular and enhanced GSP benefits through September 30, 2008,
for eligible countries in sub-Saharan Africa.
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\13\ Public Law 104-188, approved August 20, 1996.
\14\ Public Law 104-295, approved October 11, 1996.
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The U.S. Trade Representative (USTR) administers the GSP
program and makes recommendations to the President through an
interagency committee that conducts annual reviews under
regulatory procedures of petitions by interested parties and
self-initiated actions to add or remove GSP eligibility for
individual products or countries.
Section 501 of the Trade Act of 1974, as amended,
authorizes the President to provide GSP duty-free treatment on
any eligible article from designated beneficiary developing
countries, subject to certain conditions and limits, having due
regard for (1) the effect of such action on furthering the
economic development of developing countries through the
expansion of their exports; (2) the extent other major
developed countries are undertaking a comparable effort to
assist developing countries by granting generalized preferences
on their products (i.e., burden-sharing); (3) the anticipated
impact on U.S. producers of like or directly competitive
products; and (4) the extent of the BDC's competitiveness with
respect to eligible articles. In 1999, the program provided
duty-free treatment on imports valued at about $13.7 billion
from 146 designated developing countries and territories.
Designation of beneficiary developing countries
Section 502 of the Trade Act of 1974 authorizes the
President to designate a country or territory as a BDC. It also
authorizes the President to designate any BDC as a least-
developed beneficiary developing country (LDBDC). However, the
President is expressly prohibited from designating the
following developed countries as BDCs:
Australia Japan
Canada Monaco
European Union New Zealand
member states Norway
Iceland Switzerland
The President is also prohibited from designating any
country for GSP benefits which:
(1) is a communist country unless (a) its products
receive non-discriminatory (MFN) treatment; (b) it is a
WTO member and a member of the International Monetary
Fund (IMF); and (c) it is not dominated or controlled
by international communism;
(2) is party to an arrangement and participates in
any action which withholds supplies of vital commodity
resources or raises their price to unreasonable levels,
causing serious disruption of the world economy;
(3) affords ``reverse preferences'' to other
developed countries which have or are likely to have a
significant adverse effect on U.S. commerce;
(4) has nationalized or expropriated U.S. property,
including patents, trademarks, or copyrights, or taken
actions with similar effect, unless the President
determines and reports to Congress there is adequate
and effective compensation, negotiations underway to
provide compensation, or a dispute over compensation is
in arbitration;
(5) fails to recognize as binding or to enforce
arbitral awards in U.S. favor;
(6) aids or abets by granting sanctuary from
prosecution to, any individual or group which has
committed international terrorism, or is the subject of
a determination by the Secretary of State under section
6(j)(1)(A) of the Export Administration Act of 1979 (50
U.S.C. app. 2405) regarding repeated support for
terrorism; or
(7) has not taken or is not taking steps to afford
internationally recognized workers rights to its
workers.\15\
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\15\ Defined by amendment under section 503 of the 1984 Act for
purposes of GSP to include:
``(A) the right to association;
``(B) the right to organize and bargain collectively;
``(C) a prohibition on the use of any form of forced or compulsory
labor;
``(D) a minimum age for the employment of children; and
``(E) acceptable conditions of work with respect to minimum wages,
hours of work, and occupational safety and health''.
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The President may waive conditions (4), (5), (6), and (7),
if he determines and reports with reasons to the Congress that
designation of the particular country is in the national
economic interest. Section 412 of the Trade and Development Act
of 2000 (Public Law 106-200) added a new eligibility criterion
to this list which prohits the President from designating a
country for GSP benefits if it has not implemented its
commitments to eliminate the worst forms of child labor.
In addition, the President must take certain other factors
into account under section 502(c) in designating BDCs: (1) an
expressed desire of the country to be designated; (2) the
country's level of economic development; (3) whether other
major developed countries extend GSP to the country; (4) the
extent the country has assured the United States it will
provide ``equitable and reasonable access'' to its markets and
basic commodity resources and refrain from engaging in
unreasonable export practices; (5) the extent the country is
providing adequate and effective means under its laws for
foreign nationals to secure, exercise, and enforce exclusive
rights in intellectual property; (6) the extent the country has
taken action to reduce trade distorting investment practices
and policies and reduce or eliminate barriers to trade in
services; and (7) whether the country has taken or is taking
steps to afford its workers internationally-recognized worker
rights.
If the President determines that a BDC has become a ``high
income'' country as defined by the World Bank, the President is
required to remove the country from eligibility under the
program. The statute provides for a transition period of up to
2 years for country graduation from the GSP program. In 1994
the World Bank designated countries with a per capita GNP of
approximately $8,600 as ``high income'' countries.
Before designating any country as a BDC, the President must
notify the Congress of his intention and the considerations
entering into the decision. Before terminating designation of
any beneficiary, the President must provide the Congress and
the country concerned at least 60 days advance notice of his
intention, together with the reasons. The President must
withdraw or suspend the designation if he determines the
country no longer meets the conditions for designation.
The countries currently designated as BDCs of GSP are
listed under General Note 4(a) of the Harmonized Tariff
Schedule of the United States (HTS). Countries designated as
LDBDCs are listed under General Note 4(b). On March 21, 1995,
the President notified Congress of his determination to
designate the West Bank and Gaza Strip as a beneficiary
country.\16\
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\16\ Message from the President of the United States transmitting
notification of his intent to add the West Bank and Gaza Strip to the
list of beneficiary developing countries under the Generalized System
of Preferences (GSP), pursuant to 19 U.S.C. 2462(a), House Document
104-47, March 21, 1995.
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On June 30, 1999, pursuant to section 502 of the Trade Act
of 1974, President Clinton designated Gabon and Mongolia as
beneficiary developing countries for purposes of GSP. He futher
determined, pursuant to section 502, that GSP benefits for
Mauritania, which were suspended on June 25, 1993, should be
reinstated.\17\ On August 27, 2000, pursuant to sections 501
and 502, President Clinton designated Nigeria as a beneficiary
country.\18\
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\17\ Presidential Proclamation No. 7206, June 30, 1999, 64 Fed.
Reg. 36229-36231.
\18\ Presidential Proclamation No. 7335, August 27, 2000, 65 Fed.
Reg. 52903.
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Eligible articles
The President designates articles under section 503
eligible for GSP duty-free treatment after considering advice
required through public hearings, from the U.S. International
Trade Commission (ITC) on the probable domestic economic
impact, and from executive branch agencies.
In general, GSP duty-free treatment is prohibited by
statute on textile and apparel articles which were not eligible
articles on January 1, 1994; watches, except those watches
entered after June 30, 1989, that the President specifically
determines, after public notice and comment, will not cause
material injury to watch or watch band, strap, or bracelet
manufacturing and assembly operations in the United States or
U.S. insular possessions; \19\ import-sensitive electronic
articles; import-sensitive steel articles; footwear, handbags,
luggage, flat goods (e.g., wallets, change purses, eyeglass
cases), work gloves, and leather wearing apparel which were
ineligible for GSP as of January 1, 1995; and import-sensitive
semi-manufactured and manufactured glass products. The
President must also exclude any other articles he determines to
be import sensitive in the context of GSP. Articles are
ineligible for GSP during any period they are subject to import
relief under sections 201-204 of the Trade Act of 1974 or to
national security actions under section 232 of the Trade
Expansion Act of 1962. Also, no quantity of an agricultural
product subject to a tariff-rate quota that exceeds the in-
quota quantity may be eligible for duty-free treatment under
GSP.
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\19\ This amendment was made by section 1903 of the Omnibus Trade
and Competitiveness Act of 1988, Public Law 100-418, approved August
23, 1988.
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The President may designate any article that is the growth,
product or manufacture of an LDBDC as an eligible article with
respect to LDBDCs after receiving advice from the ITC, if he
determines such an article is not import-sensitive in the
context of imports from LDBDCs. However, he may not designate
the statutorily exempt articles--textiles and apparel, footwear
and related articles, and watches. The President must notify
Congress at least 60 days in advance of LDBDC designations.
The USTR has established by regulation an interagency
procedure for annual review of petitions from any interested
party to have articles added to, or removed from, the GSP
eligible list. The interagency committee also considers
modifications on its own motion. However, section 503 prohibits
consideration of an article for designation of eligibility for
3 years following formal consideration and denial of that
article.
GSP duty-free treatment applies only to an eligible article
which is the growth, product, or manufacture of a BDC (i.e.,
has undergone ``substantial transformation'' in an exporting
BDC) \20\ and which meets the following rule-of-origin
requirements:
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\20\ An amendment made by section 226 of the Caribbean Basin
Economic Recovery Act of 1990, Public Law 101-382, title II, approved
August 20, 1990, 19 U.S.C. 2463(b), conformed GSP rules to treatment
under the Caribbean Basin Initiative.
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(1) the article must be imported directly from a BDC
into the U.S. customs territory; and
(2) the sum of (a) the cost or value of materials
produced in a beneficiary country, plus (b) the direct
cost of processing performed in such country is not
less than 35 percent of the appraised value of the
article when it enters into the U.S. customs territory.
Materials and processing costs in two or more beneficiary
countries which are members of the same association of
countries which is a customs union or free trade area may be
treated as one BDC and cumulated to meet the 35 percent minimum
local content. Materials imported into a BDC may be counted
toward the 35 percent minimum valued-added requirement only if
they are substantially transformed into new and different
articles in the BDC, before they are incorporated into the GSP
eligible article.
Treatment of sugar imports under GSP
Under the tariff-rate quota system for sugar,\21\ the
Secretary of Agriculture establishes the quota quantity that
can be entered at the lower tier import duty rate, and the U.S.
Trade Representative (USTR) allocates the quantity among sugar
exporting quantities. The quantities allocated to beneficiary
countries under the Generalized System of Preferences receive
duty-free treatment. Imports above the in-quota amount from
beneficiary countries are tariffed at the higher, over-quota
rate. Certificates of quota eligibility (CQE) are issued to the
exporting countries and must be returned with the shipment of
sugar in order to receive quota treatment.
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\21\ Presidential Proclamation No. 6763, December 23, 1994, 60 Fed.
Reg. 1007.
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Limitations on preferential treatment
The President has general authority under section 503(c) to
withdraw, suspend, or limit application of GSP and restore
column 1 normal trade relations (NTR) or most-favored-nation
(MFN) duties with respect to any article or any country after
considering the factors in sections 501 and 502(c), but he
cannot establish any intermediate rates of duty. Since 1981,
this authority has been used in the context of the annual
interagency review process for ``discretionary graduation''
from GSP of particular products from particular countries which
have demonstrated their competitiveness and to promote a
shifting of benefits to less advanced developing countries.
Pursuant to the authority of this section, the President on
January 29, 1988, notified the Congress of his intention to
remove Hong Kong, the Republic of Korea, Singapore, and Taiwan
from their status as beneficiaries under the GSP program,\22\
effective on January 2, 1989. Removal from GSP status was based
on the President's assessment that these four BDCs had
``achieved an impressive level of economic development and
competitiveness, which can be sustained without the preferences
provided by the program.'' Similarly, on October 17, 1996, the
President made a determination that Malaysia was ``sufficiently
advanced in economic development and improved trade
competitiveness'' and that designation of Malaysia as a
beneficiary developing country would be terminated efffective
January 1, 1997.\23\ Pursuant to 502(e) of the Act the
President also determined on October 17, 1996, that Cyprus,
Aruba, Macau, the Netherlands Antilles, Greenland, and the
Cayman Islands meet the definition of a ``high income'' country
as defined by official statistics of the World Bank,
terminating preferential treatment under GSP for imports from
these countries effective January 1, 1998. \24\
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\22\ Message from the President of the United States transmitting
notification of his intent to remove Hong Kong, the Republic of Korea,
Singapore, and Taiwan from the list of beneficiary developing countries
under the Generalized System of Preferences (GSP), pursuant to 19
U.S.C. 2462(a), House Document 100-162, February 1, 1988.
\23\ Presidential Proclamation No. 6942, October 17, 1996, 61 Fed.
Reg. 54719.
\24\ Ibid.
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On July 6, 2000, Clinton proclaimed that according to
section 502(e), Malta, French Polynesia, New Caledonia, and
Slovenia meet the definition of ``high income'' countries as
defined by the official statistics of the International Bank
for Reconstruction and Development. Therefore, he terminated
the preferential treatment under the GSP for articles that are
currently eligible for such treatment from these countries,
effective January 1, 2002. On July 6, 2000, President Clinton
announced the suspension of Belarus's GSP benefits ``because it
has not taken and is not taking steps to afford workers in that
country internationally recognized worker rights.'' \25\
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\25\ Presidential Proclamation No. 7328, July 6, 2000, 65 Fed. Reg.
42595-42596.
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In addition to the annual review of petitions on article or
country eligibility, section 503(c) establishes statutory
``competitive need'' limitations on GSP duty-free treatment,
subject to waiver under certain conditions. The basic purposes
of the competitive need limitations are to (1) establish a
benchmark for determining when products from particular
countries are competitive in the U.S. market and therefore no
longer warrant preferential tariff treatment; and (2) to
reallocate GSP benefits to less competitive producing
countries. The limits have also provided some measure of import
protection to domestic producers of like or directly
competitive products.
Under the competitive need limits, if imports of a
particular article from a particular BDC exceed either (1) a
value level adjusted annually (in calendar year 1996, $75
million, and in each subsequent year, the amount for the
preceding year plus $5 million); or (2) 50 percent of total
U.S. imports of the article in a particular calendar year, GSP
treatment on that article from that country must be removed and
the normal rate of duty imposed on all imports of the article
from that country by July 1 of the following year. GSP
treatment may be reinstated in a subsequent calendar year if
imports of the product from the excluded country have fallen
below the competitive need ceilings then in effect during the
preceding calendar year.
There are four statutory circumstances in which competitive
need limits may not apply:
(1) If the President determines that an article like
or directly competitive with a particular GSP article
was not produced in the United States on January 1,
1995, then that article is exempt from the 50-percent,
but not the dollar value, competitive need limit.
(2) The President may waive the 50-percent, but not
the dollar, competitive need limit on articles for
which total U.S. imports are de minimis, i.e., not more
than $13 million in calendar year 1996, and in each
subsequent year, the amount for the preceding year plus
$500,000.
(3) Neither of the competitive need limits applies to
any BDC the President determines to be a least
developed developing country.
(4) The President may waive the competitive need
limits for a particular country based on a
determination that (a) there has been an historical
preferential trade relationship between the United
States and such country; (b) there is a treaty or trade
agreement in force covering economic relations between
such country and the United States; and (c) such
country does not discriminate against or impose
unjustifiable or unreasonable barriers to U.S.
commerce. This waiver authority, which was designed for
possible exemption of the Philippines, has never been
utilized.
The President may waive competitive need limits on any
article if he (1) receives ITC advice on whether any U.S.
industry is likely to be adversely affected; (2) determines a
waiver is in the national economic interest based upon the
country designation factors under sections 501 and 502(c) as
amended; and (3) publishes his determination. In making the
national interest determination the President must give great
weight to (1) assurances of equitable and reasonable market
access in the BDC; and (2) the extent the country provides
adequate and effective intellectual property rights protection.
Total waivers for all countries above existing competitive need
limits cannot exceed 30 percent of total GSP duty-free imports
in any year, of which not more than one-half (i.e., 15 percent
of total GSP duty-free imports) may apply to waivers on
articles from countries which account for at least a 10-percent
share of total GSP duty-free imports or have a per capita GNP
of $5,000 or more in that year.
Other provisions
Section 504 requires the President to submit an annual
report to the Congress on the status of internationally-
recognized worker rights within each BDC, including the
findings of the Secretary of Labor with respect to each BDC's
implementation of its international commitments to eliminate
the worst forms of child labor.
Section 506 requires appropriate U.S. agencies to assist
BDCs to develop and implement measures designed to assure that
the agricultural sectors of their economies are not directed to
export markets to the detriment of foodstuff production for
their own citizens.
Caribbean Basin Initiative (CBI)
The Caribbean Basin Economic Recovery Act (CBERA),\26\
commonly referred to as the Caribbean Basin Initiative or CBI,
was enacted on August 5, 1983, authorizing the grant of certain
U.S. unilateral preferential trade and tax benefits for
Caribbean Basin countries and territories.
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\26\ Public Law 98-67, title II, approved August 5, 1983, 19 U.S.C.
2701 et seq.
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The centerpiece of the CBI is authority granted to the
President to provide unilateral duty-free treatment on U.S.
imports of eligible articles from designated Caribbean Basin
countries and territories. Duty-free treatment became effective
as of January 1, 1984, and currently applies to imports from 24
designated beneficiary countries or territories.\27\
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\27\ Anguilla, Cayman Islands, Suriname, and the Turks and Caicos
Islands are not currently designated; Aruba, originally part of the
Netherlands Antilles, is designated separately.
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The United States developed this program for responding to
the economic crisis in the Caribbean in close consultation with
governments and private sectors of potential recipients and
with other donor countries in the region. On February 24, 1982,
President Reagan outlined the CBI before the Organization of
American States and on March 17, 1982, he first submitted this
plan to the Congress. H.R. 7397, containing amended versions of
the trade and tax proposals, was passed by the House of
Representatives in the 97th Congress on December 17, 1982, but
was not acted on by the Senate. The President resubmitted the
House-passed version of the plan on February 23, 1983; the
Initiative as further amended became title II of the conference
report on H.R. 2973, to repeal the withholding of tax from
interest and dividends, agreed to by both Houses on July 28,
1983. Separate foreign assistance legislation increased aid to
the region as the third element of the program.
Following extensive congressional consideration and
consultations with representatives of the countries involved
and U.S. private sector interests on measures to improve the
program, the Caribbean Basin Economic Recovery Expansion Act of
1990, so-called CBI II, was enacted as title II of the Customs
and Trade Act of 1990.\28\ CBI II amended the CBERA to make the
trade benefits permanent by repealing the 12-year September 30,
1995, termination date and to make certain improvements in the
trade and tax benefits. The Act also included measures to
promote tourism and created a scholarship assistance program
for the region.
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\28\ Public Law 101-382, title II, approved August 20, 1990.
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Caribbean Basin Trade Partnership Act
Based on the success of the CBI program and in response to
the devastation caused to the region by Hurricanes Georges and
Mitch in September and October of 1998, H.R. 984, the Caribbean
and Central American Relief and Economic Stabilization Act, a
bill to grant NAFTA parity to nations in the Caribbean Basin
was introduced on March 9, 1999. It was approved by the Ways
and Means Committee on March 31, 2000. No further action on
H.R. 984 was taken in the House.
On June 22, 1999, the Senate Committee on Finance
considered draft legislation reported titled ``The United
States-Caribbean Basin Trade Enhancement Act.'' The provisions
in this version marked up by the Committee on Finance differed
from the trade provisions in H.R. 984, as approved by the
Committee on Ways and Means, by requiring that imports of
apparel products from the Caribbean Basin region qualifying for
duty-free and quota free entry be made of fabric of U.S.
origin.
On November 3, 1999, the Senate passed H.R. 434, the
African Growth and Opportunity Act, as amended, by a vote of
76-19. During Senate consideration of the bill, the text of S.
1389, ``The United States-Caribbean Basin Trade Enhancement
Act,'' was added as an amendment. The House passed the
conference report on H.R. 434 by a vote of 309-110 on May 4,
2000. The Senate passed the conference report by a vote of 77-
19 on May 11, 2000. On May 4, 2000, the conference report on
H.R. 434 was filed (H. Rept. 106-606), and the bill was signed
into law on May 18, 2000 (P.L. 106-200).
The new legislation, entitled the Caribbean Basin Trade
Partnership Act (CBTPA), builds on the Caribbean Basin Economic
Recovery Act and extends additional trade benefits through
2008. The CBTPA, an enhanced CBI program covering more
products, in based on the view that economic recovery in the
region will be achieved most effectively by creating
opportunities to expand international trade. Likewise, the
success of the original CBI program indicates that increasing
international trade with the CBI regions will also promote the
growth of United States exports, decrease illegal immigration,
and improve regional cooperation in efforts to fight drug
trafficking. Finally, CBTPA is intended to foster increased
opportunities for U.S. companies in the textile and apparel
sector to expand co-production arrangements with countries in
the CBI region, thereby sustaining and preserving manufacturing
operations in the United States that would otherwise be
relocated to the Far East.
In general, the CBTPA extends NAFTA declining or duty-free
tariff treatment to several categories of goods excluded from
the CBI. With respect to apparel products, the CBTPA extends
duty-free benefits to: (1) apparel made in the Caribbean Basin
from U.S. yarn and fabric; (2) knit apparel made in CBI from
regional fabric made with U.S. yarn and to knit-to-shape
apparel (except socks), up to a cap of 250 million square meter
equivalents, with a growth riate of 16% per year for the first
three years, and (3) an additional category of regional knit
apparel products up to a cap a 4.2 million dozen, growing 16%
per year for the first three years.
The CBTPA requires that eligible countries implement
Customs procedures to guard against transshipment.\29\ Under a
``one strike and you are out'' provision, if an exporter is
determined to have engaged in illegal transhipment of textile
and apparel products from a CBI country, the President is
required to deny all benefits under the bill to that exporter
for a period of two years.
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\29\ Presidential Proclamation 7351 of October 10, 2000 (65 Fed.
Reg. 60,236, October 4, 2000) designated Belize, Costa Rica, Dominican
Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Nicaragua,
and Panama as countries that USTR has determined implement and follow
or are making substantial progress toward implementing and following,
the customs procedures required by the CBTPA and, therefore, are
eligible for enhanced apparel benefits provided under the Act.
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Beneficiary countries or territories
Section 212 of the CBERA lists the following 27 countries
and territories as potentially eligible for designation by the
President as CBI beneficiary countries:
Anguilla Guatemala
Antigua and Barbuda Guyana
Bahamas, The Haiti
Barbados Honduras
Belize Jamaica
Cayman Islands Montserrat
Costa Rica Netherlands Antilles
Dominica Nicaragua
Dominican Republic Panama
El Salvador Saint Christopher and Nevis
Grenada Saint Lucia
Saint Vincent and the Trinidad and Tobago
Grenadines Turks and Caicos Islands
Suriname Virgin Islands, British
The countries currently designated as CBI beneficiaries are
listed under General Note 7 of the Harmonized Tariff Schedule
of the United States.
General Designation Criteria
On October 2, 2000, USTR designated all 24 current
beneficiaries under the CBERA as ``CBTPA'' beneficiary
countries.\30\ As noted above, ten countries receive enhanced
apparel benefits.
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\30\ 65 Fed. Reg. 60,236.
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Section 212(b) of the CBERA, as amended, prohibits the
President from designating a country or territory as a
beneficiary of CBI trade or tax benefits if it:
(1) is a Communist country;
(2) has nationalized or expropriated U.S. property,
including any patent, trademark, or other intellectual
property, or taken actions with similar effect, without
compensation or submission to arbitration;
(3) fails to recognize or enforce awards arbitrated
in favor of U.S. citizens;
(4) affords preferential tariff treatment to products
of other developed countries that has or is likely to
have a significant adverse effect on U.S. commerce;
(5) broadcasts U.S. copyrighted material without the
owners' consent;
(6) has not signed an extradition agreement with the
United States; and
(7) has not or is not taking steps to afford
internationally-recognized worker rights (as defined
for the Generalized System of Preferences program) to
workers in the country (including any designated zone
in that country).
The President may waive conditions (1), (2), (3), (5), and
(7) if he determines that designation of the particular country
would be in the national economic or security interest of the
United States and so reports to the Congress.
In addition, the President must take into account certain
other factors under section 212(c) in determining whether to
designate a country a CBI beneficiary: (1) the country's
expressed desire to be designated; (2) economic conditions and
living standards in the country; (3) the extent the country has
assured the United States it will provide equitable and
reasonable access to its markets and basic commodity resources;
(4) the degree the country follows accepted rules of
international trade under the World Trade Organization and
applicable trade agreements; (5) the degree the country uses
export subsidies or imposes export performance or local content
requirements; (6) the degree the country's trade policies
contribute to regional revitalization; (7) the degree the
country is undertaking self-help measures; (8) whether or not
the country has taken or is taking steps to afford its workers
(including in any designated zone of the country)
internationally-recognized worker rights; (9) the extent the
country provides adequate and effective means under its law for
foreign nationals to secure, exercise, and enforce exclusive
rights in intellectual property; (10) the extent the country
prohibits its nationals from broadcasting U.S. copyrighted
materials without permission; and (11) the extent to which the
country is prepared to cooperate in the administration of the
CBI. The President must notify the Congress of his intention to
designate countries, together with the considerations entering
the decision.
The President may later withdraw or suspend the designation
of any country as a beneficiary country or withdraw, suspend,
or limit the application of duty-free treatment for any
eligible article of any country if he determines that, based on
changed circumstances, such country would be barred from
designation under the criteria set forth in subsection (b) of
section 212.\31\ The President is required to publish at least
30 days advance notice of such proposed action in the Federal
Register. During the 30-day notice period, USTR is required to
hold a public hearing and accept public comments on the
proposed action.
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\31\ Section 1909 of the Omnibus Trade and Competitiveness Act
(Public Law 100-418).
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The President must submit a complete report to the Congress
by October 1, 1993, and every 3 years thereafter regarding the
operation of the CBI. This report must include general reviews
of CBI beneficiary countries based upon all section 212
designation criteria.
Designation Criteria for CBTPA Benefits
In designating a country as eligible for the enhanced CBTPA
benefits, the President is to take into account the existing
eligibility criteria established under CBERA, as well other
appropriate criteria, including whether a country has
demonstrated a commitment to undertake its WTO obligations and
participate in negotiations toward the completion of the FTAA
or comparable trade agreement, the extent to which the country
provides intellectual property protection consistent with or
greater than that afforded under the Agreement on Trade-Related
Aspects of Intellectual Property Rights, the extent to which
the country provides internationally recognized worker rights,
whether the country has implemented its commitments to
eliminate the worst form of child labor, the extent to which a
country has taken steps to become a party to and implement the
Inter-American Convention Against Corruption, and the extent to
which the country applies transparent, nondiscriminatory and
competitive procedures in government procurement equivalent to
those included in the WTO Agreement on Government Procurement
and otherwise contributes to efforts in international fora to
develop and implement international rules in transparency in
government procurement.
Eligible articles
CBI duty-free treatment under section 213(a) of the CBERA
applies only to articles which meet three rule-of-origin
requirements:
(1) The article must be imported directly from a
beneficiary country into the U.S. customs territory;
(2) The article must contain a minimum 35 percent
local content of one or more beneficiary countries (up
to 15 percent of the total value of the article from
U.S.-made materials may count toward the 35 percent
requirement); and
(3) The article must be wholly the growth, product,
or manufacture of a beneficiary country or, if it
contains foreign materials, be substantially
transformed into a new or different article in a
beneficiary country.
Other provisions and regulations preclude minor pass-through
operations or transshipments from qualification.
Special criteria have been established for the duty-free
entry of ethanol under the CBI program. The Tax Reform Act of
1986 \32\ amended the 1983 CBI legislation to require
increasing amounts of CBI feedstock in order for ethanol to
qualify for duty-free treatment--30 percent in 1987; 60 percent
in 1988; and 75 percent in 1989 and thereafter. Several
companies were ``grandfathered'' for 2 years, allowing them to
operate under pre-1986 criteria through 1989.
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\32\ Public Law 99-514, section 423, approved October 22, 1986.
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The Omnibus Trade and Competitiveness Act of 1988 \33\
extended the ``grandfather'' through the end of 1989 for six
dehydration plants already built or under construction but
imposed an import cap of 20 million gallons per facility. The
Act also requested reports by the ITC and the General
Accounting Office (GAO) on whether or not the current local
feedstock requirements make CBI ethanol production economically
feasible. Those reports concluded that CBI ethanol production
would not be economically feasible under those local feedstock
requirements.
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\33\ Public Law 100-418, section 1910, approved August 23, 1988.
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The Steel Trade Liberalization Program Implementation Act
of 1989 \34\ provided that for calendar years 1990 and 1991,
ethanol (and any mixture thereof) that is only dehydrated
within a CBI beneficiary country or an insular possession
receives duty-free treatment only if it meets the applicable
local feedstock requirement: (1) no feedstock requirement is
imposed on imports up to a level of 60 million gallons or 7
percent of the domestic ethanol market (as determined by the
ITC, based on the 12-month period ending on the preceding
September 30), whichever is greater; (2) a local feedstock
requirement of 30 percent by volume applies to the next 35
million gallons of imports above the 60 million gallon or 7
percent level described above; and (3) a local feedstock
requirement of 50 percent by volume applies to any additional
imports. Ethyl alcohol (or a mixture thereof) that is produced
by a process of full fermentation in an insular possession or
beneficiary country continues to be eligible for duty-free
treatment in unlimited quantities without regard to feedstock
requirements.
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\34\ Public Law 101-221, section 7, approved December 12, 1989.
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The Customs and Trade Act of 1990 extended the above
provisions through 1992. The Omnibus Budget Reconciliation Act
of 1990 \35\ further extended them through September 30, 2000.
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\35\ Public Law 101-508, section 11502, approved November 5, 1990.
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Section 213(b) of the CBERA exempts the following articles
from CBI duty-free treatment: textiles and apparel subject to
textile agreements; footwear, handbags, luggage, flat goods
(such as wallets, change purses and key and eyeglass cases),
work gloves, and leather wearing apparel not eligible for duty-
free treatment under the GSP program as of August 5, 1983;
canned tuna; petroleum and petroleum products; and watches and
watch parts containing components from non-most-favored-nation
(column 2) sources.
Section 212 of CBI II amended section 213 of the CBERA to
authorize the President to proclaim a tariff reduction of 20
percent, but not more than 2.5 percent ad valorem on any
article, in the duties applicable to handbags, luggage, flat
goods, work gloves, and leather wearing apparel not designated
as eligible articles under the GSP program on August 5, 1983
from CBI beneficiary countries, to be phased in in five equal
annual stages beginning on January 1, 1992.
Section 222 of CBI II also extended duty-free treatment to
articles, other than textiles and apparel and petroleum and
petroleum products, that are processed or assembled wholly from
U.S. fabricated components or materials or processed wholly
from U.S. ingredients (except water) in a CBI beneficiary
country and neither the components, materials, and ingredients
after export from the United States nor the article itself
before importation into the United States enters the commerce
of any third country.
Under the tariff-rate quota system for sugar,\36\ the
Secretary of Agriculture establishes the quota quantity that
can be entered at the lower tier import duty rate, and the U.S.
Trade Representative (USTR) allocates the quantity among sugar
exporting quantities. The quantities allocated to beneficiary
countries under the Caribbean Basin Initiative receive duty-
free treatment. Imports above the in-quota amount from
beneficiary countries are tariffed at the higher, over-quota
rate. Certificates of quota eligibility (CQE) are issued to the
exporting countries and must be returned with the shipment of
sugar in order to receive quota treatment.
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\36\ Presidential Proclamation No. 6763, December 23, 1994, 60 Fed.
Reg. 1007.
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Section 213(c) requires the President to suspend duty-free
treatment on imports of sugar and beef products from any
beneficiary country that does not submit a satisfactory stable
food production plan within 90 days after its designation, or
while the country is not making a good faith effort to
implement the plan or the plan is not achieving its purpose.
The President must withhold suspension if the country agrees to
consultations within a reasonable period of time and undertakes
to formulate and implement remedial action.
The import relief procedures and authorities under sections
201-204 of the Trade Act of 1974, as amended, and national
security measures under section 232 of the Trade Expansion Act
of 1962 apply to imports from CBI beneficiary countries.
Section 213(e) authorizes the President to suspend CBI duty-
free treatment and proclaim a rate of duty or other relief
measures on CBI imports as on imports of the article from non-
CBI countries. Alternatively, the President may maintain duty-
free treatment or establish a margin of preference on imports
from CBI countries. In its report to the President on import
relief investigations covering CBI eligible articles, the ITC
must state whether its findings with respect to serious injury
to the domestic industry and its recommended remedy apply to
imports from CBI beneficiary countries.
Under a special procedure under section 213(b), petitioners
for import relief on agricultural perishable products may also
file a request with the Secretary of Agriculture for emergency
relief. Within 14 days, the Secretary must determine whether
there is reason to believe a CBI perishable product is being
imported in such increased quantities as to be a substantial
cause of serious injury to the domestic industry, and recommend
to the President emergency relief, if warranted. The President
must determine within 7 days after receiving the Secretary's
recommendation whether to take emergency action restoring the
normal rate of duty pending final action on the import relief
petition.
Section 215 requires the ITC to report annually to the
Congress on the actual economic impact and its assessment of
the probable future effects of the Act on the U.S. economy
generally and on specific domestic industries. Section 216 also
requires an annual report to the Congress by the Secretary of
Labor on the impact of the CBI on U.S. labor.
Enhanced Temporary Trade Benefits under the CBTPA
Under NAFTA, imported products from Mexico receive NAFTA
declining tariff or duty-free and quota-free treatment. Chapter
Four of NAFTA establishes rules of origin for identifying goods
that are to be treated as ``originating in the territories of
NAFTA parties'' and are therefore eligible for preferential
treatment accorded to originating goods under NAFTA, including
reduced duties and duty-free and quota-free treatment.
The CBTPA provides that NAFTA tariff treatment applies to
articles eligible under CBI that meet NAFTA rules of origin
(treating the United States and CBI beneficiary countries as
``parties'' under the agreement for this purpose). Customs
procedures applicable to exporters under NAFTA also must be met
for partnership countries (i.e. CBTPA eligible) to quality for
parity treatment. Imports of articles eligible under the CBI
but which do not meet the conditions of NAFTA parity would
continue to be excluded from the program.
Under the CBTPA, NAFTA tariff treatment applies to goods
excluded from the CBI, except to textiles and apparel. More
specifically, for imports of canned tuna, petroleum and
petroleum products, footwear, handbags, luggage, flat goods,
work gloves, and leather-wearing apparel, the legislation
provided an immediate reduction in tariffs equal to the
preference Mexican products enjoy under NAFTA. The applicable
duty paid by importers on such goods is equal to the duty
applicable to the same goods if entered from Mexico.
In order for their products to qualify for any of the
preferences afforded under this Act, whether applied to
textiles and apparel or other products, the beneficiary country
must comply with customs procedures equivalent to those
required under the NAFTA.
Temporary Trade Benefits for Apparel Imports Under CBTPA
The CBTPA provides duty-free, quota-free treatment to the
following apparel products:
(1) apparel articles assembled in an eligible CBI
beneficiary country from U.S. fabrics wholly formed from U.S.
yarns and cut in the United States that would enter the United
States under Harmonized Tariff Schedule (HTS) item number
9802.00.80 (a provision that otherwise allows an importer to
pay duty solely on the value-added abroad when U.S. components
are shipped abroad for assembly and re-imported into the United
States);
(2) apparel articles assembled in a CBTPA country from
fabrics wholly formed and cut in the United States, from yarns
wholly formed in the United States that are (I) entered under
subheading 9802.00.80 of the HTS or (II) entered under chapter
61 or 62 of the HTS, if, after such assembly, the articles
would have qualified for entry under subheading 9802.00.80 but
for the fact that the articles were embroidered or subjected to
stone-washing, enzyme-washing, acid washing, perma-pressing,
oven-baking, bleaching, garment-dyeing, screen printing, or
other similar processes;
(3) apparel articles cut in a CBTPA beneficiary country
from fabric wholly formed in the United States from yarns
wholly formed in the United States, if such articles are
assembled in such country with thread formed in the United
States;
(4) certain apparel articles knit-to-shape (other than
socks provided for in heading 6115 of the HTS) in a CBTPA
beneficiary country from yarns wholly formed in the United
States, and knit apparel articles (other than certain T-shirts,
as described below) cut and wholly assembled in one or more
CBTPA beneficiary countries from fabric formed in one or more
CBTPA beneficiary countries or the United States from yarns
wholly formed in the United States, in an amount not to exceed
250 million square meter equivalents (SMEs) during the one-year
period beginning on October 1, 2000. That amount will increase
by 16 percent, compounded annually, in each succeeding one-year
period through September 30, 2004. In each one-year period
thereafter through September 30, 2008, the amount will be the
amount that was in effect for the one-year period ending on
September 30, 2004, or such other amount as may be provided by
law. For T-shirts, other then underwear T-shirts, the amount
eligible for duty-free, quota-free treatment is 4.2 million
dozen during the one-year period beginning on October 1, 2000.
That amount will be increased by 16 percent, compounded
annually, in each succeeding 1-year period through September
30, 2004 and thereafter will be the amount in effect for the
period ending on September 30, 2004, or such other amount as
may be provided by law. The conference agreement provides that
it is the sense of Congress that the Congress should determine,
based on the record of expansion of exports from the United
States as a result of the preferential treatment of articles
under this provision, the percentage by which the amounts
referred to above the respect to knit-to-shape articles and T-
shirts should be compounded for the one-year periods occurring
after the period ending on September 30, 2004;
(5) certain brassieres, subject to the requirements set
forth in the Act;
(6) certain articles assembled from fibers, yarns or fabric
not widely available in commercial quantities, with reference
to the relevant provisions of the NAFTA; the conference
agreement also authorizes the President to extend duty-free and
quota-free treatment to certain other fibers, fabrics and
yarns. Any interested party may submit to the President a
request for extension of benefits to fibers, fabrics and yarns
not available. The requesting party will bear the burden of
demonstrating that a change is warranted by providing
sufficient evidence. The President must make a determination
within 60 calendar days of receiving a request from an
interested party;
(7) certain handloomed, handmade and folklore articles; and
(8) certain textile luggage, as described in the
legislation.
The CBTPA establishes certain special rules relating to apparel
products:
(1) Findings and trimmings.--Articles otherwise eligible
for preferential treatment shall not be ineligible for such
treatment because the article contains findings or trimmings of
foreign origin, if such findings and trimmings do not exceed 25
percent of the cost of the components of the assembled product.
However, sewing thread shall not be treated as a finding or
trimming for purposes of apparel articles cut in a CBTPA
beneficiary country from fabric wholly formed in the United
States from yarns wholly formed in the United States, where
preferential treatment in contingent upon assembly with thread
formed in the United States.
(2) Interlinings.-- Articles otherwise eligible for
preferential treatment shall not be ineligible for such
treatment because the articles contain certain interlinings, as
described in the legislation, of foreign origin, if the value
of such interlinings (and any findings and trimmings) does not
exceed 25 percent of the cost of the components of the
assembled articles. This rule will not apply if the President
determines that United States manufacturers are producing such
interlinings in the United States in commercial quantities;
(3) DeMinimis.--An article otherwise ineligible for
preferential treatment because the article contains fibers or
yarns not wholly formed in the United States or in one or more
beneficiary countries shall not be ineligible for such
treatment if the total weight of all such fibers or yarns is
not more then seven percent of the total weight of the good.
However, in order for an apparel article containing elastomeric
yarns to be eligible for preferential treatment, such yarns
must be wholly formed in the United States.
(4) Special Origin Rule.--An article otherwise eligible for
preferential treatment shall not be ineligible for such
treatment because the article contains nylon filament yarn
(other then eleastomeric yarn), if entered under certain tariff
headings from a country that is a party to an agreement with
the United States establishing a free trade area which entered
into force before January 1, 1995.
The CBTPA establishes a transition period that began on
October 1, 2000 and ends on the earlier of September 30, 2008,
or the date on which the Free Trade Area of the Americas or
another free trade agreement as described in the legislation
enters into force with respect to the United States and the
CBTPA beneficiary country.
Customs Procedures and Penalties for Transshipment
Under the NAFTA, Parties to the Agreement must observe
Customs procedures and documentation requirements, which are
established in Chapter 5 of NAFTA. Requirements regarding
Certificates of Origin for imports receiving preferential
tariffs are detailed in Article 502.1 of NAFTA. The CBTPA
requires the Secretary of the Treasury to prescribe regulations
that require, as a condition of entry, that any importer of
record claiming preferential tariff treatment for textile and
apparel products under the bill must comply with requirements
similar in all material respects to the requirements regarding
Certificates of Origin contained in Article 502.1 of NAFTA, for
a similar importation from Mexico. In addition, if an exporter
is determined under the laws of the United States to have
engaged in illegal transshipment of textile or apparel products
from a partnership country, then the President shall deny all
benefits under the bill to such exporter, and to any successors
of such exporter, for a period of two years.
In cases where the President has requested a beneficiary
country to take action to prevent transshipment and the country
has failed to do so, the President shall reduce the quantities
of textile and apparel articles that may be imported into the
United States from that country by three times the quantity of
articles transshipped, to the extent that such action is
consistent with WTO rules.
Other trade benefits
Under the antidumping and countervailing duty laws, imports
from two or more countries subject to investigation must
generally be aggregated for the purpose of determining whether
the unfair trade practice causes material injury to a U.S.
industry, absent certain exceptions. Section 224 of CBI II
created an exception to the general cumulation rule for imports
from CBI beneficiary countries. If imports from a CBI country
are under investigation in an antidumping or countervailing
duty case, imports from that country may not be aggregated with
imports from non-CBI countries under investigation for purposes
of determining whether the imports from the CBI country are
causing, or threatening to cause, material injury to a U.S.
industry. They may be aggregated with imports from other CBI
countries under investigation. Imports from CBI countries
continue to be cumulated with imports from non-CBI countries
for purposes of determining material injury in investigations
of imports from non-CBI countries.
CBI II also increased the duty-free tourist allowance for
U.S. residents returning directly or indirectly from a CBI
beneficiary country from $400 to $600 and allows such tourists
to enter 1 additional liter of alcoholic beverages duty free if
produced in a CBI beneficiary country.
Measures for Puerto Rico and U.S. insular possessions
The CBERA contains a number of provisions to maintain and
improve the competitive position of Puerto Rico and the U.S.
insular possessions (including the Virgin Islands, American
Samoa, Guam):
(1) Imports from Puerto Rico and the Virgin Islands
may be counted toward the 35 percent minimum local
content rule of origin requirement for CBI duty-free
treatment. Section 235 of the Tariff and Trade Act of
1984 amended section 213(a) also to permit articles
from CBI beneficiary countries to enter under bond for
processing or manufacture in Puerto Rico without
payment of duty upon withdrawal if they meet CBI rule
of origin requirements. As amended by CBI II, any
article which is the growth, product, or manufacture of
Puerto Rico qualifies for duty-free treatment under the
CBI if (a) the article is imported directly from a CBI
beneficiary country into the United States; (b) the
article was advanced in value in a CBI beneficiary
country; and (c) if any materials are added to the
article in a CBI beneficiary country, such materials
are a product of a beneficiary country or the United
States.
(2) The permissible foreign content was increased
from 50 to 70 percent for duty-free treatment of
imports of CBI eligible articles from U.S. insular
possessions.
(3) Duty-free entry of alcoholic beverages by
returning U.S. residents arriving directly from insular
possessions was increased from 4 to 5 liters provided
at least 1 liter is the product of an insular
possession. CBI II increased the duty-free allowance
for U.S. residents returning from U.S. insular
possessions from $800 to $1,200.
(4) Section 221 of the CBERA amended section 7652 of
the Internal Revenue Code to require that all excise
taxes collected on foreign rum imported into the United
States, whether or not from Caribbean countries, be
paid to the treasuries of Puerto Rico and the Virgin
Islands. Section 214(c) requires the President to
consider compensatory measures for the governments of
Puerto Rico and the Virgin Islands if there is a
reduction in the amount of rum excise tax rebates.
(5) The term ``industry'' under the import relief
provisions of section 201 of the Trade Act of 1974 was
clarified to enable producers in the insular
possessions to petition for import relief.
(6) Non-toxic rum stillage discharges in the Virgin
Islands are exempt from certain provisions of the
Federal Water Pollution Control Act if the discharges
are 1,500 feet from the shore and are determined by the
Governor of the Virgin Islands not to constitute a
health or environmental hazard.
Tax measures
Section 222 of the CBERA amended section 274(h) of the
Internal Revenue Code to allow deductions for business expenses
incurred while attending conventions and meetings in a
designated Caribbean Basin beneficiary country (or Bermuda) if
the country enters into an executive agreement with the United
States to provide, on a reciprocal basis, for information
relating to U.S. tax matters to be made available to U.S. tax
officials, including agreement to exchange bearer share and
bank account information for criminal tax purposes. No
deduction is available for attending a convention in a country
found by the Secretary of the Treasury to discriminate in its
tax laws against conventions held in the United States.
Under section 936 of the Internal Revenue Code, qualified
investment income earned in U.S. possessions is exempt from
U.S. tax. Most of the tax benefits claimed under this provision
are claimed by corporations in Puerto Rico. Prior to the Tax
Reform Act of 1986 (1986 Act), this investment income, commonly
referred to as ``qualified possessions source investment
income'' or QPSII, had to be derived from sources inside Puerto
Rico. Section 936(d)(4), added to the Code in the 1986 Act,
amended the definition of QPSII to allow for investments
outside of Puerto Rico. Under section 936(d)(4), interest
income will qualify as QPSII if derived from loans by qualified
financial institutions (including the Puerto Rican Government
Development Bank) for the acquisition of active business assets
and for the construction of development projects located in
eligible Caribbean Basin countries. Section 227 of CBI II
requires the government of Puerto Rico to take such steps as
may be necessary to ensure that at least $100,000,000 of new
investments which qualify under section 936(d)(4) in eligible
Caribbean Basin countries shall be made each calendar year.
Refinancings of existing investments shall not constitute ``new
investments'' for this purpose.
In general, section 1601y of the Small Business Job
Protection Act of 1996: (1) repealed the QPSII exclusion
effective July 1, 1996; (2) repealed the section 936 credit for
new businesses effective for taxable years beginning after
December 31, 1995; and (3) repealed the section 936 credit for
existing possession businesses effective for taxable years
beginning before January 1, 2006.\37\
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\37\ Public Law 104-188, section 1601, approved August 20, 1996, 26
U.S.C. 30A.
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Tourism promotion and scholarship assistance
Section 233 of CBI II required the Commissioner of Customs
to carry out preclearance operations during fiscal years 1991
and 1992 at a U.S. Customs Service facility in a Caribbean
Basin country which the Commissioner considered appropriate for
testing the extent to which the availability of preclearance
operations can assist in the development of tourism in the
region. The Commissioner of Customs and Commissioner of the
Immigration and Naturalization Service were to first determine
the viability of establishing such operations in either Aruba
or Jamaica. The Commissioner of Customs was required to submit
a report to the Congress as soon as practicable after September
30, 1992, regarding the program, including the efficacy of
extending preclearance operations to other Caribbean countries.
In December 1994, the Customs Service signed a bilateral
agreement with the government of Aruba regarding the future
construction of a preclearance facility.
Section 231 of CBI II requires the Administrator of the
Agency for International Development (AID) to establish and
administer a program of scholarship assistance, in cooperation
with state governments, universities, community colleges, and
businesses, to enable students (particularly the economically
and socially disadvantaged) from CBI beneficiary countries that
also receive U.S. foreign assistance to study in the United
States. The Administrator may make grants to states (including
the District of Columbia, Puerto Rico, and U.S. possessions and
territories) to provide scholarship assistance for
undergraduate degree programs and for training programs of at
least 1 year in study areas related to the critical development
needs of the students' respective countries. The federal share
for each year for which a state receives payment will be not
less than 50 percent, funded from amounts otherwise made
available for Latin American and Caribbean regional programs
under the economic support fund of the Foreign Assistance Act
of 1961. To the maximum extent practicable, each participating
state shall enlist private sector assistance to meet the non-
federal share of payments.
Meetings of Caribbean Trade Ministers and USTR
CBTPA directs the President to convene a meeting with the
trade ministers of partnership countries in order to establish
a schedule of regular meetings, to commence as soon as
practicable, of the trade ministers and USTR. The purpose of
the meetings is to advance consultations between the United
States and partnership countries concerning the likely timing
and procedures for initiating negotiations for partnership
countries to: (1) accede to NAFTA; or (2) enter into
comprehensive, mutually advantageous trade agreements with the
United States that contain comparable provisions to NAFTA, and
would make substantial progress in achieving the negotiation
objectives listed in Section 108(b)(5) of Public Law 103-182.
Andean Initiative
The Andean Trade Preference Act (ATPA), commonly referred
to as the Andean Initiative, was enacted on December 4, 1991 as
title II of Public Law 102-182, to authorize preferential trade
benefits for the Andean nations similar to those benefits to
beneficiary countries under the Caribbean Basin Initiative
program. On July 23, 1990, President Bush announced that he
would seek congressional approval of a special preferential
tariff program for four Andean countries--Bolivia, Ecuador,
Colombia, and Peru--to fulfill a commitment made at the
February 1990 Cartagena Drug Summit to expand economic
incentives to encourage these countries to move out of the
production, processing, and shipment of illegal drugs into
legitimate products. Increased access to the U.S. market
through tariff preferences was part of a package of measures
that included expanded agricultural development assistance,
additional product coverage under the Generalized System of
Preferences program, and negotiation of long-term trade and
investment liberalization building on the ``Enterprise for the
Americas Initiative'' announced by the President on June 27,
1990.
On October 5, 1990, President Bush transmitted to Congress
proposed implementing legislation. H.R. 661, the ``Andean Trade
Preference Act of 1991,'' was introduced on January 28, 1991
reflecting the Administration's proposal. The bill as reported
to the House on November 19 was amended during consideration by
the Committee on Ways and Means to conform the country
designation criteria, rule-of-origin requirements, and the
import relief and emergency relief criteria to the conditions
and procedures for granting duty-free treatment under the CBI
program. Certain preferential trade benefits, as well as the
tax benefits under the CBI program, were maintained for the
Caribbean Basin countries and not extended to the Andean
countries by the legislation. The authority for the Andean
Initiative was also limited to a 10-year period, to terminate
as of December 4, 2001. H.R. 661 as amended was incorporated in
a House amendment to a Senate amendment to H.R. 1724, passed by
both Houses in a conference report on November 26, 1991.
The ATPA went into effect on December 4, 1991. The
designations of Columbia and Bolivia as ATPA beneficiary
countries became effective July 22, 1992.\38\ Designations of
Ecuador \39\ and Peru \40\ became effective, respectively, on
April 30, 1993 and August 31, 1993.
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\38\ Presidential Proclamation 6455 and 6456; 57 Fed. Reg. 30069
and 30097.
\39\ Presidential Proclamation 6544; 58 Fed. Reg. 195547.
\40\ Presidential Proclamation 6585; 58 Fed. Reg. 43239.
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Beneficiary countries
The ATPA authorizes the President to proclaim duty-free
treatment on all eligible articles from Bolivia, Ecuador,
Colombia, and Peru as potential beneficiary countries.
Designation by the President of beneficiary status is subject
to seven conditions identical to the mandatory criteria for
designation under the CBI program and subject to the same
authority to waive certain conditions in the U.S. national
economic or security interest. A country is prohibited from
designation under these conditions if it is a communist
country, has nationalized or expropriated U.S. property without
compensation or submission to arbitration, fails to recognize
arbitral awards in favor of U.S. citizens, affords preferential
tariff treatment to products of other developed countries
having or likely to have a significant adverse effect on U.S.
commerce, broadcasts U.S. copyrighted material without the
owner's consent, has not signed an extradition agreement with
the United States, or has or is not taking steps to afford
internationally-recognized worker rights. In addition, the
President must take into account 12 discretionary factors prior
to designating any of the 4 countries, similar to factors under
the CBI, plus whether the country has met narcotics cooperation
certification criteria required to be eligible for U.S. foreign
aid.
Before designating any country, the President must notify
the Congress of his intention to make the designation and the
considerations entering into the decision. The President may
withdraw or suspend beneficiary country status or duty-free
treatment on any article if he determines subsequently that the
country should be barred from designation as a result of
changed circumstances.
Eligible articles
Duty-free treatment is granted under the ATPA to any
otherwise eligible article which is the growth, product, or
manufacture of a designated beneficiary country if (1) that
article is imported directly from a beneficiary country into
the U.S. customs territory; and (2) the sum of the cost or
value of materials produced in one or more Andean beneficiary
countries or one or more CBI beneficiary countries, plus the
direct costs of processing operations performed in one or more
Andean or CBI beneficiary countries is not less than 35 percent
of the appraised value of the article. Puerto Rico and the
Virgin Islands are also considered beneficiary countries for
this purpose. Up to 15 percent of the value attributable to the
cost or value of materials produced in the United States may be
applied toward the 35 percent minimum local content
requirement. These rules and requirements to preclude
transshipment or pass-through operations are identical to CBI
provisions, except that content from CBI beneficiary countries
may also be counted toward the minimum 35 percent local content
requirement for determining the product of an Andean country.
A statutory list of products that are ineligible for duty-
free treatment under the ATPA is also identical to the product
exclusion list under the CBI except that rum is also excluded
from ATPA eligibility in order to preserve preferential
benefits for Caribbean, Virgin Islands, and Puerto Rican
producers. Unlike under the CBI, duty-free treatment does not
apply to imports of certain excluded articles assembled or
processed wholly from U.S. components or materials.
In addition to rum, ATPA duty-free treatment does not apply
to textiles and apparel articles subject to textile agreements;
footwear not designated eligible for GSP duty-free treatment;
canned tuna; petroleum or petroleum products; certain watches
and watch parts; certain leather-related products; and sugar,
syrups, and molasses subject to over-quota rates of duty. As
under the CBI and GSP programs, duty-free treatment applies
only to imports of sugar entering within the tariff-quota
level; over-quota sugar imports remain subject to a high
tariff. As under the CBI, duty rate reductions of 20 percent,
not to exceed 2.5 percent ad valorem, implemented in five equal
annual stages beginning January 1, 1992, apply to imports of
Andean leather-related products (handbags, luggage, flat goods,
work gloves, and leather wearing apparel).
Import safeguard provisions
Authorities under the ATPA to grant import relief measures
and to take emergency action on imports of agricultural
perishables are identical to provisions under the CBI program.
The President may suspend duty-free treatment and proclaim a
duty rate on any eligible article under the import relief
provisions of the Trade Act of 1974 or the national security
provisions of the Trade Expansion Act of 1962. The U.S.
International Trade Commission must state in its report to the
President on any import relief investigation involving an
eligible article under the ATPA whether and to what extent its
injury findings and remedy recommendations apply to imports of
the article from beneficiary countries.
Under an emergency relief procedure for agricultural
perishables, petitions may be filed with the Secretary of
Agriculture at the same time as a petition for import relief is
filed with the ITC. Within 14 days, the Secretary advises the
President whether he has reason to believe that a perishable
product from a beneficiary country is being imported in such
increased quantities as to be a substantial cause of serious
injury or threat thereof to the domestic industry and that
emergency action is warranted, or publishes notice and advises
the petitioner of a determination not to recommend emergency
action. Within 7 days after receiving a recommendation, the
President must proclaim the withdrawal of duty-free treatment
or publish notice of his determination not to take emergency
action.
No proclamation under the ATPA shall affect fees imposed
pursuant to section 22 of the Agricultural Adjustment Act of
1933.
Other provisions
The ATPA increased the duty-free tourist allowance for U.S.
residents returning from Andean beneficiary countries from $400
to $600 and 1 additional liter of alcoholic beverages may enter
duty free if produced in an Andean beneficiary country.
The President must submit a triennial report to the
Congress on the operation of the program. The ITC must report
annually to the Congress on the economic impact of the ATPA on
U.S. industries and consumers and on the effectiveness of duty-
free treatment in promoting drug-related crop eradication and
crop substitution efforts of beneficiary countries. The
Secretary of Labor must also report annually on the impact of
the ATPA on U.S. labor.
African Growth and Opportunity Act
The African Growth and Opportunity Act, commonly referred
to as the African Trade Bill or AGOA, was enacted as title I of
the Trade and Development Act of 2000 \41\, to authorize the
grant of certain U.S. unilateral preferential trade benefits to
sub-Saharan African countries pursuing political and economic
reform.
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\41\ Public Law 106-200, approved May 18, 2000.
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Background
Section 134 of the Uruguay Round Agreements Act (URAA) \42\
required the President to produce a comprehensive trade and
development policy for African countries. The President's first
report was submitted to Congress on February 5, 1996. Among
other things, the President's report proposed the creation of
the Africa Trade and Development Coordinating Group, an
interagency group to be co-chaired by the National Security
Council and the National Economic Council.
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\42\ Public Law 103-465, approved December 8, 1994, 19 U.S.C. 3554.
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On September 26, 1996, H.R. 4198 was introduced in the
House of Representatives to authorize a new trade and
investment policy for sub-Saharan Africa. The bill called for
the designation of countries in sub-Saharan Africa pursuing
market-based economic reform to participate in the benefits of
the bill. H.R. 4198 proposed the creation of a United States-
Sub-Saharan Africa Trade and Economic Cooperation Forum to
provide a regular opportunity for the discussion of trade
liberalization among eligible countries and sought the
establishment of a United States-Sub-Saharan Africa Free Trade
Area. In addition, the bill provided for the elimination of
quotas on textile and apparel products from Kenya and
Mauritius, the only sub-Saharan African countries subject to
quota on these products. No action was taken on H.R. 4198 in
the 104th Congress.
The second of the President's five reports pursuant to
section 134 of the URAA was transmitted to Congress on February
18, 1997. The report set forth a policy framework structured
around five basic objectives, including trade liberalization
and promotion, investment liberalization and promotion,
development of the private sector, infrastructure enhancement,
and economic reform.
On April 24, 1997, H.R. 4198 was reintroduced in the 105th
Congress as H.R. 1432, the African Growth and Opportunity Act.
As introduced, H.R. 1432 included new language offering
enhanced benefits under the Generalized System of Preferences
(GSP) for sub-Saharan African countries meeting the bill's
eligibility requirements.
The third Presidential report required by section 134 of
the URAA was submitted to Congress on December 23, 1997. The
report indicated the Administration's strong support for the
passage of H.R. 1432 and described the five major components of
the Administration's Partnership for Economic Growth and
Opportunity in Africa: (1) enhanced trade benefits; (2)
technical assistance; (3) enhanced dialogue with African
countries; (4) financing and debt relief; and (5) continued
U.S. leadership in multilateral fora to support private sector
development, trade development, and institutional capacity
building in African countries.
H.R. 432 was passed by the House of Representatives on
March 11, 1998. No further action was taken on H.R. 1432 in the
105th Congress, S. 2400 was introduced in the Senate on July
21, 1998. Title I of S. 2400 was entitled the African Growth
and Opportunity Act and differed primarily from H.R. 1432 by
imposing a requirement that imports of textile and apparel
products from sub-Saharan Africa qualifying for duty-free and
quota-free entry be made from fabric of U.S. origin. S. 2400
was not considered by the Senate during the 105th Congress.
On January 15, 1999, the President's fourth report pursuant
to the URAA was submitted to Congress. The President's report
indicated the Administration's continued support for the
passage of the African Growth and Opportunity Act and laid out
the key policy objectives of the President's Partnership for
Economic Growth and Opportunity in Africa for stimulating
economic growth in sub-Saharan Africa and facilitating the
region's integration into the global economy.
On February 2, 1999, H.R. 1432 was reintroduced in the
106th Congress as H.R. 434, H.R. 434 was passed by the House of
Representatives on July 16, 1999.
On July 16, 1999, S. 1387, also entitled the African Growth
and Opportunity Act, was introduced in the Senate. The text of
S. 1387 was similar to title I of S. 2400 from the 105th
Congress.
On November 3, 1999, the Senate passed H.R. 434, as
amended. During Senate consideration of the bill, the House-
passed version of the African Growth and Opportunity Act was
replaced with the text of S. 1387. H.R. 434 was passed by the
Senate as the Trade and Development Act of 2000, with title I
comprising the African Growth and Opportunity Act.
On January 21, 2000, the President submitted his fifth and
final report required by section 134 of the URAA. The
President's report reiterated the Administration's support for
enactment of H.R. 434. In addition, it described the ways the
U.S. Government agencies work to support economic reform in
sub-Saharan Africa, enhance U.S.-sub-Saharan African economic
engagement, increase African integration into the multilateral
trading system, and promote sustainable economic development.
On May 4, 2000, the conference report on H.R. 434, the
Trade and Development Act of 2000, was filed (H. Rept. 106-606)
and passed by the House of Representatives. The African Growth
and Opportunity Act was contained in title I of the conference
report. The Senate passed the conference report on May 11,
2000. The bill was signed into law by the President on May 18,
2000 (P.L. 106-200). The trade provisions in the African Growth
and Opportunity Act have an effective date of October 1, 2000
through September 30, 2008.
Beneficiary Countries
Section 107 of the African Growth and Opportunity Act
(AGOA) lists the following 48 countries, or their successor
political entities, as potentially eligible for designation by
the President as beneficiary countries:
Angola Eritrea Nigeria
Benin Ethiopia Republic of Congo
Bostswana Gabon Rwanda
Burkina Faso Gambia Sao Tome and
Burundi Ghana Principe
Cameroon Guinea-Bissau Senegal
Cape Verde Kenya Seychelles
Central African Lesotho Sierra Leone
Republic Liberia Somalia
Chad Madagascar South Africa
Comoros Malawi Sudan
Democratic Mali Swaziland
Republic of Mauritania Tanzania
Congo Mauritius Togo
Cote d'Ivoire Mozambique Uganda
Djibouti Namibia Zambia
Equatoria Guinea Niger Zimbabwe
Section 111(a) of AGOA amends title V of the Trade Act of
1974 by inserting a new section 506A on the designation of sub-
Saharan African countries for the benefits of the Act. The new
section 506A authorizes the President to designate a country
listed in section 107 of AGOA as a beneficiary sub-Saharan
African country if: (1) the President determines that the
country meets the eligibility requirements set forth in section
104 of AGOA in effect on the date of enactment; and (2) the
country otherwise meets the GSP eligibility criteria.\43\
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\43\ Presidential Proclamation 7350 of October 2, 2000 (65 (Fed.
Reg. 59321, October 4, 2000) designated 34 countries in sub-Saharan
African as beneficiary sub-Saharan African countries for the purposes
of AGOA. All countries listed above except Angola, Burkina Faso,
Burundi, Comoros, Democratic Republic of Congo, Cote d'Ivoire,
Equatorial Guinea, Gambia, Liberia, Somalia, Sudan, Swaziland, Togo,
and Zimbabwe were designated by Presidential Proclamation 7350,
Swaziland was designated as a beneficiary country for the purposes of
AGOA by Presidential Proclamation 7400 of January 17, 2001 (66 Fed.
Reg. 7373, January 23, 2001).
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Section 104(a) of AGOA, as enacted, authorizes the
President to designate a sub-Saharan African country as an
eligible sub-Saharan African country if the President
determines that the country has established, or is making
continual progress toward establishing:
(1) a market-based economy that protects private
property rights, incorporates an open rules-based
trading system, and minimizes government interference
in the economy through measures such as price controls,
subsidies, and government ownership of economic assets;
(2) the rule of law, political pluralism, and the
right to due process, a fair trial, and equal
protection under the law;
(3) the elimination of barriers to United States
trade and investment, including by:
(A) the provision of national treatment and
measures to create and environment conducive to
domestic and foreign investment;
(B) the protection of intellectual property; and
(C) the resolution of bilateral trade and
investment disputes;
(4) economic policies to reduce poverty, increase the
availability of health care and educational
opportunities, expand physical infrastructure, promote
the development of private enterprise, and encourage
the formation of capital markets through micro-credit
or other programs;
(5) a system to combat corruption and bribery, such
as signing and implementing the Convention on Combating
Bribery of Foreign Public Officials in International
Business Transactions; and
(6) protection of internationally recognized worker
rights, including the right of association, the right
to organize and bargain collectively, a prohibition on
the use of any form of forced or compulsory labor, a
minimum age for the employment of children, and
acceptable conditions of work with respect to minimum
wages, hours of work, and occupational safety and
health.
In designating a country as an eligible sub-Saharan African
country, the President must also find under section 104(a) that
it: (1) does not engage in activities that undermine U.S.
national security or foreign policy interests; and (2) does not
engage in gross violations of internationally recognized human
rights or provide support for acts of international terrorism
and cooperates in international efforts to eliminate human
rights violations and terrorist activities.
If the President determines that a beneficiary sub-Saharan
African country is not making continual progress in meeting the
eligibility requirements, then under section 506A(a)(3) of the
Trade Act of 1974 the President must terminate the designation
of that country as a beneficiary sub-Saharan African country
effective on January 1, of the year following the year in which
the determination is made.
The President is required under section 106 of AGOA to
submit a comprehensive report to Congress, not late than 1 year
after the date of enactment of AGOA, and annually thereafter
through 2008, on the trade and investment policy of the United
States for sub-Saharan Africa and on the implementation of AGOA
and the amendments made by it. Section 506A(c) of the Trade Act
of 1974 requires the President to include his country
eligibility determinations, along with explanations of his
determinations and specific analysis of the eligibility
requirements, in the annual report.
Eligible articles
Section 111(A) of AGOA amends the GSP provisions in title V
of the Trade Act of 1974 by inserting a new section 506A.
Section 506A(b)(1) of the Trade Act of 1974 authorizes the
President to provide duty-free treatment for imports from
beneficiary sub-Saharan African countries of any article, other
than textiles or apparel products or textile luggage, that is
designated as import sensitive under the GSP statute, provided
that, after receiving advice from the U.S. International Trade
Commission (ITC), the President determines that the article is
not import sensitive in the context of imports from beneficiary
sub-Saharan African countries.\44\ The general rules of origin
governing duty-free entry under GSP apply, except that, in
determining whether products are eligible for the enhanced
benefits of AGOA, up to 15 percent of the appraised value of a
product at the time of importation may be derived from material
produced in the United States. In addition, under section
506A(b)(2) of the Trade Act of 1974, the cost or value of
materials produced in any beneficiary sub-Saharan African
country may be applied in determining whether a product meets
the applicable rules of origin for the enhanced GSP benefits of
AGOA. Section 111(b) of AGOA amends GSP to waive permanently
the competitive need limits that would otherwise apply to
beneficiary sub-Saharan African countries. Section 114 of AGOA
inserts a new section 506B in the Trade Act of 1974 providing
that the enhanced GSP benefits for sub-Saharan African
countries are in effect through September 30, 2008.
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\44\ Presidential Proclamation 7388 of December 18, 2000 (65 Fed.
Reg. 80723, December 21, 2000) lists the articles determined by the
President to be non-import sensitive in the context of imports from
beneficiary sub-Saharan African countries and therefore eligible for
duty-free treatment under the enhanced GSP benefits in AGOA.
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Section 112 of AGOA provides preferential treatment to
certain textile and apparel articles imported directly into the
customs territory of the United States from beneficiary sub-
Saharan African countries meeting the transshipment
requirements set forth in section 113 of AGOA (see description
below). Under section 112(b), the following textile and apparel
articles may enter the United States free of duty and
quantitative restrictions:
(1) apparel articles assembled in one or more
beneficiary sub-Saharan African countries from fabrics
wholly formed and cut in the United States, from yarns
wholly formed in the United States;
(2) apparel articles cut and assembled in one or more
beneficiary sub-Saharan African countries from fabrics
wholly formed in the United States from yarns wholly
formed in the United States, and assembled with thread
formed in the United States;
(3) sweaters knit-to-shape in one or more beneficiary
sub-Saharan African countries made from cashmere and
fine merino wool;
(4) apparel articles both cut (or knit-to-shape) and
sewn, or otherwise assembled, in one or more
beneficiary sub-Saharan African countries from fabric
or yarn not formed in the United States or a
beneficiary sub-Saharan African country, to the extent
that apparel articles of such fabrics or yarns would be
eligible for preferential treatment, without regard to
the source of the fabric or yarn, under Annex 401 of
the North American Free Trade Agreement (NAFTA); and
(5) certified handloomed, handmade and folklore
articles.\45\
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\45\ Executive Order 13191 of January 17, 2001 (66 Fed. Reg. 7271,
January 22, 2001) delegated authority to the Committee for the
Implementation of Textile Agreements (CITA), after consultation with
the Commissioner of the U.S. Customs Service, to consult with
beneficiary sub-Saharan African countries and to determine which, if
any, particular textile and apparel goods shall be treated as being
handloomed, handmade, or folklore articles for the purposes of section
112(b)(6) of AGOA.
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Section 112b(b)(3) of AGOA also provides that certain other
apparel articles, up to 1.5% of total U.S. apparel imports (in
square meter equivalents) for the first year of the bill,
growing in equal increments in each of the seven succeeding
one-year periods, to a maximum of 3.5% of U.S. apparel imports
in the last year of the bill, may enter the customs territory
of the United States from beneficiary sub-Saharan African
countries free of duty and quantitative restrictions. The
following apparel articles are eligible for preferential
treatment under this cap:
(1) through September 30, 2004, apparel articles
wholly assembled in one or more lesser developed
beneficiary sub-Saharan African countries (defined as
beneficiary sub-Saharan African countries with a per
capita gross national product of less than $1,500 in
1998, as measured by the World Bank),\46\ without
regard to the origin of the fabric; and
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\46\ Presidential Proclamation 7350of October 2, 2000 (65 Fed. Reg.
59321, October 4, 2000) lists designated beneficiary sub-Saharan
African countries to be considered as lesser developed beneficiary sub-
Saharan African countries for the purposes of section 112(b)(3)(B) of
AGOA. They are: Benin, Cape Verde, Cameroon, Central African Republic,
Chad, Republic of Congo, Djibouti, Eritrea, Ethiopia, Ghana, Guinea,
Guinea-Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania,
Mozambique, Nigher, Nigeria, Rwanda, Sao Tome and Principe, Senegal,
Sierra Leone, Tanzania, Uganda, and Zambia. Swaziland was also
designated as a lesser developed beneficiary sub-Saharan African
country for the purposes of AGOA by Presidential Proclamation 7400 of
January 17, 2001 (66 Fed. Reg. 7373, January 23, 2001).
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(2) apparel articles wholly assembled in one or more
beneficiary sub-Saharan African countries from fabric
wholly formed in one or more beneficiary countries from
yarn originating either in the United States or in one
or more beneficiary countries.
Section 112(b)(3)(C) provides import relief within the cap
in the form of a tariff snapback if the Secretary of Commerce
determines that an article qualifying for duty-free treatment
under the cap from a single beneficiary sub-Saharan African
country is being imported in such increased quantities and
under such conditions as to cause ``serious damage, or threat
thereof'' to the domestic industry producing the like or
directly competitive article. In determining whether a domestic
industry has been seriously damaged, or is threatened with
serious damage, the Secretary is required to examine the effect
of the imports on relevant economic indicators such as domestic
production, sales, market share, capacity utilization,
inventories, employment, profits, exports, prices, and
investment.
The Secretary of Commerce is required to made a
determination on whether import relief is warranted if there
has been a surge in imports under the cap from a single
beneficiary sub-Saharan African country based on import data.
The Secretary is also required to initiate such an inquiry
within 10 days of receiving a written request and supporting
information from an interested party. Notice of the initiation
of an inquiry, and the Secretary's subsequent determination,
are to be published in the Federal Register. The Secretary of
Commerce is required to establish procedures to ensure
participation in the inquiry by interested parties. If relevant
information is not available on the record or any party
withholds information that has been requested by the Secretary,
the Secretary can make the determination on the basis of the
facts available. When the Secretary relies on information
submitted in the inquiry as facts available, the Secretary
must, to the extent practicable, corroborate the information
from independent sources that are reasonably available.
Section 112(b)(3)(C) defines the term ``interested party''
for the purposes of the subparagraph as: (1) any producer of a
like or directly competitive article; (2) a certified union or
recognized union or group or workers which is representative of
an industry engaged in the manufacture, production or sale in
the United States of a like or directly competitive article;
(3) a trade or business association representing producers or
sellers of like or directly competitive articles; (4) producers
engaged in the production of essential inputs for like or
directly competitive articles; (5) a certified union or group
of workers which is representative of an industry engaged in
the manufacture, production or sale of essential inputs for
like or directly competitive articles; (5) a certified union or
group of workers which is representative of an industry engaged
in the manufacture, production or sale of essential inputs for
like or directly competitive articles; or (6) a trade or
business association representing companies engaged in the
manufacture, production or sale of such essential inputs.
Section 112(b)(5)(B) of AGOA authorizes the President, at
the request of any interested party and subject to certain
requirements, to proclaim duty-free and quota-free treatment
for apparel articles both cut (or knit-to-shape) and sewn or
otherwise assembled in one or more beneficiary sub-Saharan
African countries, from fabric or yarn not formed in the United
States or a beneficiary sub-Saharan African country (in
addition to those fabrics and yarns already listed in Annex 401
of the NAFTA) if:
(1) the President determines that such yarns or
fabrics cannot be supplied by the domestic industry in
commercial quantities in a timely manner;\47\
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\47\ Executive Order 13191 of January 17, 2001 (66 Fed. Reg. 7271,
January 22, 2001) delegated authority to CITA to determine whether
yarns or fabrics cannot be supplied by the domestic industry in
commercial quantities in a timely manner for the purposes of section
112(b)(5)(B)(i) of AGOA.
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The President has obtained advice regarding the proposed
action from the appropriate advisory committee established
under section 135 of the Trade Act of 1974 \48\ and the ITC;
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\48\ 19 U.S.C. 2155.
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(3) within 60 calendar days after the request, the
President has submitted a report to the Committee on
Ways and Means in the House of Representatives and the
Committee on Finance in the Senate that sets forth:
(A) the action proposed to be proclaimed and the
reasons for such action; and
(B) the advice obtained from the advisory committee
and the ITC;
(4) a period of 60 calendar days, beginning with the
first day on which the President has met the reporting
requirements has expires; and
(5) the President has consulted with such committees
regarding the proposed action during the 60 day period.
Section 112(c) of AGOA provides for the elimination of
quotas on textile and apparel exports to the United States from
Kenya and Mauritius within 30 days after the countries adopt
efficient visa systems to guard against unlawful transshipment
of textile and apparel goods and the use of counterfeit
documents related to the importation of such articles into the
United States.\49\ The U.S. Customs Service is required to
provide technical assistance to Kenya and Mauritius in the
development and implementation of the visa systems.
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\49\ Presidential Proclamation 7350 of October 2, 2000 (65 Fed.
Reg. 59321, October 4, 2000) delegated authority to perform the
functions specified in section 112(c) of AGOA to USTR.
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With regard to findings and trimmings, section 112(d)(1)(A)
and AGOA provides that an article eligible for preferential
treatment shall not be ineligible for such treatment because it
contains findings or trimmings of foreign origin, if the value
of such findings and trimmings does not exceed 25 percent of
the costs of the components of the assemble article. Examples
of findings and trimmings are sewing thread, hooks and eyes,
snaps, buttons, ``bow buds,'' decorative lace trim, elastic
strips, and zippers, including zipper tapes and labels. Elastic
strips are considered findings or trimmings only if they are
each less then one inch in width and used in the production of
brassieres. For apparel articles free of duty and quantitative
restrictions under AGOA by virtue of being cut and assembled in
one or more beneficiary sub-Saharan African countries from
fabrics wholly formed in the United States from yarn formed in
the United States and assembled with U.S. thread, sewing thread
is not included in the findings and trimmings exception.
On certain interlinings of foreign origin, section
112(d)(1)(B) provides that an apparel article otherwise
eligible for preferential treatment shall not be ineligible
because it contains such interlinings, if their value (and any
findings and trimmings) does not exceed 25 percent of the cost
of the components of the assembled article. Interlinings
eligible for such treatment are defined are defined as a chest
type plate, a ``hymo'' piece, or ``sleeve header,'' of woven or
weft-inserted warp knit construction and of coarse animal hair
or man-made filaments. This treatment must be terminated if the
President makes a determination that U.S. manufacturers are
producing such interlinings in the United States in commercial
quantities.\50\
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\50\ Executive Order 13191 of January 17, 2001 (66 Fed. Reg. 7271,
January 22, 2001) delegated authority to the CITA to determine whether
U.S. manufacturers are producing interlinings in the United States in
commercial quantities for the purposes of section 112(d)(1)(B)(iii) of
AGOA. The Executive Order further directs CITA to establish procedures
to ensure appropriate public participation in such determination and
requires that CITA's determinations under the provision be published in
the Federal Register.
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A de minims rule is also established in section 112(d)(2)
to provide that an article otherwise eligible for preferential
treatment shall not be ineligible for such treatment because
the article contains fibers or yarns not wholly formed in the
United States or one or more beneficiary sub-Saharan African
countries if the total weight of all such fibers and yarns is
not more than seven percent of the total weight of the article.
Protections against transshipment
Section 113(a) of AGOA provides that the preferential
treatment provided to textile and apparel articles in section
112(a) shall not be extended to imports from a beneficiary sub-
Saharan African country unless that country:\51\
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\51\ Presidential Proclamation 7350 of October 2, 2000 (65 Fed.
Reg. 59321, October 4, 2000) delegated authority to make the findings
identified in section 113(a) of AGOA to USTR.
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(1) has adopted an efficient visa system, domestic
laws, and enforcement procedures applicable to covered
articles to prevent unlawful transshipment and the use
of counterfeit documents related to the entry of the
articles into the United States;\52\
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\52\ Executive Order 13191 of January 17, 2001 (66 Fed. Reg. 7271,
January 22, 2001) delegated authority to USTR to direct the
Commissioner of the U.S. Customs Service to take such actions as may be
necessary to ensure that textile and apparel articles described in
section 112(b) of AGOA that are entered, or withdrawn from warehouse,
for consumption are accompanied by an appropriate export visa if the
preferential treatment described in section 112(a) of AGOA is claimed
with respect to such articles.
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(2) has enacted legislation or promulgated
regulations to permit U.S. Customs Service verification
teams to have the access necessary to investigate
thoroughly allegations of transshipment;
(3) agrees to report, on a timely basis, export and
import information requested by the U.S. Customs
Service;
(4) will cooperate fully with the U.S. Customs
Service to prevent circumvention and transshipment as
provided in Article 5 of the WTO Agreement on Textiles
and Clothing;\53\
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\53\ Article 5 of the WTO Agreement on Textiles and Clothing
provides that cooperation to prevent circumvention transshipment
includes: investigation of circumvention practices; exchange of
documents, correspondence, reports, and other relevant information to
the extent available; and facilitation of plant vists and contacts.
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(5) agrees to require all producers and exporters of
covered articles in that country to maintain complete
records of the production and the export of covered
articles, including materials used in the production,
for at least two years after the production or export;
and
(6) agrees to report on a timely basis, at the
request of the U.S. Customs Service, documentation
establishing the country of origin of covered articles
as used by that country in implementing an effective
visa system.
Section 113(A) defines country of origin documentation to
include documentation such as production records, information
relating to the place of production, the number and
identification of the types of machinery used to production,
the number of workers employed in production, and certification
from both the manufacturer and the exporter.
Section 113(b)(1) requires importers to comply with U.S.
Customs Service requirements similar in all material respects
to the requirements regarding Certificates of Origin contained
in Article 502.1 of the NAFTA for a similar importation from a
NAFTA partner.\54\ Furthermore, in order to qualify for
preferential treatment and for a Certificate of Origin to be
valid with respect to any article for which preferential
treatment is claimed, the President is required to determine
that each country has implemented and follows, or is making
substantial progress toward implementing and following,
procedures similar in all material respects to the relevant
procedures and requirements under chapter 5 of the NAFTA on
Customs Procedures.\55\ Section 113(b)(2) states that the
Certificate of Origin is not required if such Certificate of
Origin would not be required under Article 503 of the NAFTA (as
implemented into U.S. Law) if the article were imported from
Mexico.\56\ Under section 113(b)(3), if the President
determines, based on sufficient evidence, that an exporter has
engaged in transshipment, then the President is required to
deny for a period of five years all benefits under section 112
of AGOA to such exporter, any successor, and any other entity
owned or operated by the principal of the exporter.\57\
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\54\ Article 502.1 of the NAFTA requires an importer that claims
preferential tariff treatment for a good imported into its territory
from the territory of another Party to: (1) make a written declaration,
based on a valid Certificate of Origin, that the good qualifies as an
Originating good; (2) have the Certificate in its possession at the
time the declaration is made; (3) provide, on the request of that
Party's customs administration, a copy of the Certificate; and (4)
promptly make a corrected declaration and pay any duties owed where the
importer has reason to believe that a Certificate on which a
declaration was based contains information that is not correct.
\55\ Presidential Proclamation 7350 of October 2, 2000 (65 Fed.
Reg. 59321) delegated authority to perform the functions specified in
section 113(b)(1)(B) of AGOA to USTR.
\56\ Article 503 of the NAFTA provides an exemption from the
Certificate of Origin requirements for: (1) a commercial importation of
a good whose value does not exceed $1,000, or such higher amount that a
Party may establish, except that it may require that the invoice
accompanying the importation include a statement certifying that the
good qualifies as an originating good; (2) a non-commercial importation
of a good whose value does not exceed $1,000, or such higher amount
that a Party may establish; or (3) an importation of a good for which
the NAFTA partner into whose territory the good is imported has waived
the requirement for a Certificate of Origin. These exceptions are
permitted provided that the importation does not form part of a series
of importations that may reasonably be considered to have been
undertaken or arranged for the purpose of avoiding the Certificate of
Origin requirements.
\57\ Executive Order 13191 of January 17, 2001 (66 Fed. Reg. 7271,
January 22, 2001) delegated authority to CITA to determine, after
consultation with the Commissioner of the U.S. Customs Service, based
on sufficient evidence, whether an exporter has engaged in
transshipment and to deny for a period of five years all benefits under
section 112 of AGOA to any such exporter, any successor of such
exporter, and any other entity owned or operated by the principal of
such exporter. The Executive Order further requires CITA to publish its
determinations under this section in the Federal Register.
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Transshipment is defined to have occurred in section
113(b)(4) when preferential treatment for a textile or apparel
article has been claimed under AGOA on the basis of material
false information concerning the country of origin,
manufacture, processing, or assembly of the article or any of
its components. False information is material if disclosure of
the true information would mean or would have meant that the
article is or was ineligible for preferential treatment.
Section 113(b)(5) requires the U.S. Customs service to
monitor and the Commissioner of Customs to report to Congress
on an annual basis beginning no later than March 31, 2001 on
the effectiveness of the visa systems, the implementation of
legislation and regulations described by sub-Saharan African
countries, and the measures taken to deter circumvention as
described in Article 5 of the WTO Agreement on Textiles and
Clothing.
Section 113(c) requires the U.S. Customs Service to provide
technical assistance to beneficiary sub-Saharan African
countries in the development and implementation of effective
visa systems and domestic laws. In addition, the U.S. Customs
Service is required to provide assistance in training sub-
Saharan African officials in anti-transshipment enforcement and
to the extent feasible, in developing and adopting electronic
visa systems. The U.S. Customs Service is also required in
section 113(c) to send production verification teams to at
least four beneficiary sub-Saharan African countries each year.
Section 113(d) authorizes additional resources to the U.S.
Customs Service to provide technical assistance to sub-Saharan
African countries and to increase transshipment enforcement.
United States-Sub-Saharan Africa Trade and Economic Cooperation Forum
In order to foster close economic ties between the United
States and sub-Saharan Africa, section 105 of AGOA requires the
President to convene annual high-level meetings between
appropriate officials of the United States Government and
officials of the governments of sub-Saharan African countries.
Not later than 12 months after the date of enactment,\58\ the
President, after consulting with Congress and the governments
concerned, is required to establish a United States-Sub-Saharan
Africa Trade and Economic Cooperation Forum.
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\58\ Public Law 106-200, approved May 18, 2000.
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In creating the Forum, section 105(c)(1) requires the
President to direct the Secretary of Commerce, the Secretary of
the Treasury, the Secretary of State, and the USTR to host the
first annual meeting with their counterparts from the
governments of sub-Saharan African countries meeting the
eligibility criteria in section 104. The purpose of the meeting
is to discuss expanding trade and investment relations between
the United States and sub-Saharan Africa and the implementation
of AGOA, including encouraging joint ventures between small and
large businesses. The President is also required to direct the
Secretaries and the USTR to invite to the meeting
representatives from appropriate sub-Saharan African regional
organizations and government officials from the other
appropriate countries in sub-Saharan Africa.
Section 105(c)(2) requires the President, in consultation
with Congress, to encourage U.S. nongovernmental organization
(NGOs) to host annual meetings with NGOs from sub-Saharan
Africa in conjunction with the annual Forum meetings. Section
105(c)(3) requires the President, in consultation with
Congress, to encourage similar meetings between representatives
of the U.S. and sub-Saharan African private sector.
Under section 105(c)(3), the President is required to meet,
to the extent practicable, with the heads of governments of
sub-Saharan African countries eligible under section 104, and
those sub-Saharan African countries that the President
determines are taking substantial positive steps toward meeting
those eligibility requirements, not less than once every two
years for the purpose of discussing expanding trade and
investment relations between the United States and sub-Saharan
African and the implementation of AGOA, including encouraging
joint ventures between small and large businesses.
Free trade agreements with sub-Saharan African countries
Congress declares in Section 116 of AGOA that free trade
agreements should be negotiated, where feasible, with
interested countries in sub-Saharan Africa, in order to serve
as the catalyst for increasing trade between the United States
and sub-Saharan Africa and increasing private sector investment
in sub-Saharan Africa.
Section 116(b)(1) requires the President, taking into
account the provisions of the treaty establishing the African
Economic Community and the willingness of the governments of
sub-Saharan African countries to engaged in negotiations to
enter into free trade agreements, to prepare and transmit to
Congress not later than 12 months after the date of enactment
\59\ a plan for the purpose of negotiating and entering into
one or more trade agreements with interested beneficiary sub-
Saharan African countries.
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\59\ Public Law 106-200, approved May 18, 2000.
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Customs Valuation
Historical background
In order to assess applicable duty rates under the
Harmonized Tariff Schedule of the United States (HTS) and to
collect appropriate import statistics, the dutiable value of
all imported merchandise must be determined. The process by
which Customs determines the dutiable value of imported
merchandise is referred to as ``appraisement'' or
``valuation.''
Merchandise exported to the United States on or after July
1, 1980, is subject to appraisement under a uniform system of
valuation established by title II of the Trade Agreements Act
of 1979. Title II, which implements the Customs Valuation
Agreement (entitled the Agreement on Implementation of Article
VII of the General Agreement on Tariffs and Trade) negotiated
as one of the Tokyo Round of multilateral trade negotiations
(MTN) agreements, was put into effect by Presidential
Proclamation 4768 of June 28, 1980.\60\
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\60\ 45 Fed. Reg. 45135 (1980).
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Title II revised section 402 of the Tariff Act of 1930 \61\
and repealed the American Selling Price (ASP) method of
valuation. However, under section 204(c) of the Trade
Agreements Act of 1979, the ASP method of valuation continues
to apply to certain rubber footwear exported to the United
States before July 1, 1981. Title II also repealed the
alternative valuation system under section 402a of the Tariff
Act of 1930.\62\
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\61\ 19 U.S.C. 1401a.
\62\ 19 U.S.C. 1402.
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Prior to the Trade Agreements Act of 1979, separate
valuation standards--commonly referred to as the ``old law''
and the ``new law''--existed side by side. Section 402a of the
Tariff Act of 1930 was called the ``old law'' because it was
enacted as part of the Tariff Act of 1930. It provided for the
following order of progression in appraising merchandise: (1)
foreign value or export value, whichever is higher; (2) U.S.
value; (3) cost of production. It also provided for the
application of the ASP basis of appraisement for designated
articles such as benzenoid chemicals and certain footwear. The
ASP method was based on the value of a domestic product rather
than an imported product in order to protect the U.S. industry
from foreign competition.
During the early 1950's the Department of the Treasury
proposed eliminating the foreign value basis of appraisement,
which as its name implies is based on the value of merchandise
sold in foreign markets. The Department of the Treasury argued
that data for determining export value were more readily
available and the elimination of foreign value would streamline
the appraisement process by obviating the need to make
simultaneous appraisements under export value and foreign
value.
In response to these proposals, the Customs Simplification
Act of 1956 created a new group of valuation standards. These
standards were contained in section 402 of the Tariff Act of
1930 \63\ and referred to as the ``new law.'' The ``new law''
eliminated the foreign value standard and made export value the
primary basis for appraisement. With certain modifications,
both U.S. value and cost of production (renamed the constructed
value) were retained as the first and second alternative
standards. The meaning of each standard was modified, however,
by changes in the statutory language and by the inclusion in
the law of definitions for certain of the terms.
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\63\ 19 U.S.C. 1401a.
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However, Congress was unwilling to make these changes
applicable to all imported articles. Because the new provisions
were expected to have a duty-reducing effect for many articles,
the Secretary of the Treasury was instructed to prepare a list
of commodities which, if appraised under the new valuation
standards, would have been appraised at 95 percent or less of
the value at which they were actually appraised in the 12
months ending June 30, 1954 (i.e., dutiable value reduced by 5
percent or more). The articles so identified were published in
Treasury Decision 54521 (January 20, 1958), which is referred
to as ``the Final List'' and such articles continued to be
appraised under the ``old law'' standards of section 402a of
the Tariff Act. Thus, after the enactment of the Customs
Simplification Act of 1956,\64\ there were nine separate bases
of appraisement (five under the old law and four under the new)
applicable to imported products.
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\64\ Act of August 2, 1956, ch. 887.
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It was largely this complexity of U.S. valuation laws as
well as foreign objections to the American Selling Price basis
of appraisement which prompted our trading partners to enter
into negotiations at the Tokyo Round of MTN on the development
of a new system of customs valuation.
The GATT/WTO Customs Valuation Agreement
The Customs Valuation Agreement was signed by most major
U.S. trading partners at the conclusion of the Tokyo Round. The
WTO Agreement on Customs Valuation, which is essentially the
same document, is included in the Uruguay Round Agreements
applicable to all WTO members. Internationally-agreed rules
governing customs valuation will apply to the overwhelming
majority of trading countries. Newly joining developing
countries may delay implementation for up to 5 years.
The Agreement consists of four major parts in addition to a
preamble and three annexes. Part I sets out the substantive
rule of customs valuation, the substance of which was codified
in U.S. law by the Trade Agreements Act of 1979 as an amendment
to section 402 of the Tariff Act of 1930. Part II provides for
the international administration of the Agreement and for
dispute resolution among signatories. Part III provides for
special and differential treatment for developing countries,
and part IV contains so-called final provisions dealing with
matters such as acceptance and accession of the Agreement,
reservations, and servicing of the Agreement.
Administration and dispute resolution.--As mentioned above,
the Agreement establishes two committees--a ``Committee on
Customs Valuation'' (referred to as ``the Committee'') and a
``Technical Committee on Customs Valuation'' (referred to as
the ``Technical Committee'')--to administer the Agreement and
creates a mechanism for resolving disputes between parties to
the Agreement. The rules under the WTO Dispute Settlement
Understanding apply to disputes over the interpretation or
application of the Agreement.
The Committee, which is composed of representatives from
each of the parties, meets annually in Geneva ``to consult on
matters relating to the administration of the customs valuation
system by any party to Agreement as it might affect the
operation of this Agreement or the furtherance of its
objectives, and to carry out such other responsibilities as may
be assigned to it by the parties.'' The WTO secretariat acts as
the secretariat to the Committee, and the Office of the U.S.
Trade Representative is the U.S. representative to this
Committee.
The Technical Committee was created under the auspices of
the Customs Cooperation Council (CCC) to carry out the
responsibilities assigned to it by the parties and set forth in
annex II to the Agreement with a view towards achieving
uniformity in interpretation and application of the Agreement
at the technical level. Among the responsibilities assigned to
the Technical Committee are--
(1) to examine specific technical problems arising in
the administration of the customs valuation systems and
to give advisory opinions offering solutions to such
problems;
(2) to study, as requested, and prepare reports on
valuation laws, procedures and practices as they relate
to the Agreement; and
(3) to furnish such information and advice on customs
valuation matters as may be requested by parties to the
Agreement.
The Technical Committee meets periodically in Brussels, and
the U.S. Customs Service serves as the U.S. representative to
this technical committee.
Dispute resolution.--Several steps are provided for a party
to follow if it considers that any benefit accruing to it under
the Agreement is being nullified or impaired, or if any
objectives of the Agreement are being impeded by the actions of
another party.
First, the aggrieved party should request consultations
with the party in question with a view to reaching a mutually
satisfactory solution. If no mutually satisfactory solution is
reached between the parties within a reasonably short period of
time, the Committee shall meet at the request of either party
(within 30 days of receiving such request) and attempt to
facilitate a mutually satisfactory solution. If the dispute is
of a technical nature, the Technical Committee will be asked to
examine the matter and report to the Committee within 3 months.
In the absence of a mutually agreeable solution from the
Committee up to this point, the Committee shall, upon the
request of either party, establish a panel (within 3 months
from the date of the parties' request for the Committee to
investigate where the matter is not referred to the Technical
Committee, otherwise within 1 month from the date of the
Technical Committee's report) to examine the matter and make
such finding as will assist the Committee in making
recommendations or giving a ruling on the matter.
After the investigation is complete, the Committee shall
take appropriate action (in the form of recommendations or
rulings). If the Committee considers the circumstances to be
serious enough, it may authorize one or more parties to suspend
the application to any other party of obligations under the
valuation agreement.
Special and different treatment.--Part III of the Agreement
allows developing countries which are party to the Agreement--
(1) to delay application of its provisions for a
period of 5 years from the date the Agreement enters
into force;
(2) to delay application of articles 1, 2(b)(iii) and
6 (both of which provide for a determination of the
computed value of imported goods) for a period of 3
years; and
(3) to receive technical assistance (such as training
of personnel, assistance in preparing implementation
measures and advice on the application of the
Agreement's provisions) upon request, from developed
countries party to the Agreement.
Current Law \65\
Section 402 of the Tariff Act of 1930 \66\ as amended by
the Trade Agreements Act of 1979 establishes ``Transaction
Value'' as the primary basis for determining the value of
imported merchandise. Generally, transaction value is the price
actually paid or payable for the goods, with additions for
certain items not included in that price.
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\65\ Most of the description of current law was taken from
``Customs Valuation Under the Trade Agreements Act of 1979,''
Department of the Treasury, U.S. Customs Service, Office of Commercial
Operations, October 1981.
\66\ 19 U.S.C. 1401a.
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If the first valuation basis cannot be used, the secondary
bases are considered. These secondary bases, in the order of
precedence for use, are: transaction value of identical or
similar merchandise; deductive value; computed value. The order
of precedence of the last two bases can be reversed if the
importer so requests. Each of these bases is discussed in
detail below:
Transaction value of imported merchandise.--Several
concepts relating to the transaction value of imported
merchandise are also applicable to the transaction value of
identical or similar merchandise, as discussed in the next
section. These concepts, concerning the nature of transaction
value itself, are discussed in terms of the transaction value
of imported merchandise.
DEFINITIONS
The transaction value of imported merchandise (i.e., the
merchandise undergoing appraisement) is defined as the price
actually paid or payable for the merchandise when sold for
exportation to the United States, plus amounts equal to:
(1) the packing costs incurred by the buyer;
(2) any selling commission incurred by the buyers;
(3) the value of any assist; \67\
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\67\ An ``assist'' is any of the following items that the buyer of
imported merchandise provides directly or indirectly, and free of
charge or at reduced cost, for use in the production of or the sale for
export to the United States of the imported merchandise:
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Materials, components, parts, and similar items incorporated
in the imported merchandise;
Tools, dies, molds, and similar items used in producing the
imported merchandise;
Merchandise consumed in producing the imported merchandise;
Engineering, development, artwork, design work, and plans and
sketches that are undertaken outside the United States.
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The last item listed above (``Engineering, development . . .'')
will not be treated as an assist if the service or work is (1)
performed by a person domiciled within the United States, (2) performed
while that person is acting as an employee or agent of the buyer of the
imported merchandise, and (3) incident to other engineering,
development, artwork, design work, or plans or sketches undertaken
within the United States.
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(4) any royalty or license fee that the buyer is
required to pay as a condition of the sale; and
(5) the proceeds, accruing to the seller, of any
subsequent resale, disposal, or use of the imported
merchandise.
These amounts (1 through 5) are added only to the extent
that each is not included in the price, and is based on
information establishing the accuracy of the amount. If
sufficient information is not available, then the transaction
value cannot be determined; and the next basis of value, in
order of precedence, must be considered for appraisement.
The price actually paid (or payable) for the imported
merchandise is the total payment, excluding international
freight, insurance, and other C.I.F. charges, that the buyer
makes to the seller.
Amounts to be disregarded in determining transaction value
are:
(1) The cost, charges, or expenses incurred for
transportation, insurance, and related services
incident to the international shipment of the goods
from the country of exportation to the place of
importation in the United States.
(2) Any decrease in the price actually paid or
payable that is made or effected between the buyer and
seller after the date of importation of the goods into
the United States.
As well as, if identified separately:
(3) Any reasonable cost or charge incurred for
constructing, erecting, assembling, maintaining, or
providing technical assistance with respect to the
goods importation into the United States; or
transporting the goods after importation.
(4) The customs duties and other federal taxes,
including any federal excise tax for which sellers in
the United States are ordinarily liable.
LIMITATIONS ON THE APPLICABILITY OF TRANSACTION VALUE
The transaction value of imported merchandise is the
appraised value of that merchandise, provided certain
limitations do not exist. If any of these limitations are
present, then transaction value cannot be used as the appraised
value, and the next basis of value will be considered. The
limitations can be divided into four groups:
(1) Restrictions on the disposition or use of
merchandise.--The first category of limitations which preclude
the use of transaction value is the imposition of restrictions
by a seller on a buyer's disposition or use of the imported
merchandise. Exceptions are made to this rule. Thus, certain
restrictions are acceptable, and their presence will still
allow the use of transaction value. The acceptable restrictions
are: (a) those imposed or required by law, (b) those limiting
the geographical area in which the goods may be resold, and (c)
those not substantially affecting the value of the goods. An
example of the last restriction occurs when a seller stipulates
that a buyer of new-model cars cannot sell or exhibit the cars
until the start of the new sales year.
(2) Conditions for which a value cannot be determined.--If
the sale of, or the price actually paid or payable for, the
imported merchandise is subject to any condition or
consideration for which a value cannot be determined, then
transaction value cannot be used. Some examples of this group
include when the price of the imported merchandise depends on
(a) the buyer's also buying from the seller other merchandise
in specified quantities, (b) the price at which the buyer sells
other goods to the seller, or (c) a form of payment extraneous
to the imported merchandise, such as, the seller's receiving a
specified quantity of the finished product that results after
the buyer further processes the imported goods.
(3) Proceeds accruing to the seller.--If part of the
proceeds of any subsequent resale, disposal, or use of the
imported merchandise by the buyer accrues directly or
indirectly to the seller, then transaction value cannot be
used. There is an exception. If an appropriate adjustment can
be made for the partial proceeds the seller receives, then
transaction value can still be considered. Whether an
adjustment is made depends on whether the price actually paid
or payable includes such proceeds and, if it does not, the
availability of sufficient information to determine the amount
of such proceeds.
(4) Related-party transactions where the transaction value
is unacceptable.--Finally, the relationship between the buyer
and seller may preclude the application of transaction value.
The fact that the buyer and seller are related \68\ does not
automatically negate using their transaction value; however,
the transaction value must be acceptable under prescribed
procedures. To be acceptable for transaction value,
relationship between the buyer and seller must not have
influenced the price actually paid or payable. Alternatively,
the transaction value may be acceptable if the imported
merchandise closely approximates any one of the following test
values, provided these values relate to merchandise exported to
the United States at or about the same time as the imported
merchandise:
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\68\ For appraisement purposes, any of the following persons are
considered related--
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Members of the same family, including brothers and sisters
(whether by whole or half blood), spouse, ancestors, and lineal
descendants;
Any officer or director of an organization and such
organization;
An officer or director of an organization and an officer or
director of another organization, if each such individual is
also an officer or director in the other organization;
Partners;
Employer and employee;
Any person directly or indirectly owning, controlling, or
holding with power to vote, 5 percent or more of the
outstanding voting stock or shares of any organization and such
organization;
Two or more persons directly or indirectly controlling,
controlled by, or under common control with, any person.
(A) The transaction value of identical merchandise,
or of similar merchandise, in sales to unrelated buyers
in the United States,
(B) The deductive value or computed value for
identical merchandise or similar merchandise, or
(C) The transaction value of imported merchandise in
sales to unrelated buyers of merchandise, for
exportation to the United States, that is identical to
the imported merchandise under apprisement, except for
having been produced in a different country. No two
sales to unrelated buyers can be used for comparison
unless the sellers are unrelated.
The test values are used for comparison only. They do not
form a substitute basis of valuation.
In determining whether the transaction value is close to
one of the foregoing test values (A, B, or C), an adjustment is
made if the sales involved differ in commercial levels,
quantity levels; the costs, commissions, values, fees, and
proceeds described in (1) through (5) of the ``definition'' of
value; and the costs incurred by the seller in sales in which
he and the buyer are not related that are not incurred by the
seller in sales in which he and the buyer are related.
As stated, the test values are alternatives to the
relationship criterion. If one of the test values is met, it is
not necessary to examine the question of whether the
relationship influenced the price.
Transaction value of identical merchandise or similar
merchandise.--If the transaction value of imported merchandise
cannot be determined, then the customs value of the imported
goods being appraised is the transaction value of identical
merchandise. If merchandise identical to the imported goods
cannot be found or an acceptable transaction value for such
merchandise does not exist, then the customs value is the
transaction value of similar merchandise.
The same additions, exclusions, and limitations, previously
discussed in determining the transaction value of imported
merchandise, also apply in determining the transaction value of
identical or similar merchandise.
Besides the data common to all three transaction values,
certain factors specifically apply to the transaction value of
identical merchandise or similar merchandise. These factors
concern the exportation date, the level and quantity of sales,
the meaning, and the order of precedence of identical
merchandise and of similar merchandise.
(a) Exportation date.--The identical merchandise, or
similar merchandise, for which a transaction value is being
determined must have been sold for export to the United States
and exported at or about the same time as the merchandise being
appraised.
(b) Sales level/quantity.--The transaction value of
identical merchandise (or similar merchandise) must be based on
sales of identical merchandise (or similar merchandise) at the
same commercial level and, in substantially the same quantity,
as the sales of the merchandise being appraised. If no such
sale exists, then sales at either a different commercial level
or in different quantities, or both, can be used, but must be
adjusted to take account of any such difference. Any adjustment
must be based on sufficient information, that is, information
establishing the reasonableness and accuracy of the adjustment.
(c) Definition.--(1) The term ``identical merchandise''
means merchandise that is: identical in all respects to the
merchandise being appraised; produced in the same country as
the merchandise being appraised; and produced by the same
person as the merchandise being appraised.
If merchandise meeting all three criteria cannot be found,
then identical merchandise is merchandise satisfying the first
two criteria but produced by a different person than the
merchandise being appraised. Merchandise can be identical to
the merchandise being appraised and still show minor
differences in appearance. However, identical merchandise does
not include merchandise that incorporates or reflects
engineering, development, artwork, design work, and plans and
sketches provided free or at reduced cost by the buyer and
undertaken in the United States.
(2) The term ``similar merchandise'' means merchandise that
is produced in the same country and by the same person as the
merchandise being appraised; like the merchandise being
appraised in characteristics and component materials; and
commercially interchangeable with the merchandise being
appraised.
If merchandise meeting the foregoing criteria cannot be
found, then similar merchandise is merchandise having the same
country of production, like characteristics and component
materials, and commercial interchangeability but produced by a
different person.
In determining whether goods are similar, some of the
factors to be considered are the quality of the goods, their
reputation, and the existence of a trademark. It is noted,
however, that similar merchandise does not include merchandise
that incorporates or reflects engineering, development,
artwork, design work, and plans and sketches provided free or
at reduced cost by the buyer and undertaken in the United
States.
(d) Order of precedence.--Sometimes more than one
transaction value will be present, that is, for identical
merchandise produced by the same person, for identical
merchandise produced by another person, for similar merchandise
produced by the same person, and for similar merchandise
produced by another person. If this occurs, one value must take
precedence.
As stated previously, accepted sales at the same level and
quantity take precedence over sales at different levels and/or
quantities. The order of precedence can be summarized as:
(1) Identical merchandise produced by the same
person;
(2) Identical merchandise produced by another person;
(3) Similar merchandise produced by the same person;
and
(4) Similar merchandise produced by another person.
It is possible that two or more transaction values for
identical merchandise (or similar merchandise) will be
determined. In such a case, the lowest value will be used as
the appraised value of the imported merchandise.
Deductive value.--If the transaction value of imported
merchandise, of identical merchandise, or of similar
merchandise cannot be determined, then deductive value is
calculated for the merchandise being appraised. Deductive value
is the next basis of appraisement to be used, unless the
importer designated, at entry summary, computed value as the
preferred method of appraisement. If computed value was chosen
and subsequently determined not to exist for customs valuation
purposes, then the basis of appraisement reverts back to
deductive value.
If an assist is involved in a sale, that sale cannot be
used in determining deductive value. So any sale to a person
who supplies an assist for use in connection with the
production or sale for export of the merchandise concerned is
disregarded for deductive value.
Basically deductive value is the resale price in the United
States after importation of the goods, with deductions for
certain items. Generally, the deductive value is calculated by
starting with a unit price and making certain additions to and
deductions from that price.
One of three prices constitutes the unit price in deductive
value. The price used depends on when and in what condition the
merchandise concerned is sold in the United States. If the
merchandise is sold in the condition as imported at or about
the date of importation of the merchandise being appraised, the
price used is the unit price at which the greatest aggregate
quantity of the merchandise concerned is sold at or about such
date.
If the merchandise concerned is sold in the condition as
imported but not sold at or about the date of importation of
the merchandise being appraised, the price used is the unit
price at which the greatest aggregate quantity of the
merchandise concerned is sold after the date of importation of
the merchandise being appraised but before the close of the
90th day after the date of such importation.
Finally, if the merchandise concerned is not sold in the
condition as imported and not sold before the close of the 90th
day after the date of importation of the merchandise being
appraised. The price used is the unit price at which the
greatest aggregate quantity of the merchandise being appraised,
after further processing, is sold before the 180th day after
the date of such importation.
After determining the appropriate price, packing costs for
the merchandise concerned must be added to the price used for
deductive value, provided such costs have not otherwise been
included. These costs are added, regardless of whether the
importer or the buyer incurs the cost. Packing costs include
the cost of all containers and coverings of whatever nature;
and of packing, whether for labor or materials, used in placing
the merchandise in condition, packed ready for shipment to the
United States.
Certain other items are not a part of deductive value and
must be deducted from the unit price. The items are:
(1) Commissions or profit and general expenses.--Any
commission usually paid or agreed to be paid, or the
addition usually made for profit and general expenses,
applicable to sales in the United States of imported
merchandise that is of the same class or kind as the
merchandise concerned; and regardless of the country of
exportation.
(2) Transportation/insurance costs.--The usual and
associated costs of transporting and insuring the
merchandise concerned from the country of exportation
to the place of importation in the United States; and
from the place of importation to the place of delivery
in the United States, provided these costs are not
included as a general expense under the preceding
paragraph.
(3) Customs duties/federal taxes.--The customs duties
and other federal taxes payable on the merchandise
concerned because of its importation, plus any federal
excise tax on, or measured by the value of, such
merchandise for which sellers in the United States are
ordinarily liable; and
(4) Value of further processing.--The value added by
the processing of the merchandise after importation,
provided sufficient information exists concerning the
cost of processing. The price determined for deductive
value is reduced by the value of further processing,
only if the third unit price is used as deductive value
(i.e., the merchandise concerned is not sold in the
condition as imported and not sold before the close of
the 90th day after the date of importation, but is sold
before the 180th day after the date of importation).
Computed value.--The last basis of appraisement is computed
value. If customs valuation cannot be based on any of the
values previously discussed, then computed value is considered.
This value is also the one the importer can select at entry
summary to precede deductive value as a basis of appraisement.
Computed value consists of the sum of the following items:
(1) materials, fabrication, and other processing used
in producing the imported merchandise;
(2) profit and general expenses;
(3) any assist, if not included in (a) and (b); and
(4) packing costs.
The cost or value of the materials, fabrication, and other
processing of any kind used in producing the imported
merchandise is based on information provided by or on behalf of
the producer and on the commercial accounts of the producer, if
the accounts are consistent with generally accepted accounting
principles applied in the country of production of the goods.
The producer's profit and general expenses are used,
provided they are consistent with the usual profit and general
expenses reflected by producers in the country of exportation
in sales of merchandise of the same class or kind as the
imported merchandise.
If the value of an assist used in producing the merchandise
is not included as part of the producer's materials,
fabrication, other processing or general expenses, then the
prorated value of the assist will be included in computed
value. The value of any engineering, development, artwork,
design work, and plans and sketches undertaken in the United
States is included in computed value only to the extent that
such value has been charged to the producer.
Finally, the cost of all containers and coverings of
whatever nature and of packing, whether for labor or material,
used in placing merchandise in condition, packed ready for
shipment to the United States is included in computed value.
As can be seen, computed value relies to a certain extent
on information that has to be obtained outside the United
States, that is, from the producer of the merchandise. If a
foreign producer refuses to or is legally constrained from
providing the computed value information, or if the importer
cannot provide such information within a reasonable period of
time, then computed value cannot be determined.
Other.--If none of the previous five values can be used to
appraise the imported merchandise, then the customs value must
be based on a value derived from one of the five previous
methods, reasonably adjusted as necessary. The value so
determined should be based, to the greatest extent possible, on
previously determined values. Only data available in the United
States will be used.
Customs User Fees
Background
Prior to the 99th Congress, the U.S. Customs Service did
not have the legal authority to collect fees for processing
commercial merchandise, conveyances, and passengers entering
the United States. Only limited authority existed to charge
fees for services which were of special benefit to a particular
individual such as preclearance of passengers and private
aircraft. Special fees were also authorized on operators of
bonded warehouses, foreign trade zones, and the entry of
vessels into ports. Also, Customs was authorized to receive
reimbursement from carriers for overtime for services provided
during non-business hours and from local authorities for
services provided to certain small airports.
Section 13031 of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA) \69\ established a schedule
of flat-rate fees for processing conveyances and passengers
entering the United States. The Act imposed fees for Customs'
costs on a per arrival basis on commercial vessels, trucks,
railroad cars, private aircraft and boats, and passengers
arriving on commercial vessels or aircraft from countries other
than Mexico, Canada, U.S. insular possessions, and other
adjacent islands. The statute also imposed fees on the
processing of dutiable mail entries prepared by a customs
officer, and the issuance of customs broker permits.
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\69\ Public Law 99-272, approved April 7, 1986.
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Modifications to these fees, in the Tax Reform Act of
1986,\70\ included the placement of an annual cap on the
arrival of commercial vessels, the establishment of a lower
vessel fee for certain barges and bulk carriers, and an
increase in the fee for rail cars carrying passengers or
freight from $5 to $7.50, coupled with the elimination of the
fee on empty railroad cars.
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\70\ Public Law 99-514, approved October 22, 1986.
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The Omnibus Budget Reconciliation Act of 1986 (OBRA) \71\
expanded customs user fee authority to cover Customs' costs of
processing commercial merchandise entries--the so-called
Merchandise Processing Fee (MPF). The Act imposed an ad valorem
fee based on the customs value of all formal entries of
merchandise imported for consumption, including warehouse
withdrawals for consumption.
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\71\ Public Law 99-509, approved October 21, 1986.
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As amended by the Omnibus Budget Reconciliation Act of 1987
\72\ and the Technical and Miscellaneous Revenue Act of
1988,\73\ the U.S. portion of the value of articles
classifiable under items 9802.00.60 and 9802.00.80 of the
Harmonized Tariff Schedule of the United States (HTS) or to
products of the least developed developing countries (LDDC's),
products of eligible countries under the Caribbean Basin
Initiative (CBI), and products of U.S. insular possessions were
exempted from the MPF. Further, pursuant to section 203 of the
United States-Canada Free-Trade Agreement Implementation Act of
1988,\74\ the merchandise user fees were set to be phased out
with respect to articles of Canadian origin in accordance with
article 403 of the bilateral agreement.
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\72\ Public Law 100-203, section 9501, December 22, 1987.
\73\ Public Law 100-647, section 9001, November 10, 1988.
\74\ Public Law 100-449, approved September 28, 1988.
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Receipts from user fees are deposited in a dedicated
``Customs User Fee Account'' within the general fund of the
Treasury, with one subaccount of the receipts from the
merchandise processing fee and a second subaccount of the
receipts from the conveyance and passenger fees. Subject to
authorization and appropriations, all funds in the Account are
available to pay costs incurred by the Customs Service in
conducting commercial operations and are treated as receipts
offsetting expenditures of salaries and expenses for these
purposes, except for that portion of the fees required for the
direct reimbursement of appropriations for costs incurred by
the Customs Service in providing inspectional overtime and
preclearance services. Inspectional overtime and preclearance
services are reimbursed subject to a permanent indefinite
appropriation, and are not subject to OMB apportionment.
For fiscal year 1990, the merchandise processing fee was
set at 0.17 percent ad valorem. The legislative authority to
impose customs user fees was set to expire on September 30,
1990.
In February 1988 the General Agreement on Tariffs and Trade
(GATT) Council adopted a panel finding that the ad valorem
structure of the merchandise processing fee is inconsistent
with U.S. GATT obligations to the extent the fee exceeds the
approximate cost of customs processing for the individual
entry, and includes costs for Customs Service activities that
are not services to the particular importer (e.g., costs of
processing imports exempt from the fee).
Revised fee structure
The Customs and Trade Act of 1990,\75\ as amended by the
Omnibus Budget Reconciliation Act of 1990,\76\ completely
revised and reauthorized customs user fees through fiscal year
1995. The new fee structure was intended to bring the United
States into conformity with U.S. obligations under the GATT.
The conference report
(H. Rept. 101-650) sets forth the underlying rationale and
congressional intent behind the user fee revision:
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\75\ Public Law 101-382, title I, subtitle C, approved August 20,
1990.
\76\ Public Law 101-508, section 10001, approved November 5, 1990.
The new fee schedule is structured to respond to this
ruling and to bring the United States into conformity
with its GATT obligations. As required by the relevant
provisions of articles II and VIII of the GATT, the new
fee schedule limits the fees charged to the approximate
cost of the services rendered. It also limits the fee
to customs operations related to merchandise processing
and to the processing of imports covered by the fee.
Fee revenues also are established so as to approximate
the cost of the commercial customs services. As a
result, the new fee schedule represents the type of fee
permitted under GATT article VIII. It does not
represent an indirect protection to domestic products
nor does it represent a taxation of imports for
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domestic purposes.
The MPF for the first time differentiated between entries
or releases of merchandise that are entered formally and those
that are entered informally. Section 111 of the Customs and
Trade Act of 1990 authorized a capped ad valorem fee for each
formal entry and a three-tiered flat rate fee for each entry of
merchandise entered informally. The amount of the user fee
would depend upon whether the fee is filed manually or
electronically. A special reimbursement rule for air courier
facilities and other reimbursable facilities was also
established.
For formal entries, a fee of 0.17 percent ad valorem was
applied, subject to a maximum of $400 and a minimum of $21,
except that an additional $3 was assessed on each entry if
filed manually.
For informal entries (under $1,250), the following flat
rate fee schedule was applied:
$2--for automated, non-customs-prepared informal
entries;
$5--for manual, non-customs-prepared informal
entries;
$8--for customs-prepared informal entries.
In lieu of the above, air courier facilities and other
reimbursable facilities were subject to a reimbursement for
Customs' processing costs to be collected at a rate of twice
the assessment currently applied at courier hubs. Also, the
industry's current 80 percent offset was eliminated.
The Commissioner of Customs was authorized to use any
surplus from the schedule of flat-rate fees (the ``COBRA
fees'') to hire full- and part-time personnel, buy equipment,
or satisfy other direct expenses necessary to provide services
directly to the payers of the fee, subject to OMB apportionment
authority. A $30 million reserve of the surplus was required to
maintain staffing levels equal to those existing in the prior
year in the event customs collections were reduced. Other
provisions included new user fee enforcement authority,
treatment of railroad cars, and agriculture products processed
and packed in foreign trade zones.
The 1990 Budget Reconciliation Act extended customs user
fee authority through September 30, 1995. In addition, the
Secretary of the Treasury was provided new authority to adjust
the 0.17 percent ad valorem merchandise processing fee due to
changes in trade flows and other conditions, subject to a
maximum adjustment of 0.02 percent, plus or minus. The
provision also specified publication, consultation, and
legislative layover periods before an adjustment can be
effective.
The 1990 Budget Reconciliation Act also permitted small
user fee airports processing fewer than 25,000 informal entries
annually to collect the entry-by-entry fee, rather than paying
the new double reimbursement fee.
The 1993 Omnibus Budget Reconciliation Act extended customs
user fee authority until September 30, 1998. Section 13813 of
the Act also changed provisions of the COBRA fee statute as
part of a major reform of the customs inspector pay system (the
Customs Overtime Pay Reform Act) to authorize the use of COBRA
funds for a portion of customs officer premium pay and for
customs retirement-fund contributions related to customs
officer overtime pay. In addition, the COBRA account was made
subject to OMB budget apportionment authority.
The North American Free Trade Agreement Implementation Act
implemented U.S. obligations under the NAFTA to eliminate the
Merchandise Processing Fee immediately for Canadian goods
(consistent with U.S. obligations under the U.S.-Canada FTA),
and by June 30, 1999 for imports of Mexican goods. The fee may
not be increased with respect to Mexican goods after December
31, 1993.
The NAFTA Implementation Act provided for a temporary
increase in the $5 COBRA passenger fee to $6.50 through
September 30, 1997, when it would revert to $5. It also lifted
the current fee exemptions for passengers arriving from Mexico,
Canada, and the Caribbean for the same time period. These
additional fee receipts were dedicated, subject to
appropriation, to cover Customs' inspectional costs not covered
by existing customs user fees. The Act also extended all
customs user fees through September 30, 2003.
The Uruguay Round Agreements Act provided for an increase
in the Merchandise Processing Fee rate for formal entries to
0.21 percent ad valorem, and increased the maximum and minimum
fee amounts for formal entries from $400 to $485 and from $21
to $25, respectively. It also increased the rates from $5 to $6
for informal electronic entries and $8 to $9 for informal paper
entries. The revised fee was designed to cover a revenue
shortfall below Customs' commercial costs, as well as increases
in Customs' operating expenses. The Uruguay Round Agreements
Act also corrected a technical error in the Customs Overtime
Pay Reform Act (COPRA) to provide for reimbursement of customs
inspector premium pay to the extent it was greater than Federal
Employee Pay Act (FEPA) premium pay authorized to be paid to
customs inspectors prior to enactment of COPRA.
The Miscellaneous Trade and Technical Corrections Act of
1996 (Public Law 104-295) made three amendments with regard to
customs user fees and merchandise processing fees. First, the
Act amended section 13031(b) of the COBRA to clarify that the
ad valorem MPF in foreign trade zones is to be assessed only on
the foreign value of merchandise entered from a foreign trade
zone. In addition, the amendment clarified that the application
of the MPF to processed agricultural products will apply to all
entries from foreign trade zones after November 30, 1986, for
which liquidation has not been finalized. The provision was
necessary to clarify that the MPF applicable solely to foreign
merchandise entered from a foreign trade zone, exempting
domestic value, for agricultural products, also would apply to
non-agricultural products.
Second, the Act amended section 13031(b) of the COBRA with
regard to limitations on the collection of customs passenger
processing fees. As indicated above, the NAFTA Implementation
Act increased the COBRA passenger processing fee from $5 to
$6.50 and temporarily lifted the exemption on passengers
arriving from Canada, Mexico, and the Caribbean during the
period from January 1, 1994 through September 30, 1997. The
statute was also modified to apply the fee to so-called
``cruises to nowhere,'' that is, cruises which leave U.S.
customs territory and return, without calling on any port
outside the United States. The amendment clarified that Customs
should collect fees only one time in the course of a single
continuous voyage for a passenger aboard a commercial vessel
that calls on more than one U.S. port.
Third, the Act amended section 13031(b) of the COBRA to
clarify that Customs may provide reimbursable services to air
couriers operating in express consignment carrier facilities
and in centralized hub facilities during daytime hours. The
amendment also clarified that Customs may be reimbursed for all
services related to the determination to release cargo, and not
just ``inspectional'' services. These services are now
reimbursable whether they are performed on site or not.
Current law
Customs' authority to collect user fees under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (19
U.S.C. 58c) for passengers arriving into the United States
aboard a commercial vessel or aircraft from Canada, Mexico, a
U.S. territory or possession or the Caribbean expired on
September 30, 1997. As a result, Customs considered that its
authority to use the COBRA user fee account for preclearance
services for such passengers had also expired. Customs
continued to fund those positions out of its regular budget in
order to keep those services. However, due to budgetary
constraints, Customs was unable to fund all of the positions,
resulting in decreased preclearance services.
To address this issue, the Miscellaneous Trade and
Technical Corrections Act of 1999 (Public Law 106-36) (the Act)
made two amendments to Customs user fees under 13031 of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (19
U.S.C. 58c). First, the Act amended section 58c(f)(3)(A)(iii)
to permit Customs access to the COBRA user fee account to pay
for the salaries for up to 50 full-time equivalent inspectional
positions to provide preclearance services. These services
would be provided only to the extent that funds remain
available after reimbursements for salaries for full-time and
part-time inspectional personnel and equipment that enhance
Customs' services for those persons or entities required to pay
fees under this section.
Second, the Act amended section 58c(a) by establishing (i)
a $5 fee for passengers arriving in the United States aboard a
commercial vessel or aircraft other than from Canada, Mexico,
U.S. territory or possession, or the Caribbean, and (ii) a
$1.75 fee for passengers arriving aboard a commercial vessel
from Canada, Mexico, U.S. territory or possession, or the
Caribbean.
The Act also amended section 58c(f) to authorize Customs
access to $50 million of the merchandise processing fees for
the Customs Automated Commercial System for FY 1999. In
addition, the Act mandated the Commissioner of Customs to
establish an advisory committee consisting of representatives
from the airline, cruise ships, and other transportation
industries subject to these fees. Under this provision, the
representatives would meet periodically and advise the
Commissioner on issues relating to these services and fees.
Finally, the Act authorized the Secretary of the Treasury
to implement a National Customs Reconciliation Test program
relating to an alternative mid-point interest accounting
methodology that may be used by an importer. The test period
was not to exceed October 1, 2000. Section 1451 of the Tariff
Suspension and Trade Act of 2000 (Public Law 106-476) made this
authorization permanent.
The Tariff Suspension and Trade Act of 2000 also amended
section 13031(b)(1)(A)(iii) of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (19 U.S.C. 58c(b)(1)(A)(iii)) to
allow Customs to collect user fees from passengers arriving
aboard a ferry operating south of 27 degrees latitude and east
of 89 degrees longitude, whose operations began on or after
August 1, 1999. Prior to enactment of this legislation, because
of the limitations on user fees under the COBRA, Customs was
prevented from collecting user fees from such ferries, and as a
result, did not issue landing rights to such ferries.
Other Customs Laws
Country-of-Origin Marking
Section 304 of the Tariff Act of 1930, as amended,\77\
provides that, with certain exceptions, every imported article
of foreign origin (or its container in specified circumstances)
``shall be marked in a conspicuous place as legibly, indelibly,
and permanently as the nature of the article (or container)
will permit in such manner as to indicate to an ultimate
purchaser in the United States the English name of the country
of origin of the article.'' The purpose of this provision is to
provide information so that the ``ultimate purchaser'' in the
United States can choose between domestic and foreign-made
products, or between the products of different foreign
countries.
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\77\ 19 U.S.C. 1304.
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When imported articles ordinarily reach their ultimate
purchasers in packaged form, the containers or holders must, as
a general rule, be marked with the country of origin of their
contents, whether or not the article themselves are required to
be marked.
Exceptions.--The statute gives the Secretary of the
Treasury the authority to allow exceptions to the marking
requirement under prescribed circumstances. For example,
certain classes of merchandise are excepted from the country-
of-origin marking requirements because they are not physically
susceptible to marking or can only be marked at the cost of
injury to the article.
Marking requirements may also be waived as to articles
which arrive at the U.S. border unmarked, provided: the expense
of marking under Customs supervision would be economically
prohibitive; and the Customs Service is satisfied that the
importer or shipper did not fail to mark the merchandise before
shipment to the United States for the purpose of invoking this
exception and thereby avoiding the marking requirements.
Another exception to the marking requirement may be granted
for articles for which the ultimate purchaser necessarily knows
the country of origin. An exception is also provided for
articles to be processed by the importer for resale if the
processing would necessarily obliterate or conceal any marking.
If the processing undertaken by the importer is sufficient to
convert the imported article into a new and different article
of trade, any subsequent purchaser is not an ``ultimate
purchaser'' of the imported article.
Other classes of excepted merchandise include products of
American fisheries, products of U.S. possessions, products of
U.S. origin which have been exported and returned, and articles
entered for immediate transshipment and exportation from the
United States. In addition, articles qualifying for duty-free
treatment as being $1 or less in value, or as bona fide gifts
less than $10 in value each, are relieved of the marking
requirements, as are articles produced more than 20 years prior
to importation.
Finally, under section 1304(a)(3)(J), classes of articles
named in certain notices published by the Secretary of the
Treasury in the late 1930's are not subject to the marking
requirements. The articles named in such notices were those
which had been imported in substantial quantities during the 5-
year period ending December 31, 1936, and which had not been
required to bear country-of-origin markings during that period.
Such excepted articles are now found in the so-called ``J-
List.'' \78\
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\78\ 19 CFR 134.33.
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The Miscellaneous Trade and Technical Corrections Act of
1996 (Public Law 104-295) amended section 304 to exempt from
the country-of-origin marking requirements certain imported
coffees, teas, and spices. These items are specifically
identified by their respective Harmonized Tariff Schedule
numbers.
Section 334 of the Uruguay Round Agreements Act (URAA)
(Public Law 103-165) established the country of origin for
certain fabrics, silk handkerchiefs and scarves as the country
where the fabrics are made, even if they undergo dyeing,
printing, cutting, sewing, and other finishing operations in
another country (``the Breaux-Cardin rule''). Prior to Breaux-
Cardin, the rules or origin permitted the processes of dyeing
and printing to confer origin when accompanied by two or more
finishing operations for certain products. As a result of
Breaux-Cardin, silk scarves dyed, finished, or printed in Italy
(or other countries) from imported silk fabric that could
formerly be marked ``Made in Italy'' were now required to be
marked with the country of the silk fabric as the country of
origin.
The European Union brought a World Trade Organization
dispute against the United States relating to the Breaux-Cardin
rule. As part of the U.S. settlement of this dispute, Congress
added a new subsection (h) to section 304 of the Tariff Act of
1930 in the Miscellaneous Trade and Technical Corrections Act
of 1999 (Public Law 106-36). This provision exempted silk
fabric and scarves from the country of origin marking
requirement so that these articles were no longer required to
be marked as having the origin of the country where the fabric
was produced. This provision did not change the rules for
determining the country of origin. Thus, under the Act, a silk
scarf dyed and printed in Italy from silk fabric imported from
China could not be marked ``Made in Italy'' thus indicating
origin, but could be marked ``Designed in Italy,'' ``Dyed and
Printed in Italy,'' ``Crafted in Italy,'' or other similar
marking.
In August 1999, the United States and the EU settled the
dispute, and the United States agreed to amend the rule of
origin requirements under section 334 of the URAA. As a result,
Congress included in the Trade and Development Act of 2000
(Public Law 106-200) legislation which reinstated the rules of
origin that existed prior to the URAA for certain products.
Specifically, the legislation allows dyeing, printing, and two
or more finishing operations to confer origin on certain
fabrics and goods. In particular, the dyeing and printing rule
applies to fabrics classified under the Harmonized Tariff
Schedule (HTS) as silk, cotton, man-made, and vegetable fibers.
The rule also applies to the various products classified in 18
specific subheading of the HTS listed in the bill, except for
goods made from cotton, wool, or fiber blends containing 16
percent or more of cotton.
Marking of certain pipe and fittings.--An amendment to
section 304 of the Tariff Act of 1930 contained in section 207
of the Trade and Tariff Act of 1984 provided that no exceptions
may be made to the country-of-origin marking requirement for
imported pipe, pipe fittings, compressed gas cylinders, manhole
rings or frames, covers and assemblies thereof, and specifies
the type of marking which is acceptable for those products.
Marking of containers of imported mushrooms.--Section
1907(b) of the Omnibus Trade and Competitiveness Act of 1988
(OTCA) specifies that markings on imported preserved mushrooms
must indicate in English the countries in which the mushrooms
were grown.
Marking of Native-American style jewelry and arts and
crafts.--Section 1907(c) of the OTCA provided that the
Secretary of the Treasury prescribe and implement regulations
which require that all imported Native-American style jewelry
and Native-American style arts and crafts have the English name
of the country of origin indelibly and permanently marked in a
conspicuous place on such products.
Penalty for failure to mark.--Imported goods that are not
properly marked are liable for a 10 percent ad valorem duty in
addition to any other duty that might be applicable. The
payment of the 10 percent marking duty does not discharge the
importer's obligation to comply.\79\
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\79\ Globemaster, Inc. v. United States, 68 Cust. Ct. C.D. 4340,
340 F. Supp. 974 (1972).
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Imported articles or their containers that are found to be
improperly marked are generally retained in Customs custody
until such time as the importer, after notification, arranges
for their exportation, destruction, or proper marking under
Customs supervision, or until they are deemed abandoned to the
government. If such unmarked articles are part of a shipment
the balance of which has previously been released from Customs
custody, the importer will be notified and ordered to redeliver
the released articles to Customs for marking, exportation, or
destruction under Customs supervision.
Section 304(h) of the Tariff Act (19 U.S.C. 1304) provided
for a maximum fine of $5,000, or imprisonment of not more than
1 year upon conviction for any person who ``with intent to
conceal'' alters or removes the country-of-origin marking.
Section 1907(a) of the OTCA increased the maximum fine for
intentional alteration or removal of country-of-origin markings
to $100,000 on the first offense and $250,000 for subsequent
offenses.
Automobile labeling.--The American Automobile Labeling Act,
enacted as section 210 of the Motor Vehicle Information and
Cost Savings Act,\80\ requires manufacturers to affix, and
dealers to maintain, labels on cars and light-duty trucks
regarding the country of origin of component parts and the
location of assembly. For each line of cars, the label will
include the percentage (by value) of component parts which
originated in the United States or Canada, and the countries
and percentages from other manufacturers who contribute 15
percent or more to the component value of the vehicle. The
combined United States/Canadian percentage, which is based on
the longstanding special bilateral relationship in automotive
trade, must be clearly identified, listing clearly both
countries. No other countries are to be combined with the
United States and Canadian combined percentage. For each
individual vehicle, the label will also include the city, state
(where appropriate), and country where the vehicle was
assembled; the country of origin of the engine; and the country
of origin of the transmission. For the purpose of identifying
the country of assembly and the country of origin of the engine
and transmission, the United States will be identified
separately. All vehicles manufactured on or after October 1,
1994, for sale in the United States must be labeled.
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\80\ As added by Public Law 102-388, section 355 approved October
6, 1992.
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North American Free Trade Agreement.--Sections 207 and 208
of the North American Free Trade Agreement Implementation Act
implemented U.S. obligations under NAFTA articles 311, annex
311, and article 510 regarding country-of-origin marking for
NAFTA-origin goods, and the review and appeal of customs
marking decisions. Section 207 amends section 304 of the Tariff
Act of 1930, as amended, to provide certain limited exemptions
for the country-of-origin marking requirements for goods of
NAFTA origin. It exempted goods where the importer ``reasonably
knows'' that they are NAFTA-origin goods, and specifically
exempted original works of art, ceramic bricks, semiconductor
devices, and integrated circuits. Sections 207(a) and 208
amended sections 304 and 514 of the Tariff Act to provide NAFTA
exporters and producers with rights to challenge and protest
adverse NAFTA marking decisions by the Customs Service.
NAFTA Rules of Origin
Originating goods.--Section 202 of the North American Free
Trade Agreement Implementation Act enacts articles 401 through
415 of the NAFTA regarding rules of origin. The NAFTA rules
ensure that NAFTA preferential tariff treatment is granted only
to the products of the United States, Mexico, and Canada. Goods
are considered to originate in a NAFTA party if: (1) they are
wholly obtained or produced in the territory of one or more
NAFTA parties; (2) each of the non-originating materials used
in the good undergoes a change in tariff classification as a
result of production that occurs entirely within one or more of
the parties; (3) the good is produced entirely in one or more
of the parties exclusively from NAFTA-origin materials; or (4)
with certain exceptions, the good is produced entirely in one
or more of the NAFTA parties but one or more of the non-
originating parts does not undergo a change in tariff
classification; and the regional value content of the goods
meets certain thresholds (at least 60 percent of the value of
the goods or 50 percent of their net cost.)
Regional value-content.--Section 202(b) of the North
American Free Trade Agreement Implementation Act sets forth
methodologies for calculating regional value-content on the
basis of either ``transaction value'' or ``net cost of the
good.'' Regional value using the transaction value method is
computed by taking the difference between the transaction value
of the good and the value of non-originating materials used in
the production of the good, divided by the transaction value of
the good. Regional value using the net-cost method is computed
by dividing the difference between the net cost of the good and
the value of non-originating materials used in the production
of the good by the net cost of the good. A producer of a good
may use one of three ways to allocate applicable costs when
using the net-cost method. Under certain circumstances
delineated in section 202(b), the net-cost method is required
to be used.
Automotive goods.--Section 202(c) of the North American
Free Trade Agreement Implementation Act sets forth the regional
value-content requirement for motor vehicles. For passenger
motor vehicles, light trucks, and their engines and
transmissions, the regional value-content is increased in
stages from 50 percent for the first 4 years of NAFTA to 56
percent for the second 4 years and to 62.5 percent thereafter.
Other motor vehicles and other automotive parts are subject to
a 50 percent regional content requirement for the first 4
years, 55 percent for the second 4 years, and 60 percent
thereafter. A special rule applies to investors who newly
construct or refit a plant to produce a new vehicle. Section
202(c) provides that, for passenger vehicles and light trucks
and their automotive parts, the value of non-originating
materials must be ``traced'' back through the production
process for purposes of calculating the regional value-content.
An auto producer may average its calculation of regional value-
content using a number of different methodologies.
Certificate of Origin.--Section 205 of the North American
Free Trade Agreement Implementation Act amends section 508 of
the Tariff Act to require a NAFTA Certificate of Origin for
goods for which preferential tariff treatment is claimed, and
imposes recordkeeping requirements to substantiate the
Certificates subject to recordkeeping penalties.
Drawback
Under section 313(a) of the Tariff Act of 1930 (19 U.S.C.
1313(a)), ``drawback'' is payable upon the exportation of an
article manufactured or produced in the United States with the
use of duty-paid imported merchandise. To receive benefit of
drawback, the completed article must have been exported within
5 years from the date of importation of the pertinent duty-paid
merchandise. The amount of refund is equal to 99 percent of the
duties attributable to the foreign, duty-paid content of the
exported article. The procedural and other requirements
governing drawbacks are set forth in 19 CFR part 22.
The purpose of section 313(a) is to permit American-made
products to compete more effectively in world markets. It
enables domestic manufacturers and producers to select the most
advantageous sources for their raw materials and component
requirements without regard to duties, thereby permitting
savings in their production costs. It also encourages domestic
production and, as a result, the utilization of American labor
and capital.
An important feature of section 313(a) and a number of
other drawback provisions is the allowance of drawback on a
substitution basis. Pursuant to section 313(b), an exported
article incorporating components entirely of domestic origin
can nevertheless qualify for drawback, to the extent that duty
has been paid on the importation of components of the same kind
and quality as those used in the manufacture or production of
the exported article.
Section 202 of the Trade and Tariff Act of 1984 expanded
the application of current drawback provisions in three
important respects. First, it allows drawback if the same
person requesting drawback, subsequent to importation and
within 3 years of importation of the merchandise, exports from
the United States or destroys under Customs supervision
fungible merchandise (whether imported or domestic) which is
commercially identical to the merchandise imported.
Second, it allows drawback for all packaging materials
imported for packaging or repackaging imported merchandise.
Finally, the Act provides that any domestic merchandise
acquired in exchange for imported merchandise of the same kind
and quality shall be treated as the use of such imported
merchandise for drawback purposes if no certificate of delivery
is issued for such imported merchandise.
In addition to section 313(a), there are a variety of other
specific drawback provisions allowing for the refund of duties
and/or internal revenue taxes under specified circumstances for
the exportation of products such as flavoring extracts,
toiletries, distilled spirits, salts, and cured meats. Further,
under section 313(c), drawback is allowable when merchandise is
rejected by the importer because it fails to conform to the
sample upon which the purchase order was made, or because it
fails to conform to the importer's specifications, or because
the merchandise was shipped without the consignee's consent.
When such rejected merchandise is exported under Customs
supervision, 99 percent of the duties paid will be refunded
upon compliance with the pertinent regulations.
The Customs Modernization Act (section 632 of the North
American Free Trade Agreement Implementation Act) made a series
of changes to address questions which have arisen in the
implementation and administration of the drawback law. Section
632 made changes including: allowing manufacturing drawback for
unused articles that are destroyed rather than exported,
extending the period for drawback claims on rejected
merchandise to 3 years; with respect to same condition
drawback, changing the standard for allowing substitution of
merchandise for the imported merchandise from ``fungible'' to
``commercially interchangeable''; authorizing the electronic
filing of drawback claims and setting a period of 3 years from
the date of exportation or destruction in which to file a
claim; and simplifying accounting requirements for petroleum.
Section 622 established penalty provisions for the submission
of false drawback claims and created a ``Drawback Compliance
Program.''
The Miscellaneous Trade and Technical Corrections Act of
1999 (Public Law 106-36) amended section 313(p) of the Tariff
Act of 1930 (19 U.S.C. 1313(p)) to expand the scope of
petroleum products eligible for substitution drawback. The Act
also amended 313(q) of the Tariff Act of 1930 (19 U.S.C.
1313(q)) to permit drawback of imported materials used by a
manufacturer or any other person to manufacture packaging
materials where the packaging is ``used'' in exportation or is
destroyed.
The Tariff Suspension and Trade Act of 2000 (Public Law
106-476) further amended section 313(p) to broaden the scope of
petroleum products eligible for substitution drawback. This Act
also amended section 313 of the Tariff Act of 1930 (19 U.S.C.
1313) by adding new subsection (x) to permit drawback of
recycled materials.
NAFTA drawback.--Section 203 of the North American Free
Trade Agreement Implementation Act implemented limitations on
duty drawback included under NAFTA article 303. ``NAFTA
drawback'' refers to the formula used to compute the amount of
drawback that will be allowed for dutiable goods traded between
the NAFTA parties. The formula limits drawback to the lesser
of: (1) the total amount of customs duties paid or owed on the
non-NAFTA components initially imported; and (2) the total
amount of customs duties paid to another party on the goods
subsequently exported. It generally applies to all goods
imported into the United States, with certain exceptions. The
provision applies for exports to Canada on January 1, 1996, and
for exports to Mexico on January 1, 2001. It has the practical
effect of essentially eliminating drawback for NAFTA-origin
goods as NAFTA tariff reductions become effective. While no
limitations were imposed on same condition drawback, same
condition substitution drawback was eliminated upon the entry
into force of the Agreement, with certain exceptions. In no
case may drawback be paid with respect to countervailing or
antidumping duties on goods entering the United States.
Furthermore, section 210 of the Act generally prohibits
drawback for color television picture tubes.
Special rule for extending time for filing drawback
claims.--The Miscellaneous Trade and Technical Corrections Act
of 1996 (Public Law 104-295) amended section 313(r) of the
Tariff Act of 1930, as amended, to permit a temporary extension
of 1 year for filing drawback claims in cases where the
President has declared a major disaster on or after January 1,
1994, and the claimant files a request for such extension with
the Customs Service within 1 year from the date of enactment.
Protests and Administrative Review
Generally, liquidation of an entry represents a final
determination by Customs regarding an importer's duty liability
unless a protest is filed, in proper form, within 90 days after
the date of liquidation. A protest allows the importer to
secure further administrative review and preserve the right to
judicial review. Under current law, a protest must be filed in
the port where the underlying decision was made.
Sections 514, 515 and 516 of the Tariff Act of 1930,\81\ as
amended, provide for administrative review of decisions of the
Customs Service, requirements for filing protests, amendment of
protests, review and accelerated disposition, and further
administrative review. These provisions provide a statutory
means whereby the ``correctness'' of decisions by Customs may
be administratively reviewed.
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\81\ 19. U.S.C. 1514, 1515, and 1516.
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Under section 514, an importer is entitled to protest the
legality of decisions by Customs relating to:
(1) the appraised value of merchandise;
(2) the classification and rate and amount of duties
chargeable;
(3) all charges or exactions of whatever character
within the jurisdiction of the Secretary of the
Treasury;
(4) the exclusion of merchandise from entry or
delivery or a demand for redelivery to customs custody
under any provision of the customs laws, except a
determination appealable under section 337;
(5) the liquidation or reliquidation of an entry, or
reconciliation as to the issues contained therein, or
any modification thereof;
(6) the refusal to pay a claim for drawback; or
(7) the refusal to reliquidate an entry under
subsection (c) or (d) of section 520 (19 U.S.C. 1520).
In addition, section 514 provides the requirements for the
form, number and amendments of protest, and limitations on
protest or reliquidation.
Section 515 provides Customs a two-year period to respond
to a protest unless there is a request for accelerated
disposition. In a case of a request for accelerated
disposition, Customs is required to respond within 30 days.
This section also provides that the protest may be subject to
further review of the protest by another Customs officer
(usually Customs Headquarters), upon a timely request. The
Miscellaneous Trade and Technical Corrections Act of 1999
(Public Law 106-36) amended this section to require the
appropriate Customs officer to issue a decision on an
application for further review within 30 days of the
application, and if allowed, to forward the protest to the
Customs Officer who will be conducting the review.
If a protesting party believes that the application for
further review was erroneously or improperly denied, such a
party may file a request to the Commissioner of Customs, within
60 days after the notice of denial, that the denial be set
aside. If the Commissioner fails to act within the 60 days, the
request is deemed denied.
Section 516 is a unique Customs provision that entitles
American manufactures, producers, wholesalers, labor unions,
groups of workers, or trade or business associations the
statutory right to challenge Customs treatment of an imported
product of the same class or kind as the product they produce
or sell. Under this section, an interested domestic party may
file a petition with the Commissioner of Customs alleging that
appraised value, classification, or rate of duty is not
correct. Other interested party may submit comments.
If Customs agrees with the petition, in whole or in part,
it will publish a notice of its decision and will appraise,
classify, or assess duty on merchandise entered after a thirty-
day period in accordance with that decision. If Customs reaches
a negative decision on the petitioner's claims, it will notify
the petitioner. The petitioner may file a notice with Customs
within thirty days that he will contest the negative decision
in court.
Once the appropriate administrative procedures in Sections
514, 515, and 516 have been completed, the importer or domestic
party may have redress to the Court of International Trade
based on other statutory provisions.
Copyrights and Trademark Enforcement
Copyrights.--Section 602(a) of the Copyright Revision Act
of 1976 \82\ provides that the importation into the United
States of copies of a work acquired outside the United States
without authorization of the copyright owner is an infringement
of the copyright and are subject to seizure and forfeiture.
Forfeited articles are generally destroyed; however, the
articles may be returned to the country of export whenever
Customs is satisfied that there was no intentional violation.
Copyright owners seeking import protection from the U.S.
Customs Service must register their claim to copyright with the
U.S. Copyright Office and record their registration with
Customs in accordance with applicable regulations.\83\
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\82\ Public Law 94-553, section 101, approved October 19, 1976, 17
U.S.C. 602(a).
\83\ 19 CFR 133, subpart D.
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Trademarks and trade names.--Articles bearing counterfeit
trademarks, or marks which copy or simulate a registered
trademark registration of a U.S. or foreign corporation are
prohibited importation, provided a copy of the U.S. trademark
registration is filed with the Commissioner of Customs and
recorded in the manner provided by regulations.\84\ The U.S.
Customs Service also affords similar protection against
unauthorized shipments bearing trade names which are recorded
with Customs pursuant to regulations.\85\ It is also unlawful
to import articles bearing genuine trademarks owned by a U.S.
citizen or corporation without permission of the U.S. trademark
owner, if the foreign and domestic trademark owners are not
parent and subsidiary companies or otherwise under common
ownership and control, provided the trademark has been recorded
with Customs and the U.S. trademark owner has not authorized
the distribution of trademarked articles abroad.
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\84\ 19 CFR 133.1-133.7.
\85\ 19 CFR part 133, subpart B.
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The Anticounterfeiting Consumer Protection Act of 1996
(Public Law 104-153) strengthened the protection afforded
trademark owners against the importation of articles bearing a
counterfeit trademark. A ``counterfeit trademark'' is defined
as a spurious trademark which is identical to, or substantially
indistinguishable from, a registered trademark. First, the Act
redefined counterfeiting as a form of racketeering. Second, it
extended both the copyright and trademark laws, and the seizure
and forfeiture laws, to computer programs, computer
documentation, and packaging. Third, the Act amended the law
such that, upon seizure of counterfeit merchandise, the Customs
Service must notify the owner of the trademark, and, after
forfeiture, destroy the merchandise. Alternatively, if the
merchandise is not unsafe or a hazard to health, and the
Customs Service has the consent of the trademark owner, the
forfeited goods may be: (1) given to any federal, state, or
local government agency which has established a need for the
article; (2) given to a charitable institution; or (3) sold at
public auction, if more than 90 days have passed since the date
of forfeiture, and no eligible organization has established a
need for the article.
The Anticounterfeiting Consumer Protection Act of 1996 also
amended section 431 of the Tariff Act of 1930 to require public
disclosure of aircraft manifests in addition to vessel
manifests. Last, the Act amended section 484 of the Tariff Act
of 1930 to require the Customs Service to prescribe new
regulations governing the content of entry documentation so as
to aid in the determination of whether imported merchandise
bears a counterfeit trademark.
Penalties
Section 592 of the Tariff Act of 1930, as amended,\86\ is
the basic and most widely used customs penalty provision. It
prescribes monetary penalties against any person who imports,
attempts to import, or aids or procures the importation of
merchandise by means of false or fraudulent documents,
statements, omissions or practices, concerning any material
fact. The statute may be applied even though there is no loss
of revenue involved.
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\86\ 19 U.S.C. 1592.
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Section 592 infractions are divided into three categories
of culpability, each giving rise to a different maximum
penalty, as follows:
(1) Fraud.--This category involves an act of
commission or omission intentionally done for the
purpose of defrauding the United States of revenue, or
otherwise violating section 592. The maximum civil
penalty for a fraudulent violation is the domestic
value of the merchandise in the entry or entries
concerned.
(2) Gross negligence.--This category involves an act
of commission or omission with actual knowledge of, or
wanton disregard for, the relevant facts and a
disregard of section 592 obligations, whereby the
United States is or may be deprived of revenue, or
where section 592 is otherwise violated. The maximum
civil penalty for gross negligence is the lesser of the
domestic value of the merchandise or four times the
loss of revenue (actual or potential). If the
infraction does not affect the revenue, the maximum
penalty is 40 percent of the dutiable value of the
goods.
(3) Negligence.--This category involves a failure to
exercise due care in ascertaining the material facts or
in ascertaining the obligations under section 592. The
maximum civil penalty for negligence is the lesser of
the domestic value of the merchandise or twice the loss
of revenue (actual or potential). However, where there
is no loss-of-revenue issue, the penalty cannot exceed
20 percent of the dutiable value.
In addition to the civil penalties described above, a
criminal fraud statute provides for sanctions to those
presenting false information to customs officers. Title 18,
United States Code, section 542, provides a maximum of 2 years
imprisonment, or a $5,000 fine, or both, for each violation
involving an importation or attempted importation.
The Secretary of the Treasury is authorized to seize
merchandise if there is resasonable cause to believe that a
person has violated these provisions and the alleged violator
is insolvent; outside the jurisdiction of the United States; is
otherwise essential to protect the revenue; or to prevent the
importation of prohibited merchandise into the United States.
For proceedings commenced by the United States in the Court
of International Trade for monetary penalties, all issues shall
be tried de novo. The statute specifies the standard of proof
required to establish a violation. In fraud cases, the United
States has the burden to prove the violation by clear and
convincing evidence; in gross negligence cases, the government
has the burden to establish all the elements of the alleged
violation; and for negligence cases, the government has the
burden to establish the act or omission and the defendant has
the burden of proof that the act or omission did not occur as a
result of negligence.
The Customs Modernization Act (section 621 of the North
American Free Trade Agreement Implementation Act) amended
section 592 to apply existing penalties for false information
to information transmitted electronically; allow Customs to
recover unpaid taxes and fees resulting from 592 violations;
clarify that the mere non-intentional repetition of a clerical
error does not constitute a pattern of negligent conduct; and
define the commencement of a formal investigation for the
purposes of prior disclosure of alleged violations. It also
introduced the requirement that importers use ``reasonable
care'' in making entry and providing the initial classification
and appraisement; establishing a ``shared responsibility''
between Customs and importers; and allowing Customs to rely on
the accuracy of the information submitted and streamline entry
procedures (section 637 of the North American Free Trade
Agreement Implementation Act). To the extent that an importer
fails to use reasonable care, Customs may impose a penalty
under section 592.
Section 205 of the North American Free Trade Agreement
Implementation Act amended section 592 to apply identical
penalty provisions to importers making false declarations and
certificates of NAFTA origin.
The Anticounterfeiting Consumer Protection Act of 1996
(Public Law 104-153) made several amendments to the Tariff Act
of 1930, as amended. First, the Act extended the application of
customs civil penalties to include merchandise bearing a
counterfeit trademark. Second, the Act amended section 526 of
the Tariff Act of 1930 to require the consent of the trademark
owner prior to any action by the Secretary of the Treasury
regarding the disposition of seized merchandise. Third, the Act
linked the relevant civil penalties to the value that the
merchandise would have had if it were genuine, according to the
manufacturer's suggested retail price, in addition to any other
civil or criminal penalties. Last, the Act amended section
431(c)(1) of the Tariff Act of 1930 to require the advanced
public disclosure of aircraft manifests to assist Customs in
electronically screening passengers for inspection upon
arrival.
Recordkeeping.--The Customs Modernization Act (section 615
of the North American Free Trade Agreement Implementation Act)
provided new penalties for the failure to comply with a lawful
demand for records required for the entry of merchandise, and
established a ``Recordkeeping Compliance Program.'' For willful
failure to comply, the penalty is the lesser of up to $100,000,
or 75 percent of the value of the merchandise, and for
negligence, the lesser of up to $10,000 or 40 percent of the
value. The new penalties were authorized with the understanding
that Customs would routinely waive the production of records at
entry, while retaining the ability to audit those records at a
later time.
Import prohibitions/restrictions relating to dog and cat
fur products.--The Tariff Suspension and Trade Act of 2000
(Public Law 106-476) amended title III of the Tariff Act of
1930 by adding Section 308 (19 U.S.C. 1308) to prohibit all
commercial activities relating to trading with dog or cat fur
products. Specifically, this legislation prohibits the
importation or exportation of products made with dog or cat
fur, as well as domestic activities including the introduction
into interstate commerce, manufacture for introduction into
interstate commerce, sale or offer for sale, trade,
advertisement, transportation or distribution in interstate
commerce of products made with dog or cat fur. In addition to
criminal and civil penalties under existing law, a person
violating this section may be liable for additional civil
penalties, forfeiture, and debarment from importing, exporting,
transporting, distributing, manufacturing, or selling any fur
products in the United States. A person accused of violating
this section is entitled to an affirmative defense if he shows
by a preponderance of the evidence that he has exercised
reasonable care.
Section 308 authorizes the Secretary of the Treasury to
enforce the import and export prohibitions while the President
has enforcement authority relating to domestic activities. The
designated enforcement authorities are required to publish a
list of violators at least once a year, to submit an
enforcement plan to Congress within three months of the date of
enactment, a report within one year of that same date, and,
annually thereafter, a report on enforcement efforts and
adequacy of resources to execute this provision. Finally, the
legislation amends the Fur Products Labeling Act (15 U.S.C.
69(d)) to require the labeling of products containing even a de
minimus amount of dog or cat fur.
Requirements applicable to cigarette imports.--Title V of
the Tariff Suspension and Trade Act of 2000 (Public Law 106-
476) made several changes to laws governing the importation of
cigarettes. In particular, section 4004 of this legislation
amended the Tariff Act of 1930 to create a new title VIII
imposing certain requirements on imports of cigarettes. Section
4004 requires the following:
(1) the original manufacturer of cigarettes being
imported into the United States must certify that it
has timely submitted, or will timely submit, to the
Secretary of Health and Human Services the lists of
ingredients described in section 7 of the Federal
Cigarette Labeling and Advertising Act (FCLAA);
(2) the precise warning statements in the precise
format specified in section 4 of the FCLAA must be
permanently imprinted on the cigarette packaging. Prior
to the legislation, the Federal Trade Commission
allowed importers, under certain circumstances, to
comply with the requirements of FCLAA by affixing
adhesive labels with compliant warning statements;
(3) the importer must certify that it is in
compliance with a rotation plan approved by the Federal
Trade Commission pursuant to section 4(c) of the FCLAA,
unless the FTC grants a waiver; and
(4) if the cigarettes bear a United States registered
trademark, the owner of such trademark, or such owner's
authorized representative, must consent to the
importation of such cigarettes into the United States.
The legislation also requires Customs certification at the
time of entry that the importer, under the penalty of perjury,
has complied with the above requirements. Cigarettes imported
in personal use quantities, as well as those imported for
analysis, noncommercial use, reexport or repackaging, are
exempt from the above requirements. In addition to any other
applicable penalties under law, violators are subject to civil
penalties as well as forfeiture.
Commercial Operations
Advisory Committee.--Section 9503(c) of the Omnibus Budget
Reconciliation Act of 1987 (Public Law 100-203) established in
the Department of Treasury the ``Advisory Committee on
Commercial Operations of the United States Customs Service.''
The Assistant Secretary of Treasury for Enforcement is the
Committee Chairman, which is composed of 20 members.
In making appointments, the Secretary is to select
individuals or firms ``affected by the commercial operations''
of the Customs Service. A majority of the members may not
belong to the same political party. The Advisory Committee is
required to provide advice to the Secretary on all Customs
commercial operation matters and to report annually to the
House Ways and Means and Senate Finance Committees.
Management improvements.--The Customs and Trade Act of 1990
made numerous changes to improve Customs commercial operations.
Section 103 contained a biennial authorization of
appropriations for the U.S. Customs Service, including a
statutory funding floor for commercial operations and a ceiling
on non-commercial (enforcement) operations.
Section 121 made major amendments to the Customs Forfeiture
Fund statute (section 613A of the Tariff Act of 1930) and in
the administrative forfeiture proceedings authority (section
607 of the Tariff Act of 1930).
The Act also included several provisions recommended by the
House Ways and Means Subcommittee on Oversight.\87\ Section 123
required an annual national trade and customs law violation
estimate and enforcement strategy report. Section 124 required
an Administration report on possible expansion of Customs'
foreign preclearance operations and legislative proposals for
recovery for imported merchandise damaged during customs
examination. Finally, the Act required changes to Customs' cost
accounting systems and new labor distribution surveys.
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\87\ ``Report on Abuses and Mismanagement in the U.S. Customs
Service Commercial Operations''; February 8, 1990; WMCP: 101-22.
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In 1992, the annual Treasury appropriations legislation for
fiscal year 1993 (Public Law 102-393) created a unified
Treasury Asset Forfeiture Fund to be administered by the
Treasury Secretary. It succeeded the Customs Forfeiture Fund
(section 613A of the Tariff Act). The Committee on Ways and
Means maintains legislative jurisdiction over the Customs
portion of the Treasury Fund.
A major reform to the customs inspector pay system was
included in the Omnibus Budget Reconciliation Act of 1993.
Section 5 of the Act of February 13, 1911 (the ``1911'' Act)
was amended to address the existing inspector overtime pay
system (WMCP:102-17). It also authorized foreign language
bonuses and additional retirement benefits linked to a portion
of overtime hours worked.
Notification requirements.--Section 9501(c) of the Omnibus
Budget Reconciliation Act prohibited the establishment of any
new Centralized Examination Station (CES) unless Customs
provides written notice to both the House Ways and Means and
Senate Finance Committees not less than 90 days prior to the
proposed establishment.
The Omnibus Budget Reconciliation Act of 1987 required the
Commissioner of Customs to notify the House Ways and Means and
Senate Finance Committees at least 180 days prior to taking any
action which would: (a) result in any significant reduction in
force of employees by means of attrition; (b) result in any
reduction in hours of operation or services rendered at any
customs office; (c) eliminate or relocate any customs office;
(d) eliminate any port, or significantly reduce the number of
employees assigned to any customs office or any port of entry.
Customs modernization.--The Customs Modernization Act
(title VI of the North American Free Trade Agreement
Implementation Act) represented the most extensive set of
changes to the customs laws since the Customs Procedural Reform
Act of 1978. The major provisions of the Act removed archaic
statutory provisions requiring paper documentation, and
provided authority for full electronic processing of all
customs-related transactions under the National Customs
Automation Program (NCAP) (section 631). In return for waiving
paperwork requirements, importers were required to maintain and
produce information after the fact. Section 631 further sets
forth the NCAP goals of ensuring uniform importer treatment,
facilitating business activity, while improving compliance with
the customs laws. It authorized new automation initiatives for
remote-entry filing and periodic entry and duty payment, and
required adequate planning, testing, and evaluation of all new
automated systems before implementation.
The Act provided for accreditation of independent
laboratories and public access to all Customs rulings and
decisions. It also provided additional projections for
importers by reforming Customs' seizure authority under section
596(c) of the Tariff Act of 1930 (19 U.S.C. 1595a(c));
established a new statute of limitations on duty violations,
provided procedural safeguards for regulatory audits; allowed
judicial review of detentions; clarified the conditions under
which duty drawback claims may be made; and authorized payment
for damaged merchandise for non-commercial shipments.
In the on-going effort to fully implement the Mod Act, the
Miscellaneous Trade and Technical Corrections Act of 1999
(Public Law 106-36) (the Act) amended section 411 of the Tariff
Act of 1930 (19 U.S.C. 1411) to require Customs, pursuant to
the NCAP, to establish a program for the automation of
electronic filing of commercial importation data from foreign-
trade zones no later than January 1, 2000.
The Tariff Suspension and Trade Act of 2000 (Public Law
106-476) also made needed changes to facilitate trade relating
to large shipments that could not be shipped as an entirety.
Prior to this legislation, large articles, including machinery,
which could not fit on a single conveyance, particularly a
truck or plane, were required to be classified as parts or in
their condition upon arrival in the customs territory of the
United States, causing classification or entry problems for
both Customs and the importer. This legislation amended section
1484 of title 19 to provide Customs the authority to treat
goods purchased and invoiced as a single entity and shipped
unassembled or disassembled in separate shipments over a period
of time as a single transaction for customs entry purposes. The
legislation requires importers to request such treatment in
advance of entry and also requires the Secretary of the
Treasury to issue regulations setting forth the information
required for this type of entry.
The Act also requires the Secretary of the Treasury to
review, in consultation with U.S. importers and other
interested parties, Customs procedures, related laws, and
regulations in order to determine the minimum data required for
determining admissibility of goods entering the United States.
The legislation requires that the Secretary submit a report to
Congress and make recommendations for changes in law,
regulations, or procedures. The purpose of this report is to
improve the efficiency of the entry process while meeting
timely administrative needs for statistics and data collection.
Reorganization.--Pursuant to section 301 of the Customs
Procedural Reform and Implementation Act of 1978 (19 U.S.C.
2075), on September 30, 1994, the Commissioner of Customs
notified the House Ways and Means and Senate Finance Committees
of his intention to implement a major reorganization of Customs
commercial operations, including concentrating services at
existing port facilities, reducing Headquarters staff,
eliminating regional and district offices, and establishing
Customs Management and Strategic Trade Centers.
Antiterrorism.--The Comprehensive Antiterrorism Act of 1995
(Public Law 104-132), designed to prevent and punish acts of
terrorism, makes it unlawful to import plastic explosives which
do not contain detection devices. The Act amends the Tariff Act
of 1930 to facilitate Customs interdiction of these plastic
explosives under its seizure and forfeiture authority.
Foreign Trade Zones
The Foreign Trade Zones Act of 1934,\89\ as amended,
authorizes the establishment of foreign trade zones. A foreign
trade zone (FTZ) is a special enclosed area within or adjacent
to ports of entry, usually located at industrial parks or in
terminal warehouse facilities. Although operated under the
supervision and enforcement of the Customs Service, they are
considered outside the customs territory of the United States.
With certain exceptions, any foreign or domestic merchandise
may be brought into a foreign trade zone for storage, sale,
exhibition, break-of-bulk, repacking, distribution, mixing with
foreign or domestic merchandise, assembly, manufacturing, or
other processing. Foreign merchandise imported into an FTZ is
not subject to duty, formal entry procedures or quotas unless
and until it is subsequently imported into U.S. customs
territory.
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\89\ Act of June 18, 1934, ch. 590, 48 Stat. 998, 19 U.S.C. 81a-
81u.
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The framework that governs the establishment and operation
of FTZs has three principal components. First, the Foreign
Trade Zones Act of 1934 (the Act) authorizes the establishment
of FTZs and, as amended in 1950, allows manufacturing in
FTZs.\90\ Second, regulations, promulgated by both the Customs
Service \91\ and the Department of Commerce,\92\ expand on the
Act. A 1952 amendment to the regulations provided for the
establishment of ``subzones'' in addition to general purpose
zones. Third, the decision in Armco Steel Corp. v. Stans in
1970 validated the use of zone manufacturing to avoid customs
duties and interpreted several key provisions of the Act.\93\
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\90\ Boggs amendment of 1959, ch. 296, 64 Stat. 246, 19 U.S.C. 81c.
\91\ 19 CFR 146.0-48 (1980).
\92\ 15 CFR 400.100-1406 (1980).
\93\ 431 F.2d 779 (2d Cir. 1970), aff'g 303 F. Supp. 262 (S.D.N.Y.
1969).
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The original purpose of the Foreign Trade Zones Act of 1934
was to expedite and encourage foreign commerce. Initially, FTZs
were little more than transshipment or consignment centers for
the storage, repackaging, or light processing of foreign goods
pending re-exportation. The 1934 Act prohibited the manufacture
and exhibition of goods in FTZs. In 1950, however, Congress
removed this prohibition and added manufacturing to the list of
activities permitted, and authorized exhibition in zones.
The amendment to the FTZ regulations in 1952 that provided
for the establishment of subzones is important to manufacturing
and assembly operations in zones. The essential distinction
between the two types of zones is that individual subzones are
generally used by only one firm, whereas there is no limitation
on the number of firms that can operate in a general-purpose
zone. Subzones were established to assist companies which were
unable to relocate to or take advantage of an existing general-
purpose zone.\94\ Under the regulations, only a grantee of a
previously approved general zone may apply to establish a
subzone.
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\94\ 15 CFR 400.304 (1983).
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Authority for establishing these facilities is granted to
qualified corporations, or political subdivisions, who must
submit applications to the Department of Commerce's Foreign
Trade Zones Board, comprised of the Secretary of Commerce
(Chair), and the Secretary of the Treasury.\95\ Public Law 104-
201, authorizing appropriations for fiscal year 1997 for the
military activities of the Department of Defense, amended the
Foreign Trade Zones Act to remove the Secretary of Army from
membership on the Board. The Board's regulations set forth the
basic requirements for applying and qualifying for an FTZ. The
statute provides that every officially designated port of entry
is entitled to at least one FTZ. Public hearings are often held
by the Board staff in the locale involved. While most
applications are non-controversial, occasionally domestic
industries or labor that are sensitive to imports will oppose a
subzone application. The sharp growth of manufacturing in
subzones, particularly by the automobile industry, has led to
increased criticism of the practice by U.S. parts producers,
who are concerned that the practice may reduce their effective
tariff protection.
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\95\ 19 U.S.C. 81a(b) (1976). The jurisdiction and authority of the
Board are set forth in 15 CFR 400.200-203 (1980).
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Section 3, which contains the basic substantive provisions
of the Act, allows merchandise to be imported into FTZs without
being subject to U.S. customs laws. The section regulates the
tariff treatment of FTZ merchandise according to its status as
foreign or domestic, and as privileged or non-privileged.
One may apply for privileged status for foreign merchandise
in an FTZ, provided the merchandise has not yet been
manipulated or manufactured so as to effect a change in its
tariff classification. Foreign merchandise that is not
privileged, recovered waste, and merchandise that was
originally domestic but can no longer be identified as such,
are deemed to be non-privileged foreign merchandise. Domestic
merchandise that would otherwise have been eligible for
privileged status but for which no application was made is
considered non-privileged merchandise.
The status of merchandise becomes significant when it
enters U.S. customs territory. Customs appraises and classifies
privileged foreign merchandise to determine the taxes and
duties owed according to the condition of the merchandise when
it enters an FTZ. The importer pays the previously determined
taxes and duties when bringing the merchandise into U.S.
customs territory regardless of any manufacturing or
manipulation of the goods with other foreign or domestic
privileged merchandise.
In contrast, merchandise that is composed entirely of, or
derived entirely from, non-privileged merchandise, either
foreign or domestic, or of a combination of privileged and non-
privileged merchandise, is appraised and classified according
to its condition when constructively transferred out of an FTZ
and into U.S. customs territory. Thus, the duty and taxes
payable on non-privileged or combined merchandise are those
applicable to its classification and value when it enters U.S.
customs territory and not when it enters the zone. This
distinction is an important potential advantage of zone-based
operations.
The United States-Canada Free-Trade Agreement
Implementation Act \96\ amended section 3(a) of the Foreign
Zones Act to provide that, with the exception of ``drawback
eligible goods,'' goods withdrawn from a foreign trade zone
will be treated as if they are withdrawn for consumption in the
United States, thus subject to applicable customs duties. The
North American Free Trade Agreement Implementation Act \97\
further amended section 3(a) to provide that ``goods subject to
NAFTA drawback'' and withdrawn from a foreign trade zone will
be treated as if they are withdrawn for consumption in the
United States, and are thus subject to the applicable customs
duties. The customs duties may be reduced or waived in an
amount that is the lesser of the customs duties paid to the
other NAFTA country upon import of the manufactured goods. The
amendment also provides for the same treatment should Canada
cease to be a NAFTA country and the suspension of the United
States-Canada Free-Trade Agreement is terminated.
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\96\ Public Law 100-449, approved September 28, 1988.
\97\ Public Law 100-182, approved December 8, 1993.
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In addition, an amendment to section 3 with respect to the
calculation of relative values in the operations of petroleum
refineries in a foreign trade zone was enacted in section 9002
of the Technical and Miscellaneous Revenue Act of 1988.\98\
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\98\ Public Law 100-647, approved November 10, 1988.
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Final revised regulations--the first changes to those
regulations since 1980--were issued by the FTZ Board on October
8, 1991 (15 CFR Part 400) clarifying criteria for the
establishment and review of FTZ (including subzone) operations.
Among other provisions, the revised regulations authorize the
review of zone and subzone operations to determine whether
those operations provide a net economic benefit to the United
States.
Use of weekly entry filing.--Section 484 of the Tariff Act
of 1930 (19 U.S.C. 1484) sets forth the procedures for the
entry of merchandise imported into the United States. Under
section 484, the Customs Service has permitted limited weekly
entry filing for foreign trade zones (FTZ) since May 12, 1986,
for merchandise which is manufactured or changed into its final
form just prior to its transfer from the zone (manufacturing
operations). Customs regulations governing entry into and
removal from an FTZ are contained in Part 146 of the Customs
Regulations (19 C.F.R. Part 146). The regulations permit zone
users to make a weekly entry filing for all entries removed for
an entire weekly period, allowing them to pay a single
merchandise processing fee (MPF) for the entire weekly entry
filing instead of an MPF for each entry removed from the zone.
On March 14, 1997, in a Federal Register Notice (62 FR
12129), Customs proposed a rulemaking that would have expanded
the weekly entry filing to include merchandise involved in
activities other than manufacturing operations (non-
manufacturing operations). The expanded weekly entry filing
required electronic filing, which was expected to reduce the
number of paper entries, facilitate entry processing, and
reduce paper work and associated costs form the zones. Customs
tested the expanded weekly entry procedure in a pilot program
authorized in September 1994 for a selected number of zones.
In a Federal Register Notice dated March 17, 1999, Customs
withdrew the proposed amendment to the Customs regulations,
reasoning that the proposed expanded weekly entry program would
significantly reduce the collection of merchandise processing
fees. As a result, weekly entry filing from a zone could only
be used for entries involving manufacturing operations.
Section 410 of the Trade and Development Act of 2000
(Public Law 106-200) amended section 484 of the Tariff Act of
1930 to establish a new section 19 U.S.C. 1484(a)(3). This
legislation allows merchandise withdrawn from a foreign-trade
zone during a week (i.e., any 7 calendar day period) to be the
subject of a single entry filing, at the option of the zone
operator or user. This statutory change allows zone users the
option of making weekly entry filing for both manufacturing and
non-manufacturing operations, and the merchandise processing
fee would be collected as if all entries during one week were
made as a single entry.
Deferral of duty on certain production equipment.--The
Miscellaneous Trade and Technical Corrections Act of 1996
(Public Law 104-295) amended section 3 of the Foreign Trade
Zones Act to permit the deferral of payment of duty on certain
production equipment admitted into FTZs. The provision allows
for duty on imported production equipment and components
installed in a U.S. FTZ to be deferred until the equipment is
ready to be placed into use for production. By allowing a
manufacturer to assemble, install, and test the equipment
before duties would be levied, this change is meant to
encourage production in FTZs.
Chapter 2: TRADE REMEDY LAWS
The Antidumping and Countervailing Duty Laws
Two important trade remedy laws are the antidumping (AD)
and countervailing duty (CVD) laws. Although these laws are
aimed at different forms of unfair trade, they have many
procedural and substantive similarities.
CVD Law: Subsidy Determination
The purpose of the CVD law is to offset any unfair
competitive advantage that foreign manufacturers or exporters
might enjoy over U.S. producers as a result of foreign
countervailable subsidies. Countervailing duties equal to the
net amount of the countervailable subsidies are imposed upon
importation of the subsidized goods into the United States.
Subtitle A of title VII of the Tariff Act of 1930, as added
by the Trade Agreements Act of 1979 and amended by the Trade
and Tariff Act of 1984, the Omnibus Trade and Competitiveness
Act of 1988, and the Uruguay Round Agreements Act of 1994,\1\
provides that a countervailing duty shall be imposed, in
addition to any other duty, equal to the amount of net
countervailable subsidy, if two conditions are met. First, the
Department of Commerce (DOC) must determine that a
countervailable subsidy is being provided, directly or
indirectly, ``with respect to the manufacture, production, or
export of a class or kind of merchandise imported, or sold (or
likely to be sold) into the United States'' and must determine
the amount of the net countervailable subsidy. Second, the U.S.
International Trade Commission (ITC) must determine that ``an
industry in the United States is materially injured, or is
threatened with material injury, or the establishment of an
industry in the United States is materially retarded, by reason
of imports of that merchandise or by reason of sales (or the
likelihood of sales) of that merchandise for importation.'' The
law applies to imports from World Trade Organization (WTO)
member countries, which have assumed obligations equivalent to
those of the Agreement on Subsidies and Countervailing
Measures, commonly referred to as the Subsidies Agreement, or
countries with whom the United States has a treaty requiring
unconditional most-favored-nation treatment with respect to
articles imported into the United States. A countervailing duty
may not be imposed on imports from these countries unless it is
established that a countervailable benefit has been imposed and
a determination has been made that such subsidized imports
injure or threaten to injure domestic producers of that
merchandise (i.e., the injury test). However, imports from
countries which do not fall into one of these three categories
are generally not afforded an injury test in CVD cases.
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\1\ 19 U.S.C. 1671.
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Historical background: prior to the General Agreement on Tariffs and
Trade (GATT) rules
The first U.S. statute dealing with foreign unfair trade
practices was a CVD law passed in 1897. The provisions of the
1897 statute remained substantially the same until 1979, when
the U.S. CVD law was changed to conform with the agreement
reached in the Tokyo Round of multilateral trade negotiations.
The law prior to 1979 required the Secretary of the
Treasury to assess countervailing duties on imported dutiable
merchandise benefiting from the payment or bestowal of a
``bounty or grant.'' The 1897 law authorized countervailing
duties against any bounty or grant on the export of foreign
articles. In 1922, Congress amended the provision to cover
bounties or grants on the manufacture or production of
merchandise as well as on its export. The amount of the
countervailing duty was to equal the net amount of the ``bounty
or grant.'' Prior to the amendments made by the Trade Act of
1974, the CVD law applied only to dutiable merchandise and
afforded no injury test.
The Trade Act of 1974 made two important changes to the CVD
law, although the substantive requirements of the CVD law
remained virtually the same. First, it extended the application
of the CVD law for the first time to duty-free imports, subject
to a finding of injury as required by the international
obligations of the United States (i.e., duty-free imports from
GATT members).
Second, the Trade Act of 1974 made extensive changes in
many procedural aspects of the law, which had the effect of
limiting executive branch discretion in administering the CVD
statute. The responsibilities for CVD investigations were also
split, with the Department of Treasury being responsible for
subsidy determinations and the ITC being responsible for injury
determinations. In 1979, under President Carter's
Reorganization Plan No. 3, the responsibility for administering
the subsidy portions of the CVD statute was transferred from
the Department of the Treasury to the DOC.\2\
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\2\ Exec. Order No. 12188, January 4, 1980, 44 Fed. Reg. 69273.
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Tokyo Round Subsidies Code
During the Tokyo Round of trade negotiations in the 1970's,
a multilateral agreement governing the use of subsidies and
countervailing measures was concluded and signed by the United
States. In order to enforce obligations with regard to the use
of subsidies, the Agreement provided for improved international
procedure for notification, consultation and dispute settlement
and, where a breach of an obligation concerning the use of
subsidies is found to exist, or a right to relief exists
countermeasures are contemplated. In addition to the
availability of either remedial measures or countermeasures
through the dispute settlement process, countries could also
take traditional countervailing duty action to offset subsidies
upon a showing of material injury to a domestic industry by
reason of subsidized imports. The agreement set out criteria
for material injury determinations.
The key provisions of the Agreement were as follows: (1)
prohibition of export subsidies on non-primary products as well
as primary mineral products; (2) description of export
subsidies which superseded the requirement that an export
subsidy must result in export prices lower than prices for
domestic sales, and inclusion of an updated illustrative list
of subsidy practices; (3) recognition of the harmful trade
effects of domestic subsidies and therefore, the permissibility
of relief (including countermeasures) where such subsidies
injure domestic producers and nullify or impair benefits of
concessions under the GATT (including tariff bindings); or
cause serious prejudice to the other signatories; (4)
commitment by signatories to ``take into account'' conditions
of world trade and production (e.g., prices, capacity, etc.) in
fashioning their subsidy practices; (5) improved discipline on
the use of export subsidies for agriculture; (6) provisions
governing the use and phase-out of export subsidies by
developing countries; (7) tight dispute settlement process; (8)
greater transparency regarding subsidy practices including
provisions for GATT notification of practices of other
countries; (9) an injury and causation test designed to afford
relief where subsidized imports (whether an export or domestic
subsidy is involved) impact on U.S. producers either through
volume or through effect on prices; and (10) greater
transparency in the administration of CVD laws and regulations.
Congress approved the GATT Subsidies Code under section
2(a) of the Trade Agreements Act of 1979. Section 101 of the
1979 Act added a new title VII to the Tariff Act of 1930,
containing the new provisions of the CVD law to conform to U.S.
obligations under the Subsidies Code. One of the most
fundamental changes made by the 1979 Act was the requirement of
an injury test in all CVD cases involving imports from
``countries under the Agreement''--countries which either are
signatories to the Subsidies Code or have assumed substantially
equivalent obligations to those under the Code. For countries
that were not ``countries under the Agreement,'' a special
section of the CVD statute applied. Specifically, section 303
of the Tariff Act of 1930, as amended, permitted countervailing
duties to be imposed without an injury test for such countries.
In addition, section 303 applied a different definition of
subsidy. Other changes made by the 1979 Act included the grant
of provisional relief for the first time, reduction of the time
periods for investigation, and greater opportunities for
participation by interested parties.
Uruguay Round Subsidies Agreement
The Uruguay Round Subsidies Agreement goes beyond the Tokyo
Round Code by: (1) providing definitions of key terms such as
``subsidy'' and ``serious prejudice'' for the first time in any
GATT agreement; (2) prohibiting export subsidies and subsidies
based on the use of domestic instead of imported goods; (3)
creating a special presumption of serious prejudice for
egregious subsidies; (4) defining and significantly
strengthening the procedures for showing when serious prejudice
exists in foreign markets; (5) creating a ``green light''
category (which lapsed January 1, 2000) of government
assistance that is non-actionable and non-countervailable; (6)
requiring most developing countries to phase out export
subsidies and import substitution subsidies; and (7) applying
the WTO dispute settlement mechanism, which will end the
present ability of the subsidizing government to block adoption
of unfavorable panel reports.
In 1994, Congress implemented the Agreement on Subsidies
and Countervailing Measures of the Uruguay Round Multilateral
Trade Negotiations (Subsidies Agreement) under title II of the
Uruguay Round Trade Agreements Act. Part 2 of subtitle B under
title II contains the repeal of section 303 of the Tariff Act
of 1930 and the new provisions of the CVD law to conform to
U.S. obligations under the Subsidies Agreement.
The Act provides for the application of an injury test to
all members of the WTO. The definition of a subsidy applicable
to non-WTO members was incorporated in section 701 of the
Tariff Act of 1930. Accordingly, section 303 was repealed
because it was no longer necessary. The Uruguay Round
Agreements Act provides a special procedure for making injury
determinations for those CVD orders, previously issued under
section 303, which apply to goods from a country not a
signatory to the Code but now a member of the WTO.
Highlights of the Uruguay Round Subsidies Agreement and CVD Statute
Definition of a subsidy.--Section 251 of the Uruguay Round
Agreements Act provides that a subsidy is determined to exist
if there is a financial contribution by a government or any
public body, or any form of income or price support, which
confers a benefit. Examples of financial contribution include a
direct transfer of funds (e.g., grants, loans, equity
infusions), a potential direct transfer (e.g., loan
guarantees), the foregoing of revenue otherwise due (e.g., tax
credits), the provision of goods or services, other than
general infrastructure, or the purchase of goods. This may also
include cases where a government entrusts or directs a private
body to carry out these functions. The Uruguay Round Agreements
Act also provides guidelines for determining when there is a
``benefit to the recipient'' in the case of an equity infusion,
a loan, a loan guarantee, or provision of goods or services.
Specificity.--In determining whether a countervailable
subsidy exists, the statute provides that a subsidy will be
deemed to be ``specific'' if it is provided in law or in fact
to a specific enterprise or industry, or group of enterprises
or industries. Export subsidies (i.e., those contingent upon
export performance), import substitution subsidies (i.e., those
contingent on the use of domestic over imported goods), and
certain domestic subsidies if provided to a specific enterprise
or industry, or group of enterprises or industries are
included. A subsidy limited to certain enterprises within a
designated geographical region is considered specific.
Prohibited ``red light'' subsidies.--The Agreement
identifies two types of subsidies that are prohibited under all
circumstances: (1) subsidies based on export performance and
(2) subsidies based on the use of domestic rather than imported
goods. Article III includes those covered in the illustrative
list of export subsidies provided in annex I to the Agreement
such as more favorable transport and freight terms for exports,
special tax deductions based on export, and export credit
guarantees or insurance programs providing rates that are
inadequate to cover long-term operating costs. The Uruguay
Round Agreements Act establishes procedures for investigating
prohibited subsidies; if Commerce has reason to believe that
foreign goods are benefiting from a prohibited subsidy, the
United States Trade Representative (USTR) will then determine
whether to initiate a section 301 investigation.
Non-actionable ``green light'' subsidies.--The Agreement
identifies three types of non-countervailable or ``green
light'' subsidies: (1) certain research subsidies (excluding
those provided to the aircraft industry); (2) subsidies to
disadvantaged regions; and (3) subsidies for adaptation of
existing facilities to new environmental requirements. The
Uruguay Round Agreements Act provides expressly that the
``green light'' provisions on research and pre-competitive
development activity do not apply to civil aircraft products.
The Agreement stipulates that the provisions on non-
actionable subsidies apply for 5 years, unless extended or
modified. Because the Subsidies Committee of the WTO was unable
to reach a consensus on extending the application of these
provisions in their existing or modified form, the ``green
light'' provisions automatically lapsed as of January 1, 2000.
Accordingly, with the exception of non-specific subsidies,
which remain non-actionable and non-countervailable, subsidies
formerly qualifying as non-actionable ``green light'' subsidies
now fall within the actionable category.
Enforcement of U.S. rights.--Sections 281 and 282 of the
Uruguay Round Agreements Act set forth a mechanism for
enforcing U.S. rights under the Uruguay Round Subsidies
Agreement, reviewing the operation of provisions in the
Agreement relating to green light subsidies, and ensuring
prompt and effective implementation of successful WTO dispute
settlement proceedings.
Section 282 of the Uruguay Round Agreements Act \3\
provides for an ongoing review of the Subsidies Agreement and
establishes objectives for that review. Footnote 25 of the
Subsidies Agreement required the Subsidies Committee to review
the operation of the green light category of research subsidies
within 18 months from the date of entry into force: January 1,
1995. Under section 282, the Administration was required to
include all green light subsidies in its review.
---------------------------------------------------------------------------
\3\ Public Law 103-465, 19 U.S.C. 3572.
---------------------------------------------------------------------------
Section 282(c) provides that subparagraphs B, C, D, and E
of section 771 of the Tariff Act of 1930, which established the
non-countervailable status of ``green light'' subsides under
U.S. law, expire 66 months after the date of entry into force
of the WTO unless extended by Congress. USTR is directed to
consult with the appropriate congressional committees and the
private sector and then submit legislation to implement an
extension of the ``green light'' subsidies, if such an
extension is agreed upon by the WTO. A bill to provide such an
extension would be considered under ``fast track'' procedures.
Because the Subsidies Committee of the WTO was unable to reach
a consensus on extending the ``green light'' subsidies
provisions by December 31, 1999, subparagraphs B, C, D, and E
of section 771 of the Tariff act of 1930 expired on July 1,
2000.
Rules for developing countries.--The Uruguay Round
Agreements Act provides different treatment for developing
country subsidies because the Subsidies Agreement provides an
8- to 10-year window for developing countries with annual GNP
per capita at or above $1,000 to phase out all export
subsidies. For least developed countries and countries with GNP
per capita below $1,000, the phase-out period for export
subsidies for competitive products is 8 years. Developing
countries are allowed a 5-year phase-out period, and the least-
developed countries an 8-year period, to eliminate prohibited
import substitution subsidies.
Subsidy determinations
As noted above, section 701 of the Tariff Act of 1930, as
amended,\4\ provides for the imposition of additional duties
whenever a countervailable subsidy is bestowed by a foreign
country upon the manufacture or production for export of any
article which is subsequently imported into the United States.
Reference to the sale of merchandise includes the entering into
of any leasing arrangement regarding the merchandise that is
equivalent to the sale of the merchandise. The countervailing
duty will apply whether the merchandise is imported directly or
from third countries, and whether or not in the same condition
as when exported.
---------------------------------------------------------------------------
\4\ 19 U.S.C. 1671.
---------------------------------------------------------------------------
Again, as noted above, section 701(c) applies to a country
which is not a ``Subsidies Agreement country.'' Under section
701(c), a country which is not a ``Subsidies Agreement
country'' is not entitled to an injury test. In addition,
certain provisions pertaining to suspension agreements, special
rules for regional industries, critical circumstances, and the
5-year review of countervailing duty orders do not apply to
such a country.
Countervailing duties are imposed in the amount of the net
countervailable subsidy as determined by the DOC. To determine
the amount of net countervailable subsidy on which the CVD will
be based, the DOC may subtract from gross countervailable
subsidy the amount of:
(1) any application fee, deposit, or similar payment
paid to qualify for or receive the subsidy;
(2) any loss in the countervailable subsidy value
resulting from deferred receipt mandated by government
order; and
(3) export taxes, duties, or other charges levied on
the exports to the United States specifically intended
to offset the countervailable subsidy.
Upstream subsidies
The Trade and Tariff Act of 1984 modified the application
of the CVD law to ``upstream subsidies''--subsidies bestowed on
inputs which are then incorporated into the manufacture of a
final product which is exported to the United States. Section
268 of Uruguay Round Agreements Act further modified the law by
establishing criteria for determining the existence of an
upstream subsidy. Additional criteria were necessary given the
additions of the statutory definition of subsidy and the new
category of import substitution subsidies.
Section 771(A) of the Tariff Act of 1930, as amended, which
provides for upstream subsidies, is unrelated to the basic
definition of a subsidy. The potential for an upstream subsidy
exists only when a sector-specific benefit meeting all the
other criteria of being a countervailable subsidy is provided
to the input producer. A determination that the subsidy is also
bestowing a ``competitive benefit'' on the merchandise is also
required. The provision is also limited to countervailable
subsidies paid or bestowed by the country in which the final
product is manufactured.
With regard to the ``competitive benefit'' criterion, the
DOC must decide that a competitive benefit has been bestowed
when the price for the input used in manufacture or production
of the merchandise subject to investigation is lower than the
price the manufacturer or producer would otherwise pay for the
input from another seller in an arm's length transaction.
Whenever the DOC has reasonable grounds to believe or suspect
an upstream subsidy is being paid or bestowed, the DOC must
investigate whether it is in fact and, if so, include the
amount of any competitive benefit, not to exceed the amount of
upstream subsidy, in the amount of any CVD imposed on the
merchandise under investigation.
Agricultural subsidies
Section 771(5B) provides a separate, special rule for the
calculation of countervailable subsidies on certain processed
agricultural products.
AD Law: Less-Than-Fair-Value (LTFV) Determination
Dumping generally refers to a form of international price
discrimination, whereby goods are sold in one export market
(such as the United States) at prices lower than the prices at
which comparable goods are sold in the home market of the
exporter, or in its other export markets.
Three provisions of U.S. law address different types of
dumping practices. The Antidumping Act of 1916 provides for
criminal and civil penalties for the sale of imported articles
at a price substantially less than the actual market value or
wholesale price, with the intent of destroying or injuring an
industry in the United States. Title VII of the Tariff Act of
1930, as amended, provides for the assessment and collection of
AD duties by the U.S. government after an administrative
determination that foreign merchandise is being sold in the
U.S. market at less than fair value and that such imports are
materially injuring the U.S. industry. Finally, section 1317 of
the Omnibus Trade and Competitiveness Act of 1988 establishes
procedures for the USTR to request a foreign government to take
action against third-country dumping that is injuring a U.S.
industry, and section 232 of the Uruguay Round Agreements Act
permits a third country to request that an order be issued
against dumped imports from another country that are materially
injuring an industry in a third country.
Historical background \5\
In 1916 the Congress enacted the Antidumping Act of 1916,
providing a civil cause of action in federal court for private
damages as well as for criminal penalties against parties who
dump foreign merchandise in the United States.\6\ The
requirements under this statute, however, particularly the need
to show evidence of intent, are difficult to meet, and the need
for a different type of AD law was subsequently considered by
Congress. In 1921 the Antidumping Act of 1921 was passed, which
provided the statutory basis, until 1979, for an administrative
investigation by the Department of the Treasury of alleged
dumping practices and for imposition of AD duties.\7\ In 1954,
the administration of the AD law was split, and the function of
determining injury was transferred from the Treasury Department
to the U.S. Tariff Commission (now the ITC). The function of
determining sales at less than fair value was left with the
Treasury Department until 1979.
---------------------------------------------------------------------------
\5\ For another useful discussion of the history of the development
of U.S. antidumping laws, see Congressional Budget Office, How the GATT
affects U.S. Antidumping and Countervailing-Duty Policy, Sept. 1994.
\6\ Act of September 8, 1916, ch. 463, sec. 801, 39 Stat. 798, 15
U.S.C. 72.
---------------------------------------------------------------------------
For a description of the challenge to the Antidumping Act of
1916 in the WTO brought by the European Union and Japan, see
the discussion of WTO Panel Reviews at the end of the AD/CVD
section.
---------------------------------------------------------------------------
\7\ Act of May 27, 1921, ch. 14, 42 Stat. 11, 19 U.S.C. 160 (now
repealed).
---------------------------------------------------------------------------
During the post-World War II negotiations to establish an
International Trade Organization, the United States proposed a
draft article on dumping, based on the Antidumping Act of 1921.
This draft became the basis for article VI of the GATT, which
is the international framework governing national AD laws.
During the 1960's, AD actions and their potential for
abuse, rather than the dumping practice itself, became a source
of great concern to many nations. As a result, during the
Kennedy Round of multilateral trade negotiations, the GATT
Antidumping Code of 1967 was established. The 1967 Code had
three main functions: (1) to clarify and elaborate on the broad
concepts of article VI of the GATT; (2) to supplement article
VI by establishing appropriate procedural requirements for AD
investigations; and (3) to bring all GATT signatory countries
into conformity with article VI. The GATT Antidumping Code came
into force on July 1, 1968, and provided for the establishment
of a GATT Committee on Antidumping Practices, whose function
was to review annually the operation of national antidumping
laws.
During the Tokyo Round of multilateral trade negotiations
in the 1970's, the GATT Antidumping Code was amended to conform
to the newly negotiated Agreement Relating to Subsidies and
Countervailing Measures, also negotiated at that time and
involving changes in article VI of the GATT. The GATT Agreement
on Implementation of article VI of the GATT, Relating to
Antidumping Measures, came into force on January 1, 1980.\8\
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\8\ Agreement on Implementation of article VI of the General
Agreement on Tariffs and Trade, MTN/NTM/W/232, reprinted in House Doc.
No. 96-153, pt. I at 311.
---------------------------------------------------------------------------
The Congress approved the revised GATT Antidumping Code
under section 2(a) of the Trade Agreements Act of 1979.\9\
Title I of the 1979 Act repealed the Antidumping Act of 1921
and added a new title VII to the Tariff Act of 1930
implementing the provisions of the Agreement in a new U.S.
antidumping law. In addition to the substantive and procedural
changes made by the 1979 Act, the responsibility for making
dumping determinations was transferred from the Department of
the Treasury to the DOC in 1979.\10\ The AD law was further
amended by title VI of the Trade and Tariff Act of 1984,\11\
and title I, subtitle C, part 2 of the Omnibus Trade and
Competitiveness Act of 1988.
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\9\ Public Law 96-39, approved July 26, 1979.
\10\ Reorganization Plan No. 3 of 1979, 44 Fed. Reg. 69,273 (Dec.
3, 1979); and Exec. Order No. 12188, January 2, 1980, 45 Fed. Reg. 989.
\11\ Public Law 98-573, approved October 30, 1984. Technical
corrections to the 1984 amendments were included in section 1886 of the
Tax Reform Act of 1986, Public Law 99-514, approved October 22, 1986.
---------------------------------------------------------------------------
Finally, during the Uruguay Round negotiations, provisions
related to antidumping were further amended through the
Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994 (the Antidumping
Agreement). Article VI of the original GATT remained unchanged
in the 1994 GATT Agreement.
Effective January 1, 1995, the Congress implemented the
Antidumping Agreement under title II of the Uruguay Round
Agreements Act. The Act made considerable substantive and
procedural changes to the U.S. AD statute.
Basic provisions
Section 731 of the Tariff Act of 1930, as amended,\12\
provides that an AD duty shall be imposed, in addition to any
other duty, if two conditions are met. First, the DOC must
determine that ``a class or kind of foreign merchandise is
being, or is likely to be, sold in the United States at less
than its fair value.'' The determination of whether LTFV sales
exist, and what is the margin of dumping, is based on a
comparison of ``normal value'' with the ``export price'' of
each import sale made during the relevant time period under
investigation. Second, the ITC must determine that ``an
industry in the United States is materially injured, or is
threatened with material injury, or the establishment of an
industry in the United States is materially retarded, by reason
of imports of that merchandise.'' If the DOC determines that
LTFV sales exist and the ITC determines that material injury
exists, an AD order is issued imposing AD duties equal to the
amount by which normal value (i.e., the price in the foreign
market) exceeds the export price (i.e., U.S. price) for the
merchandise (the dumping margin).
---------------------------------------------------------------------------
\12\ 19 U.S.C. 1673.
---------------------------------------------------------------------------
Basis of comparison: normal value
Normal value is determined by one of three methods, in
order of preference: home market sales, third-country sales, or
constructed value. If a foreign like product is sold in the
market of the exporting country for home consumption, then
normal value is to be based on such sales. If home market sales
do not exist, or are so few as to form an inadequate basis for
comparison, then the price at which the foreign like product is
sold for exportation to countries other than the United States
becomes the basis for normal value. If neither home market
sales nor third-country sales form an adequate basis for
comparison, then normal value is the constructed value of the
imported merchandise. Constructed value is determined by a
formula set forth in the statute, which is the sum of costs of
production, plus the actual amount of profit and for selling,
general and administrative expenses. If actual data is not
available, then a surrogate for profit and such expenses may be
used, as specified in the statute.
Normal value based on home market or third-country sales is
a single price, in U.S. dollars, which represents the weighted
average of prices in the home market or third-country market
during the period under investigation. Sales made at less than
the cost of production may be disregarded in the determination
of normal value under certain circumstances. Adjustments are to
be made for differences in merchandise, quantities sold,
circumstances of sale, and differences in level of trade to
provide for comparability of normal value with export price.
Section 223(a)(7) of the Uruguay Round Agreements Act and the
accompanying Statement of Administrative Action (SAA) changed
the requirements for making level of trade adjustments to
provide that the DOC is to make a level of trade adjustment
(i.e., deduct the price difference between the two levels of
trade) if sales are made at different levels of trade and the
appropriate adjustment can be established. The level of trade
adjustment was intended to provide the normal value counterpart
to the related party profit deduction in constructed export
price sales (described below) so that the effect is to compare
a U.S. sale to a sale in the home market at the same point in
the commercial transaction. Finally, averaging or sampling
techniques may be used in the determination of normal value
whenever a significant volume of sales is involved or a
significant number of price adjustments is required.
If the exporting country is a non-market economy, the
normal value is constructed by valuing the non-market economy
producer's ``factors of production'' in a market economy
country which is a significant producer of comparable
merchandise and which is at a level of economic development
comparable to the non-market economy, and adding amounts for
general expenses, profits, and packing. The ``factors of
production'' include labor, raw materials, energy and other
utilities, and representative capital costs.
In determining whether a country is a non-market economy,
the DOC will consider: the convertibility of the country's
currency, whether wages are determined through free bargaining
between labor and management, whether foreign investment is
permitted, the extent of government ownership, and the extent
of government control over the allocation of resources and the
pricing and output decisions of enterprises. The DOC's
determination of whether a country is a non-market economy is
not subject to judicial review.
Export price
The margin of dumping, and the amount of antidumping duty
to be imposed, is determined by comparing the normal value with
the export price of each entry into the United States of
foreign merchandise subject to the investigation. Export price
in general refers to either ``export price'' or the
``constructed export price'' of the merchandise, whichever is
appropriate. ``Export price'' is the price at which merchandise
is purchased or agreed to be purchased prior to date of
importation to the United States. It is typically used where
the purchaser is unrelated to the foreign manufacturer and is
based on the price agreed to before importation into the United
States. However, it may be used if the purchaser and foreign
manufacturer are related but the purchaser is merely the
processor of sales-related documentation and does not set the
price to the first unrelated customer. ``Constructed export
price'' is the price at which merchandise is sold or agreed to
be sold in the United States before or after importation, by or
for the account of the producer or exporter to the first
unrelated purchaser. Typically, it is used if the purchaser and
exporter are related.
Export price is adjusted to derive an ex-factory price,
including the subtraction of certain delivery expenses and U.S.
import duties. Additional subtractions are made from
constructed export price, including selling commissions,
indirect selling expenses, and expenses and profit for further
manufacturing in the United States. In addition, the Uruguay
Round Agreements Act provides for the deduction of an amount
for related party profit, if any, earned in a sale through a
related distributor to an end-user in the United States.
Third country dumping
Section 1318 of the Omnibus Trade and Competitiveness Act
of 1988 was enacted in response to concern over the injurious
effects of foreign dumping in third country markets. Section
1318 establishes procedures for domestic industries to petition
the USTR to pursue U.S. rights under article 12 of the GATT
Antidumping Code. A domestic industry that produces a product
like or directly competitive with merchandise produced by a
foreign country may submit a petition to USTR if it has reason
to believe that such merchandise is being dumped in a third
country market and such dumping is injuring the U.S. industry.
If USTR determines there is a reasonable basis for the
allegations in the petition, USTR shall submit to the
appropriate authority of the foreign government an application
requesting that antidumping action be taken on behalf of the
United States. Article 12 of the GATT Antidumping Code requires
that such an application ``be supported by price information to
show that the imports are being dumped and by detailed
information to show that the alleged dumping is causing injury
to the domestic industry concerned.'' (paragraph 2, article
12). Accordingly, at the request of the U.S. Trade
Representative, the appropriate officers of the DOC and the ITC
are to assist USTR in preparing any such application.
After submitting an application to the foreign government,
USTR must seek consultations with its representatives regarding
the requested action. If the foreign government refuses to take
any AD action, USTR must consult with the domestic industry on
whether action under any other U.S. law is appropriate.
The Uruguay Round Antidumping Agreement added a provision
providing authority to issue an order upon the request of a
third country, under certain circumstances. The Uruguay Round
Agreements Act provides that the government of a WTO member may
file with USTR a petition requesting that an investigation be
conducted to determine if imports from another country are
being dumped in the United States, causing material injury to
an industry in the petitioning country. USTR, after
consultation with the DOC and the ITC, and after obtaining the
approval of the WTO Council for Trade in Goods, is to determine
whether to initiate an investigation. If the DOC determines
that imports are dumped and the ITC determines that an industry
in the petitioning country is materially injured by such
imports, the DOC is to issue an AD order.
AD and CVD Laws: Material Injury Determination
Prior to issuance of an AD or CVD order, the ITC must
determine that the domestic industry is being materially
injured, or threatened with material injury, or the
establishment of a domestic industry is materially retarded, by
reason of dumped or subsidized imports. The standard of injury
under the AD and CVD laws is ``material injury,'' defined by
section 771(7) of the Tariff Act of 1930 as harm which is not
inconsequential, immaterial, or unimportant.
The ITC determination of injury basically involves a two-
prong inquiry: first, with respect to the fact of material
injury, and second, with respect to the causation of such
material injury (i.e., that dumping caused the injury, and not
other factors). The ITC is required to analyze the volume of
imports, the effect of imports on U.S. prices of like
merchandise, and the effects that imports have on U.S.
producers of like products, taking into account many factors,
including lost sales, market share, profits, productivity,
return on investment, and utilization of production capacity.
Also relevant are the effects on employment, inventories,
wages, the ability to raise capital, and negative effects on
the development and production activities of the U.S. industry.
Finally, in AD investigations, the ITC is to consider the
magnitude of the dumping margin.
Section 222(b)(2) of the Uruguay Round Agreements Act (19
U.S.C. 1677(7)(C)(iv)) states that, in determining market share
and the factors affecting financial performance, the ITC is to
focus primarily on the merchant market for the domestic like
product if domestic producers internally transfer significant
production of the domestic like product for the production of a
downstream article (i.e., captive production not for sale on
the merchant market). The SAA accompanying the implementing
legislation makes clear that captively produced imports are not
to be included in the import penetration ratio for the merchant
market if they do not compete with merchant market
production.\13\
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\13\ The Uruguay Round Agreements Act Statement of Administrative
Action at 853.
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Section 771(7) of the Tariff Act of 1930, as amended,
requires the ITC to cumulatively assess the volume and effect
of like imports from two or more countries subject to
investigation if the imports compete with each other and with
like products of the domestic industry in the U.S. market, as
long as the relevant petitions were filed on the same day or
investigations were initiated on the same day (for cases which
were self-initiated). However, the ITC is to immediately
terminate an investigation with respect to a country (and,
hence, may not cumulate imports from that country) if imports
from that country are ``negligible.'' Section 222(d) of the
Uruguay Round Agreements Act amended the negligibility standard
so that imports from a country are to be considered negligible
if they account for less than 3 percent of the volume of all
imports of such merchandise and if imports from all countries
accounting for less than 3 percent do not exceed 7 percent of
imports. Finally, the ITC has discretion not to cumulate
imports when the imports subject to investigation are products
of Israel.
Issues Common to AD and CVD Investigations
Initiation of investigation
AD and CVD investigations may be self-initiated by the DOC
or may be initiated as a result of a petition filed by an
interested party. Petitions may be filed by any of the
following, on behalf of the affected industry: (1) a
manufacturer, producer, or wholesaler in the United States of a
like product; (2) a certified or recognized union or group of
workers which is representative of the affected industry; (3) a
trade or business association with a majority of members
producing a like product; (4) a coalition of firms, unions, or
trade associations that have individual standing; or (5) a
coalition or trade association representative of processors, or
processor and growers, in cases involving processed
agricultural products. The DOC is required to provide technical
assistance to small businesses to enable them to prepare and
file petitions.
Petitions are to be filed simultaneously with both the DOC
and ITC. Within 20 days after the filing of a petition, the DOC
must decide whether or not the petition is legally sufficient
to commence an investigation. If so, an investigation is
initiated with respect to imports of a particular product from
a particular country.
Because of new standing provisions in the Uruguay Round
Agreements, section 212 of the Uruguay Round Agreements Act
requires DOC to determine, as part of its initiation
determination, whether the petition has been filed by or on
behalf of the industry. A petitioner has standing if: (1) the
domestic producers or workers who support the petition account
for at least 25 percent of the total production of the like
product; and (2) the domestic producers or workers who support
the petition account for more than 50 percent of the production
of the domestic like product produced by that portion of the
industry expressing support for or opposition to the petition.
The SAA accompanying the Act specifies that if the management
of a firm expresses a position in direct opposition to the
views of the workers in that firm, DOC will treat the
production of that firm as representing neither support for nor
opposition to the petition.\14\ The DOC is to poll the industry
if the petition does not meet the second test set forth above.
In such circumstances, the DOC is permitted 40 days in which to
determine whether it will initiate an investigation. Standing
of the industry may not be challenged to the agency after an
investigation is initiated but may be challenged later in
court.
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\14\ Uruguay Round Agreements Act Statement of Administrative
Action at 862.
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Section 609 of the Trade and Tariff Act of 1984 establishes
a procedure in AD investigations by which the DOC may monitor
imports from additional supplier countries for up to 1 year in
order to determine whether persistent dumping exists with
respect to that product and self-initiation of additional
dumping cases is warranted.
Preliminary ITC injury determination
The ITC must determine whether there is a ``reasonable
indication'' of material injury, based on the information
available to it at the time. The petitioner bears the burden of
proof with respect to this issue. If the ITC preliminary
determination is negative, the investigation is terminated. If
it is positive, the investigation continues. The ITC is to make
this determination within 45 days of the date of filing of the
petition or self-initiation, or within 25 days after the date
on which the ITC receives notice of initiation if the DOC has
extended the period for initiation in order to poll the
industry to determine standing.
Preliminary DOC determination
If the ITC makes an affirmative preliminary injury
determination, then the DOC must determine whether dumping or
subsidization is occurring.
In AD cases, the DOC must determine whether there is a
``reasonable basis to believe or suspect that the merchandise
is being sold, or is likely to be sold, at less than fair
value,'' within 140 days after initiation. The preliminary
determination is based on the information available to the DOC
at the time. If affirmative, the preliminary determination must
include an estimated average amount by which the normal value
exceeds the export price. An expedited preliminary
determination within 90 days of initiation of the investigation
may be made based on information received during the first 60
days if such information is sufficient and the parties provide
a written waiver of verification and an agreement to have an
expedited preliminary determination. A preliminary
determination may also be expedited for cases involving short
life cycle merchandise, if the foreign producer has been
subject to prior affirmative dumping determinations on similar
products. On the other hand, the preliminary determination may
be postponed until 190 days after initiation by the DOC, at the
petitioner's request or in cases which the DOC determines are
extraordinarily complicated.
In subsidy cases, the DOC must determine whether there is a
``reasonable basis to believe or suspect that a countervailable
subsidy is being provided,'' within 65 days after initiation of
the investigation. In cases involving upstream subsidies, the
time period may be extended to 250 days. If affirmative, the
preliminary determination must include an estimated amount of
the net countervailable subsidy. An expedited preliminary
determination may be made based on information received during
the first 50 days if such information is sufficient and the
parties provide a written waiver of verification and agree to
an expedited preliminary determination. On the other hand, the
preliminary determination may be postponed until 130 days after
initiation at the petitioner's request or in cases which the
DOC determines are extraordinarily complicated.
The effect of an affirmative preliminary determination is
twofold: (1) The DOC must order the suspension of liquidation
of all entries of foreign merchandise subject to the
determination from the date of publication of the preliminary
determination. The DOC must also order the posting of a cash
deposit, bond, or other appropriate security for each
subsequent entry of the merchandise equal to the estimated
margin of dumping or the amount of the net countervailable
subsidy; and (2) the ITC must begin its final injury
investigation, and the DOC must make all information available
to the ITC which is relevant to an injury determination. If the
preliminary determination is negative, no suspension of
liquidation occurs, and the DOC investigation simply continues
into the final stage.
In AD investigations in which the petitioner alleges
critical circumstances, the DOC must determine, on the basis of
information available at the time, whether (1) there is a
history of dumping and material injury in the United States or
elsewhere of the subject merchandise, or the importer knew or
should have known that the merchandise was being sold at less
than fair value and that there was likely to be material injury
by reason of such sales; and (2) there have been massive
imports of the merchandise over a relatively short period.
In CVD investigations involving ``countries under the
Agreement'' in which the petitioner alleges critical
circumstances, the DOC must determine, on the basis of
information available at the time, whether (1) the alleged
countervailable subsidy is inconsistent with the GATT Subsidies
Agreement; and (2) there have been massive imports of the
merchandise over a relatively short period.
In both AD and CVD investigations, this critical
circumstances determination may be made beginning prior to a
preliminary determination of subsidies or sales at less than
fair value. If the DOC determines critical circumstances exist,
then any suspension of liquidation ordered is to retroactively
apply to unliquidated entries of merchandise entered up to 90
days prior to the date suspension of liquidation was ordered.
Final DOC determination
In AD investigations, the DOC must issue its final LTFV
determination within 75 days after the date of its preliminary
determination, unless a timely request for extension is
granted, in which case the final determination must be made
within 135 days. In CVD investigations, the DOC must issue a
final subsidy determination within 75 days after the date of
its preliminary determination, unless the investigation
involves upstream subsidies, in which case special extended
time limits apply. If there are simultaneous investigations
under the AD and CVD laws involving imports of the same
merchandise, the final CVD determination may be postponed until
the date of the final determination in the AD investigation at
the request of a petitioner.
In both LTFV and subsidy investigations, the investigation
is terminated if the final determination is negative, including
any suspension of liquidation which may be in effect, and all
estimated duties are refunded and all appropriate bonds or
other security are released. If the final determination is
affirmative, the DOC orders the suspension of liquidation and
posting of a cash deposit, bond, or other security (if such
actions have not already been taken as a result of the
preliminary determination), and awaits notice of the ITC final
injury determination.
Final ITC injury determination
Within 120 days of a DOC affirmative preliminary
determination or 45 days of a DOC affirmative final
determination, whichever is longer, the ITC must make a final
determination of material injury. If the DOC preliminary
determination is negative, and the DOC final determination is
affirmative, the ITC has until 75 days after the final
affirmative determination to make its injury determination.
Termination or suspension of investigations
Either the DOC or ITC may terminate an AD or CVD
investigation upon withdrawal of the petition by petitioner, or
by the DOC if the investigation was self-initiated. The DOC may
not, however, terminate an investigation on the basis of a
quantitative restriction agreement limiting U.S. imports of the
merchandise subject to investigation unless the DOC is
satisfied that termination on the basis of such agreement is in
the public interest.
The DOC may suspend a CVD investigation on the basis of one
of three types of agreements entered into with the foreign
government or with exporters who account for substantially all
of the imports under investigation. The three types of
agreements are: (1) an agreement to eliminate the subsidy
completely or to offset completely the amount of the net
countervailable subsidy within 6 months after suspension of the
investigation; (2) an agreement to cease exports of the
subsidized merchandise to the United States within 6 months of
suspension of the investigation; and (3) an agreement to
eliminate completely the injurious effect of subsidized exports
to the United States (which, unlike under the AD law, may be
based on quantitative restrictions).
The DOC may suspend an AD investigation on the basis of one
of three types of agreements entered into with exporters who
account for substantially all of the imports under
investigation: (1) an agreement to cease exports of the
merchandise to the United States within 6 months of suspension
of the investigation; (2) an agreement to revise prices to
eliminate completely any sales at less than fair value; and (3)
an agreement to revise prices to eliminate completely the
injurious effect of exports of such merchandise to the United
States. Unlike CVD cases, AD investigations cannot generally be
suspended on the basis of quantitative restriction agreements.
The one exception is where the AD investigation involves
imports from a non-market economy country.
The DOC may not, however, accept any suspension agreement
in either an AD or CVD investigation unless it is satisfied
that suspension of the investigation is in the public interest,
and effective monitoring of the agreement is practicable. If
the DOC determines not to accept a suspension agreement, it is
to provide to the exporters who would have been subject to the
agreement both the reasons for not accepting the agreement and
an opportunity to submit comments, where practicable.
Prior to actual suspension of an investigation, the DOC
must provide notice of its intent to suspend and an opportunity
for comment by interested parties. When the DOC decides to
suspend the investigation, it must publish notice of the
suspension, and issue an affirmative preliminary LTFV or
subsidy determination (unless previously issued). The ITC also
suspends its investigation. Any suspension of liquidation
ordered as a result of the affirmative preliminary LTFV
determination, however, is to be terminated, and all deposits
of estimated duties or bonds posted are to be refunded or
released.
If, within 20 days after notice of suspension is published,
the DOC receives a request for continuation of the
investigation from a domestic interested party or from
exporters accounting for a significant proportion of exports of
the merchandise, then both the DOC and ITC must continue their
investigations.
The DOC has responsibility for overseeing compliance with
any suspension agreement. Intentional violations of suspension
agreements are subject to civil penalties.
AD or CVD order
An AD or CVD order may be issued only if both the DOC and
ITC issue affirmative final determinations, in both title VII
AD and CVD investigations and in section 303 CVD investigations
requiring an injury test.
A DOC final LTFV determination must include its
determinations of normal value and export price, which are the
basis for assessment of AD duties and for deposit of estimated
AD duties on future entries. Within 7 days of notice of an
affirmative final ITC determination, the DOC must issue an AD
duty order which (1) directs the Customs Service to assess AD
duties equal to the amount by which normal value exceeds the
export price, i.e., the dumping margin; (2) describes the
merchandise to which the AD duty applies; and (3) requires the
deposit of estimated AD duties pending liquidation of entries,
at the same time as estimated normal customs duties are
deposited. The DOC must publish notice of its final
determination, which shall be the basis for assessment of AD
duties and for deposit of estimated AD duties on future
entries.
For CVD investigations, the DOC must issue a CVD order
within 7 days of notice of an affirmative final ITC
determination, which (1) directs the Customs Service to assess
countervailing duties equal to the amount of the net
countervailable subsidy; (2) describes the merchandise to which
the countervailing duty applies; and (3) requires the deposit
of estimated countervailing duties pending liquidation of
entries, at the same time as estimated normal customs duties
are deposited. The DOC must publish notice of its determination
of net countervailable subsidy which shall be the basis for
assessment of countervailing duties and for deposit of
estimated countervailing duties on future entries.
Differences between estimated and final duties
If a cash deposit or bond collected as security for
estimated AD or countervailing duties pursuant to an
affirmative preliminary or final LTFV or CVD determination is
greater than the amount of duty assessed pursuant to an AD or
CVD order, then the difference between the deposit and the
amount of final duty will be refunded for entries prior to
notice of the final injury determination. Sections 707 and 737
of the Tariff Act of 1930, as amended, provide that if the cash
deposit or bond is lower than the final duty under the order,
then the difference is disregarded. No interest accrues in
either case.\15\
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\15\ With respect to AD determinations, section 40 of the Trade Law
Technical Corrections and Miscellaneous Amendments Act of 1996
clarifies that the cap on the amount of the AD duty applies not only to
cash deposits but to bonds as well, making it consistent with the cap
applied in CVD determinations.
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If estimated AD or countervailing duties deposited for
entries after notice of the final injury determination are
greater than the amount of final AD or countervailing duties
determined under an AD or CVD order, then the difference will
be refunded, together with interest on the amount of
overpayment. If estimated duties are less than the amount of
final duties, then the difference will be collected together
with interest on the amount of such underpayment.
Administrative review
The DOC is required, upon request, to conduct an annual
review of outstanding AD and CVD orders and suspension
agreements. For all entries of merchandise subject to an AD
review, the DOC must determine the normal value, export price,
and the amount of dumping margin. For all entries of
merchandise subject to a CVD review, the DOC must review and
determine the amount of any net countervailable subsidy. These
determinations will provide the basis for assessment of AD and
countervailing duties on all entries subject to the review, and
for deposits of estimated duties on entries subsequent to the
period of review.
The results of its annual review must be published together
with a notice of any AD or countervailing duty to be assessed,
estimated duty to be deposited, or investigation to be resumed.
Under the Uruguay Round Agreements Act, time limits were added
to the administrative review process so that final
determinations are due in 1 year (with extensions up to an
additional 6 months available).
Changed circumstances review
Under the statute, a review of a final determination or of
a suspension agreement is to be conducted by the DOC or ITC
whenever it receives information or a request showing changed
circumstances sufficient to warrant such review. Without good
cause shown, however, no final determination or suspension
agreement can be reviewed within 24 months of its notice. The
party seeking revocation of an order has the burden of
persuasion as to whether there are changed circumstances
sufficient to warrant revocation.
Sunset review
The Uruguay Round Agreements provide for the termination,
or sunset, of AD and CVD orders and suspension agreements after
5 years unless the authorities determine that such expiry would
be likely to lead to the continuation or recurrence of dumping,
subsidization or injury. Accordingly, section 220 of the
Uruguay Round Agreements Act provides that orders may be
revoked and suspension agreements terminated after 5 years if
the terms are met. The DOC publishes a notice of initiation of
a sunset review not later than 30 days before the fifth
anniversary of the order. A party interested in maintaining the
order must respond to the notice by providing information to
the DOC and ITC concerning the likely effects of revocation.
The DOC is to conclude its investigation within 240 days of
initiation, and the ITC within 360 days of initiation. These
deadlines may be extended if the investigation is
extraordinarily complicated.
In AD cases, the DOC is to determine whether revocation of
an order or termination of a suspension agreement would be
likely to lead to continuation or recurrence of dumping. In
making this determination, the DOC is to consider the weighted
average dumping margins determined in the investigation and
subsequent reviews and the volume of imports of the subject
merchandise for the period before and the period after the
issuance of the order or acceptance of the suspension
agreement. The DOC may consider other enumerated factors, upon
good cause shown. In addition, the DOC is to provide to the ITC
the magnitude of the margin of dumping that is likely to
prevail if the order is revoked or the suspended investigation
terminated.
In CVD cases, the DOC is to determine whether revocation of
an order or termination of a suspension agreement would be
likely to lead to continuation or recurrence of a
countervailable subsidy. In making this determination, the DOC
is to consider the net countervailable subsidy determined in
the investigation and subsequent reviews and whether any change
in the program which gave rise to the net countervailable
subsidy has occurred that is likely to be of effect. The DOC
may consider other enumerated factors, upon good cause shown.
In addition, the DOC is to provide to the ITC the amount of the
net countervailable subsidy that is likely to prevail if the
order is revoked or the suspended investigation terminated.
In both AD and CVD cases, the ITC is to determine whether
revocation would be likely to lead to the likelihood of
continuation or recurrence of material injury within a
reasonably foreseeable period of time. In making this
determination, the ITC is to consider the likely volume, price
effect, and impact of subject imports on the industry if the
order is revoked or the suspension agreement terminated. The
ITC is to take into account its prior injury determinations,
whether any improvement in the state of the industry is related
to the order or the suspension agreement, and whether the
industry is vulnerable to material injury if the order is
revoked or the suspension agreement terminated.
In AD sunset reviews, the ITC may also consider the
magnitude of the dumping margin. In CVD sunset reviews, the ITC
may also consider the magnitude of the net countervailable
subsidy. The nature of the countervailable subsidy as well as
whether the subsidy is covered by article 3 (export subsidies
or subsidies contingent on the use of domestic over imported
goods) or article 6.1 (subsidies causing serious prejudice) of
the Subsidies Agreement must be considered.
The ITC may cumulatively assess the volume and effect of
imports of the subject merchandise from all countries subject
to sunset reviews if such imports are likely to compete with
each other and with domestic like products in the U.S. market.
However, the ITC is not to cumulate imports a country if those
imports are not likely to have a discernible adverse impact on
the domestic industry.
In addition, the new provision specifies that 2 years after
the issuance of an order in which the subject merchandise is
sold in the United States by an importer related to the
exporter, and where the DOC determines that there is a
reasonable basis to believe or suspect that duty absorption is
occurring, the DOC is to examine in AD reviews whether duties
have been absorbed by a foreign producer or exporter subject to
the order. The ITC is to take such findings into account in its
sunset injury review. The SAA accompanying the bill provides,
however, that the provision is not to apply as a duty as cost
provision, in which AD duties are deducted from export price if
the related importer is being reimbursed for duties by the
manufacturer, effectively doubling AD duties.\16\
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\16\ Uruguay Round Agreements Act Statement of Administrative
Action at 885.
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Section 220 of the Uruguay Round Agreements Act provides
that orders already in effect as of the January 1, 1995 date of
implementation be deemed as issued on that date. Pursuant to
the schedule laid out in section 220 for the review of
transition orders, DOC began its review 18 months prior to
their fifth anniversary date (July 1, 1998). Section 220
provides that individual reviews shall be completed within 18
months of initiation, and that the review of all transition
orders shall be completed not later than 18 months after the
fifth anniversary of the date such orders were issued (July 1,
2001).
Expedited reviews with security in lieu of deposits
In AD cases only, the DOC may permit, for not more than 90
days after publication of an order, the posting of a bond or
other security in lieu of the deposit of estimated AD duties if
certain conditions exist. The DOC must be satisfied that it
will be able to determine, within such 90-day period, the
normal value and the export price for all merchandise entered
on or after an affirmative LTFV determination (either
preliminary or final, whichever is the first affirmative
determination) and before publication of an affirmative final
injury determination. Also, in order for the DOC to undertake
this expedited review, the preliminary determination in the
investigation must not have been extended because the case was
``extraordinarily complicated,'' the final determination must
not have been extended, the DOC must receive information
indicating that the revised margin would be significantly less
than the dumping margin specified in the AD order, and there
must be adequate sales to the United States since the
preliminary (or final) determination to form a basis for
comparison. The determination of such new dumping margin will
then provide the basis for assessment of AD duties on the
entries for which the posting of bond or other security has
been permitted, and will also provide the basis for deposits of
estimated AD duties on future entries.
Anticircumvention authority
In 1988, specific authority was added to U.S. law to
authorize the DOC to take action to prevent or address attempts
to circumvent an outstanding AD or CVD order. The authority
addresses four particular types of circumvention: assembly of
merchandise in the United States, assembly of merchandise in a
third country, minor alterations of merchandise, and later-
developed merchandise. Under certain circumstances and after
considering certain specified factors, the DOC may extend the
scope of the AD or CVD order to include parts and components
(in cases involving U.S. assembly), third country merchandise
(in cases involving third country assembly), altered
merchandise, or later-developed merchandise.
As part of the Uruguay Round negotiations on AD, the United
States sought the inclusion of an anticircumvention provision
in the Antidumping Agreement. The negotiators, however, were
unable to agree on a text concerning anticircumvention and
referred the matter to the Committee on Antidumping Practices
for resolution. Accordingly, the Agreement is silent concerning
anticircumvention authority.
The Uruguay Round Agreements Act modified the
anticircumvention provision of the 1988 Act to focus on the
nature of the assembly operation in the United States or third
country as well as on whether the parts and components from the
country subject to the order are a ``significant portion'' of
the total value of the merchandise assembled in the United
States or third country.
Best information available
In order to promote transparency, the Uruguay Round
signatories agreed to detailed guidelines concerning the use of
``best information available'' (BIA). In seeking to implement
those guidelines, the Uruguay Round Agreements Act preserves
the ability of the agencies to rely on adverse inferences upon
a finding that the party has failed to cooperate by not acting
to the best of its ability to comply with a request. At the
same time, however, the new law also contains limitations on
the use of BIA, many of which are designed to assist small
companies in providing information. For example, the agency is
to consider the ability of an interested party to provide the
information in the requested form and manner, and may modify
the requirements upon a reasoned and timely explanation by that
party. In addition, if the agency determines that a response
does not comply with the request, the agency must, to the
extent practicable, provide an opportunity to remedy the
deficiency.
The Agreements provide that the authorities are not
justified in disregarding less than ideal information if the
party acted to the best of its ability. Section 231 of the
Uruguay Round Agreements Act provides that the agencies are not
to decline to consider information that is timely submitted,
verifiable, and not so incomplete that it cannot serve as a
reliable basis for the determination, if the submitting party
acted to the best of its ability to meet the requirements, and
if the information can be used without undue difficulties.
The Act further provides that if an agency relies on
secondary information rather than on information submitted by a
respondent, it must, to the extent practicable, corroborate
that information from independent sources reasonably at its
disposal.
Continued Dumping and Subsidy Offset Act
Title X of the Agriculture and Related Agencies
Appropriations Act for Fiscal Year 2001 contained the Continued
Dumping and Subsidy Offset Act of 2000,\17\ commonly referred
to as the Byrd Amendment, which provides for the annual
distribution of AD and countervailing duties assessed pursuant
to a CVD order, an AD order, or a finding under the Antidumping
Act of 1921 to the affected domestic producers for qualifying
expenditures. The provision amends title VII of the Tariff Act
of 1930 by inserting a new section 754. The amendments made by
the new section apply to all AD and CVD assessments made on or
after October 1, 2000 with respect to orders in effect from
January 1, 1999.
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\17\ Public Law 106-387, approved October 28, 2000, 19 U.S.C. 754.
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Under the new section 754, the term ``affected domestic
producer'' is defined as a manufacturer, producer, farmer,
rancher, or worker representative (including associations of
such persons) that: (1) was a petitioner or interested party in
support of the petition with respect to which an AD order, a
finding under the Antidumping Act of 1921, or a CVD order has
been entered; and (2) remains in operation. Companies,
businesses, or persons that have ceased the production of the
product covered by the order or finding, or who have been
acquired by a company or business that is related to a company
that opposed the investigation, shall not be considered an
``affected domestic producer.''
Section 754(d)(1) requires the ITC to forward a list to the
Commissioner of the U.S. Customs Service of petitioners and
persons with respect to each order or finding, and a list of
persons that indicated support of a petition by letter or
through questionnaire response. The ITC was required to submit
its list related to orders and findings in effect on January 1,
1999 within 60 days of the date of enactment of the section
(i.e., by December 29, 2000). Thereafter, the ITC is to submit
lists to the Commissioner of Customs within 60 days after the
date an AD or CVD order or finding is issued. In those cases
where an injury determination was not required or the ITC's
records do not permit identification of petition supporters,
the ITC is to consult with the DOC to determine the identity of
the petitioner and those domestic parties who have entered
appearances during administrative reviews.
The Commissioner of Customs is responsible in section
754(c) for prescribing procedures for the annual distribution
of the AD and countervailing duties assessed. Distribution is
to be made not later than 60 days after the first day of a
fiscal year from duties assessed during the preceding fiscal
year. At least 30 days prior to a distribution, the
Commissioner is required to publish in the Federal Register a
notice of intention to distribute and the list of affected
domestic producers potentially eligible for the distribution
based on the list obtained from the ITC. The Commissioner is to
request certifications from each potentially eligible affected
domestic producer indicating: (1) that the producer desires to
receive a distribution; (2) that the producer is eligible to
receive the distribution as an affected domestic producer; and
(3) the qualifying expenditures incurred by the producer since
the issuance of the order or finding for which distribution has
not previously been made.
The Commissioner distributes all funds (including all
interest earned on the funds) from assessed duties received in
the preceding fiscal year to affected domestic industries based
on the certifications received. The distributions are to be
made on a pro rata basis based on new and remaining qualifying
expenditures. A ``qualifying expenditure'' is defined as an
expenditure incurred after the issuance of the AD finding or
order or CVD order in any of the following categories: (1)
manufacturing facilities; (2) equipment; (3) research and
development; (4) personnel training; (5) acquisition of
technology; (6) health care benefits to employees paid for by
the employer; (7) pension benefits to employees paid by the
employer; (8) environmental equipment, training, or technology;
(9) acquisition of raw materials and other inputs; and (10)
working capital or other funds needed to maintain production.
For each order or finding in effect on the date of
enactment of the section, the Commissioner of Customs was
required to establish a special account in the U.S. Treasury
within 14 days. Thereafter, the Commissioner is to establish a
special account in the U.S. Treasury with respect to each order
or finding within 14 days after the date of that an AD order or
finding or CVD order takes effect. The Commissioner is
responsible for depositing all AD or countervailing duties
(including interest earned on such duties) that are assessed
after the effective date of this section into the special
account appropriate for each AD order or finding or CVD order.
The Commissioner is to prescribe the time and manner in
which distribution of the funds in a special account shall be
made.
A special account is to terminate after: (1) the order or
finding with respect to which the account was established has
terminated; (2) all entries relating to the order or finding
are liquidated and duties assessed collected; (3) the
Commissioner has provided notice and a final opportunity to
obtain distribution; and (4) 90 days has elapsed from the date
of notice and final opportunity to obtain distribution.
On December 21, 2000, Australia, Brazil, Chile, the
European Union (EU), India, Indonesia, Japan, Korea, and
Thailand requested consultations with the United States in the
World Trade Organization (WTO) regarding the Continued Dumping
and Subsidy Offset Act of 2000. Canada and Mexico requested to
join the WTO consultations previously requested on January 16,
2001 and January 22, 2001 respectively.
Judicial review
An interested party dissatisfied with a final AD or CVD
determination or review may file an action in the U.S. Court of
International Trade (CIT) for judicial review. To obtain
judicial review of the administrative action, a summons and
complaint must be filed concurrently within 30 days of
publication of the final determination. As set forth in section
516A of the Tariff Act of 1930, as amended, the standard of
review used by the Court is whether the determination is
supported by ``substantial evidence on the record'' or
``otherwise not in accordance with law.'' Appeal of negative
preliminary determinations is based on whether the
determination is ``arbitrary, capricious, an abuse of
discretion, or [is] otherwise not in accordance with law.''
Judicial review of interlocutory decisions, previously
permitted, was eliminated by section 623 of the Trade and
Tariff Act of 1984. Decisions of the CIT are subject to appeal
to the U.S. Court of Appeals for the Federal Circuit.
As a result of provisions in the North American Free Trade
Agreement (NAFTA) and its implementing legislation, final
determinations in AD or CVD proceedings involving products of
Canada and Mexico are reviewed by a NAFTA panel instead of by
the CIT, if either the United States, Canadian or Mexican
government so requests. The panel will apply U.S. law and U.S.
standards of judicial review to decide whether U.S. law was
applied correctly by the DOC and the ITC.
WTO panel review
As part of the Uruguay Round Agreements, the parties agreed
to a strengthened dispute resolution process under the World
Trade Organization (WTO), in which parties are permitted to
bring their disputes to a review body for resolution. The
Uruguay Round Agreements Act contains provisions relating to
the adoption of panel reports in AD and CVD cases.
Section 129 of the Uruguay Round Agreements Act provides
that if a dispute settlement panel or appellate body finds that
an action by the ITC is not in conformity with U.S.
obligations, USTR may request that the ITC issue an advisory
report on whether the statute permits it to take steps that
would render its determination not inconsistent with those
findings. If the ITC issues an affirmative report, USTR may
request that it issue a determination not inconsistent with the
findings of the panel or appellate body. If, by virtue of that
determination, an AD or CVD order is no longer supported by an
affirmative determination, USTR, after consultation with
Congress, may direct the ITC to revoke the order. However, the
President may, again after consultation with Congress, reduce,
modify, or terminate the agency action.
If a dispute settlement panel or appellate body finds that
an action by the DOC is not in conformity with U.S.
obligations, USTR may request that the DOC issue a
determination that would render its determination not
inconsistent with those findings, after consultation with
Congress. USTR may further request that the DOC implement that
determination.
Any ITC and DOC action implemented as a result of dispute
settlement is to apply to liquidated entries of the subject
merchandise entered on or after the date on which USTR directs
the ITC to revoke an order or the DOC to implement a
determination.
WTO panel determinations
In 1997, the Republic of Korea challenged the DOC's AD
review of dynamic random access memory (DRAM) semiconductors
from Korea, alleging that the DOC's decision not to revoke the
AD order was inconsistent with the Antidumping Agreement and
GATT 1994. A WTO panel was established on January 16, 1998. The
panel ruled in favor of Korea on January 29, 1999. While the
panel rejected almost all of Korea's claims, if found that the
``not likely'' standard in the DOC's regulations did not meet
the requirements of Article 11.2 of the Antidumping Agreement.
Neither side appealed the decision. On April 15, 1999, the
United States indicated its intention to comply with the panel
decision. The DOC amended its regulations and made a
redetermination under the revised regulations to retain the AD
order on DRAMs from Korea. Korea challenged U.S. compliance
with the panel decision and on April 6, 2000 requested that the
panel be reconvened to examine U.S. implementation. The parties
then reached a mutually satisfactory solution regarding this
matter, and Korea withdrew its request on October 20, 2000.
Specifically, the DOC agreed to terminate the AD order on
January 1, 2000 in exchange for Korea's agreement to collect
cost and price data on DRAMs of one megabit and above. This
information will be made available to the DOC within 14 days
after the filing of a new AD case.
The Foreign Sales Corporation (FSC) provisions of the U.S.
tax code (sections 921-927 of the Internal Revenue Code)
provide exporters with a partial tax exemption on certain
foreign income of FSCs, which are foreign subsidiaries of U.S.
companies. The EU challenged these provisions, claiming that
these rules constituted prohibited export subsidies and import
substitution subsidies under the Subsidies Agreement, and that
they violated the export subsidy provisions of the Agreement on
Agriculture. A WTO panel was established on September 22, 1998.
The panel found in favor of the EU on October 8, 1999 on U.S.
violations of the Subsidies Agreement and the Agreement on
Agriculture. In the panel's view, in the case of a tax measure,
a subsidy exists if ``but for'' the measure, a firm's tax
liability would be increased and the existence of the subsidy
results in revenue foregone to the government. Applying this
standard to the FSC provisions, the panel concluded that those
provisions constituted a subsidy. Moreover, the panel found the
subsidy to be ``contingent on export performance.'' On February
24, 2000, the Appellate Body upheld the panel's findings on
U.S. violations of the Subsidies Agreement, but reversed the
panel's findings regarding the Agreement on Agriculture. The
panel and Appellate Body reports were adopted on March 20,
2000, and on April 7, 2000, the United States announced its
intention to come into compliance with its WTO obligations. The
United States amended the FSC provisions of the U.S. tax code
to address the panel report in Public Law 106-519, approved
November 15, 2000. On December 7, 2000, the EU filed a request
for establishment of a panel to review the legislation, and the
panel was established on December 20, 2000.
Title VII of the Revenue Act of 1916, commonly referred to
as the Antidumping Act of 1916, establishes a civil cause of
action in federal court for private damages as well as criminal
penalties against parties who dump foreign merchandise in the
United States. The EU challenged this provision of U.S. law,
claiming that the statute violates U.S. obligations under the
Antidumping Agreement and GATT 1994. A WTO panel was formed on
January 29, 1999. The panel ruled in favor of the EU on March
31, 2000. Separately, Japan sought its own rulings on the same
matter from the same panelists; that report was circulated on
May 29, 2000. The panel found that the 1916 Act is inconsistent
with WTO rules because the specific intent requirement of the
Act does not satisfy the material injury test required by the
Antidumping Agreement. The panel also found that the civil and
criminal penalties in the 1916 Act go beyond the provisions of
the Antidumping Agreement. The Appellate Body proceedings on
both cases were consolidated into one, and on August 28, 2000
the Appellate Body affirmed the panel reports. The United
States is in arbitration on a compliance schedule and is
seeking a deadline of 15 months from the Appellate Body
decision (November 2001).
The EU challenged the imposition of countervailing duties
on certain hot-rolled lead and bismuth carbon steel (lead bar)
from the United Kingdom, contending that the DOC had imposed
countervailing duties on two private successor companies of
government-owned British Steel Corporation (BSC) based on a
methodology that attributed a portion of the massive subsidies
originally received by BSC to the two successor companies. The
EU alleged violations of Articles 1.1(b), 10, 14, and 19.4 of
the Subsidies Agreement. A WTO panel was established on
February 17, 1999. Brazil and Mexico both intervened as third
parties. The panel ruled in favor of the EU on December 23,
1999. In reaching its decision, the panel disagreed with how
the DOC accounts for the privatization of a government-owned
company and insisted that an investigating authority (such as
the DOC) must re-measure the benefit of pre-privatization
subsidies based on circumstances at the time of the
privatization. Specifically, in order to impose countervailing
duties, the investigating authority must demonstrate that the
producer or exporter of the particular imports continues to
enjoy the benefit of a subsidy (i.e., as in a competitive
advantage) at the time of the production or exportation of
those goods. The panel further explained that the successor
privatized company should not be considered as having realized
any benefit from pre-privatization subsidies if fair market
value was paid for the government-owned company. In the case of
BSC, the panel found that none of the benefit from the pre-
privatization subsidies would be attributed to the two
successor, privatized companies. The CVD order in question was
revoked on January 1, 2000 under the DOC's ``sunset review''
procedures. On November 13, 2000, the EU requested
consultations with the United States on 14 similar CVD cases in
which the United States imposed duties on privatized European
companies on the basis that the previous subsidies they had
received had been passed through to the new owners.
Consultations were held with the EU on December 7, 2000. On
December 21, 2000, Brazil requested similar consultations with
the United States.
Enforcement of U.S. Rights Under Trade Agreements and Response to
Certain Foreign Practices: Sections 301-310 of the Trade Act of 1974,
as amended
Chapter 1 of title III (sections 301-310) of the Trade Act
of 1974, as amended,\18\ provides the authority and procedures
to enforce U.S. rights under international trade agreements and
to respond to certain unfair foreign practices. The predecessor
statute, section 252 of the Trade Expansion Act of 1962,\19\
was repealed and section 301 established in its place under the
Trade Act of 1974. Section 301 was amended under title IX of
the Trade Agreements Act of 1979 \20\ in two principal
respects: (1) to include specific authority to enforce U.S.
rights and to respond to actions by foreign countries
inconsistent with or otherwise denying U.S. benefits under
trade agreements; and (2) to place specific time limits on the
procedures for investigating and taking action on petitions.
Some further amendments were enacted under sections 304 and
307(b) of the Trade and Tariff Act of 1984 \21\ to clarify
certain authorities and practices covered by section 301, and
to authorize certain actions with respect to foreign export
performance requirements.
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\18\ Public Law 93-618, approved January 3, 1975, 19 U.S.C. 2411.
\19\ Public Law 87-794, section 252, approved October 11, 1962.
\20\ Public Law 96-39, title IX, approved July 26, 1979.
\21\ Public Law 98-573, approved October 30, 1984.
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The current statute reflects major modifications made by
sections 1301-1303 of the Omnibus Trade and Competitiveness Act
of 1988 \22\ to what is commonly called ``section 301,'' as
well as enactment of additional authorities commonly known as
``Super 301'' \23\ to deal with priority practices and priority
countries and ``Special 301'' to deal with priority
intellectual property rights (IPR) practices. The principal
amendments in 1988 to strengthen the basic section 301
authority were: (1) to require the U.S. Trade Representative
(USTR) to make unfair trade practice determinations in all
cases, and to transfer authority to determine and implement
section 301 action from the President to the USTR, subject to
the specific direction, if any, of the President; (2) to make
section 301 action mandatory in cases of trade agreement
violations or other ``unjustifiable'' practices, except in
certain circumstances; (3) to include additional types of
practices as specifically actionable under section 301; (4) to
tighten and specify time limits on all investigations and
actions; and (5) to require monitoring and enforcement of
foreign settlement agreements and to provide for modification
and termination of section 301 actions.
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\22\ Public Law 100-418, approved August 23, 1988.
\23\ The Statutory authority for Super 301 expired in 1990. Since
then, the President has chosen to renew Super 301 authorities three
times by Executive Order. On March 31, 1999, the President issued
Executive Order 13116 (64 Fed. Reg. 16333), which renewed Super 301
authorities through 2001.
---------------------------------------------------------------------------
Further modifications were made by the Uruguay Round
Agreements Act \24\ to sections 301-310 and 182 of the Trade
Act of 1974 to conform to the time limits under the WTO
Understanding on Rules and Procedures Governing the Settlement
of Disputes (Dispute Settlement Understanding) and to clarify
and strengthen the scope and application of these domestic
authorities.
---------------------------------------------------------------------------
\24\ Public Law 103-465, approved December 8, 1993.
---------------------------------------------------------------------------
International Consultations and Dispute Settlement
Article XII and XIII of the General Agreement on Tariffs
and Trade (GATT), as elaborated upon by the Texts Concerning a
Framework for the Conduct of World Trade concluded in the Tokyo
Round of multilateral trade negotiations (MTN),\25\ provided
the general consultation and dispute settlement procedures
applicable to GATT rights and obligations. In addition, the
GATT agreements concluded in the MTN on specific non-tariff
barriers each contained procedures for consultation and
resolution of disputes among signatories concerning practices
covered by each agreement.
---------------------------------------------------------------------------
\25\ MTN/FR/W/20/Rev. 2, reprinted in House Doc. No. 96-153, pt. I
at 619.
---------------------------------------------------------------------------
As part of the Uruguay Round, the parties agreed to the
Understanding on Rules and Procedures Governing the Settlement
of Disputes which establishes a single, integrated Dispute
Settlement Body dealing with disputes arising under any of the
WTO agreements. One of the most marked changes in this new
dispute resolution mechanism is that all of the key decisions
in the dispute settlement process, including the establishment
of panels, adoption of panel and Appellate Body reports, and
the authorization to retaliate will be automatic unless there
is a unanimous vote against the action. Accordingly, parties
may no longer block panel reports adverse to them. In addition,
timetables are established for each phase of the dispute
resolution process. Moreover, an Appellate Body is established
to examine issues of law covered in a panel report and legal
interpretations developed by the panel. Retaliation, in the
form of suspended concessions or obligations, is to be limited
to the sector that is at issue in the proceeding, unless it is
not practicable or effective. Issues related to the level of
retaliation may be submitted to binding arbitration.
In 1998, the European Union (EU) initiated a dispute
settlement case against the United States challenging the WTO
consistency of section 301. Specifically, the EU claimed that
section 301 violated the Dispute Settlement Understanding (DSU)
because certain statutory deadlines could require the USTR to
take action before WTO panel proceedings were finished. The EU
complaint was not based on U.S. actions in a particular section
301 case.
On December 22, 1999, a WTO panel rejected the EU's
complaint. The panel found that section 301 provides the USTR
with adequate discretion to comply with the DSU rules in all
cases, and that the USTR had in fact exercised that discretion
in accordance with U.S. WTO obligations in every section 301
determination involving an alleged violation of U.S. WTO
rights. The EU did not appeal the panel decision. The decision
was adopted by the WTO Dispute Settlement Body on January 27,
2000.
Carousel Retaliation
Section 407 of the Trade and Development Act of 2000 (P.L.
106-200) addresses effective operation of the WTO dispute
settlement mechanism and lack of compliance with WTO panel
decisions, particularly in cases brought by the United States
in disputes with the EU involving bananas and beef. Section 407
amended sections 301-310 of the Trade Act of 1974 to require
the USTR to make periodic revisions of retaliation lists 120
days from the date the retaliation list is made and every 180
days thereafter. The purpose of this provision is to facilitate
efforts by the USTR to enforce rights of the United States if
another WTO member fails to comply with the results of a
dispute settlement proceeding.
Enforcement Authority and Procedures (Section 301)
Sections 301-309 of the Trade Act of 1974, as amended,
provide the domestic counterpart to the WTO consultation and
dispute settlement procedures. They contain the authority under
U.S. domestic law to take retaliatory action, including import
restrictions if necessary, to enforce U.S. rights against
violations of trade agreements by foreign countries and
unjustifiable, unreasonable, or discriminatory foreign trade
practices which burden or restrict U.S. commerce. Section 301
authority applies to practices and policies of countries
whether or not the measures are covered by, or the countries
are members of, GATT/WTO or other trade agreements. The USTR
administers the statutory procedures through an interagency
committee.
Basis and form of authority
Under section 301, if the USTR determines that a foreign
act, policy, or practice violates or is inconsistent with a
trade agreement, or is unjustifiable and burdens or restricts
U.S. commerce, then action by the USTR to enforce the trade
agreement rights or to obtain the elimination of the act,
policy, or practice is mandatory, subject to the specific
direction, if any, of the President. The USTR is not required
to act, however, if (1) a WTO/GATT panel has reported, or a
dispute settlement ruling under a trade agreement finds, that
U.S. trade agreement rights have not been denied or violated;
(2) the USTR finds that the foreign country is taking
satisfactory measures to grant U.S. trade agreement rights, has
agreed to eliminate or phase out the practice or to an imminent
solution to the burden or restriction on U.S. commerce, or has
agreed to provide satisfactory compensatory trade benefits; or
(3) the USTR finds, in extraordinary cases, that action would
have an adverse impact on the U.S. economy substantially out of
proportion to the benefits of action, or finds that action
would cause serious harm to the U.S. national security. Any
action taken must affect goods or services of the foreign
country in an amount equivalent in value to the burden or
restriction being imposed by that country on U.S. commerce.
If the USTR determines that the act, policy, or practice is
unreasonable or discriminatory and burdens or restricts U.S.
commerce and action by the United States is appropriate, then
the USTR has discretionary authority to take all appropriate
and feasible action, subject to the specific direction, if any,
of the President, to obtain the elimination of the act, policy,
or practice.
With respect to the form of action, the USTR is authorized
to (1) suspend, withdraw, or prevent the application of
benefits of trade agreement concessions to carry out a trade
agreement with the foreign country involved; (2) impose duties
or other import restrictions on the goods of, and
notwithstanding any other provision of law, fees or
restrictions on the services of, the foreign country for such
time as the USTR deems appropriate; (3) withdraw or suspend
perferential duty treatment under the Generalized System of
Preferences (GSP), the Carribean Basin Initiative, or the
Andean Trade Preferences Act; or (4) enter into binding
agreements that commit the foreign country to (a) eliminate or
phase out the act, policy, or practice, (b) eliminate any
burden or restriction on U.S. commerce resulting from the act,
policy, or practice, or (c) provide the United States with
compensatory trade benefits that are satisfactory to the USTR.
The USTR may also take all other appropriate and feasible
action within the power of the President that the President may
direct the USTR to take.
With respect to services, the USTR may also restrict the
terms and conditions or deny the issuance of any access
authorization (e.g., license, permit, order) to the U.S. market
issued under federal law, notwithstanding any other law
governing the authorization. Such action can apply only
prospectively to authorizations granted or applications pending
on or after the date a section 301 petition is filed or the
USTR initiates an investigation. Before imposing fees or other
restrictions on services subject to federal or state
regulation, the USTR must consult as appropriate with the
federal or state agency concerned.
Under section 301, action may be taken on a non-
discriminatory basis or solely against the products or services
of the country involved and with respect to any goods or sector
regardless of whether they were involved in the particular act,
policy, or practice. The statute does not require that action
taken under section 301 be consistent with U.S. obligations
under international agreements, but the dispute-settlement
provisions of such agreement could be utilized.
If the USTR determines that action is to be in the form of
import restrictions, it must give preference to tariffs over
other forms of import restrictions and consider substituting on
an incremental basis an equivalent duty for any other form of
import restriction imposed. Any action with respect to export
targeting must reflect, to the extent possible, the full
benefit level of the targeting over the period during which the
action taken has an effect.
Coverage of authority
The term ``unjustifiable'' refers to acts, policies, or
practices which violate or are inconsistent with U.S.
international legal rights, such as denial of national or
normal trade relations (NTR) treatment, right of establishment,
or protection of intellectual property rights.
The term ``unreasonable'' refers to acts, policies, or
practices which are not necessarily in violation of or
inconsistent with U.S. international legal rights, but are
otherwise unfair and inequitable. In determining whether an
act, policy, or practice is unreasonable, reciprocal
opportunities in the United States for foreign nationals and
firms must be taken into account, to the extent appropriate.
Unreasonable measures include, but are not limited to, acts,
policies, or practices which (1) deny fair and equitable (a)
opportunities for the establishment of an enterprise, (b)
provision of adequate and effective IPR protection,
notwithstanding the fact that the foreign country may be in
compliance with the specific obligations of the Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPs),
(c) non-discriminatory market access opportunities for U.S.
persons that rely upon intellectual property (IP) protection,
or (d) market opportunities, including foreign government
toleration of systematic anticompetitive activities by or among
enterprises in the foreign country that have the effect of
restricting, on a basis inconsistent with commercial
considerations, access of U.S. goods or services to a foreign
market; (2) constitute export targeting; or (3) constitute a
persistent pattern of conduct denying internationally-
recognized worker rights, unless the USTR determines the
foreign country has taken or is taking actions that demonstrate
a significant and tangible overall advancement in providing
those rights and standards throughout the country or such acts,
policies, or practices are not inconsistent with the level of
economic development of the country.
The term ``export targeting'' refers to any government plan
or scheme consisting of a combination of coordinated actions
bestowed on a specific enterprise, industry, or group thereof,
which has the effect of assisting that entity to become more
competitive in the export of a class or kind of merchandise.
The term ``discriminatory'' includes, where appropriate,
any act, policy, or practice which denies national or NTR
treatment to U.S. goods, services, or investment.
The term ``commerce'' includes, but is not limited to,
services (including transfers of information) associated with
international trade, whether or not such services are related
to specific goods, and foreign direct investment by U.S.
persons with implications for trade in goods or services.
Petitions and investigations
Any interested person may file a petition under section 302
with the USTR requesting that action be taken under section 301
and setting forth the allegations in support of the request.
The USTR reviews the allegations and must determine within 45
days after receipt of the petition whether to initiate an
investigation. The USTR may also self-initiate an investigation
after consulting with appropriate private sector advisory
committees. Public notice of determinations is required, and in
the case of decisions to initiate, publication of a summary of
the petition and an opportunity for the presentation of views,
including a public hearing if timely requested by the
petitioner or any interested person.
In determining whether to initiate an investigation of any
act, policy, or practice specifically enumerated as actionable
under section 301, the USTR has the discretion to determine
whether action under section 301 would be effective in
addressing that act, policy, or practice.
Section 303 requires the use of international procedures
for resolving the issues to proceed in parallel with the
domestic investigation. The USTR must, on the same day as the
determination is made, initiate an investigation and request
consultations with the foreign country concerned regarding the
issues involved. The USTR may delay the request for up to 90
days in order to verify or improve the petition to ensure an
adequate basis for consultation.
If the issues are covered by a trade agreement and are not
resolved during the consultation period, if any, specified in
the agreement, then the USTR must promptly request formal
dispute settlement under the agreement before the earlier of
the close of that consultation period or 150 days after the
consultations began. The USTR must seek information and advice
from the petitioner, if any, and from appropriate private
sector advisory committees in preparing presentations for
consultations and dispute settlement proceedings.
USTR unfairness and action determinations and implementation
Section 304 sets forth specific time limits within which
the USTR must make determinations of whether an act, policy, or
practice meets the unfairness criteria of section 301 and, if
affirmative, what action, if any, should be taken. These
determinations are based on the investigation under section 302
and, if a trade agreement is involved, on the international
consultations and, if applicable, on the results of the dispute
settlement proceedings under the agreement.
The USTR must make these determinations:
(1) within 18 months after the date the investigation
is initiated or 30 days after the date the dispute
settlement procedure is concluded, whichever is
earlier, in all cases involving a trade agreement;
(2) within 12 months after the date the investigation
is initiated in cases not involving trade agreements;
or
(3) within 6 months after the date the investigation
is initiated in cases involving IPR priority countries
if the USTR does not consider that a trade agreement,
including TRIPs, is involved, or within 9 months if the
USTR determines such cases (1) involve complex or
complicated issues that require additional time, (2)
the foreign country is making substantial progress on
legislative or administrative measures that will
provide adequate and effective protection, or (3) the
foreign country is undertaking enforcement measures to
provide adequate and effective protection.
The applicable deadline is postponed by up to 90 days if
consultations with the foreign country involved were so
delayed.
Before making the determinations, the USTR must provide an
opportunity for the presentation of views, including a public
hearing if requested by an interested person, and obtain advice
from the appropriate private sector advisory committees. If
expeditious action is required, the USTR must comply with these
requirements after making the determinations. The USTR may also
request the views of the International Trade Commission on the
probable impact on the U.S. economy of taking the action. Any
determinations must be published in the Federal Register.
Section 305 requires the USTR to implement any section 301
actions within 30 days after the date of the determination to
take action. The USTR may delay implementation by not more than
180 days if (1) the petitioner or, in the case of a self-
initiated investigation, a majority of the domestic industry,
requests a delay; or (2) the USTR determines that substantial
progress is being made, or that a delay is necessary or
desirable to obtain U.S. rights or a satisfactory solution. In
cases involving IPR priority countries (see discussion below),
implementation of actions may be delayed by not more than 90
days beyond the 30 days and only if extraordinary circumstances
apply.
If the USTR determines to take no action in a case
involving an affirmative determination of export targeting, the
USTR must take alternative action in the form of establishing
an advisory panel to recommend measures to promote the
competitiveness of the affected domestic industry. The panel
must submit a report on its recommendations to the USTR and the
Congress within 6 months. On the basis of this report and
subject to the specific direction, if any, of the President,
the USTR may take administrative actions authorized under any
other law and propose legislation to implement any other
actions that would restore or improve the international
competitiveness of the domestic industry. USTR must submit a
report to the Congress within 30 days after the panel report is
submitted on the actions taken and proposals made.
Monitoring of foreign compliance; modification and termination of
actions
Section 306 requires the USTR to monitor the implementation
of each measure undertaken or settlement agreement entered into
by a foreign country under section 301. If the USTR considers
that a foreign country is not satisfactorily implementing a
measure or agreement, the USTR must determine what further
action will be taken under section 301. Such foreign non-
compliance is treated as a violation of a trade agreement
subject to mandatory section 301 action, subject to the same
time limits and procedures for implementation as other action
determinations. If the USTR considers that the foreign country
has failed to implement a recommendation made pursuant to
dispute settlement proceedings under the WTO, the USTR must
make this determination no later than 30 days after the
expiration of the reasonable period of time provided for such
implementation in the DSU. Before making the determination on
further action, the USTR must consult with the petitioner, if
any, and with representatives of the domestic industry
concerned, and provide interested persons an opportunity to
present views.
Section 307 authorizes the USTR to modify or terminate a
section 301 action, subject to the specific direction, if any,
of the President, if (1) any of the exceptions to mandatory
section 301 action in the case of trade agreement violations or
unjustifiable acts, policies, or practices applies; (2) the
burden or restriction on U.S. commerce of the unfair practice
has increased or decreased; or (3) discretionary section 301
action is no longer appropriate. Before modifying or
terminating any section 301 action, the USTR must consult with
the petitioner, if any, and with representatives of the
domestic industry concerned, and provide an opportunity for
other interested persons to present views.
Any section 301 action terminates automatically if it has
been in effect for 4 years and neither the petitioner nor any
representative of the domestic industry which benefits from the
action has submitted to the USTR in the final 60 days of that
4-year period a written request for continuation. The USTR must
give the petitioner and representatives of the domestic
industry at least 60 days advance notice by mail of
termination. If a request for continuation is submitted, the
USTR must conduct a review of the effectiveness of section 301
or other actions in achieving the objectives and the effects of
actions on the U.S. economy, including consumers.
Information requests; reporting requirements
Under section 308, the USTR is to make available
information (other than confidential) upon receipt of a written
request by any person concerning (1) the nature and extent of a
specific trade policy or practice of a foreign country with
respect to particular goods, services, investment, or IPR to
the extent such information is available in the federal
government; (2) U.S. rights under any trade agreement and the
remedies which may be available under that agreement and U.S.
laws; and (3) past and present domestic and international
proceedings or actions with respect to the policy or practice.
If the information is not available, within 30 days after
receipt of the request, the USTR must request the information
from the foreign government or decline to request the
information and inform the person in writing of the reasons.
The USTR must submit a semiannual report to the Congress
describing petitions filed and determinations made,
developments in and the status of investigations and
proceedings, actions taken or the reasons for no action under
section 301, and the commercial effects of section 301 actions
taken. The USTR must also keep the petitioner regularly
informed of all determinations and developments regarding
section 301 investigations.
Identification of Intellectual Property Rights Priority Countries
(Special 301)
Section 182 of the Trade Act of 1974, added by section 1303
of the Omnibus Trade and Competitiveness Act of 1988, requires
the USTR to identify, within 30 days after submission of the
annual National Trade Estimates (foreign trade barriers) report
to the Congress required by section 181 the 1974 Act (i.e., by
April 30) those foreign countries that (1) deny adequate and
effective protection of IPR or fair and equitable market access
to U.S. persons that rely upon IP protection; and (2) those
countries under paragraph (1) determined by the USTR to be
``priority foreign countries.'' The USTR is to identify as
priority countries only those that have the most onerous or
egregious acts, policies, or practices with the greatest
adverse impact on the relevant U.S. products, and that are not
entering into good faith negotiations or making significant
progress in bilateral or multilateral negotiations to provide
adequate and effective IPR protection. In identifying foreign
countries, the USTR is to take into account the history of IP
laws and practices of the foreign country as well as efforts of
the United States, and the response of the foreign country, to
achieve adequate and effective protection and enforcement of
IPR. A country may be identified notwithstanding the fact that
it may be in compliance with the specific obligations of the
TRIPs Agreement. The USTR at any time may revoke or make an
identification of a priority country, but must include in the
semiannual section 301 report to the Congress a detailed
explanation of the reasons for a revocation.
In addition, as a matter of administrative practice, the
USTR has established a ``priority watch list'' of countries
whose acts, policies, and practices meet some, but not all, of
the criteria for priority foreign country identification. The
problems of these countries warrant active work for resolution
and close monitoring to determine whether further Special 301
action is needed. Also, the USTR maintains a ``watch list'' of
countries that warrant special attention because they maintain
IP practices or barriers to market access that are of
particular concern. Finally, the USTR has added a ``Special
Mention'' category.
Section 302(b) requires the USTR to initiate a section 301
investigation within 30 days after identification of a priority
country with respect to any act, policy, or practice of that
country that was the basis of the identification, unless the
USTR determines initiation of an investigation would be
detrimental to U.S. economic interests and reports the reasons
in detail to the Congress. The procedural and other
requirements of section 301 authority generally apply to these
cases, except that investigations must be concluded and
determinations made on whether the measures are actionable and
an appropriate response within a tighter time limit of 6
months, which may be extended to 9 months if certain statutory
criteria are met.
History of Special 301
On May 26, 1989, after the first annual Special 301 review,
the USTR announced that because of significant progress made in
various negotiations, no priority countries had been identified
under Special 301. Rather, under administrative authority, 25
countries were singled out whose practices deserved special
attention, of which 17 countries were placed on a newly created
watch list and 8 countries were placed on a new priority watch
list to be reviewed again no later than November 1, 1989.
On November 1, 1989, the USTR announced that progress had
been made in negotiations to obtain improved IPR protection and
enforcement with each of the eight countries on the priority
watch list. Korea, Taiwan, and Saudi Arabia were moved to the
watch list because of their significant progress. The other
five countries (Brazil, India, Mexico, People's Republic of
China (PRC), and Thailand) remained on the priority watch list.
No country was designated as a ``priority foreign country''
making it subject to section 301 investigation.
In January 1990, Mexico was removed from all Special 301
lists after outlining a program for improved IP protection and
enforcement. On April 27, 1990, the USTR noted that because
significant progress had been made in negotiations with
countries previously identified under Special 301, no country
would be designated as a ``priority foreign country'' in 1990.
At that time, Portugal also was removed from all lists, due to
improved protection of IPR in that country.
On April 26, 1991, the USTR announced the identification of
the PRC, India, and Thailand as ``priority foreign countries.''
All three countries had been on the priority watch list since
the first annual review in 1989 with no significant progress
made. Section 301 investigations of the China and India
protection deficiencies began on May 26; Thailand's practices
were already the subject of two section 301 investigations.
Brazil was retained and the European Community (EC) and
Australia were added to the priority watch list; 23 countries
were retained or placed on the watch list, and Malaysia was
removed. On November 26, the USTR announced that negotiations
with the PRC had not succeeded; a draft list of Chinese
products that might be subject to retaliatory tariffs was
published for public comment the following day. On December 16,
the USTR announced that January 16, 1992 would be the firm
deadline for concluding any further negotiations with China and
determining the specific response to inadequate protection. On
November 26, the deadline for the India investigation was
extended because of progress made and the complex issues
involved.
On January 16, 1992, the USTR announced that the United
States and China had signed a Memorandum of Understanding that
committed China to provide improved protection for U.S. IPR and
ended the Special 301 investigation. On April 29, the USTR
announced the addition of Taiwan and the retention of India and
Thailand as ``priority foreign countries.'' Six countries--
Egypt, Hungary, Korea, the Philippines, Poland, and Turkey--
were placed on the priority watch list; Australia, Brazil, and
the EC were retained on that list. Twenty-two countries were
placed or retained on the watch list. Duty-free treatment on
imports of certain eligible products from India under the GSP
program was suspended on April 29. On October 9, USTR
reaffirmed the determination in the section 301 investigation
of Thailand's patent protection made on March 13, but again
deferred action in order to negotiate with the new Thai
government. The section 301 case on Thai copyright practices
was terminated in December 1991; implementation of measures by
the Thai government to eliminate the unreasonable practices is
being monitored. Thailand has been denied full benefits under
the GSP program since 1989.
On April 30, 1993, the USTR announced the retention of
Brazil, India, and Thailand as ``priority foreign countries''
and placed 10 countries on the priority watch list and 17
countries on the watch list. The USTR also announced new steps
to resolve outstanding IPR problems with priority watch list
countries by initiating ``immediate action plans'' for Hungary
and Taiwan to be completed by July 31, 1993; conducting ``out-
of-cycle'' reviews during 1993 (including deadlines and
benchmarks for evaluating performance) for Korea, Argentina,
Egypt, Poland, and Turkey; and intensifying consultations with
Australia, the EC, and Saudi Arabia. ``Out-of-cycle'' reviews
would also be conducted with 5 of the 17 watch list countries:
Cyprus, Italy, Pakistan, Spain, and Venezuela. Canada, Germany,
and Paraguay were removed from the watch list. On May 6, the
USTR announced that a special review would be conducted on July
31 of Thailand's progress.
On August 2, 1993, the USTR announced the results of
reviews conducted in July: a comprehensive agreement with
Hungary that would result in its removal from the priority
watch list; reexamination within 30 days of Thailand's status
based on further progress achieved and comprehensive review in
early 1994 of further Thai efforts; and that Taiwan's status
would be reviewed based on progress in completing elements of
the ``immediate action plan.'' On September 9, the USTR
announced that, as a result of the July review, Thailand's
identification as a ``priority foreign country'' would be
revoked, Thailand would be placed on the priority watch list,
and another review of its progress would be conducted in early
1994. On November 30, the USTR announced that the PRC would be
moved from the watch list to the priority watch list because of
its failure to enforce IPR laws and regulations.
On April 30, 1994, the USTR announced that Argentina,
China, and India would be designated as ``priority foreign
countries'' if satisfactory progress was not reached by June
30. Six countries were placed on the priority watch list: the
EU, Japan, Korea, Saudi Arabia, Thailand, and Turkey. Eighteen
countries were placed on the watch list, with ``out-of-cycle''
reviews to be conducted of Egypt, El Salvador, Greece, and the
United Arab Emirates. An additional ``special mention''
category was also announced of nine countries where there is
need for greater effort or further improvement or IP problems
are beginning to become serious: Brazil, Canada, Germany,
Honduras, Israel, Panama, Paraguay, Russia, and Singapore. The
USTR also announced that significant progress had been made
with a number of countries. On June 30, the USTR announced the
designation of China as a ``priority foreign country'' and the
immediate initiation of a section 301 investigation. Argentina
and India were placed on the priority watch list, with India
also to be subject to an ``out-of-cycle'' review in January
1995. On August 12, 1994, the USTR initiated a review to
consider whether Thailand should be restored to full
beneficiary developing country status under the GSP program
because of progress on IPR protection.
On February 7, 1995, the USTR concluded its section 301
investigation of China and determined that certain acts,
policies, and practices of the Chinese government with respect
to the enforcement of IPR and the provision of market access to
persons who rely on IP protection are unreasonable and
constitute a burden or restriction on U.S. commerce. The USTR
determined further that trade action was appropriate in the
form of increasing duties to 100 percent ad valorem for certain
products, effective February 26, 1995. However, on February 26,
1995, based on an agreement with China, the USTR determined not
to impose sanctions, terminated the investigation, and revoked
China's identification as a priority foreign country.
On April 29, 1995, the USTR announced no priority foreign
country designations. However, USTR stated that the number of
out-of-cycle reviews would be increased so that progress may be
reviewed during the course of the year, rather than only at the
end of April when the annual review occurs. The USTR placed
Brazil, Greece, Japan, Saudi Arabia, and Turkey on the priority
watch list and stated that they would be subject to review
during the course of the year. Other countries on the priority
watch list included the EU, India, and Korea. The USTR placed
24 countries on the watch list and stated that it would conduct
out-of-cycle reviews with 4 of these countries: Argentina, the
United Arab Emirates, Indonesia, and South Africa. The USTR
also noted growing concerns about IP property in five countries
and highlighted developments and expectations for progress in
six countries.
On January 19, 1996, the USTR announced the results of
Special 301 out-of-cycle reviews. Specifically, Turkey and
Japan would remain on the watch list, and the investigation
concerning Indonesia would be continued because more
information was expected concerning Indonesia's enforcement
activities.
On April 30, 1996, the USTR announced that it would
initiate four WTO dispute settlement actions against Portugal,
Turkey, India, and Pakistan for failure to fulfill certain WTO
obligations related to IPR. In addition, the USTR identified 35
trading partners that deny adequate and effective protection of
IPR or deny fair and equitable market access to U.S. persons
that rely upon intellectual property protection, as well as 19
trading partners that would be monitored. Specifically, the
USTR designated China as a priority foreign country because of
its failure to implement the 1995 IP agreement. Eight countries
were placed on the priority watch list: Argentina, Greece, the
European Union, India, Indonesia, Japan, Korea, and Turkey. The
USTR announced placement of 26 countries on the watch list,
with out-of-cycle reviews to be conducted with respect to El
Salvador, Italy, Paraguay, the Philippines, Russia, Saudi
Arabia, and Thailand.
On June 17, 1996, the USTR announced that, based on
measures that China had taken and would take in the future to
implement key elements of the 1995 Agreement, it would not
impose sanctions and would revoke China's status as a priority
foreign country. On October 21, 1996, the USTR announced the
termination of the WTO consultations with Portugal based on
measures that Portugal agreed to take to implement its WTO
obligations.
On October 2, 1996, the USTR announced the results of
certain out-of-cycle reviews. Specifically, the USTR placed
Bulgaria and Bolivia on the watch list, maintained Paraguay on
the watch list, deferred the decision on Greece, and determined
that South Africa would remain unlisted.
Finally, on December 20, 1996, the USTR announced out-of-
cycle review decisions. It retained Greece, Russia, and Saudi
Arabia on the priority watch list, maintained reviews for
Argentina and the Philippines, and determined that Hong Kong
would not be placed on the watch list but that U.S. government
monitoring would continue.
On April 30, 1997, the USTR released its 1997 Special 301
annual review. In the review, the USTR announced that it would
initiate WTO dispute settlement actions against four countries
designated as priority foreign countries: Denmark, Sweden,
Ireland and Ecuador. In addition, the USTR announced that
Greece and Luxembourg would be designated priority foreign
countries, but that dispute settlement proceedings would not be
initiated if the countries met their TRIPs obligations in the
coming months. The USTR also placed 10 countries on the
priority watch list: Argentina, Ecuador, Egypt, the EU, Greece,
India, Indonesia, Paraguay, Russia, and Turkey. Thirty-six
countries were placed on the watch list. Of the 36 watch-list
countries, the USTR announced that it would conduct out-of-
cycle reviews for 7: Bulgaria, Canada, Hong Kong, Luxembourg,
Panama, Thailand and Italy. Finally, the USTR stated that China
would continue to be subject to monitoring under section 306.
On October 27, 1997, the USTR issued certain out-of-cyle
review decisions. The USTR announced that Luxembourg had made
progress toward implementing its WTO obligations under the
TRIPs, and that as a result, the United States would not
initiate a dispute settlement proceeding at that time. However,
Luxembourg was placed on the Special 301 watch list. Out-of-
cycle determinations were also made for: Ecuador (remained on
the priority watch list); Italy (remained on the watch list);
Thailand (remained on the watch list); and Panama (removed from
the watch list.) Finally, the USTR cited Australia for actions
to remove protections for sound recordings.
On January 16, 1998, the USTR released its next set of out-
of-cycle review determinations. USTR designated Paraguay as a
priority foreign country, and announced that a special 301
investigation would be initiated within 30 days. Other results
of the review include: Bulgaria's elevation to the priority
watch list; Turkey's retention on the priority watch list;
Brazil and Hong Kong's continued designation on the watch list;
and an expression of concern about Ecuador's continued failure
to implement its TRIPs obligations by the deadline established
under the terms of its WTO accession.
On March 30, 1998, the USTR announced that the
Administration would suspend a portion of Honduras' benefits
under GSP and the Caribbean Basin Initiative because of IPR
violations. (Benefits were restored on June 30, 1998.)
On May 1, 1998, the USTR released its 1998 Special 301
annual review. In the review, the USTR announced that it would
initiate WTO dispute settlement actions against Greece and the
EU. (Greece was designated a priority foreign country in the
1997 Special 301 annual review.) In addition, the USTR placed
15 countries on the priority watch list: Israel, Macau,
Argentina, Ecuador, Egypt, the EU, Greece, India, Indonesia,
Russia, Turkey, Bulgaria, Italy, the Dominican Republic, and
Kuwait. An out-of-cycle review would be conducted for Bulgaria.
The USTR also placed 31 countries on the watch list. Of the 31
watch list countries, USTR announced that out-of-cycle reviews
would be conducted for four: Hong Kong, Colombia, Jordan, and
Vietnam. Finally, USTR indicated that China would continue to
be subject to monitoring under section 306.
On November 2, 1998, the USTR announced the results of its
out-of-cycle review for Bulgaria. USTR moved Bulgaria from the
priority watch list to the watch list based on Bulgaria's
improved enforcement of intellectual property rights.
On February 19, 1999, the USTR announced the results of its
out-of-cycle reviews of Hong Kong, Ecuador, Colombia and
Vietnam. USTR removed Hong Kong from the Special 301 watch list
because of Hong Kong's efforts to combat piracy. Ecuador
remained on the priority watch list, and Colombia and Vietnam
remained on the watch list.
On April 30, 1999, the USTR released its 1999 Special 301
annual review. In the review, the USTR announced that it would
initiate WTO dispute settlement actions against Argentina,
Canada, and the EU. Sixteen countries were placed on the
priority watch list: Israel, Ukraine, Macau, Argentina, Peru,
Egypt, the E.U., Greece, India, Indonesia, Russia, Turkey,
Italy, the Dominican Republic, Guatemala, and Kuwait. The USTR
also placed 37 countries on the watch list. USTR announced that
it would conduct out-of-cycle reviews for Malaysia, Hong Kong,
Israel, Kuwait, South Africa, Colombia, Poland, the Czech
Republic, and Korea. The USTR also announced that China and
Paraguay would be subject to monitoring under section 306.
Finally, USTR reported on the progress of TRIPs cases
previously filed in the WTO. The U.S. case against Sweden ended
in December 1998, when the United States and Sweden notified
the WTO that they had reached a mutually satisfactory
resolution to the U.S. complaint. The cases against Ireland,
Greece and Denmark were still pending. The United States
continued to raise questions about India's compliance with the
December 1997 dispute settlement decision on patent protection
for pharmaceuticals and agricultural chemicals.
On December 10, 1998, the USTR announced the results of its
out-of-cycle review for Jordan. USTR removed Jordan from the
watch list.
On December 19, 1999, the USTR announced the results of its
out-of-cycle review for Colombia, the Czech Republic, Hong
Kong, and Malaysia. As a result of the reviews, USTR decided
not to put Hong Kong and Malaysia on the watch list. Colombia
and the Czech Republic remained on the list.
In December 1999, the USTR initiated out-of-cycle reviews
to examine the progress of developing countries toward
implementing their TRIPs obligations. The review was prompted
by concern that many developing countries would not be in
compliance by the January 1, 2000 deadline for implementation
of TRIPs obligations. The review revealed that a number of
countries are still in the process of finalizing implementing
legislation. The USTR indicated its intent to continue to work
with such countries bilaterally and through the review process
in the WTO TRIPS Council meetings. In instances where
additional progress was not likely in the near term, or where
the United States was been unable to resolve concerns through
bilateral consultation, USTR pursued the matter in dispute
settlement (e.g. the actions initiated against Argentina and
Brazil pursuant to the 2000 Special 301 annual review).
On May 1, 2000, the USTR released its 2000 Special 301
annual review. In the review, the USTR announced initiation of
WTO dispute settlement proceedings against Argentina and
Brazil, and the continuation of proceedings against Denmark.
The USTR also noted continued concern about Ireland's failure
to fully implement TRIPs obligations.
Sixteen countries were placed on the priority watch list in
the 2000 review: Argentina, Dominican Republic, E.U., Egypt,
Greece, Guatemala, India, Israel, Italy, Korea, Malaysia, Peru,
Poland, Russia, Turkey and Ukraine. Of the countries placed on
the priority watch list, the USTR announced that out-of-cycle
reviews would be conducted for Italy and Korea. Thirty-nine
countries were placed on the watch list, of which, only one,
Macay, was designated for an out-of-cycle review. EL Salvador
and West Bank/Gaza Strip were also scheduled for out-of-cycle
reviews. Finally, the USTR announced the China and Paraguay
would continue to be subject to monitoring under section 306.
The USTR also used the occasion of the annual Special 301
report to review the Clinton Administration's effort to
coordinate IPR enforcement with global health policy. On
December 1, 1999, President Clinton announced that the United
States was committed to helping developing countries gain
access to essential medicines, including those for the
prevention and treatment of HIV/AIDs. The USTR and the
Secretary of Health and Human Resources implemented the
President's announcement by developing a cooperative approach
on health-related IPR matters. Under the new policy, when a
foreign government expressed concern that a U.S. trade law
related to IP protection significantly impeded the foreign
country's ability to address a health crisis in that country,
the USTR would seek and give full weight to the advice of the
Secretary of Health and Human Services regarding the health
considerations involved. The USTR cited on-going consultations
with Thailand over the compulsory licensing of an HIV/AIDs drug
as an example of how the new policy had been applied. The USTR
also indicated that the Special 301 Committee took health and
development issues into account in making its Special 301
recommendations. On May 10, 2000, President Clinton issued
Executive Order 13155 formalizing this policy with respect to
sub-Saharan African countries and access to HIV/AIDS drugs.
On November 8, 2000, the USTR announced the results of its
out-of-cycle reviews for El Salvador, Italy, Poland and
Ireland. As result of the reviews, Italy, and Poland were moved
from the priority watch list to the watch list. Ireland was
removed from the watch list, and El Salvador was not placed on
the watch list. The USTR also noted that the Bahamas had taken
steps to bring its copyright laws into compliance with its
international obligations.
On January 19, 2001, the USTR announced the results of its
out-of-cycle reviews for Ukraine, Macau, Korea, the United Arab
Emirates, Hungary, Slovenia, and the West Bank/Gaza Strip. The
decision on designation of Ukraine as a priority foreign
country was deferred until March 1, 2001. Korea remained on the
priority watch list, while Macau and Hungary remained on the
watch list. The United Arab Emirates and Slovenia did not
receive a listing. The review of the West Bank/Gaza was put on
indefinite hold due to regional unrest.
Identification of Trade Liberalization Priorities (Super 301)
Section 310 of the Trade Act of 1974, as amended by section
1302 of the Omnibus Trade and Competitiveness Act of 1988,
required the USTR, within 30 days after the National Trade
Estimates (foreign trade barriers) report to the Congress in
1989 and 1990, to identify U.S. trade liberalization
priorities.
This identification included priority practices as well as
priority foreign countries and estimates of the amount by which
U.S. exports would be increased if the barrier did not exist.
USTR was required to initiate section 301 investigations on all
priority practices identified for each of the priority
countries within 21 days after submitting the report to the
House Ways and Means and Senate Finance Committees. In its
consultations with the foreign country, USTR was required to
seek to negotiate an agreement which provided for the
elimination of, or compensation for, the priority practices
within 3 years after the initiation of the investigation. This
authority, however, expired in 1990.
On March 3, 1994, President Clinton issued Executive Order
12901 requiring the USTR, within 6 months of the submission of
the National Trade Estimates report for 1994 and 1995, to
review U.S. trade expansion priorities and identify priority
foreign country practices, the elimination of which would
likely have the most significant potential to increase U.S.
exports. On September 27, 1995, President Clinton issued
Executive Order 12973, which extended the terms of Executive
Order 12901 to 1996 and 1997. The order required the USTR to
submit to the House Ways and Means and Senate Finance
Committees and to publish in the Federal Register a report on
the priority foreign country practices identified. The report
was not submitted in 1998, because the authority expired in
1997, and was not renewed until March 31, 1999, pusuant to
Executive Order 13116.
Under the terms of the executive order, the USTR must
initiate section 301 investigations within 21 days of the
submission of the report with respect to all priority foreign
country practices identified. The normal section 301
authorities, procedures, time limits, and other requirements
generally apply to these investigations. In consultations
requested with the foreign country under section 303, the USTR
must seek to negotiate an agreement providing for the
elimination of the practices as quickly as possible or, if that
is not feasible, compensatory trade benefits. The USTR will
monitor any agreements pursuant to section 306. The semiannual
report under section 309 will include the status of any
investigation and, where appropriate, the extent to which it
has led to increased U.S. export opportunities.
Section 314(f) of the Uruguay Round Agreements Act codified
the terms of the executive order for the year 1995 as an
amendment to section 310 of the 1974 Act.
History of Super 301
On May 26, 1989, the USTR submitted the 1989 report to the
two committees on trade liberalization priorities, identifying
six ``priority'' practices from three ``priority countries.''
They were:
(1) Japan.--Ban on government procurement of foreign
satellites; exclusionary government procurement of
supercomputers; restrictions on imports of wood
products.
(2) Brazil.--Import bans and other licensing
restrictions.
(3) India.--Trade-related investment measures;
insurance market barriers.
Section 301 investigations were initiated on each of the
six priority practices on June 16, 1989. The Administration
also launched a separate initiative with Japan in July 1989 to
address the causes of the slow adjustment of the United States
and Japanese trade imbalances (the Structural Impediments
Initiative (SII)).
In its 1990 report to the committees on April 27, 1990, the
USTR identified India again as a ``priority country'' with the
same two practices identified again as ``priority practices''
because the issues remained unresolved. The report stated that
satisfactory solutions had been reached with Japan on its three
priority practices and that the priority practice of Brazil was
expected to be resolved. Letters were exchanged between the
USTR and Japanese Ambassador regarding unilateral actions by
the Japanese government to improve access for U.S. firms to its
satellite market and to specify detailed new procurement
procedures; to improve access for U.S. firms to its
supercomputer procurement market through open, competitive, and
transparent purchasing procedures; and to improve market access
for U.S. wood products. The report identified the successful
completion of the Uruguay Round of GATT multilateral trade
negotiations as the top trade liberalization priority.
On June 14, 1990, the USTR determined that India's priority
practices were unreasonable and burden or restrict U.S.
commerce, but that retaliation would be inappropriate given the
ongoing Uruguay Round negotiations on services and investment.
If necessary, a post-Uruguay Round review would determine
whether section 301 action was warranted.
On June 28, 1990, the U.S.-Japan Working Group on the
Structural Impediments Initiative issued an SII Joint Report,
following up on an interim report issued in April. This final
report contained commitments by both governments on steps to
address various structural impediments to the adjustment of
trade and current account imbalances, with followup through
regular high-level meetings, progress review, and annual
reports.
On May 1, 1992, and on April 30, 1993, the USTR reported on
its monitoring of Japan's implementation of its commitments
regarding the three practices and on progress made in the
liberalization of Brazil's import regime. The report also
reaffirmed the decision in 1990 to review, if necessary,
India's investment and insurance practices following conclusion
of the GATT Uruguay Round to determine whether section 301
action was warranted.
The USTR announced in the 1993 report that a special review
would be undertaken, pursuant to section 306, of Japanese
actions under the U.S.-Japan Supercomputer Agreement because of
U.S. government concern that Japan might not be adhering to the
terms of that Agreement. Based upon this review and the conduct
and outcome of procurements scheduled in coming months, the
USTR would determine whether Japan was in compliance with the
Agreement. If the USTR determined Japan was not in compliance,
the USTR would initiate trade action against Japan under
section 301.
On April 30, 1994, the USTR announced that the special
review of Japanese actions under the 1990 Supercomputer
Agreement would continue as a result of several major areas of
concern. Monitoring would continue of the operation of the new
procedures for Japanese procurement of satellites and of
implementation of the Wood Products Agreement. Improvements in
India's investment and insurance regimes would be pursued in
bilateral discussions.
Pursuant to Executive Order 12901 of March 3, 1994, the
USTR reported on October 3, 1994 that it had decided not to
identify any priority foreign country practices. Japan's market
access for wood and paper was described as perhaps warranting
identification in the future, and various foreign practices
were determined not to be appropriate for identification
because they were already being otherwise addressed.
On September 28, 1995, the USTR reported that it again had
decided not to identify any priority foreign practices.
However, the USTR found that certain practices may in the
future warrant identification as priority foreign country
practices: Japan market access for paper and paper products,
Japan market access for wood products, and China market access
for agricultural products. In addition, the USTR listed certain
practices as not appropriate for identification because they
were being otherwise addressed.
On October 1, 1996, the USTR announced that it again had
decided not to identify any priority foreign country practices.
However, it initiated new actions in the WTO concerning
Indonesia's national auto policy, Brazil's auto program,
Australia's export subsidies, and Argentina's import duties. It
also announced the adoption of a strategic enforcement strategy
in the automotive trade sector. The USTR also listed several
other bilateral priorities that may warrant identification as
priority foreign country practices in the future: Japan market
access for insurance, Japan telecommunications, Japan market
access for paper and paper products, China market access for
agricultural products, Korea telecommunications, Germany
electrical equipment, EU Ecolabeling Directive, EU design-
restrictive standards, and Saudi Arabia International
Conformity Certification Program.
On October 8, 1997, the USTR submitted its report on trade
expansion priorities to the Senate Finance Committee and the
House Ways and Means Committee. The report identified one
priority foreign country, announced initiation of dispute
settlement proceedings in four other cases, identified a number
of practices that might warrant identification as a priority
foreign country practice in the future, and described the
progress made in addressing previously identified market access
barriers.
The priority foreign country practice was Korean barriers
to auto imports. The dispute settlement cases were on: (1)
Japanese market access barriers to fruit; (2) Canadian export
subsidies and import quotas on dairy products; (3) E.U.
circumvention of export subsidy commitments on dairy products;
and (4) Australian export subsidies on automotive leather.
Practices that warranted further monitoring and could require
future action included: (1) the E.U. specified risk material
ban, cosmetic initiative, design standards, the eco-labeling
directive, and units of measurement directive; (2) French
restrictions on pet food imports; (3) Australian pest risk
analysis; (4) Argentinian footwear import restrictions; (4)
Brazilian import financing measures; and (5) Taiwanese market
access barriers to pharmaceuticals.
Finally, the USTR identified three countries in which on-
going negotiations were yielding some success, but that
required continued monitoring. The countries and practices
identified were: (1) Japan--market access for flat glass and
paper and paper products; (2) China--IPR enforcement, sanitary
and phytosanitary measures, market access for meat products,
registration of financial information providers, and market
access for insurance providers; and (3) Korea--impediments to
entry and distribution of cosmetics, import clearance
procedures, and steel subsidies.
On April 30, 1999, pursuant to Executive Order 13116 of
March 31, 1999, the USTR submitted its report to the Committees
on trade expansion priorities and priority foreign country
practices. In the 1999 report, the USTR did not identify any
priority foreign country practices. The USTR did find that a
number of practices warranted the initiation of WTO dispute
settlement proceedings, announced initiation of one section 301
investigation, and identified a number of practices that might
warrant identification as a priority foreign country practice
in the future.
With respect to initiation of WTO proceedings, the USTR
indicated that it would request WTO dispute settlement
consultations with the E.U. on government subsidies for
avionics equipment and geographical indications, and with India
on automotive trade and investment measures. The USTR reported
that it had requested the formation of a WTO dispute settlement
panel on Korean restrictions on beef imports and their
distribution, and had initiated dispute settlement procedures
on Korean measures related to airport construction. The USTR
also reported that it was working within the Committee on
Customs Valuation to examine non-compliance with the WTO
Customs Valuation Agreement with respect to Brazil, India and
Mexico, and on the general use of reference pricing by a number
of WTO Members.
USTR also reported that it had initiated an investigation
under section 301 of the Trade Act of 1974 on Canadian
regulations affecting tourism in the U.S.-Canada border region.
Practices that warranted further monitoring and could
require future action included: (1) Canadian restrictions on
agriculture exports and discrimination against U.S. magazines;
(2) Japanese insurance deregulation, market access restrictions
on autos, auto parts, and flat glass; (3) Korean treatment of
pharmaceuticals; (4) Mexico's application of antidumping
measures on high-fructose corn syrup and telecommunication
barriers.
On April 30, 2000, the USTR submitted its report to the
Committees on trade expansion priorities and priority foreign
country practices. In the 2000 report, the USTR again did not
identify any priority foreign country practices. The USTR did
find that a number of practices warranted the initiation of WTO
dispute settlement proceedings, and identified a number of
practices that might warrant identification as a priority
foreign country practice in the future.
With respect to initiation of WTO proceedings, the USTR
indicated that it would request WTO dispute settlement
consultations in two customs valuation cases: (1) Brazil on
reference prices for certain textile products; and (2) Romania
on discriminatory reference prices for products such as
clothing, poultry, and certain types of distilled spirits. The
USTR also announced that it would request the establishment of
a panel on India's automotive trade and investment measures,
and would request consultations with the Philippines on local
content requirements for motorcycles, automobiles and certain
commercial vehicles.
Practices that warranted further monitoring and could
require future action included: (1) E.U. subsidization of
Airbus; (2) Japanese market access restrictions and competition
problems in the flat glass, auto/auto parts, and public works
sectors; (3) Korea market access barriers to pharmaceuticals
and autos; (4) Mexico's use of a minimum price regime for
certain imported products; (5) Indian tariffs on textiles; and
(6) Malaysian trade and investment measures on motor vehicles.
Foreign Direct Investment
Section 307(b) of the Trade and Tariff Act of 1984 requires
the U.S. Trade Representative to seek the reduction and
elimination of foreign export performance requirements through
consultations and negotiations with the country concerned if
the USTR determines, with interagency advice, that U.S. action
is appropriate to respond to such requirements that adversely
affect U.S. economic interests. In addition, the USTR may
impose duties or other import restrictions on the products or
services of the country involved, including exclusion from
entry into the United States of products subject to these
requirements. The USTR may provide compensation for such action
subject to the provisions of section 123 of the Trade Act of
1974 if necessary or appropriate to meet U.S. international
obligations.
Section 307(b) authority does not apply to any foreign
direct investment, or to any written commitment relating to
foreign direct investment that is binding, made directly or
indirectly by any U.S. person prior to October 30, 1984 (date
of enactment of the 1984 Act).
Foreign Anticompetitive Practices
Section 311 of the Uruguay Round Agreements Act provides
for including an identification of foreign anticompetitive
practices, the toleration of which by foreign governments is
adversely affecting exports of U.S. goods or services, as part
of the National Trade Estimate report to be submitted each
year. The USTR is to consult with the Attorney General in
preparing this section of the report.
Unfair Practices in Import Trade
Section 337 of the Tariff Act of 1930, as amended
Section 337 of the Tariff Act of 1930 \26\ declares
unlawful unfair methods of competition and unfair acts in the
importation or sale of articles (other than articles relating
to certain intellectual property rights), the threat or effect
of which is to (1) destroy or substantially injure an industry
in the United States; (2) prevent the establishment of such an
industry; or (3) restrain or monopolize trade and commerce in
the United States. Section 337 also declares unlawful the
importation or sale of articles that (1) infringe a valid and
enforceable U.S. patent or registered copyright; or are made,
produced, processed, or mined under a process covered by a
valid and enforceable U.S. patent; (2) infringe a valid and
enforceable U.S.-registered trademark; (3) infringe a
registered mask work of a semiconductor chip product; or
infringe exclusive rights in a protected design. For this
separate class of intellectual property rights, the importation
or sale of infringing articles is unlawful only if an industry
in the United States producing the articles protected by the
patent, copyright, trademark, mask work, or design exists or is
in the process of being established. It is not necessary to
establish that the industry is injured by reason of such
imports, as is the case with non-intellectual property rights
violations. A U.S. industry is considered to exist if there is
(1) significant investment in plant and equipment; (2)
significant employment of labor or capital; or (3) substantial
investment in the exploitation of the patent, copyright,
trademark, mask work, or design, including engineering,
research and development, or licensing.
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\26\ Public Law 71-361, section 337, approved June 17, 1930, 19
U.S.C. 1337.
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The U.S. International Trade Commission (ITC) is
responsible for investigating alleged violations of section
337. Upon finding a violation, the ITC may issue an exclusion
order and/or a cease and desist order, subject to presidential
disapproval.
Section 337 is unique among the trade remedy laws in that
it is the only one subject to the provisions of the
Administrative Procedure Act (APA).\27\ All ITC investigations
and determinations under section 337 must be conducted on the
record after publication of notice and opportunity for hearing
in conformity with the APA.\28\
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\27\ Act of June 11, 1946, ch. 324, sections 1-12, 5 U.S.C. 551 et
seq.
\28\ 19 U.S.C. 1337(c).
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The language of section 337 closely parallels that of
section 5 of the Federal Trade Commission Act,\29\ and
therefore the scope of section 337 has been compared to that of
the antitrust and unfair competition statutes. The ITC has
significant discretion in determining what practices are
``unfair'' under section 337. In practice, however, the
overwhelming majority of cases dealt with under section 337 has
been in the area of patent infringement. Among the few non-
patent cases have been cases involving group boycotts, price
fixing, predatory pricing, false labeling, false advertising,
and trademark infringement.
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\29\ Public Law 63-203, approved September 26, 1914, 38 Stat. 717,
15 U.S.C. 45.
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Whenever, in the course of a section 337 investigation, the
ITC has reason to believe that the matter before it involves
dumping or subsidization of imports within the purview of the
antidumping or countervailing duty laws, it must notify the
administering authority of those laws for appropriate
action.\30\ If the alleged violation of section 337 is based
solely on such dumping or subsidization practices, the ITC must
terminate (or not initiate) the section 337 investigation. If
it is based in part on such practices, and in part on other
alleged practices, then the ITC may continue (or initiate) an
investigation under section 337. This provision is designed to
avoid duplication and conflicts in the administration of the
unfair trade practice laws.
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\30\ 19 U.S.C. 1337(b)(3).
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The Audio Home Recording Act of 1992 \31\ added alleged
copyright infringements with respect to which action is
prohibited by the new 17 U.S.C. 1008, to the practices for
which the ITC must terminate or not institute an investigation
under section 337. Section 1008 prohibits action under title 17
alleging copyright infringement based on the manufacture,
importation, or distribution of a digital audio technology
(DAT) recorder and related items.
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\31\ Public Law 102-563, approved October 28, 1992.
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General Agreement on Tariffs and Trade (GATT) panel determination
In response to a complaint by the European Community (EC)
about the application of section 337, the GATT Council agreed
on October 7, 1987 to establish a panel to review the U.S. law.
On November 23, 1988, the panel found that section 337 is
inconsistent with the national treatment provision article
III:4 of the GATT because it afforded less favorable treatment
to imported products alleged to infringe U.S. patents than that
given in federal district court to challenged domestically
manufactured goods. Specifically, the panel pointed to the
complainants' choice of two fora in which to challenge imported
products, without a corresponding choice available to challenge
products of U.S. origin; the potential disadvantage to
producers or importers of challenged products of foreign origin
resulting from the tight time-limits that apply to producers of
challenged products of U.S. origin; and the possibility that
producers or importers of challenged products of foreign origin
may have to defend their products both before the ITC and in
federal district court while no corresponding exposure exists
with respect to U.S.-made goods. The panel recommended that the
GATT contracting parties request the United States to bring its
procedures for patent infringement cases involving imports into
conformity with the GATT.
The panel report was adopted at a GATT Council meeting on
November 9, 1989. The United States amended section 337 to
address the panel report in the Uruguay Round Agreements
Act.\32\ At the request of the EC, the United States and the EC
held WTO consultations on Febraury 28, 2000 to discuss the
compliance of section 337, as amended, with U.S. obligations on
national treatment and under the agreement on Trade--Related
Aspects of Intellectual Property Rights (TRIPS).
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\32\ Public Law 103-465.
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Procedure
The ITC is required to investigate any alleged violation of
section 337 on complaint under oath or upon its own initiative.
The Uruguay Round Agreements Act amended the provision so that
there are no longer any deadlines for the investigation.
Instead, the ITC must, within 45 days of initiation, set a
target date and conclude its investigation at the earliest
practicable time. Before this amendment, the ITC was required
to meet strict deadlines for conducting investigations.
In the course of each investigation, the ITC is required to
consult with and seek advice and information from the
Department of Health and Human Services, the Department of
Justice, the Federal Trade Commission, and other appropriate
departments and agencies.
In deciding whether an article has infringed a valid U.S.
patent, the ITC applies the same statutory and decisional
domestic patent law as would a district court. U.S. patent
holders may file parallel actions in federal district court and
the Commission. Respondents sued in both fora under the same
underlying cause of action may obtain a stay of district court
proceedings until the ITC determination becomes final.
The Uruguay Round Agreements Act added a provision
permitting respondents to raise counterclaims in section 337
investigations. Such claims, however, would be immediately
removed to district court and cannot be litigated at the ITC.
Although damages are not an available remedy at the ITC as
they are in district court, the ITC is empowered to issue
limited exclusion orders, general exclusion orders, and cease
and desist orders, which provide relief at the border.
Specifically, if a violation of section 337 is found, the ITC
must direct that the foreign articles be excluded from entry
into the United States, unless it determines that such articles
should not be excluded in consideration of the effect of
exclusion on:
(1) the public health and welfare;
(2) competitive conditions in the U.S. economy;
(3) the production of like or directly competitive
articles in the United States; and
(4) U.S. consumers.
The Uruguay Round Agreements Act added a provision
establishing that the ITC is not permitted to issue a general
exclusion order (i.e., an exclusion order that affects all
shipments of the merchandise under investigation, as opposed to
an order that affects merchandise from only those persons
determined to be violating section 337) unless such a general
order is necessary to prevent circumvention of specific orders,
and there is a pattern of violation and identifying those
persons responsible for the infringement is difficult.
In appropriate circumstances, the ITC may issue temporary
exclusion orders during the course of an investigation if it
determines that there is reason to believe that there is a
violation of section 337. In the event of a temporary exclusion
order, entry is to be permitted only under bond. If petitioned
by a complainant for issuance of a temporary exclusion order,
the ITC must determine whether or not to issue such an order
within 90 days after initiation of an investigation, with a
possible extension of 60 days in more complicated cases. In
such circumstances, the ITC may require the complainant to post
a bond as a prerequisite for issuing an order. If the ITC later
determines that the respondent has not violated these
provisions, the bond may be forfeited to the respondent.
In addition to or in lieu of issuing an exclusion order,
the ITC may issue an appropriate cease and desist order to be
served on the violating party or parties, unless it finds that
such order should not be issued in consideration of the effect
of such order on the same public interest factors listed above.
The ITC may at any time, upon such notice and in such
manner as it deems proper, modify or revoke any cease and
desist order, and issue an exclusion order in its place. If a
temporary cease and desist order is issued, the ITC may require
the complainant to post a bond, which may be forfeited to the
respondent if the ITC later determines that the respondent has
not violated these provisions.
Any person who violates a cease and desist order issued
under this section shall be subject to a civil penalty of up to
the greater of $100,000 per day or twice the domestic value of
the articles entered or sold on such day in violation of the
order.
In the event that a person has been served with notice of
proceedings and fails to appear to answer the complaint in
cases where the complainant seeks relief limited solely to that
person, the ITC must presume the facts alleged by the
complainant to be true. If requested by the complainant, the
ITC must issue an exclusion order and/or a cease and desist
order against the person in default, unless it finds that such
order should not be issued for the same public interest reasons
listed above. Similarly, if no person appears to contest the
investigation and violation is established, the ITC may issue a
general exclusion order.
The ITC may order seizure and forfeiture of goods subject
to an exclusion order if an attempt has been made to import the
goods and the owner or importer has been notified that a
further attempt to import the goods would lead to seizure and
forfeiture.
Presidential and judicial review
Following an ITC determination of a violation of section
337, the President may, within 60 days after receiving
notification, disapprove the ITC determination for ``policy
reasons.'' The statute does not specify what types of policy
reasons may provide the basis for disapproval. Upon
presidential disapproval, actions taken by the ITC cease to
have effect. If the President does not disapprove the ITC
determination, or if he approves it, then the ITC determination
becomes final. Any person adversely affected by a final ITC
determination under section 337 may appeal the determination to
the U.S. Court of Appeals for the Federal Circuit.
Import Relief (Safeguard) Authorities
Sections 201-204 of the Trade Act of 1974, as amended
Background
Chapter 1 of title II (sections 201-204) of the Trade Act
of 1974,\33\ as amended by section 1401 of the Omnibus Trade
and Competitiveness Act of 1988,\34\ and sections 301-304 of
the Uruguay Round Agreements Act,\35\ sets forth the authority
and procedures for the President to take action, including
import relief, to facilitate efforts by a domestic industry
which has been seriously injured by imports to make a positive
adjustment to import competition.
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\33\ 19 U.S.C. 2251-2254.
\34\ Public Law 100-418, approved August 23, 1988. The 1988
amendments significantly rearranged chapter 1 of title II of the Trade
Act of 1974 and added a new section 204. Prior to these amendments, the
subject matter contained in sections 201-204 was found in sections 201-
203 of the Trade Act.
\35\ Public Law 103-465, approved December 8, 1994. Minor
amendments were also made by sections 315 and 317 of the North American
Free Trade Agreement Implementation Act, Public Law 103-182, approved
December 8, 1993.
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From the outset of the trade agreements program in 1934,
U.S. policy of seeking liberalization of trade barriers has
been accompanied by recognition that difficult economic
adjustment problems could result for particular sectors of the
economy and, if serious injury results from increased
competition by not necessarily unfairly traded imports, then
domestic industries should be provided a period of relief to
allow them to adjust to new conditions of trade. Beginning with
bilateral trade agreements in the early 1940's, U.S. trade
agreements, and eventually U.S. domestic law, have provided for
a so-called ``escape clause'' or ``safeguard'' mechanism for
import relief. This mechanism, while amended over the years,
has provided authority for the President to withdraw or modify
concessions and impose duties or other restrictions for a
limited period of time on imports of any article which causes
or threatens serious injury to the domestic industry producing
a like or directly competitive article, following an
investigation and determination by the U.S. International Trade
Commission (ITC) (formerly the U.S. Tariff Commission).
Under this basic trade agreements authority in section 350
of the Tariff Act of 1930, the President issued three executive
orders setting forth procedures and criteria for escape-clause
relief, which governed from 1947 to 1951. Section 7 of the
Trade Agreement Extension Act of 1951 contained the first
statutory procedure and criteria for escape-clause action,
which governed from 1951 until replaced by sections 301, 351
and 352 of the Trade Expansion Act of 1962. The 1962
provisions, which also introduced the concept of trade
adjustment assistance (see separate section), were repealed and
replaced by sections 201-203 of the Trade Act of 1974. In 1988,
the 1974 provisions were rewritten to place a greater emphasis
on the responsibility of domestic industry to use the relief
period to undertake positive adjustment.
Primarily at U.S. insistence, an escape clause (safeguard)
provision modeled after language in the 1947 executive order
was included in article XIX of the original General Agreement
on Tariffs and Trade (GATT 1947). As a result of the GATT
Uruguay Round of Multilateral Trade Negotiations, which
resulted in the Agreement Establishing the World Trade
Organization, GATT 1947 was replaced by GATT 1994. Article XIX
was not changed in GATT 1994.\36\ In the course of the
negotiations, GATT members negotiated a new Agreement on
Safeguards, which provides rules for the application of article
XIX of GATT 1994. The rules provide for, among other things,
greater transparency in procedures and limitations on the
duration of relief measures. However, in a departure from GATT
1947 article XIX, which authorized retaliation by members
adversely affected by the measure when appropriate compensation
was not forthcoming, the Agreement provides that a member
country may not exercise its right to take retaliatory action
during the first 3 years that a safeguard measure is in effect,
provided that the safeguard measure resulted from an absolute
increase in imports and otherwise conforms to the Agreement.
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\36\ The language of GATT article XIX is as follows: ``If, as a
result of unforeseen developments and of the effect of the obligations
incurred by a contracting party under this agreement, including tariff
concessions, any product imported into the territory of that
contracting party in such increased quantities and under such
conditions as to cause or threaten serious injury to domestic producers
in that territory of like or directly competitive products, the
contracting party shall be free, in respect of such product and to the
extent and for such time as may be necessary to prevent such injury, to
suspend the obligation in whole or in part or to withdraw or modify the
concession.''
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World Trade Organization (WTO) panel determinations
By Presidential Proclamation 7103 of May 30, 1998, the
United States imposed a Safeguard Measure in the form of a
quantitative limitation on imports of wheat gluten from the
European Union (EU). The EU challenged the imposition of the
safeguard measure, claiming that it violated Articles 2.1 and 4
of the Agreement on Safeguards and Article XIX:1(a) of the GATT
1994. A WTO panel was formed on July 25, 1999. On July 31,
2000, the panel issued a ruling in favor of the EU.
Specifically, the panel found that the causation analysis
applied by the ITC violated U.S. obligations under Articles 2.1
and 4 of the safeguards Agreement because it did not ensure
that injury caused by other factors was not attributed to
imports. The panel also found the ITC's exclusion of imports
from Canada (a NAFTA partner) from the application of the
safeguard measure after imports from all sources were included
in the investigation for the purposes of determining serious
injury caused by increased imports to violate U.S. obligations
under Articles 2.1 and 4 of the Safeguards Agreement. In
addition, the panel found that the United States violated
Articles 12.1(b) and 12.3 of the Safeguards Agreement by
failing to: (1) notify immediately the initiation of the
investigation and the finding of serious injury; (2) provide
adequate opportunity for prior consultations on the safeguard
measure; and (3) endeavor to maintain a substantially
equivalent level of concessions and other obligations to that
existing under GATT 1994 between it and the exporting Members
that would be affected by such a measure. The United States
filed its notice of appeal on September 26, 2000. On December
22, 2000, the Appellate Body issued its report, reversing in
part and affirming in part the panel decision. The Appellate
Body reversed the panel's interpretation of Article 4.2(b) of
the Safeguards Agreement that imports ``alone,'' `` in and of
themselves,'' or ``per se,'' must be capable of causing
``serious injury,'' as well as the Panel's conclusion on the
issue of causation. However, the panel found that the United
States acted inconsistently with its obligations under Article
4.2(b) of the Safeguards Agreement because the ITC's causation
analysis did not ensure that injury caused by other factors was
not attributed to imports. The Appellate Body also reversed the
panel's finding on immediate notification, finding that the
United States did not act inconsistently with its obligations
under Article 12.1(c) of the Safeguards Agreement.
On July 22, 1999, the United States imposed a safeguard
measure on imports of lamb meat from Australia and New Zealand.
A WTO panel was formed on November 18, 1999, at the request of
Australia and New Zealand, which argued that the safeguard
measure violated U.S. obligations under GATT 1994 and the
Agreement on Safeguards. The panel issued its report on
December 14, 2000, finding certain aspects of the U.S.
safeguard measure to be inconsistent with WTO rules.
Specifically, the panel found that the United States acted
inconsistently with Article XIX:1(a) of GATT 1994 by failing to
demonstrate as a matter of fact the existence of ``unforeseen
developments.'' In addition, the panel found that the United
States acted inconsistently with Article 4.1(c) of the
Agreement on Safeguards because the ITC defined the domestic
industry as including input producers (i.e., growers and
feeders of live lamb) as producers of the like product at issue
(i.e. lamb meat). The panel found that the United States also
acted inconsistently with Article 4.1(c) of the Safeguards
Agreement because the ITC failed to obtain data on producers
representing a major proportion of the total domestic industry
as defined by the investigation. The panel further found,
similar to the panel ruling in the wheat gluten case (described
above) which was subsequently overturned by the Appellate Body,
that the causation analysis applied by the ITC violated U.S.
obligations under Article 4.2(b) of the Agreement on Safeguards
because it did not ensure that injury caused by other factors
was not attributed to imports. The United States plans to
appeal the panel's ruling.
Petitions and investigations
An entity representative of an industry (including a trade
association, firm, union or group of workers) may file a
petition under section 202 of the Trade Act of 1974 with the
ITC. The petition must include a statement describing the
specific purposes for which action is being sought, which may
include facilitating the orderly transfer of resources to more
productive pursuits, enhancing competitiveness, or other means
of adjustment to new conditions of competition. Alternatively,
the President, U.S. Trade Representative, or the House
Committee on Ways and Means or Senate Committee on Finance may
request an investigation.
Upon petition, request, or on its own motion, the ITC
conducts an investigation ``to determine whether an article is
being imported into the United States in such increased
quantities as to be a substantial cause of serious injury, or
the threat thereof, to the domestic industry producing an
article like or directly competitive with the imported
article.'' Substantial cause is defined as ``a cause which is
important and not less than any other cause.''
In making its determination, the Commission must take into
account all relevant economic factors, including certain
factors specified in the statute,\37\ and must consider the
condition of the domestic industry over the course of the
relevant business cycle. The Commission may determine to treat
as the domestic industry: (1) only the portion or subdivision
producing the like or directly competitive article of a
producer of more than one article; and (2) only production
concentrated in a major geographic area under certain
circumstances. The Commission is required, to the extent
information is available, in the case of a domestic producer
which also imports, to treat as part of the domestic industry
only the domestic production of such producer.
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\37\ These factors include: with respect to serious injury, the
significant idling of productive facilities in the industry, the
inability of a significant number of firms to operate at a reasonable
level of profit, and significant unemployment or underemployment within
the industry; with respect to threat of serious injury, a decline in
sales or market share, a higher and growing inventory (whether
maintained by domestic producers, importers, wholesalers, or
retailers), and a downward trend in production, profits, wages,
productivity or employment (or increasing underemployment) in the
domestic industry concerned; the extent to which firms in the domestic
industry are unable to generate adequate capital to finance the
modernization of their domestic plants and equipment, or are unable to
maintain existing levels of expenditures for research and development,
the extent to which the U.S. market is the focal point for the
diversion of exports of the article concerned by reason of restraints
on exports of such article to, or on imports of such article into,
third country markets; and with respect to substantial cause, an
increase in imports (either actual or relative to domestic production)
and a decline in the proportion of the domestic producers. The presence
or absence of any factor is not necessarily dispositive.
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A public hearing is required during the course of the
investigation. Whenever during the investigation the Commission
has reason to believe increased imports are attributable in
part to unfair trade practices, then it must promptly notify
the agency administering the appropriate remedial law.
Normally the ITC must make its injury determination within
120 days of receipt of the petition or request. However, if the
ITC determines that the investigation is extraordinarily
complicated, it may take up to 30 additional days to make an
injury determination. If the petition alleges that critical
circumstances exist, the ITC must first determine, within 60
days of receipt of a petition containing such an allegation,
whether critical circumstances exist. The ITC begins the injury
phase of its investigation only after it has made its
determination with respect to critical circumstances. If the
ITC makes an affirmative injury finding, then it must recommend
the action that would address the injury and be the most
effective in facilitating efforts by the domestic industry to
make a positive adjustment; such recommended action must be
either a tariff, tariff-rate quota, quantitative restriction,
adjustment measures, or a combination thereof.
The ITC's remedy recommendation and report must be
submitted to the President within 180 days of the petition
(within 240 days if critical circumstances are alleged). The
report must also be made available to the public, and a summary
of the report must be published in the Federal Register.
Adjustment plans and commitments
Under title II, as amended, petitioners are encouraged to
submit, at any time prior to the ITC injury determination, a
plan to promote positive adjustment to import competition. The
law provides that positive adjustment occurs when (1) the
domestic industry is able to compete successfully with imports
after actions taken under section 204 terminate, or the
domestic industry experiences an orderly transfer of resources
to other productive pursuits; and (2) dislocated workers in the
industry experience an orderly transition to productive
pursuits.
The domestic industry may be considered to have made a
positive adjustment to import competition even though the
industry is not of the same size and composition as the
industry at the time the investigation was initiated.
Before submitting an adjustment plan, the petitioner and
other members of the domestic industry that wish to participate
may consult with the U.S. Trade Representative and other
federal government officials for purposes of evaluating the
adequacy of the proposals being considered for inclusion in the
plan.
In addition, during the ITC investigation, the ITC is
required to seek information (on a confidential basis to the
extent appropriate) on actions being taken, or planned to be
taken, or both, by firms and workers in the industry to make a
positive adjustment to import competition. Any party may
individually submit to the ITC commitments regarding actions
such party intends to take to facilitate positive adjustment to
import competition.
Provisional relief
Under section 202(d) of the Trade Act, the President may
provide provisional relief in the case of imports of a
perishable agricultural product, provided that the imported
product has been the subject of ITC monitoring for at least 90
days prior to the filing of the petition with the ITC and the
ITC has made an affirmative preliminary determination. The ITC
has 21 days from the date on which the petition is filed to
make its determination and report any finding with respect to
provisional relief, and the President has 7 days after
receiving an ITC report containing an affirmative determination
to determine what, if any, action to take.
The Uruguay Round Agreements Act revised, both
substantively and procedurally, the critical circumstances
provision in section 202. Under the revised provisions, if
critical circumstances are alleged in the petition, the ITC
must, within 60 days of receipt of a petition containing such
an allegation, determine whether critical circumstances exist
and, if so, recommend an appropriate remedy to the President.
The ITC would find critical circumstances to exist when it
determines, on the basis of available information, that there
is ``clear evidence'' that increased imports of an article are
a substantial cause of serious injury, or the threat thereof,
to the domestic industry, and ``delay in taking action . . .
would cause damage to that industry that would be difficult to
repair.'' After receiving a report containing an affirmative
ITC determination, the President has 30 days in which to
determine what, if any, action to take.
Provisional relief is to take the form of an increase in,
or imposition of, a duty on imports, if such form of relief is
feasible and would prevent or remedy the serious injury. Such
actions generally remain in effect pending completion of the
full ITC investigation and transmission of the ITC's report.
However, no provisional relief action may remain in effect for
more than 200 days.
Presidential action
Within 60 days of receiving an affirmative ITC
determination and report, the President shall take all
appropriate and feasible action within his power which he
determines will facilitate efforts by the domestic industry to
make a positive adjustment and will provide greater economic
and social benefits than costs. Any import relief provided may
not exceed the amount necessary to prevent or remedy the
serious injury.
In determining what action is appropriate, the President is
required to consider a number of factors, including the
adjustment plan (if any), individual commitments, probable
effectiveness of action to promote positive adjustment, other
factors related to the national economic interest, and the
national security interest.
The actions authorized to be taken by the President include
an increase in or imposition of a duty, imposition of a tariff-
rate quota system, a modification or imposition of a
quantitative restriction, implementation of one or more
adjustment measures (including trade adjustment assistance),
negotiation of agreements with foreign countries limiting the
export from foreign countries and the import into the United
States of an article, and any other action within his power.
The President may take action under this title for an
initial period of up to 4 years, and may extend such action, at
a level not to exceed that previously in effect, one or more
times. However, the total period of relief, including any
extensions, may not exceed 8 years. As provided in section 311
of the North American Free Trade Agreement Implementation
Act,\38\ a relief action is not to apply to imports of an
article when imported from Canada or Mexico unless imports of
such article from such country account for a substantial share
of imports of such article and contribute importantly to the
serious injury or threat thereof.
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\38\ Public Law 103-182, approved December 8, 1993, 19 U.S.C. 3371.
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The Trade Policy Committee, chaired by the U.S. Trade
Representative, is required to make a recommendation to the
President as to what action the President should take. On the
day the President takes action under this title, he must submit
to Congress a document describing the action and the reasons
for taking the action. If the action taken by the President
differs from the action recommended by the ITC, the President
shall state in detail the reasons for the difference. If the
President decides that there is no appropriate and feasible
action to take with respect to a domestic industry, the
President is required to transmit to Congress on the day of
such decision a document that sets forth in detail the reasons
for the decision.
Congress may adopt a joint resolution of disapproval within
90 legislative days under the expedited procedures of section
152 of the Trade Act if the President takes action which is
different from that recommended by the ITC or if the President
declines to take any action. Under these procedures,
resolutions are referred to the House Committee on Ways and
Means and the Senate Committee on Finance, which are subject to
a motion to discharge if the resolution has not been reported
within 30 legislative days. No amendments to the motion or to
the resolution are in order. Within 30 days after enactment of
such a resolution, the President must proclaim the relief
recommended by the Commission.
Monitoring, modification, and termination of action
If presidential action is taken, the ITC is required to
monitor developments in the industry, including efforts by the
domestic industry to adjust and, if the initial period or an
extension of the action exceeds 3 years, submit a report on the
results of such monitoring at the midpoint of the initial
period or extension, as appropriate. The Commission is required
to hold a public hearing in the course of preparing each such
report.
After receiving an ITC report on the results of such
monitoring, the President may reduce, modify, or terminate
action if either (1) the domestic industry requests it on the
basis that it has made a positive adjustment, or (2) the
President determines that changed circumstances warrant such
reduction, modification, or termination. Upon request of the
President, the ITC must advise the President as to the probable
economic effects on the domestic industry of any proposed
reduction, modification, or termination of action.
Prior to the termination of relief, the ITC is required, at
the request of the President or upon petition of the concerned
industry, to conduct an investigation to determine whether the
relief action continues to be necessary to prevent or remedy
serious injury and whether there is evidence that the industry
is making a positive adjustment to import competition. The ITC
must hold a public hearing in the course of each such
investigation and transmit its report to the President no later
than 60 days before termination of the relief action, unless
the President specifies a different date.
After any action taken under this title has terminated, the
ITC must evaluate the effectiveness of the action in
facilitating positive adjustment by the domestic industry to
import competition, and submit a report to the President and to
the Congress within 180 days of the termination of the action.
Subsequent relief actions
If relief was provided, no new relief action may be taken
with respect to the same subject matter for a period of time
equal to the period of import relief granted, or for 2 years,
whichever is greater.
However, in the case of an action that is in effect for 180
days or less, the President may take a new action with respect
to the same subject matter if at least 1 year has elapsed since
the previous action went into effect and an action has not been
taken more than twice in the 5-year period preceding the
effective date of the new action.
Section 406 of the Trade Act of 1974: Market Disruption by Imports From
Communist Countries
Section 406 of the Trade Act of 1974 \39\ was established
to provide a remedy against market disruption caused by imports
from Communist countries. The provision applies to imports from
any Communist country, irrespective of whether it has received
or currently receives non-discriminatory most-favored-nation
treatment. Enactment of section 406 resulted from concern that
traditional remedies for unfair trade practices, such as the
antidumping and countervailing duty laws, may be insufficient
to deal with a sudden and rapid influx of substantial imports
that can result from Communist country control of their pricing
levels and distribution process.
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\39\ Public Law 93-618, approved January 3, 1975, and amended by
section 1411 of the Omnibus Trade and Competitiveness Act of 1988
(Public Law 100-418), 19 U.S.C. 2436.
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The provisions of section 406 of the Trade Act of 1974, as
amended by the Omnibus Trade and Competitiveness Act of 1988,
are in many ways similar to those under sections 201-203 of the
Trade Act, except that section 406 provides a lower standard of
injury causation and a faster relief procedure, and the
investigation focuses on imports from a specific country.
Under section 406(a), the ITC conducts investigations to
determine whether imports of an article produced in a Communist
country (any country dominated or controlled by communism) are
causing market disruption with respect to a domestically
produced article. Market disruption exists whenever imports of
an article, like or directly competitive with an article
produced by a domestic industry, are increasing rapidly so as
to be a significant cause of material injury, or threat
thereof, to such domestic industry. Imports are increasing
rapidly if there has been a significant increase in imports,
either actual or relative to domestic production, during a
recent period of time. In making a determination of market
disruption, the ITC is required to consider, among other
factors, the volume of imports, the effect of imports on
prices, the impact of imports on domestic producers, and
evidence of disruptive pricing practices or other efforts to
unfairly manage trade patterns.
The ITC conducts such investigations at the request of the
President or the U.S. Trade Representative, upon resolution of
either the House Committee on Ways and Means or the Senate
Committee on Finance, on its own motion, or upon the filing of
a petition by an entity (including a trade association, firm,
union, or a group of workers) which is representative of an
industry. The Commission must complete its investigation within
3 months including a public hearing.
If the ITC finds that market disruption exists, it must
also recommend to the President relief in the form of rates of
duty or quantitative restrictions that will prevent or remedy
such market disruption. The President then has 60 days to
advise Congress as to what, if any, relief he will proclaim.
Any import relief must be proclaimed within 15 days after the
determination to provide it, except that the President has an
additional 60 days to negotiate an orderly marketing agreement
if he decides to provide relief in that form. Relief applies
only to imports from the subject Communist country. Relief is
limited to a maximum 5-year period subject to one renewal of up
to 3 years.
Section 406(c) authorizes the President, prior to an ITC
determination, to take temporary emergency action with respect
to imports from a Communist country whenever he finds that
there are reasonable grounds to believe there is market
disruption. When taking such action, the President must also
request the Commission to conduct an investigation under
section 406(a). Any emergency relief ceases to apply on the day
the Commission makes a negative finding or on the effective
date of action by the President following an affirmative ITC
finding.
Sections 421-423 of the Trade Act of 1974, as amended: Market
Disruption by Imports from the People's Republic of China
Section 103 of Public Law 106-286, approved October 10,
2000, authorizing the extension of permanent normal trade
relations to the People's Republic of China created a new
chapter of title IV of the Trade Act of 1974 to implement the
anti-surge mechanism established under the U.S.-China Bilateral
Trade Agreement, concluded on November 15, 1999. This provision
was intended to replace section 406 of the Trade Act of 1974,
which would no longer apply to China once that country joins
the WTO.
Section 421 of the new chapter permits the provision of
relief to U.S. domestic industries and workers where products
of Chinese origin are being imported in such increased
quantities and under such conditions as to cause or threaten to
cause market disruption to the domestic producers as a whole of
like or directly competitive products. The relief is to be
imposed only to the extent and for such period as the President
considers necessary to prevent or remedy the market disruption.
Procedures are modeled after Section 406, with certain
modifications to conform to language of the bilateral trade
agreement. U.S. industries or workers claiming injury due to
import surges from China may file a petition with the ITC or
the ITC can initiate an investigation at the request of the
President or on motion of the House Ways and Means Committee or
the Senate Finance Committee. According to the U.S.-China
Agreement and under the legislation, market disruption occurs
when subject imports ``are increasing rapidly, either
absolutely or relatively, so as to be a significant cause of
material injury or threat of material injury to the domestic
industry.''
In determining whether market disruption exists, the ITC
considers objective factors, including: (1) the volume of
imports of the product subject to the investigation; (2) the
effect of imports of such product on prices in the United
States of like or directly competitive articles, and (3) the
effect of imports of such product on the domestic industry
producing like or directly competitive articles. The presence
or absence of any factor listed above is not necessarily
dispositive of whether market disruption exists.
Within 60 days after receipt of the petition, request or
motion (90 days, where the petitioner alleges critical
circumstances), the ITC is to make a determination as to
whether the subject imports are causing or threatening market
disruption. Not later than 20 days after the ITC makes an
affirmative determination with respect to market disruption,
the ITC is to issue a report to the President and to the USTR
setting forth the reasons for its determination and
recommendation(s) of actions necessary to prevent or remedy
market disruption. Within twenty days, the USTR is to publish a
notice of proposed action in the Federal Register, seeking
views and evidence on the appropriateness of the proposed
action and whether it would be in the public interest. The USTR
is also required to hold a hearing on the proposed action.
If the ITC's determination is affirmative with respect to
market disruption, the President is required to request
consultations with the Chinese to remedy the market disruption.
If the United States and China are unable to reach agreement
within the 60 day consultation period established in the
bilateral agreement and under section 421, then the President
is required to decide what action, if any, to take within 25
days after the end of consultations. Any relief proclaimed is
to become effective in 15 days. If the President determines
that an agreement with China concluded under this section is
not preventing or remedying the market disruption at issue,
then the President is to initiate new consultations and
proceedings under section 421. However, if China is not
complying with the terms of the agreement entered into under
the U.S.-China Bilateral Agreement, then the President is
required to provide prompt relief consistent with the terms of
the Bilateral Agreement.
The entire period from petition to proclamation of relief
is 150 days, which is identical to the duration under section
406 of the Trade Act.
Section 421 also establishes clear standards for the
application of Presidential discretion in providing relief to
injured industries and workers. If the ITC makes an affirmative
determination on market disruption, there is a presumption in
favor of providing relief. That presumption can be overcome
only if the President finds that providing relief would have an
adverse impact on the United States economy clearly greater
than the benefits of such action, or, in extraordinary cases,
that such action would cause serious harm to the national
security of the United States.
The provision also sets forth authority to the President to
modify, reduce or terminate relief, as well an opportunity for
the President to request a report from the ITC on the probable
effects of such action. In addition, section 421 allows for
extension of relief under certain circumstances.
The President is authorized to provide a provisional
safeguard in cases where ``delay would cause damage which it
would be difficult to repair,'' as permitted under the U.S.-
China Bilateral Agreement. If such circumstances are alleged,
the ITC is required to make a determination on critical
circumstances and a preliminary determination on market
disruption within 45 days of receipt of the petition, request,
or motion. If those determinations are affirmative, the
President is required to determine whether to provide such
provisional relief within 20 days.
Finally, section 422 implements a provision in the U.S.-
China Bilateral Agreement concerning trade diversion. That
provision addresses circumstances in which a safeguard applied
by a third country with respect to Chinese goods ``causes or
threatens to cause significant diversions of trade'' into the
United States. If, on the basis of the monitoring results
provided by the Customs Service and other reasonably available
relevant evidence, the ITC determines that an action by another
WTO Member threatens or causes significant trade diversion, the
USTR is required to request consultations with China and/or the
Member imposing the safeguard. If, as provided in the U.S.-
China Bilateral Agreement, consultations fail to lead to an
agreement to address the trade diversion within 60 days, the
President is required to determine, within 40 days after
consultations end, what action, if any, to take to prevent or
remedy the trade diversion. The total time from petition to
relief under the trade diversion provision is 150 days. Section
422 also requires the ITC to examine changes in imports into
the United States from China since the time that the WTO Member
commenced the investigation that led to a request for
consultations.
The product-specific safeguard is available for 12 years
after China's accession to the WTO.
Section 1102 of the Trade Agreements Act of 1979: Public Auction of
Import Licenses
Section 1102 of the Trade Agreements Act of 1979 authorizes
the President to sell import licenses by public auction, under
such terms and conditions as the President deems appropriate.
Any regulations prescribed under this authority must, to the
extent practicable and consistent with efficient and fair
administration, ensure against inequitable sharing of imports
by a relatively small number of the larger importers.
Import licenses which are potentially subject to this
auction authority are identified in section 1102 by the law
authorizing the import restriction. For example, import
licenses used to administer a quantitative restriction under
the escape clause (section 203 of the Trade Act of 1974), the
market disruption clause (section 406 of the Trade Act of 1974)
or section 301 of the Trade Act of 1974 may be sold by public
auction. Any quantitative import restriction imposed under the
International Emergency Economic Powers Act or the Trading With
the Enemy Act may also be administered by an auctioned import
license. Certain agricultural import quotas, however (such as
certain meat quotas, cheese quotas, and dairy quotas) are
exempt from the auction authority and therefore may not be
administered by means of auctioned licenses.
Trade Adjustment Assistance
Chapters 2, 3, and 5 of Title II of the Trade Act of 1974, as amended
The trade adjustment assistance (TAA) programs were first
established under the Trade Expansion Act of 1962 for the
purpose of assisting in the special adjustment problems of
workers and firms dislocated as a result of a federal policy of
reducing barriers to foreign trade. As a result of limited
eligibility and usage of the programs, criteria and benefits
were expanded under title II of the Trade Act of 1974 (Public
Law 93-618). The Omnibus Budget Reconciliation Act of 1981
(OBRA) (Public Law 97-35), reformed the program for workers as
proposed by the Administration. The amendments, particularly in
program eligibility and benefits, were intended to reduce
program cost significantly and to shift the focus of TAA from
income compensation for temporary layoffs to return-to-work
through training and other adjustment measures for the long-
term or permanently unemployed. The OBRA also made relatively
minor modifications in the firm program. Both programs were
extended at that time for 1 year, to terminate on September 30,
1983.
Public Law 98-120, a bill to amend the International Coffee
Agreement Act of 1980, approved on October 12, 1983, extended
the worker and firm TAA programs for 2 years, until September
30, 1985. Sections 2671-2673 of the Deficit Reduction Act of
1984 (Public Law 98-369) amended the program for workers to
increase the availability of worker training allowances and the
level of job search and relocation benefits, and amended the
program for firms to increase the availability of industrywide
technical assistance.
The worker and firm TAA programs were further extended
under temporary legislation in the 99th Congress until December
19, 1985. The Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA) (Public Law 99-272), approved April 7, 1986,
reauthorized the TAA programs for workers and firms for 6 years
retroactively from December 19, 1985, until September 30, 1991,
with amendments.
Sections 1421-1430 of the Omnibus Trade and Competitiveness
Act of 1988 (OTCA) (Public Law 100-418), enacted on August 23,
1988, made significant amendments in the worker TAA program,
particularly concerning the eligibility criteria for cash
benefits, funding, and administration. A training requirement
as a condition for income support to encourage and enable
workers to obtain early reemployment became effective as of
November 21, 1988. This replaced a 1986 amendment that
instituted a job-search requirement as a condition for
receiving cash benefits. The amendments also expanded TAA
eligibility coverage of workers and firms, contingent upon the
imposition of an import fee to fund program costs. The OTCA
extended TAA program authorization for an additional 2 years
until September 30, 1993.
Section 136 of the Customs and Trade Act of 1990, (Public
Law 101-382), approved on August 20, 1990, extended the
completion and reporting period for the supplemental wage
allowance demonstration projects for workers required by the
1988 amendments. Section 106 of Public Law 102-318, approved
July 3, 1992, to extend the emergency unemployment compensation
program, provided for weeks of active military duty in a
reserve status (including service during Operation Desert
Storm) to qualify toward the minimum number of weeks of prior
employment required for TAA eligibility.
Section 13803 of the Omnibus Budget Reconciliation Act
(OBRA 1993) of 1993, Public Law 103-66, approved August 10,
1993, reauthorized the TAA programs for workers and firms for
an additional 5 years through fiscal year 1998, with assistance
to terminate on September 30, 1998. Section 13803 of the OBRA
1993 also reduced the level of the ``cap'' on training
entitlement funding from $80 million to $70 million for fiscal
year 1997 only.
Sections 501-506 of the North American Free Trade Agreement
(NAFTA) Implementation Act, Public Law 103-182, approved
December 8, 1993, set forth the ``NAFTA Worker Security Act,''
establishing the NAFTA transitional adjustment assistance
program, effective January 1, 1994 through September 30, 1998,
for workers as a new subchapter D (section 250) under chapter 2
of title II of the Trade Act of 1974.
Renewal of the TAA programs for workers and firms, as well
as the NAFTA-related TAA program, through June 30, 1999 was
contained in section 1012 of the Omnibus Appropriations Act for
Fiscal Year 1999.\40\ Section 1012 also reduced the level of
the ``cap'' on NAFTA-related training entitlement funding from
$30 million per fiscal year to $15 million for the period
between October 1, 1998 and June 30, 1999.
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\40\ Public Law 105-277, approved October 21, 1998.
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Section 702 of the Consolidated Appropriations Act for
Fiscal Year 2000 \41\ reauthorized the TAA programs for workers
and firms, including the NAFTA-related TAA program, through
September 30, 2001. Section 702 also restored the ``cap'' on
NAFTA-related training entitlement funding to $30 million per
fiscal year.
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\41\ Public Law 106-113, approved November 29, 1999.
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TAA Program for Workers
TAA for workers under sections 221 through 250 of the Trade
Act of 1974, as amended, consists of trade readjustment
allowances (TRAs), employment services, training and additional
TRAs allowances while in training, and job search and
relocation allowances for certified and otherwise qualified
workers. The program is administered by the Employment and
Training Administration (ETA) of the Department of Labor
through state agencies under cooperative agreements between
each state and the Secretary of Labor. ETA processes petitions
and issues certifications or denials of petitions by groups of
workers for eligibility to apply for TAA. The state agencies
act as federal agents in providing program information,
processing applications, determining individual worker
eligibility for benefits, issuing payments, and providing
reemployment services and training opportunities.
Certification requirements
A two-step process is involved in the determination of
whether an individual worker will receive TAA: (1)
certification by the Secretary of Labor of a petitioning group
of workers in a particular firm as eligible to apply; and (2)
approval by the state agency administering the program of the
application for benefits of an individual worker covered by a
certification.
The process begins by a group of three or more workers,
their union, or authorized representative filing a petition
with the ETA for certification of group eligibility. To certify
a petitioning group of workers as eligible to apply for
adjustment assistance, the Secretary must determine that three
conditions are met:
(1) a significant number or proportion of the workers
in the firm or subdivision of the firm have been or are
threatened to be totally or partially laid off;
(2) sales and/or production of the firm or
subdivision have decreased absolutely; and
(3) increased imports of articles like or directly
competitive with articles produced by the firm or
subdivision of the firm have ``contributed
importantly'' to both the layoffs and the decline in
sales and/or production.
The OTCA amendments expanded the potential eligibility
coverage to include workers in any firm or subdivision of a
firm that engages in exploration or drilling for oil or natural
gas.
The Secretary is required to make the eligibility
determination within 60 days after a petition is filed. A
certification of eligibility to apply for TAA covers workers
who meet the requirements and whose last total or partial
separation from the firm or subdivision before applying for
benefits occurred within 1 year prior to the filing of the
petition.
State agencies must give written notice by mail to each
worker to apply for TAA where it is believed the worker is
covered by a certification of eligibility and also must publish
notice of each certification in newspapers of general
circulation in areas where certified workers reside. State
agencies must also advise each adversely affected worker, at
the time that worker applies for UI, of TAA program benefits as
well as the procedures, deadlines, and qualifying requirements
for applying. State agencies must advise each such worker to
apply for training before or at the same time the worker
applies for TRA benefits, and promptly interview each certified
worker and review suitable training opportunities available.
Qualifying requirements for trade readjustment allowances
In order to receive entitlement to payment of a TAA for any
week of unemployment, an individual must be an adversely
affected worker covered by a certification, file an application
with the State agency, and meet the following qualifying
requirements:
(1) The worker's first qualifying separation from
adversely affected employment occurred within the
period of the certification applicable to that worker,
i.e, on or after the ``impact date'' in the
certification (the date on which total or partial
layoffs in the firm or subdivision thereof began or
threatened to begin, but never more than 1 year prior
to the date of the petition), within 2 years after the
date the Secretary of Labor issued the certification
covering the worker, and before the termination date
(if any) of the certification.
(2) The worker was employed during the 52-week period
preceding the week of the first qualifying separation
at least 26 weeks at wages of $30 or more per week in
adversely affected employment with a single firm or
subdivision of a firm. A week of unemployment includes
the week in which layoff occurs and up to 7 weeks of
employer-authorized vacation, sickness, injury,
maternity, or military leave, or service as a full-time
union representative. Weeks of disability covered by
workmen's compensation and, as amended in 1992, weeks
of active duty in a military reserve status may also
count toward the 26-week minimum.
(3) The worker was entitled to unemployment insurance
(UI), has exhausted all rights to any UI entitlement,
including any extended benefits (EB) or federal
supplemental compensation (FSC) (if in existence), and
does not have an unexpected waiting period for any UI.
(4) The worker must not be disqualified with respect
to the particular week of unemployment for EB by reason
of the work acceptance and job search requirements
under section 202(a)(3) of the Federal-State Extended
Unemployment Compensation Act of 1970. All TRA
claimants in all states are subject to the provisions
of the EB ``suitable work'' test under that Act (i.e.,
must accept any offer of suitable work, actively engage
in seeking work, and register for work) after the end
of their regular UI benefit period as a precondition
for receiving any weeks of TRA payments. The EB work
test does not apply to workers enrolled or
participating in a TAA-approved training program; the
test does apply to workers for whom TAA-approved
training is certified as not feasible or appropriate.
(5) The worker must be enrolled in, or have completed
following separation from adversely affected employment
within the certification period, a training program
approved by the Secretary of Labor in order to receive
basic TAA payments, unless the Secretary has determined
and submitted a written statement to the individual
worker certifying that approval of training is not
``feasible or appropriate'' (e.g., training is not
available that meets the criteria for approval, funding
is not available to pay the full training costs, there
is a reasonable prospect that the worker will be
reemployed by the firm from which he was separated). No
cash benefits may be paid to a worker who, without
justifiable cause, has failed to begin participation or
has ceased participation in an approved training
program until the worker begins or resumes
participation, or to a worker whose waiver of
participation in training is revoked in writing by the
Secretary.
This training requirement to encourage and enable workers
to obtain early reemployment became effective under the OTCA
amendments as of November 21, 1988; this 1988 amendment
replaced a 1986 amendment that instituted a job search
requirement as a condition for receiving cash benefits.
Cash benefit levels and duration
A worker is entitled to TRA payments for weeks of
unemployment beginning the later of (a) the first week
beginning more than 60 days after the filing date of the
petition that resulted in the certification under which the
worker is covered (i.e., weeks following the statutory deadline
for certification), or (b) the first week after the worker's
first total qualifying separation.
The TRA cash benefit amount payable to a worker for a week
of total unemployment is equal to, and a continuation of, the
most recent weekly benefit amount of UI payable to that worker
preceding that worker's first exhaustion of UI following the
worker's first total qualifying separation under the
certification, reduced by any federal training allowance and
disqualifying income deductible under UI law.
The maximum amount of basic TRA benefits payable to a
worker for the period covered by any certification is 52 times
the TRA payable for a week of total unemployment minus the
total amount of UI benefits to which the worker was entitled in
the benefit period in which the first qualifying separation
occurred (e.g., a worker receiving 39 weeks of UI regular and
extended benefits could receive a maximum 13 weeks of basic TRA
benefits). UI and TRA payments combined are limited to a
maximum 52 weeks in all cases involving extended compensation
benefits (i.e., a worker who received 52 or more weeks of
unemployment benefits would not be entitled to basic TRA). TRA
benefits are not payable to workers participating in on-the-job
training.
The eligibility period for collecting basic TRA is the 104-
week period that immediately follows the week in which a total
qualifying separation occurs. If the worker has a subsequent
total qualifying separation under the same certification, the
eligibility period for basic TRA moves from the prior
eligibility period to 104 weeks after the week in which the
subsequent total qualifying separation occurs.
A worker may receive up to 26 additional weeks of TRA
benefits after collecting basic benefits (up to a total maximum
of 78 weeks) if that worker is participating in approved
training. To receive the additional benefits, the worker must
apply for the training program within 210 days after
certification or first qualifying separation, whichever date is
later. Additional benefits may be paid only during the 26-week
period that follows the last week of entitlement to basic TRA,
or that begins with the first week of training if the training
begins after the exhaustion of basic TRA.
A worker participating in approved training continues to
receive basic and additional TRA payments during breaks in such
training if the break does not exceed 14 days, if the worker
was participating in the training before the beginning of the
break, resumes participation in the training after the break
ends, and the break is provided for in the training schedule.
Weeks when TRA is not payable because of this break provision
count against the eligibility periods for both basic and
additional TRA.
Training and other employment services, job research and relocation
allowances
Training and other employment services and job search and
relocation allowances are available through state agencies to
certified workers whether or not they have exhausted UI
benefits and become eligible for TRA payments.
Employment services consist of counseling, vocational
testing, job search and placement, and other supportive
services, provided for under any other federal law.
Training, preferably on-the-job, shall be approved for a
worker if the following six conditions are met:
(1) there is no suitable employment available;
(2) the worker would benefit from appropriate
training;
(3) there is a reasonable expectation of employment
following training completion;
(4) approved training is reasonably available from
government agencies or private sources;
(5) the worker is qualified to undertake and complete
such training; and
(6) such training is suitable for the worker and
available at a reasonable cost.
If training is approved, the worker is entitled to payment
of the costs from the Secretary directly or through a voucher
system, unless they have been paid or are reimbursable under
another federal law. On-the-job training costs are payable only
if such training is not at the expense of currently employed
workers. The 1988 amendments added remedial education as a
separate and distinct approvable training program.
The OTCA amendments converted training from an entitlement
to the extent appropriated funds were available, to an
entitlement without regard to the availability of funds to pay
the training costs. As of the OTCA amendments, approved
training is an entitlement in any case where the six criteria
for approval are reasonably met, up to an $80 million statutory
ceiling on annual fiscal year training costs (including job
search and relocation allowances and subsistence payments)
payable from TAA funds. Up to this limit workers are entitled
to have the costs of approved training paid on their behalf. If
the Secretary foresees that the $80 million ceiling would be
exceeded in any fiscal year, the Secretary will decide how
remaining TAA funds shall be apportioned among the states for
the balance of that year.
As a result of the OTCA amendments, costs of approved TAA
training may be paid solely from TAA funds, solely from other
federal or state programs or private funds, or from a mix of
TAA and public or private funds, except if the worker in the
case of a non-governmental program would be required to
reimburse any portion of the costs from TAA funds. Duplicate
payment of training costs is prohibited, and workers are not
entitled to payment of training costs from TAA funds to the
extent these costs are paid or shared from other sources.
Training may still be approved if the fiscal year TAA funding
entitlement limit is reached, provided the training costs are
paid from outside sources.
Supplemental assistance is available to defray reasonable
transportation and subsistence expenses for separate
maintenance when training is not within the worker's commuting
distance, equal to the lesser of actual per diem expenses or 50
percent of the prevailing federal per diem rate for subsistence
and prevailing mileage rates under federal regulations for
travel expenses.
Job search allowances are available to certified workers
who cannot obtain suitable employment within their commuting
area, are totally laid off, and who apply within 1 year after
certification or last total layoff, whichever is later, or
within 6 months after concluding training. The allowance for
reimbursement is equal to 90 percent of necessary job search
expenses, based on the same increased supplemental assistance
rates described above, up to a maximum amount of $800. The
Secretary of Labor is required to reimburse workers for
necessary expenses incurred to participate in an approved job
search program.
Relocation allowances are available to certified workers
totally laid off at the time of relocation who have been able
to obtain an offer of or actual suitable employment only
outside their commuting area, who apply within 14 months after
certification or last total layoff, whichever is later, or
within 6 months after concluding training, and whose relocation
takes place within 6 months after application of completion of
training. As amended in 1981 and 1984, the allowance is equal
to 90 percent of reasonable and necessary expenses for
transporting the worker, family, and household effects, based
on the same increased supplemental assistance rates described
above, plus a lump sum payment of three times the worker's
average weekly wage up to a maximum amount of $800.
Funding
Federal funds, as an appropriated entitlement from general
revenues under the Federal Unemployment Benefit Account (FUBA)
in the Department of Labor, cover the portion of the worker's
total entitlement represented by the continuation of UI benefit
levels in the form of TRA payments, as well as payments for
training and job search and relocation allowances, and state-
related administrative expenses. Funds made available under
grants to states defray expenses of any employment services and
other administrative expenses. For fiscal year 2001, $342.4
million has been appropriated for trade readjustment allowances
and related administrative expenses. Funding for training, job
search and relocation allowances, and related expenses is an
annual appropriated entitlement under the Training and
Employment Services account of the Department of Labor.
The states are reimbursed from Treasury general revenues
for benefit payments and other costs incurred under the
program. A penalty under section 239 of the Trade Act of 1974
provides for reduction by 15 percent of the credits for state
unemployment taxes which employers are allowed against their
liability for federal unemployment tax if a state has not
entered into or has not fulfilled its commitments under a
cooperative agreement.
NAFTA Worker Security Act
Subchapter D of chapter 2 (section 250) of title II of the
Trade Act of 1974 establishes a NAFTA transitional adjustment
assistance program for workers who may be adversely impacted by
the NAFTA. Import-impacted workers may also petition for
assistance under TAA, but cannot obtain benefits under both
programs.
A group of workers (including workers in any agricultural
firm or subdivision of an agricultural firm) shall be certified
as eligible to apply for adjustment assistance under subchapter
D if the Secretary determines that a significant number or
proportion of the workers in the firm or subdivision of the
firm have become or are threatened to become totally or
partially separated, and either:
(1) Sales and/or production of the firm or
subdivision have decreased absolutely, imports from
Mexico or Canada of articles like or directly
competitive with articles produced by such firm or
subdivision have increased, and the increase in imports
contributed importantly to the workers' separation or
threat of separation and to the decline in the sales or
production of the firm or subdivision; or
(2) There has been a shift in production by the
workers' firm or subdivision to Mexico or Canada of
articles like or directly competitive with articles
produced by the firm or subdivision.
A group of workers or their union or other duly authorized
representative may file a petition for certification of
eligibility to apply for adjustment assistance under subchapter
D with the governor of the state in which the worker's firm or
subdivision is located. Upon receipt of the petition, the
governor must notify the Secretary of Labor. Within 10 days
thereafter, the governor must make a preliminary finding as to
whether the petition meets the certification criteria and
transmit the petition, together with a statement of the finding
and reasons therefor, to the Secretary for action. If the
preliminary finding is affirmative, the governor will ensure
that rapid response and basic readjustment services authorized
under other federal law are made available to the workers.
Within 30 days after receiving the petition, the Secretary
must determine whether the petition meets the certification
criteria. Upon an affirmative determination, the Secretary will
issue to workers covered by the petition a certification of
eligibility to apply for comprehensive assistance. Upon denial
of certification, the Secretary will review the petition to
determine if the workers meet the requirements of the TAA
program for certification.
Certified workers under the NAFTA program receive
employment services, training, trade readjustment allowances,
and job search and relocation allowances in the same manner and
to the same extent as workers covered under a TAA
certification, with the following exceptions: (1) the total
amount of payments for training costs for any fiscal year do
not exceed $30 million; (2) with respect to TRA benefits, the
authority of the Secretary of Labor to waive the training
requirement does not apply with respect to payments under
subchapter D; and (3) to receive TRA benefits, the worker must
be enrolled in a training program approved by the Secretary by
the later of the last day of the 16th week of the worker's
initial UI benefit period or the last day of the 6th week after
the week in which the Secretary issues a certification covering
the worker. In extenuating circumstances, the Secretary may
extend the time for enrollment for not more than 30 days.
The NAFTA program took effect on January 1, 1994, the date
the NAFTA entered into force for the United States. No worker
can be certified as eligible to receive assistance under
subchapter D whose last total or partial separation occurred
before January 1, except for those workers whose last layoff
occurred after December 8 (the date of enactment of the NAFTA
Implementation Act) and before January 1 who would otherwise be
eligible to receive assistance under subchapter D.
For fiscal year 2001, $64.15 million has been appropriated
for NAFTA trade adjustment assistance.
TAA Program for Firms
Sections 251 through 264 of the Trade Act of 1974, as
amended, contain the procedures, eligibility requirements,
benefits and their terms and conditions, and administrative
provisions of the TAA program for firms adversely impacted by
increased import competition. The program is administered by
the Economic Development Administration within the Department
of Commerce. Amendments in 1986 under the COBRA eliminated
financial assistance (direct loan or loan guarantee) benefits,
increased government participation in technical assistance, and
expanded the criteria for firm certification.
Program benefits consist exclusively of technical
assistance for petitioning firms which qualify under a two-step
procedure: (1) certification by the Secretary of Commerce that
the petitioning firm is eligible to apply, and (2) approval by
the Secretary of Commerce of the application by a certified
firm for benefits, including the firm's proposal for economic
adjustment.
To certify a firm as eligible to apply for adjustment
assistance, the Secretary must determine that three conditions
are met:
(1) a significant number or proportion of the workers
in the firm have been or are threatened to be totally
or partially laid off;
(2) sales and/or production of the firm have
decreased absolutely, or sales and/or production that
accounted for at least 25 percent of total production
or sales of the firm during the 12 months preceding the
most recent 12-month period for which data are
available have decreased absolutely; and
(3) increased imports of articles like or directly
competitive with articles produced by the firm have
``contributed importantly'' to both the layoffs and the
decline in sales and/or production.
The 1988 amendments expanded potential eligibility coverage
of the program to include firms that engage in exploration or
drilling for oil or natural gas. Unlike the worker program,
this extension applies only prospectively after August 23,
1988.
A certified firm may file an application with the Secretary
of Commerce for trade adjustment assistance benefits at any
time within 2 years after the date of the certification of
eligibility. The application must include a proposal by the
firm for its economic adjustment. The Secretary may furnish
technical assistance to the firm in preparing its petition for
certification and/or in developing a viable economic adjustment
proposal.
The Secretary approves the firm's application for
assistance only if he determines that its adjustment proposal
(a) is reasonably calculated to make a material contribution to
the economic adjustment of the firm; (b) gives adequate
consideration to the interests of the workers in the firm; and
(c) demonstrates that the firm will make all reasonable efforts
to use its own resources for economic development.
Benefits
Technical assistance may be given to implement the firm's
economic adjustment proposal in addition to, or in lieu of,
precertification assistance or assistance in developing the
proposal. It may be furnished through existing government
agencies or through private individuals, firms, and
institutions (including private consulting services), or by
grants to intermediary organizations, including regional TAA
Centers. As amended by the COBRA, the federal government may
bear the full cost of technical assistance to a firm in
preparing its petition for certification. However, the federal
share cannot exceed 75 percent of the cost of assistance
furnished through private individuals, firms, or institutions
for developing or implementing an economic adjustment proposal.
Grants may be made to intermediate organizations to defray up
to 100 percent of their administrative expenses in providing
technical assistance.
The Secretary of Commerce also may provide technical
assistance of up to $10 million annually per industry to
establish industrywide programs for new product or process
development, export development, or other uses consistent with
adjustment assistance objectives. The assistance may be
furnished through existing agencies, private individuals,
firms, universities, and institutions, and by grants,
contracts, or cooperative agreements to associations, unions,
or other non-profit organizations of industries in which a
substantial number of firms or workers have been certified.
Funding
Funds to cover all costs of the program are subject to
annual appropriations to the EDA of the Department of Commerce
from general revenues. For fiscal year 2001, $10.5 million was
appropriated for the program.
Chapter 3: OTHER LAWS REGULATING IMPORTS
Authorities To Restrict Imports of Agricultural and Textile Products
Section 204 of the Agricultural Act of 1956, as amended
Section 204 of the Agricultural Act of 1956, as amended,\1\
authorizes the President to negotiate agreements with foreign
governments to limit their exports of agricultural or textile
products to the United States. The President is authorized to
issue regulations governing the entry of products subject to
international agreements concluded under this section.
Furthermore, if a multilateral agreement is concluded among
countries accounting for a significant part of world trade in
the articles concerned, the President may also issue
regulations governing entry of those same articles from
countries which are not parties to the multilateral agreement,
or countries to which the United States does not apply the
Agreement.
---------------------------------------------------------------------------
\1\ Public Law 84-540, ch. 327, approved May 28, 1956, 70 Stat.
200, as amended by Public Law 87-488, approved June 19, 1962, 76 Stat.
104, 7 U.S.C. 1854 and Public Law 103-465, approved Dec. 8, 1994.
---------------------------------------------------------------------------
The authority provided under section 204 has been used to
negotiate bilateral agreements restricting the exportation of
certain meats to the United States,\2\ as well as to implement
an agreement with the European Communities (EC) restricting
U.S. importation of certain cheeses from the EC.\3\ Section 204
also provided the legal basis for the GATT Arrangement
Regarding International Trade in Textiles, commonly referred to
as the Multifiber Arrangement (MFA),\4\ for U.S. bilateral
agreements with 47 \5\ textile-exporting nations, and currently
provides the basis for U.S. implementation of the Uruguay Round
Agreement on Textiles and Clothing (ATC), which replaces the
now expired MFA.
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\2\ Exec. Order No. 11539, June 30, 1970, 35 Fed. Reg. 10733, as
amended by Exec. Order No. 12188, Jan. 2, 1980, 45 Fed. Reg. 989.
\3\ Exec. Order No. 11851, April 10, 1975, 40 Fed. Reg. 16645.
\4\ Arrangement Regarding International Trade in Textiles, T.I.A.S.
7840 (1973) (expired 1994).
\5\ In force as of January 1, 2001.
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MULTIFIBER ARRANGEMENT (MFA)
The Multifiber Arrangement was a multilateral agreement
negotiated under the auspices of the General Agreement on
Tariffs and Trade. The MFA provided a general framework and
guiding principles for the negotiation of bilateral agreements
between textile importing and exporting countries, or for
unilateral action by an importing country if an agreement
cannot be reached. In effect since 1974, the MFA was
established to deal with problems of market disruption in
textile trade, while permitting developing countries to share
in expanded export opportunities.
Background
The first voluntary agreement to limit exports of cotton
textiles to the United States was negotiated with Japan in
1957. Through the 1950's cotton textile imports, especially
from Japan, continued to increase and generate pressure for
import restraints. In 1956, the Congress passed the
Agricultural Act of 1956 which, among other things, provided
negotiating authority for agreements restricting imports of
textile products. Pursuant to this authority, the United States
negotiated a 5-year voluntary restraint agreement on cotton
textile exports from Japan, announced in January 1957.
As textile and apparel imports from low-wage developing
countries began to rise, pressure mounted for a more
comprehensive approach to the import problem. On May 2, 1961,
President Kennedy announced a Seven Point Textile Program, one
point of which called for an international conference of
textile importing and exporting countries to develop an
international agreement governing textile trade. On July 17,
1961, a textile conference was convened under the auspices of
the GATT. The discussions culminated in the promulgation of the
Short-Term Arrangement on Cotton Textile Trade (STA) on July
21, 1961.\6\ The STA covered the year October 1, 1961, to
September 30, 1962, and established a GATT Cotton Textiles
Committee to negotiate a long-range cotton textile agreement.
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\6\ T.I.A.S. 4884 (1961) (expired 1962).
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From October 1961 through February 1962, the STA
signatories met in Geneva and negotiated a Long-Term
Arrangement for Cotton Textile Trade (LTA), to last for 5 years
beginning October 1, 1962.\7\ The LTA provided for negotiation
of bilateral agreements between cotton textile importing and
exporting countries, and for imposition of quantitative
restraints on particular categories of cotton textile products
from particular countries when there was evidence of market
disruption. In June of 1962, section 204 of the Agricultural
Act of 1956 was amended to give the President authority to
control imports from countries which did not sign the LTA.\8\
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\7\ T.I.A.S. 5240 (1962) (expired 1973).
\8\ Public Law 87-488, approved June 19, 1962, 76 Stat. 104.
---------------------------------------------------------------------------
In the fall of 1965 the LTA was reviewed, and criticism
within the U.S. textile industry mounted with respect to the
LTA's failure to cover man-made fiber textiles. In 1967,
however, the LTA was extended for 3 additional years with no
additional fiber coverage. In 1970, the LTA was again extended
for 3 more years.
Meanwhile, multifiber agreements limiting imports not only
of cotton but also of wool and man-made fiber textiles were
negotiated by the Nixon administration on a bilateral basis. On
October 15, 1971, bilateral multifiber agreements were
announced with Japan, Hong Kong, South Korea, and Taiwan. A
multilateral agreement, incorporating the provisions of the
bilaterals with Hong Kong, South Korea, and Taiwan, was also
signed to allow the United States the authority, under section
204 of the Agricultural Act of 1956 as amended in 1962, to
impose quantitative restrictions unilaterally on non-signatory
countries.
The following year, in June 1972, efforts to negotiate a
multifiber agreement on a broader multilateral basis led to the
establishment of a GATT working party to conduct a
comprehensive study of conditions of world trade in textiles.
The working group submitted its study to the GATT Council early
in 1973. In the fall of that year, multilateral negotiations
for a multifiber agreement began after passage of a 3-month
extension of the LTA. The first Multifiber Arrangement (MFA I)
was concluded on December 20, 1973, and came into force January
1, 1974, supplanting the LTA.
MFA provisions
The MFA was modeled after the LTA and provided for
bilateral agreements between textile importing and exporting
nations under which industrial countries have negotiated quotas
on imports of textiles and clothing primarily from developing
countries (article 4), and for unilateral actions following a
finding of market disruption (article 3).\9\ Quantitative
restrictions were based on past volumes of trade, with the
right, within certain limits, to transfer the quota amounts
between products and between years. The MFA also provided
generally for a minimum annual growth rate of 6 percent.\10\
Quotas already in place had to be conformed to the MFA or
abolished within a year. The products covered by MFA I, II, and
III included all manufactured products whose chief value is
represented by cotton, wool, man-made fibers or a blend
thereof. Also included were products whose chief weight is
represented by cotton, wool, man-made fibers or a blend
thereof. MFA IV expanded product coverage to include products
made of vegetable fibers such as linen and ramie, and silk
blends as well.
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\9\ Market disruption exists when domestic producers are suffering
``serious damage'' or the threat thereof. Factors to be considered in
determining whether the domestic producers are seriously damaged
include: turnover, market share, profit, export performance,
employment, volume of disruptive and other imports, production,
utilization of capacity, productivity, and investments. Such damage
must be caused by a sharp, substantial increase of particular products
from particular sources which are offered at prices substantially below
those prevailing in the importing country.
\10\ The annual growth rate applies to overall levels of imports
from a particular supplier country. Higher or lower growth rates can
apply to particular products, as long as the overall growth rate with
respect to that supplier country is 6 percent.
---------------------------------------------------------------------------
Overall management of the MFA was undertaken by the GATT
Textiles Committee, which is made up of representatives of
countries participating in the MFA and is chaired by the GATT
Director General. A Textile Surveillance Body (TSB) was
established to supervise the detailed implementation of the
MFA.
MFA I was in effect for 4 years, until the end of 1977.
During MFA renewal negotiations in July 1977 the EC succeeded
in putting in the renewal protocol a provision allowing jointly
agreed ``reasonable departures'' from the MFA requirements in
negotiating bilateral agreements. The MFA was then renewed for
4 more years.\11\
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\11\ T.I.A.S. 8939 (1977).
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MFA II was in effect through December 1981. On December 22,
1981, a protocol was initialed extending the MFA for an
additional 4\1/2\ years, and providing a further interpretation
of MFA requirements in light of 1981 conditions.\12\ MFA III
expired on July 31, 1986. MFA IV went into effect on August 1,
1986 for a 5-year period. MFA IV was extended on July 31, 1991
for 17 months from August 1, 1991 until December 31, 1992, with
the expectation that the results of the GATT Uruguay Round of
Multilateral Trade Negotiations would come into force
immediately thereafter. On December 10, 1992, the MFA was
extended for a fifth time, until December 31, 1993, and then
for a final time until December 31, 1994.
---------------------------------------------------------------------------
\12\ T.I.A.S. 10323 (1981).
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URUGUAY ROUND AGREEMENT ON TEXTILES AND CLOTHING
One aim of the Uruguay Round was to integrate the textiles
and clothing sector into the GATT. The resulting Agreement on
Textiles and Clothing (ATC) establishes a 10-year phase-out of
the quotas established under the MFA. Although the MFA expired
on December 31, 1994, the bilateral agreements negotiated
between individual importing and supplier governments remain in
force. If the signatories to those bilateral arrangements are
members of the World Trade Organization (WTO), the quota levels
established under those agreements are now governed by the ATC.
This means that the quotas must be adjusted in accordance with
ATC rules.
As a general matter, the ATC was designed to generate
increased opportunities for trade in the textiles and apparel
sector. It liberalizes the current trading rules in two ways:
by increasing and then removing quotas in three phases over a
10-year transition period and by requiring all participants to
provide improved access to their markets.
Thus, on January 1, 1995, each importing signatory to the
WTO, including the United States, Canada, and the members of
the European Union, was required to ``integrate'' into normal
GATT rules (including GATT 1947's article XIX and the Uruguay
Round's Agreement on Safeguards) textile and apparel products
accounting for at least 16 percent of the trade covered by the
ATC, using 1990 as the base year. Integration means that any
existing quotas on integrated products under MFA rules
automatically become void and no new quotas may be imposed upon
such products unless there has been a determination of serious
injury under GATT article XIX, the safeguards provision.
On January 1, 1998, the importing nations were required to
integrate another 17 percent of trade, and on January 1, 2002,
an additional 18 percent. Beginning in 2005, all textile and
apparel trade will fall under normal GATT/WTO rules. Under the
terms of the ATC, the Agreement cannot be extended beyond 10
years.
The U.S. Committee for the Implementation of Textile
Agreements (CITA) currently is the inter-agency group
responsible for administering the U.S. quota program and
implementation of ATC. CITA is composed of representatives from
the Departments of Commerce, State, Labor, and Treasury, and
the Office of the U.S. Trade Representative. The Commerce
Department official is chair of the committee and heads the
Office of Textiles and Apparel (OTEXA) in the Department of
Commerce which implements the terms of the agreements and
decisions made by CITA. A primary function of CITA is to
monitor imports and to determine when calls for consultations
are to be made. The CITA announced in October 1994 which
products it would integrate on January 1, 1995.\13\
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\13\ (59 Fed. Reg. 51942)
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Under the Uruguay Round Agreements Act (URAA), CITA decided
by April 30, 1995 which products will be included in each of
the next two integration ``tranches,'' with the most sensitive
products to be integrated last.\14\ No changes may be made in
the integration schedule, unless required by law or in order to
carry out U.S. international obligations, or to correct
technical errors or reclassifications.
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\14\ (60 Fed. Reg. 5625)
---------------------------------------------------------------------------
The ATC requires that existing growth rates--the amounts by
which quota levels are to rise each year--be gradually
increased. According to the ATC, the increase in growth rates
is to be applied in three stages, with each stage's growth to
be applied on top of existing rates. Thus, during stage one,
the first 3 years of the ATC, the level of annual growth for
each individual quota is to be increased by 16 percent. During
stage two, the annual growth rate is to increase another 25
percent, and during stage three, which covers the last 3 years
of the phase-out process, the ``growth on growth'' rate is 27
percent. These increases are intended to replace the
renegotiation of bilateral textile agreements.
There is one potential exception to the ATC's growth-on-
growth provision. A country may seek to preclude a supplier
country from obtaining such benefits if the supplier provides
inadequate market access for textile products. Any WTO member
may bring a market access complaint before the WTO's Textile
Monitoring Board (which replaces the MFA's TSB), which then may
authorize the importing nation not to increase growth rates for
the relevant supplier at the next stage of the transition.
Rules of origin
The URAA also directed the U.S. Treasury Department to
change by July 1, 1996, the rules of origin for textile and
apparel products. Rules of origin determine which country's
quotas should be charged for particular imports when
manufacturing of the goods occurs in more than one country. The
U.S. domestic industry sought the rules change on the ground
that suppliers were purposely splitting their manufacturing
operations among various countries as a means of avoiding quota
restrictions.
For apparel products, the rules change means that the place
of assembly will generally determine the origin of a product.
Under Customs Service regulations in effect prior to July 1,
1996, the origin of apparel depends upon the complexity of the
assembly operation. For garments requiring only simple
assembly, such as the sewing together of four or five pieces,
the country in which those pieces were cut was usually
considered the country of origin. For more tailored garments,
the country of assembly was the country of origin under the old
rule. According to the new rule, textile products manufactured
in several countries are deemed to originate where the ``most
important'' assembly process occurred, regardless of where the
product was cut. Under both the earlier rule and the rule
established in 1996, the origin of knitted garments is the
country in which the knit-to-shape pieces were formed.
For non-apparel products, the country in which the fabric
is woven or knit generally is the country of origin under the
new rule. Prior to the URAA changes, the country in which the
fabric is printed and dyed and subject to additional
``finishing operations'' or in which it is cut and then sewn
was often the country of origin for quota purposes.
Products covered by the United States-Israel Free Trade
Area Agreement are exempt from the rules change.
BILATERAL TEXTILE AGREEMENTS
Under authority of section 204 of the Agricultural Act of
1956, as amended, and in conformity with the MFA, the President
negotiated bilateral agreements restricting textile exports
from supplier countries. There were 42 such bilateral
agreements in force as of December 31, 1994, 27 of which were
with members of the World Trade Organization. Provisions of
bilateral agreements in effect with WTO members were carried
over and remain in effect under the new ATC. Quota levels
established under these agreements provide the base levels for
the annual growth provisions of the ATC.
As of January 1, 2001, the United States has bilateral
agreements governed by the ATC with 39 members of the WTO. The
United States has agreements (not governed by the ATC) with
eight non-WTO members
Bilateral textile agreements apply to textile products,
fiber and fabric, and apparel. Each agreement contains
flexible, specific, and/or aggregate limits with respect to the
type and volume of textile products that the supplier country
can export to the United States. Limits are usually set in
terms of square meter equivalents (SME's). They allow, under
certain conditions, for carryover (from the prior year to
current year within the same product category), carryforward
(from the subsequent year to the current year within the same
product category), and swing (from one product category to
another product category within the same year) of unused
portions of quotas. These provisions may be applied only with
respect to specific import limits set forth in the bilateral
agreement. Each agreement also provides for adjustment of
import levels in accordance with specified growth rates. The
bilateral with Taiwan provides for an export control system to
be administered by this exporting country to assure compliance
with the terms of the Agreement.\15\
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\15\ Exec. Order 11651, 3 CFR 676 (1971-75 Comp.).
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The ATC alters somewhat the process by which new quotas may
be established during the 10-year phase-out process, compared
with the system that existed under the MFA. Under the ATC's
``transitional safeguard'' mechanism, if CITA determines that
imports of a particular product are causing ``serious damage''
or the ``actual threat thereof,'' it will be able to establish
quotas on unrestrained suppliers of that product.
Under the MFA, before CITA could request consultations with
a particular country (or ``issue a call'') for the purpose of
negotiating a quota, it had to determine that imports of a
certain category of products from that country were causing--or
threatening to cause--``market disruption.'' Thus, under the
MFA, the injury determination was both product and country
specific. Under the ATC, the injury must only be product
specific, and once an injury determination is made, a country
can seek a quota with any supplier whose exports of that
product are ``increasing sharply and substantially.'' If
consultations fail to produce an agreement on restrictive
levels, and a country is able to demonstrate that such imports
are causing or threatening serious damage, the country may take
unilateral action to establish a quota at a level based upon
trade during a recent 12-month period. Such quotas will be
permitted to remain in place for up to 3 years (although the
quota must be increased annually), unless the product is
integrated into normal WTO rules before then. All calls will be
subject to review by the WTO's Textiles Monitoring Board.
Textiles and Apparel Trade Under the North American Free Trade
Agreement
NAFTA created a number of special rules affecting trade in
textiles among the United States, Canada and Mexico. The NAFTA
textiles rules of origin determine which goods are
``originating'' and therefore eligible for preferential
treatment, i.e., reduced or duty-free entry. Products of Canada
or Mexico that do not meet the NAFTA origin rules, or one of
the several exceptions to those rules, are not precluded from
entering the United States. However, they may be subject to
normal (non-preferential) duties or, for Mexican goods, to
quota requirements.
A ``yarn-forward'' rule of origin applies to most textile
products, although there are a number of exceptions. Yarn-
forward means that the finished textile or apparel product must
be made from fabric formed in North America from yarn spun in
North America.
NAFTA also includes ``tariff preference levels'' (TPLs)
that permit a limited number of Canadian and Mexican textile
and apparel products to enter the United States each year at
the preferential NAFTA tariff rate even though the products do
not meet the ``yarn forward'' origin rules, and therefore are
not ``originating'' goods. These are essentially annual tariff
rate quotas. Once imports reach the TPL limit, most-favored-
nation (MFN) duties will be applied to any additional non-
originating products entered during the rest of the year.
Most quotas on Mexican-made textile and apparel products
were eliminated upon implementation of the NAFTA, but a few
quotas remain. The remaining quotas apply only to products that
do not meet the preferential NAFTA origin rules but are
considered to be products of Mexico for other purposes. The
remaining U.S. quotas on Mexican goods are scheduled to be
removed by the year 2004.
Section 22 of the Agricultural Adjustment Act of 1933
Section 22 of the Agricultural Adjustment Act of 1933, as
amended (7 U.S.C. 624), authorizes the President to impose fees
or quotas on imported products that undermine any U.S.
Department of Agriculture (USDA) domestic commodity program.
This authority is designed to prevent imports from interfering
with USDA efforts to stabilize domestic agricultural commodity
prices. However, in the Uruguay Round Agreement on Agriculture,
the United States agreed to convert all quotas and fees on
imports from any country to which the United States applies the
WTO Agreement to tariff-rate quotas. Section 22 authority is
available now only for imports from countries to which the
United States does not apply the WTO Agreement.
Basic provisions
Under section 22, the Secretary of Agriculture advises the
President when the Secretary has reason to believe that--
(1) imports of an article are rendering, or tending
to render ineffective, or materially interfering with,
any domestic, agricultural-commodity price-support
program, or other agricultural program; or
(2) imports of an article are reducing substantially
the amount of any product processed in the United
States from any agricultural commodity or product
covered by such programs.
If the President agrees that there is reason for the
Secretary's belief, the President must order an ITC
investigation and report. Using this report as his basis, the
President must determine whether the statutory conditions
warranting imposition of a section 22 quota or fee exist.
If the President makes an affirmative determination, he is
required to impose, by proclamation, either import fees (which
may not exceed 50 percent ad valorem) or import quotas (which
may not exceed 50 percent of the quantity imported during a
representative period) sufficient to prevent imports of the
product concerned from harming or interfering with the relevant
agricultural program.
Application
Between 1935 and 1985, section 22 was used to impose import
restrictions on 12 different commodities or food product
groups: (1) wheat and wheat flour; (2) rye, rye flour, and rye
meal; (3) barley, hulled or unhulled, including rolled, ground,
and barley malt; (4) oats, hulled or unhulled, and unhulled
ground oats; (5) cotton, certain cotton wastes, and cotton
products; (6) certain dairy products; (7) shelled almonds; (8)
shelled filberts; (9) peanuts and peanut oil; (10) tung nuts
and tung oil; (11) flaxseed and linseed oil; and (12) sugars,
syrups, and sugar-containing products. Section 22 fees and
quotas have since been terminated for most of these
commodities. Prior to implementation of the Uruguay Round
Agreement on agriculture in late 1994, import quotas were in
place to protect certain cotton, specific dairy products,
peanuts, and certain sugar-containing products, such as
sweetened cocoa, pancake flours, and ice-tea mixes. Import fees
were in place on refined sugar.
Agriculture Trade Under the North American Free Trade Agreement
Implementation Act
Background
NAFTA is the first free trade agreement entered into by the
United States that employs the concept of ``tariffication'' of
agricultural quantitative restrictions. Under this method, a
country replaces each of its non-tariff barriers with a
``tariff-equivalent,'' which is a tariff set at a level that
will provide protection for a product equivalent to the non-
tariff barrier that the tariff replaces. In the case of several
agricultural goods listed in the tariff schedules of each NAFTA
country, the NAFTA countries converted quantitative
restrictions to tariffs or tariff-rate quotas.
Pursuant to the NAFTA, U.S. section 22 quotas and fees were
converted to tariff-rate quotas, under which ``qualifying''
Mexican dairy products, cotton, sugar-containing products, and
peanuts will enter the United States duty free up to a certain
quantity of imports (the ``in quota'' quantity.) A ``qualifying
good'' is an agricultural good that meets, based on its Mexican
content alone, the NAFTA rules of origin contained in section
202 of the NAFTA Implementation Act.
To a large extent, the NAFTA agriculture agreement amounts
to three bilateral agreements rather than a trilateral accord.
For agriculture goods traded between United States and Canada,
the NAFTA incorporates the agricultural market access
provisions of chapter 7 of the United States-Canada Free-Trade
Agreement (CFTA). The NAFTA sets out separate agricultural
market access agreements between Mexico and the United States
and between Mexico and Canada. In addition the NAFTA includes
several obligations governing agriculture trade common to all
three countries.
Basic provisions
Section 321(b) of the North American Free Trade Agreement
Implementation Act authorizes the President, pursuant to the
NAFTA, to exempt any ``qualifying good'' from any quantitative
limitation or fee imposed under section 22 of the Agricultural
Adjustment Act for as long as Mexico is a NAFTA country.
As discussed above, the United States agreed to convert its
import quotas to tariff rate quotas under section 22 of the
Agricultural Adjustment Act for imports from Mexico of dairy
products, cotton, sugar-containing products and peanuts.
Article 302(4) of the NAFTA permits the allocation of the in-
quota quantity under these tariff rate quotas, provided that
such measures do not have trade restrictive effects on imports
in addition to those caused by the imposition of the tariff-
rate quotas. Section 321(c) of the NAFTA Act directs the
President to take such action as may be necessary to ensure
that imports of goods subject to tariff rate quotas do not
disrupt the orderly marketing of commodities in the United
States.
Section 321(f) of the Act is a free-standing provision that
establishes an end-use certificate requirement for imports of
wheat or barley imported into the United States from any
foreign country or instrumentality that requires end-use
certificates on wheat or barley produced in the United States.
Section 308 of the NAFTA Act amends the CFTA Act, which
implemented the tariff ``snapback'' provided for in article 702
of the CFTA, to provide that the President may impose a
temporary duty on imports of a listed Canadian fresh fruit or
vegetable if a certain import price and other conditions exist.
Section 309 establishes a price-based snapback for imports
of frozen concentrated orange juice into the United States from
Mexico. The tariff on imports of Mexican frozen concentrated
orange juice in excess of the threshold quantity will
``snapback'' or revert to the lesser of the prevailing most-
favored-nation rate or the rate of duty on that product in
effect as of July 1, 1991, if futures prices for frozen
concentrated orange juice in the United States fall below a
historical average price for 5 consecutive days. This tariff
snapback is automatically triggered and removed upon a
determination by the Secretary of Agriculture.
Agriculture Trade Under the Uruguay Round Agreements Act
Background
The Uruguay Round Agreement on Agriculture strengthens
multilateral rules for trade in agricultural products and
requires WTO members to reduce export subsidies, trade
distorting domestic support programs and import protection. The
Agreement establishes rules and reduction commitments over 6
years for developed countries and 10 years for developing
countries on export subsidies, domestic subsidies, and market
access. The Agreement is intended to be the beginning of a
reform process for world trade in agriculture and provides for
the initiation of a second round of negotiations concerning
agriculture trade beginning in the year 2000.
Export subsidies must be reduced from 36 percent (budget
outlays) and 21 percent (volume) from a 1986-1990 base period
for specific products and categories. Trade distorting domestic
subsidies must be bound and reduced by 20 percent from a 1986-
1990 base period. non-tariff import barriers are subject to
comprehensive tariffication, and minimum or current market
access commitments. The United States thus agreed to convert
quotas and fees authorized under section 22 of the Agricultural
Adjustment Act to tariff-rate equivalents in the form of
tariff-rate quotas. In the Uruguay Round, all U.S. agriculture
tariffs were bound and subject to specific reduction
commitments.
The operation of these rules is linked to particular
commitments by each WTO member contained in that WTO member's
schedule annexed to the Marrakesh Protocol to the GATT 1994.
Each WTO member's schedule sets forth the WTO members'
commitments regarding the access it will provide to its market
for imports of agriculture products and the maximum amount of
domestic support and export subsidies it will provide to
agricultural products. Under article 3 of the Agreement, the
domestic support and export subsidy commitments in each WTO
member's schedule are an integral part of GATT 1994.
Article 2 and annex 1 of the Agreement define agricultural
products covered as those products classified in chapters 1-24
of the Harmonized Tariff Schedule (HTS) (excluding fish and
fish products) and under 13 headings or subheadings in other
chapters of the HTS, including cotton, wool, hides and fur
skins.
The United States was obligated to implement its
commitments over a 6-year period beginning in 1995. The rights
and obligations in the Agriculture Agreement supplement those
in GATT 1994, including the Agreements on Subsidies and
Countervailing Measures and Application of Sanitary and
Phytosanitary Measures.
Basic provisions
Section 401(a)(1) of the Uruguay Round Trade Agreements Act
amends section 22 of the Agricultural Adjustment Act of 1933,
such that no quota or fee shall be imposed under this section
with respect to any import that is the product of a country or
separate customs territory to which the United States applies
the WTO Agreements. Accordingly, when products of WTO members
only are involved, there would be no need to conduct a section
22 investigation. Section 22 authority is retained with respect
to imports from countries and separate customs territories to
which the United States does not apply the WTO agreements.
These amendments were effective upon entry into force of the
WTO Agreement, January 1, 1995.
The conversion of U.S. quantitative import restrictions to
tariff-rate quotas and staged tariff reductions was implemented
by Presidential Proclamation No. 6763 issued on December 13,
1994. Effective on January 1, 1995, this proclamation amended
the HTS of the United States under general authority provided
to the President in the Uruguay Round Agreements Act. The
President proclaimed tariff-rate quotas for the following
products subject to tariffication by the United States: dairy
products, sugar, sugar-containing products, peanuts, cotton and
beef. In general tariff-rate quotas replaced previously
applicable restrictions as of January 1, 1995. In some cases,
however, the United States began implementing its increased
access commitments after the entry into force of the WTO
Agreement, if the quota year for those products began at a
different time of year.
Section 404(a) of the Uruguay Round Agreements Act
authorizes the President to take such action as may be
necessary to implement the tariff-rate quotas set out in the
U.S. agricultural tariff concessions in schedule XX of the
Agreement and to ensure that imports of agricultural products
do not disrupt the orderly marketing of commodities in the
United States. Section 404(b) authorizes the President, upon
the advice of the Secretary of Agriculture, to temporarily
increase the in-quota quantity of an agricultural import that
is subject to a tariff-rate quota when the President determines
and proclaims that that the supply of the same, directly
competitive, or substitutable agricultural product will be
inadequate because of natural disaster, disease or a major
national market disruption to meet domestic demand at
reasonable prices.
In administering the tariff-rate quota, the President is
authorized to allocate, among supplying countries or customs
areas, the in-quota quantity of a tariff-rate quota for any
agricultural product, and to modify any allocation as he deems
appropriate.
Section 404(e) of the Uruguay Round Agreements Act amends
the Caribbean Basin Economic Recovery Act (CBERA), the Andean
Trade Preference Act (ATPA), the Generalized System of
Preferences (GSP) statute, and General Note 3(a) to the HTS
(relating to insular possessions) to specify that any duty
preference afforded these laws will be available only for the
in-quota amount of a tariff-rate quota. Over-quota imports from
CBERA, ATPA, or GSP countries, or U.S. insular possessions will
in all cases be subject to the higher rate of duty. Section
405(b) requires the President, if he determines that it is
appropriate, to invoke either a volume-based or price-based
special safeguard for agricultural goods and to determine,
consistent with article 5, the amount of the additional duty to
be imposed, the period during which such duty will be imposed,
and any other terms and conditions applicable to the duty.
Meat Import Act of 1979
The Meat Import Act of 1979, as amended, required the
President to impose quotas on imports of beef, veal, mutton,
and goat meat when the aggregate quantity of such imports on an
annual basis was expected to exceed a prescribed trigger level.
As a matter of practice, the import-limiting effect of the Meat
Import Act was achieved, prior to the conclusion of the Uruguay
Round, through the negotiation of voluntary restraint
agreements with major supplier countries of the covered
products. Section 403 of the Uruguay Round Act repealed the
Meat Import Act of 1979 in order to conform to U.S. commitments
under the Agreement on Agriculture not to maintain this type of
quantitative import restriction. The Uruguay Round Act
substitutes a tariff-rate quota on meat imports for the
previous import restrictions.
Reciprocal Meat Inspection Requirement
Section 4604 of the Omnibus Trade and Competitiveness Act
of 1988 \16\ amends section 20 of the Federal Meat Inspection
Act (21 U.S.C. 620) to authorize strict enforcement of all
standards which are applicable to meat articles in domestic
commerce, for meat articles imported into the United States. If
the Secretary of Agriculture determines that a foreign country
applies meat inspection standards that are not related to
public health concerns about end-product quality which are
substantiated by reliable analytical methods, the Secretary
must consult with the U.S. Trade Representative and they shall
make a recommendation to the President as to what action should
be taken. The President may require that a meat article
produced in a plant in such foreign country may not be
permitted entry into the United States unless the Secretary
determines that the meat article has met the standards
applicable to meat articles in commerce within the United
States. The annual report required generally under section 20
of the Federal Meat Inspection Act shall include the name of
each foreign country that applies standards for the importation
of meat articles from the United States that are not based on
public health concerns.
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\16\ Public Law 100-418, approved August 23, 1988, 102 Stat. 1107,
1408, amending section 20 of Public Law 90-201, 21 U.S.C. 620.
---------------------------------------------------------------------------
Enactment of this provision resulted from congressional
concern over the European Community's (EC) hormone ban, which
since 1989 has effectively banned all meat exports from the
United States to the EC that were produced from livestock
treated with hormones, despite scientific evidence establishing
the safety of U.S. production methods. At the time of
enactment, bilateral consultations with the EC were underway,
and Congress wanted to strengthen the Administration's
authority to respond to the EC action. The authority added by
section 4604 was intended to be used either in addition to, or
instead of, other authorities (such as section 301 of the Trade
Act of 1974).
Sugar Tariff-Rate Quotas Under Harmonized Tariff Schedule Authorities
Additional U.S. note 5 to chapter 17 of the Harmonized
Tariff Schedule of the United States (HTS) authorizes the
Secretary of Agriculture, in consultation with other agencies,
to establish, for each fiscal year, the quantity of sugars and
syrups that may be entered at the lower tariff rates under two
tariff-rate quotas (TRQ's). The TRQ's cover sugars and syrups
described in HTS subheadings 1701.11, 1701.12, 1701.91,
1701.99, 1702.90, and 2106.90. This authority was proclaimed to
implement the results of the Uruguay Round of multilateral
trade negotiations as reflected in the provisions of schedule
XX (United States), annexed to the Agreement Establishing the
World Trade Organization.\17\
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\17\ Pres. Proc. No. 6763, Dec. 23, 1994, 60 Fed. Reg. 1007.
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Background
The United States has always been a net importer of sugar,
at times importing more than half of the nation's sugar
consumption. However, sugar imports have been restricted almost
continuously since 1934 in order to maintain and foster the
domestic sugarcane and sugar beet industries. From the
enactment of the Jones Costigan Sugar Act of 1934 \18\ through
the expiration of the Sugar Act of 1948 on December 31,
1974,\19\ sugar imports were restricted by a statutory quota.
Historically, this system of import protection has maintained a
U.S. price for sugar well above the world price.
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\18\ Pub. L. No. 73-213, ch. 263, approved May 9, 1934, 48 Stat.
670.
\19\ Pub. L. No. 80-388, ch. 519, approved August 8, 1947, 61 Stat.
922. See also the Sugar Act of 1937, Pub. L. No. 75-414, ch. 898,
approved September 1, 1937, 50 Stat. 903.
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Shortly before the expiration of the Sugar Act of 1948, an
absolute import quota was proclaimed by President Ford,
although the quota quantity was so large as to be non-
restrictive.\20\ The quota derived from a note that had been
negotiated in the Annecy (1949) and Torquay (1951) Rounds of
multilateral trade negotiations and was proclaimed as a
headnote to the Tariff Schedule of the United States (TSUS)
following the conclusion of the Kennedy Round (1963-1967). On
May 5, 1982, President Reagan modified this headnote quota to:
(1) make it restrictive; (2) allocate the quota among supplying
countries in accordance with their shares of the U.S. market
during the period from 1975 through 1981; and (3) authorize the
Secretary of Agriculture to establish and modify the quota
amount in subsequent periods.\21\
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\20\ Pres. Proc. No. 4334, November 16, 1974, 39 Fed. Reg. 40739.
\21\ Pres. Proc. No. 4941, May 5, 1982, 47 Fed. Reg. 19661.
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By 1988, the quota had been reduced to the lowest ratio of
imports to domestic production in the nation's history. The
government of Australia challenged the legality of the sugar
import quota under the provisions of the General Agreement on
Tariffs and Trade (GATT), and in 1989, a GATT dispute
settlement panel found the quota illegal. In 1990, President
Bush issued Proclamation No. 6179 \22\ to convert the absolute
import quota into a tariff-rate quota, thereby bringing it into
conformity with the GATT TRQ panel decision. During the Uruguay
Round of multilateral trade negotiations, the quota was
reconverted into two TRQ's, one for imports of raw cane sugar
and the other for imports of refined sugar, including syrups.
The United States agreed to bind its minimum total sugar/syrups
TRQ at 1,139,195 metric tons (MT). In addition, the United
States agreed to reduce the second tier (over quota) tariff
rates by 15 percent over 6 years.\23\
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\22\ Pres. Proc. No. 6179, September 13, 1990, 55 Fed. Reg. 38293.
\23\ See Pres. Proc. No. 6763, December 23, 1994.
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Under the tariff-rate quota system, the Secretary of
Agriculture establishes the quota quantity that can be entered
at the lower tier of tariff rates, and the USTR allocates this
quantity among the 40 eligible sugar exporting countries. The
quantities allocated to beneficiary countries under the GSP,
the CBI and the ATPA receive duty-free treatment. Certificates
of Quota Eligibility (CQE) are issued to the exporting
countries and must be executed and returned with the shipment
of sugar in order to receive quota treatment.\24\ Imports of
raw cane sugar are permitted in addition to the quota quantity
on condition that such sugar is to be refined and used in the
production of certain polyhydric alcohols or to be re-exported
in refined form or in sugar-containing products.\25\
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\24\ See 15 C.F.R. part 2011.
\25\ See additional U.S. note 6 to chapter 17 of the HTS and 7
C.F.R. part 1530.
---------------------------------------------------------------------------
The quantity of sugar which may be imported duty free from
Mexico is governed by paragraphs 13-22 of section A of annex
703.2 of the North American Free Trade Agreement (NAFTA). Since
1982, Mexico has been included within a basket category known
as the ``other specified countries and areas'' and has been
allocated a minimum quota amount, currently set at 7,258 MT raw
value. The NAFTA guarantees the greater of this access or
Mexico's net surplus production, but no greater than 25,000 MT
during the first 6 years or 250,000 MT during the remaining 8
years of the NAFTA implementation period. Additional sugar may
enter at a duty rate that is being eliminated in stages through
2008. During each of the first 14 years of the NAFTA, Mexico
and the United States will jointly determine whether either has
been or is projected to be a net surplus producer.\26\ All
sugar imports from Mexico will enter duty free after the 14-
year transition period.
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\26\ For purposes of the NAFTA formulas, high fructose corn syrup
(HFCS) is included in determining the consumption of sugar.
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Import Prohibitions on Certain Agricultural Commodities Under Marketing
Orders
Section 8e of the Agricultural Adjustment Act, as amended
Section 8e of the Agricultural Adjustment Act, as
amended,\27\ restricts the importation of certain specified
commodities which do not meet relevant grade, size, quality or
maturity requirements imposed under the marketing order in
effect for such commodity. The specified commodities include
tomatoes, raisins, olives (other than Spanish-style green
olives), prunes, avocados, mangoes, limes, grapefruit, green
peppers, Irish potatoes, cucumbers, oranges, onions, walnuts,
dates, filberts, table grapes, eggplants, kiwifruit,
nectarines, plums, pistachios, and apples.
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\27\ 7 U.S.C. 608e-1.
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Any restriction under this authority may not be made
effective until after the Secretary of Agriculture gives
reasonable notice (of not less than 3 days) and receives the
concurrence of the U.S. Trade Representative. The Secretary of
Agriculture may promulgate such rules and regulations as he
deems necessary, to carry out the provision of this section.
Whenever the Secretary of Agriculture finds that the
application of the restrictions under a marketing order to an
imported commodity is not practicable because of variations in
characteristics between the domestic and imported commmodity,
he/she must establish with respect to the imported commodity
such grade, size, quality, and maturity restrictions by
varieties, types, or other classification as he/she finds will
be equivalent or comparable to those imposed upon the domestic
commodity under such order.
Section 4603 of the Omnibus Trade and Competitiveness Act
of 1988 amended section 8e to provide additional authority for
the Secretary to establish an additional period of time (not to
exceed 35 days) for restrictions to apply to imported
commodities, if the Secretary determines that such additional
period of time is necessary to effectuate the purposes of the
Act and to prevent the circumvention of the requirement of a
seasonal marketing order. In making this determination, the
Secretary must consider: (1) the extent to which imports during
the previous year were marketed during the period of the
marketing order and such imports did not meet the requirements
of the marketing order; (2) if the importation into the United
States of such commodity did, or was likely to, circumvent the
grade, size, quality or maturity standards of a seasonal
marketing order; and (3) the availability and price of
commodities of the variety covered by the marketing order
during any additional period the marketing order requirements
are to be in effect.
Section 1308 of the Food, Agriculture, Conservation, and
Trade Act of 1990 (the ``1990 farm bill'') amended section 8e
to require the Secretary to consult with the USTR prior to any
import restriction or regulation being made effective. The USTR
must advise the Secretary within 60 days of being notified, to
ensure that the proposed grade size, quality, or maturity
provisions are not inconsistent with U.S. international
obligations. If the Secretary receives the concurrence of the
USTR, the proposed prohibition or regulation may proceed.
Authorities To Restrict Imports Under Certain Environmental Laws
Marine Mammal Protection Act of 1972, as amended
The Marine Mammal Protection Act (MMPA), enacted in 1972,
\28\ places a ban on the importation of marine mammals and
marine mammal products, except in limited circumstances, such
as for scientific research. The MMPA also directs the Secretary
of the Treasury to ban the importation of commercial fish or
products from fish which have been caught with commercial
fishing technology which results in the incidental kill or
incidental serious injury of ocean mammals in excess of U.S.
standards. In carrying out the ban, the Secretary, in the case
of yellowfin tuna harvested with purse seine nets in the
eastern tropical Pacific Ocean, and products therefrom, to be
exported to the United States, must require that the government
of the exporting nation provide certain documentary evidence
relating to that country's marine mammal conservation programs.
The Secretary must also require the government of any
intermediary nation from which yellowfin tuna or tuna products
will be exported to the United States to certify and provide
reasonable proof that it has acted to prohibit the importation
of such tuna and tuna products from any nation from which
direct export to the United States of such tuna and tuna
products is banned under the Act.
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\28\ Public Law 92-522, approved October 21, 1972, 16 U.S.C. 1361
et seq.
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In 1984, the MMPA was amended to require that each nation
wishing to export tuna to the United States document that it
has adopted a dolphin conservation program ``comparable'' to
that of the United States, and that the average rate of
mortality of its purse seine fleet is comparable to that of the
U.S. fleet. If these requirements are not met, an embargo on
the import of yellowfin tuna and tuna products from that nation
will be invoked. In 1988, the MMPA was further amended with
respect to these ``comparability'' provisions by requiring that
the regulatory programs of other nations in the eastern
tropical Pacific tuna fishery be at least as restrictive as
those of the United States. The 1988 amendments also require
that the government of any intermediary nation from which
yellowfin tuna or tuna products will be exported to the United
States certify and provide reasonable proof that it has acted
to prohibit the importation of tuna and tuna products from
embargoed nations.
In August 1990, Mexico's yellowfin tuna was embargoed under
the comparability provision. Mexico challenged the U.S. embargo
under procedures of the General Agreement on Tariffs and Trade
(GATT) and in September 1991, a GATT panel found in favor of
Mexico. Venezuelan exports of yellowfin tuna to the United
States also were embargoed and Venezuela began a GATT case
against the United States in May 1992. A third GATT challenge
was brought by the European Community (EC) in June 1992, after
a federal district court ruled that the MMPA also required a
secondary embargo of tuna products from some 20 intermediary
nations, including those of the EC, that had failed to certify
and offer reasonable proof that they had acted to prohibit the
importation of tuna from the primary embargoed nations. On May
20, 1994, a GATT dispute settlement panel issued a report
finding that U.S. tuna embargoes were inconsistent with GATT
rules.
International Dolphin Conservation Program Act
The International Dolphin Conservation Program Act (Public
Law 105-52), approved August 15, 1997, established the
International Dolphin Conservation Program to implement into
U.S. law the Declaration on Panama concerning tuna fishing in
the Eastern Tropical Pacific Ocean.
In 1992, Eastern Tropical Pacific nations concluded the La
Jolla Agreement, a non-binding international agreement
establishing an International Dolphin Conservation Program
under the auspices of the Inter-American Tropical Tuna
Commission. The agreement established annual limits on
incidental dolphin mortality, required observers on tuna
vessels, established a review panel to monitor fleet
compliance, and created a scientific research and education
program and advisory board. The agreement established a dolphin
mortality limit for each vessel, and when that limit was
reached, such vessel would be required to discontinue ``setting
on dolphins'' for the remainder of the year.
In October 1995, 12 nations signed the Declaration of
Panama, including the Unites States, Belize, Colombia, Costa
Rica, Ecuador, France, Honduras, Mexico, Panama, Spain,
Vanuatu, and Venezuela. The Panama Declaration endorses the
success of the La Jolla Agreement and adjusts the marketing
policy of dolphin safe tune in recognition of this success. In
exchange for modifications to U.S. law, foreign signatories
agreed to modify and formalize the La Jolla Agreement as a
binding agreement. Signatories agreed to adopt conservation and
management measures to ensure long-term sustainability of tuna
and living marine resources, assess the catch and bycatch of
tuna and take steps to reduce of eliminate the bycatch,
implement the binding agreement through enactment of domestic
legislation, enhance mechanisms for reviewing compliance with
the International Dolphin Conservation Program, and establish
annual quotas for dolphin mortality limiting total annual
dolphin mortality to fewer than 5,000 animals.
The International Dolphin Conservation Program Act
implements the Declaration of Panama in U.S. law by changing
the circumstances under which the import ban on yellowfin tune
in section 101 of the MMPA would be imposed. Specifically, the
bill permits importation of yellowfin tuna if the harvesting
nation complies with international standards, as follows: (1)
the tuna was harvested by vessels of a nation that participates
in the International Dolphin Conservation Program, the
harvesting nation is either a member of has initiated steps to
become a member of the Inter-American Tropical Tuna Commission,
and the nation has implemented its obligations under the
Program and the Commission; and (2) total dolphin mortality
permitted under the Program is limited.
Endangered Species Act of 1973, as amended
The Endangered Species Act \29\ authorizes the Secretary of
the Interior to create lists of species or subspecies which are
considered endangered or threatened, and to prohibit the
importation or interstate sale of these species or subspecies.
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\29\ Public Law 93-205, approved December 28, 1973, 16 U.S.C. 1531
et seq.
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Tariff Act of 1930, as Amended: Wild Mammals or Birds
Section 527 of the Tariff Act of 1930, as amended,\30\
prohibits the importation of any wild mammal or bird, alive or
dead, or any part of product of any wild mammal or bird, if the
laws or regulations of the country where the wild mammal or
birdlives restrict its ``talking, killing, possession, or
exportation to the United States,'' unless the wild mammal or
bird is accompanied by a certification of the U.S. consul that
it ``has not be acquired or exported in violation of the laws
or regulations of such country. . .''
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\30\ 19 U.S.C. 1527
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Any mammal or bird, alive or dead, or any part of product
thereof, imported into the United States in violation of the
above is subject to seizure and forfeiture under the customs
laws. The import prohibition in the Tariff Act of 1930 does not
apply in the case of (1) articles the importation of which is
prohibited by any other law; (2) articles imported for
scientific or educaional purposes, or are migratory; or (3)
certain migratory game birds.
African Elephant Conservation Act
Title II of the Endangered Species Act Amendments of 1988
(Public Law 100-478) contained the African Elephant
Conservation Act,\31\ requiring the Secretary of the Interior
to establish a moratorium on the importation of raw and worked
ivory from an ivory producing country that does not meet
specific criteria, including being a party to the Convention on
the International Trade in Endangered Species of Wild Fauna and
Flora (CITES).
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\31\ 16 U.S.C. 4201-4245
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Rhinoceros and Tiger Conservation Act of 1994, as Amended
Section 7 of the Rhinoceros and Tiger Conservation Act of
1994,\32\ as amended by the Rhino and Tiger Product Labeling
Act,\33\ prohibits selling, importing, or exporting, or
attempting to sell, import, or export, any product, item or
substance intended for human consumption containing or
purporting to contain any substance derived from any species of
rhinoceros or tiger.
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\32\ 15 U.S.C. 5301-5306.
\33\ Public Law 105-312, approved October 30, 1998.
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Section 8 of the Fishermen's Protective Act of 1967, as amended
(``Pelly Amendment'')
Under section 8 of the Fishermen's Protective Act of 1967,
as amended (the so-called ``Pelly Amendment''), \34\ the
President, based on certain findings by the Secretary of
Commerce or the Secretary of the Interior, has the
discretionary authority to impose import sanctions on any
products from any country which conducts fishery practices or
engages in trade which diminishes the effectiveness of
international programs for fishery conservation or
international programs for endangered or threatened species.
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\34\ Public Law 93-205, approved December 28, 1973, 22 U.S.C. 1978.
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High Seas Driftnet Fisheries Enforcement Act
The High Seas Driftnet Fisheries Enforcement Act was
enacted in 1992 \35\ to assist in the international enforcement
of U.N. Resolution Number 46-215, which prohibits
large-scale driftnet fishing on the high seas after December
31, 1992. The Act sets forth certain import sanctions
applicable to countries whose nationals or vessels engage in
driftnet fishing on the high seas on or after December 31,
1992, and lays out the procedures to be followed in applying
those import sanctions.
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\35\ Public Law 102-582, approved November 2, 1992.
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Specifically, the Act requires the Secretary of Commerce
not later than December 31, 1992, and periodically thereafter,
to identify each country the nationals or vessels of which
conduct large-scale driftnet fishing beyond the exclusive
economic zone of any country and to notify the President and
that country of the identification. The President must enter
into consultations within 30 days with any country so
identified to obtain its agreement to effect the immediate
termination of the large-scale driftnet fishing. If these
consultations have not been satisfactorily concluded within 90
days, the President shall direct the Secretary of the Treasury
to prohibit the importation of shellfish, fish and fish
products, and sport fishing equipment from the country in
question. If such country has not terminated its large-scale
driftnet fishing within 6 months after its identification or
has retaliated against the United States for any initial import
sanctions taken against it, such country shall be subject to
additional import sanctions, at the President's discretion,
under the Fishermen's Protective Act of 1967, as amended.
Wild Bird Conservation Act of 1992
The Wild Bird Conservation Act of 1992 \36\ establishes
various bans on the importation of exotic birds. For those
birds listed on any of the three appendices on the Convention
on International Trade in Endangered Species of Wild Fauna and
Flora (CITES), the nature of the ban depends on how threatened
is the particular species of bird. There is an immediate import
ban for birds that have been identified under CITES as being
under immediate threat. For all other birds listed by CITES, an
import ban goes into effect 1 year after the date of enactment
of the Act. During this 1 year, the Secretary of the Interior
is authorized to suspend the importation of such species on an
emergency basis under certain conditions. None of the import
bans will apply to species of birds that are included on an
approved list of species to be maintained by the Secretary. To
be included on such an approved list, the species must either
be regularly bred in captivity in a qualified facility or be
protected under a conservation program in the country of origin
that meets specifically enumerated criteria.
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\36\ Public Law 102-440, approved October 23, 1992.
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For exotic birds not listed under the CITES agreement, the
Secretary is authorized to impose an import ban or quota on
such species if he finds such action is necessary for the
conservation of the species.
The Act also authorizes the Secretary to allow, through the
issuance of import permits, the importation of any exotic bird
upon determination that such importation is not detrimental to
the species' survival and that the bird is being imported for
certain enumerated purposes, such as scientific research or
cooperative breeding programs.
Atlantic Tunas Convention Act of 1975
In 1966, the International Convention for the Conservation
of Atlantic Tunas (ICCAT) was established, and the U.S. Senate
ratified ICCAT in 1967. The Atlantic Tunas Convention Act
(ATCA), which authorizes U.S. involvement in ICCAT, was enacted
in 1975. ATCA authorizes the Secretary of Commerce to
administer and enforce ICCAT and ATCA, including the
promulgation of regulations to establish open and closed
seasons, fish size requirements and catch limitations,
incidental catch restrictions, and observer coverage. In
addition, the Secretary is authorized to prohibit the entry
into the United States of any fish subject to regulations
recommended by ICCAT and taken in a manner which would diminish
the effectiveness of ICCAT's conservation efforts.
The Atlantic Tunas Convention Act of 1995 made certain
changes to the ATCA concerning the identification and
notification of countries violating the terms of ICCAT
recommendation. Specifically, the legislation made no change to
the ATCA authority to restrict imports of fish if fished in a
manner that tends to diminish the effectiveness of a
recommendation by the ICCAT, instead of imposing additional,
and in some cases mandatory, standards. The Act added
provisions requiring Commerce to identify, notify, and publish
a list of countries whose fishing vessels are fishing or have
fished during the previous year in the Convention area in a
manner inconsistent with the objectives of an ICCAT
recommendation. In addition, it provided that the President may
enter into consultations with identified nations. The purpose
of the Act was to lead to the development of an international
consensus concerning multilateral management of Atlantic tunas,
instead of expanding the circumstances under which unilateral
sanctions are authorized.
Section 609 of Public Law 101-162: Conservation of Sea Turtles
Section 609 of Public Law 101-162, a bill making
appropriations for the Departments of Commerce, Justice, State,
the Judiciary, and related agencies for fiscal year 1990,\37\
calls upon the Secretary of State, in consultation with the
Secretary of Commerce, to initiate negotiations for the
development of bilateral or multilateral agreements for the
protection and conservation of sea turtles, in particular with
foreign governments of such countries which are engaged in
commercial fishing operations likely to affect adversely sea
turtles. Section 609 further provides that shrimp harvested
with technology that may adversely affect certain sea turtles
may not be imported into the United States, unless the
President certified to Congress by May 1, 1991, and annually
thereafter, that the harvesting nation has a regulatory program
and an incidental rate comparable to that of the United States,
or that the particular fishing environment of the harvesting
nation does not pose a threat to sea turtles.
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\37\ Public Law 101-162, approved November 21, 1989.
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In 1991, the State Department issued guidelines for
assessing the comparability of foreign regulatory programs with
the U.S. program.\38\ To be found comparable, a foreign
nation's program had to include a commitment to require all
shrimp trawl vessels to use turtle excluder devices (TEDs) at
all times, or alternatively, a commitment to engage in a
statistically reliable and verifiable scientific program to
reduce the mortality or sea turtles associated with shrimp
fishing. The 1991 guidelines also determined that the scope of
section 609 was limited to the wider Caribbean/western Atlantic
region and that the import restriction did not apply to
aquaculture shrimp, the harvesting of which does not adversely
affect sea turtles.
---------------------------------------------------------------------------
\38\ 56 Fed. Reg. 1051 (January 10, 1991).
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In 1993, the State Department issued revised guidelines
providing that to receive a certification in 1993 and
subsequent years, affected nations had to maintain their
commitment to require TEDs on all commercial Shrimp trawl
vessels by May 1, 1994.
In December 1995, the U.S. Court of International Trade
(CIT) found that the 1991 and 1993 guidelines were contrary to
law in limiting the geographical scope of section 609 and
directed the State Department to prohibit the importation of
shrimp or products of shrimp wherever harvested in the wild
with commercial fishing technology that may affect adversely
sea turtles by May 1, 1996.\39\
---------------------------------------------------------------------------
\39\ Earthe Island Institute v. Warren Christopher, 913 F. Supp.
559 (CIT 1995).
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In April 1996, the State Department published revised
guidelines \40\ to comply with the CIT order of December 1995.
The new guidelines extended section 609 to shrimp harvested
from all foreign nations. The State Department further
determined that as of May 1, 1996, all shipments of shrimp and
shrimp products into the United States were to be accompanied
by a declaration attesting that the shrimp or shrimp product in
question was harvested ``either under conditions that do not
adversely affect sea turtles . . . or in waters subject to
the jurisdiction of a nation currently certified pursuant to
section 609.''
---------------------------------------------------------------------------
\40\ 61 Fed. Reg. 17342 (April 19, 1996).
---------------------------------------------------------------------------
In October 1996, the CIT ruled that the embargo on shrimp
and shrimp products enacted by section 609 applied to all
``shrimp products harvested in the wild by citizens or vessels
of nations which have not be certified''.\41\ The Court found
that the 1996 guidelines were contrary to section 609 when
allowing, with a Shrimp Exporter's Declaration form, imports of
shrimp from non-certified countries if the shrimp was harvested
with commercial fishing technology that did not adversely
affect sea turtles. The CIT also refused to postpone the
worldwide enforcement of section 609.\42\
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\41\ Earth Island Institute v. Warren Christopher, 942 Fed. Supp.
597 (CIT 1996).
\42\ Earth Island Institute v. Warren Christopher, 948 Fed. Supp.
1062 (CIT 1996).
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In 1997, Thailand, Malaysia, Pakistan, and India filed a
challenge in the World Trade Organization (WTO) to the U.S.
restrictions on imports of shrimp and shrimp products harvested
in a manner harmful to endangered species of sea turtles. A
dispute settlement panel was formed on February 25, 1997. The
panel ruled in favor of the complainants on April 6, 1998,
finding that the U.S. import restrictions were inconsistent
with WTO rules. The United States appealed the decision, and on
October 12, 1998, the Appellate Body of the WTO reversed the
panel ruling, confirming that WTO rules allow countries to
condition access to their markets on compliance with certain
policies such as environmental conservation, and agreeing that
the U.S. ``shrimp-turtle law'' was a permissible measure
adopted for the purpose of sea turtle conservation. The
Appellate Body, however, found fault with certain aspects of
the U.S. implementation of the statute. In particular, it found
that the State Department's procedures for determining whether
countries meet the requirements of the law did provide adequate
due process, because exporting nations were not afforded formal
opportunities to be heard and were not given formal written
explanations of adverse decisions. The Appellate Body also
found that the United States had unfairly discriminated between
the complaining countries and Western Hemisphere nations by not
exerting as great an effort to negotiate a sea turtle
conservation agreement with the complaining countries and by
not providing them the same opportunities to receive technical
assistance.
On November 25, 1998, the United States indicated its
intention not only to comply with the panel rulings but also
the firm commitment of the United States to protect endangered
species of sea turtles. In July 1999, the State Department
revised its procedures, pursuant to the panel decision, to
provide more due process to countries apply for certification
under section 609. The United States also provided the
complaining countries with additional technical assistance in
the adoption of sea turtle conservation measures. In July 2000,
the State Department began negotiations on a sea turtle
conservation agreement with countries of the Indian Ocean
region, including the complaining countries in the WTO case.
The next meeting of negotiators is expected to take place
during the first half of 2001.
On October 23, 2000, Malaysia requested that the original
WTO panel examine whether the United States fully implemented
the panel's recommendations, arguing that it was necessary for
the United States to repeal its ``shrimp-turtle law'' in order
to comply. The other complaining countries in the WTO panel
proceedings did not join Malaysia in the request. A decision on
U.S. compliance with the panel report, which can be appealed to
the WTO Appellate Body by either party, is expected in the
spring of 2001.
National Security Import Restrictions
Section 232 of the Trade Expansion Act of 1962
Section 232 of the Trade Expansion Act of 1962, as
amended,\43\ authorizes the President to impose restrictions on
imports which threaten to impair the national security. This
authority has been used by the President to impose quotas and
fees on imports of petroleum and petroleum products from time
to time and to embargo imports of refined petroleum products
from Libya. Public Law 96-223 (imposing a windfall profit tax
on domestic crude oil) amended section 232 to authorize the
Congress to disapprove by joint resolution an action of the
President to adjust oil imports. On June 9, 1995, the President
found, pursuant to section 232, that oil imports threaten to
impair the national security but determined not to take action
to adjust imports of petroleum because the costs of such an
adjustment to the economy outweighed the benefits.\44\
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\43\ Public Law 87-794, approved October 11, 1962, 19 U.S.C. 1862,
amended by section 127 of the Trade Act of 1974, Public Law 93-618,
approved January 3, 1975, by section 402 of the Crude Oil Windfall
Profit Tax Act of 1980, Public Law 96-223, approved April 2, 1980, and
further amended by section 1501 of the Omnibus Trade and
Competitiveness Act of 1988, Public Law 100-418, approved August 23,
1988.
\44\ 60 Fed. Reg. 30,514 (June 9, 1995).
---------------------------------------------------------------------------
On April 28, 2000, the President pursuant to section 232,
concurred with the findings of the Secretary of Commence that
imports of crude oil threaten to impair the national security.
He also accepted the Secretary's recommendation that trade
remedies not be imposed but that existing policies to enhance
conservation and limit the dependence on foreign oil be
continued.\45\
---------------------------------------------------------------------------
\45\ 36 Weekly Comp. Pres. Doc. 945.
---------------------------------------------------------------------------
Section 232 as amended requires the Secretary of Commerce
to conduct immediately an investigation to determine the
effects on national security of imports of an article, upon the
request of any U.S. government department or agency,
application of an interested party, or upon his own motion. The
Secretary must report the findings of his investigation and his
recommendations for action or inaction to the President within
270 days after beginning the investigation. If the Secretary
finds the article ``is being imported * * * in such quantities
or under such circumstances as to threaten to impair the
national security,'' he must so advise the President. The
President must decide within 90 days after receiving the
Secretary's report whether to take action. If the President
decides to take action, he must implement such action within 15
days, and take such action for such time as he deems necessary
to ``adjust'' the imports of the article and its derivatives so
imports will not threaten to impair the national security. The
President must submit a written statement to the Congress
within 30 days explaining action taken and the reasons
therefor.
Upon initiation of an investigation, the Secretary of
Commerce must immediately notify the Secretary of Defense, and
consult with him on methodological and policy questions. Upon
request of the Secretary of Commerce, the Secretary of Defense
must provide an assessment of the defense requirements of any
article subject to investigation.
The Secretary of Commerce must hold public hearings or
otherwise afford interested parties an opportunity to present
information and advice relevant to the investigation if it is
appropriate and after reasonable notice. The Secretary must
also seek information and advice from, and consult with, other
appropriate agencies. Among the factors which the Secretary and
the President must consider are domestic production needs for
projected national defense requirements; domestic industry
capacity to meet these requirements; existing and anticipated
availability of resources, supplies, and services essential to
the national defense; the growth requirements of such
industries, supplies, services; imports in terms of their
quantities, availability, character, and use as they affect
such industries and U.S. capacity to meet national security
requirements; the impact of foreign competition on the economic
welfare of domestic industries; and any substantial
unemployment, revenue declines, loss of skills or investment,
or other serious effects resulting from displacement of any
domestic products by excessive imports.
Section 233 of the Trade Expansion Act of 1962
Section 233 of the Trade Expansion Act of 1962 \46\ was
added by section 121 of the Export Administration Amendments of
1985 (Public Law 99-64) as a means of enforcing national
security export controls imposed under that Act. The provision
was amended by section 2447 of the Omnibus Trade and
Competitiveness Act of 1988, to conform to sanctions authority
added to the Export Administration Act.
---------------------------------------------------------------------------
\46\ 19 U.S.C. 1864.
---------------------------------------------------------------------------
Under section 233 as amended, any person who violates any
national security export control imposed under section 5 of the
Export Administration Act of 1979, or any regulation, order, or
license issued under that section, may be subject to controls
imposed by the President on imports of goods or technology into
the United States.
The provision has never been used.
Balance of Payments Authority
Section 122 of the Trade Act of 1974
Section 122 of the Trade Act of 1974 \47\ authorizes the
President to increase or reduce restrictions on imports into
the United States to deal with balance of payments problems.
---------------------------------------------------------------------------
\478\ Public Law 93-618, approved January 3, 1975; 19 U.S.C. 2132.
---------------------------------------------------------------------------
Tighter restrictions in the form of an import surcharge
(not to exceed 15 percent ad valorem), import quota, or a
combination of the two may be imposed for up to 150 days
(unless extended by act of Congress) whenever fundamental
international payments problems make such restrictions
necessary to deal with large and serious U.S. balance of
payments deficits, to prevent an imminent and significant
depreciation of the dollar, or to cooperate with other
countries in correcting an international balance of payments
disequilibrium.
Existing imports restrictions may be eased for a period of
up to 150 days (unless extended by act of Congress) through a
reduction in the rate of duty on any article (not to exceed 5
percent ad valorem), an increase in the value or quantity of
imports subject to any type of import restriction, or a
suspension of any import restriction. Such restrictions may be
eased whenever fundamental international payments problems
require special measures to deal with large and serious balance
of payments surpluses or to prevent significant appreciation of
the dollar. Trade liberalizing measures must be broad and
uniform as to articles covered. The President may not, however,
liberalize imports of those products for which increased
imports will cause or contribute to material injury to domestic
firms or workers, impairment of national security, or otherwise
be contrary to the national interest.
Certain conditions also are placed on the President's use
of import restrictions for balance of payments purposes. Quotas
may be imposed only if international agreements to which the
United States is a party permit them as a balance of payments
measure and only to the extent that the imbalance cannot be
dealt with through an import surcharge. If the President
determines that import restrictions are contrary to the
national interest, he may refrain from imposing them but must
inform and consult with Congress.
Section 122(d) requires that import restrictions be applied
on a non-discriminatory basis; it also requires that quotas aim
to distribute foreign trade with the United States in a manner
that reflects existing trade patterns. If the President finds,
however, that the purposes of the provision would best be
served by action against one or more countries with large and
persistent balance of payment surpluses, he may exempt all
other countries from such action. This section also expresses
the sense of Congress that the President seek modifications in
international agreements to allow the use of surcharges instead
of quotas for balance of payments adjustment purposes. If such
international reforms are achieved, the President's authority
to exempt all but one or two surplus countries from import
restrictions must be applied in a manner consistent with the
new international rules.
Section 122(e) provides that import restrictions be of
broad and uniform application as to produce coverage, unless
U.S. economic needs dictate otherwise. Exceptions under this
section are limited to the unavailability of domestic supply at
reasonable prices, the necessary importation of raw materials
and similar factors, or if uniform restrictions will be
unnecessary or ineffective (i.e., if products already are
subject to import restrictions, are in transit, or are subject
to binding contracts). The section prohibits the use of balance
of payments authority or the exceptions authority to protect
domestic industries from import competition. Any quantitative
restriction imposed may not be more restrictive than the level
of imports entered during the most recent representative
period, and must take into account any increase in domestic
consumption since the most recent representative period.
The President is authorized to modify, suspend, or
terminate any proclamation issued under the section, either
during the initial 150-day period or during any subsequent
extension by act of Congress.
Section 122 authority has never been invoked.
Background
Anticipating that oil-consuming nations would face large
balance of payments deficits in an era of rapidly increasing
oil prices, and believing that neither a reduction in the price
of oil nor the necessary international monetary cooperation
were certain to take place, Congress considered it necessary to
authorize the President to impose surcharges or other import
restrictions for balance of payments purposes, even though
Congress assumed that under existing circumstances such
authority was not likely to be used.\48\ The use of surcharges
for balance of payments purposes had gained de facto acceptance
among industrialized GATT member countries during the two
decades preceding the 1974 Trade Act, but explicit GATT rules
had never been adopted.
---------------------------------------------------------------------------
\48\ Senate Report 93-1298 at 87-88.
---------------------------------------------------------------------------
When it passed the Trade Act of 1974, Congress urged the
President to seek changes in international agreements allowing
the use of surcharges as well as (and in preference to) quotas
for balance-of-payments adjustment purposes and providing rules
for their use.\49\ The Tokyo Round of GATT multilateral trade
negotiations in 1979 adopted, as part of the so-called
Framework Agreement, the Declaration on Trade Measures Taken
for Balance-of-Payments Purposes,\50\ which elaborated on the
rules for the use of import restrictions for balance-of-
payments adjustments. While this Declaration noted the wide
use, for balance-of-payments adjustments, of import
restrictions other than quotas (which alone are addressed in
the GATT) and implicitly sanctioned it, it still did not
fundamentally alter GATT rules in this area by explicitly
allowing such other restrictions.
---------------------------------------------------------------------------
\49\ Senate Report 93-1298 at 88.
\50\ MTN/FR/W/20/Rev. 2, reprinted in House Doc. 96-153, pt. I, at
626.
---------------------------------------------------------------------------
The balance-of-payments issue was revisited in the Omnibus
Trade and Competitiveness Act of 1988, which stated as one of
the principal negotiating objectives of the United States the
development of ``rules to address large and persistent global
current account imbalances of countries.'' \51\
---------------------------------------------------------------------------
\51\ Public Law 100-418, section 122(d)(4), section 1101(b)(5); 19
U.S.C. 2901(b)(5).
---------------------------------------------------------------------------
The Understanding on the Balance-of-Payments Provisions of
the General Agreements on Tariffs and Trade 1994 specifically
provides for (and gives preference to) ``price-based measures''
for balance-of-payments adjustments, including import
surcharges and deposit requirements, and limits the imposition
of new quantitative restrictions. The Understanding also
provides that preference should be given to those measures
which have the least disruptive effect on trade, and that
restrictive import measures taken for balance-of-payments
purposes may only be applied to control the general level of
imports, may not exceed what is necessary to address the
balance-of-payments situation, and must be applied in a
transparent manner. Finally, the Understanding sets forth
consultation procedures for the use of all restrictive import
measures taken for balance-of-payments purposes. Article XII of
the General Agreement on Trade in Services permits members to
adopt or maintain restrictions on trade in services in the
event of serious balance-of-payments and external financial
difficulties.\52\
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\52\ The United States prevailed in a WTO challenge to certain
import restrictions by India on more than 2,700 tariff items. The WTO
found that these restrictions were no longer justified under the
balance-of-payments exceptions. India agreed to remove all restrictions
by April 2001.
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Product Standards
U.S. policy regarding the application of standards and
certification procedures to imported products is based on the
Uruguay Round Agreement on Technical Barriers to Trade and its
U.S. implementing legislation as part of the Uruguay Round
Agreements Act,\53\ chapter 9 of the North American Free Trade
Agreement and its U.S. implementing legislation as part of the
North American Free Trade Agreement Implementation Act,\54\ and
the Agreement on Technical Barriers to Trade under the General
Agreement on Tariffs and Trade (GATT) and its U.S. implementing
legislation under title IV of the Trade Agreement Act of
1979.\55\
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\53\ Public Law 103-465, approved December 8, 1994.
\54\ Public Law 103-182, approved December 8, 1993.
\55\ Public Law 96-39, approved July 26, 1979, 19 U.S.C. 2531-2573.
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Differences in product standards, listing and approval
procedures, and certification systems often can impede trade
and can be manipulated to discriminate against imports. Imports
may be tested to determine whether they conform with domestic
standards under conditions more onerous than those applicable
to domestic products. Certification systems, which indicate
whether products conform to standards, may limit access for
imports or may discriminate by denying the right of a
certification mark on imported products. Prior to the 1979
Agreement, however, there was virtually no multilateral
cooperation or supervision to promote international
harmonization and to discourage nationalistic discriminatory
practices.
Agreement on Technical Barriers to Trade
The Agreement on Technical Barriers to Trade,\56\ commonly
referred to as the Standards Code, was one of the agreements on
non-tariff measures concluded during the 1973-1979 Tokyo Round
of GATT multilateral trade negotiations. The Code went into
force on January 1, 1980. The Code does not attempt to create
standards for individual products, or to set up specific
testing and certification systems. Rather, it establishes, for
the first time, international rules among governments
regulating the procedures by which standards and certification
systems are prepared, adopted and applied, and by which
products are tested for conformity with standards. The Code was
a major U.S. negotiating objective during the Tokyo Round,
particularly given the formation of a European regional
electrical certification system closed to outside suppliers.
---------------------------------------------------------------------------
\56\ MTN/NTM/W/192 Rev. 5, reprinted in House Doc. No. 96-153, pt.
I, at 211.
---------------------------------------------------------------------------
The Standards Code seeks to eliminate national product
standardization and testing practices and certification
procedures as barriers to trade among the signatory countries
and to encourage the use of open procedures in the adoption of
standards. At the same time, it does not limit the ability of
countries to reasonably protect the health, safety, security,
environment, or consumer interests of their citizens.
Generally, U.S. standards-setting processes have followed these
basic norms, whereas other countries' standards-related
activities have generally been closed to participation from
foreign countries; these signatories are obliged to change
their practices in order to comply with Code principles.
The Code's provisions are applicable to all products, both
agricultural and industrial. They are not applicable to
standards involving services, technical specifications included
in government procurement contracts, or standards established
by individual companies for their own use. The Code addresses
governmental and non-governmental standards, both voluntary and
mandatory, developed by central governments, state and local
governments, and private sector organizations. Only central
governments, however, are directly bound by Code obligations,
whereas regional, state, local, and private organizations are
subject to a second level of obligation whereby signatories
``shall take such reasonable measures as may be available to
them'' to ensure compliance.
The Code is prospective, applying to new and revised
standards-related activities. If a signatory country believes,
however, that an existing regulation developed and put into
effect before the Code came into force conflicts with the basic
tenets of the Code, then that signatory may use the Code's
dispute settlement mechanism to help resolve the problem.
The Standards Code contains the following key provisions
obligating signatories to follow several general principles
pertaining to standards-related activities:
(1) The most important and fundamental principle
obligates signatory governments not to develop,
intentionally or unintentionally, product standards,
technical regulations, or certification systems which
create unnecessary obstacles to foreign trade. The Code
recognizes nations' sovereign right to formulate
standards and certification systems to protect life,
health and environment, but such regulations should be
as least disruptive as possible to international trade.
(2) The second fundamental principle is that national
or regional certification systems are to grant access
to foreign or non-member signatory suppliers under
conditions no less favorable than those granted to
domestic or member country suppliers, a major change in
most signatory policies. Signatories can no longer
refuse to give their national certification marks to
imported products, provided that the imported products
fully meet the technical requirements of the
certification system. Also regional certification
bodies must be open to suppliers from all Code
signatories.
(3) Signatories must provide foreign imported
products the same treatment as domestic goods with
respect to standards, technical regulations, and
testing and certification procedures, i.e., an
extension of the national treatment provision of GATT
which prohibits discrimination against imported
products.
(4) When developing new or revising existing product
standards or technical regulations, governments are to
use existing or proposed international standards as the
basis where it is appropriate. Other signatories may
request an explanation if a government fails to follow
this principle.
(5) Whenever appropriate, signatories are encouraged
to specify technical regulations and standards in terms
of performance rather than design or descriptive
characteristics.
If a foreign product must be tested to determine whether it
meets domestic standards before it can be imported, the Code
provides a number of criteria that signatories are to follow to
ensure non-discriminatory treatment. For example, foreign goods
should not have to undergo costlier or more complex testing
than domestic products in comparable situations. In addition,
signatories are obligated to use the same methods and
administrative procedures on imported as well as domestic
goods. The Code does not obligate signatories to recognize test
results or certification marks from another country. It does,
however, encourage signatories to accept, whenever possible,
test results, certifications or marks of conformity from
foreign bodies, or self-certification from foreign producers
even when the test methods differ from their own, provided that
the importing country is satisfied that the exporting country's
products meet the required standards.
Another important element of the Standards Code is the
obligation of signatories to open up the process of developing
or applying standards and certification procedures to each
other. Governments must make available proposed mandatory or
voluntary standards and certification procedures for comment
during the drafting stage by other signatories before they
become final regulations. Each signatory government must
establish an inquiry point to respond to all reasonable
questions from other signatories concerning their central,
local, and state government standards and certification
procedures.
Finally, the Code establishes a Committee of Signatories
which meets periodically to oversee implementation and
administration of the Agreement, as well as to discuss any new
issues or problems which arise. The Committee may set up panels
of experts or working parties as required to conduct Committee
business or handle disputes.
Uruguay Round Agreement on Technical Barriers to Trade
As part of the Uruguay Round, the signatories built on
experience gained under the 1979 Standards Code in the
Agreement on Technical Barriers to Trade (TBT Agreement). Much
of the new Agreement restates, clarifies, or expands the 1979
Code.
The inclusion of the new Agreement as one of the WTO
agreements means that all WTO members will be automatically
bound by the Agreement, whereas a number of countries had
chosen not to join the Standards Code. In addition, the
Agreement will be enforceable through the WTO Dispute
Settlement Understanding, unlike the 1979 Code, which contained
a separate procedure limiting response to Code violations to
withdrawing concessions under the Code.
The new Agreement seeks to eliminate barriers in the form
of national product standardization and testing practices and
conformity assessment procedures. At the same time, it permits
signatories to protect the health, safety, security,
environment, or consumer interests of their citizens. Like the
1979 Code, the Agreement obligates signatories to take
reasonable measures to secure compliance by local government
and non-governmental bodies.
With respect to technical regulations, the Agreement
establishes rules covering the preparation, adoption, and
application of technical regulations. The Agreement specifies
that technical regulations are not to be more trade-restrictive
than necessary to fulfill a legitimate objective. A complaining
member must identify a specific alternative measure that is
reasonably available. In addition, each government is required
to review periodically its technical regulations in light of
the Agreement's requirements. Each government is to use
relevant international standards as a basis for technical
regulations, except where they would be an ineffective or
inappropriate means to fulfill the government's legitimate
objectives. The Agreement recognizes the concept of equivalency
between countries' technical regulations. It carries forward
the procedural requirements of the Code to assure transparency.
Finally, it reflects an expansion beyond the Code with respect
to the issuance of technical regulations by local and non-
governmental bodies. WTO members must provide notice of
technical regulations issued by local bodies at the next level
below central governments, and must take active measures in
support of observance by local government and non-governmental
bodies.
With respect to standards, central government bodies are
required to comply with the terms of the Code of Good Practice
for the Preparation, Adoption and Application of Standards.
Other standardizing bodies are not bound by the Code of Good
Practice, but each central government must take reasonable
measures to ensure their compliance.
The new Agreement updates and expands disciplines regarding
conformity assessment procedures. Whereas the 1979 Code applied
only to testing, the new Agreement applies to all aspects of
conformity assessment, including laboratory accreditation and
quality system registration. Central governments are required
to take reasonable measures to apply these same disciplines to
local governments and non-governmental bodies.
The Agreement on the Application of Sanitary and
Phytosanitary Measures (S&P Agreement) establishes a number of
general requirements and procedures to ensure that a sanitary
or phytosanitary measure is in fact to protect human, animal,
and plant life and health from risks of plant- or animal-borne
pests or diseases, or additives, contaminants, toxins, or
disease-causing organisms in foods, beverages, or feedstuffs.
While the TBT Agreement relies on a non-discrimination test,
the S&P Agreement relies on whether a measure has a basis in
science and is based on a risk assessment. Discrimination is
allowed as long as it is not arbitrary or unjustifiable.
The North American Free Trade Agreement
Chapter 9 of the NAFTA establishes rules on standards-
related measures among the United States, Mexico, and Canada.
The provisions are based on the text of the then-draft Uruguay
Round Agreement on Technical Barriers to Trade and the United
States-Canada Free-Trade Agreement. The rules apply only to
standards-related measures that may directly or indirectly
affect trade in goods or services between the NAFTA countries
and to measures taken by NAFTA countries concerning those
standards-related measures. In addition, chapter 7 of the NAFTA
covers sanitary and phytosanitary measures.
Title IV of the Trade Agreements Act of 1979, as amended
Congress approved the Agreement on Technical Barriers to
Trade under section 2 of the Trade Agreements Act of 1979.
Title IV of that Act implements the obligations of the
Standards Code in U.S. law.\57\ Since U.S. practices were
already in conformity with the Code, title IV did not amend,
repeal, or replace any existing law. It does ensure that
adequate structures exist within the federal government to
inform the U.S. private sector about the standards-related
activities of other nations, facilitate the ability of the
United States to comment on foreign standards-making and
certifications, and process domestic complaints on foreign
practices. Title IV was then amended to reflect U.S.
obligations under the Uruguay Round Agreement on Technical
Barriers to Trade and the NAFTA.
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\57\ 19 U.S.C. 2531-2573.
---------------------------------------------------------------------------
Section 402 of the 1979 Act requires all federal agencies
to abide by the above-described principles and provisions of
the Agreement. In addition, section 403 states the ``sense of
Congress'' that no State agency and no private person should
engage in any standards-related activity, i.e., development or
implementation of product standards or certification system,
that creates unnecessary obstacles to foreign trade, and
requires the President to ``take such reasonable measures as
may be available'' to promote their observance of Agreement
obligations.
The U.S. Trade Representative (USTR) is designated to
coordinate U.S. trade policies related to standards, and
discussions and negotiations with foreign countries on
standards issues, and to oversee implementation of the
Agreement. The Departments of Agriculture and Commerce are
required to work with the USTR on agricultural and non-
agricultural issues respectively and to establish technical
offices to fulfill a number of functions, particularly
supplying notices to interested parties of proposed foreign
government standards and receiving and transmitting private
sector comments. The Department of Commerce maintains the
National Center for Standards and Certification within the
National Bureau of Standards as the national inquiry point
required under the Code.
Title IV contains provisions concerning administrative and
judicial proceedings regarding standards-related activities. No
private rights of action are created by title IV; private
parties can petition the U.S. government to invoke provisions
of the Agreement against practices of other signatories.
Subtitle E sets forth governing standards and measures
under the NAFTA. Subtitle F contains provisions concerning U.S.
participation in international standardsetting activities.
Government Procurement
U.S. policy on government purchases of foreign goods and
services is based on the Buy American Act of 1933,\58\ the
multilateral Agreement on Government Procurement under the 1994
WTO and General Agreement on Tariffs and Trade (GATT), and its
implementing legislation under title III of the Trade
Agreements Act of 1979,\59\ as amended by the Uruguay Round
Agreements Act. The ``Buy American Act of 1988'' (title VII of
the Omnibus Trade and Competitiveness Act of 1988) \60\
established standards and procedures to prohibit procurement
from foreign countries whose governments discriminate against
U.S. products or services in awarding contracts. In addition,
separate provisions in appropriation acts and other legislation
apply more restrictive Buy American-type provisions on
particular types of purchases.
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\58\ Act of March 3, 1933, ch. 212, title III, 47 Stat. 1520, 41
U.S.C. 10a-10d.
\59\ Public Law 96-39, title III, approved July 26, 1979, 19 U.S.C.
2511-2518.
\60\ Public Law 100-418, title VII, approved August 23, 1988, 41
U.S.C. 10a note.
---------------------------------------------------------------------------
Governments are among the world's largest purchasers of
non-strategic goods. Most of this vast market has traditionally
been closed to foreign producers by means of formal and
informal administrative systems of national discrimination in
favor of domestic producers. Although U.S. preferences for
domestic suppliers are clearly set out by law and regulation,
other countries usually have achieved their discrimination by
highly invisible administrative practices and procedures.
Buy American Act
The Buy American Act of 1933, as implemented by Executive
Orders 10582 and 11051, requires the U.S. government to
purchase domestic goods and services unless the head of the
agency or department involved determines the prices of the
domestic supplies are ``unreasonable'' or their purchase would
be inconsistent with the U.S. public interest. Executive Order
10582, issued in 1954, states that if the domestic price of a
good or service is 6 percent or more above the foreign price,
then it is to be considered unreasonable and the foreign
product may be purchased. The order also permits agencies to
use a differential above 6 percent if it would serve the
national interest. The Department of Defense has been using a
50 percent differential since 1962 for its procurement, except
this differential is waived on military purchases under
reciprocal Memoranda of Understanding (MOUs) with NATO
countries. The order also indicated that a differential could
be applied in cases where a domestic bid generated employment
in a labor surplus area as designated by the Secretary of
Labor. No specific percentage was stated, but generally a 12
percent differential has been allowed for bids which benefit
economically distressed areas. These price differentials may be
waived under section 301(a) of the Trade Agreements Act of 1979
for articles covered by the GATT Agreement on Government
Procurement from signatory countries.
U.S.-made products are defined by law as those manufactured
in the United States substantially all from articles,
materials, or supplies mined, produced, or manufactured in the
United States. By regulations, ``substantially all'' has been
defined to mean that more than 50 percent of the component
costs of a product has been incurred in the United States.
1979 GATT Agreement on Government Procurement
The first Agreement on Government Procurement, also known
as the Government Procurement Code,\61\ was concluded as one of
the agreements on non-tariff measures during the 1975-1979
Tokyo Round of GATT multilateral trade negotiations. The Code
went into effect on January 1, 1981 and remained in force until
the 1994 WTO Agreement on Government Procurement went into
effect on January 1, 1996.
---------------------------------------------------------------------------
\61\ MTN/NTM/W/211/Rev. 2, reprinted in House Doc. No. 96-153, pt.
I, at 69.
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Because not all objectives were achieved in the original
Code and revisions might be necessary in light of actual
experience, the signatories agreed to renegotiations beginning
at the end of 1984 to broaden the coverage and improve the
operation of the Code. The GATT Committee on Government
Procurement completed the first phase of these renegotiations
in November 1986 with agreement (1) on a Protocol of Amendments
to improve the functioning of the Code, effective January 1,
1988; (2) to continue negotiations on increasing the number of
entities (government agencies) and procurements covered by the
Code, particularly in the sectors of telecommunications, heavy
electrical and transportation equipment; and (3) to continue to
work towards the coverage of service contracts under the Code.
The second phase of Code renegotiations began in February 1987
and continued in the context of the Uruguay Round of GATT
multilateral trade negotiations.
The 1979 Code is designed to discourage discrimination
against foreign suppliers at all stages of the procurement
process, from the determination of the characteristic of the
product to be purchased to tendering procedures, to contract
performance. The Code prescribes specific rules on the drafting
of the specifications for goods to be purchased, advertising of
prospective purchases, time allocated for the submission of the
bids, qualification of suppliers, opening and evaluation of
bids, awards of contracts, and on hearing and reviewing
protests.
Signatories must publish their procurement laws and
regulations and make them consistent with the Code rules.
Purchasing entities have discretion in their choice of
purchasing procedures, provided they extend equitable treatment
to all suppliers and allow the maximum degree of competition
possible.
Each government agency covered by the Code is required to
publish a notice of each proposed purchase in an appropriate
publication available to the public, and to provide all
suppliers with enough information to permit them to submit
responsive tenders. Losing bidders must be informed of all
awards and be provided upon request with pertinent information
concerning the reasons they were not selected and the name and
relative advantages of the winning bidder. Signatories must
also provide data on their procurements on an annual basis.
The adoption or use of technical specifications which act
to create unnecessary obstacles to international trade is
prohibited. The Code mandates the use, where appropriate, of
technical specifications based on performance rather than
design, and of specifications based on recognized national or
international standards.
While the Code does not prohibit the granting of an offset
or the requirement that technology be licensed as a condition
of award, signatories recognize that offsets and requirements
for licensing of technology should be limited and used in a
non-discriminatory way.
The Code is largely self-policing. Rules and procedures are
structured to help provide solutions to problems between
potential suppliers and procuring agencies. As a next step, the
Code provides for bilateral consultations between the procuring
government and the government of the aggrieved supplier. As a
last resort, the Code dispute settlement mechanism under the
Committee of Signatories provides for conciliation or
establishment of a fact-finding panel.
Coverage of the agreement
The Code applies solely to those agencies listed by each
signatory in an annex on contracts valued above a specific
minimum contract value expressed in terms of Special Drawing
Rights (SDR). The original Code established a threshold value
of 150,000 SDR; the 1988 Protocol of Amendments to the Code
lowered the minimum contract value to SDR 130,000.
The benefits of the Code apply to purchases of goods
originating in the territory of signatory countries. As a
result of the 1988 amendments, leasing contracts are also
subject to the Code. It does not apply to government services
except those incidental to the purchase of goods, construction
contracts, purchases by Ministries of Agriculture for farm
support programs or human feeding programs such as the U.S.
school lunch program. Procurements by state and local
governments, including those with federal funds such as under
the Surface Transportation Act, are not subject to the Code.
For the United States, the Code does not apply to the
Department of Transportation, the Department of Energy, the
Tennessee Valley Authority, the Corps of Engineers of the
Department of Defense, the Bureau of Reclamation of the
Department of the Interior, and the Automated Data and
Telecommunications Service of the General Services
Administration (GSA). In addition, government chartered
corporations which are not bound by the Buy American Act, such
as the U.S. Postal Service, COMSAT, AMTRAK, and CONRAIL, are
not covered.
United States Code coverage also does not apply to set-
aside programs reserving purchases for small and minority
businesses, prison and blind-made goods, or to the requirements
contained in Department of Defense and GSA Appropriations Acts
that certain products (i.e., textiles, clothing, shoes, food,
stainless steel flatware, certain specialty metals, buses, hand
tools, ships, and major ship components) be purchased only from
domestic sources.
On April 13, 1993, the United States and European Union
reached an agreement in Marrakesh under the GATT Government
Procurement Code to nearly double to $200 billion the bidding
opportunities available on a bilateral basis.
1994 WTO Agreement on Government Procurement
The 1994 Government Procurement Agreement negotiated in the
Uruguay Round makes important improvements in the Tokyo Round
Code, which required central government agencies in member
countries to observe non-discriminatory, fair, and transparent
procedures in the purchase of certain goods. The new Agreement
covers the procurement of both goods and services, including
construction services, and applies to purchases by subcentral
governments and government-owned enterprises, as well as
central governments.
In addition to improvements in coverage, the Agreement also
requires members to follow significantly improved procurement
procedures. It prohibits the use of offsets unless a country
specifically negotiates an exception to the Agreement in its
schedule. The Agreement requires the establishment of a
domestic bid challenge system and introduces added flexibility
to accommodate advances in procurement techniques.
The Agreement allows each signatory to negotiate coverage
on a reciprocal, bilateral basis with the other signatories.
The United States concluded comprehensive coverage packages
with several countries. The United States will apply the new
Agreement to specified U.S. subcentral governments and
government-owned entities only for those countries that opened
their government procurement markets in sectors of high
priority to the United States, although it may expand coverage
with other signatories in the future.
The Agreement applies to purchases by government entities
above certain special drawing right (SDR) thresholds:
Central government purchases
Goods and services: 130,000 SDRs ($182,000)
Construction services: 5 million SDRs ($7
million)
Subcentral government purchases
Goods and services, U.S. and Canada: 355,000
SDRs ($500,000)
Goods and services, other: 200,000 SDRs
($280,000)
Construction services, Japan and Korea: 15
million SDRs ($21 million)
Construction services, other: 5 million SDRs
($7 million)
Government-owned enterprise purchases
Goods and services, U.S. federally-funded
utilities: $250,000
Goods and services, other: 400,000 SDRs
($560,000)
Construction services, Japan and Korea: 15
million SDRs ($21 million)
Construction services, other: 5 million SDRs
($7 million)
During the negotiations, each signatory negotiated the
exclusion of certain procurement from the obligations imposed
by the new Agreement. In the case of the United States, these
exclusions carry forward those in the U.S. schedule to the 1979
Code. In addition, certain states excluded specified
procurement, and set-asides on behalf of small and minority
businesses are also excluded. The 1994 Agreement applies to all
U.S. executive branch agencies with certain exceptions,
including the Federal Aviation Administration.
Signatories to the 1996 Code include the following members
of the 1979 Code--Austria, Belgium, Canada, Denmark, European
Communities, Finland, France, Germany, Greece, Hong Kong,
Iceland, Ireland, Israel, Italy, Japan, Korea, Liechtenstein,
Luxembourg, Netherlands, Netherlans with respect to Aruba,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United
Kingdom, and the United States. The United States terminated
its participation in the 1979 Code on the entry into force of
the 1996 Code.
The North American Free Trade Agreement
The NAFTA signatories agreed to eliminate buy national
restrictions on the majority of non-defense related purchases
by their federal governments of goods and services provided by
firms in North America. The Agreement marked the first time
that Mexico had committed to eliminate discriminatory
government procurement practices.
The Agreement applies only to purchases above a specified
threshold:
(1) Purchases of goods over $25,000 by U.S. federal
agencies from Canadian suppliers and vice versa;
(2) For other federal government procurement in the
three countries, purchases of goods and services over
$50,000 and purchases of construction services over
$6.5 million; and
(3) For federal government-owned enterprises,
purchases of goods and services over $250,000 and
purchases of construction services over $8 million.
The Agreement does not apply to certain kinds of purchases
by the U.S. government including purchases under small or
minority business set-aside programs, certain national
security, agriculture, and Agency for International Development
procurements, and procurements by state and local governments.
Title III of the Trade Agreements Act of 1979, as amended
Congress approved the first Agreement on Government
Procurement under section 2 of the Trade Agreements Act of 1979
and amended that statute in the Uruguay Round and NAFTA
implementing bills to reflect U.S. obligations under those
agreements. Title III of that Act implements the obligations of
the Code in U.S. law with respect to purchases by covered
government entities.\62\
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\62\ 19 U.S.C. 2511-2518.
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Executive Order 12260, issued on December 31, 1980,
requires all U.S. government agencies covered by the Code to
observe its provisions. Section 301 of the 1979 Act authorizes
the President to waive the application of discriminatory
government procurement law, such as the Buy American Act, and
labor surplus set-asides that are not for a small business. The
waiver authority applies only to purchases covered by the Code
and only to foreign countries designated by the President that
meet one of four statutory conditions basically requiring the
country to provide appropriate reciprocal, competitive
government procurement opportunities to U.S. products and
suppliers, unless the country is a least developed country.
Buy American Act preferences still apply to contracts below
the SDR threshold, purchases by non-covered entities, and
procurement from countries not eligible for a waiver regardless
of contract size. Special Buy American-type restrictions under
other laws (e.g., small business set asides, required domestic
sourcing of particular goods) are also not affected.
Section 302 of the 1979 Act, as amended, is designed to
encourage other countries to participate in the Code and
provide appropriate reciprocal competitive opportunities. For
this purpose, the President is required, after the date on
which any waiver first takes effect, to prohibit the
procurement of products otherwise covered by the Code from non-
designated countries. The President may, however, (1) waive the
prohibition on procurement of products by a foreign country or
instrumentality that has not yet become a party to the
Agreement but has agreed to apply transparent and competitive
procedures to its government procurement equivalent to those in
the Agreement and to maintain and enforce effective
prohibitions on bribery and other corrupt practices in
connection with government procurement; (2) authorize agency
heads to waive prohibitions on a case-by-case basis when in the
national interest; and (3) authorize the Secretary of Defense
to waive the prohibition for products of any country which
enters into a reciprocal procurement agreement with the
Department of Defense. All such waivers are subject to
interagency review and general policy guidance.
Section 303 authorizes the President to waive as of January
1, 1980 the application of the Buy American Act for purchases
by any government entity of civil aircraft and related articles
irrespective of value from countries party to the GATT
Agreement on Trade in Civil Aircraft.
Section 304 sets forth negotiating objectives in
conjunction with the renegotiation of the Code within 3 years
to improve its operation and broaden the coverage. This
negotiation is ongoing. The President is directed to seek more
open and equitable foreign market access and the harmonization,
reduction, or elimination of devices distorting government
procurement trade. The President must also seek equivalent
competitive opportunities in developed countries for U.S.
exports in appropriate product sectors as the United States
affords their products, such as in the heavy electrical,
telecommunications, and transport equipment sectors. The
President must report to the committees of jurisdiction during
the renegotiations if he determines they are not progressing
satisfactorily and are not likely to result within 12 months in
expanded agreement coverage of principal developed country
purchasers in appropriate product sectors. The President is
also directed to indicate appropriate actions to seek sector
reciprocity with such countries in government procurement, and
may recommend legislation to prohibit procurement by entities
not covered by the Code from such countries.
Title III of the 1979 Act, as amended, also contains a
number of reporting requirements to the Congress on various
aspects of the Code and its economic impact and implementation.
Title VII of the Omnibus Trade and Competitiveness Act of 1988, as
amended
Background
Title VII of the Omnibus Trade and Competitiveness Act of
1988 (``Buy American Act of 1988'') \63\ as amended by the
Uruguay Round Agreements Act, amended both the Buy American Act
of 1933 and title III of the Trade Agreements Act of 1979 to
address discrimination by foreign governments in the
procurement of U.S. products or services. Title VII statutory
authority ceased to be effective on April 30, 1996. On March
31, 1999, President Clinton issued Executive Order 13116, which
reinstituted Title VII procedures.
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\63\ 41 U.S.C. 10a note.
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Title VII prohibits U.S. government procurement of products
and services from certain parties, including (1) signatories
``not in good standing'' to the Agreement; (2) signatories in
good standing that discriminate against U.S. firms in their
government procurement of products or services not covered by
the Agreement; and (3) non-signatories to the Agreement whose
governments discriminate against U.S. products or services in
their procurement.
In the case of countries that discriminate on procurement
not covered by the Agreement, prohibitions are to be imposed
when a foreign government maintains a significant and
persistent pattern or practice of discrimination against
procurement of U.S. products or services that results in
identifiable harm to U.S. business. In cases of signatories to
the Agreement, federal agencies would be prohibited from
procuring only non-Agreement covered products from these
countries unless that country has also been designated as a
country ``not in good standing.''
Least developed countries are exempt from the procurement
prohibition, as are products and services procured and used by
the federal government outside the United States and its
territories. A prohibition may also be waived, on a contract-
by-contract or class of contracts basis, when in the public
interest or to avoid the creation of a monopoly situation. The
President or head of a federal agency may also authorize the
award of a contract or class of contracts, notwithstanding a
prohibition, if insufficient competition exists to assure the
procurement of products or services of requisite quality at
competitive prices. Normally the Congress must be notified at
least 30 days before the prohibition is waived on a contract or
class of contract.
The President must submit to appropriate congressional
committees, by April 30 each year, a report on the extent to
which countries discriminate against U.S. products or services
in making government procurements. The report must identify (1)
signatories to the Agreement that are not in compliance with
its requirements; (2) signatories to the Agreement whose
products and services are acquired in significant amounts by
the U.S. government, who are in compliance with the Agreement,
but maintain a significant and persistent pattern or practice
of discrimination in the government procurement of products and
services not covered by the Agreement which results in
identifiable harm to U.S. businesses; (3) non-signatories to
the Agreement whose products or services are acquired in
significant amounts by the U.S. government and who maintain in
their government procurement a significant and persistent
pattern or practice of discrimination which results in
identifiable harm to U.S. businesses; (4) non-signatories to
the Agreement, which fail to apply transparent and competitive
procedures equivalent to those in the Agreement, and whose
products and services are required in significant amounts by
the U.S. government; and (5) non-signatories to the Agreement
which fail to maintain and enforce effective prohibitions on
bribery and other corrupt practices in connection with
government procurement, and whose products and services are
required in significant amounts by the U.S. government. The law
requires the President to take into account a number of
specific factors in identifying countries and to describe the
practices and their impact in the annual report.
By the date the annual report is submitted, the U.S. Trade
Representative (USTR) must request consultations with any
identified country, unless that country was also identified in
the preceding annual report. If the country is a signatory
identified as not in compliance with the Agreement and does not
comply within 60 days after the annual report is issued, the
USTR must request formal dispute settlement proceedings under
the Agreement, unless they are already underway pursuant to a
previous identification. If dispute settlement is not concluded
within 18 months or has concluded and the country has not taken
action required as a result of the procedures to the
satisfaction of the President, the country is considered ``not
in good standing'' and the President is required to revoke the
waiver of Buy American restrictions granted under the Trade
Agreements Act of 1979, as amended. The President will not
limit procurement from the foreign country if, before the end
of 18 months following initiation of dispute settlement, the
country has complied with the Agreement, has taken action
recommended as a result of the procedures to the satisfaction
of the President, or the procedures result in a determination
requiring no action by the country. The President may also
terminate the sanctions and reinstate a waiver at any time
under such circumstances.
Within 60 days after the annual report is issued, the
President must impose the procurement prohibition on any
country identified as discriminating on procurements not
covered by the Agreement and which has not eliminated its
discriminatory procurement practices. The President may
terminate the sanctions at such time as he determines the
country has eliminated the discrimination.
With respect to either category of countries, if the
President determines that imposing or continuing the sanctions
would harm the U.S. public interest, the President may modify
or restrict the application of the sanctions to the extent
necessary to impose appropriate limitations that are equivalent
in their effect to the discrimination against U.S. products or
services in government procurement by that country. The
President also cannot impose sanctions if it would (1) limit
U.S. government procurement to, or create a preference for,
products or services of a single supplier; or (2) create a
situation where there could be or are an insufficient number of
actual or potential bidders to assure U.S. government
procurement of goods or services of requisite quality at
competitive prices.
By April 30 of each year, the President must submit to the
Congress a general report on actions taken under title VII,
including an evaluation of the adequacy and effectiveness of
such actions as a means toward eliminating foreign
discriminatory government procurement practices against U.S.
businesses and, if appropriate, legislative recommendations for
enhancing the usefulness of title VII or any other measures to
eliminate or respond to foreign discriminatory foreign
procurement practices.
History of actions under title VII
In its first report on April 27, 1990, the U.S. Trade
Representative determined that no country met the statutory
criteria under title VII. Seven procurement markets of
particular significance to U.S. suppliers were identified for
close review over the following year before the 1991 report:
the European Community (EC), the Federal Republic of Germany,
France, Italy, Greece, Japan, and Australia.
In its second annual report on April 26, 1991, the USTR
identified Norway as meeting the statutory requirements for
identification as a country in violation of its obligations
under the GATT Government Procurement Agreement when it awarded
a sole source contract for an electronic toll booth collection
system for the city of Trondheim. The report also announced
that while some progress was made with the EC on non-Code-
covered government procurement in the telecommunications
equipment and heavy electrical equipment sectors, an early
review would be conducted of the practices of the EC, Germany,
France, and Italy in these areas in January 1992 if U.S.
concerns had not been addressed. Procurement practices of
Greece, Australia, and Japan were also identified for further
monitoring.
In its February 21, 1992 report on the ``early review,''
the USTR found that the EC met the requirements for
identification under title VII with respect to discriminatory
procurement practices of government-owned telecommunications
and electrical utilities in certain of its member states.
Specifically, the report cited the EC's September 1990
``Utilities Directive,'' scheduled to go into effect by January
1, 1993, establishing procurement rules for all EC
telecommunications and heavy electrical utilities requiring
them to favor EC goods and services over those of the United
States and other foreign countries, subject to waiver if a
negotiated market access agreement, such as a new GATT
Government Procurement Code, were reached with other countries.
The report stated the President's intention to implement
appropriate sanctions by January 1993 if ongoing negotiations
with the EC were not successful in resolving U.S. concerns,
subject to EC implementation of the discriminatory provisions
of its Utilities Directive. On April 22, at the conclusion of
the consultation period provided under title VII, the President
reaffirmed the identification of the EC, but announced that the
statutory sanctions would be modified.
The third annual report on April 29, 1993 continued the
identification of Norway for the same practice and stated that
dispute settlement proceedings were expected to conclude in the
near future. The report also reaffirmed the President's
intention with respect to the EC and cited certain procurement
markets in Australia, Japan, and China for further monitoring.
The fourth annual report on April 30, 1993, identified
Japan for discrimination in procurement of construction,
architectural and engineering services. The report continued
the identification of the EC pending EC Council of Ministers
approval of an agreement on heavy electrical equipment and
because the EC did not agree to waive the Utilities Directive
for telecommunications equipment. Since no agreement had been
reached on telecommunications discrimination, the United States
would proceed to impose title VII sanctions. Actions of other
countries which have agreements with the EC that may require
implementation of the discriminatory provisions of the EC
Utilities Directive would also be monitored. Procurement
practices falling short of statutory requirements for
identification were noted of continuing concern in Australia,
China, and Japan. On May 28, 1993, the United States imposed
sanctions. Effective March 10, 1994, USTR terminated those
sanctions with respect to the Federal Republic of Germany on
the basis of assurances that it would not apply the
discriminatory provisions of the Utilities Directive to
procurement of U.S. goods by its telecommunications utilities.
On January 19, 1994, USTR announced the termination of
sanctions, scheduled to go into effect on January 20, on the
basis of an announcement by Japan of an action plan to reform
its public sector construction market.
On April 30, 1994, USTR annunced that sanctions imposed
against the European Union (EU) on May 28, 1993 for
discrimination in the telecommunications sector would remain in
force since the United States and EU could not reach agreement
as part of the overall U.S.-EU agreement reached on April 13
under the GATT Government Procurement Code.
As a result of some progress towards resuming negotiations
on telecommunications and medical technology government
procurement, Japan was not identified in the fifth annual
report, subject to review within 60 days on the basis of
Japanese actions in the interim. The report also described
concerns with procurement practices of Australia, China, and
Brazil, and in the Japanese supercomputer and computer sectors.
On June 30, 1994, the USTR announced the postponement until
not later than July 31 of the decision on whether to identify
Japan for its discriminatory procurement practices in the
telecommunications and medical technology sectors because of
intensive negotiations underway on these priority sectors
identified under the July 1993 U.S.-Japan Framework Agreement.
On July 31, the USTR announced the identification of Japan and
commencement of the title VII 60-day consultation and
negotiation period as a result of Japan's failure to address
sufficiently discrimination in the two sectors. On October 4,
1994, the USTR determined that sanctions scheduled to go into
effect on Japanese goods and services should be terminated as
the result of an agreement between the United States and Japan.
On April 29, 1995, the USTR announced no new
identifications with respect to title VII but highlighted
several areas as deserving special attention. First, the USTR
pointed to the issue of corruption in foreign procurement and
lack of transparency in procurement procedures. Second, the
USTR intends to monitor German implementation of the 1993 U.S.-
EU Memorandum of Understanding (MOU) on Government Procurement.
Third, the United States will monitor Japanese compliance with
the agreements on telecommunications and medical technology to
assure tangible progress. Moreover, the USTR announced that the
report will include information on the procurement practices of
Australia, Brazil, and China, in addition to Japanese
procurement practices in the supercomputers and computers
sectors. Finally, the USTR noted that the sanctions first
applied in 1993 against the EU for discrimination in the
telecommunications sector continue and are being extended to
the three new member states--Austria, Finland, and Sweden.
On April 30, 1996, the USTR identified Germany for
discrimination in the heavy electrical equipment sector and its
failure to adequately implement its obligations under the U.S.-
EU MOU on Government Procurement. Effective January 1, 1996,
the U.S.-EU commitments under the 1993 MOU were incorporated
into the World Trade Organization Government Procurement
Agreement (WTO GPA) and the MOU expired. The Administration
expressed concern that the inadequacies of Germany's
implementation of the MOU might carry over into its
implementation of the WTO GPA. At the end of a 90-day
consultation period, the USTR announced on October 1, 1996,
that Germany had agreed to take steps that would effectively
ensure open competition in the German heavy electrical
equipment market. Title VII action was not terminated but the
imposition of sanctions was further delayed pending passage of
a satisfactory legislative reform package expected within one
year.
USTR also noted in the 1996 report that the Administration
received no comments on specific cases or practices of bribery
and corruption for the second year since amendments under the
1994 Uruguay Round Agreement Act added bribery and corruption
as a category for identification. Noting that many U.S. firms
do not come forward publicly with cases of bribery and
corruption influencing contract awards for fear of commercial
backlash in future contracts, the Administration stated its
intention to continue working toward the establishment of
multilateral mechanisms for eliminating bribery and corruption
in government procurement.\64\ Finally, the report describes
the Administration's concerns with the procurement practices of
Australia, Brazil and China, as well as its concern with
Japan's procurement practices in the areas of public works
building, supercomputers and computers.
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\64\ On May 1, 1998, President Clinton transmitted to Congress the
Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions, adopted on November 21, 1997,
under the auspices of the Organization for Economic Cooperation and
Development. The Senate ratified the Convention on July 31, 1998.
---------------------------------------------------------------------------
On March 31, 1999, President Clinton issued Executive Order
13116, which reinstituted the procedures of Title VII after
their lapse on April 30, 1996. On May 12, 1999, USTR issued its
Title VII report, determining not to identify any new countries
under Title VII because the practices of concern were either
being addressed under another trade dispute mechanism, did not
meet the criteria for identification, or were already under
scrutiny as a result of previous identifications. The
Administration also noted that the United States would move
forward with WTO dispute settlement proceedings to challenge
Korea's government procurement practices in the construction of
Inchon International Airport. Two Title VII determinations
remained outstanding from prior reviews: the 1992
identification of the EU for discriminatory procurement
practices of government-owned telecommunications entities in
certain member states; and 1996 identification of Germany for
discrimination in the heavy electrical sector.\65\
---------------------------------------------------------------------------
\65\ 64 FR 25525 (May 12, 1999).
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On May 8, 2000, USTR issued its annual report, determining
again that no new practices met the criteria for Title VII
identification. USTR noted, however, that as in previous years,
there remain a number of foreign government procurement
practices of concern which the Administration is pursuing in
bilateral and multilateral fora, including WTO dispute
settlement when appropriate, or that require continued
monitoring and study. USTR also determined to terminate the
1996 identification of Germany for discrimination in the heavy
electrical sector, based on Germany's implementation of new
legislation that appears to effectively address U.S. concerns.
However, USTR's identification of the EU for discriminatory
procurement practices of government-owned telecommunications
entities in certain member states remains outstanding.\66\
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\66\ 65 FR 26652 (May 8, 2000).
Chapter 4: LAWS REGULATING EXPORT ACTIVITIES
Export Controls
Background
Through statute, Congress has authorized the President to
control the export of various commodities. The three most
significant programs for controlling different types of exports
deal with nuclear materials and technology, defense articles
and services, and non-military dual-use goods and technology.
Under each program, licenses of various types are required
before an export can be undertaken. The Nuclear Regulatory
Commission is responsible for the licensing of nuclear
materials and technology under the Atomic Energy Act. The
Department of State is responsible for the licensing of exports
of defense articles and services and maintains the Munitions
Control List under the Arms Export Control Act.
Export licensing requirements for most commercial goods and
technical data are authorized by the Export Administration Act
under the jurisdiction of the Bureau of Export Administration
in the Department of Commerce. The three basic purposes of
export controls are to protect the national security, to
further U.S. foreign policy interests, and to protect
commodities in short supply. The Secretary of Defense is
authorized to review certain applications for national security
purposes while the Secretary of State reviews specified license
applications for foreign policy purposes.
The export of goods or technical data subject to the
commodity control list (CCL) must be authorized by licenses
(either individual validated licenses or bulk licenses
authorizing multiple shipments) which are granted on the basis
of such factors as intended end-use and the probability and
likely effect of diversion to military use. Exports and
reexports from a foreign country of U.S.-origin commodities and
technical data or of foreign products containing U.S.-origin
components or technology are also regulated. There are seven
countries for which shipment of almost all commodities requires
a license for export: Iran, Iraq, Libya, Serbia, Sudan, North
Korea, and Cuba.
The foreign policy export control authority was used by
President Carter to embargo the export of grain to the Soviet
Union after the 1979 Soviet invasion of Afghanistan. President
Reagan used it again in 1981 until late 1983, following the
imposition of martial law in Poland, to embargo sales by U.S.
firms and their foreign subsidiaries of oil and gas
transmission and refining commodities and technology for use by
the Soviet Union on its natural gas pipeline to Western Europe.
Crime control and detection instruments and equipment are
subject to control for foreign policy reasons to countries
which may engage in persistent gross violations of human
rights. Certain other goods and technology are controlled to
five countries (Libya, Iran, Syria, South Yemen, and Cuba) due
to their repeated support of international terrorism.
Sanctions against international terrorism were enacted as
amendments to the Export Administration Act of 1979 under the
Anti-Terrorism and Arms Export Amendments Act of 1989 \1\ and
the National Defense Authorization Act for Fiscal Year 1991.\2\
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\1\ Public Law 101-222, section 4, approved December 12, 1989.
\2\ Public Law 101-510, section 1702, approved November 5, 1990.
---------------------------------------------------------------------------
The short supply control authority was used to help control
raw materials prices during the Korean conflict. In 1973
President Nixon prohibited soybean exports as a response to
rapidly increasing prices. The export of crude oil carried on
the Trans-Alaska Pipeline is prohibited. Exports of crude oil
and refined and unprocessed western red cedar harvested from
federal or state lands are subject to validated licensing
requirements.
The U.S. government has employed export controls
continuously since 1940. The first controls were imposed to
avoid or mitigate the scarcity of various critical commodities
during World War II and to assure their equitable distribution
within the U.S. economy and to U.S. allies. Export controls
were expected to terminate after shortages created by World War
II were substantially eliminated. However, the cold war led to
enactment of the Export Control Act of 1949, designed to
control all U.S. exports to Communist countries.
The Export Control Act of 1949 provided for the control of
items in short supply, for controls to further U.S. foreign
policy goals, and for the examination of exports to Communist
countries which might have military application. The 1949 Act,
amended and extended as appropriate, remained in effect for 20
years. The 1949 Act was then replaced by the Export
Administration Act of 1969, which was in turn replaced by the
Export Administration Act of 1979.
The 1969 Act maintained the basic export control system set
up by the Export Control Act, but called for a removal of
controls on goods and technologies that were freely available
from foreign sources and that were only marginally of military
value. The 1969 Act was amended in 1972, 1974, and 1977.
A significant expansion of controls was brought about in
1977 when Congress amended the 1969 Act to authorize the
control of goods and technology exported by any person subject
to the jurisdiction of the United States, thus permitting the
Department of Commerce to exercise control over foreign-origin
goods and technical data reexported by U.S.-owned or U.S.-
controlled companies abroad. Anti-boycott policies (originally
established by Congress in 1965) were also substantially
strengthened in 1977.
Export Administration Act of 1979
The Export Administration Act of 1979 \3\ as reauthorized
and amended in 1985 and 1988 replaced the 1969 Act as amended,
which expired on September 30, 1979. The 1979 Act provides the
broad and primary authority for controlling the export from the
United States to potential adversary nations of civilian goods
and technology which could contribute significantly to the
military capability of controlled countries (consisting of
Communist countries, as defined in section 620(f) of the
Foreign Assistance Act of 1961) if diverted to military
application (national security controls under section 5). Like
the previous law, the 1979 Act also authorized the President to
impose export controls for foreign policy reasons or to fulfill
international obligations (foreign policy controls under
section 6) and to protect the domestic economy from an
excessive drain of scarce materials and to reduce the
inflationary impact of foreign demand (short supply controls
under section 7). The Act also continues the 1977 anti-boycott
program (section 8) which prohibits U.S. persons from taking
action with the intent to comply with, further, or support any
foreign country boycott against any country friendly to the
United States (primarily Arab states against Israel).
---------------------------------------------------------------------------
\3\ Public Law 96-72, as amended by P.L. 96-533, P.L. 97-145, P.L.
98-108, P.L. 98-207, P.L. 98-222, P.L. 99-64, P.L. 99-399, P.L. 99-441,
P.L. 99-633, P.L. 100-180, P.L. 100-418, P.L. 100-449, P.L. 101-222,
and P.L. 101-510, 50 U.S.C. App. 2401.
---------------------------------------------------------------------------
In its 1979 review of the Export Administration Act of
1969, the Congress made substantial changes in the statute.
Separate and distinct procedures and criteria were established
for imposing national security and foreign policy controls.
Precise time deadlines were set for the processing of export
license applications. Development of a ``militarily critical
technologies list'' (MCTL) was mandated, both as a means of
reviewing the adequacy and focus of the existing commodity
control list of categories of goods and technologies subject to
Commerce export controls, and as a possible means of arriving
at a more limited control list containing only the most
militarily significant technologies. Foreign availability of
goods controlled by the United States was, for the first time,
made a factor in decisions to license such items for export.
The Act also formally authorized U.S. participation in the
informal multilateral export control body known as COCOM
(Coordinating Committee on Multilateral Export Controls) in
which the NATO countries (with the exception of Iceland) and
Japan also participate. Since 1950, COCOM has attempted to
coordinate the export control policies of the Western allies
with respect to Communist countries. Representatives of the
participating governments meet periodically to set guidelines
for controls on exports to Communist countries. The 1979 Act
directed the President to negotiate with other COCOM
governments in an effort to reach agreement on reducing the
scope of export controls, holding periodic high-level meetings
on COCOM policy, publishing the list of items controlled by
COCOM, and introducing more effective procedures for enforcing
COCOM export controls.
The 1979 Act authorized the administration of export
controls until September 30, 1983. The Act was extended
temporarily three times during the 98th Congress, through
October 15, 1983, subsequently through February 28, 1984, and
finally until March 30, 1984,\4\ while the Congress considered
proposals for major changes in the law. During the lapses in
authority in 1983 and after the 1979 Act terminated on March
30, 1984, and House-Senate differences could not be resolved
prior to congressional adjournment on October 12, 1985, the
President administered export controls under the authority of
the International Emergency Economic Powers Act and Executive
Order 12470 of March 30, 1984, as an interim method of control
until new authority could be passed by Congress. The Export
Administration Amendments Act of 1985 \5\ which reauthorized
the 1979 Act for 4 years until September 30, 1989, with
comprehensive amendments, was enacted on July 12, 1985.
---------------------------------------------------------------------------
\4\ Public Law 98-108, approved October 1, 1983; Public Law 98-207,
approved December 5, 1983; Public Law 98-222, approved February 29,
1984.
\5\ Public Law 99-64.
---------------------------------------------------------------------------
Export Administration Amendments Act of 1985
The 1985 Act left intact the basic structure of U.S.
national security, foreign policy, and short-supply export
controls. The main goals of the 1985 Act were to improve U.S.
export competitiveness and to promote national security
interests through stricter controls and better enforcement.
Increased U.S. competitiveness was to be achieved by easing
the total licensing burden on U.S. businesses. Export licensing
requirements were eliminated in the case of certain relatively
low-technology items, and the Secretary of Commerce was
directed to review and revise the commodity control list at
least once a year. The approval process for license
applications was to be streamlined as well. The 1985 amendments
also addressed the issue of foreign availability by specifying
a process to provide for the review and decontrol of goods
found to be widely available and unable to be brought under
control.
The promotion of national security interests was to be
achieved by providing stricter controls for the export of
critical items and strengthening the enforcement of U.S. export
controls. The 1985 Act required the United States to undertake
negotiations with COCOM countries to achieve greater
coordination and compliance with multilateral controls, fewer
exceptions to the control list, and strengthened and uniform
enforcement. It created new criminal offenses against illegal
diversions and added to the broad range of sanctions against
violators of U.S. export controls.
The Act also restrained the President's authority to impose
new foreign policy export controls, particularly to embargo
agricultural exports. Additional requirements for consultations
with industry and Congress prior to the imposition of foreign
policy controls and greater attention to specified criteria,
including the foreign availability of competing products, are
to be considered prior to decisons to extend, expand, or impose
export controls.
The 1985 Act also imposed limitations on, but did not
entirely eliminate, the discretion of the President to impose
foreign policy controls on exports subject to existing
contracts. The Act prohibits controls on exports of goods or
technology under existing contracts except where the President
determines and certifies to the Congress that a breach of the
peace poses a serious and direct threat to U.S. strategic
interests and the prohibition or curtailment of such contracts
would be instrumental in remedying the situation posing the
direct threat.
The Act set forth stiffer penalties for violators and
granted new powers for enforcement to the Department of
Commerce and the U.S. Customs Service and clarified the
respective roles of these agencies. Commerce retained the
primary responsibility for licensing and domestic enforcement
whereas Customs was given primary responsibility for
enforcement at all U.S. ports of exit and entry as well as all
enforcement responsibility overseas. The legislation itself was
silent on the controversial issue of the role and authority of
the Department of Defense in reviewing export license
applications for U.S. shipments to Western nations.
The Act created a new Under Secretary of Export
Administration and two Assistant Secretaries in the Department
of Commerce and a new National Security Council Office in the
Department of Defense. Congress also directed that an Office of
Foreign Availability be established in the Department of
Commerce.
Omnibus Trade and Competitiveness Act of 1988
Congressional dissatisfaction with the implementation of
the Export Administration Amendments Act of 1985 led to the
introduction of new legislation during both the 99th and 100th
Congresses. The Omnibus Trade and Competitiveness Act of 1988
\6\ contained major revisions of the Export Administration Act
of 1979. Like the 1985 amendments, the 1988 Act emphasized the
reduction of export disincentives and the strengthening of
export enforcement. A clarification of the dispute resolution
process was also a part of the Act. The authorization date for
the Export Administration Act was extended by 1 year to
September 30, 1990.
---------------------------------------------------------------------------
\6\ Public Law 100-418, title II, subtitle D, approved August 23,
1988.
---------------------------------------------------------------------------
The 1988 Act provided for the reduction of export
disincentives through a streamlining of licensing requirements,
control list reduction, and improved procedures for making
foreign availability determinations. The 1988 Act also provided
for the use of distribution licenses for multiple exports to
the People's Republic of China.
The 1988 Act provided for stronger enforcement of U.S. and
multilateral export controls.
In the case of persons convicted of violations of the
Export Administration Act of 1979 or the International
Emergency Economic Powers Act,\7\ the Department of Commerce
was authorized to bar such persons from applying for or using
export licenses. Such authority was also extended to parties
related through affiliation, ownership, control, or position of
responsibility to any person convicted of violations.
---------------------------------------------------------------------------
\7\ Public Law 95-223, approved December 28, 1977.
---------------------------------------------------------------------------
In response to the sale by Toshiba Machine Company of Japan
and Kongsberg Trading Company of Norway of advanced milling
machinery to the Soviet Union, the Congress passed the
Multilateral Export Control Enhancement Amendments Act.\8\
Section 2443 of that Act requires the President to impose, for
a period of 3 years, a ban on U.S. government contracting with
and procurement from the two cited companies and their parent
companies. That section also required the President to prohibit
the importation of all products produced by Toshiba Machine
Company and Kongsberg Trading Company for a period of 3 years.
The sanctions required by section 2443 were imposed by
President Reagan on December 27, 1988 \9\ and remained in
effect until December 28, 1991.
---------------------------------------------------------------------------
\8\ Public Law 100-418, sections 2441-2447, approved August 23,
1988.
\9\ Executive Order 12661, dated December 27, 1988; ``Implementing
the Omnibus Trade and Competitiveness Act of 1988 and Related
International Trade Matters.''
---------------------------------------------------------------------------
The Export Administration Act of 1979 expired on September
30, 1990. The 101st Congress passed legislation (H.R. 4653) to
reauthorize the Act, but the President exercised a pocket-veto
in November 1990. During the 102d Congress, the House and
Senate passed bills and produced a conference report
reauthorizing the Export Administration Act of 1979. The
conference report failed to be considered before the 102d
Congress adjourned sine die. Since September 30, 1990, the
President exercised the authorities provided in the
International Emergency Economic Powers Act to continue in
effect the existing system of export controls.
During the 103d Congress, the Export Administration Act was
extended twice. On March 27, 1994, Public Law 103-10, the
Export Administration Fiscal Year 1994 Authorization bill,
extended the Act through June 30, 1994.\10\ Public Law 103-277
provided for an additional extension until August 20, 1994 as
discussions between the Administration and the Congress
continued on revisions to the Act.\11\ Because the Congress did
not take final action on a revised Export Administration Act
before the close of the session, the President once again used
the International Emergency Economic Powers Act authorities to
continue the existing export control system. On August 19,
1994, President Clinton issued an executive order continuing
the export control regulations provided under the Act.\12\ The
President announced a continuation of the emergency on August
15, 1995 (60 Fed. Reg. 42,767) and again on August 14, 1996 (61
Fed. Reg. 42,527).
---------------------------------------------------------------------------
\10\ Public Law 103-10, approved March 27, 1994.
\11\ Public Law 103-277, approved July 5, 1994.
\12\ Executive Order 12924, dated August 19, 1994; ``Continuation
of Export Control Regulations.''
---------------------------------------------------------------------------
The President continued the national emergency on August
13, 1997 (62 Fed. Reg. 43,629), August 13, 1998 (63 Fed. Reg.
44,121), August 10, 1999 (64 Fed. Reg. 44,101), and August 3,
2000 (65 Fed. Reg. 48,347). On November 13, the President
signed into law an extension of the Export Administration Act
of 1979 until August 20, 2001.\13\
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\13\ Public Law 106-508.
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Export Promotion of Goods and Services
Export Enhancement Act of 1988
The Export Enhancement Act, enacted under title XXIII of
the Omnibus Trade and Competitiveness Act of 1988,\14\ includes
provisions which establish in statute the United States and
Foreign Commercial Service in the International Trade
Administration of the Department of Commerce. The basic purpose
of the Service is to promote the export of U.S. goods and
services, particularly by small- and medium-sized businesses,
and to promote and protect U.S. business interests abroad.
Section 2306 requires the Service to make a special effort to
encourage U.S. exports of goods and services to Japan, South
Korea, and Taiwan.
---------------------------------------------------------------------------
\14\ Public Law 100-418, approved August 23, 1988, 15 U.S.C. 4721
et seq.
---------------------------------------------------------------------------
Section 2303 authorizes the Secretary of Commerce to
establish a market development cooperator program in the
International Trade Administration to develop, maintain, and
expand foreign markets for U.S. non-agricultural goods and
services. The program is implemented through contracts with
non-profit industry organizations, trade associations, state
departments of trade and their regional associations, and
private industry firms or groups of firms (all referred to as
``cooperators''). The Secretary was also directed to establish,
as part of the program, a partnership program with cooperators
under which cooperators may detail individuals to the Service
for 1 to 2 years. This program is modeled after a similar
program established by the Foreign Agricultural Service in the
late 1950's to develop overseas commercial market opportunities
for American agricultural exports.
In order to facilitate exporting by U.S. businesses,
section 2304 requires the Secretary to provide assistance for
trade shows in the United States which bring together
representatives of U.S. businesses seeking to export goods or
services, particularly participation by small businesses, and
representatives of foreign companies or governments seeking to
buy such U.S. goods or services. Sections 2312 and 2313 added
to the Act made by title II of the Export Enhancement Act of
1992 \15\ expanded export promotion efforts. Section 2312
establishes in statute the Trade Promotion Coordinating
Committee (TPCC) and directs it to coordinate the export
promotion and export financing activities of the federal
government and to develop a governmentwide strategic plan for
carrying out federal export promotion and financing programs,
including establishment of priorities. The Chair of the TPCC
must submit an annual report to the Congress on the strategic
plan developed. Section 2313 states the U.S. policy to foster
the export of U.S. environmental technologies, goods, and
services, and establishes the Environmental Trade Promotion
Working Group within the TPCC for this purpose.
---------------------------------------------------------------------------
\15\ Public Law 102-429, approved October 21, 1992.
---------------------------------------------------------------------------
The Jobs Through Export Expansion Act of 1994 amended
section 2313 to provide for the establishment of an
environmental technologies trade advisory committee, including
representatives of the private sector and the states, to advise
the TPCC working group. The amendment also requires the working
group to develop export plans for five priority countries and
the placement of environmental technology specialists in each
of the priority countries.\16\
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\16\ Public Law 103-392, approved October 22, 1994, 15 U.S.C. 4701
note.
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Fair Trade in Auto Parts Act of 1988
The Fair Trade in Auto Parts Act of 1988, sections 2121-
2125 of the Omnibus Trade and Competitiveness Act of 1988,\17\
required the Secretary of Commerce to establish an initiative
to increase the sale of U.S.-made auto parts and accessories to
Japanese markets, including to U.S. subsidiaries of Japanese
firms. The Secretary also was required to establish a Special
Advisory Committee to advise and assist the Secretary in
carrying out the initiative to increase U.S. auto parts sales
in Japanese markets. The authorities granted under sections
2121-2125 expired on December 31, 1998.
---------------------------------------------------------------------------
\17\ Public Law 100-418, approved August 23, 1988, 15 U.S.C. 4701.
---------------------------------------------------------------------------
In response to low sales of U.S. auto parts and accessories
to Japanese auto firms based both in Japan and in the United
States, Congress adopted the Fair Trade in Auto Parts Act of
1988. This action followed negotiations in 1986-87 between the
U.S. and Japanese governments aimed at improving U.S. access to
the Japanese auto parts markets. The provision was intended to
provide for a longer-term effort to increase data collection,
information exchange, and generally improved U.S. market access
in the Japanese auto parts sector.\18\ The U.S.-Japan
Automotive Agreement expired on December 31, 2000.
---------------------------------------------------------------------------
\18\ Market Oriented Sector Specific Talks on Transportation
Machinery, initiated on August 26, 1986 and concluded on August 18,
1987.
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Agricultural Export Sales and Promotion
To help finance sales of U.S. farm commodities abroad, the
U.S. Department of Agriculture (USDA) administers several sales
and credit programs. These include the concessional sales
program under the authority of the Agricultural Trade
Development and Assistance Act of 1954, as amended, commonly
known as Public Law 480,\19\ and the commercial programs of the
Commodity Credit Corporation (CCC).
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\19\ Public Law 83-480, approved July 10, 1954, 7 U.S.C. 1701-
1736d.
---------------------------------------------------------------------------
Public Law 480
Public Law 480 was reauthorized through the end of 2002 by
the Federal Agriculture Improvement and Reform Act of 1996.\20\
Title I of Public Law 480 authorizes sales of U.S. agricultural
commodities to developing countries or private entities for
dollars on credit terms or for local currencies. Credit is
provided at concessional interest rates for repayment periods
up to 30 years. The Secretary of Agriculture may allow a grace
period of up to 5 years before repayment must begin. Title II
authorizes donations of U.S. agricultural commodities for
emergency humanitarian relief and for development projects.
Title II is implemented primarily through U.S. private
voluntary organizations or cooperatives and the United Nations
world food program. Title III authorizes donations to
governments of least developed countries for direct feeding
programs, emergency food reserves, and recipient government
sales which are used to finance economic development
activities. As a result of reforms made by Public Law 104-127,
USDA is responsible for administering title I, while the U.S.
Agency for International Development (USAID) is responsible for
administering titles II and III.
---------------------------------------------------------------------------
\20\ Public Law 104-127, approved April 4, 1996.
---------------------------------------------------------------------------
Export Credit Guarantee and Export Promotion Programs
USDA, using the resources of the Commodity Credit
Corporation (CCC), offers both commercial credit and export
promotion programs designed to maintain and expand overseas
markets for U.S. farm products.
In operating two export credit guarantee programs, the CCC
guarantees U.S. banks against defaults on payments due from
foreign banks on the agricultural export sales they finance.
Guarantees are made against political risks such as warfare,
expropriation, exchange controls, and other foreign government
actions, and against economic risks such as a foreign bank
failure or a country's debt repayment problems. The U.S. banks
deal directly with foreign purchasers to set loan repayment
terms and interest rates, but must meet certain requirements to
qualify for CCC guarantees.
The GSM-102 program guarantees credits for up to 3 years
for commercial export sales of U.S. agricultural commodities
from privately owned stocks. The GSM-103 program guarantees
credits for longer periods of 3 to 10 years. The Federal
Agriculture Improvement and Reform Act of 1996 (the ``farm
bill'') authorized the CCC to make available for each fiscal
year 1996 through 2002, $5.5 billion in credit guarantees. The
Secretary of Agriculture is given flexibility to allocate these
funds between short-term (up to 3 years) and intermediate-term
(3 to 10 years) guarantees. In addition, the farm bill
authorizes another $1 billion of export credit guarantees or
direct credits for fiscal years 1996 through 2002 for countries
that are classified as ``emerging markets.'' Emerging markets
are countries taking steps toward a market-oriented economy and
have potential to become viable commercial markets for U.S.
agricultural exports.\21\
---------------------------------------------------------------------------
\21\ Public Law 104-127, approved April 4, 1996.
---------------------------------------------------------------------------
Title III of the Agricultural Trade Act of 1978, as amended
by the Uruguay Round Trade Agreements Act of 1994 \22\ and the
1996 farm bill,\23\ authorizes the export enhancement program
(EEP).
---------------------------------------------------------------------------
\22\ Public Law 103-465, approved December 8, 1994, 19 U.S.C. 3501
note.
\23\ Public Law 104-127, approved April 4, 1996.
---------------------------------------------------------------------------
The EEP was first established by the Congress in the Food
Security Act of 1985 \24\ (the 1985 farm bill) to counter
foreign exporters' use of subsidies as a means of increasing
their agricultural exports. The Uruguay Round Agreements Act
revised the definition of the EEP ``to encourage the commercial
sale of U.S. agricultural commodities in world markets at
competitive prices.'' The Uruguay Round Agreements Act also
provided that EEP would be ``carried out in a market sensitive
manner'' and ``not limited to responses to unfair trade
practices.'' \25\ Under EEP, the CCC makes cash bonuses
available to private U.S. exporters on a bid basis to
compensate them for making competitively-priced sales in
overseas markets. The 1996 farm bill reauthorized EEP for
fiscal years 1996 through 2002 and set annual maximum spending
levels: $350 million in fiscal year 1996; $250 million in
fiscal year 1997; $500 million in fiscal year 1998; $550
million in fiscal year 1999; $579 million in fiscal year 2000;
and $478 million annually in fiscal years 2001 and 2002.
---------------------------------------------------------------------------
\24\ Public Law 99-198, approved December 23, 1985.
\25\ Public Law 103-465, approved December 8, 1994, 7 U.S.C. 5601
note.
---------------------------------------------------------------------------
The CCC also administers the market access program (MAP) in
order to ``encourage the development, maintenance, and
expansion of commercial export markets for agricultural
commodities through cost-share assistance to eligible trade
organizations that implement a foreign market development
program.'' The MAP was established under the 1996 farm bill as
the successor to the market promotion program (MPP) authorized
by the 1990 farm bill. MPP had replaced the targeted export
assistance program (TEA) of the Food Security Act of 1985.
Unlike the TEA, priority is no longer accorded to exports which
encounter unfair trade practices or barriers in foreign
markets.
Chapter 5: AUTHORITIES RELATING TO POLITICAL OR ECONOMIC SECURITY
International Emergency Economic Powers Act
In 1977, Congress passed the International Emergency
Economic Powers Act (IEEPA).\1\ The Act grants the President
authority to regulate a comprehensive range of financial and
commercial transactions in which foreign parties are involved
but allows the President to exercise this authority only in
order ``to deal with an unusual and extraordinary threat, which
has its source in whole or in part outside the United States,
to the national security, foreign policy, or economy of the
United States, if the President declares a national emergency .
. . with respect to such threat.''
---------------------------------------------------------------------------
\1\ Public Law 95-223, title II, approved December 28, 1977, 91
Stat. 1626, 50 U.S.C. 1701-1706.
---------------------------------------------------------------------------
Background
Public Law 95-223, of which IEEPA constitutes title II,
redefined the President's authorities to regulate international
economic transactions in times of national emergency as well as
war, until then provided by section 5(b) of the Trading With
the Enemy Act (TWEA) (50 App. U.S.C. 5(b)), by eliminating
TWEA's applicability to national emergencies \2\ and instead
providing such authorities in a separate statute of somewhat
narrower scope and subject to congressional review.
---------------------------------------------------------------------------
\2\ Title I of Public Law 95-223 also provides for the continuation
in force, through annual presidential extensions, of certain measures
implemented on the basis of national emergencies declared under the
TWEA. For further detail, see section on the Trading With the Enemy
Act.
---------------------------------------------------------------------------
The authorities granted to the President under IEEPA
broadly parallel those contained in section 5(b) of the TWEA
but are somewhat fewer and more circumscribed. While under the
TWEA the existence of any declared national emergency, whether
or not connected with the circumstances requiring emergency
action, was used as the basis for such action, the IEEPA allows
emergency measures against an external threat only if a
national emergency has been declared with respect to the same
threat. Furthermore, certain authorities contained in the TWEA
and still applicable in times of war are not included in the
IEEPA, such as the powers to vest foreign property, to regulate
purely domestic transactions, to regulate gold or bullion, or
to seize records. Nevertheless, the President's authorities
under the IEEPA still remain extensive. The President may ``by
means of instructions, licenses, or otherwise . . .
investigate, regulate, prevent, or prohibit'' virtually any
foreign economic transaction, from import or export of goods
and currency to transfer of exchange or credit. The only
international transactions exempted from this authority are
personal communications not involving a transfer of anything of
value, charitable donations of necessities of life to relieve
human suffering (except in certain circumstances), transactions
in publications or various other informational materials not
otherwise controlled by export control law or prohibited by
espionage law, or personal transactions ordinarily incident to
travel.
IEEPA requires the President to consult with Congress,
whenever possible before declaring a national emergency, and
while it remains in force. Once a national emergency goes into
effect, the President must submit to Congress a detailed report
explaining and justifying his actions and listing the countries
against which such actions are to be taken, and why.
Application
Since its enactment, the authority conferred by the IEEPA
has been exercised on several occasions and for different
purposes: to impose a variety of economic sanctions on foreign
countries and to continue in force the authority of the Export
Administration Act during several periods when statutory
authority has lapsed.
In response to the seizure of the American Embassy and
hostages in Teheran, President Carter, using the IEEPA
authority, on November 14, 1979, declared a national emergency
and ordered the blocking of all property of the government of
Iran and of the Central Bank of Iran within the jurisdiction of
the United States.\3\ The measure and its later amendments were
implemented through Iranian Assets Control Regulations (31 CFR
535). Sanctions against Iran were broadened on April 7,
1980,\4\ and April 17, 1980,\5\ to constitute eventually an
embargo on all commercial, financial, and transportation
transactions with Iran, with minimal exceptions. The trade
embargo was revoked by President Carter on January 19, 1981,
after the release of the Teheran hostages, but the national
emergency has remained in effect and has been extended every
year since.\6\
---------------------------------------------------------------------------
\3\ Executive Order 12170, November 14, 1979, 44 Fed. Reg. 65,729.
\4\ Executive Order 12205, April 7, 1980, 45 Fed. Reg. 24,099.
\5\ Executive Order 12211, April 27, 1980, 45 Fed. Reg. 26,685.
\6\ Following Iranian attacks on U.S. flag ships in the Iran-Iraq
war, an embargo was reimposed on October 29, 1987 (Executive Order
12613, 52 Fed. Reg. 41,940), on imports of goods and services from Iran
under the authority of section 505 of the International Security and
Development Cooperation Act of 1985 (22 U.S.C. 2349aa-9) and
implemented through Iranian Transactions Regulations (31 CFR part 560).
The embargo is still in force.
---------------------------------------------------------------------------
President Clinton invoked his authority under IEEPA and
other statutes on March 15, 1995 to prohibit the entry of any
U.S. person or any entity controlled by a U.S. person into a
contract involving the financing or overall supervision and
management of the development of the petroleum resources
located in Iran.\7\ The President imposed additional sanctions
on May 8, 1995.\8\ The sanctions were than amended in 1997.\9\
---------------------------------------------------------------------------
\7\ Executive Order 12957, March 15, 1995, 60 Fed. Reg. 14,615.
\8\ Executive Order 12959, May 6, 1995, 60 Fed. Reg. 24,757. See
also discussion on the Iran and Libya Sanctions Act of 1996.
\9\ Executive Order 13059 (62 Fed. Reg. 44,531); 34 Weekly Comp.
Pres. doc. 2324 (Nov. 16, 1998); 31 C.F.R. Part 560.
---------------------------------------------------------------------------
On May 1, 1985, President Reagan, under his IEEPA powers,
declared a national emergency because of the ``Nicaraguan
government's aggressive activities in Central America'' and
prohibited all imports of Nicaraguan goods and services, all
exports to Nicaragua (other than those destined for the
organized democratic resistance) and transactions related
thereto, and all activities of Nicaraguan ships and aircraft at
U.S. sea- and airports.\10\ The declaration of emergency and
the imposed sanctions were terminated on March 13, 1990.\11\
---------------------------------------------------------------------------
\10\ Executive Order 12513, May 1, 1985, 50 Fed. Reg. 18,629. The
embargo is implemented by Nicaraguan Trade Control Regulations (31 CFR
part 540).
\11\ Executive Order 12707, March 13, 1990, 55 Fed. Reg. 9,707.
---------------------------------------------------------------------------
IEEPA was also used by President Reagan to declare a
national emergency with respect to South Africa because of its
``policy and practice of apartheid'' and impose, using also
several other authorities, effective on October 11, 1985, an
embargo on certain trade (including specifically the
importation of krugerrands) and financial transactions with the
government of South Africa.\12\ The embargo, implemented
through South African Transactions Regulations (31 CFR 545),
was later greatly expanded, and additional economic sanctions
were imposed by the Comprehensive Anti-Apartheid Act of
1986,\13\ upon the enactment of which the President allowed the
declaration of the South African emergency to expire.\14\
---------------------------------------------------------------------------
\12\ Executive Order 12532, September 9, 1985, 50 Fed. Reg. 36,861;
Executive Order 12535, October 1, 1985, 50 Fed. Reg. 40,325.
\13\ Public Law 99-440, approved October 2, 1986, 100 Stat. 1086,
22 U.S.C. 5001 et seq.
\14\ Weekly Compilation of Presidential Documents, v. 23, no. 36,
September 14, 1987, p. 997.
---------------------------------------------------------------------------
Under the South African Democratic Transition Support Act
of 1993, Congress repealed certain sections of the
Comprehensive Anti-Apartheid Act and provided for the total
repeal of the Act upon certification by the President that an
interim government, elected on a non-racial basis through free
and fair elections, had taken office in South Africa.\15\
President Clinton sent such certification to Congress on June
8, 1994.\16\
---------------------------------------------------------------------------
\15\ Public Law 103-149, approved November 23, 1993, 22 U.S.C. 5001
note.
\16\ Message to the Congress on Elections in South Africa, 30
Weekly Compilation of Documents 1258 (June 8, 1994).
---------------------------------------------------------------------------
President Reagan similarly used the IEEPA authority, among
several others, to impose economic sanctions on Libya because
of Libyan-supported terrorist attacks on the Rome and Vienna
airports. On January 7, 1986, he declared a national emergency
and prohibited all trade (with minimal exceptions) and
transportation transactions with Libya, extension of credit to
the Libyan government, and personal travel to or within
Libya.\17\ On the following day, he ordered the blocking of all
property and interests of the Libyan government and its
instrumentalities in the United States.\18\ These measures are
implemented by Libyan Sanctions Regulations (31 CFR 550). The
emergency with respect to Libya and the sanctions were extended
annually.\19\
---------------------------------------------------------------------------
\17\ Executive Order 12543, January 7, 1986, 51 Fed. Reg. 875.
\18\ Executive Order 12544, January 8, 1986, 51 Fed. Reg. 1,235.
\19\ 35 Weekly Comp. Pres. Doc. 1415 (July 19, 1999). See also the
discussion concerning the Iran and Libya Sanctions Act of 1996.
---------------------------------------------------------------------------
Again, on April 8, 1988, under the IEEPA authority,
President Reagan declared a national emergency with respect to
Panama and ordered the imposition of economic sanctions on that
country \20\ because of ``the actions of Manuel Antonio Noriega
and Manuel Solis Palma, to challenge the duly constituted
authorities of the government of Panama.'' The order involved
the blocking of all property and interests of the government of
Panama, including all its agencies and instrumentalities and
controlled entities, that are or may come within the United
States. The blocking applies specifically to payments of
transfers of any kind or financial transactions for the benefit
of the Noriega-Solis regime from the United States or by any
physical or legal U.S. person located in Panama. The order,
implemented through Panamanian Transactions Regulations (31 CFR
565), was revoked on April 5, 1990.\21\
---------------------------------------------------------------------------
\20\ Executive Order 12635, April 8, 1988, 53 Fed. Reg. 12,134.
\21\ Executive Order 12710, April 5, 1990, 55 Fed. Reg. 13,099.
---------------------------------------------------------------------------
On August 2, 1990, in response to the Iraqi invasion of
Kuwait, President Bush, under section 204(b) of the IEEPA,
declared a national emergency, blocked Iraqi and Kuwaiti
government property and prohibited all transactions with Iraq,
except exports and imports of informational materials and
donations to relieve human suffering.\22\ Additional
restrictions, including a prohibition of all transactions with
Kuwait, were imposed a week later. Regulations implementing the
restrictions were promulgated with respect to Kuwait on
November 30, 1990, and with respect to Iraq on January 18,
1991.\23\ While Kuwaiti sanctions were revoked after the
liberation of Kuwait,\24\ the Iraqi national emergency and
Iraqi sanctions remain in force.
---------------------------------------------------------------------------
\22\ Executive Order 12722 and 12723, August 2, 1990, 55 Fed. Reg.
31,803 and 31,805.
\23\ Kuwaiti Assets Control Regulations, 55 Fed. Reg. 49,856, 31
CFR 570; Iraqi Sanctions Regulations, 56 Fed. Reg. 2,112, 31 CFR 575.
\24\ Executive Order 12771, July 25, 1991, 56 Fed. Reg. 35,993.
---------------------------------------------------------------------------
President Bush also used his authority under the IEEPA and
other acts to declare a national emergency on November 16, 1990
with respect to the threat posed to the national security and
foreign policy of the United States by the proliferation of
chemical and biological weapons.\25\ Under this declaration,
the President ordered that trade sanctions be imposed against
foreign persons determined by the Secretary of State as having
used or made substantial preparations to use chemical or
biological weapons in violation of international law. This
order was implemented under the Export Administration
Regulations on Proliferation Controls.\26\ The national
emergency was expanded by President Clinton to include the
proliferation of nuclear weapons on November 14, 1994 \27\ and
on July 28, 1998.\28\
---------------------------------------------------------------------------
\25\ Executive Order 12735, November 16, 1990, 55 Fed. Reg. 48,587.
\26\ 15 CFR part 778.
\27\ Executive Order 12938, November 14, 1994, 59 Fed. Reg. 59,099.
\28\ Executive Order 13094 (63 Fed. Reg. 40,803); 31 C.F.R. Part
539.
---------------------------------------------------------------------------
President Bush used his authority under IEEPA and other
acts on October 4, 1991 to declare a national emergency with
respect to the illegal seizure of power from the democratically
elected government of Haiti.\29\ Under this declaration, all
property and interests of the de facto regime in Haiti were
blocked. The order was expanded by the President on October 28,
1991 to prohibit trade and other transactions with Haiti.\30\
These measures were subsequently implemented by the Haitian
Transactions Regulations.\31\ After the signing of the
Governors Island Agreement on July 3, 1993, U.S. trade
restrictions against Haiti were suspended, and new financial
and other transactions with the government of Haiti were
authorized consistent with U.N. Security Council Resolution
861. The rule, however, did not unblock property of the
government of Haiti that was blocked before August 30, 1993.
Due to the failure of the de facto regime in Haiti to fulfill
its obligations under the Governors Island Agreement, the
restrictions against trade, as well as financial and other
transactions, with Haiti were reimposed on October 19,
1993.\32\ In response to the restoration of the democratically
elected government of Haiti, President Clinton terminated the
national emergency on October 14, 1994.\33\
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\29\ Executive Order 12775, October 4, 1991, 56 Fed. Reg. 50,641.
\30\ Executive Order 12779, October 28, 1991, 56 Fed. Reg. 55,975.
\31\ 31 CFR part 580.
\32\ Presidential Notice of September 30, 1993 (58 Fed. Reg.
51,563); Haitian Transactions Regulations, 31 CFR part 580.
\33\ Executive Order 12932, October 14, 1994, 59 Fed. Reg. 52,403.
---------------------------------------------------------------------------
In response to the involvement of Serbia and Montenegro
with groups attempting to seize territory in Croatia and
Bosnia-Hercegovina, President Bush declared a national
emergency under the IEEPA and other authorities on May 30,
1992, blocking all property and interests of the governments of
Serbia and Montenegro in the United States.\34\ Additional
orders were later issued by the President to prohibit trade and
other transactions with Serbia and Montenegro.\35\ The orders
were implemented in the Federal Republic of Yugoslavia (Serbia
and Montenegro) Sanctions Regulations (31 CFR 585). The
emergency with respect to Serbia and Montenegro was most
recently extended by the President on May 25, 1994, and was
expended in scope on October 25, 1994 to include the Bosnian
Serb military and the areas of the Republic of Bosnia and
Herzegovina under the control of those forces.\36\ In response
to this situation and the crisis in Kosovo, President Clinton
issued additional Executive orders, most recently on January
17, 2001.\37\
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\34\ Executive Order 12808, May 30, 1992, 57 Fed. Reg. 23,299.
\35\ Executive Order 12810, June 5, 1992, 57 Fed. Reg. 24,347;
Executive Order 12831, January 15, 1993, 58 Fed. Reg. 5,253; Executive
Order 13121.
\36\ Presidential Notice of May 25, 1994 (59 Fed. Reg. 27,429);
Executive Order 12934, October 25, 1994, 59 Fed. Reg. 54,119.
\37\ Executive Order 13192 (66 Fed. Reg. 7379).
---------------------------------------------------------------------------
On September 26, 1993, President Clinton declared a
national emergency under the IEEPA and other acts with respect
to the actions and policies of the National Union for the Total
Independence of Angola (UNITA).\38\ As a result of this
emergency, the President's order prohibited the sale or supply
of arms and related material or petroleum and petroleum
products to Angola, except through designated points of entry.
These restrictions, implemented by the UNITA (Angola) Sanctions
Regulations, were most recently extended by the President on
August 18, 1998.\39\
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\38\ Executive Order 12865, September 26, 1993, 58 Fed. Reg.
51,005.
\39\ UNITA (Angola) Sanctions Regulations, 58 Fed. Reg. 64,904, 31
CFR part 590; Executive Order 13098 (63 Fed. Reg. 44,771).
---------------------------------------------------------------------------
President Clinton also invoked his authority under the
IEEPA and other acts to declare a national emergency on January
23, 1995 with respect to the disruption of the Middle East
peace process by foreign terrorists.\40\ In this declaration,
the President prohibited all transactions with persons
designated by the Secretary of State, in coordination with the
Secretary of the Treasury and the Attorney General, as having
committed or posing a significant risk of committing acts of
violence to disrupt the Middle East peace process.
---------------------------------------------------------------------------
\40\ Executive Order 12947, January 23, 1995, 60 Fed. Reg. 5,079.
---------------------------------------------------------------------------
On July 4, 1999, President Clinton used his IEEPA authority
against the Taliban in Afghanistan.\41\
---------------------------------------------------------------------------
\41\ Executive Order 13129 (64 Fed. Reg. 36,750). The President
continued the emergency on July 5, 2000 (65 Fed. Reg. 41,549).
---------------------------------------------------------------------------
President Clinton also issued IEEPA declarations with
respect to Burma's repression of democratic oppression
(Executive Order 13047 (62Fed. Reg. 28,301)) and the
accumulation of weapons-usable fissile material by the Russian
Federation (Executive Order 13159 (65 Fed. Reg. 39,279). On
November 3, 1997, the President declared a national emergency
under IEEPA with respect to Sudan because of its support for
international terrorism, ongoing efforts to destablize
neighboring governments, and the prevalence of human rights
violations.\42\ That determination was continued.\43\
---------------------------------------------------------------------------
\42\ Executive Order 13067 (62 Fed. Reg. 59,989).
\43\ 65 Fed. Reg. 66,163 (November 2, 2000).
---------------------------------------------------------------------------
Just as with the TWEA, the IEEPA authority also has been
used on several occasions to continue in force the
administration of export controls when extensions of the Export
Administration Act of 1979 (EAA) have not been enacted in time
to continue the export control authority in force by statutory
extension. Upon the expiration of the EAA on October 15, 1983,
President Reagan used the IEEPA authority to declare a national
emergency and to continue in force the existing regulations for
the administration of export controls.\44\ After the EAA was
temporarily extended by law \45\ retroactively to October 15,
1983, and through February 29, 1984, the President revoked its
extension under the IEEPA and rescinded the declaration of
economic emergency.\46\ On February 29, 1984, the EAA was again
extended by law \47\ through March 30, 1984, when the authority
for administering the export control provisions again had to be
extended by the President under the IEEPA authority upon the
declaration of a national economic emergency.\48\ The extension
and the declared emergency remained in force during the
protracted, if unsuccessful, House-Senate attempts at resolving
the disagreements on the reauthorization of the EAA during the
98th Congress and in the 99th Congress until July 12, 1985,
when the EAA was again extended by law,\49\ the executive
extension of export controls was revoked and the emergency
rescinded.\50\ The President invoked the IEEPA authority on
September 30, 1990 to maintain existing export controls upon
expiration of the EAA on that date, pending enactment of
further reauthorizing legislation.
---------------------------------------------------------------------------
\44\ Executive Order 12444, October 14, 1983, 48 Fed. Reg. 48,215.
\45\ Public Law 98-207, approved December 5, 1983, 97 Stat. 1391.
\46\ Executive Order 12451, December 20, 1983, 48 Fed. Reg. 56,563.
\47\ Public Law 98-222, approved February 29, 1984, 98 Stat. 36.
\48\ Executive Order 12470, March 30, 1984, 49 Fed. Reg. 13,099.
\49\ Export Administration Act of 1979, Reauthorization; Public Law
99-64, approved July 12, 1985, 99 Stat. 120.
\50\ Executive Order 12525, July 12, 1985, 50 Fed. Reg. 28,757.
---------------------------------------------------------------------------
The 1990 extension of the export control authority under
the IEEPA was maintained in force by means of annual
continuations of the export control emergency until legislation
was passed in the 106th Congress.\51\
---------------------------------------------------------------------------
\51\ Most recently by Presidential Notice of August 15, 1996 (61
Fed. Reg. 42,527).
---------------------------------------------------------------------------
Congress has passed legislation that would apply IEEPA
authority in the case of trafficking in persons.\52\
---------------------------------------------------------------------------
\52\ Section 111 of Public Law 106-386, approved October 28, 2000.
---------------------------------------------------------------------------
Trading With the Enemy Act
The Trading With the Enemy Act \53\ (TWEA) prohibits trade
with any enemy or ally of an enemy during time of war. From
enactment in 1917 until 1977, the scope of the authority
granted to the President under this Act was expanded to provide
the statutory basis for control of domestic as well as
international financial transactions and was not restricted to
trading with ``the enemy.'' In response to the use of the Act's
authority under section 5(b) during peacetime for domestic
purposes that were often unrelated to a preexisting declared
state of emergency, Congress amended the Act in 1977. In 1977
Congress removed from the TWEA the authority of the President
to control economic transactions during peacetime
emergencies.\54\ Similar authorities, though more limited in
scope and subject to the accountability and reporting
requirements of the National Emergencies Act,\55\ were
conferred upon the President by the International Emergency
Economic Powers Act, enacted in 1977 as title II of Public Law
95-223.\56\ Presidential authority during wartime to regulate
and control foreign transactions and property interests were
retained under the Trading With the Enemy Act. In addition, the
1977 legislation authorized the continuation of various foreign
policy controls implemented under the Trading With the Enemy
Act, such as trade embargoes and foreign assets controls. The
retention of such existing controls, however, was made subject
to 1-year extensions conditioned upon a presidential
determination that the extension is in the national interest.
---------------------------------------------------------------------------
\53\ Public Law 65-91, approved October 6, 1917, ch. 106, 40 Stat.
411, 50 App. U.S.C. 1-44.
\54\ Public Law 95-223, title I, approved December 28, 1977.
\55\ The National Emergencies Act provided a statutory role for
Congress in the declaration and termination of national emergencies.
Public Law 94-412, approved September 14, 1976, 90 Stat. 1255, 50
U.S.C. 1601 et seq.
\56\ See discussion of International Emergency Economic Powers Act,
supra.
---------------------------------------------------------------------------
Background
The Trading With the Enemy Act was passed in 1917 ``to
define, regulate, and punish trading with the enemy.'' The Act
was designed to provide a set of authorities for use by the
President in time of war declared by Congress. In its original
19 sections, the TWEA provided general prohibitions against
trading with the enemy; authorized the President to regulate
and prohibit international economic transactions by means of
license or otherwise; established an office to administer U.S.-
held foreign property; and set up procedures for claims to such
property by non-enemy persons, among other provisions. The
original 1917 Act appeared not to authorize the control of
domestic transactions and limited its use to wartime
exigencies.
Over the years, through use and amendment of section 5(b),
the basic authorizing provision, the scope of presidential
actions under the TWEA was greatly expanded. First, the Act was
expanded to control domestic as well as international
transactions. Second, the authorities of the Act were used to
apply to presidentially declared periods of ``national
emergency'' as well as war declared by Congress. From 1933,
when Congress retroactively approved President Roosevelt's
declaration of a national banking emergency by expanding the
use of section 5(b) to include national emergencies, until
1977, when Congress amended section 5(b) by passage of title I
of Public Law 95-223, the President was authorized in time of
war or national emergency to:
(1) regulate or prohibit any transaction in foreign
exchange, any banking transfer, and the importing or
exporting of money or securities;
(2) prohibit the withdrawal from the United States of
any property in which any foreign country or national
has an interest;
(3) vest, or take title to, any such property; and
(4) use such property in the interest and for the
benefit of the United States.
The Trading With the Enemy Act did not provide a statement
of findings and standards to guide the administration of
section 5(b). There was no provision in the Act for
congressional participation or review or for presidential
reporting at specified periods for actions undertaken under
section 5(b). There was no fixed time period for terminating a
state of emergency. Nor was there any practical constraint on
limiting actions taken under emergency authority to measures
related to the emergency.
Application
By 1977 a state of national emergency had been declared by
the President on four occasions and left unrescinded. In 1933
President Roosevelt declared a national emergency to close the
banks temporarily and to issue emergency banking regulations.
In 1950 President Truman declared a national emergency in
connection with the Korean conflict. President Nixon declared a
national emergency in 1970 to deal with the Post Office strike
and another in 1971 based on the balance-of-payment crisis. As
one measure to remedy this crisis, President Nixon at the same
time imposed an import surcharge without specifically referring
to section 5(b), but later did take recourse to it as an
additional authority when the action was challenged in
court.\57\
---------------------------------------------------------------------------
\57\ In mid-1974, the U.S. Customs Court found the President's
action unconstitutional with respect to all invoked authorities, but
this decision was later reversed on appeal with respect to section
5(b). U.S. v. Yoshida International, 526, F.2d 560 (C.C.P.A. 1975). The
surcharge was terminated after having been in force for somewhat over 4
months, long before the lower court's decision.
---------------------------------------------------------------------------
Based on these states of emergency, Presidents have used
the powers of section 5(b) to deal with a number of varied
events. In 1940 and 1941, President Roosevelt used section 5(b)
to freeze the U.S.-held assets of the Axis powers and countries
occupied by them to prevent their falling into the hands of the
enemy powers. In August 1941, President Roosevelt, under
section 5(b) authority, ordered the imposition of consumer
credit controls by the Federal Reserve Board as an anti-
inflationary measure. These executive uses by President
Roosevelt were retroactively ratified by Congress.
The 1950 Korean emergency has been used in conjunction with
section 5(b) powers for a wide range of controls among them the
imposition of a total embargo on transactions with China and
North Korea in December 1950 which was extended to North
Vietnam in May 1964 and to Cambodia and South Vietnam in April
1975.\58\ In 1968, President Johnson, citing the authority of
section 5(b) and the continued existence of the 1950 emergency,
imposed foreign direct investment controls on U.S. investors.
These controls remained in effect until they were eliminated by
legislation in 1974. During the period 1969 through 1976,
Presidents have invoked the 1950 and 1971 emergencies to extend
temporarily export control regulations.
---------------------------------------------------------------------------
\58\ In mid-1971, trade embargo on China was in practice lifted,
and on January 31, 1980, the applicability of any restrictive measures
imposed under section 5(b) was terminated with respect to China (45
Fed. Reg. 7,224).
---------------------------------------------------------------------------
Four sets of regulations controlling international
transactions with specific countries, imposed under the former
national emergency authority of section 5(b) and during the
Korean national emergency, were promulgated pursuant to the 1-
year extension authority of title I of Public Law 95-223.
First, under the Foreign Assets Control Regulations, virtually
all transactions between the United States and North Korea,
Vietnam, and Cambodia were prohibited unless licensed by the
Department of the Treasury. The regulations also blocked all
assets of those countries held in the United States.
Recently, however, the embargo with respect to Cambodia and
Vietnam was lifted and the property of these countries in the
United States was unblocked.\59\ Also, on October 21, 1994, the
United States and North Korea agreed, in the context of broader
negotiations, to begin reducing barriers to trade and
investment. Based on these mutual commitments, a limited number
of restrictions under the embargo against North Korea were
lifted.\60\
---------------------------------------------------------------------------
\59\ Foreign Assets Control Regulations; Unblocking of Cambodian
Assets, 59 Fed. Reg. 60,558, 31 CFR part 500; Foreign Assets Control
Regulations, Unblocking of Vietnamese Assets, 60 Fed. Reg. 12,885, 31
CFR part 500.
\60\ Foreign Assets Control Regulations, North Korean Travel and
Financial Transactions; Information and Informational Materials, 60
Fed. Reg. 8,933, 31 CFR part 500.
---------------------------------------------------------------------------
Second, the Cuban Assets Control Regulations,\61\ based on
section 5(b) as well as on foreign assistance legislation, (see
also section on Embargo on transactions with Cuba) impose a
similar ban on virtually all transactions with Cuba.
---------------------------------------------------------------------------
\61\ 31 CFR part 515.
---------------------------------------------------------------------------
Third, Transaction Control Regulations,\62\ prohibiting any
person within the United States \63\ from engaging in any trade
or trade-financing transaction involving transfer of strategic
commodities from a foreign country to a Communist country
(still including formerly Communist countries), are also based
on section 5(b) of the Trading With the Enemy Act.
---------------------------------------------------------------------------
\62\ 31 CFR part 505.
\63\ Any ``person within the United States'' includes foreign
subsidiaries of U.S. firms.
---------------------------------------------------------------------------
Fourth, the wartime anti-Axis Foreign Funds Control
Regulations,\64\ issued under the authority of section 5(b),
are still in effect. The regulations continue to block the
assets of Estonia, Latvia, and Lithuania pending the settlement
of claims by U.S. citizens for compensation of property
confiscated after the war by the Soviet governments.
---------------------------------------------------------------------------
\64\ 31 CFR part 520.
---------------------------------------------------------------------------
Narcotics Control Trade Act
The Drug Enforcement, Education, and Control Act of 1986
\65\ contains a number of measures to respond to the serious
problem of illegal drug smuggling into the United States and
the growing threat of foreign sourced drug production. Among
these measures are revisions to many basic customs laws to
deter illegal drug imports and to increase enforcement
capabilities of the U.S. Customs Service against drug traffic.
---------------------------------------------------------------------------
\65\ Public Law 99-570, approved October 27, 1986.
---------------------------------------------------------------------------
Title IX of the Act amended the Trade Act of 1974 by adding
title VIII, entitled the ``Narcotics Control Trade Act,'' to
create new authority for the President to take appropriate
trade actions as of March 1 of each year against uncooperative
major drug-producing or drug-transit countries. Section 806 of
the Foreign Relations Authorization Act, Fiscal Years 1988 and
1989,\66\ and section 4408 of the Anti-Drug Abuse Act of 1988
\67\ expanded the sanctions available and the critieria for
determining and certifying that a country has cooperated fully
with the United States. Similar criteria apply under the
Foreign Assistance Act of 1961 for denying foreign aid to
uncooperative countries.
---------------------------------------------------------------------------
\66\ Public Law 100-204, approved December 22, 1987, 19 U.S.C.
2492.
\67\ Public Law 100-690, approved November 18, 1988.
---------------------------------------------------------------------------
For every major drug-producing or drug-transit country, the
President is required to deny to any or all of its products
preferential tariff treatment under the Generalized System of
Preferences (GSP), the Caribbean Basin Initiative (CBI), or any
other law; to raise or impose duties of up to 50 percent ad
valorem on any or all of its products; to suspend air carrier
transportation to or from the United States and the country and
to terminate any air service agreement with the country; to
withdraw U.S. personnel and resources from participating in any
arrangement with the country for customs preclearance; or to
take any combination of these actions considered necessary to
achieve the objectives of the Act.
Such sanctions do not apply if the President determines and
certifies to the Congress, at the time the annual report
required by section 481(e) of the Foreign Assistance Act of
1961 or section 489A after September 30, 1994 is submitted,
that during the previous year the country has cooperated fully
with the United States or has taken adequate steps on its own:
(1) in satisfying goals agreed to in a bilateral or
multilateral narcotics agreement with the United States; (2) in
preventing illegal drugs from being sold illegally to U.S.
government personnel or their dependents or from being
transported into the United States; (3) in preventing and
punishing the laundering of drug-related profits or monies; and
(4) in preventing and punishing bribery and other public
corruption which facilitate production, processing, or shipment
of illegal drugs.
A country that would not otherwise qualify for
certification may be exempted from sanctions if the President
determines and certifies to the Congress that the vital
national interests of the United States require that sanctions
not be applied. A country designated as a major drug-producing
or drug-transit country in the previous year may not be
determined to be cooperating fully unless it has in place a
bilateral or multilateral narcotics agreement.
The Congress may disapprove the President's determination
and require the application of sanctions through enactment of a
joint resolution within 45 legislative days. Actions remain in
effect until the President submits a certification of
cooperation and Congress does not enact a joint resolution of
disapproval within 45 legislative days.
In addition, section 803 prohibits the President from
allocating any quota for imports of sugar to any country which
has a government involved in illegal drug trade or which is
failing to cooperate with the United States in narcotics
enforcement activities.
The Urgent Assistance for Democracy in Panama Act of 1990
\68\ deemed the conditions under the Narcotics Control Trade
Act to have been satisfied by Panama, because of U.S. vital
national interests and because the Endara government had
indicated its willingness and was taking steps to cooperate
fully with the United States to control narcotics production,
trafficking, and money laundering. Consequently, GSP and CBI
trade benefits removed under the Noriega regime by presidential
proclamation on March 23, 1988 were restored to the new
government of Panama.
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\68\ Public Law 101-243, approved February 14, 1990, section 103.
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The International Security and Development Cooperation Act of 1985
Section 505 of the International Security and Development
Act of 1985 \69\ gives the President discretionary authority to
restrict or ban imports from any country which the United
States determines ``supports terrorism or terrorist
organizations or harbors terrorists or terrorist
organizations.'' The section requires advance consultations
with Congress before invoking the authority and a semi-annual
report to Congress with respect to actions taken since the last
report and any changes which may have occurred since the last
report. Section 504 of the Act gives the President specific
authority to prohibit all imports to the United States from
Libya or the export to Libya of any goods or technologies
subject to U.S. jurisdiction.
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\69\ Public Law 99-83, approved August 8, 1985, 22 U.S.C. 2349 aa-
8, aa-9.
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The Iran and Libya Sanctions Act of 1996
U.S. imports of goods and services of Iran have been
prohibited since 1987. In May 1993 President Clinton
articulated a policy of ``dual containment'' of Iran and Iraq.
Administration officials said that Iran needed to be isolated
because of its: (1) support for international terrorism; (2)
efforts to undermine the Arab-Israeli peace process; (3)
attempts to subvert other governments in the Middle East; (4)
programs to develop weapons of mass destruction; and (5) poor
human rights record. On March 15, 1995, the President declared
a national emergency to respond to Iran's actions and policies
and issued an executive order prohibiting U.S. persons from
entering contracts to finance or manage Iran's petroleum
resources.
On April 30, 1995, after an internal policy review found
that continued trade with Iran was undermining U.S. efforts to
isolate Iran, President Clinton announced that he would impose
significant new economic sanctions on Iran. Executive Order
12959, issued May 8, prohibits trade in goods, services, or
technology with Iran, re-export to Iran of U.S. goods or
technology from third countries controlled for export, as well
as any financing, loans, or related services for trade with
Iran. New investment is also prohibited in Iran. The
prohibitions also apply to foreign branches of U.S. companies.
However, the ban provides for the licensing of crude oil swap
arrangements with Iran in the Caspian Sea and Central Asia, and
does not prohibit the importation to the United States of
Iranian oil that is refined outside Iran.
Out of a concern that the trade ban did not succeed in
shifting international attitudes toward Iran, the President
signed the Iran and Libya Sanctions Act \70\ on August 5, 1996,
which mandates sanctions against foreign investment in the
petroleum sectors of Iran and Libya as well as exports of
weapons, oil equipment, and aviation equipment to Libya in
violation of U.N. Resolutions 748 and 883. Congressional
findings in this legislation state that the efforts of the
government of Iran to acquire weapons of mass destruction and
the means to deliver them, as well as its support for
international terrorism, endanger the interests of the United
States. In the case of Libya, Congress found that Libya's
failure to comply with U.N. Resolutions 731, 748, and 883, its
support of international terrorism, and its efforts to acquire
weapons of mass destruction constitute a threat to
international peace and security that endangers the national
security of the United States.
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\70\ Public Law 104-172, approved August 5, 1996, 50 U.S.C. 1701.
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Under the Iran and Libya Sanctions Act, the President must
impose, on any foreign person (individual, firm or government
enterprise) that invests more than $40 million in any one year
in the petroleum resources of Iran or Libya, or violates the
U.N. prohibited transactions with Libya, at least two of the
following six sanctions: (1) denial of Export-Import Bank loans
for U.S. exports to the sanctioned entity; (2) denial of
specific U.S. licenses for exports to the sanctioned entity
(assuming the exports require a license to be exported); (3)
denial of U.S. bank loans of over $10 million in one year to
the sanctioned entity; (4) disallowing a sanctioned entity, if
it is a financial institution, to serve as a primary dealer in
U.S. government bonds or as a repository of U.S. government
funds; (5) import sanctions taken by the President in
accordance with the International Emergency Economic Powers Act
(IEEPA); and (6) prohibition on U.S. government procurement
from or contracting with the sanctioned person.
The law provides for the waiving of sanctions for firms of
countries that join a multilateral sanctions regime against
Iran and lowers the threshold of permissible investment from
$40 million to $20 million for firms of countries that do not
join such a regime. The Act ``sunsets'' in 5 years.
Embargo on Transactions With Cuba
While almost totally restrictive controls had been placed
on U.S. exports to Cuba even earlier \71\ under the general
authority of the Export Control Act of 1949, specific authority
for a total trade embargo on Cuba was contained in section
620(a) of the Foreign Assistance Act of 1961.\72\ Based on this
authority ``to establish and maintain a total embargo upon all
trade between the United States and Cuba,'' President Kennedy
proclaimed the embargo and directed the Secretaries of the
Treasury (for imports) and of Commerce (for exports) to
implement it. Both Secretaries were also given the authority to
modify the embargo in the national interest.\73\
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\71\ 25 Fed. Reg. 1006, October 20, 1960.
\72\ Public Law 87-195, approved September 4, 1961, 22 U.S.C.
2370(a)(1).
\73\ Proclamation 6447, 27 Fed. Reg. 1,085, February 7, 1962.
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The export embargo already being in force, the added ban on
imports from Cuba was implemented through Cuban Import
Regulations,\74\ to which were subsequently added, in general
terms, all transactions falling within the authority of the
Trading With the Enemy Act (TWEA), based on the specific
addition of TWEA to the statutory authority for the
regulations.\75\ Under this broader authority, Cuban Assets
Control Regulations applicable to imports from Cuba as well as,
in great detail, to non-trade transactions with Cuba were
promulgated.\76\ After several changes, these regulations still
remain in force. The embargo on transactions with Cuba is
implemented at present for exports by the Export Administration
Regulations (15 U.S.C. 768-799.2), particularly sections 770,
785.1, and 799.1, and for imports and other transactions by the
Cuban Assets Control Regulations (15 CFR 515). (These
regulations were later codified by the Cuban Liberty and
Democratic Solidarity Act, discussed below. A ban on imports
from Cuba and a tightening of the regulations on non-tourist
travel to Cuba was included in the Trade Sanctions Reform and
Export Enhancement Act of 2000, discussed below.)
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\74\ 31 CFR 515, 27 Fed. Reg. 1,116, February 7, 1962.
\75\ 27 Fed. Reg. 2,765, March 24, 1962.
\76\ 28 Fed. Reg. 6,974, July 9, 1963.
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The provisions of section 620(a) of the Foreign Assistance
Act of 1961 and the regulatory exercise with respect to Cuba of
authorities under the TWEA, the International Emergency
Economic Powers Act, and the Export Administration Act of 1979,
however, were preempted by the Cuban Democracy Act of 1992
(title XVII of the National Defense Authorization Act of 1992)
\77\ to the extent that they have been either restated or
modified by provisions of that Act. Section 1705 of the Act
specifically permits donations of food to Cuban non-
governmental organizations and individuals; with some
exceptions and subject to specific licenses and end-use
verification, exports of medicines and medical supplies and
equipment; providing telecommunications services and
appropriate facilities, and issuing licenses for related
payments; direct mail service between the United States and
Cuba; and assistance for promoting non-violent democratic
change in Cuba.
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\77\ Public Law 102-484, approved October 23, 1992; 22 U.S.C. 6001
et seq.
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On the other hand, section 1706 enacts specific
restrictions: it prohibits the issuance of licenses for any
transactions of American-owned firms in foreign countries with
Cuba, previously permitted by the relevant regulation; \78\
requires specific license for a ship to load or unload any
freight in a U.S. port if it has traded, within the past 180
days, with a Cuban port; or to enter a U.S. port or obtain ship
stores if it is carrying goods or passengers to or from Cuba,
or Cuban goods. These restrictions do not apply to activities
allowed by sections 1705 or 1707 of the Act, or to transactions
in informational materials unless subject to national security
or espionage controls. The President is required to set strict
controls on remittances to Cubans for the purpose of financing
their travel to the United States.
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\78\ 31 CFR 515 and 559.
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The law authorizes a relaxation of the embargo by
permitting humanitarian aid to Cuba under foreign assistance
and Food-for-Peace legislation if the President determines that
the Cuban government has made and is implementing commitments
to hold free elections and respect internationally recognized
worker rights and basic democratic freedoms, and is not
materially supporting groups in other countries seeking violent
overthrow of the government. The President also is authorized
to waive the restrictions of section 1706 if he determines that
the Cuban government has taken steps that provide various
political, human rights, and economic freedoms, and is directed
to take various actions (including steps to end the trade
embargo) to assist a freely and democratically elected Cuban
government. The Act empowers the Secretary of the Treasury to
enforce its provisions under the authority of the TWEA, to
which provisions for civil penalties, forfeitures, and judicial
review are added.
The Cuban Liberty and Democratic Solidarity Act
In 1996, the Cuban Liberty and Democratic Solidarity Act
was enacted to further strengthen U.S. sanctions against
Cuba.\79\ The legislation, which is commonly referred to as
``Helms-Burton'' or the ``Libertad Act,'' contains a number of
new sanction provisions. Title I of the Act codifies all Cuban
embargo executive orders and regulations in force on March 12,
1996. No authority is granted to the President under the law to
waive any of the codified embargo provisions.
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\79\ Public Law 104-114, approved March 12, 1996.
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In title III, the Helms-Burton legislation allows U.S.
nationals, including Cuban-Americans who became US. citizens
after their properties were confiscated, to sue for money
damages in U.S. federal court those persons who traffic in
their confiscated property. The President has the authority to
delay implementation of title III provisions for a period of up
to 6 months at a time if he determines that such a delay would
be in the national interest and would expedite a transition to
democracy in Cuba. On July 16, 1996, the President announced
that he would allow title III to go into effect, but would
suspend for 6 months the right of individuals to file lawsuits.
In making his announcement, the President indicated that the
liability of foreign companies under Helms-Burton would be
established during the suspension period and that legal action
could be taken against them immediately upon the lifting of the
suspension. Since then, the implementation of title III
provisions has been suspended by the President at 6 month
intervals, most recently on January 16, 2001.
Under the provisions in title IV of the Helms-Burton
legislation, certain aliens involved in the confiscation or
trafficking of U.S. property in Cuba are denied admission to
the United States. The ban applies to corporate officers,
principals, or shareholders with a controlling interest of an
entity involved in this activity. It also applies to the
spouses, minor children, and agents of aliens who are excluded
under the provision. This provision of the Act is mandatory and
is waiveable on a case-by-case basis for travel to the United
States only for humanitarian medical reasons or to participate
in legal actions regarding confiscated property. On June 17,
1996, the guidelines for implementing title IV provisions were
published in the Federal Register. \80\ This notice stipulated
that the admission sanction would not apply to persons having
business dealings solely with persons excluded under the
title's provisions. To date, the State Department has banned
from the United States a number of executives and their
families from three companies because of their investment in
confiscated U.S. property in Cuba: Crupos Domos, a Mexican
telecommunications company; Sherritt International, a Canadian
mining company; and BM Group, an Israeli citrus company. In
1997. Grupos Domos disinvested from U.S.-claimed property, and
as a result its executives are again eligible to enter the
United States. Action against executives from STET, an Italian
telecommunications company was averted by a July 1997 agreement
in which the company agreed to pay the U.S.-based ITT
Corporation $25 million for the use of ITT-claimed property in
Cuba for 10 years. Currently, the State Department is
investigating a Spanish hotel company, Sol Melia, for allegedly
investing in property that was confiscated from U.S. citizens
in Cuba's Holguin province in 1961.
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\80\ 61 Fed. Reg. 30655.
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In addition to these major provisions, section 103 of the
Helms-Burton legislation prohibits loans, credits, or other
financing by any U.S. national, U.S. agency, or permanent
resident alien for financing transactions involving any
property confiscated by the Cuban government, the claim to
which is owned by a U.S. national. Section 106(d) of the Act
requires that U.S. assistance for Russia be withheld by an
amount equal to the sum of assistance and credits provided (on
or after March 12, 1996) in support of the Russian intelligence
facility at Lourdes, Cuba. The President, however, may waive
this provision if such assistance is in the U.S. national
security interest, and if he certifies that Russia is not
sharing intelligence data collected at Lourdes with officials
or agents of the Cuban government.
Section 104 of the Act requires the United States to vote
against Cuba's admission to the international financial
institutions (IFIs) until a democratic government is in power.
The provision also requires the reduction of U.S. payment to
any IFI if it approves a loan or other assistance to Cuba over
the opposition of the United States. Finally, title II of the
law contains numerous conditions for determining when a
``transition'' government and a ``democratic'' government is in
power in Cuba, conditions which would qualify Cuba for various
types of U.S. assistance and would lead to suspension of U.S.
trade sanctions against Cuba.
Iraq Sanctions Act of 1990
The Iraq Sanctions Act of 1990 was enacted as part of the
Foreign Assistance and Related Program Appropriations Act for
fiscal year 1991,\81\ in response to Iraq's invasion of Kuwait
on August 2, 1990. The Act makes a number of declarations
concerning Iraq's invasion of Kuwait and requires the President
to consult with the Congress on U.S. actions taken in response.
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\81\ Public Law 101-513, approved November 5, 1990; sections 586
through 586J.
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Section 586C enacts into law the trade embargo and other
economic sanctions imposed on Iraq by presidential executive
order under authority of the International Emergency Economic
Powers Act and the National Emergencies Act.\82\ Those
sanctions entailed a near-total prohibition on transactions
between the United States and Iraq, including a ban on: imports
and exports; most travel and fulfillment of contracts; and
credits and loans. The executive orders also froze all assets
of the governments of Iraq and Kuwait. Section 586C requires
the President to notify Congress at least 15 days before the
termination of any of the above sanctions. Section 586E imposes
civil and criminal penalties on persons violating the executive
orders.
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\82\ Executive Orders 12724 and 12725 (August 9, 1990), and, to the
extent that they were still in effect on the date of enactment,
Executive Orders 12722 and 12723 (August 2, 1990).
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The Iraq Sanctions Act also imposes sanctions on Iraq
beyond those imposed by executive order. Section 586G imposes a
wide range of sanctions, including a ban on the following
transactions: arms sales; exports of certain goods and
technology, including nuclear technology and equipment; U.S.
government credits and credit guarantees; and other forms of
assistance. Those sanctions may be waived by the President if
he makes a certification of fundamental changes in Iraqi
leadership, policies, or actions, under criteria set forth in
section 586H.
The Act contains provisions aimed at increasing compliance
by third countries with U.N. Security Council sanctions against
Iraq. Section 586D denies assistance under the Foreign
Assistance Act of 1961 or the Arms Export Control Act to any
country not in compliance with the U.N. sanctions, subject to
certain exceptions. It also authorizes the President to ban
imports into the United States from any country that has not
imposed a ban on trade with Iraq, if he considers that such
action would promote the effectiveness of the U.N. and U.S.
sanctions against Iraq. Section 586I denies export licenses for
super-computer exports to any country the President determines
is assisting Iraq to improve its capabilities in rocket
technology or chemical, biological, or nuclear weapons.
Finally, the Iraq Sanctions Act mandates a number of
studies and reports to Congress concerning international
exports to Iraq of nuclear, biological, chemical and ballistic
missile technology; Iraq's offensive military capability; and
third country sanctions against Iraq.
Exemptions for Food and Medicine from U.S. Unilateral Trade Sanctions
On April 28, 1999, President Clinton announced that
existing unilateral economic sanctions programs would be
amended to modify licensing policies to permit case-by-case
review of specific proposals for the commercial sale of
agriculture commodities and products, as well as medicine and
medical equipment, where the United States has the discretion
to do so.\83\ Licenses are issued by the Treasury's Office of
Foreign Assets Control.
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\83\ 64 Fed. Reg. 41,784; 31 C.F.R. Parts 538, 550, and 560.
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Trade Sanctions Reform and Export Enhancement Act of 2000
The ``Trade Sanctions Reform and Export Enhancement Act of
2000'' was enacted as title IX of Public Law 106-387, the FY
2001 agriculture appropriations bill.\84\ The Act made two
principal changes to existing U.S. unilateral trade sanctions
on Cuba and other countries against which the United States has
imposed unilateral economic sanctions for foreign policy
purposes. First, the Act prohibits 120 days after enactment
(February 25, 2001), subject to certain exceptions, the use of
unilateral agricultural or medical sanctions with respect to
Cuba and other countries against which the United States has
imposed economic sanctions for foreign policy reasons.
Unilateral agricultural or medical sanctions are defined by the
Act not to include any multilateral regime where the other
members of that regime have agreed to impose substantially
equivalent measures or a mandatory decision of the United
Nations Security Council. The Act contains certain other
exceptions with respect to circumstances related to war,
biological and chemical weapons and items controlled under the
Arms Export Control Act, the Export Administration Act.
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\84\ P.L. 106-387, approved October 28, 2000.
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The Act prohibits the availability of any U.S. governmental
assistance, or financing by the U.S. government or a private
person, of commercial exports to Iran, Libya, North Korea or
Sudan, or exports to Cuba. In these cases, sales must be paid
for by cash in advance or through third country financing. In
the case of Iran, Libya, North Korea and the Sudan, the
legislation authorizes the President to waive this prohibition
for national security or foreign policy reasons.
Second, the Act codifies existing embargo regulations by
prohibiting both the importation of merchandise from Cuba and
travel for tourism to Cuba. In particular, licensed travel to
Cuba may not include travel for tourist activities. In
addition, the Act imposes tighter restrictions on non-tourist
travel that was previously allowed by regulations of the
Treasury Department, listed in 31 Code of Federal Regulations
515.560, paragraph (c), by restricting such travel to that
expressly authorized in those regulations.
With respect to new unilateral sanctions, the Act prohibits
the imposition of unilateral agricultural sanctions or medical
sanctions unless; (1) no later than 60 days before the proposed
sanction is imposed the President submits a reports to Congress
that describes the activity proposed to be prohibited,
restricted, or conditioned, and describes the actions by the
foreign country or foreign entity that justify the sanction;
and (2) a joint resolution is enacted stating the approval of
the Congress for the President's report. The Act sunsets any
unilateral agricultural or medical sanction that is imposed not
later than 2 years after the effective date of the sanction
unless the President submits another report to Congress and
another joint resolution is enacted.
The Hong Kong Policy Act
On July 1, 1997, China assumed sovereignty over Hong Kong
according to the terms of the Sino-British Joint Declaration of
1994. The question of how Hong Kong will fare under Chinese
rule is important to U.S. interests because of: (1) the large
U.S. economic presence in Hong Kong and; (2) any adverse
developments in Hong Kong will affect U.S.-China relations.
Under the Sino-British Joint Declaration, China committed to
preserving a high degree of autonomy under the so-called ``one-
China, two-systems'' policy.
The Hong Kong Policy Act which was passed by Congress in
1992 sets forth declarations and conditions for how the United
States should conduct bilateral relations with Hong Kong after
July 1, 1997.\85\ This legislation: (1) declares that support
for democratization is a fundamental principle of the United
States that should apply to U.S. policy toward Hong Kong after
1997; (2) declares U.S. support for the Sino-British Joint
Declaration and makes a number of findings of what is provided
for under this agreement; (3) requires that the United States
apply the same laws toward Hong Kong after 1997 as were in
force before then, but permits the President to suspend the
application of any law beginning in July 1, 1997, if he
determines that China is not giving Hong Kong sufficient
autonomy, and; (4) requires the Secretary of State to report to
Congress every 18 months on the situation in Hong Kong,
including the development of its democratic institutions.
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\85\ Public Law 102-383, approved October 5, 1992.
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As part of legislation granting China unconditional normal
trade relations upon its accession to the WTO, Congress
included a provision which states the sense of Congress that
immediately upon approval of China's accession by the WTO
General Council, the United States should request that the
Council consider Taiwan's accession as the next order of
business during the same Council session. Furthermore, the
legislation provides that the United States should be prepared
to aggressively counter any effort by any WTO Member to block
Taiwan's accession after approval of the PRC's accession.\86\
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\86\ Title VI of Public Law 106-286, approved October 10, 2000.
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Section 27 of the Merchant Marine Act, 1920 (Jones Act)
The Jones Act is a cabotage law that restricts the
transportation of property by water between points in the
United States, its possessions and territories (with very few
exceptions) to vessels built and (if applicable) substantially
repaired in U.S. shipyards, owned by U.S. citizens, manned by
U.S. citizen crews, and registered in the United States. The
first act passed by the First Congress was a cabotage measure
that made it extremely expensive for foreign-flag, foreign-
built vessels to operate in our coasting trades. Early cabotage
laws (1789, 1790, 1817) were, it is claimed, in response to
similar laws enforced by England, France, and other European
countries.
During World War I, U.S. cabotage prohibitions were relaxed
temporarily, but reinstated in 1920 by section 27 of the
Merchant Marine Act, 1920, now usually referred to as the Jones
Act. The penalty for violation is forfeiture of the cargo.
Section 721 of the Defense Production Act of 1950, as amended (``Exon/
Florio'')
The proposed purchase in 1988 of an 80 percent share of
Fairchild Semiconductor Corporation by Fujitsu, Ltd. sparked
congressional interest concerning takeovers of American firms
by foreign companies which raise national security
considerations. Section 5021 of the Omnibus Trade and
Competitiveness Act of 1988 amended title VII of the Defense
Production Act of 1950 \87\ to add provisions (commonly known
as ``Exon/Florio,'' the chief congressional sponsors) because
of concerns that the federal government lacked specific
authority to prevent such acquisitions.
---------------------------------------------------------------------------
\87\ 50 U.S.C. App. 2170, as added by Public Law 100-418, section
5021, approved August 23, 1988.
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The provisions authorize the President, after he makes
certain findings, to take actions for such time as he considers
appropriate to suspend or prohibit any acquisition, merger, or
takeover of a person engaged in interstate commerce in the
United States by or with foreign persons so that such control
will not threaten to impair the national security. To activate
this authority, the President has to find that there is
credible evidence that leads him to believe the foreign
interest exercising control might take action that threatens to
impair the national security and that other laws do not provide
adequate and appropriate authority to protect the national
security in the matter. The President has to report the
findings to the Congress with a detailed explanation.
In making any decision to exercise the authority under this
provision, the President may consider such factors as: (1)
domestic production needed for projected national defense
requirements; (2) the capability and capacity of domestic
industries to meet national defense requirements; and (3) the
control of domestic industries and commercial activities by
foreign citizens as it affects the capability and capacity of
the United States to meet the requirements of national
security. The standard of review is ``national security''; the
provision affects only overseas investment flowing into the
United States and is not intended to authorize investigations
of investments that could not result in foreign control of
persons engaged in interstate commerce nor to have any effects
on transactions which are outside the realm of national
security.
Among the actions available to the President is the ability
to suspend a transaction. The President may also seek
appropriate relief in the district courts of the United States
in order to implement and enforce the provisions, including
broad injunctive and equitable relief including, but not
limited to divestment relief.
Chapter 6: RECIPROCAL TRADE AGREEMENTS
Reciprocal Trade Agreement Objectives and Authorities
Section 1102 of the Omnibus Trade and Competitiveness Act
of 1988 \1\ provided authorities for the President to enter
into reciprocal bilateral and multilateral trade agreements
with foreign countries to reduce or eliminate tariff or
nontariff barriers and other trade-distorting measures. Section
1102 replaced similar authorities under section 102 of the
Trade Act of 1974 \2\ that expired on January 3, 1988. Except
for the authority to proclaim modifications in U.S. tariffs
under multilateral agreements, trade agreements entered into
under section 1102 were subject to congressional approval of
implementing legislation under special expedited, so-called
``fast track'' procedures. The basic purpose of the section
1102 authorities was to provide the means to achieve U.S.
negotiating objectives set forth under section 1101 of the 1988
Act and to enable U.S. participation in the Uruguay Round of
multilateral trade negotiations under the auspices of the
General Agreement on Tariffs and Trade (GATT) launched in
September 1986. The authorities were also used for the North
American Free Trade Agreement (NAFTA). The authorities expired
on June 1, 1993, except that on July 2, 1993, section 1102 was
amended to extend the fast track procedures to April 16, 1994
for the sole purpose of concluding the Uruguay Round
negotiations.\3\
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\1\ Public Law 100-418, approved August 23, 1988, 19 U.S.C. 2902.
\2\ Public Law 93-618, approved January 3, 1975, 19 U.S.C. 2112.
\3\ Public Law 103-49, approved July 2, 1993, 19 U.S.C. 2902(e).
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Although the fast track procedures have now expired with
respect to new agreements, certain limited, residual authority
remains with respect to tariffs.\4\ In addition, there are
special trade agreement authorities that apply in limited
circumstances or to deal with specific situations: (1) trade
agreements entered into under section 123 of the Trade Act of
1974,\5\ as amended by the 1988 Act, to grant new concessions
as compensation for import relief actions or any judicial or
administrative tariff reclassification; (2) withdrawal,
suspension, or modification of trade agreement obligations
under section 125 of the Trade Act of 1974; \6\ (3) agreements
with major state trading regimes acceding to the World Trade
Organization (WTO); (4) trade agreements and remedies under
sections 1371-1382 of the Omnibus Trade and Competitiveness Act
of 1988 \7\ to obtain more open foreign market access in
telecommunications trade; and (5) bilateral trade agreements
with certain Communist countries providing for
nondiscriminatory (most-favored-nation) treatment under certain
conditions.
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\4\ See discussion on specific trade agreement authorities which
follows.
\5\ Public Law 93-618, 19 U.S.C. 2133.
\6\ Public Law 93-618, 19 U.S.C. 2135.
\7\ Public Law 100-418, 19 U.S.C. 3101.
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Trade Negotiating Objectives
Section 1101 of the Omnibus Trade and Competitiveness Act
of 1988 \8\ set forth overall and principal trade negotiating
objectives of the United States. Any multilateral or bilateral
trade agreement entered into under the authorities of the
expired section 1102 of the 1988 Act was required to make
progress in meeting the applicable objectives described in
section 1101.
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\8\ Public Law 100-418, 19 U.S.C. 2901.
---------------------------------------------------------------------------
Section 1124 of the 1988 Act \9\ requires the Secretary of
the Treasury to take action to initiate bilateral currency
negotiations on an expedited basis with a foreign party to
trade agreement negotiations if the Secretary advises the
President during the course of those negotiations that the
country satisfies the criteria under section 3004(b) of the
1988 Act relating to exchange rate manipulation.
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\9\ Public Law 100-418, 22 U.S.C. 5304 note.
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Sections 131, 135 and 315 of the Uruguay Round Agreements
Act \10\ provide U.S. objectives for seeking a WTO working
party on worker rights; extended negotiations in financial
services, telecommunications, and civil aircraft; and
intellectual property right protection. More specifically,
section 131 requires the President to seek the establishment of
a WTO working party to examine the relationship of
international trade and worker rights. Section 135 sets forth
principal U.S. negotiating objectives for the extended
negotiations in the WTO on financial services, basic
telecommunications, and on trade in civil aircraft. Section 315
sets forth objectives for the Administration to pursue in the
field of intellectual property, which include accelerating the
implementation of the TRIPs agreement, seeking the enactment of
effective intellectual property rights laws abroad, and
securing fair, equitable and nondiscriminatory market access
opportunities for U.S. intellectual property based industries.
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\10\ Public Law 103-465, approved December 8, 1994, 19 U.S.C. 3551,
3555, 3581.
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The NAFTA Implementation Act includes a provision regarding
congressional intent for future free trade agreements. In this
regard, section 108 of the Act \11\ sets forth considerations
and preliminary procedures for possible future free trade area
agreements and accession by foreign countries to NAFTA. Article
2204 of the NAFTA sets forth the basis for the accession of any
country or group of countries. In the United States, accession
would require congressional approval and implementing
legislation. Section 108 stipulates that congressional approval
of NAFTA with respect to Canada or Mexico does not constitute
approval of its extension to other countries. Section 108 also
requires the President to report to Congress on his
recommendations for future trade agreement countries and sets
forth general U.S. negotiating objectives for accession.
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\11\ Public Law 103-182, approved December 8, 1993, 19 U.S.C. 3317.
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Section 409 of the Trade and Development Act of 2000
(Public Law 106-200) contains specific agricultural negotiating
objectives of the United States for the World Trade
Organization's negotiations on agriculture mandated by the
Uruguay Round Trade Agreements. Section 409 also mandates
consultations with Congress at Specific points during the
negotiations.
General Tariff Authority
Since enactment of the Reciprocal Trade Agreements Act of
1934, the Congress periodically has delegated authority to the
President to negotiate and to proclaim reductions in tariffs
under reciprocal trade agreements, subject to specific
conditions and limitations, without requiring further
congressional action. The most recent grant of such authority
was contained in section 1102(a) of the Omnibus Trade and
Competitiveness Act of 1988.
Prior to its expiration, section 1102(a) granted the
President authority to enter into multilateral tariff
agreements with foreign countries and to proclaim reductions in
U.S. rates of duty required or appropriate to carry out such
agreements, subject to the following limitations:
(1) Reductions of existing U.S. duties cannot exceed
50 percent of existing rates of duty, except that
duties of 5 percent ad valorem or below may be reduced
to zero.
(2) Staging authority requires that duty reductions
on any article cannot exceed 3 percent ad valorem per
year, or one-tenth of the total reduction, whichever is
greater, except that staging is not required if the
U.S. International Trade Commission determines there is
no U.S. production of the article.
(3) Under rounding authority, annual duty reductions
may exceed the limits by the lesser of the difference
between the limit and the next lower whole number or
one-half of 1 percent ad valorem in order to simplify
computations.
Any duty reductions negotiated in a trade agreement that exceed
50 percent of an existing duty higher than 5 percent ad valorem
or any tariff increases would have to be approved by the
Congress under the special fast track legislative procedures
that apply to nontariff agreements.\12\
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\12\ See also the discussion on specific trade agreement
authorities, which follows.
---------------------------------------------------------------------------
The Uruguay Round Agreements Act provides certain limited,
residual proclamation authority to the President with respect
to tariffs. Specifically, section 111(a) provides very limited
authority to the President to modify duties, change duty
staging, and increase duties ``as the President determines to
be necessary or appropriate to carry out schedule XX.'' In
addition, section 111(b)(1) provides that, subject to
consultation and layover requirements, the President may
proclaim tariff modification or staged rate reduction if the
United States so agrees in a WTO negotiation and if it applies
to the duty on an article in a tariff category that ``was the
subject of reciprocal duty elimination'' (so-called ``zero-for-
zero elimination'') ``or harmonization negotiations'' during
the Uruguay Round.\13\ Acceleration of staging on other
categories of tariffs would not be permitted under this
authority. Finally, section 111(b)(2) provides that the
President may make modifications necessary to correct
``technical errors'' in schedule XX.
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\13\ This authority was used by the President in implementing U.S.
obligations under the Information Technology Agreement concluded in
December 1996. Pres. Proc. No. 7011, June 30, 1997, 62 Fed. Reg. 35909.
---------------------------------------------------------------------------
The North American Free Trade Agreement Implementation Act
of 1993 also provides some limited proclamation authority with
respect to tariffs. Specifically, section 201(a) provides the
President with the very limited authority to modify duties,
change duty staging, and increase duties as he ``determines to
be necessary or appropriate to carry out or apply'' the
Agreement. In addition, section 201(b) provides that, subject
to consultation and layover requirements, the President may
proclaim: tariff modifications or continuations, or staged rate
modifications if the United States, Canada, and Mexico agree;
continuation of duty-free treatment; and increased duties ``as
the President determines to be necessary or appropriate to
maintain the general level of reciprocity and mutually
advantageous concessions with respect to Canada and Mexico
provided for by the Agreement.''
The Uruguay Round Agreements Act also provides authority
for the President to increase duties on articles from countries
which are not WTO members. Section 111(c) of the Act \14\
authorizes the President, after congressional consultation, to
increase duties on imports from countries that are not members
of the WTO, or to which the United States does not apply the
WTO, if he determines that the country is not according
adequate trade benefits to the United States, including
substantially equivalent competitive opportunities. The maximum
rate of duty that may be proclaimed is the higher of the pre-
Uruguay Round most-favored-nation (MFN) rate or the MFN rate of
duty that will apply under the Uruguay Round schedule XX.
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\14\ Public Law 103-465, 19 U.S.C. 3521.
---------------------------------------------------------------------------
Multilateral Trade Agreement Authority
Trade negotiations prior to the Tokyo Round concentrated
primarily on reducing or eliminating tariffs. Relatively little
effort and progress was made to reduce nontariff barriers or
other trade-distorting measures such as subsidies. Section 102
of the Trade Act of 1974 resulted from considerable concern
about the growing importance and proliferation of such
practices to the detriment of U.S. export trade and the need to
develop new or more adequate international trading rules and
mechanisms for their discipline. The purpose of section 102
was: (1) to make clear the importance of reducing, eliminating,
or harmonizing nontariff barriers and other trade-distorting
measures through a congressional policy mandate and specific
authority for the President to negotiate and enter into
reciprocal nontariff barrier trade agreements as the major
focus of the Tokyo Round of GATT multilateral trade
negotiations; (2) to expedite and reduce the uncertainties of
the legislative process for approval and implementation of such
trade agreements, thereby encouraging and facilitating
negotiations with foreign governments; and (3) to increase and
formalize the role of the Congress during the negotiating
process and in the development of implementing legislation. The
authority applied to U.S. foreign direct investment as well as
to trade in both goods and services.
Section 102 of the Trade Act of 1974 authorized the
President to enter into reciprocal trade agreements for 5
years, until January 3, 1980, subject to congressional
consultation requirements and approval of the agreements in
implementing legislation considered under special expedited
fast track procedures. Section 102 authority was used
successfully to approve the agreements negotiated in the Tokyo
Round and to make the changes in U.S. laws necessary for their
domestic implementation under the Trade Agreements Act of 1979.
That law extended the section 102 authority for an additional 8
years, until January 3, 1988, to enable the President to
negotiate improvements or adjustments in existing agreements
and to negotiate and enter into new agreements on non-tariff
measures not dealt with in the Tokyo Round.
Section 102 authority was replaced by similar authority
under section 1102(b) of the Omnibus Trade and Competitiveness
Act of 1988. A trade agreement could be entered into under this
authority only if it made progress in meeting the applicable
objectives set forth in section 1101 of the 1988 Act.
Section 1102(b) authorized the President to enter into
trade agreements with foreign countries providing for the
reduction or elimination of any nontariff barriers or other
distortions to trade, or for the prohibition of or limitations
on the imposition of such barriers or distortions, before June
1, 1993, subject to implementation under the special fast track
congressional approval procedures. The President was to provide
the Congress at least 90 calendar days advance notice, i.e., no
later than March 2, 1993, of his intention to enter into a
trade agreement no later than May 31.
On July 2, 1993, section 1102 was amended to extend the
fast track approval procedures to April 16, 1994 for the
Uruguay Round negotiations, provided the President notified the
Congress of his intent to enter into an agreement at least 120
days in advance (i.e., by December 15, 1993). The amendments
also granted the private sector advisory committees an
additional 30 days (but before January 15, 1994) to submit
their reports on the proposed agreement.
Bilateral Trade Agreement Authority
The expired section 1102(c) of the Omnibus Trade and
Competitiveness Act of 1988 authorized the President to enter
into bilateral tariff and nontariff agreements with foreign
countries, subject to the same congressional consultation
requirements and special fast track procedures for approval of
implementing legislation as apply to multilateral agreements.
The authority to enter into bilateral trade agreements applied
to trade agreements entered into before June 1, 1993, and was
subject to the same minimum 90-day advance notice requirement
as the multilateral authority.
Section 1102(c) authorized the elimination or reduction of
any U.S. duty or for the elimination or reduction of nontariff
barriers or other trade distorting measures. No trade benefit
under the Agreement could be extended to a third country. The
authority was similar to that which was used for the bilateral
free trade agreements between the United States and Israel and
the United States and Canada. The provision set forth three
requirements for the negotiation of a bilateral agreement:
(1) The foreign country must request the negotiation
of a bilateral trade agreement;
(2) The agreement must make progress in meeting
applicable U.S. trade negotiating objectives; and
(3) The President must provide written notice of the
negotiations to the House Committee on Ways and Means
and the Senate Committee on Finance and consult with
these committees regarding the negotiation of an
agreement. The negotiations may proceed unless either
Committee disapproves the negotiations within 60
legislative days prior to the 90 calendar day advance
notice required of entry into an agreement.
These multilateral and bilateral trade agreement
authorities, which were originally due to expire as of June 1,
1991, were extended for an additional 2 years under procedures
provided under section 1103(b) of the 1988 Act. On March 1,
1991, President Bush submitted a report to the Congress
requesting extension of the fast track trade agreement
authorities as essential in particular for (1) completing the
Uruguay Round of GATT multilateral trade negotiations, (2)
proposed negotiations of NAFTA with Mexico and Canada, and (3)
pursuit of free trade agreements with Latin American countries
under the Enterprise for the Americas Initiative announced by
the President on June 27, 1990.\15\ In a subsequent letter on
May 1, 1991, the President made commitments to the Congress in
response to concerns raised about the proposed NAFTA
negotiations. Neither House of Congress disapproved extension
of the trade agreement authority for an additional 2-year
period prior to the June 1, 1991 expiration date for
disapproval.
---------------------------------------------------------------------------
\15\ ``The Extension of Fast Track Procedures,'' Message from the
President of the United States, House Document 102-51, March 4, 1991.
---------------------------------------------------------------------------
Reciprocal Competitive Opportunities
Prior to its expiration, section 1105(b) of the Omnibus
Trade and Competitiveness Act of 1988 \16\ required the
President to determine before June 1, 1993 (the final
expiration date of trade agreement authority) whether any major
industrial country had failed to make trade agreement
concessions which provide competitive opportunities for the
United States substantially equivalent to such concessions
provided by the United States. If the determination was
affirmative with respect to any country, the President was to
recommend to the Congress legislation to terminate or deny
trade agreement concessions in order to restore equivalence.
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\16\ Public Law 100-418, 19 U.S.C. 2904.
---------------------------------------------------------------------------
Specific Trade Agreement Authorities
Sections 123 and 125 of the Trade Act of 1974, as amended
by the Trade and Tariff Act of 1984 and the Omnibus Trade and
Competitiveness Act of 1988, as well as section 111 of the
Uruguay Round Agreements Act and section 201 of the North
American Free Trade Agreement Implementation Act, contain
authorities to enter into and/or to proclaim changes in U.S.
duties under trade agreements in certain specific limited
circumstances.
Compensation agreements
Section 123 of the Trade Act authorizes the President to
enter into trade agreements granting new concessions and to
proclaim modifications or continuation of existing duties or
duty-free treatment as he determines required or appropriate as
compensation to foreign countries for restrictions imposed as
import relief under section 203 of the Trade Act or for any
judicial or administrative tariff reclassification. No duty
reduction can exceed 30 percent of its existing level. The
purpose of such concessions is to meet international
obligations under the WTO to maintain the general level of
reciprocal and mutually advantageous concessions with countries
whose trade is adversely affected by import relief measures or
certain tariff reclassifications, and provide an alternative to
the right of such countries under the WTO to take retaliatory
action.
Termination and withdrawal authority
Section 125 of the Trade Act contains the traditional
requirement that every trade agreement entered into is subject
to termination or withdrawal within 3 years after its effective
date, or upon 6 months advance notice thereafter. The President
may terminate any proclamation at any time.
Section 125(c) provides the President explicit domestic
legal authority to proclaim increased duties or other import
restrictions as he deems necessary or appropriate to implement
U.S. international trade agreement rights or obligations to
withdraw, suspend, or modify any trade agreement concessions.
Section 125(d) authorizes the President to withdraw,
suspend, or modify substantially equivalent trade agreement
obligations and proclaim increased duties or other import
restrictions in response to withdrawal suspension, or
modification by foreign countries of trade obligations
benefitting the United States without granting adequate
compensation (i.e., ``self-compensation'' authority). This
authority was used in November 1982 by President Reagan to
suspend most-favored-nation status for Poland indefinitely,
based upon Poland's nonfulfillment of trade obligations
undertaken in its accession to the GATT, and in view of
increased repression of the Polish people by the martial law
government.
No duty increase imposed under section 125(d) can exceed
the higher of 50 percent or 20 percent ad valorem above the
rate existing on January 1, 1975. Public hearings are required
prior to taking any action, or promptly thereafter if
expeditious action is necessary.
Section 125(e) requires duties or other import restrictions
to remain in effect at negotiated levels for 1 year after U.S.
termination of, or withdrawal from, a trade agreement, unless
the President proclaims restoration of the previous level. The
President must submit his recommendations to the Congress
within 60 days as to the appropriate rates of duty on all
affected articles. This provision prevents automatic, sudden
``snapbacks'' to higher preagreement duties that could create
serious economic impact.
Accession of major state trading regimes to the WTO
Section 1106 of the Omnibus Trade and Competitiveness Act
of 1988,\17\ as amended, requires the President to determine,
before any major foreign country accedes to the WTO, whether
state trading enterprises (1) account for a significant share
of that country's exports or of its goods subject to import
competition, and (2) whether those enterprises unduly burden or
restrict or adversely affect U.S. trade or the U.S. economy or
are likely to have such results. If both determinations are
affirmative, the WTO cannot apply between the United States and
that country until either (1) the country enters into an
agreement with the United States for its state trading
enterprises to operate in accordance with commercial
considerations, or (2) Congress approves fast track legislation
submitted by the President extending application of the WTO to
the country.
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\17\ Public Law 100-418, 19 U.S.C. 2905.
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Trade Negotiation Procedural Requirements
Sections 131-135 of the Trade Act of 1974,\18\ as amended
by the Omnibus Trade and Competitiveness Act of 1988, require
that certain procedures be followed in connection with any
proposed trade agreement under section 123 of the 1974 Act or
expired section 1102 of the 1988 Act. These prenegotiation
procedures require advice from the International Trade
Commission on the probable economic effect of duty
modifications on U.S. industries (section 131), advice from
executive branch agencies and other sources (section 132),
public hearings (section 133), and advice from private sector
advisory committees (section 135). In addition, executive
liaison with the Congress is required through congressional
designated official advisers to negotiations (section 161),
transmittal of trade agreements (section 162), and annual
reports on the trade agreements program and related matters
(section 163). (See also discussion of Congress in chapter 7,
infra.)
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\18\ Public Law 93-618, 19 U.S.C. 2151.
---------------------------------------------------------------------------
Section 127 of the Trade Act of 1974 \19\ requires the
reservation from any negotiations involving reduction or
elimination of duties or other import restrictions of any
article while it is subject to an import relief action under
section 203 of that Act or to a national security action under
section 232 of the Trade Expansion Act of 1962, or if the
President determines that the national security would be
impaired.
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\19\ Public Law 93-618, 19 U.S.C. 2137.
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Congressional Fast Track Implementing Procedures
In contrast to traditional tariff proclamation authority,
nontariff barrier agreements entered into under section 102 of
the Trade Act of 1974, or the expired section 1102(b) of the
Omnibus Trade and Competitiveness Act of 1988, and bilateral
trade agreements entered into under expired section 1102(c)
authority under the 1988 Act could not enter into force for the
United States and become binding as a matter of domestic law
unless and until the President complied with specific
requirements for consultation with the Congress and
implementing legislation approving the Agreement and any
changes in U.S. law was enacted into law.
The purpose of the approval process is to preserve the
constitutional role and fulfill the legislative responsibility
of the Congress with respect to agreements which often involve
substantial changes in domestic laws. The consultation and
notification requirements prior to entry into an agreement and
introduction of an implementing bill ensure that congressional
views and recommendations with respect to provisions of the
proposed agreement and possible changes in U.S. law or
administrative practice are fully taken into account and any
problems resolved in advance of formal congressional action. At
the same time, the procedure ensures certain and expeditious
action on the results of the negotiation and on the
implementing bill with no amendments. Sections 102 of the 1974
Act, and 1102(d) and 1103 of the 1988 Act set forth the
consultation and documentation requirements,\20\ and 151-154 of
the 1974 Act \21\ prescribed the following procedures for
congressional fast track approval, as follows:
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\20\ Public Law 100-418, 19 U.S.C. 2903.
\21\ Public Law 93-618, 19 U.S.C. 2191.
---------------------------------------------------------------------------
(1) Before entering into any trade agreement, the
President is required to consult with the House
Committee on Ways and Means, the Senate Committee on
Finance, and with each other committee in the House and
Senate with jurisdiction over legislation involving
subject matter affected by the Agreement. The
consultation includes (a) the nature of the Agreement;
(b) how and to what extent the Agreement will achieve
applicable purposes, policies, and objectives; and (c)
all matters relating to agreement implementation.
(2) The President is required to give the Congress at
least 90 calendar days (120 calendar days for the
Uruguay Round Agreements) advance notice of his
intention to enter into a trade agreement, and promptly
publish the intention in the Federal Register. The
purpose of this notice period is to provide the
congressional committees of jurisdiction an opportunity
to review the proposed agreement before it was signed,
to determine the changes in U.S. laws that would be
necessary or appropriate to implement the obligations
under the Agreement, and to meet with Administration
officials to develop the text of an acceptable
implementing bill.
(3) After entering into the Agreement, the President
is required to submit a copy of the final legal text to
the Congress, together with a draft implementing bill,
a statement of any administrative action proposed to
implement the Agreement, and supporting information
((a) an explanation of how the bill and proposed
administrative action would change or affect existing
law; and (b) a statement asserting that the Agreement
made progress in achieving applicable purposes,
policies, and objectives; the reasons the Agreement
made such progress and why and to what extent it did
not achieve other purposes, policies, and objectives;
how the Agreement served the interests of U.S.
commerce; why the implementing bill and proposed
administrative action were required or appropriate to
carry out the Agreement; efforts made by the President
to obtain international exchange rate equilibrium and
any effect the Agreement may have regarding increased
monetary stability; and the extent, if any, to which
each foreign party to the Agreement maintained non-
commercial state trading enterprises that may adversely
affect, nullify, or impair the benefits to the United
States under the Agreement and how the Agreement
applied to or affected purchases and sales by such
enterprises).
There is no statutory time limit for submission of
the Agreement and draft bill after entry into the
Agreement. The timetable is worked out between the
congressional leadership and the Administration to
accommodate the need for committees of jurisdiction to
have adequate opportunity to develop an acceptable
draft bill text while also ensuring expeditious formal
action on the actual implementing legislation.
(4) The implementing bill is introduced by the
leadership in both Houses of Congress on the same day
it is submitted by the President and referred to the
committees of jurisdiction. The committees have 45
legislative days in which to report the bill; they are
discharged automatically from further consideration
after that period.
(5) Each House votes on the bill within 15
legislative days after the measure has been received
reported or discharged from the committees. A motion in
the House to proceed to consideration of the
implementing bill is highly privileged and not
debatable. Motions to recommit or reconsider the vote
are not in order. Amendments are not in order.
No amendments to the implementing bill are in order in
either the House or the Senate once the bill had been
introduced; the committee and floor actions in the House and
Senate consist of ``up or down'' votes on the bill as
introduced. The total maximum period for congressional
consideration from date of introduction is 60 legislative days
if the bill was not a revenue measure. Since the Senate must
act on a House-passed revenue bill, the maximum period for
congressional consideration of a revenue implementing bill from
date of introduction is 90 legislative days (15 additional days
for Senate committee action on the House-passed measure and 15
additional days for Senate floor action). After the legislation
is signed by the President, the Agreement goes into effect
under the terms of the Agreement and the implementing bill.
Section 1103(c) of the 1988 Act instituted a ``reverse fast
track'' procedure that terminated the application of that
special procedure for the approval of trade agreements if both
the Committee on Ways and Means and the Committee on Rules in
the House and the Committee on Finance in the Senate reported,
and both the House and Senate separately passed, resolutions of
disapproval within any 60 legislative day period. The basis for
the disapproval was failure or refusal of the U.S. Trade
Representative (USTR) to consult with the Congress on trade
negotiations and trade agreements as set forth in the
consultation requirements. The fast track procedure applied to
floor consideration of the resolution, which was nonamendable.
In addition, the 1974 and 1988 Acts provided for
congressional advisers and consultations with committees of
jurisdiction throughout the course of trade agreement
negotiations (section 161 of the 1974 Act) and an advisory
committee structure for private sector input during
negotiations and reports on the results (section 135 of the
1974 Act). The congressional consultation requirements and fast
track procedures applied to the implementing legislation for
the Tokyo Round of GATT multilateral trade negotiations in
1979, the United States-Israel Free Trade Agreement and the
United States-Canada Free-Trade Agreement, the North American
Free Trade Agreement, and the Uruguay Round of GATT
multilateral trade negotiations, including the Agreement
Establishing the World Trade Organization.
Special fast track procedures under section 3(c) of the
Trade Agreements Act of 1979 also applied to implementation of
changes in the Tokyo Round Agreements and to the United States-
Canada Free-Trade Agreement for an initial 30-month period.
Section 3(c), which currently applies to implementation of
changes in the United States-Israel Free Trade Agreement and
the GATT Agreement on Civil Aircraft,\22\ requires the
President to submit a draft bill and statement of any
administrative action to the Congress whenever he determines it
is necessary or appropriate to amend, repeal, or enact a
statute to implement any requirement, amendment, or
recommendation concerning an agreement. The President is
required to consult at least 30 days in advance with the House
Committee on Ways and Means and the Senate Committee on Finance
and any other committees of jurisdiction on the subject matter
and implementation.
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\22\ Public Law 96-39, approved July 26, 1979, 19 U.S.C. 2504.
---------------------------------------------------------------------------
While the authorities to enter into new trade agreements
for congressional approval under fast track implementing
procedures expired upon conclusion of the Uruguay Round
negotiations, the fast track legislative procedures under
sections 151-154 of the 1974 Act continue to apply to (1)
resolutions approving bilateral commercial agreements extending
normal trade relations (NTR) treatment to countries which are
subject to the provisions of title IV of the Trade Act of 1974;
(2) joint resolutions disapproving annual presidential
determinations to extend authority to waive freedom of
emigration requirements under title IV; (3) joint resolutions
disapproving presidential reports of country compliance with
freedom of emigration requirements under title IV; (4) joint
resolutions disapproving presidential import relief actions
under section 203 of the Trade Act of 1974 which differ from
recommendations of the International Trade Commission; and (5)
joint resolutions withdrawing congressional approval of the WTO
Agreement after 5 years and every 5 years thereafter. While the
procedures applicable to implementing bills and resolutions and
to joint disapproval resolutions are similar, the time periods
for committee and House and Senate consideration differ
(shorter periods for disapproval resolutions), and the overall
time periods for congressional consideration is generally
subject to the terms of the statute involved.
Although statutory, the fast track legislative procedures
were enacted as an exercise of the rulemaking powers of each
House of Congress, and are part of each House's rules. The
procedures may be changed in the same manner as any other
rules.
Uruguay Round Agreements
The Uruguay Round Agreements represented the culmination of
negotiations among 125 countries over an 8-year period launched
in Punta del Este, Uruguay in September 1986 under the auspices
of the GATT and concluded in Geneva, Switzerland on December
15, 1993. On that date President Clinton provided the Congress
the required 120-day advance notice of his intention to enter
into the Agreements. The Agreements were signed in Marrakesh,
Morocco on April 15, 1994 by 111 countries, including the
United States, thereby undertaking the commitment to bring the
results before their respective legislatures for approval.
Sections 1101-1103 of the Omnibus Trade and Competitiveness
Act of 1988, as extended by Public Law 103-49, set forth U.S.
negotiating objectives and authority and implementing
procedures necessary for U.S. participation. As required by
Public Law 103-49, the private sector advisory committees
established under section 135 of the Trade Act of 1974
submitted their reports assessing the Agreements to the
President, the USTR and the Congress on January 14, 1994.
On September 27, 1994, President Clinton sent a letter of
transmittal to the House and Senate covering: (1) transmittal
of the final texts of the Uruguay Round agreements, including
the Agreement establishing the World Trade Organization; (2)
the draft implementing bill and Statement of Administrative
Action; and (3) supporting documents, as required by section
1103 of the 1988 Act.\23\
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\23\ Public Law 100-418, 19 U.S.C. 2903.
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As provided under section 151 of the Trade Act of 1974,\24\
as amended, the implementing legislation was introduced in the
House on September 27 as H.R. 5110 by Majority Leader Gephardt,
for himself and Minority Leader Michel by request, and jointly
referred to eight committees of jurisdiction for a period
ending October 3, 1994. On November 29, 1994, H.R. 5110 passed
the House and was sent to the Senate for consideration, where
it passed on December 1. On December 8, 1994, the bill was
signed into law by the President.
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\24\ Public Law 93-618, 19 U.S.C. 2191.
---------------------------------------------------------------------------
The Uruguay Round Agreements are the broadest, most
comprehensive trade agreements in history. The Agreements cut
global tariffs by more than one-third, and reduce or eliminate
numerous nontariff measures, such as quotas, restrictive
licensing systems, and discriminatory product standards.
The agreements also contain multilateral rules covering
such matters as technical barriers to trade, trade-related
investment measures (TRIMs), rules of origin, import licensing
procedures, safeguards, trade-related aspects of intellectual
property rights (TRIPs), antidumping/countervailing duties,
agriculture trade, and government procurement. In addition, the
General Agreement on Trade in Services (GATS) establishes a
framework of rules for trade and investment in services
sectors, including most-favored-nation (MFN) and national
treatment, market access, transparency, and the free flow of
payments and transfers. Many of these agreements are addressed
in detail in other chapters of this book.
The Agreement Establishing the World Trade Organization
establishes an international organization which encompasses the
existing GATT institutional structure and extends it to the new
Uruguay Round disciplines on services, intellectual property,
and investment.
The Understanding on Rules and Procedures Governing the
Settlement of Disputes creates new procedures for settlement of
disputes arising under any of the Uruguay Round agreements and
provides time limits for each step in the process. The
Understanding creates a more automatic process, including the
right to a panel, adoption of panel reports unless there is a
consensus to reject the report, appellate legal review on
request, time limits for country conformity with panel rulings
and recommendations, and authorization of retaliation if such
limits are not met.
Uruguay Round Agreements Act
The Uruguay Round Agreements Act approves the trade
agreements resulting from the Uruguay Round of multilateral
trade negotiations under the auspices of the General Agreement
on Tariffs and Trade (GATT) entered into by the President on
April 15, 1994. The legislation and the Statement of
Administrative Action (SAA) proposed to implement the
Agreements were submitted to the Congress on September 27,
1994. The legislation includes provisions that are necessary or
appropriate to implement the Uruguay Round Agreements in U.S.
domestic law. Also included are provisions to offset the
projected cost of the implementing legislation in order to
comply with the ``pay-as-you-go'' requirements of the Budget
Enforcement Act.
The legislation contains general provisions on: (1)
approval and entry into force of the Uruguay Round Agreements,
and the relationship of the Agreements to U.S. laws (section
101 of the Act \25\); (2) authorities to implement the results
of tariff negotiations (section 111 of the Act \26\); (3)
procedures regarding implementation of dispute settlement
proceedings affecting the United States and oversight of
activities of the World Trade Organization (WTO) (sections 121-
130 of the Act \27\); and (4) objectives regarding extended
Uruguay Round negotiations and other related provisions
(sections 131, 135 and 315 of the Act \28\).
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\25\ Public Law 103-465, 19 U.S.C. 3511.
\26\ Public Law 103-465, 19 U.S.C. 3521.
\27\ Public Law 103-465, 19 U.S.C. 3531-3538.
\28\ Public Law 103-465, 19 U.S.C. 3551, 3555, and 3581.
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Specifically, sections 121-130 of the Act \29\ contain
procedural requirements for notice, consultation, and reporting
to ensure access to, and advice by, congressional committees,
private sector advisory committees, and the public regarding
the dispute settlement mechanism under the WTO. In order to
ensure that the WTO continues the practice followed by the GATT
of decisionmaking by consensus, USTR must consult with Congress
before any vote is taken in the WTO that would substantially
affect U.S. rights or obligations under the Agreement or
another multilateral trade agreement, or potentially entails a
change in federal or state law. Within 30 days after the end of
any year in which the WTO takes such a vote, USTR will submit a
report to the appropriate congressional committees describing
the decision, U.S. efforts to achieve consensus, country
voting, how the decision affects the United States, and the
President's response. The dispute settlement procedures set
forth in the Act also include a provision requiring USTR to
inform, consult, and report to Congress, private sector
advisory committees, and the public during each stage of the
process. Promptly after the establishment of a panel, USTR will
publish a notice in the Federal Register identifying the
parties to the dispute, setting forth the major issues raised
and the legal basis of the complaint, identifying the specific
measures cited in the request for the panel, and seeking
written comments from the public on the issues raised. The USTR
will take into account any advice received from Congress and
the advisory committees and the written comments in preparing
U.S. submissions to the panel or Appellate Body. In addition,
USTR is required to submit an annual report to the Congress on
the structure, budget and activities of the WTO, and details of
dispute settlement actions.
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\29\ Public Law 103-465, 19 U.S.C. 3531-3538.
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The legislation contains a number of other provisions which
affect the administration of U.S. trade laws. Included in the
legislation are provisions amending the U.S. antidumping and
countervailing duty laws in response to the Uruguay Round
Antidumping and Subsidies/Countervailing Measures Agreements.
The legislation implement in U.S. domestic law various
provisions of the Uruguay Round Agreements relating to import
safeguard measures; foreign trade barriers and unfair trade
practices in import trade (section 337 of the Tariff Act of
1930); textiles and apparel trade; government procurement; and
technical barriers to trade (product standards). Also included
are provisions implementing the Agreement on Agriculture and
the Agreement on Trade-Related Aspects of Intellectual Property
Rights. The legislation also contains provisions extending
expiring programs and amendments to certain customs laws
related to the Uruguay Round Agreements, conforming amendments
to various laws to reflect the implementation of the
Agreements, as well as a number of revenue and other non-trade
provisions to meet budgetary offset requirements. These
provisions are discussed in greater detail in other chapters of
this book.
Post Uruguay Round Negotiations
The GATS was the first multilateral, legally enforceable
agreement covering trade and investment in services. The GATS
was designed to reduce or eliminate governmental measures that
prevent services from being freely provided across national
borders or that discriminate against locally-established
service firms with foreign ownership. After the WTO went into
effect, negotiations continued on certain services under the
auspices of the WTO: information technology, basic
telecommunications services, financial services, and maritime
services.
Information Technology Agreement
During the December 1996 WTO Ministerial Meeting in
Singapore, trade ministers from 28 WTO-member countries
endorsed an agreement liberalizing market access in the
information technology industry. This Information Technology
Agreement (ITA) eliminated tariffs on information technology
products by the year 2000 on a wide range of technology
products. The ITA was finalized on March 26, 1997, and entered
into force on July 1, 1997. As of this writing, the ITA has 55
participants representing over 95 percent of global trade in
this sector.
ITA product coverage includes computers and computer
equipment, semiconductors and integrated circuits, computer
software products, telecommunications equipment, semiconductor
manufacturing equipment and computer-based analytical
instruments. Some limited staging up to 2005 was granted on a
country-by-country basis for individual products. The ITA, thus
far, is the only global sectoral agreement in which
participating governments have agreed on a uniform list of
products on which all duties will be eliminated. The products
subject to the ITA were covered by the residual proclamation
authority provided by section 111(b) of the Uruguay Round
Agreements Act and, thus, no additional implementing authority
was necessary.\30\
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\30\ Pres. Proc. No. 7011, June 30, 62 Fed. Reg. 35,909.
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Work to review possibilities for product coverage expansion
(also as ITA-II continued in 2000), as did efforts to address
non-tariff measures affecting trade in ITA-covered products.
WTO Basic Telecommunication Services Agreement
As part of the GATS, WTO members have made both basic and
value-added telecommunications commitments. Specifically, the
Fourth Protocol to the GATS--generally referred to as the WTO
Basic Telecommunications Services Agreement--is the legal
instrument embodying basic telecommunications services
commitments of seventy WTO members under the GATS. The
agreement entered into force on February 6, 1998, and since
that time, an additional ten WTO members have made
telecommunications services commitments, some upon their
accession to the WTO. Due in large part to this agreement,
mutually advantageous market opportunities for U.S.
telecommunications equipment and service suppliers expanded
greatly.
The WTO basic telecommunications services agreement built
upon the Annex on telecommunications, part of the General
Agreement on Trade in Services (GATS), itself a component of
the Uruguay Round Final Act. The Annex requires WTO members to
ensure that all service suppliers seeking to take advantage of
scheduled commitments have reasonable and non-discriminatory
access to, and the use of, public basic telecommunications
networks and services. The agreement covers basic
telecommunications services only. Participants agreed at the
start of the talks to disregard differences in how countries
might define ``basic'' telecommunications, and to negotiate on
all public and private information (voice or data) from sender
to receiver. Whereas the Annex on telecommunications addresses
access to existing services and networks by users, the WTO
basic telecommunications agreement addresses the ability to
enter telecommunications markets and sell services. Examples of
the services covered by this agreement include voice telephony,
data transmission, telex, telegraph, facsimile, private leased
circuit services (i.e., the sale or lease of transmission
capacity), fixed and mobile satellite systems and services,
cellular telephony, mobile data services, paging, and personal
communications systems.
As of January 2001, the basic telecommunications services
agreement encompasses 80 countries. Other countries in the
process of acceding to the WTO are also expected to make
commitments in the telecommunications sector. In December 2000,
the United States put forward a new proposal on
telecommunications and related services as part of a package of
U.S. sectoral proposals.
1997 Financial Services Agreement
With respect to extended negotiations on financial
services, the United States, because of insufficient market-
opening commitments from many of its trading partners,
committed in July 1995 to protect the existing investments of
foreign financial service providers in the United States but
reserved the right to provide differing levels of treatment
with respect to any new activities by such providers, or with
respect to new entrants to the U.S. financial services market.
The interim agreement expired at the end of 1997. Negotiations
were renewed in April 1997 and ended December 1997 with a new
agreement that covered 95 percent of the global financial
services market as measured in revenue. Of the seventy WTO
Members that made improved commitments in financial services
during these negotiations, 53 countries met the original
deadline of January 29, 1999, for completing domestic
ratification procedures and notifying their acceptance of the
1997 Agreement--the Fifth Protocol to the GATS. Another ten
Members have completed these procedures since then, meaning
that the number of countries whose 1997 commitments have
entered into force stands at 63.
The 1997 Financial Services Agreement opened would
financial services markets to an unprecedented degree. Fifty-
two countries guaranteed broad market access terms across all
insurance sectors-encompassing life, non-life, reinsurance,
brokerage and auxiliary services. Another fourteen countries
committed to open critical sub-sectors of their insurance
markets of particular interest to U.S. industry. Fifty-nine
countries committed to permit 100 percent foreign ownership of
subsidiaries or branches in banking. And forty-four countries
guaranteed to allow 100 percent foreign ownership of
subsidiaries or branches in the securities sector.
The United States has efforts underway as part of the
current round of WTO/GATS negotiations to build upon the
results of the 1997 negotiations. In December 2000, the United
States submitted an initial financial services sectoral
proposal to the GATS Council in Special Session as part of a
package of U.S. sectoral proposals. Discussion of this and
other proposals will continue in 2001.
Maritime Services
With respect to maritime services, the United States (and
most other countries) did not table an offer. The negotiations
were suspended on June 28, 1996, without an agreement, and must
be resumed in the context of the next GATS round. The United
States continues to suspend its NTR obligations in this sector.
WTO ``Build-in-Agenda'' on Agriculture and Services
The so-called built-in-agenda was an integral part of the
Uruguay Round Agreements and constituted an important element
in the balance of rights and obligations of the commitments of
WTO members. The built-in agenda called for the resumption of
negotiations by the year 2000 to further liberalize trade in
agriculture and services, as well as the examination of
government procurement practices and enforcement of
intellectual property rights. The WTO Ministerial conference
that was hosted by the United States in Seattle, Washington,
from November 30 through December 4, 1999, was to have formally
launched these negotiations.
At the Seattle ministerial meeting, the key issue for
member countries to consider was a frame work for a new round
of multilateral trade negotiations. Representatives of the 135-
member countries of the WTO considered the procedures and
substance of the built-in agenda, as well as other issues
inducing transparency, possible reforms to the dispute
settlement system, treatment of electronic commerce, and the
accelerated Tariff Liberalization effort for industrial
tariffs. Following four days of meetings, a decision was
announced to suspend negotiations, with direction for member
countries to engage in further consultations on how to proceed
with a new round.
New GATS negotiations began at the start of 2000 and aim to
reduce or eliminate the adverse effects on trade in services of
measures as a means of providing effective market access. The
deadline for submission of negotiating and other proposals for
new GATS discussions was set for December 2000 and in July
2000, the United States presented a broad proposal. Services
work is currently focused on addressing technical questions
that in some cases are controversial, such as a review of
possible disciplines in services for safeguard, subsidies, and
government procurement. The procedural phase of the GATS talks
is tentatively scheduled to conclude in March 2001, and this
work on rules could eventually proceed in tandem with market
access negotiations.
Global agricultural talks were launched in March 2000.
Central to these negotiations is whether and how to further
reduce trade barriers and limit export and domestic subsidies.
New issues such as the operations of state trading enterprises
and trade in biotechnology products also seem likely to be
brought to the negotiating table. A timetable for completing
agricultural negotiations has not been set, and difficult
issues which contributed to the failure of the Seattle
ministerial will have to be addressed once again in these
sectoral negotiations.
Specific Foreign Trade Barriers
Sections 181 and 182 of the Trade Act of 1974, as amended
Section 181 of the Trade Act of 1974,\31\ added by section
303 of the Trade and Tariff Act of 1984 and amended by the
Omnibus Trade and Competitiveness Act of 1988 and the Uruguay
Round Agreements Act, requires an annual report on foreign
trade barriers and their impact, known as the National Trade
Estimates report. The USTR, through the interagency trade
mechanism, must identify, analyze, and estimate the impact on
U.S. commerce of foreign acts, policies, and practices which
constitute significant barriers to or distortions of U.S.
exports of goods or services and U.S. foreign direct
investment. The report must also include information on any
action taken (or reasons for no action taken) to eliminate any
measure identified, as well as information with respect to
section 301, negotiations or consultations with foreign
governments, and foreign anticompetitive practices that
adversely affect U.S. exports. The report is submitted to the
appropriate committees of the House and to the Senate Committee
on Finance. After submission of the report, the USTR must
consult and take into account the views of these congressional
committees.
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\31\ Public Law 93-618, 19 U.S.C. 2241.
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Section 182 of the Trade Act of 1974,\32\ as added by
section 1303(b) of the 1988 Act and amended by the North
American Free Trade Agreement Implementation Act and the
Uruguay Round Agreements Act, requires the USTR to identify
priority foreign countries that deny adequate and effective
protection or fair and equitable market access for U.S.
intellectual property rights, for purposes of action under
section 301 (see further description under chapter 2).
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\32\ Public Law 93-618, 19 U.S.C. 2242.
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Telecommunications Trade Act of 1988
The Telecommunications Trade Act of 1988, under sections
1371-1382 of the Omnibus Trade and Competitiveness Act of 1988
and as amended by the Uruguay Round Agreements Act, provides
specific trade negotiating authority and remedies to address
the lack of foreign market openness in telecommunications
trade. The Telecommunications Act requires the U.S. Trade
Representative to investigate and designate foreign priority
countries, taking into account acts, policies, and practices
that deny mutually advantageous market opportunities to U.S.
telecommunications exporters and their subsidiaries. Countries
may be added or deleted from the list of designated countries
at any time.
The President is required to negotiate with the priority
countries, drawing from a list of general and specific
negotiating objectives, for the purpose of entering into
bilateral or multilateral agreements that provide mutually
advantageous market opportunities. If no agreement is reached,
the Act requires the President to take whatever authorized
actions are appropriate and most likely to achieve the general
negotiating objectives, as defined by the specific objectives
established by the President. The actions authorized are
broadly similar to authorities available to the USTR under
section 301 of the Trade Act of 1974, as amended.
The Telecommunications Trade Act requires the USTR to
conduct annual reviews to determine if a country has violated a
telecommunications trade agreement or otherwise denies mutually
advantageous market opportunities. In the case of an
affirmative determination, it shall be treated as a trade
agreement violation under section 301 of the Trade Act of 1974,
as amended. In general, that section requires that in cases
involving foreign violations of trade agreements or other
``unjustifiable'' practices, the USTR must take retaliatory
action in an amount equivalent in value to the foreign burden
or restriction on U.S. commerce. Certain waivers are available
to the USTR, under which no retaliation is required.
Negotiating authority was provided concomitant with the
general trade agreement authority provided in the Omnibus Trade
and Competitiveness Act of 1988 (i.e., until its expiration in
1993). Compensation authority also is provided, in the event
that action is taken that violates U.S. obligations under the
WTO.
Background and current status
The Telecommunications Trade Act was intended to address
the imbalance in market access for telecommunications goods and
services between the United States and other countries that
arose from increased deregulation of the U.S. market and court-
ordered divestiture by American Telephone and Telegraph (AT&T)
of its local operating companies on January 1, 1984. These
actions resulted in a U.S. market virtually devoid of barriers
to the entry of foreign competitors. At the same time, however,
major foreign markets were characterized by strict government
regulations, procurement policies, standards, and other
practices that resulted in limited competitive opportunities
for U.S. and other foreign firms in those markets. Although the
period authorized for telecommunications trade negotiations is
coterminus with multilateral trade negotiating authority in the
1988 Act, the separate negotiating authority is designed to
permit increased flexibility in negotiating agreements in
telecommunications trade. It permits the USTR to focus on
priority countries whose barriers or practices pose the
greatest impediment to market access by U.S. telecommunications
firms and to tailor the negotiating priorities to address the
specific circumstances in each country.
In February 1989, the USTR (acting on behalf of the
President) identified the European Community (EC) and Korea as
priority foreign countries ``that deny U.S. telecommunications
goods and services firms'' mutually advantageous market
opportunites, based on information received during a 6-month
consultation period with the private sector and Congress and
initiated negotiations. The initial term for those negotiations
was 18 months from the date of enactment (August 1988). At the
end of the 18-month period in February 1990, the USTR extended
the negotiations for an additional 1-year term, based on a
finding that substantial progress had been made and that
further progress was likely if the negotiations were continued.
In February 1991, the USTR once again used the discretion
provided in the Act to extend the negotiations with the EC and
Korea for an additional year, on the basis of past and expected
progress in the talks.
The 1-year extension in 1991 was the last authorized under
the Telecommunications Trade Act. The Act provides that if an
agreement with each priority country which achieves the U.S.
negotiating objectives was not reached by the end of that 1-
year period, the President must take ``whatever actions
authorized . . . that are appropriate and most likely to
achieve'' the negotiating objectives. In taking such action,
the President is directed first to take those actions which
most directly affect trade in telecommunications products and
services of the priority foreign country, unless he determines
that action against other economic sectors would be more
effective in achieving the negotiating objectives.
On February 21, 1992, the USTR announced that the United
States and Korea had concluded the last of a series of
agreements that would open access for competitive U.S.
telecommunications goods and services providers in the Korean
market on a fair and equitable basis. As a result, the
President determined that Korea met the negotiating objectives
set forth in section 1374 of the Omnibus Trade and
Competitiveness Act of 1988 and no further action would be
necessary. The annual review in 1993 of these agreements
brought into question Korean compliance. After negotiations,
Korea undertook in a clarifying letter to the United States a
number of additional steps to ensure proper implementation of
these agreements. On August 1, 1996, the USTR announced that
changes in the Korean telecommunications market since 1992 have
resulted in new barriers and identified Korea as a priority
foreign country. The USTR stated that it would seek to
negotiate an agreement with Korea to achieve U.S. objectives.
While progress had been made with respect to the EC,
several issues remained unresolved; in particular, the
objective of securing nondiscriminatory access to EC
government-owned telecommunications utilities for U.S. goods
and services has not been met. Since the President specified
action to address this issue under title VII of the 1988 Act
(see description under Government Procurement), further action
under section 1374 was not considered to be appropriate,
thereby concluding this proceeding.
In 1989, as part of the section 1377 review, USTR found
Japan to be in violation of the Market-Oriented Sector-Specific
(MOSS) Agreements in Telecommunications negotiated with Japan
during the latter half of the 1980's. The MOSS Agreements
consist of a series of commitments made by Japan concerning the
regulation of and trade in telecommunications goods and
services. As a result of the USTR finding and the ensuing
initiation of retaliatory proceedings under section 1377(c),
the United States and Japan reached the Third-Party Radio and
Cellular Telephone Agreement in June 1989. The annual review of
this agreement identified a potentially serious enforcement
problem with cellular telephone provisions. U.S. meetings with
Japan in the fall of 1993 failed to resolve this problem, and
as a result, on February 15, 1994, the United States determined
that Japan was not in compliance with the Agreement. Ensuring
negotiations led to an agreement concluded on March 12, 1994
which resolved U.S. concerns. On April 11, 1994, the government
of Japan forwarded to USTR a deployment plan called for under
the March 12 agreement. As a result, USTR terminated its
affirmative determination under section 1377 on April 12.
During the 1990 section 1377 review, the United States
identified two MOSS Agreements compliance problems: provision
of international value-added network services (IVANS) and
foreign access to Japan's network channel terminating equipment
(NCTE). Under the MOSS Agreements, the United States and Japan
agreed in November 1988 on steps Japan would take to further
liberalize its market for IVANS, resulting in the conclusion of
an agreement on August 1, 1990. Subsequent agreements in 1991
addressed technical concerns. Negotiations on NCTE issues
resulted in the July 25, 1990 agreement that committed Japan to
liberalize its NCTE market. The agreement provides for the non-
discriminatory treatment of foreign manufacturers in Japan and
provides terms governing NCTE use with current and future
services.
As part of the United States-Japan Framework for a New
Economic Partnership initiated July 10, 1993, the United States
and Japan identified government procurement of
telecommunications products and services as a priority area for
negotiation. These negotiations and subsequent agreements are
discussed in greater detail in the Government Procurement
chapter of this book.
Under the WTO basic telecommunications services agreement,
interventions by U.S. officials on behalf of U.S. industry
abroad, in instances where trading partners' WTO obligations
are implicated, have increased and led in several instances to
resolution of complaints without resort to investigations under
section 1377. Notwithstanding this favorable trend, monitoring
and enforcement activities under section 1377 have increased
substantially given that, pursuant to the WTO basic
telecommunications agreement, the number of trading partners
subject to annual review under section 1377 includes the entire
WTO membership.
The 1998 section 1377 review focused on implementation of
bilateral and WTO commitments by Taiwan, Canada, Japan, and
Mexico. In each case, the U.S. earned new agreements or
important satisfaction of U.S. industry concerns. With respect
to Taiwan, U.S. carriers requested a review of Taiwan's
compliance with a 1996 agreement on wireless U.S. carriers
requested a review of Taiwan's compliance with a 1996 agreement
on wireless services. They noted that interconnection rates
charged by the dominant carrier Chunghwa Telecommunications Co.
(CHT) were significantly above cost and posed a major
competitive impediment in the wireless services market. These
rates appeared inconsistent with the terms of the 1996
agreement, which mandated cost-based interconnection rates.
Based on this complaint, USTR negotiated an agreement,
concluded on February 20, 1998, which required CHT to reduce
its interconnection rates by almost 30 percent in 1998, and to
ensure that these rates are completely cost-based by 2001.
Canada and Mexico were also identified in 1998 as countries
that appeared to be in violation of their commitments under the
WTO. A Canadian regulatory proceeding has since eliminated the
international bypass restriction that was the focus of U.S.
industry's complaint. Despite bilateral discussions with Mexico
in 1998 and 1999, several important issues regarding Mexico's
implementation of its WTO telecom commitments remain under
investigation, including Mexico's failure to produce lower net
domestic interconnection costs for new entrants, and the
question whether Telmex (the dominant Mexican carrier and
former monopoly operator) is engaging in anti-competitive
cross-subsidization of different telecom services. As a result,
the out-of-cycle review on Mexico was extended for decision and
in November 2000, the U.S. requested consultations as a first
step toward the establishment of a WTO dispute settlement panel
to examine Mexico's compliance of its telecommunications
commitments.
The 1999 section 1377 review focused on implementation of
bilateral and WTO commitments by the European Community and
Member States, Mexico, Germany and Japan. In each case,
substantial progress was made in meeting the concerns of the
U.S. industry. USTR's 1999 review of the European Community and
Member States focused on the ``third generation'' (3G) mobile
systems. Private sector and government representatives of the
United States, Europe and other regions concluded in the
International Telecommunications Union (ITU) in late-1999 a
five-mode international recommendation for future 3G systems,
which will allow all 3G systems to offer global roaming, high-
speed data and Internet access, full-motion video and other
sophisticated multimedia services. However, certain decisions
in Europe suggest a strategy to promote pan-European and global
adoption of a system using only two of the five modes, which
could disadvantage U.S. users as well as manufactures and
service suppliers in the United States, European and third
country markets. European Commission officials, in bilateral
discussions and in responses to a series of U.S. letters
expressing concern, have pledged repeatedly that EU Member
States will not excluded the possibility of licensing use of
the other three modes of the ITU recommendation. Most, if not
all, EU Member States that have already instituted
authorization systems for 3G services have hewed to this
pledge.
Japan came under close scrutiny in the 1377 review for
over-priced interconnection rates that effectively prevent
competition in Japan's local market, as well as for prohibiting
the routing of both domestic and international traffic via
combinations of owned and leased network facilities. Japan
committed to address these issues in the context of the Second
Joint Status Report under the Enhanced Initiative on
Deregulation and Competition Policy released in May 1999.
In 2000, out-of-cycle reviews were initiated under section
1377 regarding compliance by Germany, Mexico, the United
Kingdom, and South Africa. The review on Germany focused on
continued excessive delays by Deutsche Telekom (``DT'') in
providing interconnection to competing carriers; excessive
license fees charged by the German government; and a refusal by
DT to perform billing and collection services for new entrants
absent a regulatory mandate. With respect to South Africa, the
review focused on whether South Africa is failing to ensure
that its dominant telecommunications supplier (``Telkom'')
provide access to and use of the private lines needed for the
competitive supply of value-added network services (``VANS'').
Normal Trade Relations or Most-Favored-Nation (Nondiscriminatory)
Treatment
Nondiscriminatory treatment of trading partners has been a
basic element of international trade for several centuries,
although its scope, application, and terminology in U.S. law
have changed as the complexity of trade among the nations has
increased. Nondiscriminatory treatment and the principle
underlying it are often referred to as the ``most-favored-
nation'' (MFN) treatment or principle. While the MFN principle
remains firmly in place as a fundamental concept governing U.S.
trade relations, the term ``most-favored-nation'' was recently
replaced with the term ``normal trade relations'' in all U.S.
trade laws and regulations.\33\ This was done to clear up
confusion and more clearly reflect the principles of U.S. trade
policy. In the following summary, the term ``MFN'' is retained
to describe the international obligation, while ``NTR'' is used
to describe U.S. law since 1998.
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\33\ Public Law 105-206, approved July 22, 1998.
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MFN had its orgins in international commercial agrements,
whereby the signatories extend to each other treatment in trade
matters which is no less favorable than that accorded to a
nation which is the ``most favored'' in this respect. The
effect of such treatment is that all countries to which it
applies are ``the most favored'' ones; hence, all are treated
equally. In the context of U.S. tariff legislation, NTR means
that the products of a country given such treatment are subject
to lower rates of duty (found in column 1 of the Harmonized
Tariff Schedule (HTS) of the United States), which have
resulted from various rounds of reciprocal tariff negotiations.
Products from countries not eligible for NTR under U.S. law are
subject to higher rates of duty (found in column 2 of the HTS),
which are essentially the rates of duty enacted by the Tariff
Act of 1930.
Prior to 1934, the United States accorded MFN treatment to
its trading partners reciprocally only within the scope of
commercial agreements containing an MFN clause. Section 350 of
the Tariff Act of 1930, as added by the Trade Agreements Act of
1934, in effect required the nondiscriminatory application to
all countries of tariff and trade concessions granted in
bilateral agreements, whether or not those countries had
agreements with the United States containing the MFN clause.
By becoming a signatory of the General Agreement on Tariffs
and Trade, the United States, as of January 1, 1948, also
accepted the basic obligation of GATT Article I to accord
unconditional MFN status to all other signatories. Thus, MFN or
NTR status is extended by the United States to foreign
countries as a matter not only of U.S. domestic law but also as
an international obligation.
The unconditional and unlimited MFN policy was changed
after the enactment of section 5 of the Trade Agreements
Extension Act of 1951,\34\ which directed the President to
withdraw or suspend MFN status from the Soviet Union and all
countries under the control of international communism. This
action was prompted by the outbreak of the Korean War and the
support that these countries were giving to North Korea and
China. As implemented, this directive was applied to all then-
existing Communist countries except Yugoslavia.
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\34\ Public Law 49-50, ch. 141, approved June 16, 1951.
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In December 1960, President Eisenhower revoked the
suspension of MFN status with respect to Poland. President
Kennedy suspended MFN status with respect to Cuba in May 1962,
pursuant to a new legislative requirement contained in section
401 of the Tariff Classification Act of 1962.\35\ The Tariff
Classification Act also enacted the new Tariff Schedules of the
United States, which for the first time, included in a general
headnote a current list of countries without MFN status.
Section 231 of the Trade Expansion Act of 1962,\36\ as amended
by section 402 of the Foreign Assistance Act of 1963, expanded
the scope of the suspension of MFN status by applying it to
``any country or area dominated by Communism,'' unless the
President determined that the continued application of MFN
status to Communist countries to which it was being applied at
the time of the enactment of the Trade Expansion Act (i.e., to
Poland and Yugoslavia) was in the national interest. The
President made such a determination for both countries in March
1964.
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\35\ Public Law 87-566, approved May 24, 1962.
\36\ Public Law 87-794, approved October 11, 1962, 19 U.S.C. 1351.
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The statutory provisions affecting the U.S. MFN policy and
its practical implementation remained unchanged thereafter
until enactment of the Trade Act of 1974. Subsequent amendments
to U.S. MFN policy were made in the Customs and Trade Act of
1990.\37\ As discussed above, ``MFN'' terminology was changed
to ``NTR'' in all trade laws and regulations in the Internal
Revenue Service Restructuring and Reform Act of 1997.\38\
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\37\ Public Law 101-382, approved August 20, 1990.
\38\ Public Law 105-206, approved July 22, 1998.
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The Normal Trade Relation or MFN principle under present law
The basic statute currently in force with respect to the
NTR treatment of U.S. trading partners is section 126 of the
Trade Act of 1974.\39\ Section 126 contains the general
requirement that any duty or other import restriction
proclaimed to carry out any trade agreement applies on an MFN
basis to products of all foreign countries, except as otherwise
provided by law. The key provision embodying such exceptions
with respect to tariff treatment is General Note 3(b) of the
HTS, which contains the list of countries denied NTR tariff
status with respect to their exports to the United States. (See
list under chapter 1.) Section 1105(a) of the Omnibus Trade and
Competitiveness Act of 1988 \40\ applies section 126(a) to
trade agreements entered into under section 1102 of that Act,
which includes the North American Free Trade Agreement and the
Uruguay Round Agreements.
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\39\ Public Law 93-618, 19 U.S.C. 2136.
\40\ Public Law 100-418, 19 U.S.C. 2904.
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Other measures, most notably the Generalized System of
Preferences, the Caribbean Basin Initiative, the African Growth
and Opportunity Act, the Andean Initiative, the United States-
Israel Free Trade Area, the North American Free Trade
Agreement, and tariff treatment of least developed developing
countries, provide specifically for application of preferential
duty treatment for eligible countries and products under
certain circumstances. This preferential tariff status grants
terms that are more favorable than those granted to other
countries which otherwise receive NTR treatment from the United
States. (See separate sections and chapter 1.)
With respect to nontariff measures, section 1103(a) of the
Omnibus Trade and Tariff Act of 1988 requires the President to
recommend to the Congress that benefits and obligations of a
particular agreement apply solely to the parties to that
agreement or not apply uniformly to all parties, if such
application is consistent with the Agreement. The Agreement on
Subsidies and Countervailing Duties and the Agreement on
Government Procurement, negotiated during the Tokyo Round of
GATT multilateral trade negotiations, were implemented by the
United States on a non-MFN basis. The Uruguay Round Agreement
on Subsidies and Countervailing Measures now applies to all
countries that become members of the World Trade Organization.
The renegotiated GATT Government Procurement Agreement will
continue to be implemented on a non-MFN basis.
Nonmarket economy countries
The Trade Act of 1974 repealed section 231 of the Trade
Expansion Act of 1962. Title IV of the Trade Act of 1974,\41\
as amended, presently regulates the extension of NTR tariff
treatment to nonmarket economy countries. Section 401 directs
the President to continue to deny NTR treatment to any country
to which it was denied on the date of the enactment of the
Trade Act (i.e., all Communist countries as of January 3, 1975,
except Poland and Yugoslavia). Section 402 also denies NTR
treatment (as well as access to U.S. government credits, or
credit or investment guarantees) to any nonmarket economy
country ineligible for NTR treatment on the date of enactment
of the Trade Act and which the President determines denies or
seriously restricts or burdens its citizen's right to emigrate.
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\41\ Public Law 93-618, as amended by P.L. 96-39, P.L. 100-418, and
P.L. 101-382, 19 U.S.C. 2431.
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A country subject to the ban imposed by section 401 may
gain NTR status only by fulfilling two basic conditions: (1)
compliance with the requirements of the freedom of emigration
provisions under section 402 of the Trade Act; and (2)
conclusion of a bilateral commercial agreement with the United
States under section 405 of the Trade Act providing reciprocal
nondiscriminatory treatment.
The provisions of section 402, commonly referred to as the
Jackson-Vanik amendment, allow a non-NTR, nonmarket economy
country to receive NTR status (and access to U.S. financial
facilities) only if the President determines that it permits
free and unrestricted emigration of its citizens. If the
President determines that a country is in full compliance with
the Jackson-Vanik freedom of emigration requirements, he must
submit a report to the Congress by June 30 and December 31 of
each year that such country receives NTR treatment, describing
the nature of the country's emigration laws and policies. The
country's NTR status may be revoked if a joint resolution
disapproving the December 31 compliance report is enacted into
law within 90 legislative days of the delivery of the report to
Congress. If such a resolution is enacted, the country's NTR
status is rescinded, effective 60 calendar days after
enactment.
Section 402 also authorizes the President to waive the
requirements for full compliance of the particular country with
the Jackson-Vanik requirements, if he determines that such
waiver will substantially promote the objectives of the freedom
of emigration provisions and if he has received assurances that
the emigration practices of the country will lead substantially
to the achievement of those objectives. The President may, at
any time, terminate by executive order any waiver granted under
authority of section 402.
The President's waiver authority is subject to annual
renewal. The renewal procedure under section 402(d)(1) requires
the President, if he determines that waiver authority extension
will substantially promote freedom of emigration objectives, to
submit to the Congress a recommendation for a 12-month
extension of the waiver authority within 30 days prior to its
expiration (i.e., by June 3 each year), together with his
reasons for the recommendation and a determination with respect
to each country for which a waiver is in effect that the
continuation of the waiver will substantially promote the
freedom of emigration objectives.
Under the terms of the 1974 Act, as amended, the extension
of the waiver authority for an additional 12-month period is
automatic unless a joint resolution disapproving such extension
either generally or with respect to a specific country is
enacted into law within 60 days after the expiration of the
previous waiver authority. The enactment of such resolution
would rescind the waiver authority (and with it the grant of
the NTR status) with respect to countries covered by the
resolution, effective 60 days after its enactment.
Presidential authority to extend NTR status to a country
excluded under section 401 may be utilized only as long as a
bilateral commercial agreement between the United States and
the country involved remains in force. Sections 404 and 405 of
the Trade Act of 1974 as amended authorize the President to
conclude such agreements, which must contain various
provisions, including safeguards against disruptive imports,
intellectual property rights, trade promotion, and
consultations. Agreements and implementing proclamations can
take effect only if a joint resolution of approval is enacted
into law under the fast track procedures of section 151 of the
Trade Act. Agreements may remain in force for no more than 3
years, renewable for additional 3-year periods (without any
congressional approval) if past operation has been found
satisfactory.
Current provisions providing for the use of joint
resolutions to approve trade agreements with nonmarket economy
countries and to disapprove presidential waivers and compliance
reports were adopted as part of the Customs and Trade Act of
1990. The amendments were made in response to a 1983 Supreme
Court ruling in Immigration and Naturalization Service v.
Chadha et al., which raised serious questions about the
constitutionality of the use of concurrent or one-house
resolutions for congressional approval and disapproval actions,
as previously provided for in the Jackson-Vanik amendment. The
court ruled that any action of a legislative nature must be
taken by both houses of Congress and presented to the President
for signature or veto.
Application of MFN/NTR treatment
Presidential authority to waive the emigration requirements
for extension of NTR treatment under title IV of the Trade Act
of 1974 has been extended annually since 1976. Between 1976 and
1989, the waiver authority and the authority to conclude
bilateral trade agreements and grant MFN status was used only
three times. MFN treatment was extended to Romania effective
August 3, 1975; to Hungary effective July 7, 1978; and to the
People's Republic of China effective February 1, 1980. Waivers
were continued annually for all three countries and all three
underlying bilateral agreements were extended, when
appropriate, for additional 3-year periods by presidential
determinations of their satisfactory operation.
Although disapproval resolutions and alternative
conditional NTR legislation were considered by the Congress,
NTR treatment has continued uninterrupted for the People's
Republic of China under annual renewals of the waiver
authority.
People's Republic of China
On June 3, 1999, the President announced his decision to
waive for another year the freedom of emigration requirements
in Title IV of the Trade Act of 1974 with respect to People's
Republic of China, thereby granting normal trade relations
(NTR) treatment China between July 1, 1999, and June 30, 2000.
On May 15, 2000, Chairman Archer introduced H.R. 4444, to
authorize extension of nondiscriminatory treatment (normal
trade relations treatment) to the People's Republic of China.
As introduced, the bill would grant the President the authority
to determine that Title IV of the Trade Act should no longer
apply to the People's Republic of China upon its accession to
the WTO if he transmits a report to Congress certifying that
the terms and conditions for accession of China to the WTO are
at least equivalent to those agreed to in the November 15,
1999, bilateral agreement between the United States and China.
As amended by the Ways and Means Committee, H.R. 4444
included a provision codifying the import surge mechanism
negotiated as part of the 1999 U.S.-China bilateral agreement.
Procedures for this new ``import surge mechanism'' are modeled
after Section 406 of the Trade Act of 1974, as amended, with
certain changes to conform to the requirements of the bilateral
trade agreement. The legislation also: (1) establishes clear
standards for the application of Presidential discretion in
providing relief to injured industries and workers; (2)
authorizes the President to provide a provisional safeguard in
cases where ``delay would cause damage which it would be
difficult to repair,'' as permitted under the United States-
China Agreement; and (3) implements a provision in the
Agreement concerning trade diversion.
When H.R. 4444 was considered in the House, the House
adopted H. Res. 510, which provided for an amendment in the
nature of a substitute to H.R. 4444. The amendment included the
text of H.R. 4444, as reported from the Committee, and
additional language establishing a Congressional-Executive
Commission on China to focus on monitoring human rights,
including internationally recognized core labor standards and
religious freedom. The legislation also included provisions
that: (1) require USTR to submit an annual report on China's
compliance with WTO obligations; (2) provide that the United
States will seek an annual review of China's compliance with
its WTO obligations in the WTO as part of China's Protocol of
Accession; (3) establish a task force on the prohibition on the
importation of products of forced or prison labor; and (4)
authorize additional resources for monitoring and enforcing
China's compliance with trade agreements. The legislation also
contains a sense of Congress that the accession of Taiwan and
the People's Republic of China to the WTO should be considered
at the same WTO General Council meeting. Finally, the
legislation contains a number of other provisions not in the
jurisdiction of the Committee, such as the authorization of
funds to assist the development of rule of law and democracy in
China. H.R. 4444, as amended, passed the House on June 24,
2000, by a vote of 237-197. The bill was signed into law by the
President on October 10, 2000 (Public Law 106-286). The Ways
and Means Committee continues to monitor the progress China is
making in negotiations to join the WTO, which have not
concluded as of this printing.
On June 2, 2000, the President announced his decision to
waive for another year the freedom of emigration requirements
in Title IV of the Trade Act of 1974 with respect to China,
thereby granting China NTR status between July 1, 2000 and June
30, 2001.
Romania
In 1988, the President did not exercise the annual waiver
authority with respect to Romania, issuing a proclamation on
June 28, announcing his decision to allow the waiver to expire
and to withdraw MFN treatment in response to the decision by
the government of Romania to renounce the renewal of MFN
subject to the terms of Jackson-Vanik. Romania's MFN status and
its eligibility for U.S. government-supported export credits
expired on July 3, 1988. On March 11, 1992, the Department of
State issued a statement announcing that it had informed the
Romanian government that the United States was prepared to sign
a new bilateral trade agreement in light of Romania's progress
toward democratic pluralism and a market economy and its desire
for closer bilateral relations. The President issued a waiver
from the freedom of emigration requirements for Romania on
August 17, 1991, and signed a new bilateral trade agreement on
April 3, 1992. However, in view of the concerns raised about
the Romanian government's continued commitment to democratic
reform, House consideration of H.J. Res. 512, approving the
extension of MFN treatment to Romania, was defeated on
September 30. H.J. Res. 228, approving the extension of MFN,
was reintroduced on July 13, 1993. In recommending approval,
the House Ways and Means Committee report noted that there had
been substantial progress on democratization and human rights,
and additional significant improvements had been made since
1992. The resolution was subsequently passed by the House on
October 12, and the Senate on October 21. H.J. Res. 228 was
approved by the President and signed into law on November 2,
1993.\42\
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\42\ Public Law 103-133, approved November 2, 1993.
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Romania continued receiving MFN treatment under a
presidential waiver from the Jackson-Vanik freedom of
emigration criteria until the President found Romania to be in
full compliance with those requirements on May 19, 1995. On
March 26, 1996, H.R. 3161 was introduced to provide the
President with the authority to determine that title IV should
no longer apply with respect to Romania and to extend
unconditional MFN status to that country. Upon recommending
approval of the bill, the Committee noted that Romania is a
member of the World Trade Organization (WTO) and that an
extension of unconditional MFN is necessary in order for the
United States to avail itself of all rights under the WTO with
respect to Romania. H.R. 3161 passed the House on July 17, 1996
and the Senate on July 19. The bill was signed into law by the
President on August 3.\43\ On November 7, the President issued
a proclamation removing the application of title IV from
Romania and extending unconditional MFN treatment to the
products of that country.
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\43\ Public Law 104-171, approved August 3, 1996.
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Hungary and the Czech Republic
Since 1989, presidential authority under title IV has been
used frequently, in response to the collapse of Communist
domination in Eastern and Central Europe. On October 25, 1989,
Hungary became the first country ever found in full compliance
with the title IV freedom of emigration requirements, thereby
becoming eligible for open-ended NTR status, as long as the
trade agreement remained in force and Hungary remained in full
compliance.
On February 20, 1990, the President issued a waiver for
Czechoslovakia, making that country eligible to receive U.S.
government credits and credit and investment guarantees.
Following congressional approval of a trade agreement, MFN
treatment was extended to Czechoslovakia on November 17, 1990.
The President continued the waiver on June 3, 1991, and then
issued a determination on October 16 that Czechoslovakia's
emigration policies met the Jackson-Vanik freedom of emigration
requirements.
Sections 1 and 2 of Public Law 102-182, signed on December
4, 1991, provided for full normalization of MFN trading
relations with both Hungary and Czechoslovakia, based on
findings of their respect for fundamental human rights,
policies of free emigration, and the political and economic
reforms undertaken by both countries. Section 2 of that law
authorized the President to terminate the application of title
IV of the Trade Act of 1974 and extend MFN status to either or
both Hungary and Czechoslovakia. Unconditional MFN treatment
was granted to both countries in April 1992. Following the
dissolution of Czechoslovakia in 1993, the independent
countries of the Czech Republic and Slovakia retained their MFN
status, having assumed the rights and obligations of the
earlier agreement between the United States and Czechoslovakia.
German Democratic Republic (East Germany)
Section 142 of the Customs and Trade Act of 1990 authorized
the President to extend MFN treatment to the German Democratic
Republic (East Germany), thus superseding the requirements of
title IV, in light of the rapid progress then being made toward
German reunification. However, the Congress expressed the
strong view that such action should not be taken before MFN
status was granted to Czechoslovakia under authority of title
IV, since Czechoslovakia had followed all the procedures
required by that title. The authority of section 142 was never
used, however. The President issued a waiver for East Germany
on August 15, 1990; that formerly independent country received
MFN status on October 3, 1990 as part of a reunified Germany.
Former Soviet Union
The Bush Administration entered into negotiations for a new
bilateral trade agreement with the Soviet Union in response to
the advent of ``perestroika'' and ``glasnost'' under the
leadership of Soviet President Gorbachev, the subsequent
collapse of communist regimes in Eastern and Central Europe,
substantial increases in emigration rates, and to encourage
further reforms. That agreement with its side letters was
signed by Presidents Bush and Gorbachev on June 1, 1990. The
President issued a waiver from the freedom of emigration
requirements for the Soviet Union on December 29, 1990 and
again on June 3, 1991. However, Soviet violence and economic
sanctions against the independence movements in the Baltic
states and Soviet republics resulted in delay of the submission
of the Agreement to the Congress until August 2, 1991.
Following independence of the Baltic states in September, the
President resubmitted the trade agreement and presidential
proclamation on October 9 and a new joint resolution was
introduced omitting references to Estonia, Latvia, and
Lithuania. The joint resolution approving the extension of MFN
treatment to the products of the Soviet Union was passed by the
Congress in November and signed into law on December 9,
1991.\44\ Subsequently, bilateral trade agreements granting
reciprocal MFN treatment have been signed with governments of
the newly-independent republics of the former Soviet Union.\45\
No further congressional action is required as long as these
agreements ratified by the republics reflect only technical
changes in the previously approved original agreement signed by
the former Soviet Union.
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\44\ Public Law 102-197.
\45\ As of this writing, bilateral trade agreements have been
signed and ratified and conditional NTR treatment granted to the 12
republics of Russia, Ukraine, Kyrgyzstan, Moldova, Armenia, Belarus,
Georgia, Kazakhstan, Tajikistan, Turkmenistan, and Uzbekistan, and
Azerbaijan.
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Title IV of the Trade Act of 1974 applied to the Baltic
states of Estonia, Latvia, and Lithuania by virtue of their
forcible incorporation into the former Soviet Union. Following
restoration of their independence from the Soviet Union on
September 6, 1991, legislation \46\ extended MFN treatment to
the products of the three Baltic states, notwithstanding title
IV or any other provision of law and terminated the application
of title IV to these countries.
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\46\ Public Law 102-182, title I, approved December 4, 1991.
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Georgia
Georgia first received conditional normal trade relations
from the United States in 1992 under a Presidential waiver from
the freedom of emigration requirements in the Jackson-Vanik
amendment. In 1997, Georgia was found to be in full compliance
with the Jackson-Vanik requirements, but its trade status
remained subject to annual compliance reviews. On December 28,
1998, the President submitted a report to Congress, as required
by law, on the continued compliance of Georgia with the freedom
of emigration requirements if the Jackson-Vanik amendment
(House Document 106-5). The House received similar reports on
July 2, 1999 (No House Document Number), on January 7, 2000
(House Document 106-164), and on June 30, 2000 (House Document
106-265).
Public Law 106-476, signed into law on November 9, 2000,
authorized the President to extend normal trade relations to
Georgia.
Kyrgyzstan
Kyrgyzstan first received conditional normal trade
relations from the United States in 1992 under a Presidential
waiver from the freedom of emigration requirements in the
Jackson-Vanik amendment to the Trade Act of 1974. In 1997,
Kyrgyzstan was found to be in full compliance with the Jackson-
Vanik requirements, but its trade status remained subject to
annual complaiance reviews. On December 28, 1998, the President
submitted a report to Congress, as required by law, on the
continued compliance of Kyrgyzstan with the freedom of
emigration requirements in the Jackson-Vanik amendment (House
Document 106-5). Similar reports were submitted on July 2, 1999
(No House Document Number) and on January 7, 2000 (House
Document 106-104). Public Law 106-200, signed into law on May
18, 2000, authorized the President to extend unconditional
normal trade relations to Kyrgyzstan.
Moldova
Moldova first received conditional normal trade relations
from the United States in 1992 under a Presidential waiver from
the freedom of emigration requirements in the Jackson-Vanik
amendment to the Trade Act of 1974. In 1997, Moldova was found
to be in full compliance with the Jackson-Vanik requirements,
but its trade status remained subject to annual compliance
reviews. On December 28, 1998, the President submitted a report
to Congress, as required by law, on the continued compliance of
Moldova with the freedom of emigration requirements in the
Jackson-Vanik amendment (House Document 106-5). On July 2,
1999, the President submitted a report to Congress, as required
by law, on the continued compliance of Moldova with the freedom
of emigration requirements in the Jackson-Vanik amendment (No
House Document Number). On January 7 and June 30, 2000, the
President submitted similar reports (House Documents) 106-164
and 106-265).
Bulgaria and Mongolia
The President issued a waiver from the freedom of
emigration requirements for Bulgaria on January 22, 1991, and
for Mongolia on January 23, 1991; the waivers were continued
for both countries on June 3, 1991. Bilateral trade agreements
providing MFN treatment for products of each of these two
countries were submitted to the Congress on June 25, 1991.
Joint resolutions approving the extension of MFN treatment to
Bulgaria and Mongolia were passed by the Congress in October
and signed by the President on November 13, 1991.\47\
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\47\ Public Law 102-157 and Public Law 102-158.
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Bulgaria continued to receive MFN treatment under a
presidential waiver from the Jackson-Vanik freedom of
emigration criteria until the President found the country to be
in full compliance with the statutory requirements in June
1993. On January 5, 1996, H.R. 2853 was introduced to provide
the President with the authority to determine that title IV
should no longer apply with respect to Bulgaria and to extend
unconditional MFN status to the products of that country. In
recommending approval of the bill, the Committee noted that
Bulgaria was in the process of acceding to the WTO and that an
extension of unconditional MFN would be necessary in order for
the United States to avail itself of all rights under the WTO
at the time of Bulgaria's accession. H.R. 2853 passed the House
on March 5, 1996 and the Senate on June 28. The bill was signed
into law by the President on July 18.\48\ On September 27, the
President issued a proclamation effective October 1 removing
the application of title IV from Bulgaria and extending
unconditional MFN treatment to the products of that country.
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\48\ Public Law 104-162, approved July 18, 1996.
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Mongolia
In 1996, Mongolia was found to be in full compliance with
the Jackson-Vanik requirements, but its trade status remained
subject to annual compliance reviews. On February 11, 1999, the
President submitted a report to Congress, as required by law,
on the continued compliance of Mongolia with the freedom of
emigration requirements in the Jackson-Vanik amendment (House
Document 106-19). Public Law 106-36, signed into law on June
25, 1999, authorized the President to determine that title IV
of the Trade Act of 1974 (the Jackson-Vanik amendment) should
no longer apply to Mongolia and to proclaim the extension of
nondiscriminatory treatment (normal trade relations treatment)
to that country.
Prusuant to the provisions of Public Law 106-36, the
President issued Proclamation 7207 on July 1, 1999, determining
that title IV of the Trade Act of 1974 should no longer apply
to Mongolia and declaring the extension of nondiscriminatory
treatment to the products of that country.
Albania
On May 14, 1992, a bilateral trade agreement was signed
with Albania and a Presidential waiver was issued on May 20. A
joint resolution approving the granting of MFN treatment to the
products of Albania was enacted on August 26, 1992\49\ In 1997,
Albania was found to be in full complaince with the Jackson-
Vanik requirements, but its trade status remained submject to
annual compliance reviews for several years. On February 2,
1999, the President submitted a report to Congress, as required
by law, on the continued compliance of Albania with the freedom
of emigration requirements in the Jackson-Vankik amendment
(House Doucment 106-16). The President submitted a similar
report on February 9, 2000 (House Document 106-195). Public Law
106-200, signed into law on May 19, 2000, authroized the
President to determine that the Jackson-Vanik amendment should
no longer apply to Albania and to extend non-discriminatory
(normal trade relations treatment) to Albania. Pursuant to the
Provisions of Public Law 106-200, the President issued
Proclamation 7326 on June 29, 2000 determining that title IV of
the Trade Act of 1974 should no longer apply to Albania and
declaring the extension of nondiscriminatory NTR treatment to
the products of that country.
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\49\ Public Law 102-363.
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Armenia
Armenia first received conditional normal trade relations
from the United States in 1992 under a Presidential waiver from
the freedom of emigration requirements in Title IV of the Trade
Act of 1974 (the Jackson-Vanik amendment). In 1997, Armenia was
found to be in full compliance with the Jackson-Vanik
requirements, but its trade status remained subject to annual
compliance reviews. On December 28, 1998, the President
submitted a report to Congress, as required by law, on the
continued compliance of Armenia with the freedom of emigration
requirements in the Jackson-Vanik amendment (House Document
106-5). On July 2, 1999, the President submitted similar
report. (No House Document Number). On January 7, and June 30,
2000, the President submitted additional reports to Congress,
as required by law, on the continued compliance of Armenia with
the freedom of emigration requirements in the Jackson-Vanik
amendment (House Documents 106-164 and 106-265).
Poland
Poland is exempt from denial of MFN under title IV of the
Trade Act, but its unconditional MFN status was suspended by
presidential proclamation effective November 1, 1982, under the
authority of section 125(d) of the Trade Act. On February 23,
1987, President Reagan restored MFN status to Poland by
presidential proclamation as part of the last stage of removing
sanctions imposed on Poland in 1982 in response to its action
against Solidarity. MFN status for Afghanistan was suspended by
presidential proclamation effective February 14, 1986, under
the authority provided by section 118 of the Continuing
Appropriations Act for fiscal year 1986.\50\
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\50\ Public Law 99-190, approved December 19, 1985.
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The former Yugoslavia
The former Yugoslavia is also not subject to the provisions
of title IV. In response to the armed conflict and atrocities
in the former Yugoslavia, legislation was initiated and passed
late in the 102nd Congress withdrawing MFN treatment from
Serbia and Montenegro; the other four newly-independent
republics of Bosnia-Hercegovina, Croatia, Macedonia, and
Slovenia retain MFN status. The legislation authorizes the
President to restore MFN status to these two republics if he
certifies to the Congress that certain conditions are
fulfilled.\51\
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\51\ Public Law 102-420, approved October 16, 1992.
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Cambodia, Laos, and Vietnam
Because of a peculiarity in the wording of the initial MFN
status-suspending provision and its mandatory continuation by
section 401, Cambodia's MFN status was not subject to the terms
and conditions of the Jackson-Vanik amendment. Specifically,
the original administrative suspension in 1951 and its
enactment as part of the Trade Expansion Act of 1962 applied to
``any part of Cambodia, Laos, or Vietnam which may be under
Communist domination or control.'' This qualified application
of the suspension, based on the actual situation in each
country involved, was in effect at the time of enactment of
section 401, which predated the compete Communist takeover of
Cambodia in May 1975. The language of the provision was not
changed until enactment of the Harmonized Tariff Schedule (HTS)
in the Omnibus Trade and Competitiveness Act of 1988, which
listed ``Kampuchea'' in General Note 3(b) among those countries
whose products were denied MFN treatment. Upon the formation of
the freely elected Royal Cambodian government in 1993, the
United States and Cambodia negotiated an agreement on bilateral
trade relations and intellectual property rights protection,
calling for a reciprocal extension of MFN status. On May 16,
1995, H.R. 1642 was introduced to amend the HTS by striking
``Kampuchea'' to allow for an extension of unconditional MFN
treatment to Cambodia upon the effective date of a Federal
Register notice that a trade agreement obligating reciprocal
MFN treatment had entered into force. The bill also required
the President to report to Congress, no later than 18 months
after the date of enactment, on trade relations between the
United States and Cambodia under the bilateral agreement. H.R.
1642 passed the House on July 11, 1996 and the Senate on July
25. The bill was signed into law by the President on September
25.\52\ As of October 25, the products of Cambodia were
extended unconditional MFN treatment pursuant to a Federal
Register notice published by the U.S. Trade Representative that
a bilateral trade agreement between the United States and
Cambodia was signed on October 4.
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\52\ Public Law 104-203, approved September 25, 1996.
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Vietnam
Vietnam first received a Presidential waiver in 1998 from
the freedom of emigration requirements in the Jackson-Vanik
amendment to the Trade Act of 1974. However, because the
bilateral trade agreement between the United States has not
been transmitted to and approved by Congress, Vietnam is
ineligible under Title IV of the Trade Act of 1974 to receive
normal trade relations from the United States. The practical
effect of the Jackson-Vanik waiver is to make Vietnam eligible
for certain U.S. government credits, or investment or credit
guarantee programs, provided that Vietnam meets the relevant
program criteria. These programs, which lie outside the
jurisdiction of the Committee on Ways and Means, include the
Oversease Private Investment Corporation, the Export-Import
Bank, and agricultural credit programs administered by the U.S.
Depertment of Agriculture.
On June 3, 1999, the President transmitted a letter and
report to Congress on the continuation of Vietnam's Jackson-
Vanik waiver for the next 12-month period (House Document 106-
78). The President issued the waiver on the basis that it would
substantially promote achievement of the objectives in the
statute.
On June 2, 2000, the President transmitted another letter
and report to Congress on the continuation of Vietnam's
Jackson-Vanik waiver for an additional 12 month period (House
Document 106-252). During the 106th Congress the House defeated
two resolutions which would have disapproved Presidential
waiver determinations for Vietnam.
In July 2000, the United States and Vietnam signed a
bilateral commercial agreement. Upon approval of the agreement
by Congress, Vietnam would be eligible for conditional normal
trade relations, subject to a yearly determination by the
President.
North American Trade Relations
Section 1102 of the Omnibus Trade and Competitiveness Act
of 1988 \53\ authorized the President to enter into
multilateral or bilateral trade agreements, before June 1, 1993
(extended until April 15, 1994, only for the GATT Uruguay Round
of Multilateral Trade Negotiations) to reduce or eliminate
tariff or nontariff barriers and other trade-distorting
measures, subject to congressional consultation requirements
under sections 1102 and 1103 and approval of implementing
legislation under special fast track procedural rules of the
House and Senate under section 151 of the Trade Act of 1974.
The authorities provided the means to achieve the negotiating
objectives set forth under section 1101 of the 1988 Act.
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\53\ Public Law 100-418, approved August 23, 1988, 19 U.S.C. 2901
note.
---------------------------------------------------------------------------
On August 12, 1992, President Bush announced the completion
of negotiations of a comprehensive North American Free Trade
Agreement (NAFTA). On September 18, the President officially
notified Congress of his intention to enter into the Agreement,
accompanied by reports of 38 private sector advisory committees
on the draft Agreement as required by section 135 of the Trade
Act of 1974, as amended. This notice was followed on October 7
by the initialling of the draft legal text by the trade
ministers of the three participating countries in San Antonio,
Texas. The Agreement was signed on December 17, the expiration
of the 90-day minimum notice period.
Also on December 17, President-elect Clinton stated that he
could not support the NAFTA as negotiated without additional
side agreements covering the environment, workers, and import
surges. On August 13, 1993, U.S. Trade Representative Michael
Kantor announced completion of these supplemental agreements.
He also announced a basic agreement on a new institutional
structure for funding environmental infrastructure projects in
the U.S.-Mexico border region. The NAFTA side agreements were
signed in a White House ceremony on September 14, 1993.
On November 4, 1993, President Clinton sent two letters of
transmittal to the Congress covering: (1) the NAFTA text,
together with the draft implementing bill, Statement of
Administrative Action and supporting documents as required
under section 1103(a) of the 1988 Act for congressional
approval; and (2) the NAFTA supplemental agreements.
As provided under section 151 of the Trade Act of 1974, the
implementing legislation was introduced as H.R. 3450 in the
House and S. 1627 in the Senate on November 4. On November 17,
the House passed H.R. 3450. On November 20, the Senate passed
the bill. The bill was then signed by the President and became
public law on December 8, 1993. On December 15, 1993, President
Clinton issued Presidential Proclamation 6641 to implement as
of January 1, 1994 the tariff modification provisions under the
North American Free Trade Agreement as provided for under
section 1102(a) of the 1988 Act.\54\
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\54\ Proclamation No. 6641, 58 Fed. Reg. 68,191 (1993).
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North American Free Trade Agreement
The North American Free Trade Agreement is the most
comprehensive trade agreement ever negotiated and creates the
world's largest market for goods and services.
The cornerstone of the Agreement is the phased-out
elimination of all tariffs on trade between the United States,
Canada, and Mexico. With respect to United States-Canada
bilateral trade, all tariffs will be eliminated by 1999, as was
agreed in the United States-Canada Free-Trade Agreement. As for
United States-Mexico bilateral trade, most tariffs will be
eliminated by 2004, although a few U.S. tariffs on potentially
import-sensitive items will not be completely eliminated until
2009. The NAFTA also reduces or eliminates a number of
nontariff barriers to trade, liberalizes restrictions on
investment and services, sets forth strong and comprehensive
rules on intellectual property, and extends to the three
countries the international system established under the United
States-Canada Free-Trade Agreement for review of national
determinations of dumping and subsidy practices.
North American Free Trade Agreement Implementation Act of 1993
The North American Free Trade Agreement Implementation Act
of 1993 \55\ approved the Agreement (but not the supplemental
agreements) and Statement of Administrative Action submitted to
the Congress on November 4, 1993 and includes provisions which
are necessary or appropriate to implement the Agreement in U.S.
domestic law. U.S. law prevails over the Agreement if there is
a conflict. The Agreement establishes a federal-state
consultation process concerning NAFTA obligations affecting
state laws. The Act establishes a federal-state consultation
process to achieve conformity of state laws with the Agreement.
No person other than the United States has a cause of action or
defense under the Agreement.
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\55\ Public Law 103-182, approved December 8, 1993, 19 U.S.C. 3301
note.
---------------------------------------------------------------------------
The President is authorized to proclaim the modifications
in U.S. duties to implement the scheduled phaseout and
elimination of all tariffs required under various provisions of
the NAFTA and to maintain the general level of concessions. The
rules of origin in the Act, which are to ensure application of
NAFTA preferential tariff treatment only to goods originating
in Mexico or Canada, are enacted in the statute. The
legislation implements U.S. obligations under the NAFTA to
eliminate customs merchandising processing fees, restrict duty
drawback, and revise country-of-origin marking requirements;
amends penalties and recordkeeping requirements to enforce
NAFTA rules of origin and other customs requirements; and
requires monitoring of television and color picture tube
imports.
The legislation also includes procedures and criteria for
applying bilateral and global import relief measures on
Canadian and Mexican articles; implements NAFTA obligations
that apply to certain agricultural commodities, intellectual
property rights protection, temporary entry of business
persons, standards and sanitary and phytosanitary measures, and
corporate average fuel economy; and authorizes the waiver of
discriminatory government purchasing restrictions on NAFTA-
covered procurement.
The legislation implements into U.S. domestic law the
institutional provisions of the NAFTA establishing binational
panel and extraordinary challenge committee review of final
antidumping and countervailing duty determinations, in lieu of
domestic judicial review, including procedures and criteria for
the selection of panelists appointed by the United States, and
special procedures for the selection of federal judges for
panels and committees. Objectives for future negotiations with
NAFTA countries on subsidies and special procedures for
industries facing subsidized competition pending development of
subsidy rules are also included.
Institutional provisions include authorization of a U.S.
section of the NAFTA Secretariat, requirements relating to
selection of dispute settlement panelists, and a preliminary
process for considering possible future country accession to
NAFTA, subject to congressional approval.
Other provisions include the establishment of a NAFTA
transitional adjustment assistance program of comprehensive
benefits, including training and income support, for workers
who may be laid off due to increased U.S. imports from Mexico
or Canada or a shift in production to Mexico or Canada, and
authorizes state self-employment assistance programs. Also
included are a comprehensive report by the President on the
operation and economic impact of the NAFTA after 3 years, a
response to actions affecting U.S. cultural industries, a
report on the impact of the NAFTA on motor vehicle exports to
Mexico, a response to discriminatory tax measures, and
authorization of a Center for the Study of Western Hemisphere
Trade.
With respect to the supplemental agreements, the
legislation authorized U.S. participation in, and
appropriations for, the Commissions on Labor Cooperation,
Environmental Cooperation, and Border Environment Cooperation.
It also includes provisions relating to U.S. membership in the
North American Development Bank.
United States-Israel Trade Relations
Title IV of the Trade and Tariff Act of 1984 \56\ amended
section 102(b) of the Trade Act of 1974 to authorize the
President to enter into a bilateral reciprocal trade agreement
with Israel specifically providing for elimination or reduction
of U.S. duties on products of that country as well as nontariff
barriers, subject to congressional consultations and approval
of implementing legislation under the expedited procedures of
sections 102 and 151-154 of the Trade Act. As amended by
section 401, the requirements for advance consultations and 90-
day advance notice to Congress of intent to enter into a trade
agreement did not apply to a bilateral agreement with Israel.
Title IV also contains basic provisions of U.S. laws required
to be applied to the administration of the Agreement.
---------------------------------------------------------------------------
\56\ Public Law 98-573, title IV, approved October 30, 1984.
---------------------------------------------------------------------------
On November 29, 1983, President Reagan and Israeli Prime
Minister Shamir agreed to proceed with bilateral negotiations
on a United States-Israel free trade area, which the Israeli
government originally proposed in 1981. Negotiations by the
U.S. Trade Representative began in mid-January 1984 on the
elements of an agreement to eliminate tariffs and other trade-
distorting practices between the two countries. The Agreement
on the Establishment of a Free Trade Area Between the
government of the United States of America and the government
of Israel was signed on April 22, 1985. The President
transmitted to the Congress on April 29 the text of the
Agreement, a draft implementing bill, a statement of
administrative action, and an explanation of the effects on
existing law. The United States-Israel Free Trade Area
Implementation Act of 1985 \57\ approved the free trade area
agreement with changes in U.S. laws necessary and appropriate
for its domestic implementation. The implementing bill was
passed by both Houses of Congress in May and signed into law on
June 11, 1985.
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\57\ Public Law 99-47, approved June 11, 1985, 19 U.S.C. 2112.
---------------------------------------------------------------------------
Title IV of the Trade and Tariff Act of 1984
In addition to providing the basic authority for a
bilateral free trade area agreement with Israel, title IV of
the Trade and Tariff Act of 1984, as amended, sets forth the
rule-of-origin requirements that would apply to such an
agreement as well as the application of import relief laws.
Section 402 requires that any trade agreement entered into
under section 102(b) with Israel provide for the reduction or
elimination of duties only on articles that meet rule-of-origin
requirements similar to those under the Caribbean Basin
Initiative (CBI):
(1) The article must be the growth, product or
manufacture of Israel or foreign materials or
components must be substantially transformed into a new
or different article grown, produced, or manufactured
in Israel. Related provisions are designed to prevent
qualification of minor pass-through operations and
transshipments;
(2) The article must be imported directly from Israel
into the U.S. customs territory; and
(3) At least 35 percent of the total value of the
article must consist of materials produced in Israel
plus direct cost of processing operations performed in
Israel, of which 15 percent may be U.S. content.
Sections 403 and 406 of the 1984 Act make clear that
existing trade laws available to domestic industries for relief
from injurious import competition or unfair trade practices
continue to apply to imports under the trade agreement with
Israel. As under the CBI legislation, the President may suspend
the reduction or elimination of any duty under the trade
agreement with Israel and proclaim a duty as import relief
under section 203 of the Trade Act of 1974 or as a national
security measure under section 232 of the Trade Expansion Act
of 1962. Alternatively the President may establish a margin of
preference or maintain the duty reduction or elimination on
Israeli articles while imposing relief on imports from other
sources. The U.S. International Trade Commission must state in
its report to the President on import relief investigations
involving Israeli articles covered in a trade agreement whether
and to what extent its injury findings and recommended relief
apply to imports from Israel.
Section 404 of the Trade and Tariff Act of 1984 applies a
special procedure similar to that established under the CBI
whereby petitions may be filed with the Secretary of
Agriculture for emergency relief on perishable products from
Israel pending action on a petition filed for normal import
relief action. The Secretary must determine and report to the
President within 14 days a recommendation for emergency action
if he has reason to believe an agricultural perishable product
from Israel is being imported in such increased quantities as
to be a substantial cause or threat of serious injury to the
U.S. industry. The President must determine within 7 days
whether to take emergency action, which consists of withdrawing
the reduction or elimination of duty and restoring the original
rate pending final action on the import relief petition.
United States-Israel Free Trade Area Agreement
The free trade area with Israel was the first such
arrangement negotiated by the United States with any foreign
country aside from the bilateral free trade arrangement with
Canada in the automotive sector only. The Agreement is an
adjunct to existing multilateral obligations of both parties
under the GATT/WTO; existing rights and obligations between the
countries under the GATT or other agreements continue to apply
unless specifically modified by the terms of the Agreement.
The main element of the Agreement is the reciprocal
elimination of tariffs on all products traded between the two
countries by January 1, 1995 and the elimination of other
restrictive regulations of commerce on bilateral trade as
provided under Article XXIV of the GATT 1994 for free trade
areas. Duties were eliminated by both countries over 10 years
in four staging categories depending on the relative import
sensitivity of articles for domestic producers. Duties on
certain products were eliminated immediately as of September 1,
1985.
The Agreement also prohibits the introduction of new duties
or quantitative restrictions in bilateral trade unless they are
permitted by the Agreement or by the GATT. The government of
Israel undertook specific commitments concerning the reduction
and elimination of its export subsidy programs and limited its
GATT right as a developing country to apply duties to protect
infant industries. Both parties must review their veterinary
and plant health rules to insure nondiscrimination and not
undue trade obstruction, undertook limitations on the duration
of temporary restrictions that might be imposed in serious
balance-of-payments situations, and reaffirmed existing
bilateral obligations on intellectual property rights. The
Agreement prohibits the imposition of import licensing
requirements except in certain circumstances and of export or
domestic purchase performance requirements on investment. The
Agreement requires both countries to waive their Buy National
restrictions on government procurement contracts valued $50,000
or more for articles or services covered by the 1979 GATT
Agreement on Government Procurement.
The Agreement contains various safeguard provisions
consistent with title IV of the Trade and Tariff Act of 1984 to
permit import relief measures under certain circumstances, and
rule-of-origin requirements to ensure that free trade area
benefits accrue only to the two parties. Import restrictions
other than customs duties may also be maintained based on
agricultural policy considerations. A Joint Committee reviews
and administers the Agreement and provides for dispute
settlement.
In 1996, the United States and Israel entered into the
Agreement on Trade in Agricultural Products (ATAP), an adjunct
to the 1985 FTA Agreement. The ATAP expires on December 31,
2001.
United States-Israel Free Trade Area Implementation Act of 1985
The United States-Israel Free Trade Area Implementation Act
of 1985 approved the United States-Israel Free Trade Area
Agreement and statement of administrative action submitted to
the Congress on April 29, 1985 and made necessary and
appropriate changes in U.S. laws for its domestic
implementation.\58\ U.S. statutes prevail if a provision of the
Agreement is in conflict. No private rights of action or
remedies are created. Expedited legislative approval procedures
apply to subsequent changes in U.S. statutes to implement
requirements, amendments, or recommendations under the
Agreement.
---------------------------------------------------------------------------
\58\ Public Law 99-47, approved June 11, 1985, 19 U.S.C. 2112 note.
---------------------------------------------------------------------------
The President is authorized to proclaim the modifications
or continuance of existing duties or duty-free treatment to
implement the schedule for U.S. duty elimination under the
Agreement. Tariff elimination was completed as of January 1,
1995. The President may withdraw, suspend, or modify any duty
or duty-free treatment or proclaim additional duties necessary
to maintain the general level of concessions under the
Agreement.
The implementing legislation also amended title III of the
Trade Agreements Act of 1979 to lower the threshold contract
value to $50,000 or more on which the President may waive Buy
American restrictions on eligible products or services from
Israel covered by the GATT Agreement on Government Procurement.
As amended by the Uruguay Round Agreements Act, the $50,000
threshold may be applied to the broader central government
entity coverage of goods and services under the 1994 GATT
Agreement if there is a reciprocal agreement from Israel.
West Bank and Gaza Strip Free Trade Benefits
In an exchange of letters on October 17, 1995, among the
United States, the government of Israel, and the Palestinian
Authority, the U.S. Trade Representative agreed to seek
statutory authority to proclaim elimination of existing duties
on articles of the West Bank and Gaza Strip. The Palestinian
Authority agreed to accord U.S. products duty-free access to
the West Bank and Gaza Strip, to prevent illegal transshipment
of goods not qualifying for duty-free access, and to support
all efforts to end the Arab economic boycott of Israel. Because
the authority given to the President to proclaim reductions in
tariffs without congressional action contained in section
1102(a) of the Omnibus Trade and Competitiveness Act of 1988
had expired, new proclamation authority was required to
implement the terms of the exchange of letters.
Accordingly, Congress passed legislation amending the
United States-Israel Free Trade Area Implementation Act of
1985, adding a new section to provide the President
proclamation authority to modify tariffs on products from the
West Bank, Gaza Strip and qualifying industrial zones. \59\ The
provision applies to areas designated as industrial parks
between the Gaza Strip and Israel and between the West Bank and
Israel. The effect of the provision is to offer to goods from
the West Bank, Gaza Strip, and qualifying industrial zones
(located between Israel and Jordan or Israel and Egypt) the
same tariff treatment as is offered to Israel under the United
States-Israel Free Trade Agreement. The provision applies the
same rule-of-origin requirements as to products from the West
Bank, Gaza Strip, and qualifying industrial zones as are
already applicable to products from Israel.
---------------------------------------------------------------------------
\59\ Public Law 104-234, approved October 2, 1996.
---------------------------------------------------------------------------
United States-Canada Trade Relations
Section 102(b) of the Trade Act of 1974, as amended by
section 401 of the Trade and Tariff Act of 1984, authorized the
President to enter into bilateral reciprocal trade agreements
with foreign countries to eliminate or reduce tariffs on
bilateral trade as well as nontariff barriers if the following
procedural requirements were met:
(1) The foreign country requested the negotiation of
a bilateral trade agreement;
(2) The President gave at least 60 days advance
notice of negotiations to the House Committee on Ways
and Means and the Senate Committee on Finance and
consulted with these committees regarding negotiation
of such an agreement; and
(3) Neither Committee disapproved of the negotiation
of such an agreement before the end of that 60-day
period.
Agreements entered into under this authority were subject to
further congressional consultation requirements and approval of
implementing legislation under the expedited procedures of
sections 102 and 151-154 of the Trade Act. This bilateral trade
agreement authority expired on January 3, 1988.
In March 1985, President Reagan and Prime Minister Mulroney
directed their negotiators to explore ways to liberalize
between the two countries. On September 26, Canadian Prime
Minister Mulroney proposed bilateral trade negotiations on the
``broadest possible package of mutually beneficial reductions
in barriers to trade in goods and services.'' On December 10,
President Reagan notified the House Committee on Ways and Means
and the Senate Committee on Finance of the Administration's
desire to enter into bilateral trade negotiations with Canada
under the section 102 authority. On October 3, 1987, President
Reagan submitted the 90-day advance notice to the Congress of
his intention to enter into a trade agreement with Canada on
January 2, 1988, the day before expiration of the authority,
``contingent upon successful completion of the negotiations.''
On January 2, 1988, President Reagan and Prime Minister
Mulroney signed the United States-Canada Free-Trade Agreement
on behalf of their respective governments.
On July 25, 1988, the President transmitted to the Congress
a copy of the Agreement, a statement of administrative action,
proposed implementing legislation, and a statement of how the
Agreement serves the interests of U.S. commerce. The
implementing legislation passed the House on August 9 and the
Senate on September 19, and was signed into law by the
President on September 28, 1988. The Agreement entered into
force on January 1, 1989.
On January 1, 1994, the North American Free Trade Agreement
entered into force, covering trade among the United States,
Canada, and Mexico. The Agreement contains provisions
suspending the overlapping provisions of the two agreements
until such time as Canada may terminate its participation in
the NAFTA.
United States-Canada Free-Trade Agreement
The United States-Canada Free-Trade Agreement is one of the
most comprehensive bilateral trade agreements ever negotiated
and creates one of the world's largest internal markets for
goods and services. The two federal governments agreed to
ensure that state, provincial, and local governments take
necessary actions in areas under their jurisdiction to
implement the Agreement. Each party agreed to accord national
interest treatment to the goods, services, and investment of
the other party to the extent provided in the Agreement.
The central provision of the Agreement is the phased out
elimination of tariffs on all goods traded between the two
countries within 10 years, by January 1, 1998, in three staging
categories. Tariff elimination on particular products can be
implemented faster than scheduled by mutual agreement. The
Agreement contains rules of origin based primarily on changes
in tariff classifications to determine that only products with
sufficient content originating in either or both countries
receive the benefits of preferential tariff treatment. Customs
user fees and duty drawback programs must be phased out by 1994
for bilateral trade; duty waivers linked to performance
requirements, except certain waivers affecting automotive
trade, and duty remission programs for autos must be terminated
by 1988.
The Agreement eliminates and prohibits import and export
quotas or other restrictions, unless specifically permitted by
the Agreement or by the General Agreement on Tariffs and Trade
(GATT), and liberalizes or harmonizes laws and regulations
relating to technical standards. Other Agreement provisions
liberalize barriers affecting agriculture, automotive products,
wine and distilled spirits, energy, government procurement,
services, investment, temporary entry for business persons, and
financial services. Certain ``cultural industries'' are exempt
from the Agreement. Temporary import relief actions may be
taken on a bilateral or global basis under certain
circumstances to safeguard domestic industries from import-
related injury.
Institutional provisions are included for the avoidance or
settlement of disputes between the two parties concerning the
interpretation or application of the Agreement. A major element
of the Agreement is establishment of a mechanism for review by
binational panels and extraordinary challenge committees of
final antidumping and countervailing duty determinations on
products of the two countries in lieu of judicial review by
courts of either party using the request of either party.
United States-Canada Free-Trade Agreement Implementation Act of 1988
The United States-Canada Free-Trade Agreement
Implementation Act of 1988 \60\ approved the Agreement and
statement of administrative action submitted to the Congress on
July 25, 1988 and sets forth the relationship between
obligations under the Agreement and U.S. laws. The legislation
also makes changes in U.S. laws necessary or appropriate to
implement obligations under the Agreement, sets forth
negotiating objectives and authorities for further U.S.-Canada
trade liberalization, and specifies procedures for domestic
implementation of future changes in the Agreement. Technical
amendments to various provisions were included in the Customs
and Trade Act of 1990.\61\
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\60\ Public Law 100-449, approved September 28, 1988, 19 U.S.C.
2112 note.
\61\ Public Law 101-382, approved August 20, 1990.
---------------------------------------------------------------------------
U.S. laws prevail over the Agreement if there is a
conflict. No person other than the United States has a cause of
action or defense under the Agreement. Changes in U.S. law
necessary or appropriate to implement an amendment to the
Agreement could be approved under the fast track congressional
procedures during the 30-month period after the Agreement
entered into force. Certain actions may be implemented by
presidential proclamation subject to prior consultation and 60
calendar day congressional layover requirements.
The President is authorized to proclaim the modifications
in U.S. rates of duty necessary to implement the scheduled
phaseout and elimination of all tariffs on trade with Canada
within 10 years. The rules of origin set forth in the Agreement
to ensure application of preferential tariff treatment only to
goods originating in Canada are enacted in the statute. The
legislation implements U.S. obligations under the Agreement to
phase out customs user fees on Canadian goods, to eliminate
drawback with certain exceptions, and to exempt Canada from the
lottery ticket embargo; provides penalties and recordkeeping
requirements to enforce the rules of origin; and includes a
reporting and monitoring requirement on the consistency of
Canadian production-based duty remission programs with the GATT
and the Agreement.
The legislation also implements in U.S. domestic law
various provisions of the Agreement concerning particular
economic sectors, including agricultural products (authority to
impose temporary duties on imports of fresh fruits and
vegetables, exemption of Canadian meat from any import
limitations under the Meat Import Act (now repealed), authority
to exempt grain and grain products and sugar-containing
products from Canada from section 22 import quotas); exports to
Canada of Alaskan oil; exemption of Canadian uranium from U.S.
enrichment restrictions; a lower contract threshold ($25,000)
for exemption from Buy American restrictions on government
procurement of articles from Canada covered by the GATT
Agreement on Government Procurement; temporary entry of
business persons; and extension of financial services. The
legislation also includes procedures and criteria for the
application of bilateral or global safeguard measures on
Canadian articles as temporary relief from import-related
injury.
The implementing legislation sets forth various U.S.
negotiating objectives to expand the Agreement with respect to
services, investment, intellectual property rights, automotive
products, procurement, Canadian agricultural transportation
subsidies, potato trade, and enforcement of U.S. rights against
Canadian controls on fish. Objectives and authority to
negotiate an agreement on subsidies and special procedures for
industries facing subsidized competition pending development of
subsidy rules are also included.
The legislation also contains revisions to U.S. law to
implement the institutional provisions of the Agreement
establishing binational panel and extraordinary challenge
committee review, upon request, of final antidumping and
countervailing duty determinations, in lieu of judicial review.
The statute includes procedures and criteria for the selection
of the panelists appointed by the United States, establishes
the U.S. Secretariat, and authorizes appropriations for
administrative expenses.
The NAFTA incorporates or otherwise carries forward most
provisions of the United States-Canada FTA or supercedes the
bilateral agreement in certain areas, such as rules of origin.
The United States and Canada suspended the operation of the
bilateral agreement upon entry into force of the NAFTA for the
two countries for such time as the two governments remain
parties to the NAFTA. As provided in section 107 of the NAFTA
Implementation Act, certain provisions of the United States-
Canada FTA Implementation Act are suspended; other provisions
of that Act which carry out U.S. obligations under the United
States-Canada FTA that are in effect under the NAFTA remain in
place or are amended by the NAFTA Implementation Act.
Chapter 7: ORGANIZATION OF TRADE POLICY FUNCTIONS
Congress
The role of the Congress in trade derives from its powers
under the Constitution to regulate foreign commerce and to lay
and collect duties (see preface). Consequently, the trade
agreements program and application of duties or other import
restrictions are based upon and limited to specific legislation
or authorities delegated by the Congress. In order to ensure
proper implementation of these laws and authorities, in
accordance with legislative intent, Congress has included
various statutory requirements in the trade laws to limit their
application, to ensure congressional oversight of their
implementation, and to fulfill its responsibility for
legislating any necessary or appropriate changes in U.S. laws.
More specifically, for example, periodic delegations of
authority by the Congress to the President to proclaim changes
in U.S. tariff treatment in the context of trade agreements has
been limited in scope and periods of time, and use of the
authority subject to certain prenegotiation procedures to
protect domestic interests. On the other hand, Congress has
granted federal agencies permanent authorities to administer
certain laws and programs, such as trade remedy laws or trade
adjustment assistance, under certain specific guidelines and
subject to congressional oversight, including appropriations.
Specific statutory roles of the Congress became formalized
under the Trade Act of 1974 \1\ with the grant of authority to
the President under section 102 to enter into reciprocal trade
agreements affecting U.S. laws other than traditional changes
in tariff treatment. In authorizing implementation through an
expedited, no amendment procedure, Congress ensured its role
through statutory consultation and notification procedures
prior to submission of a draft implementing bill by the
executive. This relationship continued under authorities
granted by the Omnibus Trade and Competitiveness Act of 1988,
but has now expired with respect to new agreements (see chapter
6).
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\1\ Public Law 93-618, approved January 3, 1975, 19 U.S.C. 2101.
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Section 161 of the Trade Act of 1974 provides for
appointment at the beginning of each session of Congress of
five official congressional advisers by the Speaker of the
House from the Committee on Ways and Means and five official
advisers by the President of the Senate from the Committee on
Finance, and additional advisers where appropriate for specific
policy matters or negotiations, to U.S. delegations to
international negotiating sessions on trade agreements. The
U.S. Trade Representative (USTR) must keep each adviser and
designated committee staff members informed of U.S. objectives
and the status of negotiations and of any changes which may be
recommended in U.S. laws. Section 162 requires transmission of
any trade agreements to the Congress.
Section 163 requires annual reports from the President and
from the U.S. International Trade Commission (ITC) to keep the
Congress informed regarding actions taken under the various
trade laws and programs. Additional reports are required on
specific aspects of various authorities (e.g., from the ITC on
the domestic economic impact of the Caribbean Basin
Initiative).
Finally, Congress had maintained its institutional role
with the executive by requiring the USTR to advise the Congress
as well as the President on trade policy developments, through
requests to the ITC for studies and analyses under section 332
of the Tariff Act of 1930 of various current trade issues, and
through its power to authorize and appropriate funds for the
functions of major trade agencies.
Executive Branch
Interagency Trade Process
Trade policy is a major element of U.S. economic and
foreign policy. A decision to raise or lower tariffs, to impose
import quotas, or to take other trade policy actions affects
both domestic and foreign interests. In light of the far-
reaching effects of trade policy decisions, a large number of
U.S. government agencies have a role to play in the development
of policy. Various interagency coordinating mechanisms have
been used for bringing together conflicting views and interests
and resolving them so that there can be a consistent and
balanced national trade policy.
Until the late 1950s, the Department of State was the major
initiator and coordinator of international trade policy. The
Secretary of State chaired the interagency Trade Agreements
Committee which originally included eight agencies: the
Departments of State, Agriculture, Commerce, and Treasury, the
Tariff Commission, the Agricultural Adjustment Administration,
the National Recovery Administration, and the Office of the
Special Advisor to the President on Foreign Trade.
Congress authorized the President under section 242 of the
Trade Expansion Act of 1962 \2\ to establish a new interagency
trade organization to carry out specified trade policy
functions. The Trade Agreements Committee was replaced by the
Trade Policy Committee (TPC) in 1975.\3\ The TPC performs the
same functions authorized by section 242 of the 1962 Trade Act.
Two subordinate coordinating groups, the Trade Policy Review
Group (TPRG) and the Trade Policy Staff Committee (TPSC), were
subsequently created by the authority of the Special
Representative.\4\
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\2\ 19 U.S.C. 1801.
\3\ 40 Fed. Reg. 18419, April 28, 1975.
\4\ Exec. Order 11846, March 27, 1975, 40 Fed. Reg. 14291.
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Section 1621 of the Omnibus Trade and Competitiveness Act
of 1988 \5\ amended section 242 of the 1962 Act to provide that
this interagency organization will include the USTR as chair,
the Secretaries of Commerce, State, Treasury, Agriculture, and
Labor, and authorizes the USTR to invite other agencies to
attend meetings as appropriate. The functions of the
organization are: to assist and make recommendations to the
President in carrying out his functions under the trade laws
and to advise the USTR in carrying out its functions; to assist
the President and advise the USTR on the development and
implementation of U.S. international trade policy objectives;
and to advise the President and the USTR on the relationship
between U.S. international trade policy objectives and other
major policy areas.
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\5\ Public Law 100-418, section 1621, approved August 23, 1988.
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The TPSC is the working level interagency group, with
members drawn from the office-director level of member
agencies. Over 30 subcommittees and task forces support the
work of the TPSC. In the absence of consensus at the TPSC level
or in the case of particularly significant policy matters,
issues are referred to the Assistant Secretary-level TPRG.
Disagreements at the Assistant Secretary-level are referred to
the TPC for Cabinet-level review. When presidential trade
policy decisions are needed, the Chairman (USTR) submits the
recommendations and advice of the Committee to the President.
In 1993, President Clinton established the National
Economic Council as the final tier of the interagency trade
mechanism. Chaired by the President, the NEC is composed of the
Vice President, the Secretaries of State, Treasury,
Agriculture, Commerce, Labor, Housing and Urban Development,
Transportation, and Energy, the Administrator of the
Environmental Protection Agency, the Director of the Office of
Management and Budget, the USTR, the Chairman of the Council of
Economic Advisors, the National Security Advisor, and the
Assistants to the President for Economic Policy, Domestic
Policy and Science and Technology Policy.
Office of the U.S. Trade Representative
Section 241 of the Trade Expansion Act of 1962 established
the Office of the Special Representative for Trade
Negotiations.\6\ Congress' stated purpose for creating the
position was to provide better balance between competing
domestic and international interests in the formulation of U.S.
trade policy and negotiations. The Special Trade Representative
(STR), whose rank was ambassador extraordinary and
plenipotentiary, was to serve as the chief U.S. representative
for negotiations conducted under authority of the Act and for
other trade negotiations authorized by the President.
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\6\ Public Law 87-794, approved October 11, 1962, 19 U.S.C. 1801.
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Various executive orders issued by President Kennedy in
1963 established an Office of the Special Trade Representative
and provided for the appointment of two Deputy Special
Representatives for Trade Negotiations. These deputies, one
based in Washington, D.C., and the other in Geneva, Switzerland
(headquarters of the GATT Secretariat), were assigned major
responsibilities for the conduct of the 1963-67 multilateral
trade negotiations under the GATT, commonly known as the
Kennedy Round.\7\
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\7\ Public Law 97-456, approved January 12, 1983, added a third
deputy trade representative.
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Section 141 of the Trade Act of 1974 \8\ established the
office as an agency within the executive office of the
President and expanded the STR's duties to include
responsibility for the trade agreements program under the
Tariff Act of 1930, the Trade Expansion Act of 1962 and the
Trade Act of 1974. Other duties and responsibilities also were
assigned by the 1974 Trade Act and by Executive Order 11846 of
March 27, 1975, as amended. Section 141 indicated Congressional
intent to elevate the STR to Cabinet level by adding it to the
list of positions at level I of the executive schedule of
salaries, with the rank of ambassador. The STR was also made
directly responsible to the President and the Congress.
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\8\ Public Law 93-618, approved January 3, 1975, 19 U.S.C. 2171.
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Reorganization Plan No. 3 of 1979, implemented by Executive
Order 12188 of January 4, 1980,\9\ authorized certain changes
in the trade responsibilities of the STR. Plan No. 3
redesignated the Office of the Special Representative for Trade
Negotiations as the Office of the United States Trade
Representative (USTR). The new name reflected the plan's intent
for the Trade Representative to have overall responsibility, on
a permanent basis, for developing and coordinating the
implementation of U.S. trade policy.
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\9\ 44 Fed. Reg. 69273.
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The 1979 Reorganization Plan specified that the USTR is the
President's principal adviser and chief spokesman on trade,
including advice on the impact of international trade on other
U.S. government policies. The USTR also became Vice Chairman of
the Overseas Private Investment Corporation (OPIC), a nonvoting
member of the Export-Import Bank, and a member of the National
Advisory Committee on International Monetary and Financial
Policies. In addition to these responsibilities, section 306(c)
of the Trade and Tariff Act of 1984 \10\ specified that the
USTR, through the interagency organization, is responsible for
developing and coordinating U.S. policies on trade in services.
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\10\ Public Law 98-573, approved October 30, 1984.
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Section 1601 of the Omnibus Trade and Competitiveness Act
of 1988 \1\\1\ amended section 141 of the 1974 Act to the
responsibilities of the USTR first enumerated under
Reorganization Plan No. 3 and other statutes, as the following:
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\1\\1\ Public Law 100-418, section 1601, approved August 23, 1988.
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(1) to have primary responsibility for developing and
coordinating the implementation of U.S. international
trade policy;
(2) to serve as the principal adviser to the
President on international trade policy and advise the
President on the impact of other U.S. government
policies on international trade;
(3) to have lead responsibility for the conduct of,
and be chief U.S. representative for, international
trade negotiations, including commodity and direct
investment negotiations;
(4) to coordinate trade policy with other agencies;
(5) to act as the principal international trade
spokesman of the President;
(6) to report to the President and the Congress on,
and be responsible to the President and the Congress
for, the administration of the trade agreements
program, including advising on nontariff barriers,
international commodity agreements, and other matters
relating to the trade agreements program; and
(7) to be chairman of the Trade Policy Committee.
In addition, the Omnibus Trade and Competitiveness Act also
included the sense of Congress that the USTR be the senior
representative on any body the President establishes to advise
him on overall economic policies in which international trade
matters predominate and that the USTR be included in all
economic summits and other international meetings at which
international trade is a major topic. The USTR was made
responsible for identifying and coordinating agency resources
on unfair trade practices cases that may be actionable under
U.S. antidumping and countervailing duty statutes, section 337,
or section 301. The Act established an unfair trade practices
committee to advise the USTR.
Under the Omnibus Trade and Competitiveness Act of 1988,
the Congress further sought to elevate the importance of the
USTR in trade matters by shifting to the USTR from the
President responsibility for implementing actions under section
301 of that Act, subject to the specific direction, if any, of
the President.
The Uruguay Round Agreements Act specifies that the USTR is
to have lead responsibility for all negotiations on any matter
considered under the auspices of the World Trade Organization.
The Lobbying Disclosure Act of 1995 amended section 141 to
prohibit the appointment of a person who has directly
represented, aided, or advised a foreign entity (as defined by
section 207(f)(3) of title 18, U.S. Code) in any trade
negotiations, or trade dispute, with the United States as U.S.
Trade Representative or Deputy U.S. Trade Representative.\12\
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\12\ Public Law 104-65, approved December 19, 1995.
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Section 406 of the Trade and Development Act of 2000
(Public Law 106-200) amended the Trade Act of 1974 to establish
the position of Chief Agriculture Negotiator within USTR, with
the rank of Ambassador, to conduct trade negotiations and
enforce trade agreements relating to U.S. agriculture products
and services. Section 117 of that Act also established the
position of Assistant USTR for African Affairs to direct and
coordinate interagency activities on U.S.-Africa trade policy
and investment matters.
Section 141(g) of the Trade Act of 1974 provides for a 2-
year saauthorization of appropriations for USTR.
Department of Commerce
The Department of Commerce was established in 1903 as the
Department of Commerce and Labor.\13\ A 1913 act of Congress
split the Department of Commerce and Labor into two separate
departments.\14\ The mandate of the Commerce Department
originally was to promote the foreign and domestic commerce of
the United States. In subsequent years, its authority was
extended to other areas bearing on the economic and
technological development of the country. The titles of the
component units of the Department indicate the diversity of the
agency's current programs and services: Bureau of the Census;
Bureau of Economic Analysis; Economic Development
Administration; Bureau of Export Administration; International
Trade Administration; Minority Business Development Agency;
National Institute of Standards and Technology; National
Oceanic and Atmospheric Administration; National Technical
Information Service; National Telecommunications and
Information Administration; Patent and Trademark Office; and
U.S. Travel and Tourism Administration.
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\13\ 32 Stat. 827, 5 U.S.C. 591.
\14\ 37 Stat. 736, 15 U.S.C. 1501.
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While most of these agencies have some responsibilities
that affect U.S. trade, the U.S. Department of Commerce's major
trade responsibilities are centered in the International Trade
Administration and the Bureau of Export Administration.
The International Trade Administration (ITA), which was
established by the Secretary of Commerce on January 2,
1980,\15\ administers many of the Department's international
trade responsibilities and activities as prescribed by
Reorganization Plan No. 3 of 1979. The plan provides that the
Commerce Department has ``general operational responsibility
for major nonagricultural international trade functions,'' as
well as for any other functions assigned by law. Those include
export development, commercial representation abroad, the
administration of the antidumping and countervailing duty laws,
export controls, trade adjustment assistance to firms, research
and analysis, and compliance with international trade
agreements to which the United States is a party.
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\15\ 45 Fed. Reg. 11862, as amended by 46 Fed. Reg. 13537.
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The Bureau of Export Administration (BXA) controls exports
of commodities and technology for reasons of national security,
foreign policy, and short supply. BXA issues export licenses in
accordance with the export control regulations. Export control
regulations are developed in consultation with other agencies,
and some export license applications require interagency
review.
U.S. Customs Service
The second act of Congress, dated July 4, 1789, authorized
the collection of duties on imported goods, wares and
merchandise. The fifth act of Congress, passed in July 31,
1789, established customs districts and authorized customs
officers to collect import duties. On March 3, 1927, the Bureau
of Customs was established as a separate agency under the
Treasury Department.\16\ The Bureau was redesignated the United
States Customs Service on August 1, 1973.\17\
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\16\ 44 Stat. 1381.
\17\ Treasury Department Order 165-23, of April 4, 1973.
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The Customs Service collects import duties and enforces
more than 400 laws or regulations relating to international
trade. Among the many responsibilities falling to Customs are
assessing and collecting duties, excise taxes, penalties and
other fees due on imported goods; interdicting and seizing
illegally entered merchandise; processing persons, carriers,
cargo and mail into and out of the United States; helping
enforce U.S. laws against the transfer of certain technologies
to certain countries under export control authorities, laws on
copyright, patent and trademark rights; and administering
quotas and other import restrictions. The U.S. Customs Service
maintains close ties with private business associations,
international organizations, and foreign customs services.
The Commissioner of Customs is appointed by the President
and subject to confirmation by the Senate.
The Customs Procedural Reform and Simplification Act of
1978 provides for a 2-year authorization of appropriations for
Customs.
U.S. International Trade Commission
The U.S. International Trade Commission (ITC) is an
independent and quasi-judicial agency that conducts studies,
reports, and investigations, and makes recommendations to the
President and the Congress on a wide range of international
trade issues. The agency was established on September 8, 1916
\18\ as the U.S. Tariff Commission. In 1974 the name was
changed to the United States International Trade Commission by
section 171 of the Trade Act of 1974.\19\
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\18\ 39 Stat. 795.
\19\ 19 U.S.C. 2231.
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Commissioners are appointed by the President for 9-year
terms, unless they are appointed to fill an unexpired term. Any
Commissioner who has served for more than 5 years may not be
reappointed. Of the six commissioners, not more than three may
be of the same political party. The Chairman and Vice Chairman
are designated by the President for 2-year terms, and
successive Chairmen may not be of the same political party.
After June 17, 1996, a Commissioner with less than 1 year of
continuous service as a Commissioner may not be designated as
Chairman.
The Commission has numerous responsibilities for advice,
investigations, studies, and data collection and analysis which
may be grouped into the following general areas: advice on
trade negotiations; Generalized System of Preferences; import
relief for domestic industries; East-West trade; investigations
of injury caused by subsidized or dumped goods; import
interference with agricultural programs; unfair practices in
import trade; development of uniform statistical data; matters
related to the U.S. tariff schedules; international trade
studies; trade and tariff summaries.
Statutory authority for the Commission's responsibilities
is provided primarily by the Tariff Act of 1930, the
Agricultural Adjustment Act, the Trade Expansion Act of 1962,
the Trade Act of 1974, the Trade Agreements Act of 1979, the
Trade and Tariff Act of 1984, the Omnibus Trade and
Competitiveness Act of 1988, and the Uruguay Round Agreements
Act.
The Tariff Act of 1930 gives the Commission broad authority
to conduct studies and investigations relating to the impact of
international trade on U.S. industries. Various sections under
title VII of the Tariff Act authorize the Commission to
determine whether U.S. industries are materially injured by
imports which benefit from subsidies or are priced below fair
value.\20\ If the Secretary of Commerce decides to suspend an
antidumping or countervailing duty investigation upon reaching
an agreement to eliminate the injury caused by the subsidized
or dumped imports, the Commission is authorized to study
whether or not the injury in fact is being eliminated. Section
337 of the Tariff Act authorizes the ITC to investigate whether
unfair methods of competition or unfair acts are being
committed in the importation of goods into the United
States.\21\ The Commission is authorized to order actions to
remedy any such violations, subject to presidential
disapproval.
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\20\ Sections 704, 734, and 751; 19 U.S.C. 1671c, 1673c, and 1675c.
\21\ 19 U.S.C. 1337.
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Upon the request of the President, the House Committee on
Ways and Means, the Senate Committee on Finance, or on its own
motion, the ITC conducts studies and investigations under
section 332 of the Tariff Act of 1930 on a wide range of trade-
related issues.\22\ Public reports generally are issued
following such studies and investigations. The ITC also
publishes summaries outlining the types of products entering
the United States, their importance in U.S. consumption,
production, and trade, and other relevant information. The ITC
also is required to establish and maintain statistics on U.S.
trade and to review the international commodity code for
classifying products and reporting trade statistics among
countries.\23\
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\22\ 19 U.S.C. 1332.
\23\ 19 U.S.C. 1484(e).
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The Trade Expansion Act of 1962 and the Trade Act of 1974
expanded the duties of the ITC. Both laws require the
Commission to review developments within an industry receiving
import protection and to advise the President on the probable
impact of reducing or eliminating the protection.\24\
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\24\ 19 U.S.C. 1981, 2253.
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The Trade Act of 1974 gives the Commission a presidential
advisory role on the probable domestic economic effects of
trade concessions proposed during trade negotiations.\25\ The
ITC performs a similar advisory role in relation to duty-free
treatment under the Generalized System of Preferences.\26\
Under section 201 of the 1974 Trade Act,\27\ the Commission
conducts investigations to determine whether increased imports
are causing or threatening serious injury to the competing
domestic industry and reports its findings and recommendations
for relief to the President.
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\25\ 19 U.S.C. 2151.
\26\ 19 U.S.C. 2151, 2163.
\27\ 19 U.S.C. 2251.
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Sections 406 and 410 \28\ of the 1974 Trade Act provide for
ITC monitoring and investigation of various aspects of trade
with nonmarket economics.
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\28\ 19 U.S.C. 2240, 2436.
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Section 221 of the Trade and Tariff Act of 1984, amended by
section 1614 of the Omnibus Trade and Competitiveness Act of
1988, established a separate Trade Remedy Assistance Office
within the ITC to provide information to the public on remedies
and benefits available under U.S. trade laws and on the
procedures and filing dates for relief petitions.
Section 330(e)(2) of the Tariff Act of 1930 contains a 2-
year authorization of appropriations for the ITC.
Private or Public Sector Advisory Committees
The first formal mechanism providing for ongoing advice
from the private sector on international trade matters was
authorized by section 135 of the Trade Act of 1974.\29\ In view
of the positive contribution of the advisory committees to the
Tokyo Round of multilateral trade negotiations and to passage
of the implementing legislation--the Trade Agreements Act of
1979--Congress provided for continuation of the advisory
committee structure in section 1631 of the Omnibus Trade and
Competitiveness Act of 1988. Congress also expanded the
committees' responsibilities by authorizing them to provide
advice on the priorities and direction of U.S. trade policy, in
addition to their previous responsibilities.
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\29\ 19 U.S.C. 2155.
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The U.S. Trade Representative manages the advisory
committees in cooperation with the Departments of Agriculture,
Commerce, Labor, and other departments. The committee structure
is three-tiered, with the most senior level represented by the
Advisory Committee for Trade Policy and Negotiations (ACTPN).
The ACTPN is a 45-member body composed of presidential-
appointed representatives of government, labor, industry,
agriculture, small business, service industries, retailers,
consumer interests, and the general public. The group provides
overall guidance on trade policy matters, including trade
agreements and negotiations, and is chaired by a chairman
elected by the committee. The group convenes at the call of the
U.S. Trade Representative.
The second tier is made up of policy advisory committees
representing overall sectors of the economy (e.g., industry,
agriculture, labor, services) whose role is to advise the
government of the impact of various trade measures on their
respective sectors.
The third tier is composed of sector advisory committees
consisting of experts from various fields. Their role is to
provide specific, technical information and advice on trade
issues involving their particular sector. Members of the second
and third tier are appointed by the U.S. Trade Representative
and the Secretary of the relevant department or agency.
PART II: COMPILATION OF U.S. TRADE STATUTES
----------
Chapter 8: TARIFF AND CUSTOMS LAWS
A. IMPLEMENTATION OF THE HARMONIZED TARIFF SCHEDULE OF THE UNITED
STATES
Title I, Subtitle B (Sections 1201-1217) of the Omnibus Trade and
Competitiveness Act of 1988
[19 U.S.C. 3001 et seq.; P.L. 100-418, as amended by P.L. 100-647]
SEC. 1201. PURPOSES.
The purposes of this subtitle are--
(1) to approve the International Convention on the
Harmonized Commodity Description and Coding System;
(2) to implement in United States law the
nomenclature established internationally by the
Convention; and
(3) to provide that the Convention shall be treated
as a trade agreement obligation of the United States.
SEC. 1202. DEFINITIONS.
As used in this subtitle:
(1) The term ``Commission'' means the United States
International Trade Commission.
(2) The term ``Convention'' means the International
Convention on the Harmonized Commodity Description and
Coding System, done at Brussels on June 14, 1983, and
the Protocol thereto, done at Brussels on June 24,
1986, submitted to the Congress on June 15, 1987.
(3) The term ``entered'' means entered, or withdrawn
from warehouse for consumption, in the customs
territory of the United States.
(4) The term ``Federal agency'' means any
establishment in the executive branch of the United
States Government.
(5) The term ``old Schedules'' means title I of the
Tariff Act of 1930 (19 U.S.C. 1202) as in effect on the
day before the effective date of the amendment to such
title under section 1204(a).
(6) The term ``technical rectifications'' means
rectifications of an editorial character or minor
technical or clerical changes which do not affect the
substance or meaning of the text, such as--
(A) errors in spelling, numbering, or
punctuation;
(B) errors in indentation;
(C) errors (including inadvertent omissions)
in cross-references to headings or subheadings
or notes; and
(D) other clerical or typographical errors.
SEC. 1203. CONGRESSIONAL APPROVAL OF UNITED STATES ACCESSION TO THE
CONVENTION.
(a) Congressional Approval.--The Congress approves the
accession by the United States of America to the Convention.
(b) Acceptance of the Final Legal Text of the Convention by
the President.--The President may accept for the United States
the final legal instruments embodying the Convention. The
President shall submit a copy of each final instrument to the
Congress on the date it becomes available.
(c) Unspecified Private Remedies Not Created.--Neither the
entry into force with respect to the United States of the
Convention nor the enactment of this subtitle may be construed
as creating any private right of action or remedy for which
provision is not explicitly made under this subtitle or under
other laws of the United States.
(d) Termination.--The provisions of section 125(a) of the
Trade Act of 1974 (19 U.S.C. 2135(a)) do not apply to the
Convention.
SEC. 1204. ENACTMENT OF THE HARMONIZED TARIFF SCHEDULE.
(a) In General.--The Tariff Act of 1930 is amended by
striking out title I and inserting a new title I entitled
``Title I--Harmonized Tariff Schedule of the United States''
(hereinafter in this subtitle referred to as the ``Harmonized
Tariff Schedule'') which--
(1) consists of--
(A) the General Notes;
(B) the General Rules of Interpretation;
(C) the Additional U.S. Rules of
Interpretation;
(D) sections I to XXII, inclusive
(encompassing chapters 1 to 99, and including
all section and chapter notes, article
provisions, and tariff and other treatment
accorded thereto); and
(E) the Chemical Appendix to the Harmonized
Tariff Schedule;
all conforming to the nomenclature of the Convention
and as set forth in Publication No. 2030 of the
Commission entitled ``Harmonized Tariff Schedule of the
United States Annotated for Statistical Reporting
Purposes'' and Supplement No. 1, thereto; but
(2) does not include the statistical annotations,
notes, annexes, suffixes, check digits, units of
quantity, and other matters formulated under section
484(e) of the Tariff Act of 1930 (19 U.S.C. 1484(e)),
nor the table of contents, footnotes, index, and other
matters inserted for ease of reference, that are
included in such Publication No. 2030 or Supplement No.
1, thereto.
(b) Modifications to the Harmonized Tariff Schedule.--At the
earliest practicable date after the date of the enactment of
the Omnibus Trade and Competitiveness Act of 1988, the
President shall--
(1) proclaim such modifications to the Harmonized
Tariff Schedule as are consistent with the standards
applied in converting the old Schedules into the format
of the Convention, as reflected in such Publication No.
2030 and Supplement No. 1, thereto, and as are
necessary or appropriate to implement--
(A) the future outstanding staged rate
reductions authorized by the Congress in--
(i) the Trade Act of 1974 (19 U.S.C.
2101 et seq.) and the Trade Agreements
Act of 1979 (19 U.S.C. 2501 et seq.) to
reflect the tariff reductions that
resulted from the Tokyo Round of
multilateral trade negotiations, and
(ii) the United States-Israel Free
Trade Area Implementation Act of 1985
(19 U.S.C. 1202 note) to reflect the
tariff reduction resulting from the
United States-Israel Free Trade Area
Agreement,
(B) the applicable provisions of--
(i) statutes enacted,
(ii) executive actions taken, and
(iii) final judicial decisions
rendered,
after January 1, 1988, and before the effective
date of the Harmonized Tariff Schedule, and
(C) such technical rectifications as the
President considers necessary; and
(2) take such action as the President considers
necessary to bring trade agreements to which the United
States is a party into conformity with the Harmonized
Tariff Schedule.
(c) Status of the Harmonized Tariff Schedule.--
(1) The following shall be considered to be statutory
provisions of law for all purposes:
(A) The provisions of the Harmonized Tariff
Schedule as enacted by this subtitle.
(B) Each statutory amendment to the
Harmonized Tariff Schedule.
(C) Each modification or change made to the
Harmonized Tariff Schedule by the President
under authority of law (including section 604
of the Trade Act of 1974).
(2) Neither the enactment of this subtitle nor the
subsequent enactment of any amendment to the Harmonized
Tariff Schedule, unless such subsequent enactment
otherwise provides, may be construed as limiting the
authority of the President--
(A) to effect the import treatment necessary
or appropriate to carry out, modify, withdraw,
suspend, or terminate, in whole or in part,
trade agreements; or
(B) to take such other actions through the
modification, continuance, or imposition of any
rate of duty or other import restriction as may
be necessary or appropriate under the authority
of the President.
(3) If a rate of duty established in column 1 by the
President by proclamation or Executive order is higher
than the existing rate of duty in column 2, the
President may by proclamation or Executive order
increase such existing rate to the higher rate.
(4) If a rate of duty is suspended or terminated by
the President by proclamation or Executive order and
the proclamation or Executive order does not specify
the rate that is to apply in lieu of the suspended or
terminated rate, the last rate of duty that applied
prior to the suspended or terminated rate shall be the
effective rate of duty.
(d) Interim Informational Use of Harmonized Tariff Schedule
Classifications.--Each--
(1) proclamation issued by the President;
(2) public notice issued by the Commission or other
Federal agency; and
(3) finding, determination, order, recommendation, or
other decision made by the Commission or other Federal
agency;
during the period between the date of the enactment of the
Omnibus Trade and Competitiveness Act of 1988 and the effective
date of the Harmonized Tariff Schedule shall, if the
proclamation, notice, or decision contains a reference to the
tariff classification of any article, include, for
informational purposes, a reference to the classification of
that article under the Harmonized Tariff Schedule.
SEC. 1205. COMMISSION REVIEW OF, AND RECOMMENDATIONS REGARDING, THE
HARMONIZED TARIFF SCHEDULE.
(a) In General.--The Commission shall keep the Harmonized
Tariff Schedule under continuous review and periodically, at
such time as amendments to the Convention are recommended by
the Customs Cooperation Council for adoption, and as other
circumstances warrant, shall recommend to the President such
modifications in the Harmonized Tariff Schedule as the
Commission considers necessary or appropriate--
(1) to conform the Harmonized Tariff Schedule with
amendments made to the Convention;
(2) to promote the uniform application of the
Convention and particularly the Annex thereto;
(3) to ensure that the Harmonized Tariff Schedule is
kept up-to-date in light of changes in technology or in
patterns of international trade;
(4) to alleviate unnecessary administrative burdens;
and
(5) to make technical rectifications.
(b) Agency and Public Views Regarding Recommendations.--In
formulating recommendations under subsection (a), the
Commission shall solicit, and give consideration to, the views
of interested Federal agencies and the public. For purposes of
obtaining public views, the Commission--
(1) shall give notice of the proposed recommendations
and afford reasonable opportunity for interested
parties to present their views in writing; and
(2) may provide for a public hearing.
(c) Submission of Recommendations.--The Commission shall
submit recommendations under this section to the President in
the form of a report that shall include a summary of the
information on which the recommendations were based, together
with a statement of the probable economic effect of each
recommended change on any industry in the United States. The
report also shall include a copy of all written views submitted
by interested Federal agencies and a copy or summary, prepared
by the Commission, of the views of all other interested
parties.
(d) Requirements Regarding Recommendations.--The Commission
may not recommend any modification to the Harmonized Tariff
Schedule unless the modification meets the following
requirements:
(1) The modification must--
(A) be consistent with the Convention or any
amendment thereto recommended for adoption;
(B) be consistent with sound nomenclature
principles; and
(C) ensure substantial rate neutrality.
(2) Any change to a rate of duty must be consequent
to, or necessitated by, nomenclature modifications that
are recommended under this section.
(3) The modification must not alter existing
conditions of competition for the affected United
States industry, labor, or trade.
SEC. 1206. PRESIDENTIAL ACTION ON COMMISSION RECOMMENDATIONS.
(a) In General.--The President may proclaim modifications,
based on the recommendations by the Commission under section
1205, to the Harmonized Tariff Schedule if the President
determines that the modifications--
(1) are in conformity with United States obligations
under the Convention; and
(2) do not run counter to the national economic
interest of the United States.
(b) Lay-Over Period.--
(1) The President may proclaim a modification under
subsection (a) only after the expiration of the 60-day
period beginning on the date on which the President
submits a report to the Committee on Ways and Means of
the House of Representatives and the Committee on
Finance of the Senate that sets forth the proposed
modification and the reasons therefor.
(2) The 60-day period referred to in paragraph (1)
shall be computed by excluding--
(A) the days on which either House is not in
session because of an adjournment of more than
3 days to a day certain or an adjournment of
the Congress sine die; and
(B) any Saturday and Sunday, not excluded
under subparagraph (A), when either House is
not in session.
(c) Effective Date of Modifications.--Modifications
proclaimed by the President under subsection (a) may not take
effect before the 15th day after the date on which the text of
the proclamation is published in the Federal Register.
SEC. 1207. PUBLICATION OF THE HARMONIZED TARIFF SCHEDULE.
(a) In General.--The Commission shall compile and publish, at
appropriate intervals, and keep up to date the Harmonized
Tariff Schedule and related information in the form of printed
copy; and, if, in its judgment, such format would serve the
public interest and convenience--
(1) in the form of microfilm images; or
(2) in the form of electronic media.
(b) Content.--Publications under subsection (a), in whatever
format, shall contain--
(1) the then current Harmonized Tariff Schedule;
(2) statistical annotations and related statistical
information formulated under section 484(e) of the
Tariff Act of 1930 (19 U.S.C. 1484(e)); and
(3) such other matters as the Commission considers to
be necessary or appropriate to carry out the purposes
enumerated in the Preamble to the Convention.
SEC. 1208. IMPORT AND EXPORT STATISTICS.
The Secretary of Commerce shall compile, and make publicly
available, the import and export trade statistics of the United
States. Such statistics shall be conformed to the nomenclature
of the Convention.
SEC. 1209. COORDINATION OF TRADE POLICY AND THE CONVENTION.
The United States Trade Representative is responsible for
coordination of United States trade policy in relation to the
Convention. Before formulating any United States position with
respect to the Convention, including any proposed amendments
thereto, the United States Trade Representative shall seek, and
consider, information and advice from interested parties in the
private sector (including a functional advisory committee) and
from interested Federal agencies.
SEC. 1210. UNITED STATES PARTICIPATION ON THE CUSTOMS COOPERATION
COUNCIL REGARDING THE CONVENTION.
(a) Principal United States Agencies.--
(1) Subject to the policy direction of the Office of
the United States Trade Representative under section
1209, the Department of the Treasury, the Department of
Commerce, and the Commission shall, with respect to the
activities of the Customs Cooperation Council relating
to the Convention--
(A) be primarily responsible for formulating
United States Government positions on technical
and procedural issues; and
(B) represent the United States Government.
(2) The Department of Agriculture and other
interested Federal agencies shall provide to the
Department of the Treasury, the Department of Commerce,
and the Commission technical advice and assistance
relating to the functions referred to in paragraph (1).
(b) Development of Technical Proposals.--
(1) In connection with responsibilities arising from
the implementation of the Convention and under section
484(e) of the Tariff Act of 1930 (19 U.S.C. 1484(e))
regarding United States programs for the development of
adequate and comparable statistical information on
merchandise trade, the Secretary of the Treasury, the
Secretary of Commerce, and the Commission shall prepare
technical proposals that are appropriate or required to
assure that the United States contribution to the
development of the Convention recognizes the needs of
the United States business community for a Convention
which reflects sound principles of commodity
identification, modern producing methods, and current
trading patterns and practices.
(2) In carrying out this subsection, the Secretary of
the Treasury, the Secretary of Commerce, and the
Commission shall--
(A) solicit and consider the views of
interested parties in the private sector
(including a functional advisory committee) and
of interested Federal agencies;
(B) establish procedures for reviewing, and
developing appropriate responses to, inquiries
and complaints from interested parties
concerning articles produced in and exported
from the United States; and
(C) where appropriate, establish procedures
for--
(i) ensuring that the dispute
settlement provisions and other
relevant procedures available under the
Convention are utilized to promote
United States export interests, and
(ii) submitting classification
questions to the Harmonized System
Committee of the Customs Cooperation
Council.
(c) Availability of Customs Cooperation Council
Publications.--As soon as practicable after the date of the
enactment of the Omnibus Trade and Competitiveness Act of 1988,
and periodically thereafter as appropriate, the Commission
shall see to the publication of--
(1) summary records of the Harmonized System
Committee of the Customs Cooperation Council; and
(2) subject to applicable copyright laws, the
Explanatory Notes, Classification Opinions, and other
instruments of the Customs Cooperation Council relating
to the Convention.
SEC. 1211. TRANSITION TO THE HARMONIZED TARIFF SCHEDULE.
(a) Existing Executive Actions.--
(1) The appropriate officers of the United States
Government shall take whatever actions are necessary to
conform, to the fullest extent practicable, with the
tariff classification system of the Harmonized Tariff
Schedule all proclamations, regulations, rulings,
notices, findings, determinations, orders,
recommendations, and other written actions that--
(A) are in effect on the day before the
effective date of the Harmonized Tariff
Schedule; and
(B) contain references to the tariff
classification of articles under the old
Schedules.
(2) Neither the repeal of the old Schedules, nor the
failure of any officer of the United States Government
to make the conforming changes required under paragraph
(1), shall affect to any extent the validity or effect
of the proclamation, regulation, ruling, notice,
finding, determination, order, recommendation, or other
action referred to in paragraph (1).
(b) Generalized System of Preferences Conversion.--
(1) The review of the proposed conversion of the
Generalized System of Preferences program to the
Convention tariff nomenclature, initiated by the Office
of the United States Trade Representative by notice
published in the Federal Register on December 8, 1986
(at page 44,163 of volume 51 thereof), shall be treated
as satisfying the requirements of sections 503(a) and
504(c)(3) of the Trade Act of 1974 (19 U.S.C. 2463(a),
2464(c)(3)).
(2) In applying section 504(c)(1) of the Trade Act of
1974 (19 U.S.C. 2464(c)(1)) for calendar year 1989, the
reference in such section to July 1 shall be treated as
a reference to September 1.
(c) Import Restrictions Under the Agricultural Adjustment
Act.--
(1) Whenever the President determines that the
conversion of an import restriction proclaimed under
section 22 of the Agricultural Adjustment Act (7 U.S.C.
624) from part 3 of the Appendix to the old Schedules
to subchapter IV of chapter 99 of the Harmonized Tariff
Schedule results in--
(A) an article that was previously subject to
the restriction being excluded from the
restriction; or
(B) an article not previously subject to the
restriction being included within the
restriction;
the President may proclaim changes in subchapter IV of
chapter 99 of the Harmonized Tariff Schedule to conform
that subchapter to the fullest extent possible to part
3 of the Appendix to the old Schedules.
(2) Whenever the President determines that the
conversion from headnote 2 of subpart A of part 10 of
schedule 1 of the old Schedules to Additional U.S. Note
2, chapter 17, of the Harmonized Tariff Schedule
results in--
(A) an article that was previously covered by
such headnote being excluded from coverage; or
(B) an article not previously covered by such
headnote being included in coverage;
the President may proclaim changes in Additional U.S.
Note 2, chapter 17 of the Harmonized Tariff Schedule to
conform that note to the fullest extent possible to
headnote 2 of subpart A of part 10 of schedule 1 of the
old Schedules.
(3) No change to the Harmonized Tariff Schedule may
be proclaimed under paragraph (1) or (2) after June 30,
1990.
(d) Certain Protests and Petitions Under the Customs Law.--
(1)(A) This subtitle may not be considered to divest
the courts of jurisdiction over--
(i) any protest filed under section 514 of
the Tariff Act of 1930 (19 U.S.C. 1514); or
(ii) any petition by an American
manufacturer, producer, or wholesaler under
section 516 of such Act (19 U.S.C. 1516);
covering articles entered before the effective date of
the Harmonized Tariff Schedule.
(B) Nothing in this subtitle shall affect the
jurisdiction of the courts with respect to articles
entered after the effective date of the Harmonized
Tariff Schedule.
(2)(A) If any protest or petition referred to in
paragraph (1)(A) is sustained in whole or in part by a
final judicial decision, the entries subject to that
protest or petition and made before the effective date
of the Harmonized Tariff Schedule shall be liquidated
or reliquidated, as appropriate, in accordance with
such final judicial decision under the old Schedules.
(B) At the earliest practicable date after the
effective date of the Harmonized Tariff Schedule, the
Commission shall initiate an investigation under
section 332 of the Tariff Act of 1930 (19 U.S.C. 1332)
of those final judicial decisions referred to in
subparagraph (A) that--
(i) are published during the 2-year period
beginning on February 1, 1988; and
(ii) would have affected tariff treatment if
they had been published during the period of
the conversion of the old Schedules into the
format of the Convention.
No later than September 1, 1990, the Commission shall
report the results of the investigation to the
President, the Committee on Ways and Means, and the
Committee on Finance, and shall recommend those changes
to the Harmonized Tariff Schedule that the Commission
would have recommended if the final decisions concerned
had been made before the conversion into the format of
the Convention occurred.
(3) The President shall review all changes
recommended by the Commission under paragraph (2)(B)
and shall, as soon as practicable, proclaim such of
those changes, if any, which he decides are necessary
or appropriate to conform such Schedule to the final
judicial decisions. Any such change shall be effective
with respect to--
(A) entries made on or after the date of such
proclamation; and
(B) entries made on or after the effective
date of the Harmonized Tariff Schedule if,
notwithstanding section 514 of the Tariff Act
of 1930 (19 U.S.C. 1514), application for
liquidation or reliquidation thereof is made by
the importer to the customs officer concerned
within 180 days after the effective date of
such proclamation.
(4) If any protest or petition referred to in
paragraph (1)(A) is not sustained in whole or in part
by a final judicial decision, the entries subject to
that petition or protest and made before the effective
date of the Harmonized Tariff Schedule shall be
liquidated or reliquidated, as appropriate, in
accordance with the final judicial decision under the
old Schedules.
SEC. 1212. REFERENCE TO THE HARMONIZED TARIFF SCHEDULE.
Any reference in any law to the ``Tariff Schedules of the
United States'', ``the Tariff Schedules'', ``such Schedules'',
and any other general reference that clearly refers to the old
Schedules shall be treated as a reference to the Harmonized
Tariff Schedule.
[SEC. 1213. TECHNICAL AMENDMENTS.]
[SEC. 1214. CONFORMING AMENDMENTS.
Amendments to codified titles, the Tobacco Adjustment Act of
1983, the Federal Hazardous Substances Act, the Consumer
Product Safety Act, the Toxic Substances Control Act, the
Emergency Wetlands Resources Act of 1986, COBRA of 1985, the
Tariff Act of 1930, the Automotive Products Trade Act of 1965,
the Trade Act of 1974, the Trade Agreements Act of 1979, the
Act of March 2, 1897, the Controlled Substances Import and
Export Act, the Comprehensive Anti-Apartheid Act of 1986, the
Strategic and Critical Materials Stock Piling Act, the Internal
Revenue Code of 1986, the Caribbean Basin Economic Recovery
Act, the Act Relating to Reforestation Trust Fund, the Trade
and Tariff Act of 1984, the Meat Import Act of 1979, the
National Wool Act of 1954, and the Agricultural Act of 1949.]
[SEC. 1215. NEGOTIATING AUTHORITY FOR CERTAIN ADP EQUIPMENT.
Amendments to section 128(b) of the Trade Act of 1974 (19
U.S.C. 2138(b))]
SEC. 1216. COMMISSION REPORT ON OPERATION OF SUBTITLE.
The Commission, in consultation with other appropriate
Federal agencies, shall prepare, and submit to the Congress and
to the President, a report regarding the operation of this
subtitle during the 12-month period commencing on the effective
date of the Harmonized Tariff Schedule. The report shall be
submitted to the Congress and to the President before the close
of the 6-month period beginning on the day after the last day
of such 12-month period.
SEC. 1217. EFFECTIVE DATES.
(a) Accession to Convention and Provisions Other Than the
Implementation of the Harmonized Tariff Schedule.--Except as
provided in subsection (b), the provisions of this subtitle
take effect on the date of the enactment of the Omnibus Trade
and Competitiveness Act of 1988.
(b) Implementation of the Harmonized Tariff Schedule.--The
effective date of the Harmonized Tariff Schedule is January 1,
1989. On such date--
(1) the amendments made by sections 1204(a), 1213,
1214, and 1215 take effect and apply with respect to
articles entered on or after such date; and
(2) sections 1204(c), 1211, and 1212 take effect.
Section 484(e) of the Tariff Act of 1930, as amended
[19 U.S.C. 1484(e); P.L. 71-361, as amended by P.L. 93-618 and P.L. 95-
106]
SEC. 484. ENTRY OF MERCHANDISE.
* * * * * * *
(e) Statistical Enumeration.--The Secretary of the
Treasury, the Secretary of Commerce, and the United States
International Trade Commission are authorized and directed to
establish from time to time for statistical purposes an
enumeration of articles in such detail as in their judgment may
be necessary, comprehending all merchandise imported into the
United States and exported from the United States, and shall
seek, in conjunction with statistical programs for domestic
production, and programs for achieving international
harmonization of trade statistics, to establish the
comparability thereof with such enumeration of articles. All
import entries and export declarations shall include or have
attached thereto an accurate statement specifying, in terms of
such detailed enumeration, the kinds and quantities of all
merchandise imported and exported and the value of the total
quantity of each kind of
article.
B. EXCERPTS FROM THE HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES
(HTS) RELATING TO SPECIAL DUTY TREATMENT
1. American Goods Returned (HTS Item 9801.00.10)
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES
SUBCHAPTER I
ARTICLES EXPORTED AND RETURNED, NOT ADVANCED OR IMPROVED IN CONDITION;
ANIMALS EXPORTED AND RETURNED
U.S. Notes
1. The provisions in this subchapter (except subheadings
9801.00.70 and 9801.00.80) shall not apply to any article:
(a) Exported with benefit of drawback;
(b) Of a kind with respect to the importation of
which an internal-revenue tax is imposed at the time
such article is entered, unless such article was
subject to an internal-revenue tax imposed upon
production or importation at the time of its
exportation from the United States and it shall be
proved that such tax was paid before exportation and
was not refunded; or
(c) Manufactured or produced in the United States in
a customs bonded warehouse or under subheading
9813.00.05 and exported under any provision of law.
* * * * * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rates of duty
----------------------------------------------------------------------------------
Heading/ Stat. Article description Units of 1
subheading suffix quantity -------------------------------------------------------- 2
General Special
--------------------------------------------------------------------------------------------------------------------------------------------------------
9801.00.10 Products of the United .............. Free .......................... .........................
States when returned
after having been
exported, without having
been advanced in value or
improved in condition by
any process of
manufacture or other
means while abroad.......
--------------------------------------------------------------------------------------------------------------------------------------------------------
2. American Goods Repaired or Altered Abroad (HTS Items 9802.00.40,
.50)
American Metal Articles Processed Abroad (HTS Item 9802.00.60)
American Components Assembled Abroad (HTS Item 9802.00.80)
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES
SUBCHAPTER II
ARTICLES EXPORTED AND RETURNED, ADVANCED OR IMPROVED ABROAD
U.S. Notes
1. Except for goods subject to NAFTA drawback, this
subchapter shall not apply to any article exported:
(a) From continuous customs custody with remission,
abatement or refund of duty;
(b) With benefit of drawback;
(c) To comply with any law of the United States or
regulation of any Federal agency requiring exportation;
or
(d) After manufacture or production in the United
States under heading 9813.00.05.
2. (a) Except as provided in paragraph (b), any product of
the United States which is returned after having been advanced
in value or improved in condition abroad by any process of
manufacture or other means, or any imported article which has
been assembled abroad in whole or in part of products of the
United States, shall be treated for the purposes of this Act as
a foreign article, and, if subject to a duty which is wholly or
partly ad valorem, shall be dutiable, except as otherwise
prescribed in this part, on its full value determined in
accordance with section 402 of the Tariff Act of 1930, as
amended. If such product or such article is dutiable at a rate
dependent upon its value, the value for the purpose of
determining the rate shall be its full value under the said
section 402.
(b) No article (except a textile article, apparel article,
or petroleum, or any product derived from petroleum, provided
for in heading 2709 or 2710) may be treated as a foreign
article, or as subject to duty, if--
(i) the article is--
(A) assembled or processed in whole of
fabricated components that are a product of the
United States, or
(B) processed in whole of ingredients (other
than water) that are a product of the United
States,
in a beneficiary country; and
(ii) neither the fabricated components, materials or
ingredients, after exportation from the United States,
nor the article itself, before importation into the
United States, enters the commerce of any foreign
country other than a beneficiary country.
As used in this paragraph, the term ``beneficiary country''
means a country listed in general note 7(a).
3. Articles repaired, altered, processed or otherwise
changed in condition abroad.--The following provisions apply
only to subheadings 9802.00.40 through 9802.00.60, inclusive:
(a) The value of repairs, alterations, processing or
other change in condition outside the United States
shall be:
(i) The cost to the importer of such change;
or
(ii) If no charge is made, the value of such
change,
as set out in the invoice and entry papers; except
that, if the appraiser concludes that the amount so set
out does not represent a reasonable cost or value, then
the value of the change shall be determined in
accordance with section 402 of the Tariff Act of 1930,
as amended.
(b) No appraisement of the imported article in its
changed condition shall be required unless necessary to
a determination of the rate or rates of duty applicable
to such article.
(c) The duty, if any, upon the value of the change in
condition shall be at the rate which would apply to the
article itself, as an entirety without constructive
separation of its components, in its condition as
imported if it were not within the purview of this
subchapter. If the article, as returned to the United
States, is subject to a specific or compound rate of
duty, such rate shall be converted to the ad valorem
rate which when applied to the full value of such
article determined in accordance with said section 402
would provide the same amount of duties as the specific
or compound rate. In order to compute the duties due,
the ad valorem rate so obtained shall be applied to the
value of the change in condition made outside the
United States.
(d) For purposes of subheading 9802.00.60, the term
``metal'' covers (1) the base metals enumerated in
additional U.S. note 1 to section XV; (2) arsenic,
barium, boron, calcium, mercury, selenium, silicon,
strontium, tellurium, thorium, uranium and the rare-
earth elements; and (3) alloys of any of the foregoing.
4. Articles assembled abroad with components produced in
the United States.--The following provisions apply only to
subheading 9802.00.80 and 9802.00.90:
(a) The value of the products of the United States
assembled into the imported article shall be:
(i) The cost of such products at the time of
the last purchase; or
(ii) If no charge is made, the value of such
products at the time of the shipment for
exportation,
as set out in the invoice and entry papers; except
that, if the appraiser concludes that the amount so set
out does not represent a reasonable cost or value, then
the value of such products shall be determined in
accordance with section 402 of the Tariff Act of 1930,
as amended.
(b) The duty, if any, on the imported article shall
be at the rate which would apply to the imported
article itself, as an entirety without constructive
separation of its components, in its condition as
imported if it were not within the purview of this
subchapter. If the imported article is subject to a
specific or compound rate of duty, the total duties
shall be reduced in such proportion as the cost or
value of such products of the United States bears to
the full value of the imported article.
5. No imported article shall be accorded partial exemption
from duty under more than one provision in this subchapter.
6. Notwithstanding the partial exemption from ordinary
customs duties on the value of the metal product exported from
the United States provided under subheading 9802.00.60,
articles imported under subheading 9802.00.60 are subject to
all other duties, and any other restrictions or limitations,
imposed pursuant to title VII of the Tariff Act of 1930 (19
U.S.C. 1671 et seq.), or chapter 1 of title II or chapter 1 of
title III of the Trade Act of 1974 (19 U.S.C. 2251 et seq., 19
U.S.C. 2411 et seq.).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rates of duty
----------------------------------------------------------------------------------
Heading/ Stat. Article description Units of 1
subheading suffix quantity -------------------------------------------------------- 2
General Special
--------------------------------------------------------------------------------------------------------------------------------------------------------
Articles returned to the .......................... .......................... .........................
United States after
having been exported to
be advanced in value or
improved in condition by
any process of
manufacture or other
means:
Articles exported for .......................... .......................... .........................
repairs or alterations:
9802.00.40 Repairs or alterations .............. A duty upon the value of Free (B, C, CA, IL, MX) A duty upon the value of
made pursuant to a the repairs or the repairs or
warranty.............. alterations (see U.S. alterations (see U.S.
note 3 of this note 3 of this
subchapter) subchapter).
20 \1\ Internal combustion (\1\)......... .......................... .......................... .........................
engines . . .
dutiable value.
40 \1\ Other . . . dutiable (\1\)......... .......................... .......................... .........................
value.
9802.00.50 Other.................. .............. A duty upon the value of Free (IL, MX). A duty upon the value of
the repairs or A duty upon the value of the repairs or
alterations (see U.S. the repairs or alterations (see U.S.
note 3 of this alterations (see U.S. note 3 of this
subchapter) note 3 of this subchapter).
subchapter) (B, C, CA)
9802.00.60 00 \1\ Any article of metal (as (\1\ \3\)..... A duty upon the value of Free (IL). A duty upon the value of
defined in U.S. note such processing outside A duty upon the value of such processing outside
3(d) of this the United States (see such processing outside the United States (see
subchapter) U.S. note 3 of this the United States (see U.S. note 3 of this
manufactured in the subchapter) U.S. note 3 of this subchapter).
United States or subchapter) (B, C, CA,
subjected to a process MX)
of manufacture in the
United States, if
exported for further
processing, and if the
exported article as
processed outside the
United States, or the
article which results
from the processing
outside the United
States, is returned to
the United States for
further processing.....
9802.00.80 Articles, except goods of .............. A duty upon the full value Free (IL). A duty upon the full
heading 9802.00.90, of the imported article, A duty upon the full value value of the imported
assembled abroad in whole less the cost or value of of the imported article, article, less the cost
or in part of fabricated such products of the less the cost or value of or value of such
components, the product United States (see U.S. such products of the products of the United
of the United States, note 4 of this United States (see U.S. States (see U.S. note 4
which (a) were exported subchapter) note 4 of this of this subchapter).
in condition ready for subchapter) (B, C, CA,
assembly without further MX)
fabrication, (b) have not
lost their physical
identity in such articles
by change in form, shape
or otherwise, and (c)
have not been advanced in
value or improved in
condition abroad except
by being assembled and
except by operations
incidental to the
assembly process such as
cleaning, lubricating and
painting.................
--------------------------------------------------------------------------------------------------------------------------------------------------------
3. Personal (Tourist) Exemptions (HTS Items 9804.00.65, .70, .72)
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES
SUBCHAPTER IV
PERSONAL EXEMPTIONS EXTENDED TO RESIDENTS AND NONRESIDENTS
U.S. Notes
* * * * * * *
2. In the case of persons arriving from a contiguous
country which maintains a free zone or free port, if the
Secretary of the Treasury deems it necessary in the public
interest and to facilitate enforcement of the requirement that
the exemption in subheading 9804.00.70 shall apply only to
articles acquired as an incident of the foreign journey, he
shall prescribe by regulation or instruction, the application
of which may be restricted to one or more ports of entry, that
such exemption shall be allowed only to residents who have
remained beyond the territorial limits of the United States for
not less than a specified period, not to exceed 24 hours, and,
after the expiration of 90 days after the date of such
regulation or instruction, allowance of the said exemption
shall be subject to the limitations so prescribed.
3. A person arriving in the United States:
(a) On duty as an employee of a vessel, vehicle or
aircraft, engaged in international traffic, or
(b) From a trip during which he was so employed,
shall not be entitled to the exemptions provided for in this
subchapter (other than those in heading 9804.00.80), unless he
is permanently leaving such employment without the intention of
resuming it on the same or another carrier.
4. As used in subheadings 9804.00.70 and 9804.00.72, the
term ``beneficiary country'' means a country listed in general
notes 7(a) or 11(a).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rates of duty
----------------------------------------------------------------------------------
Heading/ Stat. Article description Units of 1
subheading suffix quantity -------------------------------------------------------- 2
General Special
--------------------------------------------------------------------------------------------------------------------------------------------------------
Articles imported by or .......................... .......................... .........................
for the account of any
person arriving in the
United States who is a
returning resident
thereof (including
American citizens who are
residents of American
Samoa, Guam or the Virgin
Islands of the United
States) (con.):
Other articles acquired .......................... .......................... .........................
abroad as an incident
of the journey from
which the person is
returning if such
person arrives from the
Virgin Islands of the
United States or from a
contiguous country
which maintains a free
zone or free port, or
arrives from any other
country after having
remained beyond the
United States for a
period of not less than
48 hours, for his
personal or household
use, but not imported
for the account of any
other person nor
intended for sale, if
declared in accordance
with regulations of the
Secretary of the
Treasury and if such
person has not claimed
an exemption under
subheadings 9804.00.65,
9804.00.70, and
9804.00.72 within 30
days preceding his
arrival, and claims
exemption under only
one of such items on
his arrival:
9804.00.65 (\1\) Articles, accompanying .............. Free Free
a person, not over
$400, in aggregate
fair retail value in
the country of
acquisition, including
(but only in the case
of an individual who
has attained the age
of 21) not more than 1
liter of alcoholic
beverages and
including not more
than 200 cigarettes
and 100 cigars........
9804.00.70 (\1\) Articles whether or not Free Free
accompanying a person,
not over $1,200 in
aggregate fair market
value in the country
of acquisition,
including:
(a) but only in the
case of an individual
who has attained the
age of 21, not more
than 5 liters of
alcoholic beverages,
not more than 1 liter
of which shall have
been acquired
elsewhere than in
American Samoa, Guam
or the Virgin Islands
of the United States,
and not more than 4
liters of