WORLD TRADE ORGANIZATION  
ORGANISATION MONDIALE DU COMMERCE  
ORGANIZACIÓN MUNDIAL DEL COMERCIO  WT/TPR/M/126/Add.2 
25 March 2004 
 (04-1324) 
Trade Policy Review Body 
14 and 16 January 2004 Original:   English/ 
 anglais/ 
 inglés 
  
 
TRADE POLICY REVIEW 
UNITED STATES 
Minutes of Meeting
 
Addendum  
Chairperson:  H.E. Mrs. Mary Whelan (Ireland) 
  
 This document contains the Interim Responses from the United States Government.
1 
__________________________________________________________________________________ 
 Organe d'examen des politiques commerciales 
14 et 16 janvier 2004 
 
EXAMEN DES POLITIQUES COMMERCIALES 
ÉTATS-UNIS 
Compte rendu de la réunion
 
Addendum  
Présidente:  S.E. Mme Mary Whelan (Irlande) 
 
 
 Le présent document contient les réponses  intérimaires du gouvernement des États-Unis.1 
__________________________________________________________________________________ 
 Órgano de Examen de las Políticas Comerciales 14 y 16 de enero de 2004 
 
EXAMEN DE LAS POLÍTICAS COMERCIALES 
ESTADOS UNIDOS 
Acta de la reunión
 
Addendum  
Presidenta:  Excma. Sra. Mary Whelan (Irlanda) 
 
 
 En el presente documento figuran las res puestas preliminares del Gobierno de los 
Estados Unidos.1 
                                                      
1 In English only./En anglais seulement./En inglés solamente. WT/TPR/M/126/Add.2 
Page 2  
 
  
INTERIM RESPONSES FROM 
THE UNITED STATES GOVERNMENT 
 
 
Chapter 2 - INVESTMENT 
 
(2) Foreign Investment Regime 
 
Question (Korea) 
Reference:  page 29, para. 76  
 
Paragraph 76 describes restrictive measures on fishing operations and direct investment by foreigners.  Could the U.S. government provide us with info rmation with respect to the reasons for placing 
restrictions on fishing operations and direct investment by foreigners? 
 
Answer 
 Given that fish are a limited and transient natura l resource, governments must impose rules on the 
allocation of the resource.  Over time, it has become common practice for countries to allocate this 
resource on the basis of nationality.  Many countries thus impose certain restrictions on foreign ownership in the fisheries sector.  Reasons for giving preference to nationals include practical limits on the ability of governments to enforce domestic laws with respect to foreign vessels collecting a 
transient natural resource.  The United States, howeve r, has sought to achieve an appropriate balance 
between these practical law enforcement concerns  and its otherwise open  investment policy by 
providing various exceptions to these restrictions.  Exceptions exist, for example, for smaller-sized 
fishing vessels, for vessels fishing in particular area s, and for vessels from countries that have entered 
into bilateral fishing agreements with the United States.  Chapter 3 - BY MEASURE 
 
(1) Customs Procedures, Rules of Origin, Tariffs, Customs Fees (including Customs Security 
Issues) 
 
Question (China #89) 
 
Does the U.S. have any schedule to lo wer its tariff on textiles and clothing? 
 
Answer 
 
Under the Uruguay Round Agreement, the United States agreed to a phased reduction in tariff rates 
for textiles and apparel products.   Tariffs on tex tile and apparel products will decline from a trade 
weighted average of 17.2 percent ad valorem to a trade weighted average of 15.2 percent ad valorem.  
The majority of these reductions were phased over the 10 years.  The final Uruguay Round tariff 
reductions occurred on January 1, 2004. 
 
With regard to the DDA negotiating agenda, the U.S. Government supports significant movement 
toward the harmonization and/or elimination of textile  and apparel tariffs and elimination of non-tariff 
barriers.  Given the sensitivity of  these products for a large nu mber of WTO members, clearly 
progress in this area can only be achieved in the context of broad participation encompassing key 
players, both developed and developing.  This mo st likely would be facilitated through a sectoral 
approach.  
  WT/TPR/M/126/Add.2 
 Page 3 
 
 
 Question (China #90) 
 China would like to know what steps the U.S. w ill take to comply with the TMB recommendation. 
 Answer 
 
The United States continues to believe that the me thodology used is consistent with Paragraph 241 of 
the Working Party Report and that, therefore, it would not be appropriate to make any adjustment to 
the methodology applied.  The United States has as ked that the TMB reconsid er its recommendation.  
 
Question (China #91)  How does the United States ensure that interested parties will be informed of the petition promptly?  
 Answer 
 
On May 21, 2003 the Committee for the Implementa tion of Textile Agreements (CITA) published a 
notice in the Federal Register
 setting forth procedures it would fo llow in considering requests from 
the public for textile safeguard actions on imports from China under Paragraph 242 of the Protocol of 
Accession.  (On August 18, 2003, CITA published another notice in the Federal Register  clarifying 
those procedures).  That notice specifies, inter alia, that with respect to any request for a safeguard that CITA has accepted for consideratio n, CITA will publish a Federal Register
 notice requesting 
public comments and commencing a 30 day comment period.  The Federal Register  notice and the 
request, with the exception of information mark ed “business confidential”, are posted by the 
Department of Commerce’s Office of Textiles and Apparel on the internet. 
 
Question (China #92) 
 
How does it ensure that interested parties will get sufficient information?  
 
Answer 
 
The procedures set forth in the May 21, 2003 Federal Register  notice provide that comments received 
in response to a request, with the exception of in formation marked “busine ss confidential”, will be 
available for review by interested parties.  
 
Question (China #93)  How does it ensure that interested parties will have enough time to defend themselves?  
 Answer 
 The procedures ensure that interested parties ha ve a 30 day period during which such parties may 
comment on any request for a safeguard that CITA has accepted for consideration.  With respect to 
China, the procedures set forth in the May 21, 2003 Federal Register
 notice provide that, following an 
affirmative determination on a request, CITA will requ est consultations with China within 30 days of 
the receipt for request for consu ltations, and every effort will be  made to reach agreement on a 
mutually satisfactory solution within 90 days  of receipt of the request for consultations.  
 
Question (India #5) 
 
Although India is a beneficiary of the GSP, it has been noticed that inappropriate customs duty is 
being imposed by U.S. authorities on imports of Ju te Yarn, Net Leon, Wave Fabric and Jute Bags.  WT/TPR/M/126/Add.2 
Page 4  
 
 Further, the U.S. authorities insist upon production of VISA for export of Jute Bag, which is normally 
applicable to textiles under quota.  Would the U.S. authorities take steps to remove this anomaly.  
 
Answer 
 
Jute yarn and bags are bound at a zero rate effe ctive 1/1/2004.  We do not have a textile visa 
requirement for jute bags.  We ar e unfamiliar with the terms “Net Leon” and “Wave Fabric” and do 
not know what they reference.  
 
Question (India #9)  
Burdensome customs procedures in textiles, clothing and footwear:  For these products, customs 
formalities require providing excessively detaile d and voluminous information.  Some of the 
information asked for seems irrelevant for customs or statistical purposes.  For example, in the case of 
garments with an outer shell of more than one cons truction or material, it is  necessary to give the 
relative weight, percentage values and surface area of each component; for outer shell components which are blends of different materials, it is also necessary to include the relative weights of each 
component material.  Would the U.S. authorities give the underlying reason for seeking such 
voluminous information? 
 Answer 
 
The Bureau of Customs and Border Protection requires sufficient documentation in order to properly 
classify products upon entry.  Proper classification is important for duty and quota purposes.  
Documentary requirements are transparent as they are provided in published circulars and on the 
website for the Bureau of Customs and Border Protection.  
 
Question (India #27) 
 Unilateral changes in Rules of Origin by U.S.A have af fected trade in textiles and clothing.  As part of 
its legislation implementing the results of the Urugua y Round, the U.S. substantially altered its rules 
for determining the origin of textiles and clothing pr oducts.  The modified rules, put into effect July 
1996, have resulted in changes disadvantageous to developing countries.  As the process of 
harmonization of Rules of Origin is in progress, Indi a requests that no unilateral changes are made in 
the Rules of Origin in detriment of developing coun tries.  Could the U.S. delegation offer its response 
to this?  
Answer 
 
The United States fully justified its rules of origin  in the WTO Dispute brought by India.  In DS243, 
the Panel found that India failed to establish that  sec. 334 of the URAA, sec. 405 of the Trade & 
Development Act of 2000, and the Customs Regulations contained in 19 C.F.R. 102.21, are 
inconsistent with the Uruguay Round Agreement on Rules of Origin. 
  WT/TPR/M/126/Add.2 
 Page 5 
 
 
 Question (India #28) 
 The Integration Programme for Stage 3:  The U.S. integration programme for stage 3, being implemented from 1 January 2002, continues the trend witnessed in stages 1 and 2.  Thus, although it 
would result in integration of the minimum of 18% required under the ATC, it has contributed little to 
liberalization of quota restrictions.  The process of  integration of items has been very reluctant and 
tardy.  In effect, commercially meaningful inte gration has not been done.  Canada & Norway, on the 
other hand, who are also operating quotas under th e ATC have significantly reduced the restraints 
under the phase-out programme during the first two stages.  On the contrary, the U.S. appears to have 
adhered to the strictly ‘legal’ requirements of the integration process, without taking into account 
commercial considerations.  We would like to have  a clarification from the U.S. authorities on the 
rationale behind the items selected for integrati on and whether the U.S. authorities are planning to 
take steps to make the phase-out programme comm ercially more meaningful to textile exporting 
developing countries. 
 
Answer  
 
At the request of importers for certainty and clar ity, the U.S. published its complete integration 
schedule in 1995 and fully met its obligations under the WTO Agreement on Textiles and Clothing. 
 Question (India #29)  
 
Adverse Conversion factor for export of yarn:  The U.S. quota for yarn is indicated in Square Meter 
Equivalent (SME) whereas yarn is exported in kilogrammes.  U.S. authorities use a standard 
conversion factor from kgs to SME for yarn which is reportedly without any scientific basis.  This 
creates an artificial barrier as quota utilisation is sh own to be higher than it should be in such cases.  
Can the U.S. delegation indicate how this anomaly is to proposed to be addressed. 
 
Answer  
 The SME (square meter equivalent) factors in our b ilateral agreement with India were developed in 
close consultation with our industry and are standard  in our textile agreements , and have been notified 
and continued under the WTO Agreement on Textiles and Clothing (ATC). 
 Question (Indonesia #2)  
 
The customs procedures for import of textile a nd garment to the US require the presentation of 
detailed and voluminous information, leading to additional costs and in some instances include 
business confidential processing methods.  Indonesi a believes that much of this information is 
irrelevant for customs use or statistical purpose.  It  is also Indonesia's concern that as the phasing-out 
of the quota system draws near, the US industry is pr essing the Administration to put in place an even 
closer monitoring system that may require not only detailed information, but also additional 
information for the purpose of imposing a trade remedy as necessary. 
 
Answer  
 
The Bureau of Customs and Border Protection requires  sufficient documentation in order to properly 
classify products upon entry.  Proper classification is important for duty and quota purposes.  Documentary requirements are transparent as they are provided in published circulars and on the 
website for the Bureau of Customs and Border Protection. 
 
 
Question (Japan #23)  WT/TPR/M/126/Add.2 
Page 6  
 
 The U.S. imposes high tariffs, for example 25% on most trucks (8704).  Compared with Japan, which 
sets its rates at 0% on the same items, the U.S. fi gure remains considerably hight.  Japan would also 
like to know why the U.S. imposes tariff rates on trucks 10 times higher than those on passenger 
vehicles (the bound rate being at 2.5%).  According to the minutes of the 2001 Trade Policy Review, 
the U.S. stated its willingness to  engage the matter in comprehensive market access negotiations on 
goods based on the WTO’s built-in agenda.  Japan thus  requests the earliest possible elimination of 
the peak tariff.  
 Answer 
 
The United States has continued to be an advocate  of multilateral tariff reductions in the Doha 
negotiations and will continue to be  engaged on these topics as long as there continues to be ambition 
among other members for multilateral liberalization.  Tariffs in sensitive sectors are included in this 
approach – the U.S. has repeatedly stated its willi ngness to reduce and eliminate tariffs in sensitive 
sectors if other WTO members are willing to do the same.  
 
Question  (Japan #41 & 42) 
Reference:  p. 75, para. 193 and p. 59, para. 119  
The sanctions measures taken by the U.S. based on related acts (the Iran and Libya Sanctions Act, the 
Cuban Liberty and Democratic Solidarity Act, the Burmese  Freedom and Democracy Act as well as 
local and municipal sanctions acts) discourage, sign ificantly and unreasonably, investment into, and 
the establishment of economic relatio ns with, the countries targeted by those laws, which affects not 
only U.S. private enterprises, but also those wo rld-wide.  In legal terms, they constitute an 
extraterritorial application of domestic laws, whic h is not permissible under general international law 
and may cause a problem of inconsistency with  the WTO agreements.  Moreover, fairness, 
transparency and predictability have  not been observed in their app lications.  Particularly regarding 
the Iran and Libya Sanctions Act, Japan has taken every opportunity , including those available under 
the Japan-U.S. Regulatory Reform and Competition Po licy Initiative, to urge the U.S. not to apply the 
Act in a manner that may constitute a double standard.  
 
Japan, therefore, strongly requests the U.S. to en sure the consistency of these acts with international 
laws, and to implement them  prudently.  The application of these acts to enterprises of third countries 
is especially discouraged.  What is the U.S. view on these points?  Answer 
 
We appreciate the views of all our trading partners in this matter.  The Iran and Libya Sanctions Act 
(ILSA) remains U.S. law.  As you have noted, in August 2001, the Act was extended for a further five 
years, until 2006, with amendments.  By its terms,  ILSA applies to those who engage in activities 
covered by the statute, without distinction by nationa lity.  The legislative history of the Act indicates a 
concern by Congress that the law be applied in a manner consistent with the international obligations 
of the United States. 
 
Question (Korea) 
 
Compared with the average U.S. tariff rate of 2.4%  on fisheries products, the 35% tariff rate on tuna 
in oil in airtight containers seems to be excessive.  Is there any special reason for maintaining this high tariff rate? 
Answer  
 
The United States, like all WTO members, has a small number of specific domestic sensitivities 
where slightly higher tariff rates are sometimes appl ied (please note in para 50 of Chapter III that  WT/TPR/M/126/Add.2 
 Page 7 
 
 
 according to the WTO Secretariat, the number of tota l U.S. tariff lines exceeding 15% is only 6.6%).  
The United States has continued to be an advocat e of multilateral tariff reductions in the Doha 
negotiations and will continue to be  engaged on these topics as long as there continues to be ambition 
among other members for multilateral liberalization.  Tariffs in sensitive sectors are included in this 
approach – the United States has repeatedly stated  its willingness to reduce and eliminate tariffs in 
sensitive sectors if other WTO members are willing to do the same.  
 
Question (Mexico) 
 
According to the Report by the Secretariat the CBP and the Department of Commerce may apply 
different criteria to determine the origin of goods.  On  this basis, Mexico will appreciate that the U.S. 
could indicate which criteria would prevail in cases where CBP and the Department of Commerce 
consider that a product is originating of different countries and an indication of the costs that will be 
incurred in such cases by importers due to the need of complying with different requirements.  
 
Answer 
 
No criterion prevails over another because the differing criteria are applied for the administration of different programs.  CBP criteria determine, for exam ple, the country of origin for marking purposes, 
while the Department of Commerce determines scope of an antidumping or countervailing duty order. 
 
Question (Mexico) 
 
The Report by the Secretariat states that country of  origin markings are mandatory for most imported 
manufactured products and for many agricultural products.  Therefore Mexico would appreciate that 
the US could indicate the applicable criteria to exempt products of country of origin marking 
requirements. 
 Answer  
 Exceptions to the country of origin marking requir ements are set out in 19 U.S. Code Section 1304 
and in the corresponding regulations in 19 Code of Federal Regulations Part 134. 
 
Questions (New Zealand) 
 What is the U.S. justification for maintaining high tariff protection in sector s such as agricultural food 
products? 
 
What program does the U.S. have for the reduction and eventual elimination of such tariffs? 
 
When does the U.S. intend to reduce or eliminate tariff peaks?  
 Answer 
 
The U.S. tariff rates for agricultural products are lo w, particularly compared to most WTO members.  
The average rate for food products coming in to the United States is 12%, not counting the many 
products that benefit from GSP.  To address the pr oblems of high agricultural tariffs worldwide, the 
United States has submitted a very ambitious and ag gressive proposal for reducing tariffs in the WTO 
negotiations.  In addition, the United States has proposed the elimination of all tariffs by a date certain.  The United States is fully committed to further reform in world  agricultural trade.  
 
Questions (New Zealand) 
 WT/TPR/M/126/Add.2 
Page 8  
 
 How does the United States justify the long-standing  delay in resolving New Zealand’s request for 
access to the United States for live honeybee and honeybee semen?  In particular when, in view of 
New Zealand’s honey bee health (New Zealand has s uperior honey bee status than Australia, Burma, 
France, Great Britain, and Sweden) and there is no sp ecific scientific basis for further denying such 
access on SPS grounds? 
 
When will USDA publish the Proposed Rule and associated Risk Assessment for New Zealand 
honeybees?  
 
Answer 
 
The final rule on New Zealand honeybees is currently under review in the Office of General Council.  
The most recent risk assessment was published in August 2002 and can be found at can be found in 
the following location: 
http://www.aphis.usda.gov/ppq/pra/honeybees/nzealandbee_pra.pdf
 
 
Question (New Zealand) 
 To what extent does USDA expect food aid donations to continue and to what volume?  
 
Answer  
The United States is currently planning to donate 3. 5 - 4.0 million metric tons of food aid in U.S. 
fiscal year 2004 (Oct. 1, 2003 - Sept. 30, 2004).  This is a decrease from the fiscal year 2003 
donations of approximately 4.5 million metric tons.  This fiscal year 2004 tonnage is only an estimate, 
however, and may change during the fiscal year depe nding on whether or not any emergency food aid 
needs arise.  
 
Question (New Zealand) 
 
What has been undertaken since the last US Trade Policy Review to minimize the potential 
disruptions on trade caused by food aid?  
 
Answer 
 The United States adheres to the “Principles of Surp lus Disposal and Consultati ve Obligations” as laid 
out by the Consultative Subcommittee on Surplus Disposal (CSSD).  The primary discipline under the 
CSSD is the usual marketing requirement (UMR).  The UMR is an average of the preceding five 
years of commercial imports for the particular recipient country and commodity in question.  The 
maximum level of food aid to avoid commercial disruption is the difference between the country’s 
consumption needs and the UMR plus domestic supplies (production and stocks).  The United States 
uses the UMR as a tool to determine whether f ood aid will displace normal commercial imports or 
adversely affect domestic production.  
 
Question (New Zealand) 
 Is the USDA notifying these donations through the CSSD mechanism of the FAO?  
Answer  
 
Yes, the United States notifies its food aid donati ons through the CSSD.  We are currently up-to-date 
with the required notifications. 
  WT/TPR/M/126/Add.2 
 Page 9 
 
 
 Chapter 3 - MEASURE 
 
(2) Remedies: Anti-Dumping, Counter vailing, and Safeguards Actions  
 
Question (Canada #1)  
 
The Secretariat Report refers to the current status of the Foreign Sales Corporation Repeal and 
Extraterritorial Income Exclusion Acts  provisions.  Please indicate when the US proposes to rescind 
its WTO-inconsistent corporate tax provisions with  a view to ending its illegal export subsidies. 
 
Answer  
 
The United States has made clear its commitment to work with the U.S. Congress to fully comply 
with the prior recommendations and rulings of  the Dispute Settlement Body concerning the 
Extraterritorial Income Act.  Both branches of Congress are currently considering legislative 
proposals that would repeal the ETI Act.  While the United States cannot specify the precise date on which this will occur, the United States is conf ident that the ETI Act wi ll be repealed in the 
reasonably near future. 
 
Question  
 
We understand that, out of the 361 sunset review s of AD and CVD orders completed between July 
1998 and July 2003, the question of whether the expiry of the duty would be likely to lead to 
continuation or recurrence of dumping or of subsid ization has been examined by the Department of 
Commerce in 269 cases.  Out of these 269 cases, we understand that the Department of Commerce 
has made negative determinations in only 3 suns et reviews.  Please briefly describe the factors 
examined in making such determinations and explai n why the proportion of negative determinations 
is so low. 
 
Answer  
 
The AD and SCM Agreements provide for the conduct of expiry (sunset in U.S. parlance) reviews to 
determine whether expiry of the duty (revocation of an  order in U.S. parlance) would be likely to lead 
to continuation or recurrence of dumping or subsid ization and injury.  Under the United States sunset 
regime, there are two agencies that play a role in the conduct of sunset reviews.  The Department of 
Commerce (“Commerce”) has the responsibility fo r determining whether revocation of an order 
would be likely to lead to continuation or recurren ce of dumping or subsidization.  In making its 
likelihood determination, Commerce considers, inter alia , information concerning dumping and 
import volumes for the subject merchandise.  The U.S. International Trade Commission (“USITC”) 
has the responsibility for determining whether revo cation of an order would be likely to lead to 
continuation or recurrence of material injury.  Canada’s figures, even if accurate, are incomplete and 
misleading because they do not reflect completed sunset reviews, i.e., where both Commerce and the 
USITC have made their final likelihood determinations.  Of the 321 sunset reviews of antidumping 
and countervailing duty orders initiated between July 1998 and December 1999, almost 50 percent 
were revoked. 
 
Question (Canada #3)  
 
Canada would like to point out that the Continued Dumping and Subsidy Offset Act of 2000  (the 
CDSOA, also known as the Byrd Amendment) was successfully challenged at the WTO and found to 
be inconsistent with the United States' obli gations under the Anti-Dumping and Subsidies 
Agreements.  In June of 2003, an Arbitrator gave the US 11 months from the Appellate Body Report 
to bring its measure into compliance with its WTO obligations.  Why has the US ignored the WT/TPR/M/126/Add.2 
Page 10  
 
 reasonable period of time esta blished by the Arbitrat or (until December 27, 2003) and not complied 
with the Appellate Body ruling? When can Canada exp ect the US to repeal this measure that has been 
found to be WTO inconsistent? 
 
Answer  
 
The United States Administration proposed repeal of  the Combined Dumping and Subsidy Offset Act 
in its fiscal year 2004 budget, and has been working with the U.S. Congress on appropriate 
legislation.  In addition, a bill was introduced in the U.S. Sena te to amend the CDSOA in a WTO-
consistent manner.  The United States will continue to seek compliance with the DSB 
recommendations and rulings.  
Question (Canada #4)  
 
The Report refers to the non-conformity of the Anti-Dumping Act of 1916  with multilateral rules and 
recent bills introduced to address the issue.  Will the Administration convey to Congress the urgency 
of enacting a measure that repeals the Act and terminates pending cases (e.g., S 1080)? 
 Answer  
 The United States Administration has conveyed to C ongress the importance of timely repeal of the 
1916 Act which would terminate pendi ng cases.  The Administration will continue to work with 
Congress towards this end. 
 Question (Chile #1)  
 
Given the significant increase in antidumping meas ures applied in recent years and their negative 
impact on trade, in addition to the opinion of various WTO members on the lack of justification for 
many of the investigations and measures adopted, does the U.S. think it is possible to decrease the 
discretionality and substantially increase the num ber of investigations conducted and measures 
adopted solely by making improvements in procedures that do not affect the substance of the AD and 
SCM Agreements? 
 
Answer  
 
The mandate of the Doha Declaration, to "clarify and improve" the AD and SCM Agreements, is not limited either to substantive or to procedural provisions of those Agreements.  That being said, the 
United States believes that there must be substan tial progress made in improving the transparency of 
trade remedy measures to allow Members and other interested parties to see that those measures have 
been conducted in accordance with WTO Rules.  That is not to say that substantive clarifications and 
improvements should not also be made; indeed, the United States has proposed a number of such 
topics for discussion in the Negotiating Group on Rules. 
 
Question (Chile #2)  
 Does the U.S. believe that it is necessary to re solve the ambiguities and the gaps existing in the 
Antidumping Agreement in order to prevent the prolif eration of excessively onerous investigations, of 
arbitrary application, and misuse of antidumping measures?  If so, is it considering improving the rules and disciplines of the Agreements in order to achieve this goal?  
Answer  
  WT/TPR/M/126/Add.2 
 Page 11 
 
 
 The United States has made numerous proposals to  the Negotiating Group on Rules to clarify and 
improve the AD and SCM Agreements in ways whic h minimize the possibility for misuse of trade 
remedy measures while also increasing the effectiveness of those remedies.  Question (Chile #3)  
 
The United States indicated in a communication to the Negotiating Group on Rules (document 
TN/RL/W/27) the importance it attaches to the ne ed to identify disciplines on trade-distorting 
practices, in order to improve the ability to forecast tr ends in trade on the global level and reduce the 
need to use trade remedies.  Does the United States believe that while disciplines that prevent trade-distorting practices are being strengthened or established, trade remedies must not be restricted or regulated more extensively in order to prevent the undue proliferation and discretional use of such 
measures? 
 
Answer  
 
The discussion of disciplines on trade distorting pr actices does not preclude a parallel discussion of 
other ways in which the AD and SCM Agreements should be clarified and improved.  The United 
States has made numerous proposals to the Negotiating Group on Rules to clarify and improve the 
AD and SCM Agreements in ways which minimize the possibility for misuse of trade remedy 
measures while also increasing the effectiveness of those remedies.   
Question (Chile #4)  
 With regard to antidumping inve stigation procedures, especially the treatment of Section 201 and 
Countervailing Duties, Chile has learned that the United States might change the way that the 
Department of Commerce calculates the dumping margin  so as to be able to deduct duties applicable 
under Section 201 of the 1974 Trade Act and countervailing duties under the 1930 Customs Tariff Act 
from the export price and the reconstructed export  price in calculating the dumping margin.  When 
does the U.S. Government anticipate that this ch ange will become effective?  Does the U.S. 
Government expect that there will be any in compatibility in this change with prior DOC 
interpretations, or with WT O agreements, especially with respect to the application of Article VI of 
the GATT or the Agreement on Subsidies and Countervailing Duties? 
 Answer  
 
The U.S. government is currently considering its position on issue and is in the process of evaluating 
public comments that have been filed. WT/TPR/M/126/Add.2 
Page 12  
 
 Question  (China #20) 
 As the "reasonable period of time" for implementation has expired [regarding the Combined Dumping and Subsidy Offset Act], what detailed measures wi ll the United States adopt to implement the WTO 
recommendation? 
 
Answer  
 
The United States Administration proposed repeal of  the Combined Dumping and Subsidy Offset Act 
in its fiscal year 2004 budget, and has been working with the U.S. Congress on appropriate legislation.  In addition, a bill was introduced in the U.S. Sena te to amend the CDSOA in a WTO-
consistent manner.  The United States will continue to seek compliance with the DSB 
recommendations and rulings. 
 
Question (China #21) 
 
Is the US prepared to notify the detailed progra mme and timetable to comprehensively repeal the 
Byrd Amendment?  
 
Answer  
 
The U.S. Congress determines the timing and content of legislation in the United States.  The U.S. Administration will continue to work with the U.S. Congress to achieve early passage of legislation 
on the CDSOA bringing the United States into compliance with its WTO obligations. 
 
Question  (China #22)  
 
Could the US please elaborate whether there are rele vant provisions on the procedures for an industry 
or sector to apply for the market economy conditions pursuant to the criteria provided in the national 
anti-dumping legislation of the US.  If not, please inform us of the plan and timetable to provide such 
procedures. 
 
Answer  
 Section 771(18)(B) of the Tariff Act of 1930, as ame nded, lists the six factors that the Department of 
Commerce must consider in making a non-market economy country determination.  The Department 
initiates an inquiry into a country's non-market econo my status only on request from that country's 
government.  Such inquiries are conducted within  the framework of a quasi-judicial proceeding, 
which is fully open to participation by the public an d all interested parties and is subject to strict due 
process and transparency requirements.  If, as a resu lt of its inquiry, the Department determines that 
graduation to market economy status is warranted, producers' prices and costs are then used for 
purposes of calculating normal value.  NME producers can also have their prices or costs used to 
calculate normal value if they operate in a market -oriented industry ("MOI").  The Department has 
discussed with PRC government officials several ti mes the Department's three-pronged MOI test and 
the procedures for submitting a MOI claim, and the Department would be more than happy to do so 
again. 
 Question (China #23)  
 
Could the US Delegation provide some information about the progress of repealing 1916 
Anti-dumping Act in the Congress? 
 
Answer   WT/TPR/M/126/Add.2 
 Page 13 
 
 
  
There are three bills pending in the U.S. Congress to repeal the 1916 Act.  One bill in the U.S. Senate, 
S. 1080, would repeal the 1916 Act and terminate a ll pending cases.  Two bills, H.R. 1073 in the U.S. 
House of Representatives and S. 1155 in the U.S. Senate, would repeal the 1916 Act but not affect 
1916 Act litigation already underway.  The United States is continuing to work with the U.S. 
Congress to pass legislation repealing the 1916 Act and terminating pending cases. 
 
Question (China #33)  
 Please clarify the method adopted by the US [in the case of apple juice from China] for calculating the average anti-dumping rate of enterp rises subject to voluntary verification and the legal basis thereof. 
 
Question (China #34) 
 
Could the US please elaborate how it will avoid such  practices in future an ti-dumping investigations? 
 
Answer (China #33-34)  
 In calculating rates applied to cooperative exporters  not selected for examination, the United States 
generally follows the methodology described in section 735(c)(5) of the Tariff Act. 
 
Question (China #41) 
 
Regarding the “calculation methodology of “changing  ownership” used in countervailing measure 
investigations and determinations,”  prior to November 8, 2003, had the US DOC already rectified the 
calculating methodology?  If not, please explain why. 
 
Answer  
 
On June 23, 2003, the U.S. Department of Commerce adopted a new methodology for analyzing 
changes of ownership in the countervailing duty context.  Commerce is applying this new 
methodology to all countervailing duty investigations and reviews initiated on or after June 30, 2003.  
An explanation of this new methodology was published in the Federal
 Register  under Notice of Final 
Modification of Agency Practice Under Section 123 of the Uruguay Round Agreements Act, 68 FR 
37125 (June 23, 2003). 
 Question (Chinese Taipei)  
Reference:  p. 3 
 
In view of the fact that at least 6% of the anti-dum ping measures currently enforced in the US involve 
Taiwanese exporters, we would be particularly inte rested in knowing whether the US has any plan to 
improve its investigation procedures regarding suns et reviews, in recognition of the principle of 
terminating anti-dumping and countervailing measures after 5 years of implementation. 
 
Answer  
 
Article 11.3 of the AD Agreement an d Article 21.3 of the SCM Agreement permit the authorities to 
evaluate an antidumping or countervailing duty or der, respectively, five years from its imposition; 
they do not require the termination of an order af ter five years if a sunset review results in a 
determination that termination of the order would be  likely to lead to continuation or recurrence of 
dumping or subsidization and injury.  The Unites States' laws and regulations concerning the conduct 
of sunset reviews are consistent with the applicable WTO obligations.  
 WT/TPR/M/126/Add.2 
Page 14  
 
 Question (India #21) 
 The WTO agreement provides for guidelines an d procedures to be followed while imposing 
anti-dumping duties.  The lesser duty principle (the  lesser of dumping margin and injury margin) is 
widely adopted in most countries while determining the antidumping duty.  However, the US follows 
the dumping margin rule.  This results in impos ition of unnecessarily higher dumping duties.  We 
would like to have a clarification from the US au thorities on the reasoning behind following this 
methodology. 
 
Answer  
 
Article 9.1 of the Antidumping Agreement (AD Agre ement) states that "[i]t is desirable that 
imposition [of antidumping duties] be permissive in the territory of all Members, and that the duty be 
less than the margin [of dumping] if such lesser duty would be adequate to remove the injury to the 
domestic industry."  Consequently, Article 9.1 provides Members the option of implementing a 
"lesser duty rule".  Therefore, consistent with th e WTO and in full compliance with Article 9.1 of the 
AD Agreement, U.S. law does not contain a lesser duty provision. 
 
The lesser duty provision of the AD Agreement assumes that an antidumping authority can make an 
empirical computation of the amount of duty needed to remove injury to the domestic industry.  The 
question refers to this as an “injury margin,” a te rm which does not exist in the AD Agreement.  Such 
a calculation would entail considerable practical problems, and to our knowledge, there is no common understanding of what could constitute a reasonable  "injury margin" that reflects all the factors 
specified in Article 3.4 of the AD Agreement.  Give n that these factors are not all measurable in the 
same manner, it is far from clear how any methodol ogy could derive a single “margin” from them. 
 
In the Rules negotiating group, the United States has asked other Members to provide further 
clarification on how they calculate a lesser duty.  To date, the United States has not received a clear 
response from any Member as to how they implement a lesser duty rule and calculate a lesser duty.  
Indeed, we are unaware of any WTO Member that ha s devised a method of quantifying injury that can 
take into account all the factors specif ied in Article 3.4 of the AD Agreement. 
 
Question (India #26)  
 State level subsidies:  Extensive subsidies are provided in the US at the state level for both export 
promotion and industrial development.  These are often not even mentioned as subsidies and not reported to the WTO under Article 25 of the Agre ement on Subsidies and Countervailing Measures.  
To name a few, these programmes include the Busi ness Finance Programme of the states of Maryland 
and Pennsylvania, business assistance programmes of  the states of North Carolina and Washington 
and the loan guarantee programme of the state of Indi ana.  Could the United States provide details of 
subsidy programmes in existence at the sub-federa l level (viz, state level and below) and on their 
WTO compatibility. 
 
Answer  
 Pursuant to Article 25 of the Agreement on Subs idies and Countervailing Measures, the United States 
has notified 330 sub-federal programs, including nu merous programs from the specific states 
mentioned in the question.  We  refer India to document G/SCM/N/95/USA.  We stand ready to 
answer any questions on specific programs India may have in the course of the review of the U.S. subsidy notification during the upcoming meetings of the Committee on Subsidies and Countervailing 
Measures.  Question (Korea)   WT/TPR/M/126/Add.2 
 Page 15 
 
 
 Reference:  page 47, para. 74-76 
 
The U.S. Department of Commerce is reportedly considering deducting Section 201 and CVD duties 
from the constructed export price in dumping margin calculations.  What is the U.S. government’s 
position on this matter? 
 
Answer  
 
The U.S. government is currently considering its position on this issue and is in the process of 
evaluating public comments that have been filed.  
Question (Korea p.48)  
 The U.S. government failed to implement the WTO ruling against the Continued Dumping and 
Subsidy Offset Act of 2000, also known as the Byrd Amendment Act, within an agreed reasonable 
time period that elapsed on December 27, 2003.  Can the United States provide any detailed plan to implement the ruling of the WTO/DSB? 
 Answer  
 The United States Administration proposed repeal of  the Combined Dumping and Subsidy Offset Act  
(the “Byrd Amendment”) in its fiscal year 2004 bud get, and has been working with the U.S. Congress 
on appropriate legislation.  In addition, a bill wa s introduced in the U.S. Senate to amend the CDSOA 
in a WTO-consistent manner.  The United States will continue to seek compliance with the DSB 
recommendations and rulings. 
 
Question (Switzerland #18)  
 § 57 ff. outlines the safeguards in the steel sector.  On December 4, 2003, the U.S. announced the full 
and immediate termination of its steel safeguards.  The decision had been taken by President George 
W. Bush because the measures, introduced in March 2002, had achieved their purpose by helping 
U.S. producers consolidate and regain competitivene ss.  Nevertheless, the Steel Import Licensing 
System, introduced on February 1, 2003 is still in place.  The system was put in place to provide 
timely statistical data on steel imports to monitor significant changes in steel imports.  What are the 
reasons to keep this system in place?  When or  under what conditions will it be terminated?  What 
measures have been taken that this system does not become an unduly administrative burden?  
Answer  
 On December 4, 2003, the President issued a pr oclamation terminating the safeguard measures; he 
also directed the Secretary of Commerce to cont inue the steel import licensing system which was 
established effective February 1, 2003, until the earlier of March 21, 2005 or such time as the 
Secretary of Commerce establishes a replacement program. 
 
The licensing procedure is automatic and consis tent with the Agreement on Import Licensing 
Procedures.  Registered importing companies, their brokers or their agents may apply for a steel 
import licence through the steel licensing website.  Licenses are issued immediately upon completion 
of the electronic application form.  No fees are charged for either registering on the system or for applying and obtaining a license. 
 Chapter 3 - BY MEASURE  
 
(3) TBT/SPS Measures and Environment (including Bio-terrorism)  WT/TPR/M/126/Add.2 
Page 16  
 
  
MMPA Questions (Canada)  
 Canada continues to have concerns regarding the consistency of the U.S.  Marine Mammal Protection 
Act (MMPA ) with U.S. WTO obligations.  In past WTO re views of US trade policy, the US delegation 
has cited in defence of the MMPA , that a waiver is available, subject to certain conditions, to allow 
imports of marine mammal products.  However, in response to the last TPR questions, the US 
delegation stated that since 1975, no application for an import waiver had been received. 
 Question (Canada)  
 
On what objective basis would the U.S. Secretary of Commerce grant a waiver for the commercial 
import and retail of marine mammal products?  
 Answer 
 
The U.S. Secretary of Commerce may waive the MMPA's moratorium on the taking of marine 
mammals if such taking is in accord with sound princi ples of resource protection and conservation.  In 
addition, in order to grant a waiver for the impo rt of marine mammal products, the Secretary must 
certify that the program for taking marine mammals in  the country of origin is consistent with the 
MMPA.  Implementation of a waiver  would entail formal rulemaking and the issuance of permits.  
Thus, the waiver process provides relief from the MMPA's trade ban with respect to marine mammal 
products. 
 Question (Canada) 
 
If a country requested a waiver of the prohibition of importing marine products and provided 
documentation of the following conditions, NOAA  could waive the moratorium.  The population 
stock from which the animals came would have to be within their Optimum Sustainable Population 
levels, and the taking for importation would not cause the population level to drop below their 
optimum sustainable yield.  In addition, regardle ss of the waiver provision, there are several 
prohibitions of the MMPA that would continue to apply to any import.  Marine mammals or marine 
mammal products cannot be imported if the marine  mammal was pregnant, nursing, or less than 8 
months old at the time of the taking, taken from a stock designated as depleted, taken in an inhumane 
manner, taken in violation of the MMPA or in vi olation of the law of the country in which it was 
taken, or the sale of the marine mammal product is illegal in the country of origin. 
Question (Canada) 
 
If the conditions for a waiver were  met, how would such a waiver be implemented for the commercial 
import and retail of marine mammal products?  WT/TPR/M/126/Add.2 
 Page 17 
 
 
 Answer  
 
The process for waiving the moratorium is a formal rule-making that includes a hearing before an 
Administrative Law Judge, and any person could request, in writing, to be a party to the hearing. 
 
The entire process can be summarized as follows: 
 
1.  Waiver and regulations - Formal rulemaking process in accordance with 50 CFR part 228 and 
considering the criteria described above.  If a wa iver is warranted, NMFS would need to promulgate 
regulations that would allow issuance of permits to  import marine mammal products for commercial 
purposes.  
2.  Permits - NMFS could then issue perm its in accordance with the regulations. 
 
Question (Canada) 
 
How can the waiver process be just ified as relief from the import ban considering WTO obligations? 
 Answer  
 The United States believes that the regulatory regi me under the Marine Mammal Protection Act, as 
described in the detailed answers to Canada's ques tions, is consistent with our WTO obligations. 
 
In addition to a waiver, Canada understands that pe rmits would be required to import and sell marine 
mammal products in the US.  However, the MMPA and its regulations do not provide for commercial 
imports or sales in the United States. 
 
Question (Canada) 
 
How do permits allow for the commercial importation and retail of marine mammal products? 
 
Answer  
 
The waiver process itself involves formal rulemaking that would allow the issuance of permits to 
import marine mammal products for commercial pu rposes.  The permits could be issued in 
accordance to the regulations that were promulgate d following the formal rulemaking and the waiver 
of the moratorium.  
 
Question (Canada) 
 
How can that be justified considering WTO obligations? 
 
Answer  
 
The United States believes that the regulatory regi me under the Marine Mammal Protection Act, as 
described in the detailed answers to Canada's ques tions, is consistent with our WTO obligations. 
 
If the waiver provisions of the MMPA  do provide relief from the trade ban with respect to marine 
mammal products, then the Presidential order that consideration be withheld “...of any Canadian requests for waivers to the existing moratorium on the importation of seals and/or seal products into 
the United States” removes any possible relief from the trade ban for Canada. 
 
Question (Canada) WT/TPR/M/126/Add.2 
Page 18  
 
  
How is this defensible under WTO obligations? 
 Answer  
 
The United States believes that the regulatory regi me under the Marine Mammal Protection Act, as 
described in the detailed answers to Canada's ques tions, is consistent with our WTO obligations. 
 
Question (Colombia #1)  
 
Paragraph 128 of the Secretariat’s report states that in order to meet the Constitutional requirements of 
due process, most States have enacted statutes containing transparency procedures.  For example, 
most States have enacted administrative procedure acts whose procedures are similar to those of the 
federal APA.  The majority of States have also enacted statutes that provide for public access to 
information and judicial procedures.  As regards Technical Regulations applied to products, what 
progress has been made in standardizing re quirements at the state and federal level? 
 
Answer  
Title IV of the Trade Agreements Act of 1979  (Public Law 96-39), as amended by the Uruguay 
Round Agreements Act (Public Law 103-465), prohib its U.S. agencies from employing standards, 
technical regulations or conformity assessment pro cedures as unnecessary obstacles to trade.  This 
legislation includes the Administration’s commitmen t to promote state agencies’ compliance with 
U.S. obligations under the WTO through reasonab le measures including through state-federal 
consultation and cooperation.  Should specific questions regarding the WTO consistency of state or 
local regulations or procedures be brought to our a ttention, USTR would engage in consultations with 
interested state authorities to ascertain whether there is in fact a compliance issue and, if so, how best 
to proceed.  
 Question (Colombia #5)  
 
Paragraph 142 of the report explains that APHIS has regulatory responsibility to safeguard U.S. 
animal and plant resources from exotic pests and diseases.  In the case of risk analysis specifically, 
where there are delays in the approval process, have  measures been taken to expedite the process? 
 
Answer  
 
USDA has substantially increased staffing to perfor m and review risk assessments over the past few 
years. 
 
Question (EU #5) 
Reference:  Bio-terrorism Act of 2002  
 
Why did the FDA not carry out a specific risk assessment during the development of the proposed set 
of four far-reaching rules to implement the food-related provisions of this Act?  
  WT/TPR/M/126/Add.2 
 Page 19 
 
 
 Answer 
 
FDA has published the risk assessment with the interi m final rule.  Under the U.S. system, legislation 
is not normally put into effect until the final regulations take effect.  The risk assessment may be 
found on the FDA Website at http://w ww.cfsan.fda.gov/~dms/rabtact.html. 
 
Question:  What efforts are being made by the FDA to reduce the impact of these new measures on 
trade? 
 Answer 
 
FDA has encouraged public comment at every stage of the bioterrorism regulations’ development.  
FDA developed and published proposed regulations  which were open to public comment from both 
domestic and foreign parties.  We also conducted numerous outreach meetings directed at foreign 
stakeholders, both within the U.S. to foreign embassy officials in Washington and via 
videoconference.  We received numerous comments  from foreign governments, industries, and trade 
associations on both rules.  We reviewed ea ch comment that was submitted during the comment 
period and developed the final rule, taking the commen ts into account.  In the case of the prior notice 
and registration regulations, we are allowing for several opportunities for interested individuals to 
provide comments even as we begin implementing the interim final rule to make sure that we 
minimized any negative effect on trade while ensu ring our food safety and security.  We have 
published a compliance policy guide that describes th e US strategy for maintaining an uninterrupted 
flow of food imports while improving their safety in accordance with the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act) requirements.  
 
Question:  Will there be a review mechanism of the parent legislation from the date of 
implementation of the new m easures, and if not, why not?  
 
Answer 
 
The Public Health Security and Bioterrorism Prep aredness and Response Act of 2002 was signed into 
law by President Bush, on June 12, 2002.  It is now public law (PL107-188).  It is the U.S. legislative 
body - our Congress - that makes laws and amends existing laws.  From time to time, Congress 
reviews existing legislation as it deems necessary.  
Question:   More specifically regarding the new record-keeping measures, what efforts are being 
made to improve the manifest lack of communicatio n between US agencies such as the FDA, Tax and 
Trade Bureau, and US Customs?  
 
Answer 
 
FDA has worked closely with sister agencies in th e development of the bioterrorism regulations.  In 
the US regulatory system, the Office of Manageme nt and Budget coordinates all draft proposed and 
final rules and ensures that all regulations are reviewed by any agency that may be affected by the 
regulation.  Any affected agency may provide comments or not clear a regulation pending further 
consideration.  This process makes sure that all affected agencies are consulted prior to a regulation 
being published.  
 WT/TPR/M/126/Add.2 
Page 20  
 
 Question (Korea) 
Reference:  page 65, para.146-149  
 
Does the US government have any intention to st reamline such burdensome procedural requirements? 
 
Answer 
 
FDA has encouraged public comment at every stage of the bioterrorism regulations’ development.  
FDA developed and published proposed regulations  which were open to public comment from both 
domestic and foreign parties.  We also conducted numerous outreach meetings  directed at foreign 
stakeholders, both within the U.S. to foreign embassy officials in Washington and via videoconference.  We received numerous comments  from foreign governments, industries, and trade 
associations on both rules.  We reviewed ea ch comment that was submitted during the comment 
period and developed the final rule, taking the commen ts into account.  In the case of the prior notice 
and registration regulations, we are allowing for several opportunities for interested individuals to 
provide comments even as we begin implementing the interim final rule to make sure that we 
minimized any negative effect on trade while ensu ring our food safety and security.  We have 
published a compliance policy guide that describes th e US strategy for maintaining an uninterrupted 
flow of food imports while improving their safety in accordance with the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act) requirements. 
 FDA included an economic impact analysis in the proposed rules for affected entities to review and 
provide comment, and made revisions to the rule s based on the comments we received to further 
minimize the impact to trade consistent with the re quirements in the Act.  Both interim final rules 
include a regulatory impact analysis. 
 
Question (Switzerland #1 set II) 
 Switzerland has taken note that the U.S. has not ye t ratified neither the PIC, the POPs nor the Basel 
Convention although the U.S. is one of the main financ ial contributors to these conventions.  What are 
the U.S. intentions referring to the ratifica tion of these chemical and waste conventions? 
 
Answer  The United States intends to join the PIC, POPs and Basel Conventions and is currently developing 
the necessary implementing legislation in order to join.  
Chapter 3 - BY MEASURE 
 
(5) Subsidies 
 
Question (China #11 and #12)  
 
FSC/ETI 
 
(12)  Would the US Government expect that othe r Members will follow the practice of the US thus 
harming the world environment of fair trade and the implementation of WTO Agreements? 
 (13)  Does the US have any plan on repealing or amending the relevant legislation inconsistent with 
the WTO Agreements? 
  Answer  WT/TPR/M/126/Add.2 
 Page 21 
 
 
  
The United States has made clear its commitment to work with the U.S. Congress to fully comply 
with the prior recommendations and rulings of  the Dispute Settlement Body concerning the 
Extraterritorial Income Act.  Both branches of Congress are currently considering legislative 
proposals that would repeal the ETI Act.  While the United States cannot specify the precise date on 
which this will occur, the United States is conf ident that the ETI Act will be repealed in the 
reasonably near future.  Question (Brazil) 
 
How does the American federal government follow the initiatives of business assistance at local levels 
and check their compatibility with the WTO rules?  How are the U.S. commitments to the WTO 
complied at local levels since those initiatives are not notified to the Federal Government?  Answer 
 
The United States federal government has devoted c onsiderable time and resources in working with 
government officials at the sub-fe deral level to ensure their cognizance of the commitments the 
United States has undertaken as a WTO Member.  The current degree of close cooperation between 
federal and sub-federal governments is evidenced by the subsidies notification made by the United 
States in 2003 to the Committee on Subsidies and Coun tervailing Measures pursuant to Article 25 of 
the Agreement on Subsidies and Countervailing Measures (see, G/SCM/N/95/USA).  In this notification, the United States notified 330 sub- federal programs, nearly double the number of 
programs notified in 2002.  Chapter 3 - BY MEASURE 
 
(7) Intellectual Property Rights 
 
Question (Canada)  
Reference:  (v) Intellectual Property Rights; Section 337 investigations; Paragraph 297 
 
In 1989, a GATT panel found that Section 337 of the United States Tariff Act of 1930 violated GATT 
obligations and yet, as noted in paragraph 297, 47 new Section 337 investigations involving unfair 
practices related to intellectual property rights we re initiated against foreign companies. What steps 
are being taken by the United States to ensure that non-American companies do not face additional procedural burdens in defending ag ainst allegations of intellectual pr operty infringement, contrary to 
international trade obligations? 
 
Answer  The United States amended section 337 of the Tariff Act of 1930, 19 U.S.C. para. 1337, as part of 
U.S. implementation of the Uruguay Round results.    These amendments addressed the 
recommendations of the GATT panel cited in the question. 
 
Specifically, inter alia , the amendments: 
 
- Eliminated the requirement that the USITC issue a final determination within a fixed period of 
time.  Instead, the amendment provides that th e ITC must complete its investigation "at the 
earliest practicable time" and requiresthe USITC, w ithin 45 days of initiating an investigation, to 
establish a "target date" for its completion.  See 19 U.S.C. para. 1337(b)(1).  These requirements  
are consistent with federal district court rules and district court efforts to avoid delay, such as by 
establishing a schedule for the comple tion of various stages of litigation; WT/TPR/M/126/Add.2 
Page 22  
 
  
- Provide a means to prevent subjecting imported goods  to infringement proceedings in two fora 
simultaneously.  A district court hearing an infri ngement case is required to stay its proceedings, 
at the request of a respondent in a section 337 proceeding, in respect of any claim involving the 
same issues as those pending before the ITC.  In addition, the statute provides for the record in an 
ITC proceeding to be transferred to the Federal dist rict court for its use, with the intended benefit 
of eliminating any duplication of effort or expense;  and 
 
- Provide that a respondent in a section 337 action may file with the USITC any counterclaim that 
may be filed with a federal court.  If the claim is  of the form of a defense to the alleged violation 
of section 337, the USITC will consider the matter ;  otherwise the counter claim is removed to a 
federal district court.  See 19 U.S.C. para. 1337(c). 
 Question (Chile #9)  
 While the subject of exhaustion of rights with respect  to copyright and patents seems clear, such is 
not the case with regard to manufacturing marks or  trademarks.  Could you specify the rules that 
apply to the exhaustion of rights for manufacturing marks or trademarks and the applicable norms or 
case law?  Do the same legal provisions apply to geographic indications? 
 
Answer  
 
Current U.S. law provides owners of U.S. registered  trademarks with the legal basis to stop parallel 
imports.  The underlying law that establishes U.S. national exhaustion can be found in the U.S. 
Customs provision 19 U.S.C. 1526(a)-(c).  Under 15 U.S.C. §1054, registered certification marks and 
collective marks are afforded the same protection afforded to trademarks; therefore, the owner of a 
registered geographical indication certification ma rk also has the legal basis to stop parallel 
importation.  See also, K Mart Corp. v. Cartier, Inc. , 486 U.S. 281 (U.S. 1988) and Lever Bros. Co. v. 
United States , 796 F. Supp. 1 (D.C. Cir. 1992). 
 
Question (Chile #9 bis)  
Is there any recent case law regarding Title 28 USC 1498?  Please indicate to what cases the pertinent 
legal decisions refer.  
 Answer 
 
Yes, there are several recent cases cited in the 2003 “Cumulative Annual Pocket Part (on pages 153-
158) of the United States Code Annotated  (© 1994, West Publishing Co., St. Paul, Minnesota), 
dealing with a variety of issues, including what is “reasonable and entire compensation”, 
infringement, jurisdiction, etc.  Because of the number and variety of cases, no attempt is made to 
summarize them here. 
 
Question (Chile #10) 
 Once a drug has been registered in the Orange Book , the owner of a patent can prevent the entry on 
the market of a generic competitor by filing a lawsui t.  This stays the entry of the generic product on 
the market for a period of 30 months or until the suit is settled.  Does U.S. law provide for the possibility that the generic drug can be put on the market if the patent expires during the 30-month 
period or before the suit is settled?  Are there any statistics available as to how long these lawsuits 
take? 
 
Answer  WT/TPR/M/126/Add.2 
 Page 23 
 
 
  
If the patent expires before the 30 -month period  or before the law suit is settled, the generic is 
permitted to enter the market.  On average the time between the filing of a patent infringement lawsuit 
and a district court decision in each  case was 25 months and 13 days.  
 
Question (China #75) 
Reference:  p. 92, para 270  
 
The U.S. is the only country in the world that adopts the “first invent” system in judging the novelty 
of patents.  The “first invent” system prima fa cie conforms to National Treatment and MFN rule, 
however it has caused many inconveniences to nationa l of WTO Members.  Fo r example, Article 102 
of the Patent Act of the US states that criteria of novelty for inventions created in the US are different 
from those for invention completed out of the US .  Comparing with the US applicants, the above 
provision is obviously unfavorable to foreign app licants filing applications for patents in the US. 
 
Please elaborate what actions the US intends to take to make foreign applicants in an equal position 
with the US applicants. 
 Answer  
 See answer to Question # 50 (Japan) regarding the first-to-invent system.  The suggestion is made in the question that the operation of Section 102 of U.S.  patent law produces an effect that favors 
nationals of the United States.  There is no basis for this suggestion.  Section 102(a) of the United 
States patent statute does limit the patent-defeating effect of prior public knowledge or use to 
knowledge or use of the invention in the United States .   The effect of section 102(a) is that an 
invention claimed in an application for a United States  patent will not be treated as being novel if the 
invention has been disclosed or known to others in  the United States.  Section 102(a), however, does 
not distinguish between applications claiming inventio ns made in the United States versus those made 
outside the United States; an y application for patent that fails to  possess novelty through operation of 
section 102(a) is treated as unpatentable subject matter .  Application of section 102(a) is made in an 
identical  fashion to applications for inventions develope d in the United States and those that are made 
outside the United States. 
 
Question (China #76) 
Reference:  p. 94, para 277 
 Section 1498 of the US Code states that when products manufactured and used by the US 
Government or manufactured or used upon a reque st by the US Government involve a patent, the 
patentee has no right to prevent the manufacturing and use of the products by the US Government.  
This situation is akin to compulsory licensing system without the permission of the patentees as 
stipulated in Article 31 of TRIPS, but protections to the patentees provided in relevant act of the US is 
much weaker than those provided in Article 31 of TRIPS. 
 
Please explain the consistency of th is act with Article 31 of TRIPS. 
 WT/TPR/M/126/Add.2 
Page 24  
 
 Answer 
 Section 1498 of Title 28, United States Code, concer ns a limitation on remedies that can be obtained 
from the United States Government for public non- commercial use of a patented invention by it or a 
party authorized by it.  The United States routinely seeks licenses or permission to use the patented 
invention from the patentee.  In the unlikely event a patentee believes the United States is using the 
patented invention without permission of the pate ntee, the United States has waived its sovereign 
immunity to suits against the United States for in fringement of patents.  Section 1498 codifies the 
explicit waiver.  Article 44.2 of the TRIPS Agreem ent authorizes Members to limit the remedies 
available against non-commercial use of a right by  the government to payment of remuneration in 
accordance with paragraph (h) of Article 31.  The United States does limit remedies in this manner; 
however, Section 1498 does provide for reasonable compensation for use or manufacture of a 
patented invention by or for the United States.  In any event, to the extent applicable, all of the 
relevant provisions of Article 31 are still complie d with. The U.S. Federal Acquisition Regulations -- 
codified uniform policies used by government agencies when acquiring goods or services -- call 
Article 31(b) of TRIPS to the attention of the ag encies.  FAR 27.209 notifies contracting officers of 
U.S. agencies that Article 31 of TRIPS applies wh ere the law of a member country allows for the use 
of patents without authorization and advises the c ontracting officers to consult with legal counsel 
regarding questions under this section. 
 Question (China #77) 
Reference:  p. 95, para 281 
 
Please provide information on the implementation of  the obligation to protect well-known trademark 
under the TRIPS Agreement in the US domestic legislation and judicial practices. 
 
Answer 
 The United States fully implements its obligations under both the Paris Convention and the WTO 
Agreement on Trade Related Aspects of Intellectua l Property Rights (TRIPs) with regard to well-
known marks.  The United States protects registered as well as unregistered well-known marks, of 
both domestic and foreign origin, from use and/or registration through the operation of Lanham Act 
§43(a), §44(b) and §44(h) and under the Lanham Ac t §2(a) and 2(d). (15 U.S.C., §1125(a), §1126(b) 
and (h), and §1052(a) and (d)).  In cases where th ere is no use in commerce of the well-known mark 
in the United States, but the mark is still well-known in the relevant sector of the public, the mark will 
receive U.S. federal unfair competition protection  under the Lanham Act §43(a), §44(b) and §44(h). 
Lanham Act §44 grants “national tr eatment” to foreigners entitled to the benefits of the Paris 
Convention with regard to protec tion against unfair competition. 
 
U.S. federal law protects a mark against infringement  or registration by another, whether the mark is 
registered or not, for goods or services that are the same, similar, related or even unrelated if there is a 
likelihood of confusion.  When making a determination of likelihood of confusion at the United States 
Patent and Trademark Office (USPTO) or in an infr ingement action in U.S. federal court, U.S. case 
law outlines a variety of non-exclusive and non-exhaustive factors that can be used in the analysis.  
These factors include, but are not limited to, the simi larity of the marks, the relatedness or proximity 
of the goods and/or services, the strength of the pl aintiff's mark including the level of commercial 
recognition, marketing channels used including the similarity or dissimilarity between the consumers 
of the parties' goods and/or services, the degree of  care likely to be exercised by purchasers in 
selecting goods and/or services, the defendant's inte nt in selecting its mark, the evidence of actual 
confusion, the likelihood of expansion in product lines, etc. 
 
USPTO Examining Attorneys may refuse to register marks that conflict with unregistered well-known 
marks, foreign or domestic, whether used or not in the United States, under Lanham Act §2(a) and (d).  WT/TPR/M/126/Add.2 
 Page 25 
 
 
 (15 USC §1052(a) and (d)).  The USPTO does not make  a specific determination in examination as to 
whether a mark is well-known.  USPTO evaluates the strength of the mark in determining the scope 
of protection to afford a previously registered or  unregistered mark against a pending application. 
Under U.S. law, strong or well-known marks have a wider scope of protection than weaker marks 
against use of the mark on similar goods or services or even against use on unrelated goods or 
services. 
 
Question (China #78) Reference:  p. 97, para 293  
 The exceptions to copyright protection (Limitations on exclusive rights:  Exemption of certain performances and displays) as specified in Article 110.5 of US Copyright Act is inconsistent with 
Article 13 of TRIPS.  
 
Is the US going to make any amendment to such provision so as to make it consistent with the TRIPS 
Agreement?  
 
Answer  
Please see the response to Question 56 from Japan.  
Question (China #79) 
 
Does the US Government have any plan for such amendment?  If yes, please provide the detailed 
information.  
 
Answer 
 Please see the response to Question 56 from Japan. 
 
Question (Colombia #1)  
Paragraph 270 of the Report establis hes that, in the case of USPTO-ca used delays in the granting of 
patents, there are formulas to calculate the extension of the term of patent protection.  Could you 
explain how the formula works and give examples of its application?  
 
Answer  35 U.S.C. § 154(a)(2) sets the term of a granted U. S. patent at 20 years from  the effective U.S. filing 
date.  35 U.S.C. § 154(b) sets fo rth conditions under which the patent applicant may extend the patent 
term to recoup time lost due to administrative delays caused by the PTO.  There are five categories of 
administrative delay for which patent term adjustment may be sought: 
 
(1) failure by the PTO to take certain actions within a specified time; 
(2) failure by the PTO to issue a patent wi thin 3 years of the application filing date; 
(3) delays due to succes sful appellate review; 
(4) delays due to interference proceedings; and 
(5) delays due to secrecy orders. 
 The total period of term extension is the sum of the delays attributable to each of the above-listed 
categories to the extent that they do not overlap.  Thus, the term cannot be extended beyond the actual
 
length of the delay caused, i.e., the same delay, though attributable to more  than one category, is 
counted only once.  The statute also allows for a reduction  in the patent term restoration to the extent WT/TPR/M/126/Add.2 
Page 26  
 
 of delays caused by the applicant’s failure to engage in reasonable efforts to prosecute the application.  
The net restoration term is theref ore the difference between the amount of delay caused by the PTO 
minus the amount of delay caused by the applicant. 
 
Once an application has been allowed, the PTO ca lculates what it consider s the proper term of 
adjustment, extending the term one day for each day of the pendency of the delays described above, 
and provides the applicant with one opportunity to request reconsideration.  If, upon reconsideration, 
the applicant is dissatisfied with the PTO’s determ ination of adjustment, the applicant may appeal by 
way of a civil suit against the Director in D.C. District Court. 
 
Question (Colombia #2) 
 
Is there a similar extension period for delays in the approval for marketing products undergoing the 
permit process with regulatory agencies like the FDA or the EPA? 
 
Answer 
 
Yes.  The decision of the length of the patent term extension (PTE) is a decision made by the United States Patent and Trademar k Office, with input as to the length of the regulatory review 
period, the approval date, and any prior approvals  from the Food and Drug Administration (or the 
Department of Agriculture, if appropriate).  35 US C 156 provides that a patent owner may file an 
application for PTE to the USPTO within 60 days of approval of the product by the Food and Drug Administration (FDA).  Upon receipt of the app lication, the USPTO revi ews the application for 
completeness, and forwards a copy of the application to FDA, and requests FDA to confirm the 
approval date of the product, and that the approv al of the product was the first permitted use or 
commercial marketing of the produc t under the pertinent section of the Federal Food, Drug and 
Cosmetic Act. 
 
If the application is found to be  eligible for extension, the USPT O requests that FDA determine the 
regulatory review period of the product.  FDA notifies the USPTO of the determination, and publishes 
the determination of the regulatory review period in the Federal Register.  For a drug product, the 
"testing phase" is the period from the beginning of testing (defined in the statute as the date an 
exception under subsection (i) of section 505 of the Federal Food, Drug, an d Cosmetic Act (FFDCA) 
became effective, and ending on th e date an application was initia lly submitted for the drug product 
under section 351 or 505 of the FFDCA (i.e., the fi ling of the new drug application (NDA)).  For a 
drug product, the "approval phase" is the period beginning with the filing of the NDA and ending with the approval of the NDA.  See 35 USC 156(g)(1)(A).  The time the marketing applicant takes to reply 
to FDA queries is not taken out of this period.  
 
The USPTO then determines the patent term extens ion.  The statute permits a patent owner who has 
lost patent term due to regulatory review by the F DA to be compensated for the lost term that is no 
longer than one half of the "testing phase" of the regu latory review plus all of the "approval phase" of 
the regulatory review.  If the numb er of days in the expression (½("testing phase") plus all of the 
"approval phase") when added to the original expira tion date of the patent would extend the patent to 
more than 14 years after the approval date of the pr oduct by FDA, then the patent term extension is 
shortened to the difference in time between the origin al expiration date of the patent and the date that 
is fourteen years after the approval date of the pro duct.  Finally, if the patent term extension according 
to the earlier calculations would be  longer than 5 years, then the PTE is capped at five years.  
However, if the patent issued before September 24, 1984, and testing began before September 24, 
1984, then the cap would be two year s, or, if the patent is to an an imal drug product, if the patent 
issued, and testing began, before November 16 , 1988, then the cap would be three years. 
 Question (Colombia)  WT/TPR/M/126/Add.2 
 Page 27 
 
 
  
We have learned that the United States Congress passed the “Fairness in Music Licensing Act of 
1998,” thereby amending article 110 (5) regarding li mitations to exclusive rights.  We understand this 
law allows some uses without prior and express consent from the right-holder and without 
remuneration.  This situation affects Colombian author s, as we understand it allows for the use, under 
the conditions described above, of a wide array of Colombian musical works and performances 
having a large audience in the United States. 
 
Has the United States considered amending article  110(5)(A), given the harm this limitation causes 
copyright-holders from other countries? 
 
Answer  Please see the response to Question 56 from Japan. 
 
Question (EU #45)  
 
US law stipulates that the U.S. Government can allow use of the subject matter of a patent without the 
authorization of the right holder.  Does US law provide that the right holder will be notified of such 
decision as soon as reasonably possible, and does it foresee the payment of adequate remuneration to 
the right holder?  
Answer 
 Yes, see answer to question # 76 from China. 
 
Question (EU #50) 
 According to US government information, CAFTA would include a provision regarding trade marks 
and geographical indications based on a "first in time, first in right" principle.  Could the US elaborate 
about these provisions?  
 
Answer 
While the US-CAFTA FTA text is not yet public, the United States views the concept of "first in time, 
first in right" as confirming the appropriate balan ce between trademarks and geographical indications 
and ensuring that trademarks are fully protected against later established geographical indications. 
 
Question (Japan #45) 
Reference:  p.90, para. 265 
 
Please explain how many cases have been judged as having infringing importation (right to control 
the imports of copyright products) under Article 602 of the Copyright Act?  Are there any other cases 
of having infringing importation, except for the musical CDs?  Please provide some statistics on these 
infringing importation cases.  In addition, please ex plain the relation between controlling the imports 
of a copyright product and the anti-trust law. 
 
Answer 
 
Section 602(a) of the U.S. Copyright Act makes th e unauthorized importation into the United States 
of “lawfully made” copies or phonorecords “acquired outside of the United States” an infringement of 
the distribution right.  Section 602 (b) of the Act prohibits the importation of unlawfully made, or 
piratical, copies or phonorecords.  Section 602 is not limited to a specific category of protected work WT/TPR/M/126/Add.2 
Page 28  
 
 (such as sound recordings in the CD format), but rather covers all protected subject matter, including 
literary works, works of visual art, and audiovisual works.  Under sections 6 02 and 603, U.S. Customs 
is authorized to seize imports at the border of arti cles that are made without authorization (i.e., were 
unlawfully made) and does so on a regular basis.  U.S. Customs has no authority to stop the 
importation of products lawfully made outside the U. S., so it cannot seize parallel imports at the 
border (i.e., articles that infringe only Section 602(a).  Rightsholders, however, have a private right of 
action under Section 602 to stop infringing parallel imports. 
 
Customs does not break down its statistics concerning infringing imports in such a way that we can 
determine the total number of infringing “parallel” imports seized.  Here is the link to the Customs 
Rulings Online Search System (CROSS): 
<http://www.cbp.gov/xp/cgov/import/co mmercial_enforcement/ipr/seizure>
. 
 A search of US federal case law reveals approximat ely thirty cases in which a US federal court has 
cited Section 602 of the United States Copyright Ac t.  The cases represented many categories of 
works, including videogames, toys, works embodied in consumer products, sound recordings, and books. 
 
US courts have held that the mere exercise of one of the copyright owner's exclusive rights does not 
create an antitrust violation.  If the alleged infring er believes that the exercise of the importation right 
creates an antitrust violation, then the defendant may raise antitrust or "copyright misuse" defenses. 
 
Question (Japan #46) Reference:  p. 91, para. 266, p. 92, para. 270 and p. 93, para. 272)  
 
Japan has faithfully implemented the "Japanese Actions  to be taken by the Patent Office", confirmed 
by the Japan Patent Office (JPO) and the United States Patent and Trademark Office (USPTO) during 
the 1994 intellectual property righ ts working group of the Framework Talks.  However, the US has 
never entirely implemented the introduction of an  early publication system without exceptions, nor 
the improvement of re-examination.  Japan strongly requests the US to implement these items in 
accordance with the agreed actions promptly.  
 
Answer 
 The provisions for the adoption of an “early pub lication” system in the United States that were 
originally sent to the U.S. Congress (in the 104
th Congress) were fully consis tent with the obligations 
of the 1994 United States-Japan patent accords.  
 
U.S. obligations in those 1994 patent accords were sa tisfied by the timely intr oduction of the relevant 
bill in the 104th Congress.  The U.S. made every effort to have legislation passed that was consistent 
with the 1994 patent accords, and Congress enac ted Public Law 106-113 on November 29, 1999.  
This law contains a provision to publish, within 18 months, most patent applications filed in the 
United States.  The law also added new opportunities for third parties to  participate in reexaminations, 
including determinations made by the patent examiner to the Board of Patent Appeals and 
Interferences, in accordance with the understanding reached as part of the Framework Talks.  The 
U.S. Congress more recently passed legislation that would provide for third party appeals to the 
Federal Circuit in inter partes reexaminati on.  (See Section 13106 of 5P.L. 107-273.)  
 
Question (Japan #47) 
 
In particular, in order to tackle the following i ssues, Japan requests the US to promptly implement 
these items in accordance with the agreed actions of the Framework Agreement in order to abolish the 
early publication systems with exceptions, and  to disclose all applications, excluding those non- WT/TPR/M/126/Add.2 
 Page 29 
 
 
 pending and those under secret order, within 18 mo nths after the first filing date of the patent 
application. 
(a)The early publication system in the US, whic h was introduced in November 2000, provides 
exceptions whereby patent applications filed in the US, but not filed overseas, or matters included in a 
patent application filed in the US, but not includ ed in the corresponding application filed overseas, 
cannot be laid open at the request of the applicant. It  might be, therefore, possible that a patent will be 
granted after a long undisclosed period ("Submar ine Patent").  Without knowing whether or not 
another application is already on file for the same invention, it is unavoidable to invest in R&D in 
duplication; thus, we are concerned that this system causes serious social and economic loss.  
 
Answer 
 
Because most patent applications filed in the Un ited States are published within 18 months, we 
believe that experience with our publication system will demonstrate over time that the need for 
exceptions will be proven to be unwarranted.  Moreover, continuing efforts to further reduce patent 
pendency in the United States will help to allevi ate any problems that these exceptions may cause.  
(b)Furthermore, USPTO provides that patent protection may be extended to compensate for any 
amount of processing delays and USPTO-caused dela ys.  Japan would like to point out that there is a 
possibility of deliberate delays being caused, and th at under the current US system of not having an 
adequate early publication system, there would be other opportunities to create a submarine patent 
through the extension of patent terms.  
 
Answer  Extensions of patent term are not availabl e for delays caused by a patent applicant. 
 
Question (Japan #48) 
 In addition, any pending applications, already filed with the USPTO at the time of the amendment of 
the law (before June 8, 1995), continue to benefit from the former patent terms (i.e. a 17-year patent 
term from the date of the patent grant);  the amen ded patent law not being applicable. There is still, 
therefore, the possibility that additional submarine patents occur.  
 
Answer 
 Because average patent pendency in the United Stat es is approximately two years, the possibility of 
submarine patents occurrin g based on applications pending on June 8, 1995, has greatly diminished 
over time and will continue to do so. WT/TPR/M/126/Add.2 
Page 30  
 
 Question (Japan #49) 
Reference:  pp.91-94, paras. 268-279  
 
Regarding the Plant Breeder's Right, Japan understand that the US is a member of the 1991 Act of the 
UPOV Convention and that it protects new plant va rieties through the Plant Variety Protection (PVP) 
law and the patent law.  
 
(a)Please explain the acts that will cause loss of "novelty" under both the PVP law and the patent law 
as a plant patent.  
 
Answer  Under 7 U.S.C. 2402 of the Plant Variety Protection Act (PVPA), a plant variety is deemed new if on the date of filing of the application for plant variety protection, propagating or harvested material of 
the variety has not been sold or otherwise disposed of  to other persons, by or with the consent of the 
breeder, or the successor in interest of the breeder, for purposes of exploitation of the variety (1) in the 
United States, more than 1 year prior to the date of filing, or (2) in any area outside of the United 
States, more than 4 years prior to the filing of the application or in the case of a tree or vine, more 
than 6 years prior to the date of filing.  Under the PVPA, therefore, acts that do not meet these 
conditions would result in a loss of novelty.  Any sexually reproduced or  tuber propagated plant 
variety (other than fungi or bacteria) are covered under the PVPA.   (See Section 3 of Public Law 
103-349, 108 Stat. 3138, and Sec. 913(a) of Public Law 104-127, 110 Stat. 1186.)  
Under the Plant Patent Act, a plant variety is deemed new unless: 
 
(a)  the invention was known or used by others in this country, or patented or described in a printed 
publication in this or a foreign country, before the invention thereof by the applicant for patent, or  
 
(b)  the invention was patented or described in a printed publication in this or a foreign country or in 
public use or on sale in this country, more than one year prior to the date of the application for patent 
in the United States, or 
 
(c)  he has abandoned the invention, or 
 
(d)  the invention was first patented or caused to be patented, or was the subject of an inventor’s 
certificate, by the applicant or his legal representative s or assigns in a foreign country prior to the date 
of the application for patent in this country on an application for patent or inventor’s certificate filed 
more than twelve months before the filing of the application in the United States, or 
 
(e)  the invention was described in — (1) an application for patent, published under section 122(b), by 
another filed in the United States before the invention by the applic ant for patent or (2) a patent 
granted on an application for patent by another filed in the United States before the invention by the 
applicant for patent, except that an international application filed under the treaty defined in section 
351(a) shall have the effects for the purposes of th is subsection of an application filed in the United 
States only if the international application designated the United States and was published under 
Article 21(2) of such treaty in the English language; or  
 
(f)  he did not himself invent the subject matter sought to be patented, or  (g)(1) during the course of an interference co nducted under section 135 or section 291, another 
inventor involved therein establishes, to the extent permitted in section 104, that before such person’s 
invention thereof the invention was made by such other inventor and not abandoned, suppressed, or 
concealed, or (2) before such person’s invention th ereof, the invention was made in this country by  WT/TPR/M/126/Add.2 
 Page 31 
 
 
 another inventor who had not abandoned, suppressed , or concealed it. In determining priority of 
invention under this subsection, there shall be considered not only the respective dates of conception 
and reduction to practice of the invention, but also  the reasonable diligence of one who was first to 
conceive and last to reduce to practice, from  a time prior to conception by the other. 
 
The Plant Patent Act 35 U.S.C. 161, applies to as exually reproduced varieties, other than a tuber 
propagated plant or a plant found in an uncultivated state.  With respect to novelty, this Act 
incorporates the requirements of 35 USC 102 in the Patent Act.  See Public Law 92-358, sec. 2, 86 
Stat. 501;  Public Law 94-131, sec. 5, 89 Stat. 691;  Public Law 106-113, sec. 1000(a)(9), 113 Stat. 
1501A-565 (S. 1948 sec. 4505); Public Law 106-113, sec. 1000(a)(9), 113 Stat. 1501A-590 (S. 1948 
sec. 4806); Public Law 107-273, sec. 13205, 116 Stat. 1903.)  Under United States law, however, in order for a publication to defeat novelty, the publication must be an enabling publication under 35 
U.S.C. 112, 1
st paragraph.  Any acts consistent with the above, will defeat novelty under the Plant 
Patent Act. 
 
Question  
 
(i) Do the acts of publication, such as the publication of catalogues, the publication of the application 
in other countries, or the publication of papers on a certain variety, cause a loss of "novelty" of the 
variety in question? 
 
Answer  
 
A printed publication can serve as a statutory bar under 35 USC § 102(b) of the Plant Patent Act if the 
reference, combined with knowledge in the prior art, would enable one of ordinary skill in the art to 
reproduce the claimed invention, see In re LeGrice , 301 F.2d 929 (CCPA 1962).  Therefore, if the 
plant in question was publicly available, then th e granted PBR certificate, combined with knowledge 
in the prior art, would enable one of ordinary skill in the art to reproduce the claimed plant, and would 
therefore constitute an enabling disclosure under 35 USC § 102(b), see Ex Parte Thomson , 24 
USPQ2d 1618 (Bd. Pat. App. & In t. 1992).  The public availabilit y referred to here may include 
availability to the public in a foreign country.  For example, a foreign Plant Breeder’s Right (PBR) 
certificate may be considered a “printed publicat ion,” and may therefore be prior art against an 
invention under 35 USC § 102(b), if it constitutes an “enabling disclosure”. 
 
This availability must not be confused with the st atutory bar of prior use or sale, also contained in 
section 102(b), as foreign prior use or sale, as such, is not a bar to patentability in the United States.  
Question  
 (ii) According to the UPOV Act, "the variety shall be deemed to be new if, at the date of filing of the 
application for a breeder's right, propagating or harv ested material of the variety has not been sold or 
otherwise disposed to others, by or with the consent of the breeder, for purposes of exploitation of the 
variety".  However, the cases described above are acts of publication of the variety, and no act relating 
to sale or otherwise disposed to others for propaga ting material or for harvested material are involved. 
If the cases described above suffer a loss of "novelty"  for a variety in the US, please explain why. In 
addition, please provide the US’s interpretation of Article 6 of the 1991 Act of the UPOV Convention. 
 
Answer  
With the exception of tuber propagated plants (which are subject to the PVPA), asexually reproduced 
plant varieties are not subject to the PVPA under United States law.  Additionally, the United States 
made a reservation pursuant to Article 35(2) of  the 1991 UPOV Convention when it ratified the 
Convention, and therefore, asexually reproduced plants are not subject to the 1991 UPOV Convention WT/TPR/M/126/Add.2 
Page 32  
 
 (with the exception of tuber propagated plants).  Thus, if an asexually reproduced variety loses 
novelty based on a publication, this is because 7 US C 2402 (which is consistent with Article 6 of 
UPOV) is not the controlling law;  35 USC 102 is th e law that is applied to asexually reproduced plant 
varieties. 
 
Some situations which would result in a loss of novelty under Article 6 of the 1991 UPOV 
Convention would include sale of a variety in United St ates more than 1 year prior to filing for a plant 
breeder’s certificate in the United States, sale of a va riety in a foreign country more than 4 years (or 6 
years for trees or vines) prior to filing for a plant  breeder’s certificate in the United States, or giving 
away a variety for exploitation within th e prescribed time periods, for example.  
 
Question  (iii) The 1991 Act of the UPOV Convention states th at there are certain grace periods for novelty:  
one year for that taking place within the territory of the Contracting Party and four years (six years for 
trees and vines) for that outside the territory.  Pl ease provide information on the relevant provisions of 
the grace periods in the US, both under the PVP law and the patent law. 
 Answer 
 7 U.S.C. 2402 describes the circumstances for which novelty is defeated under the Plant Variety Protection Act.  
 
35 U.S.C. 102 describes the circumstances for which novelty is defeated under the patent law.  A 
prima facie case is made out under 35 U.S.C. 102(a) if , within 1 year of the filing date, the invention, 
or an obvious variant thereof, is described in a “pri nted publication” whose authorship differs in any 
way from the inventive entity unless it is stated wi thin the publication itself that the publication is 
describing the applicant’s work. In re Katz, 687 F.2d 450, 215 USPQ 14 (CCPA 1982). The term 
“others” in 35 U.S.C. 102(a) refers to any entity which is different from the inventive entity. The 
entity need only differ by one person to be “by othe rs.”  This holds true for all types of references 
eligible as prior art under 35 U.S.C. 102(a) including publications as well as public knowledge and 
use. Any other interpretation of 35 U.S.C. 102(a) “w ould negate the one year [grace] period afforded 
under § 102(b).” In re Katz, 687 F.2d 450, 215 USPQ 14 (CCPA 1982).  
 
Question  
(b) Is there any plan to change the provisions for "novelty" in the US laws in the future?  If so, please 
indicate the details of the changes and the timetable. 
 
Answer  A bill has been introduced before the 108
th Congress, but when or if th is Congress will take action on 
this bill is unknown. 
  WT/TPR/M/126/Add.2 
 Page 33 
 
 
 Question (Japan #50)  
Reference:  p.92, para. 270 
 
The US is the only country to use a "first-to-invent " system, which, with regard to the patent system, 
makes the US rather unique.  Moreover, this system lacks certainty and predictability in the sense that 
a patentee’s status can be overturned by the appearance of a subsequent prior inventor.  This involves 
additional burden to inventors, who are thus requir ed to prepare and keep documentary evidence to 
prove the date of invention.  Many countries, includ ing Japan, have pointed out that this issue creates 
a barrier for foreign companies when trying to penetrate the US business community.  Although the 
practice of maintaining the first-to-invent system is not necessarily against the TRIPS Agreement, 
Japan again requests the US to adopt the first-to-file sy stem.  This is due to the necessity to maintain a 
transparent and stable system, as well as to reduc e the burdens borne by users through the differing 
systems.  Answer 
 
Although the U.S. first-to-invent patent system is  unique, it is clearly compatible with the TRIPS 
Agreement, it has worked well and, indeed, has certai n advantages.  For example, our system is fairer 
than first-to-file systems in that it rewards the first inventor who files a patent application rather than 
the first-to-file an application, regardless of whethe r that first applicant to file an application was, 
indeed, the first inventor.  From a purely statistical viewpoint there would seem  to be little difference in result between a first-to-
invent patent system and a first-to-file patent system .  More than 99.9% of patent applications filed in 
the U.S. raise no dispute as to priority of invention.  Even when such disputes arise, the inventor who 
filed first prevails in a significant majority of these cases.  The actual effect of a switch to first-to-file 
system, thus, is likely to have little  or no actual significance based upon these statistical findings. 
 
With regard to the alleged burden imposed by a fi rst-to-invent system with regard to documentary 
evidence to prove the date of invention, it should be  kept in mind that inventors in most first-to-file 
systems also maintain such evidence in order to be ab le to assert “prior user rights” or derivation.  
Documentary and other objective evidence is required to  establish prior user rights in cases where an 
earlier inventor wishes to continue using an invent ion that was patented by another party that filed 
first, and obtained, a patent on that invention.  Such evidence is also required prove inventorship 
where the first person to file derived the inventio n from the true inventor and is not entitled to the 
patent.  
Question (Japan #51) Reference:  p.93, para. 271  
 
The "Hilmer" doctrine, which exists in the US, is an application which has a prior art effect only up to 
the date of the application in the US.  Foreign app licants usually file applications, first in their own 
country and then in the US, thereby claiming priority under the Paris Convention.  Due to the 
"Hilmer" doctrine, such foreign applicants cannot prevent the patent grant from conflicting with 
applications filed before the actual filing date of an y subsequent applications in the US, even during 
the priority period, and therefore may suffer a disadvantage. 
 
Answer 
 
The concerns of the Hilmer  Doctrine, if any, were mitigated to  a large extent by changes to the US 
patent law that went into effect on June 8, 1995.  These changes permit all pa tent applicants, including 
those from Japan, to file provisional patent applica tions that will give them the earliest possible prior WT/TPR/M/126/Add.2 
Page 34  
 
 art date for subsequently filed non-provisional applications.  It should also be noted that this issue is 
under discussion in the ongoing substantive pa tent law harmonization talks in WIPO. 
 
Question (Japan #52)  
 
This might be against Article 4B of the Paris Conv ention, which stresses that acts by a third-party in 
the priority period "cannot give rise to any third-party right or any right of personal possession" and 
Article 2.1 of the TRIPS Agreement, which requi res compliance with Article 4 of the Paris 
Convention. Japan therefore requests the US to revise its system.  
 
Answer  The effective date of a patent application as a prior art reference under the so-called "Hilmer" doctrine is not inconsistent with the obligations of Article 4B of the Paris Convention, as it does not affect the 
ability of an applicant to obtain a patent where the applicant has made a prior ity claim that establishes 
an effective filing date prior to the effective prior art date of the patent.  Note that WIPO’s Patent 
Cooperation Treaty explicitly allows countries to apply the Hilmer doctrine in Article 64.4. 
 Question (Japan #53) 
Reference:  p.94, para. 275 
 
Japan understands that the USPTO implemented a public comment procedure, and is trying to harmonize its patent system with the international syst em of Patent Law.  However, with regard to the 
unity of invention, under the current US patent system, the scope of inventions that can be included in 
a single application is, according to what we have been requested so far, narrower than that under the 
systems of the JPO and the European Patent Office (EPO).  Thus, a patentee is obliged to submit 
multiple applications, thereby increasing the burden. Japan repeats its request to the US to adopt the same criterion for its unity of inve ntion as that of Japan and Europe.  
 
Answer 
 
The U.S. Patent and Trademark Office has been st udying the implementation of unity of invention for 
national applications for many years.  There are serious implementation concerns including revenue, resource allocation and labor management.  These concerns must be viewed in the context of the difficulties in coping with application filings that co ntinue to increase year-to-year, especially in high-
technology areas.  There are also concerns that the current unity standard may not be the best 
approach to the issue of limiting the claiming of multiple inventions in single applications, especially 
in those emerging technologies.  To that end, the United States, in the ongoing discussions of WIPO’s 
Standing Committee on the Law of Patents (SCP), has supported the formation of a Working Group to 
further study this issue.  Question (Japan #54) 
Reference:  p.97, para. 289  
 The Secretariat’s Report  describes that the  Digital Millennium Copyright Act of 1998 implemented 
the WCT and the WPPT. However, Japan is of the view that the US Copyright Law does not fully 
protect the moral rights stipulated in Article 6 (2) of the Berne Convention applied to the WCT, the 
moral rights of performers stated in Article 5 of the WPPT, the right of making available expressed in 
Article 8 of the WCT and in Articles 10 and 14 of  the WPPT, and the economic rights of performers 
in their unfixed performa nces mentioned in Article  6 of the WPPT.  Please explain, with the specific 
provisions of legislation, how these rights are protected in the US.  
  WT/TPR/M/126/Add.2 
 Page 35 
 
 
 Answer 
 
Moral rights are protected in the United States not under a single law, but rather through a 
combination of federal copyright law, state common law, and other federal and state laws.  Moral 
rights are protected in the Copyright Act, not only through section 106A, but also through the 
application of the author’s economic rights in section 106, such as the right to prepare derivative 
works under section 106(2).  For instance, the protec tion of the right of integrity will almost always 
implicate the author’s (or other copyright owner’s) right to reproduce the work or to prepare a 
derivative work.  These are rights that would be in volved in preparing a modification of an author’s 
work that could violate the right of integrity (which is probably the moral right most likely to be violated in the digital manipulation of images or text).  Protections for the right of attribution are 
provided under a combination of state, federal and common laws.  
 
The US provides full rights of making available as  required by the WCT and WPPT in Section 106 
(4)-(6) of the Copyright Act, as further clarified by the definitions in Article 101 of the Act, as further 
clarified by the definitions in Article 101 of the Act, as well as through case law.  
The United States protects unfixed or live performances under section 1101 of the Copyright Act.  
Section 1101 was adopted as part of the Uruguay Round Agreements Act in order to comply with 
certain portions of Article 14 of the TRIPs Agreemen t.  All of the various remedies for copyright 
infringement are made available to those who are injured by violations of section 1101. 
 
Question (Japan #55)  
Reference:  p.97, para. 292 
 
Regarding Articles 203 and 304 of the Copyright Ac t, which enables the right holders to terminate 
transfers and licenses, Japan wishes to have conc rete explanations on the following points: (a)the 
purpose of this system; (b)the basis of the termin ation period, which is effective for 5 years after 
expiration of the 35- year period from the date of execution of the grant; and (c)in the case where 
someone doing business by using the transferred right notices the termination of a grant by the author, 
how is the safety of the business assured?  
 Answer 
 
-- Purpose of Sections 203 and 304 of the Copyright Act  
In general, the purpose of Section 203 of the Copyright Act, which permits the termination of transfers and licenses in copyrighted works made on or after January 1, 1978, is to allow the author, or 
the author’s heirs, to recapture the value of the work.  The purpose of Section 304(c), which permits 
the termination of transfers and licenses of renewa l rights in copyrighted works made before January 
1, 1978, is to allow the author, or the author’s heirs, to recapture the 19-year extension of the renewal 
term under the 1976 Copyright Act. 
 
-- Basis of the Termination Period 
 
Under Section 203, termination may be effected at  any time during a five-year window, which begins 
at the end of 35 years from the date of executions  of the grant.  Under Section 304(c), termination 
may be effected during the five-year window that begins 56 years from the date copyright protection 
was originally secured (in the usual case, upon notification with proper notice).  -- Business Safety 
 
Under both Sections 203 and 304, there are exceptions to termination that help to assure what the U.S. 
understands as “business safety”.  Under Section 203, for example, the owner of a derivative work WT/TPR/M/126/Add.2 
Page 36  
 
 made under a grant before termination may continue  to use the derivative work after termination, 
subject to a duty to continue to comply with the terms of the original grant (such as the payment of 
royalties).  There is a similar provision for the use of  derivative works under Section 304.  In addition, 
works made for hire (such as works made by an employee of a business) are not subject to termination 
under Sections 203 and 304. 
 
Question (Japan #56) 
Reference:  p.97, para. 293   
 
As the US was unable to implement the recommendations of the WTO panel on the US Copyright Act, in a reasonable period of th e time, which is in violation of TRIPS obligations, the US made a 
lump-sum payment of US$3.3 million to the EU over a three-year period ending in December 2004 
US$1.1 million per year as compensation for the EU ’s loss of benefit. Japan would like to ask the US 
for an explanation on the legal pr ocess of this matter in the US. 
 
Answer 
 
Consistent with the Understanding on Rules and Procedures Governing the Settlement of Disputes , 
the United States and the European Communities reached a mutually satisfactory temporary 
arrangement with respect to the dispute United States -_ Section 110(5) of the U.S. Copyright Act  (DS 
160).  The arrangement, which the United States and the European Communities have notified to 
WTO Members, covers the period commencing at the end of the “reasonable period of time” for implementation in this dispute and ending December 21, 2004.  
 
Pursuant to this arrangement, the United States  made a lump-sum payment of $3.3 million to the 
European Communities, to a fund established to finance activities of gene ral interest to music 
copyright holders, in particular awareness-raisin g campaigns at the national and international level 
and activities to combat piracy in the digital netw ork.  The funds were appropriated by the U.S. 
Congress. 
 
The mutually satisfactory temporary arrangement addresses the dispute for a three-year period.  Prior 
to the end of the period, the United States and th e European Communities will enter into consultations 
with a view toward reaching a final resolution. 
 
Chapter 4 - BY SECTOR  
(1) Agriculture  
Question (Chile #1) 
 
Paragraph 12 indicates that the Farm Act does not include a budget ceiling, although there are a 
number of mechanisms that impose limits on spending.  One of such measures is the “circuit breaker” 
clause under which domestic supports would not exceed WTO limits.  How are the domestic supports 
reviewed under this clause?  Has it been necess ary to invoke this clause during this period? 
 
Answer  
 The United States Department of Agriculture c ontinually monitors actual spending in each of its 
programs.  If actual spending levels approach co mmitment levels, the Secretary of Agriculture is 
notified, and further spending is closely watched in  case the "circuit breaker" provision of the 2002 
Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to be invoked.  This provision has not been used.  WT/TPR/M/126/Add.2 
 Page 37 
 
 
  
Question (Chile #2)  
 With respect to the agricultural notifications that must be made to the WTO, for what reason were 
support programs for the period 1999-2000 not notified?  Does the failure to provide notification 
affect the monitoring system of the “circuit-breaker” clause? 
 Answer  
 The United States is in the process of preparing Domestic Support notifications to the Committee on Agriculture. We will submit the notifications for programs under the 2002 Farm Act for which 
exemption will be claimed as soon as possible .  The United States remains committed to the 
notification process and will work to fulfill all its WTO obligations.  No, a lack of notification does 
not affect the monitoring system of the “circuit- breaker” clause.  The US DA continually monitors 
spending for each of its programs. If actual sp ending levels approach commitment levels, the 
Secretary of Agriculture is notified, and further spending is watch in case the provision of the 2002 Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to be 
invoked.  This provision has not been used. 
 
Question (China #6)  
 
Could the US Delegation please explain the reas on why the notification obligations were not 
implemented?  Please inform us of the plan on the earliest implementatio n of these obligations. 
 
Answer  
The United States is in the process of preparing Domestic Support notifications to the Committee on 
Agriculture for programs under the 2002 Farm Bill for which exemption will be claimed and will 
submit these notifications as soon as possible .  The United States remains committed to the 
notification process and will work to fulfill all its WTO obligations.  
Questions (China #16 & #17) 
 Could the U.S. explain the consistency of this me asure with WTO principle of national treatment? 
 
Does the U.S. intend to modify the regime for peanut imports and enhance its transparency in 
accordance with the WTO rules? 
 WT/TPR/M/126/Add.2 
Page 38  
 
 Answer 
 
The U.S. peanut import tariff rate quota (TRQ) was implemented following the Uruguay round of the 
WTO.  The TRQ set a maximum quantity of peanuts permitted into the U.S. each year at a reduced 
tariff rate of 9.35 cents/kg (6.6 cents/kg for she lled peanuts).  The total quantity permitted under the 
TRQ provision is 52,906 MT (shelled weight) and allocated between Argentina (43,901 mt) and other 
(9,005 MT).  These amounts have remained unchanged since 2000.  Additional provisions under bi-
lateral free trade agreements (FTA) a llow for peanut imports at zero duty for select countries (Mexico, 
Israel, Chile).  Duty rates and TRQ limits are pub lished in the Harmonized Tariff Schedule of the 
United States.  Provisions of the TRQ are provided  in note 2 to the Chapter 12 duty rates and in 
general note 15 to the tariff schedule concerning bi-lateral free trade agreements.  
Since the TRQ was developed and set during WTO nego tiations, it would thereby be consistent with 
the WTO principle of national treatment.  The TRQ was designed to provide access for foreign 
suppliers to the U.S. market.  The TRQ replaced pr evious market access provisions that effectively 
barred access for foreign peanuts into the U.S. mark et.  All importers are given equal access into the 
U.S. market with in their respective quota allotments. 
 Question (China #42)  
Please provide information on what measures the U.S. has taken in this respect since then. 
 
Answer  
The U.S. Administrative Procedures Act requires the publication of prop osed rules and comment 
periods that conform to SPS obligations. 
 
Questions (China #43, #44, and #45) 
 
What domestic legislation prevents the U.S. from do ing so?  We would appreciate it if the U.S. could 
provide us the full text of the relevant legislation. 
 
How would the U.S. justify the situation of a high percentage of inconsiste ncy in terms of comment 
period provided by the U.S. for the SPS notificatio ns, for example 57.3% of the US SPS notifications 
were less than or equal to 30 days, 92.3 % less than 60 days for the year 2002? 
 What measures will the U.S. take in order to ab ide by the recommendations of the SPS committee and 
the TBT Committee on the no less than 60 day comment period? 
 
Answer  
 At any time any contracting party finds the comm ent period insufficient in length, they are 
encouraged to contact the WTO inquiry point. 
 
Questions (China #46 & 47) 
 
Is it the consideration of the US behind this legi slation that consumers would more likely choose 
products originating in the U.S. when they are labele d with the country of origin?  If not, what is the 
consideration behind the measure?  
Since imported meat products have already underg one relevant inspection and quarantine, how does 
the U.S. consider the impact of this practice on equitable competition be tween foreign and U.S. 
products?  WT/TPR/M/126/Add.2 
 Page 39 
 
 
  
Answer 
 The effects of country of origin labeling (COOL) requirements on consumer behavior cannot be 
determined at this time because much depends on how industry implements the regulation.  In a 
nation of brand conscious consumers, the 2002 Farm Act COOL provision is Congress’ response to 
consumer stated preferences for country of origin labeling.  USDA will be paying close attention to 
ensure that the implementation of mandatory COOL  regulations will be cons istent with US trade 
obligations.  Currently, the COOL compliance is only voluntary and it is not known when the 
mandatory regulations will be fully implemented.  
Question (China #48) 
 What are the inspection and quarantine standards adopted by the U.S. for Asian pears and apples from 
China?  Are such standards different fr om international quarantine standards? 
 
Answer 
 Inspection and quarantine standards are developed through analysis of the pest risk associated with 
the imported commodity in accordance with international standards. 
 
Question (China #49) 
 
Is there a time limit for inspection and quarantine of imported goods in the US?  Has such time limit 
been respected in the inspections of Asian Pears and apples from China? 
 
Answer  
Time requirements for inspection at the port-of-en try are based on a variety of factors including 
clearance of documentation through U.S. Customs and available time for agricultural inspection.  
Every effort is made to expedite perishable commod ities.  All imported fruit is subject to some level 
of inspection. 
 No specific time limits have been established for importation of China-origin pears.  China-origin 
apples have never been authorized to be imported into the United States.  Once pests are found on 
shipments of a specific commodity additional scru tiny is given to subsequent shipments.  
Additionally, with regard to China-origin pears, ma ny of the current problems were not found at the 
port-of-entry but rather in retail fruit markets. 
 
Question (China #50) 
 
Could the US please clarify the scientific justificat ion in terms of SPS for refusing the importance of 
Chinese bergamot pears? 
 
Answer  The U.S. is not familiar with a market access request  for China-origin bergamot  pears.  However, we 
are familiar with a market access request for fragran t pears.  Are fragrant pears and bergamot pears 
the same commodity? The proposed rule to authorize importation of Ch ina-origin fragrant pears was published for public 
comment during the summer of 2003.  Public  comments are currently being addressed in  preparation 
for publication of a final rule that would author ize importation of China-origin fragrant pears. 
 WT/TPR/M/126/Add.2 
Page 40  
 
 Question (China #51) 
 
Why did the US refuse to conduct the pest risk analysis? 
 
Answer 
Again, the U.S. is not familiar with  a market access request for China-origin bergamot pears.  If this is 
the same commodity as fragrant pears a pest risk analysis was conducted. 
 
Question (China #52)  
 
Could the U.S. explain the necessity of these pr actices and their consistency with the rule of 
harmonization and the principle of least trade rest rictiveness contained in the WTO Agreement on 
TBT and SPS? 
 Answer 
These inspections are performed upon arrival to en sure that any peanuts imported into the United 
States meet our standards, as applied to both imported and domestic product. 
 
Question (China #80)  Why has the U.S. not yet notified WTO of this 2002 Farm Bill?  
Answer 
 
The Farm Security and Rural Investment Act of 2002  (i.e. the 2002 Farm Act) itself is not a program 
to be notified, but instead encompasses a wide va riety of agricultural programs.  The 2002 Farm Act 
extends many ongoing programs, thus only a few no tifications of new programs are required.  As 
regulations for new programs are put into place and the new programs get up and running, the United 
States will submit the required DS-2 notifications to the WTO. 
Question (China #81) 
 What is the annual average amount of direct payment and counter-cyclical payments provided according to the new Farm Bill?  
Answer 
 The total amount to be paid to farmers through the direct payment and counter-cyclical payment 
programs are calculated using data on historical crop yields and acreages.  Unlike direct payments, counter-cyclical payments will be made only if certa in crop prices drop below predetermined levels.  
Since future prices are unknown, average spending levels for these programs is also unknown.  What 
is known is that the United States will not exceed its $19.1 billion AMS ceiling as agreed to in the 
Uruguay Round Agreement on Agriculture. 
 
Question (China #82) 
 
Please clarify the impact of such Bill on the prospect of the on-going multilateral agricultural 
negotiation. 
 
Answer  WT/TPR/M/126/Add.2 
 Page 41 
 
 
 In the current agricultural negotiations, the Unit ed States is committed to reaching substantial 
reductions in trade-distorting support and export subsidies, coupled with substantial increases in 
market access.  As stated above, the United States is bound by the Uruguay Round agreement to limit 
AMS spending to an agreed-upon level.  
 
Question (China #83)  Is such a bill contradictory to the stated attitud e of the US on the agricultural negotiations in the 
“Doha Round” as appeared in the Report by the US Government? 
 
Answer 
 
In the current agricultural negotiations, the Unit ed States is committed to reaching substantial 
reductions in trade-distorting support and export subsidies, coupled with substantial increases in 
market access.  As stated above, the United States is bound by the Uruguay Round agreement to limit 
AMS spending to an agreed-upon level.  The United States will continue to abide by its Uruguay Round commitments while continuing to pu sh other countries to liberalize trade. 
 Question (China #84) 
 The increase of subsidies to agriculture by the US is contrary to the negotiation objective of 
“reductions of, with a view to phasing out, all forms of export subsidies” as set out in Para 13 of the 
Doha Ministerial Declaration.  What is the US opinion on this issue? 
 Answer 
 
The United States remains committed to the Doha ob jective of reducing with a view to phasing out 
export subsidies.  The 2002 Farm Act does not authorize increased use of export subsidies. 
 
Question (China #85) 
 
Does the US plan to make an amendment to this bill so as to reduce the subsidies to agriculture 
substantially? 
 Answer 
 
The 2002 Farm Act will be in place through 2007.  If the Doha round of negotiations finishes on 
schedule, reductions commitments will begin at the same time as the negotiations for the new farm 
bill.  Therefore no amendments to the current bill are planned.  Question (China #86) 
 
When will the US notify its domestic support data since 2000, including data of “Amber Box” and 
de minimis ? 
 Answer 
 The Farm Security and Rural Investment Act of 2002  (i.e. the 2002 Farm Act) itself is not a program 
to be notified, but instead encompasses a wide va riety of agricultural programs.  The 2002 Farm Act 
extends many ongoing programs, thus only a few no tifications of new programs are required.  As 
regulations for new programs are put into place and the new programs get up and running, the United 
States will submit the required DS-2 notifications to the WTO. 
Question (China #87)  WT/TPR/M/126/Add.2 
Page 42  
 
  
What is the US intention to expand offset loan price for its agricultural pr oducts and include more 
products under its loan coverage?  Is the increase of loan by the US contrary to its initiative of 
reducing trade-distorting domestic support to agricultural products at the multilateral since such loan 
falls into the Amber Box? 
 
Answer 
 
While the 2002 Farm Act continues past programs such as loan deficiency payments to support 
agricultural prices and farm incomes, we expe ct to fully meet our obligations under the Uruguay 
Round Agreement on Agriculture.  The United Stat es will not exceed our WTO limits.  Again, the 
United States remains committed to an ambitious outcome of reducing global trade distortions in 
agriculture through the WTO.  We strongly encourage other countries to move forward in the 
negotiations to achieve substantial reform. 
 
Question (China #88)  
How does the U.S. determine the target price of the counter-cyclical subsidy? 
 
Answer 
 
National average prices will be used to determin e final counter-cyclical payment rates. USDA’s 
National Agricultural Statistics Service (NASS) determines the annual average prices for the 
marketing year.  NASS collects monthly data on prices paid to farmers. 
 
Question (Colombia #1)  
 
Has the United States defined any parameters for making headway in its agricultural policy, both in 
terms of access and domestic aid, and export subsidies? 
 
Answer  
 
Recently, United States Ambassador  Zoellick has sent a letter to your trade minister suggestion 
options for negotiations.  We look forward to enga ging in ambitious multilateral trade negotiations in 
2004. 
 Question (Colombia #2)  
 
What is planned for tariff quotas on various types of products, including broomcorn brooms (HS 
9603.10), tuna, and agricultural products?  High out-of-quota tariffs on agricultural products do not 
allow for exports from developing countries in important sectors such as the sugar industry. 
 
Answer 
The United States has submitted a very ambitious and aggressive proposal for reducing tariffs in the 
WTO negotiations.  In addition, the United States ha s proposed the elimination of  all tariffs by a date 
certain.  The United States is fully committed to  further reform in world agricultural trade. 
 
 
Question (EU #1)  
 What are the reasons for the continuing lack of US recognition of the principle of regionalization, as 
incorporated in the WTO SPS Agreement, in cases of the outbreak of an animal disease?  WT/TPR/M/126/Add.2 
 Page 43 
 
 
  
Answer  
 USDA’s Animal and Plant Health Inspection Serv ice (APHIS) has made significant progress in 
regionalizing the European Union for Classical Swine Fever (CSF).  On April 7, 2003, APHIS 
published a final rule recognizing Austria, Belgium,  Greece, Portugal, the Netherlands, and certain 
regions of Germany and Italy as free of CSF.  Fr ance, Spain, and Luxembourg had been included in 
the original proposed rule (published in June 1999 ), but they were not included in the final rule 
because of subsequent CSF outbreaks.  On November 24, 2003, APHIS published in the Federal 
Register a completed risk analysis for CSF covering France and Spain.  After the public comment period has closed in late January 2004 and depending on the nature of the comments, APHIS would then proceed to publish a final rule to declare thes e two Member States free of CSF.  On October 16, 
2003, APHIS published a final rule recognizing the CSF-free status of East Anglia.  APHIS is also 
working on a draft novel rule that contains a new approach to the EU, which will involve recognition 
of all 15 current EU member states as low risk for (not free of) CSF to allow for more flexible 
response options in the ca se of future outbreaks. 
 
Question (EU #7)  
 
The EC notes that US continues to use food aid and export credits to reduce government stocks of 
agricultural commodities. Is the US ready to co nsider helping the DDA-process move forward by 
accepting to classify as export subsidies all measures used for subsidizing exports?  
Answer  
 
The US averages approximately $3.4 billion in credit guarantees annually, of which the subsidy 
component is minimal.  Export credits and export  subsidies are not interchangeable as they have 
different policy objectives and different impacts on  global markets.  Direct export subsidies are 
clearly among the most trade-distorting measures in  agricultural trade, designed to lower prices and 
displace commercial competition.  On the other hand, export credit programs have a minimal impact 
on trade and are used to assist importing countries in financing commodity imports.  In recognition of 
the importance of the elimination of export subs idies, the USG is willing to support a parallel 
reduction of the trade-distorting component of expo rt credits.  We also believe disciplines are 
necessary to ensure that export credit programs do not circumvent export subsidy commitments and 
that developing countries are able to access affordable credit to address food security and economic 
development needs.  
Almost all of the food aid provided by the United States is purchased from the open market and all 
food aid is provided in response to an identified need. The United States does not agree that food aid 
is an export subsidy.  However, in the WTO agricultural negotiations, the United States is working 
with other Members on multilateral disciplines fo r food aid programs with the goal of continuing 
necessary, humanitarian assistance.  
Question (EU #8)  
 
The main agriculture and industry lobbies in the US have been arguing for some years that the 
strength of the dollar was hurting their export compe titiveness.  At the same time, the position of the 
agriculture groups towards Congress and the US government has been to "max out" the trade 
distorting agriculture support allowed to the US under the WTO.  Now that the US government and Federal Reserve are no longer pursuing a strong dolla r, can the world look forward to a substantial 
reduction in US domestic subsidies as well? 
 Answer  
 WT/TPR/M/126/Add.2 
Page 44  
 
 The United States is well within its WTO commitments  in its support to farmers.  However, in the 
negotiations of the DDA, we have called for s ubstantial reductions in trade-distorting domestic 
support and have made consecutive proposals to ac hieve that goal, including the US/EU framework 
mentioned in the previous question.  We look forward to working with the EU and other WTO 
members towards a bold, ambitious, comprehens ive package of reforms for global agriculture. 
 
Question (India #2) 
 
Sugar Tariffs:  The sugar industry is protected by high tariffs (to the extent of 32.8% MFN tariffs on 
raw sugar and 42.5% on refined sugar).  These tariffs, in addition to providing protection to domestic sugar producers, have also increa sed the use of alternative sweeteners such as high fructose corn 
syrup, eroding the natural sugar market in the U.S.  In the long run, the high tariffs will lead to a 
permanent change in the sugar demand patterns in the U. S.  Please provide the U. S. view on this point 
and on the unintended effects of high tariffs. 
 
Answer 
The U.S. government closely monitors all commodity markets and is always alert to changes in these 
markets.  U.S. policy is created through numerous  means and with extensive consultation with all 
stakeholders in an effort to create and administer  programs that serve the interest of the American 
people.  Further information about the U.S. sugar program can be found  at several United States 
Department of Agriculture websites, http://www.fas.usda. gov/htp/sugar/sugar.html, 
http://www.fas.usda.gov/import.html , and http://www.fsa.usda.gov/ao/epas/dsa.htm.  
 Question (India #6) 
 
TRQ on leaf tobacco:  Imports of leaf tobacco in to USA are subject to TRQs from September 1995.  
Of a total quota of under TRQ for 2002/2003 of 1,50,700  (sic) tons (both Flue cured and light air 
cured tobacco including Burley), the bulk of the qu ota is allocated to 9 designated quota recipient 
countries.  A residual TRQ of 3,000 tons is availabl e to all other countries including India, although 
India is the second largest producer of tobacco in the world.  The out of quota tariff rate is 360%.  
Prior to 1995 India could export any volume of  tobacco at MFN duty rates to USA.  After 
introduction of TRQ Regime in 1995, Indian exports of tobacco to the US are rendered uneconomical.  
In view of this, the US delegation is requested for information on whether they propose to take action to review TRQ regime in tobacco and enhance the residual quota from its present level of 3000 tons.  
The US authorities are also requested to provide information on the mechanism for allocating unfilled 
TRQs in tobacco.  WT/TPR/M/126/Add.2 
 Page 45 
 
 
 Answer 
 
The tobacco TRQ was based on historical shipments of leaf tobacco to the United States.  The top 9 
countries were given quota allotments.  According to the TRQ rules, a country is not required to fill 
its quota in any given year and the unused quota is not reallocated.  If a quota country does not fill its 
quota, it does not lose its allotment.  A non-country specific quota is set at 3,000 metric tons on a first 
come/first-serve basis.  Only C ongress can change TRQ allotments. 
 
Question (India #11) 
 
Payments into Escrow account on Bidi (tobacco) exports:  The US requires tobacco product manufacturers and importers who ar e non-participating in the Master  Settlement Agreement (MSA) to 
pay a specified amount into a qualified Escrow account for products sold in the US.  The amount to be 
paid on this account works out to nearly four times the cost of manufacturing one Bidi.  This has acted 
as a severe barrier for Bidi exporters from India and consequently, there have been no Bidi exports 
from India to the US during this y ear.  We would like to have a clarification from the US authorities 
on the reasoning behind the requirement to pay sp ecified amounts into an Escrow account and the 
basis for calculation of such amounts?  Given the se vere market access problem faced by India on this 
account, we are interested in knowing whether there is any move to dispense with the above 
requirement to remedy this problem? 
 
Answer 
 
There are 46 MSA states and 4 non-participating stat es.  Any non-participating company that sells a 
cigarette product in a MSA state is required to pay a fee in escrow.  The escrow was set up in order to 
cover any cost arising from tobacc o litigation.  The fee is based on the number of cigarettes sold.  
Each State has a specified fee for the escrow.  Fo r example, a State may require a company to pay a 
fee of .39 cents per cigarette.  If the company sell s a million cigarettes in a State in a year, the 
company is required to pay  $390,000 in fees in escrow for that State.  After 25 years, any unspent 
money in the escrow will be returned to the compan y.  This fee is required for both domestic and 
international manufacturers that sell a cigarette product in a MSA State. 
 
States will continue to collect fees for these escrow  accounts in the future.  The United States goal is 
to reduce cigarette smoking.  Most cigarette compan ies are raising prices in order to pay the fee. 
Health advocates feel that increa sed cost for cigarettes will deter some consumers from buying the 
product.  
 
Question (India #14)  
 Prohibition on imports of uncooked meat products:  Un cooked meat products such as sausage, ham, 
and bacon have been subject to a long-standing prohibition on imports despite the fact that meat 
products may come from disease free regions and that the processing involved should render any risk 
negligible.  Would the US authorities clarify the reasons for continuing with this prohibition and 
whether there is any move to review this prohibition. 
 
Answer  The United States does not have a prohibition on imports of uncooked meat products, but does have 
food safety regulations for all meat sold in the Un ited States.  To date, India has not petitioned for 
certification of its meat inspection system (equivalen ce).  To petition for equivalence, please contact 
the United States Embassy or the United States Depa rtment of Agriculture Food Safety and Inspection 
Service.  For more information on the equivale nce process, please visit the following website: 
http://www.fsis.usda.gov/opp de/ips/EQ/EQProcess.htm.  WT/TPR/M/126/Add.2 
Page 46  
 
  
Question (India #19)  
 
SPS measures on egg products:  Im port of egg products into the US  is allowed only under a regime 
requiring continuous inspection of the production process whereas a system of periodic inspection of 
the production process could also be acceptable from the point of view of safety of human health.  
Continuous inspection is expensive, and thus has a negative effect on pric es and competitiveness.  
Please provide the US view on this point.  Is there a possibility of review of the existing system? 
 Answer 
 
The United States does not have a prohibition on imports of eggs and products, but does have food 
safety regulations for all eggs and products sold in  the United States.  To date, India has not petitioned 
for certification of its egg inspection system (equ ivalence).  To petition fo r equivalence, please 
contact the United States Embassy or the United States Department of Agriculture Food Safety and 
Inspection Service.  For more information on th e equivalence process, please visit the following 
website: http://www.fsi s.usda.gov/oppde/ips/. 
 Question (India #23)  
 Subsidies on agricultural products:  The US operates a range of programmes which appear to be designed to subsidize and/or promote export of US agricultural products.  Some such programmes are 
(i) the Export Enhancement Program which allows US exporters to apply for a cash subsidy designed 
to make US products competitive with subsidized exports from other countries;  (ii) the Market 
Access Program which offers a share of costs for promotion campaigns for agricultural products; and 
(iii) the Export Credit Guarantee Program which of fers US Government guarantees targeted at 
countries which need guarantees to secure fina ncing but show a reasonable ability to repay (The 
program includes a specific list of commodities per co untry allocation.  It has recently become the 
main export policy tool of USDA, with annual  allocations exceeding US$5 billion and declared 
annual subsidy levels of over US$400 million.  The program has a defa ult rate of over 10% 
historically, and is reported to be characterized by uncertainty and lack of transparency with respect to 
the implicit subsidy component stemming from rescheduling of payments.)  Would the US delegation 
comment upon consistency of thes e schemes with various WTO Agreements including on Subsidies 
and Agriculture.  The US delegation is requested for information on whether they  propose to review 
these subsidy programmes. 
 Answer 
 
The US averages approximately $3.4 billion in credit guarantees annually, of which the subsidy 
component is minimal.  Export credits and export subsidies are not interchangeable as they have 
different policy objectives and different impacts on  global markets.  Direct export subsidies are 
clearly among the most trade-distorting measures in  agricultural trade, designed to lower prices and 
displace commercial competition.  On the other hand, export credit programs have a minimal impact 
on trade and are used to assist importing countries in financing commodity imports.  In recognition of 
the importance of the elimination of export subs idies, the USG is willing to support a parallel 
reduction of the trade-distorting component of expo rt credits.  We also believe disciplines are 
necessary to ensure that export credit programs do not circumvent export subsidy commitments and 
that developing countries are able to access affordable credit to address food security and economic 
development needs. 
Question (India #24)  
Subsidies to sugar:  Producer support to sugar in  the US amounted to well over US$1.3 billion per 
year during 1999-2001.  The sugar programme supports in the USA depend on a tariff rate quota  WT/TPR/M/126/Add.2 
 Page 47 
 
 
 (TRQ) based on domestic output.  Production increa ses have reduced import quota volume.  This 
decline and price erosion have adversely affected  market access to the US sugar market.  Please 
provide the US view on this point. 
 
Answer 
 
The U.S. sugar tariff rate quota (TRQ) is allocated consistent with WTO rules.  Changes in U.S. 
domestic sugar production cannot reduce sugar access below this minimum.  India’s fiscal year (FY) 
2004 allocation is 8,424 metric tons raw value, whic h is the same access level as FY 2003.  Further 
information about the U.S. sugar program can be found on the United States Department of Agriculture’s sugar commodity page , http://www.fas.usda.gov/import.html
.  Also the official United 
States Trade Representative press release concerning the FY 2004 sugar allocations is available on 
their website, www.ustr.gov.  Question (India #1 Annexure)  
 
We welcome the US assertion in the Government’s Report that the US remains firmly committed to 
the WTO-based multilateral trading system, and that co nsistent with the objectives agreed in Doha, 
the US shares a common purpose with WTO partners towards expanding economic opportunities to 
the world’s citizens by reducing trade barriers.  We al so note that as a part of its broader efforts to 
liberalize trade, the US states that it is pursuant  sever regional and bilatera l initiatives for free trade 
areas, in respect of some of which the US exports ex ceed its exports to “Russia, India, and Indonesia 
combined” [paragraph 47].  It is our hope and ex pectation that the US regional initiatives will be 
consistent with WTO rules, and will be nurtured in  a manner that promotes the complementarity of 
regional and bilateral initiatives with the multilatera l Doha Development Agenda.  In paragraphs 110 
through 113 of the Government Report, the US has dr awn attention to its domestic support to farmers 
as well as export subsidies, including credits, envisa ged in the 2002 Farm Bill.  The US asserts that it 
has been making very limited use of export subsidies, and that the trends in outlays, as well the nature 
of new programmes suggest that the US will continue  to meet its Agreement on Agriculture domestic 
support obligations.  We note with concern that the 2002 Farm Bill has a provision by which the AMS 
ceiling can be exceeded. 
 
Moreover, we note from paragraph 6 of the Secret ariat Report that the US has not fulfilled its 
notification obligations with respec t to various agriculture notifications including on domestic support 
and special safeguards applied in agriculture.  The US is well aware of the apprehensions of the bulk 
of the WTO membership as regards the provisions in the 2002 Farm Bill in furthering distortions in 
agricultural trade.  It would be highly desirabl e therefore for the US to  make its notifications 
expeditiously to that there is greater clarity and certainty as regards various proposals, including the 
US proposals, on the modalities for negotiations on agriculture under the DDA.  We support the 
apprehensions expressed, in paragraph 22 of the Se cretariat Report on domestic support, regarding 
monitoring of the domestic support levels under the 2002 Farm Bill and would like to know what 
steps are proposed to be taken in this regard. 
 
Answer  
 The United States is in the process of preparing DS:2 notifications to the Committee on Agriculture 
for programs under the 2002 Farm Act for which exemption will be claimed and will submit these 
notifications as soon as possible.  The United Stat es remains committed to the notification process and 
will work to fulfill all its WTO obligations.  
Question (India Annexure #2)  
 WT/TPR/M/126/Add.2 
Page 48  
 
 In its Government Report, paragraphs 123 through 126, the US inter alia outlines that the US will 
continue to work within the Doha Agenda to redu ce poverty and raise the living standard across the 
globe and that “an ambitious result in market access will be the grea test legacy of our work in the 
DDA”.  As the US is aware, expanding market access in agricultural products alone will not serve to 
reduce poverty and raise living standards.  Econo mist and agricultural experts have widely 
documented that the largest welfare gains for the poor  residing in the developing countries will stern 
from elimination of all forms of distorting subsidies, both domestic and on exports.  It is our hope that 
they US will be able to factor in this harsh realit y into its approach toward s the successful conclusion 
of the Doha Round. 
 
Answer  
 
We take note of India’s views.  Question (India #3 Annexure)  
 
Paragraphs 1 and 11 of the Secretariat Report draw attention to market access in the US, applied inter 
alia through non-ad valorem duties, prohibitive TRQs, tariff protection in the range of 50 – 350% and 
tariff escalation across a number of agricultural products.  We would like to understand how the US 
reconciles these barriers, which deny market acces s opportunities to developing country exports in 
particular, with its call for trade liberalization un der the Doha Development Agenda and the spirit and 
objectives of the Agreement on Agriculture?  
Answer  
 
The TPR discussion has made clear that developing countries, including India, have depended on the 
openness of the U.S. market to stimulate global growth.  As barriers around the world are reduced, it 
should be possible for the United States to continue to reduce its remaining barriers, which, relatively 
speaking, are far fewer in the agricultural sector than  for example, those maintained by countries like 
India.  The United States has submitted a very amb itious and aggressive proposal for reducing tariffs 
in the WTO negotiations.  In add ition, the United States has proposed the elimination of all tariffs by 
a date certain.  The United States is fully committed to further reform in world agricultural trade. 
 
Question (Japan #33) 
 What measures has the US taken to prevent the exportation  of GMOs which are unauthorized by the 
relevant regulations in importing countries?  What measures does the US intend to take if unapproved 
GMOs are found in agricultural products exported from the US to importing countries?  
 
Answer  Once a biotech event is approved in the United Stat es, it can legally circulate in interstate commerce 
and be legally exported.  It is the responsibility of  commercial interests to ensure that exports to a 
particular country meet all import regulations, and the responsibility of the importing country to 
implement and apply its import regulations.  
 
Civil and legal penalties exist in the United Stat es for cases where the re gulatory requirements 
regarding the development, testing, and release of bi otech events are not respected.  The United States 
takes seriously its biotech regulatory and food safety responsibilities to U.S. consumers and customers around the world, and is committed to working closely with other governments on these issues. 
 Question (Japan #35) 
  WT/TPR/M/126/Add.2 
 Page 49 
 
 
 Is the US ready to provide the necessary information for detecting GMOs, unapproved in importing 
countries, which are released into  the environment in the US and/or which have the possibility of 
being exported?  
 Answer 
 
USDA’s Grain Inspection, Packer, and Stockyards Administration (GIPSA) maintains a biotechnology reference laboratory which works wi th grain handlers, test manufacturers, and life 
science organizations around the world to help en sure the availability of reliable tests. GIPSA’s 
reference lab also offers a Proficiency Program to organizations testing for biotechnology-derived 
grains and oilseeds.  This program helps these organizations identify areas of concern and take corrective actions to improve testing capability and reliability.  A number of testing laboratories in 
Japan and other countries have participated in this program. In addition, officials from many 
countries, including Japan, have toured the refe rence lab, and are welcome to visit at any time. 
 
Question (Japan #58) 
 
After abolishing its deficiency payments under the Federal Agricu lture Improvement and Reform Act 
of 1996 (FAIR Act), the US has been providing emergency assistance since 1998 as an additional 
protection measure under production flexibility contra ct payments, which was introduced instead, and 
has introduced Counter Cyclical Payments under the Farm Security  and Rural Investment Act (FSRI) 
of 2002.  Please explain why the US has established these payment systems and the background (including why the production limitation is no longer a requisite for deficiency payments under the 
2002 Act, while it was a requisite under the 1990 Act) .  Measures and programs introduced under the 
Farm Security and Rural Investment Act (FSRI) have already entered into the phase of 
implementation.  Does the US intend to notify some of those measures or programs as new or 
modified domestic support measures exempt from the reduction commitment?  If so, the US should 
submit a notification as soon as possible in order to ensure transparency and to expand the discussions 
by Members on the US relevant support measures. 
 
Answer 
 
Counter-cyclical payments were de signed as farm support program that, although linked to prices, 
would have less trade-distorting e ffects than traditional price support mechanisms.  There is no 
requirement to limit production beca use these programs were phased out, as no production is required 
to receive these payments.  The co unter-cyclical payments are comple tely decoupled from production.  
 
USDA rulemaking is an open, transparent proces s.  The process and progress for the Farm Act 
programs is documented on the USDA webpage. As regulations for new programs outlined in the 
2002 Farm Act are put into place and the new programs get up and running, the United States will 
submit the required DS-2 notifications to the WTO.  
 WT/TPR/M/126/Add.2 
Page 50  
 
 Question (Japan #59) 
 The US is proposing a drastic reduction in or even the elimination of, trade distorting measures in the agriculture negotiations, while increasing its direct government payments (Report by the Secretariat, 
p.102, Chart.1).  These two points are incompatible w ith each other.  In particular, it is rational to 
understand that the US price-related direct gover nment payments and emergency assistance for 
certain products, such as wheat, rice, soybean and cotton, have export enhancing effects since a 
sizeable amount of those products is exported. Acco rding to the Report by the Secretariat (p.101), the 
share of exports in terms of value of production was 48% for wheat, 42% for rice, 37% for soybeans, 
and 39% for cotton. Under the FSRI, the US has institutionalized export enhancing payments by introducing counter cyclical payments for such products and has increased actual payments since 
2002.  Can the US explain how this policy, and the increase of such payments, are consistent with the 
US position in the agriculture negotiations, i.e. to phase-out export subsidies?  
 Answer 
 
The 2002 Farm Act does not authorize the increased use of export subsidies.  The United States 
remains committed to the Doha Development Agenda objective of reducing, with a view to phasing 
out, export subsidies.  
 
Question (Japan #61)  
Does the US AMS in 2003 exceed its commitment level?  
 
Answer 
 
No.  In 2003, the United States did not exceed its Uruguay Round commitment level of AMS 
spending.   
 Question (Japan #62) 
 If the increase in direct government payments a nd emergency assistance in 2003 results from lower 
market prices, it is thus possible that the increase in government payments cannot be controlled and 
that the AMS level exceeds its commitment level when the market price falls ever further.  The US 
commented that no decision had been made as to whether regulations are needed to implement 
Section 1601(e) of the FSRI (Report by the Secretar iat, p.107).  With what kind of measures can the 
US properly monitor the increase in direct payments and ensure that its AMS level does not exceed its 
commitment level?  
 
Answer 
 
The United Stated Department of Agriculture continually monitors actual spending in each of its 
programs.  If actual spending levels approach co mmitment levels, the Secretary of Agriculture is 
notified and further spending is closely watched in case the “circuit breaker” provision of the 2002 
Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to be 
invoked.  
 
Question (Switzerland #8 & #9) 
 
According to § 139 some U.S. import restrictions are taken as a response to risks posed by FMD and 
BSE. In this context meat products are allowed to be directly imported into the US from a non-FMD-
free country if certain measures (as described in the Code of Federal Regulations  Title 9 Part 94.4) are  WT/TPR/M/126/Add.2 
 Page 51 
 
 
 taken in the exporting country.  However if thes e measures on products originating in a non-FMD 
country have taken place in a third country, the products are banned to be imported to the U.S.  
 
What is the scientifically-based justification, in cluding an assessment of th e public health risk, of 
these additional US import restrictions? 
 According to §142 APHIS has regulatory responsibility to safeguard U.S. animal resources from exotic pests and diseases. According to §143 FSIS has specific responsibility for the safety of meat, 
poultry and certain egg products. 
 How does the U.S. government ensure the cooperation of these two agencies, in order that various regulations and different control systems by these two agencies do not become an unduly 
administrative burden?  Answer 
 
Inspections by APHIS and FSIS are required before equivalence determinations can be made.  Under 
the WTO SPS agreement, we welcome products that co mply with United States food safety laws.  For 
more information on the United States process fo r evaluating the equivalence of foreign meat and 
poultry food regulatory systems, please visit the following website: 
http://www.fsis.usda.gov/opp de/ips/EQ/EQProcess.htm.  
 
The United States has very serious restrictions on FMD, because it is an extraordinarily devastating 
disease, as the European continent has experienced.  
 
Question (Switzerland #13) 
 
As mentioned in para 12., page 102, the six-ye ar Farm Act (2002-07) in creases reliance on price-
dependent support.  Such type of measures are know n as production-distorting.  Could you explain the 
reasons for the re-orientation (compared with the FAIR Act of 1996 reducing production-distorting 
support in favour of income supplements) of the package of US support measures in favour of 
production-distorting measures?  
 
Answer 
 The United States has fully complied with WTO commit ments.  However, to address the distortion in 
the world marketplace for the agricultural sector, the United States has submitted an ambitious, 
balanced, and reform-focused pr oposal focused on all three “p illars” for the WT O negotiations.  
 Question (Switzerland #14) 
 The new programme of counter-cyclic al payments (CCPs) uses a target price as a reference.  As it 
appears in the Table IV.3 on page 109, this target price is set rather higher than the average prices 
recorded during 1999-02.  Could you explain the mech anism allowing to set the target price at the 
level established for the period 2004-07?  What is  the basis for the calculation and which kind of 
prevision model allows to determine this target price ?  
 
Answer  
The target prices are set in legislation.  For ad ditional information, please refer to the following 
website: http://www.usda.gov/farmbill/index.html.  Question (Switzerland #15) WT/TPR/M/126/Add.2 
Page 52  
 
  
As mentioned in § 33 on page 110, federal milk mark eting orders establish minimum  prices for milk 
depending on its use by processors.  Could you please describe the types of use and how the priorities 
are set to support one or the other type?  Is it possible that some type of milk supported by these 
measures is purchased by a processing plant at a lower price and therefore represents a form of 
processing plant support?  
 
Answer  The Federal Milk Market Order (FMM O) system is based on milk classes which in turn are based on 
use.   Class I is beverage milk and cream—basically what one buys at the store.  Class 2 is for soft 
products which include such things as ice cream and yo gurt.  Class 3, the largest class is milk used for 
cheese, while Class 4 is for making nonfat dry milk and butter.  In general, prices for class 3 and 4 are 
set by the markets for the respective products while pr ices for Classes 1 and 2 are set by the higher of 
Class 3 or Class 4.  Again, as a general rule, Class 2 is 70 cents/cwt higher while Class 1 has regional 
differentials compared to Class 3 or 4.  (Timing and component prices significantly complicates these 
general rules)  The system mainly regulates the first handler of milk after it leaves the farm, plus most 
milk is delivered to farmer-owned cooperative so its unlikely significant quantities are sold at 
discount prices.  More info can be obtained from http://www.ams.usda.gov/dairy/.  
 
Question (Switzerland #16) 
 
According to § 40. on page 111, the largest U.S. agricultural export promotion programmes are the 
Export Credit Guarantee Programme (GSM-102) an d the Intermediate Export Guarantee Programme 
(GSM-103).  What is the share of these two prog rammes in the US total annual export volume and 
value and for which kind of commodities are they allocated? 
 
Answer 
 
In FY 2003, based on value, 6.04% of US agricult ural exports were traded  using USDA's  Export 
Credit Guarantee Programs. The Commodity Credit Co rporation selects agricultural commodities and 
products according to program criteria.  Please re ference http://www.fas.usda.gov/excredits for a list 
of eligible commodities.  
 
Question (Switzerland #17) 
According to table IV.2 (p. 104) some products c overed by tariff quotas have reserved access for 
distinct suppliers.  Some of these quotas show fi ll rates below two third like low fat cheese or even 
0% for low- fat chocolate crumb.  How do the United States. intend to reallocate unused quotas? 
 Answer 
There are numerous quotas that are administered by the United States and many of these quotas differ 
on how to reallocate unused portions.  It is the policy of the U.S. government to administer each quota 
as effectively as possible within each individual se t of requirements.  For more information, see the 
following United States WTO no tification: G/AG/N/USA/48. 
Chapter 4 - BY SECTOR 
 
(3) Maritime Transport 
 
Question (European Union #18)  
  WT/TPR/M/126/Add.2 
 Page 53 
 
 
 The report of the Secretariat (Paragraphs 99 and 100)  states that total intern ational water-borne trade 
(in volume) was 1.137 million tonnes in 2002 and th at domestic water-borne trade was around 946 
million tonnes.  Can the US indica te the share of domestic water- borne trade that relates to pre-
onward carriage of international cargo (“feeder transport”) between US seaports?  Can the US 
indicate the share of domestic water-borne trad e that relates to inland waterway transport? 
 
Answer  
 
The information on pre-onward carriage of internatio nal cargo is not available.  The inland waterway 
share of domestic waterborne trad e is 562.2 million metric tons or 59.4% of the domestic waterborne 
trade.  
Question (European Union #19)  
 
The report of the Secretariat (paragraph 2) focuse s on initiatives to upgr ade and develop maritime 
transport services in the US.  The US restrictions  on domestic water-borne transport (paragraphs 104-
107) and the restrictions and nationality requirements in US ports (paragraphs 117-119) limits the 
choice available to operators in terms of optimizing the transportation services they can offer to their 
customers (e.g. by having to rely more on road tran sport in stead of coastal shipping).  Does the US 
have any estimation on the additional transportation cost  that results from these restrictions?  Does the 
US have an assessment of the environmental impli cations of using more road  transport rather that 
coastal shipping (by a rough estimation, trucks pollu tes 3-4 times more than ships, causes congestions 
etc.)? 
 Answer  
 
Short sea shipping offers a viable mode of tran sport that could ease congestion on increasingly 
crowded U.S. highways.  The Administration has as ked the domestic maritime industry to take a 
leadership role in further developing this  segment of our maritime transport system. 
 Question (European Union #20)  
 
The report of the WTO Secretariat describes the ‘Merchant Marine Act’ (Jones Act) and its 
implications. 
 
a.  How many ships have been produced in the la st years under the ruling of the Jones Act, kindly 
specify type of ship, purchasing-pr ice and the tonnage of the ships? 
 
Answer  
 
This information (except for ship purchase price)  is reported annually to the WTO Secretariat. WT/TPR/M/126/Add.2 
Page 54  
 
 Question (Norway #2) 
 
In the Secretariat repor t, paragraph 98, it is stated that the U.S.  recorded a deficit of US$10.2 billion in 
freight and port services.  We woul d like to know if the incomes from vessels registered under foreign 
flag and owned by U.S. shipping companies have been included when calculating these figures. 
 
Answer  
 
Balance of balance of payments calculations are based upon whether the company is domiciled in the 
U.S. (for tax purposes) and not whether the vesse ls owned by these companies are registered under 
foreign or U.S. flags.  
Question (Norway #3)  
 
In the Secretariat report, paragraph 104, it is stat ed that the Jones Act does not prevent foreign 
companies from establishing shipping companies in the U.S. as long as they meet the requirements with respect to U.S. employees.  Does this imply that foreign owned shipping companies established 
in the U.S. may own and register vessels under U.S. flag operating in U.S. cabotage trades? 
 
Answer  
 
With respect to foreign ownershi p of Jones Act vessels, U.S. la w permits bona fide non-citizen 
leasing companies to own Jones Act vessels if those vessels are demise chartered to U.S. citizens for a 
period of 3 years or shorter.  For detailed informat ion on this subject please refer to 46 USC 12106(e). 
 
Question (Norway #4)  
 
In the Secretariat report, paragraph 108, it is stated  that the U.S. international maritime transport 
market is generally open to foreign participation, and para 114-116 describes the exemptions.  We 
would like to know if this implies that no cargo sharing agreements/requirements exist with foreign 
countries or if such clauses are merely dormant. 
 
Answer  
 We have no such agreements. 
 Question (Norway #5)  
 
In the Secretariat report, paragraph 116, it is explained that the last Alaskan crude oil was exported in 
April 2000.  Since then all Alaskan crude oil production has moved to the United States.  The existing 
requirement of Alaskan crude oil exports to be carried by U.S.-flagged vessels seems therefore to 
have become obsolete.  Is the United States considering to remove the requirement that Alaska crude 
oil exports shall be carrie d by U.S.-flagged vessels? 
 
Answer  
 
No consideration is being given to removing this requirement.  
Chapter 4 - BY SECTOR  
(5) Telecommunication Services 
 
Question (EU #25)   WT/TPR/M/126/Add.2 
 Page 55 
 
 
  
The report points out (paragraph 164) that the FCC considers various factors when considering a 
licence application from a foreign operator. What kind of ““trade policy concerns”” can affect a 
licence application from a foreign operator? What are the criteria’’s for assessing ““security 
concerns”” for a licence application from a foreign operator?  
 
Answer  
The Commission takes into account the entire record and affords the appropriate level of deference to 
Executive Branch expertise on national security, la w enforcement, foreign policy and trade matters.  
We expect that concerns of trade and foreign policy would be raised only in very rare circumstances.  
In addition, we note that to date, we have not denied any license based on any of these types of 
concerns. 
 Question (Korea)  
Reference:  para. 169 
 
Is it correct to understand that entities from WT O member countries are exempt from the public 
interest review? 
 
Answer  
 
No.  As stated in the Secretaria t’s report, in reviewing petitions fo r proposed foreign investment as 
required pursuant to Section 310, the Commission relies on principles set forth in the 1997 Foreign Participation Order, including a pr esumption that foreign investment  in the U.S. market by entities 
from the WTO member countries is co nsistent with the public interest. 
 Question (Korea)  
Reference:  para. 172 
 
Provide information explaining the reasons for th e U.S. classification of DBS/DTH services as 
telecommunications services. 
 Answer  
 One-way satellite transmission of DBS/DTH services do not have the characteristics of traditional 
free-to-air broadcast services.  Thus, they are classified in the United States as telecommunications 
services as opposed to broadcast services. 
 
Question (Korea)  
Reference;  para. 179 
 
Does the U.S. feel that adopting a single standard would not help enhance the mobile penetration rate 
in the U.S.? 
 
Answer  
 
No.  Having multiple competing standards has not proven to be a deterrent to wide-spread adoption of 
mobile services in the United States.  In fact, without adopting a single standard, 6 wireless operators have nation-wide coverage, and are competi ng on the basis of innovation and price. 
 Question (Korea)  
 WT/TPR/M/126/Add.2 
Page 56  
 
 How does the U.S. government interpret the concept and scope of “legitimate public policy objectives 
in telecommunications services?” 
 Answer  
 
While the concept and scope of public policy objectives are not predefined, they have typically 
included issues common to governmental oversight everywhere, such as safety, consumer protection, 
competition, and national security. 
 
Chapter 4 - BY SECTOR  (7) Financial Services 
 
Question (Canada #8) 
Under the Gramm-Leach-Bliley (GLB) Act introduced in 1999, US banks continue to have little 
freedom to own and be owned by non-financial co mpanies.  The issue of whether banks would be 
permitted to own non-bank companies as merchant ba nking investment may be reviewed five years 
after the enactment of the GLB Act (2004).  Does the US foresee more liberalization of the banking 
sector to permit banks to be owned and to own non-financial companies. 
 Answer 
 
The United States does not foresee any changes at th is time to the U.S. policy separating banking and 
non-financial activities in the United States.  The Gramm-Leach-Bliley Act (GLBA) continued the 
longstanding U.S. policy of separation of banking and non-financial activities, generally prohibiting 
non-financial companies from owning banks.  Compan ies that own banks (bank holding companies) 
may, however, own non-financial companies through the merchant banking provisions of the GLBA.  
Such investments are subject to the limitations set forth in the GLBA and the implementing regulations.  There is no current proposal to authorize banks directly to own non-financial entities 
through the merchant banking provisions of the GLBA. 
 Questions (Canada #19)  
 
While the United States has undertaken national trea tment commitments, some restrictions remain in 
the banking and insurance sub-sectors (e.g., regi stration requirements for foreign banks, certain 
federal excise taxes on life and non-life insurance prem iums).  In addition, at the state level, market 
access restrictions remain in the banking and insura nce sub-sectors (e.g., establishment, acquisition, 
licensing).  Does the US contemplate a relaxation of  these restrictions by state-level governments? 
 
Answer  
 The U.S. believes that U.S. state treatment of forei gn financial services provide rs is, in general, very 
liberal.  That said, our initial GATS offer reflects  some improvements undertaken by the states, for 
example, in the area of in surance.  The U.S. will con tinue to consult with the states for the purpose of 
the negotiations.  Question (China #108) 
 
How many licensing applications have been approved to foreign bankers and insurers since the 
previous US trade policy review?  
 Answer  WT/TPR/M/126/Add.2 
 Page 57 
 
 
  
Over 70 foreign bank applications have been approved by the Federal Reserve since April 1, 2001.  
However, since the Federal Reserve is not the licensi ng authority for offices of foreign banks in the 
United States, in most cases the relevant state or federal licensing authority also must approve the 
application.  We are not aware of any instances during this time period where the Federal Reserve 
approved an application by a foreign bank that wa s not also approved by the licensing authority. 
 
In general, we note that there are a very large number of foreign banking organizations operating in 
the United States.  These foreign banking organizations own approximately 18 percent of all U.S. 
banking assets.  
Question (China #109)  
 Have there been any applications rejected by the licensing authorities in the United States during the 
same period?  If so, how many and why? How many licensing applications are pending for approval? 
 
Answer 
 No applications by foreign banks have been reject ed by the Federal Reserve during the period since 
April 1, 2001.  Currently, there are five applicatio ns by foreign banks pending at the Federal Reserve. 
 
Question (China #112)  
 
(p. 149, Paras 203, 204, and 205) Various market access restrictions exist in the US banking sector, in 
particular on the establishment of branches by  foreign commercial banks .  Complicated approval 
procedures and prolonged pending period are two common concerns of foreign banks.  Up till now, 
all the applications by Chinese banks to establis h branches or representative offices have been 
pending for a long time with the only exception of Bank of China’s New York branch.  For example, 
the application by Bank of China to set up a branch in San Francisco was filed 10 years ago but the 
approval is still pending by now.  The reasons given by the US competent authorities are not 
convincing since Bank of China has been approved to set up branches in several other countries in 
addition to the branch already existed in New York City of the US. 
 
Please specify the criteria for approving the es tablishment of branches of foreign banks. 
 
Answer  
 
The discussion on an individual application for a branch would seem outside the scope of the Trade 
Policy Review Process.  The United States maintain s a general policy of national treatment towards 
the U.S. branches, agencies, secur ities affiliates, and other operations of foreign banks.  We welcome 
any foreign bank that meets internationally accepted standards on capital adequacy and consolidated 
supervision.  The general criteria for the establishm ent of branches of foreign banks are set forth in 
the Foreign Bank Supervision Enhancement Act, as implemented by Regulation K, whether or not an 
interstate expansion is involved. 
 
The following are criteria reviewed by the Federal Reserve in assessing applications by foreign banks 
to establish branches in the United States.  In genera l, a foreign bank seeking to establish a branch in 
the United States must be subject to comprehensive and consolidated supervision by its home country supervisor.  In certain circumstances, approval may be granted if the home country supervisor is 
actively working to establish arrangements for cons olidated comprehensive s upervision.  The foreign 
bank also must have capital that is equivalent to the capital required of a U.S. bank in comparable 
circumstances.  The asset quality of the foreign bank  is reviewed in making the capital assessment.  
The Federal Reserve must determine that it will have  access to necessary information to determine WT/TPR/M/126/Add.2 
Page 58  
 
 and enforce compliance with applicable laws.  The Federal Reserve also reviews whether the foreign 
bank has adopted and implemented procedures to combat money laundering, wh ether there is a legal 
regime in place in the home country to address money laundering, and whether the home country is 
participating in multilateral efforts to combat mone y laundering.  Other criteria include whether the 
home country supervisor shares supervisory information with other supervisory authorities and 
whether the home country supervisor has consented to the establishment of the U.S. branch.  [Form 
FR K-2 outlines the required information for an application. It is available on the web at 
http://www.federalreserve.gov/boarddocs/ reportforms/forms/FR_ K-220021010_ f.pdf.] 
 
The federal or state licensing authority may have a dditional requirements, although such requirements 
generally are similar to those mentioned above.  
All of these standards are consistent with international norms. 
 
Question (Chinese Taipei #1) 
 
In addition to corporate income tax, foreign bank branches in the US are required to pay a 30% 
“Branch Profit Tax” if the earnings of the foreign ba nk are not reinvested in the US. Furthermore, the 
rates of the Branch Profit Tax vary, according to whether or not the home country of the foreign bank 
has signed a tax treaty with the US. My delegation is of the view that this measure does not conform 
to the principle of non-discrimination and has placed an excessive burden on Taiwanese banks operating in the US.  We would therefore like to see the US review this measure in due course.  
Answer  
 
The United States believes that “bra nch profit taxes” are fully consistent with our GATS obligations.  
We note Chinese Taipei’s statement of interest. 
 
Question (Chinese Taipei #2)  
 (Secretariat Report: p. 149, para. 205).  As indicated , a foreign bank is required to establish an insured 
banking subsidiary in order to accept or maintain retail deposits of less than US$100,000.  These 
restrictions, effective since 1991, have placed fore ign banks operating in the form of branches in a 
disadvantageous position, which seriously hampers their funding capability. 
 
We recommend that the US affords the same treatm ent to foreign bank subsidiaries as it does to 
branches whose parent banking institutions ar e properly insured in their domestic market. 
 
Answer  
 
We would highlight that foreign bank branches en gaged in insured deposit-taking activities as of 
19 December 1991 were exempted from this requirem ent.  We would note that even before 1991, 
when they were permitted to accep t retail deposits in branches, fore ign banks were primarily involved 
in wholesale banking.  The preference of foreign banks for branches may also be because, in some 
cases where states allow branches, and for federal branches, foreign branches are generally not 
required to commit organizational capital.  The treatment of capital varies by state, however. 
 
Question (EU #31)  
 
Could the US specify which are the 18 States allowing inter-state branching by de novo 
establishment, and whether more States contemplate to allow such a possibility? (Reference is made 
to paragraph 201 of th e Secretariats report) 
  WT/TPR/M/126/Add.2 
 Page 59 
 
 
 Answer  
 
Connecticut, Hawaii, Indiana, Maine, Maryland, Massachusetts, Michigan, Nevada, North Carolina, 
North Dakota, Ohio, Oklahoma, Pennsylvania, R hode Island, Texas, Utah, Virginia, and West 
Virginia, (plus Puerto Rico and the District of Columbia).  
 
We do not have further information as to what other states might move to permit this type of interstate 
branching. 
 
Question (EU #32)  
 
Under US law foreign banks branches may not be requ ired to commit organisational capital omits that 
they may be required to pledge a certain amount of  their assets, computed as a percentage of their 
third-party liabilities.  Could the US explain the curr ent state-of-play of the a sset pledge requirements, 
and possible improvements contemplated, especially in  the State of New York? (Reference is made to 
paragraph 205 of the Secretariats report). 
 
Answer  
 
Federal and state law require that as a condition of opening a branch or agency, a foreign bank must 
maintain a pledge of high grade liquid assets in the state where that branch or agency is located.  This condition is referred to as the “asset pledge” requ irement or “capital equiva lency deposit”.  The asset 
pledge is intended to serve as a capital-like cushi on for U.S. branches and agencies of foreign banks, 
as well as to protect creditors and cover liquidation costs in the event of a failure of the branch or 
agency or foreign banking organization.  The United States considers federal and state asset pledge 
requirements to be prudential and therefore does not list them in its reservations to market access or 
national treatment. 
 
Many states have recently modified their asset pledge requirements to reduce the economic costs 
imposed on foreign banks.  For example, in Illinois, state legislation was amended to grant 
discretionary authority to the state banking commiss ioner to apply asset-pledge requirements based on 
a risk-focussed assessment of safety and soundness for individual banks.  In New York, legislation 
recently reduced the pledge requir ement from 5 percent of third part y liabilities to 1 percent of third 
party liabilities; capped the pledge amount to $ 400 million for well rated institutions; expanded the 
type of assets that may be pledged, including more  flexibility for well rated institutions; and allowed 
the pledge to be calculated on a monthly basis.  
In 2002, the Office of the Comptroller of the Cu rrency (OCC) implemented more flexible capital 
equivalency requirements for federal branches of fo reign banks to reduce costs for institutions that 
present low levels of risk.  Under U.S. law, fede ral branches of foreign banks maintain a Capital 
Equivalency Deposit (CED) equal to 5 percent of thei r liabilities in trust accounts at other banks.  The 
OCC reduced administrative burdens for low risk branches, as they may now withdraw excess 
deposits without seeking prior OCC approval.  Add itionally, the liability base over which the CEDs 
are calculated has been redefined to exclude liab ilities booked on a federal branch’s International 
Banking Facility, or IBF. An IBF may only accept deposits and extend credits to foreign companies 
and individuals and to other IBFs. 
 
The OCC has recommended legislation that would give the Comptroller the same flexibility that states now have to adjust the 5 per cent CED re quirement to take account of the particular 
circumstances of an individual institution. 
 
Question (Hong Kong #6) 
 WT/TPR/M/126/Add.2 
Page 60  
 
 We note with appreciation that interstate expansio n by a foreign bank through the establishment of 
branches by merger with a bank located outside the “home state” of a foreign bank is granted national 
treatment. Citizenship requirements are however s till maintained in US GATS initial offer and so are 
the residency requirements (without specification of exact requirements and state coverage) for 
directors, incorporators, organizers, or exec utive committee members of depository financial 
institutions. We would appreciate it if the US could share with us some more details of the exact 
requirements and the states included. 
 
Answer  
 
Citizenship, and in some cases residency, is requir ed for incorporators or organizers of depository 
financial institutions organized under state law, as  listed in the US GATS schedule. In the case of 
boards of directors, the US GATS schedule contains a list of state specific limitations on citizenship 
requirements of which some would be eased under our latest offer. For example, Louisiana has 
removed citizenship requirements for board of director s, allowing residents to serve on boards as well 
and Georgia has reduced their requirement from all to 3/4.  If Hong Kong has a more specific area of interest we would be pleased to learn of it. 
 Question (Hong Kong #7)  
 We note that the US has inscribed registration requirements for foreign banks in the provision of securities advisory and investment management services in its GATS schedule. Apart from the 
registration requirement, we understand that some ot her discriminatory requirements also exist in US 
laws, such as citizenship/residen cy requirements for the majority of the directors and officers, 
maintenance of assets in the US with a US bank,  having a US entity as a principal underwriter and 
have a US auditor for the company. We would a ppreciate it if the US could advise us on the 
compatibility of these restrictions with the US GATS commitments. 
 Answer  
 We are not aware of any practices, including the ones mentioned and listed above by Hong Kong, 
which are inconsistent with our GATS commitments. 
 
Question (Japan #88)  
 
Discriminatory measures against foreign banks in obtaining the status of financial holding companies (p. 147, para. 197) In order for banks to enter a securities business through an affiliates, it is necessary 
for them to obtain the status of Financial Holding Companies (FHCs), based on the Gramm-Leach-
Bliley-Act enacted in November 1999.  The Act provid es that foreign banks are required to meet well-
capitalized and well-managed standards, comparable to those applied to US banks. Japan requests the 
United States to clarify the criteria of FRB's judgment regarding thes e standards. 
 Answer  
 
Banks may enter the securities without obtaining FHC status.  So-called “section 20” companies may 
conduct general securities activities, subject to certain limitations.  In order to establish “section 20” 
companies, the foreign bank must meet capital an d management standards as applied on a national 
treatment basis.  With respect to the well-capitalized and well-managed standards for becoming an FHC, the Gramm-
Leach-Bliley (“GLB”) Act requires capital and mana gement standards for a foreign bank that are 
comparable to the standards applied to a U.S. bank owned by a FHC, giving due regard to the 
principle of national treatment and equality of competitive opportunity.  In assessing a foreign bank’s  WT/TPR/M/126/Add.2 
 Page 61 
 
 
 capital, the Federal Reserve Board (Board) uses a capital screening test referencing tier 1 and total 
capital levels calculated under the Basel Capital Accord.  The Board also believes, however, that 
review of a non-U.S. bank’s leverage ratio in partic ular cases may serve as an indicator that the bank’s 
capital should receive further scrutiny in determin ing whether the bank has capital comparable to a 
well-capitalized U.S. bank.  Conse quently, a foreign bank’s leverage ratio will be considered by the 
Board as one of the factors that can be taken into  account for purposes of the comparability review.  
Under this approach, the Board may consider whether the level of a foreign ba nk’s leverage ratio is 
such that it indicates that additional analysis should be undertaken in assessing comparability.  Such 
assessments would in all cases be based on all releva nt factors, and not merely on the leverage ratio.  
The foreign bank’s qualification for FHC status wo uld not be dependent upon the leverage ratio.  
Instead, qualification would depend on the overall capital strength of the foreign bank.  Moreover, the Board expects that staff would consult with the fo reign bank’s home country supervisor on issues 
relating to capital. 
 
The Board’s requirements are applied to banks on a consolidated basis. This is the internationally 
accepted method of assessing bank capital.  U.S. banks have non-depository subsidiaries and those subsidiaries are consolidated into the U.S. bank’s balance sheet for purposes of assessing capital.  
Moreover, as noted above, a foreign bank would have the opportunity to submit a pre-clearance 
request to the Board for a determination on capital status, and would be able to make arguments that it 
believes demonstrate why its capital should be considered acceptable under the tests. 
 The Board takes into account a foreign bank’s re liance on government support to meet capital 
requirements in determining whether the foreign bank is well capitalized.  In order to assure equality 
of competitive opportunity, the Board must be able to  consider the impact of any assistance a foreign 
banking organizations receives from its home country  for purposes of meeting capital requirements.  
A bank operating with government assistance is not competing on market terms. 
With respect to management standards, the Board assesses the foreign bank’s U.S. operations and 
requires the same rating that U.S. banks must achieve.  The Board also consults with the home 
country supervisor to ensure that the supervisor believes the foreign bank has the capacity to engage 
in the expanded activities of an FHC.  Question (Japan #89)  
 
Discriminatory measures against foreign banks for raising funds within the United States (p. 149, 
para. 203) When a foreign bank raises funds within  the United States, it is necessary to deposit a 
certain amount of collateral with the authorities as a guarantee.  Under the New York State Banking 
Law, for instance, the authorities demand bonds of high liquidity as eligible collateral, mainly CDs 
and CPs. Complying with the requirement causes a substantial opportunity cost, since a much higher 
return could be expected if invested in other assets.  There are also other problems, such as the heavy 
burden related to administrative procedures and pr ice fluctuation risk of the collateral bonds.  
Furthermore, according to a research conducted by th e Institute of International Bankers (IIB), United 
States and Canada are the only countries amon g over 40 countries surveyed, that oblige 'fund 
collateral posting’ by foreign banks'  as business guarantee.  Therefore, Japan requests that such action 
be abolished.  Should this not be possible, the qua lifications for eligible colla teral should be expanded 
to include, for example, standard loan assets in order to provide flexibility for foreign banks.  Japan 
notes that the OCC has been reviewing this issue.  What is the current situation surrounding this 
review? 
 
Answer  
 
Federal and state law require that as a condition of opening a branch or agency, a foreign bank must 
maintain a pledge of high grade liquid assets in the state where that branch or agency is located.  This 
condition is referred to as the “asset pledge” requ irement or “capital equiva lency deposit”.  The asset WT/TPR/M/126/Add.2 
Page 62  
 
 pledge is intended to serve as a capital-like cushi on for U.S. branches and agencies of foreign banks, 
as well as to protect creditors and cover liquidation costs in the event of a failure of the branch or 
agency or foreign banking organization.  The United States considers federal and state asset pledge 
requirements that may exist to be prudential and th erefore does not list them in its reservations to 
market access or national treatment. 
 
Many states have recently modified their asset pledge requirements to reduce the economic costs 
imposed on foreign banks.  For example, in Illinois, state legislation was amended to grant 
discretionary authority to the state banking commiss ioner to apply asset-pledge requirements based on 
a risk-focussed assessment of safety and soundness for individual banks.  In New York, legislation recently reduced the pledge requir ement from 5 percent of third part y liabilities to 1 percent of third 
party liabilities; capped the pledge amount to $ 400 million for well rated institutions; expanded the 
type of assets that may be pledged, including more  flexibility for well rated institutions; and allowed 
the pledge to be calculated on a monthly basis. 
 
In 2002, the Office of the Comptroller of the Cu rrency (OCC) implemented more flexible capital 
equivalency requirements for federal branches of fo reign banks to reduce costs for institutions that 
present low levels of risk.  Under U.S. law, fede ral branches of foreign banks maintain a Capital 
Equivalency Deposit (CED) equal to 5 percent of th eir liabilities in trust accounts at other banks.  The 
OCC reduced administrative burdens for low risk branches, as they may now withdraw excess 
deposits without seeking prior OCC approval.  Add itionally, the liability base over which the CEDs 
are calculated has been redefined to exclude liab ilities booked on a federal branch’s International 
Banking Facility, or IBF.  An IBF may only accept deposits and extend credits to foreign companies 
and individuals and to other IBFs. 
 
On January 20, 2004, revised regulations governing Federal branches and agencies of foreign banks 
will go into effect.  Among the changes is a provis ion permitting a foreign bank with Federal branches 
and agencies in more than one state to consolidate some or all of its CEDs into one depository bank.  
A depository bank is considered to be located, under the revised regulations, in those states in which it 
has its main office or a branch.  The revised re gulations mark another way in which the OCC is 
seeking to reduce any regulatory burden associated with the CED requirement. 
 
Question (Japan #93)  
 Disclosure requirement in the issuance of new stoc ks as the reorganization.  If the US investors own 
10 % or more of an equity of a Japanese company,  the company must file a registration form to SEC 
for the reclassification of securities, mergers, consolidations and the acquisitions of assets, in 
accordance with Article 145 of th e General Rules and Regulations promulgated under the Securities 
Act of 1933.  As foreign investors increasin gly own Japanese stocks, the above-mentioned 
requirement is unreasonably burdens ome to Japanese companies, which are forced to disclose relevant 
information by US standards. Japan requests to increase a 10% threshold by about 30%. 
 
Answer  
 
We note your concern and statement on this matter. 
 
Question (Japan #94)  
 
Regulations regarding foreign mutual funds sold in the US (p.151. para.213) While approximately 20 US mutual funds are publicly offered in Japan, no Japanese funds have been offered in the US.  This 
imbalance results, in part, from the SEC Rule 7d-1.  Whereby the requirements prevent Japanese 
mutual funds from being offered in the US markets. Japan, therefore, requests the US to relax these 
requirements.    WT/TPR/M/126/Add.2 
 Page 63 
 
 
  
Answer  
 All funds that seek to sell their shares publicly in  the United States generally must register with the 
SEC as investment companies under the Invest ment Company Act of 1940 (“Company Act”).  
Section 7(d) of the Company Act requires that any non-U.S. fund that wishes to register as an 
investment company and publicly offer its securities in the United States must first obtain an order 
from the SEC.  To issue such an order, the SEC must find that "by reason of special circumstances or 
arrangements, it is both legally and practically feasib le to enforce the provisions of [the Act against 
the non-U.S. fund,] and that the issuance of [the] order is otherwise consistent with the public interest 
and the protection of investors."  Section 7(d) repr esents a prudential standard that generally ensures 
that U.S. investors receive the sa me essential investor protections, whether they acquire shares in a 
non-U.S. fund or in a U.S. fund.  The section provides non-discriminatory, national treatment for non-
U.S. funds; that is, any non-U.S. fund that can provide the investor protections required by the 
Company Act may legally access the U.S. market to th e same extent as any U.S. fund.  Further, non-
U.S. investment advisers may easily register in the United States as investment advisers and offer 
their services to U.S. funds or establish funds that are organized in the United States. 
 Question (Japan #95)  
 Free participation of US investor s in foreign ETF markets (p.151, para.213) It is unclear how the 
ETFs publicly available in foreign markets are re gulated under US law. ETFs are treated in Japan 
similarly to stocks, but because the exemption clause s applicable to stocks in the US do not apply to 
ETFs, US investors face diffic ulty in investing in Japanese ETFs.  Japan, therefore, requests the US to 
exempt ETFs from the process of the filing of registration forms and prospectuses. 
 
Answer  
 The regulation of foreign ETFs under the U.S. federa l securities laws will depe nd on the particular 
structure and characteristics of the ETF.  In genera l, however, the SEC would treat the offer and sale 
of non-U.S. ETF securities to U.S. investors in the same manner that it treats the offer and sale of any 
non-U.S. fund securities to U.S. investors, which is on a national treatment basis.  As described above, 
all non-U.S. funds that seek to sell their shares publicly in the United States must register with the 
SEC as investment companies under the Company Act.   In addition, because ETFs operate differently 
from traditional investment companies, U.S. ETFs  have had to seek exemptive relief from certain 
provisions of the Company Act.  Non-U.S. ETFs likely would also have to seek exemptive relief to register under the Company Act. 
 
Question (Japan #96)  
 
Securities services (p152, para.218) Corporate gove rnance takes place in a variety of forms based on 
regulatory and other differences.  Indeed, it seems that, there is no one-siz e-fit-all standard for 
corporate governance, as proclaimed in the OECD Principle of Corporate Governance, which was 
agreed by the OECD members including the US.  While recognizing the necessity of avoiding 
conflicts with foreign legal systems, the Sarbanes -Oxley Act nonetheless requires that the foreign 
companies listed in the US markets comply with the corporate governance standards.  For example, 
while the Act allows the exemption of a board of corporate statutory auditor system, there exists no 
similar exemption of the committee system.  The Act also puts a burden on foreign companies 
through such requirements as having to report and evaluate internal control.  The US should refrain 
from applying its corporate governance to foreign comp anies.  It risks inhib iting access unduly to its 
securities markets by foreign companies.  It is not enough to avoid conflicts of various legal systems.  
Japan would like to seek the US views on this matter. 
 WT/TPR/M/126/Add.2 
Page 64  
 
 Answer  
 
While the Sarbanes-Oxley Act generally makes no di stinction between US issu ers and foreign private 
issuers listed in the United States, the SEC is cogniz ant of the fact that US requirements and foreign 
requirements could come into conflict.  During im plementation of the Act, the Commission and its 
staff sought to learn from foreign regulators and ma rket participants about how the requirements of 
the Act conflict with local law or  local stock exchange requirements, and how foreign laws and 
regulations address in alternative ways the same issues as the Act.  The SEC engaged the foreign 
community through public roundtables, bilateral an d multilateral meetings, and an analysis of foreign 
comment letters.  Where appropriate, the SEC has made accommodations for foreign market participants, including in 
the two areas raised by the Japanese: audit committee  requirements and internal controls reporting.  
Regarding audit committee requirements, foreign priv ate issuers will have additional time to comply 
with new listing requirements (by 31 July 2005, rath er than by 31 October 2004).  In addition, the 
accommodations will, among other things, allow for alternative structures such as statutory auditors or boards of auditors to perform auditor oversight func tions where such structures are provided for under 
local law, such as in Japan.  These accommodati ons take into account foreign corporate governance 
schemes while preserving the intended result of the Act to ensure that those with oversight 
responsibility for a company’s outside auditors be independent of management. 
 Regarding internal controls reporting, the SEC’ s rules include the following accommodations for 
foreign private issuers: 
 
-- Foreign private issuers are not required to begi n reporting on internal controls over financial 
reporting on an annual basis until the first fiscal year ending on or after April 15, 2005.  Also, 
disclosure of changes in internal controls over financial reporting w ill be made on an annual 
basis rather than a quarterly basis. 
 
-- Foreign private issuers must use a suitable framework for evaluating internal controls, but are 
not required to use a US framework. 
 
Questions (Korea) Reference:  page 148-149, para. 205, 207  
Paragraph 205 indicates that foreign branches a nd agencies are involved primarily in wholesale 
banking and seldom in retail banking and this is part ly because a foreign bank is required to establish 
an insured banking subsidiary in order to accept or maintain domestic retail deposits of less than 
US$100,000. 
 
With regard to paragraph 205, please give us specific examples where a branch or an agency can 
accept domestic retail deposits of less than US $100,000.  And please provide us with detailed 
information on “insured deposits.” 
 
Answer 
 Foreign bank branches engaged in insured depos it-taking activities as of 19 December 1991 can 
accept domestic retail deposits of less than US$100,000.  Please consult FDIC.gov for detailed in formation about “insured deposits”. 
 
According to paragraph 207, the United States main tains commercial presence limitations on market 
access and national treatment for fore ign banks at the state level, with respect to the type of business  WT/TPR/M/126/Add.2 
 Page 65 
 
 
 establishment coverage of business (i.e. restrictio n on retail deposits) and requirements of citizenship 
or residence. 
 
Does the U.S. government have any plan to addr ess these restrictions at the Federal level? 
 
Answer  
 Under the U.S. federal system, states retain signif icant rights to regulate within their borders.  
Moreover, in light of the dual banking system, foreig n banks have the alternative to establish offices 
at the federal level.  Accordingly, the U.S. gove rnment has no current plans to address the cited 
restrictions at the state level.   
What is the difference between “branch” and “agenc y” in terms of the conditions of establishment, 
boundary of business and prudential regulation? 
 
Answer 
 
The requirements for establishment of branches and agencies are generally the same.  The prudential 
regulation of such offices generally is the same as  well.  However, agencies are more limited than 
branches in that deposits may only be accepted from persons and entities th at are not citizens or 
residents of the United States.  According to paragraph 210, “foreign investment advisers registered with the SEC are not required to 
have a U.S. place of business or set up a U.S. subsidiary or branch.” 
 
Please clarify whether or not this means that cros s-border supply (mode 1) and consumption abroad 
are permitted by the foreign investment advisers registered with the SEC? 
If so, since the United States has already adopte d the Understanding on Commitments in Financial 
Services whose paragraph B.3 (c) includes investment  advisory services, is it correct to understand 
that the United States has made such a commitment? 
 
With regard to this issue, could the U.S. government explain the meaning of the following statement 
in the note on financial services as included in the in itial U.S. offer:  “the United States will consider, 
pending on the other Members’ willingness to do likewise, adopting additional mode 1 commitments 
for certain other activities where the consumer is deemed sufficiently sophisticated to manage any 
attendant risk, such as allowing mutual funds located in the United States to obtain certain investment advice and portfolio management services from financial services suppliers located outside its 
territory.” 
 Answer  
 As is the case for many members, actual practice in  the U.S. is occasionally, more liberal than our 
commitments, including in the area mentioned by th e Korean delegation.  The U.S. stands ready to 
negotiate reciprocal removal of such “binding gaps.” 
 
__________