[JPRT 106-45]
[From the U.S. Government Printing Office]




106th Congress                                                  S. Prt.
 2d Session              JOINT COMMITTEE PRINT                  106-45
_______________________________________________________________________

                                     

 
        COUNTRY REPORTS ON ECONOMIC POLICY AND TRADE PRACTICES

                               __________

                              R E P O R T

                            SUBMITTED TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                          COMMITTEE ON FINANCE

                                 OF THE

                              U.S. SENATE

                                AND THE

                              COMMITTEE ON

                        INTERNATIONAL RELATIONS

                      COMMITTEE ON WAYS AND MEANS

                                 OF THE

                     U.S. HOUSE OF REPRESENTATIVES

                                 BY THE

                          DEPARTMENT OF STATE

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

                                     






                      U.S. GOVERNMENT PRINTING OFFICE
63-133                        WASHINGTON : 2000




                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
CRAIG THOMAS, Wyoming                JOHN F. KERRY, Massachusetts
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri              PAUL D. WELLSTONE, Minnesota
BILL FRIST, Tennessee                BARBARA BOXER, California
SAM BROWNBACK, Kansas                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director
        
                              ----------                              


                          COMMITTEE ON FINANCE

                WILLIAM V. ROTH, Jr., Delaware, Chairman

CHARLES E. GRASSLEY, Iowa            DANIEL PATRICK MOYNIHAN, New York
ORRIN G. HATCH, Utah                 MAX BAUCUS, Montana
FRANK H. MURKOWSKI, Alaska           JOHN D. ROCKEFELLER IV, West 
DON NICKLES, Oklahoma                Virginia
PHIL GRAMM, Texas                    JOHN BREAUX, Louisiana
TRENT LOTT, Mississippi              KENT CONRAD, North Dakota
JAMES M. JEFFORDS, Vermont           BOB GRAHAM, Florida
CONNIE MACK, Florida                 RICHARD H. BRYAN, Nevada
FRED THOMPSON, Tennessee             J. ROBERT KERREY, Nebraska
PAUL COVERDELL, Georgia              CHARLES S. ROBB, Virginia

           Franklin G. Polk, Staff Director and Chief Counsel

        David Podoff, Minority Staff Director and Chief Counsel

                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                  Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
Carolina                             ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado

                    Richard J. Garon, Chief of Staff

          Kathleen Bertelsen Moazed, Democratic Chief of Staff

     Hillel Weinberg, Senior Professional Staff Member and Counsel

                   Kimberly Roberts, Staff Associate

                              ----------                              


                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

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

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 (iii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

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

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

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

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

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

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

                            COUNTRY REPORTS*

Africa:

    Ghana........................................................     1
    Nigeria......................................................     6
    South Africa.................................................    12

East Asia and the Pacific:

    Australia....................................................    17
    China, People's Republic of..................................    21
    Hong Kong*...................................................    28
    Indonesia....................................................    32
    Japan........................................................    38
    Korea, Republic of...........................................    44
    Malaysia.....................................................    50
    Philippines..................................................    57
    Singapore....................................................    63
    Taiwan*......................................................    69
    Thailand.....................................................    75

Europe:

    The European Union...........................................    81
    Austria......................................................    89
    Belgium......................................................    94
    Bulgaria.....................................................    99
    Czech Republic...............................................   105
    Denmark......................................................   110
    Finland......................................................   116
    France.......................................................   121
    Germany......................................................   125
    Greece.......................................................   129
    Hungary......................................................   135
    Ireland......................................................   139
    Italy........................................................   146
    The Netherlands..............................................   151
    Norway.......................................................   156
    Poland.......................................................   160
    Portugal.....................................................   165
    Romania......................................................   169
    Russia.......................................................   173
    Spain........................................................   180

                                  (v)

    Sweden.......................................................   186
    Switzerland..................................................   190
    Turkey.......................................................   193
    Ukraine......................................................   198
    United Kingdom...............................................   204

The Americas:

    Argentina....................................................   209
    Bahamas......................................................   214
    Bolivia......................................................   219
    Brazil.......................................................   224
    Canada.......................................................   230
    Chile........................................................   235
    Colombia.....................................................   241
    Costa Rica...................................................   248
    Dominican Republic...........................................   254
    Ecuador......................................................   260
    El Salvador..................................................   265
    Guatemala....................................................   270
    Haiti........................................................   274
    Honduras.....................................................   279
    Jamaica......................................................   285
    Mexico.......................................................   292
    Nicaragua....................................................   300
    Panama.......................................................   304
    Paraguay.....................................................   309
    Peru.........................................................   314
    Trinidad and Tobago..........................................   319
    Uruguay......................................................   324
    Venezuela....................................................   328

Near East and North Africa:

    Algeria......................................................   337
    Bahrain......................................................   341
    Egypt........................................................   345
    Israel.......................................................   352
    Jordan.......................................................   358
    Kuwait.......................................................   363
    Morocco......................................................   368
    Oman.........................................................   372
    Saudi Arabia.................................................   378
    Tunisia......................................................   383
    United Arab Emirates.........................................   388

South Asia:

    Bangladesh...................................................   395
    India........................................................   401
    Pakistan.....................................................   406

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




                                FOREWORD

                              ----------                              

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

                                               Jesse Helms,
                          Chairman, Committee on Foreign Relations.

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

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

                                               Bill Archer,
                             Chairman, Committee on Ways and Means.

                                 (vii)

                                     




                         LETTER OF TRANSMITTAL

                              ----------                              

                                  U.S. Department of State,
                                     Washington, DC, March 6, 2000.
Hon. Jesse Helms,
Chairman, Committee on Foreign Relations.

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

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

Hon. Dennis Hastert,
Speaker, House of Representatives.

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

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

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

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

                                  (ix)

                                     


                              INTRODUCTION

                              ----------                              


         Country Reports on Economic Policy and Trade Practices

    The Department of State is submitting to the Congress its 
Country Reports on Economic Policy and Trade Practices in 
compliance with Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988. As the legislation requires, we 
have prepared detailed reports on the economic policy and trade 
practices of countries with which the United States has 
significant economic or trade relationships. This is the 
Department of State's 11th annual report. It now includes 
reports on 76 countries, customs territories and customs 
unions.
    Each report contains nine sections.

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

        --The first (subsections a through e) outlines the 
        country's laws and practices with respect to 
        internationally recognized worker rights.
        --The second (subsection f) highlights conditions of 
        worker rights in goods-producing sectors where U.S. 
        capital is invested.

                                  (xi)

        --Finally, a table cites the extent of such investment 
        by sector where information is available.

    The country reports are based on information supplied by 
U.S. Embassies, which is analyzed and reviewed by the 
Department of State in consultation with other U.S. Government 
agencies. The reports are intended to serve as general guides 
to economic conditions in specific countries. We have worked to 
standardize the reports, but there are unavoidable differences 
reflecting large variations in data availability. In some 
cases, access to reliable data is limited, particularly in 
countries making transitions to market economies. Nonetheless, 
each report incorporates the best information currently 
available.
                                       Ryan Samuel,
                        Acting Assistant Secretary of State
                                 for Economic and Business Affairs.


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

                              ----------                              

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

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



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

                                 (xiii)

                                     

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


                  NOTES ON PREPARATION OF THE REPORTS

                              ----------                              

    Subsections ``a.'' through ``e.'' of the Worker Rights 
section (section 8) are abridged versions of section 6 in the 
Country Reports on Human Rights Practices for 1999, submitted 
to the Committees on International Relations of the House of 
Representatives and on Foreign Relations of the U.S. Senate in 
January 1999. For a comprehensive and authoritative discussion 
of worker rights in each country, please refer to that report.
    Subsection ``f.'' highlights conditions of worker rights in 
goods-producing sectors where U.S. capital is invested. A table 
cites the extent of such investment by sector where information 
is available. The Bureau of Economic Analysis of the U.S. 
Department of Commerce has supplied information on the U.S. 
direct investment position at the end of 1997 for all countries 
for which foreign direct investment has been reported to it. 
Readers should note that ``U.S. Direct Position Abroad'' is 
defined as ``the net book value of U.S. parent companies' 
equity in, and net outstanding loans to, their foreign 
affiliates'' (foreign business enterprises owned 10 percent or 
more by U.S. persons or companies). Where a figure is negative, 
the U.S. parent owes money to the affiliate. The table does not 
necessarily indicate total assets held in each country. In some 
instances, the narrative refers to investments for which 
figures may not appear in the table.

                                  (xv)

                                     


                     SOME FREQUENTLY USED ACRONYMS

                              ----------                              

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

                                 (xvii)

UR--Uruguay Round of trade negotiations in the GATT
USD--U.S. Dollar
VAT--value-added tax
WIPO--World Intellectual Property Organization
WTO--World Trade Organization
                                 AFRICA

                              ----------                              


                                 GHANA

                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     6,884     7,630       N/A
  Real GDP Growth (pct) \3\...............       4.2       4.6       4.5
  GDP by Sector:
    Agriculture...........................     2,574     3,090       N/A
    Manufacturing.........................       640       656       N/A
    Services..............................     1,976     2,220       N/A
    Government............................       730       832       N/A
  Per Capita GDP (US$)....................       385       415       N/A
  Labor Force (000's).....................     8,240     8,480     8,734
  Unemployment Rate (pct).................        22        20        20

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      40.8      17.6       3.9
  Consumer Price Inflation (end-of-period)      20.8      15.7      12.6
  Exchange Rate (Cedis/US$ annual average)     2,250     2,346     3,100
   Interbank (mid-rate)...................

Balance of Payments and Trade:
  Total Exports FOB \4\...................     1,491     1,830     1,880
    Exports to U.S. \4\...................       154       144       140
  Total Imports CIF \4\...................     2,128     2,213     2,253
    Imports from U.S. \4\.................       314       223       253
  Trade Balance \4\.......................      -637      -383      -373
    Balance with U.S......................      -160       -79      -113
  External Public Debt....................     5,651     5,922     5,750
  Fiscal Deficit/GDP (pct)................       2.6       2.3       N/A
  Current Account Deficit/GDP (pct).......       8.5       3.5       N/A
  Debt Service Payments/GDP (pct).........       8.6       8.4       N/A
  Gold and Foreign Exchange Reserves......       508       508       364
  Aid from U.S............................        52        58        60
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on most recent data available.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Data not available.

1. General Policy Framework
    Ghana operates in a free market environment under a popularly 
elected civilian government. In December, 1996, Ghana had its second 
experience in multiparty elections since the inauguration of the 4th 
Republic in January, 1993. President Jerry John Rawlings was reelected 
for a second four-year term which will expire in December of 2000.
    Rawlings headed a ``provisional'' regime from the end of 1981 until 
January, 1993, when democratic government under a written constitution 
was restored. Unlike the first parliament, the present has an 
opposition presence with 67 seats out of 200. An independent judiciary 
acts as the final arbiter of Ghanaian laws. The next presidential and 
parliamentary elections are scheduled for the year 2000.
    Since 1983 Ghana has pursued an economic reform agenda aimed 
generally at reducing government involvement in the economy and 
encouraging private sector development. Inflationary pressures as a 
result of government expenditure overruns prior to 1992 and 1996 
presidential and parliamentary elections have been contained to some 
extent. However, fiscal performance by government in the third quarter 
of 1999 is the basis for concern since government has resorted to heavy 
domestic borrowing to make up for shortfalls from mainly non-tax 
revenue, leading to rising domestic interest rates.
    The Bank of Ghana is currently pursuing a tight monetary policy in 
an attempt to absorb excess liquidity in order to sustain the downward 
trend in inflation. Inflation, measured at about 71 percent at the end 
of 1995, has consistently declined to 9.4 percent at the end of May, 
1999, the lowest for 20 years before rising to 12.6 percent in October 
of 1999. Following the steady fall in inflation, the Central Bank 
cautiously made reductions in the bank rate or rediscount rate from 45 
percent in 1995, to 27 percent in April, 1999. Lending rates, which 
fell accordingly, have started rising as the Bank intensifies its open 
market operation to keep money supply within target. Increases in 
domestic prices of petroleum products to make up for corresponding 
increases in world crude oil prices, and the rapid depreciation of the 
local currency against major foreign currencies, are exerting intense 
inflationary pressures.
    The government's economic program has focused on the development of 
Ghana's private sector, which historically has been weak. Privatization 
of state-owned enterprises continues, with about two-thirds of 300 
enterprises sold to private owners. Despite the energy crisis in 1998, 
Ghana achieved real economic growth of 4.6 percent as against 4.2 
percent recorded in 1997. Growth in 1999 is expected to be lower than 
the government projection of 5.5 percent due to the effect of terms of 
trade shocks in 1999 arising from a decline in world prices of cocoa 
and gold and increases in oil prices. Agriculture (which still accounts 
for about 41 percent of GDP and employs about 60 percent of the work 
force) and manufacturing have recorded much slower growth. Other 
reforms adopted under the government's structural adjustment program 
include the elimination of exchange rate controls and the lifting of 
virtually all restrictions on imports. The establishment of an 
Interbank Foreign Exchange Market has greatly expanded access to 
foreign exchange. The elimination of virtually all local production 
subsidies is further indication of the government's intention to move 
toward a market orientation for the economy.
2. Exchange Rate Policy
    The foreign exchange value of the Ghanaian cedi is established 
independently through the use of Interbank Market and Foreign Exchange 
bureaus, and currency conversion is easily obtained. The foreign 
exchange auction procedure was abandoned in 1992. Ghana fully accedes 
to Article IV of the IMF convention on free current account 
convertibility and transfer. Through the Bank of Ghana's intervention, 
the cedi depreciated by about 13 percent in 1998 as compared to an 
annual average of about 25 percent during 1993 to 1997. Depletion of 
the Bank's foreign exchange reserves in 1999, mainly as a result of 
higher oil import bills and shortfall in external program assistance, 
has resulted in a sharp depreciation of the cedi and a shortage of 
major foreign exchange. In general, the exchange rate regime in Ghana 
does not have any particular impact on the competitiveness of U.S. 
exports. This may change, however, if the euro continues its fall in 
relation to the dollar.
3. Structural Policies
    Ghana progressively reduced import quotas and surcharges as part of 
its structural adjustment program. Tariff structures are being adjusted 
in harmony with the ECOWAS Trade Liberalization Program. With the 
elimination of import licensing in 1989, importers are now merely 
required to sign a declaration that they will comply with Ghanaian tax 
and other laws. Imported goods currently enjoy generally unfettered 
access to the Ghanaian market.
    The government professes strong support for the principle of free 
trade. However, it is also committed to the development of competitive 
domestic industries with exporting capabilities. The government is 
expected to continue to support domestic private enterprise with 
various financial incentives. Ghanaian manufacturers seek stronger 
protective measures and complain that Ghana's tariff structure places 
local producers at a competitive disadvantage relative to imports from 
countries enjoying greater production and marketing economies of scale. 
High local production costs frequently boost the price of locally 
manufactured items above the landed cost of goods imported from Asia 
and elsewhere. Reductions in tariffs have increased competition for 
local producers and manufacturers while reducing the cost of imported 
raw materials.
    The government successfully reintroduced value-added tax (VAT) in 
December, 1998, at a ten-percent rate. Government has proposed an 
increase to 12.5 percent to make up for anticipated revenue shortfalls 
in 2000. Additionally, government is expected to broaden the tax base 
and enhance compliance. All these, although significant, are not enough 
to reduce net domestic borrowings in order to ease pressure on 
inflation and domestic interest rates. In 1998, government's domestic 
interest payments were about 30 percent of its domestic revenue, more 
than the local budget for both health and education.
    Despite successful structural reform in other parts of the economy, 
one disappointment in Ghana's recent efforts has been that of its 
divestiture program. The Divestiture Implementation Committee (DIC) 
published an action plan in April 1999 detailing an agenda for the 
divestiture of several major enterprises and outlined specific annual 
targets for receipts. Since then, the actual implementation has 
included only two divestitures, that of the State Transport factory and 
that of GHACEM, a cement factory, totaling US$31.5 million.
4. Debt Management Policies
    Ghana's total outstanding external debt, including obligations to 
the IMF, totaled approximately USD 5.7 billion at the end of the second 
quarter of 1999. Outstanding obligations to the IMF under medium-term 
facilities stood at USD 305 million at the end of the same period. At 
that time, outstanding long-term debt was about USD 5 billion (about 88 
percent of total debt), of which USD 1.5 billion and USD 3.5 billion 
were owed to bilateral and multilateral institutions, respectively. The 
size of external debt as a proportion of GDP continues to decrease from 
its 1994 level of 97 percent to 79 percent of GDP in 1998. Ghana's debt 
service ratio in 1998 was 31 percent. In 1991 Ghana cleared all 
external debt arrears. Ghana is a heavily indebted poor country (HIPC) 
but has not asked to be the beneficiary of debt relief or rescheduling 
in recent times. To better manage its debt portfolio, since August, 
1997, government has applied a moratorium on public and public 
guaranteed non-concessional borrowings.
    Persistent balance of payments deficits have resulted in a 
continuing increase in foreign indebtedness. Swings in commodity 
prices, especially gold and cocoa, have a dramatic impact on Ghana's 
export revenues. In 1999, Ghana suffered from external shocks not only 
from the falling prices of these commodities but also the increase in 
the world price of crude oil. These are estimated to cumulatively 
affect the balance of payments by about 370 million dollars in 1999. 
This deficit is reflected in reduction in imports, lower GDP, and 
exchange rate adjustments. The government is expected to sustain its 
present level of external program assistance and increase receipts from 
the divestiture of state-owned enterprises to moderate the volatility 
of the cedi.
5. Significant Barriers to U.S. Exports
    Import licenses: Ghana eliminated its import licensing system in 
1989 but retains a ban on the importation of a narrow range of products 
that do not affect U.S. exports. Ghana is a member of the WTO.
    Services Barriers: The Ghanaian investment code prohibits foreign 
participation in the following sectors: small-scale wholesale and 
retail sales, taxi and car rental services with fleets of fewer than 
ten vehicles, lotteries, and barber and beauty shops. Current insurance 
law requires at least 40 percent Ghanaian ownership of insurance firms 
in Ghana.
    Standards, Testing, Labeling, and Certification: Ghana has 
promulgated its own standards for food and drugs. The Ghana Standards 
Board, the national testing authority, subscribes to accepted 
international practices for the testing of imports for purity and 
efficacy. Under Ghanaian law, imports must bear markings identifying in 
English the type of product being imported, the country of origin, the 
ingredients or components, and the expiration date, if any. Non-
complying goods are subject to government seizure. Several highly 
publicized seizures of goods (pharmaceuticals and food items) with 
expired shelf-life dates are occasionally carried out. The thrust of 
this law is to regulate imported food and drugs; however, by its terms 
the law applies to non-consumable imports as well. Locally manufactured 
goods are subject to comparable testing, labeling, and certification 
requirements. Four pre-shipment inspection firms contracted by 
government also perform testing and price verification for some 
selected imports that are above USD 5,000.
    Investment Barriers: The investment code guarantees repatriation of 
dividends, loan repayments, licensing fees and repatriation of capital. 
It also provides guarantees against expropriation or forced sale and 
sets forth dispute arbitration processes. Foreign investors are not 
subject to differential treatment on taxes, access to foreign exchange 
and credit, or importation of goods and equipment. Separate legislation 
covers investments in mining and petroleum and applies equally to 
foreign and Ghanaian investors. The investment code no longer requires 
project approval from the Ghana Investment Promotion Center (GIPC). The 
U.S. Embassy reports growing problems related to government violations 
of private sector landowning rights and property rights.
    Government Procurement Practices: Government purchases of equipment 
and supplies are usually handled by the Ghana Supply Commission (the 
official purchasing agency) through international bidding and, at 
times, through direct negotiations. Former government import monopolies 
have been abolished. However, parastatal entities continue to import 
some commodities. The parastatals no longer receive government 
subsidies to finance imports.
6. Export Subsidies Policies
    The Government of Ghana does not directly subsidize exports. 
Exporters are entitled to a 100 percent refund for duty paid on 
imported inputs used in the processing of exported goods. Bonded 
warehouses have been established which allow importers to avoid duties 
on imported inputs used to produce merchandise for export. Firms 
involved in exports enjoy some fiscal incentives such as tax holidays 
and preferential tax/duty treatment on imported capital equipment. 
Firms under the export processing zones all benefit from the same 
incentives.
7. Protection of U.S. Intellectual Property
    After independence in 1957, Ghana instituted separate legislation 
for copyright (1961) and trademark (1965) protection based on British 
law. Subsequently, the government passed modified copyright and patent 
legislation in 1985 and 1992, respectively. Prior to 1992 the patent 
laws of the United Kingdom applied in Ghana. Ghana is a member of the 
Universal Copyright Convention, the World Intellectual Property 
Organization, and the English-Speaking African Regional Intellectual 
Property Organization, and is also a signatory to the WTO Agreement on 
TRIPs. IPR holders have access to local courts for redress of 
grievances. Few infringement cases have been filed in Ghana in recent 
years. Ghana has not been identified as a priority country in 
connection with either the ``Special 301'' Watch List or Priority Watch 
List.
    Patents (Product and Process): Patent registration in Ghana 
presents no serious problems for foreign rights holders. Registration 
fees vary according to the nature of the patent, but local and foreign 
applicants pay the same rate.
    Trademarks: Ghana has not yet become a popular location for 
imitation designer apparel and watches. In cases where trademarks have 
been misappropriated, the price and quality disparity would be apparent 
to all but the most unsuspecting buyer.
    Copyrights: Enforcement of foreign copyrights may be pursued in the 
Ghanaian courts, but few such cases have actually been filed in recent 
years. The bootlegging of computer software is an example of copyright 
infringement taking place locally. There is no data available to 
quantify the commercial impact of this practice. Pirating of videotapes 
is another local practice that affects U.S. exports, but the evidence 
suggests that this is not being done on a large scale. There is no 
evidence of a significant export market for Ghanaian-pirated books, 
cassettes, or videotapes.
    In summary, infringement of intellectual property rights has not 
had a significant impact on U.S. exports to Ghana. Pirated computer 
software may become a more significant problem in the future, however, 
as computer use grows.
8. Worker Rights
    a. The Right of Association: Trade unions are governed by the 
Industrial Relations Act (IRA) of 1958, as amended in 1965 and 1972. 
Organized labor is represented by the Trades Union Congress (TUC), 
which was established in 1958. The IRA confers power on government to 
refuse to register a trade union, but the current government or the 
previous military regime has not exercised this right. No union leaders 
have been detained in recent years, nor has the right of workers to 
freely associate otherwise been circumscribed.
    b. The Right to Organize and Bargain Collectively: The IRA provides 
a framework for collective bargaining and protection against anti-union 
discrimination. Law prohibits civil servants from joining or organizing 
a trade union. However, in December, 1992, the government enacted 
legislation which allows each branch of the civil service to establish 
a negotiating committee to engage in collective bargaining for wages 
and benefits in the same fashion as trade unions in the private sector. 
While the right to strike is recognized in law and in practice, the 
government has on occasion taken strong action to end strikes, 
especially in cases involving vital government interests or public 
order. The IRA provides a mechanism for conciliation and arbitration 
before unions can resort to industrial actions or strikes. Over the 
past four years there have been several industrial actions involving 
salary increase demands, conditions of service, and severance awards. 
1999 saw a number of short-lived ``wild cat'' strikes by doctors and 
industrial workers.
    c. Prohibition of Forced or Compulsory Labor: Ghanaian law 
prohibits forced labor and it is not known to be practiced. The 
International Labor Organization (ILO) continues to urge the government 
to revise legislation that permits imprisonment with an obligation to 
perform labor for offenses that are not countenanced under ILO 
Convention 105, ratified by Ghana in 1958.
    d. Minimum Age of Employment of Children: Labor legislation in 
Ghana sets a minimum employment age of 15 and prohibits night work and 
certain types of hazardous labor for those under 18. The violation of 
child labor laws is common and young children of school age can often 
be found during the day performing menial tasks in the agricultural 
sector or in the markets. Observance of minimum age laws is eroded by 
local custom and economic circumstances that compel children to become 
wage earners at an early age. Inspectors from the Ministry of Labor and 
Social Welfare are responsible for enforcement of child labor laws. 
Employers who violate laws prohibiting heavy labor and night work by 
children are occasionally prosecuted.
    e. Acceptable Conditions of Work: In 1991 a Tripartite Commission 
composed of representatives from government, organized labor, and 
employers established minimum standards for wages and working 
conditions. The daily minimum wage combines wages with customary 
benefits such as a transportation allowance. The current daily minimum 
wage is Cedis 2,900, about 85 cents at the present rate of exchange. 
This sum does not permit a single wage earner to support a family and 
frequently results in multiple wage earners and other family-based 
commercial activity. A much-vaunted, government-commissioned study on 
reform of the civil service (including a serious revision of grades and 
salary levels) was implemented in June, 1999. By law the maximum 
workweek is 45 hours, but collective bargaining has established a 40-
hour week for most unionized workers.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Ghana 
is concentrated in the primary and fabricated metals sectors (gold 
mining and aluminum smelting), food and related products (tuna canning 
and beverage bottling), petroleum marketing, and telecommunications. 
Labor conditions in these sectors do not differ significantly from the 
norm, save that wage scales in the metals and mining sectors are 
substantially higher than elsewhere in the Ghanaian economy. U.S. firms 
have a good record of compliance with Ghanaian labor laws.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  -1
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                NIGERIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment:
  Nominal GDP \2\.........................      50.1      52.0       N/A
  Real GDP Growth (pct) \3\...............       3.2       2.4       N/A
  GDP by Sector (pct):
    Agriculture...........................      31.5      32.3       N/A
    Manufacturing.........................       6.3       6.1       N/A
    Services..............................       9.7       9.6       N/A
  Per Capita GDP (US$)....................       250       250       240
  Labor Force (millions)..................      43.0      40.0       N/A
  Unemployment Rate (pct).................       2.6       3.9       N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      15.0      15.6       N/A
  Consumer Price Inflation................       8.5      10.0       8.0
  Exchange Rate (Naira/US$ annual average)
    Official..............................        22        82        95
    Parallel..............................        55        85       101

Balance of Payments and Trade:
  Total Exports FOB \4\...................      15.2       9.0       N/A
    Exports to U.S. \5\...................       6.3       4.2       N/A
  Total Imports FOB.......................      10.3       9.9       N/A
    Imports from U.S. \5\.................       0.8       0.8       N/A
  Trade Balance...........................       4.9      -2.0       N/A
    Trade Balance with U.S. \5\...........       5.5       3.4       N/A
  Current Account Deficit/GDP (pct).......       1.2      -3.5       N/A
  External Public Debt....................      27.1      28.7       N/A
  Debt Service Payments/GDP (pct).........       1.8       1.4       N/A
  Fiscal Deficit/GDP (pct)................       0.2       4.7       N/A
  Gold and Foreign Exchange Reserves......       7.6       7.1       N/A
  Aid from U.S. (US$ millions)............       N/A       N/A       N/A
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures, except exchange rates, are all estimates based on
  available monthly data in November.
\2\ GDP at factor cost. Conversion to U.S. dollars done with official
  exchange rate of 82 naira to the dollar for 1998/99.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through November 1999.

1. General Policy Framework
    Nigeria is Africa's most populous nation and the United States' 
fifth largest oil supplier. It offers investors a low-cost labor pool, 
abundant natural resources, and one of the largest domestic markets in 
sub-Saharan Africa. On the other hand, inadequate infrastructure, 
corruption, and inconsistent regulations mean that considerable time, 
money and managerial effort are needed for a firm to begin operation 
and earn profits in Nigeria. Nigeria's basic infrastructure is 
extensive but inadequate for a population of over 100 million. Roads 
and bridges are crumbling, telephone service is erratic, and there are 
recurring shortages of water and electricity. Social unrest in some 
areas, widespread unemployment, a stagnant economy depressed by over-
reliance on oil, the lack of effective due process, and serious fraud 
and violent crime problems complicate business in Nigeria.
    After a period of moderate fiscal austerity in the late 1980s, the 
Nigerian government ran budget deficits of up to 12 percent of GDP 
beginning in 1990. The deficit decreased to seven percent in 1994 and, 
by postponing government spending (including for debt service), in 1995 
shrank to negligible proportions. In 1996, the budget had a surplus of 
1.6 percent of GDP. For the majority of 1997, the budget ran a reported 
surplus. The deficit reduction and ensuing surplus came about primarily 
through austerity--e.g., foregoing government projects and 
infrastructure maintenance--as well as stronger-than-expected oil 
revenue. Recommendations by international financial institutions 
include reducing large government fuel price subsidies (the official 
price of gasoline is currently about 20 cents per liter), shelving a 
number of government projects which are of doubtful economic value, and 
reducing leakage from government income due to corruption.
    In previous years, monetary policy had been driven by the need to 
accommodate the government's budget deficit and a desire to reduce the 
inflationary impact of the budget deficit on the economy. Deficits at 
the federal level had been financed primarily by borrowing from the 
Central Bank of Nigeria (CBN), which held 85.1 percent of the 
government's domestic debt at the end of 1997. Since the Central Bank 
monetizes much of the deficit, budgetary shortfalls have a direct 
impact on the money supply and on price levels, which had risen rapidly 
for several years but have since slowed. In 1996, the government also 
began releasing money from an extra-budgetary account called the 
Petroleum Trust Fund (PTF) for infrastructure and other projects. 
President Obasanjo has scrapped the fund and constituted a winding up 
committee to look into the activities of the PTF.
    In 1999, Nigeria has continued the policy of ``guided 
deregulation'' and privatization instituted in the 1995 budget. The 
former head of state, General Sani Abacha, had abandoned the 1986 
structural adjustment program reforms and instituted tight government 
control over key economic variables. In response to the economic 
downturn caused by those measures, Abacha's 1995 budget abandoned the 
tightly regulated economic policies enacted in 1994. Under the new 
policy, the Nigerian government reopened the Autonomous Foreign 
Exchange Market (AFEM), loosened controls on foreign investment and 
reduced tariffs and bans on some imports. The 1999 budget continued the 
trend of fiscal austerity and the slow deregulation of the economy. On 
the demise of General Abacha, General Abdulsalami Abubakar, also 
reiterated the government's intention to privatize major parastatals, 
including telecommunications and electricity (NITEL and NEPA 
respectively.) The 1998 budget promised privatization with 40 percent 
equity for the government, 20 percent equity for Nigerian citizens, and 
unrestricted sale of the remaining 40 percent. Invitations to invest 
were to be made to specific investors with relevant expertise. The 1998 
budget also targeted the reorganization of the electricity generating 
parastatal (NEPA.) In 1999, the government repealed and amended eleven 
decrees that inhibited competition or conferred monopoly powers on 
public enterprises in the petroleum, telecommunications, power and 
mineral sectors. However, the promised privatization exercise has not 
occurred and its present prospects are unclear. The Obasanjo government 
has declared its conditional support for eventual privatization and 
promised a transparent privatization program after evaluating and 
rehabilitating the parastatals' assets.
    In November 1999, the Obasanjo government released a Year 2000 
budget of 500 billion Naira (USD 5 billion). The budget was predicated 
on an oil price of $18 per barrel as against the $16.5 used in the 1999 
budget. The education sector got the highest allocation of 40.3 billion 
Naira. Next in allocation is the Defense Ministry with an allocation of 
34.1 billion Naira. Nigeria's external debt servicing is retained at 
$1.5 billion and external debt stood at $28.54 billion as at September 
30, 1999. External debt arrears currently stand at $18.86 billion, 
while the debt service commitment for the year 2000 is expected to be 
$1.98 billion.
2. Exchange Rate Policy
    In 1999, the autonomous foreign exchange market (AFEM) was fully 
deregulated. Dual exchange rates were scrapped and only AFEM rate 
prevails. Companies can now hold domiciliary accounts in private banks, 
with unfettered use of the funds. Foreign investors may bring capital 
into the country without Finance Ministry approval, and may service 
foreign loans and remit dividends. Bureau de change offices are 
functioning and transactions in the bureau de change offices have been 
increased to $10,000 per transaction. In addition, oil companies are 
allowed to sell foreign exchange directly to interested banks and 
private organizations. The Central Bank has continued to intervene at 
the weekly AFEM.
3. Structural Policies
    As stated in the December 1986 circular ``Industrial Policy of 
Nigeria,'' the Nigerian government maintains a system of incentives to 
foster the development of particular industries, to encourage firms to 
locate in economically disadvantaged areas, to promote research and 
development in Nigeria, and to favor the use of domestic labor and raw 
materials. The Industrial Development (Income Tax Relief) Act of 1971 
provides incentives to ``pioneer'' industries deemed beneficial to 
Nigeria's economic development. Companies given ``pioneer'' status may 
enjoy a non-renewable tax holiday of five years, or seven years if the 
pioneer industry is located in an economically disadvantaged area.
    In 1995, Nigeria promulgated the Nigerian Investment Promotion 
Commission Decree to replace the Enterprises Promotion Act. This decree 
liberalized the foreign investment regime, allowing 100 percent foreign 
ownership of firms outside the petroleum sector. Investment in the 
petroleum sector is still limited to the existing joint venture 
agreement or production-sharing contracts with the Nigerian government, 
though there has been discussion of the Nigerian government selling off 
some small parts of its joint venture equity. A foreign enterprise may 
now buy shares of any Nigerian firm except those on the ``negative 
list'': production of firearms, ammunition and narcotics, military and 
paramilitary apparel. The Investment Promotion Decree provides for the 
creation of an Investment Promotion Commission that will register 
companies for foreigners after incorporation under the Companies and 
Allied Matters Decree of 1990. The decree also abolishes the expatriate 
quota system (except in the oil sector) and prohibits any 
nationalization or expropriation of a foreign enterprise by the 
Nigerian government except for such cases determined to be in the 
national interest.
    Nigeria has partially implemented the 1995 money laundering decree, 
which introduced bank reporting procedures designed to inhibit this 
practice. There is also a decree against advance-fee fraud (called 419 
fraud after the relevant section of the Nigerian criminal code.) 
However, as of 1999, there has been only limited success in reducing 
financial fraud despite improving law enforcement actions against fraud 
perpetrators. The broad scope of business fraud has brought 
international notoriety to Nigeria and constitutes a serious 
disincentive to exporters.
4. Debt Management Policies
    Nigeria's foreign debt ballooned from $13 billion in 1981 to $24 
billion in 1986, when sharply lower oil revenues and continued high 
import levels escalated balance of payments deficits. Debt service 
obligations including payment of arrears, are projected to be over $8 
billion annually for the next several years. However, according to the 
1998 Central Bank of Nigeria's Annual Report, Nigeria's total external 
debt stock at the end of 1998 amounted to $28.774 billion, compared 
with $27.09 in 1997. The exact debt figure with multilateral financial 
institutions is still in dispute. The 1999 budget allowed only $2 
billion for foreign debt payments, thus ensuring continued build-up of 
arrears.
    In January 1992, in an effort to reduce its external debt, the 
Nigerian government concluded an agreement with the London club that 
gave commercial banks a menu of options from which to choose in 
reducing Nigeria's commercial debt. The menu included debt buy backs 
(currently at 45 cents to the dollar), new money bonds, and 
collateralized par bonds. As a result of the agreement, Nigeria was 
able to reduce its external debt by $3.9 billion since 1992, but the 
accumulation of arrears on other debt (especially Paris Club debt), 
which currently represent 70 percent of total debt stock, has kept 
external debt levels high.
    From 1986 to early 1992, on the basis of a comprehensive structural 
adjustment program, Nigeria reached three standby agreements with the 
IMF. The last one lapsed in 1992. Discussions with the IMF since then 
have shown some progress, as evidenced by the 1996 decapping of 
interest rates and removal of the mandatory sectoral credit allocations 
for banks. In 1999 Nigeria and the IMF resolved most issues standing in 
the way of a new standby arrangement. Nigeria's inadequate servicing of 
Paris Club debt remains a principal obstacle.
    Nigeria's most recent rescheduling agreement with the Paris Club 
expired at the same time as its standby agreement with the IMF, and 
debt repayment obligations on Paris Club debt have continued to grow. 
(Nigeria has kept up to date on its multilateral and London Club debt.) 
In 1992 Nigeria made payments of $2.7 billion against interest and 
principal payment obligations of $5 billion. However, faced with 
similar obligations in the following years, external debt service 
payments were only budgeted at $1.6 billion for 1993, $1.8 billion for 
1994, and $2 billion yearly from 1995 to 1998. In 1997, actual debt 
service payments were $503.5 million (or 25.2 percent) lower than the 
$2 billion budgeted. Although discussions with the IMF and World Bank 
continued on a medium term economic program, and Nigeria is making some 
progress at meeting their criteria, no new rescheduling agreement will 
be reached until an IMF program is in place.
5. Significant Barriers to U.S. Exports
    Nigeria abolished all export licensing requirements and cut its 
list of banned imports in 1986. However, as of November 1999, the 
importation of approximately 13 items is still banned. These bans were 
initially implemented to restore Nigeria's agricultural sector and to 
conserve foreign exchange. Although widespread smuggling compromises 
the bans, reduced availability of grains has raised prices for both 
banned commodities and locally produced substitutes. The government 
discontinued fertilizer subsidies for farmers in 1997, but reintroduced 
them in 1999. Widespread fertilizer shortages persist.
    In 1995, Nigeria announced a new tariff structure for the next five 
years. Revisions aimed to narrow the range of custom duties, increase 
rate coverage in line with WTO provisions, and decrease import 
prohibitions. In the 1999 budget, Nigeria's 1998 revised higher tariffs 
were reduced, but excise duties eliminated in 1998 were restored for 
certain goods. Excise duties of 40 percent were restored for 
cigarettes, cigars, tobacco, and spirits. Other commodity duty rates 
are: rice, 50 percent; day-old chicks and parent stock, 5 percent; 
sparkling wines, wine coolers, and champagne, 100 percent; fruits and 
fruit juices, reduced from 75 to 55 percent; jute, 10 percent; cotton, 
60 percent; fertilizers, 5 percent; textile fabrics 65 percent; and 
garments, 75 percent. For 1999, the 25 percent import duty rebate that 
was granted importers in late 1997 was abolished. Poultry and eggs, 
beer and stout, barley and malt, and mineral and similar waters, 
removed from the prohibited import list in 1998, never qualified for 
the rebate. However, duty rates for live, chilled or frozen poultry and 
eggs were slashed from 150 to 55 percent to reduce smuggling for these 
products and the consequent loss of significant duty revenue.
    Other import restrictions apply to aircraft and ocean-going 
vessels. A government authorized inspection agent must inspect all 
imported aircraft and ocean-going vessels. In addition, performance 
bonds and offshore guarantees must be arranged before either down 
payments or the Ministry of Finance authorizes subsequent payments.
    In 1996, to reduce congestion and corruption in Nigerian ports and 
following a reported shortfall in customs receipts, the Nigerian 
government changed the procedures by which goods enter or leave the 
country. All unaccompanied imports and exports regardless of value 
require pre-shipment inspection (PSI). Imports must be accompanied by 
an import duty report (IDR). The Nigerian government will confiscate 
goods arriving without an IDR. The PSI was abandoned temporarily in 
early 1999 in favor of destination inspection, but the new scheme was 
fraught with problems and was soon shelved for the PSI again. In 
addition, all goods are assessed a one-percent surcharge to cover the 
cost of inspection. The Obasanjo Administration has made some progress 
on its pledge to practice open and competitive contracting. Anti-
corruption is an energetic and central plank of the new government's 
policy. Foreign companies incorporated in Nigeria receive national 
treatment. Currently, tenders are published in newspapers for 
prospective contractors. Approximately five percent of all government 
procurement contracts are awarded to U.S. companies.
6. Export Subsidy Policies
    In 1976, the government established the Nigerian Export Promotion 
Council (NEPC) to promote non-oil exports from Nigeria. The Council 
administers incentive programs, including a duty drawback program, the 
export development fund, tax relief and capital assets depreciation 
allowances, and a foreign currency retention program. The duty drawback 
or manufacturing in-bond program is designed to allow the duty free 
importation of raw materials to produce goods for export, contingent on 
the issuance of a bank guarantee. The performance bond is discharged 
upon evidence of exportation and repatriation of foreign exchange. 
Though meant to promote industry and exportation, these schemes have 
been burdened by inefficient administration, confusion, and corruption, 
causing great difficulty and, in some cases, losses to those 
manufacturers and exporters who opted to use them.
    The NEPC also administers the export expansion grant program, a 
fund that provides grants to exporters of manufactured and semi-
manufactured products. Grants are awarded on the basis of the value of 
goods exported, and the only requirement for participation is that the 
export proceeds be repatriated to Nigeria. Though the grant amounts are 
small, ranging from two to five percent of total export value, they may 
constitute subsidies as defined by the WTO and raise questions about 
compliance with WTO obligations. In the 1999 budget, the government 
announced that the incentive schemes will be replaced by a non-cash 
incentive scheme termed ``negotiable duty credit certificate'' (NDCS), 
under which exporters' claims are credited against future imports. This 
measure will save the government from making annual budgetary 
allocations to the scheme and is in conformity with the WTO.
7. Protection of U.S. Intellectual Property
    Nigeria is a signatory to the Universal Copyright Convention and 
the Berne Convention. In 1993, Nigeria became a member of the World 
Intellectual Property Organization (WIPO), thereby becoming party to 
most of the major international agreements on intellectual property 
rights. Cases involving infringement of non-Nigerian copyrights have 
been successfully prosecuted in Nigeria, but enforcement of existing 
laws remains weak, particularly in the patent and trademark areas. 
Recently, Nigeria's active participation in international conventions 
has yielded positive results. Law enforcement agents occasionally carry 
out raids on suspected sites for production and sale of pirated tapes, 
videos, computer software and books. Piracy is widespread, but 
prosecution under the copyright law is slow. However, since the TRIPS 
(Trade Related Intellectual Property Rights) agreement was signed under 
the Uruguay round in 1993, the Nigerian Copyright Council has 
intensified efforts to combat piracy by organizing workshops for law 
enforcement agents on copyright issues.
    The Patents and Design Decree of 1970 governs the registration of 
patents, and the Standards Organization of Nigeria is responsible for 
issuing patents, trademarks, and copyrights. Once conferred, a patent 
conveys an exclusive right to make, import, sell, or use the products 
or apply the process. The Trademarks Act of 1965 governs the 
registration of trademarks. A trademark conveys the exclusive right to 
use the registered mark for a particular good or class of goods.
    The Copyright Decree of 1988, based on WIPO standards and U.S. 
copyright law, criminalizes counterfeiting, exporting, importing, 
reproducing, exhibiting, performing, or selling any work without the 
permission of the copyright owner. Progress on enforcing the 1988 law 
is slow. The expense and time necessary to pursue a copyright 
infringement case discourage prosecution of such cases.
    Few companies have sought trademark or patent protection in Nigeria 
because it is generally perceived as ineffective. Losses from piracy 
are substantial, although the exact cost is difficult to estimate. Most 
recordings sold in Nigeria are pirated, and the video industry is based 
on the sale and rental of pirated tapes. Satellite signal piracy is 
also common. Violation of patents on pharmaceuticals is a problem.
8. Worker Rights
    a. The Right of Association: Nigerian workers may join unions with 
the exception of members of the armed forces, police force, or 
government employees of the following departments and services: 
customs, immigration, prisons, currency printing and minting, central 
bank and telecommunications. A worker engaged in an essential service 
is required under penalty of law to provide his employer 15 days' 
advance notice of his intention to cease work. Essential service 
workers include federal and state civilian employees in the armed 
services, and public employees engaged in banking, telecommunications, 
postal services, transportation and ports, public health, fire 
prevention, and the utilities sector. Employees working in an export 
processing zone may not join a union for a period of ten years from the 
start-up of the enterprise.
    Under the law, a worker under a collective bargaining agreement may 
not participate in a strike unless his representative has complied with 
the requirements of the Trade Disputes Act, which include provisions 
for mandatory mediation and for referring the labor dispute to the 
government. The Act allows the government in its discretion to refer 
the matter to a labor conciliator, arbitration panel, board of inquiry, 
or the National Industrial Court. The Act also forbids any employer 
from granting a general wage increase to its workers without prior 
government approval. In practice, however, the Act does not appear to 
be effectively enforced as strikes, including in the public sector, are 
widespread, and private sector wage increases are not submitted to the 
government for prior approval.
    Nigeria has signed and ratified the International Labor 
Organization's (ILO) convention on freedom of association, but Nigerian 
law authorizes only a single central labor body, the Nigeria Labor 
Congress (NLC). Nigerian labor law controls the admission of a union to 
the NLC, and requires any union to be formally registered before 
commencing operations. Registration is authorized only where the 
Registrar of Trade Unions determines that it is expedient in that no 
other existing union is sufficiently representative of the interests of 
those workers seeking to be registered.
    b. The Right to Organize and Bargain Collectively: Nigerian labor 
laws permit the right to organize and bargain collectively. Collective 
bargaining is common in many sectors of the economy. Nigerian law 
protects workers from retaliation by employers (i.e. lockouts) for 
labor activity through an independent arm of the judiciary, the 
Nigerian Industrial Court. Trade unionists have complained, however, 
that the judicial system's slow handling of labor cases constitutes a 
denial of redress. The government retains broad authority over labor 
matters, and often intervenes in disputes it feels challenge its key 
political or economic objectives. However, the era of government 
appointed ``sole administrators'' of unions is now over, and the labor 
movement is increasingly active and vocal on issues seen to attest the 
plight of the common worker, such as deregulation, privatization, and 
the government's failure to advance its poverty alleviation program.
    c. Prohibition of Forced or Compulsory Labor: Section 34 of the 
1999 Constitution, and the 1974 Labor Decree, prohibit forced labor. 
Nigeria has also ratified the ILO convention prohibiting forced labor. 
However, there are occasional reports of instances of forced labor, 
typically involving domestic servants. The government has limited 
resources to detect and prevent violations of the forced labor 
prohibition.
    d. Minimum Age for Employment of Children: Nigeria's 1974 labor 
decree prohibits employment of children under 15 years of age in 
commerce and industry and restricts other child labor to home-based 
agricultural or domestic work. The law further stipulates that no 
person under the age of 16 may be employed for more than eight hours 
per day. The decree allows the apprenticeship of youths under specific 
conditions. Primary education is compulsory in Nigeria, though rarely 
enforced. Actual enrollment is declining due to the continuing 
deterioration of public schools. Increasing poverty and the need to 
supplement meager family incomes have forced also many children into 
the employment market, which is unable to absorb their labor due to 
high levels of unemployment. The use children as beggars, hawkers, or 
elsewhere in the informal sector is widespread in urban areas.
    e. Acceptable Conditions of Work: Nigeria's 1974 labor decree 
established a 40-hour workweek, prescribed 2 to 4 weeks of annual 
leave, set a minimum wage, and stipulated that workers are to be paid 
extra for hours worked over the legal limit. The decree states that 
workers who work on Sundays and legal holidays must be paid a full 
day's pay in addition to their normal wages. There is no law 
prohibiting excessive compulsory overtime. In 1998, the federal 
government raised for all federal employees the minimum monthly wage 
(salary and allowances) to N5, 280.00 (USD 60) from N450 (USD 5.00). 
The government later reversed the decision and reduced the minimum wage 
to N3,500.00 (USD 35) for federal workers and N3000.00 (USD 30) for 
state workers. However, many states are unable, or unwilling to pay the 
new minimum wage. Widespread reports of empty state treasuries 
inherited by the new civilian government threaten their ability to pay 
the new salary. Despite this, the Obasanjo government is considering 
plans to further increase the minimum wage. The 1974 decree contains 
general health and safety provisions. Employers must compensate injured 
workers and dependent survivors of those killed in industrial accidents 
but enforcement of these laws by the ministry of labor is largely 
ineffective.
    f. Rights in Sectors with U.S. Investment: Worker rights in 
petroleum, chemicals and related products, primary and fabricated 
metals, machinery, electric and electronic equipment, transportation 
equipment, and other manufacturing sectors are not significantly 
different from those in other major sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,696
Total Manufacturing............  ..............  56
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  20              ...............................................................
  Primary & Fabricated Metals..  -1              ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  1
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  4
TOTAL ALL INDUSTRIES...........  ..............  1,925
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              SOUTH AFRICA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998     1999 (est)
------------------------------------------------------------------------
Income, Production and Employment:
 \1\
  Nominal GDP (at nominal prices)...       147.9       134.5       146.0
  Real GDP Growth (pct).............         2.5         0.5         0.9
  GDP by Sector:
    Agriculture.....................         5.2         4.3         4.6
    Mining and Quarrying............         8.9         7.7         8.3
    Manufacturing...................        27.5        23.0        25.1
    Wholesale/Retail Trade..........        18.5        15.7        17.1
    Financial Services..............        20.6        18.5        20.1
    Government......................        17.6        15.0        16.3
  Per Capita GDP (US$)..............       2,987                     N/A
  Labor Force (millions)............         9.8    10 (est)         N/A
  Unemployment Rate (pct)...........        22.9  23.0 (est)         N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        18.7        13.6          10
  Consumer Price Index..............         8.6         6.9         5.5
  Exchange Rate (Rand/US$ annual
 average) \1\
  Unified...........................         4.6         5.5         6.2

Balance of Payments and Trade:
  Total Exports FOB \2\.............        25.6        24.6        23.4
    Exports to U.S. \3\.............         2.5         3.0         3.0
  Total Imports CIF \2\.............        28.9        27.4        23.1
    Imports from U.S. \3\...........         3.0         3.6         2.4
  Trade Balance \2\.................        -3.3        -2.5         0.3
    Trade Balance with U.S. \3\.....        -0.5        -0.6         0.6
  External Public Debt \4\..........         3.3         2.7         N/A
  Fiscal Deficit/GDP (pct)..........         4.2         5.5         N/A
  Current Account Deficit/GDP (pct).         1.5        -1.6        -0.5
  Debt Service Payments/GDP (pct)...         6.1         6.7         N/A
  Gold and Foreign Exchange Reserves         3.7         7.6         6.5
  Aid from U.S. (US$ millions) \5\..       110.5        71.3        53.4
  Aid from Other Countries \6\......         N/A         N/A         N/A
------------------------------------------------------------------------
\1\ The following exchange rates were used in the calculations: $1:R4.61
  for 1997, $1:R5.80 for 1998, and an estimated $1:R6.15.
\2\ All South African trade statistics include export and import data
  for the five members of the Southern African Customs Union (Botswana,
  Lesotho, Namibia, South Africa, and Swaziland) up to December 1997.
\3\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.
\4\ From IMF Yearbook, September 1999.
\5\ The figures represent aid from USAID only.
\6\ SA has received substantial aid from all over the world. However,
  there is no comprehensive audit of the total aid given to SA to date.

1. General Policy Framework
    South Africa is a middle-income developing country with well-
developed financial, legal, communications, energy, and transport 
sectors, a stock exchange which ranks among the 20 largest in the 
world, and a modern infrastructure supporting an efficient distribution 
of goods to major urban centers throughout the region. More than five 
years since the historic election of President Nelson Mandela in the 
country's first multi-racial elections, South Africa remains the 
largest economy in Africa, and is very important to U.S. trade and 
investment.
    Decades of apartheid-era policies resulted in the inefficient use 
of human resources, under-investment in human capital, labor 
rigidities, large budgetary outlays for duplicative layers of 
government and facilities, extensive governmental interference in the 
economy, and a lack of foreign investment and imported goods resulting 
from international sanctions. In the lead up to the 1994 elections, the 
South African economy started enjoying a period of recovery after more 
than four years of negative real GDP growth from 1988-1992. The economy 
has posted real GDP growth rates of 2.5 percent in 1994, 3.1 percent in 
1995, 4.2 percent in 1996 and 2.5 percent in 1997. The 1998 growth rate 
however came in at 0.5 percent largely due to the financial turmoil 
which hit almost all emerging markets. Some recovery is expected in 
1999 with many predicting a real GDP growth rate of 0.9 percent.
    South Africa faces daunting developmental problems resulting from 
apartheid-era policies. The government's objectives today are growth, 
jobs, black economic empowerment, promotion of small, medium, and micro 
enterprises, and the extension of telecommunications, transportation, 
and other infrastructure links to under-served rural and urban areas .
    The government demonstrated its commitment to open markets, 
privatization, and a favorable investment climate with the release of 
its macroeconomic strategy, GEAR, in June 1996. This strategy includes 
expansion of infrastructure, restructuring of state assets, 
conservative fiscal and monetary targets and continued reduction of 
tariffs to promote greater competition and industrial revitalization. 
These efforts, together with South Africa's implementation of its World 
Trade Organization (WTO) obligations, show that South Africa is moving 
steadily towards free market principles.
    Over the last decade, quantitative credit controls and 
administrative control of deposit and lending rates have largely 
disappeared. The South African Reserve Bank (SARB) now operates in much 
the same way as western central banks, influencing interest rates and 
controlling liquidity through its rates on funds provided to private 
sector banks, and to a lesser degree through the placement of 
government paper. In the past five years, restrictive monetary policy, 
through the maintenance of relatively high central bank lending rates, 
has curbed domestic spending on imports and reduced inflation to its 
lowest rates in twenty years.
    The government primarily finances its debt through the issuance of 
government bonds. To a lesser extent, the government has opted to 
finance some short-term debt obligations through the sale of foreign 
exchange and gold reserves. As a corollary to its restrictive financial 
policies, the government has not opted to finance deficit spending 
through loans from commercial banks.
2. Exchange Rate Policy
    Under South African exchange regulations, the SARB has substantial 
control over foreign currency. Exchange controls are administered by 
the SARB's Exchange Control Department and through commercial banks 
that have been authorized to deal in foreign exchange. All 
international commercial transactions must be accounted for through 
these ``authorized foreign exchange dealers.'' In addition, the SARB is 
a marketing agent for gold, which accounts for roughly 18 percent of 
export earnings. This provides the SARB wide latitude for determining 
short-term exchange rates. Monetary authorities normally allow the rand 
to adjust in an attempt to stabilize external accounts.
    While the SARB recognized that the low level of hard currency 
reserves necessitated continued inflow of long-term capital, the 
government of national unity eliminated the previous dual exchange rate 
and established a unified exchange rate on March 20, 1995. Nonetheless, 
South Africa still maintains several capital controls to prevent large 
capital outflows. The government is more likely to approve foreign 
exchange purchases for investment abroad if the foreign partner of the 
South African party conducts an asset swap, whereby an equivalent 
amount of foreign exchange is invested in South Africa by the foreign 
partner. Although domestic as well as foreign business concerns have 
lobbied hard for the lifting of the asset swap requirement, it is 
unlikely that the government will do so until foreign reserve levels 
approach the three-month coverage level. While foreign reserves are 
currently at about $6.5 billion, the SARB maintains a large Net Open 
Forward Position of $15.6 billion as of the end of September 1999.
3. Structural Policies
    Prices are generally market-determined with the exception of some 
petroleum products, electricity, transport services and certain 
agricultural goods. Purchases by government agencies and major private 
buyers are by competitive tender for projects or supply contracts. 
Bidders must pre-qualify, with some preferences allowed for local 
content.
    The main sources of government revenue in South Africa are income 
taxes and the Value-Added Tax (VAT). The VAT rate is 14 percent.
    The government has undertaken some measures in the past two years 
to ease the tax burden on foreign and domestic investors. It has 
steadily reduced the corporate primary income tax rate from 40 percent 
in 1994 to 30 percent in 1999. In addition, the Secondary Tax on 
Corporate Dividends was halved to 12.5 percent in March 1996.
4. Debt Management Policies
    At the end of 1998, the SARB reported that total foreign (public 
and private) debt amounted to approximately $38.8 billion. The ratio of 
total foreign debt to GDP has remained steady at around 26 to 30 
percent over the past three years, while interest payments as a 
percentage of total export earnings have remained at levels ranging 
from 7.3 percent in 1995 to 8.4 percent in 1998.
    South Africa is a member of the World Bank and International 
Monetary Fund (IMF) and continues Article IV consultations with the 
latter on a regular basis. In December 1993, after 27 years of economic 
isolation, South Africa obtained an $850 million IMF facility, which 
replenished South Africa's strained foreign exchange reserves and 
normalized its international financial relations. South Africa is also 
obtaining a modest World Bank loan, and is in discussions regarding 
other small grants or loans as well as greater use of World Bank 
advisory and training assistance to help with its ambitious development 
objectives.
5. Aid
    There is no comprehensive audit of the total aid given to SA to 
date. Besides the aid of $53.4 from USAID noted in the front table, the 
U.S. also provides military aid estimated at $1.65 million for FY 1998/
99.
6. Significant Barriers to U.S. Exports
    Under the terms of the Import and Export Control Act of 1963, South 
Africa's Minister of Trade and Industry may act in the national 
interest to prohibit, ration, or otherwise regulate imports. In recent 
years, the list of restricted goods requiring import permits has been 
reduced, but still includes such goods as certain foodstuffs, clothing, 
fabrics, wood and paper products, refined petroleum products and 
chemicals.
    The government remains committed to the simplification and eventual 
reduction of tariffs within the WTO framework, and maintains active 
discussions with that body and its major trading partners.
    The government is attempting to centralize and standardize the 
buying procedures of national, provincial, local, and state-owned 
corporate entities. Purchases are by competitive tender for project, 
supply and other contracts. As part of the government's policy to 
encourage local industry, a price preference schedule, based on the 
percent of local content in relation to the tendered price is employed 
to compare tenders. To claim preference for local content, tenders must 
enclose with their bid a certificate showing classification of supplies 
offered in terms of local content.
    An additional preference may be claimed if a product bears the mark 
of the South African Bureau of Standards. On tenders of less than R2 
million ($350,000), the government awards preference points to 
enterprises and companies operating in South Africa that demonstrate 
significant ownership or employment of previously disadvantaged 
individuals.
    Since late 1996, the Industrial Participation Program (IPP) has 
mandated a countertrade/offset package for all state and parastatal 
purchases of goods, services, and lease contracts in excess of $10 
million. Under the program, all bidders on government and parastatal 
contracts who exceed the imported content threshold must also submit an 
industrial participation package worth 30 percent of the imported 
content value. The bidder then has 7 years to discharge the industrial 
participation obligation. Non-performance of the contract is subject to 
a penalty of 5 percent of the outstanding industrial participation 
obligation.
7. Export Subsidies Policies
    The Export Marketing Assistance Scheme (EMA) offers financial 
assistance for the development of new export markets, through financing 
for trade missions and market research. The new Export Finance 
Guarantee Scheme for small exporters promotes small and medium 
exporters through credit guarantees with participating financial 
organizations. Provisions of the Income Tax Act also permit accelerated 
write-offs of certain buildings and machinery associated with 
beneficiation processes carried on for export, and deductions for the 
use of an export agent outside South Africa.
8. Protection of U.S. Intellectual Property
    Patents may be registered under the Patents Act of 1978 and are 
granted for 20 years. Trademarks can be registered under the Trademarks 
Act of 1973, and are granted for ten years with a possible renewal of 
an additional ten years. New designs may be registered under the 
Designs Act of 1967, which grants copyrights for five years. Literary, 
musical and artistic works, cinematographic films and sound recordings 
are eligible for copyrights under the Copyright Act of 1978. This act 
is based on the provisions of the Berne Convention as modified in Paris 
in 1971 and was amended in 1992 to include computer software. The 
government passed two IPR-related bills in parliament at the end of 
1997: the Counterfeit Goods Bill and the Intellectual Property Laws 
Amendment Bill, bringing South Africa's laws largely into conformity 
with its international trade obligations under the Trade Related 
Intellectual Property Agreement of the WTO. The Patents, Trademarks, 
Designs, and Copyrights Registrar of the Department of Trade and 
Industry administers these acts.
    South Africa is a member of the Paris Union and acceded to the 
Stockholm Text of the Paris Convention for the Protection of Industrial 
Property. South Africa is also a member of the World Intellectual 
Property Organization.
    Although South Africa's intellectual property laws and practices 
are generally in conformity with those of the industrialized nations, 
firms do experience some problems. The trademarks of a number of U.S. 
companies were misappropriated under the former government, when local 
firms took advantage of inadequate protection for famous marks. In 
April 1995, the U.S. Trade Representative placed South Africa on the 
``Special 301'' Watch List in an attempt to resolve these cases. South 
Africa was removed from the list in 1996 due to progress on several 
fronts. In May 1998, however, South Africa was placed back on the Watch 
List, in part because of a lack of adequate protection of undisclosed 
data and a law, passed in December 1997, which appeared to empower the 
Minister of Health to abrogate patent rights for pharmaceuticals. After 
extensive consultations, the US and South African governments reached 
an understanding on this Act in September 1999. USTR removed South 
Africa from the Watch List in December 1999.
    Software piracy occurs frequently in South Africa. The Business 
Software Alliance (BSA) estimates that as much as 50 percent of South 
Africa's business software is pirated, resulting in a loss of over 
$74.9 million to computer companies. Piracy in the video and sound 
industry is also an issue of concern, with a sound piracy rate of 40 
percent and a video piracy rate of 16 percent. Total annual losses due 
to audiovisual piracy in South Africa during 1998 are estimated to be 
$24.0 million.
9. Worker Rights
    a. The Right of Association: Freedom of association is guaranteed 
by the constitution and given statutory effect by the Labor Relations 
Act (LRA). All workers in the private sector and most in the public are 
entitled to join a union. Moreover, no employee can be fired or 
prejudiced because of membership in or advocacy of a trade union. 
Unions in South Africa have an approximate membership of 3.4 million or 
35 percent of the economically active population. The right to strike 
is guaranteed in the constitution, and is given statutory effect by the 
LRA. The International Labor Organization (ILO) readmitted South Africa 
in 1994. There is no government restriction against union affiliation 
with regional or international labor organizations.
    b. The Right to Organize and Bargain Collectively: South African 
law defines and protects the rights to organize and bargain 
collectively. The government does not interfere with union organizing 
and generally has not interfered in the collective bargaining process. 
The new LRA statutorily entrenches ``organizational rights,'' such as 
trade union access to work sites, deductions for trade union 
subscriptions, and leave for trade union officials.
    c. Prohibition of Forced or Compulsory Labor: Forced labor is 
illegal under the constitution, and is not practiced.
    d.Minimum Age for Employment of Children: Employment of minors 
under age 15 is prohibited by South African law. The LRA, however, 
grants the Minister of Welfare discretionary powers to permit 
employment of children under carefully described conditions in certain 
types of work, such as in the agricultural sector. Child labor is also 
used in the informal economy.
    e. Acceptable Conditions of Work: There is no legally mandated 
national minimum wage in South Africa. Instead, the LRA provides a 
mechanism for negotiations between labor and management to set minimum 
wage standards industry by industry. In those sectors of the economy 
not sufficiently organized to engage in the collective bargaining 
processes which establish minimum wages, the Basic Conditions of 
Employment Act, which went into effect in December 1998, gives the 
Minister of Labor authority to set wages, including for the first time 
wages for farm or domestic workers. Occupational health and safety 
issues remain a top priority of trade unions, especially in the mining 
and heavy manufacturing industries which are still considered hazardous 
by international standards.
    f. Worker Rights in Sectors with U.S. Investment: The worker rights 
conditions described above do not differ from those found in sectors 
with U.S. capital investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  864
  Food & Kindred Products......  139             ...............................................................
  Chemicals & Allied Products..  193             ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       37              ...............................................................
   Equipment.
  Electric & Electronic          112             ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  293             ...............................................................
Wholesale Trade................  ..............  145
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  247
Services.......................  ..............  162
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  2,363
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                       EAST ASIA AND THE PACIFIC

                              ----------                              


                               AUSTRALIA

                         Key Economic Indicators
        [Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
                                              1997      1998    \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\.........................     405.2     364.0     390.7
  Real GDP Growth (pct)...................       5.2       4.6       3.0
  GDP by Sector: \4\
    Agriculture...........................      12.0      10.5      10.7
    Manufacturing.........................      96.3      85.0      88.9
    Services..............................     274.7     247.8     269.2
    Government............................      16.7      14.2      14.6
  Per Capita GDP (US$)....................    22,500    19,700    20,500
  Labor Force (000's).....................     9,220     9,345     9,461
  Unemployment Rate (pct).................       8.5       8.0       7.3

Money and Prices (annual percentage
 growth):
  Money Supply (M3).......................       6.3       7.6       8.8
  Consumer Price Inflation................      -0.2       1.6       2.5
  Exchange Rate (Aust$/US$ annual average)
    Official..............................       N/A       N/A       N/A
    Parallel..............................      1.36      1.59      1.56

Balance of Payments and Trade:
  Total Exports FOB.......................      62.5      55.9      60.4
    Exports to U.S........................       4.6       5.3       7.0
  Total Imports CIF.......................      61.5      60.9      64.3
    Imports from U.S......................      13.4      13.6      14.8
  Trade Balance...........................       1.0      -4.9      -3.8
    Balance with U.S......................      -8.7      -8.3      -7.7
  External Public Debt....................      44.2      33.7      25.7
  Fiscal Deficit/GDP (pct)................      -0.2      -0.5      -0.8
  Current Account Deficit/GDP (pct).......       3.1       4.8       5.5
  Debt Service Payments/GDP...............       2.2       1.8       1.8
  Gold and Foreign Exchange Reserves......      17.2      15.5      15.9
  Aid from U.S............................         0         0         0
  Aid from Other Countries................         0         0         0
------------------------------------------------------------------------
\1\ Exchange rate fluctuations must be considered when analyzing data.
  Percentage changes calculated in Australian Dollars.
\2\ 1999 figures are estimates based on available monthly data in
  November.
\3\ Income measure of GDP.
\4\ Production measure of GDP. ``Manufacturing'' includes manufacturing,
  mining, utilities, and construction.

1. General Policy Framework
    Australia's developed market economy is dominated by its services 
sector (65 percent of GDP), yet it is the agricultural and mining 
sectors (7 percent of GDP combined) that account for the bulk (58 
percent) of Australia's goods and services exports. Australia's 
comparative advantage in primary products is a reflection of the 
natural wealth of the Australian continent and its small domestic 
market: 19 million people occupy a continent the size of the contiguous 
United States. The relative size of the manufacturing sector has been 
declining for several decades, and now accounts for just under 12 
percent of GDP.
    The Asian economic downturn has yet to have a significant impact on 
economic growth, despite forcing many exporters to target alternative 
markets. With inflation well under control (Australia recorded annual 
price deflation for the first time in 35 years in 1997), the task for 
economic policy makers is to lower the unemployment rate, which remains 
stubbornly mired in the 8.0 percent range.
    The Liberal/National coalition government continued its program of 
fiscal consolidation in its budget for the 1999-2000 fiscal year, 
announcing a budget surplus of $3 billion.
2. Exchange Rate Policies
    Australian Dollar exchange rates are determined by international 
currency markets. There is no official policy to defend any particular 
exchange rate level, although the Reserve Bank of Australia (RBA) does 
operate in currency markets. The RBA is active in what it describes as 
``smoothing and testing'' foreign exchange rates, in order to provide a 
generally stable environment for fundamental economic adjustment 
policies.
    Australia does not have any major foreign exchange controls beyond 
requiring RBA approval if more than A$5,000 in cash is to be taken out 
of Australia at any one time, or A$50,000 in any form in one year. The 
purpose of this regulation is to prevent tax evasion and money 
laundering; authorization is usually automatic.
3. Structural Policies
    The government is continuing a program of economic reform, begun in 
the 1980s, that includes the reduction of import protection and 
microeconomic reform. Initially broad in scope, the program now focuses 
on industry-by-industry changes and reform of the labor market. The 
government is also continuing with the privatization of public assets. 
Federal Government ownership in telecommunications carrier Telstra has 
been reduced (via two public floats) to 51%.
    The General Tariff Reduction Program, begun in March 1991, has 
reached its conclusion, with most existing tariffs now at 5 percent. 
However, the passenger motor vehicles and textiles, clothing and 
footwear industries are still protected by high tariffs (17.5 and 17-28 
percent respectively). These tariffs are scheduled to decline to 15 and 
25 percent respectively by 2000 (where they will remain, pending 
further review, until 2005).
    The Liberal/National coalition government recently passed 
legislation altering the structure of Australia's income and sales tax 
system, and currently has before parliament legislation reforming the 
business taxation system.
4. Debt Management Policies
    Australia's net foreign debt has averaged between 30 and 45 percent 
of GDP for the past decade, and in mid-1998 totaled $145 billion (39 
percent of GDP). Australia's net external public debt is $28 billion, 
or 7 percent of GDP. The public sector accounts for 19 percent of 
Australia's external debt; the remainder is the responsibility of the 
private sector. The Federal Government is using its privatization 
receipts and budget surpluses to further reduce its debt obligations. 
The net debt-service ratio (the ratio of net income payable to export 
earnings) has remained at or below 10 pct since 1997, down from 21 
percent in 1990.
5. Significant Barriers to U.S. Exports
    Australia is a signatory to the WTO, but is not a member of the 
plurilateral WTO Agreement on Government Procurement.
    Services Barriers: The Australian services market is generally 
open, and many U.S. financial services, legal and travel firms are 
established there. The banking sector was liberalized in 1992, allowing 
foreign banks to be licensed as either branches or subsidiaries. 
Broadcast licensing rules were also liberalized in 1992, allowing up to 
20 percent of the time used for paid advertisements to be filled with 
foreign-sourced material (far greater than the percentage of non-
Australian messages actually broadcast).
    Local content regulations also require that 55 percent of a 
commercial television station's weekly broadcasts between the hours of 
6:00 a.m. and midnight must be dedicated to Australian-produced 
programs (The U.S. regrets that this requirement was recently increased 
from 50 percent). Regulations governing Australia's pay-TV industry 
require that channels carrying drama must devote 10 pct of program 
expenditure to new Australian-produced content (though they are not 
required to actually screen the programs produced).
    Standards: Australia became a signatory to the GATT Technical 
Barriers to Trade Agreement in 1992. However, Australia still maintains 
restrictive standards requirements and design rules for automobile 
parts, electronic and medical equipment, and some machine parts and 
equipment. Currently, all Australian standards are being rewritten to 
harmonize them where possible to international standards, with the 
objective of fulfilling all obligations of the GATT Technical Barriers 
to Trade Agreement.
    Labeling: Federal law requires that the country of origin be 
clearly indicated on the front label of some types of products sold in 
Australia. Various other federal and state labeling requirements are 
being reconsidered in light of compliance with GATT obligations, 
utility and effect on trade. The Federal and State Health Ministries, 
working with the Government of New Zealand, are currently reviewing 
proposals to label products containing genetically modified organisms 
and have agreed to consider issues of consumer information, health, 
implementation costs of a labeling regime, and potential impact on 
Australian exports.
    Commodity Boards: Several national and state commodity boards 
control the marketing and export of certain Australian agricultural 
products. Activities for these marketing authorities are financed by 
the producers, but some boards enjoy export monopoly powers conferred 
by the federal or state government. While some of the boards' domestic 
activities have been deregulated, the export of wheat and rice remains 
under the exclusive control of commodity boards. The government has 
indicated that the Australian wheat board (which strictly regulates 
wheat marketing abroad) may have its export monopoly reviewed during 
2000, though the terms of the review have yet to be announced. The 
export of barley from certain states likewise remains strictly 
regulated.
    Sanitary and Phytosanitary Restrictions: Australia's geographic 
isolation has allowed it to remain relatively free of exotic diseases. 
Australia imposes extremely stringent animal and plant quarantine 
restrictions. The WTO SPS agreement requires, among other things, that 
Australia's restrictions undergo a risk assessment to ensure that any 
restrictions are science-based, rather than disguised non-tariff 
barriers. Concerns remain with Australia's restrictions on chicken 
(fresh, cooked and frozen), pork, California table grapes, Florida 
citrus, stone fruit, apples, Pacific North-West cherries, timber and 
corn.
    Investment: The government requires notification of (but normally 
raises no objections to) investment proposals by foreign interests 
above certain notification thresholds, including: acquisitions of 
substantial interests in existing Australian businesses with assets of 
A$5 million or more (A$3 million for rural properties); new businesses 
involving an investment of A$10 million or more; portfolio investments 
in the media sector of 5 percent or more; all non-portfolio investments 
irrespective of size; takeovers of Australian companies valued at 
either A$20 million or more, or for more than 50 percent of the target 
company's total assets; and direct investment of foreign governments 
irrespective of size. Investment proposals for entities involving more 
than A$50 million in total assets are approved unless found contrary to 
the national interest. Special regulations apply to investments in the 
banking sector, the media sector, urban real estate and civil aviation.
    Divestment cannot be forced without due process of law. There is no 
record of forced divestment outside that stemming from investments or 
mergers that tend to create market dominance, contravene laws on equity 
participation, or result from unfulfilled contractual obligations.
    Government Procurement: Since 1991, foreign information technology 
companies with annual sales to the Australian Government of A$10-40 
million (US$6-24 million) have been required to enter into Fixed Term 
Arrangements (FTAs), and those with sales greater than A$40 million 
into Partnerships for Development (PFDs). Under an FTA, a foreign 
company commits to undertake local industrial development activities 
worth 15 percent of its projected amount of government sales over a 
four year period. Under a PFD, a foreign firm agrees to invest 5 
percent of its annual local turnover on research and development in 
Australia; export goods and services worth 50 percent of imports (for 
hardware companies) or 20 percent of turnover (for software companies); 
and achieve 70 percent local content across all exports within the 
seven year life of the PFD.
    Recent changes to Australian Government procurement policies have 
seen a significant decentralization of purchasing procedures, with the 
introduction of Endorsed Supplier Arrangements (ESA). Companies wishing 
to supply information technology (IT) products and major office 
machines to the Australian government must gain endorsement under the 
ESA. The industry development component of the new ESA requires 
evidence of product development, investment in capital equipment, 
skills development and service support, and sourcing services and 
product components, parts and/or input locally. In addition, applicants 
must demonstrate performance in either exports, research and 
development, development of strategic relationships with Australian or 
New Zealand suppliers/customers, or participation in a recognized 
industry development program.
    The Australian Government maintains its commitment to source at 
least 10 percent of its purchases from Australian small to medium size 
enterprises. The government will continue to require tenderers to 
include industry development objectives in tender documents, with model 
guidelines to be developed in consultation with industry.
    Motor Vehicles: The import of used vehicles manufactured after 1973 
for personal use is banned, except where the car was purchased and used 
overseas by the buyer for a minimum of three months. Commercial 
importers must apply for a ``compliance plate'' costing A$20,000 for 
each make of car imported. Left hand drive cars must be converted to 
right hand drive (only by licensed garages) before they may be driven 
in Australia.
6. Export Subsidies Policies
    Australia is a member of the WTO Agreement on Subsidies and 
Countervailing Measures.
    The coalition government has severely curtailed assistance schemes 
to Australian industry as part of its fiscal consolidation program. 
Under the Export Market Development Grants Scheme, the government gives 
grants to qualifying firms of up to A$200,000 to assist in offsetting 
marketing costs incurred when establishing new export markets. There 
are also schemes available for drawbacks of tariffs and sales and 
excise taxes paid on the imported components of exported products. Such 
schemes are available in the passenger motor vehicle and the textiles, 
clothing and footwear industries. Grants schemes and tariff concessions 
have also been subject to expenditure reductions. The Research and 
Development Tax Concession (available to firms undertaking eligible 
R&D) was reduced from 150 percent to 125 percent. The only remaining 
bounty (production subsidy) assists shipbuilders, and is due to expire 
on December 31, 2000.
    The Pharmaceutical Industry Investment Program is designed to 
compensate manufacturers of pharmaceutical products for the effects of 
the federal government's intervention (through the national health 
system) in the market for consumer pharmaceuticals. Under the scheme, 
approved producers receive higher prices for selected products in 
return for commitments to undertake domestic drug research and 
development.
7. Protection of U.S. Intellectual Property
    Australia is a member of the World Intellectual Property 
Organization (WIPO), and most multilateral IPR agreements, including: 
the Paris Convention for the Protection of Industrial Property; the 
Berne Convention for the Protection of Literary and Artistic Works; the 
Universal Copyright Convention; the Geneva Phonogram Convention; the 
Rome Convention for the Protection of Performers, Producers of 
Phonograms, and Broadcasting Organizations; and the Patent Cooperation 
Treaty. Australia has yet to take action on the new WIPO Copyright 
treaties. USTR has placed Australia on the ``Special 301'' Watch List 
because of limitations in its protection of test data and parallel 
imports, among other concerns.
    Patents: Patents are available for inventions in all fields of 
technology (except for human beings and biological processes relating 
to artificial human reproduction). They are protected by the Patents 
Act (1990), which offers coverage for 20 years subject to renewal. 
Trade secrets are protected by common law, such as by contract. Design 
features can be protected from imitation by registration under the 
Designs Act for up to 16 years (upon application).
    Test Data: In 1999, the government passed legislation providing 
five years of protection of test data for the evaluation of a new 
active constituent for agricultural and veterinary chemical product. No 
protection is provided for data submitted in regard to new uses and 
formulations.
    Trademarks and Copyrights: Australia provides TRIPs compatible 
protection for both registered and unregistered well known trademarks 
under the Trademark Act of 1995. The term of registration is ten years. 
Copyrights are protected under the Copyright Act of 1968 for a term of 
the life of the author plus 50 years. Computer programs can receive 
copyright protection. The Australian Copyright Act provides protection 
regarding public performances in hotels and clubs. In recent years, the 
government has passed legislation removing parallel import protection 
for sound recordings and for goods whose protection was based on the 
copyright of packaging and labeling, and allowing the decompilation of 
computer software.
    New Technologies: Infringement of new technologies does not appear 
to be a significant problem.
8. Worker Rights
    a. The Right of Association: Workers in Australia fully enjoy and 
practice the rights to associate, to organize and to bargain 
collectively. In general, industrial disputes are resolved either 
through direct employer-union negotiations or under the auspices of the 
various state and federal industrial relations commissions. Australia 
has ratified most major international labor organization conventions 
regarding worker rights.
    b. The Right to Organize and Bargain Collectively: Approximately 32 
percent of the Australian workforce belongs to unions. The industrial 
relations system operates through independent federal and state 
tribunals; unions are currently fully integrated into that process. 
Legislation reducing the powers of unions to represent employees and of 
the Industrial Relations Commission to arbitrate settlements was passed 
by Federal Parliament in November 1996. Further changes in industrial 
relations are under consideration in draft legislation currently before 
Parliament.
    c. Prohibition of Forced or Compulsory Labor: Compulsory and forced 
labor are prohibited by conventions which Australia has ratified, and 
are not practiced in Australia.
    d. Minimum Age for Employment of Children: The minimum age for the 
employment of children varies in Australia according to industry 
apprenticeship programs, but the enforced requirement in every state 
that children attend school until age 15 or 16 maintains an effective 
floor on the age at which children may be employed full time.
    e. Acceptable Conditions of Work: There is no legislatively-
determined minimum wage. An administratively-determined minimum wage 
exists, but is now largely outmoded, although some minimum wage clauses 
still remain in several federal awards and some state awards. Instead, 
various minimum wages in individual industries are specified in 
industry ``awards'' approved by state or federal tribunals. Workers in 
Australian industries generally enjoy hours, conditions, wages and 
health and safety standards that are among the best and highest in the 
world.
    f. Rights in Sectors with U.S. Investment: Most of Australia's 
industrial sectors enjoy some U.S. investment. Worker rights in all 
sectors are essentially identical in law and practice and do not 
differentiate between domestic and foreign ownership.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,344
Total Manufacturing............  ..............  6,387
  Food & Kindred Products......  662             ...............................................................
  Chemicals & Allied Products..  2,749           ...............................................................
  Primary & Fabricated Metals..  359             ...............................................................
  Industrial Machinery and       586             ...............................................................
   Equipment.
  Electric & Electronic          173             ...............................................................
   Equipment.
  Transportation Equipment.....  581             ...............................................................
  Other Manufacturing..........  1,278           ...............................................................
Wholesale Trade................  ..............  2,057
Banking........................  ..............  2,595
Finance/Insurance/Real Estate..  ..............  8,347
Services.......................  ..............  2,198
Other Industries...............  ..............  7,748
TOTAL ALL INDUSTRIES...........  ..............  33,676

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                       PEOPLE'S REPUBLIC OF CHINA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................     903.1     960.8   1,016.8
  Real GDP Growth (pct) \2\...............       8.8       7.8       6.9
  GDP by Sector: \3\
    Agriculture...........................     168.7     172.7     176.1
    Manufacturing.........................     444.1     472.8     510.7
    Services..............................     267.9     291.0     304.3
    Government............................      22.3      24.3      25.7
  Per Capita GDP (US$)....................     734.2     772.0     797.0
  Labor Force (millions)..................     697.0     705.0     713.0
  Unemployment Rate (pct) \4\.............       3.1       3.1       3.1

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................      19.6      14.8      15.3
  Consumer Price Inflation................       2.8      -0.8      -1.4
  Exchange Rate (RMB/US$ annual average)..       8.3       8.3       8.3

Balance of Payments and Trade:
  Total Exports FOB \5\...................     182.7     183.7     198.4
    Exports to U.S........................      62.5      71.2      81.9
  Total Imports CIF \5\...................     142.4     140.2     156.0
    Imports from U.S. FAS.................      12.8      14.3      15.0
  Trade Balance...........................      40.3      43.5      42.4
    Balance with U.S......................      49.7      56.9      66.9
  External Public Debt....................     131.0     146.0     149.0
  Fiscal Deficit/GDP (pct)................       1.5       3.5       3.2
  Current Account Surplus/GDP (pct).......       4.5       3.1       0.0
  Debt Service Payments/Exports (pct).....       7.3      10.9       9.0
  Payments/GDP (pct)......................       1.5       2.4       2.4
  Gold and Foreign Exchange Reserves......     139.9     145.0     152.0
  Aid from United States..................         0         0         0
  Aid from All Other Sources..............       0.4       0.6       0.6
------------------------------------------------------------------------
\1\ Estimated from third quarter and end October 1999 data.
\2\ Official growth rate published by State Statistical Bureau based on
  constant renminbi (RMB) prices using 1978 weights. All other income
  and production figures are converted into dollars at the exchange
  rate. Economic experts continue to debate the accuracy of these
  figures, with some arguing that real growth may be half or less the
  official rate.
\3\ Production and net exports are calculated using different accounting
  methods and do not tally to total GDP. Agriculture includes forestry
  and fishing; manufacturing includes mining.
\4\ ``Official'' urban unemployment rate; agricultural laborers are
  assumed to be totally employed in China's official labor data. Many
  economists believe the real rate is much higher.
\5\ U.S. Department of Commerce (U.S.-China bilateral trade data for
  U.S. trade; PRC Customs (Chinese global trade data and 1999
  estimates.)

Sources: State Statistical Bureau Yearbook, People's Bank of China
  quarterly Statistical Bulletin, U.S. Department of Commerce Trade
  Data, Embassy estimates.

1. General Policy Framework
    China's official GDP growth rate was 7.4 percent for the first 
three quarters of 1999, continuing the gradual slowdown from the 
double-digit economic growth of the early 1990s. Consumer spending 
languished despite a special two-year infrastructure spending program 
and a separate social welfare and civil service spending increase in 
mid-1999. State-Owned Enterprise (SOE) reform may have slowed, 
particularly in terms of shifting employment from the over-invested 
state-owned manufacturing sector to the underdeveloped services sector. 
Price deflation has persisted in 1999, with the retail price index down 
2.6 percent in October from a year earlier (up from a low of -3.5 
percent in the second quarter of 1999.) New bank lending grew more 
slowly in 1999, perhaps reflecting increased prudence on the part of 
the dominant state-owned banks, whose poor financial condition was a 
major concern.
    Export growth was the one bright spot in the overall economic 
picture. Exports grew 2.1 percent in the third quarter after 
consecutive declines through the end of June. China has maintained 
competitiveness in many of its major export products, although there 
are signs of weakness in textiles and steel. Chinese imports increased 
by 15.8 percent in the first three quarters, as China implemented an 
anti-smuggling campaign announced in late 1998 and official statistics 
captured former gray market imports. Real import levels are widely 
believed to have remained stable, and may have actually declined in 
some sectors. Inflows of foreign direct investment slumped by about ten 
percent, year on year, through the end of July. New commitments dropped 
even more substantially, by 20.5 percent through the end of July.
    Since late 1998, the Chinese government has employed a deficit-
financed fiscal stimulus program to encourage the expansion of the 
domestic economy. The stimulus program financed efforts to broaden the 
social safety net for retired and laid off workers, salary and pension 
increases for government workers, and infrastructure expenditures. In 
addition, the government experimented with policies to curb falling 
prices, stimulate household consumption, and promote exports and 
investment. While the program has had limited impact on economic 
expansion so far, the National People's Congress agreed in August of 
1999 to have the central government issue an additional RMB 60 billion 
in treasury bonds to underwrite more projects.
    As part of its effort to increase the profit making capability of 
state-owned enterprises, the Chinese government has experimented with 
administrative measures to counter falling prices for SOE products. The 
Government announced in mid-1999 that it would prosecute enterprises 
selling at below cost and limit approvals to build additional capacity 
in a range of over-saturated industries. Firms in industries in which 
competition has led to excessive price cuts have also been encouraged 
to limit production. An anti-smuggling campaign, begun in the fall of 
1998, has shut down black and gray market competition for domestically-
produced products such as televisions and home entertainment systems.
    China is committed to reforming its financial system in order to 
allocate the large amount of savings in the economy more efficiently. 
The failure of the Guangdong Trust and Investment Corporation (GITIC) 
in late 1998 prompted the Chinese government to rein in the operations 
of more than 200 other trust and investment companies and toughen the 
supervision of domestic banks, securities, insurance, and other 
financial institutions. The huge stock of non-performing loans to SOE's 
has complicated attempts to commercialize the state-owned banks. New 
lending to non-agricultural SOE's was about $72 billion in 1998, or 64 
percent of total lending. This percentage seemed to drop in 1999, a 
sign that banks were trying to find other customers. China's four large 
state banks also set up asset management companies in 1999, to 
liquidate or restructure older, non-performing loans.
    Increased access to China's financial markets for foreign 
institutions has grown slowly. China now has 165 foreign bank branches 
and sub-branches, including 20 U.S. bank branches. These offices are 
concentrated in coastal areas and large inland cities such as Beijing 
and Chengdu. Chinese authorities have expanded the number of provinces 
in which foreign banks are allowed to conduct local currency (Renminbi) 
business but severely circumscribe the activities in which foreign 
banks may engage. Foreign securities firms have also been barred from 
underwriting or trading domestic stocks or bonds. A few insurance firms 
have been granted experimental licenses.
2. Exchange Rate Policies
    Foreign-invested Enterprises (FIEs) and authorized Chinese firms 
have generally enjoyed liberal access to foreign exchange for trade-
related and approved investment-related transactions. FIEs may set up 
foreign currency deposits for trade and remittances. Since late 1997, 
Chinese firms earning more than 10 million dollars a year in foreign 
currency have been allowed to retain in foreign currency up to 15 
percent of their receipts. However, the Asia-wide economic slowdown and 
the growing evidence of unauthorized capital outflows prompted the 
government to tighten documentation requirements in mid-1998. U.S. 
firms reported that the extra delays caused by these measures had ended 
for the most part by mid-1999. China introduced currency convertibility 
for current account (trade) transactions in December 1996 (in accord 
with the IMF charter's Article VIII provisions). Capital account 
liberalization has been postponed indefinitely.
    The current exchange rate is described as a ``managed float'' by 
the authorities; it has behaved more like a pegged rate for the past 
three years. Since 1996, the renminbi has traded consistently at about 
RMB 8.3 per U.S. dollar. China uses the RMB/dollar exchange rate as the 
basic rate and sets cross rates against other currencies by referring 
to international markets. The central bank sets interest rates on all 
deposits and loans. Local interest rates in 1999 were now considerably 
lower than in the United States. As a result, ``black market'' trading 
is a small albeit regular feature of the Chinese system. Forward rates 
are available in the small, off-shore market.
3. Structural Policies
    In 1994, China issued a ``Framework Industrial Policy for the 
1990s.'' The framework included plans to issue policies for the key 
automotive, telecommunications, transportation, machinery, electronics, 
high technology, and construction sectors. Of these, only the 
automotive industrial policy has been published to date. Evidence 
suggests that the government may develop policies for the other 
industries that combine local content and other performance 
requirements and tax and investment incentives. In addition, 
regulations promulgated in July, 1995 established guidelines for 
buyer's and seller's credit programs operated by the Export and Import 
Bank of China (China EXIM). China EXIM announced in early 1999 that it 
would expand its program to finance the export of mechanical and 
electrical products, particularly to Africa and South East Asia.
    China announced in August of 1999 that it was considering new 
measures to attract additional foreign direct investment. The State 
Council is currently reviewing new investment stimulus measures that 
would provide tax breaks for high-technology industries, incentives to 
invest in China's central and western regions, and streamlined 
oversight of foreign investor operations. Frequent changes to and poor 
publication of investment guidelines contribute to a lack of 
transparency and uneven implementation. In the promotion of foreign 
investment, the Chinese government puts major emphasis on the so-called 
``pillar industries,'' i.e., capital-intensive and technology-intensive 
manufacturing industries. Foreign investment is restricted or 
prohibited in some areas including agricultural, forestry, 
telecommunications, and news media.
    The Chinese government, as part of its comprehensive reform of the 
economy, is gradually phasing out price controls. It nevertheless 
continues to influence prices of certain sensitive goods such as grain. 
To curb surplus production in 1999, grain and cotton prices were 
allowed to fall by as much as 20 percent, bringing domestic prices much 
closer to international levels. China maintains discriminatory pricing 
practices with respect to some services and inputs offered to foreign 
investors in China. On the other hand, foreign investors benefit from 
investment incentives, such as tax holidays and grace periods, which 
allow them to reduce substantially their tax burden.
    China provides to domestic and foreign investors a comprehensive 
program of tax incentives and concessions based primarily on such 
considerations as total investment, output, export potential, economic 
management and development, technology development, and general 
conduciveness to China's economic goals. Both foreign and domestic 
enterprises pay either value-added tax (VAT) or business tax depending 
on the nature of the their business and the type of products involved. 
The VAT of 17 percent applies to enterprises engaged in import-export, 
production, distribution or retailing activities. Under current 
regulations, different types of VAT refund methods apply to different 
enterprises. In an attempt to stimulate exports, the State Tax 
Administration increased VAT rebates several times in 1999, up to a 
full 17 percent for certain kinds of processed goods.
4. Debt Management Policies
    In mid-1999, China's external debt stood at $149 billion, or 78 
percent of exports, according to official Chinese data. In the context 
of China's export performance, investment inflows, and high foreign 
exchange reserve levels (projected at $153 billion by the end of 1999), 
the debt burden should remain in acceptable limits, absent external 
shocks that could force a devaluation. Still, the debt service ratio 
(principal and interest payments as a percentage of foreign exchange 
receipts) jumped four percentage points in 1998 to 11 percent.
    China's local bond market is in its infancy, with virtually no 
secondary market. This prevents the central bank from effectively 
regulating the money supply through indirect means. Interest rates on 
government bonds are fixed at about one percentage point above the 
comparable bank deposit rates, which are also fixed. As the government 
has increased its deficit, the percentage of the budget devoted to debt 
servicing has increased to about 28 percent of total expenditures.
5. Aid
    The United States has provided occasional disaster-relief 
assistance to China to help flood relief and other humanitarian efforts 
in recent years. In 1999, the U.S. Government donated $500,000 to the 
International Federation of the Red Cross to assist in flood relief 
efforts in the Yangtze River Valley. In addition, the United States 
operates a modest Peace-Corps-affiliated English-language training 
program in southwestern China's Sichuan and Guizhou provinces. China is 
a major recipient of assistance from other countries and multilateral 
donors. China's largest bilateral aid donor is Japan. Multilateral 
assistance includes but is not limited to programs operated by the 
World Bank; the World Food Program; United Nations Development Program 
and other United Nations-affiliated agencies and programs; and the 
Asian Development Bank. Non-governmental organizations have also 
expanded their presence in recent years, thanks in part to the 
promulgation of a new law in 1998 giving them official status.
6. Significant Barriers to U.S. Exports
    China concluded a bilateral market access agreement with the United 
States on November 15, 1999, but is not yet a member of the WTO. Once 
it becomes a member, it must fulfill its commitments to reduce current 
substantial barriers to the entry into China of U.S. goods and 
services. Meanwhile, China continued in 1999 its own unilateral reform 
efforts--a round of tariff cuts, reductions in the number of products 
subject to import quotas, a huge increase in the number and type of 
firms granted trading rights, an improved system of distribution 
rights, and an increase in the number of cities in which foreign bank 
branches are allowed to conduct Renminbi banking business. These 
measures improved access for U.S. goods and services, but 
liberalization of China's import regime still lags far behind that for 
exports.
    Despite considerable progress in the 1990s, non-tariff barriers to 
trade and trade-distorting measures persist. Non-tariff barriers (NTBs) 
include quotas, tariff rate quotas, import licensing, import 
substitution and local content policies, and unnecessarily restrictive 
certification and quarantine standards. Extra-legal trade barriers, 
such as export performance requirements, still distort trade. Foreign 
Invested Enterprises (FIEs) continue to report being forced to accept 
export performance requirements in investment contracts; they say that 
failure to meet these requirements can result in loss of licenses for 
foreign exchange or contract termination. Similarly, some firms report 
being forced to accept contracts mandating increased ``local content;'' 
government agencies strongly encourage firms under their control to 
``buy Chinese.''
    China's Customs General Administration announced an anti-smuggling 
campaign in the fall of 1998. The campaign has reduced trade through 
black and gray market channels and resulted in an increase in imports 
through legitimate channels. It has not, however, addressed the tariff 
and non-tariff barriers that created an environment conducive to 
smuggling in the first place. Further, in an effort to control illegal 
foreign exchange transactions and prevent capital flight, the Ministry 
of Finance announced regulations in late 1998 that place strict 
controls on foreign exchange transactions by foreign-invested firms.
    New regulatory initiatives announced in 1999 may also create 
significant barriers to the entry of U.S. goods and services into the 
Chinese market. Examples of these include:
    The Chinese government banned the import of nine generic medicines, 
including several varieties of antibiotics, pain relievers, and Vitamin 
C, in mid 1999 in an effort to control falling prices in the domestic 
market. In addition, in late 1998, it implemented price caps on 
pharmaceuticals, claiming it was doing so to contain health care costs. 
The regulations may drive some multinationals and bulk pharmaceutical 
exporters out of the $12-billion Chinese pharmaceutical market and push 
others into the red. The price caps are calculated on each drug's 
production costs, ignoring research spending and other shared 
overheads.
    For manufactured goods, China requires quality licenses before 
granting import approval, with testing based on standards and 
specifications often unknown or unavailable to foreigners and not 
applied equally to domestic products. For example, in mid-1999, the 
Ministry of Health imposed strict testing standards on imports of 
cosmetic products containing sunscreens, skin lighteners or hair 
restorers. Industry sources say the testing requirements create an 
effective import barrier as they are both obscure and expensive to 
carry out.
    Regulations published by the State Statistical Bureau (SSB) in 
July, 1999, require all foreign companies conducting market surveys in 
China to go through an annual registration process. Furthermore, the 
regulations stipulate that all survey activities undertaken by foreign 
institutions, or domestic agencies employed by foreigners, must first 
be approved by provincial statistical bureaus or the SSB. Finished 
survey results must also be cleared with the approving agency. The 
regulations are alarming not only because they will be expensive and 
time consuming to comply with but also because they have the potential 
to limit the freedom of legitimate firms to conduct market research. In 
addition, the potential for compromise of confidential business 
information is substantial.
    Regulations implemented in June 1999 further restrict the 
importation of certain commodities related to the processing trade. 
These measures are designed to shift the direction of China's 
processing trade towards products with higher technological content and 
higher value added potential. The regulations prohibit the import of 
used garments, certain kinds of used publications, toxic industrial 
waste, junk cars, used automobiles or components, seeds, seedlings, 
fertilizers, feed, additives, or antibiotics used in the cultivation or 
breeding of any export commodity. The regulations also restrict imports 
of plastic raw materials, raw materials for chemical fibers, cotton, 
cotton yarn, cotton cloth, and some steel products.
7. Export Subsidies
    China abolished direct subsidies for exports on January 1, 1991. 
Nonetheless, many of China's manufactured exports receive indirect 
subsidies through guaranteed provision of energy, raw materials or 
labor supplies. Exports of agricultural products, particularly corn and 
cotton, currently benefit from direct export subsidies. China has 
agreed to stop such subsidies once it becomes a member of the WTO, 
however. Other indirect subsidies are also available, for example bank 
loans that need not be repaid.
8. Protection of U.S. Intellectual Property
    China is a member of the World Intellectual Property Organization 
(WIPO) and is a signatory to the Paris Convention for the Protection of 
Intellectual Property, the Berne Convention for the Protection of 
Literary and Artistic Works, the Universal Copyright Convention, and 
the Patent Cooperation Treaty. China has also acceded to the Madrid 
Protocol.
    Since the signing of a U.S.-China agreement on the protection of 
intellectual property rights in February 1995, and the agreement in 
June 1996 on procedures for ensuring implementation of the bilateral, 
China has made progress in implementing IPR regulations, education, and 
enforcement. China was taken off all ``Special 301'' lists in 1996. 
However, China's practices continue to be watched under Section 306 of 
the Trade Act, which allows the United States to monitor China's 
compliance with its obligations.
    Although China has revised its laws to provide criminal penalties 
for IPR violations, the United States remains concerned that penalties 
imposed by Chinese courts do not act as a deterrent. Some U.S. 
companies estimate losses from Chinese counterfeiting equal 15 to 20 
percent of total sales in China. One U.S. consumer products company 
estimates that it loses $150 million annually due to counterfeiting. 
The destructive effect of counterfeiting has discouraged additional 
direct foreign investment and threatened the long-term viability of 
some U.S. business operations in China. The inferior quality of 
counterfeit products also creates serious health and safety risks for 
consumers.
    China's State Council, the highest executive organ of the 
government, issued a decree in 1999 admonishing Chinese government 
agencies to purchase only legal computer software. Nevertheless, end-
user piracy of computer software continues to cost U.S. companies 
millions of dollars each year. Regulations on the use of copyright 
agents by foreign companies have not yet been finalized; this 
effectively prevents foreign companies from using agents to register 
copyrights. A shortage of agents authorized to accept trademark 
applications from foreign companies makes it difficult for foreigners 
to register trademarks. The lack of clear procedures to protect 
unregistered well-known trademarks makes it extremely difficult to 
oppose or cancel well-known marks registered by an unauthorized party.
9. Worker Rights
    a. The Right of Association: China's constitution provides for 
``freedom of association,'' but in practice this provision does not 
entitle workers to organize freely. The Trade Union Law states that 
workers who wish to form a union at any level must receive approval 
from a higher-level trade organization. Approved trade unions are 
legally required to join the All-China Federation of Trade Unions 
(ACFTU), a national umbrella organization controlled by the Communist 
Party. Independent trade unions are illegal. Since China's signing of 
the International Covenant on Economic, Social, and Cultural Rights in 
1997, several labor activists have petitioned the Government to 
establish free trade unions, as allowed under the covenant. The 
Government has not yet ratified the Covenant nor approved any of these 
petitions to date.
    b. The Right to Organize and Bargain Collectively: The 1995 
National Labor Law permits collective bargaining for workers in all 
types of enterprises. The law also provides for workers and employers 
to sign individual as well as collective contracts. Collective 
contracts are to be worked out between ACFTU or worker representatives 
and management and specify such matters as working conditions, wage 
distribution, and hours of work. Individual contracts are then to be 
drawn up in line with the terms of the collective contract. According 
to the ACFTU, 72 million workers in over 310,000 enterprises held 
contracts that were negotiated in this fashion as of June, 1999.
    c. Prohibition of Forced or Compulsory Labor: Forced labor in penal 
institutions is a problem. The Chinese government employs judicial 
procedures to sentence criminals to prisons and reform-though-labor 
facilities. The Government also maintains a network of reeducation-
through-labor camps, to which persons are sentenced, without judicial 
review, through administrative procedures. Inmates of reeducation-
through-labor camps generally are required to work. Most reports 
conclude that work conditions in the penal system's light manufacturing 
facilities are similar to those in ordinary factories, but conditions 
on farms and in mines can be harsh.
    d. Minimum Age of Employment of Children: China's National Labor 
Law forbids employers to hire workers under 16 years of age and 
stipulates administrative review, fines, and revocation of licenses for 
businesses that hire minors. Good public awareness, a surplus of legal 
adult workers, nearly universal primary schooling, and more effective 
law enforcement reduce opportunities and incentives to hire child 
workers. The ILO and UNICEF maintain that there is not a significant 
child labor problem in the formal sector. Some Chinese academics, 
however, believe that child labor problems might exist in remote 
agricultural and mining areas, where labor law enforcement is sometimes 
difficult.
    e. Acceptable Conditions of Work: The Labor Law codifies many of 
the general principles of labor reform, setting out provisions on labor 
contracts, working hours, wages, skill development and training, 
dispute resolution, legal responsibility, supervision, and inspection. 
The law does not set a national minimum wage, but allows local 
governments to determine their own minimum wage standards. China has a 
40-hour workweek, excluding overtime, and a mandatory 24-hour rest 
period per week. The Chinese government claims to have implemented in 
over 600 cities a system that ensures disbursement of unemployment 
benefits to laid-off workers and basic living stipends for the poorest 
urban residents. In September 1999, the Government raised both 
unemployment benefits and basic living stipends by thirty percent, 
despite reports that some cities had had trouble providing these 
entitlements even before the hike.
    Every Chinese work unit must designate a health and safety officer, 
and the ILO has established a training program for these officers. 
China's Trade Union Law recognizes the right of unions to ``suggest 
that staff and workers withdraw from sites of danger'' and to 
participate in accident investigations. According to statistics 
released in 1999 by the Ministry of Labor and Social Security, 
industrial accidents declined 16 percent in 1998 to 15,372. Deaths 
stemming from such accidents likewise declined 16 percent to 14,660. 
The improvement in industrial safety was largely the result of a 
national campaign to shut down illegal mines, which have perennially 
accounted for more than half of all industrial accidents.
    f. Rights in Sectors with U.S. Investment: Worker rights practices 
in sectors with U.S. investment do not appear to vary substantially 
from those in other sectors of the economy. Unlike their Chinese 
counterparts, however, a number of U.S.-invested businesses have 
voluntarily adopted codes of conduct that provide for independent 
inspections of working conditions in their facilities.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  911
Total Manufacturing............  ..............  3,729
  Food & Kindred Products......  122             ...............................................................
  Chemicals & Allied Products..  325             ...............................................................
  Primary & Fabricated Metals..  167             ...............................................................
  Industrial Machinery and       463             ...............................................................
   Equipment.
  Electric & Electronic          1,472           ...............................................................
   Equipment.
  Transportation Equipment.....  175             ...............................................................
  Other Manufacturing..........  1,005           ...............................................................
Wholesale Trade................  ..............  372
Banking........................  ..............  127
Finance/Insurance/Real Estate..  ..............  771
Services.......................  ..............  31
Other Industries...............  ..............  407
TOTAL ALL INDUSTRIES...........  ..............  6,348

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               HONG KONG


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     171.7     162.6     160.1
  Real GDP Growth (pct)...................       5.3      -5.1       0.5
  GDP by Sector:
    Agriculture...........................       0.2       N/A       N/A
    Manufacturing.........................      10.3       N/A       N/A
    Services..............................     134.8       N/A       N/A
    Government............................      14.6      15.1       N/A
  Per Capita GDP (US$)....................    26,129    24,310    23,095
  Labor Force (000's).....................     3,216     3,359     3,393
  Unemployment Rate (pct).................       2.2       4.7       6.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \3\...................       8.4      11.8       5.7
  Consumer Price Inflation (pct)..........       5.7       2.5      -3.5
  Exchange Rate(HK$/US$)
    Official..............................      7.74      7.75      7.75

Balance of Payments and Trade:
  Total Exports FOB \4\...................     188.1     172.8     167.6
    Exports to U.S. \5\...................      10.3      10.5      11.0
  Total Imports CIF.......................     210.9     214.1     176.3
    Imports from U.S. \5\.................      15.1      12.9      12.6
  Trade Balance...........................     -22.8     -10.4      -8.7
    Balance with U.S. \5\.................      -4.8      -2.4      -1.6
  External Public Debt....................         0         0         0
  Fiscal Balance/GDP (pct) \6\............       0.8       1.8       2.9
  Current Account Balance/GDP (pct).......      -3.4       0.5       2.0
  Debt Service Payments/GDP (pct).........         0         0         0
  Gold and Foreign Exchange Reserves
    (end of period) \7\...................      92.8      89.6      90.5
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ Estimates based on monthly data through August 1999.
\2\ Expenditure-based GDP estimates.
\3\ Money supply of Hong Kong Dollars and foreign currencies.
\4\ Of which domestic exports (as opposed to re-exports) constituted
  14.5 percent (1997), 14.0 percent (1998) and 13.0 percent (1999
  estimate based on data through August).
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through August 1999. Hong Kong merchandise trade includes
  substantial re-exports (mainly from China) to the United States, which
  are not included in these figures.
\6\ As of Q2 1999.
\7\ As of September 1999; the Land Fund was included in the foreign
  exchange reserves effective July 1, 1997.

Source: Census and Statistics Department.

1. General Policy Framework
    Since becoming a Special Administrative Region of the People's 
Republic of China on July 1, 1997, Hong Kong has continued to manage 
its own financial and economic affairs, its own currency, and its 
independent role in international economic organizations and 
agreements.
    The Hong Kong Government generally pursues policies of 
noninterference in commercial decisions, low and predictable taxation, 
government spending increases within the bounds of real economic 
growth, competition subject to transparent laws (albeit without 
antitrust legislation) and consistent application of the rule of law. 
With few exceptions, the government allows market forces to set wages 
and prices, and does not restrict foreign capital flows or investment. 
It does not impose export performance or local content requirements, 
and allows free repatriation of profits. Hong Kong is a duty-free port, 
with few barriers to trade in goods and services.
    Until 1998, the government regularly ran budget surpluses and thus 
has amassed large fiscal reserves. The corporate profit tax is 16 
percent and personal income is taxed at a maximum of 15 percent. 
Property is taxed; interest, royalties, dividends, capital gains and 
sales are not.
    Because monetary policy is tied to maintaining the nominal exchange 
rate linked to the U.S. Dollar, Hong Kong's monetary aggregates have 
effectively been demand-determined. The Hong Kong Monetary Authority, 
responding to market pressures, occasionally adjusts liquidity through 
interest rate changes and intervention in the foreign exchange and 
money markets.
    Financial contagion spreading throughout Asia caused major 
downturns in Hong Kong in 1997 and 1998. The government made modest 
accommodations in its 1998 budget and halted government property sales 
from mid-1998 to mid-1999 to arrest a steady decline in property prices 
(which had sparked fears for the banking sector). In August 1998, the 
government made a ``one-time'' intervention in the stock, futures, and 
currency markets (spending about $15 billion) to defend itself from 
market manipulators. In October 1999, the government began to divest 
itself of the shares it acquired in this intervention through sales to 
the public. By late 1999, the Hong Kong economy had begun a modest 
recovery, but unemployment remained high and Hong Kong's services-
dependent market lagged behind some of its neighbors in shaking off the 
regional crisis.
2. Exchange Rate Policies
    The Hong Kong Dollar is linked to the U.S. Dollar at an exchange 
rate of HK$7.8 = US$1.00. The link was established in 1983 to encourage 
stability and investor confidence in the run-up to Hong Kong's 
reversion to Chinese sovereignty in 1997. PRC officials have supported 
Hong Kong's policy of maintaining the link.
    There are no foreign exchange controls of any sort. Under the 
linked exchange rate, the overall exchange value of the Hong Kong 
Dollar is influenced predominantly by the movement of the U.S. Dollar 
against other major currencies. The price competitiveness of Hong Kong 
exports is therefore affected the value of the U.S. Dollar in relation 
to third country currencies.
3. Structural Policies
    The government does not have pricing policies, except in a few 
sectors such as telecommunications which remain partially regulated. 
Even in those areas, the government continues to pursue sector-by-
sector liberalization. Hong Kong's personal and corporate tax rates 
remain low and it does not impose import or export taxes. Since 1996, 
Hong Kong has deregulated most interest rates, removing the rate cap 
for deposits of seven days or more. In July 1999, the Hong Kong 
Monetary Authority announced that remaining interest rate caps would be 
removed in two stages: the interest rate restrictions on time deposits 
with a maturity of less than 7 days in July 2000 and interest rate cap 
on savings and current accounts in July 2001. Consumption taxes on 
tobacco, alcoholic beverages, and some fuels probably restrict demand 
for some U.S. exports. Hong Kong generally adheres to international 
product standards.
    Hong Kong's lack of antitrust laws has allowed monopolies or 
cartels--some of which are government-regulated--to dominate certain 
sectors of the economy. These monopolies/cartels can use their market 
position to block effective competition indiscriminately but do not 
discriminate against U.S. goods or services in particular.
4. Debt Management Policies
    The Hong Kong Government has minuscule public debt. Repeated budget 
surpluses have meant the government has not had to borrow. To promote 
the development of Hong Kong's debt market, the government launched an 
exchange fund bills program with the issuance of 91-day bills in 1990. 
Since then, maturities have gradually been extended. Five-year notes 
were issued in October 1993, followed by 7-year notes in late 1995 and 
10-year notes in 1996. In March 1997, the Hong Kong Mortgage 
Corporation was set up to promote the development of the secondary 
mortgage market. The Corporation is 100 percent owned by the government 
through the Exchange Fund. The Corporation purchases residential 
mortgage loans for its retained portfolio in the first phase, followed 
by packaging mortgages into mortgage-backed securities for sale in the 
second phase.
    Hong Kong does not receive bilateral or multilateral assistance.
5. Significant Barriers to U.S. Exports
    Hong Kong is a member of the World Trade Organization, but does not 
belong to the WTO's plurilateral agreement on civil aircraft. As noted 
above, Hong Kong is a duty-free port with no quotas or dumping laws, 
and few barriers to the import of U.S. goods.
    Hong Kong requires import licenses for textiles, rice, meats, 
plants, and livestock. The stated rationale for most license 
requirements is to ensure that health standards are met. The 
requirements do not have a major impact on U.S. exports.
    There are several barriers to entry in the services sector:

     In 1998, the Hong Kong Government announced it would open 
the international voice telecommunications sector to full competition. 
The Government decided in May 1999 not to issue any additional licenses 
for the local fixed network market, now contested by four companies, 
until the end of 2002. Hong Kong is currently adjudicating license 
applications for local fixed wireless and external fixed network 
services (undersea cable and satellite-based). Hong Kong has eliminated 
a regulation that required foreign broadcasters to use the Hong Kong 
Telecom satellite uplink and has also promised comprehensive 
liberalization of the broadcasting regime.
     Our bilateral civil aviation agreement does not permit 
code sharing or allow U.S. carriers new fifth freedom passenger rights 
to carry passengers beyond Hong Kong. These factors limit expansion of 
U.S. passenger carriers in the Hong Kong market.
     Foreign law firms are barred from hiring local lawyers to 
advise clients on Hong Kong law, even though Hong Kong firms can hire 
foreign lawyers to advise clients on foreign law. Foreign law firms can 
become ``local law firms'' and hire Hong Kong attorneys, but they must 
do so on a 1:1 ratio with foreign lawyers.
     Foreign banks established after 1978 are permitted to 
maintain only three branches (automated teller machines meet the 
definition of a branch). The Hong Kong Monetary Authority has promised 
to consider further relaxation of this limit in the first quarter of 
2001. Foreign banks, however, can acquire local banks that have 
unlimited branching rights.
6. Export Subsidies Policies
    The Hong Kong Government neither protects nor directly subsidizes 
manufacturers who export. It does not offer exporters preferential 
financing, special tax or duty exemptions on imported inputs, resource 
discounts, or discounted exchange rates.
    The Trade Development Council, a quasi-governmental statutory 
organization, engages in export promotion activities and promotes Hong 
Kong as a hub for trade services. The Hong Kong Export Credit and 
Insurance Corporation sells insurance protection to exporters.
7. Protection of U.S. Intellectual Property
    Hong Kong is a member of the WTO. In addition, the Berne Convention 
for the Protection of Literary and Artistic Works, the Paris Convention 
on Industrial Property, and the Universal Copyright Convention (Geneva, 
Paris) apply to Hong Kong by virtue of China's membership. Hong Kong 
passed a new Copyright Law in June 1997. Enforcement of copyright and 
trademarks has improved measurably in recent months, but eliminating 
optical disc piracy will require sustained effort.
    Copyrights: Sale of pirated discs at retail shopping arcades is 
less widespread than it used to be but remains a problem. The United 
States has urged the government at senior levels to crack down on this 
retail trade, and on the distributors and wholesalers behind them. Hong 
Kong has responded by doubling Customs' enforcement manpower and 
conducting more aggressive raids at the retail level. Recent raids have 
closed down some of the most notorious retail arcades and dispersed 
this illicit trade. Hong Kong Customs intelligence operations and raids 
on underground production facilities have forced pirate retailers to 
rely more on smuggled products. Nevertheless, pirated goods remain 
available throughout the territory. The judiciary has begun to increase 
sentences and fines for copyright piracy and recently handed down Hong 
Kong's first conviction for unauthorized dealer hard-disk loading. 
Computer end-user piracy remains a significant problem for the business 
software industry. In 1999 the government introduced legislation to 
reclassify piracy under Hong Kong's Organized and Serious Crimes 
Ordinance, which would facilitate interrogations and allow the seizure 
of assets. As of November, approval by the Legislative Council is still 
pending.
    Trademarks: Sale of counterfeit items, particularly handbags and 
apparel, is widespread in Hong Kong's outdoor markets. Customs 
officials have conducted numerous raids, but these actions have had 
little impact on the overall availability of counterfeit goods.
    New Technologies: U.S. industry reports that Hong Kong-based web 
sites are being used to sell and transmit pirate software and music. 
The Government asserts that Hong Kong's 1997 Copyright Ordinance 
established civil liability for internet service providers to who host 
such pirate web sites, but concedes that this theory has yet to be 
tested in court.
    The International Intellectual Property Alliance estimated total 
losses due to piracy against American copyright holders at $243.5 
million in 1998--slightly less than half of which was entertainment 
software. The Business Software Alliance reported in early 1999 that 
software piracy in Hong Kong had dropped from 67 to 59 percent.
8. Workers Rights
    a. The Right of Association:  Local law provides for right of 
association and the right of workers to establish and join 
organizations of their own choosing. Trade unions must be registered 
under the Trade Unions Ordinance. The basic precondition for 
registration is a minimum of seven persons who serve in the same 
occupation. The government does not discourage or impede the formation 
of unions.
    Workers who allege antiunion discrimination have the right to have 
their cases heard by the Labor Relations Tribunal. Violation of 
antiunion discrimination provisions is a criminal offense. Although 
there is no legislative prohibition of strikes, in practice, most 
workers must sign employment contracts that state that walking off the 
job is a breach of contract and can lead to summary dismissal.
    b. The Right to Organize and Bargain Collectively: In June 1997, 
the Legislative Council passed three laws that greatly expanded the 
collective bargaining powers of Hong Kong workers, protected them from 
summary dismissal for union activity, and permitted union activity on 
company premises and time. However, the Provisional Legislature 
repealed these ordinances, removing workers' new statutory protection 
against summary dismissal for union activity. New legislation passed in 
October 1997 permits the cross-industry affiliation of labor union 
federations and confederations, and allows free association with 
overseas trade unions (although notification of the Labor Department 
within one month of affiliation is required), but removes the legal 
stipulation of trade unions' right to engage employers in collective 
bargaining and bans the use of union funds for political purposes. 
Collective bargaining is not widely practiced.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor is 
prohibited under the Bill of Rights Ordinance. While this legislation 
does not specifically prohibit forced or bonded labor by children, 
there are no reports of such practices in Hong Kong.
    d. Minimum Age for Employment of Children: The ``Employment of 
Children'' Regulations prohibit employment of children under age 15 in 
any industrial establishment. Children ages 13 and 14 may be employed 
in certain non-industrial establishments, subject to conditions aimed 
at ensuring a minimum of 9 years of education and protecting their 
safety, health, and welfare. In 1998, there were ten convictions for 
violations of the Employment of Children Regulations.
    e. Acceptable Conditions of Work: Aside from a small number of 
trades and industries in which a uniform wage structure exists, wage 
levels are customarily fixed by individual agreement between employer 
and employee and are determined by supply and demand. Some employers 
provide workers with various kinds of allowances, free medical 
treatment and free subsidized transport. There is no statutory minimum 
wage except for foreign domestic workers (US$ 500 per month). To comply 
with the Sex Discrimination Ordinance, provisions in the Women and 
Young Persons (Industry) Regulations that had prohibited women from 
joining dangerous industrial trades and limited their working hours 
were dropped. Work hours for people aged 15 to 17 in the manufacturing 
sector remain limited to 8 per day and 48 per week between 6 a.m. and 
11 p.m. Overtime is prohibited for all persons under the age of 18 in 
industrial establishments. Employment in dangerous trades is prohibited 
for youths, except 16 and 17 year old males.
    The Labor Inspectorate conducts workplace inspections to enforce 
compliance with these and health and safety regulations. Worker safety 
and health has improved, but serious problems remain, particularly in 
the construction industry. In 1998, a total of 63,526 occupational 
accidents (43,034 of which are classified as industrial accidents) were 
reported, of which 68 were fatal. Employers are required under the 
Employee's Compensation Ordinance to report any injuries sustained by 
their employees in work-related accidents.
    f. Rights in Sectors with U.S. Investment: U.S. direct investment 
in manufacturing is concentrated in the electronics and electrical 
products industries. Aside from hazards common to such operations, 
working conditions do not differ materially from those in other sectors 
of the economy. Relative labor market tightness and high job turnover 
have spurred continuing improvements in working conditions as employers 
compete for available workers.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  600
Total Manufacturing............  ..............  3,122
  Food & Kindred Products......  4               ...............................................................
  Chemicals & Allied Products..  348             ...............................................................
  Primary & Fabricated Metals..  282             ...............................................................
  Industrial Machinery and       167             ...............................................................
   Equipment.
  Electric & Electronic          1,230           ...............................................................
   Equipment.
  Transportation Equipment.....  29              ...............................................................
  Other Manufacturing..........  1,062           ...............................................................
Wholesale Trade................  ..............  5,054
Banking........................  ..............  1,637
Finance/Insurance/Real Estate..  ..............  5,007
Services.......................  ..............  1,009
Other Industries...............  ..............  4,373
TOTAL ALL INDUSTRIES...........  ..............  20,802

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               INDONESIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment: \1\
  Nominal GDP.............................       216        94        67
  Real GDP Growth (pct)...................       7.6     -13.2   -4.04.0
  GDP by Sector:
    Agriculture...........................      34.5      18.4      15.0
    Manufacturing.........................      54.9      23.4      16.7
    Services..............................      67.5      35.7      26.4
    Government............................      11.5       4.1      3.16
  Per Capita GDP (US$)....................     1,116       465   \2\ 550
  Labor Force (millions)..................      87.0      92.6      96.6
  Unemployment Rate (pct).................       4.6        10        10

Money and Prices (annual percentage
 growth):
  Money Supply (M2) (pct).................      23.2      62.3  \3\ 10.2
  Consumer Price Inflation (pct)..........       8.0      75.0  \4\ 0.02
  Exchange Rate (Rupiah/US$ annual             2,909    10,014      7948
   average)...............................

Balance of Payments and Trade: \1\
  Total Exports FOB.......................      56.2      50.4      21.7
    Exports to U.S........................       9.2       9.3       5.3
  Total Imports CIF.......................      41.7      27.3      11.5
    Imports from U.S......................       4.5       2.3       1.1
  Trade Balance...........................      14.5      23.1      10.2
    Balance with U.S......................       4.7       7.0       4.2
  External Public Debt....................      56.4      71.4      70.7
  Debt Service Payments/GDP (pct).........       3.8       7.6   \5\ 6.7
  Current Account Balance/GDP(pct) \6\....      -0.9       3.9       2.7
  Fiscal Deficit/GDP (pct) \6\............       1.1       2.2       5.0
  Gold and Foreign Exchange Reserves (end       17.4      23.5      26.7
   of period).............................
  Aid from U.S. (millions of US$).........        71       135   \6\ 139
  Aid from All Other Sources..............       5.2       5.2   \7\ 7.8
------------------------------------------------------------------------
\1\ 1999 GDP and export/import figures are for January-June. (Average Rp/
  US$ exchange rates were 8,775 for 1Q CY-1999 and 7,921 for 2Q CY-
  1999.)
\2\ 1999 per capita GDP figure is rough estimate. Increase in 1999 over
  1998 due to strengthening of Rp/$ exchange rate.
\3\ 1999 figure is for January-August.
\4\ 1999 figure is for January-September.
\5\ 1999 figure as of March 31 (includes debts of state-owned
  enterprises).
\6\ Fiscal year.
\7\ 1999 figure is amount pledged.

Sources: Government of Indonesia, U.S. Department of Commerce (for trade
  with U.S.), IMF (exchange rates), U.S. Agency for International
  Development (for bilateral assistance).

1. General Policy Framework
    Much of the cautious optimism toward Indonesia in the second half 
of 1999 stems from the political successes Indonesia achieved since 
former President Soeharto resigned in May 1998. In that time, Indonesia 
has lifted press restrictions, held a peaceful, free and fair multi-
party general election in June 1999 and installed a democratically 
elected president in October 1999. The new President, K.H. Aburrahman 
Wahid, although a dark horse candidate, is broadly acceptable to all 
political groupings. The subsequent selection as Vice President of 
Megawati Soekarnoputri, leader of the party which came in first in the 
June polls, heralded the selection of a multi-party ``national unity'' 
cabinet.
    Indonesia still faces daunting economic problems. Foreign capital 
fled in the early months of the financial crisis and is returning only 
slowly. The business sector is struggling to service existing foreign 
debts at the weaker exchange rate. The banking sector remains moribund; 
banks are making few new loans and debtors are servicing even fewer old 
ones. In mid-1999, the Indonesian Bank Restructuring Agency (IBRA), 
whose credibility with both the domestic and international business 
community is crucial to Indonesia's economic recovery, was caught up in 
a campaign finance and corruption scandal involving Bank Bali. The 
scandal involved the diversion of funds from a $120 million interbank 
loan repayment to Bank Bali from a now-closed government bank whose 
assets and liabilities had been transferred to IBRA.
    The IMF and its stabilization program have been the overriding 
economic fact of life in Indonesia since November 1997. The IMF 
suspended payments to Indonesia in September 1999 until the Bank Bali 
affair was resolved. The election of a new president and the belated 
release of an independent audit of the Bank Bali affair in November led 
the IMF to begin negotiations on a new three-year program. The target 
is to sign a new letter of intent by mid-January.
    Despite the continued financial turmoil, there remain deep 
underlying strengths in the Indonesian economy. Indonesia is the 
world's fourth largest country and the anchor of Southeast Asia 
politically and economically. Although shaken and still cautious, the 
emerging middle class is slowly resuming consumer spending and 
represents a huge and growing potential market. The country has a 
strategic location, a large labor force earning relatively low wages 
and abundant natural resources. Once largely dependent on petroleum, 
natural gas, and commodities such as coffee, tea, rubber, timber, and 
palm oil and shrimp, Indonesia again found those sectors to be a solid 
economic foundation when the crisis hit. Regions such as Sumatra and 
Sulawesi that have strong, agricultural commodity-based economies 
survived the crisis with only minor disruptions. In 1998, Indonesian 
agricultural exports rose some 17 percent in U.S. dollar terms, as 
farmers rushed to take advantage of the windfall brought about by the 
weak rupiah, and fell only slightly in the first half of 1999. 
Industrial exports in 1998 fell just over 1 percent. Indonesian exports 
to the U.S. have remained steady throughout the crisis at around $9.3 
billion a year. Total imports fell by 35 percent in 1998 over 1997. 
Imports from the U.S. fell by almost half from 1997 to 1998 and by 
another 15 percent in the first half of 1999.
    The Indonesian Government has historically maintained a 
``balanced'' budget: expenditures were covered by the sum of domestic 
revenues and foreign aid and borrowing, without resort to domestic 
borrowing. Often the government ended the year with a slight surplus. 
This remains the government's long term goal. The new government says 
it expects the gap between domestic revenues and expenditures to remain 
for several years although some of the budgetary pressure has been 
relieved by the rise in oil prices in the latter half of 1999. The 
budgetary gap in the 1999/2000 fiscal year, which will need to be 
covered by foreign assistance, is expected to be in the range of 4 to 5 
percent.
    In parallel with its fiscal policy, the Indonesian Government 
earned a reputation for prudent monetary policy in recent years that 
helped keep consumer price inflation in the single digits. However, the 
massive depreciation of the rupiah that began in mid-1997 and huge 
liquidity injections into the banking system contributed to significant 
inflation. Indonesian monetary authorities dampened inflationary 
pressure and reduced pressure on the exchange rate by controlling the 
growth of the money supply.
    The government has made steady progress in trade and investment 
deregulation. Periodic ``deregulation packages'' of liberalization 
measures lowered investment barriers and instituted a program of 
comprehensive tariff reduction by staged cuts. The goal is to reduce 
all tariffs in the 1 to 20 percent range to 5 percent or less by 2000, 
and to reduce all tariffs in the 20 percent and higher range to 10 
percent or less by 2003. Although the deregulation packages made 
comparatively less progress in reducing non-tariff barriers, the 
government's collaboration with the International Monetary Fund (IMF) 
since November 1997 prompted much bolder measures, ending most import 
monopolies and gradually opening Indonesia's closed distribution 
system. The program also includes a commitment to eliminate all non-
tariff barriers over the program period.
2. Exchange Rate Policies
    In August 1997, the government eliminated the rupiah intervention 
band in favor of a floating exchange rate policy.
3. Structural Policies
    In October 1997, deteriorating conditions led Indonesia to request 
support from the International Monetary Fund (IMF). The government 
signed its first Letter of Intent with the IMF on October 31, 1997. The 
letter called for a three-year economic stabilization and recovery 
program, supported by loans from the IMF ($10 billion), the World Bank, 
the Asian Development Bank, and bilateral donors. Apart from financial 
support, the international community also offered detailed technical 
assistance to the government. Foreign governments and private 
organizations also contributed food and other humanitarian assistance.
    Indonesia's agreement with the IMF has been revised repeatedly in 
response to deteriorating macroeconomic conditions and political 
changes. The result is a complex, multi-faceted program to address 
macroeconomic imbalances, financial weaknesses, real sector 
inefficiencies, and the loss of private sector confidence. In November 
1999, the IMF resumed negotiations with the government with the aim of 
drafting a new letter of intent to take account of changing 
circumstances and the new government's priorities.
4. Debt Management Policies
    Indonesia's foreign debt totaled about $145 billion as of September 
1999, with about $72 billion owed by the public sector and $73 billion 
by the private sector. In 1998, Indonesia signed a Memorandum of 
Understanding with its official creditors to reschedule public sector 
debt principal contracted before July 1, 1997 and falling due between 
August 1998 and the end of March 2000.
    In 1999, the government introduced a monitoring system to collect 
information on all foreign exchange transactions, including foreign 
borrowing. Borrowing in connection with state-owned enterprises has 
been regulated since 1991. The government continued to assert that it 
would not impose capital controls.
5. Significant Barriers to U.S. Exports
    Indonesia had previously maintained a complex and non-transparent 
import licensing system that was a significant impediment to trade. 
Since the advent of the economic crisis in 1997, the government has 
removed numerous licensing requirements and committed in its IMF 
agreement to phase out all quantitative import restrictions (other than 
those justified for health, safety, and environmental reasons) and 
other non-tariff barriers that protect domestic production.
    Services Barriers: Despite some loosening of restrictions, services 
trade entry barriers remain in many sectors. Commercial presence is 
required to offer insurance in Indonesia and foreign firms must form 
joint ventures with local companies. As of July 1998, foreign 
participation in telecommunications services is no longer limited. PT 
Telkom is the state-owned monopoly provider of fixed line services. 
Telkom has exclusive rights to provide nationwide fixed line 
telecommunications until 2011 and to provide domestic long distance 
services until 2006. The government has allowed five foreign 
telecommunications companies to partner with local firms and operate 
joint ventures to build, maintain, and operate local fixed-line 
networks in cooperation with PT Telkom.
    Foreign accounting firms must operate through technical assistance 
arrangements with local firms, but Indonesian citizenship is no longer 
a requirement for licensing as an accountant. Foreign agents and 
auditors may act only as consultants and may not sign audit reports. 
Foreign law firms are not allowed to establish practices in Indonesia. 
Attorneys are admitted to the bar only if they have graduated from an 
Indonesian legal faculty or an institution recognized as the 
equivalent. Foreign companies incorporated in Indonesia may issue 
stocks and bonds through the capital market.
    Investment Barriers: The government is committed to reducing 
burdensome bureaucratic procedures and substantive requirements for 
foreign investors. In 1994, the government dropped initial foreign 
equity requirements and sharply reduced divestiture requirements. 
Indonesian law provides for both 100 percent direct foreign investment 
projects and joint ventures with a minimum Indonesian equity of five 
percent. In mid-1998, the government opened several previously 
restricted sectors to foreign investment, reducing the number of 
sectors restricted for foreign direct investment to 25, 16 of which are 
completely closed to investment while the remaining nine allow minority 
foreign equity participation. The restricted sectors include taxi and 
bus transportation, local shipping, cinema operation, private 
broadcasting and newspapers, medical services, and some trade services. 
The government also removed foreign ownership limitations on banks and 
on firms publicly traded on Indonesian stock markets. The government 
hinted throughout much of 1999 that it would reduce the negative list 
even further but, as of November 1999, it had not yet done so.
    The Capital Investment Coordinating Board (BKPM) must approve most 
foreign investment proposals. Investments in the oil and gas, mining, 
forestry, and financial services sectors are covered by specific laws 
and regulations and handled by the relevant technical ministries.
    Government Procurement Practices: In 1994, the government enacted a 
procurement law to regulate government procurement practices and 
strengthen the procurement oversight process. Most large government 
contracts are financed by bilateral or multilateral donors who specify 
procurement procedures. For large projects funded by the government, 
international competitive bidding practices are to be followed. The 
government seeks concessional financing which includes a 3.5 percent 
interest rate, a 25-year repayment period and seven-year grace period. 
Some projects do proceed on less concessional terms. Foreign firms 
bidding on certain government-sponsored construction or procurement 
projects may be asked to purchase and export the equivalent in selected 
Indonesian products. Government departments and institutes and state 
and regional government corporations are expected to utilize domestic 
goods and services to the maximum extent feasible, but this is not 
mandatory for foreign aid-financed goods and services procurement. 
State-owned enterprises that have offered shares to the public through 
the stock exchange are exempted from government procurement 
regulations.
6. Export Subsidies Policies
    Indonesia joined the GATT Subsidies Code and eliminated export 
loan-interest subsidies as of April 1, 1990. As part of its drive to 
increase non-oil and gas exports, the government permits restitution of 
VAT paid by a producing exporter on purchases of materials for use in 
manufacturing export products. Exemption from or drawbacks of import 
duties are available for goods incorporated into exports. Free trade 
zones and industrial estates are combined in several bonded areas. In 
the past two years, the government has gradually increased the share of 
production that firms located in bonded zones are able to sell 
domestically, up to 100 percent in 1998.
7. Protection of U.S. Intellectual Property
    Indonesia is a member of the World Intellectual Property 
Organization (WIPO) and in 1997 became full party to the Paris 
Convention for the Protection of Intellectual Property, the Berne 
Convention for the Protection of Literary and Artistic Works, the 
Patent Cooperation Treaty, and the Trademark Law Treaty. Indonesia was 
the first country in the world to ratify the WIPO Copyright Treaty, but 
has not ratified the companion WIPO Performances and Phonograms Treaty. 
In April 1999, the U.S. Trade Representative renewed Indonesia's place 
on the ``Special 301'' Priority Watch List, where it has been since 
1996.
    Indonesia has serious and continuing deficiencies in its 
intellectual property regime: rampant piracy (software, books, and 
video), trademark piracy and an inconsistent enforcement and 
ineffective legal system. New patent, trademark, and copyright laws 
were enacted in May 1997. In order to bring Indonesia's laws into 
compliance with the TRIPS Agreement by the mandated deadline of January 
1, 2000, Indonesia has drafted (but not enacted as of November 1999) 
new laws on protection of trade secrets, industrial design and 
integrated circuits. It has also proposed amendments to its laws on 
trademark and copyright. Those laws are designed to address the 
remaining inadequacies of Indonesia's IPR legal regime, but inadequate 
enforcement and a non-transparent judicial system unfamiliar with 
intellectual property law still pose daunting problems for U.S. 
companies. The government often responds to U.S. companies with 
specific complaints about pirated goods and trademark abuse, but the 
court system can be frustrating and unpredictable, and effective 
punishment of pirates of intellectual property has been rare.
    Indonesia's 1997 Patent Law addressed several areas of concern to 
U.S. companies, including compulsory licensing provisions, a relatively 
short term of protection, and a provision that allowed importation of 
50 pharmaceutical products by non-patent holders.
8. Worker Rights
    a. The Right of Association: Private sector workers, including 
those in export processing zones, are by law free to form worker 
organizations without prior authorization. In May 1998 and in September 
1999 the government issued new regulations on registration of workers' 
organizations. The effect of the new regulation was to eliminate 
numerical and other requirements that were previously a barrier to 
union registration. The government ratified International Labor 
Organization (ILO) Convention 87 on Freedom of Association in June 
1998. Since the regulation went into effect, at least 20 new or 
previously unrecognized unions have formed and notified the Department 
of Manpower of their intention to register workplace and branch units. 
The government may dissolve a union if it believes the union is acting 
against the national ideology, Pancasila, although it has never 
actually done so, and there are no laws or regulations specifying 
procedures for union dissolution.
    The government is considering other legislative and regulatory 
changes in regard to trade unions, industrial dispute resolution, and 
labor affairs generally. To allow time for new laws and regulations, 
the parliament amended a 1997 Basic Law on Manpower Affairs by 
postponing its implementation until the year 2000.
    Civil servants are no longer required to belong to KORPRI, a 
nonunion association whose central development council is chaired by 
the Minister of Home Affairs. State enterprise employees, defined to 
include those working in enterprises in which the state has a 5-percent 
holding or greater, usually were KORPRI members in the past, but a 
small number of state enterprises have units of the Federation of All-
Indonesian Trade Unions (SPSI). New unions are now seeking to organize 
employees in some state-owned enterprises. Teachers must belong to the 
teachers' association (PGRI). All organized workers except civil 
servants have the legal right to strike. While state enterprise 
employees and teachers rarely exercise this right, private sector 
strikes are frequent.
    b. The Right to Organize and Bargain Collectively: Registered 
unions can legally engage in collective bargaining and can collect dues 
from members through a checkoff system. In companies without unions, 
the government discourages workers from utilizing outside assistance, 
preferring that workers seek its assistance. By regulation, 
negotiations must be concluded within 30 days or be submitted to the 
Department of Manpower for mediation and conciliation or arbitration. 
Agreements are for two years and can be extended for one year. 
According to NGOs involved in labor issues, the provisions of these 
agreements rarely go beyond the legal minimum standards established by 
the government, and the agreements are often merely presented to worker 
representatives for signing rather than being negotiated.
    Although government regulations prohibit employers from 
discriminating or harassing employees because of union membership, 
there are credible reports from union officials of employer retribution 
against union organizers, including firing, which is not effectively 
prevented or remedied in practice. Administrative tribunals adjudicate 
charges of antiunion discrimination. However, because many union 
members believe the tribunals generally side with employers, many 
workers reject or avoid the procedure and present their grievances 
directly to the national human rights commission, parliament and other 
agencies. Administrative decisions in favor of dismissed workers tend 
to be monetary awards; workers are rarely reinstated. The provisions of 
the law make it difficult to fire workers, but the law is often ignored 
in practice.
    The armed forces, which include the police, continue to involve 
themselves in labor issues, despite the Minister of Manpower's 
revocation in 1994 of a 1986 regulation allowing the military to 
intervene in strikes and other labor actions. A 1990 decree that gives 
the Agency for Coordination of National Stability (BAKORSTANAS) 
authority to intervene in strikes in the interest of political and 
social stability remains in effect.
    c. Prohibition of Forced or Compulsory Labor: The law forbids 
forced labor, and the government generally enforces it. However, 
according to credible sources, there are several thousand children 
working on fishing platforms off the East Coast of North Sumatra in 
conditions of bonded labor. Most are recruited from farming 
communities, and once they arrive at the work site, are not permitted 
to leave for at least three months and until a replacement worker can 
be found. Children receive average monthly wages that are well below 
the minimum wage. They live in isolation on the sea, working 12 to 20 
hours per day in often dangerous conditions, sleeping in the workspace 
with no access to sanitary facilities. There are reports of physical, 
verbal and sexual abuse of the children. In 1999 the government 
ratified ILO Conventions 105 (Forced Labor) and began removing children 
from the fishing platforms.
    d. Minimum Age for Employment of Children: Child labor exists in 
both industrial and rural areas, and in both the formal and informal 
sectors. According to a 1995 report of the Indonesian Central Bureau of 
Statistics, four percent of Indonesian children between the ages of 10 
and 14 work full-time, and another four percent work in addition to 
going to school. Many observers believe that number to be significantly 
understated, because documents verifying age are easily falsified, and 
because children under 10 were not included. Indonesia was one of the 
first countries to be selected for participation in the ILO's 
International Program on the Elimination of Child Labor (IPEC). 
Although the ILO has sponsored training of labor inspectors on child 
labor matters under the IPEC program, enforcement remains lax. In April 
1999 the government ratified ILO Convention, which establishes a 
minimum working age of 15.
    e. Acceptable Conditions of Work: Indonesia does not have a 
national minimum wage. Rather, area wage councils working under the 
supervision of the national wage council establish minimum wages for 
regions and basic needs figures for each province--a monetary amount 
considered sufficient to enable a single worker to meet the basic needs 
of nutrition, clothing, and shelter. In Jakarta, the minimum wage is 
about $33 (Rp. 231,000) per month (at an exchange rate of Rp 7000 to 
the dollar). That is 70 percent of the government-determined basic 
needs figure. There are no reliable statistics on the number of 
employers paying at least the minimum wage. Independent observers' 
estimates range between 30 and 60 percent.
    Labor law and ministerial regulations provide workers with a 
variety of other benefits, such as social security, and workers in more 
modern facilities often receive health benefits, free meals, and 
transportation. The law establishes 7-hour workdays and 40-hour 
workweeks, with one 30-minute rest period for each 4 hours of work. The 
law also requires one day of rest weekly. The daily overtime rate is 1-
1/2 times the normal hourly rate for the first hour, and twice the 
hourly rate for additional overtime. Observance of laws regulating 
benefits and labor standards varies from sector to sector and by 
region. Employer violations of legal requirements are fairly common and 
often result in strikes and employee protests. The Ministry of Manpower 
continues publicly to urge employers to comply with the law. However, 
in general, government enforcement and supervision of labor standards 
is weak.
    Both law and regulations provide for minimum standards of 
industrial health and safety. In the largely western-operated oil 
sector, safety and health programs function reasonably well. However, 
in the country's 100,000 larger registered companies in the non-oil 
sector, the quality of occupational health and safety programs varies 
greatly. The enforcement of health and safety standards is severely 
hampered by the limited number of qualified Department of Manpower 
inspectors as well as by the low level of employee appreciation for 
sound health and safety practices. Allegations of corruption on the 
part of inspectors are common. Workers are obligated to report 
hazardous working conditions. Employers are forbidden by law from 
retaliating against those who do, but the law is not effectively 
enforced.
    f. Rights in Sectors with U.S. Investment: Working conditions in 
firms with U.S. ownership are widely recognized as better than the norm 
for Indonesia. Application of legislation and practice governing worker 
rights is largely dependent upon whether a particular business or 
investment is characterized as private or public. U.S. investment in 
Indonesia is concentrated in the petroleum and related industries, 
primary and fabricated metals (mining), and pharmaceutical sectors.
    Foreign participation in the petroleum sector is largely in the 
form of production sharing contracts between the foreign companies and 
the state oil and gas company, Pertamina, which retains control over 
all activities. All employees of foreign companies under this 
arrangement are considered state employees and thus all legislation and 
practice regarding state employees generally applies to them. Employees 
of foreign companies operating in the petroleum sector are organized in 
KORPRI. Employees of these state enterprises enjoy most of the 
protection of Indonesia labor laws but, with some exceptions, they do 
not have the right to strike, join labor organizations, or negotiate 
collective agreements. Some companies operating under other contractual 
arrangements, such as contracts of work and, in the case of the mining 
sector, coal contracts of work, do have unions and collective 
bargaining agreements.
    Regulations pertaining to child labor and child welfare are 
applicable to employers in all sectors. Employment of children and 
concerns regarding child welfare are not considered major problem areas 
in the petroleum and fabricated metals sectors. Legislation regarding 
minimum wages, hours of work, overtime, fringe benefits, health and 
safety applies to all sectors. The best industrial and safety record in 
Indonesia is found in the oil and gas sector.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,610
Total Manufacturing............  ..............  197
  Food & Kindred Products......  16              ...............................................................
  Chemicals & Allied Products..  131             ...............................................................
  Primary & Fabricated Metals..  8               ...............................................................
  Industrial Machinery and       -17             ...............................................................
   Equipment.
  Electric & Electronic          35              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  186
Finance/Insurance/Real Estate..  ..............  171
Services.......................  ..............  53
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  6,932
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 JAPAN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................   4,192.7   3,783.0  \1\ 4205
                                                                      .0
  Real GDP Growth (pct)...................       1.4      -2.8   \1\ 0.5
  GDP by Sector:
    Agriculture...........................       N/A       N/A       N/A
    Manufacturing.........................       N/A       N/A       N/A
    Services..............................       N/A       N/A       N/A
    Government............................       N/A       N/A       N/A
  Per Capita Income (US$).................    33,249    29,929  \2\ 33,0
                                                                      00
  Labor Force (millions)..................      67.9      68.0  \3\ 67.8
  Unemployment Rate (pct).................       3.4       4.1   \4\ 4.7

Money and Prices (annual percentage
 growth):
  Money Supply (M2+CD)....................       3.1       4.0   \4\ 3.8
  Consumer Price Inflation................       1.8       0.6  \3\ -0.1
  Exchange Rate (Yen/US$).................     121.0     130.9  \5\ 117.
                                                                      03

Balance of Payments and Trade:
  Total Exports FOB.......................     409.2     374.4  \6\ 394.
                                                                       1
    Exports to U.S. FOB...................     121.3     122.0  \6\ 107.
                                                                       7
  Total Imports CIF.......................     307.8     251.7  \6\ 266.
                                                                       7
    Imports from U.S. CIF.................      65.7      57.9  \6\ 47.1
  Trade Balance...........................     101.5     122.7  \6\ 127.
                                                                       4
    Trade Balance with U.S................      55.6      64.1  \6\ 60.6
  Current Account Surplus/GDP (pct).......       2.3       3.2       N/A
  External Public Debt....................         0         0         0
  Debt Service Payments/GDP (pct).........         0         0         0
  Fiscal Deficit/GDP (pct)................      -3.4      -6.0       N/A
  Gold and Foreign Exchange Reserves......     220.8     215.9  \7\ 272.
                                                                       8
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ January-June, seasonally adjusted, annualized; growth relative to
  Jan-June 1998.
\2\ Embassy estimate.
\3\ January-September, non-seasonally adjusted average.
\4\ January-September, seasonally-adjusted average.
\5\ January to September average.
\6\ January-September, non-seasonally adjusted, annualized.
\7\ As of end-September 1999.

Sources: Ministry of Finance; exports FOB, imports CIF customs basis;
  Economic Planning Agency; Bank of Japan, OECD Economic Outlook.

1. General Policy Framework
    Japan's economy, the world's second largest at roughly 4.2 trillion 
dollars, is experiencing a significant recession. Most observers are 
predicting only meager growth this year, following a nearly 3 percent 
contraction in 1998.
    Overall economic growth in Japan in the 1990s has been lackluster, 
despite occasional strong growth. (Until 1992-3, Japan had never 
experienced two consecutive years of less than 3 percent real growth in 
the postwar period.) A surge in asset prices to unsustainable levels 
and high rates of capital investment in the late 1980s gave way by 1991 
to sharply slower growth, the need for corporate restructuring and 
balance sheet adjustment by businesses. A substantially weakened Asian 
demand for Japanese exports and domestic banking system concerns, also 
continue to weigh heavily on the economy.
    In recent years, the Japanese Government has used public spending 
to offset weak or negative private demand growth. Several fiscal 
stimulus packages beginning in August 1992 have boosted public 
investment spending substantially, while temporary tax cuts have 
supported public demand.
    Japan posted a global trade surplus of $123 billion in 1998, with a 
$51.5 billion bilateral surplus with the United States. Both of these 
numbers are expected to rise significantly in 1999. Through the first 
nine months of 1999, import volume was also higher compared with the 
same period in 1998.
    In order to ease credit conditions to support the economy, the Bank 
of Japan lowered the official discount rate nine times between mid-1991 
and September 1995, from 6.0 percent per year to 0.5 percent where it 
has remained. The Bank of Japan also instituted some temporary programs 
to make credit more available to corporations. Recently the overnight 
call rate has been left at zero.
2. Exchange Rate Policy
    The yen has been volatile against the dollar in 1998-99. The 
average exchange rate through the first nine months of 1999 was 117 yen 
per dollar, versus 130 yen per dollar in 1998. A new Foreign Exchange 
Law in April 1998 significantly decontrolled most remaining barriers to 
cross-border capital transactions.
3. Structural Policies
    Pricing Policy: Japan has a market economy, with prices generally 
set in accordance with supply and demand. However, with very high gross 
retail margins (needed to cover high fixed and personnel costs) and a 
complex distribution system, Japan's retail prices exhibit a greater 
downward stickiness than in other large market economies. Moreover, 
some sectors such as construction are susceptible to cartel-like 
pricing arrangements, and in many key sectors heavily regulated by the 
government (i.e., transport and warehousing), it can still exert some 
limited temporary authority over pricing.
    Tax Policy: Total tax revenues as a share of GDP in Japan are 
comparable to the United States and the UK, and on the low end of OECD 
countries. Japan had a relatively high corporate tax rate, but recent 
legislation has reduced the (combined central and local government) 
effective corporate tax rate from 47 percent to 40.9 percent, bringing 
it in line with other OECD countries. The maximum marginal rate for 
personal income taxes was also reduced from 65 percent to 50 percent. 
There is a general consumption tax (actually a broad value-added tax) 
of 5 percent, although small retail outlets are exempted.
    Regulatory and Deregulation Policy: Japan's economy is highly 
regulated. Although the government and business community recognize 
that deregulation is needed to spur growth, opposition to change 
remains strong among vested-interest groups, and the economy remains 
burdened by numerous national and local government regulations, which 
have the effect of impeding market access by foreign firms. Official 
regulations also reinforce traditional Japanese business practices that 
restrict competition, help block new entrants (domestic or foreign) and 
raise costs. Examples of regulations that act as impediments include: 
exceedingly high telecommunications interconnection rates, prolonged 
approval processes for medical devices and pharmaceuticals, and severe 
restrictions on foreign lawyers.
    In June 1997, the President and the Japanese Prime Minister agreed 
on an Enhanced Initiative on Deregulation and Competition Policy under 
the U.S.-Japan Framework Agreement. During its third year, the 
Initiative is focusing on achieving concrete deregulation in key 
sectoral and structural areas in Japan, such as telecommunications, 
housing, energy, financial services, medical devices and 
pharmaceuticals, distribution, competition policy, and transparency in 
government rule-making.
4. Debt Management Policies
    Japan is the world's largest net creditor. The Bank of Japan's 
foreign exchange reserves exceed $250 billion. It is an active 
participant together with the United States in international 
discussions of developing-country indebtedness issues in a variety of 
fora.
5. Significant Barriers to U.S. Exports
    Japan is the United States' third largest export market, after 
Canada and Mexico. The United States is the largest market for Japanese 
exports. However, in many sectors U.S. exporters continue to enjoy 
incomplete access to the Japanese market. While Japan has reduced its 
formal tariff rates on most imports to relatively low levels, it has 
maintained non-tariff barriers, such as non-transparency, 
discriminatory standards, and exclusionary business practices, and 
tolerates a business environment that protects established companies 
and restricts the free flow of competitive foreign goods into the 
Japanese market.
    Transportation: In January 1998, the U.S. and Japan concluded a new 
agreement to significantly liberalize the trans-Pacific civil aviation 
market. This eliminated restrictions and resolved a dispute over the 
rights of longtime carriers to fly through Japan to other international 
destinations. It opened doors for carriers that recently entered the 
U.S.-Japan market, nearly tripling their access to Japan. The agreement 
also allowed code sharing (strategic alliances) between carriers for 
the first time, thereby greatly increasing their operational 
flexibility. While U.S. carriers have been generally happy with the 
results of the 1998 agreement, there is growing concern over the 
adequacy of facilities and a scarcity of slots at Japanese airports.
    American ocean going ships serving Japanese ports have long 
encountered a restrictive, inefficient and discriminatory system of 
port transportation services. After the Federal Maritime Commission 
(FMC) ruled in early 1997 that Japan maintained unfair shipping 
practices and proposed fines against Japanese ocean freight operators, 
the Japanese Government pledged to grant foreign carriers port 
transport licenses, and, at the same time, to reform the prior 
consultation system which allocates work on the waterfront and requires 
carriers to obtain approval for any change in their operations. The FMC 
imposed fines in September 1997 after Japan failed to carry out the 
reforms. Shortly afterwards, however, the government committed itself 
to actions that would have provided a solid foundation for reform of 
Japanese port practices. However, a final report on deregulation issued 
by the Japanese government in mid-1999 was discouraging for its lack of 
aggressive proposals for deregulating ports.
    Agricultural and Wood Products: Some progress has been achieved 
through continued U.S. pressure on Japan to liberalize its markets for 
imported agricultural and wood products. However, tariffs on most 
processed food products remain relatively high, and other barriers to a 
liberalized market remain. For example, Japan continues to restrict, 
for phytosanitary reasons, the entry of numerous fruits and vegetables, 
such as pears and potatoes. In accordance with its WTO obligations, 
Japan opened its rice market to imports under a Tariff Rate Quota. 
However, the U.S. continues to press Japan to introduce this rice to 
consumers, rather than earmarking it for stockpiles or food aid to 
third countries. Tariffs for wood products are being reduced under 
Japan's Uruguay Round commitments, but they continue to pose barriers 
to market access. Moreover, a number of unresolved market access issues 
are being discussed in the U.S.-Japan deregulation dialogue, such as 
recognition of foreign testing organizations, approval of Japan 
Industrial Standards (JIS) grademark equivalency for U.S. manufacturers 
of nails, and food waste disposals.
    Telecommunications and Broadcasting: Japan is a signatory of the 
WTO Basic Telecommunications Agreement of 1997, which promotes market 
access, investment and pro-competitive regulation in the 
telecommunications industry. In recent years, Japan has adopted a 
series of significant measures to foster a more pro-competitive regime 
in the telecommunications sector. However, access to telecommunications 
and broadcasting market in Japan remains constrained by both regulatory 
and anti-competitive practices. New entrants face much higher costs and 
longer waiting periods for connecting to the local dominant carrier's 
network than in other advanced countries, deterring competition. In 
addition, new carriers' difficulty in gaining access to facilities and 
land to build their networks, government restrictions on combining 
owned and leased facilities in creating a network, and the lack of 
access to discrete portions of the local dominant carriers' network at 
reasonable costs have slowed and raised the costs of new carriers' 
entrance. Finally, discriminatory and anti-competitive discount pricing 
plans by the dominant carriers have put new entrants at a serious 
disadvantage in developing Internet services. The U.S. Government has 
been applying pressure on Japanese regulators to take steps to address 
these issues under the U.S.-Japan Enhanced Initiative.
    Foreign telecommunications equipment suppliers continue to have 
difficulty selling to the Japanese public sector, having an extremely 
low share of this market. In addition, problems remain in selling to 
NTT (Nippon Telegraph and Telephone) companies, which collectively are 
the largest purchaser of telecommunications equipment in Japan. Foreign 
investment restrictions remain on NTT and on Direct-To-Home (DTH) 
satellite broadcasting companies.
    Standards, Testing, Labeling and Certification: Standards, testing, 
labeling and certification problems hamper market access in Japan. In 
some cases, advances in technology, products or processing make 
Japanese standards outdated and restrictive. Domestic industry often 
supports standards that are unique and restrict competition, although 
in some areas external pressure has brought about the simplification or 
harmonization of standards to comply with international practices. 
Fresh agricultural products continue to be subject to extensive 
restrictions, including phytosanitary restraints, required overseas 
production-site inspections, fumigation requirements for non-quarantine 
pests, and tariff rate or minimum access restrictions.
    Japan requires repeated testing of established quarantine 
treatments each time a new variety of an already approved agricultural 
commodity is approved for importation into Japan. For example, Japan 
has approved red and golden delicious apples for importation, but 
required that the quarantine treatment be retested for other almost 
identical varieties. The U.S. challenged this redundant testing 
requirement in the WTO, arguing that it has no scientific basis and 
serves as a significant trade barrier. Completion of the testing for 
each variety takes at least two years and is costly to the U.S. 
Government and U.S. producers. In October 1998, a WTO dispute 
settlement panel found that Japan's varietal testing requirement for 
agricultural products violated its WTO obligations. Japan has agreed to 
implement the terms of the WTO decision by the end of 1999.
    Foreign Direct Investment (FDI): FDI in Japan has remained 
extremely small in scale relative to the size of the economy. In Japan 
fiscal year 1998, Japan's annual inward FDI totaled 10.5 billion (up 
from $6 billion the previous year) but still only 0.27 percent of its 
GDP. (Comparatively, preliminary estimates for the United States FDI in 
1998 was $188 billion). Although in Japan, inward foreign investment is 
on the rise, Japan continues to host the smallest amount of FDI as a 
proportion of total output of any major OECD nation. The low level of 
FDI reflects the high cost-structure of doing business (for example, 
registration, licenses, land prices and rents), the legacy of former 
investment restrictions, and a continuing environment of structural 
impediments to greater foreign investment. The challenges facing 
foreign investors seeking to establish or enhance a presence in Japan 
include: laws and regulations that directly or indirectly restrict the 
establishment of business facilities, close ties between government and 
industry, informal exclusive buyer-supplier networks and alliances, 
high taxation, and a difficult regulatory environment for foreign or 
domestic acquisitions of existing Japanese firms.
    Recently, the Japanese Government has implemented potentially 
useful measures for increasing FDI, including easing restrictions on 
foreign capital entry. Additional steps include the implementation by 
Japanese enterprises of consolidated accounting by March 31, 2000. This 
step will greatly enhance financial transparency and facilitate mergers 
and acquisition and other investments. The government in October 1999 
introduced legislation modeled on the U.S. Chapter 11 bankruptcy 
procedures. The legislation should facilitate corporate restructuring 
and buy-outs by foreign and domestic investors.
    In October 1998, the U.S. Government proposed to the Japanese 
Government 18 new reforms in the areas of mergers and acquisitions, 
land, and labor policy to improve Japan's environment for foreign 
direct investment. In May 1999, both governments submitted a Joint 
report to the President and Prime Minister on the status of Japan's 
investment climate and measures under consideration. The bilateral 
Investment Working Group held talks in Tokyo in October 1999 that 
covered a range of investment issues. The group intends to continue 
consultations and the exchange of information as stipulated in the 
Joint report.
    Government Procurement Practices: Japan is a party to the 1996 WTO 
Government Procurement Agreement. While government procurement in Japan 
at the national, regional and local levels generally conform to the 
letter of the WTO agreement, there are reports that at some procuring 
entities, established domestic competitors continue to enjoy 
preferential access to tender information. In some sectors, unfair low 
pricing remains a problem, preventing companies from winning contracts 
based on open and transparent bidding procedures. Moreover, some 
entities continue to draw up tender specifications in a way that favors 
a preferred vendor, using design-based specifications rather than more 
neutral performance-based specifications.
    Customs Procedures: The Japanese Customs Authority has made 
progress in automating its clearing procedures, and efforts are 
underway to integrate the procedures of other government agencies over 
the next several years. However, U.S. exporters still face relatively 
slow and burdensome processing.
6. Export Subsidies Policies
    Japan's official development assistance for Asian countries in 1998 
rose 71 percent from the previous year as the government focused on 
helping its neighbors recover from the region-wide economic crisis. 
Japan remained the world's top aid donor in 1998 for the eighth 
consecutive year, disbursing a total of $10.77 billion, up 14.2 percent 
from 1997. Although Japan had been moving towards untying its aid, 
during the past 2 years this trend has reversed. Both its Environmental 
Aid loans and its Special Yen loans are tied to the purchase of 
Japanese products. Not only does this limit U.S. firm's ability to 
participate in these projects; it also denies recipient countries the 
opportunity to use this aid as efficiently as possible. This trend 
towards retying has been actively opposed by the U.S. Government. In 
addition, the USG continues to address U.S. industry concerns that 
feasibility studies funded by Japanese grant aid, and tied to the use 
of Japanese firms, results in technical specification that unduly favor 
Japanese firms.
7. Protection of U.S. Intellectual Property Rights
    Japan is a party to the Berne and Universal Copyright Conventions, 
the Paris Convention on Industrial Property, the Patent Cooperation 
Treaty, and the WTO Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPs). Japan is on the ``Special 301'' Watch List 
because of continuing U.S. concerns about the operation of Japan's 
patent system and the protection of trade secrets and computer 
software.
    While Japan's IPR regime affords national treatment to U.S. 
entities, the U.S. has long been concerned by the long processing time 
for patent examination. Although Japan has reduced patent pendency from 
36 to 28 months, this is still longer than in other industrialized 
countries. Lengthy patent pendency, coupled with a practice of opening 
all patent applications to public inspection 18 months after filing, 
exposes applications to lengthy public scrutiny with the potential of 
limiting legal protection.
    Many Japanese companies use the patent filing system as a tool of 
corporate strategy, making many applications to cover slight variations 
in technology. However, a February 1998 decision by Japan's Supreme 
Court to permit an infringement finding under the ``the doctrine of 
equivalence'' may reduce this practice and is a positive step toward 
broadening Japanese courts' generally narrow interpretation of patent 
rights. The rights of U.S. subscribers in Japan can be circumscribed by 
filings of applications for similar inventions or processes. Some small 
revisions to Japan's patent and trademark law aimed at improving 
protection right holders will take effect early in 2000.
    Japan's protection of trade secrets is inadequate. Because Japan's 
Constitution prohibits closed trials, the owner of a trade secret 
seeking redress for misappropriation of the secret is put in the 
difficult position of not being able to protect a trade secret without 
disclosing it publicly. While a recent amendment to Japan's Civil 
Procedures Act excludes Japanese court records containing trade secrets 
from public access, this legislation does not adequately address the 
problem. Court proceedings of trade secrets remain open to the public 
and neither the parties nor their attorneys have confidentiality 
obligations.
    Japan's Trademark Law was revised in 1997 to speed the granting of 
trademark rights, strengthen protection to well-known trademarks, 
address problems related to unused trademarks, simplify registration 
procedures, and increase infringement penalties. The effect of the 
revisions, however, is not yet clear. Historically, trademark 
registration in Japan has been slow, requiring approximately 36 months. 
Since trademarks must be registered in Japan to ensure enforcement, 
delays make it difficult for foreign parties to enforce their marks. In 
addition, concerns have been raised by U.S. firms regarding Japan's re-
exportation of suspected counterfeit merchandise to be re-exported 
which is inconsistent with article 59 of the Trade-Related Aspects of 
Intellectual Property Rights (TRIPs) agreement.
    End-user software piracy remains a major concern of U.S. and some 
Japanese software developers. An amendment to Japan's Civil Procedures 
Law to award punitive damages rather than actual damages would help 
increase the deterrent against software piracy.
8. Worker Rights
    a. The Right of Association: Japan's Constitution and domestic 
labor law provide for the right of workers to freely associate in 
unions. Approximately 23 percent of Japan's labor force is unionized. 
The Japanese Trade Union Confederation (RENGO), which represents 7.8 
million workers, is the largest labor organization. Both public and 
private sector workers may join a union, although members of the armed 
forces, police and firefighters may neither form unions nor strike. The 
right to strike, although implicit in the constitution, is seldom 
exercised. The law prohibits retribution against strikers and is 
effectively enforced.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides unions with the right to organize, bargain and act 
collectively. These rights are freely exercised, and collective 
bargaining is practiced widely, particularly during the annual ``Spring 
Wage Offensive'' of nationwide negotiations.
    c. Prohibition of Forced or Compulsory Labor: Article 18 of the 
Japanese Constitution states that ``No person shall be held in bondage 
of any kind. Involuntary servitude, except as punishment for crime, is 
prohibited.'' This provision applies both to adults and children, and 
there are no known cases of forced or bonded labor.
    d. Minimum Age for Employment of Children: By law, children under 
the age of 15 may not be employed and those under age 18 may not work 
in dangerous or harmful jobs. Child labor is virtually non-existent in 
Japan, as societal values and the rigorous enforcement of the Labor 
Standards Law protect children from exploitation in the workplace.
    e. Acceptable Conditions of Work: Minimum wages are set on both a 
sectoral and regional (prefectural) level. Minimum wages ranged from 
$50 per day in Tokyo to $42 in Okinawa. The Labor Standards Law 
provides for a 40-hour work week in most industries and mandates 
premium pay for hours worked beyond 40 hours in a week or eight hours 
in a day. However, labor unions criticize the Japanese Government for 
failing to enforce working hour regulations in smaller firms. The 
government effectively administers laws and regulations affecting 
workplace safety and health.
    f. Worker Rights in Sectors with U.S. Investment: Labor 
regulations, working conditions and worker rights in sectors where U.S. 
capital is invested do not vary from those in other sectors of the 
economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,496
Total Manufacturing............  ..............  14,224
  Food & Kindred Products......  528             ...............................................................
  Chemicals & Allied Products..  2,608           ...............................................................
  Primary & Fabricated Metals..  365             ...............................................................
  Industrial Machinery and       3,588           ...............................................................
   Equipment.
  Electric & Electronic          2,043           ...............................................................
   Equipment.
  Transportation Equipment.....  1,724           ...............................................................
  Other Manufacturing..........  3,368           ...............................................................
Wholesale Trade................  ..............  4,948
Banking........................  ..............  539
Finance/Insurance/Real Estate..  ..............  12,318
Services.......................  ..............  1,415
Other Industries...............  ..............  212
TOTAL ALL INDUSTRIES...........  ..............  38,153

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                           REPUBLIC OF KOREA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (nominal/factor cost)............    476,600    321,300    408,800
  Real GDP Growth (pct) \2\............        5.0       -5.8        7.0
  GDP by Sector:
    Agriculture/Fisheries..............     25,505     15,768     18,750
    Manufacturing......................    137,702     98,521    138,300
    Electricity/Gas/Water..............     10,098      7,519      9,380
    Construction.......................     55,510     32,560     35,800
    Financial Services.................     91,146     62,886     81,500
    Government/Health/Education........     36,436     25,864     22,000
    Other..............................    120,203     78,182    103,070
  Government Expenditure (pct/GDP).....       22.1       23.4       22.5
  Per Capita GDP (US$).................     10,307      6,823      8,735
  Labor Force (000's)..................     21,500     21,800     22,000
  Unemployment Rate (pct)..............        2.5        7.4        4.5

Money and Prices (annual percentage
 rate):
  Money Supply (M2)....................       19.2       24.0       25.0
  Corporate Bonds \3\..................       13.4       15.1        8.5
  Personal Savings Rate................       22.8       25.1       25.5
  Retail Inflation.....................        4.5        7.5        2.0
  Wholesale Inflation..................        3.9       12.2        1.0
  Consumer Price Index (1995 base).....      109.6      117.8      120.2
  Average Exchange Rate (Won/US$)......      951.1      1,399      1,200

Balance of Payments and Trade:
  Total Exports FOB \4\................    136,164    132,313    137,000
    Exports to U.S. \4\................     21,625     22,805     24,000
  Total Imports CIF \4\................   -144,616    -93,282   -115,000
    Imports from U.S. \4\..............    -30,122    -20,403    -25,000
  External Debt \5\....................    159,200    148,700    138,000
  Debt Service Payments................    -18,000    -29,800    -24,000
  Gold and FOREX Reserves..............     20,406     52,041     65,000
------------------------------------------------------------------------
\1\ 1999 figures are estimates based on available monthly data as of
  October.
\2\ Growth based on won, the local currency.
\3\ Figures are average annual interest rates.
\4\ Merchandise trade, measured on customs clearance basis; Korean
  government data.
\5\ Gross debt; includes non-guaranteed private debt.

1. General Policy Framework
    South Korea demonstrated its resilience and its capacity for change 
by bouncing back strongly in 1999 from the 1997-98 economic crisis, the 
worst in the country's history. After experiencing a 5.8 percent 
contraction in 1998, 7 to 8 percent GDP growth is forecast in 1999. Per 
capita GNP in dollar terms will be $8,735 in 1999, up from 1998's 
$6,823 but still lower than $10,307 in 1997.
    The crisis called into question the viability of a growth model 
that relied heavily on a protected domestic market and the deep 
involvement of the government in determining the allocation of capital. 
The crisis also set the scene for the presidential election victory in 
December 1997 of opposition figure and economic reform advocate Kim Dae 
Jung.
    By mid-1998, largely due to the $58 billion IMF program that Korea 
entered into in December 1997 and President Kim's commitment to 
vigorous financial and corporate sector reform, stability was restored 
to the Korean economy. However, problems remain with respect to 
implementation of reform and restructuring measures in these two 
sectors. Although the Korean government has made progress in inducing 
the conglomerates (``chaebols'') to reduce their unsustainable debt/
equity ratios, to improve corporate governance and enhance 
transparency, and to restructure their operations, the chaebol have 
only partially implemented Republic of Korea (ROK) government-mandated 
changes in these areas. In general, Korean business preference for 
market share instead of profitability and an unrealistically low Korean 
bankruptcy rate encouraged over-capacity and corporate inefficiency, 
but discouraged investment in small-to-medium enterprises (SME's). The 
SME sector remains underdeveloped in Korea.
    In 1999 the chronic de facto bankruptcy of Daewoo, the second-
largest Korean conglomerate, and continued weakness in the financial 
sector, especially the over-leveraged investment trust companies 
(ITC's), showed the weakness of the past patterns of misallocation of 
investment resources, excessive debt, and lack of effective oversight. 
The Daewoo crisis became front-page news around the world in July 1999, 
as that massive firm with far-flung global interests and investments 
came near default on more than $50 billion in debt. That month, 
creditors rolled over 12 trillion won in debt that was coming due over 
the following 10 days. Meanwhile, the $200-billion-plus ITC industry 
faced a loss of investor confidence due to its exposure to Daewoo and 
the lack of adequate prudential supervision. The Korean government's 
handling of the twin Daewoo and ITC crises will be a litmus test of its 
resolve to see through meaningful and sustainable corporate reform and 
restructuring, as well as the key to reducing systemic risk in the 
economy.
    Korea produces and exports advanced electronic components, 
automobiles, steel, and a wide variety of mid-level, medium-quality 
consumer electronics and other goods. As labor activism in the 1980's 
drove up wages faster than productivity growth, Korea lost its low-wage 
labor advantage to China and Southeast Asian countries. At the same 
time, Korea faced tough competition from Japan in cutting-edge, high-
tech products.
    Aided by recovery in other Asian markets and a strong current 
account surplus, Korea's usable foreign currency reserves in 1999 grew 
to over $60 billion, while the Korean won stabilized at about 1,200/
dollar as of November 1999. (The won stood at 900/dollar in 1996 but by 
late 1997 had dropped as low as 1,960/dollar). Korea became a member of 
the OECD in December 1996. Inflation dropped to about two percent in 
1999.
    Facility investment is expected to grow 34 percent in 1999, after 
suffering a 38 percent fall in 1998. In 1999, the unemployment rate is 
expected to drop to around 4.5 percent with less than one million 
unemployed people, a fall from seven percent in 1998 when there were 
over 1.4 million jobless. Real income grew eight percent during the 
first seven months of 1999 after a nine percent fall in 1998. Private 
consumption grew 8.2 percent in 1999. (Expenditures on domestic 
consumption accounted for 62 percent of total GDP.)
    The United States is Korea's leading trade partner in 1999, taking 
20 percent of Korea's exports and providing 21.7 percent of Korea's 
imports for the first nine months of 1999. Korea is the eighth largest 
overall trade partner of the United States (the sixth biggest market 
for U.S. exports and the eighth biggest for U.S. imports) up from ninth 
in 1998. U.S. Commerce Department statistics show that, through 
September 1999, U.S. exports to Korea increased 52.2 percent to $16.9 
billion, and U.S. imports from Korea rose 25.8 percent to $22.2 
billion. In 1998 U.S. exports to Korea fell 34 percent while U.S. 
imports from Korea rose 3.4 percent.
    The public sector's role in the economy is relatively small, with 
taxes and expenditures amounting to 24 percent of GDP in 1999. The 
government plans to increase nominal budget spending five percent in 
2000 (the lowest budget growth since 1992) for economic stimulus, to 
improve and expand transportation infrastructure, and to improve the 
social safety net for the unemployed. The 2000 fiscal deficit is 
expected to be about 3.5 percent of GDP, somewhat less than four 
percent in 1999. About 12 percent of 2000 spending will be financed by 
government bond sales. In 1998 the government increased the money 
supply about 20 percent to fight potential deflation due to the 
recession and falling asset values. In consultation with the IMF, the 
government allowed the overnight call rate, which is the main policy 
interest rate of the Bank of Korea, to fall from a peak of 35 percent 
in December 1997 to single digits in 1999. In September 1999, however, 
corporate bond rates rose sharply above 10 percent when Daewoo's 
financial default destabilized the bond market and investors rushed to 
withdraw money from financially weak investment trust companies. 
However, the ROK reversed the rise in long-term rates in October with 
its bond market stabilization fund. The primary monetary target of the 
Bank of Korea is M3, which, in accordance with Korea's IMF program, is 
expected to increase by about 11 percent in 1999.
2. Exchange Rate Policy
    Since the introduction of the IMF program in December 1997, foreign 
exchange and capital controls have been relaxed or abolished. In 
conjunction with IMF program requirements that the exchange rate be 
allowed to float (with intervention limited to smoothing operations 
only.) In December 1997 the exchange rate peg was widened from +/- 2.25 
percent to +/- 10 percent, and then abandoned completely.
3. Structural Policies
    The Korean economic model has been notable for the high degree of 
concentration of capital and industrial output in a small number of 
conglomerates known as ``chaebol.'' While this model produced a long 
record of high economic growth, the 1997 financial crisis exposed its 
weaknesses, which include excessively risky debt levels, industrial 
over-capacity, and economically unsustainable investment. President Kim 
Dae Jung has pushed for major economic reform and restructuring to 
overcome these shortcomings. The government passed laws requiring 
greater corporate transparency, strengthened prudential requirements 
for banks and other financial institutions, fostered the development of 
small and medium-sized industries, and encouraged increased foreign 
investment in Korea. The chaebol have also been pressed to restructure 
and rationalize their operations, including by reducing their debt/
equity levels to 200 percent and through somewhat controversial ``big 
deals'' (i.e. asset/affiliate swaps.) The effective and radical 
restructuring of Korea's second-largest chaebol Daewoo should help 
accelerate the pace of corporate reform. These reforms are moving 
Korea's economy towards a more market-based system, but some important 
changes, especially in the financial and corporate sectors, will take 
time.
4. Debt Management Policies
    Korea's total foreign debt (largely private sector) totaled $144 
billion at the end of July 1999, declining from $158 billion at the end 
of 1997. Through repayment and rescheduling, Korea's short-term debt as 
a percentage of total debt has been reduced from 64 percent at the end 
of 1998 to only 24 percent at the end of July 1999. In addition, the 
ROK developed an external debt reporting system to enhance debt 
management and monitoring. Through September 1999, Korea registered a 
current account surplus of $19.2 billion, substantially smaller than 
the $32 billion surplus recorded during the comparable period a year 
before. The estimated surplus for 1999 is $20 billion, compared to 
about $40 billion in 1998.
5. Significant Barriers to U.S. Exports
    During the last decade Korea has gradually liberalized its markets 
for both goods and services and improved its investment climate for 
U.S. and other foreign firms. Through bilateral and multilateral 
efforts, many protective tariffs were lowered or phased out. Non-
transparent policies and regulations, which directly or indirectly 
inhibited market access for imports, have been revised and reduced. The 
ROK has distanced itself from explicit policies that encouraged anti-
import sentiment among Korean consumers, and is slowly addressing 
residual anti-import biases among both Korean consumers and 
bureaucrats. Rather than tolerating some foreign investment as 
necessary, the ROK has introduced a new foreign investment regime and 
is actively working to attract foreign investment. Korea and the United 
States initiated negotiations in June 1998 to conclude a bilateral 
investment treaty. Total commitments of foreign direct investment in 
1999 is expected to exceed $15 billion, more than double the level in 
1997. Nevertheless, these improvements have not benefited all exporters 
to Korea and barriers to exports from the United States and other 
countries continue to plague key sectors, especially agriculture, 
pharmaceuticals and automobiles.
    In general, Korea's tariffs are modest; Korea's average tariff rate 
is 7.9 percent. However, Korea still maintains a system of high tariffs 
(30 to 100 percent), quotas and tariff rate quotas (TRQ), mostly for 
sensitive agricultural and fishery products of interest to U.S. 
suppliers, which effectively restrict imports. In addition, Korea's 
administration of quotas/TRQs for some products, such as rice and 
oranges, limits legitimate market access. Korea also uses adjustment 
tariffs to respond to import surges; however, the number of these 
tariffs is slowly being reduced. The majority of the remaining 29 
adjustment tariffs apply to agricultural products. The government 
eliminated its import diversification program, which barred certain 
imports from Japan, in June 1999, and has committed to phase out its 
eight GATT balance of payments restrictions by year-end 2000.
    Nontariff barriers, which often result from non-transparent 
regulatory practices, continue to inhibit imports to Korea across a 
range of sectors. A lack of regulatory transparency and consistency can 
affect licensing, inspections, type approval, marking/labeling 
requirements and other standards. To add transparency and due process 
to its regulatory system, Korea enacted the Administrative Procedures 
Act in 1996, but public notice of new regulations, as well as comment 
and transition periods are not always adequate. The regulatory system 
has not offered adequate recourse to those adversely affected by 
creation of new regulations. Since President Kim initiated a 
comprehensive regulatory review in 1998, more than 5,000 regulations/
guidelines have been eliminated or targeted for elimination; review of 
the more than 6,000 remaining regulations is ongoing.
    Products regulated for health and safety reasons (such as 
pharmaceuticals, medical devices, and cosmetics) typically require 
additional testing or certification from the relevant ministries before 
they can be sold in Korea, resulting in considerable delays and 
increasing costs. The foreign pharmaceutical industry faces 
discriminatory barriers associated with clinical registration and 
reimbursement pricing issues, although a new reimbursement pricing 
system is expected to be implemented in late 1999. Registration 
requirements for such products as chemicals, processed food, medical 
devices and cosmetics hamper entry into the market as well. Korea has 
initiated efforts to streamline its complex and burdensome import 
clearance procedures, targeting some 54 laws for revision. It has 
committed to bring its Food Code, Food Additive Code and labeling 
requirements into conformity with international standards. Import 
clearance, however, still takes longer than in other Asian countries.
    Despite potential conflict of interest problems, the government has 
delegated authority to some Korean trade associations to carry out 
functions normally administered by the government. Such delegation of 
responsibility may include processing import approval documentation 
prior to customs clearance (allowing local trade associations to obtain 
business confidential information on incoming shipments), advertisement 
pre-approvals (providing early warning on the introduction of new 
products and on competitors' marketing efforts), and a decision-making 
seat on various committees (usually not available to foreign firms). 
The Korea Fair Trade Commission increased its efforts in 1999 to reduce 
the quasi-legal, trade restrictive powers of a number of associations.
    The United States and Korea signed a Memorandum of Understanding 
(MOU) in October 1998, in which Korea agreed to take measures to 
further open its automobile market and improve market access for U.S. 
automobiles. Per the MOU, Korea has lowered some taxes which had a 
discriminatory impact on imported cars, bound its auto tariffs at 8 
percent, improved consumer financing of autos by expanding the auto 
mortgage system and shortening the repossession process, and 
streamlined standards and certification. The ROK has also taken steps 
to reduce anti-import attitudes, which have an especially strong impact 
on foreign automobiles, including by agreeing to co-sponsor an ``Import 
Motor Show'' in May 2000. Despite these efforts, imports of U.S. and 
other foreign cars will barely exceed 2000 units in 1999.
    The government requires theaters to show local movies for a minimum 
of 146 days each year, with some flexibility so that this total can be 
reduced to 106 days. U.S. industry states that these constraints on 
foreign movies and programs are more restrictive than in most other 
countries. The Korean government, however, considers this a cultural 
rather than a trade issue.
    Korea acceded to the WTO Government Procurement Agreement (GPA) on 
January 1, 1997 and is co-sponsoring the Transparency in Government 
Procurement initiative in the WTO. U.S. firms, however, continue to 
raise some concerns about Korean procurement practices, including 
discrimination against U.S. firms participating in procurements for 
Korea's new international airport conducted by the Korea Airport 
Construction Authority. The U.S. government is currently pursuing WTO 
dispute settlement resolution on this issue with Korea.
    Korea will expand its Uruguay Round minimum import quota for beef 
to 225,000 metric tons by the year 2000 and expand the proportion of 
the quota imported through the ``simultaneous buy/sell system.'' Korea 
has committed to remove all remaining nontariff barriers to beef 
imports, including state trading, by January 2001. However, due to a 
sharp drop in consumption, Korea has been unable to meet its WTO 
minimum import commitment in recent years. In February 1999, the United 
States initiated WTO dispute settlement consultations with Korea to 
eliminate import barriers and distribution restrictions on foreign 
beef.
    In response to the 1997 financial crisis, the government has 
implemented broad-based reforms of its financial system. These reforms 
include substantial liberalization of capital markets, including the 
abolition of restrictions on foreign ownership of domestic shares and 
bonds, and restrictions on the use of deferred payments to finance 
imports. Foreign banks can now establish subsidiaries in Korea and 
foreign financial firms can participate in mergers and acquisitions of 
domestic Korean financial institutions. Korea, however, requires 
foreign branches to be separately capitalized, and other regulations 
such as prudential lending limits are based on local branch capital as 
opposed to its total capital, while a domestic bank's capital base is 
assessed as the entire bank's capital. Foreign banks are also 
disadvantaged in access to local currency funding. The government has 
also loosened controls over access to currency, such as swap lines used 
by banks as a source of local currency, but the government retains 
controls and has not committed to maintaining these new lines once the 
crisis is over. The new Foreign Exchange Transaction Law that was 
implemented in April 1999 significantly liberalized formerly heavily 
regulated capital transactions.
    Korea's new Foreign Investment Promotion Act, which became 
effective in 1998, streamlined foreign investment application 
procedures and eased barriers to foreign direct investment across a 
range of sectors. Korea now has a much more favorable investment 
climate for foreign firms, and in the longer run this should foster 
broader market access and more imports. Investment restrictions now 
remain on only 21 industrial sectors, of which seven are entirely 
closed. Mergers, including hostile mergers, are allowed, and most 
restrictions on foreign ownership of local shares have been lifted. 
Foreigners are now allowed to purchase real estate and property. Tax 
incentives, especially for the high technology sector, have been 
increased. Restrictions on access to offshore funding (including 
offshore borrowing, intra-company transfers and inter-company loans), 
however, continue to be burdensome. Foreign equity participation 
limits, licensing requirements and other regulatory restrictions can 
limit foreign direct investment in sectors nominally open to 
foreigners. Foreign firms also face additional investment restrictions 
in many professional services sectors.
6. Export Subsidies Policies
    In the past, Korea aggressively promoted exports through a variety 
of policy tools, including export subsidies, directed credit and 
targeted industrial policy. However, in the WTO, Korea has committed to 
phasing out those programs not permitted under the WTO Agreement on 
Subsidies and Countervailing Measures. Under the IMF stabilization 
package, Korea eliminated four WTO prohibited subsidies. The real 
benefit of the few remaining subsidized lines of export credit is 
insignificant in a macroeconomic sense. The relative size of direct 
grants is small and declining with regard to both the government budget 
and growing private investment. The use of tax exemptions, the main 
vehicle for export promotion, appears to be declining as well. The 
government does expend large amounts of money in research and 
development in key industrial sectors targeted for development, such as 
telecommunications.
7. Protection of U.S. Intellectual Property
    Korea is a participant in the WTO's Agreement on Trade Related 
Aspects of Intellectual Property (TRIPs). It is also a signatory to the 
World Intellectual Property Organization (WIPO), the Universal 
Copyright Convention, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms, the Geneva Phonograms 
Convention, the Paris Convention for the Protection of Industrial 
Property, and the Patent Cooperation Treaty. Korea joined the Berne 
Convention in August 1996.
    Korean laws protecting IPR are generally adequate in legal terms, 
but problems remain with respect to enforcement. Korea's ``Special 
301'' status was downgraded from ``Priority Watch List'' to ``Watch 
List'' in April 1997. Korea maintained its ``Watch List'' status in the 
U.S. government's 1999 review. Areas of continuing IPR concern include: 
counterfeit consumer products, software piracy, and pharmaceutical 
patent protection enforcement.
    Korean patent law is fairly comprehensive, offering protection to 
most products and technologies. A new patent court came into effect 
March 1, 1998. However, approved patents of foreign patent holders are 
still vulnerable to infringement. Korean law provides for compulsory 
licensing of patents when the invention is deemed necessary for the 
national defense, for the public interest, or for the protection of a 
dependent patent.
    The government's protection of trademarks has improved since 1991. 
A revised Trademark Law became effective March 1, 1998. The Design Act 
was also revised on March 1, 1998, enhancing protection of industrial 
designs. The granting of a trademark under Korean law is based on a 
``first-to-file'' basis. While preemptive and predatory filings are on 
the decline, ``sleeper'' preemptive registrations still surface on 
occasion. A new provision now allows the Korean Industrial Property 
Office (KIPO) to reject suspected predatory applications based on a 
``bad faith'' clause. There has been less success in stemming the 
export of Korean counterfeit products globally.
    Korea's Copyright Law protects author's rights, but local 
prosecutors take no action unless the copyright holder files a formal 
complaint. In 1999, Korea amended its Computer Program Protection Act 
and is preparing revised copyright legislation so as to better meet its 
TRIPs obligations, especially with respect to copyright and trademark 
protection for transactions conducted on the internet. Korea, however, 
is not in full compliance with provisions of the TRIPs Agreement which 
stipulate that preexisting works and sound recordings must enjoy a full 
term of protection (i.e., life of the author plus 50 years for works; 
50 years for sound recordings). Korea now only provides protection back 
to 1957. The Korean government in 1999 has devoted increased resources 
and staff to IPR enforcement activities and President Kim himself has 
directed cabinet agencies to step-up government efforts to protect 
intellectual property. However, IPR violations, especially of computer 
software, including in the government sector remain a problem.
8. Worker Rights
    a. The Right of Association: With the exception of public sector 
employees and teachers, Korean workers enjoy the right of free 
association. White-collar workers in the government sector cannot join 
unions, but blue-collar employees in the postal service, railways, and 
telecommunications sectors, and the national medical center have formed 
labor organizations. Starting this year, government employees were 
allowed to form workplace consultative councils. In July, legislation 
went into effect allowing teachers to form unions. Unions may be formed 
with as few as two members and without a vote of the full prospective 
membership.
    Until recently the Trade Union Law specified that only one union 
was permitted at a workplace, but labor law changes in 1997 authorize 
the formation of competing labor organizations beginning in the year 
2002. Workers in government agencies and defense industries do not have 
the right to strike. Unions in enterprises determined to be of 
``essential public interest,'' including utilities, public health, and 
telecommunications, may be ordered to submit to government-ordered 
arbitration in lieu of striking. In fact, work stoppages occur even in 
these sensitive sectors. The Labor Dispute Adjustment Act requires 
unions to notify the Labor Ministry of their intention to strike, and 
normally mandates a 10-day ``cooling-off period'' before a work 
stoppage may legally begin.
    b. The Right to Organize and Bargain Collectively: The Korean 
constitution and the Trade Union Law provide for the right of workers 
to bargain collectively and undertake collective action, but does not 
grant government employees, school teachers or workers in defense 
industries the right to strike. Collective bargaining is practiced 
extensively in virtually all sectors of the Korean economy. The central 
and local labor commissions form a semi-autonomous agency that 
adjudicates disputes in accordance with the Labor Dispute Adjustment 
Law. This law empowers workers to file complaints of unfair labor 
practices against employers who interfere with union organizing or 
practice discrimination against unionists. In 1998 the government 
established the Tripartite Commission, with representatives from labor, 
management, and the government to deal with labor issues related to the 
economic downturn. The work of the Commission both made it legal for 
companies to lay off workers due to economic hardship and authorized 
temporary manpower agencies. Labor-management antagonism, however, 
remains an issue, and some major employers remain strongly antiunion.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
provides that no person shall be punished, placed under preventive 
restrictions, or subjected to involuntary labor, except as provided by 
law and through lawful procedures. Forced or compulsory labor is not 
condoned by the government and rarely occurs.
    d. Minimum Age for Employment of Children: The government prohibits 
forced and bonded child labor and enforces this prohibition 
effectively. The Labor Standards Law prohibits the employment of 
persons under the age of 15 without a special employment certificate 
from the Labor Ministry. Because education is compulsory through middle 
school (about age 14), few special employment certificates are issued 
for full-time employment. Some children are allowed to do part-time 
jobs such as selling newspapers. In order to obtain employment, 
children under 18 must have written approval from their parents or 
guardians. Employers may require minors to work only a limited number 
of overtime hours and are prohibited from employing them at night 
without special permission from the Labor Ministry.
    e. Acceptable Conditions of Work: The government implemented a 
minimum wage in 1988 that is adjusted annually. The minimum wage in 
1998 was set at $1.28/hour (won 1,525/hour). Companies with fewer than 
10 employees are exempt from this law. The maximum regular workweek is 
44 hours, with provision for overtime to be compensated at a higher 
wage, but such rules are sometimes ignored, especially by small-
companies. The law also provides for a maximum 56-hour workweek and a 
24-hour rest period each week. Labor laws were revised in 1997 to 
establish a flexible hours system that allows employers to ask laborers 
to work up to 48 hours during certain weeks without paying overtime so 
long as average weekly hours do not exceed 44. The government's health 
and safety standards are not always effectively enforced, but the 
accident rate continues to decline. The number of work-related deaths 
remains high by international standards.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Korea 
is concentrated in petroleum, chemicals and related products, 
transportation equipment, processed food, manufacturing and services. 
Workers in these industrial sectors enjoy the same legal rights of 
association and collective bargaining as workers in other industries.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  2,940
  Food & Kindred Products......  380             ...............................................................
  Chemicals & Allied Products..  530             ...............................................................
  Primary & Fabricated Metals..  22              ...............................................................
  Industrial Machinery and       288             ...............................................................
   Equipment.
  Electric & Electronic          558             ...............................................................
   Equipment.
  Transportation Equipment.....  128             ...............................................................
  Other Manufacturing..........  1,034           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  2,251
Finance/Insurance/Real Estate..  ..............  38
Services.......................  ..............  446
Other Industries...............  ..............  -38
TOTAL ALL INDUSTRIES...........  ..............  7,365
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                MALAYSIA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................   101,236    72,569  \2\ 78,9
                                                                      28
  Real GDP Growth (pct)...................       7.5      -7.5   \3\ 4.3
  GDP by Sector (1978 prices):
    Agriculture...........................     6,106     4,377     4,723
    Manufacturing.........................    20,981    12,984    14,587
    Mining And Petroleum..................     5,144     3,755     3,827
    Construction..........................     3,389     1,871     1,860
    Services..............................    31,729    22,466    23,697
    Government Services...................     4,641     3,506     3,616
  Per Capita GDP (US$)....................     4,564     3,272     3,475
  Labor Force (000's).....................     9,038     8,880     9,010

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)(pct)...........      22.7       1.5  \4\ 12.4
  Consumer Inflation (pct)................       2.7       5.3       3.0
  Exchange Rate (RM/US$ annual average)...      2.81      3.92      3.80

Balance of Payments and Trade:
  Total Exports FOB.......................    77,478    71,925    79,189
    Exports to U.S........................    18,017    19,001  \5\ 9,81
                                                                       6
  Total Imports FOB.......................    73,822    54,321    59,682
    Imports from U.S......................    10,828     8,952  \5\ 4,27
                                                                       0
  Trade Balance...........................     3,656    17,604    19,507
    Balance with U.S......................     7,189    10,049     5,546
  External Public Debt....................    23,280    17,387    19,078
  Fiscal Surplus/GDP (pct)................       2.3      -1.9      -4.9
  Current Account Surplus/GDP (pct).......      -5.6      12.9  \6\ 14.0
  Debt Service Payments/GDP (pct).........       5.0       6.9       N/A
  Gold and Foreign Exchange Reserves......    21,700    26,196  \7\ 30,2
                                                                      00
  Aid from U.S............................       0.6       0.9       1.0
  Aid from All Other Countries............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Malaysian Government estimates.
\2\ Converted at annual average exchange rates.
\3\ Calculated in ringgit to avoid exchange rate changes.
\4\ July data for 1999.
\5\ U.S. Commerce Department data, January-June for 1999.
\6\ Deficit for 1997.
\7\ End-October data for 1999.

1. General Policy Framework
    After nearly a decade of strong economic growth averaging 8.7 
percent annually, Malaysia was hard hit by the regional financial and 
economic crisis of 1997-98. After contracting 7.5 percent in 1998, the 
economy returned to positive growth in the second quarter of 1999. 
Analysts predict 5-6 percent growth in 1999 and continued strong growth 
in 2000. Growing consumer and investor confidence is reflected in 
increased auto sales, consumer credit mortgage approvals, and a three-
fold increase in the Kuala Lumpur Stock Exchange Composite Index from 
its record low of 262.7 in September 1998 to trading levels in the 720-
750 range in November 1999. Malaysia's economic recovery has been 
export led, based in part on growing electronics exports to the United 
States, Malaysia's principal trade and investment partner, and the 
region and also the result of increased government spending.
    Foreign direct and portfolio investment has not returned to pre-
crisis levels. Investor concerns are focused on excessive commercial 
property investment, high levels of domestic corporate debt, the lack 
of transparent policies regarding support for troubled firms, and 
continued trade and investment restrictions. To deal with a growing 
number of non-performing loans (NPLs) during the financial crisis, in 
1998 the government established an asset management corporation, 
Danaharta, and a special purpose vehicle, Danamodal, to inject funds 
into banks in need of recapitalization. The government also created the 
Corporate Debt Restructuring Committee (CDRC) to provide a framework 
for creditors and debtors voluntarily to resolve liquidity problems of 
viable businesses and serve as an alternative to bankruptcy. Danaharta 
has removed about one-third of the NPLs from the banking system. CDRC 
has completed the first stages of the debt workout process for a 
substantial number of firms and reportedly hopes to complete its 
activities by the end of 2000.
    The government plays a strong pro-active role in the economy as 
investor, economic planner, approver of investment projects, approver 
of public and private procurement decisions, author and implementor of 
policies and programs to bolster the economic status of the Malay and 
indigenous communities (commonly referred to as bumiputras), and 
decisionmaker over privatization contracts. The government holds equity 
stakes (generally minority shares) in a wide range of domestic 
companies, usually large players in key sectors, and can exert 
considerable influence over their operations. The economic downturn, 
however, slowed the push to privatization and increased emphasis on 
government support for sensitive industries, such as automobiles and 
steel. The government has said it will consider granting assistance to 
troubled corporations on the basis of three criteria: national 
interest, strategic interest, and equity considerations under bumiputra 
policies.
    Tariffs are the main instrument used to regulate the importation of 
goods in Malaysia. However, 17 percent of Malaysia's tariff lines 
(principally in the construction equipment, forestry, logging, 
agricultural mineral, and motor vehicle sectors) are also subject to 
non-automatic import licensing designed to protect import-sensitive or 
strategic industries. Although the average applied MFN tariff rate of 
Malaysia has declined to approximately 8.1 percent, duties for tariff 
lines where there is significant local production are often higher. For 
example, 15.8 percent of product tariff lines in Malaysia's tariff 
schedule have rates over 24 percent, 25.9 percent of tariff lines have 
rates over 15 percent, and many lines have rates well over 100 percent.
    The level of tariff protection is generally lower on raw materials 
and increases for those goods with value-added content or which undergo 
further processing. The government urges Malaysians to purchase 
domestic products, instead of imports, whenever possible. In addition 
to import duties, a sales tax of 10 percent is levied on most imported 
goods. Like import duties, however, this sales tax is not applied to 
raw material and machinery used in export production. Malaysia has been 
an active participant in multilateral and regional trade fora such as 
the World Trade Organization (WTO) and APEC (which it chaired in 1998).
    Fiscal Policy: The government is pursuing an expansive fiscal 
policy in order to stimulate economic growth. The government expects to 
run a budget deficit in 2000 of approximately 4.4 percent of GNP, 
slightly less than the 1999 deficit. The Malaysian government finances 
domestically the bulk of the deficit.
    Monetary Policy: The central bank has been progressively loosening 
monetary policy to lead the economy out of recession. Statutory reserve 
requirements have been reduced steadily from 13.5 percent as of year-
end 1997 to 4 percent in September 1998. The central bank also lowered 
the liquid asset requirements for commercial banks, reduced an 
administrative margin used to calculate the base lending rate, and cut 
its 3 month intervention rate from 8 percent to 5.5 percent. A 
significant drop in interest rates has accompanied the loosening of 
monetary policy. The base lending rate dropped from 8.04 percent in 
early November 1998 to 6.8 percent in November 1999.
2. Exchange Rate Policy
    In September and October 1999, the Malaysian government relaxed 
capital control measures on foreign portfolio investment instituted on 
September 1, 1998, as part of a broad effort to stabilize the currency 
while stimulating the economy. On September 2, 1998, the government 
fixed the exchange rate of the Ringgit to the U.S. Dollar at RM 3.8/
US$1 and instituted selective capital controls, including a 
controversial tax on repatriated principal and profits. At present 
foreign portfolio investment is subject to a flat 10 percent exit tax 
on repatriated profits.
3. Structural Policies
    Pricing Policies: Most prices are market-determined but controls 
are maintained on some key goods, such as vegetable oil, fuel, public 
utilities, cement, motor vehicles, rice, flour, sugar, tobacco, and 
chicken. (Note: no restrictions are placed on wheat imports.)
    Tax Policies: Tax policy is geared toward raising government 
revenue and discouraging consumption of ``luxury'' items. Income taxes, 
both corporate and individual, comprise 40 percent of government 
revenue with indirect taxes, export and import duties, excise taxes, 
sales taxes, service taxes and other taxes accounting for another 31 
percent. The remainder comes largely from dividends generated by state-
owned enterprises and petroleum taxes.
    The Year 2000 budget features personal tax reductions, generous 
benefits for civil servants and tax incentives to encourage financial 
institution mergers. The Government will also lower or abolish duties 
on 179 categories of food products (fresh, dried, and processed). 
Beginning in 2000, the tax assessment system will base tax collection 
on current year income rather than previous year income. High-
technology and information-technology companies which establish in the 
Multimedia Super Corridor (a government-established zone designed to 
concentrate and stimulate development of high-technology multimedia 
industries) are granted attractive tax incentives.
    Standards: Malaysia has extensive standards and labeling 
requirements, but these appear to be largely implemented in an 
objective, nondiscriminatory fashion. Food product labels must provide 
ingredients, expiry dates and, if imported, the name of the importer. 
Electrical equipment must be approved by the Ministry of International 
Trade and Industry, telecommunications equipment must be ``type 
approved'' by the Communications and Multimedia Commission. 
Telecommunications and aviation equipment must be approved by the 
Department of Civil Aviation. Pharmaceuticals must be registered with 
the Ministry of Health. In addition, the Standards and Industrial 
Research Institute of Malaysia provides quality and other standards 
approvals.
4. Debt Management Policies
    Malaysia's medium and long-term foreign debt (both public and 
private sector) amounted to $34.7 billion at the end of 1998, about 44 
percent of GDP. Malaysia's debt service ratio declined from a peak of 
18.9 percent of gross export earnings in 1986 to 6.9 percent in 1998.
5. Aid
    U.S. government assistance to Malaysia in FY-1999 falls into three 
broad categories: the Trade Development Agency (TDA), the International 
Military Education Training (IMET) program ($700,000), and the U.S.-
Asia Environment Program (US-AEP.) Although statistics are not 
available for assistance provided from other governments, since 1998 
the Japanese government has extended financial assistance to help 
Malaysia recover from the economic crisis: Japanese Government Office 
of Developmental Assistance (ODA) Yen Loan Projects approximately $1.05 
billion, Japanese EX-IM Bank approximately $700 million, EX-IM Bank 
guaranteed Commercial bank loans approximately $700 million, Japanese 
government guaranteed commercial bank loans approximately $560 million, 
and a short-term financing facility up to $2.5 billion.
6. Significant Barriers to U.S. Exports
    Import Restrictions on Motor Vehicles: Malaysia maintains several 
measures to protect the local automobile industry, including high 
tariffs and an import quota and licensing system on imported motor 
vehicles and motor vehicle parts. Malaysia also maintains local content 
requirements of 45 to 60 percent for passenger and commercial vehicles, 
and 60 percent for motorcycles. The government maintains that local 
content restrictions will be phased out by the year 2000 in accordance 
with its WTO commitments (see investment barriers.) However, Malaysia 
has requested an extension of its commitments under the ASEAN Free 
Trade Area (AFTA) to reduce tariffs in the auto sector by the year 
2000. These restrictions have hampered the ability of U.S. firms to 
penetrate the Malaysian market. Customs tariffs and excise duties (up 
to 50 percent) for motorcycles are also significant barriers for U.S. 
companies. Malaysia is also considering new emissions standards for 
motorcycles, which could restrict market opportunities for imports.

        Products                                            Tariff (pct)
Automobiles (CB)........................................         140-300
Automobiles (CKD).......................................              80
Vans (CBU)..............................................          42-140
Van (CKD)...............................................              40
4WD/Multipurpose (CBU)..................................          60-200
4WD/Multipurpose (CKD)..................................              40
Motorcycle (CBU)........................................          80-120
Motorcycle (CKD)........................................              30

    Restrictions on Construction Equipment: In October 1996, Malaysia 
raised duties on construction equipment from 5 to 20 percent. In 
addition, the initial capital allowance for imported heavy equipment 
will be reduced from 20 to 10 percent in the first year, and the annual 
allowance will be reduced from between 12 percent and 20 percent to 10 
percent. In October 1997, the government imposed a restrictive 
licensing regime on imports of heavy construction equipment and raised 
import duties for the second year in a row, as detailed below. In April 
1999, another licensing requirement was established for certain iron 
and steel products.

        Products                                            Tariff (pct)
Heavy Machinery & Equipment.............................               5
Multi-Purpose Vehicles..................................              50
Special Purpose Vehicles................................              50
Construction Materials..................................           10-30

    Duties on High Value Food Products: Duties for processed and high 
value products, such as canned fruit, snack foods, and many other 
processed foods, range between 20 and 30 percent. The applied tariff on 
soy protein concentrate is 20 percent.
    Duties on Alcoholic Beverages and Tobacco Products: High tariffs 
(increased 10/23) on tobacco products ($10.5-48/kg) and alcoholic 
beverages (e.g., vermouth in retail-sized containers is subject to a 
specific tariff of $31.5/dal) hamper U.S. exports.
    Plastic Resins: U.S. exports of some plastic resins are hampered by 
20 percent tariffs.
    Tariff-Rate Quota for Chicken Parts: Although the government 
applies a zero import duty on chicken parts, imports are regulated 
through licensing and sanitary controls, and import levels remain well 
below the minimum access commitments established during the Uruguay 
Round.
    Float Glass Tariff Differentials: Malaysia levies high duties (65 
sen/kilogram or 50-100 percent ad valorem equivalent) on rectangular-
shaped float glass. Nearly all float glass that moves in world trade is 
rectangular. To qualify for the lower ad valorem MFN tariff rate of 30 
percent levied on non-rectangular float glass, exporters often must 
resort to time-consuming, wasteful procedures such as cutting off one 
or more corners or cutting one edge in a slanted fashion. This is an 
inefficient and expensive process that requires distributors to recut 
each piece of glass into a rectangular shape once it has cleared 
customs.
    Rice Import Policy: The sole authorized importer of rice is a 
government corporation with the responsibility of ensuring purchase of 
the domestic crop and wide power to regulate imports.
    Film and Paper Product Tariff: Malaysia applies a 25 percent tariff 
on imported instant print film that is estimated to cause an annual 
trade loss of $10 to $25 million for U.S. industry. In August 1994, the 
government raised tariffs on several categories of imported kraft 
linerboard (used in making corrugated cardboard boxes) to between 20 
and 30 percent depending on the category. These tariff increases are to 
be phased out after five years and are subject to review every two 
years. Malaysia did not change the tariff levels after the 1996 review.
    Direct Selling Companies: In May 1999, the Malaysian Government 
announced new requirements for the licensing and operation of direct 
selling companies. These requirements include a) no more than 30 
percent of the locally incorporated company can be foreign owned, b) 
local content of products should be no less than 80 percent, c) no new 
products would be approved for sale that did not meet local content 
requirements, and d) all price increases would be approved by the 
Ministry of Domestic Trade and Consumer Affairs. These guidelines also 
spell out the conditions under which companies may receive one, two and 
three year licenses. The Ministry indicated that the local content 
targets are not mandatory, except for adherence to Malaysia's national 
equity policy.
    Government Procurement: Malaysian Government policy calls for 
procurement to be used to support national objectives such as 
encouraging greater participation of ethnic Malays (bumiputras) in the 
economy, transfer of technology to local industries, reducing the 
outflow of foreign exchange, creating opportunities for local companies 
in the services sector, and enhancing Malaysia's export capabilities. 
As a result, foreign companies do not have the same opportunity as some 
local companies to compete for contracts and in most cases foreign 
companies are required to take on a local partner before their bid will 
be considered. Some U.S. companies have voiced concerns about the 
transparency of decisions and decision-making processes. Malaysia is 
not a party to the plurilateral WTO Government Procurement Agreement.
    Investment Barriers: Malaysia encourages direct foreign investment 
particularly in export-oriented manufacturing and high-tech industries, 
but retains considerable discretionary authority over individual 
investments. Especially in the case of investments aimed at the 
domestic market, it has used this authority to restrict foreign equity 
(normally to 30 percent) and to require foreign firms to enter into 
joint ventures with local partners. To alleviate the effects of the 
economic downturn, Malaysia announced relaxation (until December 31, 
2000) of foreign-ownership and export requirements in the manufacturing 
sector for companies producing goods that do not compete with local 
producers. Most foreign firms face restrictions in the number of 
expatriate workers they are allowed to employ.
    Trade-Related Investment Measures: Malaysia has notified the WTO of 
certain measures that are inconsistent with its obligations under the 
WTO agreement on Trade-Related Investment Measures (TRIMS). The 
measures deal with local requirements in the automotive sector. New 
projects or companies granted ``pioneer status'' are eligible to 
receive a 70 percent income tax exemption. Proper notification allows 
developing-county WTO members to maintain such measures for a five-year 
transitional period after entry into force of the WTO. Malaysia 
therefore must eliminate these measures before January 1, 2000. The 
United States is working in the WTO committee on TRIMS to ensure that 
WTO members meet these obligations.
    Services Barriers: Under the WTO basic telecommunications 
agreement, Malaysia made commitments on most basic telecommunications 
services and partially adopted the reference paper on regulatory 
commitments. Malaysia guaranteed market access and national treatment 
for these services only through acquisition of up to 30 percent of the 
shares of existing licensed public telecommunications operators, and 
limits market access commitments to facilities-based providers. At 
least two U.S. firms have investments in basic and enhanced services 
sectors.
    Professional Services: Foreign professional services providers are 
generally not allowed to practice in Malaysia. Foreign law firms may 
not operate in Malaysia except as minority partners with local law 
firms, and their stake in any partnership is limited to 30 percent. 
Foreign lawyers may not practice Malaysian law or operate as foreign 
legal consultants. They cannot affiliate with local firms or use their 
international firm's name.
    Under Malaysia's registration system for architects and engineers, 
foreign architects and engineers may seek only temporary registration. 
Foreign architectural firms are eligible only for special projects as 
agreed between Malaysia and an interested foreign government. Unlike 
engineers, Malaysian architectural firms may not have foreign 
architectural firms as registered partners. Foreign architecture firms 
may only operate as affiliates of Malaysian companies. Foreign 
engineering companies must establish joint ventures with Malaysian 
firms and receive ``temporary licensing,'' which is granted only on a 
project-by-project basis and is subject to an economic needs test and 
other criteria imposed by the licensing board. Foreign accounting firms 
can provide accounting or taxation services in Malaysia only through a 
locally registered partnership with Malaysian accountants or firms, and 
aggregate foreign interests are not to exceed 30 percent. A licensed 
auditor in Malaysia must authenticate auditing and taxation services. 
Residency is required for registration.
    Banking: No new licenses are being granted to either local or 
foreign banks; foreign banks must operate as locally controlled 
subsidiaries. Foreign-controlled companies are required to obtain 60 
percent of their local credit from Malaysian banks. Insurance branches 
of foreign insurance companies were required to be locally incorporated 
by June 30, 1998; however, the government has granted extensions to 
that requirement. Foreign shareholding exceeding 49 percent is not 
permitted unless the Malaysian Government approves higher shareholding 
levels. As part of Malaysia's WTO financial services offer, the 
government committed itself to allow existing foreign shareholders of 
locally incorporated insurance companies to increase their shareholding 
to 51 percent once the WTO Financial Services Agreement goes into 
effect in 1999. New entry by foreign insurance companies is limited to 
equity participation in locally incorporated insurance companies and 
aggregate foreign shareholding in such companies shall not exceed 30 
percent.
    Securities: Foreigners may hold up to 49 percent of the equity in a 
stockbroking firm. Currently there are 11 stockbroking firms that have 
foreign ownership and 20 representative offices of foreign brokerage 
firms. Fund management companies may be 100 percent foreign-owned if 
they provide services only to foreign investors, but they are limited 
to 70 percent foreign-ownership if they provide services to both 
foreign and local investors.
    Advertising: Foreign film footage is restricted to 20 percent per 
commercial, and only Malaysian actors may be used. The government has 
an informal and vague guideline that commercials cannot ``promote a 
foreign lifestyle.'' Advertising of alcohol products is severely 
restricted.
    Television and Radio Broadcasting: The government maintains 
broadcast quotas on both radio and television programming. Sixty 
percent of television programming is required to originate from local 
production companies owned by ethnic Malays. This share is scheduled to 
increase to 80 percent by the year 2000. Sixty percent of radio 
programming must be of local origin. The Ministry of Information 
announced in January 1998 that it would study the use of the 
Broadcasting Act of 1988 as the means of imposing further conditions on 
TV stations to provide additional airtime to local programming.
    Other Barriers: U.S. companies have indicated that they would 
welcome improvements in the transparency of government decision-making 
and procedures, and limits on anti-competitive practices. A 
considerable proportion of government projects and procurement are 
awarded without transparent competitive bidding. The government has 
declared that it is committed to fighting corruption and maintains an 
Anti-Corruption Agency (a part of the office of the Prime Minister) to 
promote that objective. The agency has the independent power to conduct 
investigations and is able to prosecute cases with the approval of the 
Attorney General.
7. Export Subsidies Policies
    Malaysia offers several export allowances. Under the export credit-
refinancing scheme operated by the central bank, commercial banks and 
other lenders provide financing to exporters at a preferential interest 
rate for both post-shipment and pre-shipment credit. Malaysia also 
provides tax incentives to exporters, including double deduction of 
expenses for overseas advertising and travel, supply of free samples 
abroad, promotion of exports, maintaining sales offices overseas, and 
research on export markets. To spur exports, 70 percent of the 
increased export earnings by international trading companies has been 
exempted from taxes.
8. Protection of U.S. Intellectual Property
    Malaysia is a member of the World Intellectual Property 
Organization (WIPO), the Berne Convention, and the Paris Convention. 
Malaysia provides copyright protection to all works published in Berne 
Convention member countries regardless of when the works were first 
published in Malaysia. Malaysia is also a member of the WTO and 
scheduled to meet its obligations under Trade Related Intellectual 
Property Agreement (TRIPS) on January 1, 2000.
    As the number of manufacturing licenses for CDs has increased, so 
have piracy rates for music and video discs. Malaysia's production 
capacity for CDs far exceeds local demand plus legitimate exports, and 
pirate products believed to have originated in Malaysia have been 
identified throughout the Asia-Pacific region, North America, South 
America, and Europe. The Malaysian Government is aware of the problem 
and has expressed its determination to move against illegal operations. 
In the April 1999 ``Special 301'' report, USTR decided to delay a 
decision on including Malaysia on the Watch List until an out-of-cycle 
review could be conducted to assess Malaysia's progress toward 
substantially reducing pirated optical media production and export.
    In March 1998, the government opened an intellectual property 
training center to develop and offer programs for government officials, 
agencies, attorneys, and the judiciary. In April 1999, the government 
created an interagency task force to develop and implement a regulatory 
regime for optical media production. Since April, the government has 
drafted comprehensive optical media legislation, which was scheduled to 
be submitted to Parliament during its fall session. The November 11 
dissolution of Parliament by the Prime Minister in anticipation of 
elections on November 29 has delayed consideration of the optical disc 
legislation and most TRIPS-related amendments to existing legislation 
until the first parliament session of the new government, most likely 
in Spring 2000.
    Suppressing CD-based digital piracy is consistent with the 
government's objective to establish the Multimedia Super Corridor as 
the preeminent locus of high-technology manufacturing and innovation in 
Asia. Police and legal authorities are generally responsive to requests 
from U.S. firms for investigation and prosecution of copyright 
infringement cases. However, despite over 6,000 raids and inspections 
since April 1999, no one has been criminally prosecuted for piracy. 
Notwithstanding these efforts of the government, illegal production of 
optical disks remains a significant problem in Malaysia, and its 
effects have been observed throughout the region.
    Trademark infringement and patent protection have not been serious 
problem areas in Malaysia for U.S. companies in recent years.
9. Worker Rights
    a. The Right of Association: By law most workers have the right to 
engage in trade union activity, and approximately 10 percent of the 
work force are members of trade unions. Exceptions include certain 
categories of workers labeled ``confidential'' and ``managerial and 
executives,'' as well as police and defense officials. The government 
discourages Malaysia's many foreign workers from joining unions and, in 
practical terms, foreigners are not able to engage in trade union 
activity. Government policy places a de facto ban on the formation of 
national unions in the electronics sector, but allows enterprise-level 
unions,
    b. The Right to Organize and Bargain Collectively: Workers have the 
legal right to organize and bargain collectively, and collective 
bargaining is widespread in those sectors where labor is organized. 
However, severe restrictions on the right to strike weaken collective 
bargaining rights. The law requires that the parties to a labor dispute 
submit to a system of compulsory adjudication. Thus, though 
theoretically legal, strikes are extremely rare.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor, and the government enforces this 
prohibition. There is no evidence that forced or compulsory labor 
occurs in Malaysia except for rare cases that, when discovered, are 
prosecuted vigorously by the government.
    d. Minimum Age for the Employment of Children: Malaysian law 
prohibits the employment of children younger than the age of 14. The 
law permits some exceptions, such as light work in a family enterprise, 
work in public entertainment, work performed for the government in a 
school or training institutions, or work as an approved apprentice. In 
no case may children work more than six hours per day, more than six 
days per week, or at night. Child labor occurs, but there is no 
reliable recent estimate of the number of child workers. Most child 
laborers work in the urban informal sector and the agricultural sector.
    e. Acceptable Conditions of Work: There is not minimum wage, but 
prevailing wages generally provide a decent living. Malaysian law 
stipulates working hours, mandatory rest periods, overtime rates, 
holidays, and other labor standards. The government enforces these 
standards. Working conditions on plantations are worse than in other 
areas of the economy. An occupational safety law provides some 
protections.
    f. Rights in Sectors with U.S. Investment: U.S. companies invest 
widely in many sectors of the Malaysian economy. Worker rights in 
sectors in which there is U.S. investment generally do not differ from 
those in other sectors. U.S. companies invest heavily in the 
electronics sector, in which workers' right to organize is limited to 
enterprise-level unions.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,027
Total Manufacturing............  ..............  4,199
  Food & Kindred Products......  3               ...............................................................
  Chemicals & Allied Products..  306             ...............................................................
  Primary & Fabricated Metals..  5               ...............................................................
  Industrial Machinery and       743             ...............................................................
   Equipment.
  Electric & Electronic          2,669           ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  473             ...............................................................
Wholesale Trade................  ..............  166
Banking........................  ..............  393
Finance/Insurance/Real Estate..  ..............  352
Services.......................  ..............  84
Other Industries...............  ..............  -27
TOTAL ALL INDUSTRIES...........  ..............  6,193
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              PHILIPPINES


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................       82.2       65.1       74.6
  Real GDP Growth (pct) \2\............        5.2       -0.5        3.0
  Nominal GDP by Sector:
    Agriculture........................       15.4       11.0       13.1
    Manufacturing......................       18.3       14.3       16.0
    Services...........................       40.4       33.7       39.0
    Government \3\.....................       10.0        8.4        9.5
  Per Capita GDP (US$).................      1,145        886        990
  Labor Force (000's)..................     30,355     31,056     31,800
  Unemployment Rate (pct)..............        8.7       10.0        9.5

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \4\.........       20.5        8.0       12.0
  Consumer Price Inflation (pct).......        5.9        9.7        7.2
  Exchange Rate (Peso/US$ annual             29.47      40.89      39.50
   average) Interbank Rate.............

Balance of Payments and Trade:
  Total Exports FOB \6\................       25.2       29.5       33.8
    Exports to U.S. \7\................       10.4       11.9       12.0
  Total Imports FOB \6\................       36.4       29.5       31.3
    Imports from U.S. \7\..............        7.4        6.7        7.2
  Trade Balance \6\....................      -11.1      -0.03        2.5
    Balance with U.S. \7\..............        3.0        5.2        4.8
  Current Acct. Surplus or Deficit/GDP        -5.3        2.0        6.0
   (pct)...............................
  External Public Sector Debt..........       27.0       30.3       32.0
  Foreign Debt Service Payments/GDP            6.8        7.8        8.8
   (pct)...............................
  Nat'l Gov. Fiscal Surplus or Deficit/        0.1       -1.9       -3.0
   GDP (pct)...........................
  Gold and Foreign Exchange Reserves...        8.8       10.8       15.5
  Aid from U.S. (US$ millions) \8\.....       46.0       49.0   \9\ 35.0
  Aid from Other Bilateral Sources (US$    1,588.0    1,465.0  \9\ 1,179
   millions) \8\.......................                               .0
------------------------------------------------------------------------
\1\ 1999 figures are full-year estimates based on data available as of
  October.
\2\ Percentage changes based on local currency.
\3\ Government construction and services gross value added.
\4\ Growth rate of year-end M2 levels.
\5\ 1994 base year starting 1997; 1988 base year for prior years.
\6\ Merchandise trade.
\7\ Source: U.S. Department of Commerce; exports FAS, imports customs
  basis; 1999 figures are estimates based on data available through
  August 1999.
\8\ Inflows per Philippine government balance of payments data,
  excluding inflows from the U.S. Veterans Administration (USVA).
\9\ Actual January-July 1999 figures.

Sources: National Economic and Development Authority, Bangko Sentral ng
  Pilipinas, Department of Finance.

1. General Policy Framework
    The Philippines has a population of 75 million, growing at 2.3 
percent yearly. Agriculture absorbs 40 percent of employment but 
contributes only 20 percent of GDP. Electronics, garments, and auto 
parts are the leading merchandise exports, but rely heavily on imported 
inputs. Overseas workers remittances, estimated at $5-6 billion yearly, 
are a major source of foreign exchange. The domestic savings rate is 
relatively low, compared to the rest of Asia, estimated at 20 percent 
of GNP in 1998.
    Public finances has been a long-standing problem. After four 
consecutive fiscal surpluses (1994-97), the government is again running 
a large budget deficit, in part as a response to the Asian financial 
crisis. But revenues perennially suffer from weak tax administration 
and collection, and efforts to contain expenditures are hampered by the 
large share (over 70%) of ``non-discretionary'' expenditures such as 
payroll costs, interest payments and mandated transfers to local 
government units. Fiscal difficulties complicate government efforts to 
manage domestic interest rates, leading the government to rely more 
heavily on foreign borrowings.
    The Aquino and Ramos administrations made significant progress in 
setting the stage for a higher and more sustainable growth path through 
economic liberalization and deregulation. President Joseph Estrada is 
trying to continue and expand the program pursued by his predecessors, 
but nationalist and vested interests pose obstacles to further reform.
2. Exchange Rate Policy
    Current account transactions are fully convertible. There are no 
barriers to full and immediate capital repatriation and profit 
remittances, foreign debt servicing, and the payment of royalties, 
lease payments and similar fees. Foreign exchange rates generally 
evolve freely in the interbank market, although the Bangko Sentral ng 
Pilipinas (BSP--Central Bank) imposes limits on banks' foreign exchange 
positions. The depreciation of the peso during the Asian financial 
crisis (from Peso 26/dollar in June 1997 to Peso 40/dollar at present) 
has hurt the competitiveness of some U.S. exports.
3. Structural Policies
    Prices are generally determined by market forces, although basic 
public services (such as transport, water and electricity) are 
regulated by the government. Government regulation of prices of 
``socially sensitive'' petroleum products (i.e., liquefied petroleum 
gas, regular gasoline, and kerosene) ended in July 1998 with the full 
deregulation of the oil industry, but the government's National Food 
Authority remains a major factor in the market for rice and other 
agricultural products.
    While progress in investment liberalization has been substantial, 
important barriers to foreign entry remain. Two ``negative lists'' 
outline where investment is restricted. Divestment requirements exist 
for firms seeking certain investment incentives. A number of other laws 
specify, or have the effect of imposing, local sourcing requirements.
    Almost all products, including imports, are subject to a 10 percent 
value added tax. Certain products--whether domestically manufactured or 
imported--are subject to excise tax. The Philippines' Tariff Reform 
Program is gradually lowering applied duty rates on nearly all items, 
toward a goal of tariff rates of zero to five percent by 2004 for all 
items except sensitive agricultural products.
4. Debt Management Policies
    Foreign debt (estimated at $48.1 billion as of June 1999) has been 
growing, but debt servicing is not a significant problem. The ratio of 
debt service payments to exports of goods and services was 13.2 percent 
during period Jan-July 1999, compared to 40 percent in the early 1980s. 
Medium and long-term loans comprise over 85 percent of external 
liabilities. Concessional credits from multilateral and official 
bilateral lenders account for about half of the country's external 
debt.
    The Philippines had four debt rescheduling rounds with official 
bilateral (Paris Club) creditors and did not exercise a fifth Paris 
Club debt rescheduling agreement. While the Philippines ``graduated'' 
from over three decades of International Monetary Fund (IMF) 
supervision in March 1998, a two-year IMF standby arrangement was 
agreed at the same time. The Government has indicated it may extend the 
arrangement. The Philippines has also succeeded in retiring or 
exchanging some of its earlier debt for instruments carrying longer 
maturities and more favorable terms, the latest being a $1 billion 
Brady bond exchange program concluded in October 1999.
    The Central Bank requires prior approval of private sector debt 
guaranteed by the public sector or covered by forex guarantees issued 
by local banks; loans extended by foreign currency deposit units funded 
or collateralized by offshore loans and deposits; loans with maturities 
of over one year obtained by private banks and financial institutions 
for relending; and public sector foreign loans.
5. Significant Barriers to U.S. Exports
    Tariffs: Imported items that are not locally produced generally 
face low tariffs, while imports that compete with locally-produced 
goods face high tariffs, generally up to 30 percent. Imports of 
finished automotive vehicles (completely built-up units) face a 40 
percent tariff (scheduled to fall to 30 percent in 2000). The non-trade 
weighted average nominal tariff rate was 9.98 percent in 1999 and is 
scheduled to decline to 8.09 percent in the year 2000. Customs accounts 
for over 20 percent of government revenues. In January 1999, President 
Estrada signed E.O. 63 raising applied MFN tariff rates on a range of 
products including yarns, threads, fabric, apparel, and kraft liner 
paper. Rates on these items are scheduled to return to 1997 levels in 
2000. Significant trade barriers hamper market access in agriculture. 
The Philippines maintains high tariff rates on sensitive agricultural 
products, including grains, livestock and meat products, sugar, certain 
vegetables, and coffee. Examples include feed grains, particularly corn 
(at an in-quota rate of 35 percent, and a 65 percent out-of-quota 
rate), sorghum (15 percent) and potatoes (in-quota rate of 45 percent, 
60 percent out-of-quota). A number of particularly sensitive 
agricultural commodities are subject to tariff-rate quotas (TRQs), 
including live animals, fresh and chilled beef, pork, poultry meat, 
goat meat, potatoes, coffee, corn, and sugar. Rice is subject to a 
quantitative restriction.
    Import Licenses: The National Food Authority (NFA), a government 
entity, is the sole importer of rice and continues to be involved in 
imports of corn. Fisheries Administrative Order (FAO) 195, series of 
1999, issued by the Department of Agriculture, requires a license to 
import fresh, chilled, and frozen fish when intended for sale in local 
retail markets. Certain other items are subject to other import 
regulations, including firearms and ammunition, used clothing, sodium 
cyanide, chlorofluorocarbon (CFC) and other ozone-depleting substances, 
penicillin and derivatives, coal and derivatives, color reproduction 
machines, chemicals for the manufacture of explosives, pesticides, used 
motor vehicles, and used tires. In addition, as noted above, certain 
agricultural commodities are subject to minimum access volume tariff-
rate quotas.
    Excise Taxes: U.S. producers of automobiles and distilled spirits 
have raised concerns about certain discriminatory aspects of the 
Philippines' excise tax system. Excise taxes on distilled spirits 
impose a lower tax on products made from materials that are 
indigenously available (e.g., coconut, palm, sugar cane). The excise 
tax treatment of automotive vehicles is based on engine displacement, 
rather than vehicle value.
    Services Barriers: Banking--May 1994 banking legislation permitted 
10 new foreign banks to open branches in the Philippines. Foreign 
equity is limited to 60 percent ownership of either a new local 
subsidiary or an existing domestic bank. Regulations require that 
majority Filipino-owned domestic banks control at least 70 percent of 
total banking system assets.
    Securities--Membership in the Philippine stock exchange is open to 
foreign-controlled stock brokerage firms that are incorporated under 
Philippine laws. Foreign ownership in securities underwriting companies 
is limited to 60 percent. Companies not established under Philippine 
law are not allowed to underwrite securities for the Philippine market, 
but may underwrite Philippine issues for foreign markets.
    Insurance--Although foreign entry has been liberalized, 
capitalization requirements vary according to the extent of foreign 
equity. Only the Philippines' Government Service Insurance System can 
provide coverage for government-funded projects and BOT-funded 
projects. Regulations require all insurance/professional reinsurance 
companies operating in the country to cede to the industry-owned 
National Reinsurance Corporation of the Philippines at least 10 percent 
of outward reinsurance placements.
    Professional Services--The Philippine Constitution reserves the 
practice of licensed professions to Philippine citizens. This includes, 
inter alia, law, engineering, medicine, accountancy, architecture, and 
customs brokerage.
    Telecommunications--The Philippine Constitution limits foreign 
ownership in public utilities to 40 percent. Telecommunication firms 
are considered public utilities.
    Shipping--Foreign-flagged vessels are prohibited from the carriage 
of domestic trade.
    Express Delivery Services--Foreign air express couriers and 
airfreight forwarding firms must either contract with a wholly 
Philippine-owned business to provide delivery services, or establish a 
domestic company, at least 60 percent of which should be Philippine-
owned.
    Standards, Testing, Labeling, and Certification: Imports of 
products covered by mandatory Philippine national standards must be 
cleared by the Bureau of Product Standards (BPS). Labeling requirements 
apply to a variety of products, including pharmaceuticals, food, 
textiles and certain industrial goods. The Generics Act of 1988, 
mandates that the generic name of a particular pharmaceutical product 
appear above its brand name on all packaging.
    Investment Barriers: The Foreign Investment Act of 1991 contains 
two ``negative lists'' that outline areas where foreign investment is 
restricted. ``List A'' restricts foreign investment in certain sectors 
because of constitutional or legal constraints. No foreign investment 
is permitted in mass media (including cable television), retail trade, 
processing of corn and rice, small-scale mining and private security 
agencies. Varying foreign ownership limitations cover, among others, 
advertising (30 percent), recruitment (25 percent), financing (60 
percent), securities underwriting (60 percent), public utilities (40 
percent), education (40 percent), and the exploration and development 
of natural resources (40 percent). Land ownership is reserved to 
Philippine citizens and corporations that are at least 60 percent owned 
by Philippine citizens. ``List B'' limits foreign ownership (generally 
to 40 percent) for reasons of public health, and safety and morals. 
This list also restricts foreign ownership to no more than 40 percent 
in non-export firms capitalized at less than $200,000.
    Export Performance Requirements: Investment incentive regulations 
impose a higher export performance requirement for foreign-owned 
enterprises (70 percent of production should be exported) than for 
Philippine-controlled companies (50 percent). With the exception of 
foreign-controlled firms that export 100 percent of their production, 
foreign firms that seek incentives from the Board of Investments (BOI) 
must commit to divest to 40 percent ownership within 30 years or such 
longer period as the BOI may allow. The Philippines has requested an 
extension of the January 1, 2000, deadline to eliminate WTO-
inconsistent local-content and foreign exchange requirements under its 
motor vehicle development program.
    Local Sourcing Requirements: Outside of the investment incentives 
regime, investors in certain industries are subject to specific laws 
which require local sourcing. Executive Order (E.O.) 776 requires that 
pharmaceutical firms purchase semi-synthetic antibiotics from a 
specific local company, unless they can demonstrate that the landed 
cost of imported semi-synthetic antibiotics is at least 20 percent less 
than that produced by the local firm. E.O. 259 bans imports of soap and 
detergents containing less than 60 percent coconut-based surface active 
agents of Philippine origin, implicitly requiring local sourcing by 
soap and detergent manufacturers. Letter of Instruction (LOI) 1387, 
issued in 1984, requires mining firms to offer their copper 
concentrates to Philippine Associated Smelting and Refining Corp. 
(PASAR)--a government-controlled firm until its recent privatization.
    Government Procurement Practices: Contracts for government 
procurement are awarded by competitive bidding. Preferential treatment 
of local suppliers is practiced in government purchases of 
pharmaceuticals, rice, corn, and iron/steel materials for use in 
government projects, and in locally-funded government consulting 
requirements. The Philippines is not a signatory of the WTO Government 
Procurement Agreement.
    Customs Procedures: The government has contracted a private firm, 
Societe Generale de Surveillance, to perform certain customs functions. 
Officials have not stated whether the contract will be renewed beyond 
December 31, 1999. Most imports valued at over $500 are permitted entry 
only when accompanied by a `Clean Report of Findings'' issued by SGS. 
Refrigerated products are exempt. Certain goods require preshipment 
inspection in the country of export. The preshipment inspection 
requirement extends to exports to certain operations in free-trade 
zones. Customs valuation for determining dutiable value of imports is 
based on ``export value,'' which has resulted in unwarranted uplifts in 
the assessed dutiable value of many U.S. exports. The government says 
it will implement the ``transaction value'' method of customs valuation 
by January 1, 2000, in line with WTO obligations.
6. Export Subsidies Policies
    Firms engaged in activities under the government's ``Investment 
Priorities Plan'' may register with the Board of Investments (BOI) for 
fiscal incentives, including three to six year income tax holidays and 
a tax deduction equivalent to 50 percent of the wages of direct-hire 
workers for the first five years from registration. BOI-registered 
firms that locate in less-developed areas may be eligible to claim a 
tax deduction of up to 100 percent of outlays for infrastructure works 
and 100 percent of incremental labor expenses also for the first five 
years from registration. Export-oriented firms located in government-
designated export zones and industrial estates registered with the 
Philippine Economic Zone Authority enjoy basically the same incentives 
as BOI-registered firms. Firms which earn at least 50 percent of their 
revenues from exports may register for certain tax credits under the 
``Export Development Act'' (EDA), including a tax credit for imported 
inputs and raw materials not readily available locally (through 
December 31, 1999).
7. Protection of U.S. Intellectual Property
    The Philippines is a party to the Berne and Paris Conventions, the 
WTO Agreement on Trade Related Aspects of Intellectual Property 
(TRIPs), and is a member of the World Intellectual Property 
Organization. The Philippines remains on the ``Special 301'' Watch 
List.
    While substantial progress has been made in recent years, 
significant problems remain in ensuring consistent, effective 
protection of intellectual property rights (IPR). A new IP law (R.A. 
8293), which took effect January 1, 1998, improves the legal framework 
for IPR protection. It provides enhanced copyright and trademark 
protection; creates a new Intellectual Property Office with original 
jurisdiction to resolve IPR infringement complaints; increases 
penalties for infringement and counterfeiting; and relaxes provisions 
requiring the registration of licensing agreements. Deficiencies in 
R.A. 8293 remain a concern. These include the lack of authority for 
courts to order the seizure of pirated material as a provisional 
measure without notice to the infringer; ambiguous provisions on the 
rights of copyright owners over broadcast, rebroadcast, cable 
retransmission, or satellite retransmission of their works; and 
burdensome requirements concerning licensing contracts. Legislation is 
pending to provide IPR protection for plant varieties and layout-
designs of integrated circuits, in line with WTO obligations.
    Enforcement: Enforcement agencies generally will not proactively 
target infringement unless the copyright owner brings it to their 
attention and works with them on surveillance and enforcement actions. 
Joint efforts between the private sector and the National Bureau of 
Investigation and Philippine Customs have resulted in a series of 
successful enforcement actions. While certain courts have been 
designated to hear IPR cases, little has been done to streamline 
judicial proceedings in this area, as these courts have not received 
additional resources and continue to handle a heavy non-IPR workload. 
In addition, IPR cases are not considered ``major crimes,'' and take a 
lower precedence in court proceedings. Because of the prospect that 
court action will be lengthy, many cases are settled out of court.
    Patents: R.A. 8293 mandates a first-to-file system, increases the 
term of patents from 17 to 20 years from date of filing, provides for 
the patentability of micro-organisms and non-biological and 
microbiological processes, and gives patent holders the right of 
exclusive importation of their inventions.
    Trademarks, Service Marks and Trade Names: R.A. 8293 no longer 
requires prior use of trademarks in the Philippines as a requirement 
for filing a trademark application. Also eliminated was the requirement 
that well-known marks be in actual use in Philippine commerce or 
registered with the government. Trademark infringement remains a 
serious problem in the Philippines.
    Copyrights: R.A. 8293 expands IPR protection by clarifying 
protection of computer software as a literary work (although it 
includes a fair-use provision on decompilation of software), 
establishing exclusive rental rights, and providing terms of protection 
for sound recordings, audiovisual works, and newspapers and periodicals 
that are compatible with the WTO TRIPS Agreement. Software, music and 
film piracy remain widespread. The Business Software Alliance estimates 
the 78 percent of business software in use in 1998 was unlicensed; the 
piracy rate for entertainment software is 90 percent. The Motion 
Picture Association of America estimates that two-thirds of motion 
pictures on video or optical discs in 1998 were illegal copies. The 
illegal retransmission of satellite programming by cable operators is a 
growing problem.
    The U.S. intellectual property industry estimates 1998 potential 
trade losses due to piracy of software at $57 million; of motion 
pictures, $18 million; of sound recordings, $4 million; of books, $39 
million.
8. Worker Rights
    a. The Right of Association: All workers (including public 
employees) have a right to form and join trade unions, a right which is 
exercised without government interference. Trade unions are independent 
of the government and generally free of political party control. Unions 
have the right to form or join federations or other labor groupings. 
Subject to certain procedural restrictions, strikes in the private 
sector are legal. Unions are required to provide strike notice, respect 
mandatory cooling-off periods, and obtain majority member approval 
before calling a strike.
    b. The Right to Organize and Bargain Collectively: The Philippine 
Constitution guarantees the right to organize and bargain collectively. 
The Labor Code protects and promotes this right for employees in the 
private sector and in government-owned or controlled corporations. A 
similar but more limited right is afforded to employees in most areas 
of government service. Dismissal of a union official or worker trying 
to organize a union is considered an unfair labor practice. Labor law 
and practice are uniform throughout the country, although there have 
been complaints about some local attempts to maintain ``union free/
strike free'' policies in several of the export processing zones. In 
the garment industry, the widespread use of short-term, contract 
workers is an obstacle to workers forming unions or obtaining medical 
and retirement benefits.
    c. Prohibition of Forced or Compulsory Labor: The Philippine 
Constitution prohibits forced labor and the government effectively 
enforces this prohibition.
    d. Minimum Age for Employment of Children: Philippine law prohibits 
the employment of children below age 15, with some exceptions involving 
situations under the direct and sole responsibility of parents or 
guardians, or in the cinema, theater, radio and television in cases 
where a child's employment is essential. The Labor Code allows 
employment for those between the ages of 15 and 18 for such hours and 
periods of the day as are determined by the Secretary of Labor, but 
forbids employment of persons under 18 years in hazardous work. 
Government and international organization estimates indicate that some 
three million children under age 18 are employed in the informal sector 
of the urban economy, certain fishing practices, port work or as unpaid 
family workers in rural areas.
    e. Acceptable Conditions of Work: A comprehensive set of 
occupational safety and health standards exists in law. Statistics on 
actual work-related accidents and illnesses are incomplete, as 
incidents (especially in regard to agriculture) are underreported.
    f. Rights in Sectors with U.S. Investment: U.S. investors in the 
Philippines generally apply U.S. standards of worker safety and health, 
in order to meet the requirements of their home-based insurance 
carriers. Some U.S. firms have resisted efforts by their employees to 
form unions, with local government support.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  283
Total Manufacturing............  ..............  1,634
  Food & Kindred Products......  440             ...............................................................
  Chemicals & Allied Products..  477             ...............................................................
  Primary & Fabricated Metals..  33              ...............................................................
  Industrial Machinery and       16              ...............................................................
   Equipment.
  Electric & Electronic          483             ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  184             ...............................................................
Wholesale Trade................  ..............  172
Banking........................  ..............  288
Finance/Insurance/Real Estate..  ..............  627
Services.......................  ..............  187
Other Industries...............  ..............  2
TOTAL ALL INDUSTRIES...........  ..............  3,192

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               SINGAPORE


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................    96,250.7    84,627.5    88,246.4
  Real GDP Growth (pct) \2\.........         8.9         0.3         5.0
  GDP by Sector: \2\
    Agriculture \3\.................       181.1       137.9       176.5
    Manufacturing...................    21,968.2    19,499.3    20,296.7
    Services........................    65,531.6    56,931.3    60,007.5
    Government expenditure..........     9,050.7     8,431.0     8,824.6
  Per Capita GDP (US$)..............    25,758.2    21,892.5    22,056.7
  Labor Force (000's)...............     1,876.0     1,931.8     1,989.8
  Unemployment Rate (pct)...........         1.8         3.2         3.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        10.3        30.2        36.8
  Consumer Price Inflation (pct)....         2.0       --0.3         0.5
  Exchange Rate (SGD/US$ annual             1.48        1.67        1.69
   average).........................

Balance of Payments and Trade:
  Total Exports FOB.................   125,414.2   110,037.7   109,279.2
    Exports to U.S. CIF \4\.........    20,368.1    18,654.3    18,206.6
  Total Imports CIF.................   132,841.2   101,714.4   106,038.7
    Imports from U.S. FAS \4\.......    17,727.4    15,673.5    15,955.6
  Trade Balance.....................    -7,427.0     8,323.4     3,240.4
    Trade Balance with U.S. \4\.....     2,640.7     2,980.8     2,251.0
  External Public Debt..............           0           0           0
  Fiscal Surplus/GDP (pct)..........         4.2        -0.3        -3.5
  Current Account Surplus/GDP (pct).        15.7        20.9        24.3
  Debt Service Payments/GDP (pct)...           0           0           0
  Gold and Foreign Exchange Reserves    71,391.7    75,028.2    78,704.5
  Aid from U.S......................           0           0           0
  Aid from Other Sources............           0           0           0

------------------------------------------------------------------------
Note: All percentage changes are calculated based on the local currency.

\1\ 1999 figures are projections based on most recent data available.
\2\ Singapore introduced a methodology to include offshore stockbroking,
  investment advisory and insurance services in the output of the
  financial services industry, resulting in changes to the GDP and
  growth figures computed in previous years. GDP data has also been re-
  grouped into eleven industries from the eight previously.
\3\ Includes the agriculture, fishing and quarrying industries.
\4\ Trade data was taken from the U.S. Department of Commerce instead of
  Singaporean government sources.

1. General Policy Framework
    A city-state with a population of 3.9 million (of which 700,000 or 
18 percent are foreigners, mainly migrant workers and professionals) 
astride one of the world's major shipping lanes, Singapore has long 
pursued economic policies that promote open trade and investment. These 
policies have allowed Singapore to overcome its land, labor and 
resource constraints, and develop into one of the world's most 
successful open trading and investment regimes with an average annual 
GDP growth rate of 7 percent in the last decade. Although Singapore's 
growth rate decelerated to 0.3 percent in 1998 due to the Asian 
economic crisis, it still had the world's fifth highest per capita GNP 
in purchasing power parity terms, according to the World Bank in its 
1999 World Development Report. Singapore also actively promotes trade 
liberalization in the region through APEC and ASEAN; the APEC 
Secretariat is located in Singapore. It is a founding member of the 
World Trade Organization (WTO), and hosted the first WTO Ministerial in 
December of 1996.
    Internally, Singapore has a free-market, pro-growth and competitive 
business environment characterized by a transparent and corruption-free 
regulatory framework. At the same time, it has a sizable public sector 
in the form of government-linked companies (GLCs) that account for some 
60 percent of GDP. The GLCs generally operate as commercial entities, 
and frequently include private local and foreign equity. Many GLCs are 
also publicly listed companies. Manufacturing is the single largest 
sector in the economy, accounting for 22 percent of total GDP. Foreign 
multinational electronics and chemicals companies dominate this sector, 
producing primarily for export to the region and the developed markets, 
notably the U.S. and Europe. Foreign companies accounted for 67 percent 
of the USD 4.7 billion of new manufacturing investment in 1998. 
Electronics output accounts for 43 percent of total industrial output 
and chemicals (including oil refining) for 22 percent. Besides engaging 
in high value-added manufacturing activities, multinational companies 
also take advantage of Singapore's modern and pro-business 
infrastructure and productive workforce to establish headquarters and 
manage their regional operations from the city-state.
    Wholesale and retail trade is the second largest sector in the 
economy, accounting for 14 percent of GDP, reflecting Singapore's key 
role as the gateway for goods and people into and out of the region. 
Trade is 2.5 times GDP, with transshipments accounting for 42 percent 
of total merchandise exports. Visitor arrivals to Singapore in 1998, 
which suffered a 13.3 percent drop due to the recent crisis, still 
amounted to 6.2 million, almost twice its indigenous population. 
Financial services, which accounts for 13 percent of GDP, is the third 
largest economic sector. According to the Bank of International 
Settlements, Singapore is the world's fourth largest center for foreign 
exchange activities (after London, New York and Tokyo). Its Asian 
Dollar Market is also the world's eighth largest offshore lending 
center. The government is actively promoting its financial sector, 
particularly asset management, and bond and capital market activities 
to augment Singapore's role as an international financial center.
    The government pursues conservative fiscal policies designed to 
encourage high levels of savings and investment. The government also 
invests heavily in the country's social and physical infrastructure, 
including education and transportation, and provides subsidies for 
public housing and sometimes for the purchase of shares in GLCs when 
they are initially listed on the stock exchange. For most of the years 
since the 1970's, the government has had a budget surplus. However, due 
to counter-cyclical measures implemented amid the Asian economic 
crisis, the government's budget went into a deficit of USD 243 million 
(about 0.3 percent of GDP) in fiscal year 1998. The deficit is forecast 
to widen to about USD 3 billion in FY99 (about 3.5 percent of GDP) with 
further pump priming of the economy.
    The Central Provident Fund (CPF) is a compulsory savings program 
that requires 20 percent of an individual's salary be placed in a tax-
exempt account, with employers contributing another 10 percent. The CPF 
is the basis for the extraordinarily high gross national saving rate of 
over 60 percent of GDP. Employers' contribution amounted originally to 
20 percent of an employee's salary prior to the recent crisis, but was 
halved to 10 percent since the beginning of 1999 as part of a broad 
business cost-reduction package implemented by the government. However, 
a partial restoration of employers' contribution is expected by mid-
2000 to ease the build-up of wage pressures emanating from a faster and 
stronger-than-expected domestic and regional economic recovery. 
Individual CPF accounts may be used, in part, to finance housing 
purchases and investment in stocks and other instruments approved under 
the CPF investment scheme.
    The Monetary Authority of Singapore (MAS), the country's central 
bank, engages in limited money-market operations to influence interest 
rates and ensure adequate liquidity in the banking system. The MAS' key 
objective is to maintain price stability, which it achieves largely 
through an exchange rate policy. (Note: Inflation has averaged 2 
percent annually over the last 10 years, except for 1998 when deflation 
of 0.3 percent set in due to the economic recession). There are 
virtually no controls on capital movements, thus limiting the scope for 
an independent monetary policy to either stimulate or restrain economic 
activity. The average prime lending rate among the leading banks is 
currently at 5.8 percent, after peaking at about 7.8 percent in the 
first half of 1998 amid the Asian financial crisis.
    Singapore's sound economic policies and an open and favorable 
trading and investment climate have attracted about 1,300 U.S. 
companies to Singapore, with cumulative investments of USD 19.8 billion 
in 1998. The United States is Singapore's largest trading partner, 
accounting for 19.2 percent of Singapore's total trade in 1998. Based 
on U.S. Department of Commerce data, U.S. exports to Singapore amounted 
to USD 15.7 billion in 1998, while Singapore's exports to the United 
States totaled USD 18.4 billion.
2. Exchange Rate Policy
    Singapore has no exchange rate controls. Exchange rates are 
determined freely by daily cross rates in the international foreign 
exchange markets. At the same time, the MAS uses currency swaps and 
direct open market operations to keep the Singapore Dollar within a 
desired range relative to a basket of currencies of the country's major 
trading partners. It seeks to maintain a strong currency to check 
inflation, given Singapore's extreme exposure to international trade. 
The government also imposes certain restrictions to limit the 
internationalization of the Singapore Dollar, including a requirement 
for banks to consult the MAS before extending credit in excess of SGD 5 
million (about USD 3 million) to non-residents. It has recently opened 
up its Singapore Dollar debt market to foreign companies and financial 
institutions, however, on condition that the funds are converted to 
foreign exchange prior to use abroad.
    The Singapore Dollar appreciated nearly 55 percent against the U.S. 
Dollar from 1986 to 1996. It has since depreciated, along with but to a 
lesser extent than other regional currencies, as a result of the Asian 
economic crisis. The Singapore Dollar depreciated by as much as 20 
percent between July 1997 and August 1998 when it sank to its lowest 
rate of 1.78 to the U.S. Dollar. This has had a major impact on U.S. 
exports to Singapore, which fell by 11.6 percent 1998, and are expected 
to show flat growth in 1999. The Singapore Dollar has since rebounded 
with the region's recovery, and is forecast to post an average rate of 
about 1.7 for 1999.
3. Structural Policies
    Singapore's prudent economic policies have allowed for steady 
economic growth and the development of a reliable market, to the 
benefit of U.S. exporters. Singapore was the tenth largest export 
market for the U.S. in 1998, slipping from the eighth and ninth 
positions which it occupied in 1996 and 1997, respectively. Product 
prices are generally determined by market forces. The government 
conducts its bids by open tender and encourages price competition 
throughout the economy.
    The government has gradually reduced corporate income tax levels 
from 40 percent in 1986 to the current 26 percent. It aims to bring the 
corporate tax rate down further to 25 percent. Foreign firms are taxed 
at the same rate as local firms. There is no tax on capital gains 
except on residential properties that are sold within three years of 
purchase. This was implemented in 1996, together with measures to 
impose higher stamp duties and restrict bank credit for property 
purchases, in order to curb excessive speculative activities in the 
real estate market.
    The government implemented a three percent value-added Goods and 
Services Tax (GST) in 1994 but reduced corporate (by one percentage 
point) and personal (by three percentage points) taxes. It also began 
providing rebates of up to SGD 700 on individual income tax in 1994 to 
lighten the GST burden on the citizenry. With these changes, it is 
estimated that 65 percent of income earners end up not having to pay 
personal income taxes, thus increasing the disposable incomes available 
to the average consumer. Singapore's personal income tax rates 
presently range from 2 percent for the lowest income bracket to 28 
percent for those earning annual incomes exceeding SGD 400,000 (about 
USD 240,000).
    Many of Singapore's public policy measures are tailored to attract 
foreign investments and ensure an environment conducive to their 
efficient business operation and profitability. Investment policies are 
open and transparent. Although the government seeks to develop more 
high-tech industries, it does not impose production standards, require 
purchases from local sources, or specify a percentage of output for 
export.
    In view of the city-state's relatively high land and labor costs, 
the government has been aggressively implementing relevant manpower 
development, industrial restructuring and infrastructure enhancing 
measures to upgrade Singapore into a competitive knowledge-based 
economy. The plan is to attract multinational companies and service 
providers to establish high value-added manufacturing and service 
operations in the electronics, chemicals, life sciences, engineering, 
education, healthcare, logistics, and communications and media 
industries. It has also embarked on financial liberalization and 
reforms to develop the retail banking market and, more pertinently, 
widen Singapore's international scope to include asset management and 
bond market activities. To catalyze Singapore's advancement into a 
knowledge-based economy and an international financial center, the 
government is pursuing a policy to attract foreign professionals and 
qualified individuals to work and live here.
4. Debt Management Policies
    Singapore's external public debt was a negligible USD 3.1 million 
at the end of 1994 and this was retired completely in 1995. This was 
one of the key factors that enabled the country to weather the currency 
crisis that engulfed the region in the second half of 1997 and 1998. 
Singapore's annual budget surpluses (prior to 1998) and mandatory 
savings have also allowed the government wide latitude in devising off-
budget measures to increase funds to support infrastructure, education, 
and other programs during the current economic slowdown. Singapore does 
not receive financial assistance from foreign governments.
5. Significant Barriers to U.S. Exports
    Singapore has one of the world's most liberal and open trade 
regimes. Approximately 96 percent of imports are not dutiable. Tariffs 
are primarily levied on cigarettes and alcohol to restrict their 
consumption. Excise taxes are levied on petroleum products and motor 
vehicles primarily to restrict motor vehicle use. There are no 
intentional non-tariff barriers to foreign goods. Import licenses are 
not required; customs procedures are minimal and highly efficient; the 
standards code is reasonable; and the government actively encourages 
foreign investment. All major government procurements are by 
international tender. The government formally acceded to the WTO 
Government Procurement Agreement in September 1997.
    To achieve its goal of becoming an international financial center, 
the government has begun removing previous foreign access restrictions 
in its financial services sector as well. In October 1999, the Monetary 
Authority of Singapore (MAS) issued a ``qualifying full bank'' (QFB) 
license to four Singapore-based foreign banks which allows each of them 
to establish ten locations (branches and off-premise ATM's), to freely 
re-locate existing branches, and to share ATM's among themselves. At 
the same time, the MAS issued eight additional restricted bank licenses 
to bring the total up to 20. These measures significantly expand the 
capability of foreign banks to engage in local retail banking. Foreign 
banks currently hold 23 of the 35 full (local retail) banking licenses. 
Apart from the QFB licensed banks, other foreign full license banks are 
still not allowed additional branches or ATM machines, while local 
banks are allowed to expand freely. Meanwhile, the MAS continues to 
encourage the growth of the offshore banking industry in Singapore. It 
recently designated eight new ``qualifying offshore banks'' (QOB) which 
will have their Singapore Dollar lending limit raised to SGD 1 billion, 
while raising the limit for all other offshore banks from SGD 100 to 
SGD 300 million. QOB banks will also be allowed to accept Singapore 
Dollar funds from non-bank customers through swap transactions.
    There are still restrictions on the extent to which foreign stock 
brokerage firms can trade in the equity securities markets for 
Singapore resident clients. Current Stock Exchange of Singapore (SES) 
regulations restrict foreign equity ownership of SES member companies 
to 49 percent, with the exception of two joint ventures approved prior 
to 1990 and the special category of ``international members'' which are 
permitted to do only wholesale trading for resident clients. The MAS 
recently announced, however, that both the stock and futures exchanges 
are to be demutualized and merged by 1 December 1999, and that the 
combined exchange itself is eventually to be publicly listed. No new 
licenses for direct (general) insurers are being issued, although 
reinsurance and captive insurance licenses are freely available. 
Foreign companies hold about three-quarters of the 59 direct insurance 
licenses.
    The telecommunications sector has been steadily liberalized since 
1989, although the government still imposes limits on the number of 
telephone service providers in Singapore. Restrictions on the sale of 
telecommunication consumer goods and the provision of value-added 
network services (VANS) have been lifted, although the government 
prohibits the importation of satellite receivers. Singapore Telecom 
(SINGTEL) has been privatized and its regulatory functions assumed by 
the Telecommunications Authority of Singapore (TAS). Private investors 
now own up to 20 percent of shares in SINGTEL. In April 1996, Mobile 
One (a Singapore-foreign joint venture) became the second cellular 
phone service provider in Singapore, thus ending SINGTEL's monopoly in 
the mobile telephone services market. Three new paging service 
providers also entered the market at the same time. In April 1998, TAS 
announced that it has issued a license to a new joint venture basic 
telephone service provider (``Starhub'') to begin operation in 2000, 
and will consider additional ones for 2002. At the same time, it issued 
a third cellular phone service license to a foreign joint venture 
company.
6. Export Subsidies Policies
    Singapore does not directly subsidize exports although it does 
actively promote them. The government offers significant incentives to 
attract foreign investment, almost all of which are in export-oriented 
industries. It also offers tax incentives to exporters and reimburses 
firms for certain costs incurred in trade promotion, but it does not 
employ multiple exchange rates, preferential financing schemes, import 
cost-reduction measures or other trade-distorting policy tools.
7. Protection of U.S. Intellectual Property
    Singapore has been on the USTR's ``Special 301'' Watch List since 
1997, primarily due to concerns that its intellectual property (IP) 
rights regime was not fully consistent with the WTO's trade-related 
intellectual property (TRIPS) provisions, and that police enforcement 
against retail IP piracy has been inadequate. Other outstanding issues 
included the lack of rental rights for sound recordings and software, 
inadequate protection against the sale of bootleg copies of musical 
performances, the limited scope of copyright protection for 
cinematography works and overly broad exemptions from copyright 
protection.
    Over the past two years, however, the government has taken 
significant measures to improve IP rights protection in Singapore. It 
is a member of the World Intellectual Property Organization (WIPO), and 
has ratified the WTO's Uruguay Round Accord, including TRIPs 
provisions. It has enacted a series of laws and amendments to existing 
provisions with the aim of rendering its IP regime fully TRIPs 
consistent and improving its overall IP protection regime. These 
included numerous amendments to its Copyright Law (1998), the Medicines 
Act (1998), a new Trade Marks Bill (1998), and a new Geographical 
Indications Act and Layout Designs of Integrated Circuits Act (1999). 
More recently, the government expanded the Copyright Act to cover 
digital and internet piracy as well. In December 1998, Singapore became 
a member of the Berne Convention so that works created by Singapore 
citizens and residents now enjoy copyright protection in over 100 
member countries, and vice versa. Singapore is also a signatory to 
three other international copyright agreements--the Paris Convention, 
the Patent Co-operation Treaty, and the Budapest Treaty. Singapore is 
not a member, however, of the Universal Copyright Convention.
    In the area of enforcement, the government's new licensing 
requirements for optical disc (OD) manufacturing and import controls on 
OD manufacturing equipment came into force in October 1998. These 
measures are generally believed to have effectively eliminated the 
production of pirated optical discs in Singapore. At the same time, the 
government has increased the number and scope of police-initiated raids 
against IP pirates at the retail level. According to Singapore's Trade 
Development Board, the authorities conducted a total of 682 raids in 
1998, which resulted in the seizure of over two million IP-infringing 
articles, a significant rise over the previous year. Through the first 
nine months of 1999, authorities launched over 1,800 raids, seized more 
than 1.1 million IP-infringing articles, and arrested about 330 
suspected IP pirates. In December 1998, the government launched a long-
term campaign aimed at educating primary and secondary students as well 
as the general public on the IP issue, underscoring the message that 
buying pirated goods is wrong, undercuts profits for manufacturers, and 
will eventually lead to fewer choices for consumers.
    In October 1999, a number of U.S. publishers, in cooperation with 
European and local publishers, formed the Copyright Licensing and 
Administration Society of Singapore (CLASS). CLASS will utilize a 
provision of the Copyright Act to compel local universities and other 
educational institutions to pay royalty fees in exchange for the right 
to duplicate copyrighted printed works for use in course materials.
    Despite government efforts that have brought IP piracy rates down 
to among the lowest in Asia, IP owner associations here continue to 
press for greater IPR protection. They cite the continued availability 
of pirated film, music and software OD's for sale in a number of 
downtown shopping malls and at stalls scattered among suburban housing 
estates. The IP associations note that nearly all of the pirated OD's 
have been smuggled into Singapore from neighboring countries, and urge 
greater border enforcement. Meanwhile, they remain frustrated by the 
current ``self help'' IP enforcement system that they argue places an 
unfair burden on them and makes initiating raids and prosecuting 
pirates cumbersome and expensive. IP associations have recommended that 
the government create an independent IPR enforcement police force and 
called for the mandatory use of Source Identification (SID) codes. They 
have also pointed out inadequacies in the August 1999 amendments 
extending Copyright Protection to the internet and certain digital 
works. They note that internet service providers are not held liable 
for allowing sites to sell pirated goods, and that the present law 
allows up to 10 percent of the bytes of a digital work to be legally 
copied.
    According to the International Intellectual Property Alliance 
(IIPA), total losses from local IP piracy were estimated at about USD 
140 million in 1998, up from USD 125 million in 1997. For business 
application software, IIPA estimated 1998 losses at nearly USD 50 
million with a 54 percent level of piracy, as compared to USD 46 
million in losses and a 56 percent piracy rate in 1997. For computer 
entertainment software, it estimated USD 65 million in losses and a 73 
percent piracy rate in 1998, up from USD 58 million and a 68 percent 
piracy level in 1997. IIPA calculated that the motion picture industry 
lost USD 8 million due to a 25 percent piracy level in 1998, up from 
USD 3 million lost to 1997's 15 percent level of piracy. The music 
industry was reported to have suffered losses of USD 16 million and a 
19 percent piracy rate in 1998. This was an improvement over losses of 
over USD 17 million and a 30 percent piracy level in 1997. The American 
Association of Publishers estimated that publishers lost USD 2 million 
to piracy of printed works in 1998, compared to USD 1 million lost in 
1997.
8. Worker Rights
    a. The Right of Association: Article 14 of Singapore's Constitution 
gives all citizens the right to form associations, including trade 
unions. Parliament may, however, based on security, public order, or 
morality grounds impose restrictions. The right of association is 
delimited by the Societies Act, and labor and education laws and 
regulations. In practice, communist labor unions are not permitted. 
Singapore's labor force numbered 1.9 million in 1998, of which 272,769 
or 14 percent of the labor force were organized into 80 trade unions.
    b. The Right to Organize and Bargain Collectively: Over ninety 
percent of union members in 71 of the 80 trade unions are affiliated 
with an umbrella organization, the National Trades Union Congress 
(NTUC), which has a symbiotic relationship with the government. The 
NTUC's leadership is made up mainly of Members of Parliament belonging 
to the ruling People's Action Party (PAP). The Secretary-General of the 
NTUC is also an elected Minister without Portfolio in the Prime 
Minister's office.
    The Trades Union Act authorizes the formation of unions with broad 
rights. Collective bargaining is a normal part of labor-management 
relations in Singapore, particularly in the manufacturing sector. 
Collective bargaining agreements are renewed every two to three years, 
although wage increases are negotiated annually.
    c. Prohibition of Forced or Compulsory Labor: Singapore law 
prohibits forced or compulsory labor. Under sections of Singapore's 
Destitute Persons Act, however, any indigent person may be required to 
reside in a welfare home and engage in suitable work.
    d. Minimum Age for Employment of Children: The government enforces 
the Employment Act, which prohibits the employment of children under 12 
years and restricts children under 16 from certain categories of work.
    e. Acceptable Conditions of Work: The Singapore labor market, which 
has a low average annual unemployment rate of about 2 percent, offers 
relatively high wage rates and working conditions consistent with 
international standards. (Note: The average unemployment rate increased 
slightly to 3.2 percent during the economic downturn in 1998.) However, 
Singapore has no minimum wage or unemployment benefits. The government 
enforces comprehensive occupational safety and health laws. Enforcement 
procedures, coupled with the promotion of educational and training 
programs, have reduced the frequency of industrial accidents (measured 
by the number of industrial accidents per million hours worked) to 2.5 
in 1998, from 4.2 a decade ago. The average severity of occupational 
accidents (defined as the number of industrial workdays lost per 
million hours worked) has, however, remained at 416, little changed 
from the rate of 418 recorded in 1989.
    f. Rights in Sectors with U.S. Investment: U.S. firms have 
substantial investments in several industries, notably petroleum, 
chemicals and related products, electronic and electronics equipment, 
transportation equipment, and other manufacturing areas. Labor 
conditions in these sectors are the same as in other sectors of the 
economy. Many employers resort to hiring foreign workers to ease 
shortages in unskilled and highly-skilled jobs. Since 1997, the 
government has been committed to a policy of attracting foreign skilled 
individuals and professionals to work in Singapore to supplement its 
own limited talent pool and catalyze the city-state's advancement into 
a knowledge-based economy and an international financial center. There 
are presently about 530,000 foreigners working in Singapore (27 percent 
of the workforce), of which about 80,000 are in the skilled category 
while the rest are the lower-skilled workers employed mostly as 
construction workers or domestic helpers.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,920
Total Manufacturing............  ..............  8,438
  Food & Kindred Products......  13              ...............................................................
  Chemicals & Allied Products..  255             ...............................................................
  Primary & Fabricated Metals..  153             ...............................................................
  Industrial Machinery and       2,747           ...............................................................
   Equipmentd.
  Electric & Electronic          4,763           ...............................................................
   Equipment.
  Transportation Equipment.....  106             ...............................................................
  Other Manufacturing..........  401             ...............................................................
Wholesale Trade................  ..............  3,245
Banking........................  ..............  727
Finance/Insurance/Real Estate..  ..............  3,769
Services.......................  ..............  681
Other Industries...............  ..............  3
TOTAL ALL INDUSTRIES...........  ..............  19,783

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 TAIWAN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (at current prices).................     283.3     260.6     282.9
  Real GDP Growth (percent)...............       6.8       4.7       5.3
  GDP by Sector:
    Agriculture...........................       7.7       7.1       7.6
    Manufacturing.........................      78.4      70.6      74.9
    Services..............................     155.8     146.0     166.0
    Government............................      29.5      26.8      29.8
  Per Capita GDP (US$)....................    13,130    11,967    12,866
  Labor Force (000's).....................     9,432     9,546     9,690
  Unemployment Rate (percent).............       2.7       2.7       2.9

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       8.0       8.6       9.5
  Consumer Price Inflation................       0.9       1.7       0.9
  Exchange Rate (NT$/US$) \2\
    Official..............................     28.95     33.44     32.24

Balance of Payments and Trade: \3\
  Total Exports FOB \4\...................     122.1     110.6     119.5
    Exports to U.S. CV \5\................      32.6      33.1      34.9
  Total Imports CIF \4\...................     114.4     104.7     112.1
    Imports from U.S. FAS \5\.............      20.4      18.2      18.8
  Trade Balance \4\.......................       7.7       5.9       7.4
    Trade Balance with U.S. \5\...........      12.2      14.9      16.1
  External Public Debt....................       0.1       .05      0.02
  Fiscal Deficit/GDP (pct)................       3.9       3.3       5.3
  Current Account Surplus/GDP (pct).......       2.5       1.3       2.1
  Debt Service Payments/GDP (pct).........       0.8       1.1       0.7
  Gold and Foreign Exchange Reserves......      88.2      95.1     110.0
  Aid from U.S. \6\.......................         0         0         0
  Aid from Other Countries................         0         0         0
------------------------------------------------------------------------
\1\ 1999 figures are estimated based on data from the Directorate
  General of Budget, Accounting and Statistics, or extrapolated from
  data available as of September 1999.
\2\ Average of figures at the end of each month.
\3\ Merchandise trade.
\4\ Taiwan Ministry of Finance (MOF) figures for merchandise trade.
\5\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through August. Taiwan MOF figures for merchandise exports
  (FOB) to and imports (CIF) from the U.S. were (US$ billions): (1996)
  26.9/20.0, (1997) 29.5/23.2, (1998) 30.0/19.3.
\6\ Aid disbursements stopped in 1965.

1. General Policy Framework
    Taiwan's economy is bouncing back after being hit last year with an 
earthquake, a cross strait scare, and a near financial crisis. Despite 
these setbacks, the island's growth in 1999 ended up a strong 5.4 
percent, well ahead of 1998's 4.8 percent. Taiwan's industrial growth 
is now concentrated in capital and technology intensive industries such 
as petrochemicals, computers, semiconductors, and electronic 
components, as well as consumer goods industries. Services account for 
56 percent of GDP in 1998. Merchandise exports accounted for 42 percent 
of GDP in 1998.
    Taiwan's resilience stems from the strength of its external 
finances, the nimbleness of its many small-scale entrepreneurs, and the 
dynamism of its information technology industry. Taiwan is poised to 
expand its role as catalyst for cross-strait economic integration and 
as a global supplier of hardware for the information age.
    The Asian financial crisis did lead to falling official savings and 
growing public expenditure have caused domestic public debt to increase 
steadily. The Taiwan authorities now rely largely on domestic bonds and 
bank loans to finance major expenditures. Taiwan has adopted austerity 
measures to control the government budget deficit in recent years. As a 
result, outstanding public debt declined from 21 percent of GNP in 1997 
to 17 percent in 1999. However, debt is on the rise again as the 
government spends heavily on earthquake reconstruction efforts. The 
central level fiscal deficit through the fiscal year ending in June had 
fallen to 1.4 percent of GDP. However, the deficit is expected to be 
sharply higher by year-end 1999 and into 2000, again due to earthquake-
related emergency spending. Defense spending still accounts for the 
largest share of public expenditures (about one quarter), but is 
falling in relative terms. The greatest pressure on the budget now 
comes from growing demands for improved infrastructure and social 
welfare spending, including a national health insurance plan initiated 
in early 1995.
    Taiwan wishes to accede to the World Trade Organization (WTO) in 
the near future. As part of the accession process, Taiwan and the 
United States signed a landmark bilateral WTO agreement in February 
1998. The agreement includes both immediate market access and phased-in 
commitments, and will provide substantially increased access for U.S. 
goods, services, and agricultural exports to Taiwan. Taiwan is also an 
active member of the Asia Pacific Economic Cooperation (APEC) forum.
2. Exchange Rate Policies
    Taiwan has a floating exchange rate system in which banks set rates 
independently. The Taiwan authorities, however, control the largest 
banks authorized to deal in foreign exchange. The Central Bank of China 
(CBC) intervenes in the foreign exchange market when it feels that 
speculation or ``drastic fluctuations'' in the exchange rate may impair 
normal market adjustments. The CBC uses direct foreign exchange trading 
by its surrogate banks and public policy statements as its main tools 
to influence exchange rates. The CBC still limits the use of derivative 
products denominated in New Taiwan Dollars (NTD).
    Trade-related funds flow freely into and out of Taiwan. Most 
restrictions on capital account flows have been removed since late 
1995. Laws restricting repatriation of principal and earnings from 
direct investment have been lifted. Despite significant easing of 
previous restrictions on foreign portfolio investment, some limits 
remain in place.
3. Structural Policies
    Fifteen state-owned enterprises have been either totally or 
partially privatized in the past three years, including nine in 1999. 
State-owned enterprises account for 9.5 percent of GDP, a proportion 
that shrinks annually. Taiwan's Fair Trade Commission (FTC) acts to 
thwart noncompetitive pricing by state-run monopolies. FTC exemptions 
granted five years ago to several state-run monopolies were not renewed 
in 1997, making such firms subject to anti-monopoly laws.
    Taiwan has been lowering tariffs significantly in recent years as 
part of its effort to accede to the WTO. In 1998, Taiwan began 
implementing tariff cuts on 1,130 items, many of specific interest to 
U.S. industry. Also in 1998, authorities enacted tariff cuts on 245 
high-tech products under the Information Technology Agreement. Tariff 
reductions on 15 agricultural products, negotiated during the U.S.-
Taiwan bilateral WTO accession negotiations, took effect temporarily in 
July 1998, and were extended in July, 1999. In February 1999, Taiwan 
waived tariffs on 15 aircraft components as part of plans to accede to 
the WTO Agreement on Trade in Civil Aircraft. An additional 777 items 
are slated for tariff cuts pending legislative approval. Taiwan's 
current average nominal tariff rate is 8.2 percent; the trade-weighted 
rate is 3.1 percent, both down slightly from 1998.
    High tariffs and pricing structures on some goods--in particular on 
some agricultural products--nevertheless hamper U.S. exports. However, 
under the bilateral WTO agreement reached in February 1998, Taiwan 
began to provide quotas for the importation of previously banned pork, 
poultry, and variety meat products, and agreed to phase in tariff cuts 
on numerous food products upon accession. The Taiwan Tobacco and Wine 
Monopoly Bureau (TTWMB) has a monopoly on domestic production of 
cigarettes and alcoholic beverages. As part of its bilateral WTO 
commitments to the United States, however, Taiwan has pledged to 
convert an existing monopoly tax on these products to a simpler tax and 
tariff-based system, and also to open these markets following the 
passage and implementation of new legislation now pending in the 
Legislative Yuan.
4. Debt Management Policies
    Unofficial estimates put Taiwan's outstanding long and short-term 
external debt at $22 billion as of early, 1999, equivalent to seven 
percent of GDP. Official figures show Taiwan's long term outstanding 
external public debt totaled $33 million as of June 1999, compared to 
gold and foreign exchange reserves of about $110 billion. Taiwan's debt 
service payments in 1998 totaled $2.1 billion, only 1.5 percent of 
exports of goods and services.
    Foreign loans committed by Taiwan authorities exceed $3.6 billion. 
Taiwan offered low-interest loans to the Philippines, Eastern Europe, 
Vietnam, South Africa, and Latin America, mostly to build industrial 
zones and to foster development of small and medium enterprises. Some 
of the loans were provided to several Southeast Asian nations to 
address financial crises. Taiwan also contributes to the Asian 
Development Bank (ADB), one of the two multilateral development banks 
in which it has membership. Taiwan is also a member of the Central 
American Bank for Economic Integration (CABEI). The ADB, CABEI, the 
European Bank for Reconstruction and Development (EBRD) and a number of 
other international organizations have all floated bonds in Taiwan.
5. Significant Barriers to U.S. Exports
    Accession to the WTO by Taiwan will open markets for many U.S. 
goods and services. Of some 10,200 official import product categories, 
nearly 86 percent are completely exempt from any controls. 991 
categories are still ``regulated'' and require approval from relevant 
authorities based on the qualifications of the importer, the origin of 
the good, or other factors. Another 279 require import permits from the 
Board of Foreign Trade or pro forma notarization by banks. Imports of 
270 categories are ``restricted,'' including ammunition and some 
agricultural products. These items can only be imported under special 
circumstances, and are thus effectively banned.
    Financial: Taiwan continues to steadily liberalize its financial 
sector. Taiwan enacted a Futures Exchange Law in March 1997; a futures 
market was established in July 1998. The Securities and Exchange Law 
was amended in May 1997 to remove restrictions on employment of 
foreigners by securities firms, effective upon Taiwan's accession to 
the WTO. In early 1999, the limit on foreign ownership in listed 
companies was raised from 30 percent to 50 percent. For qualified 
foreign institutional investors, restrictions on capital flows have 
been removed, although they are still subject to limits on portfolio 
investment. Foreign individual investors are subject to some limits on 
their portfolio investment and restrictions on their capital flows.
    Banking: In June 1997, the annual limit on a company's non-trade 
outward (or inward) remittances was raised from $20 million to $50 
million. Inward/outward remittances unrelated to trade by individuals 
are subject to an annual limit of $5 million. There are no limits on 
trade-related remittances. NTD-related derivative contracts may not 
exceed one-third of a bank's foreign exchange position. To stabilize 
the foreign exchange market in the wake of regional financial turmoil, 
the CBC closed the non-deliverable forward (NDF) market to domestic 
corporations in May 1998; the NDF market remains open to foreign 
companies.
    Legal: Foreign lawyers may not operate legal practices in Taiwan 
but may set up consulting firms or work with local law firms. Qualified 
foreign attorneys may, as consultants to Taiwan law firms, provide 
legal advice to their employers only. Legislation was passed in May 
1998 to permit the eventual establishment of foreign legal 
partnerships. However, last minute changes to the law failed to achieve 
this purpose. However, Taiwan authorities subsequently agreed to delay 
implementation of the law and to make other commitments which will 
permit foreign attorneys to establish partnerships either upon 
accession to the WTO, or upon implementation of the new law, whichever 
comes first.
    Insurance: In May 1997, the financial authorities announced that, 
in principle, insurance companies would be allowed to set some premium 
rates and policy clauses without prior approval from regulators. 
Insurance companies are still required to report such rates and 
clauses. In July 1995, Taiwan removed a prohibition against mutual 
insurance companies. As of late 1999, however, authorities had not 
issued implementing regulations.
    Transportation: The United States and Taiwan have had an Open Skies 
Agreement in effect since February of 1997. An amendment to the Highway 
Law allowing branches of U.S. ocean and air freight carriers to truck 
containers and cargo in Taiwan went into effect on November 1, 1997.
    Telecommunications: Taiwan will open its fixed line market to 
competition in early 2000, when it is expected to issue 2-4 new fixed 
line licenses to private consortia. However, the published criteria for 
the license tender--including $1.2 billion in up-front paid-in capital, 
a minimum one million line final build-out, and a 150,000 line build-
out prior to service roll-out--are considered onerous entry barriers by 
some foreign companies. Under the bilateral WTO agreement signed in 
February 1998 Chunghwa Telecom, a state-owned corporation, began to 
lower excessively high interconnection fees previously imposed on 
private mobile service providers. This phased process is ongoing, but 
Chunghwa continues to engage in pricing practices which appear designed 
to unfairly subsidize its mobile operations with its fixed line 
services, in which it continues to enjoy monopoly status. Taiwan 
regulators have only recently begun to address such unfair trading 
practices. In October, Taiwan's legislature passed a revised Telecom 
Law. It will raise the current 20 percent limit on foreign ownership of 
a telecom firm to 60 percent through a combination of direct and 
indirect ownership. The timing of the law's implementation, however, 
remains uncertain.
    Pharmaceuticals and Medical Devices: Taiwan's single payer 
socialized health care system discriminates against imported drugs by 
setting prices for leading brand-name products at artificially low 
levels, while providing artificially high reimbursement prices for 
locally-made generics. The process by which Taiwan registers and prices 
new drugs is also time-consuming and cumbersome. Taiwan authorities are 
gradually phasing out a burdensome requirement for clinical trials as 
part of the registration process for new drugs. High value-added 
imported medical devices are likewise put at a competitive disadvantage 
by Taiwan's reimbursement system, which fails to account for 
significant quality differences between different brands of medical 
devices.
    Movies and Cable TV: Taiwan eased import restrictions on foreign 
film prints from 38 to 58 per title in late 1997. The number of 
theaters in any municipality allowed to show the same foreign film 
simultaneously also increased from 11 to 18. Effective August 1997, 
multi-screen theaters are allowed to show a film on up to three screens 
simultaneously, up from the previous limit of one. Taiwan has pledged 
to abolish these restrictions upon accession to the WTO. In the cable 
TV market, concerns remain that the island's two dominant Multi-System 
Operators (MSOs) occasionally collude to inhibit fair competition. 
Control by the two MSOs of upstream program distribution, for example, 
has made it difficult for U.S. providers of popular channels to 
negotiate reasonable fees for their programs.
    Standards, Testing, Labeling, and Certification: Taiwan has agreed 
to bring its laws and practices into conformity with the WTO Agreement 
on Technical Barriers to Trade as part of its WTO accession. However, 
Taiwan is not yet in conformity with WTO norms. U.S. agricultural 
exports are often negatively affected because prior notification of 
changes to standards, labeling requirements, etc, are not provided with 
adequate lead-time, or because changes to standards and other import 
requirements are not provided in a WTO language. In addition, concerns 
exist that U.S. fresh produce and meat imports do not, in all cases, 
receive national treatment. Industrial products such as air 
conditioning and refrigeration equipment, electric hand tools, and 
synthetic rubber gloves must undergo redundant and unnecessary testing 
requirements, which include destructive testing of samples. Imported 
autos face stringent noise emissions and fuel efficiency testing 
requirements. In March 1999 the U.S. and Taiwan signed a mutual 
recognition agreement (MRA) designed to eliminate duplicate testing of 
information technology equipment. According to the terms of the MRA, 
certain Taiwan exports to the U.S. previously tested for 
electromagnetic conformity in labs recognized by Taiwan authorities 
will no longer require duplicate inspections in an U.S. lab. Reciprocal 
treatment will likewise be accorded similar U.S. products imported into 
Taiwan. Relevant U.S. agencies and their Taiwan counterparts are 
jointly implementing operating procedures according to the principles 
of the MRA, including nominating certified labs for mutual 
accreditation.
    Investment Barriers: Taiwan continues to relax investment 
restrictions in a host of areas, but foreign investment remains 
prohibited in key industries such as agriculture, basic wire line 
telecommunications, broadcasting, and liquor and cigarette production. 
Wire line telecommunications will be gradually liberalized beginning in 
1999, and will be completely liberalized by July 2001 under Taiwan's 
WTO commitments. Liquor and cigarette production will be fully 
liberalized by 2004.
    Limits on foreign equity participation in a number of industries 
have been progressively relaxed in recent years. For example, 
permissible participation in shipping companies was raised from 50 to 
100 percent. A 33 percent limit on holdings in air cargo forwarders and 
air cargo ground handling was raised to 50 percent in 1998, but remains 
unchanged for airlines. However, an amendment to the Civil Aviation Law 
that would raise the holding limit to 50 percent is now pending 
legislative approval. In August 1997, Taiwan raised the cap on foreign 
investment in independent power projects from 30 percent to 49 percent. 
Local content requirements in the automobile and motorcycle industries 
will be lifted as part of Taiwan's WTO accession.
    Procurement Practices: Taiwan has committed to adhere to the WTO 
Agreement on Government Procurement as part of its WTO accession. To 
prepare for this commitment, a new Government Procurement Law (GPL) 
become effective in mid-1999, marking an important first step towards 
open, fair competition in Taiwan's multi-billion dollar market for 
public procurement projects. However, some initial procurements after 
the implementation of the GPL still have one-sided terms and conditions 
which may strongly discourage foreign bidders, including inefficient 
allocations of risks to the supplier.
6. Export Subsidies Policies
    Taiwan provides an array of direct and indirect subsidy programs to 
farmers, ranging from financial assistance to guaranteed purchase 
prices higher than world prices. It also provides incentives to 
industrial firms in export processing zones and to firms in designated 
``emerging industries.'' Some of these programs may have the effect of 
subsidizing exports. Taiwan is currently in the process of notifying 
the WTO of these programs, and as part of its WTO accession, it may be 
required to amend or abolish any subsidy programs deemed inconsistent 
with WTO principles.
7. Protection of U.S. Intellectual Property
    Taiwan is not a party to any major multilateral IPR conventions. In 
line with WTO accession efforts, Taiwan has passed laws to protect 
integrated circuit layouts, personal data, and trade secrets. Taiwan 
currently protects copyrights dating from 1965. Revised Copyright, 
Patent, and Trademark Laws were passed in 1997. However, only the 
Trademark Law and certain provisions of the Copyright Law have been 
implemented. The new Copyright Law, which will be fully implemented 
only upon WTO accession, will extend retroactive copyright protection 
to 50 years. Taiwan implemented these changes to bring its IPR legal 
structure into conformity with the WTO TRIPs agreement.
    In its April 1999 decision to keep Taiwan on the ``Special 301'' 
Watch List, the United States cited continuing concerns about Taiwan's 
IPR enforcement generally, and specifically urged Taiwan authorities to 
tighten controls on optical media production. In 1998, U.S. Customs 
seized $8.6 million of counterfeit goods from Taiwan, making Taiwan the 
second largest source of counterfeit goods (after the PRC). Taiwan has 
taken steps to address these concerns. In January of 1999, Taiwan 
established an Intellectual Property Office to improve coordination of 
IPR protection efforts. In February, Taiwan's Executive Yuan issued a 
new directive requiring only the use of legal software by Taiwan 
authorities. Beginning on July 1, 1999, all optical media products 
produced in Taiwan, including CD's, VCD's, CD-ROM's and DVD's, were 
required to bear source identification (SID) codes. At the same time, 
Bureau of Standards, Metrology and Inspection inspectors were 
authorized to perform random factory visits to ensure compliance. Also 
on July 1, the Taiwan Semiconductor Industry Association began 
implementation of a voluntary computer chip-marking program.
8. Worker Rights
    a. The Right of Association: Although the right to organize was 
reaffirmed by Taiwan's Judicial Yuan in 1995 as a constitutional right, 
the Labor Union Law (LUL) forbids civil servants, teachers, and defense 
industry workers from organizing trade unions and forbids workers from 
forming competing trade unions and confederations. However, as 
democratization has continued, workers have established independent 
labor unions, either legally or illegally. These independent unions 
increasingly are challenging the leadership of the Chinese Federation 
of Labor, which is closely tied to the ruling Kuomingtang party, and is 
the only island-wide labor union permitted. In February of 1999, a 
national teacher's association was established. In July, workers unions 
of 18 state-owned enterprises formed an alliance to protect their 
rights during privatization. As of June of 1999, 2.9 million workers, 
or 30.5 percent of Taiwan's labor force, belonged to 3,766 labor 
unions.
    b. The Right to Organize and Bargain Collectively: Except for civil 
servants, teachers, and defense industry workers, the LUL, the Law 
Governing the Handling of Labor Disputes, and the Collective Agreement 
Law offer workers the right to organize and bargain collectively. 
However, the law contains restrictions to curb workers' exercise of 
these rights. The LUL, for example, stipulates that workers shall not 
strike to demand an increase in wages exceeding standard wages. 
Collective bargaining agreements exist only in large-scale enterprises. 
As of June 1999, there were 298 such collective agreements.
    c. Prohibition of Forced or Compulsory Labor: The Labor Standards 
Law prohibits forced or compulsory labor. The maximum jail sentence for 
violation of the law is five years. Except for cases involving 
prostitution, there have only been allegations of possible forced or 
compulsory labor relating to PRC crewmembers on Taiwan fishing boats.
    d. Minimum Age for Employment of Children: The Labor Standards Law 
stipulates age 15, after completion of the 9-year compulsory education 
required by law, as the minimum age for employment. County and city 
labor bureaus enforce minimum age laws. Child labor is rare in Taiwan.
    e. Acceptable Conditions of Work: The Labor Standards Law (LSL) 
mandates basic labor standards. Pursuant to a 1996 amendment, the LSL 
was extended to cover all salaried employees (except teachers, civil 
servants, doctors, lawyers and some other specialized professions) as 
of the end of 1998. The law now covers over 5.5 million of Taiwan's 6.7 
million salaried workers. The Council of Labor Affairs (CLA) has kept 
the basic wage at the same level (NT$15,840 per month or about $500) 
since 1997. However, the average monthly wage in Taiwan's manufacturing 
sector was NT$40,130 (or about $1,300) during the first six months of 
1999. The LSL limits the workweek to 48 hours (8 hours per day, 6 days 
per week) and requires 1 day off every 7 days. In December of 1996, the 
LSL was amended to allow employers to adjust working hours, with 
approval by workers. The amendment allows private firms to have five-
day workweeks twice every month, similar to the system implemented for 
civil servants in early 1998. Currently, about one third of private 
enterprises have adopted an alternating 5-day workweek system. In 
addition to wages, employers typically provide workers with additional 
payments and benefits, including a portion of national health insurance 
and labor insurance premiums, the distribution of labor welfare funds, 
meals, and transportation allowances.
    f. Rights in Sectors with U.S. Investments: U.S. firms and joint 
ventures generally abide by Taiwan's labor law regulations. In terms of 
wages and other benefits, worker rights do not vary significantly by 
industrial sector.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  49
Total Manufacturing............  ..............  3,258
  Food & Kindred Products......  99              ...............................................................
  Chemicals & Allied Products..  1,372           ...............................................................
  Primary & Fabricated Metals..  45              ...............................................................
  Industrial Machinery and       280             ...............................................................
   Equipment.
  Electric & Electronic          1,191           ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  368
Banking........................  ..............  614
Finance/Insurance/Real Estate..  ..............  337
Services.......................  ..............  163
Other Industries...............  ..............  148
TOTAL ALL INDUSTRIES...........  ..............  4,937
----------------------------------------------------------------------------------------------------------------
\1\ Data suppressed to avoid disclosure of individual company data.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                THAILAND


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment: \2\
  Nominal GDP..........................    150,593    112,758    121,979
  Real GDP Growth (pct) \3\............       -1.8      -10.0        3.5
  GDP by Sector
    Agriculture........................     14,814     13,239  \2\ 11,49
                                                                       6
    Manufacturing......................     44,638     34,660  \2\ 39,12
                                                                       3
    Services...........................     22,990     18,197  \2\ 21,17
                                                                       7
    Government \4\.....................     15,021     12,200  \2\ 14,19
                                                                       3
  Per Capita GDP (US$).................      2,421      1,765      1,965
  Labor Force (000's)..................     32,840     32,800     33,490
  Unemployment Rate....................        1.9        4.0        4.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth..................       16.4        9.5        6.4
  Consumer Price Inflation.............        5.6        8.1        0.5
  Exchange Rate
    Official...........................      31.37      41.37  \5\ 37.71

Balance of Payments and Trade:
  Total Exports FOB \6\................     56,721     52,873     54,988
    Exports to U.S. \6\................     11,341     12,167  \7\ 12,06
                                                                       5
  Total Imports CIF \6\................     61,348     40,641     45,761
    Imports from U.S. \6\..............      8,714      5,963  \7\ 6,352
  Trade Balance \6\....................     -4,626     12,232      9,227
    Balance with U.S. \6\..............      2,627      6,204  \7\ 5,713
  External Public Debt.................     24,323     31,494     35,500
  Fiscal Balance/GDP (pct).............       -2.7       -5.5   \8\ -7.2
  Current Account/GDP (pct)............       -2.0       12.8        9.0
  Debt Service Payments/GDP (pct)......        0.8        1.2        N/A
  Gold and Foreign Exchange Reserves...     26,968     26,536     34,000
  Aid from U.S. \9\....................        3.6        5.5        N/A
  Aid from All Other Sources...........      109.2      105.8        N/A
------------------------------------------------------------------------
\1\ Royal Thai Government projections unless otherwise indicated.
\2\ Estimate based on six-month data.
\3\ Percentage changes calculated in local currency.
\4\ Government expenditure on GDP; for illustrative purposes.
\5\ Estimate based on ten-month data.
\6\ Merchandise trade, balance of payments concept.
\7\ Estimate based on eight-month data.
\8\ Includes imputed interest of financial sector restructuring.
\9\ Fiscal year total (October-September).

Sources: Royal Thai Government and U.S. Department of Commerce.

1. General Policy Framework
    The government of current Thai Prime Minister Chuan Leekpai has 
been working to stabilize and reinvigorate the Thai economy since it 
took office in November 1997. The East Asian economic crisis began in 
Thailand when a failed effort to defend the baht (the Thai currency) 
depleted Thailand's foreign exchange reserves and forced the Bank of 
Thailand to float the currency in July 1997. Over the next six months 
the baht lost half of its value, and the crisis spread from the 
financial sector to the real sector. The Thai economy, one of the 
world's fastest growing up through 1995, tumbled, and real GDP suffered 
contractions of 1.8 percent and 10 percent in 1997 and 1998 
respectively. The financial contagion spread from Thailand to other 
countries in the region, particularly Korea and Indonesia, impairing 
Thailand's ability to export its way out of the crisis.
    The failed defense of the baht led the government to seek 
assistance from the IMF, which in August 1997 put together a package 
worth $17.2 billion to provide balance of payments support and begin 
restructuring the Thai economy and financial sector. Under the guidance 
of Finance Minister Tarrin NimmanhaeMinda, the government has focused 
considerable effort on restructuring the financial sector. Insolvent 
institutions, including two-thirds of the country's finance companies, 
were closed or placed in receivership, and new provisioning 
requirements were instituted. The crisis and subsequent restructuring 
have opened the way for increased foreign participation in the 
financial sector. Foreign banks now own controlling interests in four 
Thai commercial banks, and two more banks are scheduled to be sold by 
the end of 1999. Thailand has also passed legislation to reform and 
streamline the bankruptcy and foreclosure system (including 
establishing a new bankruptcy court), and auctioned off assets of the 
closed finance companies to the private sector. Reform legislation 
still in draft includes a new financial institutions law, a new central 
bank law, amendments to the Currency Act, and bills to set up a deposit 
insurance scheme and a credit bureau. Throughout, Thailand has favored 
a market-oriented private sector-led approach to restructuring the 
financial sector.
    While the government's efforts stabilized the economy and laid the 
macro-economic foundation for a return to growth by late 1998, the real 
economy did not respond, and the focus turned to stimulating 
consumption. With the support of the IMF, the government ran fiscal 
deficits (after years of balanced or surplus budgets) of 3 percent of 
GDP in FY 1998 and 6 percent of GDP in FY 1999. An additional stimulus 
program of 2.8 percent of GDP announced in March 1999 provided funds to 
create jobs for 485,000, expand government purchases of goods and 
services by $1 billion, and decrease the tax burden on middle class 
income earners and the costs of energy for industrial users. In August 
1999 the government announced a further stimulus package of 2.2 percent 
of GDP to promote private investment. A new Alien Business Law and new 
investment promotion incentives should also increase Thailand's 
attractiveness to foreign investors. The economy has responded to these 
stimulus programs with consumption, exports and imports, and production 
all recording moderate increases for the first nine months of the year 
in comparison to 1998 totals. Private investment remains below 1998 
activity, but the declines here are slowing. The government is 
financing the deficit through domestic bond sales and foreign debt and 
grant assistance.
    Current Thai monetary policy aims at maintaining adequate system 
liquidity and keeping interest rates low in an effort to promote debt 
restructuring and new lending. The government uses a standard array of 
monetary policy tools but focuses on open market operations, 
particularly the repurchase market. Foreign exchange flows have a 
moderate effect on exchange rate stability. Current government policy 
does not target a specific level for the baht. However, the government 
will act to smooth volatility in the exchange rate.
2. Exchange Rate Policy
    From 1984 to 1997 the baht was pegged to a basket of currencies of 
Thailand's major trading partners, with the dollar representing the 
largest share. The exchange rate averaged 25 baht to the dollar during 
that period. Following the depletion of Thailand's foreign exchange 
reserves in an unsuccessful attempt to defend the peg, the currency was 
allowed to float in July 1997. It began to depreciate immediately and 
fell to below 50 per dollar in January 1998. As reform measures and IMF 
support took hold, the baht stabilized and has traded in the 36 to 41 
baht per dollar range since March 1998.
    The Thai government began liberalizing the exchange control regime 
in 1990 and accepted IMF Article VIII obligations. Commercial banks 
received permission to process larger foreign exchange transactions, 
and ceilings on money transfers were increased. Since 1991 Thai banks 
have offered foreign currency accounts for residents, although they are 
limited to $500,000 for individuals and $5 million for corporations 
(without conditions).
    After the baht was floated on July 2, 1997 the government tightened 
conditions on foreign exchange, requiring customers to show evidence of 
foreign currency obligations (within three months from date of deposit) 
to open foreign currency accounts. Thailand also required exporters to 
repatriate and deposit foreign exchange earnings more expeditiously. 
More recently, the government has restricted the supply of baht to non-
resident parties (unless there is an underlying transaction requiring 
the currency) to cut down on offshore speculation.
3. Structural Policies
    The Thai taxation system has undergone significant revision since 
1992 when a value added tax (VAT) system was introduced to replace a 
multi-tiered business tax system. The VAT rate was raised from 7 to 10 
percent in 1997 but lowered temporarily back to 7 percent in March 1999 
to stimulate private consumption. Exemptions in place for low revenue 
businesses were expanded in March 1999. Exporters are ``zero rated'' 
under the VAT system but must file returns and apply for rebates. 
Parliament is considering tax credits in lieu of the rebate. The 
corporate tax rate is currently 30 percent of net profits for all 
firms.
    Thailand and the United States signed a tax treaty in November 
1996, and the treaty entered into force in early 1998. The treaty 
eliminates double taxation and gives U.S. firms tax treatment 
equivalent to that enjoyed by Thailand's other tax treaty partners.
    Heightened awareness in Thailand about ``genetically modified 
organisms'' (GMO) issues and concern about increasing barriers to GMO 
products in Thailand's European markets have led to a reexamination of 
Thai government policy towards imports, production, sales, and exports 
of GMO crops, commodities, and processed foods. Current policy allows 
imports into Thailand of GMO seeds and plants only for research 
purposes, but there are no restrictions on imports of GMO commodities 
or products and no compulsory labeling requirements. The result is a 
relatively small impact on U.S. exports of GMO products. Although the 
debate continues, particularly on labeling, we do not expect major 
changes in this policy over the next year.
4. Debt Management Policies
    Thailand's financial crisis resulted in part from significant 
increases in private sector external debt, but these levels have 
declined markedly since the onset of the crisis, falling from $75 
billion at the end of June 1997 to $47 billion at the end of June 1999. 
Thailand entered the crisis with low levels of public debt, but public 
sector external debt has risen significantly as the government 
stabilized and sought to stimulate the economy. At the end of 1997, 
total public sector external debt (including that of the Bank of 
Thailand) stood at $24 billion. By the end of June 1999, the figure had 
risen to $34 billion. Public sector debt is predominantly long-term and 
divided among direct borrowings and loans to state-owned enterprises 
guaranteed by the government, with the latter predominating.
    Mounting public sector debt is a concern in Thailand, and the 
government is attempting to diversify its sources of funding by 
developing a domestic bond market. By the end of June 1999, total 
public sector debt, including the non-guaranteed debt of state-owned 
enterprises, had climbed to 41 percent of Thailand's GDP. The public 
debt service ratio (payments as a percent of the exports of goods and 
services) stood at the end of June 1999 at 3.5 percent, down slightly 
from the first quarter, but up a full percentage point from the 
comparable 1996 figure. By way of contrast, the debt service ratio for 
private sector debt at the end of June stood at 15.5 percent.
    Thailand has consistently met the targets and performance criteria 
elaborated in the $17.2 billion program agreed with the IMF in 1997. 
The program will run through May 2000, although Thailand recently 
announced that it does not intend to take disbursement of the final 
$2.7 billion of the package.
5. Significant Barriers to U.S. Exports
    Moving to meet its WTO and ASEAN tariff reduction commitments, 
Thailand instituted reductions in January 1995, and tariffs were 
reduced on another 4,000 items at the beginning of 1997. However, the 
decision to accelerate ASEAN's Free Trade Area (AFTA) preferred tariff 
schedules, taken in Manila in October 1998, has not yet translated into 
significant liberalization within APEC. Also, the need for revenue in 
the aftermath of the financial crisis led to the imposition of higher 
duties, surcharges, and excise taxes on ``sin'' items and a range of 
luxury imports, including U.S. wine and beer exports.
    At the beginning of 1997, the total number of tariff rate 
categories was reduced from 39 to six, with the following spread: zero 
percent on such goods as medical equipment and fertilizer, one percent 
on raw materials, electronics components, and vehicles for 
international transport, five percent on primary and capital goods, 10 
percent on intermediate goods, 20 percent for finished products, and 30 
percent on goods needing ``special protection.'' This last category 
includes agricultural products, autos and auto parts, alcoholic 
beverages, and a few other ``sensitive'' items. Import tariff quotas 
are applied to 23 categories of agricultural products. Further 
reductions on a range of capital goods and raw materials were announced 
in August of 1999 as an investment incentive measure and a spur to 
domestic industries. Tariff exemptions for some items deemed critical 
to Thai industrial recovery were also announced.
    Thailand is in the process of changing its import licensing 
procedures to comply with its WTO obligations. Import licenses are 
still required for 26 categories of items, down from 42 categories in 
1995-1996. Licenses are required for many raw materials, petroleum, 
industrial, textile, and agricultural items. Import licenses can be 
used to protect unproductive local industries and to encourage greater 
domestic production. Some items that do not require licenses must 
nevertheless comply with applicable regulations of concerned agencies, 
are subject to extra fees, or must have certificates of origin.
    The Thai Food and Drug Administration issues licenses for food and 
pharmaceutical imports. This process can be a barrier due to the cost, 
the length of the process, and occasional demands for proprietary 
information. Licenses cost about $600 and must be renewed every three 
years. Pharmaceutical import licenses cost about $480 and must be 
renewed every year. There are also fees for laboratory analysis. Costs 
of between $40 to $120 per item are usual for sample food products 
imported in bulk. Sealed, packaged foods can cost about $200 per item. 
Pharmaceuticals must be registered for a fee of about $80, and 
inspected and analyzed for another fee of about $80 per item. The 
process can take more than three months to complete.
    The government is gradually easing import duties in line with WTO 
commitments, which may improve market access for some American 
products. Rice will continue to be protected, but within WTO schedules. 
Corn and fresh potatoes are subject to a Tariff Rate Quota (TRQ) that 
limits import levels. The restricted entry period for U.S. corn under 
the TRQ, generally February to June, usually ensures that it is not 
competitive in the Thai market.
    Even though rates are slated to decline between 35 and 50 percent 
under WTO rules, duties on many high-value fresh and processed foods 
remain high. For most U.S. high-value fresh and value-added processed 
foods, entry into Thailand is still expensive. There are no longer 
specific duties on most imported agricultural and food products, except 
wine and spirits, which continue to have very high rates.
    Arbitrary customs valuation procedures sometimes constitute a 
serious barrier to U.S. goods. The Customs Department has used the 
highest previously declared invoice value as a benchmark for assessing 
subsequent shipments from the same country. That allows Customs to 
disregard the invoice value of a shipment in favor of the benchmark 
amount. This practice has had a particularly damaging effect upon trade 
in agricultural products, which often have seasonally fluctuating 
values. However, the government is instituting a program of customs 
reform that, if adopted successfully, will remedy some of the problems 
at the ports of entry. These reforms include adoption of the World 
Customs Organization harmonized code and the use of an Electronic Data 
Interchange (EDI) system. The pilot program for EDI became operational 
early in 1998, but thus far affects only export procedures and only in 
the airport, not in the seaports. There have been some significant 
improvements in advance of the full installation of EDI. Expedited 
procedures for express carriers were instituted during 1998, and 
customs procedures in the port areas are reported by private industry 
to be faster and smoother during 1998-1999.
    Customs duties are sometimes arbitrary in other ways. For example, 
import duties on unfinished materials are higher than those on finished 
goods in some categories, such as automobiles. This is a burden to 
American firms that manufacture or assemble in Thailand.
    Restrictions on the activities of foreign banks have eased since 
1994, as have limits on foreign ownership of Thai banks. However, 
foreign banks' deposits in Thailand still comprise only 4.1 percent of 
total bank deposits, and foreign banks are still disadvantaged in a 
number of ways. Foreign banks are limited to three branches (of which 
two must be outside of Bangkok and adjacent provinces) and there are 
limits on expatriate management personnel, although foreign bankers 
here say that requests for additional personnel are customarily 
approved.
    To facilitate recapitalization of the financial sector, the 
government has raised limits on foreign ownership of domestic banks. In 
June 1997 the Minister of Finance was empowered to raise the old 25 
percent ceiling on foreign ownership of domestic banks, and the Bank of 
Thailand announced in November 1997 that foreign ownership would be 
allowed to exceed 49 percent for a period of 10 years. (Foreign 
investors will not be forced to divest shares after 10 years, but will 
not be able to purchase additional shares.) The government has also 
issued additional foreign bank and Bangkok International Banking 
Facility licenses and authorized foreign bank participation in domestic 
ATM networks. During the third quarter of 1999 foreign banks purchased 
75 percent shares of two domestic banks intervened by the Thai 
Government. The Government hopes to sell similar stakes in two more 
intervened banks by the end of 1999.
    Foreign ownership of finance companies and securities companies had 
been limited to 25 percent, but these limits were also raised in the 
aftermath of the financial crisis. As of May 1998, foreigners may hold 
majority stakes in Thai securities houses, although there are minimum 
investment requirements.
    The provision of telecommunications services is a government 
monopoly in Thailand. Private participation is currently limited to 
concessions in both wireless and fixed line sectors. In November 1997, 
the government approved a telecommunications master plan that that 
provides an outline of a liberalization program. The government plans 
to corporatize its two telecom operators, the Telephone Organization of 
Thailand and the Communications Authority of Thailand, in preparation 
for seeking strategic partners in the next few years. Full market 
liberalization will not take place until 2006, as mandated by the WTO.
6. Export Subsidies Policies
    Thailand ratified the Uruguay Round agreements in December 1994. 
Thailand maintains several programs that benefit exports of 
manufactured products or processed agricultural products and which may 
constitute export subsidies. These include subsidized credit on some 
government-to-government sales of Thai rice (agreed on a case-by-case 
basis), preferential financing for exporters in the form of packing 
credits, tax certificates for rebates of packing credits, and rebates 
of taxes and import duties for products intended for re-export. The 
Thai EX-IM bank currently offers an 11 (plus 1.5) percent rate on 
export credits, about one point below the prime rate offered by the 
large commercial banks.
7. Protection of U.S. Intellectual Property
    Improved protection for U.S. copyright, patent, and trademark 
holders has been an important bilateral trade issue for several years. 
After passage of a revised Copyright Law in 1994 the U.S. moved 
Thailand from Priority Watch List to Watch List status. During 1998 the 
Thai Parliament passed amendments to the Patent Act, abolishing the 
Pharmaceutical Review Board. Trademark application procedures were 
streamlined by administrative means.
    A specialized intellectual property department in the Ministry of 
Commerce has cooperated with U.S. industry associations to coordinate 
both legal reforms and enforcement efforts, including raids. In 1997, 
the parliament established a separate intellectual property court that 
has resulted in a more efficient judicial procedures and higher fines. 
The court began operation in December 1997. In mid-1998, the government 
produced a letter of intent containing the bilaterally agreed text of 
an IPR action plan for the remainder of the year. The plan was 
ambitious, and covered most aspects of IPR. Many components of the plan 
were implemented during 1998 as the Thai Government showed itself 
prepared to install more efficient administrative structures and 
procedures for dealing with piracy. Enforcement has always been the 
biggest problem. During the first months of 1999 enforcement efforts in 
Thailand improved dramatically with several successful raids on pirate 
optical media supply and distribution systems. The momentum has been 
kept up through the second half of the year. Rights-holders report that 
police cooperation is better and the frequency of raids is up across 
the board. As requested by the USG and rights holders, these have 
included some raids against producers.
    Piracy remains a serious problem, however, and it is growing rather 
than shrinking as pirates from elsewhere in the region have come to set 
up shop in Thailand. The U.S. pharmaceutical, film, and software 
industries estimate lost sales at over $200 million annually. Few 
persons have served time in jail for copyright infringement. 
Irregularities in police and public prosecutor procedures have resulted 
in the substitution of insignificant defendants for major ones and the 
disappearance of vital evidence from police inventories. Although fewer 
raids are compromised by leaks from police sources than during 1997-98, 
this is still a problem. Some trademark pirates running ``plush'' item 
factories in outlying provinces have thwarted raids with threats of 
violence against officials and investigators.
8. Worker Rights
    a. The Right of Association: The Labor Relations Act of 1975 gives 
workers in the private sector most internationally recognized labor 
rights, including the freedom to associate. They may form and join 
unions and make policy without hindrance from the government and 
without reprisal or discrimination for union activity. Unions in 
Thailand may have relationships with unions in other countries, and 
with international labor organizations. In 1991, following a military 
coup, the Thai Government revoked a number of these rights for state 
enterprise workers. The Thai Parliament approved a new State Enterprise 
Labor Relations (SELRA) bill on October 8, 1998. That bill was 
subsequently rejected by the Constitutional Court on a technicality. In 
August 1999, after the bill was re-introduced, the House and Senate 
could not agree on several key union rights provisions. The House then 
invoked constitutional provisions that will allow it to pass SELRA 
unilaterally after a six-month waiting period. The Ministry of Labor 
expects the bill to pass by February 2000.
    b. The right to Organize and Bargain Collectively: Thai workers 
have the right to bargain collectively over wages, working conditions, 
and benefits. About 900 private sector unions are registered in 
Thailand. Civil servants cannot form unions. State enterprise 
employees, essential workers (transportation, education, and health 
care personnel), and civil servants may not strike. However, they may 
be members of employee associations. Collective bargaining is unusual 
in Thailand, and industry-wide collective bargaining is all but 
unknown. However, representatives of public sector associations and 
private sector unions do sit on various government committees dealing 
with labor matters, and are influential in setting national labor 
policies, such as the minimum wage.
    c. Prohibition of Forced or Compulsory Labor: The Thai Constitution 
prohibits forced or compulsory labor except in cases of national 
emergency, war, or martial law. However, Thailand remains the target of 
ILO actions under Convention 29 (forced labor) because child 
prostitution persists despite recent government moves to step up 
enforcement of laws prohibiting it, and to cooperate with ILO programs.
    d. Minimum Age for Employment of Children: The new 1998 Labor 
Protection Act went into effect on August 20, 1998. The act raises the 
minimum age for employment in Thailand from thirteen to fifteen. 
Persons between the ages of 15 to 18 are restricted to light work in 
non-hazardous jobs, and must have the permission of the Department of 
Labor in order to work. Nighttime and holiday employment of non-adults 
is prohibited. The new national education bill passed in August 1999 
gives the children the right to free primary education through grade 
12. However, compulsory education is only enforced through grade nine.
    e. Acceptable Conditions of Work: Working conditions vary widely in 
Thailand. Large factories generally meet international health and 
safety standards, though there have been serious lapses involving loss 
of life. The government has increased the number of inspectors and 
raised fines for violators, but enforcement is still not rigorous. The 
usual workday in industry is eight hours. Wages in profitable export 
industries often exceed the legal minimum. However, in the large 
informal industrial sector wage, health, and safety standards are low 
and regulations are often ignored. Most industries have a legally 
mandated 48-hour maximum workweek. The major exceptions are commercial 
establishments, where the maximum is 54 hours. Transportation workers 
are restricted to 48 hours per week.
    f. Rights in Sectors with U.S. Investment: Labor rights are 
generally respected in industrial sectors with heavy investment from 
U.S. companies. Most U.S. firms in Thailand work with internal workers' 
representatives or unions, and relations are constructive. U.S. 
companies strictly adhere to Thai labor laws and did not experience 
serious labor disruptions in the last year.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,579
Total Manufacturing............  ..............  1,633
  Food & Kindred Products......  109             ...............................................................
  Chemicals & Allied Products..  334             ...............................................................
  Primary & Fabricated Metals..  70              ...............................................................
  Industrial Machinery and       648             ...............................................................
   Equipment.
  Electric & Electronic          243             ...............................................................
   Equipment.
  Transportation Equipment.....  24              ...............................................................
  Other Manufacturing..........  205             ...............................................................
Wholesale Trade................  ..............  1,508
Banking........................  ..............  486
Finance/Insurance/Real Estate..  ..............  351
Services.......................  ..............  42
Other Industries...............  ..............  122
TOTAL ALL INDUSTRIES...........  ..............  5,721
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 EUROPE

                              ----------                              


                           THE EUROPEAN UNION


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................    8095.6    8393.9    8182.5
  Real GDP Growth (pct)...................       2.7       2.9       2.1
  GDP by Sector:
    Agriculture...........................       N/A       N/A       N/A
    Manufacturing.........................       N/A       N/A       N/A
    Services..............................       N/A       N/A       N/A
    Government............................       N/A       N/A       N/A
  Per Capita GDP (Thousands of US$).......      21.6      22.3      21.8
  Labor Force (Millions)..................     166.9     167.7       N/A
  Unemployment Rate (pct).................      10.7      10.0       9.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2/M3).............       5.0       N/A       N/A
  Consumer Price Inflation................       2.1       1.5       1.3
  Exchange Rate (USD/ECU annual average)..      1.13      1.12      1.05

Balance of Payments and Trade:
  Total Exports FOB.......................     820.2     816.1       N/A
    Exports to U.S........................     160.8     179.1       N/A
  Total Imports CIF.......................     765.2     793.5       N/A
    Imports from U.S......................     156.9     168.7       N/A
  Trade Balance...........................      55.0      22.6       N/A
    Balance with U.S......................       3.9      10.4       N/A
  External Public Debt (pct of GDP).......      71.7      69.7      68.6
  Fiscal Deficit/GDP (pct)................       2.3       1.5       1.5
  Current Balance/GDP (pct)...............       1.5       1.2       0.9
  Debt Service Payments/GDP (pct).........       N/A       N/A       N/A
  Gross Official Reserves.................     518.5       N/A       N/A
  Aid from U.S............................       N/A       N/A       N/A
  Aid from Other Sources..................       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Estimates.

1. General Policy Framework
    The European Union (EU), the largest U.S. trade and investment 
partner, is a supranational organization comprised of fifteen European 
countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, 
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, 
and the United Kingdom. It is unique in that its member states have 
ceded to it increasing authority over their domestic and external 
policies, especially with the 1987 Single European Act and the 1993 
``Maastricht'' and 1999 ``Amsterdam'' amendments to the 1958 Treaty of 
Rome. Individual member state policies, however, may still present 
problems for U.S. trade, in addition to EU-wide actions.
    The EU's authority is clearest in trade-related matters. As a long-
standing customs union, the EU represents the collective external trade 
interests of its member states in the World Trade Organization (WTO). 
Internally, the free movement of goods, services, capital and people 
within the EU is guaranteed by the Single Market program, an effort to 
harmonize member state laws in order to eliminate non-tariff barriers 
to these flows. Externally, with respect to services investment, 
intellectual property rights and food safety issues among others, 
competency for policy and negotiations is balanced between member 
states, the European Commission and the European Parliament. However, 
the European Commission enforces treaty provisions against anti-
competitive practices throughout the EU. The EU is also gaining greater 
competence over investment from third countries.
    The Maastricht Treaty provides for the creation of an Economic and 
Monetary Union (EMU) among the EU member states which went into effect 
on January 1, 1999 with the launch of a single currency, the euro. The 
11 participating countries (Denmark, Greece, Sweden and the United 
Kingdom are not included) now have a single monetary policy conducted 
by the European System of Central Banks (ESCB), including the 
Frankfurt-based European Central Bank (ECB). Member states were 
generally successful in achieving the ``convergence criteria'' for EMU: 
maximum deficits of three percent of GDP, maximum gross national debt 
of 60 percent of GDP, inflation and interest rate levels no more than 
one and a half percentage points above the average of the three lowest 
rates among the member states, and two years of relative exchange rate 
stability. Since the euro's launch they have adhered to their Stability 
and Growth Pact's limit on excessive budget deficits (3 percent of GDP) 
by seeking to achieve balanced budgets by 2002.
    The Union's budget, consisting mainly of member state contributions 
because the EU has no independent taxing authority, is limited to 1.27 
percent of the combined GDP of the 15 member states. Expenditures of 
roughly $100 billion are divided generally among agricultural support 
(40 percent), ``structural'' policies to promote growth in poorer 
regions (40 percent), other internal policies (five percent), external 
assistance (five percent) and administrative and miscellaneous (five 
percent).
2. Exchange Rate Policy
    The third and final stage of EMU began on January 1, 1999 when 11 
member states irrevocably fixed their exchange rates to the euro. 
Financial transactions are now available in euros through commercial 
banking institutions. Euro notes and coins will be introduced on 
January 1, 2002, fully replacing national currencies by July 1, 2002. 
During the transition period, there will be dual circulation between 
the euro and the respective national currencies.
    The ESCB is responsible for setting monetary policy in the euro 
area, while national central banks will continue to conduct money 
market operations and foreign exchange intervention under its 
direction. Per requirement of the treaty, the ECB policy is focused on 
maintaining price stability. The euro follows a floating exchange rate 
regime against other currencies, with the exception of the currencies 
of Denmark and Greece which participate in the new Exchange Rate 
Mechanism (ERM-2) limiting their fluctuation against the euro to +/- 
2.25 percent and +/- 15 percent respectively. EMU has provisions to 
create additional exchange rate arrangements, if the member states 
desire to do so. However, there are no current plans to seek such 
arrangements.
3. Structural Policies
    Single Market: The legislative program removing barriers to the 
free movement of goods, services, capital and people is largely 
complete, although there are delays in member state implementation of 
Community rules and national differences in the interpretation of those 
rules. The net effect of the Single Market program has been freer 
movement, fewer member state regulations for products and service 
providers to meet, and real consolidation of markets. Nonetheless, some 
aspects of the program have created problems for U.S. exporters (as 
discussed below). Furthermore, disparate enforcement, inconsistent 
application and insufficient monitoring of Single Market measures 
within the EU place U.S. exporters at a disadvantage. EU efforts to 
remedy these problems are notable in some areas, but resources remain 
severely limited.
    Tax Policy: Tax policy remains the prerogative of the member 
states, which must approve by unanimity any EU legislation in this 
domain. EU legislation to date has been aimed at eliminating tax-
induced distortions of competition within the Union. Legislation 
focuses on harmonizing value-added and excise taxes, eliminating double 
taxation of corporate profits, interest, and dividends and facilitating 
cross-border mergers and asset transfers. The EU countries have stated 
their commitment to move further toward coordination of their tax 
policies, in addition to agreeing to a Code of Conduct to curb 
``harmful'' business taxation.
4. Debt Management Policies
    The EU raises funds in international capital markets, but does so 
largely for cash management purposes and thus does not have any 
significant international debt. The European Investment Bank, 
reportedly the world's largest multilateral development bank, also 
raises funds in international markets. The bank has an extremely 
favorable balance sheet and retains the highest credit rating. Finally, 
the EU has used its borrowing power to on-lend to key developing 
countries, especially in Central Europe and the newly independent 
states of the former Soviet Union. It has consistently taken a hard 
line on efforts to reschedule their debt.
5. Significant Barriers to U.S. Exports
            Import Policies
    Import, Sale and Distribution of Bananas: The U.S. has been engaged 
for many years in efforts to resolve a long-standing dispute with the 
EU over its banana import regime. The WTO found that the EU's current 
regime remains WTO-inconsistent. The U.S. currently has WTO-approved 
retaliation in place worth 191.4 million dollars per year. The U.S. has 
tabled a number of constructive ideas on revised regimes that would be 
WTO-consistent. The European Commission is currently developing 
proposals for member state consideration. U.S. retaliation will remain 
in place until the EU implements a WTO-consistent banana import regime.
    Restrictions Affecting U.S. Wine Exports to the EU: Current EU 
regulations require imported wines to be produced only by specifically 
authorized oenological practices. Since the mid-1980's, U.S. wines have 
entered the EU market under a series of ``derogations'' granting EU 
regulatory exemptions. Access to the EU wine market is further impeded 
by a complicated wine-import certificate documentation process. The 
United States is negotiating an agreement with the EU to ensure the EU 
market remains open to U.S. wine. The U.S. does not believe EU 
legislation on ``traditional expressions'' (terms such as vintage or 
tawny) is WTO TRIPs consistent and therefore does not believe this area 
is appropriate for bilateral negotiation.
            Services Barriers
    EU Broadcast Directive: The EU's 1989 Broadcast Directive (revised 
in 1997) provides that a majority of entertainment broadcast 
transmission time be reserved for European-origin programs ``where 
practicable'' and ``by appropriate means.'' Certain measures of the 
directive appear to violate WTO rules. The U.S. has reserved its right 
to take further action under dispute settlement procedures and will 
continue to monitor closely the implementation of these measures.
    Computer Reservation Services: U.S. Computer Reservation Services 
(CRS) companies have had difficulties in the EU market because some 
member state markets tend to be dominated by the CRS owned by that 
member state's flag air carrier. Most disputes have been resolved to 
the satisfaction of U.S. CRS vendors via U.S. government intervention 
or recourse to national administrative and court systems. In 1996 the 
U.S. Department of Justice forwarded a Positive Comity referral to the 
European Commission (DG Competition) requesting an investigation into 
anticompetitive activities in Europe that may have disadvantaged a U.S. 
CRS firm. The Commission's investigation resulted in a European CRS 
firm being charged with activities that infringed competition rules. As 
of November 1999 a final Commission ruling has not been made.
    Airport Ground-Handling: In October 1996, the EU issued a directive 
to liberalize the market to provide ground-handling services at EU 
airports above a certain size by January 1, 1998. U.S. airline 
companies and ground-handling service providers welcome this 
development. Yet they are concerned with an exemption that allows EU 
airports to continue having a monopoly service provider until January 
1, 2002, and to limit the number of firms which can provide certain 
services on the airport tarmac (ramp, fuel, baggage and mail/freight 
handling). These potential barriers are partially offset by more 
liberal bilateral air service agreements, which the United States 
concluded with individual member states.
    Postal Services: U.S. express package services are concerned with 
market access restriction and unequal competition caused by state-owned 
postal monopolies. Proposals to liberalize postal services and to 
constrain the advantages enjoyed by the monopolies have not made 
sufficient progress to redress these problems.
            Standards, Testing, Labeling and Certification
    Despite the Single Market program, the free movement of goods 
within the EU is still impeded by widely disparate member state 
standards, testing and certification procedures for some products. The 
``new approach,'' which streamlines technical harmonization and the 
development of standards for certain product groups using essential 
health and safety requirements, reflects the trend towards 
harmonization of laws, regulations, standards, testing, and quality and 
certification procedures in the EU. U.S. firms cannot directly 
participate in the European standardization process, but European 
standards bodies can be sympathetic to U.S. concerns when approached.
    The Transatlantic Business Dialogue's (TABD) adopted goal of 
``approved once, accepted everywhere in the transatlantic marketplace'' 
demonstrates the importance of standardization in U.S.-EU trade 
relations. The anticipation that EU standardization legislation will 
eventually cover 50 percent of U.S. exports to Europe demonstrates its 
significance. Although some progress has been made, U.S. exporters are 
still concerned with legislative delays, inconsistent member state 
interpretation and application of legislation, the ill-defined scope of 
directives and unclear marking and excessive labeling requirements. 
These problems can complicate and impede U.S. exports to the EU.
    Mutual Recognition Agreements: In addition to implementing a 
harmonized approach to testing and certification, the EU is also 
providing for the mutual recognition of member state designated 
national laboratories to test and certify ``regulated'' products. For 
the testing and certification of non-regulated products, the EU 
encourages mutual recognition agreements between private sector 
parties. U.S. exporters face problems when only ``notified bodies'' in 
Europe are empowered to grant final product approvals of regulated 
products. There are some U.S. laboratories, under subcontract to 
notified bodies, that can test regulated products. Yet these 
laboratories must still send test reports to their European affiliates 
for final product approval. Since this process can cause delays and 
additional costs for U.S. exporters, sufficient access for U.S. 
exporters cannot be provided in this fashion.
    On May 18, 1998, the United States and the EU signed a package of 
Mutual Recognition Agreements (MRAs), allowing for conformity 
assessments to be performed in the United States to EU standards and 
vice versa. Both governments are committed to advancing joint efforts 
to promote mutual recognition, equivalency and harmonization of 
standards. The MRA entered into force on December 1, 1998 and is now 
being implemented. Under the Transatlantic Economic Partnership (TEP) 
established at the May 1998 U.S.-EU Summit, the U.S. set in motion a 
process to undertake negotiation of additional MRAs covering other 
sectors.
    Biotechnology Product Approvals and Labeling: A majority of EU 
member states have called for a ``moratorium'' on approvals for 
products of biotechnology for the foreseeable future. Calls for 
segregation, traceability and labeling have not been well defined. The 
result has been an uncertain and ambiguous regulatory environment that 
neither instills consumer confidence nor provides clear criteria with 
which industry could comply. No biotechnology products have been 
approved since 1998. The Commission is currently conducting an internal 
review of the EU approach to biotechnology and food safety and expects 
to circulate a recommendation paper in early 2000.
    Hormone-Treated Beef: The WTO has ruled consistently against the 
EU's ban on hormone-treated beef, most recently in early 1998. The EU 
did not come into compliance by May 13, 1998, as required, citing a 
need to perform additional risk assessments (which the WTO did not say 
were needed). Therefore, the U.S. has imposed WTO-approved retaliation 
worth 116.8 million dollars per year, pending EU compliance. A large 
body of scientific evidence indicates these products are safe as used. 
The EU does not expect its studies to be complete before mid-2000 at 
the earliest. The U.S. remains open to exploring meaningful 
compensation pending EU compliance.
    Veterinary Equivalency: The U.S./EU Veterinary Equivalency 
Agreement (VEA) was signed on July 20, 1999 and implemented on August 
1. The agreement provides a regulatory framework for recognition of 
equivalent sanitary measures of both parties of virtually all animals 
and animal products. However, recent statements by Commission officials 
have indicated that the EU is not prepared to recognize U.S. systems as 
equivalent in the near term. A joint management committee meeting of 
the VEA is planned for March 2000, when we hope to have ironed out many 
of the implementation issues.
    Aflatoxin Limits: In July 1998, the EU adopted a regulation 
harmonizing maximum levels of aflatoxin in peanuts, tree nuts and dried 
fruits, cereals and milk, effective January 1, 1999. At the same time, 
a directive specifying sampling methods to be used after December 31, 
2000 was adopted. The United States considers the maximum limits 
unjustifiably low in relation to consumer exposure and risk. The 
sampling procedure will increase handling costs with no appreciable 
reduction of aflatoxin contamination in consumer protection.
    Specified Risk Materials Ban: In response to growing concern over 
the transmission of ``mad cow disease'' or Bovine Spongiform 
Encephalopathy (BSE), the EU, in July 1997, passed a Specified Risk 
Material (SRM) regulation restricting the use and processing of certain 
animal products and by-products. Since tallow, tallow derivatives and 
gelatin are widely used in food manufacturing, pharmaceutical, cosmetic 
and industrial products, this regulation threatened to significantly 
restrict U.S. access to EU markets despite the fact that the United 
States is considered to have a negligible BSE-risk. Implementation of 
the ban continues to be delayed; a new proposal addressing the overall, 
long term problem of TSEs (transmissible spongiform encephalopathies) 
is expected to be presented in November 1999.
    Hushkits or New Engine Modified and Recertificated Aircraft: In 
1997, pressure on EU airport authorities to reduce noise levels 
resulted in a Commission effort to develop an EU-wide noise standard. 
When it became clear that it would be politically impossible to agree 
on such a standard, the Commission and the EU member states developed 
an alternative proposal. That proposal effectively passes the costs on 
to U.S. and other non-EU air carriers and to U.S. manufacturers of 
noise reduction technology (hushkits) and new engines for older U.S. 
aircraft. The Commission has provided no scientific analysis 
demonstrating that the regulation would reduce noise. The regulation 
was approved by the European Parliament in 1999 but, following U.S. 
protests, its implementation has been delayed until May 2000. The 
prospect of implementation has harmed the market for hushkitted and re-
engined aircraft and negatively affected fleet values of some U.S. air 
carriers.
    New Aircraft Certification: The United States continues to be 
concerned by the possibility that European aircraft certification 
standards are being applied so as to impede delivery of qualified 
aircraft into Europe. Processes and procedures currently employed by 
the European Joint Aviation Authorities (JAA) appear cumbersome and 
arbitrary, and in any event cannot be uniformly enforced. For example, 
France continues to insist on an exception to the JAA's decision on 
certification of Boeing's new model 737 aircraft that limits the seat 
density of aircraft sold to carriers in France. The JAA decision itself 
took an inordinately long time, during which additional conditions were 
imposed progressively on the U.S. firm. The United States desires a 
transparent, equitable process for aircraft certification that is 
applied consistently on both sides of the Atlantic according to the 
relevant bilateral airworthiness agreements.
    Metric Labeling: In order to harmonize measurement systems 
throughout the EU, the EU adopted a directive in 1980, which mandates 
metric-only labeling on most goods entering the EU from January 1, 
2000. Both EU and U.S. exporters have complained about the costs of 
complying with conflicting EU metric-only and U.S. mandatory dual 
labeling requirements. In response to strong industry and USG 
opposition, the EU approved a 10-year deferral of its metric-only 
directive in December 1999.
    Voluntary Ecolabeling Scheme: In 1992, the EU adopted an EU-wide 
ecolabeling scheme. This is a voluntary scheme that allows 
manufacturers to obtain an ecolabel for a product when its production 
and life cycle meets the established criteria for the product category. 
Despite ongoing dialogues between the EU, U.S. government and U.S. 
interest groups, commitments to enhance transparency and scientific 
analysis from previous technical bilateral talks have not been upheld. 
To address this problem, a formal EU-U.S. technical working group was 
proposed in October 1998. The United States, due to concern that the EU 
ecolabeling scheme may become a de facto trade barrier, will continue 
to monitor closely the development of the ecolabeling scheme.
    Packaging Labeling Requirements: In 1996, the Commission proposed a 
directive establishing marking requirements, indicating recyclability 
and/or reusability, for packaging. Due to the differences that exist 
between EU marking requirements and those used by the United States and 
the International Standards Organization (ISO), the United States is 
concerned with the additional costs and complications both U.S. and EU 
firms will face, in the absence of concomitant environmental benefits. 
The United States is also concerned with Article 4 of the proposed 
directive, which would prohibit the application of other marks to 
indicate recyclable or reusable packaging. This may require some 
companies to create new molds solely for use in the European market. 
Discussions underway in the ISO may resolve potential problems, 
especially since the Commission has indicated a willingness to review 
the proposed directive in light of an eventual ISO agreement.
    Waste Management: European Commission environment officials are 
working on draft proposals for directives on batteries and on waste 
from electrical and electronic equipment. The United States supports 
the objectives of the drafts to reduce waste and the environmental 
impact of discarded products. However, the proposals' approach to 
banning certain materials (such as lead, mercury and cadmium) appears 
to lack adequate scientific and economic justification and may serve as 
unnecessary barriers to trade. Imposing sole responsibility on the 
manufacturer for the collection and recycling of used products also is 
unnecessarily burdensome. The draft directives are likely to be voted 
on by the Commission in early 2000. If adopted, the proposals would 
then move to the Council and European Parliament. U.S. and Commission 
waste experts have begun an informal dialogue to discuss these and 
other waste issues. The United States government will continue to 
monitor closely these proposals.
    Acceleration of the Phase-Out of HCFCs: The European Commission 
adopted a proposal in July 1998 to amend EU Regulation 3093/94 on 
substances that deplete the ozone layer. The United States government 
actively opposed early drafts, which included phase-outs of some 
hydrochlorofluorocarbons (HCFCs) by 2000 or 2001, and would have 
disadvantaged U.S. producers while not necessarily benefiting the 
environment. The final Commission draft included a January 1, 2003 
phase-out date for HCFCs used in refrigerator foam--in line with U.S. 
law--thereby protecting the export to the EU of U.S. refrigeration 
equipment. The Council agreed to the 2003 date in adopting its Common 
Position in late December 1998, but the Parliament sought to accelerate 
the date to 2002. In December 1999, Parliament rejected this amendment, 
so the 20003 phase-out date for HCFCs used by the air conditioning 
industry, while similarly manufactured heat pump systems received a 
2004 deadline. The U.S. government will continue to monitor this issue.
            Investment Barriers
    The European Union and its fifteen member states provide one of the 
most open climates for U.S. direct investment in the world, with well-
established traditions concerning the rule of law and private property 
rights, transparent regulatory systems, freedom of capital movements 
and the like. Traditionally, member state governments have been 
responsible for policies governing non-EU investment. However, in the 
1993 Maastricht Treaty, partial competence was shifted to the EU. 
Member state policies existing on December 31, 1993 remain effective, 
but can be superseded by EU law. In general, the EU supports the idea 
of national treatment for foreign investors, arguing that any company 
established under the laws of one member state must, as a ``Community 
company,'' receive national treatment in all member states regardless 
of ultimate ownership. However, some restrictions on U.S. investment do 
exist under EU law.
    Ownership Restrictions: The benefits of EU law in the aviation and 
maritime areas are reserved to firms majority-owned by EU nationals.
    Reciprocity Provisions: The ``reciprocal'' national treatment 
clause found in EU banking, insurance and investment services 
directives allows the EU to deny a third-country financial services 
firm the right to establish a new business in the EU if it determines 
that the investor's home country denies national treatment to EU firms. 
This notion of reciprocity may have been taken further in the 
Hydrocarbons Directive which requires ``mirror-image'' reciprocal 
treatment where an investor is denied a license if its home country 
does not permit EU investors to engage in activities under 
circumstances ``comparable'' to those in the EU. It should be noted 
that, thus far, these reciprocity provisions have not affected U.S. 
firms. In fact, the EU reiterated to the WTO in April 1998 that neither 
the Commission nor the EU member states would invoke the reciprocity 
clause in the EU banking directive with other WTO members in the light 
of the specific most-favored-nation commitments made during the WTO 
financial services negotiations.
    Access to Government Grant Programs: The EU does not preclude U.S. 
firms established in Europe from access to EU-funded research and 
development grant programs, although in practice, association with a 
``European'' firm is helpful in winning grant awards.
    Anti-Corruption: In an attempt to coordinate disparate member state 
legislation on anti-corruption, the Commission, in 1997, adopted a 
discussion document suggesting guidelines for the development of a 
coherent EU-level anti-corruption policy. However, there has been 
little follow-up to the recommendations, and EU member state 
legislation on corruption is presently far from homogeneous. A number 
of EU member states have yet to ratify the OECD convention on anti-
bribery.
            Government Procurement
    Discrimination in the Utilities Sector: The Utilities Directive, 
which took effect in January 1993, is an effort to open government 
procurement within the EU. It covers purchases in the water, 
transportation, energy and telecommunications sectors. The directive 
benefits U.S. firms by requiring open and objective bidding procedures, 
but still discriminates against non-EU bids unless provided for in an 
international or bilateral agreement. This discriminatory provision was 
waived for the heavy electrical sector in a 1993 Memorandum of 
Understanding (MOU) signed between the EU and the United States. A year 
later, in a new agreement, the idea of non-discriminatory treatment was 
extended to over $100 billion of goods procurement on each side. Much 
of the 1994 agreement is implemented through the 1996 WTO Government 
Procurement Agreement.
    Telecommunications Market Access: Consistent with the WTO Agreement 
on Basic Telecommunications Services and EU legislation requiring 
liberalization, there is a general trend toward increased competition 
and openness in the European telecommunications services market. Access 
of U.S. firms, however, varies considerably from member state to member 
state due to uneven implementation of commitments. While not specific 
to U.S. firms, high interconnection tariffs in many member states 
present a serious barrier. The ability of telecommunications regulatory 
bodies to exercise authority quickly and effectively varies among 
member states. This has, in some instances, hampered competition. The 
European Commission has proposed streamlining the European regulatory 
structure and increasing dialogue among regulators and the Commission 
to enhance, inter alia, regulatory efficiency.
    Procurement policies and practices are becoming more competitive, 
but discrimination against non-EU bids for public procurement in the 
telecommunications sector remains. In the long run, as privatization in 
the sector increases, this barrier will lessen in importance, but 
access still may be impeded by standards, standard-setting procedures, 
testing, certification and interconnection policies. In this regard, 
the U.S. has serious concerns about market access for third generation 
(3G) wireless telecommunications. Member states appear to be 
formulating licensing rules and procedures that favor a single European 
standard. The U.S. has urged the European Commission and member states 
to modify their rules, as needed, to ensure market access for providers 
of products based on all internationally accepted 3G standards.
            Other Barriers
    Data Privacy: The EU Data Protection Directive entered into force 
in October 1998. It sought to harmonize the treatment of personal data 
within the EU to increase protection and facilitate the flow of 
information within Europe. The Directive only allows the transfer of 
data to third countries if they are deemed to provide ``adequate 
protection.'' The U.S. is discussing a Safe Harbor Initiative with the 
EU, which would create an interface for our different approaches to 
data privacy and ensure that data flows are not interrupted.
6. Export Subsidies Policies
    Agricultural Product Subsidies: The EU grants direct export 
subsidies (restitutions) on a wide range of agricultural products. 
Payments are nominally based on the difference between the EU internal 
price and the world price, usually calculated as the lowest offered 
price by competing exporters. In addition, the complexities of EU law, 
along with the availability of preferential loans and structural funds, 
may further support EU agricultural exports. Under the Uruguay Round 
agreement, the EU is required to reduce direct export subsidies by 21 
percent in volume and 36 percent in value over six years. Whether or 
not the EU is abiding by its commitments remains an issue of 
contention.
    Canned Fruit: The U.S. cling peach industry has complained that the 
EU provides excessive support to their canned fruit industry and that 
the EU has failed to observe the 1985 U.S.-EU Canned Fruit Agreement. 
This allows EU fruit processors to unfairly undercut the domestic and 
export prices for EU trading partners. The U.S. Government has 
consulted with the EU on this issue several times. Currently, EU data 
on subsidy levels to its canned fruit processors is being reviewed, but 
effects of EU subsidies on global prices appear significant.
    Shipbuilding Subsidies: Responding to pressure from the 
shipbuilding industry, the United States, in 1994, successfully 
brokered an OECD agreement to eliminate subsidies that were distorting 
the world ship market. Following the non-ratification of the agreement 
by the U.S. Senate, the EU adopted its own shipbuilding directive in 
May 1998. This directive contains the EU's own timeline for phasing out 
subsidies, primarily aimed at leveling the playing field within the EU.
    Government Support for Airbus: Since the inception of the European 
Airbus consortium in 1967, its partner governments (France, Germany, 
Spain and the United Kingdom) have provided massive support to their 
national company partners in the consortium to aid the development, 
production and marketing of large civil aircraft. Since that date, the 
Airbus partner governments either have committed, or are in an advanced 
stage of consideration of providing, additional funds for derivative 
models of current Airbus aircraft. The United States is concerned that 
the launch of new Airbus programs and the restructuring of the Airbus 
consortium may be used to justify additional government subsidies. The 
United States also continues to be concerned that the European Union 
and its member states may attempt to influence commercial aircraft 
competitions in favor of Airbus aircraft in a manner inconsistent with 
its obligations. The United States will continue to monitor EU 
involvement in future competitions and its compliance with aircraft 
trade agreements.
7. Protection of U.S. Intellectual Property
    The EU and its member states support strong protection for 
intellectual property rights (IPR). EU member states are participants 
of all the relevant WIPO conventions. Along with the EU, they regularly 
join with the United States to encourage other countries to adopt and 
enforce high IPR standards, including those in the TRIPs Agreement. 
However, the United States has challenged several member states on 
their failure to fully implement the TRIPs Agreement.
    Designs: The EU agreed to compromise language on industrial designs 
and models legislation. In general, the directive harmonizes national 
rules on design protection, but does not provide for registration and 
protection of spare components of complex products (such as visible car 
spare parts). A regulation currently under review would designate the 
Office for Harmonization in the Internal Market (OHIM, also known as 
the Community Trademark Office) in Alicante, Spain as the EU registrar 
for designs.
    Patents: Patent filing and maintenance fees in the EU and its 
member states are expensive relative to other countries. Fees 
associated with the filing, issuance and maintenance of a patent over 
its life far exceed those in the U.S. In an effort to introduce more 
reasonable costs, the European Patent Office (EPO) reduced fees for 
filing by 20 percent in 1997.
    European Community Patent: Draft legislation to establish a 
European Community Patent to harmonize patent issuance in EU member 
states, and supplement patents issued by the EPO (with a wider 
membership than the EU) is slated for late 1999. However, a stumbling 
block to this effort is disagreement among member states on which 
official EU languages will be used in patent applications.
    Trademarks: Registration of trademarks with the European Community 
trademark office (official name: Office for Harmonization in the 
Internal Market--OHIM) began in 1996. OHIM, located in Alicante, Spain 
issues a single Community trademark with is valid in all 15 EU member 
states.
    Madrid Protocol: The World Intellectual Property Organization's 
(WIPO) Madrid Protocol provides for an international trademark 
registration system permitting trademark owners to register in member 
countries by filing a standardized application. The U.S. has not 
acceded because it objects to voting provisions in the protocol that 
would allow the EU a vote upon accession in addition to the votes of 
its member states. The U.S. has proposed a voting arrangement to the EU 
that would establish voting procedures to address U.S. concerns. The EU 
has not yet responded to the U.S. proposal.
    Trademark Exhaustion: The trademark exhaustion principle limits a 
trademark owner's ability to resort to remedies against importers/
distributors of trademarked goods outside channels authorized by the 
trademark owner. The current EU regime supports the principle of 
``Community exhaustion,'' which allows resale of trademarked goods 
within the fifteen member states once the trademark owner licenses 
their sale in any EU country.
    In 1998 a European Court of Justice ruling upheld the legality of 
Community trademark exhaustion within the EU. The European Commission 
has defended the principle by maintaining that Community exhaustion 
heightens competition within the internal market. However, member state 
opinion remains divided and at the insistence of the U.K. and Sweden, 
the Commission began a study into the economic impact of Community 
exhaustion in the member states. European discount chains prefer, and 
have actively lobbied for, a system of ``international exhaustion,'' 
which limits the trademark owner's right to control distribution of 
goods once he/she licenses them for sale anywhere in the world.
    Copyrights: U.S. corporate opinion is divided on proposed 
legislation to harmonize copyright law in EU member states and comply 
with WIPO treaties. The EU proposed directive is the subject of active 
lobbying by U.S. business interests. The U.S. has encouraged the EU to 
take all stakeholders into account and develop legislation compatible 
with the U.S. Digital Millennium Copyright Act.
8. Worker Rights
    Labor legislation still remains largely the domain of individual 
member states. Recent decisions taken at the Luxembourg, Cardiff, and 
Cologne EU Summit Meetings of the EU have, however, significantly 
increased cooperation on employment issues. Specifically, the 
Luxembourg Process created a system of goals on employment and annual 
reviews of each country's progress toward meeting them. The Cardiff 
Process sought to liberalize further the movements of goods, services, 
and capital as a means of increasing employment in EU countries. And 
the Cologne Process, in the European Employment Strategy signed at the 
Summit, brought the EU's coordination in employment and macroeconomic 
policies closer together.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  24,953
Total Manufacturing............  ..............  146,007
  Food & Kindred Products......  14,155          ...............................................................
  Chemicals & Allied Products..  49,798          ...............................................................
  Primary & Fabricated Metals..  9,308           ...............................................................
  Industrial Machinery and       19,100          ...............................................................
   Equipment.
  Electric & Electronic          11,841          ...............................................................
   Equipment.
  Transportation Equipment.....  14,555          ...............................................................
  Other Manufacturing..........  27,250          ...............................................................
Wholesale Trade................  ..............  32,324
Banking........................  ..............  20,190
Finance/Insurance/Real Estate..  ..............  154,733
Services.......................  ..............  31,699
Other Industries...............  ..............  23,751
TOTAL ALL INDUSTRIES...........  ..............  433,658
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                AUSTRIA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                        1997        1998       \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\..................   206,739.5   210,897.7  \3\ 210,334
                                                                      .4
  Real GDP Growth (pct)............         2.5         3.3          2.2
  GDP by Sector:
    Agriculture....................     4,662.5     4,584.3          N/A
    Manufacturing..................    44,568.1    45,648.9          N/A
    Services.......................   116,647.5   118,315.2          N/A
    Government.....................    13,188.3    13,247.7          N/A
  Per Capita GDP (US$).............      25,607      26,046   \3\ 25,964
  Labor Force (1,000's)............       3,657       3,684        3,702
  Unemployment Rate (pct) \4\......         4.4         4.7          4.4

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).........         1.0        16.5          N/A
  Consumer Price Inflation.........         1.3         0.9          0.6
  Exchange Rate (AS/US$ annual            12.20       12.38        12.86
   average) \5\....................

Balance of Payments and Trade:
  Total Exports FOB................    58,607.9    62,579.8     63,140.0
    Exports to U.S.................     2,148.4     2,533.5      2,430.0
  Total imports CIF................    64,774.7    68,023.3     69,230.0
    Imports from U.S...............     3,467.9     3,283.0      3,110.0
  Trade Balance....................    -6,166.8    -5,443.5     -6,090.0
    Balance with U.S...............    -1,319.5      -749.5        680.0
  External Public Debt.............    24,991.8    31,777.1     31,950.0
  Fiscal Deficit/GDP (pct).........         1.8         2.2          2.0
  Current Account Deficit/GDP (pct)         2.5         2.2          2.2
  Debt Service Payments/GDP (pct)           2.2         2.4          1.5
   \6\.............................
  Gold and Foreign Exchange
 Reserves
    (Year-End).....................    21,600.0    24,115.1          N/A
  Aid from U.S.....................           0           0            0
  Aid from All Other Sources.......           0           0            0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on latest available data and
  economic forecasts in October 1999.
\2\ GDP at market prices, converted at average annual exchange rate.
\3\ The apparent decline in 1999 figures is a result of exchange rate
  fluctuations between the Austrian Shilling (AS) and the US dollar. In
  local AS currency, figures show an increase in 1999.
\4\ Unemployment rate according to EU method.
\5\ There is only an official rate, no parallel rates.
\6\ Debt service payments on external public debt.

Sources: Austrian Institute for Economic Research (WIFO), Austrian
  Central Statistical Office, Austrian Federal Finance Ministry, and
  Austrian National Bank.

1. General Policy Framework
    Based on per capita GDP, Austria (tied with Belgium) is the third 
richest EU country. Austria has a skilled labor force and a record of 
excellent industrial relations. Its economy is dominated by services, 
accounting for two thirds of employment followed by the manufacturing 
sectors. Small and medium-sized companies are predominant. By 1997, the 
government completed a 10-year privatization program. Most of the 
formerly state-owned industries are now in private hands. Further 
privatizations are underway, including in the banking, 
telecommunications and energy sectors.
    Exports of Austrian goods and services account for almost 44 
percent of GDP. Austria's major export market is the EU, accounting for 
64 percent of Austrian exports (36 percent to Germany, 8 percent to 
Italy). However, given Austria's traditional expertise in Central and 
Eastern European (CEE) markets, exports to that region have soared 
since 1989, accounting for 17 percent of Austrian exports by 1998. 
Numerous multinationals have established their regional headquarters in 
Austria as a ``launching pad'' to the CEE markets. In 1998, Hungary was 
equal to Switzerland as Austria's third largest export market.
    The government sets economic policy in consultation with the so-
called ``Social Partnership,'' consisting of the representative bodies 
of business, farmers, and labor. Designed to minimize social unrest, 
this consensual approach has come under criticism for slowing the pace 
of economic reforms, particularly in inflexible labor and product 
markets. With an increasing number of decisions being made on the EU 
level, the influence of the social partner institutions seems to have 
declined in past years.
    In order to meet the Maastricht criteria for Economic and Monetary 
Union (EMU), in 1996-97, the government introduced an austerity 
program, under which it reduced its federal budget deficit from 5.1 
percent (1995) to 2.5 percent of GDP (1998) and the total public 
deficit, which is decisive for the EMU, to 2.2 percent of GDP (1998). 
The tax increases included in the austerity program brought the share 
of total taxes in GDP to an all-time high of 44.9 percent (1997), since 
then it has declined slightly. The 1999 federal budget was designed to 
secure the consolidation begun in 1996. The total public sector deficit 
is forecast to fall to 2.0 percent in 1999. Social expenditures 
currently amount for almost 29 percent of GDP.
    Another focus of economic policy is employment creation. Austria 
has been one of the foremost supporters of the EU-wide national 
employment plans. Its plan places strong emphasis on training and 
education, removal of bureaucratic hurdles, more labor flexibility and 
a more favorable climate for business start-ups. While some of these 
plans have been implemented, the government failed to address the 
planned reduction of wage and non-wage costs as part of the 2000-2001 
tax reform due to a deadlock of the governing parties and the diverging 
interests of social partners, i.e., business and labor representatives.
2. Exchange Rate Policies
    As one of the eleven EU member states participating in EMU, Austria 
on January 1, 1999 surrendered its sovereign power to formulate 
monetary policy to the European Central Bank (ECB). The government 
successfully met all EMU convergence criteria due to austerity measures 
implemented in 1996-97, and is pursuing a policy of further reducing 
the fiscal deficit and the public debt. The ECB's focus on maintaining 
price stability in formulating exchange rate and monetary policies is 
viewed by the Austrian National Bank (ANB) as a continuation of the 
``hard schilling'' policy the ANB pursued since 1981. By pegging the 
Austrian schilling (AS) to the German mark (DM), the government has 
successfully kept inflation under control and promoted stable economic 
growth. On December 31, 1998, the exchange rate for the Euro was 
irrevocably fixed at Austrian schillings 13.7603.
    In 1998, the Austrian schilling lost little ground against the 
dollar. However, in 1999, the dollar continued to rise steadily against 
the schilling parallel to its rise against the common Euro currency.
3. Structural Policies
    Austria's accession to the EU forced the government to accelerate 
structural reforms and to liberalize its economy. Most nontariff 
barriers to merchandise trade have been removed and cross-border 
capital movements have been fully liberalized.
    While the government continues to be a major player in the economy, 
the scope of government involvement--a traditional feature of the 
Austrian economy--has been significantly reduced in recent years. The 
amount of total government spending (federal, provincial and local 
governments as well as social security institutions, but not including 
government holdings) as percentage of GDP declined to 54.2 percent in 
1998 from 57.4 percent in 1995 (Note: the figure for the government 
contribution to GDP, as shown in the table, reflects only narrow public 
administration functions and does not include social and other 
expenditures). The government no longer has majority ownership in 
formerly state-controlled companies such as OMV (oil and gas), VOEST 
(steel, plant engineering) or ELIN (electrical machinery and 
equipment). Subsidy programs have also been scaled back to conform to 
EU regulations.
    After the passage of a more liberal business code in 1997, plans 
for making Austria more attractive for investors were implemented. 
While procedures for investors to obtain necessary permits and other 
approvals have been streamlined and the time for approvals cut 
considerably, plans for implementing ``one-stop-shopping'' for all 
necessary permits have not yet been realized. Delays have been caused 
by jurisdictional disputes among three federal ministries as well as 
differences in opinion between the federal government and business 
interest representatives. Approval for larger projects could still be 
bothersome and lengthy. Other measures implemented to improve the 
business climate and stimulate entrepreneurial activity include the 
reorganization of the Austrian stock market (the Vienna Stock Exchange 
was fully privatized and linked to the German Stock Exchange in 
Frankfurt), a new takeover act, the standardization of international 
accounting standards (IAS) or generally accepted accounting principles 
(US-GAAP), increased work time flexibility, and initial measures that 
have slightly increased wage and labor cost flexibility.
    As a result of EU liberalization directives, the government has 
also moved ahead with liberalization legislation in the telecom and 
energy sectors. The opening of the market for conventional telephones 
on January 1, 1998, represented the final phase of Austria's telecom 
liberalization. The Austrian telecom services sector now exhibits a 
high degree of liberalization, though high interconnection fees still 
serve as an impediment to market access. For decades, telecom was a 
monopoly in Austria, with the state-owned Post and Telecom Austria 
Company (PTA) being the only national supplier of networks and telecom 
services. The government also moved ahead with the liberalization of 
the highly centralized and virtually closed electricity market. A 
relevant Austrian law was adopted in 1998, providing for a progressive 
opening of the market by the year 2003. Preparations are also under way 
to liberalize the natural gas market.
    The outgoing government (general elections took place on October 3, 
1999) decided on the implementation of the tax reform it had promised 
for 2000. The tax reform for 2000 ended up in marginal tax rate 
adjustments and some ``redistribution.'' The reform will, thus, 
stimulate economic growth in Austria in 2000, but it failed to meet the 
declared goal of a clear reduction of wage and non-wage costs. 
Moreover, the reform is likely to result in a higher overall government 
budget deficit in 2000, which may go up to as high as 2.5 percent of 
GDP, reversing the downward trend since 1995, over which time the 
overall government budget deficit declined steadily from 5.1 percent in 
1995 to an estimated 2.0 percent in 1999.
4. Debt Management Policies
    Austria's external debt management has had no significant impact on 
U.S. trade. At the end of 1998, the Austrian federal government's 
external debt amounted to $31.8 billion (25 percent of the government's 
overall debt) and consisted of 95 percent bonds and 5 percent credits 
and loans. Debt service on the federal government's external debt 
amounted to $5.0 billion in 1998, or 2.4 percent of GDP and 5.4 percent 
of total exports of goods and services. The total public sector 
external debt in 1998 was not significantly higher than the federal 
government's external debt. Total gross public debt was 63.1 percent of 
GDP at the end of 1998, just beyond the 60 percent ceiling set under 
the Maastricht convergence criteria. Republic of Austria bonds are 
rated AAA by recognized international credit rating agencies.
5. Barriers to U.S. Exports
    The U.S. is Austria's largest non-European trading partner with 4.8 
percent of Austria's total 1998 imports coming from the U.S. The U.S. 
was Austria's fourth largest supplier worldwide after Germany, Italy, 
and France. The Austrian government thus has a clear interest in 
maintaining close and smooth trade ties. However, there are a number of 
obstacles hindering further increases of U.S. exports to Austria:
    Pharmaceuticals: Access of U.S. pharmaceutical products to the 
Austrian market has been restricted by the Austrian social insurance 
holding organization (Hauptverband der Sozialversicherungstrager). The 
non-transparent procedures by which the Hauptverband approves drugs for 
reimbursement under Austrian health insurance regulations allegedly 
perpetuates a closed market favoring established, domestic suppliers. 
Pharmaceuticals not approved by the Hauptverband have higher out-of-
pocket costs for Austrian patients and therefore suffer a competitive 
disadvantage vis-a-vis approved products.
    Government Procurement: Austria is a party to the WTO Government 
Procurement Agreement; Austria's Federal Procurement Law was amended in 
January 1997 to bring its procurement legislation in line with EU-
guidelines, particularly on services. However, U.S. firms have 
experienced a strong pro-EU bias in awarding government tenders. In 
defense contracts, offset agreements are common practice. This pro-
European bias also appears to play a role in privatization decisions, 
although in some cases the bias is even more narrowly defined with 
politicians calling for ``Austrian solutions.''
    Beef Hormones: The EU ban on beef imports from cattle treated with 
hormones severely restricts U.S. exports of beef to Austria. Despite a 
WTO decision that the ban is inconsistent with the rules of 
international trade, the EU has not lifted the ban. While decisions on 
this policy must be made by all members of the EU, Austrian politicians 
have ruled out a lifting of the ban in the foreseeable future.
    Poultry: The EU has not approved any U.S. poultry plants, ruling 
out the possibility of importing U.S. poultry, or products containing 
poultry.
    GMOs: As the EU has not approved all genetically modified plants 
available in the U.S., imports of these plants or products containing 
these plants are not permitted. Austria has gone even further than its 
EU partners: Novartis corn and Monsanto BT corn, approved by the 
European Commission, are not permitted in Austria. The ban of these 
corn types is contrary to EU regulations.
    Other Financial Services: Providers of financial services, such as 
accountants, tax consultants, and property consultants, must submit 
specific proof of their qualifications, such as university education or 
number of years of practice. Other service activities also require a 
business license, for which one of the preconditions is legal 
residence. Under the WTO General Agreement on Trade in Services, 
Austrian officials insist that Austria's commitments on trade in 
professional services extend only to intra-corporate transfers. U.S. 
service companies often form joint ventures with Austrian firms to 
circumvent these restrictions.
    Foreign Direct Investment: A 1997 U.S. Investor Confidence Survey 
compiled by the American Chamber of Commerce cites high labor, 
telecommunications and energy costs, the complex Austrian legal 
situation, and difficulties in obtaining work permits for key personnel 
as major obstacles. A 1998 follow-up survey noted improvements in the 
regulatory process and faster permit processing. The reform of the 
Residence Law and the Foreign Workers Employment Law enacted in mid-
1997 exempts skilled U.S. labor (e.g. managers and their dependents) 
from an increasingly restrictive quota system for residence permits. 
Electricity and telecommunications costs, also noted in the survey as 
an impediment to business in Austria, have been significantly reduced 
through EU-wide liberalization.
6. Export Subsidies Policies
    The government provides export promotion loans and guarantees 
within the framework of the OECD export credit arrangement and the WTO 
Agreement on Subsidies and Countervailing Measures. The Austrian 
Kontrollbank (AKB), Austria's export financing agency, offers export 
financing programs for small and medium-sized companies with annual 
export sales of up to $8.2 million. Following Austria's accession to 
the EU, the AKB stopped providing economic risk guarantees for short 
term financing of exports to OECD countries. A 1995 amendment to 
Austria's Export Guarantees Act enables the AKB to guarantee untied 
credits. In 1996, the AKB made its export guarantee system more 
transparent by publishing conditions and eligible country lists.
7. Protection of U.S. Intellectual Property
    Austria is a party to the World Intellectual Property Organization 
and several international intellectual property conventions, including 
the European Patent Convention, the Patent Cooperation Treaty, the 
Madrid Trademark Agreement, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms for the Purpose of Patent 
Procedure, the Universal Copyright Convention, the Brussels Convention 
Relating to the Distribution of Program-carrying Signals transmitted by 
Satellite, and the Geneva Treaty on the International Registration of 
Audiovisual Works. In compliance with the World Trade Organization 
Treaty on Intellectual Property (WTO TRIPS) agreement obligations, 
Austria extended patent terms; patents on inventions are now valid up 
to 20 years after application.
    Austrian copyright law grants the author the exclusive right to 
publish, distribute, copy, adapt, translate, and broadcast his work. 
Infringement proceedings, however, can be time consuming and 
complicated. Austria's copyright law is in conformity with the EU 
directives on intellectual property rights.
    However, under Austrian copyright law ``tourist establishments'' 
(hotels, inns, bed and breakfast establishments, etc.) may show 
cinematographic works or other audiovisual works, including videos, to 
their guests. While the license fee to the copyright owners is 
mandatory, Austrian law does not require prior authorization by the 
copyright holder. The U.S. holds this provision to be inconsistent with 
Austria's obligations under the Berne Convention and TRIPS. Following 
bilateral U.S.-Austrian talks in 1997, the Austrian Arbitration 
Commission determined the rates to be paid for such public showings. 
Austria considers this step sufficient compensation for the interests 
of the copyright holders and in compliance with both the Berne 
Convention and the Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPS). The U.S. has expressed reservations to this 
position.
    Austrian copyright law also requires that a license fee be paid on 
imports of home video cassettes and broadcasting transmissions. Of 
these fees, 51 percent are paid into a fund dedicated to social and 
cultural projects. In the U.S.'s view, the copyright owners should 
receive the revenues generated from these fees and any deductions for 
cultural purposes should be held to a minimum.
    Austria is not mentioned in the 1999 ``Special 301'' Watch List or 
Priority Watch List and is not identified as a Priority Foreign 
Country.
8. Worker Rights
    a. The Right of Association: Workers in Austria have the 
constitutional right to associate freely and the de facto right to 
strike. Guarantees in the Austrian Constitution governing freedom of 
association cover the rights of workers to join unions and engage in 
union activities. Labor participates in the ``social partnership,'' in 
which the leaders of Austria's labor, business, and agricultural 
institutions jointly develop draft legislation on social and economic 
issues, thereby influencing the country's overall economic policy.
    b. The Right to Organize and Bargain Collectively: Austrian unions 
enjoy the right to organize and bargain collectively. Some 50 percent 
of Austria's 3.2 million-strong labor force is unionized. The Austrian 
Trade Union Federation (OGB) is exclusively responsible for collective 
bargaining. All workers except civil servants are required to be 
members of the Austrian Chamber of Labor. Leaders of the OGB and the 
Chamber of Labor are democratically elected. Workers are legally 
entitled to elect one-third of the board of major companies.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law.
    d. Minimum Age for Employment of Children: The minimum legal 
working age is 15. The law is enforced by the Ministry for Social 
Affairs.
    e. Acceptable Conditions of Work: There is no legally mandated 
minimum wage in Austria. Instead, minimum wage scales are set in annual 
collective bargaining agreements between employers and employee 
organizations. Workers whose incomes fall below the poverty line are 
eligible for social welfare benefits. Over half of the workforce works 
a maximum of either 38 or 38.5 hours per week, a result of collective 
bargaining agreements. The Labor Inspectorate ensures the effective 
protection of workers by requiring companies to meet Austria's 
extensive occupational health and safety standards.
    f. Rights in Sectors With U.S. Investment: Labor laws tend to be 
consistently enforced in all sectors, including the automotive sector, 
in which the majority of U.S. capital is invested.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  152
Total Manufacturing............  ..............  1,062
  Food & Kindred Products......  30              ...............................................................
  Chemicals & Allied Products..  45              ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       114             ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  295             ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  515
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  200
Other Industries...............  ..............  -38
TOTAL ALL INDUSTRIES...........  ..............  3,838
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                BELGIUM


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (at current prices) 2/............     246.4      252.3      249.1
  Real GDP Growth (pct) 3/..............       3.2        2.9        2.2
  GDP by Sector (pct):
    Agriculture.........................       1.2        N/A        N/A
    Construction........................       6.2        N/A        N/A
    Energy..............................       4.4        N/A        N/A
    Industry............................      17.8        N/A        N/A
    Services............................      52.6        N/A        N/A
    Nontradable Services................      17.7        N/A        N/A
  Real Per Capita GDP (US$) \4\.........    24,204     24,732     24,373
  Labor Force (000's)...................     4,320      4,330      4,341
  Unemployment Rate (pct)...............       9.3        8.6        8.0

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..............       6.5        5.5        N/A
  Consumer Price Inflation..............       1.6        1.0        1.0
  Exchange Rate (BF/US$)................     35.78      36.31      37.95

Balance of Payments and Trade:
  Total Exports FOB \5\.................     175.3      184.0      187.3
    Exports to U.S. \6\.................       7.7        7.1        7.0
  Total Imports CIF \5\.................     162.5      170.2      172.8
    Imports from U.S. \6\...............      10.8       11.2       12.3
  Trade Balance \5\.....................      12.8       13.8       14.5
    Balance with U.S. \6\...............      -3.1       -4.1       -5.3
  Current Account/GDP (pct).............       5.1        5.3        5.7
  External Public Debt..................      25.1       28.3        N/A
  Debt Service Payments/GDP.............       N/A        N/A        N/A
  Fiscal Deficit/GDP (pct)..............      -1.8       -1.0       -1.1
  Gold and Foreign Exchange Reserves....     19.12      17.66        N/A
  Aid from U.S..........................         0          0          0
  Aid for All Other Sources.............         0          0          0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on monthly data available in
  November 1999.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency
\4\ At 1985 prices.
\5\ Merchandise trade. Government of Belgium data.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.

1. General Policy Framework
            Major Trends and Outlook
    Belgium possesses a highly developed market economy, the tenth 
largest among the OECD industrialized democracies. The service sector 
generates more than 70 percent of GDP, industry 25 percent and 
agriculture two percent. Belgium ranked as the eleventh-largest trading 
country in the world in 1998, with exports and imports each equivalent 
to about 70 percent of GDP. Eighty percent of Belgium's trade is with 
other European Union (EU) members. Seven percent is with the United 
States. Belgium imports many basic or intermediate goods, adds value, 
and then exports final products. The country derives trade advantages 
from its central geographic location, and a highly skilled, 
multilingual and industrious workforce. Over the past 30 years, Belgium 
has enjoyed the second-highest average annual growth in productivity 
among OECD countries (after Japan).
    Throughout the late 1970s and the 1980s, Belgium ran chronic budget 
deficits, leading to a rapid accumulation of public sector debt. By 
1994, debt was equal to 137 percent of GDP; since then, however, the 
country has made substantial progress in reducing the debt and 
balancing its budget. Belgium has largely financed its budget deficits 
from domestic savings. Foreign debt represents less than 10 percent of 
the total and Belgium is a net creditor on its external account.
    Belgium's macroeconomic policy since 1992 has aimed at reducing the 
deficit below 3.0 percent of GDP and reversing the growth of the debt/
GDP ratio in order to meet the criteria for participation in Economic 
and Monetary Union (EMU) set out in the EU's Maastricht Treaty. On May 
1, 1998, Belgium became a first-tier member of the European Monetary 
Union. The government's 2000 budget, presented in October 1999, 
projects a 1.1 percent deficit and continues the debt reduction 
policies with the aim of achieving a debt/GDP ratio of 112 percent by 
the end of the year.
    Economic growth in 1998 was 2.9 percent. A comparable rate was 
expected in 1999 until an incident involving dioxin-contaminated animal 
feed seriously disrupted production and exports of a wide range of 
agricultural and food products. Since then, real economic growth is 
projected at around 2.2 percent of GDP. At 1 percent, inflation seems 
to be under firm control, and no inflationary pressures are apparent, 
since weak commodity prices keep imported inflation low. Belgium's 
current account surplus of 5.3 percent of GDP is one of the highest 
among OECD countries.
    Belgium's unemployment situation improved slowly last year. 
Standardized EU data put Belgium's unemployment rate at 8.5 percent in 
June 1999, 1 percent below the EU's average. However, strong regional 
differences in unemployment rates persist, with rates in Wallonia and 
Brussels being two to three times higher than in Flanders. A further 
reduction in unemployment will probably be difficult to achieve since 
many businesses have sought to neutralize high labor costs through 
capital-intensive investments and hence increased productivity. 
Although wage growth has been very modest since 1994, wage levels 
remain among the highest in Europe.
    In 1993, Belgium completed its process of regionalization and 
became a federal state consisting of three regions: Brussels, Flanders 
and Wallonia. Each region was given substantial economic powers, 
including trade promotion, investment, industrial development, research 
and environmental regulation.
            Principal Growth Sectors
    Sectoral growth in the Belgian economy reflects macroeconomic 
trends. Industry sectors that are oriented towards foreign markets, in 
particular those in the semi-finished goods sector such as iron and 
steel, non-ferrous metals and chemicals are very sensitive to foreign 
business cycle developments. Business investment is expected to 
increase by 7 percent in 1999. The capital goods sector in particular 
is benefiting from strong investment demand in Belgium. Stronger demand 
for consumer products has helped the textiles, wood and food sectors. 
Apart from developments specific to the business cycle, there are also 
divergent developments impacting other sectors. For example, the paper 
and cardboard sector continue to be hit by the ongoing trend towards 
the use of less packaging.
            Government Role in the Economy
    On May 1, 1998, Belgium became a first-tier member of the European 
Monetary Union. Belgium will gradually shift from the use of the BF to 
the use of the euro as its currency by January 1, 2002. On January 1, 
1999, the definitive exchange rate between the euro and the BF was 
established at BF 40.33.
    Since 1993, the Belgian government has privatized BF 280 billion 
worth of public sector entities; in 1998, the federal government raised 
approximately BF 45 billion in 1998 against BF 35 billion in 1997. 
Further privatization of the last two enterprises with a strong public 
sector stake, Sabena and Belgacom, will probably occur under the new 
coalition government.
            Balance of Payments Situation
    Belgium's current account surplus widened in 1998: at 5.3 percent 
of GDP, it was well above the EU average of 1.5 percent of GDP, and the 
sixth largest in the OECD area. The increase in the surplus largely 
reflected a stronger trade balance: exports picked up in response to 
more buoyant economic conditions in EU countries, and to a significant 
improvement in cost-price competitiveness. The impact of the East Asian 
crisis was limited, given that Belgium's exports to these countries--
including Japan--represent only 5 percent of total exports. In 1998, 
largely as a result of a decline in energy prices, the terms of trade 
improved somewhat. As a consequence, the growing impact of the crisis 
in emerging market economies on the volume of Belgium's exports did not 
greatly affect the trade surplus.
            Infrastructure Situation
    Belgium has an excellent transportation network of ports, railroads 
and highways, including Europe's second-largest port, Antwerp. Major 
U.S. cargo carriers have created at Brussels-Zaventem airport one of 
the first European hub-and-spoke operations.
    The Belgian government set up a task force to sensitize the public 
and private sectors to vulnerabilities of computers and electronic 
systems to year 2000 disruptions.
2. Exchange Rate Policy
    On May 1, 1998, Belgium became a first-tier member of the European 
Monetary Union. Belgium will gradually shift from the use of the BF to 
the use of the euro as its currency by January 1, 2002. On January 1, 
1999, the definitive exchange rate between the euro and the BF was 
established at BF 40.33.
3. Structural Policies
    Belgium is a very open economy, as witnessed by its high levels of 
exports and imports relative to GDP. Belgium generally discourages 
protectionism. The federal and some regional governments actively 
encourage foreign investment on a national treatment basis.
    Tax policies: Belgium's tax structure was substantially revised in 
1989. The top percent in marginal rate on wage and salary income is 55 
percent. Corporations (including foreign-owned corporations) pay a 
standard income tax rate of 39 percent. Small companies pay a rate 
ranging from 29 to 37 percent. Branches and foreign offices pay income 
tax at a rate of 43 percent, or at a lower rate in accordance with the 
provisions contained in a double taxation treaty. Under the present 
bilateral treaty between Belgium and the United States, that rate is 39 
percent.
    Despite the reforms of the past years, the Belgian tax system is 
still characterized by relatively high rates and a fairly narrow base 
resulting from numerous exemptions. While indirect taxes as a share of 
total government revenues are lower than the EU average, personal 
income taxation and social security contributions are particularly 
heavy. Total taxes as a percent of GDP are the third highest among OECD 
countries. Moreover, pharmaceutical manufacturers are saddled with a 
unique turnover tax of 6 percent. Taxes on income from capital are by 
comparison quite low; since October 1995, the tax rate on interest 
income is 15 percent, and the tax rate on dividends is 25 percent for 
residents. There is no tax on capital gains.
    Belgium has instituted special corporate tax regimes for 
coordination centers, distribution centers and business service centers 
(including call centers) in recent years in order to attract foreign 
investment. These tax regimes provide for a ``cost-plus'' definition of 
income for intragroup activities and have proven very attractive to 
U.S. firms, but are now being targeted by the European Commission as 
constituting unfair competition with other EU member states.
    Regulatory policies: The only areas where price controls are 
effectively in place are energy, household leases and pharmaceuticals. 
Only in pharmaceuticals does this regime have a serious impact on U.S. 
business in Belgium. American pharmaceutical companies present in 
Belgium have repeatedly expressed their serious concerns about delays 
in product approvals and pricing, as well as social security 
reimbursement.
4. Debt Management Policies
    Belgium is a member of the G-10 group of leading financial nations, 
and participates actively in the IMF, the World Bank, the EBRD and the 
Paris Club. Belgium is also a significant donor of development 
assistance. It closely follows development and debt issues, 
particularly in Central Africa and some other African nations.
    Belgium is a net external creditor, thanks to the household 
sector's foreign assets, which exceed the external debts of the public 
and corporate sectors. Only about 10 percent of the Belgian 
government's overall debt is owed to foreign creditors. Moody's top Aa1 
rating for the country's bond issues in foreign currency reflects 
Belgium's integrated position in the EU, its significant improvements 
in fiscal and external balances over the past few years, its economic 
union with the financial powerhouse Luxembourg, and the reduction of 
its foreign currency debt. The Belgian government has no problems 
obtaining new loans on the local credit market.
5. Significant Barriers to U.S. Exports
    From the inception of the EU's single market, Belgium has 
implemented most, but not all, trade and investment rules necessary to 
harmonize with the rules of the other EU member countries. Thus, the 
potential for U.S. exporters to take advantage of the vastly expanded 
EU market through investments or sales in Belgium has grown 
significantly. However, some barriers to services and commodity trade 
still exist:
    Telecommunications: Although Belgium fully liberalized its 
telecommunications services in accordance with the EU directive on 
January 1, 1998, some barriers to entry still persist. New entrants to 
the Belgian market complain that current legislation is not 
transparent, that the interconnect charges they pay to Belgacom (the 
former monopolist--51 percent government-owned) remain high and that 
BIPT, the Belgian telecoms regulator, is not truly independent. Further 
privatization of Belgacom, expected in 2000, may enhance the 
increasingly competitive environment and lend more independence to the 
regulator.
    Ecotaxes: The Belgian government has adopted a series of ecotaxes 
in order to redirect consumer buying patterns towards materials seen as 
environmentally less damaging. These taxes may raise costs for some 
U.S. exporters, since U.S. companies selling into the Belgian market 
must adapt worldwide products to various EU member states' 
environmental standards.
    Retail service sector: Some U.S. retailers, including Toys 'R' Us 
and McDonalds, have experienced considerable difficulties in obtaining 
permits for outlets in Belgium. Current zoning legislation is designed 
to protect small shopkeepers, and its application is not transparent. 
Belgian retailers suffer from the same restrictions, but their existing 
sites give them strong market share and power in local markets.
    Pharmaceutical pricing: As indicated in para 3, pharmaceutical 
products are under strict price controls in Belgium. Furthermore, since 
1993, procedures to approve new life-saving medicines for reimbursement 
by the national health care system have slowed down steadily, to an 
average of 410 days, according to the local manufacturers group of 
pharmaceutical companies. The EU's legal maximum for issuance of such 
approvals remains 180 days. A 6 percent turnover tax is charged on all 
sales of pharmaceutical products. There is a price freeze on 
reimbursable products and a required price reduction on drugs on the 
market for 15 years.
    Public procurement: In January 1996, the Belgian government 
implemented a new law on government procurement to bring Belgian 
legislation into conformity with EU directives. The revision has 
incorporated some of the onerous provisions of EU legislation, while 
improving certain aspects of government procurement at the various 
governmental levels in Belgium. Belgian public procurement still 
manifests instances of poor public notification and procedural 
enforcement, requirements for offsets in military procurement and 
nontransparency in all stages of the procurement process.
    Broadcasting and motion pictures: Belgium voted against the EU 
broadcasting directive (which requires a high percentage of European 
programs ``where practical'') because its provisions were not, in the 
country's view, strong enough to protect the fledgling film industry in 
Flanders. The Flemish (Dutch-speaking) region and the Francophone 
community of Belgium have local content broadcasting requirements for 
private television stations operating in those areas. The EU has taken 
the Walloon and Flemish communities to the European Court of Justice 
concerning these requirements. TNT has experienced considerable 
problems in arranging distribution of its signal on Belgian cable, 
while NBC and Viacom, which have a majority interest in the British-
based TV 4 channel, face similar problems with broadcasting authorities 
in Flanders.
6. Export Subsidies Policies
    There are no direct export subsidies offered by the Belgian 
government to industrial and commercial entities in the country, but 
the government (both at the federal and the regional level) does 
conduct an active program of trade promotion, including subsidies for 
participation in foreign trade fairs and the compilation of market 
research reports. All of these programs are offered to both domestic 
and foreign-owned exporters. Also, the United States has raised with 
the Belgian government and the EU Commission concerns over subsidies 
via an exchange rate program to Belgian firms producing components for 
Airbus.
7. Protection of U.S. Intellectual Property
    Belgium is party to the major intellectual property agreements, 
including the Paris, Berne and Universal Copyright Conventions, and the 
Patent Cooperation Treaty. Nevertheless, according to industry sources, 
an estimated 20 percent of Belgium's video cassette and compact disc 
markets are composed of pirated products, causing a $200 million loss 
to the producers. For software, the share of pirated copies has dropped 
from 48 to 39 percent in one year, still representing a loss of $570 
million to the industry.
    Copyright: On June 30, 1994, the Belgian Senate gave its final 
approval to the revised Belgian copyright law. National treatment 
standards were introduced in the blank tape levy provisions of the new 
law. Problems regarding first fixation and non-assignability were also 
solved. The final law states that authors will receive national 
treatment, and allows for sufficient maneuverability in neighboring 
rights. However, if Belgian right holders benefit from less generous 
protection in a foreign country, the principle of reciprocity applies 
to the citizens of that country. This is the case for the U.S., which 
does not grant protection of neighboring rights to Belgian artists and 
performers, nor to Belgian producers of records and movies. As a 
consequence, U.S. citizens in Belgium are subject to the same 
restrictions.
    Patents: A Belgian patent can be obtained for a maximum period of 
twenty years and is issued only after the performance of a novelty 
examination.
    Trademarks: The Benelux Convention on Trademarks established a 
joint process for the registration of trademarks for Belgium, 
Luxembourg and the Netherlands. Product trademarks are available from 
the Benelux Trademark Office in The Hague. This trademark protection is 
valid for ten years, renewable for successive ten-year periods. The 
Benelux Office of Designs and Models will grant registration of 
industrial designs for 50 years of protection. International deposit of 
industrial designs under the auspices of the World Intellectual 
Property Organization (WIPO) is also available.
8. Worker Rights
    a. The Right of Association: Under the Belgian constitution, 
workers have the right to associate freely. This includes freedom to 
organize and join unions of their own choosing. The government does not 
hamper such activities and Belgian workers in fact fully and freely 
exercise their right of association. About 63 percent of Belgian 
workers are members of labor unions. This number includes employed, 
unemployed and workers on early pension. Unions are independent of the 
government, but have important links with major political parties. 
Unions have the right to strike and strikes by civil servants and 
workers in ``essential'' services are tolerated. Teachers, nurses, 
railway workers, air controllers, ground handling and Sabena personnel 
have conducted strikes in recent years without government intimidation. 
Despite government protests over wildcat strikes by air traffic 
controllers, no strikers were prosecuted. Also, Belgian unions are free 
to form or join federations or confederations and are free to affiliate 
with international labor bodies.
    b. The Right to organize and Bargain Collectively: The right to 
organize and bargain collectively is recognized, protected and 
exercised freely. Every other year, the Belgian business federation and 
unions negotiate a nationwide collective bargaining agreement covering 
2.4 million private-sector workers, which establishes the framework for 
negotiations at plants and branches. Public sector workers also 
negotiate collective bargaining agreements. Collective bargaining 
agreements apply equally to union and non-union members, and over 90 
percent of Belgian workers are covered by collective bargaining 
agreements. Under legislation in force, wage increases are limited to a 
nominal 5.9 percent for the 1999-2000 period. The law prohibits 
discrimination against organizers and members of unions, and protects 
against termination of contracts of members of workers' councils, 
members of health and safety committees, and shop stewards. Effective 
mechanisms such as the labor courts exist for adjudicating disputes 
between labor and management. There are no export processing zones.
    c. Prohibition of Forced and Compulsory Labor: Forced or compulsory 
labor is illegal and does not occur. Domestic workers and all other 
workers have the same rights as non-domestic workers. The government 
enforces laws against those who seek to employ undocumented foreign 
workers.
    d. Minimum Age for Employment of Children: The minimum age for 
employment of children is 15, but schooling is compulsory until the age 
of 18. Youth between the ages of 15 and 18 may participate in part-time 
work/part-time study programs and may work full-time during school 
vacations. The labor courts effectively monitor compliance with 
national laws and standards. There are no industries where any 
significant child labor exists.
    e. Acceptable Conditions of Work: The current monthly national 
minimum wage rate for workers over 21 is BF44,209 ($1,142); 18-year-
olds can be paid 82 percent of the minimum, 19-year-olds 88 percent and 
20-year-olds 94 percent. The Ministry of Labor effectively enforces 
laws regarding minimum wages, overtime and worker safety. By law, the 
standard workweek cannot exceed 40 hours and must include at least one 
24-hour rest period. Comprehensive provisions for worker safety are 
mandated by law. Collective bargaining agreements can supplement these 
laws.
    f. Rights in Sectors with U.S. Investment: U.S. capital is invested 
in many sectors in Belgium. Worker rights in these sectors do not 
differ from those in other areas.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  156
Total Manufacturing............  ..............  8,969
  Food & Kindred Products......  1,012           ...............................................................
  Chemicals & Allied Products..  5,390           ...............................................................
  Metals, Primary & Fabricated.  189             ...............................................................
  Machinery, except Electrical.  472             ...............................................................
  Electric & Electronic          361             ...............................................................
   Equipment.
  Transportation Equipment.....  538             ...............................................................
  Other Manufacturing..........  1,007           ...............................................................
Wholesale Trade................  ..............  2,716
Banking........................  ..............  321
Finance/Insurance/Real Estate..  ..............  5,262
Services.......................  ..............  1,684
Other Industries...............  ..............  -188
TOTAL ALL INDUSTRIES...........  ..............  18,920
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis


                                 ______
                                 

                                BULGARIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      10.2      12.3      12.2
  Real GDP Growth (pct)...................      -6.9       3.5       1.5
  GDP by Sector:
    Agriculture...........................       2.4       2.3       N/A
    Manufacturing.........................       2.6       3.1       N/A
    Services..............................       4.1       5.5       N/A
  Per Capita GDP (US$)....................     1,224     1,484     1,494
  Labor Force (000's).....................     3,735     3,573     3,570
  Unemployment Rate (pct) \2\.............      14.0      12.2      14.7

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................     362.1      10.1       N/A
  Consumer Price Inflation................     578.6       1.0       3.6
  Exchange Rate (Leva/US$ annual average)
 \3\
    Official..............................     1,682     1,760       1.8
    Parallel..............................     1,750       N/A       N/A

Balance of Payments and Trade:
  Total Exports FOB.......................      4.94      4.29      3.72
    Exports to U.S. (US$ millions) \4\....       172       219       N/A
  Total Imports CIF.......................      4.93       5.0      4.74
    Imports from U.S. (US$ millions) \4\..       104       115       N/A
  Trade Balance \5\.......................      0.01     -0.71     -1.02
    Balance with U.S. (US$ millions) \4\..        68       104       N/A
  Current Account Balance/GDP (pct).......       4.3      -3.1      -5.6
  External Public Debt....................       9.8      10.2      10.3
  Debt Service Payments/GDP (pct).........       8.8       9.7       6.6
  Fiscal Deficit/GDP (pct)................       3.0     (\1\)       1.6
  Foreign Exchange Reserves and Gold......       2.6       2.9       3.3
  Aid from U.S. (US$ millions) \6\........      34.1      45.0      70.4
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are GOB estimates based on 6 to 9 months of data. GDP
  as measured in U.S. dollars declined between 1998 and 1999 due to
  changes in the exchange rate. Sectoral GDP data is unavailable, but
  gross value added by sector is provided for 1997 and 1998.
\2\ Annual average.
\3\ In July 1999, the currency was redenominated replacing 1000 old leva
  with one new lev.
\4\ For January to August 1999, exports (free along ship basis) to the
  U.S. were $129 million; imports (customs basis) from the U.S. amounted
  to $72 million. Source: U.S. Department of Commerce.
\5\ 1997 trade flows are recorded at the time of border crossing while
  1998 and 1999 trade flows are recorded at the date of customs
  clearance.
\6\ Both USAID and DOD provided assistance. For FY99, total DOD
  assistance totaled $13.35 million ($9.2 million in FY98).

1. General Policy Framework
    Since April 1997, Bulgaria has been led by a reform-minded 
government, the Union of Democratic Forces (UDF). The UDF has enjoyed a 
solid majority in Parliament, which has facilitated implementation of a 
far-reaching program of economic reform. Following a severe economic 
crisis in 1996 and early 1997, the Bulgarian government and the 
International Monetary Fund (IMF) devised a stabilization program 
centered on a currency board arrangement.
    The program quickly succeeded in stabilizing the economy. The 
triple digit inflation of 1996 and early 1997 gave way to a consumer 
price increase of only 1 percent for all of 1998. Official reserves 
rebounded from $400 million in January 1997 to $2.6 billion at the end 
of 1998. Moody's Investors Service upgraded Bulgaria's credit rating to 
B2. However, unemployment has stayed high, despite a growing private 
sector. The government ran a budget surplus of 1 percent in 1998, but 
the budget is projected to shift into deficit in 1999.
    Following declines in GDP in both 1996 and 1997, the economy as a 
whole grew by 3.5 percent in 1998. However, GDP growth began to slow 
down in the second half of 1998, influenced by weak external markets 
for traditional industrial exports and lags in restructuring state-
owned industry. With two-way trade in goods and services accounting for 
over 90 percent of GDP, Bulgaria is very sensitive to changes in the 
world economy and global prices. Over half of Bulgaria's trade is 
directed toward Western and Central Europe. The Kosovo crisis has cost 
Bulgaria about $90 million in direct economic losses, principally 
through disruptions to transport on the Danube River and overland 
through Yugoslavia.
    Bulgaria's currency board arrangement (CBA) provides that the 
Bulgarian National Bank (BNB) must hold sufficient foreign currency 
reserves to cover all domestic currency (leva) in circulation, 
including the leva reserves of the banking system. BNB can only 
refinance commercial banks in the event of systemic risk to the banking 
system.
    Bulgaria's association agreement with the European Union (EU) took 
effect January 1, 1994, and Bulgaria hopes to begin EU accession 
negotiations in 2000. A bilateral investment treaty with the United 
States took effect in July 1994.
2. Exchange Rate Policy
    Bulgaria redenominated the currency on July 5, 1999, replacing 1000 
old leva (BGL) with one new lev (BGN). Until January 1, 1999, the CBA 
fixed the exchange rate at 1000 old leva to one German mark. Since 
then, the lev has been pegged to the euro at the rate of 1,955.83 old 
leva (now 1.95583 new leva) per euro. The Bulgarian National Bank (BNB) 
sets an indicative daily U.S. dollar rate (based on the dollar/euro 
exchange rate) for statistical and customs purposes, but commercial 
banks and others licensed to trade on the interbank market are free to 
set their own rates.
    Only some of the commercial banks are licensed to conduct currency 
operations abroad. Companies may freely buy foreign exchange for 
imports from the interbank market. Companies are required to 
repatriate, but no longer to surrender, earned foreign exchange to the 
central bank. Bulgarian citizens and foreign persons may also open 
foreign currency accounts with commercial banks. Foreign investors may 
repatriate 100 percent of profits and other earnings; however, profits 
and dividends derived from privatization transactions in which Brady 
bonds were used for half the purchase price may not be repatriated for 
four years. Capital gains transfers appear to be protected under the 
revised Foreign Investment Law; free and prompt transfers of capital 
gains are guaranteed in the Bilateral Investment Treaty. A permit is 
required for hard currency payments to foreign persons for direct and 
indirect investments and free transfers unconnected with import of 
goods or services.
    Bulgaria will liberalize its foreign currency laws effective 
January 1, 2000. After that date, Bulgarian and foreign citizens may 
take up to BGN 5,000 ($2,700) or an equivalent amount of foreign 
currency out of the country without declaration. Regulations allow 
foreign currency up to BGN 20,000 ($11,110) to be exported upon written 
declaration. Transfers exceeding BGN 20,000 must have the prior 
approval of the BNB.
3. Structural Policies
    The government has implemented legal reforms designed to strengthen 
the country's business climate. Bulgaria has adopted legislation on 
foreign investment and secured lending, and is also making significant 
strides in regulation of the banking sector and the securities market. 
However, many businesspersons contend that unnecessary licensing, 
administrative inefficiency and corruption continue to hinder private 
business development.
    In 1998, Bulgaria reached agreement with the IMF on a three-year 
program of far-reaching structural reforms, particularly the 
privatization of state-owned enterprises (SOEs). In June 1999, the 
government satisfied its commitment to privatize or commence 
liquidation of a group of 41 of the largest loss-making SOEs, including 
the national airline. It also sold the Neftochim refinery to a Russian 
oil company and is due to sell a majority stake in the 
telecommunications monopoly, the Bulgarian Telecommunications Company, 
to a Greek/Dutch consortium. As of September 1999, the GOB had sold 
approximately 70 percent of state assets destined for privatization.
    Bulgaria taxes value added, profits and income, and maintains 
excise and customs duties. In 1999, the GOB reduced the Value Added Tax 
by 2 percentage points to 20 percent and the profits tax for large 
businesses by 3 percentage points to 27 percent. The draft 2000 budget, 
approved by the Council of Ministers, envisions a further 2 percentage 
point reduction in the profits tax for large businesses and voluntary 
VAT registration for businesses with turnover from BGN 50,000 (USD 
28,000) to BGN 75,000 (USD 42,000).
4. Debt Management Policies
    Bulgaria's democratically-elected governments inherited an external 
debt burden of over $10 billion from the Communist era. In 1994, 
Bulgaria concluded agreements rescheduling official (``Paris Club'') 
debt for 1993 and 1994, and $8.1 billion of its commercial (``London 
Club'') debt. As of July 1999, gross external debt amounted to $9.6 
billion, but the Bulgarian government projects that debt will increase 
to $10.3 billion by the end of 1999 (84 percent of GDP). Debt service 
in 1999 will total approximately 7 percent of GDP and 22 percent of 
exports, but will rise after 2000.
    Under the three-year Extended Fund Facility (EFF) concluded in 
1998, the IMF is providing credits of about $864 million. As of 
November 1999, about $360 million was released in five equal tranches 
of $72 million. Another 7 tranches will be made available quarterly 
through May 2001, subject to IMF reviews of Bulgarian adherence to the 
program. The government has sought additional external financing from 
the World Bank, the European Union, and other donors. The World Bank 
disbursed a Financial and Enterprise Sector Adjustment Loan (FESAL) of 
$100 million in 1998 and disbursed a second FESAL of similar value in 
December with Bulgaria. In September 1999, the World Bank approved an 
Agricultural Structural Adjustment Loan worth $75 million for Bulgaria.
5. Significant Barriers to U.S. Exports
    Bulgaria acceded to the World Trade Organization in December 1996. 
Bulgaria also acceded to the WTO Plurilateral Agreement on Civil 
Aircraft and committed to sign the Agreement on Government Procurement. 
Bulgaria ``graduated'' from Jackson-Vanik requirements and was accorded 
unconditional MFN treatment by the United States in October 1996.
    Bulgaria's association agreement with the European Union phases out 
industrial tariffs between Bulgaria and the EU while U.S. exporters 
still face duties. This has created a competitive disadvantage for some 
U.S. exporters, such as soda ash exporters. The association agreement 
improved reciprocal market access to certain farm products. In July 
1998, Bulgaria joined the Central European Free Trade Area (CEFTA). 
Over the following three years, tariffs on 80 percent of industrial 
goods traded between CEFTA countries will be eliminated. A free trade 
agreement with Turkey took effect in January 1999. A free trade 
agreement with Macedonia will enter into force in January 2000.
    In January 1999, average Bulgarian import tariffs were reduced 
significantly and a five percent import surcharge was eliminated ahead 
of schedule. However, tariffs in areas of concern to U.S. exporters--
including poultry legs and other agricultural goods and distilled 
spirits--are still relatively high. Overall, tariffs on industrial 
products range from about five to 40 percent and from about five to 70 
percent for agricultural goods. In December 1998, Parliament revoked 
exemption from value-added tax (VAT) and customs duties for capital 
contributions in kind valued at over $100,000. In the past, some 
investors have reported that high import tariffs on products needed for 
the operation of their establishments in Bulgaria served as a 
significant barrier to investment.
    The U.S. Embassy has no complaints on record that the import 
license regime has negatively affected U.S. exports. Licenses are 
required for a specific, limited list of goods including radioactive 
elements, rare and precious metals and stones, certain pharmaceutical 
products and pesticides. Armaments and military-production technology 
and components also require import licenses and can only be imported by 
companies licensed by the government to trade in such goods. Trade in 
dual-use items is also controlled.
    Customs regulations and policies are sometimes reported to be 
cumbersome, arbitrary and inconsistent. Problems cited by U.S. 
companies include excessive documentation requirements, slow processing 
of shipments and corruption. Bulgaria uses the single customs 
administrative document used by European Community members. A one 
percent customs clearance fee was abolished in January 1998.
    The Committee on Standardization & Metrology is the competent 
authority for testing and certification of all products except 
pharmaceuticals, food and telecommunications equipment. The testing and 
certification process requires at least one month. The Committee on 
Standardization shares responsibilities for food products with the 
Ministries of Agriculture and Health. The responsible authority for 
pharmaceuticals is the National Institute for Pharmaceutical Products 
in the Ministry of Health, which establishes standards and performs 
testing and certification and is also responsible for drug 
registration. Approval for any equipment interconnected to Bulgaria's 
telecommunications network must be obtained from the State 
Telecommunications Commission. The 1999 Law on Protection of Consumers 
and Rules of Trade regulates labeling and marking requirements. Labels 
must contain the following information in Bulgarian: quality, quantity, 
ingredients, certification authorization number (if any), and manner of 
storage, transport, use or maintenance.
    All imports of goods of plant or animal origin are subject to 
phytosanitary and veterinary control, and relevant certificates should 
accompany such goods. Under a November 1999 ordinance governing 
official Bulgarian veterinary treatment of imported animals, meat, and 
animal products, Bulgaria will accept imported meat and poultry 
products only from plants approved for export by competent authorities 
in the country of origin.
    As in other countries aspiring to membership in the European Union, 
Bulgaria's 1998 Radio and Television Law requires a ``predominant 
portion'' of certain programming to be drawn from European-produced 
works and sets quotas for Bulgarian works within that portion. However, 
this requirement will only be applied to the extent ``practicable.'' 
Foreign broadcasters transmitting into Bulgaria must have a local 
representative, and broadcasters are prohibited from entering into 
barter agreements with television program suppliers.
    Foreign persons cannot own land in Bulgaria because of a 
constitutional prohibition, but foreign-owned companies registered in 
Bulgaria are considered to be Bulgarian persons. Foreign persons may 
acquire ownership of buildings and limited property rights, and may 
lease land. Local companies where foreign partners have controlling 
interests must obtain prior approval (licenses) to engage in certain 
activities: production and export of arms/ammunition; banking and 
insurance; exploration, development and exploitation of natural 
resources; and acquisition of property in certain geographic areas.
    There are no specific local content or export-performance 
requirements nor specific restrictions on hiring of expatriate 
personnel, but residence permits are often difficult to obtain. In its 
Bilateral Investment Treaty with the United States, Bulgaria committed 
itself to international arbitration in the event of expropriation, 
investment, or compensation disputes.
    Foreign investors complain that tax evasion by private domestic 
firms combined with the failure of the authorities to enforce 
collection from large, often financially-precarious, state-owned 
enterprises places the foreign investor at a real disadvantage.
    In June 1999, Parliament adopted a new law on procurement replacing 
the 1997 Law on Assignment of Government and Municipal Contracts. This 
legislation defines terms and conditions for public orders and aims for 
increased transparency and efficiency in public procurement. However, 
bidders still complain that tendering processes are frequently unclear 
and/or subject to irregularities, fueling speculation on corruption in 
government tenders. U.S. investors have also found that in general 
neither remaining state enterprises nor private firms are accustomed to 
competitive bidding procedures to supply goods and services to these 
investors within Bulgaria. However, tenders organized under projects 
financed by international donors have tended to be open and 
transparent.
6. Export Subsidies Policies
    The government currently applies no export subsidies. However, a 
1995 law gave the State Fund for Agriculture the authority to stimulate 
the export of agricultural and food products through export subsidies 
or guarantees.
7. Protection of U.S. Intellectual Property
    Bulgarian intellectual property rights (IPR) legislation is 
generally adequate, with modern patent and copyright laws and criminal 
penalties for copyright infringement. In September 1999, Parliament 
passed a series of laws on trademarks and geographical indications, 
industrial designs and integrated circuits. A Law for the Protection of 
New Types of Plants and Animal Breeds was adopted in September 1996. 
Parliament is expected to approve additional legislation in the near 
future extending copyright protection to 70 years, and introducing a 
new neighboring right for film producers, provisional measures to 
preserve evidence of IPR infringement and special border measures. The 
Bulgarian government has also proposed amendments strengthening 
protection for pharmaceutical tests. U.S. companies have cited illegal 
use of trademarks as a barrier to the Bulgarian market.
    Until recently, Bulgaria was the largest source of compact-disk and 
CD-ROM piracy in Europe and was one of the world's leading exporters of 
pirated goods. For this reason, Bulgaria was placed on the U.S. Trade 
Representative's ``Special 301'' Priority Watch List in January 1998. 
In 1998, enforcement improved considerably with the introduction of a 
CD-production licensing system subject to 24-hour plant surveillance. 
CD manufacturers must also submit a copy of an agreement with the 
copyright holder before starting production. In recognition of the 
significant progress made by the Bulgarian government in this area, the 
U.S. Trade Representative removed Bulgaria from all Watch Lists in 
April 1999.
    Bulgaria is a member of the World Intellectual Property 
Organization (WIPO) and a signatory to the following agreements: the 
Paris Convention for the Protection of Intellectual Property; the Rome 
Convention for the Protection of Performers, Producers of Phonograms 
and Broadcast Organizations; the Geneva Phonograms Convention; the 
Madrid Agreement for the Repression of False or Deceptive Indications 
of Source of Goods; the Madrid Agreement on the International 
Classification and Registration of Trademarks; the Patent Cooperation 
Treaty; the Universal Copyright Convention; the Berne Convention for 
the Protection of Literary and Artistic Works; the Lisbon Agreement for 
the Protection of Appellations of Origin and their International 
Registration; the Budapest Treaty on the International Recognition of 
the Deposit of Microorganisms for the Purpose of Patent Protection; the 
Nairobi Treaty on the Protection of the Olympic Symbol; and the 
International Convention for the Protection of New Varieties of Plants. 
On acceding to the WTO, Bulgaria agreed to implement the Agreement on 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) without a 
transitional period.
8. Worker Rights
    a. The Right of Association: The 1991 Constitution provides for the 
right of all workers to form or join trade unions of their choice. This 
right has apparently been freely exercised. Estimates of the unionized 
share of the work force range from 30 to 50 percent. There are two 
large trade union confederations, the Confederation of Independent 
Trade Unions of Bulgaria and Podkrepa, which between them represent the 
overwhelming majority of unionized workers. The 1992 Labor Code 
recognizes the right to strike when other means of conflict resolution 
have been exhausted, but ``political strikes'' are forbidden. Workers 
in essential services (primarily military and police) are also subject 
to a blanket prohibition from striking. However, Podkrepa has 
complained that a 1998 law denying workers the right to appeal 
government decisions on the legality of strikes is unconstitutional and 
violates an ILO convention. The Labor Code's prohibitions against 
antiunion discrimination include a 6-month period of protection against 
dismissal as a form of retribution. There are no restrictions on 
affiliation or contact with international labor organizations, and 
unions actively exercise this right.
    b. The Right to Organize and Bargain Collectively: The Labor Code 
institutes collective bargaining on the national and local levels. The 
legal prohibition against striking by key public sector employees 
weakens their bargaining position; however, these groups have been able 
to influence negotiations by staging protests and engaging in other 
pressure activities without going on strike. Labor unions have 
complained that while the legal structure for collective bargaining was 
adequate, many employers failed to bargain in good faith or to adhere 
to concluded agreements. Labor observers viewed the government's 
enforcement of labor contracts as inadequate. The backlog of cases in 
the legal system delayed redress of workers' grievances. The same 
obligation of collective bargaining and adherence to labor standards 
prevails in the export processing zones.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor. Many observers argue that the 
practice of shunting minority and conscientious-objector military 
draftees into construction battalions that often carry out commercial 
construction and maintenance projects is a form of compulsory labor. 
Bulgaria has announced plans to phase out its military construction 
battalions under its ongoing Plan 2004 reform and reorganization, but 
it is unclear when this will take place. In the meantime, Bulgaria 
recently established a conscientious objector program that provides for 
alternative civilian national service.
    d. Minimum Age of Employment of Children: The Labor Code sets the 
minimum age for employment at 16, and 18 for dangerous work. The 
Ministry of Labor and Social Welfare (MLSW) is responsible for 
enforcing these provisions. Child labor laws are enforced well in the 
formal sector, but some observers believe that children are 
increasingly exploited in certain industries and by organized crime. 
Observers estimate that between 50,000 and 100,000 children under 16 
are illegally employed in Bulgaria. Underage employment in the informal 
and agricultural sectors is believed to be increasing as collective 
farms are broken up and the private sector continues to grow.
    e. Acceptable Conditions of Work: The national monthly minimum wage 
equates to approximately US$40. Delayed payment of wages continues to 
be a problem with certain employers in Bulgaria. The constitution 
stipulates the right to social security and welfare aid assistance for 
the temporarily unemployed, although in practice such assistance is 
often late. The Labor Code provides for a standard workweek of 40 hours 
with at least one 24-hour rest period per week. The MLSW is responsible 
for enforcing both the minimum wage and the standard workweek. 
Enforcement has been generally effective in the state sector (although 
there are reports that state-run enterprises fall into arrears on 
salary payments to their employees if the firms incur losses), but is 
weaker in the emerging private sector. The MLSW is responsible for 
enforcing the national labor safety program, with standards established 
by the Labor Code. The constitution states that employees are entitled 
to healthy and non-hazardous working conditions. Under the Labor Code, 
employees have the right to remove themselves from work situations that 
present a serious or immediate danger to life or health without 
jeopardizing their continued employment. In practice, refusal to work 
in such situations would result in loss of employment for many workers. 
A 1999 law mandated that employers establish joint employer/labor 
committees to monitor health and safety issues.
    f. Rights in Sectors with U.S. Investment: Conditions do not 
significantly differ in the few sectors with a U.S. presence.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1
Total Manufacturing............  ..............  20
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  21
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis


                                 ______
                                 

                             CZECH REPUBLIC


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (US$ billion) \2\...........      53.0      56.4      54.0
  Real GDP Growth (pct)...................       0.3      -2.3      -0.5
  GDP by Sector (pct): \2\
    Agriculture...........................       4.6       5.1       5.3
    Manufacturing.........................      26.6      31.4      31.2
    Services..............................      51.4      51.9      52.1
    Government \3\........................      31.8      31.2      31.9
  Per Capita GDP (US$) \2\................     5,144     5,483     5,196
  Labor Force (000's).....................     5,000     5,170     5,203
  Unemployment (pct)......................       5.2       7.5      10.0

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      10.1       5.2       7.8
  Consumer Price Inflation................       8.5      10.7       2.2
  Exchange Rate (CKR/US$)
    Official..............................     31.71     32.27     34.40

Balance of Payments and Trade: \4\
  Total Exports FOB (USD bill)............      22.8      26.3      27.4
    Exports to U.S........................       586       441       650
  Total imports CIF (USD bill)............      27.2      28.8      29.2
    Imports from U.S......................     1,029       786     1,180
  Trade Balance (USD bill)................      -4.4      -2.5      -1.8
    Balance with U.S......................      -442      -345      -530
  Current Account Deficit/GDP (pct).......      -6.1      -1.9      -1.5
  External Debt \5\.......................       1.6      24.3      24.3
  Debt Service Payments/GDP (pct).........      10.0      10.0       7.5
  Fiscal Deficit (Central)/GDP (pct)......       0.9       1.6       2.1
  Gold and Foreign Exchange Reserves......      15.0      15.9      13.2
  Aid from U.S. \6\.......................       6.0       N/A       N/A
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Unless stated otherwise, 1999 figures are based on the latest
  estimates of the Czech Statistical Office (CSO) dated October 4, 1999,
  of the Ministry of Finance and/or unofficial estimates from the Czech
  National Bank.
\2\ GDP at factor cost, percentage changes calculated in local currency.
\3\ Central government spending as pct of GDP.
\4\ Czech imports do not include re-exports of U.S. goods through other
  countries.
\5\ In absolute numbers, the figure for external debt does not change,
  the growth reflects shifts in DEM vs. US$ exchange rates.
\6\ U.S. assistance was phased out by September 30, 1997.

1. General Policy Framework
    The Czech Republic is a small and generally open economy. Having 
largely created a free and competitive market, it is currently 
struggling with problems stemming from unfinished structural reforms 
mainly in the field of bank privatization, industrial restructuring, 
legal reform and improvements of financial markets transparency. 
Unfinished structural reforms lie at the heart of the Czech Republic's 
current severe recession, which led to an economic contraction of 2.3 
percent in 1998.
    Till 1998, the Czech Republic pursued balanced budgets, incurring 
only small deficits on the way. Budget deficits incurred have 
traditionally been financed through the issuance of government bonds. 
Economic recession, failure to collect taxes satisfactorily and the 
Social Democratic government's pledge to support a wide range of social 
welfare and investment programs led to the 1999 planned budget deficit 
of approximately 1.6 percent of then estimated GDP. The government now 
anticipates the final deficit will be larger and the 2000 budget, 
currently under discussion, will also be in deficit.
    In 1998 the Czech government approved a package of incentives to 
attract investments. The incentives are offered to foreign and domestic 
firms that make a $10 million manufacturing investment through a newly 
registered company. The package includes tax breaks of up to 10 years 
offered in two five-year periods; duty-free imports of high-tech 
equipment and a 90-day deferral of value-added tax payments (VAT); 
potential for creation of special customs zones; job creation benefits; 
training grants; opportunities to obtain low-cost land; and the 
possibility of additional incentives for secondary investments and 
production expansion.
    Czech National Bank is by law responsible for monetary policy. The 
primary instrument used by the bank to influence monetary policy is the 
two-week repo rate. Following sharp and growing current account 
imbalances in the spring of 1997, the central bank implemented a series 
of austerity measures designed to dampen inflation and reduce external 
imbalances. Monetary policy during most of 1998 remained restrictive, 
with maintenance of relatively high interest rates designed to reduce 
inflation and dampen domestic demand and high compulsory bank reserves 
to lower the amount of money in the economy. In 1999, with the current 
account well on the way to recovery and the relatively still strong 
exchange rate of the crown, the central bank, ahead of its inflation 
target for a second year in row, cut interest rates several times.
    The Czech Republic enjoyed a strong inflow of foreign direct 
investment ($1.3 billion) and portfolio investments ($3.9 billion) to 
June 30, 1999. Though much needed for the economy and recognized as 
such by the government, the central bank has expressed concern that the 
strong inflows are pushing up the exchange rate and hurting overall 
economic competitiveness. They are currently exploring measures to 
neutralize the impact of these flows.
2. Exchange Rate Policy
    The Czech crown is fully convertible for most business 
transactions. The Foreign Exchange Act provides a legislative framework 
for full current account convertibility, including all trade 
transactions and most investment transactions, pending government 
action on implementing regulations. As of January 1999 all capital 
account restrictions were removed except for the ability of Czechs to 
open bank accounts abroad without a permit by the central bank, and the 
purchase of real estate in the Czech Republic by foreigners. The permit 
requirement will lapse in 2000, and foreign company branches will be 
able to acquire real estate as of 2002, in accordance with the Czech 
Republic's commitments in the Organization for Economic Cooperation and 
Development (OECD).
    The Czech crown, floating freely since the spring of 1997, has 
remained relatively steady, withstanding 1998's Russian financial 
turmoil. Having appreciated in value due to high interest rate 
differentials between the Czech Republic and its major trading 
partners, it has remained strong even after the central bank reduced 
the interest rates significantly in 1998 and 1999, as currency traders 
bet on EU convergence.
3. Structural Policies
    The government sees full membership in the European Union (EU) as 
one of its highest foreign policy priorities. Relations between the 
Czech Republic and the EU are currently governed by an EU association 
agreement signed in 1991. The start of detailed accession negotiations 
began in November 1998. Most observers do not anticipate that full EU 
membership will be achieved prior to 2003. As part of the EU accession 
process, many of the Czech Republic's regulatory policies and practices 
are slowly evolving toward EU norms. Through membership in OECD, the 
Czech Republic agreed to meet, with relatively few exceptions, OECD 
standards for equal treatment of foreign and domestic investors and 
restrictions on special investment incentives. The United States has 
succeeded in using the OECD membership process to encourage the Czech 
Republic to make several improvements to the business climate for U.S. 
firms.
    Czech tax codes are generally in line with European Union tax 
policies. In 1998, the government reduced taxes on corporate profits to 
35 percent from 38 percent. The tax rate for the highest tax bracket 
for personal income tax stands at 40 percent. Employer and employees 
social insurance contributions are respectively 35 percent and 12.5 
percent. The government permits tax write-offs of bad debts, although 
with less generous treatment of pre-1995 debts. Firms are allowed to 
write-off the first year's share of a bad debt without filing suit 
against the debtor, though subsequent write-offs must document 
unsuccessful efforts to collect past due amounts. U.S. firms have 
complained that Czech tax legislation effectively penalizes use of 
holding company structures by leveling both corporate tax and dividends 
withholding tax on profit flows between group companies, thus creating 
double taxation on such profits. Czech law does not permit intra-group 
use of losses (i.e., offsetting losses in one group entity against 
profits in another), and imposes corporate tax on dividends received 
from foreign holding without allowing use of a foreign tax credit for 
the underlying tax suffered in the subsidiary's home jurisdiction.
    Stricter bankruptcy provisions, an important part of the 
government's structural reforms came into effect in April 1998, but the 
focus is still on liquidation rather than reorganization. Most 
observers believe the slow and uneven courts, and close links between 
banks and firms, limit the effectiveness of the measure. Members of 
Parliament and others have called for a bankruptcy law closer to the 
U.S. Chapter Eleven provision to encourage resuscitation of troubled 
firms. There is a three to four year backlog in the bankruptcy courts 
and a small secondary market for the liquidation of seized assets. 
Recognizing that the lack of economic restructuring caused by 
inadequate bankruptcy laws hampers potential economic growth, the 
government is preparing another large amendment of the bankruptcy law 
for 2000.
4. Debt Management Policies
    The Czech Republic maintains a moderate foreign debt and has 
received investment grade ratings from the major international credit 
agencies. In 1998 gross foreign debt measured $24.3 billion and is not 
expected to change much in 1999. To June 30, 1999 gross foreign debt 
measured $22.4 billion, most of the amount being the debt of companies 
($11.3 billion) and commercial banks ($9.8 billion). Debt service as a 
percentage of GDP and debt service to exports stand at 7.5 percent and 
13.5 percent, respectively. The Czech Republic repaid its entire debt 
with the International Monetary Fund (IMF) ahead of schedule. Under the 
Paris Club, the Czech Republic, as member of OECD, rescheduled its 
official credits to Russia.
5. Aid
    The Czech Republic graduated from U.S. AID assistance on September 
30, 1997. In 1998, however, U.S. AID offered the country its program of 
Partners for Financial Stability and in 1999 two projects were 
launched. The Czech Republic continues to receive assistance from the 
European Union's PHARE program and individual EU member states to 
assist its transformation during the accession period for EU 
membership. According to the European Commission Delegation in Prague, 
since 1990 the Czech Republic has received 580 million ECU in PHARE 
assistance.
6. Significant Barriers to U.S. Exports
    The Czech Republic is committed to a free market and maintains a 
generally open economy with few barriers to trade and investment. It is 
a member of the World Trade Organization (WTO), and has adopted a WTO 
tariff code with a trade-weighted average tariff of 4.8 percent. This 
is being reduced gradually to 3.5 percent in accordance with Czech 
commitments in the Uruguay Round of trade negotiations. The Czech 
Republic is not a signatory to the General Agreement on Tariffs and 
Trade (GATT) civil aircraft code, but is a member of the WTO's 
Information Technology Agreement.
    The Czech Republic's EU association agreement established 
preferential tariffs for non-agricultural, EU-origin products to the 
Czech markets, while maintaining higher most-favored-nation rates for 
U.S. and other non-EU products. The preferential tariffs for EU goods 
are declining on an annual basis and by 2001 most EU industrial 
products will enjoy duty-free status. Since 1992, when the trade-
related provisions of the EU association agreement first came into 
force, a number of U.S. companies within many industry sectors have 
complained that tariff preferences given the EU under the agreement 
have diminished their business prospects and ability to compete against 
EU-origin products.
    Trade in agricultural/food products is generally free of major 
trade barriers although technical barriers continue to hamper imports 
of certain products. In anticipation of EU membership, the Czech 
Republic is rewriting much of its legislation related to standards and 
trade in agricultural/food products. During this transition phase, it 
is not always clear which rules apply, a situation which has led to 
some delays in approval. The harmonization of standards with the EU 
should ease the paperwork burden for those exporters already exporting 
to the EU. However, the alignment of Czech food legislation with the EU 
also means that certain products currently prohibited in the EU will 
also be prohibited in the Czech Republic in the future.
    The government is in the process of drafting legislation in line 
with EU directives to regulate Genetically Modified Organisms (GMOs). A 
final bill is expected in 2000. The Czech Republic continues to approve 
new GMO varieties for field testing.
    U.S. exporters of beef, poultry, pork and horse meat are not yet 
able to ship to the Czech Republic due to problems with export 
certification. USDA's Food Safety Inspection Service (FSIS) is 
currently reviewing certification documents proposed by the Czech State 
veterinary Administration.
    American business people often cite a convoluted, or in some cases 
corrupt, bureaucratic system, both at national and local levels, which 
can act as an impediment to market access. Often considerable time is 
spent by a potential investor to finalize a deal, or enforce the terms 
of a contract. European companies have sought on occasion to use the 
Czech Republic's interest in EU membership to gain advantage in 
commercial competition.
    The government is required by law to hold tenders for major 
procurement. The law, introduced in 1994, proved unsatisfactory. 
Several revisions aimed at making the law simpler and transparent 
failed. Recognizing that no amendment will help, the Czech Republic is 
currently working on a brand new procurement law to enter force in 
2001. Fully harmonized with EU legislation, it will remove also the 
current ten percent price advantage for domestic firms. The Czech 
Republic is not a member of the WTO Government Procurement Agreement.
    The Czech Ministry of Industry and Trade issues import licenses to 
those seeking to import selected goods into the Czech Republic. While 
most products and services are exempt from licensing, oil, natural gas, 
pyrotechnical products, sporting guns and ammunition require an import 
license.
    Legally, foreign and domestic investors are treated identically and 
both are subject to the same tax codes and other laws. The government 
does not screen foreign investment projects other than for a few 
sensitive industries, e.g., in the defense sector. The government 
evaluates all investment offers for the few state enterprises still 
undergoing privatization. As part of OECD membership, the Czech 
Republic committed not to discriminate against foreign investors in 
privatization sales, with only a few excepted sectors. The government 
has overcome political resistance to foreign investment in certain 
sensitive sectors, such as petrochemical, telecommunications and 
breweries. The ban on foreign ownership of real estate remains another 
important exception, although foreign-owned Czech firms may purchase 
real estate freely.
    U.S. investors interested in starting joint ventures with or 
acquiring Czech firms have experienced problems with unclear ownership 
and lack of information on company finances. Investors have complained 
about the difficulty of protecting their rights through legal means 
such as a secured interest. In particular, investors have been 
frustrated by the lack of effective recourse to the court system. The 
slow pace of court procedures is often compounded by judges' limited 
understanding of complex commercial cases. Also the Czech Republic 
imposes a Czech language requirement for trade licenses for most forms 
of business. This requirement can be fulfilled by a Czech partner, but 
this can be burdensome and involves additional risks.
    The opaque nature of the stock market puts U.S. investors and 
financial services providers at a competitive disadvantage. While stock 
market reforms were enacted in 1996 to help protect small shareholders 
and increase transparency of transactions, enforcement has been uneven. 
A Czech Securities Commission opened in 1998 with a mission of 
improving the regulatory framework of the capital market, increasing 
capital market transparency, and restoring investor confidence. To the 
date, the Commission issued some 2,300 authorized rulings, and in the 
re-licensing process revoked 663 licenses. It has, however, been 
hampered by budgetary constraints and a lack of rule-making authority.
    U.S. firms also complain about the lack of consistency in the 
application of customs norms. These problems are primarily due to the 
newness of recent regulatory changes and rapid expansion of customs 
personnel. Training efforts are underway to correct the situation and 
address these concerns.
7. Export Subsidies Policy
    The Czech Export Bank provides export guarantees and credits to 
Czech exporters. The bank follows OECD consensus on export credits. 
Additionally, the government maintains a fund through which it 
purchases domestic agricultural surpluses for resale on international 
markets. For some commodities, pricing is established at a level that 
includes a subsidy to local producers.
8. Protection of U.S. Intellectual Property
    The Czech Republic is a member of the Berne and Universal Copyright 
Conventions and the Paris Convention on Industrial Property. Czech laws 
for the protection of intellectual property rights (IPR) are generally 
good, but enforcement has lagged. Existing legislation guarantees 
protection of all forms of property rights, including patents, 
copyrights, trademarks and semiconductor chip layout design. The Czechs 
continue to harmonize with the Trade Related Aspects of Intellectual 
Property Rights (TRIPS) agreement and parliamentary approval is 
expected on an amendment providing 70 years of copyright protection for 
literary works, up from the present 50 years. It is likely that the 
Czech Republic will not meet the January 2000 deadline to implement all 
of its TRIPs-related obligations, but legislation is pending in 
Parliament which should address most or all of its commitments in this 
area.
    As a result of enforcement weaknesses and delays in indictments and 
prosecutions, the U.S. Government placed the Czech Republic on the 
Watch List during the 1999 ``Special 301'' cycle. The Embassy continues 
to work with U.S. industry and Czech government officials to improve 
enforcement of IPR norms. There are also two legislative amendments, 
which will expand tools of enforcement of IPR. One, approved to enter 
force as of December 1, 1999, boosts the powers of the customs service 
to seize counterfeit goods, and the other, albeit still in drafting 
stages, would allow the Czech Commercial Inspection (CCI) to act 
directly in IPR cases. At present, the CCI can only act in conjunction 
with the police.
9. Worker Rights
    a. The Right of Association: The law provides workers with the 
right to form and join unions of their own choice without prior 
authorization, and the government respects this right in practice. Most 
workers are members of unions affiliated with the Czech-Moravian 
Chamber of Trade Unions (CMKOS), a democratically oriented, republic-
wide umbrella organization for branch unions. The unions are not 
affiliated with political parties and exercise independence. Workers 
have the right to strike, except for those whose role in public order 
or public safety is deemed crucial. By law, strikes may take place only 
after mediation efforts fail. Unions are free to form or join 
federations and confederations and affiliate with and participate in 
international bodies. Union membership is on the decline.
    b. The Right to Organize and Bargain Collectively: The law provides 
for collective bargaining, which is generally carried out by unions and 
employers on a company basis. The scope for collective bargaining is 
more limited in the government sector, where wages depend on the 
budget.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, including that performed by children, and 
it is not practiced.
    d. Minimum Age for Employment of Children: The Labor Code 
stipulates a minimum working age of 15 years, although children who 
have completed courses at special schools (schools for the mentally 
disabled and socially maladjusted) may work at age 14. These 
prohibitions are enforced in practice.
    e. Acceptable Conditions of Work: The government sets minimum wage 
standards. The minimum wage is 3,600 Czech Crowns per month 
(approximately $100), although the monthly average is 12,766 Czech 
Crowns (approximately $365) per month. Average net wages are 2.1 times 
as high as official sustenance costs. The minimum wage provides a 
sparse standard of living for an individual worker or family, although 
allowances are available to families with children. The law mandates a 
standard workweek of 42 1/2 hours. It also requires paid rest of at 
least 30 minutes during the standard 8 to 8 1/2-hour workday, as well 
as annual leave from three or four weeks up to eight weeks depending on 
the profession. Overtime ordered by the employer may not exceed 150 
hours per year or 8 hours per week as a standard practice. Industrial 
accident rates are not unusually high. Workers have the right to refuse 
work endangering their life or health without risk of loss of 
employment.
    f. Rights in Sectors with U.S. Investment: All of the above 
observations on worker rights apply to firms with foreign investment. 
Rights in these sectors do not differ from those in other sectors of 
the economy. Conditions in sectors with U.S. investment do not differ 
from those outlined above.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  170
  Food & Kindred Products......  10              ...............................................................
  Chemicals & Allied Products..  58              ...............................................................
  Primary & Fabricated Metals..  6               ...............................................................
  Industrial Machinery and       30              ...............................................................
   Equipment.
  Electric & Electronic          -31             ...............................................................
   Equipment.
  Transportation Equipment.....  23              ...............................................................
  Other Manufacturing..........  74              ...............................................................
Wholesale Trade................  ..............  68
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  60
Services.......................  ..............  30
Other Industries...............  ..............  38
TOTAL ALL INDUSTRIES...........  ..............  543
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                DENMARK


                         Key Economic Indicators
         [Millions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................    145,280    148,400    148,800
  Real GDP Growth (pct) \2\ \3\........        3.1        2.7        1.3
  GDP by Sector: \2\
    Agriculture........................      4,871      4,146      4,300
    Manufacturing......................     25,174     26,028     25,500
    Services...........................     66,899     69,808     69,500
    Government.........................     33,434     34,385     34,700
  Per Capita GDP (US$) \2\.............     27,493     27,995     28,000
  Labor Force (000's)..................      2,849      2,867      2,864
  Unemployment Rate (pct)..............        7.7        6.4        5.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (pct)............        5.2        3.0        5.0
  Consumer Price Inflation (pct).......        2.2        1.8        2.5
  Exchange Rate (DKK/US$ annual
 average)
    Official...........................       6.61       6.70       7.00

Balance of Payments and Trade:
  Total Exports FOB \4\................     48,590     48,179     47,000
    Exports to U.S. \4\................      2,260      2,283      2,400
  Total Imports CIF \4\................     44,405     46,092     44,000
    Imports from U.S. \4\..............      2,134      2,185      2,000
  Trade Balance \4\....................      4,185      2,087      3,000
    Balance with U.S. \4\..............        126         98        400
  External Public Debt.................     40,544     42,000     40,000
  Fiscal Deficit/GDP (pct) \5\.........       -0.1       -0.9       -2.9
  Current Account Surplus/GDP (pct) \5\        0.5       -1.4        0.0
  Debt Service Payments/GDP (pct) \5\..        2.0        2.1        1.9
  Gold and Foreign Exchange Reserves...     19,620     15,139     24,000
  Aid From U.S.........................        N/A        N/A        N/A
  Aid From Other Sources...............        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available data as of
  November.
\2\ GDP measured as ``Gross Value Added by Industry.''
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade (excluding European Union agricultural export
  subsidies).
\5\ Gross Domestic Product.

1. General Policy Framework
    Denmark is a small, highly industrialized ``value-added'' country 
with a long tradition of extensive foreign trade, free capital 
movement, and political stability. It also has an efficient and well-
educated labor force, and a modern infrastructure effectively linking 
Denmark with the rest of Europe. Denmark's natural resources are 
concentrated in oil and gas fields in the North Sea which have, 
together with renewable energy, made Denmark a net exporter of energy.
    The Danish economy remains strong, with a public budget surplus 
and, in the first half of 1999, a small surplus on the balance of 
payments. However, its extensive foreign trade makes the economy 
vulnerable to foreign ``shocks,'' including the 1998 Asian and Russian 
financial crises which particularly impacted on Danish agricultural 
exports. As a result, the Danish current account turned negative in 
1998. As economic growth declined in 1999 with a consequent reduction 
in imports, the balance of payments again shifted to a small surplus. 
The government pursues a carefully monitored economic policy including 
a fiscal policy of small public expenditure increases and a tight 
monetary and exchange rate policy.
    Developments during the first half of 1999 in some key economic 
indicators--reduced private consumption and the surplus, albeit small, 
on the current account--suggest that the Government's austerity 
measures introduced in the summer of 1998 are now working. The 1998 
measures, particularly aimed at curbing private consumption and 
restoring a balance of payments surplus, include reduction of tax 
credits for debt interest payments in order to discourage new loan 
taking. The measures, over the longer run, also aim at increasing the 
incentive to work for low income earners by reducing taxation in the 
middle bracket of the progressive income tax system. The Government 
projects that the surplus in the public budget in 1999 will increase to 
almost three percent of GDP, mostly as a result of increased revenues 
and reduced expenditures due to increased employment and reduced 
unemployment. Focus is now on the inflation rate which, although stable 
at about 2.5 percent, has shifted from being one of the lowest in the 
European Union (EU) to one of the highest rates. Furthermore, it is 
entirely fueled domestically with wage inflation running above four 
percent.
    Denmark welcomes foreign investment, and is home to roughly 250 
subsidiaries of U.S. companies. Denmark also welcomes foreign firms 
focused on doing business in the former East Bloc countries. In that 
respect, Denmark has a number of preferential joint venture investment 
and investment guarantee programs and also makes available Danish and 
EU grants for improving the environment in those countries. The 
American Chamber of Commerce in Denmark was established in 1999 and a 
number of leading Danish and American firms are members of the Danish-
American Business Forum, which aims at promoting direct investment and 
exchanges of know-how.
    Denmark has opted out of the European Monetary Union's (EMU) third 
phase (establishment of a joint EU currency and relinquishment of 
jurisdiction over monetary policy), although Denmark's economic 
performance is well within the established convergence criteria for EMU 
membership.
2. Exchange Rate Policy
    Denmark is a member of the European Monetary System (EMS) and its 
Exchange Rate Mechanism (ERM). Since the early 1980s until 1999, the 
government linked the krone closely to the German mark through the ERM 
and since January 1, 1999 (through the ERM2) to the common EU currency, 
the Euro. In September 1999, the trade-weighted value of the krone was 
3.5 percent lower than in September 1998, due mostly to the krone's 
depreciation against the yen and the dollar. Since September 1998, the 
krone has depreciated some eight percent against the dollar (from DKK 
6.49 to DKK 7.08 to $1.00). The increase in the dollar rate is likely 
one of several factors behind the 9.5 percent drop in U.S. exports to 
Denmark (as measured by the Danish Bureau of Statistics) in the first 
eight months of 1999.
3. Structural Policies
    Danish price policies are based on market forces. Entities with the 
ability to fix prices because of their market dominance are regulated 
by the Government's Competition Agency. Denmark during 1997 changed its 
competition legislation from the former ``control'' principle to the 
internationally recognized ``prohibition'' principle.
    The highest marginal individual income tax rate, including the 
gross labor market contribution ``tax,'' is about 65 percent, and 
applies to all taxpayers with earnings exceeding some $37,200 (1999). 
Foreign executives and researchers working in Denmark on a contract may 
for a period of up to five years benefit from more lenient income 
taxation (a flat 33 percent tax on gross income). Danish employers are 
almost alone in the EU in paying virtually no non-wage compensation. 
Most sick leave and unemployment insurance costs are paid by the 
government. Employees pay their contribution to unemployment insurance 
out of their wages, while a major part of unemployment benefits is 
financed from general revenues.
    The Danish Value Added Tax (VAT), at 25 percent, is the highest in 
the EU. As VAT revenues constitute more than one-quarter of total 
central government revenues, a reduction would have severe budgetary 
consequences. The government therefore has no plans to reduce the VAT, 
and hopes that EU VAT rate harmonization will raise the VAT rates of 
other EU countries. Environmental taxes are increasingly being imposed 
on industry (with some roll-back for anti-pollution efforts) and on 
consumers. The corporate tax rate is 32 percent. Favorable depreciation 
rules and other deductions exist.
4. Debt Management Policies
    Denmark ran a balance of payments surplus from 1990 through 1997. 
Consequently, foreign debt gradually fell from over 40 percent of GDP 
in 1990 to 25 percent in 1997. With a deficit of about $2 billion on 
the balance of payments in 1998 and a similar amount in appreciation of 
the value of krone-denominated bonds held abroad, the foreign debt's 
share of GDP increased to 26 percent in 1998. Net interest payments on 
the foreign debt in 1998 cost Denmark some six percent of its export 
earnings. Standard and Poor's and Moody's Investors Service rate 
Denmark AA+ and Aa1, respectively.
    Denmark's public sector is a net external debtor, while the private 
sector is largely in balance. At the end of 1998, the public sector 
foreign debt, including foreign exchange reserves and krone-denominated 
bonds held by foreigners, totaled some $42 billion and the private 
sector foreign debt totaled about $4 billion.
    During 1998, central government debt denominated in foreign 
currencies dropped about 15 percent to $13 billion. Of the total debt, 
77 percent was denominated in German marks, 10 percent in European ECU, 
eight percent in French francs, and 1.5 percent in dollars. The Danish 
central government debt has an average term of two years.
    Denmark's central government deficits are not monetized and the 
Danish monetary policy is aimed at maintaining a fixed krone in 
relation to the Euro. Monetary policy is pursued through the Central 
Bank (Nationalbanken) which sets the day-to-day interest rate on 
financial sector entities' current account deposits in the Central Bank 
and/or offer 14-day transactions where the entities either borrow in 
the Central Bank against collateral in securities or buy Government 
deposit certificates. Under normal circumstances, there are no 
limitations on the liquidity. Responding to the European Central Bank's 
raising of interest rates in early November 1999, the Danish Central 
Bank raised the official discount rate and the current account rate by 
0.25 percent to 3.0 percent. At the same time, the Central Bank's 
lending rate and the rate on deposit certificates was raised by 0.45 
percent to 3.3 percent.
5. Significant Barriers to U.S. Exports
    Denmark imposes few restrictions on import of goods and services or 
on investment. Denmark generally adheres to GATT/WTO codes and EU 
legislation that impact on trade and investment. U.S. industrial 
product exporters face no special Danish import restrictions or 
licensing requirements. Agricultural goods must compete with domestic 
production, protected under the EU's Common Agricultural Policy.
    Denmark provides national and, in most cases, non-discriminatory 
treatment to all foreign investment. Ownership restrictions apply only 
in a few sectors: hydrocarbon exploration (which usually requires 
limited government participation, but not on a ``carried-interest'' 
basis); arms production (non-Danes may hold a maximum of 40 percent of 
equity and 20 percent of voting rights); aircraft (non-EU citizens or 
airlines may not directly own or exercise control over aircraft 
registered in Denmark); and ships registered in the Danish 
International Ships Register (a Danish legal entity or physical person 
must own a significant share--about 20 percent--and exercise 
significant control over the ship or the ship must be on bareboat 
charter to a Danish firm).
    Danish law provides a reciprocity test for foreign direct 
investment in the financial sector, but that has not been an obstacle 
to U.S. investment. Two U.S. banks--Republic National Bank of New York 
and the State Street Bank Trust Company--have representative offices in 
Denmark. A number of other U.S. financial entities operate in Denmark 
through subsidiaries in other European countries, including Citicorp 
(through its UK subsidiary), GE Capital Equipment Finance (through 
Sweden), and Ford Credit Europe (through the UK).
    The government liberalized Danish telecommunications services in 
1997; however, the network--the raw copper--remained controlled by the 
former Government-owned Tele Danmark A/S. The large U.S. company 
Ameritech took over a controlling interest (42 percent) of Tele Danmark 
A/S in October 1997 in the largest foreign investment ever in Denmark, 
worth about four billion dollars. Access for other telecom operators to 
the raw copper opened in 1999. A number of foreign operators, including 
Sweden's Telia and France's Mobilix, are making strong inroads into the 
Danish market, which increases competition. Sonofon, a private cellular 
mobile telephone network with U.S. Bell South participation, competes 
with Tele Danmark A/S in that area.
    Danish government procurement practices meet the requirements of 
the GATT/WTO Public Procurement Code and EU public procurement 
legislation. Denmark has implemented all EU government procurement 
directives. A 1993 administrative note advised the Danish central and 
local governments of the EU/U.S. agreement on reciprocal access to 
certain public procurement.
    In compliance with EU rules, the government and its entities apply 
environmental and energy criteria on an equal basis with other terms--
price, quality and delivery--in procurement of goods and services. This 
may eventually restrict U.S. companies' ability to compete in the 
Danish public procurement market. For example, the EU ``Ecolabel'' and 
EU ``Ecoaudit'' requirements may be difficult for some U.S. companies 
to meet. Offsets are used by the Danish Government only in connection 
with military purchases not covered by the GATT/WTO code and EU 
legislation. Denmark has no ``Buy Danish'' laws.
    There is no record of any U.S. firm complaining about Danish 
customs procedures. Denmark has an effective, modern and swift customs 
administration.
    U.S. firms resident in Denmark generally receive national treatment 
regarding access to Danish R&D programs. In some programs, however, 
Denmark requires cooperation with a Danish company. There is no record 
of any complaints by U.S. companies in this area.
6. Export Subsidies Policies
    EU agricultural export subsidies to Denmark totaled $371 million 
(some 15 percent of the value of Danish agricultural exports to non-EU 
countries) in 1998. Danish government support for agricultural export 
promotion programs is insignificant. Denmark has no direct subsidies 
for its non-agricultural exports except for shipbuilding. Denmark 
welcomed the 1994 OECD agreement to phase out shipbuilding subsidies 
internationally and would like this agreement, or eventually an updated 
one, to be ratified by the United States.
    The Government does not directly subsidize exports by small and 
medium size companies. Denmark does, however, have programs that 
indirectly assist export promotion, and establishment of export 
networks for small and medium sized companies, research and 
development, and regional development aimed at increasing exports. 
Denmark has one of the EU's lowest rates of state aid to industry (less 
than two percent of GDP). Danish subsidization of its shipbuilding 
industry is within the ceiling set in the EU Shipbuilding Directive 
(nine percent of the contract value) and accounts for about one-third 
of total Danish state aid to industry. The shipbuilding subsidies have 
not prevented the closure of many of Denmark's shipbuilders in the face 
of increased low-priced production in South Korea and elsewhere.
    Denmark also has a well-functioning export credit and insurance 
system. In its foreign development assistance, Denmark requires that 50 
percent of all bilateral assistance be used for Danish-produced goods 
and services. These programs apply equally to foreign firms that 
produce in and export from Denmark.
7. Protection of U.S. Intellectual Property
    Denmark is a party to and enforces a large number of international 
conventions and treaties concerning protection of intellectual property 
rights, including the WTO Agreement on Trade-Related Aspects of 
Intellectual Property Rights (the TRIPS Agreement).
    Patents: Denmark is a member of the World Intellectual Property 
Organization, and adheres to the Paris Convention for the Protection of 
Industrial Property, the Patent Cooperation Treaty, the Strasbourg 
Convention and the Budapest Convention. Denmark has ratified the 
European Patent Convention and the EU Patent Convention.
    Trademarks: Denmark is a party to the 1957 Nice Arrangement and to 
this arrangement's 1967 revision. Denmark has implemented the EU 
trademark directive aimed at harmonizing EU member countries' 
legislation. Denmark strongly supports efforts to establish an EU-wide 
trademark system. Following a European Court decision in 1998 that 
``regional trademark consumption'' applies within the EU, Denmark is 
stopping use of the ``global consumption principle.'' Denmark has 
enacted legislation implementing EU regulations for the protection of 
the topography of semiconductor products, which also extends protection 
to legal U.S. persons.
    Copyrights: Denmark is a party to the 1886 Berne Convention and its 
subsequent revisions, the 1952 Universal Copyright Convention and its 
1971 revision, the 1961 International Convention for the Protection of 
Performers, and the 1971 Convention for the Producers of Phonograms. 
There is little piracy in Denmark of CDs or audio or video cassettes. 
However, computer software piracy is more widespread and estimated at 
over $100 million annually.
    Piracy of other intellectual property, including books, appears 
limited. There is no evidence of Danish import or export of pirated 
products.
    New Technologies: There are no reports of possible infringement of 
new technologies.
    Impact on U.S. Trade with Denmark: Denmark is named on the 
``Special 301'' Watch List because of its failure to meet its TRIPS 
obligations to provide unannounced searches and provisional relief as 
required by TRIPS Article 50. The issue is the subject of bilateral 
consultations, and the Danish government has created a committee to 
determine which legislative changes are needed to meet its TRIPS 
obligations. The United States is also concerned about Denmark's 
failure to protect, as required by article 39.3 of the TRIPS Agreement, 
confidential test data submitted to the Danish Environmental Protection 
Agency for approval of certain chemical products.
    Finally, U.S. authors do not receive royalties from Denmark for 
photocopying of their works used in Danish schools and universities, 
because the Danish collecting agency COPYDAN will not accept the 
validity of ``en bloc'' powers of attorney issued by U.S. publisher and 
author organizations. This issue is being pursued with the Danish 
Government.
8. Worker Rights
    a. Right of Association: Workers in Denmark have the right to 
associate freely, and all (except those in essential services and civil 
servants) have the right to strike. Approximately 80 percent of Danish 
wage earners belong to unions. Trade unions operate free of government 
interference. They are an essential factor in political life and 
represent their members effectively. During 1998, 3.2 million workdays 
were lost due to labor conflicts in connection with the spring 1998 
labor contract negotiations (see below) compared with 101,700 in 1997. 
Greenland and the Faroe Islands have the same respect for worker 
rights, including full freedom of association, as Denmark.
    b. Right to Organize and Bargain Collectively: Workers and 
employers acknowledge each others' right to organize. Collective 
bargaining is widespread. Danish law prohibits antiunion discrimination 
by employers against union members, and there are mechanisms to resolve 
disputes. Salaries, benefits, and working conditions are agreed in 
biennial or triennial negotiations between the various employers' 
associations and their union counterparts. If negotiations fail, a 
National Conciliation Board mediates, and its proposal is voted on by 
both management and labor. If the proposal is turned down, the 
government may force a legislated solution (usually based upon the 
mediator's proposal). In 1998, for example, failure to reach agreement 
resulted in a conflict in the industry sector, which lasted 11 days 
before the government intervened with legislation. Again in 1999, in 
connection with public sector contract negotiations, the Government had 
to intervene to avoid a strike by nurses. In case of a disagreement 
during the life of a contract, the issue may be referred to the Labor 
Court. Decisions of that court are binding. Labor contracts that result 
from collective bargaining are, as a general rule, also used as 
guidelines in the non-union sector.
    Labor relations in the non-EU parts of Denmark--Greenland and the 
Faroe Islands--are generally conducted in the same manner as in 
Denmark.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited and does not exist in Denmark.
    d. Minimum Age for Employment of Children: The minimum age for 
full-time employment is 15 years. Denmark has implemented EU Council 
Directive 94/33/EU, which tightened Danish employment rules for those 
under 18 years of age, and set a minimum of 13 years of age for any 
type of work. The law is enforced by the Danish Working Environment 
Service (DWES), an autonomous arm of the Ministry of Labor. Danish 
export industries do not use child labor.
    e. Acceptable Conditions of Work: There is no legally mandated work 
week or national minimum wage. The work week set by labor contracts is 
37 hours. The lowest wage in any national labor agreement is equal to 
about $11 per hour. Danish law provides for five weeks of paid vacation 
each year. However, both private and public sector contract agreements 
since 1998 provide for 2 to 3 extra holidays plus up to 3 extra days 
off each year for wage earners with children. Danish law also 
prescribes conditions of work, including safety and health; duties of 
employers, supervisors, and employees; work performance; rest periods 
and days off; medical examinations; and maternity leave. The DWES 
ensures compliance with work place legislation. Danish law provides for 
government-funded parental and educational leave programs.
    Similar conditions, except for leave programs, are found in 
Greenland and the Faroe Islands, but in these areas the workweek is 40 
hours. Unemployment benefits in Greenland are either contained in labor 
contract agreements or come from the general social security system. A 
general unemployment insurance system in the Faroe Islands has been in 
force since 1992. Sick pay and maternity pay, as in Denmark, fall under 
the social security system.
    f. Rights in Sectors with U.S. Investment: Worker rights in those 
goods-producing sectors in which U.S. capital is invested do not differ 
from the conditions in other sectors.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  286
Total Manufacturing............  ..............  638
  Food & Kindred Products......  160             ...............................................................
  Chemicals & Allied Products..  60              ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       5               ...............................................................
   Equipment.
  Electric & Electronic          216             ...............................................................
   Equipment.
  Transportation Equipment.....  -8              ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\2\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Servic.........................  ..............  34
Other Industries...............  ..............  54
TOTAL ALL INDUSTRIES...........  ..............  2,628
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                FINLAND


                         Key Economic Indicators
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997       1998       1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (at factor cost) \9\.....      105.6      111.8  \1\ 110.2
  Real GDP Growth (pct)................        5.6        5.6    \1\ 3.8
  GDP by Sector:
    Agriculture, Forestry & Logging....        4.4        4.2    \1\ 4.2
    Manufacturing, Construction, Mining       32.1       35.2   \1\ 35.2
     & Quarrying.......................
    Electricity, Gas & Water Supply....        2.6        2.6    \1\ 2.4
    Services...........................       69.3       72.8   \1\ 71.7
    Imputed Bank Service Charges.......       -2.8       -3.0   \1\ -3.3
  Per Capita GDP (US$) \9\.............     23,671     25,084  \1\ 24,73
                                                                       4
  Labor Force (000's)..................      2,484      2,507  \1\ 2,548
  Unemployment Rate (pct)..............       12.7       11.4   \1\ 10.3

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............        1.0        4.4    \2\ 5.7
  Consumer Price Inflation.............        1.2        1.4    \1\ 1.0
  Exchange Rate (FIM/US$ annual               5.19       5.30        5.6
   average)............................

Balance of Payments and Trade:
  Total Exports FOB....................       40.7       43.3   \3\ 25.7
    Exports to U.S.....................        2.8        3.2    \3\ 1.7
  Total Imports CIF....................       30.7       32.5   \3\ 19.8
    Imports from U.S...................        2.3        2.7    \3\ 1.6
  Trade Balance........................       10.0       10.8    \3\ 5.9
    Balance with U.S...................        0.5        0.5    \3\ 0.1
  External Public Debt \4\.............      -29.8      -21.3  \5\ -25.8
  Fiscal Deficit-Surplus/GDP (pct) \6\.       -1.2        0.9    \1\ 3.1
  Current Account Surplus/GDP (pct)....        5.6        5.9    \1\ 4.9
  Debt Service Payments/GDP (pct) \7\..        5.4        4.9    \1\ 4.6
  Gold and Foreign Exchange Reserves...        9.9        9.7    \8\ 9.2
  Aid from U.S.........................        N/A        N/A        N/A
  Aid from All Other Sources...........        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ Estimate, Ministry of Finance.
\2\ Bank of Finland, April 1999-April 1998.
\3\ January-August 1999, Board of Customs.
\4\ Net international investment position exc. shares and other equity
  items.
\5\ Bank of Finland, August 1999.
\6\ Public sector's budget deficit (EMU).
\7\ General government interest expenditures.
\8\ September 1999, Bank of Finland.
\9\ Declines in Nominal and Per Capita GDP (despite positive growth
  rates) are due to the depreciating value of the Finnish Markka.

1. General Policy Framework
    At the beginning of the 1990's, the Finnish economy encountered a 
severe recession, after a period of rapid growth in the 1980's. GDP 
growth came to a standstill in 1990 and the following year declined by 
7 percent. Industrial output and exports bottomed out in 1991, and 
total industrial output did not start to grow again until 1993. 
Unemployment has decreased significantly since 1994, but remains above 
the European Union (EU) average. EU membership, which took place on 
January 1, 1995, helped spur structural change in key economic sectors.
    The overall economic outlook in Finland is favorable. Inflation has 
been moderate, and employment has grown robustly. In 1999, the volume 
of total output is anticipated to grow by 3.8 percent year-on-year. In 
1998 GDP growth amounted to 5.6 percent, the same as in 1997. 
Unemployment rate estimated to drop to 10.3 percent from 1998's 11.4 
percent. The national government's budget is expected to be balanced 
this year, and the surplus in overall government finances (including 
revenues from state owned corporations) will grow to 3 percent of GDP
    The current account surplus reached 40.3 billion FIM in 1998, which 
is 5.9 percent of GDP. In 1999 the surplus is expected to contract to 
34.9 billion FIM, but should rise again in year 2000. As a percentage 
of GDP the current account surplus is forecast to fall from last year's 
record level but remain in the range of 5 percent both in 1999 and 
2000.
    The current account surplus has been export driven during the 
1990s. But in 1999, the surplus is expected to dip slightly as the 
terms of trade deteriorate by 3 percent. In 2000, the terms of trade 
are projected to fall by another one percent, but accelerated growth in 
the volume of exports will bring the trade surplus back on a growth 
track.
    Private consumption was up 4.5 percent in 1998 and is forecasted to 
grow by 3.8 percent in 1999, 3.4 percent in 2000, and 3.2 percent in 
2001. Consumer confidence remains high overall.
    Finland's net foreign debt was FIM 476.5 billion at the end of 
1998. Owing to a rise in share prices and an increase in foreign owned 
equity, net debt excluding shares and other equity items (the interest 
bearing net debt) declined in the course of 1998 and stood at 142.3 
billion (20.7 percent of GDP) at the end of 1998.
    With central government finances on the mend, general government 
finances have also considerably improved; local government finances are 
close to balance. The surplus in overall public finances is forecast to 
reach about 3 percent of GDP in 1999. With the net asset position 
improving and domestic product growing, the overall government debt 
ratio (ratio of EMU debt to GDP) is predicted to fall from 49.7 percent 
in 1998 to 46.6 percent by the end of 1999.
    In 1998 Finland's tax ratio (gross wage-earner taxation, including 
compulsory employment pension contributions, relative to GDP) was down 
to 46.2 percent from 46.3 percent in 1997. A marginal rise is expected 
in 1999 (46.7 percent) and in 2000 (46.8 percent).
    Finnish economic policy is determined to a large extent by 
consultation and coordination within the EU. EU membership, for 
example, has resulted in new competition legislation that could help to 
reduce the cartelized nature of many Finnish industries. Legislation 
that took effect at the beginning of 1993 liberalizing foreign 
investment restrictions has helped spur a sharp increase in foreign 
portfolio investment and hence has contributed to the 
internationalization of large Finnish companies. The increase in stock 
market activity is also due to lower domestic interest rates. Direct 
foreign investment, however remains modest due to high production 
costs. Finland is hoping to capitalize on its location and expertise to 
serve as a gateway for foreign investors in the former Soviet Union and 
the Baltic States. This effort had scored some successes as foreign 
firms established production and warehousing facilities in eastern 
Finland, close to the major Russian markets. The recent Russian 
financial crisis has caused a significant slowdown in gateway activity.
    EU membership and Finland's budget constraints have brought about 
some reform in Finland's highly protected agricultural sector. Finland 
is slowly transitioning to the EU agricultural regime. The compromise 
outcome of Agenda 2000 negotiated by the European Ministers of 
Agriculture in March 1999, contained some favorable elements with 
respect to Finland. Of special importance was drying aid for grains and 
oilseeds, and aid for grass silage. The delay of the price cut of milk 
reform until 2003, makes the situation easier now, although there might 
be problems later on if the compensation does not cover losses caused 
by the price cuts.
2. Exchange Rate Policy
    From June 1991 to September 1992 the Finnmark was pegged to the 
European Currency Unit, the ECU. The fluctuation margins and the 
midpoint were set so as to correspond to the fluctuation margins and 
midpoint of the old currency index. In September 1992, the Bank of 
Finland decided to abandon the limits of the fluctuation range and 
allow the Finnmark to float. Finland joined the Exchange Rate Mechanism 
(ERM) of the European Monetary System in October 1996, at the central 
rate of 1 ECU = FIM 5.80661. As a participant in the ERM, Finland takes 
part in the mutual intervention arrangements coordinated between the 
various central banks, which contribute to economic policy goals by 
stabilizing the exchange rate.
    The European Commission reported on 25 March 1998, that 11 EU 
member countries, one of them Finland, were ready for the economic and 
monetary union (EMU) and met the conditions to adopt the single 
currency (Euro).
    The bank notes and coins of the single currency will be put into 
circulation in 2002. As of January 1, 1999, Finland joined the third 
stage of the EMU. This third and final stage of EMU commenced with the 
irrevocable locking of the exchange rates of the eleven currencies 
participating in the Euro area and with the conduct of a single 
monetary policy under the responsibility of the ECB. The Finnmark was 
pegged to the Euro at 5.9457.
3. Structural Policies
    Finland replaced its turnover tax with a Value-Added Tax (VAT) in 
June 1994. While the change has had little effect on overall revenues, 
several sectors not previously taxed or taxed at a lower rate, 
including corporate and consumer services and construction, are now 
subject to the new VAT. The government has kept the basic VAT rate at 
the same level as the old turnover tax (22 percent). Legislation on VAT 
was harmonized with the European Union. Foodstuffs will still be taxed 
at a 17 percent rate. Services, including health care, education, 
insurance, newspaper & periodical subscriptions, and rentals are not 
subject to VAT.
    Agricultural and forestry products continue to be subject to 
different forms of non-VAT taxation. A uniform tax rate of 28 percent 
on capital gains took effect in 1996, which includes dividends, rental 
income, insurance, savings, forestry income, and corporate profits. The 
sole exception was bank interest, where the tax rate was increased from 
20 to 25 percent at the beginning of 1994. The Government's budget 
proposal for 2000 includes raising the corporate and capital income tax 
rate from current 28 per cent to 29 per cent.
    In March 1997, European Union commitments required the 
establishment of a tax border between the autonomously governed, but 
territorially Finnish, Aland Islands (Ahvenanmaa) and the rest of 
Finland. As a result, the trade of goods and services between the rest 
of Finland and Aland is now treated as if it were trade with a non-EU 
area. The trade effect of this treatment is minimal since the Aland 
Islands are part of the EFTA tariff area.
    The current Comprehensive Incomes Policy Agreement expires at the 
end of January 2000. A new round of wage negotiations is being carried 
out. Unlike in the past, the new wage negotiations are been carried out 
on a union by union basis as opposed to collective bargaining with all 
unions together. There won't be any collective bargaining agreements, 
but instead agreements on union levels. All main labor market 
organizations are committed to the target of low inflation, and the 
government intends to reward a moderate collective wage agreement with 
tax cuts.
    The sharp decline in interest rates and liberalization of foreign 
investment has resulted in a strong revival of the Finnish stock market 
and greater corporate use of equity markets. It has also substantially 
increased the percentage of foreign ownership of many of Finland's 
leading companies, and is the preferred vehicle for privatization or 
partial privatization of companies with significant state ownership. 
The previous Center-Conservative government initiated a program aimed 
at privatizing as much of the state-owned companies as the Finnish 
Parliament would permit and the market could absorb. The present 
government agrees that state ownership at its present level is no 
longer necessary in manufacturing, energy production and 
telecommunications-operations. The basic strategy has been to reduce 
the government's stake through the issuance of stock, rather than by 
selling off companies to individual investors and to treat each company 
as an individual case. In its program the government is committed to 
using privatization proceeds primarily to reduce government debt and to 
research and development activities.
    Recent examples include Sonera (former Telecom Finland) and HPY 
(Helsinki Telephone Company) and the selling of Enso to Stora. In 
virtually every case, however, the Finnish government has retained 
significant minority stakes in privatized companies.
    As a result of the recession of the early 1990s, industrial 
subsidies have increased by about 80 percent of GDP in real terms. The 
government has begun, however, to reduce subsidies in line with the 
need for greater fiscal discipline and Maastricht Treaty criteria for 
monetary union. General horizontal subsidies form the bulk of aid in 
Finland, including assistance for research and development, 
environmental protection, energy and investment. All companies 
registered in Finland have access to government assistance under 
special development programs. Foreign-owned companies are eligible for 
government incentives on an equal footing with Finnish owned companies. 
Government incentive programs are mainly aimed at investment in areas 
deemed to be in need of development. The support consists of cash 
grants, loans, tax benefits, investments in equity, guarantees and 
employee training.
4. Debt Management Policies
    Under the government's EMU convergence program, the gross 
government debt is projected to drop from 49.7 percent last year to 
43.2 percent of GDP by the end of 1999. Finnish corporations, formerly 
heavy users of foreign capital, are now reducing foreign obligations.
    In August 1999, Moody's announced that it keeps its rating on 
Finnish long-term government bonds at their best rating--AAA. Standard 
& Poor's rating was upgraded in September 1999 to AA+, which is the 
second best. In November 1999, Fitch IBCA confirmed the rating of 
Finnish long-term government bonds to AAA.
    Finland is an active participant in the Paris Club, the London Club 
and the Group of 24, providing assistance to East and Central Europe 
and the former Soviet Union. It has been a member of the IMF since 
1948. Finland's development cooperation programs channel assistance via 
international organizations and bilaterally to a number of African, 
Asian, and Latin American countries. In response to budgetary 
constraints and changing priorities, Finland has reduced foreign 
assistance from 0.78 percent of GDP in 1991 to 0.32 percent of GDP in 
1998. The Finnish Government intends to raise foreign assistance to 0.4 
percent of GDP by year 2000.
5. Significant Barriers to U.S. Exports
    Finland became a member of the EU in 1995, and, as a result, has 
had to adopt the EU's tariff schedules. The agricultural sector remains 
the most heavily protected area of the Finnish economy, with the bulk 
of official subsidies in this sector. The amount of these subsidies is 
determined by the difference between intervention and world prices for 
agricultural products. Since joining the EU, the difference between 
these two prices has decreased for most agricultural items, resulting 
in lower, albeit still significant, subsidy levels.
    In mid-1996 the Finnish government's inter-ministerial licensing 
authority began to oppose within the EU U.S. company applications for 
commercialization of genetically modified organisms (GMOs) such as 
insect resistant corn. The Environmental Ministry appears to favor 
mandatory consumer-oriented labeling of GMOs. Other ministries are more 
supportive of GMO commercialization. The government continues to take a 
case-by-case approach to GMO-related issues.
    The Finnish service sector is undergoing considerable 
liberalization in connection with EU membership. Legislation 
implementing EU insurance directives have gone into effect. Finland has 
exceptions in insurance covering medical and drug malpractice and 
nuclear power supply. Restrictions placed on statutory labor pension 
funds, which are administered by insurance companies, will in effect 
require that companies establish an office in Finland. In most cases 
such restrictions will cover workers' compensation as well. Auto 
insurance companies will not be required to establish a representative 
office, but will have to have a claims representative in Finland.
    1995 was the first year of fully open competition in the 
telecommunications sector in Finland. The Telecommunication Act of 
August 1996 allows both network operators and service operators to use 
competitor telecommunication networks in exchange for reasonable 
compensation. The Telecommunication Act was replaced by the 
Telecommunications Market Act of 1997, which improved the opportunities 
of telecommunication operators to profitably lease each other's 
telecommunications connections. Entry to the sector was also made 
easier, by eliminating a licensing requirement to construct a fixed 
telephone network. Only mobile telephone networks are still subject to 
license.
    Finland was the first country to grant licenses for third 
generation mobile phone networks. In March 1999, four 
telecommunications companies were granted a license to construct a 3G 
mobile network in Finland. The decision did not include a final 
position on the technology to be used, since the ITU's international 
standardization decision (IMT-2000) had not yet been taken. The 3G 
mobile operations will be launched by January 1, 2002 at the latest.
    In the next few years, the telecommunications and information 
technology sectors will continue to grow rapidly. Finland's 
telecommunications environment is one of the most advanced in Europe 
and the growth of international business in telecommunications is of 
significant importance to the Finnish economy.
    The government requires that the Finnish broadcasting company 
devote a ``sufficient'' amount of broadcasting time to domestic 
production, although in practical terms this has not resulted in 
discrimination against foreign produced programs. Finland has adopted 
EU broadcasting directives, which recommend a 51 percent European 
programming target ``where practicable'' for non-news and sports 
programming. Finland does not intend to impose specific quotas and has 
voiced its opposition to such measures in the EU.
    With the end of the Restriction Act in January 1993, Finland 
removed most restrictions on foreign ownership of property in Finland. 
Only minor restrictions remain, such as requirements to obtain 
permission of the local government in order to purchase a vacation home 
in Finland. But even restrictions such as this will be abolished by 
January 2000, bringing Finland fully in line with EU norms.
    Foreigners residing outside of the EEA who wish to carry on trade 
as a private entrepreneur or as a partner in a Finnish limited or 
general partnership must get a trade permit from the Ministry of Trade 
and Industry (MTI) before starting a business in Finland. Additionally, 
at least one-half of the founders of a limited company must reside in 
the EEA unless the MTI grants an exemption.
    Normally Finland requires that a labor market test be conducted 
before allowing a foreigner to work in Finland. The purpose of the test 
is to determine whether or not a Finn could undertake the same work. 
However, foreign intra-corporate transferees who are business 
executives or managers are not subject to the labor market test. This 
standard does not apply to company specialists, who must prove that 
they possess knowledge at an advanced level of expertise or are 
otherwise privy to proprietary company business information.
    Finland is a signatory to the WTO Government Procurement Agreement 
and has a good record in enforcing its requirements. In excluded 
sectors, particularly defense, counter trade is actively practiced. 
Finland is purchasing fighter aircraft and associated equipment valued 
at $3.35 billion from U.S. suppliers. One hundred percent offsets are 
required, as a condition of sale, by the year 2005. As of December 
1998, $2.9 billion (or 88 per cent of the total) worth of offsets have 
been made.
    Finland has in most cases completed the process of harmonizing its 
technical standards to EU norms. It has streamlined customs procedures 
and harmonized its practices with those of the EU.
6. Export Subsidies Policies
    The only significant Finnish direct export subsidies are for 
agricultural products, such as grain, meat, butter, cheese and eggs as 
well as for some processed agricultural products.
    Finland has advocated worldwide elimination of shipbuilding 
subsidies through the OECD Shipbuilding Agreement. The EU has decided 
that payment of shipyard subsidies will end at the end of year 2000.
7. Protection of U.S. Intellectual Property
    The Finnish legal system protects property rights, including 
intellectual property, and Finland adheres to numerous international 
agreements and organizations concerning intellectual property. In 1996, 
Finland joined the European Patent Convention (EPC).
    Finland is a member of WIPO, and participates primarily via its 
membership in the EU. The idea of protection of intellectual property 
is well developed. For example, the incidence of software piracy is 
lower than in the U.S., and by some measures (e.g. BSA) is the lowest 
in the world.
    The Finnish Copyright Act, which traditionally also grants 
protection to authors, performing artists, record producers, 
broadcasting organizations and catalog producers, is being amended to 
comply with EU directives. As part of this harmonization, the period of 
copyright protection was extended from 50 years to 70 years. Protection 
for data base producers (currently a part of catalog producer rights) 
will be defined consistent with EU practice. The Finnish Copyright Act 
provides for sanctions ranging from fines to imprisonment for up to two 
years. Search and seizure are authorized in the case of criminal 
piracy, as is the forfeiture of financial gains. The Copyright Act has 
covered computer software since 1991.
    Information on copying and copyright infringement is provided by 
several copyright holder interest organizations such as the Copyright 
Information and Anti-Piracy Center. The Business Software Alliance 
(BSA), a worldwide software anti-piracy organization, began operations 
in Finland in January 1994. According to a BSA survey, the rate of 
software piracy in Finland dropped to 32 percent in 1998, from 53 
percent in 1994.
8. Worker Rights
    a. The Right of Association: The constitution provides for the 
rights of trade unions to organize, to assemble peacefully, and to 
strike, and the government respects these provisions. Over 80 percent 
of the work force are organized. This applies to employers as well. All 
unions are independent of the government and political parties. The law 
grants public sector employees the right to strike, with some 
exceptions for provision of essential services. In the first half of 
1999, there were 28 strikes, of which only one, was not a wildcat 
strike. Trade unions freely affiliate with international bodies.
    b. The Right to Organize and Bargain Collectively: The law provides 
for the right to organize and bargain collectively. Collective 
bargaining agreements are usually based on incomes policy agreements 
between employee and employer central organizations and the government. 
The law protects workers against antiunion discrimination. Complaint 
resolution is governed by collective bargaining agreements as well as 
labor law, both of which are adequately enforced. There are no export 
processing zones.
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced or compulsory labor, and this prohibition is honored 
in practice.
    d. Minimum Age for Employment of Children: Youths under 16 years of 
age cannot work more than 6 hours a day or at night, and education is 
compulsory for children from 7 to 16 years of age. The Labor Ministry 
enforces child labor regulations. There are virtually no complaints of 
exploitation of children in the work force. In 1998, a proposal to 
tighten the law even further has been made. According to a bill 
introduced to parliament, comprehensive school student (7-15 years) 
should not be allowed to hold employment during two thirds of the their 
holidays, but only during one half. This change is prompted by an EU 
directive to this effect.
    e. Acceptable Conditions of Work: There is no legislated minimum 
wage, but the law requires all employers, including non-unionized ones, 
to meet the minimum wages agreed to in collective bargaining agreements 
in the respective industrial sector. These minimum wages generally 
provide a decent standard of living for workers and their families. The 
legal workweek consists of 5 days not exceeding 40 hours. Employees 
working in shifts or during the weekend are entitled to a 24-hour rest 
period during the week. The law is effectively enforced as a minimum, 
and many workers enjoy even stronger benefits through effectively 
enforced collective bargaining agreements. The government sets 
occupational health and safety standards, and the Labor Ministry 
effectively enforces them. Workers can refuse dangerous work 
situations, without risk of penalty.
    f. Rights in Sectors with U.S. Investment: There is no difference 
in the application of worker rights between sectors with U.S. 
investment and those without.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  104
Total Manufacturing............  ..............  1,004
  Food & Kindred Products......  11              ...............................................................
  Chemicals & Allied Products..  308             ...............................................................
  Primary & Fabricated Metals..  14              ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  48              ...............................................................
Wholesale Trade................  ..............  302
Banking........................  ..............  20
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  67
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  1,700
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 FRANCE


                       Key Economic Indicators \1\
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997      1998    1999 (est)
------------------------------------------------------------------------

Income, Production and Employment:
  Nominal GDP...........................     1,409     1,449      1,449
  Real GDP Growth.......................       2.0       3.4        2.7
  GDP by Sector (previous year prices):      1,264     1,283        N/A
   \2\..................................
    Agriculture.........................        42        43        N/A
    Manufacturing.......................       271       277        N/A
    Services............................       635       647        N/A
    Government and Non-Profit Services..       257       258        N/A
  Per Capita GDP (US$)..................    24,043    24,873     24,770
  Labor Force (thousands)...............    25,642    25,915     25,995
  Unemployment Rate (average)...........      12.5      11.8       11.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3) \3\..........       1.7       1.2        5.8
  Consumer Price Inflation (average)....       1.2       0.7        0.6
  Exchange Rate (FF/US$ annual average).       5.8       5.9        6.1

Balance of Payments and Trade:
  Total Exports FOB \4\.................       290       304        293
    Exports to U.S.\4\..................        19        22         21
  Total Imports CIF \4\.................       271       288        282
    Imports from U.S.\4\................        23        25         24
  Trade Balance CIF/FOB.................        19        16         11
    Balance with U.S.\4\................        -4        -3         -2
  External Public Debt..................       N/A       N/A        N/A
  Fiscal Deficit/GDP (pct)..............       3.0       2.9        2.3
  Current Account \5\...................        39        40         35
  Current Account Surplus/GDP (pct).....       2.8       2.8        2.4
  Debt Service Payments (pct of GDP)....       N/A       N/A        N/A
  Gold and Foreign Exchange Reserves \6\        57        69         71
  Aid from U.S..........................       N/A       N/A        N/A
  Aid from All Other Sources............       N/A       N/A        N/A
------------------------------------------------------------------------
N/A = non available/non applicable.
\1\ Embassy estimates based on published French government data unless
  otherwise indicated.
\2\ GDP excludes value added tax and other taxes.
\3\ 1999 figure reflects M3 as of August.
\4\ 1999 estimate based on eight months.
\5\ 1999 estimate based on eight months.
\6\ 1999 figure reflects reserves as of October.

1. General Policy Framework
    France is the fourth largest industrial economy in the world, with 
annual gross domestic product about one-fifth that of the United 
States. France is the fourth largest importer and exporter in the 
global market, and is a world leader in high technology, defense, 
agricultural products, and services. France is the eighth largest 
trading partner of the United States and the third largest in Europe 
(after Germany and the United Kingdom). According to U.S. Department of 
Commerce data, U.S. merchandise exports to France increased by 11.0 
percent to $17.7 billion in 1998, while merchandise imports from France 
grew 16.3 percent to $24.0 billion, again according to Commerce 
Department data. This resulted in a U.S. merchandise trade deficit with 
France of about $6 billion. French trade data shown in the table above 
account differently for re-exports and transshipments via neighboring 
European countries. They thus tell a different story: France believes 
that it had a trade deficit of about $3 billion with the U.S. in 1998. 
Trade in services is expanding rapidly. In 1998, it added about $2 
billion more to the total volume of trade between the U.S. and France. 
The U.S. and France are the world's top two exporters in several 
important sectors: defense products, agricultural goods, and services.
    The annual real GDP growth rate in 1999 should be about 2.7 
percent, following 3.4 percent in 1998 and 2.0 percent in 1997. The 
main reason for a slowdown in late 1998 and early 1999 was the impact 
of the Asian and Russian financial crises. Resilient domestic 
consumption and investment have, however, limited this impact. Growth 
in the second half of 1999 is strengthening significantly. Most 
economists expect annual growth in 2000 to return to the 3.0 percent 
level. Growth has also permitted a reduction in the unemployment rate 
(from a high of 12.6 percent in June 1997 to 11.1 percent by September 
1999) and a continued reduction in the general government budget 
deficit as a share of GDP to 2.3 percent in 1999.
    Considerable progress has been made over the past decade on 
structural reforms. However, additional efforts will be necessary for 
France to achieve its full economic potential. Prime areas for reforms 
identified by international organizations include continued tax and 
government spending reduction, increasing the flexibility of labor 
markets, and further deregulation of goods and services sectors.
    With exports and imports of goods and services each accounting for 
about 25 percent of GDP, France's open external sector is a vital part 
of its economy. The government has encouraged the development of new 
markets for French products and investors, particularly in Asia and 
Latin America. It especially seeks to promote exports by small and 
medium-sized firms. Foreign investment, both inward and outward, also 
plays a very important role in the French economy, helping generate 
employment and growth. With about 20 percent of the total, U.S. 
investment accounts for the largest share of foreign direct investment 
in France. Restrictions on non-EU investors apply only in sensitive 
sectors, such as telecommunications, agriculture, defense, and 
aviation, and are generally applied on a reciprocal basis.
    France offers a variety of financial incentives to foreign 
investors and its investment promotion agency, DATAR, provides 
extensive assistance to potential investors in France.
2. Exchange Rate Policies
    France adopted the euro currency as of January 1, 1999. 
Responsibility for exchange rate policy is shared between national 
finance ministries and the European Central Bank.
3. Structural Policies
    Over the past decade, the government has made efforts to reduce its 
role in economic life through fiscal reform, privatization, and the 
implementation of European Union liberalization and deregulation 
directives. Yet the government remains deeply involved in the 
functioning of the economy through national and local budgets, 
remaining state holdings of major corporations, and extensive 
regulation of labor, goods, and services markets. This can sometimes 
result in a lack of transparency in the making of decisions that affect 
U.S. and other firms. While U.S. and foreign companies often cite 
concerns about relatively high tax rates on business--particularly 
payroll and social security taxes--state action does not discriminate 
against foreign firms or investments. There are very few, generally 
clearly defined exceptions, such as those notified to the OECD under 
its investment codes.
4. Debt Management Policies
    The budget deficit is financed through the sale of government bonds 
at weekly and monthly auctions. A member of the group of leading 
financial nations, France participates actively in the International 
Monetary Fund, the World Bank, and the Paris Club. France is a leading 
donor nation and is actively involved in development issues, 
particularly with its former colonies in North and Sub-Saharan Africa. 
France has also been a leading proponent of debt reduction and relief 
for the highly indebted poor countries.
5. Significant Barriers to U.S. Exports
    In general, European Union agreements and practices determine 
France's trade policies. These policies include preferential trade 
agreements with many countries.
    Although in most cases France follows import regulations as 
prescribed by the Common Agricultural Policy and various EU directives, 
there are a number of agricultural products for which France implements 
unilateral restrictions (irrespective of EU policy) that affect U.S. 
exports. For instance, French decrees and regulations currently 
prohibit the import of the following agricultural products: poultry, 
meat and egg products from countries (including the United States) that 
use certain feed compounds; products made with enriched flour; and 
exotic meats (e.g., ostrich, emu and alligator); and live crawfish 
unless authorized by special derogation. Current regulations 
discriminate against imports of bovine semen and embryos (from the 
United States) by strictly controlling their marketing in France.
    France established a new national policy toward Genetically 
Modified Organisms (GMOs) in 1998 that has restricted imports and 
production of certain types of GMO products.
    France's implementation of the EU broadcast directive limits U.S. 
and other non-EU audiovisual exports. France strictly applies quotas 
mandating local content. Continuation and growth of a strong French A/V 
sector is a government priority.
    Government efforts to balance the national social security health 
care budget continue to target (via price/volume agreements, reduced 
reimbursement rates, taxes, and slow approvals) products brought to the 
market by research-based pharmaceutical firms and health equipment 
firms. The U.S. health equipment and research-based pharmaceutical 
industries continue to press the French Government for more 
transparency in government regulation.
6. Export Subsidies Policy
    France is a party to the OECD guidelines on the arrangement for 
export credits, which includes provisions regarding the concessionality 
of foreign aid. The French Government has increased its export 
promotion efforts, particularly to the emerging markets in East Asia 
and Latin America. These efforts include providing information and 
other services to potential exporters, particularly small and medium-
sized enterprises.
    Support of the agricultural sector is a key government priority. 
Government support of agricultural production comes mainly from the 
budget of the European Union under the Common Agricultural Policy. 
There are virtually no direct French government subsidies to 
agricultural production. France strongly supports continued EU export 
subsidies The government offers indirect assistance to French farmers 
in many forms, such as easy credit terms, start-up funds, and 
retirement funds.
7. Protection of U.S. Intellectual Property
    As a major innovator, France has a strong stake in defending 
intellectual property rights worldwide. Under the French intellectual 
property rights regime, industrial property is protected by patents and 
trademarks, while literary/artistic property and software are protected 
by the French civil law system of ``authors rights'' and ``neighboring 
rights.'' France is a party to the Berne Convention on copyrights, the 
Paris Convention on industrial property, the Universal Copyright 
Convention, the Patent Cooperation Treaty, and the Madrid Convention on 
trademarks. U.S. nationals are entitled to receive the same protection 
of industrial property rights in France as French nationals. In 
addition, U.S. nationals have a ``priority period'' after filing an 
application for a U.S. patent during which to file a corresponding 
application in France.
8. Worker Rights
    a. The Right of Association: The French Constitution guarantees the 
right of workers to form unions. Although union membership has declined 
to less than ten percent of the workforce, the institutional role of 
organized labor in France is far greater than its numerical strength. 
The government regularly consults labor leaders on economic and social 
issues, and joint works councils play an important role even in 
industries that are only marginally unionized.
    b. The Right to Organize and Bargain Collectively: The principle of 
free collective bargaining was established after World War II, and 
subsequent amendments to labor laws encourage collective bargaining at 
national, regional, local and plant levels.
    c. Prohibition of Forced or Compulsory Labor: French law prohibits 
antiunion discrimination and forced or compulsory labor.
    d. Minimum Age for Employment of Children: With a few minor 
exceptions for those enrolled in apprenticeship programs or working in 
the entertainment industry, children under the age of 16 may not be 
employed in France.
    e. Acceptable Conditions of Work: The current minimum wage is FF 
40.72 per hour (about $6.67). Legislation lowering the legal work week 
from 39 to 35 hours was passed in 1998. A second law on overtime and 
other details should be adopted by Parliament before the end of 1999. 
The reduced work week takes legal effect starting in 2000. In general 
terms, French labor legislation and practice (including occupational 
safety and health standards) are fully comparable to those in other 
industrialized market economies. France has three small export 
processing zones, where regular French labor law and wage scales apply.
    f. Rights in Sectors with U.S. Investment: Labor law and practice 
are uniform throughout all industries, including those sectors and 
industries with significant U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum                        ..............  1,162
Total Manufacturing............  ..............  18,974
  Food & Kindred Products......  3,615           ...............................................................
  Chemicals & Allied Products..  4,227           ...............................................................
  Primary & Fabricated Metals..  4,034           ...............................................................
  Industrial Machinery and       2,358           ...............................................................
   Equipment.
  Electric & Electronic          974             ...............................................................
   Equipment.
  Transportation Equipment.....  676             ...............................................................
  Other Manufacturing..........  3,089           ...............................................................
Wholesale Trade................  ..............  2,587
Banking........................  ..............  2,388
Finance/Insurance/Real Estate..  ..............  7,778
Services.......................  ..............  4,570
Other Industries...............  ..............  1,729
TOTAL ALL INDUSTRIES...........  ..............  39,188
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                GERMANY


                         Key Economic Indicators
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997     \1\ 1998     1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................      2,095      2,109      2,128
  GDP Growth (pct) \3\.................        1.8        2.3        1.4
  GDP by Sector (pct):
    Agriculture........................        1.3        1.2        N/A
    Manufacturing......................       25.0       25.4        N/A
    Services...........................       73.7       73.4        N/A
  Per Capita GDP (US$).................     25,549     25,675     25,920
  Labor Force (000's)..................     40,116     40,278     40,220
  Unemployment Rate (pct)..............       11.4       11.2       10.7

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \5\.........        1.1        9.3        7.0
  Consumer Price Inflation.............        1.9        1.0        0.6
  Exchange Rate (DM/US$ annual average)       1.73       1.76       1.82

Balance of Payments and Trade:
  Total Exports FOB \4\................      513.7      544.7      615.9
    Exports to U.S. \4\ \5\............       44.3       50.4       25.7
  Total Imports CIF \4\................      446.3      463.4      591.3
    Imports from U.S. \4\ \5\..........       33.8   38.219.4
  Trade Balance \4\....................       67.4   81,324.6
    Balance with U.S. \4\ \5\..........       10.5       12.2        6.3
  Current Account Balance/GDP (pct)....       -0.2       -0.2       -0.1
  Public Debt..........................      1,267      1,284      1,284
  Fiscal Deficit/GDP (pct).............       -1.7       -1.5       -1.4
  Debt Service Payments/GDP (pct)......        3.7        3.7        N/A
  Gold and Foreign Exchange Reserves...       73.4       76.1        N/A
  Aid from U.S.........................        N/A        N/A        N/A
  Aid from All Other Sources...........        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 1998 Figures are all estimates based on available monthly data in
  October and consensus forecasts.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in national currency.
\4\ Merchandise trade.
\5\ 1999 figures for trade with U.S. show first half only.
\6\ For 1999, growth in Euro-11 money supply in August 1999 over August
  1998.

1. General Policy Framework
    Germany's economy is the world's third largest, with total output 
equivalent to just over $2 trillion in 1999 (in nominal terms). Real 
GDP growth, which reached 2.2 percent in 1998, dropped to 1.4 percent 
in the first three quarters of 1999. Most German public and private 
forecasters estimate growth of around 2.5 percent for 2000, with the 
acceleration primarily export-led. Germany is highly integrated into 
the global economy: just as the slowdown in German growth in late 1998 
and early 1999 resulted mainly from adverse international economic 
conditions, so the expectation of higher growth is based on the recent 
recovery in global conditions. Inflation is extremely low, partly as a 
result of deregulation in the electricity and telecommunications 
sectors.
    The German ``social market'' economy is organized on market 
principles and affords its citizenry a secure social safety net 
characterized by generous unemployment, health, educational and basic 
welfare benefits. At the same time, economic growth in recent years has 
been below potential, and unemployment rates have been very high, with 
about 4 million people unemployed nationwide. Growth is now faster in 
western Germany than in the east, slowing--at least temporarily--
progress toward economic convergence between the two regions, a key 
national objective. Unemployment is also about twice as high in eastern 
Germany as in the west.
    Increased government outlays associated with German unification 
have put pressure on fiscal policy during the 1990s. The country's 
generous social welfare system was extended as a whole to eastern 
Germany, and the government further committed itself to raise eastern 
German production potential via public investment and generous 
subsidies to attract private investment. However, overall unit labor 
costs in eastern Germany are still quite high, as productivity growth 
has lagged behind wage increases. This process led to the higher 
unemployment in the east and resulted in a sharp increase in federal 
unemployment compensation costs. As a result, western Germany continues 
to transfer substantial sums to eastern Germany (more than DM 140 
billion annually, or roughly four percent of German GDP). These 
transfers accounted for the dramatic ballooning of public sector 
deficits and borrowing since 1990, and contributed to the need for the 
current government's belt-tightening measures.
    Top policy priorities of the coalition government elected in 
September 1998 are to lower unemployment and reduce the fiscal deficit. 
The government has organized an Alliance for Jobs also involving labor 
union and employer representatives, with the aim of fostering wage 
restraint, job security and training programs. Deficit reduction 
efforts have focused on federal spending restraint. The government also 
intends to introduce tax reforms over a period of four years, aimed at 
reducing corporate income tax rates and closing loopholes, extending 
relief to families, and raising energy taxes for environmental reasons. 
So far the government has been more successful at reducing the budget 
deficit than at tackling unemployment. The labor minister recently 
admitted that significant job creation might not occur until late 2000.
2. Exchange Rate Policies
    On January 1, 1999, the euro was introduced in Germany and the 
Deutsche Mark was fixed at 1.95 to the euro. The euro has become a 
transactional currency until the introduction of notes and coins on 
January 1, 2002. The DM will be phased out beginning January 1, 2002, 
with the euro remaining sole currency as of March 1, 2002. Over the 
next two years, the DM will be phased out and the euro will become the 
exclusive currency in Germany. All monetary and exchange policies are 
now handled by the European Central Bank.
3. Structural Policies
    Since the end of the Second World War, German economic policy has 
been based on a ``social-market'' model which is characterized by a 
substantially higher level of direct government participation in the 
production and services sector than in the United States. In addition, 
an extensive regulatory framework, which covers most facets of retail 
trade, service licensing and employment conditions, has worked to limit 
market entry by not only foreign firms, but also German entrepreneurs.
    Although the continuation of the ``social market'' model remains 
the goal of all mainstream political parties, changes resulting from 
the integration of the German economy with those of its European Union 
partners, the shock of German unification, pressure from globalization 
on traditional manufacturing industries, and record-high unemployment 
have forced a rethinking of the German post-war economic consensus. A 
number of structural impediments to the growth and diversification of 
the German economy have been identified. These can be broadly grouped 
as follows:

        (1) a rigid labor market;
        (2) a regulatory system that discourages new entrants; and
        (3) high marginal tax rates and high social charges.

    While many Germans value these structural features for their 
presumed benefits in terms of social security and relative equality, 
the public debate has focused on their suitability to desired economic 
growth and employment levels and Germany's competitiveness as a 
location for business and investment. The government, as noted, intends 
to pursue modest tax reform but has not undertaken structural reform of 
the labor market.
    In recent years, the government has carried out a reorganization of 
the German Federal Railroad and completed transforming most operating 
entities of the German Federal Post into stock companies. An initial 
public offering for the DeutschePost (DP) is expected in mid-2000 in 
conjunction with the liberalization of the telecommunications sector, 
the government-owned Deutsche Telekom has been substantially privatized 
(34 percent of shares have been made public) in several tranches. The 
German Government has largely fulfilled its commitment to open the 
telecommunications network monopoly to competition as of January 1, 
1998, the date when its new Regulatory Authority for Telecommunications 
and Post began operation. However, the USTR continues to monitor 
Germany's compliance with the Basic Telecommunications Agreement, after 
a U.S. firm filed a complaint in February 1999 under section 1377 of 
the Omnibus Trade and Competitions Act of 1988. The federal government 
also has sold its remaining stake in the national airline, Lufthansa.
    Despite the progress in recent years, lack of competition remains a 
problem in many regulated sectors and drives up business costs in 
Germany. Services which continue to be subject to excessive regulation 
and market access restrictions include communications, utilities, 
banking and insurance. The government intends to review existing 
legislation that limits price competition between firms, as well as 
laws that reduce competition in the insurance and transport sectors. 
The Regulatory Authority for Telecommunications and Post has issued new 
regulations to encourage competition in the telecom sector. Paralleling 
German Government efforts to deregulate the economy, the European 
Commission is expected to continue to pressure member states to reduce 
barriers to trade in services within the Community. U.S. firms, 
especially those with operations located in several European Union 
member states, should benefit from such market integration efforts over 
the long term.
4. Debt Management Policies
    As a condition of its participation in the European Monetary Union, 
the government was required to reduce its accumulated public debt and 
lower its debt/GDP ratio. Germany is also subject to a constitutional 
limitation to hold its new net borrowing, at or below the amount 
invested in public sector infrastructure. Current policies seek to 
achieve a balanced budget by 2003.
    Germany has recorded persistent current account deficits since 1991 
due to a drop in the country's traditionally strong trade surplus, 
related in part, to strong consumer demand in eastern German demand. 
These deficits have been small, however, in relation to GDP. The strong 
deterioration of the services balance in recent years, caused 
principally by German tourism expenditures abroad, has contributed to 
the current account deficits. Nonetheless, Germany continues to 
maintain a surplus in the merchandise trade balance.
5. Significant Barriers to U.S. Exports
    Germany is the United States' fifth-largest export market and its 
fifth-largest source of imports. During the first seven months of 1999, 
U.S. exports to Germany totaled $17.68 billion (FOB basis), while U.S. 
imports from Germany reached $25.6 billion (FOB basis). Other than EU-
imposed restrictions, there are few formal barriers to U.S. trade and 
investment in Germany. Ingrained consumer behavior and strong domestic 
players prevailing in German product and services markets often make 
gaining market share a difficult challenge, especially for new-to-
market companies.
    Import Licenses: Germany has abolished almost all national import 
quotas. The country enforces, however, import license requirements 
placed on some products by the European Union, such as the tariff quota 
on Latin American bananas imposed by the EU's banana import regime. As 
a result of this discriminatory marketing arrangement, U.S. fruit 
trading companies have lost market share in Germany. The World Trade 
Organization's dispute resolution panel and the WTO Appeals body, have 
found the EU banana regime to violate both the General Agreement on 
Trade in Services and the General Agreement on Trade in Goods, 
requiring EU members (including Germany) to reform this trading regime, 
which it has yet to do.
    Services Barriers: Foreign access to Germany's insurance market is 
still limited to some degree. All telecommunications services have been 
fully open to competition since January 1998, when the EU's 
telecommunications market liberalization came into effect; great 
dynamism and intense competition characterize the long-distance, but 
not local, market. Liberalization has opened up opportunities for U.S. 
telecommunications service providers. Germany has no foreign ownership 
restrictions on telecommunications services. An EU data privacy 
directive came into force on October 25, 1998. The directive prohibits 
businesses from exporting ``personal information'' unless the receiving 
country has in place privacy protections that the EU deems adequate. 
The U.S. and the EU are engaged in ongoing discussions to establish 
``safe harbor'' principles as a way to allow the continued free flow of 
data.
    Standards, Testing, Labeling, and Certification: Germany's 
regulations and bureaucratic procedures are complex and can prove to be 
a hurdle for U.S. exporters unfamiliar with the local environment. 
Overly complex government regulations offer--intentionally or not--
local producers a degree of protection. EU health and safety standards, 
for example, when overzealously applied, can restrict market access for 
many U.S. products (e.g., genetically modified organisms and hormone-
treated beef). The European Union's attempts to harmonize the various 
product safety requirements of its member states have further 
complicated the issue. Existing high German standards will likely form 
the basis in a number of cases for eventual EU standards.
    Government Procurement: In May 1998, the government passed the 
Public Procurement Reform Act. It establishes examining bodies that 
have the responsibility to review the awarding of public contracts and 
to investigate complaints pertaining to the procurement process. Since 
the law went into force January 1, 1999 it has been successfully 
applied to one case in September 1999.
    Investment Barriers: Under the terms of the 1956 Treaty, U.S. 
investors are afforded national treatment. The government and industry 
actively encourage foreign investment in Germany. Foreign companies 
with investment complaints in Germany generally list the same 
investment problems as domestic firms: high tax rates, expensive labor 
costs, and burdensome regulatory requirements.
    Customs Procedures: Administrative procedures at German ports of 
entry do not constitute a problem for U.S. suppliers.
6. Export Subsidies Policies
    Germany does not directly subsidize exports outside the European 
Union's framework for export subsidies for agricultural goods. 
Governmental or quasi-governmental entities do provide export 
financing, but Germany subscribes to the OECD guidelines that restrict 
the terms and conditions of export finance.
    U.S. companies allege that several German parastatal entities or 
former monopolies have cross-subsidized portions of their business to 
unfairly invest and expand their operations overseas. Several German 
enterprises including Deutsche Post and Deutsche Telekom have been 
accused of cross subsidization in order to gain market entry and 
increase market share, thereby disturbing a competitive market interest 
to U.S. companies. The European Commission agreed to accept a complaint 
by one U.S. parcel delivery company for charging DP with abuse of a 
dominant market position.
7. Protection of U.S. Intellectual Property
    Intellectual property is generally well protected in Germany. 
Germany is a member of the World Intellectual Property Organization; a 
party to the Berne Convention for the Protection of Artistic and 
Literary Works, the Paris Convention for the Protection of Industrial 
Property, the Universal Copyright Convention, the Geneva Phonograms 
Convention, the Patent Cooperation Treaty, the Brussels Satellite 
Convention, and the Treaty of Rome on Neighboring Rights. U.S. citizens 
and firms are entitled to national treatment in Germany, with certain 
exceptions. Despite Germany's implementation of its commitment under 
the intellectual property rights portions (TRIPS) of the Uruguay Round, 
some U.S. firms have raised concerns about the level of software piracy 
in Germany. Germany's 1993 implementation of the EU's Software 
Copyright Directive, as well as an educational campaign by the software 
industry have helped improve Germany's performance in this area.
8. Worker Rights
    a. The Right of Association: Article IX of the German Constitution 
guarantees full freedom of association. Workers' rights to strike and 
employers' rights to lockout are also legally protected.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides for the right to organize and bargain collectively, and this 
right is widely exercised. Due to a well-developed system of autonomous 
contract negotiations, mediation is uncommon. Basic wages and working 
conditions are negotiated at the industry level and then are adapted, 
through local collective bargaining, to particular enterprises. 
Nonetheless, some firms in Eastern Germany have refused to join 
employer associations, or have withdrawn from them, and then bargained 
independently with workers. In other cases, associations are turning a 
``blind eye'' to firm-level negotiations. Likewise, some large firms in 
the west withdrew at least part of their workforce from the 
jurisdiction of the employers association, complaining of rigidities in 
the centralized negotiating system. They have not, however, refused to 
bargain as individual enterprises. The law mandates a system of work 
councils and worker membership on supervisory boards, and thus workers 
participate in the management of the enterprises in which they work. 
The law thoroughly protects workers against antiunion discrimination.
    c. Prohibition of Forced or Compulsory Labor: The German 
Constitution guarantees every German the right to choose his own 
occupation and prohibits forced labor, although some prisoners are 
required to work.
    d. Minimum Age for Employment of Children: German legislation in 
general bars child labor under age 15. There are exemptions for 
children employed in family farms, delivering newspapers or magazines, 
or involved in theater or sporting events.
    e. Acceptable Conditions of Work: There is no legislated or 
administratively determined minimum wage. Wages and salaries are set 
either by collective bargaining agreements between unions and employer 
federations, or by individual contracts. Covering about 90 percent of 
all wage and salary earners, these agreements set minimum pay rates and 
are legally enforceable. These minimums provide an adequate standard of 
living for workers and their families.
    f. Rights in Sectors with U.S. Investment: The enforcement of 
German labor and social legislation is strict, and applies to all firms 
and activities, including those in which U.S. capital is invested. 
Employers are required to contribute to the various mandatory social 
insurance programs and belong to and support chambers of industry and 
commerce which organize the dual (school/work) system of vocational 
education.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,860
Total Manufacturing............  ..............  22,259
  Food & Kindred Products......  922             ...............................................................
  Chemicals & Allied Products..  3,894           ...............................................................
  Primary & Fabricated Metals..  1,848           ...............................................................
  Industrial Machinery and       3,887           ...............................................................
   Equipment.
  Electric & Electronic          565             ...............................................................
   Equipment.
  Transportation Equipment.....  7,106           ...............................................................
  Other Manufacturing..........  4,038           ...............................................................
Wholesale Trade................  ..............  2,759
Banking........................  ..............  1,510
Finance/Insurance/Real Estate..  ..............  11,022
Services.......................  ..............  1,905
Other Industries...............  ..............  537
TOTAL ALL INDUSTRIES...........  ..............  42,853
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 GREECE


                         Key Economic Indicators
         [Millions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................   105,600.0   105,825.0   109,700.0
  Real GDP growth (pct) \3\.........         3.0         3.7         3.5
  GDP by Sector:
    Agriculture.....................     8,960.0     8,800.0     8,740.0
    Manufacturing...................    25,130.0    25,400.0    26,300.0
    Services........................    71,510.0    71,625.0    74,660.0
    Of which:
      Government....................    10,130.0     9,625.0     9,465.0
  Per Capita GDP (US$)..............    11,334.6    11,305.2    11,335.0
  Labor Force (000's)...............     4,262.0     4,445.7     4,481.3
  Unemployment Rate (pct)...........         9.6        10.8        10.4

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3 Dec)......         9.6         8.9         4.0
  Consumer Price Inflation..........         5.5         4.8         2.5
  Exchange Rate (DRS/US$ annual
 average)
    Official........................       273.1       295.5       305.0
    Parallel........................         N/A         N/A         N/A

Balance of Payments and Trade:
  Total Exports FOB \4\A............    10,934.0    10,758.0    10,000.0
  Total Exports FOB \4\B............     5,373.3     5,556.0     8,000.0
    Exports to U.S. \4\C............       453.0       467.1   \5\ 350.0
  Total Imports CIF \4\A............    25,560.0    28,587.0    28,000.0
  Total Imports CIF \4\B............    23,644.1    23,246.9    26,000.0
    Imports from U.S. \4\C..........       954.0     1,355.1   \5\ 640.5
  Trade Balance \4\A................   -14,626.0   -17,829.0   -18,000.0
  Trade Balance \4\B................   -18,271.0   -17,681.0    18,000.0
    Balance with U.S................       496.0       888.0         N/A
  External Public Debt..............    29,167.1    32,000.0    33,000.0
  Fiscal Deficit/GDP (General                4.0         1.6         1.2
   Government) (pct)................
  Current Account Deficit/GDP (pct).         4.9         4.0         2.5
  Debt Service (Public Sector)               6.2         6.3         6.0
   Payments/GDP (pct)...............
  Gold and Foreign Exchange Reserves    13,337.0    18,191.2    20,000.0
  Aid from U.S......................         N/A         N/A         N/A
  Aid from All Other Sources........         N/A         N/A         N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  November.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\A Merchandise Trade; National Statistical Service of Greece; Customs
  Data.
\4\B Trade; Bank of Greece data; on a settlement basis for 1997 and
  1998. The Bank of Greece data, especially those on exports,
  underestimate true trade figures since exporters are no longer obliged
  to deposit their export receipts in Greece. The Bank of Greece is
  preparing a new set of accounts to be in line with other EU central
  banks. The 1999 estimates are based on the January-April 1999 data
  following the new system (resident/non-resident basis).
\4\C U.S. Department of Commerce. U.S. exports and general imports,
  customs value.
\5\ January-July 1999 data.

1. General Policy Framework
    Greece has been a member of the European Union (EU) since 1981. Its 
economy is segmented into the state sector (estimated at 45 percent of 
GDP) and the private sector (55 percent of GDP). It has a population of 
10.6 million and a workforce of about 4 million. Some of Greece's 
economic activity remains unrecorded. (Estimates of how much of the 
economy remains unrecorded vary, due, at least in part, to deficient 
data collection). The moderate level of development of Greece's basic 
infrastructure--road, rail, telecommunications--reflects its middle-
income status. Per capita GDP is $11,335, the lowest in the EU. 
However, with GDP growth well above the EU average, this gap is slowly 
closing.
    Services make up the largest and fastest growing sector of the 
Greek economy, accounting for about 68 percent of GDP (including 
government services). Tourism, shipping, trade, banking, 
transportation, communications, and construction are the largest 
service sub-sectors. Greece is an import-dependent country, importing 
substantially more than it exports. In 1998, imports were $28.6 billion 
while exports were only $10.75 billion. A relatively small industrial 
base and lack of adequate investment in the past have restricted the 
export potential of the country. As a general trade profile, Greece 
exports primarily light manufactured and agricultural products, and 
imports more sophisticated manufactured goods. Tourism receipts, 
emigrant remittances, shipping receipts, and transfers from the EU form 
the core of Greece's invisible earnings. Substantial funds from the EU 
(about $20 billion) have been allocated for major infrastructure 
projects (road and rail networks, ports, airports, telecommunications 
etc.) over the period 1994-99. Greece will get another EU structural 
funds package of about $22 billion for the period 2000-2006. Greece 
will undertake a number of infrastructure projects to host the 2004 
Summer Olympic games, although some were already underway.
    The government is in its sixth year of an austerity program 
designed to meet the Maastricht Treaty's convergence criteria for the 
European Monetary Union (EMU). Greece failed to meet the criteria in 
1997 to enter EMU in 1999; it aims to join the EMU on January 1, 2001, 
based on 1999 economic performance. The results of the convergence 
program on the economy have been generally positive. The drop of 
inflation to 2 percent on an annualized basis in September raised hopes 
that they would meet the criteria to join the EMU (presently around 2 
percent.) Investment and consumer confidence remains strong and the 
growth of GDP in 1999 is projected to be 3.5 percent, slightly lower 
than 1998 growth (3.7 percent). Unemployment, which stood at 10.8 
percent in1998, is projected to drop to 10.4 percent in 1999. By the 
end of 1998, as a result of a fiscal policy focused on expanding 
revenue collection, the government budget deficit to GDP ratio had 
fallen to 1.6 percent. However, real progress in reducing public 
expenditures has been limited due to continued opposition to structural 
reforms by labor unions, professional associations, politicians, and 
the media.
    Greece's huge general government debt (104 percent of GDP or 126.8 
billion U.S. dollars in 1999) stems to a great extent from government 
acquisition of failing enterprises and a bloated public sector. 
Greece's social security program has also been a major drain on public 
spending. Deficits are financed primarily through issuance of 
government securities.
    Monetary policy is implemented by the Bank of Greece (the Central 
Bank). The Bank uses the discount and other interest rates in its 
transactions with commercial banks as tools to control the money 
supply. The government continues to retain privileged access to credit 
via the still low-taxed status accorded to government debt obligations 
(which includes the right of Greek residents to purchase government 
debt obligations without having to declare their source of income to 
the tax authorities). Treasury bills and state bonds are issued by the 
Ministry of Finance but they are expected to comply with the monetary 
targets set by the Bank of Greece.
2. Exchange Rate Policy
    Greece's foreign exchange market is in line with EU rules on free 
movement of capital. On March 16, 1998, the Greek currency was included 
in the European Union's Exchange Rate Mechanism (ERM). This was 
preceded by a drachma devaluation of 12.3 percent on March 14. The 
drachma participates in the ERM-2 as of January 1, 1999. The drachma's 
central parity to the euro (which also sets the entry level into EMU on 
January 1, 2001) was set at 353.109 drachmas per euro.
3. Structural Policies
    Greece's structural policies are largely dictated by the need to 
comply with the provisions of the EU Single Market and the Maastricht 
Treaty on Economic and Monetary Union. The 1994-99 Convergence Program, 
designed to enable Greece to comply with the Maastricht Treaty 
criteria, set targets that should encourage significant structural 
reforms, including privatizations. Progress in this area, however, has 
been limited. The Convergence Program itself has been revised twice. 
The Greek Government has a plan stretching until the end of 2000 to 
privatize or sell minority stakes in public sector enterprises and 
organizations including Hellenic Petroleum (23 percent currently traded 
in the market), the Hellenic Duty Free shops, the Public Power 
Corporation, the Athens Water Company, the Athens Stock Exchange and 
the port operations in Piraeus and Thessaloniki. Restructuring the 
operations of the public sector (i.e., elimination of unnecessary 
activities/entities, changes in the labor and social insurance regimes) 
are also at the top of the Greek Government's agenda.
    Pricing Policies. The only remaining price controls are on 
pharmaceuticals. The government can also set maximum prices for fuel 
and private school tuition fees, and has done so several times in the 
last two years.
    About one quarter of the goods and services included in the 
Consumer Price Index (CPI) are produced by state-controlled companies. 
As a result, the government retains considerable indirect control over 
pricing. While this distorts resource allocations in the domestic 
economy, it does not directly inhibit U.S. imports (with the exception 
of pharmaceuticals).
    Tax Policies: Businesses complain about frequent changes in tax 
policies (there is a new tax law practically every year). More tax 
reforms were introduced in October 1999:

  --objective tax criteria for small businesses and self-employed are 
        abolished;

  --tax rates on small businesses were reduced from 35 to 30 percent;

  --indirect taxes on imported cars and fuel were reduced.

4. Debt Management Policies
    Greece's ``General Government Debt'' (the Maastricht Treaty 
definition) was 126.8 billion dollars, or 104.0 percent of GDP (market 
prices) in 1999. Foreign exchange reserves fluctuated in the first four 
months of 1999 between 21.6 and 22.1 billion dollars or about 9 months 
of imports.
    Servicing of external debt (public sector) in 1998 (interest and 
amortization) equaled 70 percent of exports and 6.3 percent of GDP. 
About 65 percent of the external debt is denominated in currencies 
other than the dollar. Foreign debt does not affect Greece's ability to 
import U.S. goods and services.
    Greece has regularly serviced its debts and has generally good 
relations with commercial banks and international financial 
institutions. Greece is not a recipient of World Bank loans or 
International Monetary Fund programs. In 1985, and again in 1991, 
Greece received a balance of payments loan from the EU.
5. Significant Barriers to U.S. Exports
    Greece, which is a WTO member, has both EU-mandated and Greek 
Government-initiated trade barriers.
    Law: Greece maintains nationality-based restrictions on a number of 
professional and business services, including legal advice. These 
restrictions have been lifted in the recent years for EU citizens. U.S. 
companies can generally circumvent these barriers by employing EU 
citizens.
    Accounting/Auditing: The transitional period for de-monopolization 
of the Greek audit industry officially ended on July 1, 1997. Numerous 
attempts to reserve a portion of the market for the former state audit 
monopoly during the transition period (1994-97) were blocked by the 
European Commission and peer review in the OECD. However, in November 
1997, the Greek Government issued a presidential decree that reduced 
the competitiveness of the multinational auditing firms. The decree 
established minimum fees for audits, and imposed restrictions on 
utilization of different types of personnel in audits. It also 
prohibited audit firms from doing multiple tasks for a client, thus 
raising the cost of audit work. The government has defended these 
regulations as necessary to ensure the quality and objectivity of 
audits. In practical effect, the decree constitutes a step back from 
deregulation of the industry.
    Aviation: The Greek flag air carrier, Olympic Airways, used to have 
a monopoly in providing ground handling services to other airlines. As 
of January 1, 1998, all major airports in the EU had to offer at least 
two ground handling options. However, in practice Olympic remains the 
only ground handling option for foreign airlines other than self-
handling.
    Motion Pictures: Greek film production is subsidized by a 12 
percent admissions tax on all motion pictures. Enforcement of Greek 
laws protecting audio-visual intellectual property rights has improved 
in 1998-99, but rights for software, music, and books remains 
problematic.
    Agricultural Products: Greek testing methods for Karnal bunt 
disease in U.S. wheat have served as a de facto ban on imports and 
transshipment of wheat for the last three years due to a high incidence 
of false positive results. The Ministry of Agriculture has recently 
agreed to procedures that will allow a resumption of transshipments 
through Greek ports to neighboring countries.
    Generally, Greece has not been responsive to applications for 
introduction of bioengineered (genetically modified) seeds for field 
tests despite support for such tests by Greek farmers.
    Investment Barriers: Both local content and export performance are 
elements which are seriously taken into consideration by Greek 
authorities in evaluating applications for tax and investment 
incentives. However, they are not legally mandatory prerequisites for 
approving investments.
    Greece, which currently restricts foreign and domestic private 
investment in public utilities (with the exception of cellular 
telephony and energy from renewable sources, e.g. wind and solar), has 
deregulation plans for telecommunications and energy. Greece has been 
granted a derogation until January 1, 2001 to open its voice telephony 
and the respective networks to other EU competitors. In the energy 
field, the Greek energy market will be gradually deregulated, starting 
in February 2001.
    U.S. and other non-EU investors receive less advantageous treatment 
than domestic or other EU investors in the banking, mining, maritime, 
and air transport sectors, and in broadcasting (these sectors were 
opened to EU citizens due to EU single market rules). There are also 
restrictions for non-EU investors on land purchases in border regions 
and certain islands (on national security grounds).
    Greek laws and regulations concerning government procurement 
nominally guarantee nondiscriminatory treatment for foreign suppliers. 
Officially, Greece also adheres to EU procurement policy, and Greece 
has adhered to the GATT Government Procurement Code since 1992. 
Nevertheless, many of the following problems still exist: occasional 
sole-sourcing (explained as extensions of previous contracts); loosely 
written specifications which are subject to varying interpretations; 
and allegiance of tender evaluators to technologies offered by 
longtime, traditional suppliers. Firms from other EU member states have 
had a better track record than U.S. firms in winning Greek Government 
tenders. It has been noted that U.S. companies submitting joint 
proposals with European companies are more likely to succeed in winning 
a contract. The real impact of Greece's ``buy national'' policy is felt 
in the government's offset policy (mostly for purchases of defense 
items) where local content, joint ventures, and other technology 
transfers are required.
    In December 1996, the Greek Parliament passed legislation (Law 
2446, article 16) which allows public utilities in the energy, water, 
transport, and telecommunications sectors to sign ``term agreements'' 
with local industry for procurement. ``Term agreements'' are contracts 
in which Greek suppliers are given significant preference. The official 
explanation for these agreements is the need to support the national 
manufacturing base. This was made possible as a result of Greece's 
receipt of an extension until January 1, 1998, to implement the EU's 
Utilities Directive 93/38. Before expiration of the extension, in 
November-December 1997, numerous contracts potentially worth of 
billions of dollars were signed by Greek public utilities with Greek 
suppliers. Some of these term agreements have no less than 3-5 years 
duration, thus effectively excluding foreign suppliers from vital 
sectors of government procurement for several years. The European 
Commission has been examining the hurried manner in which these 
contracts were approved.
6. Export Subsidies Policies
    The government does not use national subsidies to support exports. 
However, some agricultural products (most notably cotton, olive oil, 
tobacco, cereals, canned peaches, and certain other fruits and 
vegetables) receive production subsidies from the EU which enhance 
their export competitiveness.
7. Protection of U.S. Intellectual Property
    Greek laws extend protection of intellectual property rights to 
both foreign and Greek nationals. Greece is a party to the Paris 
Convention for the Protection of Industrial Property, the European 
Patent Organization, the World Intellectual Property Organization, the 
Washington Patent Cooperation Treaty, and the Berne Copyright 
Convention. As a member of the EU, Greece has harmonized its 
legislation with EU rules and regulations. The WTO TRIPS agreement was 
incorporated into Greek legislation as of February 28, 1995 (Law 2290/
95).
    Greece has been on the ``Special 301 Priority Watch List'' since 
1994. Just prior to an out-of-cycle review in December 1996, the Greek 
Government submitted an ``Action Plan'' laying out the steps it would 
take to reduce audio-visual piracy. While some of these steps were 
taken, the government lagged behind severely in licensing television 
stations in accordance with the provisions of the 1995 media law; the 
process, which only got underway after extremely long delays, was less 
than half-way through in mid-1999. As a result of slow movement in many 
areas of concern to U.S. companies, the U.S. Government launched a WTO 
TRIPS non-enforcement challenge and consultations under WTO auspices 
were started in June 1998.
    To fulfill in part its obligations under Part III of the TRIPS 
Agreement, Greece passed legislation on October 13, 1998 (Law 2444/98, 
commonly known a the Digital TV Law of 1998), Article 17 of which 
provides an additional enforcement remedy for copyright holders whose 
works were infringed by television stations that infringe intellectual 
property rights. Over the past year, acting on complaints by U.S. right 
holders, the Government of Greece has taken action under Article 17 to 
close down several television stations that were shown to have 
broadcast illegally U.S. copyrighted works.
    The United States, Greece and the European Communities observe that 
estimated levels of television piracy in Greece have fallen 
significantly since the initiation of these consultations, and that the 
first criminal convictions for television piracy have also been issued 
in Greece during this time. The United States, Greece and the European 
Communities also note that Greece's Ministry of Justice has formally 
instructed public prosecutors to ensure the timely prosecution of 
intellectual property cases and to avoid postponements of court 
hearings to ensure that such cases are not subject to unwarranted 
delays in the courts. Consultations under WTO auspices are continuing.
    Three other significant intellectual property protection problems 
are lack of effective protection of copyrighted software, no protection 
of trademarked products in the apparel sector and no laws protecting 
the use of U.S. copyrighted Internet domain names. Although Greek 
trademark legislation is fully harmonized with that of the EU, claims 
by U.S. companies of counterfeiting appear to be on the increase. In 
addition, a growing problem is the legality in Greece of using an 
already copyrighted domain name, if it is succeeded by ``. gr.'' In a 
recent court case, however, the Greek judge ruled in favor of a U.S. 
company who claimed that a Greek company was intentionally using the 
U.S. Internet domain name to misrepresent itself as a Greek subsidiary 
of the U.S. company.
    Intellectual property appears to be adequately protected in the 
field of patents. Patents are available for all areas of technology. 
Compulsory licensing is not used. Law protects patents and trade 
secrets for a period of twenty years. There is a potential problem 
concerning the protection of test data relating to non-patented 
products. Violations of trade secrets and semiconductor chip layout 
design are not problems in Greece.
8. Worker Rights
    The Greek economy is characterized by significant labor-market 
rigidities. Greek labor law prohibits laying off more than two percent 
per month of total personnel employed by a firm. This restricts the 
flexibility of firms and the mobility of Greek labor and contributes to 
unemployment. A law, which came into force in November 1999, obliges 
public and private firms employing more than 50 persons to hire up to 8 
percent of their staff from among the disabled, veterans descendants 
and families with more than four children.
    a. The Right of Association: Approximately 30 percent of Greek 
workers are organized in unions, most of which tend to be highly 
politicized. While unions show support for certain political parties, 
particularly on issues of direct concern to them, they are not 
controlled by political parties or the government in their day-to-day 
operations. The courts have the power to declare strikes illegal, 
although such decisions are seldom enforced.
    Employers are not permitted to lock out workers, or to replace 
striking workers (public sector employees under civil mobilization may 
be replaced on a temporary basis).
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively was guaranteed in legislation passed 
in 1955 and amended in February 1990 to provide for mediation and 
reconciliation services prior to compulsory arbitration. Antiunion 
discrimination is prohibited, and complaints of discrimination against 
union members or organizers may be referred to the Labor Inspectorate 
or to the courts. However, litigation is lengthy and expensive, and 
penalties are seldom severe. There are no restrictions on collective 
bargaining for private workers. Social security benefits are legislated 
by Parliament and are not won through bargaining. Civil servants 
negotiate their demands with the Ministry for Public Administration.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is strictly prohibited by the Greek Constitution and is not 
practiced. However, the government may declare ``civil mobilization'' 
of workers in case of danger to national security or to social and 
economic life of the country.
    d. Minimum Age of Employment of Children: The minimum age for work 
in industry is 15, with higher limits for certain activities.
    e. Acceptable Conditions of Work: Minimum standards of occupational 
health and safety are provided for by legislation, which the General 
Confederation of Greek Workers (GSEE) characterizes as satisfactory. In 
1998, GSEE complaints regarding inadequate enforcement of legislation 
were met when the Ministry of Labor established a new central 
authority, the Labor Inspectors Agency. The agency is accountable to 
the Minister of Labor and has extended powers which include the power 
to close a factory that does not comply with minimum standards of 
health and safety.
    Legislation providing for the legalization of illegal immigrants 
came into force in January 1998. About 350,000 illegal immigrants were 
registered and will be entitled to one to three-year renewable work and 
residence permit. Those issued a permit will have the same labor and 
social security rights as Greek workers. Non-registered immigrants will 
be liable to summary deportation if arrested.
    f. Rights in Sectors with U.S. Investment: Although labor/
management relations and overall working conditions within foreign 
business enterprises may be among the most progressive in Greece, 
worker rights do not vary according to the nationality of the company 
or the sector of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  75
Total Manufacturing              ..............  91
  Food & Kindred Products......  -9              ...............................................................
  Chemicals & Allied Products..  45              ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          9               ...............................................................
   Equipment.
  Transportation Equipment.....  3               ...............................................................
  Other Manufacturing..........  41              ...............................................................
Wholesale Trade................  ..............  92
Banking........................  ..............  166
Finance/Insurance/Real Estate..  ..............  126
Services.......................  ..............  59
Other Industries...............  ..............  50
TOTAL ALL INDUSTRIES...........  ..............  660
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                HUNGARY


                       Key Economic Indicators \1\
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                              1997      1998      1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      44.7      47.0  \2\ 448.
                                                                       8
  Real GDP Growth (pct)...................       4.6       5.1       3.8
  GDP by Sector: \3\
    Agriculture...........................       3.1      98.5       N/A
    Manufacturing.........................       9.4     111.2       N/A
    Construction..........................       2.0     112.1       N/A
    Services..............................      23.1     105.2       N/A
    Government............................       6.6       N/A       N/A
  Per Capita GDP (US$)....................     4,415     4,694     4,851
  Labor Force (000's).....................     6,253     6,368     6,200
  Unemployment Rate (pct).................      10.4       9.1       9.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth.....................      23.2      18.1  \4\ 17.7
  Average Consumer Price Inflation........      18.4      14.3      10.5
  Official Exchange Rate (HUF/$ annual         186.8     214.5       237
   average)...............................

Balance of Payments and Trade:
  Total Exports FOB.......................      19.1        23        23
    Exports to U.S. (US$ millions)........     1,079     1,567  \5\ 1,59
                                                                       5
  Total Imports CIF.......................      21.1      25,7        26
    Imports from U.S. (US$ millions)......       485       482   \5\ 524
  Trade Balance...........................      -2.6      -2.7        -3
    Balance with U.S. (US$ millions)......      -543    -1,085  \5\ -1,0
                                                                      71
  Current Account Deficit/GDP (pct).......       2.2       4.8       4.9
  Net External Public Debt................       4.6       4,4   \6\ 3.8
  Debt Service Payments/GDP (pct).........      13.8      10.3        11
  Fiscal Deficit/GDP (pct)................       4.6       4.5       5.1
  Gold and Foreign Exchange Reserves......       8.2       9.3  \7\ 10.2
  Aid from U.S. (US$ millions)............      15.0       9.9       4.0
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Source: Central Statistical Office and National Bank data available
  through October 1999, except where otherwise noted.
\2\ Apparent inconsistency with the growth figures is due to the ongoing
  Hungarian forint devaluation against the U.S. dollar.
\3\ GDP by sectors is higher than total GDP due to double counting.
\4\ July-on-July M1 growth (no M2 data available since 1998).
\5\ Source: U.S. Department of Commerce; 1998 projected from January-
  August data. Note that U.S.-source and Hungarian-source bilateral
  trade figures differ markedly, due largely to country-of-origin
  distinctions in exports whose final assembly occurs in Hungary.
\6\ August 1999.
\7\ October 1999.

1. General Policy Framework
    Hungary has been transformed into a middle-income country with a 
market economy and a well-elaborated but still developing Western-
oriented legal and regulatory framework. The first post-communist 
government (1990-94) began significant economic reform, but was unable 
to privatize many state enterprises and implement systemic fiscal 
reforms, which led to large imbalances in Hungary's fiscal and external 
accounts. A successor government (1994-98) achieved economic 
stabilization through an IMF-coordinated austerity program adopted in 
March 1995, and accelerated privatization and economic reform. In 1999, 
Hungary posted solid increases in industrial output, exports, and 
overall output, while continuing to reduce inflation. Continued 
economic restructuring under the current government (elected in May 
1998) is expected to allow for sustainable growth in the medium term. 
Substantial regional disparities exist in Hungary, though they will 
likely narrow in the future.
    A revised privatization program enacted in 1995 gave new momentum 
to sales of government enterprises and assets, largely to Western 
companies. Privatization contributed to a rapid transformation of the 
energy, telecommunication, and banking sectors. Currently, over 80 
percent of the country's GDP is derived from the private sector, and 
Hungary has lowered government expenditures as a percentage of GDP. 
Other significant reforms include means testing of social-welfare 
payments (partially reversed by the current government) and partial 
privatization of the pension system (implemented in January 1998). The 
unfinished reform agenda includes rationalizing health care and local 
government financing.
    Privatization revenues have reduced Hungary's foreign debt burden 
substantially. The government has an unblemished debt payments record 
and its foreign-currency obligations have been rated investment grade 
by all major rating agencies since late 1996. Foreign currency reserves 
stood at $9.8 billion through July 1999, enough for five months of 
imports.
    In part reflecting concerns about the Russian financial crisis, the 
government has pledged to continue reducing fiscal deficits and 
inflationary wage increases. The consolidated budget deficit in 1999 
will equal about 5 percent of GDP, down from 8.2 percent in 1994. 
Hungary finances its state deficit primarily through foreign and 
domestic bond issues. The government projects a $2.3 to 2.5 billion 
current account deficit for 1999, almost unchanged from $2.3 billion in 
1998. Foreign direct investment will exceed the current account 
deficit, preventing an increase in net external debt. Following a 
cumulative decline of 17 percent from 1995 to 1996, net real wages 
continued to increase by 5.6 percent in 1998 and an estimated 2.7 
percent in 1999, matched by large productivity gains over this period.
    Hungary is a leader in attracting foreign direct investment, with 
an estimated $21 billion in cumulative inflows since 1989. The U.S. is 
a leading investor in Hungary with over $8 billion in cumulative FDI 
since 1989. Although in the process of being scaled down, tax 
incentives and related credits are available for foreign investments, 
especially in underdeveloped regions. Hungarian law currently permits 
the establishment of companies in customs-free zones, which are also 
exempt from indirect taxation tied to the turnover of goods.
    A signatory to the Uruguay Round Agreement and a founding member of 
the World Trade Organization, Hungary joined the Organization for 
Economic Cooperation and Development (OECD) in May 1996 and, as a part 
of that process, is further liberalizing capital account transactions. 
Hungary has harmonized many laws and regulations with European Union 
standards and has oriented economic policy towards earliest possible 
accession.
2. Exchange Rate Policy
    The revised Foreign Exchange Law, effective January 1, 1996, made 
the Hungarian forint essentially convertible for current account 
transactions. Foreigners and Hungarians can maintain both hard currency 
and forint accounts. The forint exchange rate is managed within a +/- 
2.25 percent band (``crawling peg'') against a currency basket composed 
of the euro (70 percent) and the dollar (30 percent). As of January 1, 
2000, the forint will cease to be pegged against a basket of currencies 
and will be pegged 100 percent to the euro. In November 1999, the rate 
of devaluation was 0.4 percent a month against the currency basket. 
Also in November of 1999, the Hungarian Finance Ministry indicated the 
devaluation of the forint could end in 2001 or 2002. Improved 
macroeconomic performance has helped slow average annual inflation from 
28.3 percent in 1995 to a projected 10 percent for 1999.
    The Hungarian National Bank (MNB) carries out monetary policy 
through open market operations focusing on an interest rate policy 
consistent with price stability and within the constraints of the 
foreign exchange regime. Commercial banks can conclude foreign exchange 
swap transactions with the MNB.
3. Structural Policies
    The market freely sets prices for most products and services. User 
prices for pharmaceuticals, public transport, and utilities continue to 
be partially set by the state. The government offers a wholesale floor 
price for many agricultural products. Public opposition and regulatory 
intervention have prevented utility prices from reaching market levels, 
causing energy companies to receive less than the cost-plus-eight 
percent return stipulated in privatization contracts.
    Starting in 1997, successive governments have reduced income tax 
rates and employer social contributions in an effort to cut inflation, 
spur job growth, and shrink the gray economy. Corporate tax remains low 
at 18 percent. Currently, a ten-year corporate tax holiday applies to 
investments of at least HUF 10 billion (about $41,000 as of November 
1999) or HUF 3 billion in less developed regions, and a five-year 50 
percent tax holiday applies to investments of at least HUF 1 billion. 
Other incentive programs exist; consult the Country Commercial Guide. 
Many municipalities offer local incentives.
    Major structural budget reform has been implemented and further 
legislation is expected in this area. In January 1998, a new ``three 
pillar'' pension system was introduced in which private funds initially 
augment and gradually supplant more of the current state-funded, pay-
as-you-go public system. The government is likely to focus on reforming 
health care and local government financing, in order to reduce further 
state expenditures.
4. Debt Management
    Hungary is a moderately indebted country (though high by per capita 
standards), with gross foreign debt expected to be $24.9 billion at the 
end of 1999. In addition, net foreign debt is projected to be $12 
billion at the end of 1999, down from $14 billion in 1996. Net public 
domestic debt was $5.0 billion at the end of October 1998, slightly 
over half the level at the end of 1996. Hungarian governments have 
consistently met external debt service payments. A standby credit 
arrangement with the International Monetary Fund ended in February 1998 
by mutual agreement. Hungary has prepaid all past borrowings from the 
IMF, and received an investment grade rating on sovereign long-term 
foreign currency debt from leading U.S. credit rating agencies in late 
1996. Hungary is expected to have reserves of $9.5 to $10 billion by 
the end of 1999.
5. Significant Barriers to U.S. Exports
    On July 1, 1997, Hungary joined the Pan European Free Trade Zone 
and Cumulation System. Combined with tariff reductions stipulated in 
Hungary's 1993 EU Association Agreement, industrial imports from EU 
members and associated states face declining tariffs (to be eliminated 
in 2001), while U.S.-origin goods will face Hungary's MFN tariff rates 
until Hungary's adoption of the common external tariff upon accession 
to the EU. The increasing differential between tariffs on EU industrial 
goods and on U.S. industrial goods has disadvantaged many U.S. 
exporters. Duty must be paid on imports from outside the Pan-European 
Zone, which may then be exported duty-free to other countries within 
the Pan European Zone. Duty paid on inputs processed and then exported 
within the zone is no longer refunded, a problem the Hungarian 
Government has addressed on a case-by-case basis for U.S. firms 
exporting from Hungary to European markets.
    Although 95 percent of imports (in value terms) no longer require 
prior government approval, quota constraints apply to some 20 product 
groups, mainly cars, textiles, and precious metals (but quotas did not 
restrict imports in most of these areas). Under WTO rules, Hungary will 
phase out quotas on textiles and apparel by 2004. As a result of the 
WTO Agricultural Agreement, quotas on agricultural products and 
processed foods have been progressive replaced by tariff-rate quotas. 
In 1997, Hungary eliminated an import surcharge imposed as part of the 
March 1995 austerity package.
    Importers must file a customs document (VAM 91 form) with a product 
declaration and code number, obtained from the Central Statistical 
Office. Upon importation, the importer must present Commercial Quality 
Control Institute (KERMI) certified documentation to clear customs. 
This permit may be replaced by other national certification and testing 
agency documents, such as those of the National Institute for Drugs. 
Hungary participates in the International Organization for 
Standardization (ISC) and the International Electro-Technical 
Commission (IEC).
    Foreign investment is allowed in every sector open to private 
investment. Foreign ownership is restricted to varying degrees in civil 
aviation, defense, and broadcasting. Only Hungarian citizens may own 
farmland.
    Under the November 1995 Law on Government Procurement, public 
tenders must be invited for purchases of goods with a value over HUF 10 
million ($41,000 as of November 1999), construction projects worth HUF 
20 million and designs and services worth over HUF 5 million. Bids 
containing more than 50 percent Hungarian content receive a 10 percent 
price preference. This process does not apply to military purchases 
affecting national security, or to gas, oil, and electricity contracts. 
Hungary is not a party to the WTO Government Procurement Code, and some 
U.S. firms have taken legal action against non-transparency and 
procedural irregularities in government tenders.
6. Export Subsidies Policies
    The Export-Import Bank and Export Credit Guarantee Agency, both 
founded in 1994, provide credit and/or credit insurance for less than 
ten percent of total exports. There are no direct export subsidies on 
industrial products, but some agricultural products receive export 
subsidies from the state. After 1993, agricultural export subsidies 
exceeded Hungary's Uruguay Round commitments in the range and value of 
products subsidized; in October 1997, the WTO approved an agreement in 
which Hungary committed to phase out excess subsidies and not to expand 
exports of subsidized products to new markets. Hungary is sticking to 
the terms of that agreement in phasing out subsidies, despite continued 
political pressure from domestic constituencies.
7. Protection of U.S. Intellectual Property
    In 1993, the United States and Hungary signed a comprehensive 
Bilateral Intellectual Property Rights Treaty. Hungary also belongs to 
the World Intellectual Property Organization; Paris Convention on 
Industrial Property; Hague Agreement on Industrial Designs; Nice 
Agreement on Classification and Registration of Trademarks; Madrid 
Agreement Concerning Registration and Classification of Trademarks; 
Patent Cooperation Treaty; and Berne and Universal Copyright 
Conventions. In 1998, Hungary ratified the new WIPO Copyright Treaty 
and Performances and Phonograms Treaty.
    Legal implementation of intellectual property rights in Hungary is 
generally good, but insufficient resources, court delays, and light 
penalties hamper enforcement. The Government of Hungary enacted a new 
Copyright Law in 1999, which came into effect on September 1, 1999. 
This replaced the 1969 Copyright Law and introduced modern copyright 
legislation. The 1995 Media Law makes broadcast transmission licenses 
conditional on respect for international copyrights. In 1997, 
legislation strengthened access to legal injunctions in infringement 
cases.
8. Worker Rights
    a. The Right of Association: The 1992 Labor Code, as amended in 
1999, recognizes the right of unions to organize and bargain 
collectively and permits trade union pluralism. Workers have the right 
to associate freely, choose representatives, publish journals, and 
openly promote members' interests and views. With the exception of 
military personnel and the police, they also have the right to strike.
    b. The Right to Organize and Bargain Collectively: Labor laws 
permit collective bargaining at the enterprise and industry levels. The 
Economic Council (formerly the Interest Reconciliation Council), a 
forum of representatives from employers, employees, and the government, 
sets the minimum and recommended wage levels in the public sector. 
Trade unions and management negotiate private wage levels. Special 
labor courts enforce labor laws. Affected parties may appeal labor 
court decisions in civil court. The 1992 legislation prohibits 
employers from discriminating against unions and their organizers.
    c. Prohibition of Forced or Compulsory Labor: The government 
enforces the legal prohibition of compulsory labor.
    d. Minimum Age for Employment of Children: The Labor Code forbids 
work by minors under the age of 14, and regulates labor conditions for 
minors age 14 to 16 (e.g., in apprenticeship programs).
    e. Acceptable Conditions of Work: The Labor Code specifies 
conditions of employment, including: working time, termination 
procedures, severance pay, maternity leave, trade union consultation 
rights in management decisions, annual and sick leave entitlement, and 
conflict resolution procedures.
    f. Rights in Sectors with U.S. Investment: Conditions in specific 
goods-producing sectors in which U.S. capital is invested do not differ 
from those in other sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  3
Total Manufacturing............  ..............  537
  Food & Kindred Products......  52              ...............................................................
  Chemicals & Allied Products..  238             ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       8               ...............................................................
   Equipment.
  Electric & Electronic          32              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  122             ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  17
Services.......................  ..............  -34
Other Industries...............  ..............  715
TOTAL ALL INDUSTRIES...........  ..............  1,353
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                IRELAND


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................     78,771     85,050     90,536
  Real GDP Growth (pct) \2\............       10.7        8.9        8.2
  GDP By Sector: \3\
    Agriculture........................      4,338      3,990        N/A
    Industry...........................     26,624     29,590        N/A
    Services...........................     35,677     38,368        N/A
    Government.........................      3,099      3,123        N/A
  Per Capita GDP (US$).................     21,519     22,956     24,177
  Labor Force (000's)..................      1,538      1,622      1,688
  Unemployment Rate (pct) \4\..........       10.3        7.8        5.7

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3e) \5\........       19.1       18.1       21.0
  Consumer Price Inflation.............        1.5        2.4        1.8
  Exchange Rate (IP/US$)
    Official...........................       0.66       0.70       0.74
    Parallel...........................        N/A        N/A        N/A

Balance of Payments and Trade:
  Total Exports FOB \6\................     53,711     64,032     71,584
    Exports to U.S.....................      6,045      8,743     10,500
  Total Imports CIF \6\................     39,341     44,468     47,300
    Imports from U.S...................      5,893      7,167      7,600
  Trade Balance........................     14,370     19,564     24,284
    Balance with U.S...................        152      1,576      2,900
  External Public Debt \7\.............     18,886     15,559     13,000
  Fiscal Deficit/GDP (Pct) \8\.........        1.1        2.3        3.2
  Current Account Balance/GDP (pct)....        2.5        0.9       -0.2
  Debt Service Payments/GDP (pct)......        5.3        4.3        3.8
  Gold and Foreign Exchange Reserves...      7,047      9,220      9,000
  Aid from U.S.\9\.....................          5          5          5
  Aid from Other Sources \10\..........      1,497      1,574      1,530
------------------------------------------------------------------------
\1\ U.S. Embassy forecasts.
\2\ GDP at constant market prices (local currency).
\3\ GDP at factor cost.
\4\ ILO definition.
\5\ Broad money. Irish monetary aggregates were redefined as part of
  entry into EMU from January 1, 1999.
\6\ Merchandise trade.
\7\ Foreign currency denominated debt plus non-resident holdings of
  Irish Pound denominated debt; end year.
\8\ General government.
\9\ Each year the United States contributes 19.6 million dollars to the
  International Fund to Ireland (IFI). A quarter of this amount is
  estimated to be spent in the Republic of Ireland's border counties.
\10\ These figures include transfers from the EU's European social fund,
  regional development fund, cohesion fund and special programme for
  Northern Ireland and the border counties of the Republic of Ireland.

Sources: Central Bank Of Ireland (CBI); Central Statistics Office (CSO);
  Irish Trade Board (ITB); National Treasury Management Agency (NTMA).

1. General Policy Framework
    In 1999, Ireland will have the fastest growing economy in the 
industrialized world for the sixth consecutive year. Most commentators 
trace the origins of Ireland's ``Celtic Tiger'' economy to the economic 
policy mix put in place in the late 1980s and maintained by successive 
governments since then. This included:

          (1) Tight control of public spending in order to reduce 
        government borrowing and taxation on corporate and personal 
        incomes;
          (2) A de facto incomes policy, operated through national wage 
        agreements agreed by the government, employers and trade 
        unions, in order to limit wage growth and boost employment 
        creation;
          (3) The ten percent corporate tax rate for international 
        manufacturing and service companies;
          (4) High levels of investment in education, training and 
        physical infrastructure, much of it funded by generous 
        transfers from the European Union; and
          (5) Reform of the tax and welfare system to improve work 
        incentives. In contrast to the economic policies of the 1970s 
        and early 1980s, the policy mix in the last decade has centered 
        on supply-side reforms to the economy, aimed at improving the 
        attractiveness of Ireland as a location for overseas investment 
        and increasing competitiveness of Irish-made goods in the 
        international marketplace.

    This policy mix produced impressive economic results in the 1990s. 
Real Irish GDP growth has averaged almost nine percent since 1994, and 
real Irish incomes have increased by over two-thirds since the 
beginning of the decade. In 1998, per capita output overtook both the 
EU and the OECD average. Unemployment fell below six percent in 1999, 
down from 16 percent in 1993. Traditional migration patterns have been 
reversed, as thousands of former Irish emigres, and other nationals, 
arrive in Ireland to take up employment. Fast growth has been 
accompanied by increasing openness to the world economy. In 1998, total 
imports and exports were equivalent to over 157 percent of GDP, making 
Ireland one of the most trade-dependent economies in the world. Thanks 
in large part to the special 10 percent tax rate for manufacturing 
activities, industry accounts for almost 40 percent of total economic 
activity, compared with an average of 20 percent in the European Union 
(EU). Correspondingly, the share of services in Irish output is small 
by the standards of other industrialized countries. This unusual 
economic structure in also reflected in Ireland's trade relationship 
with the rest of the world. Reflecting the heavy presence of Irish-
based U.S. and other multinational manufacturing firms (mostly in the 
high-tech sector), Ireland now enjoys a huge surplus in merchandise 
trade (equivalent to 27 percent in GDP in 1998), which is mirrored by 
large deficits in services trade.
    At the end of the 1990s, Ireland's policy makers face a much-
changed economic landscape. Now that Ireland's traditional economic 
ailments--unemployment and emigration--have largely been solved, policy 
makers are now faced with the challenges brought about by five years of 
exceptional economic growth. Of greatest concern is how to sustain 
rapid economic growth in the face of shortages of skilled and unskilled 
labor, worsening transport congestion and chronic housing shortages. 
Irish policy makers fear that ``excessive'' economic growth in the 
short-term could result in a hard landing for the Irish economy down 
the road. In a society wedded to the concept of ``social cohesion,'' 
sharing the benefits of rapid economic growth with those social groups 
and regions that have so far been left behind by the ``Celtic tiger'' 
economy has become another top priority.
    Secondly, the economic policy tools available to Irish policy 
makers to pursue national economic and social goals has been severely 
limited by Irish participation in European economic and monetary (EMU) 
from the beginning of 1999. With both monetary and exchange rate policy 
now out of the control of national authorities, the government now 
depends on more effective use of fiscal, structural and incomes 
policies to bring the Irish economy onto a more sustainable growth 
path. Since 1987, Irish governments have exchanged cuts in income tax 
for pay restraint by trade unions, thereby boosting competitiveness and 
employment. In late 1999, the government, trade unions and industry 
will attempt to negotiate a new national wage agreement to replace 
``partnership 2000,'' which expires next year. As the economy moves 
rapidly towards full employment, pay ``flexibility'' rather than pay 
restraint has become the new goal of income policy. The government also 
believes further income tax cuts for low- and medium-income earners 
will increase labor supply, thereby more than offsetting the 
stimulative effects of looser fiscal policy. This highly unorthodox 
approach to economic policy has been endorsed by the OECD, but not by 
the IMF, who have called on Irish authorities to tighten fiscal policy 
to combat overheating. In the highly open Irish economy, however, 
fiscal policy is of limited use as a tool of demand management.
    Since the beginning of 1999, monetary policy in Ireland, as in the 
other ten EU states that adopted the single European currency, has been 
formulated by the European central bank (ECB) in Frankfurt. The Irish 
central bank continues to exist as a constituent member of the European 
System of Central Banks (ESCB) and is responsible for implementing a 
common European monetary policy in Ireland (i.e. providing and 
withdrawing liquidity from the Irish inter-bank market at an interest 
rate set by the ECB.) The governor of the Irish central bank (currently 
Maurice O'Connell) has, ex officio, one vote in the ECB's 17-member 
monetary policy committee, although each national central bank governor 
is expected to disregard the individual performances of their own 
national economies in formulating a common monetary policy for the Euro 
area.
    The 1992 treaty on European Union identifies price stability as the 
primary objective of monetary policy under EMU. Price stability is 
defined by the ECB as a year-on-year increase in the harmonized index 
of consumer prices for the Euro area in the range of zero to two 
percent. In making its assessment of future consumer price movements, 
the ECB will take account of trends in money supply, private sector 
credit, and a range of intermediate price indicators. The primary 
instrument of monetary policy is refinancing operations by the ECB and 
the national central banks (purchases and repurchases of government 
securities at a discount rate announced weekly.) Ireland accounts for 
just over one percent of total economic activity in the Euro zone, and 
less than two percent of the broad money stock. Fast economic and 
monetary growth in Ireland alone, therefore, has little impact on 
monetary policy formulation at the European level, highlighting the 
difficulties that Ireland, and other small Euro nations, may have with 
a ``one-size-fits-all'' single European monetary policy.
2. Exchange Rate Policies
    At the beginning of 1999, the Irish pound ceased to exist as 
Ireland's national currency, and the new single European currency, the 
Euro, became the official unit of exchange. Although Irish currency 
will continue to circulate until the introduction of Euro notes and 
coins in 2002, it will be no more than a ``denomination'' of the Euro, 
with an irrevocably fixed exchange rate to the Euro and the nine other 
participating currencies. The conversion rate between the Irish pound 
and the Euro was Euro 1.2697:ip 1.
    The Euro and the pound are freely convertible for both capital and 
current account transactions. Under 1992 treaty on European Union, the 
European central bank has operational responsibility for the exchange 
rate of the Euro and conducts foreign exchange market transactions in 
relation to the currency on a day-to-day basis. However, the treaty 
provides that the council of ministers may formulate ``general 
orientations'' for exchange rate policy in relation to the Euro, 
without prejudice to the ECB's primary objective to maintain price 
stability. These general orientations will only be agreed in 
exceptional circumstances. Unlike any other Euro participant, Ireland's 
two largest trading partners, the UK and the United States, are outside 
the Euro zone. Ireland's loss of control over its exchange rate with UK 
sterling and the dollar makes Irish exports more vulnerable to swings 
in the external value of the Euro than any other Euro country, and 
places pressure on Irish exporters to increase the flexibility of their 
cost base, particularly labor costs. The Irish pound averaged US$ 1:ip 
0.70 in 1998, and is likely to average in the region of US$ 1:ip 0.74 
in 1999.
3. Structural Policies
    In Ireland, as in other EU states, a considerable degree of 
structural reform of capital, labor and product markets has been 
undertaken in recent years through various ``processes'' coordinated by 
the European commission. Irish authorities recognize that fostering 
greater competition in product and labor markets will be necessary for 
Ireland to sustain a rapid rate of economic growth in a supply-
constrained economy over the coming years. Policy makers also recognize 
that flexible and well-functioning markets will be necessary to buffer 
the Irish economy from unexpected asymmetric shocks in the context of 
EMU without losses of output and employment. Ireland's high degree of 
openness to trade means that product markets in Ireland are highly 
competitive. EU liberalization in energy and telecommunications markets 
has opened up Irish sectors traditionally dominated by state-owned 
enterprises to private sector competition. Regulation of Irish labor 
markets is light compared with continental European economies. Labor 
market reform efforts have concentrated on removing distortions in the 
tax and welfare system in order to improve work incentives for the 
unemployed and other non-labor force participants. There is little 
doubt that effective structural reform of the Irish economy over the 
last decade has increased the ability of the Irish economy to sustain 
fast rates of economic growth without spurring inflation. Fast Irish 
economic growth has in turn fueled Irish demand for U.S. imports. Other 
important structural economic policies over the last decade include:

          (a) The development of a social consensus on economic policy 
        through national wage agreements negotiated by the government, 
        employers and trade unions. The latest agreement, partnership 
        2000, took effect at the beginning of 1997 and trades off 
        continued moderation by trade unions in wage demands against 
        substantial cuts in personal taxation;
          (b) The availability of a special ten percent rate of 
        corporate taxation and generous grants to attract foreign 
        investment;
          (c) A commitment to the single European market and to Irish 
        participation in EMU;
          (d) High levels of investment in education and training--of 
        all OECD countries only the Japanese workforce has a higher 
        proportion of trained engineers and scientists;
          (e) And improvements in physical infrastructure--structural 
        investment between 1993 and 1999 are expected to total around 
        16 billion dollars (almost 4,500 dollars per head). Generous EU 
        transfers have funded much of this.

    The success of the above policies in attracting foreign investors 
and raising incomes has also boosted U.S. exports to Ireland. Over 500 
U.S. firms are now located in Ireland. These companies import a large 
proportion of their capital equipment and operating inputs from parent 
companies and other suppliers in the United States. Accordingly, the 
largest component of U.S. exports to Ireland is office machinery and 
equipment, followed by electrical machinery and organic chemicals. 
Furthermore, as U.S. firms in Ireland become increasingly integrated 
with the local economy, sales by U.S. parent companies to local Irish 
enterprises are believed to have increased dramatically in recent 
years, although the data on this remains sketchy. The combination of 
the above two effects has helped increase U.S. exports to Ireland by a 
factor of six between 1983 to 1998. As a result, the United States has 
become Ireland's second largest trading partner, behind only the UK.
4. Debt Management Policies
    The National Treasury Management Agency (NTMA) is the state agency 
responsible for the management of the government debt. At the end of 
1998, Ireland's general government debt amounted to 45.9 billion 
dollars (using average 1998 exchange rates), equivalent to 52 percent 
of GDP. This is down from 102% of GDP in 1989, reflecting strong fiscal 
rectitude in the 1990s and the fast pace of economic growth over this 
period. The bulk of the national debt was accumulated in the 1970's and 
early 1980's, partly as a result of high oil prices, but more generally 
as a result of expanding social welfare programs and public-sector 
employment. Foreign currency debt at the end of 1998 made up 
approximately 25 percent of the total. This is down from just over 40 
percent at the end of 1993, reflecting the government's strong 
financial position and Ireland's substantial balance of payments 
surplus, and a deliberate policy to reduce foreign currency debt as 
much as possible.
    Most new government borrowing, generally used to roll-over maturing 
debt, is financed through the issuance of Irish pound securities, 
although a substantial proportion of these are purchased by non-
resident investors. The total debt servicing cost in 1998 was 3.7 
billion dollars, equivalent to 4.3 percent of GDP. Lower interest 
rates, falling nominal debt levels and fast Irish income growth have 
reduced debt servicing costs as a proportion of total government 
revenue significantly in recent years, providing scope for reform of 
the personal taxation system, thus increasing consumer demand for U.S. 
exports of goods and services. In May 1999 the NTMA completed a re-
denomination of Euro 16 billion ($16.5 billion) worth of Irish 
government bonds into four giant issues, whose maturity ranges from 
three to 17 years. The re-denomination replaced high-coupon government 
debt with a relatively low nominal value, issued over the last decade, 
with low coupon debt with a high nominal value and which carries 
conditions closer to European norms. The move gives Ireland, the second 
smallest borrower in the Euro zone, the largest single Euro bond issue, 
with Euro 5.5 billion ($5.7 billion) in its 2010 treasury stock. Irish 
authorities hopes that the re-denomination will, over time, increase 
the liquidity of the Irish debt market and make holding Irish debt more 
attractive to foreign investors, thus lowering yields.
5. Aid
    In 1998, the United States contributed 19.6 million dollars to the 
international fund for Ireland (IFI), of which around five million is 
estimated to have been spent in the border constituencies of the 
republic of Ireland, with the balance being spent in the UK province of 
northern Ireland. The IFI funds business/community development programs 
intended to build cross-border (north-south) trade and economic ties
6. Significant Barriers to U.S. Exports
    The United States is Ireland's second largest source of imports, 
behind only the UK. Total exports from the United States into Ireland 
in 1998 were valued at US$ 7.2 billion (16.1 percent of total Irish 
imports), up from just over US$ 3 billion in 1990. Irish exports to the 
United States have, however, increased at an even faster rate over the 
same period. Total Irish exports to the United States in 1998 were 
valued at US$ 8.7 billion (13.7 percent of total Irish exports.) 
Accordingly, the trade balance between the two countries in 1998 
favored Ireland by almost US$ 1.6 billion. Before 1997, the trade 
balance between the two countries favored the United States for several 
decades. The changed U.S.-Irish trade relationship in recent years in 
large part reflects high levels of direct investment by U.S. companies 
in Ireland in recent years, many of which use Ireland as a base for 
exporting not only into European markets, but also back into the United 
States.
    As a member of the EU, Ireland administers tariff and non-tariff 
barriers in accordance with applicable EU policies. With regard to 
trade in services, Ireland maintains some barriers in the aviation 
industry: airlines serving Ireland may provide their own ground 
handling services, but are prohibited from providing similar services 
to other airlines. The bilateral U.S.-Ireland aviation agreement also 
places some restrictions on aviation services between the United States 
and Ireland. Under the agreement, any carrier providing North Atlantic 
services to Dublin airport, must also provide service to Shannon 
airport on Ireland's west coast, which makes additional Dublin service 
unprofitable for some U.S. airlines at this time.
    Ireland has consistently complied with the provisions of the 1989 
EU ``television without frontiers'' broadcasting directive. This 
requires that EU member states reserve a majority of television 
transmission time for European works. Irish television industry sources 
are skeptical, however, whether Irish compliance with the directive has 
impacted negatively on U.S. programming exports to Ireland over this 
period.
    The market for telecommunications services in Ireland was fully 
liberalized in December 1998--more than one year ahead of the timetable 
agreed with the European commission in 1996. Until then, Eircom, the 
former state-owned telecommunications company, was the monopoly 
provider of voice telephony services to the general public, although 
the market for leased lines, mobile telephony and other data 
transmission services was progressively liberalized earlier in the 
1990s. Regulatory confusion and legal battles over interconnection 
rates between Eircom and new market entrants have, however, hampered 
the development of effective competition in this sector, and may prove 
a barrier to U.S. service providers.
    As a member of the EU, Ireland applies a community-wide product 
certification process and community-wide product standards. With only 
minor exceptions, there are no requirements for marking imported goods. 
Packaged goods must carry labels that conform to Irish labeling 
requirements. The information on the labels must include details on 
ingredients, net weight, ``best before'' date and general usage 
instructions. Unlike many other EU countries, Irish labeling 
requirements also require that the name and EU address of the 
manufacturer, distributor or packer appear on the label. This has often 
caused difficulties for U.S. exporters, although the financial cost has 
probably been small.
    Although some liberalization has taken place in recent years, 
Ireland still maintains some of the strictest animal and plant health 
import restrictions in the EU. These together with EU import duties, 
effectively exclude many meat-based foods, fresh vegetables and other 
agricultural exports from the United States. Restrictions also apply to 
foods containing genetically modified organisms, bananas from outside 
the Caribbean area, cosmetics containing specified risk materials, and 
some wines, although as with other goods, these policies are determined 
at EU level.
    Ireland has been a member of the world trade organization (WTO) 
since it came into effect on January 1, 1995. The WTO agreement was 
ratified by the Irish parliament in November 1994. As member of the EU, 
however, Ireland participates in a large number of EU regional trade 
agreements, which may distort trade away from countries with whom 
Ireland trades purely on a MFN, non-preferential WTO basis.
7. Export Subsidies Policies
    The government generally does not provide direct or indirect 
support for local exports. However, companies located in designated 
industrial zones, namely the Shannon Duty Free Processing Zone (SDFPZ) 
and Ringaskiddy port, receive exemption from taxes and duties on 
imported inputs used in the manufacture of goods destined for non-EU 
countries. Furthermore, Ireland applies a special 10 percent rate of 
corporation tax (the standard rate is 28 percent) to companies 
producing internationally-traded manufactures and services and to 
companies operating out of the SDFPZ and the international financial 
services center in Dublin. Under pressure from the European commission, 
which viewed the tax as a subsidy to industry, the Irish government is 
committed to eliminating the special 10 percent rate of tax by 
harmonizing the special and standard rates of tax at 12.5 percent by 
2003, thereby abolishing the differential treatment.
    Other activities that qualify for the special ten percent rate of 
corporate of taxation include design and planning services rendered in 
Ireland in connection with specified engineering works outside the 
European Union. This applied mainly to services provided by engineers, 
architects and quantity surveyors. Profits from the provision of 
identical services in connection with works inside the EU are taxed at 
the standard 28 percent rate.
    Since January 1992, the government has provided export credit 
insurance for political risk and medium-term commercial risk in 
accordance with OECD guidelines. As a participant in the EU's common 
agricultural policy, the Irish department of agriculture and food 
administers cap export refund and other subsidy programs on behalf of 
the EU commission.
8. Protection of U.S. Intellectual Property
    Ireland is a member of the world intellectual property organization 
and a party to the international convention for the protection of 
intellectual property. The Irish government is currently in the process 
of enacting new copyright legislation to bring Ireland's laws into line 
with its obligations under the WTO TRIPs agreement. Examples of 
existing TRIPs inconsistencies in current Irish law, which the 
government is committed to addressing, include absence of a rental 
right for sound recordings, no ``anti-bootlegging'' provision, and low 
criminal penalties which fail to deter piracy, all of which have 
contributed to high levels of piracy in Ireland (industry sources 
estimate that up to 57 percent of PC software used in Ireland is 
pirated.) To address several of the most glaring discrepancies between 
Irish law and Dublin's obligations under TRIPs, a ``break-out'' 
copyright bill was enacted in June 1998, which strengthens the 
presumption of copyright ownership and increases penalties for 
copyright violation. The Irish Seanad (upper house) passed more 
comprehensive copyright legislation in October 1999, and the Irish 
government has pledged to complete passage in the Dail (lower house) 
before the end of the year. When enacted, the legislation will give 
Ireland one of the most comprehensive IPR legal regimes in Europe. In 
light of government commitments to enact new copyright legislation, 
USTR suspended WTO dispute settlement proceedings against Ireland, 
though Ireland remains on the USTR's section 301 ``watchlist'' pending 
enactment of this IPR reform legislation.
    The comprehensive copyright bill currently before parliament also 
addresses non-TRIPs conforming provisions of Irish patent law. 
Ireland's patent law, as it currently stands, fails to meet TRIPs 
obligations in at least two respects:

          (1) The compulsory licensing provisions of the 1992 patent 
        law are inconsistent with the ``working'' requirement 
        prohibition of TRIPs articles 27.1 and the general compulsory 
        licensing provisions of article 31; and
          (2) Applications processed after December 20, 1991 do not 
        conform to the non-discrimination requirement of TRIPs article 
        27.1.

    --Trademarks: in accordance with EU council directive 89/104/
European economic community (the harmonization of trademark laws), and 
EU council regulation number 40/94 (community trademark and the 
registration of trademarks in services industries), new legislation was 
required to replace the trademarks act of 1963. The trademarks act of 
1996 was signed into law in July of that year. There appear to be no 
problems with the new law.
9. Worker Rights
    a. The Right of Association: The right to join a union is 
guaranteed by law, as is the right to refrain from joining. The 
industrial relations act of 1990 prohibits retribution against strikers 
and union leaders. Embassy calculates that approximately 45 percent of 
workers in the private sector are trade union members. Police and 
military personnel are prohibited from joining unions or striking, but 
they may form associations to represent them in matters of pay, working 
conditions, and general welfare. The right to strike is freely 
exercised in both the public and private sectors. The Irish Congress of 
Trade Unions (ICTU), which represents unions in both the republic and 
Northern Ireland, has 64 member-unions with 699,190 members.
    b. The Right to Organize and Bargain Collectively: Labor unions 
have full freedom to organize and to engage in free collective 
bargaining. Legislation prohibits anti-union discrimination. In recent 
years, most terms and conditions of employment in Ireland have been 
determined through collective bargaining in the context of a national 
economic pact. Under the current three-year agreement, partnership 
2000, which expires in 2000, trade unions traded off moderation in wage 
demands for cuts in personal taxation by the government. The Irish 
Business and Employers Confederation (IBEC) generally represent 
employer interests in labor matters.
    The labor relations commission, established by the industrial 
relations act of 1990, provides advice and conciliation services in 
industrial disputes. The commission may refer unresolved disputes to 
the labor court. The labor court, consisting of an employer 
representative, a trade union representative, and an independent 
chairman, may investigate labor disputes, recommend the terms of 
settlement, engage in conciliation and arbitration, and set up joint 
committees to regulate conditions of employment and minimum rates of 
pay for workers in a given trade or industry.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law and does not exist in Ireland.
    d. Minimum Age for Employment of Children: New legislation 
introduced in 1997 prohibits the full-time employment of children under 
the age of 16, although employers may hire 14 or 15 year olds for light 
work on school holidays, or on a part-time basis during the school 
year. The law also limits the number of hours which children under age 
18 may work. These provisions are enforced effectively by the Irish 
department of enterprise, trade and employment.
    e. Acceptable Conditions of Work: After persistent lobbying by 
trade unions, in April 1998, the Irish government announced proposals 
for the introduction of a national hourly minimum wage of IP 4.40 
(around US$ 6.70) beginning in April 2000. Although minimum wages 
already exist in certain low-paid industries, such as textiles and 
cleaning, these only apply to a relatively small proportion of the 
workforce. The full minimum wage will not apply to trainees or workers 
under 18 years of age.
    The standard workweek is 39 hours. In May 1997, a European 
commission directive on working time was transposed into Irish law, 
through the ``organization of working time act, 1997.'' The act sets a 
maximum of 48 working hours per week, requires that workers be given 
breaks after they work certain periods of time, sets limits to shift 
work, and mandates four weeks annual holidays for all employees by 
1999.
    f. Rights in Sectors With U.S. Investment: Worker rights described 
above are applicable in all sectors of the economy, including those 
with significant U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  8,090
  Food & Kindred Products......  669             ...............................................................
  Chemicals & Allied Products..  3,184           ...............................................................
  Primary & Fabricated Metals..  177             ...............................................................
  Industrial Machinery and       185             ...............................................................
   Equipment.
  Electric & Electronic          1,529           ...............................................................
   Equipment.
  Transportation Equipment.....  15              ...............................................................
  Other Manufacturing..........  2,332           ...............................................................
Wholesale Trade................  ..............  332
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  6,638
Services.......................  ..............  305
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  15,936
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 ITALY


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP \2\.........................    1,123.1    1,138.1    1,148.6
  Real GDP Growth (pct) \3\............        1.5        1.3        0.9
  GDP (at current prices)..............    1,159.5    1,184.8    1,177.1
  GDP by Sector:
    Agriculture........................       30.6       30.4        N/A
    Manufacturing......................      291.3      294.3        N/A
    Construction.......................       53.4       53.2        N/A
    Services...........................      682.2      674.7        N/A
  Per Capita GDP (US$).................     20,839     20,834     20,699
  Labor Force (millions)...............       23.0       23.1       23.1
  Unemployment Rate (pct)..............       11.7       11.8       11.6

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \4\................        9.0        5.6        5.2
  Consumer Price Inflation.............        2.0        2.0        1.6
  Exchange Rate
    (Lira/US$ annual average of market        1703       1737       1800
     rate).............................

Balance of Payments and Trade:
  Total Exports FOB \4\................      238.2      242.3      148.6
    Exports to U.S.\4\.................       18.9       20.8        N/A
  Total Imports CIF \5\................      208.1      215.5      136.6
    Imports from U.S.\5\...............       10.2       10.9        N/A
  Trade Balance \5\....................       30.3       26.8       12.0
    Balance with U.S.\5\...............        8.5        9.9        7.6
  External Public Debt.................       80.0       78.6       77.8
  Fiscal Deficit/GDP...................        2.7        2.6        2.2
  Current Account Surplus/GDP (pct)....        3.2        1.9        1.5
  Debt Service Payments/GDP (pct) \6\..       10.7       10.7        6.6
  Gold and Foreign Exchange Reserves...       76.0       53.6       43.4
------------------------------------------------------------------------
\1\ 1999 estimates based on data available through October.
\2\ 1995 prices; GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ 1999 data is the growth rate of the Italian components of M2 in the
  Euro area through August.
\5\ Merchandise trade. 1999 data through August
\6\ Represents total debt servicing costs; less than six percent of
  total debt is foreign debt.

1. General Policy Framework
    Italy has the world's sixth largest economy, having grown into an 
industrial power in the last 50 years. Italy maintains an open economy, 
and is a member of major multilateral economic organizations such as 
the Group of Seven (G-7) industrialized countries, the Organization for 
Economic Cooperation and Development, the World Trade Organization, the 
International Monetary Fund, and the European Union.
    Italy is one of the 11 founding members of the European Economic 
and Monetary Union (EMU). Beginning in January 1999, EMU member 
countries adopted the euro as their currency and the new European 
Central Bank as their monetary authority. National currencies are being 
phased out and only euros will be used beginning in 2002. Public 
opinion polls consistently rank Italy as one of the most ``pro-euro'' 
countries in Europe.
    Italy has a private sector characterized primarily by a large 
number of small and medium-sized firms and a few multinational 
companies with well-known names such as Fiat and Pirelli. Economic 
dynamism is concentrated in northern Italy, resulting in an income 
divergence between north and south that remains one of Italy's most 
difficult and enduring economic/social problems.
    Government has traditionally played a dominant role in the economy 
through regulation and through ownership of large industrial and 
financial companies. Privatizations and regulatory reform since 1994 
have reduced that presence somewhat. However, government retains a 
potentially blocking ``golden share'' in all the industrial companies 
privatized thus far; government and the Bank of Italy continue to shape 
merger and acquisition activity involving Italian financial and non-
financial firms considered ``key'' to the economy and/or employment; 
and business surveys continue to cite a heavy bureaucratic burden as 
one of the main impediments to investing or doing business in Italy.
    For years, government spending has been inflated by generous social 
welfare programs, inefficiency and projects designed to achieve 
political objectives. The result has been large public sector deficits 
financed by debt. Beginning in the early 90's, Italy started to address 
a number of macroeconomic problems in order to qualify for first-round 
EMU membership. The public sector deficit fell slightly from 2.7 
percent in 1997 to 2.6 percent of GDP in 1998, and is expected to be 
close to 2.2 percent at end-1999--aided until late 1999 by declining 
interest rates which lowered the GOI's debt servicing cost. The level 
of public debt, second highest among the EMU countries as a share of 
GDP, also started to decline but remains over 100 percent of GDP. The 
GOI plans to reduce the debt level gradually to the EMU target level of 
60 percent of GDP.
    Up to December 31, 1998, price stability was the primary objective 
of monetary policy; the Bank of Italy carried out a restrictive 
monetary policy in an effort to defeat Italy's long-term inflation 
problem. Now all these powers have been transferred to the European 
Central Bank, with the Bank of Italy retaining banking supervision 
responsibilities. Consumer inflation increased only 2.0 percent in 1998 
and a 1.6 percent average is expected for 1999, and producer price 
inflation is negligible, despite a recent upturn mostly related to the 
increase of prices of utilities and oil and raw materials.
/2. Exchange Rate Policy
    On January 1, 1999, Italy relinquished control over exchange rate 
policy to the European Central Bank.
3. Structural Policies
    Italy has not implemented any structural policies over the last two 
years that directly impede U.S. exports. Certain characteristics of the 
Italian economy impede growth and reduce import demand. These include 
rigid labor markets, underdeveloped financial markets, and a continued 
heavy state role in the production sector. There has been some progress 
at addressing these structural issues. Privatization is reducing the 
government's role in the economy. The 1993 ``Single Banking Law'' 
removed a number of anachronistic restrictions on banking activity. 
Italy's implementation of EU financial service and capital market 
directives has injected further competition into the sector.
    U.S. financial service firms are no longer subject to an 
incorporation requirement to operate in the Italian market, although 
they must receive permission to operate from the government's 
securities regulatory body.
    U.S. financial service firms and banks are active in Italy, in 
particular in the wholesale banking and bond markets. In general, U.S. 
and foreign firms can invest freely in Italy, subject to restrictions 
in sectors determined to be of national interest, or in cases which 
create anti-trust concerns.
4. Debt Management Policy
    Although the domestic public debt level is high, Italy has not had 
problems with external debt or balance of payments since the mid 
1970's. Public debt is financed primarily through domestic capital 
markets, with securities ranging from three months to thirty years. 
Italy's official external debt is relatively low, constituting roughly 
5.9 percent of total debt. Italy maintains relatively steady foreign 
debt targets, and uses issuance of foreign-denominated debt essentially 
as a source of diversification, rather than need.
5. Significant Barriers to U.S. Exports
    Import Licensing: With the exception of a small group of largely 
agricultural items, practically all goods originating in the U.S. and 
most other countries can be imported without import licenses and free 
of quantitative restrictions. There are, however, monitoring measures 
applied to imports of certain sensitive products. The most important of 
these measures is the automatic import license for textiles. This 
license is granted to Italian importers when they provide the requisite 
forms.
    Services Barriers: Italy is one of the world's largest markets for 
all forms of telephony and the largest and fastest-growing European 
market for mobile telephony. In recent years, the Italian Government 
has undertaken a liberalization of this sector, including privatization 
of the former parastatal monopoly Telecom Italia (formerly STET); 
creation of an independent communications authority; and allowing both 
fixed-line and mobile competitors to challenge the former monopoly 
(which Olivetti acquired in a hostile takeover in 1999). Following the 
EU's January 1, 1998 deadline for full liberalization of its telecoms 
sector, Italy issued more than 40 fixed-line licenses, including to new 
entrants (with U.S. participation). Omnitel Pronto Italia, which is 
partly U.S.-owned, began offering cellular service in December 1995.
    In 1998, Italy established an independent regulatory authority for 
all communications, including telecoms and broadcasting. Concerns 
remain regarding upcoming licensing and frequency allocation for 
``third generation'' mobile carriers, regulatory due process, 
transparency and even-handedness in general. But the Italian market is 
much more open to services exports in this sector than it was prior to 
implementation of the EU telecoms directive.
    In 1998, the Italian Parliament passed government-sponsored 
legislation including a provision to make Italy's national TV broadcast 
quota stricter than the EU's 1989 ``Broadcast Without Frontiers'' 
Directive. The Italian law exceeds the EU Directive by making 51 
percent European content mandatory during prime time, and by excluding 
talk shows from the programming that may be counted towards fulfilling 
the quota. Also in 1998, the government issued a regulation requiring 
all multiplex movie theaters of more than 1300 seats to reserve 15-20 
percent of their seats, distributed over no fewer than three screens, 
to showing EU films on a ``stable'' basis. In 1999, the government 
introduced ``antitrust'' legislation to limit concentration in 
ownership of movie theaters and in film distribution--including more 
lenient treatment for distributors that provide a majority of ``made in 
EU'' films to theaters.
    Firms incorporated in EU countries may offer investment services in 
Italy without establishing a presence. U.S. and other firms that are 
from non-EU countries may operate based on authorization from CONSOB, 
the securities oversight body. CONSOB may deny such authorization to 
firms from countries that discriminate against Italian firms.
    Foreign companies are increasingly active in the Italian insurance 
market, opening branches or buying shares in Italian firms. Government 
authorization is required to offer life and property insurance; this 
authorization is usually based on reciprocal treatment for Italian 
insurers. Foreign insurance firms must prove that they have been active 
in life and property insurance for not less than 10 years and must 
appoint a general agent domiciled in Italy.
    There are some limits regarding foreign private ownership in banks. 
For instance, according to the Banking Law a foreign institution 
wanting to increase its stake in a bank above five percent needs 
authorization by the Bank of Italy.
    Some professional categories (e.g. engineers, architects, lawyers, 
accountants) face restrictions that limit their ability to practice in 
Italy without either possessing EU/Italian nationality, having received 
an Italian university degree, or having been authorized to practice by 
government institutions.
    Standards: As a member of the EU, Italy applies the product 
standards and certification approval process developed by the European 
Community. Italy is required by the Treaty of Rome to incorporate 
approved EU directives into its national laws. However, there has 
frequently been a long lag in implementing these directives at the 
national level, although Italy has been improving its performance in 
this regard. In addition, in some sectors such as pollution control, 
the uniformity in application of standards may vary according to 
region, further complicating the certification process. Italy has been 
slow in accepting test data from foreign sources, but is expected to 
adopt EU standards in this area.
    Most standards, labeling requirements, testing and certification 
for food products have been harmonized within the European Union. 
However, where EU standards do not exist, Italy can set its own 
national requirements and some of these have been known to hamper 
imports of game meat, processed meat products, frozen foods, alcoholic 
beverages, and snack foods/confectionery products. Import regulations 
for products containing meat and/or blood products, particularly animal 
and pet food, have become more stringent in response to concerns over 
transmission of Bovine Spongiform Encephalopathy (BSE). U.S. exporters 
of ``health'' and/or organic foods, weight loss/diet foods, baby foods 
and vitamins should work closely with an Italian importer, since 
Italy's labeling laws regarding health claims can be particularly 
stringent. In the case of food additives, coloring and modified 
starches, Italy's laws are considered to be close to current U.S. laws, 
albeit sometimes more restrictive.
    U.S. exporters should be aware that any food or agricultural 
product transshipped through Italian territory must meet Italian 
requirements, even if the product is transported in a sealed and bonded 
container and is not expected to enter Italian commerce.
    Rulings by individual local customs authorities can be arbitrary or 
incorrect, resulting in denial or delays of entry of U.S. exports into 
the country. Considerable progress has been made in correcting these 
deficiencies, but problems do arise on a case-by-case basis.
    Investment Barriers: While official Italian policy is to encourage 
foreign investment, industrial projects require a multitude of 
approvals and permits, and foreign investments often receive close 
scrutiny. These lengthy procedures can present extensive difficulties 
for the uninitiated foreign investor. There are several industry 
sectors which are either closely regulated or prohibited outright to 
foreign investors, including domestic air transport and aircraft 
manufacturing.
    Italian anti-trust law gives the government the right to review 
mergers and acquisitions over a certain threshold value. The government 
has the authority to block mergers involving foreign firms for 
``reasons essential to the national economy'' or if the home government 
of the foreign firm does not have a similar anti-trust law or applies 
discriminatory measures against Italian firms. A similar provision 
requires government approval for foreign entities' purchases of five or 
more percent of an Italian credit institution's equity.
    Government Procurement: In Italy, fragmented, often non-transparent 
government procurement practices and previous problems with corruption 
have created obstacles to U.S. firms' participation in Italian 
government procurement. Italy has made some progress in making the laws 
and regulations on government procurement more transparent, by updating 
its government procurement code to implement EU directives. The 
pressure to reduce government expenditures while increasing efficiency 
is resulting in increased use of competitive procurement procedures and 
somewhat greater emphasis on best value rather than automatic reliance 
on traditional suppliers.
6. Export Subsidies Policies
    Italy subscribes to EU directives and Organization for Economic 
Cooperation and Development (OECD) and World Trade Organization (WTO) 
agreements on export subsidies. Through the EU, it is a member of the 
General Agreement on Tariffs and Trade (GATT) agreements on agriculture 
and subsidies, and as a WTO member, is subject to WTO rules. Italy also 
provides extensive export refunds under the Common Agricultural Policy 
(CAP), as well as a number of export promotion programs. Grants range 
from funding of travel for trade fair participation to funding of 
export consortia and market penetration programs. Many programs are 
aimed at small-to-medium size firms. Italy provides some direct 
assistance to industry and business firms, in accordance with EU rules 
on support to depressed areas, to improve their international 
competitiveness. This assistance includes export insurance through the 
state export credit insurance body, as well as interest rate subsidies 
under the OECD consensus agreement.
    The Italian peach processing sector receives subsidies to 
compensate it for having to pay the EU minimum grower price for its raw 
product. It is recognized that this grower price is above the world 
market price for peaches and a U.S.-EU agreement is in place to monitor 
the level of subsidies paid. However, there is concern that the 
processors may receive extra benefits from loopholes in the system.
    The Italian wheat processing sector (pasta) in the past received 
indirect subsidies to build plants and infrastructure. While these 
plants are still operating, there are no known programs similar to the 
initial subsidies operating at present.
7. Protection of U.S. Intellectual Property
    Italy is a member of the World Intellectual Property Organization, 
and a party to the Berne and Universal Copyright Conventions, the Paris 
Industrial Property and Brussels Satellite conventions, the Patent 
Cooperation Treaty, and the Madrid Agreement on International 
Registration of Trademarks.
    In 1998, the U.S. Trade Representative placed Italy on the 
Intellectual Property Rights (IPR) ``Priority Watch List'' under the 
``Special 301'' provision of the United States Trade Act of 1988, due 
to the aforementioned national TV broadcast quotas in excess of the EU 
norm, and to a lengthy delay in passage of national legislation to 
address ongoing serious deficiencies in protection of copyright for 
sound recordings, computer software and film videos. In October 1996, 
the government introduced anti-piracy legislation in parliament that 
would impose administrative penalties and increase criminal sanctions. 
As of the end of 1999, the bill was still awaiting final parliamentary 
approval. The U.S. will continue to closely monitor developments in 
this area.
    New Technologies: In the spring of 1997, the Italian Minister of 
Health signed a decree banning the cultivation of Ciba Geigy's BT Corn 
in Italy, despite the fact that no BT seed varieties are currently 
included in Italy's National Seed Register. This decision was taken on 
the advice of Italy's Interministerial Biotechnology Commission, 
ostensibly based on its opinion that there was a lack of a proper 
monitoring program regarding BT corn's effect on the ecosystem. After 
the Biotech Commission reversed its decision, and following EC pressure 
to remove the ban, the Minister of Health signed the legislation 
removing the ban in late September.
    Italy adopted the EU patent law on biotech inventions in July 1999, 
but only after an intense debate.
8. Worker Rights
    a. The Right of Association: The law provides for the right to 
establish trade unions, join unions, and carry out union activities in 
any workplace employing more than 15 employees. Trade unions are free 
of government controls and no longer have formal ties with political 
parties. Workers are protected from discrimination based on union 
membership or activity. The right to strike is embodied in the 
Constitution, and is frequently exercised. Hiring workers to replace 
strikers is prohibited. A 1990 law restricts strikes affecting 
essential public services such as transport, sanitation, and health.
    The law prohibits discrimination by employers against union members 
and organizers. It requires employers who have more than 15 employees 
and are found guilty of anti-union discrimination to reinstate the 
workers affected. In firms with fewer than 15 workers, an employer must 
state the grounds for firing a union employee in writing. If a judge 
deems these grounds spurious, he can order the employer to reinstate or 
compensate the worker.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides for the right of workers to organize and bargain collectively 
and these rights are respected in practice. In practice (though not by 
law), national collective bargaining agreements apply to all workers 
regardless of union affiliation. There are no export processing zones.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, and it does not occur.
    d. Minimum Age for Employment of Children: The law forbids 
employment of children under 15 years of age (with some exceptions). 
There are also specific restrictions on employment in hazardous or 
unhealthy occupations of males under age 18 and females under age 21. 
Enforcement of the minimum age laws is effective only outside the 
extensive ``underground'' economy, which is mainly in southern Italy.
    e. Acceptable Conditions of Work: Minimum wages are set not by law 
but rather by national collective bargaining agreements. These specify 
minimum standards to which individual employment contracts must 
conform. In case of disputes, the courts may step in to determine fair 
wages on the basis of practice in comparable activities or agreements.
    A 1997 law reduced the work week from 48 hours to 40. The regular 
work week should not exceed six days, and the regular work day eight 
hours, with some exceptions. Most collective agreements provide for a 
36- to 38-hour workweek. Overtime may not exceed two hours a day or an 
average of 12 hours per week.
    The law sets basic health and safety standards and guidelines for 
compensation for on-the-job injuries. European Union directives on 
health and safety have also been incorporated into domestic law. Labor 
inspectors are from local health units or from the Ministry of Labor. 
They are few, given the scope of their responsibilities. Courts impose 
fines and sometimes prison terms for violation of health and safety 
laws. Workers have the right to remove themselves from dangerous work 
situations without jeopardy to their continued employment. Women are 
usually forbidden to work at night.
    f. Rights in Sectors with U.S. Investment: Conditions do not differ 
from those in other sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  8,559
  Food & Kindred Products......  406             ...............................................................
  Chemicals & Allied Products..  2,267           ...............................................................
  Primary & Fabricated Metals..  137             ...............................................................
  Industrial Machinery and       2,201           ...............................................................
   Equipment.
  Electric & Electronic          928             ...............................................................
   Equipment.
  Transportation Equipment.....  715             ...............................................................
  Other Manufacturing..........  1,905           ...............................................................
Wholesale Trade................  ..............  2,725
Banking........................  ..............  334
Finance/Insurance/Real Estate..  ..............  774
Services.......................  ..............  1,082
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  14,638
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                            THE NETHERLANDS


                       Key Economic Indicators \1\
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\.........................     337.6     349.7     347.1
  Real GDP Growth (pct) \4\...............       3.8       3.0      2.75
  GDP by Sector:
    Agriculture...........................      11.8      11.0      11.0
    Manufacturing.........................      59.9      60.9      60.5
    Services..............................     199.8     211.5     209.9
    Government............................      40.5      41.6      41.2
  Per Capita GDP (US$)....................    21,781    22,417    22,108
  Labor Force (000's).....................     7,105     7,206     7,311
  Unemployment Rate (percent).............       6.2       4.8       4.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       7.2       9.9       9.0
  Consumer Price Inflation................       2.2       2.0       2.0
  Exchange Rate (guilders/US$ annual
 average)
    Official..............................      1.95      1.98      2.05

Balance of Payments and Trade:
  Total Exports FOB \5\...................     166.0     197.6     196.7
    Exports to U.S.\6\....................       7.3       7.6       8.0
  Total Imports CIF \5\...................     151.8     184.0     185.6
    Imports from U.S.\6\..................      19.8      19.0      20.0
  Trade Balance \5\.......................      14.2      13.6      11.1
    Balance with U.S.\6\..................     -12.5     -12.4     -12.0
  Current Account Surplus/GDP (pct).......       7.0       6.0      5.25
  External Public Debt \6\................         0         0         0
  Debt Service Payments/GDP (pct) \7\.....       6.7       9.4      12.3
  Fiscal Deficit/GDP (pct)................      -1.2      -0.8      -0.6
  Gold and Foreign Exchange Reserves......      31.6      26.7      29.9
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ All figures have been converted at the average guilder exchange rate
  for each year.
\2\ 1999 figures are official forecasts or estimates based on available
  monthly data in October.
\3\ GDP at factor costs.
\4\ Percentage changes calculated in local currency.
\5\ Merchandise trade. Government of the Netherlands data.
\6\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through October 1999.
\7\ All public debt is domestic and denominated in guilders. Debt
  service payments refers to domestic public debt.

Sources: Central Bureau of Statistics (CBS), Netherlands Central Bank
  (NB), Central Planning Bureau (CPB).

1. General Policy Framework
    The Netherlands is a prosperous and open economy, and depends 
heavily on foreign trade. It is noted for stable industrial relations; 
a large current account surplus from trade and overseas investments; 
net exports of natural gas; and a unique position as a European 
transportation hub with excellent ports, and air, road, rail, and 
inland waterway transport.
    Dutch trade and investment policy is among the most open in the 
world. The government has successfully reduced its role in the economy 
during the 1990s, and structural and regulatory reforms have been an 
integral part of a major reorientation of Dutch economic policy since 
the early 1980s. Although telecommunication services have been fully 
liberalized since January 1 1998, deregulation and privatization of the 
Dutch electricity and gas market will have to wait until 2003. The 
government continues to dominate the energy sector, and will play an 
important role in public transport and aviation for some time.
    Dutch economic policy is geared chiefly towards environmentally 
sustainable economic growth and development by way of economic 
restructuring, energy conservation, environmental protection, regional 
development, and other national goals. Economic policy is guided by a 
national environmental action plan.
    General elections in May of 1998 resulted in a clear vote of 
confidence for the ruling three-party coalition, which returned to 
office for another four-year term. Policy intentions of the new 
coalition government are articulated in the 1998 coalition accord, with 
reductions in the tax burden and the fiscal deficit, as well as further 
labor and product market reforms as chief priorities. The government 
coalition accord is based on a ``conservative'' 2.25 percent average 
annual GDP growth scenario between 1999 and 2002. Average GDP growth so 
far has been well in excess of 3 percent.
    Only mildly affected by the crisis in emerging markets and 
subsequent slowdown in the euro area, the Dutch economy remains strong, 
combining sustained GDP growth with falling unemployment and moderate 
inflation. The success of the Dutch economy can be attributed to a 
combination of a rigorous and stable macro-economic policy with wide-
ranging structural and regulatory reforms. After a period of 
exceptional strong (near 4 percent) growth in 1998, the OECD expects 
real GDP growth in the Netherlands to weaken to 3 percent in 1999 and 
just below 3 percent in 2000. The European Union seems more optimistic 
and projects economic growth in 1999 and 2000 to exceed 3 percent. 
Expectations are that private consumption may loose some of its 
buoyancy and investment will remain sluggish. The deceleration in 
domestic demand is likely to be offset to some extent by a stronger 
foreign balance as export market growth picks up. The unemployment rate 
is forecast to fall to around 3.25 percent in 1999 and in 2000, a level 
last seen in the early 1970s. Reflecting continuing pressure on 
resource utilization, inflationary pressure remains. Consumer price 
inflation in 1999 and 2000 is forecast to edge up to exceed 2 percent. 
The OECD sees risks and uncertainties mainly concern domestic 
developments. Wide-ranging structural and regulatory reforms make it 
difficult to assess the degree of tightness of the labor market and of 
the pressure on resource utilization.
    The Netherlands was one of the first EU member states to qualify 
for Economic and Monetary Union (EMU). Fiscal policy aims to strike a 
balance between further reducing public spending, and lowering taxes, 
and social security contributions. The fiscal deficit is expected to 
narrow to narrow to 0.6 percent of GDP in 1999. This is well below the 
three percent of GDP criterion in the EMU's Growth and Stability Pact. 
A balanced budget is well within reach in 2000. The stock of public 
debt will fall from a high of 69.9 percent in 1997 to 64.3 percent in 
1999. Both fiscal deficit and public debt are forecast to converge 
below or closer to EMU deficit and debt criteria.
    Government bonds largely fund the deficit. Since January 1, 1994 
Dutch Treasury Certificates (DTC) have also covered financing. DTCs 
replace a standing credit facility for short-term deficit financing 
with the central bank which, under the Maastricht Treaty, was abolished 
in 1994.
2. Exchange Rate Policies
    Since the European Central Bank (ECB) assumed monetary 
responsibility on January 1, 1999, monetary conditions are no longer 
under the exclusive control of the Dutch authorities but are determined 
by the Eurosystem (the European Central Bank and the 11 national 
Central Banks in the euro area), and are attuned to the euro area as a 
whole. Conversion of the currencies of the euro area on December 31 
1998, fixed the exchange rate of the euro vis-a-vis the guilder at 
2.20371 guilders to the euro. There are no multiple exchange rate 
mechanisms.
3. Structural Policies
    Tax Policies: Partly with an eye to further EU integration, the 
Dutch recently took the first step towards a fundamental reform of the 
tax system. The new tax regime for the 21st century entails a shift 
from direct to indirect taxes, a broadening of the tax base and a 
reduction of the tax rate on labor. When implemented in 2001, wage and 
individual income taxes will be lowered, while excise duties, ``green'' 
taxes and VAT rates will be raised. The highest marginal tax rate on 
wage and salary income will be reduced from 60 percent to 50 percent, 
while the top VAT rate will rise from 17.5 percent to 19 percent. The 
Dutch corporate income tax rate is among the lowest in the European 
Union. Effective January 1, 1998 the standard corporate tax rate paid 
by corporations (including foreign-owned corporations) has been reduced 
from 36 percent to 35 percent on all taxable profits. Since January 1, 
1997 the Dutch have been offering multinationals a more friendly tax 
regime on their group finance activities, effectively reducing tax on 
internal banking activities from 35 percent (the standard corporate tax 
rate) to 7 percent.
    Regulatory Policies: Limited, targeted, transparent investment 
incentives are used to facilitate economic restructuring and to promote 
economic growth throughout the country. Measures blend tax incentives 
and subsidies and are available to foreign and domestic firms alike. 
There are also subsidies to stimulate R&D and to encourage development 
and use of new technology by small and medium sized firms.
    Complying with EU competition legislation, new Dutch competition 
legislation became effective on January 1, 1998. The new Competition 
Law includes a provision for the supervision of company mergers by the 
Netherlands Competition Authority (NMA). The law is expected to boost 
competition, improve transparency, and provide greater de facto access 
to a number of sectors for foreign companies.
4. Debt Management Policies
    With a current account surplus of well over five percent of GDP and 
no external debt, the Netherlands is a major creditor nation. The Dutch 
have run a surplus on current account since the early 1980s. During 
that period, gross public sector debt (EMU criterion) grew sharply, to 
81.2 percent of GDP by 1993. Since the late 1980s, the Dutch fiscal 
balance has drastically improved. Most observers now predict a 
significant decline of the debt to GDP ratio towards the EMU 60 percent 
criterion over the next three years. Debt servicing and rollover has 
fallen to slightly over nine percent of GDP, with interest payments 
alone at four percent of GDP. All government debt is domestic and 
denominated in guilders. There are no difficulties in tapping the 
domestic capital market for loans, and public financing requirements 
are generally met before the end of each fiscal year. The Netherlands 
is a major foreign assistance donor nation with a bilateral and 
multilateral development assistance budget of 1.1 percent of GDP equal 
to $4.8 billion in 1999. Official Development Aid (ODA) amounts to 0.8 
percent of GDP or $3.4 billion. The Netherlands belongs to, and 
strongly supports, the IMF, the World Bank, EBRD, and other 
international financial institutions.
5. Significant Barriers to U.S. Exports
    The Dutch pride themselves on their open market economy, 
nondiscriminatory treatment of foreign investment, and a strong 
tradition of free trade. Foreign investors receive full national 
treatment, and the Netherlands adheres to the OECD investment codes and 
the International Convention for the Settlement of Investment Disputes. 
There are no significant Dutch barriers to U.S. exports, and U.S. firms 
register relatively few trade complaints. The few trade barriers that 
do exist result from common EU policies. The following are areas of 
potential concern for U.S. exporters:
    Agricultural Trade Barriers: These result from the Common 
Agricultural Policy (CAP) and common external tariffs, which severely 
limit imports of U.S. agricultural products, e.g., canned fruits (high 
tariffs), frozen whole turkeys and parts (high tariffs). Bilateral 
import barriers, although usually connected with EU-wide regulations, 
do arise in customs duties, grading, inspection and quarantine, e.g., 
fresh beef (hormones) and poultry (phytosanitary). EU rules and 
procedures sometimes hinder commodity and product entry. Although only 
a few cases have been reported to date, an increasing pattern of 
delayed or rejected shipments of agricultural commodities, food and 
beverages appears to have developed. Current EU-wide regulations, and 
the lack of timely approval processes for agricultural products, 
including Genetically Modified Organisms (GMOs), hinder U.S. exports. 
Some of these rejections or delays in clearance cause major financial 
and logistical problems to Dutch importers and U.S. exporters for 
particular products, thus dampening trade prospects and flows.
    Offsets for Defense Contracts: All foreign contractors must provide 
at least 100 percent offset/compensation for defense procurement over 
five million Dutch Guilders (about $2.5 million). The seller must 
arrange for the purchase of Dutch goods or permit the Netherlands to 
domestically produce components or subsystems of the systems it is 
buying. A penalty system for noncompliance with offset obligations is 
under consideration. The United States has discussed this issue with 
the government of the Netherlands.
    Broadcasting and Media Legislation: The Dutch fully comply with the 
EU Broadcast Directive, but this has not in any way impeded the 
transmission of non-European programs. U.S. television shows and films 
are popular and readily available. Commercial broadcasters may apply 
for temporary exemptions of the quota requirement on an ad hoc basis.
    Cartels: Although the export sector of the Dutch economy is open 
and free, cartels have long been a component of the domestic sector of 
the economy. A new Cartel Law which took effect in 1996 bans cartels 
unless its proponents can conclusively demonstrate a public interest. 
Since 1998, the United States received no complaints by U.S. firms of 
having been disadvantaged by cartels in the Netherlands.
    Public Procurement: Dutch public procurement practices comply with 
the requirements of the GATT/WTO Agreement on Public Procurement and 
with EU public procurement legislation. The Netherlands has fully 
implemented the EU's Supplies Directive 93/36/EEC, Works Directive 93/
37/EEC, and the Utilities Directive 93/38/EEC. Implementation of EU and 
GATT public procurement obligations have contributed to greater 
transparency of the Dutch public procurement environment at the central 
and local government levels. Independent studies show that transparency 
and enforcement in this area can be deficient, especially at the local 
level, and procurement may be contingent on offset or local content 
requirements. As part of its plan to encourage electronic transactions, 
the government has declared its intention to begin posting all national 
and local government procurement tenders on websites in the near 
future. The EU Utilities Directive may force more public notification 
and end the effective duopoly in Dutch power generation and 
distribution, and the monopoly in production and distribution of 
natural gas.
6. Export Subsidies Policies
    Under the Export Matching Facility, the government provides 
interest subsidies for Dutch export contracts competing with government 
subsidized export transactions in third countries. These subsidies 
bridge the interest cost gap between Dutch export contracts and foreign 
contracts which have benefited from interest subsidies. The government 
provides up to 10 million guilders (about $5.5 million) of interest 
subsidies per export contract, up to a maximum of 35 percent per export 
transaction. An export transaction must have at least 60 percent Dutch 
content to be eligible. For defense, aircraft and construction 
transactions, the minimum Dutch content is one-third.
    There is a local content requirement of 70 percent for exporters 
seeking to insure their export transactions through the Netherlands 
Export Insurance Company.
    The Dutch provide some subsidies for shipping. In conformity with 
the OECD understanding on subsidies, the government grants interest 
rate subsidies (maximum two percent) to Dutch shipbuilders up to 80 
percent of a vessel's cost with a maximum repayment period of 8.5 
Years. This subsidy is only available when ``matched'' by similar 
offers by non-EU shipyards. Despite termination of the EU shipbuilding 
subsidies regime in 1996, the shipbuilding subsidies budget earmarked 
70 million guilders ($35 million) annually in 1999 and 2000. As long as 
the 1994 OECD agreement to phase out shipbuilding subsidies 
internationally has not been ratified by all parties, the Dutch will 
continue to support their shipbuilding industry adhering to EU 
shipbuilding regulations.
7. Protection of U.S. Intellectual Property
    The Netherlands has a generally good record on IPR protection. It 
belongs to the World Intellectual Property Organization (WIPO), is a 
signatory of the Paris Convention on Industrial Property and the Berne 
Copyright Convention, and conforms to accepted international practice 
for protection of technology and trademarks. Patents for foreign 
investors are granted retroactively to the date of original filing in 
the home country, provided the application is made through a Dutch 
patent lawyer within one year of the original filing date. Patents are 
valid for 20 years. Legal procedures exist for compulsory licensing if 
the patent is determined to be inadequately used after a period of 
three years, but these procedures have rarely been invoked. Since the 
Netherlands and the United States are both parties to the Patent 
Cooperation Treaty (PCT) of 1970, patent rights in the Netherlands may 
be obtained if PCT application is used.
    The Netherlands is a signatory of the European Patent Convention, 
which provides for a centralized Europe-wide patent protection system. 
This convention has simplified the process for obtaining patent 
protection in the member states. Infringement proceedings remain within 
the jurisdiction of the national courts, which could result in 
divergent interpretations detrimental to U.S. investors and exporters. 
The limited scope of resources devoted to enforcement of anti-piracy 
laws is of concern to U.S. producers of software, audio and video 
tapes, and textbooks. Legislation was enacted in early 1994 to 
explicitly include computer software as intellectual property under the 
copyright statutes, and the government is working with industry on 
enforcement.
8. Worker Rights
    a. The Right of Association: The right of Dutch workers to 
associate freely is well established. One quarter of the employed labor 
force belongs to unions, but union-negotiated collective bargaining 
agreements are usually extended to cover about three-quarters of the 
workforce. Membership in labor unions is open to all workers including 
military, police, and civil service employees. Unions are entirely free 
of government and political party control and participate in political 
life. They also maintain relations with recognized international bodies 
and form domestic federations. The Dutch unions are active in promoting 
worker rights internationally. All union members, except most civil 
servants, have the legal right to strike. Civil servants have other 
means of protection and redress. There is no retribution against 
striking workers. In the European Union, the Netherlands has one of 
lowest percentages of days lost due to labor strikes. In 1998, some 33 
labor days per 1000 workers were lost due to industrial disputes 
compared with 15 days in 1997.
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively is recognized and well established. 
There are no union shop requirements. Discrimination against workers 
because of union membership is illegal and does not exist. Dutch 
society has developed a social partnership among the government, 
employers' organizations, and trade unions. This tripartite ``Social 
Partnership'' involves all three participants in negotiating guidelines 
for collective bargaining agreements which, once reached in a sector, 
are extended by law to cover the entire sector. Such generally binding 
agreements (AVVs) cover most Dutch workers.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor, including that by children, is prohibited by the Constitution 
and does not exist.
    d. Minimum Age for Employment of Children: Child labor laws exist 
and are enforced. The minimum age for employment of young people is 16. 
Even at that age, youths may work full time only if they have completed 
the mandatory 10 years of schooling and only after obtaining a work 
permit (except for newspaper delivery). Those still in school at age 16 
may not work more than eight hours per week. Laws prohibit youths under 
the age of 18 from working at night, overtime, or in areas which could 
be dangerous to their physical or mental development.
    e. Acceptable Conditions of Work: Dutch law and practice adequately 
protect the safety and health of workers. Although a forty hours 
workweek is established by law, the average workweek for adults working 
full time currently stands at 37.5 hours. The high level of part-time 
work has lowered the estimated actual workweek to 35.8 hours. 
Collective bargaining negotiations are heading towards an eventual 36 
hours workweek for full-time employees. The gross minimum wage in mid-
1999 amounted to about 2,376 guilders (US$ 1,188) per month. The 
legally mandated minimum wage is subject to semiannual cost of living 
adjustment. Working conditions are set by law, and regulations are 
actively monitored.
    f. Rights in Sectors with U.S. Investments: The worker rights 
described above hold equally for sectors in which U.S. capital is 
invested.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,826
Total Manufacturing............  ..............  16,242
  Food & Kindred Products......  1,078           ...............................................................
  Chemicals & Allied Products..  10,212          ...............................................................
  Primary & Fabricated Metals..  224             ...............................................................
  Industrial Machinery and       993             ...............................................................
   Equipment.
  Electric & Electronic          1,860           ...............................................................
   Equipment.
  Transportation Equipment.....  348             ...............................................................
  Other Manufacturing..........  1,526           ...............................................................
Wholesale Trade................  ..............  9,446
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  42,836
Services.......................  ..............  6,985
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  79,386
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 NORWAY


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................     153,380     146,636     150,645
  Real GDP Growth (pct) \2\.........         4.3         2.1         0.9
  Real Mainland GDP Growth (pct)....         4.4         3.3         0.5
  Nominal GDP by sector:
    Agriculture.....................       3,089       3,161       3,200
    Oil and Gas Production..........      23,491      15,463      18,500
    Manufacturing...................      16,932      17,422      17,500
    Services........................      86,470      86,646      86,945
    Government......................      23,398      23,944      24,500
  Per capita GDP....................      34,237      32,586      33,255
  Labor force (000's)...............       2,285       2,330       2,340
  Unemployment Rate (percent).......         4.1         3.2         3.3

Money and Prices (annual percentage
 growth):
  Money supply (M2).................         4.6         5.6         5.4
  Consumer Price Inflation..........         2.6         2.3         2.2
  Exchange rate (NOK/US$ annual             7.10        7.55        7.75
   average).........................

Balance of payments and trade:
  Total Exports FOB.................      48,228      40,649      43,700
    Exports to U.S.\3\..............       3,735       2,874       3,200
  Total Imports CIF.................      35,526      39,656      36,500
    Imports from U.S.\3\............       1,720       1,709       1,500
  Trade Balance.....................      12,702         993       7,200
    Balance with U.S................       2,015       1,165       1,700
  External Public Debt..............       3,085         900       2,000
  Debt Service Payments.............       3,446       2,185          90
  Fiscal Surplus/GDP (pct)..........         5.6         2.9         6.2
  Current Account Surplus/ GDP (pct)         5.2       (1.5)         3.0
  Foreign Exchange Reserves \4\.....      24,136      18,813      20,400
  Aid from U.S......................           0           0           0
  Aid From Other Countries..........           0           0           0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on monthly data in November.
\2\ Growth figures are based on the basis of the local currency.
\3\ U.S. Department of Commerce trade statistics.
\4\ Includes gold; but excludes assets in the state petroleum fund.

Source: Government of Norway data.

1. General Policy Framework
    Exploitation of Norway's major non-renewable energy resources--
crude oil and natural gas--will continue to drive the country's 
economic growth for at least the next three decades. Offshore, Norway's 
remaining oil reserves (discovered plus undiscovered) will last for 
another 30 years at current extraction rates, while the equivalent 
figure for natural gas is 131 years. Energy-intensive industries such 
as metal processing and fertilizer production will remain prominent on 
the mainland due to the availability of abundant hydropower.
    Some constraints continue to limit Norway's economic flexibility 
and ability to maintain international competitiveness. Labor 
availability remains limited by Norway's small population of 4.5 
million and a restrictive immigration policy. Norway is also a high-
cost country with a centralized collective wage bargaining process and 
government-provided generous social welfare benefits. Norway's small 
agricultural sector survives largely through subsidies and protection 
from international competition.
    State intervention in the economy remains significant. The 
government owns just over 50 percent of domestic businesses, including 
majority stakes in the two largest oil and industry conglomerates and 
the country's biggest commercial bank. While new legislation governing 
investment was implemented in 1995 to meet European Economic Area 
(``EEA'') and WTO obligations, screening of foreign investment and 
restrictions on foreign ownership remains.
    The government's dependence on petroleum revenue has increased 
substantially since the early 1970's, generating an estimated 15 
percent of total government 1999 revenue. Since 1995, Norway has been a 
net foreign creditor and has posted budget surpluses. The surpluses are 
invested in a petroleum fund for future use.
    No general tax incentives exist to promote investment. Tax credits 
and government grants are offered, however, to encourage investment in 
northern Norway; and tax incentives are granted to encourage the use of 
environmentally friendly products such as the electric car think. 
Several specialized state banks provide subsidized loans to sectors 
including agriculture and fishing. Transportation allowances and 
subsidized power are also available to industry. Norway and the EU have 
preferential access to each other's markets, except for the 
agricultural and fisheries sectors, through the EEA agreement which 
entered force in January 1994. Although in a 1994 national referendum 
Norwegians rejected a proposal to join the EU, Norway routinely 
implements most EU directives as required by the EEA.
    The government controls the growth of the money supply through 
reserve requirements imposed on banks, open market operations, and 
variations in the central bank overnight
    Lending rate. The central bank's flexibility in using the money 
supply as an independent policy instrument is limited by the 
government's priority to maintain a stable rate of exchange.
2. Exchange Rate Policy
    The Norwegian krone was un-pegged from the ecu in December 1992. 
The government's stated policy since 1994 has been to maintain a stable 
krone vis-a-vis European currencies. The central bank uses interest 
rate policy and open market operations to keep currency stable in a 
managed float that follows a range of values defined in the exchange 
rate regulation. With the introduction of the euro January 1, 1999, 
Norway currently keeps the krone stable vis-a-vis the euro-zone 
currency (euro).
    Quantitative restrictions on credit flows from private financial 
institutions were abolished in the late 1980's. Norway dismantled most 
remaining foreign exchange controls in 1990. U.S. companies operating 
within Norway have not reported any problems to the embassy in 
remitting payments.
3. Structural Policies
    The government's top economic priorities include maintaining high 
employment, generous welfare benefits, and rural development. These 
economic priorities are part of Norway's regional policy of 
discouraging internal migration to urban centers in the south and east 
and of maintaining the population in the north and other sparsely 
populated regions. Thus, parts of the mainland economy--particularly 
agriculture and rural industries--remain protected and cost-inefficient 
from a global viewpoint with Norway's agricultural sector remaining the 
most heavily subsidized in the OECD. While some progress has been made 
in reducing subsidies manufacturing industry, support remains 
significant in areas including food processing and shipbuilding.
    A revised legal framework for the functioning of the financial 
system was adopted in 1988, strengthening competitive forces in the 
market and bringing capital adequacy ratios more in line with those 
abroad. Further liberalization in the financial services sector 
occurred when Norway joined the EEA and accepted the EU's banking 
directives. The Norwegian banking industry has returned to 
profitability following reforms prompted by the banking crises in the 
early 1990's.
    Norway has taken some steps to deregulate the non-bank service 
sector. Although large parts of the transportation markets (including 
railways) remain subject to restrictive regulations, including 
statutory barriers to entry, the government telecommunications services 
to competition in 1998.
4. Debt Management Policies
    The state's exposure in international debt markets remains very 
limited because of Norway's prudent budgetary and foreign debt 
policies. The government's gross external debt situation significantly 
improved in 1990's, declining from about US$10 billion in 1993 to about 
US$900 million at the end of 1998. Norway's status changed from a net 
debtor to a net creditor country in 1995 largely because of the 
contributions from the oil and gas sector.
5. Aid
    There are no aid flows between Norway and the U.S.
6. Significant Barriers to U.S. Exports
    Norway is a member of the World Trade Organization and supports the 
principles of free trade but significant barriers to trade remain in 
place. The government maintains high agricultural tariffs that are 
administratively adjusted when internal market prices fall outside 
certain price limits. These unpredictable administrative tariff 
adjustments disrupt advance purchase orders and severely limit 
agricultural imports into Norway from the U.S. and other distant 
markets.
    State ownership in Norwegian industry continues to complicate 
competition in a number of sectors including telecommunications, 
financial services, oil and gas, and alcohol and pharmaceutical 
distribution. Despite some ongoing reforms, Norway still maintains 
regulatory practices, certification procedures and standards that limit 
market access for U.S. materials and equipment in a variety of sectors, 
including telecommunications and oil and gas materials and equipment. 
U.S. companies, particularly in the oil and gas sector, operate 
profitably in Norway.
    While there has been substantial banking reform, competition in 
this sector still remains distorted due to government ownership of the 
largest commercial bank, and the existence of specialized state banks 
that offer subsidized loans in certain sectors and geographic 
locations.
    Restrictions also remain in the distribution of alcohol, which 
historically has been handled through state monopolies, and in the way 
pharmaceutical drugs are marketed. Norway is obligated to terminate 
these monopolies under the EEA accord but implementation is slow. The 
European Free Trade Association (EFTA) surveillance agency (ESA--the 
organization responsible for insuring EEA compliance) has been 
monitoring Norway's progress in these areas.
7. Export Subsidy Policies
    As a general rule the government of Norway does not subsidize 
exports, although some heavily subsidized goods, such as dairy 
products, may be exported. The government indirectly subsidizes 
chemical and metal exports by subsidizing the electricity costs of 
manufacturers. In addition, the government provides funds to Norwegian 
companies for export promotion purposes. Norway is reducing its 
agricultural subsidies in stages over six years in accordance with its 
WTO obligations. Norway has also ratified the OECD shipbuilding subsidy 
agreement and has indicated it will eliminate shipbuilding subsidies as 
soon as the agreement is ratified by other major shipbuilding countries 
including the United States and Japan.
8. Protection of U.S. Intellectual Property
    Norway is a signatory of the main intellectual property accords, 
including the Berne copyright and universal copyright conventions, the 
Paris convention for the protection of industrial property, and the 
patent cooperation treaty. Any adverse impact of Norwegian IPR 
practices on U.S. trade is negligible.
    Norwegian officials believe that counterfeiting and piracy are the 
most important aspects of intellectual property rights protection. They 
complain about the unauthorized reproduction of furniture and appliance 
designs and the sale of the resultant goods in other countries, with no 
compensation to the Norwegian innovator.
    Product patents for pharmaceuticals became available in Norway in 
January 1992. Previously, only process patent protection was provided 
to pharmaceuticals.
9. Worker Rights
    a. Right of Association: Workers have the right to associate freely 
and to strike. The government can invoke compulsory arbitration under 
certain circumstances with the approval of parliament.
    b. The Right to Organize and Bargain Collectively: All workers, 
including government employees and the military, have the right to 
organize and to bargain collectively. Labor legislation and practice is 
uniform throughout Norway.
    c. Prohibition of Forced or Compulsory Labor: The GON prohibits 
forced and compulsory labor by law.
    d. Minimum Age for Employment of Children: Children are not 
permitted to work full time before age 18. However, children 13 to 18 
years may be employed part-time in light work that will not adversely 
affect their development.
    e. Acceptable Conditions of Work: Ordinary working hours do not 
exceed 37.5 hours per week, and four weeks plus one day of paid leave 
are granted per year (31 days for those over 60). There is no minimum 
wage in Norway, but wages normally fall within a national wage scale 
negotiated by labor, employers, and the government. The workers' 
protection and working environment act of 1977 assures all workers safe 
and physically acceptable working conditions.
    f. Rights in Sectors With U.S. Investment: Norway has a tradition 
of protecting worker rights in all industries, and sectors where there 
is heavy U.S. investment are no exception.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,045
Total Manufacturing............  ..............  831
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  17              ...............................................................
  Primary & Fabricated Metals..  3               ...............................................................
  Industrial Machinery and       168             ...............................................................
   Equipment.
  Electric & Electronic          7               ...............................................................
   Equipment.
  Transportation Equipment.....  15              ...............................................................
  Other Manufacturing..........  (1)             ...............................................................
Wholesale Trade................  ..............  303
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  1,881
Services.......................  ..............  290
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  7,609
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 POLAND


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................     135,600     146,031     158,780
  Real GDP Growth (pct).............         6.8         4.8         4.0
  GDP by Sector (pct):
    Agriculture.....................         4.8         4.2         N/A
    Manufacturing...................        20.2        24.4         N/A
    Services........................         N/A         N/A         N/A
    Government......................         N/A         N/A         N/A
  Per Capita GDP (US$)..............       3,507       3,800       4,090
  Labor Force (000's)...............      17,052      17,162         N/A
  Unemployment Rate (pct)...........        10.3        10.4        11.8

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        29.0        25.2         N/A
  Consumer Price Inflation..........        13.2         9.5         8.5
  Exchange Rate (PZL/US$ annual
 average)
    Official........................        3.28        3.49        3.90

Balance of Payments and Trade:
  Total Exports FOB (US$ billions)          27.2        30.1        28.0
   \2\..............................
    Exports to U.S. (US$ billions)           0.7         0.8         0.5
     \3\............................
  Total Imports CIF (US$ billions)..        38.5        43.8        42.1
    Imports from U.S. (US$ billions)         1.2         0.9         0.5
     \3\............................
  Trade Balance (US$ billions)......       -11.3       -13.7       -14.1
    Balance with U.S. (US$ billions)       -0.52        -0.1         0.0
     \3\............................
  External Public Debt (US$                 38.5        43.0         N/A
   billions)........................
  Fiscal Deficit/GDP (pct)..........         2.8         2.7         2.8
  Current Account Surplus/Deficit/          -3.0        -4.3        -6.8
   GDP (pct) \4\....................
  Debt Service Payments/GDP (pct)            3.5         3.2         3.4
   \5\..............................
  Gold and Foreign Exchange Reserves
    (US$ billions) \6\..............        20.7        27.4        27.3
  Aid from U.S. (US$ millions) \7\..        52.7        62.7        26.3
  Aid from Other Sources (US$                N/A         N/A         N/A
   millions)........................
------------------------------------------------------------------------
\1\ 1999 figures are Polish Government estimates as of October 1999,
  unless otherwise noted.
\2\ Polish Government trade figures, without transshipments via third
  countries.
\3\ U.S. Department of Commerce and U.S. Census Bureau; exports FAS,
  imports customs basis.
\4\ Including estimated unrecorded trade.
\5\ Debt service includes paid interest and principal.
\6\ Data available through August 1999.
\7\ U.S. Government estimate; includes economic and military assistance
  (USAID and FMF.)

1. General Policy Framework
    In the past decade, Poland has transformed its economy with mostly 
sound financial policies and commitment to structural reforms (the 
government adopted into law reforms on regional government, health 
care, pension system, and education in 1998-1999 alone), making it one 
of the most successful and open transition economies. After four 
consecutive years of growth at about 6 percent or 7 percent per year, 
the Polish economy, affected by the Asian and Russian crises, slowed in 
1998. By the end of 1999, the Polish economy is expected to see 3.5 
percent to 4 percent growth, with 5.2 percent projected for 2000. The 
private sector is thriving as a result of privatization and 
liberalization, although Poland's large agriculture sector remains 
handicapped by surplus labor, inefficient small farms, and lack of 
investment. The (shrinking) shadow ``gray economy'' was estimated to 
generate around 17 percent of GDP in 1999.
    Government Priorities: A member of the WTO, OECD, and NATO, Poland 
now considers membership in the European Union (EU) one of its highest 
priorities with a self-imposed accession date of January 1, 2003. The 
process is exacting a political toll (lack of effective support from 
the opposition and declining public support) and affects most economic 
policies, from the budget to reforms. By late 1999, Poland had 
provisionally closed eight of the 30 chapters. In addition, Poland has 
agreed to liberalization of its trade and investment regimes through 
international (WTO, OECD), regional (Central European Free Trade 
Agreement or ``CEFTA''), and various bilateral agreements, including 
one concluded in 1999 with Turkey. Poland also seeks to improve 
bilateral economic relations with Russia, Ukraine and Belarus.
    Fiscal Policy: The government seeks to reduce the central 
government budget deficit to 1.9 percent of GDP in 2000, and to 
eliminate it altogether by 2003. Financing comes principally from 
privatization revenues and the domestic non-banking private sector 
(e.g., insurance companies and pension funds). The constitution 
prohibits the National Bank of Poland (NBP) from financing the budget 
deficit. Reforms, generous social programs (disability, unemployment 
and welfare), and debt service obligations constitute the heaviest 
burdens on the budget. The 1998 Act on Public Finances, a framework for 
fiscal consolidation to manage public finances, clarifies the 
responsibilities of the various budgetary players, sets measures to 
improve transparency in public finances, establishes rules for local 
governments, and prepares for EU accession. It also establishes 
procedures to be followed if total public debt, including state 
guarantees, exceeds certain limits.
    Monetary Policy: The independent Monetary Policy Council (MPC) sets 
monetary policy, implemented by the NBP, using an inflation target. The 
MPC's goal for 2000 is to reduce inflation to between 5.4 and 6.8 
percent. In the medium-term, the goal is to curb inflation to 4.0 
percent or less by 2003. Tight fiscal policy reduced inflation from 600 
percent in 1990 to below 10 percent in 1999. As inflation slowed in 
1998, the MPC started to cut its intervention rates. However, a 
resurgence of inflation in late 1999, coupled with fears that rising 
household credit and growing off-budget spending could fuel inflation 
in 2000, led the MPC to sharply tighten monetary policy in November, 
raising key interest rates by 3.5 points. After a long period of 
appreciation, the Polish zloty fell from 3.5 to 4.0 against the dollar 
in early 1999, making U.S. exports to Poland less competitive.
2. Exchange Rate Policies
    Since 1991, the NBP has managed the exchange rate by a crawling peg 
mechanism against a basket of reserve currencies (45 percent U.S. 
dollars, 35 percent German marks, and the rest in pounds sterling and 
French and Swiss francs). As of 1999, the basket is composed of 55 
percent euros and 45 percent dollars. The MPC now depreciates the 
central parity rate for the zloty by 0.3 percent per month, but allows 
the currency to float within a 15 percent band around that rate. The 
NBP plans to float the zloty in 2000 to let it find its equilibrium 
level before applying for participation in European Exchange Rate 
Mechanism (ERM2) and then EMU.
    Poland achieved current account convertibility in 1995, eliminated 
the requirement for Polish firms to convert their foreign currency 
earnings into zlotys in 1996, removed most limits on capital account 
outflows by Polish citizens in 1997, and enforced a new foreign 
exchange law in January 1999. Restrictions were removed on foreign 
exchange transactions for resident portfolio investments, investment in 
OECD issued securities, and operations in negotiable securities, 
including collective investment securities, with some exceptions, such 
as transactions in debt instruments with a maturity of less than one 
year and derivatives. The law authorizes further liberalization 
measures, but also contains safeguards to allow the government to 
temporarily re-establish restrictions under certain circumstances, such 
as extraordinary risk to the stability and integrity of the financial 
system. By January 2000, Poland's remaining restrictions on capital 
movements, other than foreign direct investment flow and short-term 
capital flow, should be limited to real estate investment abroad and in 
Poland. The current foreign direct investment restrictions are foreign 
acquisitions of certain categories of real estate, indirect ownership 
of Polish insurance companies, air and shipping transport, 
broadcasting, certain telecommunication services, and gaming.
3. Structural Policies
    Prices: Most price subsidies and controls disappeared during 
Poland's 1990 economic shock therapy, although those on public 
transportation and some pharmaceuticals continue. The government hopes 
to eventually eliminate all controls, providing interim support for 
coal and some agricultural products, and allowing new regulatory bodies 
to play a central role in setting prices in the energy and 
telecommunications sectors.
    Taxes: A government tax reform package debated in late 1999 aimed 
to cut income tax rates, eliminate exemptions, and bring the VAT into 
line with EU rules. After weeks of intense debate parliament approved 
the reform proposals; the president, however, refused to sign into law 
the revisions to personal income taxes. The corporate income tax will 
be reduced to 30 percent in 2000 from the 1999 level of 34 percent; 
personal income tax rates of 19, 30 and 40 percent will remain in 
effect in 2000. Under pressure from the EU, Poland will likely amend 
the rules on its special economic zones that provide foreign investors 
with tax breaks, resulting in the closure of some zones and no access 
for new entrants to others.
    Regulatory Policies: Primary concerns are current product 
certification standards and the continuing lack of an independent 
regulatory commission for telecommunications.
4. Debt Management Policies
    Poland's foreign debt situation improved with rescheduled 
agreements with the Paris Club (1991) and the London Club (1994), 
reducing Poland's debt by nearly half. By end-1999, Poland's total 
official foreign debt was $32 billion, including $23 billion to the 
Paris Club, $5 billion in Brady bonds (London Club), $2.3 billion to 
other institutions (IMF, World Bank, EBRD and BIS), and $0.8 billion in 
Rebounds and Yankee bonds. Since 1995, Poland has held investment grade 
ratings from various agencies, boosted by a return to international 
capital markets with a $250 million Eurobond flotation. In October 
1999, Poland received a Moody's rating of Baaa1 and a Standard and 
Poor's rating of BBB. Debt servicing remains relatively low both in 
relation to government expenditure (12 percent) and GDP (3 percent to 4 
percent). Foreign debt servicing represents a sustainable proportion of 
exports of goods and services; as of late 1999, the private sector has 
an estimated $11 to $12 billion in foreign debt. Having prepaid all 
outstanding IMF drawings in 1995, Poland's total state debt (foreign 
and domestic) shrank to 44 percent of GDP by the end of 1998.
5. Aid
    The U.S. gave Poland $26.3 million in aid in 1999, $20 million of 
which was SEED Act funds to help Poland's transition to a free market 
democracy. The remaining $6.3 million was military and other aid. 2000 
will be the last year for SEED Act assistance to Poland; military aid 
will continue.
6. Significant Barriers to U.S. Exports
    Tariffs: In 1999, Poland entered a new stage of free trade in 
industrial products with the EU, EFTA and CEFTA countries. Currently, 
73 percent of all industrial imports from these countries are duty 
free, 23 percent fall under MFN tariffs, and about 3 percent are 
subject to the GSP system. The exceptions are tariffs on cars (to be 
eliminated in 2002), steel products, gasoline and fuel, and heating 
oils. As a result of required Uruguay Round implementations, Poland 
reduced tariffs in 1999 on many agricultural products, but 
simultaneously increased tariffs on others, e.g., pork and malt. While 
Poland's EU association agreement established preferential tariffs for 
non-agricultural, EU-origin imports into the Polish market, Poland has 
maintained its higher MFN tariffs for U.S. and other non-EU products. 
All U.S. exporters within a broad range of industry sectors have 
complained that the differentials have diminished their business 
prospects and ability to compete against EU-origin products which enter 
Poland duty-free. The U.S. and Polish governments are currently 
discussing possible resolutions to this issue. In late 1999 the Polish 
Government announced plans to raise agricultural tariffs from current 
applied levels to Poland's WTO bound levels, which in many cases are 
much higher.
    Import Licenses: Licenses are required for strategic goods on 
Wassenaar dual use and munitions lists, as well as for beer, wine, 
fuel, tobacco, dairy products, meat, poultry, semen, and embryos. The 
plant quarantine inspection service issues a mandatory phytosanitary 
import permit for the import of live plants, fresh fruits and 
vegetables into Poland. U.S. grain and oilseed exports to Poland have 
been hampered by Polish regulations requiring zero tolerance for 
several common weed seeds. Certificates from the Veterinary Department 
in the Ministry of Agriculture are also required for meat, dairy and 
live animal products. Poland intends to implement regulations on 
biotechnology and genetically modified organisms, following EU norms. 
Import licenses for dairy cattle genetics already have limited U.S. 
access to the Polish market.
    Services Barriers: Poland has made progress, but many barriers 
remain, especially in audio-visuals, legal services, financial 
services, and telecommunications. In November 1997, the government 
enacted a rigid 50 percent European production quota for all television 
broadcasters, raising concerns about certain liberalization commitments 
undertaken by Poland upon joining the OECD. However, legislation 
introduced into Parliament in late 1999 would require broadcasters to 
meet the 50 percent quota only where practical, bring Polish 
regulations into line with EU directives. In January 1998, new laws on 
banking and the central bank came into force. As a condition of its 
accession to the OECD, Poland agreed to allow firms from OECD countries 
to open branches and representative offices in the insurance and 
banking sector starting in 1999, as well as subsidiaries of foreign 
banks. The government began privatizing the state telecommunications 
monopoly in October 1998, and agreed to open domestic long-distance 
service to competition in 1999 and international services in 2003. 
Local telephone service licenses are being awarded, but interconnection 
remains the domain of the state monopoly.
    Standards, Testing, Labeling, and Certification: One Polish 
regulation which may adversely affect U.S. exports is a requirement for 
some 1,400 products sold in Poland to obtain a safety ``B'' certificate 
from a Polish test center. Enforcement of this regulation has been 
postponed each year since 1995, and following an August 1999 amendment, 
products fall into two groups: those requiring a B certificate, and 
those for which producer conformity declaration is sufficient. Under 
the ``B'' rule, the EU ``CE'' mark and ISO 9000 can accelerate the 
certification process. Poland wants a mutual recognition agreement with 
the EU, but this would require enacting a new law on product liability. 
In the past, U.S. companies complained about the complexity and 
slowness of the testing process, as well as vague information on fees 
and procedures, but recently these complaints have been fewer. 
Phytosanitary standards on weed seeds have had a major adverse impact 
on the ability of U.S. farmers to export certain grains to Poland.
    Investment Barriers: Polish law permits 100 percent foreign 
ownership of most corporations, although some obstacles remain for 
foreign investment in certain ``strategic sectors'' such as mining, 
steel, defense, transport, energy, and telecommunications, and certain 
controls remain on other foreign investment. Broadcasting legislation 
still restricts foreign ownership to 33 percent (although proposed 
legislation would increase this to 49 percent for terrestrial 
broadcasting and 100 percent for satellite) and foreign stakes in air 
and maritime transport, fisheries, and long-distance telecommunications 
are confined to 49 percent. No foreign investment is currently allowed 
in international telecommunications or gambling. The government is 
working on privatization of telecommunications, steel mills, and 
energy, as well as a restructuring plan for the defense industry that 
calls for significant foreign investment. As a result of OECD 
accession, foreigners in Poland may purchase up to 4000 square meters 
of urban land or up to one hectare of agricultural land without a 
permit. Larger purchases, or the purchase of a controlling stake in a 
Polish company owning real estate, require approval from the Ministry 
of Interior and the consent (not always automatic) of both the Defense 
and Agriculture Ministries.
    Government Procurement Practices: Poland's government procurement 
law is modeled on the UN procurement code and is based on competition, 
transparency, and public announcement, but does not cover most 
purchases by state-owned enterprises. Single source exceptions to the 
stated preference for unlimited tender are allowed only for reasons of 
state security or national emergency. The domestic performance section 
in the law requires 50 percent domestic content and gives domestic 
bidders a 20 percent price preference. Companies with foreign 
participation organized under the Joint Ventures Act of 1991 may 
qualify for ``domestic'' status. There is also a protest/appeals 
process for tenders thought to be unfairly awarded. As of September 
1997, Poland has the status of an observer to the WTO's Government 
Procurement Agreement (GPA).
    Customs Procedures: Since signing the GATT customs valuation code 
in 1989, Poland has a harmonized tariff system. The customs duty code 
has different rates for the same commodities, depending on the point of 
export. Poland's Association Agreement with the EU, the CEFTA 
agreement, FTAs with Israel, Croatia, Latvia, Estonia and Lithuania 
(and Turkey, for implementation in January 2000), as well as GSP for 
developing countries, grant firms from these areas certain tariff 
preferences over U.S. competitors. Some U.S. companies have criticized 
Polish customs' performance, citing long delays, indifference, 
corruption, incompetent officials, and inconsistent application of 
customs rules. A new customs law took effect January 1998, but some 
problems remain, including the amount of paperwork required and the 
lack of electronic clearance procedures.
7. Export Subsidies Policies
    With its 1995 accession to the WTO, Poland ratified the Uruguay 
Round Subsidies Code and eliminated earlier practices of tax incentives 
for exporters, but it still offers drawback levies on raw materials 
from EU and CEFTA countries which are processed and re-exported as 
finished products within 30 days. Some politically powerful state-owned 
enterprises continue to receive direct or indirect production subsidies 
to lower export prices. Poland's past policy of rolling over unused WTO 
sugar subsidy allowances to be used in combination with a given year's 
allowances appears to be no longer relevant. Polish industry and 
exporters criticize the government for too little export promotion 
support. The one existing export insurance scheme has very limited 
resources, and rarely guarantees contracts to high-risk countries such 
as Russia, placing Polish firms at a disadvantage to most western 
counterparts.
8. Protection of U.S. Intellectual Property
    Poland has made major strides in improving protection of 
intellectual property rights. The U.S.-Polish Bilateral Business and 
Economic Treaty contains provisions for the protection of U.S. 
intellectual property. It came into force in 1994, once Poland passed a 
new Copyright Law that offers strong criminal and civil enforcement 
provisions and covers literary, musical, graphical, software, audio-
visual works, and industrial patterns. Amendments to the Copyright Law, 
designed to bring it fully into compliance with Poland's obligations 
under TRIPS, were pending in Parliament in late 1999. The amendments 
would provide full protection of all pre-existing works and sound 
recordings. Likewise, Parliament was set to consider new legislation on 
patents and trademarks which would bring Poland's industrial property 
protection up to TRIPS standards. Poland needs to provide for civil ex 
parte searches as required by its TRIPS obligations.
    Despite this legal foundation, Poland continues to suffer from high 
rates of piracy. Most of the pirated material available--particularly 
CDs and CD-ROMs--is imported from factories in the former Soviet Union. 
Industry associations estimate 1998 levels of piracy in Poland to be: 
40 percent in sound recordings, 25 percent in motion pictures, and 60 
percent in software. While enforcement has improved in recent years, 
the cumbersome judicial system remains an impediment. Criminal 
penalties will increase and procedures for prosecution will be somewhat 
simplified when the pending legislation takes effect in 2000. Poland is 
currently on the ``Special 301 Watch List'' due to inadequacies in laws 
currently on the books and ineffective enforcement.
9. Worker Rights
    Poland's 1996 Labor Code sets out the rights and duties of 
employers and employees in modern, free-market terms.
    a. The Right of Association: Polish law guarantees all civilian 
workers, including military employees, police and border guards, the 
right to establish and join trade unions of their own choosing, and the 
right to join labor organizations and to affiliate with international 
labor confederations. The number of unions has remained steady over the 
past several years, although membership appears to be declining.
    b. The Right to Organize and Bargain Collectively: The laws on 
trade unions and resolution of collective disputes generally create a 
favorable environment to conduct trade union activity, although 
numerous cases have been reported of employer discrimination against 
workers seeking to organize or join unions in the growing private 
sector.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor does 
not exist, except for prisoners convicted of criminal offenses.
    d. Child Labor Practices: Polish law strictly prescribes conditions 
in which children may work and sets the minimum age at 15. Forced and 
bonded child labor is effectively prohibited. The State Labor 
Inspectorate reported increasing numbers of working children and 
violations by employers who underpay or pay late.
    e. Acceptable Conditions of Work: Unions agree that the problem is 
not in the law, which provides minimum wage and minimum health and 
safety standards, but in insufficient enforcement by too few labor 
inspectors.
    f. Rights in Sectors With U.S. Investment: Firms with U.S. 
investment generally meet and can exceed the five worker rights 
conditions compared to Polish firms. In the last several years, there 
have been only a few cases where Polish unions have charged such 
companies with violating Polish labor law, and cases have been largely 
resolved. Existing unions usually continue to operate in Polish 
enterprises that are bought by American companies, but there tend to be 
no unions where U.S. firms build new facilities.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  797
  Food & Kindred Products......  150             ...............................................................
  Chemicals & Allied Products..  106             ...............................................................
  Primary & Fabricated Metals..  35              ...............................................................
  Industrial Machinery and       4               ...............................................................
   Equipment.
  Electric & Electronic          1               ...............................................................
   Equipment.
  Transportation Equipment.....  -15             ...............................................................
  Other Manufacturing..........  517             ...............................................................
Wholesale Trade................  ..............  247
Banking........................  ..............  423
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  85
Other Industries...............  ..............  104
TOTAL ALL INDUSTRIES...........  ..............  1,698
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                PORTUGAL


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     101.9     106.8     108.6
  Real GDP Growth (pct) \3\...............       3.4       3.9       3.0
  GDP by Sector:
    Agriculture...........................       3.8       3.5       3.6
    Industry..............................      33.4      34.7      35.3
    Services..............................      59.8      64.8      65.9
  Per Capita GDP (US$)....................    10,864    10,718    10,879
  Labor Force (000's) \4\.................      4635      4992      5057
  Unemployment Rate (pct).................       6.5       4.6       4.5

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       6.6       6.8       5.9
  Consumer Price Inflation................       2.2       2.8       2.4
  Exchange Rate (PTE/US$ annual average)..       175       180       188

Balance of Payments and Trade:
  Total Exports FOB \5\...................      24.8      26.0      23.6
    Exports to U.S.\5\....................       1.1       1.2       1.2
  Total Imports CIF \5\...................      34.9      38.3      36.2
    Imports from U.S.\5\..................       1.1      1.05       1.0
  Trade Balance...........................     -10.0     -12.3     -12.7
    Balance with U.S......................       0.0      0.15       0.2
  External Public Debt....................      14.4      13.6       N/A
  Fiscal Deficit/GDP (pct)................       2.7       1.9       1.7
  Current Account Deficit/GDP (pct).......       3.6       5.3       6.6
  Debt Service Payments/GDP (pct).........       N/A       N/A       N/A
  Gold and Foreign Exchange Reserves......      20.3      21.6      13.1
  Aid from the U.S........................         0         0         0
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1998 figures are estimates based on available monthly data in
  October.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Reflects a change in the series beginning in 1998.
\5\ Portuguese National Institute of Statistics.

1. General Policy Framework
    Prior to the 1974 Portuguese revolution, Portugal was one of the 
poorest and most isolated countries in Western Europe. In the twenty-
five years since, however, the country has undergone fundamental 
economic and social changes that have resulted in substantial 
convergence with its wealthier European neighbors. Joining the European 
Union in 1986 was a primary factor in this progress. The country has 
not only enjoyed growing trade ties with the rest of Europe, but has 
been one of the continent's primary beneficiaries of EU structural 
adjustment funds. The last twenty-five years have witnessed not only 
economic growth, but also significant structural changes. An economy 
that was once rooted in agriculture and fishing has developed into one 
driven by manufacturing and, increasingly, by the service sector.
    Over the more recent past, the country has experienced a broad-
based economic expansion since 1993 and is forecast to grow at rates 
higher than the EU average for the next several years. Much of the 
growth since 1993 can be linked with the country's successful efforts 
to join European monetary union (EMU), which was formally established 
at the beginning of 1999. To qualify for EMU, Portugal took steps to 
reduce its fiscal deficit and implement structural reforms. As a 
result, the country has benefited from currency stability, a falling 
inflation rate and falling interest rates. The falling interest rates, 
in turn, have reduced the government's interest expenditures and made 
it easier to meet its fiscal targets. The broader economy has been 
stimulated by a boom in consumer spending brought on by lower interest 
rates and greater availability of credit.
    Although the economy is generally healthy, there is some concern 
among economists that the current expansion shows signs of overheating. 
One manifestation of the growth in consumption has been a rise in 
household debt--from less than 20 percent of disposable income in 1990, 
to almost 65 percent of disposable income by the end of 1998. Other 
manifestations include an inflation rate that is persistently higher 
than the Euro-zone average, a growing current account deficit, and a 
sharp rise in real estate prices. With monetary union, Portugal no 
longer has the ability to craft a monetary response to the situation. 
However, the government has not yet employed fiscal restraint. When the 
effects of falling interest payments are taken into account, the 
government's current expenditures are still growing at a higher rate 
than are government revenues. These concerns will be one of the issues 
facing the newly re-elected government.
2. Exchange Rate Policy
    On January 1, 1999, Portugal and 10 other European countries 
entered monetary union; the escudo exchange rate is fixed at 200.482 
Portuguese escudos being equal to one Euro. Future exchange rate policy 
for the Euro-zone countries will be governed by the European Central 
Bank.
3. Structural Policies
    Portugal has generally been successful in liberalizing its economy. 
The country has used a large proportion of the 20 billion-dollar EU-
backed regional development financing for new infrastructure projects. 
These projects have included new highways, urban renewal for the site 
of Lisbon-based EXPO 98, rail modernization, subways, dams and water 
treatment facilities.
    Portugal has also pursued an aggressive privatization plan for 
state-owned companies. In 1988, state-owned enterprises accounted for 
19.4 percent of GDP and 6.4 percent of total employment. By 1997, these 
had fallen to 5.8 percent and 2.2 percent, respectively, and the 
country has continued with an aggressive schedule of privatization. By 
the end of 1998, total privatization receipts had reached $21.5 
billion. Former state-controlled companies now account for the bulk of 
the market capitalization of the Lisbon stock exchange and several of 
them have taken steps to expand their investments overseas. Notably, 
EDP (electricity) and Portugal Telecom (telecommunications) have made 
major investments in their respective sectors in Brazil.
4. Debt Management Policies
    Following the removal of capital controls in 1992, lower interest 
rates abroad led to a shift towards a greater reliance on the use of 
foreign public debt, which rose to 15.0 percent of GDP by 1998. That 
debt, however, has yielded benefits in the form of longer debt 
maturities and lower costs for domestic debt. As a result, interest 
expenditure on public debt fell from 6.2 percent of GDP in 1994 to an 
estimated 2.8 percent of GDP in 1999.
5. Significant Barriers to U.S. Exports
    The EU Customs Code was fully adopted in Portugal as of January 1, 
1993. Special tariffs exist for tobacco, alcoholic beverages, petroleum 
and automotive vehicles. Portugal is a member of the World Trade 
Organization.
    Because Portugal is a member of the EU, the majority of imported 
products enjoy liberal import procedures. However, import licenses are 
required for agricultural products, military/civilian dual use items, 
some textile products and industrial products from certain countries 
(not including the United States). Imported products must be marked 
according to EU directives and Portuguese labels and instructions must 
be used for products sold to the public.
    Portugal welcomes foreign investment and foreign investors need 
only to register their investments, post facto, with the Foreign Trade, 
Tourism, and Investment Promotion Agency. However, Portugal limits the 
percentage of non-EU ownership in civil aviation, television 
operations, and telecommunications. In addition, the creation of new 
credit institutions or finance companies, acquisition of a controlling 
interest in such financial firms, and establishment of subsidiaries 
require authorization by the Bank of Portugal (for EU firms) or by the 
Ministry of Finance (for non-EU firms).
    With respect to the privatization of state-owned firms, Portuguese 
law currently allows the Council of Ministers to specify restrictions 
on foreign participation on a case-by-case basis. Portuguese 
authorities tend, as a matter of policy, to favor national groups over 
foreign investors in order to ``enhance the critical mass of Portuguese 
companies in the economy.''
    Portuguese law does not discriminate against foreign firms in 
bidding on EU-funded projects. Nevertheless, as a practical matter, 
foreign firms bidding on EU-funded projects have found that having an 
EU or Portuguese partner enhances their prospects. For certain high-
profile direct imports; i.e., aircraft, the Portuguese Government has 
shown a political preference for EU products (Airbus).
    Companies employing more than five workers must limit foreign 
workers to 10 percent of the workforce, but exceptions can be granted 
for workers with special expertise. EU and Brazilian workers are not 
covered by this restriction.
    Portugal maintains no current controls on capital flows. The Bank 
of Portugal, however, retains the right to impose temporary 
restrictions in exceptional circumstances and the import or export of 
gold or large amounts of currency must be declared to customs.
6. Export Subsidies Program
    Portugal's export subsidies programs appear to be limited to 
political risk coverage for exports to high-risk markets and credit 
subsidies for Portuguese firms expanding their international 
operations.
7. Protection of U.S. Intellectual Property
    Portugal is a member of the International Union for the Protection 
of Industrial Property (WIPO) and a party to the Madrid Agreement on 
International Registration of Trademarks and Prevention of the Use of 
False Origins. Portugal's current Trademark Law entered into force on 
June 1, 1995. However, existing Portuguese legislation fails to comply 
with a number of specific provisions of the WTO TRIPS Agreement. The 
Portuguese government is aware of these deficiencies and has been 
engaged in a lengthy review and revision process, but no revisions have 
been approved to date. Portugal adopted national legislation in 1996 to 
extend patent protection to be consistent with the 20-year term 
specified in TRIPS and is considering legislation to protect test data.
    Some problems related to intellectual property protection remain. 
Software piracy has decreased over the last two years but rates in 
Portugal remain among the highest in Europe. Furthermore, Portugal's 
perceived weak protection for test data has restricted the introduction 
of new drugs into the country. Outside these sectors, however, 
Portuguese intellectual property practices do not have a significant 
impact on trade with the U.S.
8. Worker Rights
    a. The Right of Association: Workers in both the private and public 
sectors have the right to associate freely and to establish committees 
in the workplace to defend their interests. The Constitution provides 
for the right to establish unions by profession or industry. Trade 
union associations have the right to participate in the preparation of 
labor legislation. Strikes are constitutionally permitted for any 
reason; including political causes; they are common and are generally 
resolved through direct negotiations. The authorities respect all 
provisions of the law on labor rights.
    Two principal labor federations exist. There are no restrictions on 
the formation of additional labor federations. Unions function without 
hindrance by the government and are affiliated closely with the 
political parties.
    b. The Right to Organize and Bargain Collectively: Unions are free 
to organize without interference by the government or by employers. 
Collective bargaining is provided for in the Constitution and is 
practiced extensively in the public and private sectors.
    Collective bargaining disputes are usually resolved through 
negotiation. However, should a long strike occur in an essential sector 
such as health, energy or transportation, the government may order the 
workers back to work for a specific period. The government has rarely 
invoked this power, in part because most strikes are limited to 1 to 3 
days. The law requires a ``minimum level of service'' to be provided 
during strikes in essential sectors, but this requirement has been 
applied infrequently. When it has, minimum levels of service have been 
established by agreement between the government and the striking 
unions, although unions have complained, including to the International 
Labor Organization, that the minimum levels have been set too high. 
When collective bargaining fails, the government may appoint a mediator 
at the request of either management or labor.
    The law prohibits antiunion discrimination, and the authorities 
enforce this prohibition in practice. The General Directorate of Labor 
promptly examines complaints.
    There are no export processing zones.
    c. Prohibition of Forced or Compulsory Labor: Forced labor, 
including by children, is prohibited and does not occur.
    d. Minimum Age for Employment of Children: The minimum working age 
is 16 years. There are instances of child labor, but the overall 
incidence is low and is concentrated geographically and sectorally.
    The Government has worked actively to eliminate child labor and 
created a multi-agency body, the National Commission to Combat Child 
Labor (CNCTI) in 1996, to coordinate those efforts. The Commission is 
joined in its efforts by two non-governmental organizations, the 
National Confederation of Action on Child Labor (CNASTI) and the 
Institute of Support for Children (IAC). With the assistance of 
regional commissions, CNCTI works through local intervention teams on 
public awareness measures to prevent child labor and, on a case-by-case 
basis with school dropouts and with minors found to be working.
    The key enforcement mechanisms of labor laws in Portugal fall to 
labor inspectors and the number of cases has fallen significantly over 
the past several years. Inspectors have been hampered, however, in 
investigating case of children working at home or on their parents' 
farm, by legal restrictions on inspections of private homes. These 
areas may comprise the largest remaining incidence of child labor in 
Portugal.
    In a first of its kind study, conducted in conjunction with the ILO 
in October 1998, the Portuguese Government polled 26,500 families, with 
separate questionnaires for parents and children, to try to measure the 
incidence of child labor in Portugal. According to this survey, as many 
as 20-40,000 Portuguese children, under the age of 16, may be engaged 
in some form of labor. The majority of these cases, however, consist of 
daily chores on family farms that do not prevent school attendance. The 
study estimates, however, that as many as 11,000 children may be 
working for non-family employers, a figure which represents 0.2 percent 
of the labor force. Additional such studies are planned.
    e. Acceptable Conditions of Work: Minimum wage legislation covers 
full-time workers as well as rural workers and domestic employees ages 
18 years and over. For 1999, the monthly minimum wage was raised to 
61,300 escudos/month (approximately $331 at current exchange rates) and 
generally is enforced. Along with widespread rent controls, basic food 
and utility subsidies, and phased implementation of an assured minimum 
income, the minimum wage affords a basic standard of living for a 
worker and family.
    Employees generally receive 14 months pay for 11 months work: the 
extra 3 months pay are for a Christmas bonus, a vacation subsidy, and 
22 days of annual leave. The maximum legal workday is 8 hours and the 
maximum workweek 40 hours. There is a maximum of 2 hours of paid 
overtime per day and 200 hours of overtime per year. The Ministry of 
Employment and Social Security monitors compliance through its regional 
inspectors.
    Employers are legally responsible for accidents at work and are 
required to carry accident insurance. An existing body of legislation 
regulates health and safety, but labor unions continue to argue for 
stiffer laws. The General Directorate of Hygiene and Labor Security 
develops safety standards in harmony with European Union standards, and 
the General Labor Inspectorate is responsible for their enforcement, 
but the Inspectorate lacks sufficient funds and inspectors to combat 
the problem of work accidents effectively. A relatively large 
proportion of accidents occurs in the construction industry. Poor 
environmental controls in textile production also cause considerable 
concern.
    While the ability of workers to remove themselves from situations 
where these hazards exist is limited, it is difficult to fire workers 
for any reason. Workers injured on the job rarely initiate lawsuits.
    f. Worker Rights in Sectors With U.S. Investment: Legally, worker 
rights apply equally to all sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  335
  Food & Kindred Products......  113             ...............................................................
  Chemicals & Allied Products..  114             ...............................................................
  Primary & Fabricated Metals..  -5              ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  37              ...............................................................
  Other Manufacturing..........  9               ...............................................................
Wholesale Trade................  ..............  397
Banking........................  ..............  239
Finance/Insurance/Real Estate..  ..............  261
Services.......................  ..............  98
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  1,474
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                ROMANIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (Billion Current Lei)    250,480.2   338,670.0   487,370.0
   \2\..............................
  Real Lei GDP Growth (pct) \3\.....        -6.6        -7.3        -4.5
    GDP by Sector (Million US$):....    34,944.7    38,157.4    29,900.0
    Agriculture.....................     6,324.9     6,067.0     5,900.0
    Manufacturing...................    12,405.3    12,057.7    11,515.7
    Services........................    16,214.5    20,032.7    12,484.3
  Per Capita GDP (US$)..............     1,549.9     1,695.6     1,328.8
  Labor Force (Millions)............         9.0         8.9         8.7
  Unemployment Rate (pct)...........         8.9        10.3        11.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........       104.8        48.9        29.7
  Consumer Price Inflation..........       151.4        40.6        47.0
  Exchange Rate (Lei/US$ annual
 average)
    Official........................     7,167.9     8,872.6    16,300.0
    Parallel........................       7,200       9,020      16,315

Balance of Payments and Trade:
  Total Exports FOB \4\.............       8,431       8,302       7,654
    Exports to U.S.\4\..............       192.5       319.7       272.7
  Total Imports CIF \4\.............    11,279.7    11,821.0     9.813.3
    Imports from U.S.\4\............       461.0       499.0       433.1
  Trade Balance FOB/CIF \4\.........    -2,848.6    -3,519.0    -2,159.3
    Balance with U.S................      -268.5      -179.3      -140.4
  External Public Debt..............     6,853.7     6,954.7     5,833.8
  Fiscal Deficit/GDP (pct)..........         3.6         3.1         3.7
  Current Account Deficit/GDP (pct).         6.1         7.9         4.9
  Debt Service Payments/GDP (pct)...         5.3         5.9         7.4
  Gold and Foreign Exchange Reserves     3,397.5     2,586.8     2,330.4
  Aid from U.S......................        25.0        38.0        56.0
  Aid from All Other Sources........       198.7       204.0       172.8
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  October.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.

1. General Policy Framework
    In 1999, Romania continued to implement market based economic 
reforms at a slow pace and to privatize state-owned enterprises. A 
lower current account deficit, moderately tight fiscal policy, modest 
progress in bank restructuring and privatization and, albeit with 
considerable difficulty, full servicing of the country's foreign debt 
represented the most significant macro-economic achievements in 1999.
    The official economy continued to contract, however, with GDP 
expected to fall around five percent in 1999. At the same time, the 
informal economy represents about 40 to 50 percent of the formal 
economy. The current account deficit narrowed and external public debt 
decreased. Improved tax collection and tight public spending caused the 
consolidated budget deficit to drop to 4.2 percent of GDP, in line with 
the target set by the IMF. Public direct and guaranteed external debt 
service is projected to be $1.5 billion in 2000, down from $2.2 billion 
in 1999, while gross external financing requirements will be $1.9 
billion. Despite higher foreign exchange reserves and new agreements in 
progress with the IMF and IBRD, there is still concern that Romania 
will be unable to finance these debts, as signaled by the continued low 
ratings by Moody's, Standard and Poor's and Fitch-IBCA.
    Romania is committed to becoming a member of the European Union 
(EU), which is by far its largest trading partner and which invited 
Romania to open accession negotiations. Trade with the EU accounts for 
64 percent of Romania's merchandise imports and exports. Trade with the 
United States accounts for only 3.8 percent of Romania's exports and 
4.4 percent of its imports, a proportion which has been consistent for 
the past few years. In 1999, U.S. exports to Romania are projected to 
drop by 13.0 percent, yet market share may remain constant.
2. Exchange Rate Policy
    The foreign exchange market was liberalized in February 1997. The 
leu is fully convertible for current account transactions and foreign 
investment. The leu depreciated substantially in the first quarter of 
1999, but then stabilized in real terms for the remainder of the year. 
The central bank is committed to full convertibility in the capital 
account, but the necessary conditions for this are not yet in place and 
may take a few years.
3. Structural Policies
    Economic reform has resulted in the passage of a wide variety of 
legislation affecting virtually every sector: commerce, privatization, 
intellectual property, banking, labor, foreign investment, environment, 
and taxation. While new legislation is necessary to create a basis for 
a market economy, rapid regulatory change has slowed the pace of trade 
and investment. Implementation has also been a problem.
    Romania continues to make significant progress in its agricultural 
reform program. (Note: Agriculture accounts for about one-fifth of GDP, 
and about 35 percent of formal and informal employment is dependent on 
it.) Prices are determined by market forces, and there are no export 
quotas. Over the past two years tariffs have been reduced by 66 
percent. Modest progress has been made in the agricultural sector 
privatization, and further privatization is on track within ASAL 
program agreed with the World Bank.
    However, deep-seated problems remain in the agricultural sector. 
Among them:

  --the continued pervasive state presence, including price controls, 
        state management of a large proportion of arable land, state 
        ownership of input supply, storage, marketing, and agro-
        processing enterprises;
  --incomplete land reform which has left many fragmented holdings, for 
        which property rights are still not well-defined;
  --under-developed rural cooperatives and financial services, few 
        private input suppliers, and no extension services;
  --agricultural coupons for Diesel oil that arrive too late to be 
        helpful for agricultural production and also jeopardize annual 
        budget discipline.

    The pace of reform in heavy industry has been very slow. The state 
has retained ownership of 67 percent of the industrial sector. While 
the government remains committed to privatizing or liquidating most of 
these firms, implementation has proved difficult. Meanwhile, industrial 
subsidies are still largely concentrated in loss-making industries such 
as mining, instead of in potential growth sectors, such as food 
processing.
4. Debt Management Policies
    At the end of July 1999, Romania's medium and long-term external 
debt dropped to $7.8 billion, from $9.1 billion at the end of 1998. The 
National Bank's foreign exchange reserves amounted to $1.47 billion, in 
addition to $989.8 million in gold, and the commercial banks' reserves 
reached $2.0 billion in July 1999. However, the National Bank's 
reserves are down 10 percent since end-1998, due to the high foreign 
debt servicing required in 1999: one third of Romania's total public 
external debt, which was $3.06 billion. Romania has claims against 
foreign countries amounting to $3 billion.
    Debt service payments were a major challenge for Romania during the 
first half of 1999. However, the GOR succeeded in avoiding default, and 
increased foreign exchange reserves beginning in July, though reserve 
levels remained below end-1998 levels, while cutting the current 
account deficit by more than 50 percent. After long negotiations and 
months of delay, the government concluded with the IMF a new standby 
loan, the first tranche ($73 million) of which was released in August. 
However, at year's end the Romanian government had not yet satisfied 
the IMF condition in the FY 2000 budget to allow a second tranche to be 
released.
    The World Bank concluded at the same time a $300 million PSAL 
agreement with Romania. The government received half of the loan in 
August, and the World Bank is considering releasing the second tranche 
as soon as the IMF board takes a decision. Under the PSAL agreement 
with the World Bank, the GOR has pledged to reform the banking sector, 
close loss-making firms and improve the business environment. The IMF 
has sent a technical team in early December 1999 to review progress in 
implementing the two accords and tie them up with the appropriate 
budget policies needed for the fiscal year 2000, an election year when 
foreign debt servicing (including private sector) will amount to $2.4 
billion.
5. Significant Barriers to U.S. Exports
    Traditionally defined trade and investment barriers are not a 
significant problem in Romania, as there are no laws which directly 
prejudice foreign trade or business operations. Tariff preferences 
resulting from Romania's Association Agreement with the EU have 
disadvantaged US exports in several sectors, including agriculture, 
telephonic equipment, computers, and beverages. For example, the duty 
on tires is 30.5 percent from the US, and 18.4 percent from the EU and 
falling.
    Bureaucratic red tape and uncertainties in the legal framework make 
doing business in Romania difficult. There is little experience with 
Western methods of negotiating contracts and, once concluded, 
enforcement is not uniform. In addition, delays in reconciling 
conflicting property claims, arising from seizures during the World War 
II and Communist eras, have resulted in a situation in which purchasers 
are potentially subject to legal challenge by former owners and title 
insurance is not available. The absence of clear legal recourse to 
recover claims against debtors is a further complication for foreign 
investors. Romania's customs regime imposes minimum reference prices, 
which is inconsistent with its WTO obligations. This has hindered U.S. 
poultry exports to Romania.
    The cost of doing business in Romania is high, particularly for 
office rentals, transportation and telecommunication services. Lack of 
an efficient, modern payment system further delays transactions in 
Romania. Capital requirements for foreign investors are not onerous, 
but local capital remains very expensive. Also, taxes on both profits 
and operations are steep. Investors complain of inconsistency in 
Romania's policy on tax incentives for foreign companies. Previously 
foreign companies qualified for some tax exemptions, based on the size 
of their investment. Given significant fiscal constraints and under IMF 
pressure, the GOR rescinded this in 1999, except for the case of the 
French car maker, Renault, which purchased the national Romanian car 
manufacturing company, Dacia Pitesti.
    There are few formal barriers to investment in Romania. The Foreign 
Investment Law allows for full foreign ownership of investment projects 
(including land, for as long as the investment is in place.) There are 
no legal restrictions on the repatriation of profits and equity 
capital. The continually changing legal regime for investment and 
privatization, however, forms a significant barrier to investment. 
Government approval of joint ventures requires extensive documentation. 
U.S. investment in Romania totaled $314.1 million by July 1999, putting 
the U.S. in fourth place among foreign investors.
    Romania is a member of the World Trade Organization, but not a 
signatory to the agreement on government procurement.
6. Export Subsidies Policies
    The Romanian Government does not provide export subsidies but does 
attempt to make exporting attractive to Romanian companies. For 
example, the government provides refunds of import duties for goods 
that are then processed for export. The Romanian Export-Import Bank 
engages in trade promotion activities on behalf of Romanian exporters, 
and has lately become more of an analysis bank.
    There are no general licensing requirements for exports from 
Romania, but the government does prohibit or control the export of 
certain strategic goods and technologies. There are also export 
controls on imported or domestically produced goods of proliferation 
concern.
7. Protection of U.S. Intellectual Property Rights
    Romania has enacted significant legislation in intellectual 
property protection. Patent, copyright and trademark laws are in place. 
In the past year, Romania has adopted pipeline protection for 
pharmaceuticals. Enforcement is limited and ineffective.
    Pirated copies of audio and video cassettes, CDs, and software are 
readily available. In a few cases, pirated films were broadcast on 
local cable television channels. There are no known exports of pirated 
products from Romania.
    Romania is a member of the Bern Convention, the World Intellectual 
Property Organization, the Paris Intellectual Property Convention, the 
Patents Cooperation Treaty, the Madrid Convention, and the Hague 
Convention on Industrial Design, Drawings and Models. As a country in 
transition, Romania will implement the WTO agreement on intellectual 
property on January 1, 2000. Industrial property law amendments needed 
for full compliance with TRIPS have already been drafted, but not 
enacted, yet. The TRIPS-consistent Copyright and Neighboring Rights Law 
is very inefficiently implemented, mainly due to the lack of 
coordination among the government enforcement agencies, police, 
prosecutors and judges, as well as due to each of these organizations' 
lack of focus. The Business Software Association estimates that 
currently, pirated products account for about 80 percent of the 
Romanian market, down from 95 percent prior to the law's coming into 
force. In order to help solve this problem, the government drafted a 
bill regulating the customs right to check on imports from the 
intellectual property point of view, a draft that is still in the 
Parliament for action.
8. Worker Rights
    a. The Right of Association: All workers (except public employees) 
have the right to associate freely and to form and join labor unions 
without prior authorization. Labor unions are free from government or 
political party control but may engage in political activity. Labor 
unions may join federations and affiliate with international bodies, 
and representatives of foreign and international organizations may 
freely visit and advise Romanian trade unions.
    b. The Right to Organize and Bargain Collectively: Workers have the 
right to bargain collectively. Basic wage scales for employees of 
state-owned enterprises are established through collective bargaining 
with the state. There are no legal limitations on the right to strike, 
except in sectors the government considers critical to the public 
interest (e.g. defense, health care, transportation).
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced or compulsory labor. The Ministry of Labor and Social 
Protection effectively enforces this prohibition.
    d. Minimum Age for Employment of Children: The minimum age for 
employment is 16. Children over 14 may work with the consent of their 
parents, but only ``according to their physical development, aptitude, 
and knowledge.'' Working children under 16 have the right to continue 
their education, and employers are required to assist in this regard.
    e. Acceptable Conditions of Work: Minimum wage rates are generally 
observed and enforced. The Labor Code provides for a standard work week 
of 40 hours with overtime for work in excess of 40 hours, and paid 
vacation of 18 to 24 days annually. Employers are required to pay 
additional benefits and allowances to workers engaged in dangerous 
occupations. The Ministry of Labor and Social Protection has 
established safety standards for most industries, but enforcement is 
inadequate and employers generally ignore the Ministry's 
recommendations. Labor organizations continue to press for healthier, 
safer working conditions. On average, women experience a higher rate of 
unemployment than men and earn lower wages despite educational 
equality.
    f. Rights in Sectors with U.S. Investment: Conditions do not appear 
to differ in goods producing sectors in which U.S. capital is invested.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  -12
Total Manufacturing............  ..............  43
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  14              ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       1               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  1               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  11
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  128
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis


                                 ______
                                 

                                 RUSSIA


                         Key Economic Indicators
            [Billions of U.S. Dollars unless otherwise noted]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................      2,522      2,685      4,600
  Real GDP Growth (pct)................        0.6       -4.6        1.5
  Per Capita Personal Income (US$).....        922        610    \4\ 466
  Labor Force (000's)..................     72,000     72,000     73,700
  Unemployment Rate (pct)..............       11.2       13.3       12.4

Money and Prices (annual percent
 growth):
  Money Supply Growth (M2).............       30.6        3.2   \4\ 48.8
  Consumer Price Index (percent                 11       84.3       45.0
   increase)...........................
  Exchange Rate (Ruble/US$ annual            5.785      9.705     24.429
   average)............................

Balance of Payments and Trade:
  Total Exports (FOB)..................       85.0       71.3   \5\ 31.1
    Exports to U.S.....................        4.5        5.7    \6\ 3.8
  Total Imports (CIF)..................       52.9       43.5   \5\ 14.5
    Imports from U.S...................        4.1        3.6    \6\ 0.9
  Trade Balance........................       32.1       27.8   \5\ 16.6
    Balance with U.S...................        0.4        2.1    \6\ 2.9
  Current Account......................        3.5        2.4       12.6
  External Public Debt.................      123.5        147      159.7
  Debt Service Payments/GDP (pct)......        1.4        3.7    \4\ 5.9
  Fiscal Deficit/GDP (pct).............        6.7        3.2    \5\ 3.8
  Gold and Foreign Exchange............       17.8       12.1   \3\ 11.8
  Aid from U.S. (US$ millions) \7\.....        492      639.4    1,937.1
  Aid from All Other Sources...........        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 1999 data has been provided for the last available period (9/99)
  unless otherwise noted. The Russian Ruble was re-denominated on
  January 1, 1998 by dropping three zeros off the value of the currency.
  All data in ruble terms have been adjusted to ``new rubles'' for
  comparability.
\2\ Billions of Russian Rubles.
\3\ Data for January-October 1999.
\4\ Data for January-August 1999.
\5\ Data for the period January-June 1999.
\6\ U.S. Commerce Department data for the period January-August 1999.
\7\ USG Assistance (by fiscal year) including food assistance, not
  including donated humanitarian commodities shipped by USG. Military
  assistance included $389.4 million in Department of Defense funds,
  largely for strategic weapons destruction programs, plus IMET and FMF
  programs, from which only $228,000 was spent in FY99.

Sources: Russian Statistics Committee (Goskomstat), Russian State
  Customs Committee, International Monetary Fund, Department of State S/
  NIS/C and embassy estimates.

1. General Policy Framework
    The Russian economy rebounded somewhat in 1999 from the economic 
and financial crisis of 1998, based on higher oil prices and import 
substitution resulting from the devaluation of the ruble. However, in 
the absence of substantial progress toward the reforms necessary to 
underpin a vigorous market economy and attract domestic and foreign 
investment, the Russian economy remains fragile and vulnerable to 
external and internal shocks. Industrial production in October was up 
10.3 percent from the depressed levels of October 1998. The IMF is 
forecasting year on year inflation at end-December of 45 percent, 
compared to more than 80 percent in 1998. Unemployment has eased and 
the demand for cash transactions continued to rise as barter deals 
declined.
    Despite estimates for real GDP growth in 1999 ranging from 0 to 3 
percent, the economic boost from devaluation of the ruble and increased 
revenues from oil exports is unlikely to be repeated in the coming 
year. In the near term, sustainable growth in Russia will depend 
importantly on domestic demand, consumption and investment, all of 
which are running well below last year's levels. The lack of 
significant progress on structural reforms and the difficult investment 
climate contribute to continued net capital outflow. Surveys suggest 
that a main constraint to production is the absence of working capital, 
but the banking sector has not stabilized from its collapse in 1998 and 
is not in a position to effectively intermediate savings to productive 
investments on a large scale.
    Fiscal policy for the first half of the year was moderately 
disciplined, with an overall deficit of 3.8 percent compared with a 
budget target of 2.5 percent for the year. Following low cash 
collections in the beginning of the year, revenue collections increased 
substantially, topping 13.2 percent of GDP during the first half of the 
year, compared with 10.5 percent over the same period in 1998. The GOR 
expects revenues of R55l billion for the year, about 16 percent over 
budget. Monetary policy was moderately tight. Base money increased 22 
percent during the first half of the year, in part due to indirect 
central bank financing of the federal deficit, specifically assisting 
in servicing the GOR's external debt. The ruble remained relatively 
stable between March and August in a more tightly controlled foreign 
exchange environment than before. In these conditions, the Central Bank 
has sought to avoid exchange rate volatility through selective 
interventions to smooth the trend. The Central Bank's reserves have not 
significantly increased, partially due to external debt payments, 
changes in accounting and unauthorized capital exports.
    The cost of Russia's 1998 financial collapse was significant. GDP 
measured in USD terms declined from around USD 422 billion in 1997 to 
USD 132 billion at the end of 1998, about the level of GDP in 1993. 
While nominal ruble revenues have increased this year to date, they are 
still about half those of last year, as measured in USD terms. 
Similarly in the banking sector, assets in USD fell by 50 percent to 
around USD 5O billion. As with other emerging markets that have 
suffered sharp setbacks, rebuilding will take time.
    Government economic policy has been largely static this year. While 
the three successive post-August-1998 governments have not adopted 
policies that would have exacerbated an already fragile situation, none 
have adopted aggressive policies to address fundamental challenges 
faced by the country. With upcoming parliamentary elections in December 
and presidential elections in June, the consensus of observers is that 
major movement on reforms or major policy changes are unlikely until 
the new Duma and new President are in place.
2. Exchange Rate Policy
    The objective of the Central Bank of Russia's (CBR) exchange rate 
policy is to ensure the stability and predictability of the ruble 
exchange rate and prevent abrupt fluctuations, in the context of a 
floating exchange rate regime. After slipping at the beginning of the 
year, the nominal ruble/dollar rate held steady at around 24.5 from May 
through August, then drifted down to about 26.8 in December. High ruble 
liquidity, as reflected by the approximately R70 billion in banks' 
correspondent accounts at the CBR, supported the decline late in the 
year. From September through mid-November, the ruble has depreciated 
approximately 4.5 percent in nominal terms.
    The ruble's tentative stability can be explained in part by new 
market conditions. The CBR has tightened foreign exchange controls by 
imposing restrictions on foreign exchange for import contracts, 
requiring 75 percent of repatriated export proceeds to be sold on 
authorized exchanges, not allowing banks to trade on their own 
accounts, limiting the conversion of funds in S-accounts from the GKO 
restructuring, and banning the conversion of ruble funds from 
nonresident banks' correspondent accounts. The latter was repealed, but 
replaced by requiring banks to deposit amounts equivalent to those it 
holds in S-accounts of non-residents. These exchange controls are only 
marginally effective at controlling capital flight, which reportedly 
increased to nearly $3.0 billion per month in late 1999, but they 
presumably have helped CBR to manage exchange rate volatility.
3. Structural Policies
    The economic crisis of 1998 overshadowed structural issues for the 
most part throughout 1999. The share of GDP produced by private 
companies reached 74 percent by the end of 1999 according to official 
figures. The share of barter in the economy appears to be declining, 
although it still accounts for roughly half of all transactions 
according to most estimates. External barter trade sharply declined in 
1999 as well. Government arrears dropped dramatically as payment of 
pensions and salaries in nominal terms became cheaper in light of the 
drastic ruble devaluation after August 1998. Even though personal 
incomes dropped precipitously over the last year, industrial production 
has increased as a result oil import substitution. Without investment, 
however, the up-tick in production is not expected to be sustainable, 
and little has been done to improve the investment climate. Indeed, 
several cases involving foreign investment suggest that many issues 
remain to be addressed.
    Repeated changes in government have exacerbated the problems of 
inadequate structural policies by obscuring economic policy overall. 
With three Prime Ministers in the first 8 months of 1999, articulation, 
much less implementation of a coherent structural policy has proven 
elusive. In addition, the end of the current legislative period carried 
forward the effective policy stalemate in the economic sphere that has 
plagued the reform process. The election of a new State Duma in 
December 1999 will produce a new opportunity for legislative 
initiatives. However, economic policy is effectively on hold for now, 
and may well remain so until after the presidential election in July 
2000.
    Meanwhile, privatization continues, with sales of shares of the 
government's stakes in oil and gas companies. At the same time, a 
debate about the benefits of past privatizations has become an element 
in the Duma election campaign with a number of leading politicians 
suggesting that de-privatization of some enterprises could be 
considered. The privatization of the Lomonosov porcelain factory, 
partly owned by U.S. investors, was reversed by a St. Petersburg court. 
Court appeals continue. Prime Minister Putin has opposed wholesale 
reversal of privatization but has suggested that mistakes made in the 
privatization process should be identified and corrected within the 
framework of existing legislation.
    The government has worked to prevent passage of legislative 
initiatives that would inhibit foreign investment, for example in the 
insurance sector, but with mixed results. One potentially important 
achievement has been the adoption of an ambitious action plan for 
reducing the regulatory burden on small business, along with tax 
reduction. Overall however, there has been little progress in the 
structural policy area over the last year, a development that can only 
delay Russia's recovery from its financial crisis.
4. Debt Management Policies
    Following the August 1998 financial crisis, the Government of 
Russia has sought to restructure much of its internal debt and the 
Soviet-era poition of its external debt. The Russian government has 
reached a Framework Agreement with its Paris Club official creditors in 
July 1999, but final bilateral agreements are not expected until early 
in 2000. The Government of Russia is actively negotiating with its 
London Club commercial creditors on an agreement to restructure and/or 
reduce its commercial debt inherited from the Soviet government.
    In March, the Russian government announced its GKO (Russian T-bill) 
restructuring proposal, which offered foreign GKO holders a choice 
between receiving a basket of securities or having their investments 
placed in a frozen account. Funds received in the restructuring, 
including from the securities, must be held in investors' S-accounts. 
The Central Bank of Russia prohibits conversion of S-account rubles 
into foreign currency, although it held six foreign exchange auctions 
for S-account holders, of USD 50 million each, all of which were 
heavily oversubscribed. Investors also may invest restricted S-account 
rubles in certain securities. In November, the Government of Russia 
announced it would permit S-account holders to make direct investments 
in projects approved by the government, and is reopening its offer to 
restructure GKO's to those investors who did not take advantage of the 
first offer. On December 15, the Government of Russia allowed a one-
time change in S-account ownership. As of November 15, there were 
approximately USD 350-400 million, and another USD 2 billion in OFZ 
bonds, in restricted S-accounts.
    The Government of Russia is continuing with its IMF program, 
although a second tranche release in 1999 has been delayed. The World 
Bank's Structural Adjustment Loan (SAL) is on hold due to lack of 
progress on structural reform legislation.
5. Significant Barriers to U.S. Exports
    At the end of 1999, the most significant impediments to U.S. 
exports were not statutory but were instead results of the difficult 
economic situation in Russia. The devaluation in August 1998 and the 
reduced purchasing power of Russians played the greatest role, as 
Russia's overall imports slumped by over 50 percent. U.S. exports to 
Russia have decreased by an even larger margin in 1999, although one-
time sales of aircraft in 1998 exaggerated the overall decline 
somewhat. Many exporters remain cautious about entering the Russian 
market due to reduced availability of trade finance, and bad experience 
with payment/clearance problems in the past. These problems have become 
less common in 1999, perhaps partially due to the lower volume of 
trade.
    Since 1995, Russian tariffs have generally ranged from five to 
thirty percent, with a trade-weighted average in the 13-15 percent 
range. In addition, excise and Value-Added Tax (VAT) is applied to 
selected imports. The VAT, which is applied on the import price plus 
tariff, is currently 20 percent with the exception of some food 
products. Throughout 1999, some revision of tariffs occurred, with in 
some cases tariffs dropping for inputs needed by Russian producers in 
the electronics and furniture businesses. On the other hand, there have 
been sharp hikes in tariffs for sugar and for pharmaceuticals, 
including high seasonal tariffs on raw and processed sugar. In 
particular, compound duties with minimum levels of tariffs enacted in 
1998 on poultry had the effect of increasing percentage duties after 
the fall in poultry prices in 1998-99. The Ministry of Trade, supported 
by the State Customs Committee, has proposed reducing some of Russia's 
higher tariffs, recognizing that very high tariffs only lead to 
evasion. However, the government has been reluctant to approve an 
across-the-board reduction in tariffs given acute revenue concerns, as 
customs duties account for a larger percentage of state revenues than 
in most other countries.
    Other Russian tariffs that have stood out as particular hindrances 
to U.S. exports to Russia include those on autos (where combined 
tariffs and engine displacement-weighted excise duties can raise prices 
of larger U.S.-made passenger cars and sport utility vehicles by over 
70 percent); some semiconductor products; and aircraft and certain 
aircraft components (for which tariffs are set at 30 percent). The 
Russian government continues to make waivers on aircraft import tariffs 
for purchases by Russian airlines contingent on those airlines' 
purchases of Russian-made aircraft.
    Throughout 1999, Russia introduced a number of export duties (for 
exports to non-CIS countries) as a revenue measure. Initially, these 
duties were imposed on oil and gas, but have since been expanded to 
include many export commodities, including fertilizers, paper and 
cardboard, some ferrous and non-ferrous metals, and agricultural 
products, including oilseeds raw hides, and hardwoods, all ranging from 
5 to 30 percent.
    Import licenses are required for importation of various goods, 
including ethyl alcohol and vodka, color TVs, sugar, combat and 
sporting weapons, self-defense articles, explosives, military and 
ciphering equipment, encryption software and related equipment, 
radioactive materials and waste including uranium, strong poisons and 
narcotics, and precious metals, alloys and stones. In 1999, new import 
license requirements were added for raw and processed sugar. Most 
import licenses are issued by the Russian Ministry of Trade or its 
regional branches, and controlled by the State Customs Committee. 
Import licenses for sporting weapons and self-defense articles are 
issued by the Ministry of Internal Affairs.
    Throughout 1999, the government has continued tight controls on 
alcohol production, including import restrictions, export duties, and 
increased excise taxes. Many of these controls are in order to increase 
budget revenues.
    In spring 1998, Russia passed the Law on Protective Trade Measures, 
which provides the government authority to undertake antidumping, 
countervailing duty and safeguard investigations, under certain 
conditions. Although Russian companies have filed several petitions for 
protection in 1999 under this new law, no petition has yet been 
approved, due to substantive or procedural insufficiencies of the 
petitions.
    The June 1993 Customs Code standardized Russian customs procedures 
generally in accordance with international norms. However, customs 
regulations change frequently, (often without sufficient notice), are 
subject to arbitrary application, and can be quite burdensome. In 
addition, Russia's use of minimum customs values is not consistent with 
international norms. In November 1999, the State Customs Committee 
imposed a restriction that forced U.S. poultry importers to ship 
directly through Russian ports, rather than through warehouses in the 
Baltic States, as had been their practice. On the positive side, 
Russian customs is implementing the ``ClearPac'' program in the Russian 
Far East that facilitates customs clearance from the U.S., and is 
considering extending this program to other regions.
    U.S. companies continue to report that Russian procedures for 
certifying imported products and equipment are non-transparent, 
expensive and beset by redundancies. Russian regulatory bodies also 
generally refuse to accept foreign testing centers' data or 
certificates. U.S. firms active in Russia have complained of limited 
opportunity to comment on proposed changes in standards or 
certification requirements before the changes are implemented, although 
the Russian standards and certifications bodies have begun to work 
closely with the American Chamber of Commerce in Russia to provide 
additional information. Occasional jurisdictional overlap and disputes 
between different government regulatory bodies compound certification 
problems.
    A January 1998 revision to State Tax Service Instruction #34, now 
being enforced, makes it more difficult for expatriate employees of 
U.S. entities to benefit from the U.S.-Russia bilateral treaty on 
avoidance of double-taxation. A wide range of U.S. companies selling 
goods and services in Russia, who formerly could receive advance 
exemptions from withholding taxes for salaries, are now required to 
apply for a refund of tax withheld.
    Although little of Russia's legislation in the services sector is 
overtly protectionist, the domestic banking, securities and insurance 
industries have secured concessions in the form of Presidential 
Decrees, and a draft law before the parliament will soon codify 
restrictions and bans on foreign investment in many services sectors. 
Foreign participation in banking, for example, is limited to 12 percent 
of total paid-in banking capital. As of mid 1998 foreign banks' 
capitalization only accounted for around 4 percent of the total. 
However, as foreign banks recapitalized following the financial crisis 
and Russian banks' capital shrank, the share of foreign banks' grew to 
12.8 percent as of September 1. The Central Bank of Russia has 
indicated it will seek a higher quota so as not to impede foreign bank 
entry. Foreign investment is also limited in other sectors, such as 
electricity generation. In October 1999, a new law took effect, which 
implicitly allows majority-foreign-owned insurance companies to operate 
in Russia for the first time, but restricts their share of total market 
capitalization and prohibits them from selling life insurance or 
obligatory types of insurance. The law contains a ``grandfather 
clause'' exempting the four foreign companies currently licensed in 
Russia from these restrictions. In practice, foreign companies are 
often disadvantaged vis-a-vis their Russian counterparts in obtaining 
contracts, approvals, licenses, registration, and certification, and in 
paying taxes and fees.
    Despite the passage of a new law regulating foreign investment in 
June 1999, Russian foreign investment regulations and notification 
requirements can be confusing and contradictory. The Law on Foreign 
Investments provides that a single agency (still undesignated) will 
register foreign investments, and that all branches of foreign firms 
must be registered. The law does codify the principle of national 
treatment for foreign investors, including the right to purchase 
securities, transfer property rights, protect rights in Russian courts, 
repatriate funds abroad after payment of duties, and to receive 
compensation for nationalizations or illegal acts of Russian government 
bodies. However, the law goes on to state that Federal law may provide 
for a number of exceptions, including those necessary for ``the 
protection of the constitution, public morals and health, and the 
rights and lawful interest of other persons and the defense of the 
state.'' The potentially large number of exceptions thus gives 
considerable discretion to the Russian government. The law also 
provides a ``grandfather clause'' that protects existing ``priority'' 
foreign investment projects with a foreign participation over 25 
percent be protected from unfavorable changes in the tax regime or new 
limitations On the foreign investment. The definition of ``priority'' 
projects is not fully clear, but it appears that projects with a 
foreign charter capital of over $4.1 million and with a total 
investment of over $41 million will qualify. In addition, foreigners 
encounter significant restrictions on ownership of real estate in some 
cities and regions in Russia, although the situation has improved over 
the past few years.
    The government maintains a monopoly on the sale of precious and 
several rare-earth metals, conducts centralized sales of diamonds, and 
conducts centralized purchases for export of military technology. 
Throughout 1999, the government has sharply restricted exports of 
platinum group metals, based on new legislation. An August 1997 series 
of Presidential Decrees on military exports remain in effect. These 
decrees established tighter control over military exports by the state 
enterprise Rosvooruzheniye, enabled two additional state firms to sell 
military goods and technology, and opened the door to future direct 
sales by arms manufacturers, if licensed and approved by the Ministry 
of Foreign Economic Relations.
    Most of these issues are the subject of discussion, as Russia 
continues to negotiate its accession to the World Trade Organization 
(WTO). By the end of 1999, the government had completed ten working 
party meetings. It tabled its initial market access offer for services 
in October 1999 and has conducted negotiations on its goods market 
access offer throughout the year. The Russian Ministry of Trade has 
stated it plans to revise its goods market access offer early in 2000. 
Russia is not yet a signatory of the WTO Government Procurement or 
Civil Aircraft codes.
6. Export Subsidies Policies
    The government has not instituted export subsidies, although a 1996 
executive decree allows for provision of soft credits for exporters and 
government guarantees for foreign loans. The government does provide 
some subsidies for the production of coal, but coal exports are 
minimal. Soft credits are at times provided to small enterprises for 
specific projects.
7. Protection of U.S. Intellectual Property
    Russia is in the process of accession to the World Trade 
Organization (WTO), and as a new member, it will be required to meet 
obligations under the WTO's Agreement on Trade-Related Aspects of 
Intellectual Property Rights (TRIPs) immediately upon accession. Russia 
belongs to the World Intellectual Property Organization (WIPO), and has 
acceded to the obligations of the former Soviet Union under the Paris 
Convention for the Protection of Industrial Property (patent, trademark 
and related industrial property), and the Madrid Agreement Concerning 
the International Registration of Marks, and the Patent Cooperation 
Treaty. Russia has also become a signatory to the Berne Convention for 
the Protection of Literary and Artistic Works (copyright) as well as 
the Geneva Phonograms Convention. In 1999, the U.S. Trade 
Representative retained Russia on the ``Special 301'' Priority Watch 
List for a third year due to a number of concerns over weak enforcement 
of intellectual property laws and regulations and lack of retroactive 
copyright protection for U.S. works in Russia.
    In 1992-93 Russia enacted laws strengthening the protection of 
patents, trademarks and appellations of origins, and copyright of 
semiconductors, computer programs, literary, artistic and scientific 
works, and audio/visual recordings. Legal enforcement of intellectual 
property rights (IPR) improved somewhat with a series of raids on 
manufacturing facilities, and on wholesale and retail outlets of 
pirated goods. A new Criminal Code took effect January 1, 1997, which 
contains considerably stronger penalties for IPR infringements. 
However, there are still disappointingly few cases in which these 
penalties have been applied. Widespread sales of pirated U.S. video 
cassettes, recordings, books, computer software, clothes, toys, foods 
and beverages continue. The formal abolition of the Russian Patent and 
Trademark Agency this year and the assumption of its responsibilities 
by the Justice Ministry have raised some concerns, but the practical 
effect of this change remains to be seen.
    Russia's Patent Law includes a grace period, procedures for 
deferred examination, protection for chemical and pharmaceutical 
products, and national treatment for foreign patent holders. Inventions 
are protected for 20 years, industrial designs for ten years, and 
utility models for five years. The Law on Trademarks and Appellation of 
Origins introduces for the first time in Russia protection of 
appellation of origins. The Law on Copyright and Associated Rights, 
enacted in August 1993, protects all forms of artistic creation, 
including audio/visual recordings and computer programs as literary 
works for the lifetime of the author plus 50 years. The September 1992 
Law on Topography of Integrated Microcircuits, which also protects 
computer programs, protects semiconductor topographies for 10 years 
from the date of registration.
    Under the U.S.-Russian Bilateral Investment Treaty (signed in 1992 
but waiting ratification by the Russian Parliament), Russia undertook 
to protect investors' intellectual property rights. The 1990 U.S. 
Russia bilateral trade agreement stipulates protection of the normal 
range of literary, scientific and artistic works through legislation 
and enforcement. Bilateral consultations on IPR were held in March 
1999.
8. Worker Rights
    a. The Right of Association: The law provides workers with the 
right to form and join trade unions, but practical limitations on the 
exercise of this right arise from governmental policy and the dominant 
position of the formerly governmental Federation of Independent Trade 
Unions of Russia (FNPR). As the successor organization to the 
governmental trade unions of the Soviet period and claiming to 
represent 80 per cent of all workers, the FNPR occupies a privileged 
position that inhibits the formation of new unions. In some cases, FNPR 
local unions have worked with management to destroy new unions. Recent 
court decisions have limited the right of association by mandating that 
unions include management as members. Justice Ministry officials have 
used new re-registration requirements to deny legal status to 
independent unions.
    b. The Right to Organize and Bargain Collectively: Although the law 
recognizes collective bargaining, and requires employers to negotiate 
with unions, in practice employers often refuse to negotiate and 
agreements are not implemented. Court rulings have established the 
principle that non-payment of wages--by far the predominant grievance--
is an individual dispute and cannot be addressed collectively by 
unions. As a result, a collective action based on non-payment of wages 
would not be recognized as a strike, and individuals would not be 
protected by the Labor Law's guarantees against being fired for 
participation. The right to strike is difficult to exercise. Most 
strikes are technically illegal, and courts have the right to order the 
confiscation of union property to settle damages and losses to an 
employer, resulting from an illegal strike. Reprisals for strikes are 
common, although strictly prohibited by law.
    c. Prohibition of Forced or Compulsory Labor. The Labor Code 
prohibits forced or compulsory labor by adults and children. There are 
documented cases of soldiers being sent by their superior officers to 
perform work for private citizens or organizations. Such labor may 
violate military regulations and, if performed by conscripts, would be 
an apparent violation of ILO convention 29 on forced labor.
    d. Minimum Age for Employment of Children. The Labor Code prohibits 
regular employment for children under the age of 16 and also regulates 
the working conditions of children under the age of 18, including 
banning dangerous, nighttime and overtime work.
    Children may, under certain specific conditions, work in 
apprenticeship or internship programs' at the ages of 14 and 15. 
Accepted social prohibitions against the employment of children and the 
availability of adult workers at low wage rates combine to prevent 
widespread abuse of child labor legislation. The government prohibits 
forced and bonded labor by children, and there have been no reports 
that it occurred.
    e. Acceptable Conditions of Work: The Labor Code provides for a 
standard workweek of 40 hours, with at least one 24-hour rest period. 
The law requires premium pay for overtime work or work on holidays. 
Workers have complained of being required to work well beyond the 
normal week, that is, 10 to 12-hour days, and of forced transfers. As 
of June 30, workers were owed roughly 2.5 billion US dollars, for 
periods generally between 3 to 9 months. Although this is less than the 
$12.5 billion arrears owed in August 1998, workers have lost 
significant purchasing power since the devaluation. Workers' freedom to 
move in search of new employment is virtually eliminated by the system 
of residency permits. The law establishes minimal conditions of 
workplace safety and worker health, but these standards are not 
effectively enforced.
    f. Rights in Sectors with U.S. Investment: Observance of worker 
rights in sectors with significant U.S. investment (petroleum, 
telecommunications, food, aerospace, construction machinery, and 
pharmaceuticals) did not significantly differ from observance in other 
sectors. There are no export processing zones. Worker rights in the 
special economic zones/free trade zones are fully covered by the Labor 
Code.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  513
Total Manufacturing............  ..............  269
  Food & Kindred Products......  243             ...............................................................
  Chemicals & Allied Products..  11              ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       2               ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  1               ...............................................................
Wholesale Trade................  ..............  --76
Banking........................  ..............  -346
Finance/Insurance/Real Estate..  ..............  653
Services.......................  ..............  -102
Other Industries...............  ..............  190
TOTAL ALL INDUSTRIES...........  ..............  1,101
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 SPAIN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP (1995 Prices) \2\..............     528.6     538.6  \3\ 531.
                                                                       6
  Real GDP Growth (pct) \4\...............       3.8       4.0       3.6
  GDP (At Current Prices).................     558.5     582.1     589.0
  GDP by Sector:
    Agriculture...........................      23.7      23.2      23.3
    Industry..............................     118.1     122.2     121.7
    Construction..........................      38.1      40.5      41.1
    Services..............................     331.3     344.3     347.5
    Government............................      47.5      51.9      55.4
  Per Capita GDP (US$)....................    14,068    14,626    14,762
  Labor Force (000's).....................    16,121    16,265    16,500
  Unemployment Rate (pct).................      20.8      18.8      16.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       9.1       6.0       7.0
  Consumer Price Inflation................       2.0       1.8       2.5
  Exchange Rate (PTA/US$ annual average)..     146.4     149.4     155.0

Balance of Payments and Trade:
  Total Exports FOB \5\...................     105.2     109.4     120.0
    Exports to U.S.\5\....................       4.6       4.6       4.6
  Total Imports CIF \5\...................     123.5     133.1     150.0
    Imports from U.S.\5\..................       7.8       7.8       8.0
  Trade Balance \5\.......................     -18.3     -23.7      -3.0
    Balance With U.S.\5\..................      -3.2      -3.2      -3.4
  Fiscal Deficit/GDP (pct)................       3.0       1.8       1.6
  Public Debt.............................      67.5      65.6      66.4
  Debt Service Payments (Paid)............       N/A       N/A       N/A
  Gold and Foreign Exchange Reserves......      72.5      60.7      34.0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  July.
\2\ GDP at factor cost.
\3\ Devaluation.
\4\ Percentage changes calculated in local currency.
\5\ Merchandise trade. Spanish National Institute of Statistics.

Note: Estimates for 1999 show lower figures in U.S. Dollars than
  previous years due to a rise in the U.S. Dollar/Spanish Peseta
  exchange rate.

1. General Policy Framework
    Spain's economy is expected to grow by 3.7 percent in 1999. This 
growth is expected to continue in 2000. Growth continues to be broadly 
based and is supported by the services sector, agriculture, 
construction, consumer demand, and capital goods investment.
    Throughout the 90s much of Spain's economic policy had focused on 
meeting Maastricht targets so that Spain could become one of the 
founding members of the EURO. These policies have continued in the 
guise of the Stability Pact, which, if anything, has a bias toward even 
stricter fiscal policy than the preceding agreement. Together these 
policies have provided continuing benefits in the form of lower 
interest rates, which in turn have promoted investment, construction, 
and consumer demand. This increased economic activity has provided 
increased income and higher tax receipts, which have allowed Spain to 
handily meet government deficit/GDP targets. Government fiscal 
restraint, higher tax receipts, and lower interest on government debt 
(courtesy of lower EURO interest rates) should allow the government's 
deficit/GDP ratio to fall below 2 percent in 1999. The government's 
overall debt/GDP ratio should fall to 68 percent in 1999, moving toward 
the 60 percent goal.
    Economic growth has decreased unemployment to the lowest levels in 
a over a decade. Although high compared to EU averages, Spain's current 
unemployment rate of 15.6 percent and increasing evidence of sectoral 
labor shortages points to a strongly growing economy. Employment growth 
has been underwritten by changes in 1996 and 1997 that provided 
flexibility in hiring practices that lessen somewhat the high costs of 
permanent new hires. Despite the labor market's rigidities, Spain 
creates more jobs than any other EU country.
2. Exchange Rate Policy
    The Spanish peseta/EURO rate was fixed on January 1, 1999 at 
166.386 pesetas to the EURO. Average dollar/EURO rate to date in 1999 
has been 1.076 or 154.808 pesetas to the dollar. The rate at the time 
this is being drafted is 1 EURO equals USD 1.0177.
3. Structural Policies
    Spain has eliminated tariff barriers for imports from other EU 
countries and applies common EU external tariffs to imports from non-EU 
countries. Similarly Spain is also bound to the mutual recognition 
agreements in its application of certain non-tariff regulations applied 
to certain goods from the United States.
    In 1989, as part of the investment sector reforms necessary to 
comply with EU membership, Spain made stock market rules and operations 
more transparent and provided for the licensing of investment banking 
services. The reform also eased conditions for obtaining a broker's 
license. A 1992 Investment Law removed many administrative requirements 
for foreign investments. EU resident companies (i.e. companies deemed 
European under article 58 of the Treaty of Rome) are free from almost 
all restrictions. Non-EU resident investors must obtain Spanish 
Government authorization to invest in broadcasting, gaming, air 
transport, or defense. Restrictions on broadcasting and in transport 
are facing increasing pressure as the government looks to privatizing 
its national airline (perhaps in 1999), and completes the privatization 
of its telephone company.
    Faced with the loss of the Spanish feed grain market as a result of 
Spain's membership in the EU, the United States negotiated an 
enlargement agreement with the EU in 1987 which established a 2.3 
million ton annual quota for Spanish imports of corn, specified non-
grain feed ingredients and sorghum from non-EU countries. The Uruguay 
Round agreement having the effect of extending this agreement 
indefinitely. The United States remains interested in maintaining 
access to the Spanish feed grain market and will continue to press the 
EU on this issue.
    As an EU member state, Spain must also abide by EU procedures for 
approving the commercialization of products generated with the aid of 
biotechnology. The EU's lengthy and non-transparent process for 
approving agricultural products produced through modern genetic 
engineering methods has negatively impacted U.S. corn exports to Spain. 
Due to the EU's failure to approve some U.S. corn varieties, U.S. corn 
exports to Spain have virtually been eliminated, costing U.S. exporters 
about $150 million per year. Unless the EU takes steps to streamline 
its biotechnology product approval process, U.S. exporters will 
continue to be unable to ship U.S. corn to Spain.
    Under its EU accession agreement, Spain was forced to transform its 
structure of formal and informal import restrictions for industrial 
products into a formal system of import licenses and quotas. While 
Spain does not enforce any quotas on U.S.-origin manufactured products, 
it still requires import documents for some goods, which are described 
below. Neither of the following documents constitutes a trade barrier 
for U.S.-origin goods:

  --Import Authorization (autorizacion administrativa de importacion) 
        is used to control imports which are subject to quotas. 
        Although there are no quotas against U.S. goods, this document 
        may still be required if part of the shipment contains products 
        or goods produced or manufactured in a third country. In 
        essence, for U.S.-origin goods, the document is used for 
        statistical purposes only or for national security reasons;
  --Prior Notice of Imports (notificacion previa de importacion) is 
        used for merchandise that circulates in the EU customs union 
        area, but is documented for statistical purposes only. The 
        importer must obtain the document and present it to the general 
        register.

    Importers apply for import licenses at the Spanish general register 
of Spain's secretariat of commerce or any of its regional offices. The 
license application must be accompanied by a commercial invoice that 
includes freight and insurance, the C.I.F. price, net and gross weight, 
and invoices number. License application has a minimum charge. Customs 
accepts commercial invoices by fax. The license, once granted, is 
normally valid for six months but may be extended if adequate 
justification is provided.
    Goods that are shipped to a Spanish customs area without proper 
import licenses or declarations are usually subject to considerable 
delay and may run up substantial demurrage charges. U.S. exporters 
should ensure, prior to making shipments, that the necessary licenses 
have been obtained by the importing party. Also, U.S. exporters should 
have their importer confirm with Spanish customs whether any product 
approvals or other special certificates will be required for the 
shipment to pass customs.
    The government has signed and ratified the Marrakech Agreement 
which concluded the Uruguay Round of multilateral trade negotiations 
and established the World Trade Organization.
4. Debt Management Policy
    Thirty percent of Spanish medium and long-term debt is held by non-
residents. Approximately twenty one percent of Spanish Government debt 
is short-term (less than one year) and seventy nine percent is long-
term (i.e. maturities greater than five years).
    At the end of September 1999, international reserves at the Bank of 
Spain totaled 35.9 billion euros or 38.6 billion dollars.
5. Significant Barriers to U.S. Exports
    Import Restrictions: Under the EU's Common Agricultural Policy 
(CAP), Spanish farm incomes are protected by direct payments and 
guaranteed farm prices that are higher than world prices. One of the 
mechanisms for maintaining this internal support are high external 
tariffs that effectively keep lower priced imports from entering the 
domestic market to compete with domestic production. However, the 
Uruguay Round agreement has required that all import duties on 
agricultural products be reduced by an average of 20 percent during the 
five year period from 1995 to 2000.
    In addition to these mechanisms, the EU employs a variety of strict 
animal and plant health standards which act as barriers to trade. These 
regulations end up severely restricting or prohibiting Spanish imports 
of certain plant and livestock products. One of the most glaring 
examples of these policies is the EU ban on imports of hormone treated 
beef, imposed in 1989 with the stated objective of protecting consumer 
health. Despite a growing and widespread use of illegal hormones in 
Spanish beef production, the EU continues to ban U.S. beef originating 
from feedlots where growth promoters have been used safely and under 
strict regulation for many years. Despite a WTO ruling requiring the EU 
to remove the ban, the EU ban on imports of hormone treated beef 
remains in effect.
    One important aspect of Spain's EU membership is how EU-wide 
phytosanitary regulations, and regulations that govern food 
ingredients, labeling and packaging impact the Spanish market for 
imports of U.S. agricultural products. The majority of these 
regulations took effect on January 1, 1993 when EU ``single market'' 
legislation was fully implemented in Spain. Agricultural and food 
product imports into Spain are subject to the same regulations as in 
other EU countries.
    While many restrictions that had been in operation in Spain before 
the transition have now been lifted, for certain products the new 
regulations impose additional import requirements. For example, Spain 
requires any foodstuff that has been treated with ionizing radiation to 
carry an advisory label. In addition, a lot marking is required for any 
packaged food items. Spain, in adhering to EU-wide standards, continues 
to impose strict requirements on product labeling, composition, and 
ingredients. Like the rest of the EU, Spain prohibits imports which do 
not meet a variety of unusually strict product standards. Food 
producers must conform to these standards, and importers of these 
products must register with government health authorities prior to 
importation.
    Telecommunications: Spain liberalized its telecommunications market 
beginning December 1, 1998. Prior to this date, the government phased 
in competition in basic telephony through licenses granted to 
privatized second operator Retevision and to third operator Lince/Uni2 
(France Telecom), in addition to incumbent operator Telefonica. Cable 
operators were allowed to provide basic telephony beginning January 1, 
1998, but only by using their own networks; that is, they could provide 
basic telephony by interconnecting with the Telefonica or Retevision 
networks. This, in combination with several other mitigating factors, 
such as bureaucratic obstacles at the municipal level, the arrival of 
digital satellite television, and problems with new entrants forging 
interconnection agreements that are unbundled, transparent, timely and 
cost-oriented, has resulted in a slow start for the establishment of 
the cable sector in Spain.
    Digital television, especially via satellite, has emerged as a 
promising industry in the Spanish market. There are two digital 
television platforms, Via Digital and Canal Satellite Digital, which 
currently offer digital television programming. Onda Digital 
(Retevision) has announced plans next year to offer a competing digital 
TV package provided over a terrestrial network. Spain's mobile 
telephony market has also experienced a very rapid growth in 
subscribers. The government will offer six licenses for third 
generation wireless telephony in early 2000. New opportunities are 
emerging in advanced telecommunications services, including the 
internet and high-speed data transmission. Finally, the government has 
established the Telecommunications Market Commission (CMT) as an 
independent regulatory authority to oversee all activity in this 
sector.
    Government Procurement: Spain's Uruguay Round government 
procurement obligations took effect on January 1, 1996. Under the 
bilateral U.S.-EU government procurement agreement, Spain's obligations 
took effect also on January 1, 1996, except those for services which 
took effect on January 1, 1997. Offset requirements are common in 
defense contracts and some large non-defense related and public sector 
purchases (e.g. commercial aircraft and satellites).
    Television Broadcasting Content Requirements: On May 13, 1999, the 
Spanish parliament adopted new legislation that incorporates the 
revised EU Television without Frontiers Directive and revises the 1994 
Spanish law on television broadcasting. The new law explicitly requires 
television operators to reserve 51 percent of their annual broadcast 
time to European audiovisual works. It also obliges television channels 
to devote 5 percent of their annual earnings to finance European 
feature length films and films for European television.
    Motion Picture Dubbing Licenses and Screen Quotas: In January 1997, 
the government adopted implementing regulations for the 1994 Cinema 
Law, which reserved a portion of the theatrical market for EU-produced 
films. Thanks to successful industry-government negotiations, the new 
regulations eased the impact of the 1994 law on non-EU producers and 
distributors in regard to screen quotas and dubbing licenses. The 
screen quotas finally adopted required exhibitors to show one day of 
EU-produced film for every three days of non-EU-produced film instead 
of the original ratio of one to two. The three-tiered system 
established for dubbing licenses under the 1994 law ended in June 1999. 
New draft film legislation is slated to be sent to the Parliament in 
early 2000. It is expected to provide for increased freedom to export 
and import films and the gradual liberalization of screen quotas.
    Despite remaining protectionist elements, Spain's theatrical film 
system has been modified sufficiently in recent years so that it is no 
longer a major source of trade friction as it had been earlier. 
However, in 1998, the Catalan regional government adopted a decree 
under its new law on language policy, which calls for both dubbing and 
screen quotas in order to increase the number of films being shown in 
the Catalan language. Due to strong industry opposition and the start 
of negotiations with film distributors and exhibitors to resolve their 
differences, the Catalan government decided to suspend implementation 
of this law until July 2000.
    Product Standards and Certification Requirements: Product 
certification requirements have been liberalized considerably since 
Spain's entry into the EU. After several years in which 
telecommunications equipment faced difficulties, Spain adapted its 
national regulations in this area to conform to EU directives. For 
example, now all telecom equipment must carry the CE mark, which 
certifies that it complies with all applicable EU directives. This 
process may take three to four months after all tests have been 
performed and necessary documents are submitted. However, recognition 
from other EU countries and an early presentation of all documentation 
can speed up the process considerably. There is still some uncertainty 
as to whether the earlier exemption from homologation and certification 
requirements for equipment imported for military use is still valid.
    In general there has been improved transparency of process. For 
example, the CE registration for medical equipment from any of the EU 
member states is considered valid here. Thus, the product registration 
procedure is shortened (to about six months) and no longer must be 
initiated by a Spanish distributor. Pharmaceuticals and drugs still 
must go through an approval and registration process with the Ministry 
of Health requiring several years unless previously registered in an EU 
member state or with the London-based EU pharmaceutical agency, in 
which case the process is shortened to a few months. Vitamins are 
covered under this procedure; however, import of other nutritional 
supplements is prohibited, and they are dispensed only at pharmacies. 
Spanish authorities have been cooperative in resolving specific trade 
problems relating to standards and certifications brought to their 
attention. The United States has been negotiating with the EU for 
mutual recognition of product standards and acceptance of testing 
laboratory results.
6. Export Subsidies Policies
    Spain aggressively uses ``tied aid'' credits to promote exports, 
especially in Latin America, the Maghreb, and more recently, China. 
Such credits reportedly are consistent with the OECD arrangement on 
officially supported export credits.
    As a member of the EU, Spain benefits from EU export subsidies 
which are applied to many agricultural products when exported to 
destinations outside the Union. Total EU subsidies of Spanish 
agricultural exports amounted to about $197 million in 1998. Spanish 
exports of grains, olive oil, other oils, tobacco, wine, sugar, dairy 
products, beef, and fruits and vegetables benefited most from these 
subsidies in 1998.
7. Protection of U.S. Intellectual Property
    Spain adopted new patent, copyright, and trademark laws, as agreed 
at the time of its EU accession in 1986. It enacted a new Patent Law in 
March of 1986, a new Copyright Law in November 1987, and a new 
Trademark Law in November of 1988. All approximate or exceed EU levels 
of intellectual property protection. Spain is a party to the Paris, 
Berne, and Universal Copyright Conventions and the Madrid Accord on 
Trademarks. Government officials have said that their laws reflect 
genuine concern for the protection of intellectual property.
    In October 1992, Spain enacted a modernized Patent Law which 
increases the protection afforded patent holders. At that time, Spain's 
pharmaceutical process patent protection regime expired and product 
protection took effect. However, given the long (10 to 12 year) 
research and development period required to introduce a new medicine 
into the market, industry sources point out that the effect of the new 
law will not be felt until after the turn of the century. U.S. 
pharmaceutical manufacturers in Spain complain that this limits 
effective patent protection to approximately eight years and would like 
to see the patent term lengthened. Of at least equal concern to the 
U.S. industry is the issue of parallel imports, i.e. lower-priced 
products manufactured in Spain that are diverted to northern European 
markets where they are sold at higher prices. U.S. companies have 
suffered significant losses as a result. While the pharmaceutical 
sector would like the government to intervene, it looks to the EU 
commission and the advent of the euro to resolve this single market 
problem.
    The Copyright Law is designed to redress historically weak 
protection accorded movies, videocassettes, sound recordings and 
software. It includes computer software as intellectual property, 
unlike the prior law. In December 1993, legislation was enacted which 
transposed the EU software directive. It includes provisions that allow 
for unannounced searches in civil lawsuits and searches to take place 
under these provisions.
    According to industry sources, Spain has a relatively high level of 
computer software piracy despite estimated decline in the last years. 
Industry estimates for 1998 show a drop to 59 percent from 67 percent 
in 1996, but no measurable improvement over 1997. Despite the Spanish 
government increased enforcement activities, the slow pace of civil and 
criminal court proceedings continued to dilute their impact. As a 
result, concerned groups have focused increasingly on enforcement, with 
industry and government cooperating on a series of problems aimed at 
educating the judiciary, police, and customs officials to be more 
rigorous in their pursuit of the problem.
    Motion picture (i.e. video) and audiocassette piracy also remains a 
problem. However, thanks to the government, prohibition on running 
cable across public thoroughfares and strict enforcement of the 
Copyright Law that stipulates that no motion picture can be shown 
without authorization of the copyright holder, the incidence of 
community video piracy has declined.
    Spain's Trademark Law incorporates by reference the enforcement 
procedures of the Patent Law, defines trademark infringements as unfair 
competition and creates civil and criminal penalties for violations. 
The government has drafted a new Trademark Law which will incorporate 
TRIPs, the EU Community Trademark Directive, and the Trademark Law 
Treaty, and which will most likely be adopted in 2000. But first, the 
Spanish Supreme Court rendered a verdict on July 8, 1999, on case 
presented by Catalan and Basque governments against the existing 
trademark law, Ley 32/1998. The text of the law and its verdict is 
available at the Internet address: www.oepm.es under AVISOS Y NOTICIAS 
and LEGISLACION sections; Copy of sentence by fax). National 
authorities seem committed to serious enforcement efforts and there 
continue to be numerous civil and criminal actions to curb the problem 
of trademark infringement. To combat this problem in the textile and 
leather goods sector, the government began to promote the creation and 
sale of devices to protect trademark goods and to train police and 
customs officials to cope more effectively. Despite these efforts, 
industry estimates rank Spain as the country with the second highest 
incidence of trademark fraud in the clothing sector in Europe.
    In September 1999, in a trademark case in which a well-known U.S. 
apparel manufacturer complained about infringement of its brand name, 
the Spanish Supreme Court handed down a decision denying it the right 
to continue marketing its products under its trademark name in Spain.
8. Worker Rights
    a. The Right of Association: All workers except military personnel, 
judges, magistrates and prosecutors are entitled to form or join unions 
of their own choosing without previous authorization. Self-employed, 
unemployed and retired persons may join but may not form unions of 
their own. There are no limitations on the right of association for 
workers in special economic zones. Under the constitution, trade unions 
are free to choose their own representatives, determine their own 
policies, represent their members' interests, and strike. They are not 
restricted or harassed by the government and maintain ties with 
recognized international organizations.
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively was established by the workers 
statute of 1980. Trade union and collective bargaining rights were 
extended to all workers in the public sector, except the military 
services, in 1986. Public sector collective bargaining in 1989 was 
broadened to include salaries and employment levels. Collective 
bargaining is widespread in both the private and public sectors. Sixty 
percent of the working population is covered by collective bargaining 
agreements although only a minority are actually union members. Labor 
regulations in free trade zones and export processing zones are the 
same as in the rest of the country. There are no restrictions on the 
right to organize or on collective bargaining in such areas.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is outlawed and is not practiced. Legislation is effectively 
enforced.
    d. Minimum Age for Employment of Children: The legal minimum age 
for employment as established by the workers statute is 16. The 
Ministry of Labor and Social Security is primarily responsible for 
enforcement. The minimum age is effectively enforced in major 
industries and in the service sector. It is more difficult to control 
on small farms and in family-owned businesses. Legislation prohibiting 
child labor is effectively enforced in the special economic zones. The 
workers statute also prohibits the employment of persons under 18 years 
of age at night, for overtime work, or for work in sectors considered 
hazardous by the Ministry of Labor and Social Security and the unions.
    e. Acceptable Conditions of Work: Workers in general have 
substantial, well defined rights. A 40 hour workweek is established by 
law. Spanish workers enjoy 14 paid holidays a year (12 assigned by 
central government +2 by autonomous authorities) and a month's paid 
vacation. The employee receives his annual salary in 14 payments--one 
paycheck each month and an ``extra'' check in June and in December. The 
minimum wage is revised every year in accordance with the consumer 
price index. Government mechanisms exist for enforcing working 
conditions and occupational health and safety conditions, but 
bureaucratic procedures are cumbersome.
    f. Rights in Sectors with U.S. Investment: Conditions in sectors 
with U.S. investment do not differ from those in other sectors of the 
economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  199
Total Manufacturing............  ..............  7,435
  Food & Kindred Products......  1,756           ...............................................................
  Chemicals & Allied Products..  1,211           ...............................................................
  Primary & Fabricated Metals..  933             ...............................................................
  Industrial Machinery and       90              ...............................................................
   Equipment.
  Electric & Electronic          863             ...............................................................
   Equipment.
  Transportation Equipment.....  1,453           ...............................................................
  Other Manufacturing..........  1,128           ...............................................................
Wholesale Trade................  ..............  1,470
Banking........................  ..............  2,124
Finance/Insurance/Real Estate..  ..............  694
Services.......................  ..............  475
Other Industries...............  ..............  411
TOTAL ALL INDUSTRIES...........  ..............  12,807
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 SWEDEN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................      236.2      235.6      232.4
  Real GDP Growth (pct) \3\............        1.8        2.9        3.6
  GDP by Sector:
    Agriculture........................        1.5        1.5        1.5
    Manufacturing......................       47.5       47.0       47.0
    Services...........................       98.4       97.5       98.0
    Government.........................       45.0       44.5       44.0
  Per Capita GDP (US$) \2\.............     26,701     26,606     26,229
  Labor Force (000's)..................      4,264      4,255      4,391
  Unemployment Rate (pct)..............        8.0        6.6        5.6

Money and Prices (annual percentage
 growth):
  Money Supply (M3) \4\................        1.3        2.1        7.5
  Consumer Price Inflation.............        0.9       -0.6        0.5
  Exchange Rate (SEK/US$)..............       7.63       7.95       8.30

Balance of Payments and Trade:
  Total Exports FOB \5\................       82.6       84.6       84.0
    Exports to U.S.\6\.................        6.8        7.3        7.2
  Total Imports CIF \5\................       65.4       68.2       67.2
    Imports from U.S.\6\...............        3.9        4.0        3.9
  Trade Balance \5\....................       17.2       16.4       16.8
    Balance with U.S.\6\...............        2.9        3.3        3.3
  External Public Debt \7\.............       50.5       46.7       35.9
  Fiscal Balance/GDP (pct).............       -1.8        2.3        1.7
  Current Account Surplus/GDP (pct)....        2.8        2.3        1.4
  Foreign Debt Service Payments/GDP           1.89       3.00       5.70
   (pct)...............................
  Gold and Foreign Exchange Reserves...       11.8       14.3       18.4
  Aid from U.S.........................          0          0          0
  Aid from All Other Sources...........          0          0          0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  October 1999.
\2\ Decrease due to exchange rate fluctuations.
\3\ Percentage changes calculated in local currency.
\4\ Source: The Central Bank. M3 is the measurement used in Sweden, very
  close to a potential Swedish M2 figure.
\5\ Merchandise trade.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through October.
\7\ Source: Swedish National Debt Office.

1. General Policy Framework
    Sweden is an advanced, industrialized country with a high standard 
of living, extensive social services, a modern distribution system, 
excellent transport and communications links with the world, and a 
skilled and educated work force. Sweden exports a third of its Gross 
Domestic Product (GDP) and is a strong supporter of liberal trading 
practices. Sweden became a member of the European Union (EU) on January 
1, 1995, by which point it had already harmonized much of its 
legislation and regulation with the EU's as a member of the European 
Economic Area.
    Sweden uses both monetary and fiscal policy to achieve economic 
goals. Active labor market practices also are particularly important. 
The Central Bank is by law independent in pursuit of its avowed goal of 
price stability. Fiscal policy decisions in the late 1980's to lower 
tax rates while maintaining extensive social welfare programs swelled 
the government budget deficit and public debt, most of which is 
financed domestically. Since the beginning of 1995, however, Sweden has 
made impressive strides with its economic convergence program, having 
restored macroeconomic stability and created the conditions for 
moderate, low-inflation economic growth. The government intends to run 
budget surpluses for the foreseeable future in order to assure that the 
public pension system and other aspects of the welfare state are 
adequately funded in the face of expected demographic changes.
    During 1995 and 1996, Sweden pulled out of its worst and longest 
recession since the 1930s. (GDP declined by six percent from 1991 to 
1993). Unemployment started to come down in 1998, from average figures 
as high as 12 to 14 percent in the mid-1990s, now down to around 8 to 9 
percent. (Swedes quote two unemployment figures, open and ``hidden.'' 
``Hidden'' unemployment, those in government training and work 
programs, accounts for 3-3.5 percentage points of total unemployment.) 
In 1992 the Swedish Krona came under pressure and was floated late that 
year; Swedish interest rates soared but have come down rapidly starting 
in 1996, and are now around half a percentage point above German rates.
    Sweden's export sector is strong, resulting in large trade balance 
surpluses and solid current account surpluses since 1994. Domestic 
demand started to pick up in 1997 and has contributed to the growth 
since that year. It is now driving Sweden's strong growth (the growth 
figure for 1999 will be at least 3.6 percent), even though the export 
sector has recovered better than expected from the effects of the Asia 
crisis. Structural changes in recent years have prepared the way for 
future economic growth. The social democratic government at the end of 
the 1980's and the conservative coalition government at the beginning 
of the 1990's deregulated the credit market; removed foreign exchange 
controls; reformed taxes; lifted foreign investment barriers; and began 
to privatize government-owned corporations.
2. Exchange Rate Policies
    From 1977 to 1991, the krona was pegged to a trade weighted basket 
of foreign currencies in which the dollar was double weighted. From 
mid-1991, the krona was pegged to the ECU. Sweden floated the currency 
in November 1992 after briefly defending the krona during the 
turbulence in European financial markets. Although Sweden is an EU 
member, it has chosen not to join the European Monetary Union and does 
not currently participate in the European Exchange Rate Mechanism.
    Sweden dismantled a battery of foreign exchange controls in the 
latter half of the 1980's. No capital or exchange controls remain. (The 
central bank does track transfers for statistical purposes.)
3. Structural Policies
    Sweden's tax burden was 53 percent of GDP for 1999. Central 
government expenditure during the recent severe recession was nearly 75 
percent of GDP, and in 1999 it will come down to 57.5 percent. The 
maximum marginal income tax rate on individuals is 59 percent. 
Effective corporate taxes are comparatively low at 28 percent, though 
social security contributions add about 40 percent to employers' gross 
wage bills. The value-added tax is two-tiered, with a general rate of 
25 percent and a lower rate of 12 percent for food, domestic 
transportation, and many tourist-related services.
    Trade in industrial products between Sweden, other EU countries, 
and EFTA countries is not subject to customs duty, nor are a 
significant proportion of Sweden's imports from developing countries. 
When Sweden joined the EU, its import duties were among the lowest in 
the world, averaging less than five percent ad valorem on finished 
goods and around three percent on semi-manufactures. Duties were raised 
slightly on average to meet the common EU tariff structure. Most raw 
materials are imported duty free. There is very little regulation of 
exports other than military exports and some dual use products that 
have potential military or non-proliferation application.
    Sweden began abolishing a complicated system of agricultural price 
regulation in 1991. Sweden's EU membership and consequent adherence to 
the EU's common agricultural policy has brought some re-regulation of 
agriculture.
4. Debt Management Policies
    Central government borrowing guidelines require that most of the 
national debt be in Swedish crowns; that the borrowing be predictable 
in the short term and flexible in the medium term; that the government 
(that is, the Cabinet) direct the extent of the borrowing; and that the 
government report yearly to the parliament.
    Sweden's Central Bank and National Debt Office have borrowed 
heavily in foreign currencies since the fall of 1992, increasing the 
central government's foreign debt five-fold to about a third of the 
public debt. Management of the increased debt level so far poses no 
problems to the country, but interest payments on the large national 
debt grew rapidly in the early 1990's. Total debt is declining rapidly 
from early decade highs as a result of budgetary surpluses and strong 
economic growth. Gross government debt is projected to drop below 60 
percent of GDP next year.
5. Significant Barriers to U.S. Exports
    Sweden is open to imports and foreign investment and campaigns 
vigorously for free trade in the World Trade Organization (WTO) and 
other fora. Import licenses are not required except for items such as 
military material, hazardous substances, certain agricultural 
commodities, fiberboard, ferro alloys, some semi-manufactures of iron 
and steel. Sweden enjoys licensing benefits under section 5(k) of the 
U.S. Export Administration Act. Sweden makes wide use of EU and 
international standards, labeling, and customs documents in order to 
facilitate exports.
    Sweden has harmonized laws and regulations consistent with the EU. 
Sweden is now open to virtually all foreign investment and allows 100 
percent foreign ownership of businesses and commercial real estate, 
except in air and maritime transportation and the manufacture of 
military materiel. Foreigners may buy and sell any corporate share 
listed on the Stockholm Stock Exchange. Corporate shares may have 
different voting strengths.
    Sweden does not offer special tax or other inducements to attract 
foreign capital. Foreign-owned companies enjoy the same access as 
Swedish-owned enterprises to the country's credit market and government 
incentives to business such as regional development or worker training 
grants.
    Public procurement regulations have been harmonized with EU 
directives and apply to central and local government purchases. Sweden 
is required to publish all government procurement opportunities in the 
European Community Official Journal. Sweden participates in all 
relevant WTO codes concerned with government procurement, standards, 
etc. There are no official counter-trade requirements.
6. Export Subsidies Policies
    The government provides basic export promotion support through the 
Swedish Trade Council, which it and industry fund jointly. The 
government and industry also fund jointly the Swedish Export Credit 
Corporation, which grants medium and long-term credits to finance 
exports of capital goods and large-scale service projects.
    Sweden's agricultural support policies have been adjusted to the 
EU's common agricultural policy, including intervention buying, 
production quotas, and increased export subsidies.
    There are no tax or duty exemptions on imported inputs, no resource 
discounts to producers, and no preferential exchange rate schemes. 
Sweden is a signatory to the GATT subsidies code.
7. Protection of U.S. Intellectual Property
    In most cases, Swedish law strongly protects intellectual property 
rights having to do with patents, trademarks, copyrights, and new 
technologies. The laws are generally adequate and clear. However, 
enforcement is not as strong as it should be, especially in the area of 
copyright protection for software. The police and prosecutors need 
additional resources, some specialized training to help with acquiring 
and preserving evidence, and clear signals from the top of the 
government that copyright protection is a real priority, especially 
within Swedish public sector organizations. In addition, Swedish law 
poses a problem for copyright owners by permitting government 
ministries and parliament to provide to the public copies of works that 
may be unpublished and protected by copyright law.
    The courts are efficient and honest. Sweden supports efforts to 
strengthen international protection of intellectual property rights, 
often sharing U.S. positions on these questions. Sweden is a member of 
the World Intellectual Property Organization and is a party to the 
Berne Copyright and Universal Copyright Conventions and to the Paris 
Convention for the Protection of Industrial Property, as well as to the 
Patent Cooperation Treaty. As an EU member, Sweden has undertaken to 
adhere to a series of other multilateral conventions dealing with 
intellectual property rights.
8. Worker Rights
    a. The Right of Association: Laws protect the freedom of workers to 
associate and to strike, as well as the freedom of employers to 
organize and to conduct lock-outs. These laws are fully respected. Some 
83 percent of Sweden's work force belongs to trade unions. Unions 
operate independently of the government and political parties, though 
the largest federation of unions has always been linked with the 
largest political party, the Social Democrats.
    b. The Right to Organize and Bargain Collectively: Labor and 
management, each represented by a national organization by sector, 
negotiate framework agreements every two to three years. More detailed 
company agreements are reached locally. The law provides both workers 
and employers effective mechanisms, both informal and judicial, for 
resolving complaints.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, and the authorities effectively enforce 
this ban.
    d. Minimum Age for Employment of Children: Compulsory nine-year 
education ends at age 16, and the law permits full-time employment at 
that age under supervision of local authorities. Employees under age 18 
may work only during daytime and under supervision. Union 
representatives, police, and public prosecutors effectively enforce 
this restriction.
    e. Acceptable Conditions of Work: Sweden has no national minimum 
wage law. Wages are set by collective bargaining contracts, which non-
union establishments usually observe. The standard legal work week is 
40 hours or less. Both overtime and rest periods are regulated. All 
employees are guaranteed by law a minimum of five weeks a year of paid 
vacation; many labor contracts provide more. Government occupational 
health and safety rules are very high and are monitored by trained 
union stewards, safety ombudsmen, and, occasionally, government 
inspectors.
    f. Rights in Sectors with U.S. Investment: The five worker-right 
conditions addressed above pertain in all firms, Swedish or foreign, 
throughout all sectors of the Swedish economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  79
Total Manufacturing............  ..............  3,359
  Food & Kindred Products......  18              ...............................................................
  Chemicals & Allied Products..  1,496           ...............................................................
  Primary & Fabricated Metals..  6               ...............................................................
  Industrial Machinery and       316             ...............................................................
   Equipment.
  Electric & Electronic          52              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  224
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  782
Services.......................  ..............  1,009
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  6,053
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              SWITZERLAND


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................      256.3      262.1      261.4
  Real GDP Growth (pct)................        1.7        2.1        1.9
  GDP by Sector:
    Agriculture........................        N/A        N/A        N/A
    Manufacturing......................        N/A        N/A        N/A
    Services...........................        N/A        N/A        N/A
    Government \2\.....................       38.7         39       39.1
  Per Capita GDP (US$).................     37,415     37,059     39,244
  Labor Force (000's) \3\..............      2,601      2,621      2,610
  Unemployment Rate (pct)..............        5.2        3.9        2.7

Money and Prices (annual percentage
 growth):
  Money Supply (M3)....................        5.1        1.2        1.3
  Consumer Price Inflation (pct).......        0.5        0.0        0.6
  Exchange Rate (SFr/US$)..............       1.45       1.45       1.48

Balance of Payments and Trade:
  Total Exports \4\....................       72.5       75.2       82.0
    Exports to U.S.....................        7.1        7.6        8.6
  Total Imports \4\....................       71.1       73.7       79.3
    Imports from U.S...................          5        4.8        5.5
  Trade Balance \4\....................        1.4        1.5        N/A
    Balance with U.S...................          2          3        3.6
  External Public Debt \5\.............       66.9       75.6        N/A
    Fiscal Deficit/GDP (pct)...........        2.4        0.3        N/A
  Current Account Surplus/GDP (pct)....        6.5        5.9        7.8
  Debt Service Payments/GDP (pct)......        1.3        1.3        1.3
  Gold and Foreign Exchange Reserves          44.9       44.6       43.3
   \6\.................................
  Aid from U.S.........................          0          0          0
  Aid from All Other Sources...........          0          0          0
------------------------------------------------------------------------
\1\ All 1999 figures are estimates.
\2\ Including Social Welfare Expenditures.
\3\ Full-time equivalent employment.
\4\ Merchandise trade excluding gold and other precious metals, jewels,
  artworks, antiques; Source: Swiss Customs Administration; 1999 figures
  are estimates based on figures available through August.
\5\ Federal government only (i.e. excluding cantons and communities).
\6\ s of August 1999.

1. General Policy Framework
    Switzerland has a highly developed, internationally oriented, and 
open market. The economy is characterized by a sophisticated 
manufacturing sector, a highly skilled workforce, a large services 
sector and a high savings rate. Per capita GDP is virtually the highest 
in Europe while unemployment is practically the lowest.
    When Swiss voters decided in December, 1992, to reject the European 
Economic Area (EEA) Treaty, Switzerland found itself in the awkward 
position of being located in the heart of Europe, without being part of 
the EEA or a member of the EU. With some two-thirds of its exports 
going to Europe, the government is promoting efforts to maintain 
Switzerland's competitiveness in Europe while seeking to diversify its 
export markets. The Swiss parliament recently approved the bilateral 
agreements concluded with the EU Commission in December of 1998, which 
cover seven different sectors. However, before the agreements can take 
effect they will have to pass a public referendum in Switzerland and be 
ratified by all 15 EU member states.
    After strong economic growth during the eighties, the Swiss economy 
was Western Europe's weakest between 1990-1996, with growth averaging 
around 0.0 percent per year (unemployment, however, did not rise above 
5.5 percent). As a result of the economic stagnation, the country ran 
up large, unprecedented (for Switzerland) deficits causing a 
corresponding accumulation of public debt. A public initiative which 
passed in 1998, essentially requires the federal budget to be balanced 
and the government will thus have to reduce the deficit to less than 
one billion Swiss Francs by 2001 through strictly controlling 
expenditures. Modest economic recovery began in 1997 and annual GDP 
growth is expected to be 1.9 percent in 1999 and around 2.0 percent in 
2000.
    While no systematic use is made of fiscal policy to stimulate the 
economy, parliament voted in 1997 to spend $379 million over the next 
few years on an investment program to help the Swiss economy pull out 
recession. Most of the funds are being spent in the construction sector 
to renovate public infrastructure.
    The Swiss National Bank (SNB) is independent from the Finance 
Ministry. The primary objective of the SNB's policy is price stability. 
Monetary policy is conducted through open market operations. The 
discount rate is used by the SNB only as a signal to the public.
2. Exchange Rate Policies
    The Swiss Franc is not pegged to any foreign currency. The SNB 
carefully watches for signs of upward pressure on the Franc (the 
overvalued Franc was partly to blame for the economic stagnation of the 
early/mid 1990's). The SNB has shown its willingness to follow an 
accommodating money supply policy, even to exceed money supply growth 
targets when necessary, to hold the value of the franc down.
3. Structural Policies
    Few structural policies have a significant effect on U. S. exports. 
Two exceptions are telecommunications and agriculture. In 1998, a new 
law took effect that is bringing liberalization and privatization to 
the Swiss telecommunications sector, opening the market to investment 
and competition from U.S. and other firms. Since then, one U.S. firm 
(and its Swiss partner) has won one of the three licenses to provide 
cellular phone service. The same firm will also be building a large 
land network with fiber optic cabling.
    Agriculture is heavily regulated and supported by the federal 
government. Legislation which took effect January 1, 1999, is reducing 
direct government intervention in the market to set prices, but the 
high level of direct support for Swiss agricultural production will 
continue. The goal of the new legislation is to reduce government 
regulation of the market while maintaining agricultural production at 
current levels through import protection and direct payments linked to 
environmental protection.
    In early 1996, a new Cartel Law came into effect, introducing the 
presumption that horizontal agreements setting prices, production 
volume, or territorial distribution diminish effective competition and 
are therefore unlawful. For years, Switzerland has had a heavily 
cartelized domestic economy. Over time, the effect of this law should 
be to improve competition in the domestic economy.
    As part of its Uruguay Round commitments, Switzerland enacted 
legislation in 1996 providing for nondiscrimination and national 
treatment in public procurement at the federal level. A separate law 
makes less extensive guarantees at the cantonal and community levels.
4. Debt Management Policies
    As a net international creditor, debt management policies are not 
relevant to Switzerland.
5. Aid
    Switzerland receives no aid.
6. Significant Barriers to U.S. Exports
    Import Licenses: Import licenses for many agricultural products are 
subject to tariff-rate quotas and tied to an obligation for importers 
to take a certain percentage of domestic production. Tariffs remain 
quite high for most agricultural products that are also produced in 
Switzerland.
    Services Barriers: The Swiss services sector features no 
significant barriers to U.S. exports. Foreign insurers wishing to do 
business in Switzerland are required to establish a subsidiary or a 
branch here. Foreign insurers may offer only those types of insurance 
for which they are licensed in their home countries. Until recently, 
the most serious barriers to U.S. exports existed in the area of 
telecommunications. However, with the privatization and liberalization 
which became effective in this sector in 1998, this market has been 
greatly opened to foreign competitors.
    Standards, Testing, Labeling, and Certification: Swiss approval and 
labeling requirements for genetically modified food products and 
ingredients are among the strictest in the world. Swiss authorities are 
currently reviewing their requirement that all food and feed products 
containing genetically modified ingredients be labeled. They have 
proposed modifying the requirements to require labeling only if the 
content is above a set percentage. Separately, a new law will take 
effect in January, 2000, which stipulates that fresh meat and eggs from 
abroad that are produced in a manner not permitted in Switzerland must 
be clearly labeled as such. Methods not allowed in Switzerland include 
the use of hormones, antibiotics and other anti-microbial substances in 
the raising of beef and pork as well as the production of eggs from 
chickens kept in certain types of battery cages. Embassy Bern will be 
monitoring developments in this matter for indications of any adverse 
influence on U.S. agriculture sales in Switzerland.
    Government Procurement Practices: On the federal level, Switzerland 
is a signatory of the WTO Government Procurement Agreement and fully 
complies with WTO rules concerning public procurement. On the cantonal 
and local levels, a law passed by the parliament in 1995 provides for 
nondiscriminatory access to public procurement. The United States and 
Switzerland reached agreement in 1996 to expand the scope of public 
procurement access on a bilateral basis.
    With the exception of certain restrictions on agricultural items, 
the Swiss market is essentially open for the import of U.S. goods.
7. Export Subsidies Policies
    Switzerland's only subsidized exports are in the agricultural 
sector, where exports of dairy products (primarily cheese) and 
processed food products (chocolate products, grain-based bakery 
products, etc.) benefit from state subsidies. Switzerland is gradually 
reducing the export subsidies as required under World Trade 
Organization (WTO) rules. The government has negotiated, but not yet 
ratified, an agreement with the European Union that neither country 
will subsidize dairy product exports to the other.
8. Protection of U.S. Intellectual Property
    Switzerland has one of the best regimes in the world for the 
protection of intellectual property and protection is afforded equally 
to foreign and domestic rights holders. Switzerland is a member of all 
major international intellectual property rights conventions and was an 
active supporter of a strong IPR text on the GATT Uruguay Round 
negotiations. Enforcement is generally very good. Switzerland is a 
member of both the European Patent Convention and the Patent 
Cooperation Treaty (PCT). A new Copyright Law in 1993 improved a regime 
that was already quite good. The law explicitly recognizes computer 
software as a literary work and establishes a remuneration scheme for 
private copying of audio and video works which distributes proceeds on 
the basis of national treatment.
    Since May of 1998, Switzerland has been in compliance with its 
obligation under TRIPS to protect company test data required by 
national authorities in order to obtain approval to market 
pharmaceuticals. The new regulation enacted by the Swiss Intercantonal 
Office for the Control of Medicines mandates a 10-year protection 
period for such data. Prior to this regulation taking effect, the lack 
of protection in this area negatively impacted one U.S. company. 
However, it is now very unlikely that any further problems will arise 
for U.S. firms.
    According to industry sources, software piracy continues to be a 
problem. This appears to be largely due to illegal copying by 
individuals and some small and medium-sized establishments. It is 
highly unlikely that there are any exports. Industry sources estimate 
lost sales due to software piracy at $80 million in 1998. Trade losses 
and denied opportunities for sales and investment in all other IPR 
sectors are minor in comparison.
    Switzerland is not on the U.S. ``Special 301 Watch List'' or 
``Priority Watch List.'' Neither is it identified as a ``Priority 
Foreign Country.''
9. Worker Rights
    a. The Right of Association: All workers, including foreign 
workers, have freedom to associate freely, to join unions of their 
choice, and to select their own representatives.
    b. The Right to Organize and Bargain Collectively: Swiss law gives 
workers the right to organize and bargain collectively and protects 
them from acts of antiunion discrimination. The right to strike is 
legally recognized, but a unique informal agreement between unions and 
employers has meant fewer than 10 strikes per year since 1975. There 
were no significant strikes thus far during 1999.
    c. Prohibition of Forced or Compulsory Labor: There is no forced or 
compulsory labor, although there is no legal prohibition of it.
    d. Minimum Age for Employment of Children: The minimum age for 
employment of children is 15 years. Children over 13 may be employed in 
light duties for not more than 9 hours a week during the school year 
and 15 hours otherwise. Employment between ages 15 and 20 is strictly 
regulated.
    e. Acceptable Conditions of Work: There is no national minimum 
wage. Industrial wages are negotiated during the collective bargaining 
process. Such wage agreements are also widely observed by non-union 
establishments. The Labor Act establishes a maximum 45-hour workweek 
for blue and white collar workers in industry, services, and retail 
trades, and a 50-hour workweek for all other workers. The law 
prescribes a rest period during the workweek. Overtime is limited by 
law to 260 hours annually for these working 45 hours per week and to 
220 hours annually for those working 50 hours per week.
    The Labor Act and the Federal Code of Obligations contain extensive 
regulations to protect worker health and safety. The regulations are 
rigorously enforced by the Federal Office of Industry, Trades, and 
Labor. There were no allegations of worker rights abuses from domestic 
or foreign sources.
    f. Rights in Sectors with U.S. Investments: Except for special 
situations (e.g. employment in dangerous activities regulated for 
occupational, health and safety or environmental reasons), legislation 
concerning workers rights does not distinguish among workers by sector, 
by nationality, by employer, or in any other manner which would result 
in different treatment of workers employed by U.S. firms from those 
employed by Swiss or other foreign firms.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  15
Total Manufacturing............  ..............  5,508
  Food & Kindred Products......  47              ...............................................................
  Chemicals & Allied Products..  2,859           ...............................................................
  Primary & Fabricated Metals..  217             ...............................................................
  Industrial Machinery &         576             ...............................................................
   Equipment.
  Electric and Electronic        609             ...............................................................
   Equipment.
  Transportation Equipment.....  403             ...............................................................
  Other Manufacturing..........  797             ...............................................................
Wholesale Trade................  ..............  7,831
Banking........................  ..............  3,695
Finance/Insurance/Real Estate..  ..............  18,446
Services.......................  ..............  1,651
Other Industries...............  ..............  469
TOTAL ALL INDUSTRIES...........  ..............  37,616
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 TURKEY


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998       1999
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP.............................      190.4      198.7   \1\ 78.0
Real GDP Growth (pct)                          7.5        2.8       -5.0
  GDP by Sector:
    Agriculture........................       27.6       34.4        6.6
    Manufacturing......................       41.1       39.0       16.6
    Services...........................       91.0       93.5       52.1
    Government.........................       17.1       18.4       10.6
  Per Capita GDP (US$).................      3,105      3,224
  Labor Force (000's)..................     22,359     23,415  \2\ 23,77
                                                                       9
  Unemployment Rate (pct)..............        6.9        6.2    \2\ 7.3

Money and Prices (annual percent
 growth):
  Money Supply Growth (nominal M2).....         96      106.2  \3\ 105.3
  Consumer Price Inflation.............       99.1       69.7   \4\ 64.6
  Exchange Rate (TL/US$ annual average)    151,239    259,815  \4\ 517,7
                                                                      50

Balance of Payments and Trade (Suitcase
 Trade Included):
  Total Exports FOB....................       32.6       31.2   \5\ 14.6
    Exports to U.S.....................        2.1        2.5    \6\ 1.6
  Total Imports CIF....................       48.0       45.6       21.8
    Imports from U.S...................        3.5        3.5    \6\ 2.2
  Trade Balance........................      -15.4      -14.4       -7.2
    Balance with U.S...................      -2.33      -1.84       -0.5
  External Public Debt.................       91.1      102.0    \1\ 105
  Fiscal Deficit/GDP (pct).............       -7.8       -7.4         12
  Current Account Balance/GDP (pct)....      -1.37       0.94       -0.5
  Debt Service Payments/GDP (pct)......        6.5        8.1        8.5
  Gold and Foreign Exchange Reserves          27.2       31.6     \3\ 35
   \8\.................................
  Aid from U.S.........................       0.31       .006        .02
  Aid from Other Sources...............        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ Estimate as of November 1999--all GDP figures for previous years are
  as of June.
\2\ 96, 97 and 98 figures are as of October; 99 figure is as of April.
\3\ As of October 1999.
\4\ As of November 8, 1999.
\5\ As of July 1999--all 99 trade figures are as of July.
\6\ As of August 99.
\7\ Includes reserves held by central bank and commercial banks.

Source: Turkish State Institute of Statistics, Turkish Treasury
  Undersecretariat, Central Bank of Turkey.

1. General Policy Framework
    From the establishment of the Republic in 1923 until 1981, Turkey 
was an insulated, state-directed economy. In 1981 the country embarked 
on a new course. The government abandoned protectionist policies and 
opened the economy to foreign trade and investment. The state slowly 
began to give up much of its role in directing the economy and to 
abolish many outdated restrictions on private business. These reforms 
unleashed the country's private sector and have brought impressive 
benefits. Since 1981, Turkey's average 5.2 percent real GNP growth rate 
has been the highest of any OECD country. Turkey's efforts reached a 
new stage in January 1996 in terms of market opening, with the 
inauguration of a customs union with the European Union. Turkey has 
harmonized nearly all of its trade and industrial policies with those 
of the EU and has begun to reap benefits from the customs union, 
particularly in terms of improved economic efficiency, which, in turn, 
has had a positive impact on overall U.S. exports to and investments in 
Turkey. The long-term consequences of the customs union should be very 
favorable, particularly in terms of trade creation and investment.
    Despite the impressive reforms introduced since 1981, Turkey 
continues to suffer from an inefficient public sector and weak 
political leadership. These factors, combined with a high domestic debt 
interest burden and the private sector's ingrained high inflation 
expectations, constrain higher growth rates. Consumer price index 
inflation has averaged about 78 percent since 1988, but dropped to 65 
percent in 1999. In 1994, government attempts to manipulate interest 
rates triggered a financial crisis and forced the government to 
introduce a tough austerity program. The sharp 1994 recession was 
Turkey's worst since World War II. The economy bounced back strongly, 
however, growing by over 8 percent from 1995 through 1997. Strong 
export growth sparked a surge in imports of raw materials and 
intermediate and capital goods through mid-1998, as did the elimination 
of import duties and surcharges for most EU goods, which accompanied 
the introduction of the customs union on January 1, 1996.
    After declining in 1994 and 1995, the budget deficit and public 
sector borrowing requirement both rose significantly from 1996 through 
1999, reflecting continued populist economic measures introduced by 
successive Turkish governments. The Yilmaz government, in power from 
July 1997 to November 1998, undertook significant (if gradualist) 
disinflationary reforms and permitted the central bank to continue its 
disciplined monetary and exchange rate policies, thus increasing market 
confidence. The Ecevit government in place since June 1999, has passed 
important structural reforms in banking and social security and passed 
constitutional amendments granting foreign concession holders access to 
international arbitration and providing the legal underpinning for 
privatization of state-owned companies.
    Turkey and the IMF concluded a Staff Monitored Program (SMP) in 
mid-1998. The government met or exceeded its year-end SMP targets, 
including achieving a 54.7 percent year-end WPI inflation rate, its 
lowest since 1991. Further progress in implementing structural reforms 
will lead to an IMF stand-by at the end of 1999. The government has set 
an ambitious year-end 2000 WPI inflation target of 20 percent as well 
as a $5 billion target for privatization revenues. The Asian and 
Russian financial crises did not seriously affect Turkey's economy. Any 
slowdown in the EU or U.S. economies (which take a 65 percent share of 
Turkey's exports) will restrict Turkey's ability to attract foreign 
capital or to expand its exports at the desired rate.
    Building on significant liberalization of the economy in the mid-
1980s, Turkey's private sector has become less dependent on the 
government. As a result, it has grown at an even faster pace than the 
overall economy, while it also expanded its share of Turkey's GDP. 
Turkey's most successful companies are foreign oriented and very 
competitive. Since 1992, total bilateral trade volumes have expanded by 
45 percent, totaling $6.2 billion at the end of 1998. U.S. exports have 
grown by over 36 percent, while Turkish exports have more than doubled 
in value. The U.S. retains a substantial trade surplus with Turkey. 
Investment levels remain flat, though significant opportunities remain 
in the energy and telecommunications sectors for further investments, 
should the government pass implementing legislation for access to 
international arbitration and for energy and telecom sector regulation.
2. Exchange Rate Policy
    The Turkish Lira (TL) is fully convertible and the central bank 
follows a crawling peg exchange rate policy aimed at the WPI target of 
20 percent by the end of 2000. The system was adopted on January 1, 
2000, with a pre-announced rate of crawl over the course of the year. 
The central bank has also committed to various monetary targets to 
support this new exchange rate mechanism.
    Overvaluation of the TL from 1989-93 was a significant factor in 
the 1994 financial crisis. As a result, the TL depreciated against the 
dollar in real terms in 1994. Since then, the central bank has 
maintained a stable real exchange rate measured against a trade-
weighted dollar/Euro basket.
3. Structural Policies
    Turkey has made substantial progress in implementing certain 
structural reforms and liberalizing its trade, investment, and foreign 
exchange regimes. The resulting rapid economic growth and high rate of 
private business creation during the 1980s and 1990s has generated 
tremendous demand for imported goods, particularly capital and 
intermediate goods and raw materials, which together account for over 
85 percent of total imports.
    Successive governments' failure to complete the structural reform 
measures needed to transform Turkey's economy into a liberal, market-
directed economy has limited private sector growth and prevented the 
economy from functioning at full efficiency. State-owned enterprises 
still account for some 35 percent of manufacturing value added. 
Although some of these firms are profitable, transfers to state firms 
constitute a substantial drain on the budget. Government control of key 
retail prices (especially in the energy and utilities sectors) also 
contributes to market distortion, as prices are sometimes manipulated 
to meet political objectives (held in check before elections, 
accelerating after). The government actively supports the agricultural 
sector through both subsidized inputs and crop support payments of up 
to twice world price levels.
    Turkey and the European Union entered into a customs union on 
January 1, 1996. Nearly all industrial goods from EU and EFTA countries 
now enter Turkey duty-free. Turkey has adopted the EU's common external 
tariff for third countries, which has resulted in significantly lower 
tariffs for U.S. products. The government also has abolished various 
import surcharges. As part of the customs union agreement, Turkey has 
revised its trade, competition, and incentive policies to meet EU 
standards. While these EU-related reforms in general help U.S. 
exporters, agricultural goods continue to face prohibitive tariffs.
4. Debt Management Policies
    As of June 1999, Turkey's gross outstanding external debt was $100 
billion, 76.5 percent of which is government debt. Debt service 
payments in 1999 will amount to an estimated 8.5 percent of GNP (and 36 
percent of current account receipts). Turkey has had no difficulty 
servicing its foreign debt in recent years.
    In 1999 Turkey has issued almost $4 billion in sovereign debt, 
above its $3 billion official target. At the same time, Turkey's 
domestic debt stock has increased significantly owing to continuing 
high real interest rates.
5. Aid
    In 1998, the United States ended its Economic Support Fund and 
Foreign Military Financing (market-rate loans) support for Turkey. In 
1999, the United States provided Turkey $2 million in assistance under 
a USAID-funded family planning program, $1.4 million in International 
Military Education and Training funding, and $500,000 in counter-
narcotics assistance. Turkey receives significant grant and loan aid 
from the European Union, but much of this is on hold as the result of 
political disputes with Greece.
6. Significant Barriers to U.S. Exports
    The introduction of Turkey's customs union with the EU in 1996 
resulted in reduced import duties for U.S. industrial exports. The 
weighted rate of protection for non-EU/EFTA industrial products dropped 
from 11 percent to 6 percent. By comparison, the rate of protection for 
industrial exports from EU and EFTA countries in 1995 had been 6 
percent; nearly all these goods now enter Turkey duty-free. There have 
been few complaints from U.S. exporters that the realignment of duty 
rates under the customs union has disrupted their trade with Turkey. A 
significant number of U.S. companies have reported that the customs 
union has benefited them by reducing tariffs on goods they already 
exported to Turkey from European subsidiaries. The customs union does 
not cover agricultural trade or services e.g. 200,000 tons of wheat and 
19,000 tons of rice are allowed duty free entry from the EU. U.S. 
exporters have voiced increasing frustration over barriers to 
agricultural trade, most notably a ban on the import of livestock. 
However, the import ban on livestock and meat was partially lifted for 
breeder cattle in 1999, although none had been imported by late 1999.
    Import Licenses: While import licenses generally are not required 
for industrial products, products which need after-sales service (e.g. 
photocopiers, ADP equipment, diesel generators) and agricultural 
commodities require licenses. In addition, the government requires 
laboratory tests and certification that quality standards are met for 
importation of human and veterinary drugs and foodstuffs. While 
licenses are generally issued in one to two weeks, occasional delays 
can cause problems for U.S. exporters.
    Government Procurement Practices: Turkey is not a signatory of the 
WTO Government Procurement Agreement. It nominally follows competitive 
bidding procedures for tenders. U.S. companies sometimes become 
frustrated over lengthy and often complicated bidding and negotiating 
processes. Some tenders, especially large projects involving co-
production, are frequently opened, closed, revised, and opened again. 
There are often numerous requests for ``best offers;'' in some cases, 
years have passed without the selection of a contractor.
    The entry into force of a Bilateral Tax Treaty between the U.S. and 
Turkey in 1998 eliminated the application of a 15 percent withholding 
tax on U.S. bidders for Turkish government contracts.
    Investment Barriers: The U.S.-Turkish Bilateral Investment Treaty 
(BIT) entered into force in May 1990. Turkey has an open investment 
regime. There is a screening process for foreign investments, which the 
government applies on an MFN basis; once approved, firms with foreign 
capital are treated as local companies. Although Turkey has a BIT with 
the United States, and despite its membership in international dispute 
settlement bodies, Turkish courts have not recognized investors' rights 
to third party arbitration under any contract defined as a concession. 
This has been particularly problematic in the energy, 
telecommunications and transportation sectors. Passage of 
constitutional amendments granting access to international arbitration 
to foreign investors should correct this problem; however, the 
implementing legislation needed to enforce these new amendments must 
still be enacted.
7. Export Subsidies Policies
    Turkey employs a number of incentives to promote exports, although 
programs have been scaled back in recent years to comply with EU 
directives and GATT/WTO standards. Barley, wheat, tobacco and sugar 
exports are subsidized heavily. The Turkish Eximbank provides exporters 
with credits, guarantees, and insurance programs. Certain tax credits 
also are available to exporters.
8. Protection of U.S. Intellectual Property
    In 1995, as part of Turkey's harmonization with the EU in advance 
of a customs union, the Turkish Parliament approved new patent, 
trademark and copyright laws. Turkey also acceded to a number of 
multilateral intellectual property rights (IPR) conventions. Although 
the new laws provide an improved legal framework for protecting IPR, 
they require further amendments to be consistent with the standards 
contained in the WTO Agreement on Trade Related Aspects of Intellectual 
Property Rights (TRIPS). The government has declared that intends to 
have a TRIPS-compatible IPR regime in place by the end of the year and 
has volunteered for a WTO TRIPS review in the second half of 2000. 
Draft amendments to the Copyright Law awaited parliamentary approval at 
the end of 1999.
    Turkey has been on the ``Special 301'' Priority Watch List since 
1992. In the 1997 ``Special 301'' review, USTR provided Turkey with a 
set of benchmarks necessary in order to improve its status in the 301 
process. In April 1998, the U.S. announced that it would not consider 
requests to augment Turkey's benefits under the U.S. generalized system 
of preferences until further progress is made on the benchmarks. Out of 
the six benchmarks, Turkey has made significant progress on four and is 
in the process of addressing the problems identified in the fifth and 
sixth benchmarks.
    Taxes on the showing of foreign and domestic films were equalized 
in 1998. The Prime Minister issued a circular in 1998 directing all 
government agencies to legalize the software used in their offices. A 
public anti-piracy campaign was begun in 1998 and the government has 
made efforts to educate businesses, consumers, judges and prosecutors 
regarding the implications of its laws. Turkey extended patent 
protection to pharmaceutical products in January 1999 in accordance 
with Turkey's Customs Union commitments to the EU. Turkey currently is 
in the process of amending its copyright legislation. In August 1999, 
fines were increased by 800 percent and indexed to inflation. Turkish 
police and prosecutors are working closely with trademark, patent and 
copyright holders to conduct raids against pirates within Turkey. 
Although many seizures have been made (including by Turkish Customs 
officials at ports of entry), and several cases have been brought to 
conclusion successfully, U.S. industry remains concerned that fines and 
penalties levied by the courts are insufficient to serve as a 
significant deterrent.
9. Worker Rights
    a. The Right of Association: All workers except police and military 
personnel have the right to associate freely and to form representative 
unions. Most workers also have the right to strike, but the 
constitution does not permit strikes among workers employed in the 
public utilities, petroleum, sanitation, education and national defense 
sectors, or by workers responsible for protection of life and property. 
Turkish law requires collective bargaining before a strike. Solidarity, 
wildcat, and general strikes are illegal. The law on free trade zones 
forbids strikes for 10 years following the establishment of a free 
trade zone, although union organizing and collective bargaining are 
permitted. The high arbitration board settles disputes in all areas 
where strikes are forbidden.
    b. The Right to Organize and Bargain Collectively: Apart from the 
categories of public employees noted above, Turkish workers have the 
right to organize and bargain collectively. The law requires that in 
order to become a bargaining agent, a union must represent not only 
``50 percent plus one'' of the employees at a given work site, but also 
10 percent of all workers in that particular branch of industry 
nationwide. After the Ministry of Labor certifies the union as the 
bargaining agent, the employer must enter good faith negotiations with 
it.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor, and it is not practiced.
    d. Minimum Age for Employment of Children: The constitution and 
labor laws forbid employment of children younger than age 15, with the 
exception that those 13 and 14 years of age may engage in light, part-
time work if enrolled in school or vocational training. The 
constitution also prohibits children from engaging in physically 
demanding jobs such as underground mining and from working at night. 
The Ministry of Labor enforces these laws effectively only in the 
organized industrial sector.
    In practice, many children work because families need the 
supplementary income. An informal system provides work for young boys 
at low wages, for example, in auto repair shops. Girls are rarely seen 
working in public, but many are kept out of school to work in 
handicrafts, especially in rural areas. The bulk of child labor occurs 
in rural areas and is often associated with traditional family economic 
activity, such as farming or animal husbandry. It is common for entire 
families to work together to bring in the crop during the harvest. The 
government has recognized the growing problem of child labor and has 
been working with the ILO to discover its dimension and to determine 
solutions. With the passage in 1997 of the eight-year compulsory 
education program the number of child workers was reduced 
significantly. Children enter school at age 6 or 7 and are required to 
attend until age 14 or 15.
    e. Acceptable Conditions of Work: The Ministry of Labor is legally 
obliged, through a tripartite government-union-industry board, to 
adjust the minimum wage at least every two years and does so regularly. 
Labor law provides for a nominal 45 hour work week and limits the 
overtime that an employer may request. Most workers in Turkey receive 
nonwage benefits such as transportation and meal allowances, and some 
also receive housing or subsidized vacations. In recent years, fringe 
benefits have accounted for as much as two-thirds of total remuneration 
in the industrial sector. Occupational safety and health regulations 
and procedures are mandated by law, but limited resources and lack of 
safety awareness often result in inadequate enforcement.
    f. Rights in Sectors with U.S. Investment: Conditions do not differ 
in sectors with U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  97
Total Manufacturing............  ..............  604
  Food & Kindred Products......  208             ...............................................................
  Chemicals & Allied Products..  53              ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          -9              ...............................................................
   Equipment.
  Transportation Equipment.....  99              ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  224
Finance/Insurance/Real Estate..  ..............  15
Services.......................  ..............  46
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  1,069
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                UKRAINE


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................     44.00     40.76     31.37
  Real GDP Growth (pct) \2\...............      -3.2      -1.7      -0.7
  GDP by Sector:
    Agriculture...........................      5.21      4.48      5.51
    Manufacturing.........................     14.46     11.80     12.15
    Services..............................      20.1      16.7      16.9
    Government............................       N/A       N/A       N/A
  Per Capita GDP (US$)....................       863       850       629
  Labor Force (millions)..................      22.6      22.3       N/A
  Unemployment Rate (pct).................       3.1       3.2      5.95

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      39.3      33.2      27.8
  Consumer Price Inflation................      10.3      29.0        16
  Exchange Rate (Hryvnia/US$ annual              1.9       2.7       N/A
   average)...............................
    Official..............................      1.85      2.50       4.1

Balance of Payments and Trade:
  Total Exports, FOB \3\..................      15.4      16.4      14.8
    Exports to U.S. (US$ millions) \4\....       414       634       N/A
  Total Imports, CIF \3\..................      19.6        17      13.9
    Imports from U.S. (US$ millions) \4\..       404       887       N/A
  Trade Balance \3\.......................      -4.2      -0.6       0.9
    Balance with U.S. (US$ millions) \4\..        10       253       N/A
  External Public Debt/GDP (pct)..........      23.8      29.0        40
  Fiscal Deficit/GDP (pct)................       5.6       2.5       1.5
  Current Account Deficit/GDP (pct).......      -2.6      -2.8     -3.03
  Debt Service Payments/GDP (pct).........       3.3       N/A       5.4
  Gold and Foreign Exchange Reserves......       2.4       1.2       1.2
  Aid from U.S. (US$ millions) \5\........       369       225       195
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data
  through September 1999, or are 1999 forecast. Source: Government of
  Ukraine. Depreciation of local currency in relation to dollar accounts
  for significant portion of annual drop in nominal dollar amounts.
\2\ Percentage changes calculated in local currency, adjusted for
  inflation.
\3\ Merchandise trade.
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.
\5\ Figures are actual FY expenditures. Cumulative budgeted assistance
  (credits and grants) for FY 92-97 totals approximately $2.46 billion.

1. General Policy Framework
    Since achieving independence in August 1991, Ukraine has followed a 
course of democratic development and gradual economic reform. After a 
period of hyperinflation, it curbed inflation and successfully 
introduced a new currency, the ``hryvnia,'' in 1996. A tremendous 
amount of work still lies ahead in the area of economic development and 
the creation of an economic environment conducive to foreign investment 
and governed by market forces. Ukraine's economic inheritance from the 
Soviet Union of a large defense sector and energy-intensive heavy 
industry has made the transition to a market economy particularly 
difficult. Ukraine's principal resources and economic strengths include 
rich agricultural land, significant coal and more modest gas and oil 
reserves, a strong scientific establishment, and an educated, skilled 
workforce. Ukraine is an important emerging market at the crossroads of 
Eastern Europe, Russia, Central Asia, and the Middle East, and holds 
great potential for becoming an important new market for U.S. trade and 
investment. A significant number of both large multinationals and 
smaller foreign investors are present, although private investment 
(including U.S. investment) is greatly hampered by overregulation, lack 
of transparency, high business taxes, and inconsistent application of 
local law.
    Ukraine still has much progress to make in the areas of large-scale 
privatization, tax reform, and contract enforcement. The government has 
generally been successful in efforts to achieve macroeconomic 
stability. After initially being hard hit by the August 1998 Russian 
financial crisis, Ukraine weathered the effects of this crisis 
relatively well during 1999. Economic growth in the formal sector 
showed signs of a modest recovery after nearly a decade of decline. 
Inflation remained relatively low, at slightly more than 10 percent 
during the first nine months of 1999. September 1998 saw the first 
disbursements to Ukraine from the International Monetary Fund (IMF) 
Extended Fund Facility (EFF). The three-year, $2.2 billion EFF program 
stipulated that the Ukrainian government take steps towards tax reform, 
a lower budget deficit, and further progress in privatization, 
deregulation, and other measures to encourage private investment. 
Several times during 1999 Ukraine fell out of compliance with IMF 
conditionalities, causing the IMF temporarily to hold up EFF 
disbursements. In most instances, Ukraine took steps to bring itself 
back in line with EFF requirements, and disbursements were resumed. 
However, Ukraine fell off track again with the IMF in September, 1999 
due to a failure to follow through on communal tariff increases, and as 
of late 1999, they had not yet secured IMF funding. Ukrainian foreign 
currency reserves increased during the period January-November 1999, 
reaching approximately $1.2 billion.
    Nevertheless, the Ukrainian government's financial problems 
continued. Following the Asian and Russian financial crises, Ukraine's 
previously easy access to private foreign financing diminished. 
Deterioration of the important Russian market for Ukrainian goods 
caused a significant drop in exports. The situation of the private 
banking sector, rife with non-performing loans and lacking good lending 
opportunities, remained precarious. Despite some progress in 
deregulation in 1999, Ukraine still awaited a much-needed surge in new 
investment. Domestic and foreign investors remained discouraged by a 
confusing and burdensome array of tax, customs and certification 
requirements, corruption, and the absence of an effective system of 
commercial law.
    The exchange rate relative to the U.S. dollar had remained steady 
within a narrow band in 1996 and 1997, but between August 1 and 
September 30, 1998, the hryvnia depreciated approximately 40 percent 
against the dollar before stabilizing. The hryvnia depreciated by 
approximately 35 percent during the first ten months of 1999.
    Ukraine's budget deficit has largely been the result of excessive 
spending on social programs and subsidies to both noncompetitive 
industries and private consumers, coupled with inadequate revenue 
collection. Financing was achieved through a combination of issuance of 
T-Bills to domestic and foreign borrowers, borrowing from the National 
Bank of Ukraine (NBU), assistance from international financial 
institutions (IFIs), and accumulation of wage and pension arrears. With 
the onset of the Russian financial crisis in August 1998, however, the 
market for government debt has largely dried up, and the government has 
had to rely increasingly upon credits from international financial 
institutions (IFIs), especially the IMF and World Bank. Ukraine has 
followed a relatively strict monetary policy for the past several years 
as part of its effort to control inflation and maintain the value of 
the hryvnia. During 1999, it continued efforts to reduce liquidity 
through raising bank reserve requirements, although it at the same time 
it relaxed somewhat its control of foreign exchange operations. 
Domestic arrears for wages and pensions has also been an important 
source of funds to finance the deficit.
2. Exchange Rate Policy
    In February 1999, the NBU established a new official currency 
exchange band range of 3.4 to 4.6 hryvnia per dollar. Although the NBU 
lifted most currency transaction restrictions during March through June 
(including a ban on advance payment on import contracts) and opened an 
interbank market for foreign exchange, some restrictions remain. 
Enterprises are still obliged to sell 50 percent of their hard currency 
earnings. The NBU also limited deviation of the cash market exchange 
rates from the official rate to 10 percent.
    Such restrictions have produced hardships for U.S. firms doing 
business with Ukraine. U.S. exporters were reluctant to ship goods 
without prior payment, while U.S. businesses operating in Ukraine (many 
of which are highly dependent on imports) have had difficulties in 
obtaining materials necessary for their operations. The NBU has stated 
it may give up the currency band in 2000.
3. Structural Policies
    There are no pricing requirements for consumer goods in Ukraine. 
Stiff import tariffs and VAT taxes, along with the small number of 
suppliers of Western products in Ukraine, tend to keep prices of 
imported goods high.
    Ukraine's burdensome and nontransparent tax structure remains a 
major hindrance to foreign investment and business development. 
Personal income and social security taxes remain high. Combined payroll 
taxes were reduced by Presidential Decree from 48.5 percent to 37.5 
percent effective January 1, 1999. Tax filing and collection procedures 
do not correspond to practices in Western countries. Import duties and 
excise taxes are often changed with little advance notice, giving 
foreign investors little time to adjust to new requirements.
    The regulatory environment is chaotic and Ukraine's product 
certification system is one of the most serious obstacles to trade, 
investment, and ongoing business. Although new licensing legislation is 
being drafted, procedures for obtaining various licenses remain complex 
and unpredictable, significantly raising the cost of doing business in 
Ukraine, and encouraging corruption and the development of the shadow 
economy.
4. Debt Management Policies
    Ukraine's foreign debt stood at $12.4 billion in July 1999, around 
40 percent of GDP. The largest amount is owed to Russia and 
Turkmenistan, primarily for past trade credits for deliveries of gas, 
which have been rescheduled into long-term state credits. Ukraine owed 
about $5.07 billion to international financial institutions and 
bilateral export credit agencies. External debt service as a percent of 
GDP was expected to be 5.4 percent in 1999. This figure for 2000 is 
expected to reach ten percent because of large foreign debts that will 
become due during that year.
    In September 1998 the IMF approved a three-year, $2.2 billion 
Extended Fund Facility (EFF) intended to overcome balance of payments 
difficulties stemming from macroeconomic imbalances and structural 
problems. Monthly disbursements under the EFF are conditioned on 
Ukraine pursuing more aggressive economic reform, and maintaining 
foreign reserve levels and a low budget deficit. As noted above, in 
1999 Ukraine has periodically fallen out of compliance with IMF 
conditionalities but then taken steps to bring itself back in accord, 
allowing the resumption of EFF disbursements. In August, the government 
rescheduled part of an approximately $160 million dollar sovereign debt 
due to foreign investors.
5. Aid
    Ukraine is one of the leading recipients of U.S. assistance. The FY 
99 Foreign Assistance Act set aside $195 million for Ukraine, focused 
on economic reform and privatization, business development, energy and 
environment (including nuclear safety/Chernobyl), democracy and local 
government, legal reform, and health and social development. In 
addition, around $100 million in other U.S. funding went for exchange 
programs, Peace Corps, transport of humanitarian supplies, and the 
Nunn-Lugar Cooperative Threat Reduction Program.
    U.S. assistance also reaches Ukraine indirectly through 
international financial institutions. As stated above, in September 
1998, the International Monetary Fund approved a three year, $2.2 
billion Extended Fund Facility designed to promote fiscal reform, 
financial stabilization, and the accelerated development of a market 
economy. Disbursements under the EFF amounted to $630 million during 
January-November 1999. Major World Bank loans have promoted 
agricultural reform, privatization, modernization of the financial 
sector, and reform in the energy sector. The only major World Bank 
disbursement expected in the near term is for financial sector reform, 
although there is the possibility of large new programs in 2000 for 
administrative reform and restructuring of privatized enterprises. The 
European Bank for Reconstruction and Development is expanding its role 
in financing small business development (in conjunction with USAID), 
and is considering a major role in the nuclear sector, including in 
improvement of safety at Chernobyl and the possible completion of new 
nuclear reactors.
6. Significant Barriers to U.S. Exports
    The daunting menu of a VAT (20 percent), import duties (ranging 
from 5 to 200 percent) and excise taxes (10 to 300 percent) present a 
major obstacle to trade with Ukraine. A limited number of goods, 
including raw materials, component parts, equipment, machinery, and 
energy supplies imported by commercial enterprises for ``production 
purposes and their own needs'' are exempted from VAT. Many agricultural 
enterprises are also exempt from the VAT. While investors' statutory 
funds are exempt from VAT, fixed capital investments, including plant 
equipment are often subject to VAT tax. This, coupled with inconsistent 
application of the law by customs and tax authorities, leads to 
investor uncertainty.
    Import duties differ and largely depend upon whether a similar item 
to that being imported is produced in Ukraine; if so, the rate may be 
higher. Goods subject to excise taxes include alcohol, tobacco, cars, 
tires, jewelry, certain electronics, and other luxury items. Excise 
duty rates are expressed as a percentage of the declared customs value, 
plus customs duties and customs fees paid for importing products. This 
often results in duties and fees amounting to over 100 percent of the 
declared value of the item.
    The significant progress made in the last few years on economic 
stabilization and the reduction in inflation have improved conditions 
for U.S. companies in Ukraine. However, foreign firms need to develop 
cautious and long-term strategies that take into full account the 
problematic commercial environment. The weak banking system, poor 
communications network, difficult tax and regulatory climate, 
prevalence of economic crime and corruption, non-transparent tender 
procedures, limited opportunities to participate in privatization, and 
lack of a well-functioning legal system, impede U.S. exports to and 
investment in Ukraine.
    Ukraine's domestic production standards and certification 
requirements apply equally to domestically produced and imported 
products. Product testing and certification generally relate to 
technical, safety and environmental standards, as well as efficacy 
standards with regard to pharmaceutical and veterinary products. Such 
testing often requires official inspection of the company's production 
facility at the company's expense. Testing is often done in sub-
standard facilities and on a unit-by-unit basis rather than ``type'' 
testing. In cases where Ukrainian standards are not established, 
country of origin standards may prevail.
    Duties on goods imported for resale are subject to varying ad 
valorem rates. Imported goods are not considered legal imports until 
they have been processed though the port of entry and cleared by 
Ukrainian customs officials. Import licenses are required for very few 
goods, primarily medicines, pesticides, and some industrial chemical 
products.
7. Export Subsidies Policies
    As part of its effort to cut the budget deficit, the government has 
significantly reduced the amount of subsidies it provides to state 
owned industry over the last several years. Nonetheless, subsidies 
remain an important part of Ukraine's economy, particularly in the coal 
and agriculture sectors. These subsidies, however, appear not to be 
specifically designed to provide direct or indirect support for 
exports, but rather to maintain full employment and production during 
the transition to a market-based economy. The government does not 
target export subsidies specifically to small business. (Ukrainian 
exporters, however, now enjoy a number of tax benefits, such as the VAT 
applied at a zero rate.) Ukraine's subsidy policy may change in the 
context of its negotiations to join the World Trade Organization (WTO). 
The country's sixth WTO Working Party meeting was held in the summer of 
1998. Ukraine has tabled WTO market access offers for both goods and 
services, though its accession process is proceeding slowly.
8. Protection of U.S. Intellectual Property
    Since gaining its independence, Ukraine has made significant 
progress in enacting legislation and adopting international conventions 
to protect intellectual property rights, though much still needs to be 
done to reach the level required by TRIPs. Ukraine is a member of the 
Universal Copyright Convention, the Convention establishing the World 
Intellectual Property Organization--WIPO, the Paris Convention, the 
Madrid Agreement, the Patent Cooperation Treaty, the International 
Convention for the Protection of New Varieties of Plants, the Berne 
Convention, the Trademark Law Treaty, and the Budapest Treaty. 
Nonetheless, in 1998 Ukraine was placed on the ``Special 301'' Watch 
List because copyright piracy is extensive and enforcement is minimal, 
causing substantial losses to U.S. industry. On May 1, 1999 Ukraine was 
moved to the Priority Watch List. Ukraine has taken some steps to 
improve its Intellectual Property Rights (IPR) regime, in accordance 
with its two-year plan to make its IPR legislation TRIPS-compliant, 
including ratification by Parliament in June 1999 of the Geneva 
Phonogram Convention. The President now must deposit the ratification 
with the World Intellectual Property Organization (WIPO) for it to take 
effect. Numerous pieces of additional legislation are pending.
    Ukrainian legislation has inadequate criminal penalties for 
copyright piracy and none for infringement. Enforcement is negligible 
or non-existent. Courts do not provide a reliable means to address 
copyright infringement. Piracy has become an even more serious problem 
as pirate factories displaced from Bulgaria have found a home in 
Ukraine. This was one of the contributing factors in the decision to 
move Ukraine to the Priority Watch List. To address this problem, 
Ukraine announced that it was creating an anti-piracy committee with 
authority to conduct unannounced searches and to confiscate pirated 
goods, but thus far it has made little progress. The government openly 
acknowledges its problems with piracy and actively seeks help from the 
U.S. in combating it.
    Ukraine is in the process of acceding to the WTO. The U.S. 
Government has taken the strong position that Ukraine's IPR regime must 
be TRIPs-compliant at the time of accession, with no transition period. 
Ukraine has established a working group with the U.S., which has met 
twice, the last time in April 1998.
9. Worker Rights
    a. The Right of Association: The constitution provides for the 
right to join trade unions to defend ``professional, social and 
economic interests.'' Under the constitution, all trade unions have 
equal status, and no government permission is required to establish a 
trade union. The 1992 Law on Citizens' Organizations (which includes 
trade unions) stipulates noninterference by public authorities in the 
activities of these organizations, which have the right to establish 
and join federations on a voluntary basis. In principle, all workers 
and civil servants (including members of the armed forces) are free to 
form unions. In practice, the government discourages certain categories 
of workers, for example, nuclear power plant employees, from doing so. 
A new trade union law designed to replace Soviet-era legislation was 
signed by the President in September 1999. The successor to the Soviet 
trade unions, known as the Federation of Trade Unions (FPU), has begun 
to work independently of the government and has been vocal in 
advocating workers' right to strike. Independent unions now provide an 
alternative to the official unions in many sectors of the economy. The 
constitution provides for the right to strike ``to defend one's 
economic and social interests.'' The constitution also states that 
strikes must not jeopardize national security, public health, or the 
rights and liberties of others.
    b. The Right to Organize and Bargain Collectively: The Law on 
Enterprises states that joint worker-management commissions should 
resolve issues concerning wages, working conditions, and the rights and 
duties of management at the enterprise level. Overlapping spheres of 
responsibility frequently impede the collective bargaining process. The 
government, in agreement with trade unions, establishes wages in each 
industrial sector and invites all unions to participate in the 
negotiations. The Law on Labor Disputes Resolution that came into force 
in March 1998 provides for establishment of an arbitration service and 
a National Mediation and Reconciliation Service to mediate in labor 
disputes. These services, however, have not yet been established. The 
manner in which the collective bargaining law is applied prejudices the 
bargaining process against the independent unions and favors the 
official unions. The collective bargaining law prohibits antiunion 
discrimination, but there have been cases in which such disputes have 
not been settled in a fair and equitable manner. Independent unions 
claim that the new trade union law is more restrictive than the old 
Soviet legislation because of difficulty in obtaining national status 
and registration, which confer the right to acquire space, property, 
maintain bank accounts and enter legally binding agreements. To acquire 
national status, a union must have representation in more than half of 
the regions of Kiev, or at one third of the enterprises in a 
regionally-based sector, or to have a majority of union members in the 
sector. These new requirements will make it difficult for miners and 
sailors to organize. Another contentious requirement is mandatory 
registration by the Justice Ministry. Independent unions are concerned 
that the Ministry could deny registration to unions seen as 
undesirable.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits compulsory labor, and it is not known to occur. The 
government does not specifically prohibit forced and bonded labor by 
children, although the constitution and the Labor Code prohibit forced 
labor generally, and such practices are not known to occur. Human 
rights groups described as compulsory labor the common use of army 
conscripts and youths in the alternative service for refurbishing and 
building private houses for army and government officials. Student 
groups have protested against a Presidential Decree obliging college 
and university graduates, whose studies have been paid for by the 
government, to work in the public sector at government-designated jobs 
for three years or to repay fully the cost of their education.
    d. Minimum Age for Employment of Children: The government does not 
specifically prohibit forced and bonded labor by children. The minimum 
employment age is 17 years. In certain non-hazardous industries, 
however, enterprises may negotiate with the government to hire 
employees between 14 and 17 years of age, with the consent of one 
parent.
    e. Acceptable Conditions of Work: The Labor Code provides for a 
maximum 40-hour workweek, a 24-hour day of rest per week, and at least 
24 days of paid vacation per year. The law contains occupational safety 
and health standards, but these are frequently ignored in practice. 
During the first half of 1999, 913 people were killed and over 18,000 
injured in accidents at work. In theory, workers have a legal right to 
remove themselves from dangerous work situations without jeopardizing 
continued employment. Independent trade unionists have reported, 
however, that asserting this right would result in retaliation or 
perhaps dismissal by management.
    f. Rights in Sectors with U.S. Investment: Enterprises with U.S. 
investment frequently offer higher salaries and are more observant of 
regulations than their domestic counterparts. Otherwise, conditions do 
not differ significantly in sectors with U.S. investment from those in 
the economy in general.

            Extent of U.S. Investment in Selected Industries--U.S. Direct Investment in Ukraine--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  0
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  5               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  -26
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  92
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                             UNITED KINGDOM


                         Key Economic Indicators
        [Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
                                            1997       1998     \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment
  Nominal GDP..........................    1,318.4    1,400.6    1,422.0
  Real GDP Growth (Pct)................        3.3        2.5        1.5
  GDP by Sector: \3\
    Agriculture........................       19.8       18.2        N/A
    Mining.............................       33.0       23.8        N/A
    Manufacturing......................      274.2      275.9        N/A
    Services...........................      821.4      902.2        N/A
    Government.........................       72.5       75.4        N/A
  Per Capita GDP (U.S. Dollars)........     22,289     23,483     23,950
  Labor Force (Millions)...............       28.8       28.9       29.0
  Unemployment Rate (Pct)..............        7.0        6.3        6.0

Money and Prices (Annual Percentage
 Growth)
  Money Supply Growth \4\..............        6.5        5.7        6.9
  Consumer Price Inflation.............        2.4        3.4        1.5
  Exchange Rate (USD/BPS--Annual              1.64       1.66       1.63
   Average)............................

Balance of Payments and Trade \5\
  Total Exports FOB....................      281.7      272.5  \6\ 149.9
    Exports to U.S.....................       34.4       36.4   \7\ 25.4
  Total Imports CIF....................      301.3      306.9  \6\ 176.6
    Imports from U.S...................       41.0       42.6   \7\ 27.5
  Trade Balance........................      -19.6      -34.4  \6\ -26.7
    Balance with U.S...................       -6.6       -6.2   \7\ -2.1
  Total Public Debt/GDP (Pct)..........       42.5       40.6       38.3
  External Public Debt/GDP (Pct).......       21.4       22.0   \7\ 17.4
  Fiscal Deficit/GDP (Pct).............       -1.8        0.2        0.8
  Current Account Deficit/GDP (Pct) \8\        0.8        0.0       -1.3
  Gold and Foreign Exchange Reserves...       38.4       35.3   \9\ 34.2
  Aid from U.S.........................          0          0          0
  Aid from All Other Sources...........          0          0          0
------------------------------------------------------------------------
\1\ Converted from British Pound Sterling (BPS) at the average exchange
  rate for each year.
\2\ All 1999 figures are forecasts, unless otherwise indicated.
\3\ ``Agriculture'' includes hunting, forestry and fishing. ``Services''
  includes hotels, catering, distribution, repairs, transport, storage,
  communication, business, finance, education, health and social work.
  ``Government'' reflects only public administration and defense.
\4\ Notes and coins in circulation in the United Kingdom plus banks'
  official deposits with the Banking Department.
\5\ Merchandise trade, converted at average exchange rate for the
  applicable year.
\6\ Through July 1999.
\7\ Through August 1999.
\8\ Current prices.
\9\ Through June 1999.

Sources: The Oxford Economic Forecasting and London Business School 1999
  Economic Outlook, the UK Office for National Statistics, and the Bank
  of England.

1. General Policy Framework
    The United Kingdom (UK) has the sixth largest economy in the 
industrialized world, with a nominal GDP of about $1.4 trillion in 
1999. The UK's 59.2 million inhabitants live in an area the size of New 
York and Pennsylvania. Per capita income was about $23,950 in 1999.
    In May 1997, the Labour Party won an overwhelming parliamentary 
majority, ending 17 years of Conservative Government. Prime Minister 
Tony Blair inherited an economy showing signs of overheating, after 
recovering from the 1990-92 recession. Real GDP grew 2.6 percent in 
1996 and 3.5 percent in 1997 (well above the UK's historical trend of 
around 2.5 percent). In 1998, tighter monetary and fiscal policy 
combined with a stronger pound and faltering global economy to put the 
brake on manufacturing exports, slowing GDP growth to 2.2 percent, and 
raising concerns that the economy could tip into recession in 1999. In 
October 1998, the Monetary Policy Committee (MPC) reacted strongly to 
the deteriorating domestic and international conditions by cutting 
interest rates. Between October 1998 and June 1999, the MPC cut the 
base rate seven times (from 7.5 percent to 5.0 percent).
    The MPC's aggressive action averted a serious slowdown in 1999, 
sparking a dramatic growth in both business and consumer confidence. 
Indeed, the downturn was far briefer and milder than had been 
anticipated. With growth bottoming out ahead of predictions in the last 
quarter of 1998 at an annual rate of 0.7 percent, the lowest rate since 
1992, the economy improved steadily throughout 1999. Real GDP was 
forecast to grow by at least 1.7 percent in 1999 and as much as 3.0 
percent in 2000.
    During 1999 there were signs of recovery even in the depressed 
manufacturing and export sectors, with strong advances in sales and 
orders. The assumption is that both have now adapted to a highly valued 
sterling by reducing their workforces, increasing productivity, and 
shaving profit margins to remain competitive. Robust household 
consumption and retail sales have particularly buoyed output. Rising 
consumer confidence has been sustained by overall job growth, which 
continued to advance throughout the slowdown. By August 1999, the 
unemployment rate had dropped to a 20-year low of 5.9 percent from a 
high of 10.5 percent in 1993.
    A deteriorating current account remains a concern. The trade 
imbalance has been a result of sluggish demand in Asia and Europe, 
exacerbated by the high pound. With the terms of trade moving against 
the UK, import growth for 1999 has been strong, more than counteracting 
growth in exports. The services balance is still positive but has shown 
little change since June 1999. The current account has moved from a 
small surplus in 1997 to break even in 1998 to an estimated deficit 
equal to about 1.3 percent of GDP in 1999. With more positive prospects 
for demand in Asia and Europe next year, the trade and current account 
balances should improve somewhat.
    Inflation remains under control. Underlying inflation, which had 
remained slightly above the MPC's 2.5 percent target rate until the 
third quarter of 1998, had fallen below target, to 2.1 percent, by 
September 1999. Fearing renewed wage and housing price inflation over 
the next two years with a return to robust growth, the MPC raised the 
base rate to 5.5 percent in November 1999. Underlying inflation 
averaged 2.8 percent in 1997, 2.7 percent in 1998, and was forecast at 
2.3 percent in 1999.
    Fiscal Policy: The Labour Government has pledged to adhere to a 
``Code for Fiscal Stability,'' balancing current government receipts 
and expenditures. The government's financial balance has moved from a 
deficit of eight percent of GDP in 1993 to a small surplus of 0.2 
percent of GDP in 1998. The surplus continues to grow, forecast at 0.8 
percent of GDP in 1999 and expected to reach one percent by 2002. The 
Blair Government has also committed to continuing to decrease the 
public debt, from 41 percent of GDP in 1998, to 37 percent by fiscal 
year 2001-02.
    Tax Policy: The Labour Government promised before the 1997 election 
not to raise the personal income tax rate, now between 20 and 40 
percent; the Value Added Tax, now 17.5 percent; or personal 
contributions to the UK's social security system. The basic income tax 
rate of 23 percent will be reduced to 22 percent in April 2000. The 
Labour Government also introduced a new 10 percent starting tax rate 
for the first 1,500 pounds of taxable income in April 1999. Labour also 
undertook a controversial measure to tax the windfall gains of 
privatized utilities. Expected to yield 5.2 billion pounds over three 
years, the government plans to use this tax to help finance its new 
Welfare-to-Work program. Corporate tax rates were cut as of April 1999 
to 30 percent, 20 percent, and 10 percent respectively for 
corporations, small companies, and new businesses with incomes under 
50,000 pounds per year. To promote enterprise, small and medium 
businesses may now write off 40 percent of their research and 
development costs for the first two years of operation. Other domestic 
tax revenue sources include excise taxes on alcohol, tobacco, retail 
motor fuels, and North Sea oil production. Some of these taxes were 
raised in 1999, and additional energy taxes are being discussed for 
environmental reasons.
    Monetary Policy: The government has emphasized its commitment to a 
low inflation policy. In one of its first official acts, the Blair 
Government established an inflation target of 2.5 percent and granted 
the Bank of England independence to set interest rates to achieve this 
target. The Bank must explain to the government if inflation varies 
from the target by more than one percentage point, in either direction.
    While the MPC's sole policy instrument is its ability to change the 
base rate at its monthly meetings, the Bank of England manages general 
monetary conditions through open market operations by buying and 
selling overnight funds and commercial paper. There are no explicit 
reserve requirements in the banking system.
2. Exchange Rate Policy
    Since the UK's withdrawal from the European Union's (EU) Exchange 
Rate Mechanism in January 1993, the pound has floated freely. The 
sterling appreciated significantly between the beginning of 1996 and 
early-to-mid-1998, with the trade-weighted exchange rate (1990=100) 
rising from a low of 83.5 to a high of 107.1 in April 1998. The Asian 
financial crisis and relatively high real UK interest rates contributed 
to the flight to sterling. Given worsening domestic economic 
projections, the pound began to soften once the MPC began to cut the 
UK's relatively high short-term interest rates in October 1998. The 
sterling index fell to 99.6 in January 1999, but had strengthened to 
104.7 by September 1999 as the UK economy began to recover. The pound 
is expected to continue to gain ground, against both the U.S. dollar 
and the Euro, well into 2000.
    The Labour government favors joining the new European common 
currency in principle but determined that doing so when the Euro was 
launched on January 1, 1999 would not be in the UK's interests. It is 
undertaking an active program to prepare the economy for the Euro, but 
has muted its commitment to making a decision on joining early in the 
next parliament, which must be elected no later than 2002. At present, 
the government is concentrating on convincing voters that the UK's 
economic future and global leadership role depend on its membership and 
strong participation in the EU. The decision to adopt the Euro will be 
based on five economic tests, the most important of which is cyclical 
convergence, and will be subject to a popular referendum. In addition, 
the willingness of continental governments to accept fundamental 
structural reform of their economies is also seen as essential to the 
success of the new currency and the UK's willingness to participate 
fully in Economic and Monetary Union.
3. Structural Policies
    The UK economy is characterized by free markets and open 
competition, which the government actively promotes within the EU and 
international fora. The UK's relatively low labor costs and labor 
market flexibility are often credited as major factors influencing the 
UK's success in attracting foreign investment. However, relatively low 
manufacturing labor productivity remains a concern.
    Market forces establish prices for virtually all goods and 
services. The government still sets prices for prescription drugs and 
services in those few sectors where it is still a direct provider, such 
as urban transportation. In addition, government regulatory bodies 
monitor prices charged by telecommunications firms and set price 
ceilings for electric, natural gas, and water utilities. The UK's 
participation in the EU's Common Agricultural Policy significantly 
affects the prices for raw and processed food items, but prices in 
wholesale and retail markets are not fixed for any of these items.
    The Labour Government inherited an economy that underwent 
significant structural reforms under the previous administration, which 
deregulated the financial services and transportation industries and 
sold the government's interests in the automotive, steel, coal mining, 
aircraft, and aviation sectors. Electric power, rail transport, and 
water supply utilities were also privatized. Subsidies were cut 
substantially and capital controls lifted. Employment legislation 
significantly increased labor market flexibility, democratized unions, 
and increased union accountability for the industrial acts of their 
members. The Labour Government modified this approach, including a new 
national minimum wage and union recognition rules, but kept significant 
parts of previous legislation intact, such as outlawing union shops and 
secondary boycotts.
4. Debt Management Policies
    The UK has no meaningful external public debt. London is one of the 
foremost international financial centers of the world, and British 
financial institutions are major intermediaries of credit flows to the 
developing countries. The government is an active participant in the 
Paris Club and other multilateral debt negotiations.
5. Significant Barriers to U.S. Exports
    Structural reforms and open market policies make it relatively easy 
for U.S. firms to enter UK markets. The UK does not maintain any 
barriers to U.S. exports other than those implemented as a result of EU 
policies. (See the report on the European Union for details.)
    The U.S.-UK Bilateral Aviation Agreement is highly restrictive, 
particularly in limiting the number and access of carriers serving 
London Heathrow Airport and the European destinations beyond UK 
airports to which U.S. airlines may fly. The U.S. believes the two 
sides should conclude an Open Skies Agreement, but the UK Government 
has continued to raise objections to this approach. Nonetheless, the UK 
government unilaterally provided open ``beyond rights'' to U.S. cargo 
carriers at Prestwick Airport, near Glasgow, Scotland in August 1999. 
The two sides are continuing to explore the possibility of liberalizing 
cargo and passenger services on a bilateral basis.
6. Export Subsidies Policies
    The government opposes export subsidies as a general principle, and 
UK trade-financing mechanisms do not significantly distort trade. The 
Export Credits Guarantee Department (ECGD), an institution similar to 
the Export-Import Bank of the United States, was partially privatized 
in 1991.
    The UK's development assistance program has certain ``tied aid'' 
characteristics. In 1996, the last year for which figures are 
available, some 14 percent of development assistance was tied. 
Agricultural and humanitarian assistance are not tied. In addition, 
various waivers of tied aid requirements are available to UK officials 
administering development assistance.
7. Protection of U.S. Intellectual Property
    UK intellectual property laws are strict, comprehensive, and 
rigorously enforced. The UK is a signatory to all relevant 
international conventions, including the convention establishing the 
World Intellectual Property Organization, the Paris Convention for the 
Protection of Industrial Property, the Berne Convention for the 
Protection of Literary and Artistic Works, the Patent Cooperation 
Treaty, the Geneva Phonograms Convention, and the Universal Copyright 
Convention.
    New copyright legislation simplified the British copyright process 
and permitted the UK to join the most recent text of the Berne 
Convention. The United Kingdom's positions in international fora are 
very similar to those of the United States.
8. Worker Rights
    a. The Right of Association: Unionization of the work force in the 
UK is prohibited only in the armed forces, public sector security 
services, and police force.
    b. The Right to Organize and Bargain Collectively: Nearly nine 
million workers, about one-third of the work force, are organized. 
Employers are barred from discriminating based on union membership. New 
legislation passed in July 1999 determines under what conditions an 
employer must bargain with a trade union. Employers are no longer 
allowed to pay workers who do not join a union higher wages than union 
members performing the same work.
    The 1990 Employment Act made unions responsible for members' 
industrial actions, including unofficial strikes, unless union 
officials repudiate the action in writing. Unofficial strikers can be 
legally dismissed, and voluntary work stoppage is considered a breach 
of contract. Unions do not have immunity from prosecution for secondary 
strikes or for actions with suspected political motivations. Actions 
against subsidiaries of companies engaged in bargaining disputes are 
banned if the subsidiary is not the employer of record. Unions 
encouraging such actions are subject to fines and seizure of their 
assets.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is unknown in the UK.
    d. Minimum Age for Employment of Children: Children under the age 
of 16 may work in an industrial enterprise only as part of an 
educational course. Local education authorities can limit employment of 
children under 16 if working will interfere with the child's education.
    e. Acceptable Conditions of Work: A new national minimum wage, 
established in 1998, took effect in April 1999. The initial minimum was 
set at 3.60 pounds per hour, based on the recommendations of a tri-
partite commission. Daily and weekly working hours are limited by law, 
according to an EU directive outlawing mandatory workweeks longer than 
48 hours. Implementing regulations are still being written.
    The Health and Safety at Work Act of 1974 banned hazardous working 
conditions. A Health and Safety Commission submits regulatory 
proposals, appoints investigatory committees, conducts research, and 
trains workers. The Health and Safety Executive enforces health and 
safety regulations and may initiate criminal proceedings. The system is 
efficient and fully involves worker representation.
    f. Rights in Sectors with U.S. Investment: U.S. firms operating in 
the UK are obliged to obey all worker rights legislation.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  15,603
Total Manufacturing............  ..............  46,436
  Food & Kindred Products......  4,371           ...............................................................
  Chemicals & Allied Products..  17,345          ...............................................................
  Primary & Fabricated Metals..  1,658           ...............................................................
  Industrial Machinery and       8,464           ...............................................................
   Equipment.
  Electric & Electronic          3,509           ...............................................................
   Equipment.
  Transportation Equipment.....  3,433           ...............................................................
  Other Manufacturing..........  7,655           ...............................................................
Wholesale Trade................  ..............  7,772
Banking........................  ..............  10,365
Finance/Insurance/Real Estate..  ..............  65,846
Services.......................  ..............  13,144
Other Industries...............  ..............  19,483
TOTAL ALL INDUSTRIES...........  ..............  178,648
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                              THE AMERICAS

                              ----------                              


                               ARGENTINA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998      1999
------------------------------------------------------------------------
Income, Production, and Employment:
  GDP (At Current Prices) \2\.............       293       298       285
  Real GDP Growth (pct)...................       8.1       3.9      -3.5
  GDP by Sector (pct):
    Agriculture...........................       7.3       7.2       7.2
    Manufacturing.........................      24.7      24.8      24.8
    Mining................................       3.0       2.9       2.9
    Services..............................        38      38.1      38.1
    Government............................      10.3      10.8      10.8
  Per Capita GDP (US$)....................     8,250     8,300     8,000
  Labor Force (Millions)..................      13.8      14.0      14.2
  Unemployment Rate (pct).................      14.9      12.9      14.5

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \3\...................      26.5       4.0      -3.0
  Consumer Price Inflation \3\............       0.3       0.7      -2.0
  Exchange Rate (Peso/US$)................       1.0       1.0       1.0

Balance of Payments and Trade:
  Total Exports FOB.......................      26.2      26.2      22.8
    Exports to U.S.\4\....................       2.2       2.3       2.5
  Total Imports CIF.......................      30.4      31.4      24.1
    Imports from U.S.\4\..................       5.8       5.9       4.7
  Trade Balance...........................      -4.0      -5.0      -1.3
    Balance with U.S.\4\..................      -3.6      -3.6      -2.2
  External Public Debt....................       101       112       118
  Fiscal Deficit/GDP (pct)................      -1.4      -1.2      -2.0
  Current Account Deficit/GDP (pct).......       4.1       4.9       4.4
  Debt Service Payments/GDP (pct).........       5.7       6.6       6.9
  Gold and Foreign Exchange Reserves......      20.0      25.0      24.0
------------------------------------------------------------------------
\1\ Figures for 1999 are embassy estimates.
\2\ The Argentine peso was tied to the U.S. Dollar at the rate of one to
  one in 1991. In 1999, the Argentine government changed its method of
  calculating GDP and revised its figures for 1997 and 1998 downward.
\3\ End of period.
\4\ Source: U.S. Department of Commerce and U.S. Census bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through October.

1. General Policy Framework
    President Carlos Menem's far-reaching reform program, which began 
in earnest in 1991, has revitalized Argentina's economy. Despite a 
sharp recession in 1995 due primarily to the Mexican peso crisis, real 
GDP growth averaged over 6 percent a year from 1991-1997. Inflation has 
remained very low for the last several years, and consumer prices in 
1999 are actually expected to decrease by two percent. A stable 
exchange rate and reductions in trade barriers resulted in a boom in 
imports from the United States, particularly during 1991-94. The global 
financial crisis in 1998 and Brazil's currency devaluation in early 
1999 dealt serious blows to the Argentine economy, however. The economy 
contracted from the second half of 1998 through late 1999. Some signs 
of recovery began to appear in the final quarter of 1999, and most 
experts expect a return to solid economic growth by the second half of 
2000. Argentina's trade deficit with the United States this year is 
projected to be about $3.5 billion. Argentina is expected to incur an 
overall trade deficit of $1 billion in 1999, reflecting the economic 
downturn.
    Argentina's banking sector has consolidated during the last several 
years. The number of financial institutions in Argentina dropped from 
over 200 in December 1994 to about 120 by October 1999. The country's 
financial sector is considered generally sound. Argentina's 
consolidated public sector budget is expected to run a deficit in 1999 
of about $5.8 billion--equal to approximately 2 percent of GDP. Tax 
evasion remains a major problem for the government. Economic growth and 
decreases in consumption reduced tax receipts in 1999.
    Buenos Aires Mayor Fernando de la Rua, running as the presidential 
candidate for an alliance of opposition parties, defeated the ruling 
Justicialist party candidate in national elections in October 1999. He 
has promised to maintain the main elements of the country's economic 
model, including the convertibility of the peso and the U.S. dollar, as 
well as relatively open markets for trade. Argentina remains one of the 
hemisphere's most promising emerging markets for U.S. trade and 
investment.
2. Exchange Rate Policy
    The Central Bank of Argentina controls the money supply through the 
buying and selling of dollars. Under the Convertibility Law of 1991, 
the exchange rate of the Argentine Peso is fixed to the dollar at the 
rate of one to one, controlled by a currency board. This rate is 
expected to remain unchanged in the medium term. Argentina has no 
exchange controls. Customers may freely buy and sell currency from 
banks and brokers at market prices.
3. Structural Policies
    The Menem administration's reform program has made significant 
progress in transforming Argentina from a closed, highly regulated 
economy to one based on market forces and international trade. The 
government's role in the economy has diminished markedly with the 
privatization of most state firms. Argentine authorities also 
eliminated price controls on almost all goods and services. The 
government abolished the import licensing system in 1989 and in 1990 
cut the average tariff from nearly 29 percent to less than 10 percent. 
However, MERCOSUR common external tariff rates are slightly higher, so 
that Argentina's average tariff is now closer to 14 percent. In August 
1996, Argentina raised the tariff on capital goods--which account for 
over 40 percent of U.S. exports to Argentina--from 10 to 14 percent to 
boost revenues.
    Argentina, Brazil, Paraguay, and Uruguay established the Southern 
Cone Common Market (MERCOSUR) in 1991, and on January 1, 1995, formed a 
partial customs union with a Common External Tariff (CET) covering 
approximately 85 percent of trade. The CET ranges from zero to 20 
percent. In 1998, MERCOSUR members hiked the CET by three points for 
most products. The increase is scheduled to expire in on December 31, 
1999. Initially, the government exempted some products from the CET, 
such as capital goods, information technology and telecommunications, 
to help support the modernization of the industrial infrastructure. 
However, in August 1996 tariffs on these items were increased to the 
MERCOSUR level. As a result, many non-MERCOSUR products entering 
Argentina now face higher tariffs. Chile signed a free trade agreement 
with MERCOSUR, effective October 1, 1996, but will not participate in 
the CET. Bolivia also entered into a similar pact on April 30, 1997. 
MERCOSUR is also discussing the prospect of a free trade agreement with 
the Andean community.
    Argentina signed the Uruguay Round agreements in April 1994, 
congress ratified the agreements at the end of 1994, and Argentina 
became a founding member of the WTO on January 1, 1995.
4. Debt Management Policies
    Argentina's public debt maturities are mostly concentrated in the 
longer term. External debt increased in 1998, rising to almost $110 
billion. Argentina is expected to make total debt service (principal 
and interest) payments of about $15 billion per year through 1999. 
Interest payments on public debt in 1999 will represent about three 
percent of GDP. The turmoil in international financial markets 
triggered by Russia's devaluation in August 1998 complicated Argentine 
access to foreign capital. In spite of difficult market conditions, 
however, the government was able to meet its term financing needs. 
Argentina remains vulnerable to external shocks, but agreements with 
the IMF and other international financial institutions have provided an 
added degree of confidence to financial markets.
5. Significant Barriers to U.S. Exports
    One of the key reforms of the Menem Administration has been to open 
the Argentine economy to international trade. Nevertheless, domestic 
political pressure, fears the impact of Brazil's currency devaluation 
and continued high unemployment in Argentina have led the government to 
take some ad hoc protectionist measures
    Barriers to U.S. Exports: On October 4, 1996, USTR self-initiated 
an investigation under section 301 of the Trade Act of 1974 into 
Argentina's application of specific duties on textiles, apparel, and 
footwear; three percent statistical tax on almost all imports; and 
burdensome labeling requirements. In February 1997, Argentina repealed 
the existing ``specific'' duties on footwear--only to immediately 
replace them with virtually id