United States WT/TPR/S/88
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IV. DEVELOPMENTS IN SELECTED SECTORS
(1) AGRI-FOOD ACTIVITIES
1. The agri-food sector is the largest recipient of direct government outlays to the private sector.
The United States has justified such support in large part by the sector's inherent volatility, and by the
support and protection afforded to agri-food by its main trading partners.  For some products, U.S.
production accounts for a significant share of world output.  Measures affecting domestic productioncould, thus, have a direct effect on world markets.  Main forms of domestic support include direct
income-supporting payments, price support, and subsidized insurance policies.  These are described in
Chapter III(3)(i).  The main U.S. programmes in direct support of exports consist of export subsidies,
and export credits and guarantees.  In addition, substantial volumes of food aid are shipped abroad.
These are described in Chapter III(2).
2. As in some agri-food activities a large share of production is exported, the economic well-
being of producers is linked directly to their capacity  to compete in international markets.  Reflecting
this, the U.S. Government has emphasized a key role for agriculture in a potential new round of global
trade negotiations;  meanwhile, as described in Chapter II(2)(i), a U.S. priority has been to make
progress in the mandated WTO negotiations in agriculture, which started in 2000.  The United Stateshas also made use of the WTO dispute settlement mechanism on a number of agri-food trade issues.
As the world's largest producer and exporter of f oods derived from biotechnology (Chapter III(1)(v)),
the United States has campaigned for import measures targeting these products to be transparent,
predictable, and timely.
3. The United States is one of the world's largest importers of food, and tariffs average about
10%.  Nevertheless, a range of measures are in place to ensure the protection of a number of sensitive
agri-food sectors from import competition.  Tariffs are in certain cases of a specific or compoundnature, thus affording additional protection in case of falling import prices.  Tariff peaks reach
prohibitive levels for some products, as discussed in Chapter III(1)(i).  Tariff quotas are in place on
the most sensitive products, and in view of the high out-of-quota rates may act as de facto quantitative
restrictions on imports.
4. In addition, imports of softwood lumber from Canada, the main exporter of this product to the
United States, have been restrained by a system similar to a tariff quota.  Imports of certain fish and
seafood are controlled or prohibited for conservation purposes (Chapter III(1)(v)).
5. The United States has also resorted to the Special Safeguard provisions of the WTO
Agreement on Agriculture, whilst a few anti-dumping investigations have resulted in duties levied on
agricultural and food products (Chapter III(1)(ii)).  Stringent U.S. health and safety regulations are insome cases difficult to meet (see also Chapter III(1)(v)).
(2) T
EXTILES AND CLOTHING
6. The United States is the world's leading importer of textiles and clothing and U.S. trade policy
has a significant effect on world trade in those products.  In recent years, there has been sizeable
growth of imports of textiles and clothing into the U.S. market.  In value terms, imports of textiles and
clothing were nearly US$80 billion in 2000, up nearly 10% annually since 1998 (Table IV.1).  The
share of imports in U.S. consumption of textiles and clothing is also increasing steadily, to nearly 45%
in 1999.1  In 1999, U.S. imports accounted for nearly 8% of world imports of textiles (up from 4%
                                                     
1 USITC (2000a).WT/TPR/S/88 Trade Policy Review
Page 86
in 1990 and 6% in 1997);  and for 21% of world im ports of clothing (up from 16% in 1990 and 19%
in 1997).2
Table IV.1
Imports for consumption (customs value) of textiles and clothinga under selected import regimes
1992 1994 1999 2000
US$ Mn % share US$ Mn % share US$ Mn % share US$ Mn % share
NAFTA 1,010.9 2.6 2,799.2 6.1 8,376.0 12.0 10,461.7 13.2
Mexico 69.1b0.2 1,326.2 2.9 5,119.0 7.3 6,833.0 8.6
Canada 941.8c2.4 1,472.9 3.2 3,256.9 4.7 3,628.8 4.6
Israel 263.6 0.7 369.1 0.8 556.6 0.8 611.0 0.8
CBI 40.1 0.1 58.1 0.1 80.0 0.1 105.6 0.1
ATPA 0.3 0.0 4.2 0.0 5.7 0.0 5.9 0.0
GSP 415.4 1.1 437.9 1.0 257.1 0.4 277.0 0.3
Production sharing 4,020.5 10.4 5,932.0 13.0 13,866.2 19.8 13,294.6 16.8
Mexico 924.9 2.4 1,726.4 3.8 5,702.2 8.2 5,299.2 6.7
CBId2,544.0 6.6 3,632.0 7.9 7,334.2 10.5 7,213.4 9.1
Dominican Repd1,031.0 2.7 1,377.0 3.0 2,181.8 3.1 2,096.3 2.6
Hondurasd244.0 0.6 451.0 1.0 1,860.8 2.7 1,814.6 2.3
El Salvadord130.0 0.3 303.0 0.7 1,165.2 1.7 1,286.9 1.6
Costa Ricad481.0 1.2 587.0 1.3  797.8 1.1 757.2 1.0
Other CBId658.0 1.7 914.0 2.0 1,328.5 1.9 1,258.3 1.6
Others 551.6 1.4 573.5 1.3 829.9 1.2 782.1 1.0
MFN 32,939.5 85.1 36,136.9 79.0 46,710.8 66.8 54,496.2 68.7
China 5,941.7 15.4 7,316.6 16.0 8,933.8 12.8 10,289.6 13.0
Hong Kong, China 4,547.5 11.8 4,593.8 10.0 4,555.5 6.5 4,799.8 6.1
Korea 3,174.6 8.2 2,808.1 6.1 3,088.5 4.4 3,370.3 4.2
India 1,291.9 3.3 1,729.2 3.8 2,600.5 3.7 3,077.4 3.9
Indonesia 984.4 2.5 1,256.3 2.7 1,972.7 2.8 2,375.7 3.0
Bangladesh 726.431 1.9 928.1 2.0 1,753.5 2.5 2,196.9 2.8
Thailand 907.8 2.3 1,078.7 2.4 2,002.9 2.9 2,409.3 3.0
Others 15,365.2 35.6 16,426.0 35.9 21,803.4 31.2 25,977.3 32.8
Non-MFN 10.5 0.0 10.0 0.0 49.2 0.1 57.3 0.1
Total 38,700.8 200.0 45,747.4 100.0 69,901.6 100.0 79,309.4 100.0
a SITC 84 and SITC 65, respectively.
b Trade with Mexico under the GSP programme.
c Trade under the Canada-U.S. (pre-1994) programme.d For the years before 1999, no breakdown of trade for textiles under production sharing are available for CBI countries and are
lumped together in "Others".
Source : USITC Trade Dataweb [Online].  Available at:  http://dataweb.usitc.gov/.
7. U.S. trade policy instruments in textiles and clothing consist mainly of quantitative limits on
imports, relatively high MFN tariffs, and preferential tariffs on imports of clothing assembled in
certain countries from U.S. fabric under the production-sharing provisions (9802) of Chapter 98 of the
Harmonized Tariff Schedule.  Moreover, duty-free and quota-free trade takes place under a number of
preferential trade agreements.  In 2000, some US$31 billion of U.S. clothing imports, or 51% of the
total, as well as US$4.6 billion of imports of certain textiles or 32% of the total, were subject torestraints.  Over 1,000 quotas are applied to 45 countries, including 37 WTO Members.
8. Between 1990 and 1999, the U.S. share in world textiles exports increased from 5% to 7.2%,
while its share in world clothing exports increased from 2.6% to 5.2%.  This growth reflects trade
policy measures, particularly those granting preferential conditions to imports of products
manufactured in foreign assembly plants using U.S. or regional made components.  Some 85% ofU.S. clothing exports in 2000 were shipped to preferential partners, up from 67% in 1994:  to CBERA
beneficiaries (48%), to Mexico (28%) or to Canada (9%).  An estimated 50% of total U.S. clothing
                                                     
2 Data provided by the U.S. authorities.United States WT/TPR/S/88
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exports consist of unfinished garments under production sharing schemes.  In 2000, about 36% of
textile exports were shipped to Mexico, 27% to Canada, and 9% to CBERA countries.
9. The substantial benefits enjoyed by U.S. free-trade partners in this sector have also affected
investment patterns.  A number of U.S. and Asian companies have recently established production
facilities in Mexico, and are expected to increase their presence in the Caribbean and Central America
following the passage of the CBTPA.3
(i) Restricted imports
10. Most exports of textiles and clothing products to the United States are subject to quotas or to
import duties, with the latter ranging to 33%.  MFN imports represented approximately 67% of total
imports of textiles and clothing in 1999, down from 69% in 1998 and 79% in 1994.  However, the
dollar value of MFN clothing imports continued to increase modestly during 1999-2000.  Textileimports under MFN treatment represented 73% of total imports in 1999, down from 83% in 1994;
they have also increased modestly in value terms.
11. The United States has maintained textile and clothing import quotas on a product- and
country-specific basis since 1957.  Quota coverage varies by product and by partner, and restrictions
with many suppliers are fairly comprehensive.  The most extensive coverage is applied to China;Hong Kong, China;  Korea;  and Chinese Taip ei.  The WTO Agreement on Textiles and Clothing
(ATC) foresees the elimination of all bilateral quotas on imports from WTO Members at the latest by
January 2005.  It is implemented in the United States under the responsibility of the inter-agency
Committee for the Implementation of Textile Agreements;  the Committee's work is supported by the
staff of the Office of Textiles and Apparel (OTEXA) at the Department of Commerce.
4  The United
States is the only WTO Member to have published from the outset its complete programme of
integration of textile and clothing trade into GATT:5  the United States committed itself to integrate
into GATT 16.21% of 1990 import volumes in January 1995, 17.03% in January 1998, 18.11% in
January 2002, leaving 48.7% in January 2005.6
12. None of the products that were integrated in the first phase were subject to quotas and most
were imported mainly from developed countries or Mexico.  As a result of the second stage,
24 categories or parts of categories on which the United States maintained restrictions under the ATC,affecting 14 WTO Members, were integrated and, thus, the corresponding quotas were eliminated.
Goods involved included products such as baby clothing, down clothing, footwear, handkerchiefs,
hosiery, and carpets produced mainly in Asian countries, Brazil, and Romania.  The list of products to
be integrated in the third phase, in January 2002, covers 3.26% of 1990 imports of tops and yarns;
3.91% of fabrics;  8.4% of made-up products;  a nd 2.55% of clothing products.  Among the clothing
products are silk clothes, silk outfits and ensembles, certain silk and cotton nightwear, and knitted
track suits, tops, gloves, and underwear.  No country will be entirely freed of quotas as a result of the
stage 3 integration process.
                                                     
3 USITC (2000b).
4 OTEXA online information.  Available at:  http://otexa.ita.doc.gov.
5 "Committee for the Implementation of Textile Agreements: Final List of Products for Second, Third
and Final Integration of Textile and Apparel Products into GATT 1994", Federal Register, Vol. 60, No. 83,
1 May 1995, p. 21075 [Online].  Available at:  http://otexa.ita.doc.gov.
6 GATT document G/TMB/W/5, 10 October 1994;  and WTO documents G/TMB/N/213/Corr.1,
20 March 1997, G/TMB/N/213/Add.1, 23 May 1997, and G/TMB/N/360, 19 December 2000).  Quantities of
each product are expressed as square-metre equivalents of 1990 imports calculated on the basis of product-specific conversion factors.WT/TPR/S/88 Trade Policy Review
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13. As noted, close to 49% of the volume of 1990 imports of textiles and clothing will be
automatically integrated in phase 4, i.e. by January 2005 when the transitional process is complete and
the ATC terminates (Table IV.2).  Integration of the most sensitive products and the removal of most
quotas will be deferred until the end of the ten-year transition period provided by the ATC.
Table IV.2 provides a breakdown by main trading partner of the value of imports in the year 2000
between the four phases of integration;  less than a quarter of the value of total world imports in 2000belongs to the first two phases, compared with over 33% of 1990 volumes.  There are wide
differences among countries in terms of the import value of integrated products.  When the third phase
of integration occurs in January 2002, a total of over 51% of 1990 import volumes will have been
integrated under GATT rules.  Using 2000 trade data, the corresponding percentage of import value is
much smaller.
Table IV.2
Value of U.S. imports of textiles and clothing covered by the four phases of integration of the ATC, by origin 2000
Partner Total Percentage share of import value into the United States, by country
(US$ million) Phase 1 (1995) Phase 2 (1998) Phase 3 (2002) Phase 4 (2005) Unallocateda
Mexico 11,250.5 10.3 3.7 8.3 75.3 2.4
China 10,535.8 8.5 19.6 16.3 42.5 13.2
Hong Kong, China 4,815.7 0.4 6.4 8.4 84.0 0.8
Canada 3,997.1 8.7 11.2 20.1 55.0 5.0
Korea, Rep. of 3,518.1 6.0 10.0 10.7 69.4 4.0
Chinese Taipei 3,065.2 5.0 8.8 15.1 66.4 4.6
India 3,056.4 4.8 13.9 12.1 66.0 3.3
Thailand 2,540.7 1.8 12.8 22.0 62.0 1.4
Dominican Republic 2,506.2 1.4 2.4 10.1 85.8 0.3
Indonesia 2,440.3 1.9 6.3 14.8 76.8 0.2
Italy 2,438.3 4.7 8.9 14.7 68.7 2.9
Honduras 2,423.5 2.3 2.2 6.1 89.4 0.0
Philippines 2,316.4 0.4 7.8 18.8 72.4 0.6
Bangladesh 2,230.3 0.8 5.5 12.4 81.3 0.0
Pakistan 1,864.8 0.7 6.7 9.7 82.7 0.2
Sri Lanka 1,707.5 1.8 4.3 17.0 76.8 0.0
El Salvador 1,637.3 0.0 7.3 3.2 89.5 0.0
Guatemala 1,504.8 0.3 2.8 1.4 95.5 0.1
Turkey 1,485.4 0.7 5.2 14.5 79.5 0.1
Macao 1,167.7 0.1 6.1 7.9 86.0 0.0
Malaysia 894.6 3.8 7.9 4.0 83.3 1.0
Costa Rica 846.6 0.6 8.4 8.4 82.1 0.4
Japan 790.2 18.0 10.4 16.3 36.5 18.9
Israel 720.7 13.1 3.9 7.6 72.6 2.8
United Kingdom 689.1 11.7 20.4 14.9 44.5 8.6
France 582.4 4.9 16.0 19.3 45.7 14.0
Germany 542.4 20.8 13.4 20.3 28.4 17.2
Colombia 479.3 1.2 9.9 4.5 78.2 6.1
Singapore 364.7 0.1 2.1 2.8 94.4 0.7
Jamaica 269.8 0.0 31.9 0.7 67.3 0.1
All other 8,757.2 2.7 7.8 7.2 80.5 1.9
World 81,439.1 5.0 8.9 11.8 70.6 3.7
Memo Item:
Share of 1990 import volume 16.2 17.0 18.1 48.7 n.a.
n.a. Not applicable.
a The U.S. HS 10-digit nomenclature used in 2000 differs substantially  from that used in the ATC.  Some 151 lines in the 2000
tariff schedule could not be allocated to one of the four phases on the basis of the U.S. list of ATC integration.
Source : WTO Secretariat estimates, based on data obtained from the USA Trade Online.  Available at:  https://search.ntia.doc.
gov:4000/wds/.United States WT/TPR/S/88
Page 89
(ii) Imports exempt from quotas
14. Free-trade agreement partners Canada, Israel and Mexico may export qualifying textiles and
clothing to the United States duty-free and quota free.7  Canada's share of the U.S. market has
stabilized at around 4.7%;  Israel's penetration of the U.S. market has not increased in the period,
reflecting weak export capacity in Israel in this sector.8  In the case of Mexico, quotas on certain parts
of non-qualifying products under NAFTA rules of origin (categories 313, 314, 315, and 317) wereremoved in January 2001;  restrictions on categories 410, 433, 443 and 611 are to be removed by
January 2004.
9
15. Since 1994, when most quotas were eliminated and tariffs reduced under the NAFTA,
Mexico's share in the U.S. import market has increased sharply for both textiles and clothing.  Since
1998, U.S. imports from Mexico have accelerated further, following the near elimination of tariffs andthe abolition, in 1999, of the user fee, and Mexico has now become the largest supplier of clothing
products and second largest supplier of textiles to the United States.
10  This partly reflects the
establishment and expansion of Asian and U.S. companies in Mexico to assemble clothing from U.S.
components, to make fabric, and in some cases also to sew the apparel on site, in order to meet the
NAFTA "yarn forward" rule of origin.
16. Also exempt from otherwise applicable import quotas are countries that have signed
production-sharing agreements allowing exporters to ship textiles and clothing products to the United
States.11  These agreements, most of which are part of the "Special Access Program" created in 1986,
require the use of U.S. cut and formed fabric, assembled into clothing in one of these countries to
qualify for special tariff treatment on the finished product upon re-entry into the United States.12
Imports of clothing under production-sharing provisions increased from less than US$6 billion in1994 to US$20 billion in 1999, to represent 24% of total clothing imports.  Countries currentlyexporting to the United States under such agreem ents include mainly seven CBERA countries (Costa
Rica, Dominican Republic, El Salvador, Guatemal a, Haiti, Honduras, and Jamaica) and Mexico,
although exports from Mexico also enter under NAFTA rules (see below).  These countries have been
granted "guaranteed access levels" (preferential export quotas additional to their MFN quotas) for
specific products.  Upon reimportation into the United States, these products are subject to duty onlyon the value added abroad.
17. Since the entry into force of the NAFTA, qualifying imports from Mexico are entirely duty
free.  Imports under production-sharing provisions from Mexico could however continue, as importers
may wish to retain traditional sourcing patterns (for their yarn) that would not necessarily qualify for
duty-free entry under NAFTA rules of origin.
18. While exports from CBERA expanded during the 1990s, their U.S. import market share has
declined since 1998.  Since October 2000, Special Access Program imports agreements have been
                                                     
7 Since March 1998 the United States has also granted duty-free treatment to textiles and clothing made
in the West Bank, the Gaza Strip, and qualifying industrial zones in Egypt and Jordan.
8 See WTO (1999b).
9 The composition of these categories is detailed in OTEXA online information.  Available at:
http://otexa.ita.doc.gov/corr.stm.
10 USITC (2000b).  User fees are levied at 0.17% of the shipment's value, up to a maximum of US$400
per entry.
11 For a survey of recent trends in production sharing schemes, see USITC (2000b).
12 The Special Access Program is described in OTEXA online information.  Available at:  http://
otexa.ita.doc.gov/ita370pf.stm.WT/TPR/S/88 Trade Policy Review
Page 90
made entirely duty free under the CBPTA, whic h grants duty-free treatment to textiles and
clothing from CBERA countries, subject to certain country and product eligibility conditions.
19. Quantitative restrictions on textiles and clothing shipments from Kenya and Mauritius, the
two SSA countries subject to quotas, were el iminated under the AGOA.  As of May 2001, 35 SSA
countries including Kenya and Mauritius had been designated as beneficiary SSA countries under the
AGOA;  at that time, five countries had met the eligibility requirements.
20. The AGOA extends duty-free and quota-free market access for clothing assembled in an
eligible SSA country from U.S. formed yarns and fa brics, or from yarns and fabrics that cannot be
supplied by the U.S. industry in commercial quantitie s in a timely manner;  for sweaters knit-to-shape
in an eligible SSA country from cashmere and merino wool;  and for textile and clothing products that
were determined by the President to be hand-loomed, handmade, or folklore articles.  Duty and quotafree treatment is also provided for clothing made in an eligible SSA country with regional fabric made
from U.S. or regional yarn.  Imports of the latter are subject to a cap ranging from 1.5% to 3.5% of
annual U.S. clothing imports through 2008,.  There is a special provision for use of the cap that allows
eligible SSA countries with an annual GNP per capita of under US$1,500 to use third-country fabric
inputs for the first four years.  On 6 March 2001, the Chair of the House Ways and Means Committeewrote to the Treasury Secretary that Customs was apparently denying duty-free benefits to sweaters
assembled in the AGOA region from knit-to-shape fabric made from qualifying yarns.
13
21. The CBTPA provides enhanced trade preferences to the 24 current beneficiary countries of
the Caribbean Basin Initiative.  In particular, du ty-free and quota-free treatment is provided for
clothing made in the Caribbean Basin region from U.S. fabrics formed from U.S. yarns, as well as for
certain knitted clothes made from fabrics formed in the Caribbean Basin region, provided that 100%
U.S. yarns are used in forming the fabric.  This "regional fabric" benefit for knit apparel is subject toan overall yearly limit, with a se parate limit provided for T-shirts.
14  Duty-free and quota-free
treatment is also available for clothing made in  the CBI from fabrics determined to be in "short
supply" in the United States, and for designated "hand-loomed, handmade, or folklore" articles.  In
addition, the CBTPA provides NAFTA-equivalent tariff treatment for certain items previously
excluded from duty-free treatment under the CBI pr ogramme (e.g. footwear, canned tuna, petroleum
products, watches and watch parts).
22. The United States also established a new Outward Processing Programme with Romania and
Macedonia.  This programme provides for quota-free imports from Romania and the Former
Yugoslav Republic of Macedonia of wool clothing cut and sewn from U.S.-formed fabrics (instead of
only assembled from U.S. formed and cut fabrics).15  No duty concession is provided for the use of
U.S. fabric if it was not cut in the United States;  in that case, the clothing enters quota-free but not
duty-free.  Alternatively, goods may be assembled in the beneficiary country under the exact same
duty and quota provisions applicable to the Special Access Program.
                                                     
13 News from the Committee on Ways and Means, 6 March 2001 [Online].  Available at:
http://waysandmeans.house.gov.
14 Eligibility criteria for the continuation of benefits are detailed in USTR online information.
Available at:  http://www.ustr.gov /regions/whemisphere/camerica/factsheet.html.
15 The specific requirements are outlined in two Federal Register Notices, both published in 64 FR
69746 (14 December 1999).United States WT/TPR/S/88
Page 91
(iii) Safeguards, disputes and other actions
23. Among tasks assigned to OTEXA officials is the preparation of Federal Register Notices
announcing a "call" as well as the analytical work supporting such a call.  A call is a consultation
request to a foreign government, if U.S. imports from that country are determined to be causing, or
threaten to cause, serious damage to the U.S. industry, with a view to reaching a mutually acceptable
agreement.  If the partner is a WTO Member, the United States is required to invoke the transitionalsafeguard mechanism contained in Article 6 of the ATC.  The United States has invoked Article 6 on
28 occasions:  twenty-four in 1995, one in 1996, twice in 1997, and once in 1998.  No safeguards
have been invoked by the United States under the ATC since December 1998.
24. In May 1999, the Textiles Monitoring Body (TMB) decided to seek clarification from both
Turkey and the United States regarding a new restriction on Turkey’s exports of certain products (ofU.S. category 352/652) by the United States.  Turkey and the United States stated that this measure
was part of a broader agreement contributing to the objective of further liberalizing trade, and did not
require notification to the TMB.
16  However, the TMB concluded that the measure had not been
demonstrated to be in conformity with the provisions of the ATC.17
25. In April 2000, Pakistan requested the establishment of a panel to examine a transitional
safeguard applied since 17 March 1999 by the United States under the ATC on combed cotton yarn
(U.S. category 301) from Pakistan.  This followed consultations requested by the United States in
December 1998, which had failed to result in a mutual understanding as to whether the situation
called for a restraint on exports from Pakistan.  The TMB concluded in April 1999 that the measure
should be rescinded.18  The Panel recommended in May 2001 that the Dispute Settlement Body
request that the United States bring the measure at issue into conformity with its obligations under the
ATC, preferably by prompt removal of the import restriction.19
26. The United States has notified that it maintains quotas on textile and clothing imports from
the following non-WTO Members: China, Chinese Taipei, Laos, and Ukraine.  Import quotas not
notified to the WTO are also maintained on Belarus and Cambodia, reflecting new bilateral
agreements concluded in 2000 and 1999 respectively, and on Russia.  Bilateral agreements were
renewed in 2000 with Russia and Ukraine, and with China, Chinese Taipei, Laos, and Nepal in 2001.The phasing out of import quotas, as agreed unde r the ATC, does not apply to non-Members of the
WTO.
(3) T
HE STEEL INDUSTRY
27. In 2000, the United States was the second largest steel consuming country and the third
largest steel producer in the world.  The steel industry in the United States accounts for somewhat lessthan 1% of GDP, and provides employment to just over 200,000 persons.  The United States has been
a net importer of steel since 1960.  Steel production in the United States was stagnant over 1997-99,
increasing in 2000 (Table IV.3).
                                                     
16 WTO document G/L/398, 20 October 2000.
17 WTO document G/TMB/R/60, 28 January 2000.
18 WTO document G/TMB/18, 29 April 1999.
19 WTO document WT/DS/192/R, 31 May 2001.WT/TPR/S/88 Trade Policy Review
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Table IV.3
Main indicators of the U.S. steel industry, 1997-00
1997 1998 1999 2000
U.S. production (million tons) 98.7 98.6 97.5 101.8
World total production (million tons) 799.0 777.3 787.7 847.2
U.S. share of world total production (%) 12.4 12.7 12.4 12.0
U.S. Consumption (million tons) 108.0 115.7 110.7 115.0
World total consumption (million tons) 697.0 692.5 712.5 768.8
U.S. share of world total consumption (%) 15.5 16.7 15.5 15.0
Imports (million tons) 28.2 37.7 32.4 34.4
Imports  (US$ billion) 13.5 16.3 12.6 14.9
Imports (unit value, US$/ton) 478.7 432.4 389.3 433.2
Share of imports in total consumption (%) 26.1 32.6 29.3 29.9
Employment (production workers) (thousands) 181 180 176 175
Source : WTO calculations, based on U.S. Department of Commerce, Bureau of the Census online information.  Available at:
http://www.census.gov/foreign-trade/Press-Release/../steel;  International Iron and Steel Institute online information.  Availa ble
at:  http://www.worldsteel.org/trends_indicators/figures and data provided by the authorities.
28. The United States is the largest importer of steel in the world.  Prior to 1998, less than 25% of
domestic consumption was met through imports.  In 1998, partly due to the decline in economic
activity in Asia coupled with strong economic conditions in the United States, steel imports rose
substantially;  import penetration rose to about 36% in 1998, before declining somewhat in 1999 and
2000.  After increasing in 2000, imports of steel were declining in early 2001;  there was a 30%contraction in imported volumes in the first four months of 2001 compared with the same period
in 2000 (Table IV.4).  Since 1998, in the wake of growing imports, declining domestic production,
lower prices, and falling capacity utilization and employment, some 18 steel firms, representing
between 20 and 25% of U.S. steel capacity, have filed for bankruptcy.  Also, the market capitalization
of U.S. steel producers has declined considerably.
29. Since the termination of voluntary restraint agreements (VRAs) in 1992, a large number of
anti-dumping and countervailing duty investigations involving steel products have been launched.  A
number of these investigations have resulted in suspension agreements with enterprises or the
Government of exporting countries to obtain volume or price undertakings (Chapter III(1)(ii)).
30. The Bush Administration announced a Multilateral Initiative on Steel in June 2001.  In his
statement, the President noted that the U.S. steel industry had been affected by a legacy of 50 years of
foreign government intervention, and that the result had been excess capacity and inefficientproduction.  The Initiative is comprised of mainly three points:  (a) negotiations (by the USTR) with
trading partners seeking the near-term eliminatio n of global excess capacity;  (b) to initiate
negotiations on international rules to govern stee l trade, with a view to eliminating subsidies;
(c) initiation by the USITC of a Section 201 (safeguard) investigation of injury to the U.S. steel
industry.
20
                                                     
20 Statement of the President regarding a Multilateral Initiative on Steel, 5 June 2001, available online
at:  http://whitehouse.gov/new/releases/2001/06/20010605-4.html.United States WT/TPR/S/88
Page 93
Table IV.4
U.S steel imports by country, volume and value, 1999-01
('000 tons and US$ million)
1999 2000 Jan-April 2000 Jan-April 2001
 Countries Volume Value Volume Value% chg.
(vol.) Volume Value Volume Value% chg.
(vol.)
Total 32,414 12,614 34,433 14,903 6.2 12,286 5,066 8,635 3,820 -29.7
Canada 4,571 2,330 4,769 2,550 4.3 1,708 920 1,402 732 -18.0
Mexico 3,192 1,054 2,954 1,138 -7.4 1,121 416 896 308 -20.1
Argentina 437 134 417 163 -4.7 82 31 130 43 58.7
Brazil 3,445 733 3,280 861 -4.8 1,411 343 834 200 -40.9
Venezuela 468 132 433 132 -7.6 211 59 97 35 -54.1
Other Americas 402 119 378 126 -6.0 106 33 106 34 0.0
European Union 6,012 3,386 6,398 4,054 6.4 1,951 1,261 1,722 1,132 -11.7
EFTA 52 45 147 69 184.4 69 26 20 17 -71.5
Turkey 364 88 609 163 67.3 214 50 213 51 -0.6
Poland 145 33 297 89 105.5 120 32 50 11 -58.7
Moldova 328 67 357 76 8.6 123 25 11 2 -91.4
Ukraine 714 130 1,408 305 97.2 443 89 121 30 -72.7
Russia 1,138 284 1,379 383 21.2 346 90 476 103 37.7
Other Europe 1,244 303 1,326 367 6.6 589 149 187 58 -68.2
Australia 850 167 738 190 -13.2 321 75 166 39 -48.4
China 698 215 1,351 454 93.5 332 111 244 100 -26.5
Indonesia 483 117 379 113 -21.6 200 55 63 19 -68.6
Japan 2,778 1,456 1,933 1,229 -30.4 670 414 528 386 -21.1
Korea 2,670 912 2,433 980 -8.9 958 357 740 279 -22.8
Chinese Taipei 876 416 1,145 601 30.7 558 257 175 108 -68.7
Other Pacific Rim 220 72 245 96 11.4 93 34 48 16 -48.1
India 531 146 909 318 71.2 350 117 88 36 -74.9
South Africa 535 178 585 240 9.3 214 79 133 40 -38.1
Other 262 96 565 208 115.3 98 46 188 42 90.7
Source U.S. Department of Commerce, Bureau of the Census online information.  Available at:  http://www.census.gov/foreign-
trade/Press-Release/../steel.
(4) THE SHIPBUILDING INDUSTRY
31. The Jones Act provides a protected market for U.S. shipbuilders, who are the sole suppliers of
ships on domestic routes;  the Act also affects the maritime transport services market (section (5)
below).  Under Paragraph 3(a) of the GATT 1994, the United States was granted an exemption from
GATT rules for measures prohibiting the use, sale or lease of foreign-built or foreign-reconstructed
vessels in commercial applications between points in national waters or the waters of an exclusive
economic zone.  These measures have been considered tantamount to an import ban on foreign ships
for commercial use.21   The United States  argues that such protection is needed to maintain a naval
capability for national security reasons, but some WTO Members have pointed out that the bulk ofJones Act orders are of a commercial nature available from commercial shipyards around the world.
32. The Maritime Administration of the Depart ment of Transportation (MARAD) provides
financial assistance to U.S. and foreign shipowners through the Federal Ship Financing Programme
(Title XI).  This programme provides for federal government guarantees (Maritime Guaranteed Loan)
of private sector financing or refinancing obligations for the construction or reconstruction of bothU.S. flag and foreign-owned vessels in U.S. ship yards, including export projects.  In FY 1997 the
estimated cost of all the approved Title XI projects was US$803 million, with guarantees totalling
US$572 million of this amount.  In FY 2000, 12 new applications were approved, representing
                                                     
21 WTO document WT/GC/W/397,  10 February 2000.WT/TPR/S/88 Trade Policy Review
Page 94
US$886 million in guarantees for new vessel construction estimated to cost US$1.06 billion.  Out of
the 12 approved applications in FY 2000, two were  export projects.  Also, MARAD approved for
publication in the Federal Register a final rule entitled "Putting Customers First in the Title XI
Program".22
33. Support has also been provided through th e MARITECH programme to encourage the
shipbuilding industry to lead in the development an d application of advanced technology, to improve
competitiveness, and to preserve its industr ial bases.  The MARITECH program has been
discontinued and R&D activities once carried out under that program are currently administered by
Naval Sea Systems Command.  For 2001, the program received US$9.4 million, plus US$5 million
carried over from unfinished projects of the previous year.
34. In addition, U.S. citizens owning or leasing vessels may obtain tax benefits through the
Capital Construction Fund (CCF) and Construction Reserve Fund to construct qualified vessels.  The
CCF provides tax-deferral privileges to vessel operators in U.S.-foreign commerce, Great Lakes,
domestic trade, and the fisheries of the United States.  Also permitted is the deferment of income
taxes on deposits if the funds are used to construct vessels in U.S. shipyards.  Overall estimates of the
annual cost of tax expenditure in favour of the shipbuilding industry were not available .
(5) MARITIME TRANSPORT AND RELATED SERVICES
35. Domestic U.S. waterborne trade totalled 964 million tonnes in FY 1999, an annual average
decline of over 2% since FY 1997, mainly reflecti ng the long-term decline in coastwise shipments of
Alaskan crude oil to refineries on the U.S. West Coast, Virgin Islands, and Hawaii.  The entire
domestic tonnage was carried by U.S. flagged vessels.  In contrast, international waterborne trade into
and out of the United States increased by 2% annually over the two years, to reach 1,148 million
tonnes.  Some 3.2% of this international cargo was carried under the U.S. flag.23
36. The institutional framework has not changed since 1999:  the MARAD is responsible for
water transportation policy, including vessel operations, shipbuilding and repair, and port operations,
both for commercial trade and national defence.24  The Federal Maritime Commission (FMC) is
responsible for the regulation of ocean-borne transport.25  The FMC may also take actions under
various statutes against foreign practices deemed to adversely affect U.S. shipping companies or U.S.carriers in international commerce.  Foreign carriers may also petition the FMC for relief.  The FMC
also oversees and regulates shipping lines that are exempt from U.S. antitrust laws.
(i) International shipping services
37. The U.S. international maritime transport market is generally open to foreign competition.
Virtually all U.S. international ocean-borne trade is carried by foreign-flag vessels, though a numberof these vessels may be owned by U.S. citizens or U.S. companies.  This is partly due to the cost of
compliance associated with U.S.-flag registry.  For example, vessels operating under foreign flags are
often exempted from corporate income tax on revenues in foreign commerce.
26
                                                     
22 MARAD online information.  Available at:  http://www.marad.dot.gov/TitleXI.
23 MARAD online information.  Available at:  http://www.marad.dot.gov/publications/.
24 MARAD online information.  Available at:  http://www.marad.dot.gov.
25 FMC online information.  Available at:  http://www.fmc.gov.
26 According to a recent report, ships flying flags of convenience now account for nearly two thirds of
world tonnage and more than one quarter of seagoing vessels (ILO (2001).United States WT/TPR/S/88
Page 95
38. According to recent reports, the Ocean Shipping Reform Act (OSRA) of 1998 has contributed
to enhance competition in the international shipping sector, accelerating the shift away from
traditional rate-setting conferences.27  Although the liner shipping sect or continues to be exempt from
otherwise applicable antitrust laws, shipping lines can now enter into individual long-term “service
contracts” with importers and exporters.  Under the OSRA, carrier groups (alliances or preferences)
can no longer restrict individual lines from entering into contracts with shippers.  As a result of thereform, the use of service contracts has increased significantly and they now reportedly cover 80-90%
of the cargo carried in some subsectors.
28
39. Under the OSRA, the FMC retain s the power to review the rates of foreign government-
owned carriers and to guard against foreign-government-backed below-cost pricing.  The FMC may
take action against owners, operators, agents or masters of foreign vessels that engage in pricingpractices that create “conditions unfavourable to shipping in the foreign trade of the United States."
The two actions currently pending before the FMC concern sanctions against Japanese port practices,
(docket 9620) and China's shipping measures applied to foreign carrier operations (docket 9814).
29
40. The United States maintains cargo preference requirements.  Some 50% of government-
generated cargoes (75% for certain agricultural cargoes) and the totality of military cargoes and thosegenerated by Eximbank loans must be carried on U.S.-flag vessels unless a waiver is granted by the
MARAD.
30 Although ships may be built abroad, they must then be registered under the U.S.-flag for
at least three years to be eligible to carry preference cargoes.  In addition, exports of Alaskan crude oil
must be shipped by U.S.-flag vessels.  International cargo under the cargo preference system
accounted for 29% of international cargoes carried by U.S.-flag vessels in FY 1997;  this system
therefore provides substantial assistance to the U.S. industry.
41. Since 1999 three U.S. shipping companies have been acquired by foreign companies:  the
infusion of foreign capital was apparently the only  way to retain the ships of these companies under
the U.S.-flag.31  In general, the citizen ownership requirement for vessels in foreign trade arises if they
are receiving some form of support from the U.S. Government.  American President Lines and
Maersk-Sea-Land both operate vessels that are enrolled in the Maritime Security Program (MSP see
below).  Those vessels must therefore be owned a nd operated by U.S. citizens.  In 1995 U.S. law was
amended to provide that a U.S. vessel would be considered U.S.-owned if title was held by a U.S.
trustee for the benefit of non-citizens and the vessel was chartered to a U.S. citizen vessel operator.
The APL and Maersk-Sealand vessels enrolled in the MSP are owned by such trusts and chartered to
U.S.-owned ship-management companies who operate them.  They are in turn time-chartered to APL
and Maersk-Sealand.  As a result, almost all U.S.-flag container ships are now, through time charterarrangements, used in services operated by foreign-owned carriers.
                                                     
27 See for example Federal Maritime Commission (2000).
28 Remarks by The Honourable Harold J. Creel, Jr. Chairman Federal Maritime Commission before
The Maritime Trades Department American Federation of Labor and Congress of Industrial Organizations, NewOrleans, Louisiana, 10 February 2000 [Online].  Available at:  http://www.fmc.gov.
29 Further information on these proceedings can be found in the FMC's online information.  Available
at:  http://www.fmc.gov.
30 Legislation governing cargo preference includes The Cargo Preference Act of 1904 for military
cargoes; the Merchant Marine Act of 1936, as amended by the Cargo Preference Act 1954, for government-
generated cargoes; and Public Resolution 17 of the 73rd Congress for the Export-Import Bank loan cargoes.
31 Remarks by The Honourable Harold J. Creel, Jr. Chairman Federal Maritime Commission before
The Maritime Trades Department American Federatio n Of Labor And Congress Of Industrial Organizations
New Orleans, Louisiana 10 February 2000 [Online].  Available at:  http://www.fmc.gov.WT/TPR/S/88 Trade Policy Review
Page 96
42. The ten-year MSP is an important instrument of support for the U.S.-flag merchant marine,
providing a fixed payment to U.S.-flag vessel operators.  The programme aims to ensure that a limited
number of militarily useful vessels from the commercial fleet are available to meet the nation's  sealift
requirements in time of war or national emergencies.  The MSP provides funding for up to 47 vessels.
Net subsidy outlays for the MSP during FY 1997 amounted to US$38 million, increasing to
US$94 million in FY1999.  Funding of up to US$100 million is authorized through 2005.
(ii) Domestic shipping and other maritime services
43. The Jones Act (Section 27 of the Merchant Marine Act of 1920) reserves cargo service
between two points in the United States (including most territories and possessions), either directly or
via a foreign port, for ships that are registered under the U.S. flag U.S. crewed, and built in the United
States.  Vessels registered under the U.S. flag, must be owned by a U.S. corporation, and 75% of theemployees must be U.S. citizens.
32  In general, the same requirements apply to domestic passenger
services, reserved for U.S. crews and U.S. built and registered ships.  The current Administration
supports cabotage laws in their present form.
44. Recently, a number of legislative proposals have been made for a relaxation of restrictions on
the use of foreign vessels for cruises in the United States.33  These proposals would, among other
things, allow cruise operators to purchase foreign built vessels.
45. The authorities have noted that all U.S. port services are freely available on a
non-discriminatory basis.  Limited restrictions are applied on vessels of certain countries on national
security grounds.34  The United States maintains an MFN exemption covering existing restrictions on
performance of longshore work during U.S. port calls by crews of foreign vessels owned and flagged
in countries that similarly restrict crews on U.S.-flag vessels from longshore work.35  The Immigration
and Nationality Act of 1952, as amended, prohibits alien crewmembers from performing longshorework in the United States.  The Act provides a reciprocity exception for longshore work by the crews
of vessels both registered in and owned by national s of countries that allow the crews of US. vessels
to perform longshore work.
(iii) Ship repairs
46. As of May 2000, there were 94 shipyards and ship repair facilities located in the United
States, employing 80,414 workers.
36  There are no restrictions on foreign investment in U.S. shipyards
or ship repair facilities.
47. The Federal Government provides direct support to the industry through the procurement of
goods and services from shipyards and related industries to repair government-owned vessels.  In the
event that ships are repaired abroad, 50% ad valorem  duty is imposed on vessels when re-entering the
                                                     
32 As defined in the Shipping Act 1916, Sec. 2(a)-(c) and 46 U.S.C.12106 (1996).
33See for example the proposed United States Cruise Tourism Act of 1999 [Online].  Available at:
http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?I Paddress=162.140.64.21&filename=h248ih.txt&directory
=/diskb/wais/data/106_cong_bills; the proposed United St ates Cruise Ship Tourism Development Act of 1999
[Online].  Available at:  http://www.senate.gov/~c ommerce/press/106-180.htm, http://thomas.loc.gov/cgi-
bin/query/C?c106:/temp/~ c106BKU8Vj;  and a related proposal (H.R. 5337, the U.S. Cruise Vessel Act)[Online].  Available at:  http://www.house.gov/ gilchrest/prcruisevesselact.htm.
34 These include Armenia, Azerbaijan, Cambodia, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia,
Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Viet Nam.  Vessels from Cuba, Iran, Iraq, Libya,Democratic People's Republic of Korea, Syria, and Yugoslavia  are prohibited from entering U.S. ports.
35 WTO document S/C/W/71, 24 November 1998.
36 WTO document WT/GC/W/397,  10 February 2000.United States WT/TPR/S/88
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United States, based on the cost of equipment and non-emergency repairs obtained in foreign
countries for U.S.-flag vessels.  The duty is based on the cost of the repairs, and applied to the good.
U.S.-owned foreign-flag vessels are not subject to the duty.  Under the NAFTA, this duty was
terminated.  The OECD Shipbuilding Agreement (see below) would eliminate this duty for countries
signatory to the Agreement.
48. The United States signed but has not ratified the 1994 Agreement Respecting Normal
Competitive Conditions in the Commercial Shipbuilding and Repair Industry and the Related
Understanding on Export Credits for Ships (collect ively, the OECD Shipbuilding Agreement).  The
Agreement sought to limit the delivery of new vessels under the Jones Act to 200,000 gross tons per
year, and limited the granting of assistance such as described above.  The U.S. Congress has not
passed the implementing legislation for the OECD Shipbuilding Agreement.
(6) AIR TRANSPORT SERVICES
49. Two decades after the Federal Government's control over domestic fares and services in 1978,
the U.S. air transport industry is one of the world's most efficient.  As noted in the Secretariat Report
for the previous U.S. Review, major air carriers ha ve restructured their route systems into competing
"hub-and-spoke" networks, resulting in lower airfares and more extensive and more frequent servicesfor most domestic air travellers.  Domestic air transport operations represent a market of
approximately US$78 billion in revenues (passenger and cargo, scheduled and non-scheduled), while
revenues of U.S. carriers from international services are in the order of US$28 billion.  Air transport is
crucial to U.S. trade:  about 40% of U.S. export value moves via air cargo.
37
50. The Federal Aviation Administration (FAA) at the Department of Transportation (DOT)
oversees over 150 U.S. certified air carriers, and monitors about 600 foreign air carriers operating in
U.S. territory.38  International air transport policy is formulated in the Office of the Secretary at the
DOT.  In 1995, a statement on international air transportation policy declared code sharing and other
cooperative marketing arrangements as a "cost-efficient way for carriers to enter new markets".39
Since then, the DOT has strongly endorsed so-called open skies agreements (OSAs), as well as code
sharing and other commercial international alliances as providing sizeable benefits for consumers.40
(i) Recent developments
51. New OSAs have been concluded with 21 countries since January 1999, in addition to eight
expanded bilateral agreements.41  Under these agreements, governments no longer regulate pricing,
limit the number of airlines in a given market, or dictate routes, but leave the air carriers of those
countries to decide how often, where to, and with what equipment they fly.  The United States is party
                                                     
37 Remarks by Mr. Alan Larson,  Under Secretary of State for Economic, Business and Agricultural
Affairs.  Available at:  http://www.usi s-australia.gov/hype r/2000/0330/epf408.htm.
38 For more details, see Federal Aviation Administration online information.  Available at:
http://www.faa.gov/apa/Factsheet/1999/fact1199.htm.
39 U.S. Department of Transportation online information.  Available at:
http://www.dot.gov/general/policy/transpol.txt
40 See for example U.S. Department of Transportation (1999) and (2000).
41 A list of countries with which the United States ha s bilateral Civil Aviation Agreements is available
online at:  http://ostpxweb.ost.dot.gov/aviation/intav/agmts.htm.WT/TPR/S/88 Trade Policy Review
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to over 50 bilateral OSAs.  Around 60% of the U.S. international aviation market is now under either
OSAs or essentially equivalent arrangements.42
52. A commercially important aspect of OSAs is that they allow "beyond rights" or the "fifth
freedom".43  Market access has thus been greatly enhanced for U.S. carriers and their foreign
counterparts in the geographic areas covered by OSAs.  Major partner countries with which the
United States has not signed OSAs include Brazil , Canada, France, Mexico, Japan, Spain, and the
United Kingdom.  The agreements with Canada and France contain many features of an OSA, after an
initial phase-in period.  The agreement signed with Canada does not include, and will not phase in,
fifth freedom rights.  Canada also withholds cargo coterminalization rights for third and fourth
freedom services.  Similarly, the French agreement does not and will not include unlimited fifth-
freedom rights.
53. In November 2000, the first "multilateral" OSA was announced among the United States,
Brunei, Chile, New Zealand, and Singapore.44  The agreement, to which additional countries may
accede, allows a party to retain its own citizenship or ownership requirements, and effective control
must remain in the party designating an airline, its nationals or both.  Like the bilateral OSA's it
supersedes, the agreement requires each party to accept a foreign airline's designation as long as thedesignating party or its nationals have effective control of the designated airline.  Designated airlines
must also be incorporated and have their principal place of business in the territory of the designating
party.  Further, a party may cancel a foreign airline's rights if its nationals have substantial ownership
of the foreign carrier.  The DOT announced in January 2001 an amendment of the U.S. licences of
carriers of the participating countries requir ing them to notify the DOT of any increase in
shareholding by a U.S. shareholder by 20% or more, or an increase that would raise its total interest in
the carrier to 40% or more, within 30 days afte r such change.  The agreement was signed by the
transport ministers of the five initial parties in Washington on 1 May 2001.  The agreement will come
into force on the date that four of the five countries notify the depositary of the completion of any
necessary internal procedures.
54. Over the past two years, there have been attempts towards mergers of domestic airlines.  In
March 2001, the proposed merger announced by United Airlines and US Airways was beinginvestigated by the U.S. DOJ, who was examining, among other things, whether it would allow one
airline to dominate several major airports.
45  In late 2001, there were doubts as to whether the merger
would go ahead.  The combined company would have a 12% share of the transatlantic market and
increase the share of the transatlantic market held by the Star Alliance, of which United is a leading
member, from 21% to 24%.46
55. Internationally, U.S. airlines often cooperate with foreign companies within alliances of
varying scope and intensity (e.g. code sharing).47  These alliances allow airlines to offer improved
services to travellers and to contain their costs through economies of scope and scale in an
                                                     
42 Remarks by Mr. Alan Larson, Under Secretary of State for Economic, Business and Agricultural
Affairs, 18 March 2000.
43 The "fifth freedom" concerns the right of an airline to carry traffic between two countries outside its
own country of registration as long as the flight originates or terminates in its own country of registration.
44 Department of Transportation online information.  Available at:  http://www.dot.gov/affairs/
2000/dot22200.htm.
45 See for example Department of Transportation online information.  Available at: http://www.dot.
gov/affairs/2000/dot11300.htm
46 Financial Times , 26 September 2000.
47 See, for example, Department of Transportation (2000).  A list of all code sharing arrangements is
available online at:  http://ostpxweb.dot.gov/aviation /intav/coderpt.pdf.United States WT/TPR/S/88
Page 99
increasingly competitive environment.  They are also partly the consequence of market access
restrictions, such as on routes that airlines can serve under bilateral air services agreements, or
restrictions on foreign ownership and control of airlines (see below).  Private business is therefore
strongly intertwined with government relations in this sector.  Much of the rationale that supports
alliances between U.S. and foreign airlines does not apply to alliances between U.S. airlines.48
56. All code-sharing relationships between U.S. and foreign air carriers require DOT regulatory
approval, which is granted if found to be in the public interest.  Some international alliances request
anti-trust immunity from the DOT, which is the lead agency for competition issues in the international
market (the DOJ has responsibility for competiti on in the domestic market).  The authorities noted
that the DOT has granted such immunity only wher e it has found that competition is adequate to
protect the public.  The DOT also considers that an open-skies agreement with a foreign party will bea necessary, but not the only, prerequisite for antitrust immunity to be granted to alliances with
foreign airlines.  Because of the importance of the U.S. market for these foreign alliance partners, this
link appears to have been a factor in some of the OSAs signed since 1992.
(ii) Further liberalization of air transport services
57. Traffic rights, together with services directly related to the exercise of traffic rights, are
currently outside the scope of the GATS, which covers aircraft repair and maintenance, the selling and
marketing of air transport services, and computer reservation system (CRS) services.  In the GATS,
the United States has bound aircraft repair and maintenance services undertaken while an aircraft is
withdrawn from service, specifically excluding line maintenance.  MFN exemptions have been
scheduled with regard to the selling and marketing of air transport services and the operation and
regulation of CRS services.  These MFN exemptions are still in effect.  The NAFTA's provisions on
air transport also to a large extent "carve out" the air transport sector from the free-trade andinvestment rules applicable to other sectors.
49
58. The GATS Annex on Air Transport Services provides for a regular review ("the Review") of
the possible further application of the Agreement in this sector.  The United States has made a number
of statements in this context, notably regarding the opportunity of adding new services under the
GATS purview.50  In the ongoing negotiations on trade in services, calls have also been made for the
multilateral liberalization of "hard rights", in other words the actual right to fly cargo and
passengers.51  In this regard, the OECD has argued the economic rationale for liberalizing air cargo,
including the full range of traffic rights (e.g. cabotage), together with the removal of barriers to
foreign ownership.52
59. Another stimulus for air transport liberalization could come from the recent proposal of the
Association of European Airlines to create a Trans-Atlantic Common Aviation Area.  The core
features of the proposed TCAA are the freedom to provide services; unrestricted airline ownership
and the right of establishment; competition policy; and leasing of aircraft.  There has not been support
by U.S. airlines for this proposal and labour associations are "adamantly and consistently opposed" to
enabling changes in U.S. law.53
                                                     
48 See, for example, U.S. Department of Transportation (1999).
49 NAFTA regulations on air transport are contained in Chapter 12, notably Articles 1201 and 1213
(see, for example, WTO document S/C/W/163/Add.2, 10 November 2000).
50 See, for example, WTO document S/C/M/50, 5 March 2001.
51 See, for example, WTO documents S/C/M/ 49, 1 December 2000 and S/C/M/50, 5 March 2001.
52 WTO document S/C/W/181, 27 November 2000.
53 For a discussion of this issue, see Federal Aviation Administration (2000).WT/TPR/S/88 Trade Policy Review
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(iii) Conditions affecting foreign competition
(a) Foreign ownership and cabotage
60. Foreign investors are not allowed to hold more than 25% of voting equity in a U.S. air carrier.
This restriction does not apply to non-voting equity so  long as it does not result in foreign effective
control, which is prohibited.  This effective cont rol rule is an important feature of the foreign
ownership framework as it may discourage foreign capital by preventing investors from carrying outchanges in company management.
54
61. The provision of domestic air services is only permitted to U.S. carriers.  Thus foreign airlines
are prevented from performing "cabotage", i.e. competing with U.S. airlines serving domestic routes.
Traffic within the United States accounts for about 28% of the world's cargo market.  Crews engaged
in domestic air passenger and freight service must be U.S. nationals or resident aliens;  air carriersengaged in providing international service may use foreign nationals in their flight crews.  The
Fly America Act requires U.S. government-financed transportation of passengers and cargo to be on
U.S.-flag air carriers.
55
62. The "wet" leasing of aircraft (with crew and, typically, fuel, maintenance, and insurance) to
U.S. carriers is in practice restricted to U.S. companies and U.S. citizens.56  For the purpose of the
WTO GATS negotiations, as well as its bilateral negotiations and regulatory scheme, the United
States considers wet leasing to be a part of traffic rights, and therefore excluded from GATS
disciplines.
63. "Dry" leasing of aircraft (leasing without crew) is deemed by the United States to be a
business service, along with other leases of industrial equipment without operators.  There is
extensive transnational dry leasing of aircraft among both developed and developing countries.  U.S.
companies participate in this market both as lessors and as lessees.  Thus in the view of the U.S.authorities, dry leasing although not covered by the Air Transport Annex is not excluded from the
GATS.
(b) Airport and other services
64. Airport services in the United States generate revenues of approximately US$10 billion
annually.  Virtually all U.S. airports with commercial services are owned by state or localgovernments, although outsourcing and management contracts are common.  The United States has
numerous airport services providers exporting their management skills and a number of U.S. airports
have engaged foreign firms for these services.
65. The U.S. ground-handling market is the largest in the world, and is open and competitive.
57
The market has fostered the development of i ndependent (non-airline) ground handling corporations
and liberal access to self-handling by airport users.  Clauses allowing for ground handling by U.S.
carriers themselves or for U.S. carriers to select among competing ground-handling firms in the
airports of partner countries (and reciprocally) have been inscribed in most bilateral air transport
agreements entered into by the United States.  Because of the importance it attaches to reciprocity in
                                                     
54 See, for example, Federal Aviation Administration (2000).
55 The Act refers to Section 40118 of  Title 49 of the U.S. Code.
56 WTO document S/C/W/163/Add.2, 10 November 2000.
57 For a detailed survey of this industry, see WTO document S/C/W/163/Add.1, 25 October 2000.United States WT/TPR/S/88
Page 101
such services, and because it relies on bilateral guarantees it has negotiated, the United States has not
supported subscribing to a GATS ground-handling provision.58
66. The U.S. regime of slot allocation, the "high density rule", applies only at four
"supercongested" airports (Kennedy, La Guardia, O'Hare, and National).59  The remaining airports
with scheduled air service (some 400) have no slot limitations for domestic or international flights.
Following a study conducted by the DOT in 1995, legislative changes were adopted in April 2000which phase out the high density rule at three of th e four airports (i.e. Chicago O'Hare by 1 July 2002,
New York-JFK and La Guardia by 1 January 2007) with exemptions being used during the transition
period.  The rule will continue to apply at Washington Reagan Airport.  Other notable changes under
the new statue include that slots or slot exemptions for international service are no longer required at
Chicago O'Hare and, effective July 2001, the slot-controlled hours at that airport were narrowed.
67. The high density rule provides, among other things, for the buying and selling of original slots
among carriers, and this will apply to those slots until they are phased out as described above.
However, because international services have always been accommodated through other provisions of
the high density rule, foreign carriers serving the United States need not purchase slots at the
international airports.  The U.S. authorities indica ted that, to the extent not inconsistent with FAA
rules, the FAA allocates international slots according to the world-wide slot allocation system,
including priority for previously allocated slots and new entry.
60
68. Rule revisions have been proposed to harmonize domestic and international repair service
certification standards in most respects.61  One exception is different administrative arrangements for
re-certification of repair stations in the U.S. and for those abroad.  For example, certification by the
FAA of repair stations located within the United States, whether operated by U.S. companies or by
foreign companies exercising mode 3 rights, have indefinite validity.  This is because they are undercontinual surveillance by local FAA inspectors.  Certificates for stations located outside the United
States, again, regardless of the companies' nationality, must be renewed every one or two years,
following inspection by visiting FAA inspectors.
69. In December 2000, the U.S. President signed an order setting up the Air Traffic Organization
(ATO), a performance-based organization within the FAA designed to oversee the U.S. aviation
system.
62  The ATO will be responsible for the provision of day-to-day operational air traffic services.
No plans have been announced with respect to an eventual privatization of air traffic control services.
(7) FINANCIAL SERVICES
(i) The Gramm-Leach-Bliley Act
70. In November 1999, the passage of the GLB Act (F inancial Modernization Services)  codified
the gradual consolidation of U.S. financial regulation that has taken place over the past decade.63  The
                                                     
58 WTO document S/C/163/Add.1, 25 October 2000.
59 La Guardia and National Airports are primarily domestic airports, except for a limited number of
flights from the Bahamas and Canada.
60 The world’s major airlines participate in slot conf erences held twice a year under the auspices of the
International Air Transport Association (IATA) to reconcile carriers’ schedule interests at slot-controlledairports worldwide.
61 Comments, notices or final rules related to foreign repair stations are available at the Department of
Transportation Docket Management System, accessible online at:  http://dms.dot.gov;  the Docket numberassigned to this rulemaking is FAA-1999-5836.  All other federal transport rules and orders are also accessible.
62 See FAA online information.  Available at:  http://www.faa.gov/apa/pr/pr.cfm?id=1199.
63 The GLB Act was notified to the WTO in document S/C/N/121, 6 June 2000.WT/TPR/S/88 Trade Policy Review
Page 102
GLB Act facilitates affiliations among banks, securities firms, insurance firms, and other financial
companies, and thus definitively breaks from the segmentation imposed during the Great Depression
under the 1933 Glass-Steagall Act, which restricted affiliations and interlock personnel between banks
and securities firms.  The GLB Act, however, does not alter the walls between banking and
commerce.  In that respect, the broad banking perm itted by the GLB Act remains less liberal than the
European universal banking model, in that U.S. ba nks continue to have little freedom to own and be
owned by non-financial companies.64
71. Under the GLB Act, domestic and foreign banks may affiliate with entities that engage in
securities trading, insurance, underwriting, and other activities that are financial in nature or incidental
to a financial activity.  A U.S. bank wishing to af filiate with insurance or other financial services
companies must first set up a bank holding company under the Bank Holding Company Act;  foreignbanks are not required to set up holding companies.  Qualifying bank holding companies, including
foreign banks (referred to as financial holding companies or FHCs), may then control banking,
securities, or insurance firms.  The GLB Act does not remove the restriction on banks from directly
selling and underwriting insurance:  bank holding  companies that are FHCs may now affiliate with
insurance companies, and the financial holding comp any will be the heart of the resulting financial
services group (although the insurance affiliate remains an independent legal entity from the FHC).
This legislation should allow financial companies to realize greater economies of scale and scope.
72. The Federal Reserve has become the "umbre lla" regulator for those new financial
conglomerates that include a bank.  In particular, securities and insurance companies can become
FHCs, by acquiring a bank and the resulting FHC would be subject to regulation on a consolidated
basis by an internationally recognized U.S. supervisory institution.  The activities of subsidiaries of
the FHCs would be regulated by the appropriate primary bank and "sectoral" regulators (e.g. theOffice of the Comptroller of the Currency in the case of national banks, a state banking agency and
the Federal Reserve or Federal Deposit Insurance Corporation in the case of state-chartered banks, the
Securities and Exchange Commission in the case of securities firms, and a state insurance commission
in the case of insurance companies).
73. Traditionally, non-bank financial conglomerates (i.e. those not affiliated with a commercial
bank) have not been regulated at the consolidated group level, although the SEC requires registered
broker-dealers to file quarterly risk assessment reports regarding material affiliates.  The GLB Act
authorizes the SEC to promulgate rules applicable to supervised investment bank holding companies.
The statute permits investment bank holding companies to elect to be supervised at the group level by
the SEC.
74. Provisions in the GLB Act concerning branches and agencies potentially affect numerous
foreign banks as most operate in the United States through these two modalities;  subsidiaries of
foreign banks are generally treated as domestic banks under the GLB Act.
65  In this context, some
provisions contained in the Bank Holding Company Act have been interpreted by the European Union
and Japan as containing elements of extra-territoriality, as a foreign bank operating as a branch or anagency and wishing to become a bank holding company is itself subject to the Act and, as a result,
required to submit to Federal Reserve Bank scrutiny its worldwide activities.
                                                     
64 See Barth, Brumbaugh and Wilcox (2000).  For a recent discussion of the separation of banking and
commerce in the United States, see also OCC online info rmation.  Available at:  http://www.occ.treas.gov/
wp99-1.htm.
65 Branches and agencies have comparable powers and are subject to similar supervision;  agencies,
however, may not accept deposits from U.S. citizens or residents.United States WT/TPR/S/88
Page 103
75. The GLB Act provides that comparable "well capitalized" and "well managed" standards be
applied to U.S. banks and foreign banks operating a branch or agency in the United States "giving due
regard to the principle of national treatment and equality of competitive opportunity".66  The standards
are applied to the foreign bank itself, and in the view of some trading partners may pre-empt
prudential standards under the Capital Accord of the Basle Committee on Banking Supervision (Basle
Accord).67  To address concerns of foreign banks that the proposed capital standards went beyond the
Basle requirements, the U.S. modified the capital standards to make the leverage ratio an additional
factor rather than a numerical screen.68  The ratios apply to foreign banks that elect to be treated as
FHCs and whose home country supervisors have adop ted risk-based capital standards consistent with
the Basle Accord.  Other foreign banks must meet less definite criteria to obtain a prior determination
that their capital is comparable to the capital required of a U.S. bank.
76. As of June 2001, 550 banks had effectively become  or were being treated as financial holding
companies.69  These included 26 foreign banks.  The authorities indicated that most FHCs were set up
by smaller U.S. banks seeking to engage in insurance brokerage activities.  Approximately 12% of
foreign banking groups with U.S. operations have FHC status, while approximately 10% of domestic
banking groups have such status.
(ii) Banking services
(a) Market structure
77. At the end of March 1998, U.S. offices of foreign banks controlled US$1.3 trillion in assets,
accounting for approximately 20% of the total assets of the U.S. commercial banking system.
Branches and agencies account for over 76% of the assets of the banking offices operated by foreign
banks.  Foreign branches and agencies are involved primarily in wholesale banking, and seldom in
retail banking;  this may reflect the fact that, with very limited exceptions, no foreign bank branch oragency may accept or maintain retail deposits of less than US$100,000.  Approximately 40% of their
assets are accounted for by claims on other banks or other offices of their parent bank, 30% are loans
to businesses or real estate loans, 12% are investments in securities, and less than 1% are consumer
loans or mortgages.  Foreign bank branches and agencies account for over one fifth of all loans to
U.S. businesses.
78. In 1999-2000, U.S. cross-border exports by banking and securities firms continued to expand
strongly, by over 25% annually (Table AI.5).  These exports generally involve fee-based commercial
banking services other than deposit-taking and lending activities, including financial management and
transaction services;  advisory services;  custody services;  credit card services;  and other credit-
related services, such as providing standby letters of credit for trade financing.  On the import side,the value of cross-border transactions increased by over 40% in 2000, to US$5.1 billion.  A trade
surplus of US$12.8 billion was registered in 2000.  According to available data, sales in banking and
securities services by foreign affiliates of U.S. firms amount to approximately US$14 billion,
compared to purchases of US$7 billion from U.S. affiliates of foreign firms.
                                                     
66 Final rules implementing the financial holding provisions of the GLB Act are accessible in FRB
online information.  Available at:  http://www.federalreserve.gov.
67 WTO document S/FIN/M/25, 8 May 2000.
68 See Federal Reserve online information.  Available at:  http://www.federalreserve.gov/boarddocs/
press/boardacts/2000/20001221 3/attachment.pdf.
69 For a current list of institutions see Federal Reserve online information.  Available at:
http://www.federalreserve.gov/generalinfo/fhc.WT/TPR/S/88 Trade Policy Review
Page 104
(b) Market access and national treatment
79. The United States maintains a policy of na tional treatment towards the U.S. branches,
agencies, securities affiliates and other operations of foreign banks.  Bound commitments have been
made by the United States on market access and national treatment for all subsectors included in the
Annex on Financial Services in the GATS, and in line with the Understanding on Commitments on
Financial Services.  U.S. residents may deposit funds with foreign institutions that do not maintain acommercial presence in the United States.
80. Nevertheless, a few restrictions to foreign market access and national treatment remain.  For
example, a majority of directors of national banks must be U.S. citizens;  and approximately one half
of the States require all or the majority of the board of directors of depository financial institutions to
be U.S. citizens.  Certain MFN exemptions have been the subject of questions by trading partners inthe WTO Council on Trade in Services.
70  Cross-border supply of banking services is generally not
prohibited  by federal regulations, and foreign banks without commercial presence may solicit and
transact business with customers in the United States.
81. As described in the Secretariat report for the previous U.S. Review in 1999, federal and state
banking laws and regulations are complex and involve several different regulatory bodies.  Thecentrepiece of legislation governing the operation of foreign banks in the United States is the
International Banking Act of 1978.  The Federal Reserve Board (FRB) has responsibility for
supervising foreign bank operations, as do the Office of the Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corporation, and State regulators.
71
82. Under the "dual" (State and federal) U.S. banking system, foreign banks may establish a
commercial presence in the U.S. market either by establishing federal or state-licensed branches,
agencies, or representative offices, or by establishing or acquiring a national or state subsidiary bank.Adequately capitalized bank holding companies (including foreign banks) are allowed to acquire a
bank in any U.S. State.  Most States also allow an  out-of-state bank to merge with an in-state bank,
and the resulting bank to continue to operate branches.  A domestic bank subsidiary of a foreign firm
is provided national treatment based on its "home" State of incorporation.
83. Most foreign banks operate through branches that are part of the foreign bank itself.  The
246 branches and the 121 agencies operating in the United States in May 2000 were located in eleven
States and the District of Columbia, with most in New York, and to a lesser extent in California,
Florida, and Illinois.  According to the authorities, this uneven penetration of foreign bank branches in
the U.S. market is mainly due to lack of interest from foreign banks rather than restrictions by States.
Some States restrict the issuance of branches or agency licences to foreign banks, while some restrictthe opening of representative offices by foreign banks.
84. The 1994 Reigle-Neal Act gave multi-state bank holding companies the option to convert to
an interstate branch bank structure by authorizing the merger of bank subsidiaries across state lines.
Since then, an increasing number of banks have done so.  As a result, large companies operating
through inter-state branches have come to account for a significant share of deposits in many localmarkets.  Inter-state branching by de novo establishment is permitted only in 17 States (up from 13 at
                                                     
70 The United States' latest schedule of MFN exemptions in financial services is contained in WTO
document GATS/EL/90/Suppl.3, 26 February 1998.  Answers by the United States to questions posed byMembers can be found in WTO document S/C/M/44, 21 June 2000.
71 OCC and Federal Deposit Insurance Corporation online information is available at:
http://www.fdic.gov/ and http://www.occ.treas.gov/.United States WT/TPR/S/88
Page 105
the time of the previous Review), the District of Columbia and Puerto Rico.  Interstate branching by
de novo establishment has been left unbound by the United States under GATS.
(iii) Securities services
85. The Securities Exchange Act of 1934 grants the Securities and Exchange Commission (SEC)
regulatory authority over securities markets and broker-dealers.  Foreign and U.S. broker-dealers are
subject to the same requirements;  in particular, th ey must register with the SEC if they seek to do
business with (i.e. solicit) U.S. persons.  Most States also require broker-dealers to register with the
state regulatory authorities for offering securities in the State and other business conducted within the
State.
86. Out of a total of about 8,000 registered broker-dealers in the United States, 173 had more than
25% foreign ownership in 1995, up from 130 in 1990.  In 1993, they lead-managed some 3.8% oftotal debt issues and 1.7% of total equity issues in the U.S. market.
87. The core participants in the U.S. government-s ecurities market are 25 primary dealers, nearly
two thirds of which are foreign-owned from seven countries.
72  Foreign-owned dealers are accorded
essentially the same treatment as domestically owned dealers, as long as U.S. firms operating in the
government-debt markets of the foreign country are accorded "the same competitive opportunities" asdomestic companies operating in those markets.  In  this respect, the United States took an MFN
exemption with regard to participation in issues of  government-debt securities in its GATS Schedule.
88. The Investment Company Act of 1940 prohibits a foreign investment company from publicly
offering its shares in the United States unless the SEC issues, on a case-by-case basis, an order
permitting the company to register under the Act, based on a finding that, by reason of special
circumstances or arrangements, it is both legally and practically feasible to effectively enforce the
provisions of the Act against such company and that the issuance of such order is otherwise consistentwith the public interest and the protection of investors.  This seems to have created considerable
obstacles for investment funds set up under foreign jurisdictions to be publicly distributed in the
United States.
73  In fact, there are very few foreign shares or funds registered in the United States,  as
most foreign investment companies appear to have found it difficult to register their funds under the
Act.
89. The U.S. authorities indicated that foreign management firms may register as investment
advisers in the United States under the Investment Advisers Act of 1940, which grants the SEC
regulatory authority over certain foreign and domestic investment advisors.  These companies may
then organize a fund under U.S. law and register the fund under the Investment Company Act.  Such a
fund can be managed outside the United States, as long as the manager is registered as an investmentadviser under the Act.  The fund's directors and managers do not have to be U.S. citizens or
residents.
74  The management company does not have to be a U.S. company and does not have to have
a U.S. place of business.
                                                     
72 Primary dealers are firms that have established a trading relationship with the Federal Reserve Bank
of New York, and report weekly to the FRBNY on their volume of trading and their position in government and
government agency issues.
73 See, for example, European Federation of Investment Funds and Companies (2000).
74"Regulation of Mutual Funds in the United States – A Successful Regulatory Regime", Keynote
Address by Paul Roye, Director, Division of Investment Management, U.S. Securities & ExchangeCommission, September 22, 2000 [Online].  Available at http://www.sec.gov/news/speech/spch402.htm.WT/TPR/S/88 Trade Policy Review
Page 106
90. As of September 1998, approximately 370 foreign investment advisers, a slight decrease
of about 0.8% from December 1994, were registered with the SEC, out of a total of about 8,500
SEC-registered investment advisers.  Non-U.S. in vestment management companies have, according to
the SEC, captured a significant portion of the U.S. fund market.  As of June 2000, non-U.S.
companies accounted for approximately $1,100 billion of the fund assets managed under the SEC's
oversight, or approximately 15% of the U.S. fund market.
(iv) Insurance services
91. The U.S. insurance market is the world's largest, with gross insurance premiums of
approximately US$270 billion in life insurance, and US$360 billion in property and casualty
insurance.  Over the past decade, overall premium volume has grown by about 3.5% annually.75
Some US$22 billion in premiums were paid through cross-border trade to foreign-based insurers to
cover risks in the United States in 2000, consisting mostly of reinsurance.  U.S. firms have also
recorded premium growth abroad, both throug h commercial presence and cross-border trade
(Table AI.5).  Sales by foreign affiliates in the United States (i.e. insurance companies at least 10%
foreign owned or controlled) amounted to US$63 billion in 1998.
(a) State regulation
92. The U.S. insurance services sector is regulate d at the state level.  Therefore, insurance
companies must be licensed under the law of each State in which the risk they intend to insure is
located;  they are authorized to offer insurance services only in the State where they are licensed (also
referred to as State of domiciliation or residency).  This is also true of agents and brokers, although
regulation is being progressively harmonized (see below).  Licensing requirements tend to differ
among States and by line of insurance sold:  trying to meet each state requirement may thus be
burdensome.  For example, a broker selling insurance for goods transported inter-state has to belicensed in every State the vehicle passes through, each State imposing licensing fees as well as
separate registration and continuing education requirements and other potential barriers such as
fingerprinting requirements.
76 The non-standardization of insurance regulation between States may
hamper competition.77
93. An insurer seeking to provide a new type of cover nationwide, or to offer new terms and
conditions, has to get the product approved by state insurance commissioners of all those States
requiring product approval.  In addition, in most States insurers must undertake "rate filings",
whereby state regulators approve the price (premium  rates) companies may charge.  According to the
Chairman of the House Committee on Financial Services, these requirements not only result in drawn-
out approval processes but often result in significantly reduced willingness by insurers to providecoverage, leaving consumers in some areas with few or no insurance companies willing to insure their
risks.
78
                                                     
75 Swiss Re, Sigma , No.9/2000 [Online].  Available at:  http://www.swissre.com.
76 Hearing, Subcommittee on Finance & Hazardous Ma terials, July 20, 2000, Prepared Statement of
The Honorable Michael G. Oxley, available at:  http://com-notes.house.gov.
77 See, for example, Statement of Mr. John G. Turner Vice-Chairman, ING Americas, "Improving
Insurance for Consumers -- Increasing Uniformity and Efficiency in Insurance Regulation", Hearing by the
Subcommittee on Finance & Hazardous Materials, September 19, 2000, U.S. House of Representatives online.Available at:  http://com-notes.house.gov.
78 Hearing, Subcommittee on Finance & Hazardous Ma terials, July 20, 2000, Prepared Statement of
The Honorable Michael G. Oxley, available at:  http://com-notes.house.gov.United States WT/TPR/S/88
Page 107
94. In an attempt to achieve uniformity among States' regulatory regimes, the National
Association of Insurance Commissi oners (NAIC) has issued model laws, but implementation of these
laws by the States is not compulsory.79  For example, the Uniform Certificate of Authority
Application process allows insurers to file copies of the same application for admission in
46 participating States plus the District of Columbia, and eliminates the need to file different
applications in different formats.80  Each uniform State nevertheless performs its own, independent
review of each application.  The Accelerated Licensure Evaluation and Review Techniques (ALERT)
programme was part of a more general attempt,  known as Uniform Regulation Through Technology
(formerly State Regulation 2000), to eliminate licensing and approval barriers and increase uniformity
and consistency among States.  ALERT allows streamlined admissions for companies, including
foreign insurers that are already established in one ALERT State and seeking licences in otherparticipating States.  In March 2000, all state insurance commissioners endorsed a Statement of Intent
to create an "efficient, market oriented regulation of the business of insurance".
81
95. Some 26 States have begun to relax the regulations for large commercial risk, a process
known as commercial lines deregulation.  The deregulation essentially allows large commercial
insureds to purchase insurance without the need fo r the insurers to make rate and form filings, thus
introducing a degree of market flexibility.  The authorities stated that state regulations are based on
the NAIC Model Act82;  however, substantial differences persist across States.
96. In response to the requirements of the GLB Act, a majority of States are implementing a
reciprocal licensing system for brokers.  A National Insurance Producer Registry seeks to create a
single licensing point for all States.  The NARAB provision of the GLB Act is to trigger federal pre-
emption of State licensing laws by November 2002 if those States have not developed uniformity or
complete reciprocity in the way they license insurance brokers across the country (see (f) below).  TheNARAB provision has been described as a critical first step towards uniformity in insurance
regulation, to bring lower prices and more availability for consumers, with the next step to establish
more uniformity for insurance underwriting.
83
97. The issue of federal regulation of the insurance industry has received increased attention from
Congress and the industry over the past decade, triggered in part by an increasing number of insurancecompany insolvencies.  Under the present regulatory framework, state insurance departments are
responsible for regulating solvency, which requires access to and analysis of detailed and complex
data, and raises the need for qualified actuaries, independent audits, adequate staffing and regulatory
resources in each State.  In this respect, the NAIC's "Financial Regulation Standards and
Accreditation Program" establishes baseline solvency regulations which have already been adopted bya large number of states.
84
                                                     
79 NAIC online information.  Available at:  http://www.naic.org.
80 For details of the procedure see NAIC online information.  Available at: http://www.naic.
org/ucaa/expansion/Sec1.htm.
81 The Statement of Intent:  One Year Later – Delivering on a Promise, NAIC News Release, 26 March
2000.  The Statement of Intent is available online at http://www.naic.org.
82 The Act is described in NAIC online information.  Available at:  http://www.naic.
org/1papers/models/0301docs/775Reg06.doc.
83 Hearing, Subcommittee on Finance & Hazardous Mate rials, July 20, 2000, Prepared Statement of the
Honorable Michael Oxley.
84 For more information regarding solvency regulation, see the NAIC Financial Regulation Standards
and Accreditation Program, available online at http://www.naic.org.WT/TPR/S/88 Trade Policy Review
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(b) Commercial presence
98. The U.S. insurance market is generally open to foreign direct investment through acquisition
of an insurance company licensed in a given State;  some States subject acquisition to prior
notification and approval.  Foreign companies may also incorporate in the State as a subsidiary or a
branch of a foreign insurance.  However, three States have scheduled the absence of a mechanism for
initial entry by non-U.S. insurers as subsidiaries, and 17 States do not allow non-U.S. insurancebranch licensing.
85  A majority of States prohibit the conduct of business by government-owned or
government-controlled insurance companies (Table IV.5).
99. A foreign company operating as a branch may only write licensed premiums based on its U.S.
situs capital, which must in principle be deposited in each State where it intends to do business. All of
the assets of the company, however, whether they are located in the United States or elsewhere, aresubject to liability to policyholders on its licensed business.  In practice, States waive the local deposit
requirement if the applicant has a qualifying depos it in another State (usually the insurer's domestic
jurisdiction or, in case of a U.S. branch, its State of entry).  However, for certain lines of business
(e.g. life, health or workers compensation insurance) a local deposit may be required.
(c) Cross-border supply
100. As noted above, stringent regulatory controls have to a certain extent prevented licensed
insurance companies from responding quickly to changing market conditions and new coverage
requirements demanded by large commercial insureds.  U.S. legislation has therefore developed to
allow foreign companies to underwrite such risks.
86  One distinguishing feature of this legislation is
the absence of regulation concerning policy forms and rates, which provides more flexibility to supply
rapidly the needs of consumers.  However, except for consumption abroad (see below), access to
foreign coverage is generally conditional on th e refusal of local companies to cover the risk.
                                                     
85 The three are Minnesota, Mississippi and Tennessee;  the 17 are Arkansas, Arizona, Connecticut,
Georgia, Hawaii, Kansas, Maryland, Minnesota, Nebraska, New Jersey, North Carolina, Pennsylvania,Tennessee, Utah, Vermont, Wyoming, West Virginia.
86 However, see WTO document GATS/SC/90/Suppl. 3, 26 February 1998.  Additional Commitments
Paper I(f).  U.S. insurance legislation normally refers to the term "foreign" to denote insurers with their headoffice in another U.S. State (i.e. out-of-state U.S. insure rs).  Insurers with a head office outside the United States
are designated as "alien" insurers.  In this section, fo reign suppliers are defined as non-U.S., and U.S. out-of-
state suppliers are from a different State than the one they are doing business in.United States WT/TPR/S/88
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Table IV.5
Selected measures affecting insura nce services suppliers, November 2000
JurisdictionSR (2000)
complianceaMAT exemptionbIndustrial
insured
exemptionForeign
company
licensingResidency
requirementIndependent
procurementc
Alaska No Yes No Yes F, SLB Yes
Alabama No Yes Yes Yes P, C, S, SLB Yes
Arkansas Yes Yes No No branch A,B,SO,SLB Yes
Arizona No No A LimiteddNo branch SLB No
California No LimitedeNo Yes B, L, SLB Yes
Colorado Yes Yes Yes Yes BA, SLB Yes
Connecticut Yes No Yes No branch SLB Yes
District of Columbia Yes No No Yes T, TI, M, SLB No
Delaware No Yes No Yes SLB No
Florida No No T No Yes A, L, H, TI, SLB Yes
Georgia No No M No No branch SLB Yes
Hawaii No No T No No branch GL, SO, SLB Yes
Iowa Yes No A, T No Yes SLB Yes
Idaho No Yes No Yes A,B,SO,SLB Yes
Illinois Yes Yes Yes Yes SLB No
Indiana Yes No A, T Yes Yes SLB No
Kansas Yes No No No branch INC, SLB No
Kentucky No Yes Yes Yes A, SO, F, SLB Yes
Louisiana No LimitedeNo Yes SLB Yes
Massachusetts No No No Yes SLB No
Maryland No Yes Yes No branch SLB Yes
Maine No LimitedeNo Yes SLB Yes
Michigan Yes Yes No Yes SLB Yes
Minnesota Yes No A, T No No subsidiary SLB Yes
Missouri Yes No A, T Yes Yes SLB Yes
Mississippi No No No No subsidiary SLB Limited
Montana No Yes No Yes SLB Yes
Nebraska No No A, T No No branch AD, BL, SO, SLB No
New Hampshire No No A, T Yes Yes A, SLB Yes
New Jersey No Yes No No branch FBS, SLB Yes
New Mexico No Yes Yes Yes SLB Yes
Nevada No Yes Limited Yes SLB Yes
New York No No T No Yes SLB Yes
North Carolina No Yes No No branch BA, SLB No
North Dakota Yes No A, T Yes SLB No
Ohio Yes No A, T Yes Yes A, SLB, L Yes
Oklahoma Yes No No Yes BL, SLB Yes
Oregon No Yes No Yes SLB Yes
Pennsylvania No Yes Yes No branch FBS, H, SLB Yes
Puerto Rico No No No Yes A, B, AD, SLB Yes
Rhode Island No No A, T Yes Yes SLB No
South Carolina No No A Yes Yes SLB No
South Dakota No Yes No Yes B, SLB Yes
Tennessee Yes Cargo only Yes No subsidiary SLB No
Texas No No No Yes A, SLB Yes
Utah No No A, T No No branch SLB Yes
Virginia No No A Yes Yes P, C, FBS, SLB Yes
Virgin Islands No No T No Yes SLB No
Vermont No Yes Yes No branch FBS, A, SLB Yes
Washington No Yes No Yes A, B, D, SO, SLB No
Wisconsin No No No Yes SLB Yes
West Virginia No No A, T No No branch A,B, AD,SO, SLB No
Wyoming No Yes Yes No branch A,B,SO,SLB No
a This programme has been renamed "Uniform Regulation Through Technology".
b Marine (M), aviation (A) or transport (T) exemption from State laws.
c Consumption abroad.d Only if risk is not obtainable from the admitted market.  Export only through a surplus line broker, State surplus line eligib ility requirements apply.
e Exception for procurement of coverage > US$25 million from alien who does not solicit such transactions in the State.
Source: WTO Secretariat.
A Agent INC Incorporators
AD Adjuster L Life insurance representativesB Broker M Mortgage business
BA Bonding agent P Property representatives
BL Bail licence S Surety representativesC Casualty representatives SL Surplus lines licenceD Directors SLB Surplus line brokerF Fraternal benefit society SO SolicitorGL General lines agent T TrusteesH Health TI Directors of title insuranceWT/TPR/S/88 Trade Policy Review
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101. In general, U.S. States prohibit companies that are not licensed in the State from transacting
the business of insurance within their borders and across their borders whether by mail, telephone or
otherwise, including over the Internet.  Exceptions to these "doing business" laws can be grouped into
four categories, which differ from State to State in their applicability:
− Industrial insured exemptions, under which 19 States exempt large industrial placements
meeting certain conditions from compliance with State doing business laws (Table IV.5).87
− Marine, aviation, and transport exemptions, under which some States exempt from licensing
requirements various types of insurance services to maritime shipping, commercial aviation,
space launching, and freight (MAT in the WTO Understanding on Commitments in Financial
Services).
− Surplus lines insurance regulations, developed to allow placing, under certain conditions, out-
of-state (in the United States or abroad) coverage of the residual value of risk not covered byindustrial or MAT exemptions, and that in-State insurers refuse to underwrite.
− Reinsurance underwriting under which, with certain exceptions and provided specific
conditions are met, foreign reinsurers may write insurance in the United States even when not
licensed.
102. As listed in the U.S. GATS Schedule, a federal tax is imposed on all insurance premiums
covering U.S. risks that are paid to companies not incorporated under U.S. law, or under the laws of
countries with which the U.S. has signed double taxation treaties (e.g. several European Union
Members).  The rates are 1% on life insurance and on reinsurance, and 4% on non-life insurancepremiums.  This tax is levied on gross premium income, irrespective of whether the foreign insurer
makes a profit on its U.S. business.
(d) Consumption abroad
103. The United States has bound consumption abroad of insurance services with a few exceptions
concerning reinsurance in Maine, Minnesota and Nevada.  As stipulated in the Understanding onCommitments in Financial Services, however, these commitments are generally limited to MAT
insurance and reinsurance.
104. A legal case ("Todd Shipyards") supports the view that a U.S. insured has a constitutional
right to obtain coverage out-of-state provided the initial communication between the insured and the
insurer takes place outside the State, and that the insured leave the State to conduct all arrangements.
88
Certain States have expressly recognized this right, and have expanded it somewhat, through "directplacement", or independent procurement, statutes.
(e) Services auxiliary to insurance and movement of natural persons
105. As indicated in the U.S. GATS Schedule, U.S. citizenship and in-state residency requirements
apply in most States to suppliers of broking, and agency and other services auxiliary to insurance
(Table IV.5).  For example, in several States a majority of directors, solicitors, loss adjusters and
                                                     
87 For example "Lloyd's:  A REview by U.S. State Insurance Regulators", Report of the Examinations
Team to the Surplus LInes (E) Task Force, pa ge 50, available at http://www.naic.org/1products/
finance/docs/Lloyds1999.pdf.
88 State Board of Insurance et al. v. Todd Shipyards Corp., No. 144, Supreme Court of the United
States, 370 U.S. 451;  82 S. Ct. 1380;  1962 U.S. Lexis 2151;  8L. Ed 2d 620, 25 June 1962.United States WT/TPR/S/88
Page 111
brokers must be U.S. citizens.  In Alabama, an insurance agent must be a U.S. citizen or a citizen of
Mexico or Canada, or a permanent resident under U.S. immigration laws.  Where the risk is located in
different States, a broker must be used in each State.  In addition, in several States, agents, service
representatives, or brokers must complete specific continuing education requirements.89  A s  n o t e d
above, changes are under way with respect to brokers.
(8) TELECOMMUNICATIONS SERVICES
106. The United States has the largest, and among the world's most competitive,
telecommunications markets.  Since 1996, the Federal Communications Commission (FCC) has
advocated the benefits of full international market  access in telecommunications services, particularly
because of the role of telecommunications as infrastructure for the provision of other services.  Since
the last Review of the United States, developments include new international pricing arrangements,"detariffing" of domestic and international services, and further privatization of satellite services.
107. The regulatory and policy framework for telecommunications services has not changed
significantly since 1999.  The FCC regulates entry and operations of telecommunications carriers,
domestic and foreign, on the basis of the Communications Act of 1934, as amended by the
Telecommunications Act of 1996.
90  Individual state commissions retain the authority to regulate
rates, terms and conditions of intra-state, non-radio-based basic telecommunications services.
Enhanced or value-added telecommunication services are unregulated at both the interstate and intra-
state level.
108. As described in the Secretariat Report for the previous U.S. Review, U.S. commitments made
in 1997 following the WTO negotiations on basic telecommunications cover virtually all services,
using any kind of transmission technology.91  The U.S. commitments reflected the liberalization
introduced in the Telecommunications Act of 1996.  Also as part of these commitments, the ForeignParticipation Order of 1997 abolished the "effective competitive opportunities test" previously applied
by the FCC in considering foreigners' applications for licences. Under Section 1377 of the Omnibus
Trade and Competitiveness Act of 1988, the United States annually reviews trading partners'
compliance with their obligations under telecom agreements.  Since 1999, the United States has cited
numerous trading partners for "potential violations" of their commitments, including Colombia,Germany, Israel, Japan, Mexico, Peru, South Africa and the United Kingdom.
(i) Licensing and competition
109. Over the years, technological advances have changed the traditional cost factors (mainly
economies of scale) upon which natural monopoly regulation rested.  U.S. regulators have, in
response, relaxed regulation in those telecommunications markets where competition replaced theneed for such regulation.  Currently, the FCC has th e authority to regulate certain actions (mainly
rates and quality of service) of common carriers, while taking the market structure as given
92;  the
FCC may also act to promote competition in the market itself, such as by reviewing mergers or
preventing actions that may cripple market mechanisms.  The FCC allocates spectrum and issues
licences for commercial use, and has authority to  determine whether the transfer or new issue of
licences or authorizations serves the public interest.
                                                     
89 State of Alabama, Department of Insurance online  information.  Available at:  http://www.aldoi.org/
Agents/code/code.html.
90 FCC online information.  Available at:  http://www.fcc.gov.
91 These commitments are contained in WTO document GATS/SC/90/Suppl.3, 26 February 1998.
92 In the United States, a common carrier is defined as a person supplying communications services on
demand, to the public at large, with a public service obligation, and regardless of technology.WT/TPR/S/88 Trade Policy Review
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110. One of the main public interest criteria is the degree of market competition:  the FCC has the
right to attach conditions to the granting of authority or to denying an application if it poses a "very
high risk to competition".  The FCC defers to the Executive Branch on matters of national security,
law-enforcement, foreign policy, and trade policy.  Several WTO Members have expressed worries
about the discretion enjoyed by the FCC in granting applications under these provisions.93  According
to the authorities, since the 1997 negotiations, hundreds of carriers with foreign interests have beenlicensed to operate in the United States, and none has been denied; they also noted that licensing
procedures have been significantly streamlined, speeding the process considerably.
111. Foreign firms are granted access to local, long-distance, and international telecommunications
services, using any means of technology, on either a facilities-based or resale basis.  Direct ownership
of a common carrier radio licence may not be granted to or held by the following agents or theirrepresentatives:  foreign governments, non-U.S. citizens, corporations not organized under the laws of
the United States, or U.S. corporation of which more  than 20% of the capital stock is owned or voted
by any of the three agents just mentioned.  There are no plans to abolish the restrictions on direct
ownership of a common carrier radio licence.
112. Since 1996, the FCC has liberalized indirect investment in common carrier radio licences if
the granting of the licence is considered to be in th e public interest.  An indirect investment involves
the setting up of a U.S. company under U.S. law by another U.S. company that is foreign-owned and
also set up under U.S. law.  The authorities indicate that, in practice, the public interest is considered
to be met if the foreign company is based in a WTO Member territory:  therefore there seem to be no
practical barriers to WTO Members’ ability to participate in the U.S. telecommunications services
market.  Admission may involve time-consuming reviews, though:  Deutsche Telekom's application
for a public interest waiver from the indirect foreign ownership restrictions to acquire the U.S. cellphone company Voice Stream Wireless was under examination between September 2000 and
April 2001, when the takeover was approved by the FCC.
94  The authorities consider this to be a
typical timeframe for the review of large and complex mergers.
(ii) International pricing arrangements
(a) Benchmark settlement rate policy
113. The FCC's Benchmark Settlement Rate Policy, established by the Benchmarks Order in
August 1997, requires U.S. carriers to lower the international settlement rates paid to foreign carriers
for terminating calls to a level commensurate with  the economic development of the country where
calls terminated.95  A benchmark was established at US $0.15 per minute for upper-income countries
and US$0.23 per minute for lower-income countries, to be implemented over a five-year transitionperiod starting January 1998.  The policy, together with increased competition in the U.S. market has
apparently resulted in dramatic declines in interna tional settlement and calling rates.  The authorities
noted that approximately 80% of all minutes to al l countries comply with the benchmark rates, and
that calling rates declined by nearly one third during 1997-99.
                                                     
93 See WTO document WT/TPR/M/56, 11 August 1999.
94 "FCC Approves Deutsche Telekom/Voicestream/Powe rtel Request to Transfer Control of Licenses",
News Release, 25 April 2001 [Online].  Available at:  http://www.fcc.gov/Bureaus/International/News_Releases/2001/nrin0105.html.  More information is available at:  http://www.fcc.gov/transaction/ voicestream-
deutsche/voicestream-deutsche_6.html-.
95 Under the accounting rate system, the originating carrier bills the customer for international calls and
compensates the carrier in the called country for terminating calls, based on the (fixed) settlement rate, which isone half of the (theoretical) total cost of completing the call.  As competition has increased, commercialnegotiations between carriers are progressively supplanting these regulations.United States WT/TPR/S/88
Page 113
114. The FCC subsequently adopted its International Settlements Policy (ISP) Reform Order on
15 April 1999.96  This Order reforms the policy that has generally applied to arrangements between
U.S. and foreign telecommunication carriers for the exchange of public switched traffic (e.g. the
accounting rate system) and makes possible new commercial arrangements between carriers.  In the
past, the FCC required that all U.S. carriers’ dealings with foreign carriers be made public and
precluded any U.S. carrier from entering into an arrangement with a foreign carrier that waspreferential to a particular U.S. carrier.  The ISP Reform Order abolishes these requirements as they
apply to arrangements with foreign carriers that lack market power and with foreign carriers that have
settlement rates that are 25% below the applicable benchmark settlement rate.  The ISP Reform Order
does not alter the manner in which the benchmarks policy is applied, nor does it affect the conditions
adopted in the Benchmarks Order.
(b) International Internet charging arrangements
115. The Internet runs over leased or privately owned lines that are not subject to the accounting
rate system;  as long as they don't provide public telecommunications services, they are not regulated
as common carriers by the FCC.  Backbone provider s (who own or lease national or international high
speed fibre optic networks to deliver traffic to and from Internet service providers (ISPs) or end users)negotiate commercial arrangements for the exchange of traffic, with other backbones world-wide.  As
noted by Japan, the cost for international transmi ssion capacity for the exchange of Internet between
U.S. and non-U.S. countries is in practice paid by the non-U.S. backbone carriers and non-U.S. ISPs.
97
This essentially reflects the leading commercial position of U.S. backbone providers.
116. The United States considers that, at this time,  there is no need for government intervention in
relationships between ISPs and backbones, and that cost-efficient arrangements for Internet traffic
will continue to be worked out most quickly if th e market is not hampered by government regulation.
According to a recent report, it is the presence of alternatives for backbones seeking interconnection
that prevents monopolistic actions by other backbones:  to the extent that carriers outside the
United States find alternatives amongst U.S. backbones, these U.S. backbones are more likely to offer
cost-sharing arrangements that are more attractive to non-U.S. carriers.98
(c) Detariffing international telecommunications services
117. In April 2000, a U.S. court upheld the FCC's authority to require complete detariffing of
domestic interstate, inter-exchange services.99  As a result, carriers were no longer to file their tariffs
with the FCC.  One year later, the FCC’s Report and Order detariffing the international inter-
exchange services of nondominant carriers became effective.100  Accordingly, no tariffs for the
provision of these services by non-dominant providers, with limited exceptions as set forth in theorder, may be filed after 28 January 2002.  During  the interim nine month transition period, non-
dominant carriers may continue to file new or re vised tariffs for mass market international inter-
exchange services only.
                                                     
96 The full text of this Order is available online at:  http://www.fcc.gov/Bureaus/International/
Orders/1999/fcc99073.pdf.
97 See WTO document WT/TPR/M/56/Add.1, 9 March 2000.
98 Kende (2000).
99 See MCI Worldcom, Inc. et. al. v. FCC, 28 April 2000, available at the website of the FCC
(http://www.fcc.gov).
100 In the Matter of 2000 Biennial Regulatory Review; Policy and Rules Concerning the International,
Interexchange Marketplace, Report and Order, 20 March, 2001). For further information, see
http://www.fcc.gov/Bureaus/International/Orders/2001/fcc01093.doc.WT/TPR/S/88 Trade Policy Review
Page 114
(iii) Satellites services
118. The United States implemented its WTO cross-border (mode 1) commitments on basic
telecommunications services for satellite services through adoption of the DISCO-II Order in
November 1997, which removed for WTO Members the reciprocity requirements contained in
DISCO I.101  These commitments allow foreign satellite operators to provide satellite services to
points in the U.S. from gateways outside the United States.  Authority to provide such services hasbeen granted to a number of foreign satellite syst ems, for example to New Skies of the Netherlands,
Mabuhay of the Philippines, Eutelsat of France, and Embratel of Brazil.  The U.S. authorities have
indicated that no application has been denied.
102
119. In August 1999, the FCC authorized direct access to the INTELSAT satellite system.  Since
then, over 80 companies have reportedly applied for this direct access.103  As mentioned in the U.S.
GATS Schedule, the Communications Satellite Corporat ion (Comsat) formerly had the exclusive right
to provide services using the International Telecommunications Satellite Organisation (INTELSAT)
and the International Maritime Satellite System (INMARSAT).  Comsat will continue serving as the
U.S. signatory to INTELSAT until INTELSAT's privatization is completed in mid-2001, at which
point it will become a shareholder.
120. In March 2000, the U.S. President signed into law the Open-Market Reorganization for the
Betterment of International Telecommunications Act (the ORBIT Act, S.376).  This provided the
framework for the privatization of INTELSAT and IMMARSAT.  On signing the bill into law, the
President stated that several of its provisions could interfere with his constitutional authority to
conduct the Nation's foreign affairs by directing or burdening negotiations with foreign governments
and international organizations.  In addition, the Pr esident stressed that the bill should not limit the
FCC from assigning, via competitive bidding, domestic satellite service licences intended to cover andserve only the United States.
104
121. In mid-2000, the FCC also authorized a private company, Lockheed Martin, to acquire
control of Comsat.  This became possible as a result of the ORBIT Act, which eliminated the
ownership restrictions in the Satellite Act that prevented greater than 50% aggregate common carrier
ownership in Comsat.  In approving the acqui sition, the FCC Commission found that Lockheed
Martin's purchase of Comsat was in the public interest, determining also that the merger would have
no adverse impact on competition.105  Lockheed Martin has an affiliate that is a common carrier.
122. The Netherlands-based New Skies Satellites N.V., (the privatized INTELSAT spin-off) was
authorized to access the U.S. market in August 1999 to provide fixed satellite services (excluding
direct broadcast satellite radio and digital audio radio services).  U.S. licensees accessing New Skies’satellites were given licences for three years instead of the standard ten-year earth station licence
pending an initial public offering (IPO) of shares that would result in a “substantial dilution” of
INTELSAT signatories' ownership and would assure the independence of New Skies from
INTELSAT and a pro-competitive outcome of the creation of New Skies.  In March 2001, New Skies
was granted access to the U.S. market on a full-term basis.
                                                     
101 For a detailed presentation of these regulations, see WTO (1999) .
102 WTO document WT/TPR/M/56/Add.1, 9 March 2000.
103 FCC online information.  Available at:  http://www.fcc.gov/Daily_Releases/Daily_Business/
2000/db0525/fc00186c.txt.
104 See Statement by the President [online].  Av ailable at:  http://clinton6.nara.gov/2000/03/2000-03-
17-statement-by-president-on-reorganization-of-intelsat.htm
105 FCC online information.  Available at:  http://www.fcc.gov/Daily_Releases/Daily_Business/
2000/db0525/fc00186c.txt.United States WT/TPR/S/88
Page 115
123. Comsat's statute-based exclusive access to INMARSAT, now a UK-based private company,
ended following the latter's privatization in April 1999.  Earth-station operators may now acquire
service directly from INMARSAT.  On 31 March 2000, the FCC extended by another 180 days
the special temporary authorisations pending FCC determination as to whether INMARSAT meets
the conditions of the ORBIT Act.  Under the Act, INMARSAT must also conduct an IPO.  In
September 2000, the FCC granted a request by INMARSAT for a nine-month extension to July 2001of the deadline by which it must conduct an IPO.   INMARSAT is also required by the ORBIT Act to
conduct an IPO to become an independent commercial entity.
(9) S
ELECTED PROFESSIONAL SERVICES
124. Most professional and business services provide the United States with a substantial trade
surplus, totalling around US$18 billion dollars in 2000 (Table AI.5).  Exports are diversifiedgeographically, with 27% of receipts originating in Asia and the Pacific, and over 16% in Latin
America (1999).
106  Imports are more concentrated, and over 70% of payments are made to OECD
member countries.  The United Kingdom is the most important single trading partner on the export
and the import side (20% for both), followed by Canada (9% and 16%), and Japan (8% and 9%).
125. The licensing and practice of most professions are regulated by state law and by professional
self-regulation.  The absence of a uniform regulatory regime at the national level, and divergent
market access conditions at the state level, means that foreign and domestic service suppliers must
conform to the regulatory regime of each State in  which they choose to do business.  Although the
authorities have noted that in practice most professionals are admitted to practice in one State and
then find ways to represent their clients in others, as noted in the Secretariat Report for the previous
Review of the United States, present arrangements impose barriers to inter-state mobility of
professionals and to entry by foreign suppliers.
126. Regulation of professional services typically governs matters such as entry into the
profession, the conduct of members of the profession, and the granting of exclusive rights to carry out
certain activities.107  These areas of domestic regulation are covered by Article VI of the GATS,
which aims to ensure that domestic regulation does not constitute unnecessary barriers to trade in
services.
127. In its GATS Schedule of Specific Commitments, the United States has listed a number of
market access or national treatment restrictions to trade in professional services.  The most common
limitations are the requirement that only licensed practitioners may own and run practices;  the
obligation to maintain an office in-State; and residency requirements whose legal definition varies
from State to State.  The Secretariat Report for the 1999 U.S. Review contains a detailed descriptionof these measures.
108
128. As trade in professional services relies to a large extent on of the movement of physical
persons, professional services suppliers are particularly affected by regulations limiting the movement
of natural persons ("Mode 4" in GATS terminology).  As noted by the United States in a recent
proposal for new market-access commitments in this mode, foreign services suppliers face the samerestrictions anew each time they seek to provide their services.
109  This proposal would commit
Members to make information more widely available on how to apply for temporary entry and stay in
order to supply a given service, and increase procedural transparency.
                                                     
106 U.S. Department of Commerce, Survey of Current Business, April 2001.
107 See also OECD (2000b) for an overview of regulation of professions in the United States.
108 WTO (1999), Chapter IV(5).
109 WTO document S/CSS/W/29, 18 December 2000.WT/TPR/S/88 Trade Policy Review
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129. In the U.S. GATS Schedule of Specific Commitments, the movement of natural persons is
unbound for all professional categories except as indicated in the horizontal section of the Schedule.
U.S. horizontal commitments include the provision that intra-corporate transferees, such as managers,
executives, and specialists (including licensed professionals), may provide services through a branch,
subsidiary or affiliated established in the United States for a maximum of five years.  In practice,
foreign professional service suppliers may only enter the United States to perform a professionalservice if employed by a company that is either established in the United States or affiliated to one
such company.
(i) Accounting services regulation
130. U.S. cross-border trade in accounting services has been growing rapidly although it remains
considerably smaller than trade in other business, professional, and technical services (Table AI.5).World-wide gross revenues of the top ten U.S. accounting companies reportedly exceed US$50 billion
annually.
110  This reflects the fewer restrictions on serving clients internationally through a
commercial presence (an "affiliate" in U.S. terminology) than on providing such services through
cross-border supply.111  Most sales by foreign affiliates cover unregulated services, such as
management consulting, computer and information technology, advice on mergers and acquisitions,and tax preparation.
131. The growing demand for integrated services from multi-disciplinary practices has triggered a
debate regarding ethical rules in accounting.  In May 2000, the SEC declared the need for an enquiry
into potential conflicts of interest in the accountancy profession.  The SEC expressed concern about
the growing management consulting and other advisory services supplied by firms that carry out audit
for the same clients.
112  In November 2000, revised rules regarding auditor independence were
published.113  During this process, the three biggest U.S. accounting firms decided to sell or float their
consulting arm.
132. Auditing functions are reserved exclusively for the accountancy profession.  Auditing for all
companies is generally regulated by the State Boards of Accountancy, and for publicly traded
companies by the SEC.  Auditors must be licensed as certified public accountants (CPAs) by the
regulatory authorities of each State where they wish to practice.  There are, in general, no nationality
requirements.  Foreign accountants wishing to practice public accountancy must pass the CPA
Uniform examination, and meet the other State laws and State Board regulations (e.g. educational
requirements, continuing professional education requir ements), which vary from State to State.  These
requirements are contained in a Digest published jointly by the National Association of State Boards
of Accountancy (NASBA), an umbrella organizati on representing the sub-federal licensing boards,
and the American Institute of Certified Public Accountants (AICPA), th e national professional body
for CPAs.114
133. A set of joint recommendations by the NASBA and the AICPA, described in the Secretariat
Report for the previous Review of the United States, sought to reduce some of the most significant
barriers linked with the sector's decentralized regulatory system.  The two bodies recommended, in
                                                     
110 WTO document S/CSS/W/20, 18 December 2000.
111 See USITC (2000c).
112 "SEC Chairman Levitt Proposes Rulemaking, Other Measures To Maintain Quality Of Financial
Reporting" [Online].  Available at:  http://www.sec.gov/news/headlines/audind.htm.
113 Securities and Exchange Commission online information.  Available at:  http://www.sec.gov/rules/
final/33-7919.htm.
114 NASBA online information.  Available at:  http://www.nasba.org.  The AICPA is the professional
body that represents U.S. Certified Public Accounts (http://www.aicpa.org/index.htm).United States WT/TPR/S/88
Page 117
particular, that licensed CPAs in public practice be authorized to operate across State lines, in person
or electronically, to service clients outside their Stat e of licensure.  According to the authorities, as a
practical matter, the U.S. market is national, as there are ways in which national and international
accounting firms can and do operate across state lines.  In order to be implemented, the
recommendations require the passage of a new Uniform Accountancy Act, as well as implementing
legislation in each of the States.
134. The SEC has authority to set accounting standards for public companies, but generally
follows standards set by the Financial Accoun ting Standards Board (FASB).  In 1999, the SEC
launched an enquiry regarding its possible acceptance of financial statements of foreign private
issuers that are prepared using the standards prom ulgated by the International Accounting Standards
Committee (IASC).115  When completed, this process would allow companies listed in more than one
country to use one single set of consolidated accounts for regulatory purposes in countries adhering to
the International Accounting Standards.
135. Current SEC rules require that financial information reported by cross-border filers be
reconciled to U.S. generally accepted accounting principles (GAAP).  The FASB noted that allowing
foreign issuers to use IASC sta ndards without reconciliation of their financial statements to GAAP
would lead to pressure for domestic issuers to be  likewise permitted to use IASC standards for
domestic reporting in order to maintain comparability.116  In 2000, the International Organisation of
Securities Commissions, of which the SEC is a member, agreed to endorse the use of International
Accounting Standards by companies for international listings on stock markets.117
136. Representatives of the U.S. professions have concluded mutual recognition agreements
(MRAs) with accountants of Australia and Canada.118  Because of the decentralized regulation of
these professions, these agreements have to be implemented by each State regulatory authority inorder to have effect in the jurisdiction.  The authorities indicated that the MRAs with Australia and
Canada are implemented by 24 and 39 States, respectively.
119
137. As part of the ongoing negotiations in services, the United States presented in December 2000
a proposal to liberalize trade in accounting services.120  This proposal was not presented as a legal
text, but rather as a list of obstacles identified in this sector.  The list contains market accessrestrictions, or national treatment limitations, or both.  In addition, some obstacles, although not
limitations on market access or national treatment per se , may result from regulatory provisions or
other measures that make it difficult for foreign suppliers to market their services.  As some of these
obstacles exist in the United States, this proposal points to accounting services as an area of potential
further liberalization.
(ii) Developments regarding legal services
138. In 1999, cross-border exports of legal services  totalled US$2.6 billion, and imports totalled
US$844 million, resulting in a large trade surplus.  Sa les of legal services abroad by U.S. affiliates
were estimated at US$310 million in 1998.  Major U.S. accounting firms are expanding their legal
                                                     
115 Financial Accounting Standards Board (1999).
116 http://www.sec.gov/rules/concept/s70400/jenkins2.htm
117 IOSCO online information.  Available at: http://www.iosco.org/iosco.  IOSCO is the organisation of
Stock market regulators.
118 WTO documents S/C/N/51, 10 February 1997, and S/C/N/68, 13 March 1998.
119 See WTO document WT/TPR/M/56/Add.1, 9 March 2000.
120 WTO document S/CSS/W/20, 18 December 2000.WT/TPR/S/88 Trade Policy Review
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services divisions abroad, mostly in Europe.121  In the United States, the American Bar Association,
the U.S. lawyers' professional body, has recently turned down a proposal to allow fee sharing
partnerships between lawyers and accountants.122
139. The United States has presented a proposal in the WTO to facilitate the provision of legal
services.123  According to this proposal, liberalization efforts should focus on modes 3 and 4,
including such issues as citizenship and residency requirements for licensing, scope of practice,association of foreign-qualified lawyers with local lawyers, and association of foreign-partner law
firms with local law firms.
140. The legal profession in the United States is al so regulated at the subnational level, with each
state or jurisdiction imposing its own requirements (such as minimum age, particular diploma or title,
registration with a professional body, payment of a fee).  Although each State often requires, inaddition, its own professional examinations, there are several multi-jurisdictional examinations that
are used by States as a part of their bar examination or as a supplement to the bar examination.
Applicants, including foreign, may qualify by passi ng the bar examination after completing a degree
from a U.S. law school that is accredited by the American Bar Association.  A lawyer may appear
only in the courts of the State where he or she is licensed.
141. As specified in the U.S. GATS Schedule, legal services must be supplied by a natural person
as opposed to a company;  therefore restrictions on the movement of natural persons are particularly
limiting in this sector.  Nationality requirements for licensing of lawyers are prohibited under the U.S.
Constitution.  Nine jurisdictions require in-state offices for licensing, and 16 jurisdictions maintain in-
state or U.S. residency requirements.
142. As noted in the previous U.S. Review, lawyers licensed in foreign countries may be certified
in certain States as foreign legal consultants (FLCs).  They can advise on the law of any country inwhich they are qualified and on international law, counsel in international business transactions, and
dispute resolutions proceedings other than before courts, such as arbitration and mediation services, if
authorized by State law.  FLCs may enter into pa rtnerships with American lawyers in any of the
24 jurisdictions that permit FLCs.
143. For mode 3, partnership in law firms is limited to persons licensed as lawyers.  The
authorities noted that foreign companies can neverthe less establish subsidiaries in the United States.
                                                     
121 USITC (2000c).
122 ABA online information.  Available at:  http://www.abanet.org.
123 WTO document S/CSS/W/28, 18 December 2000.United States WT/TPR/S/88
Page 119
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Barth, J.R., Brumbaugh, R. D., and Wilcox, J. A., (2000), The Repeal of Glass Steagall and the
Advent of Broad Banking , Economic and Policy Analysis Working Paper 5 April, Office of the
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