WT/TPR/S/160/Rev.1 Trade Policy Review 
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IV. TRADE POLICIES BY SECTOR 
(1) OVERVIEW  
1. The United States is one of the world's larg est producers, exporters, and importers of 
agricultural products.  In 2004, the average MFN applied tariff for agriculture was 9.7% (the 
corresponding average for other products was 4%, see Chapter III).  Government payments to 
agricultural producers as a share of net farm income  fell from 48% in 2000 to 16% in 2004.  This 
decline occurred despite an increas e in the share in total government payments of counter-cyclical and 
loan programme payments since the enactment of the Farm Security and Rural Investment Act of 
2002.  Ad hoc emergency payments continue to supplement other government payments and 
government-sponsored crop insurance. 
2. In July 2005, the Department of Agriculture announced that it had sent to Congress proposed 
statutory changes to comply with the panel a nd Appellate Body decisions on the WTO compatibility 
of a number of U.S. agricultural support measures fo r upland cotton.  The Department of Agriculture 
also announced that from 2005 it would use a "risk-based fee structure" in its export credit guarantee programmes, in response to a finding by the WT O that such programmes had been provided "at 
premium rates". 
3. The financial services sector is one of the f astest growing activities in the U.S. economy.  
There have been only relatively minor changes in U. S. legislation with respect to financial services 
since its last Review.  Among the changes, a ne w rating system for financial conglomerates that 
include a bank became effective on 1 January 2005 to  enhance the supervision of such conglomerates.  
The new rating emphasizes risk management and introduces a more comprehensive framework for 
analysing and rating financial factors. 
4. Initial entry into the U.S. market through the establishment or acquisition of a nationally 
chartered bank subsidiary by a fore ign person is permitted in all states.   There are limitations to initial 
entry or expansion by a foreign person through acquisition or establishment of a state-chartered 
commercial bank in approximately half of the st ates.  Foreign-owned ba nks, unlike domestic banks, 
are required to establish an insured banking subsidia ry to accept or maintain domestic retail deposits 
of less than US$100,000.  The United States also has a policy at the federal level of granting national 
treatment to the U.S. branches, ag encies, securities affiliates, and ot her operations of foreign banks.  
However, there are some market access limitations at  the state level for the establishment of branches 
or agencies, and in about a third of the states  for the establishment of foreign bank representative 
offices. 
5. The U.S. insurance services sector is regulated  primarily at the state level.  Insurance 
companies, agents, and brokers must be licensed unde r the law of the state in which the risk they 
intend to insure is located, but U.S. states have implemented a reciprocal licensing system for insurance agents and brokers, as well as a num ber of other initiatives to facilitate multi-state 
operations.  A federal tax on insuran ce policies covering U.S. risks is imposed at a rate of 1% of gross 
premiums on all reinsurance but at 4% of gross prem iums with respect to non- life insurance when the 
insurer is not subject to U.S. net income tax on the premiums. 
6. The U.S. telecommunications market is open to foreign participation and highly competitive.  
In December 2004, the Federal Communications Commi ssion adopted new regulations that redefine 
the extent to which incumbent firms are required to make available to other carriers elements of their 
network. United States WT /TPR/S/160/Rev.1 
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7. No significant policy or legislative changes have taken place with respect to maritime 
transport since 2004.  The Jones Act reserves car go service between two points in the United States 
for ships that are registered and built in the Unite d States and owned by a U.S. corporation, and on 
which 75% of the employees are U.S. citizens.  The Jones Act does not prevent foreign companies 
from establishing shipping companies in the United St ates as long as they meet the requirements with 
respect to U.S. employees.  Domestic passenger se rvices are subject to similar requirements under the 
Passenger Services Act of 1886.  In contrast, the U. S. international maritime transport market is 
generally open to foreign competition.  There are, however, a number of cargo preferences in place for government-generated cargo, oil, agricu ltural cargoes under certain foreign assistance 
programmes, or when a U.S. government agen cy makes export loans or credit guarantees. 
8. There have been no significant legislative ch anges affecting the air transport sector since 
2004.  Market access restrictions re main in the form of U.S. ownership and control requirements.  
Any foreign ownership in a U.S. carrier is limite d to a maximum of 25% of voting shares.  The 
provision of domestic air services is permitted only by  U.S. carriers.  The Fly America Act requires 
U.S. government-financed transportation to be on U.S. -flag air carriers, but grants authority for the 
United States to enter into bilateral or multilateral agreements to allow the provision of such services 
by foreign air carriers.  The United States has ente red into two such agreements.  Financial problems 
have continued to affect several U.S. airlines, in part because of rising fuel prices, sharp competition, 
and high pension costs.  Four of the major U.S. airlines are in reorganization under Chapter 11 of the U.S. Bankruptcy Code (October 2005). 
(2) A
GRICULTURE  
(i) Legal framework and overall support 
9. The Agricultural Adjustment Act of 1938 and th e Agricultural Act of 1949 constitute what is 
known as the "permanent" legal framework governi ng commodity price and income support in the 
United States.  The U.S. Congress regularly enacts legi slation that amends and suspends provisions of 
the permanent laws.  The last such legislation w as the Farm Security and Rural Investment Act of 
2002 (the 2002 Farm Act), signed by the U.S. Pr esident in May 2002.  Additionally, Congress 
provides ad hoc emergency and supplementary assistance under separate legislation. 
10. Payments to U.S. agricultural producers amount ed to US$13.3 billion in 2004;  preliminary 
estimates by the Department of Agriculture pred ict government payments for 2005 to increase to 
close to US$21.4 billion (Chart IV.1).  Accord ing to these preliminary estimates, the projected 
increase would be driven largely by an almost f our-fold increase in counter-cyclical payments and a 
seven-fold increase in ad hoc emergency pa yments with respect to 2004 (see below). 
11. The OECD's Producer Support Estimate (PSE) is a broader measure of support that includes 
government payments to producers and price support.  The PSE for the United States was US$35.6 billion in 2003.
1  As a share of gross farm receipts, the PSE was 15%, compared with 30% 
for the OECD as a whole.  Provisional data  for 2004 suggests an increase in the PSE to 
US$46.5 billion, or 18% of gross farm receipts, re versing the downward trend registered since 1999.  
The most heavily supported commodities, as measured by the share of the PSEs in gross receipts for 
2004 are sugar, milk, other grains, and wheat.2  The OECD noted that "wh ile support is lower than the 
1986-88 average [the last base period measured by the OECD], it is above the levels of the mid-90s, 
                                                      
1 OECD (2005), pp. 142-151. 
2 OECD (2005), "Summary Tables of Estimates of Support for OECD Countries". WT/TPR/S/160/Rev.1 Trade Policy Review 
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and the most production and trade distorting forms of support are still significant, contributing to 
depressing world prices".3 
0510152025
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005a01122334455Chart IV.1
Government payments to agricultural producers, 1993-05 
US$ billion
  Source:  USDA, Economic Research Service online information, "Briefing room-farm income and costs".
                Available at:  http://www.ers.usda.gov/Data/FarmIncome/finfidmu.htm [17 October 2005].Emergency assistance%
As a share of net farm income
(right-hand scale)
  a           Forecast. Direct government payments
 
12. In March 2003, a WTO panel was established to  examine the WTO compatibility of a number 
of U.S. agricultural support measures for uplan d cotton.  The panel report was issued in 
September 2004.  The United States appealed several of the panel's findings.4  In March 2005, the 
WTO Appellate Body issued its report, which upheld  most of the panel's findings.  The Appellate 
Body upheld the finding that U.S. price-base d support measures had contributed to significant 
suppression of cotton prices in the world market, causi ng "serious prejudice" to the trade interests of 
other WTO Members.5  It also upheld the finding that  export credit guarantees for unscheduled 
commodities such as upland cotton and soybeans are prohibited export subsidies. 
13. In July 2005, the Department of Agriculture announced that proposed  statutory changes to 
comply with the panel and Appellate B ody decisions had been sent to Congress.6  The proposed 
changes seek to eliminate a support programme for cotton, known as Step 2 programme (section (iii)(c)), remove a statutory cap on the fees charged under export credit guarantee 
programmes, and terminate one pr ogramme involving medium-to l ong-term export credit guarantees 
(section (iv)(b)).  The Department of Agricultu re announced that it would use a risk-based fee 
structure in its export credit guarantee programmes beginning in July 2005, in response to the finding 
                                                     
 
3 OECD (2004). 
4 WTO document WT/DS267/R, 8 September 2004. 
5 WTO document WT/DS267/AB/R, 3 March 2005. 
6 U.S. Department of Agriculture (2005). United States WT /TPR/S/160/Rev.1 
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by the WTO that such programme s had been provided "at premium rates which are inadequate to 
cover the long-term operating costs and losses of the programmes...".7 
14. In October 2005, the United States presented a comprehensive proposal on agricultural trade 
in the context of the Doha Round.8 
(ii) Border measures 
15. The average MFN applied tariff for agricultu re (WTO definition) in 2004 was 9.7% 
(including the ad valorem  equivalents of non- ad valorem  rates).  This is almost two and a half times 
the protection afforded to the non-ag ricultural sector (Chapter III(2)(ii)). 
16. Around 195 tariff lines are subject to tariff quotas (Table AIV.1).  The simple average out-of-
quota MFN tariff in 2004 was almost 49%;  the in-quota average was 9%.9  Close to 91% of out-of-
quota tariffs are non- ad valorem , compared with almost 28% of in -quota tariffs.  The latest U.S. 
notification on tariff quotas covers 2003.10 
17. Parts of tariff quotas are generally allocated to specific countries.  This is the case for most 
products subject to tariff quotas, including beef, cer tain dairy products, peanuts and peanut butter, 
chocolate crumb, and tobacco (Table AIV.1).  Apart from the tariff quotas specified in its WTO 
schedule of commitments, the United States has allo cated additional tariff quotas to its preferential 
trading partners under free-trade agreements (Chapter III(2)(ii)(d)). 
18. Access to tariff quotas is on a first come, first served basis, except for dairy products and 
sugar.  Access for dairy is granted to "historical " importers, "preferred" im porters designated by the 
country of origin, and on the basis of a lottery.  One or more methods may be used, depending on the particular good.  A licensing system is used to administer access.
11  Any importer, including 
manufacturers of like products, can apply for a licence. 
19. Access to the tariff quota for raw sugar is grante d to exporting countries, not importers.  It is 
administered through certificates of quota eligibility.12  The Department of Agriculture issues these 
certificates based on the allocations specified by th e USTR.  In-quota imports of raw sugar must be 
accompanied by a certificated of quota eligibility,  validated by the certifying authority in the 
exporting country.  Certificates are issued free of charge. 
20. Direct government payments to U.S. agricultu ral producers amounted to US$13.3 billion in 
2004, around 16% of net farm income.  This is significantly lower than in 2000, when direct government payments amounted to US$22.9 billion or almost 48% of net farm  income.  Preliminary 
estimates by the Department of Agriculture predic t an increase in government payments for 2005, to 
close to US$21.4 billion (Chart IV.1).  The project ed increase in 2005 would be driven largely by an 
almost fourfold increase in counter-cyclical paymen ts and a seven-fold increase in ad hoc emergency 
payments with respect to 2004. 
                                                     
 
7 WTO document WT/DS267/R, 8 September 2004 and U.S. Department of Agriculture (2005a). 
8 USTR online information, "Facts on Doha Round".  Available at:  http://www.ustr.gov/assets/ 
Document_Library/Fact_Sheets/2005/asset_upload_file919_8128.pdf [7 December 2005]. 
9 These averages were calculated by the WTO Secretariat based on ad valorem  equivalents of non-
ad valorem  rates provided by the U.S. authorities in the context of this Review. 
10 WTO document G/AG/N/USA/54, 17 February 2005. 
11 The licensing system is not a statutory requirement.  The authority to allocate tariff quotas through 
licences was delegated to the Secretary of Agriculture by Presidential Proclamation 3019 (8 June 1953).  The 
procedures for submitting licence applications and other re levant provisions are contained in 7 CFR 6.20-6.36. 
12 The regulations governing the CQE system are contained in 15 CFR 2011. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 88 
 
 
21. The United States has reserved the right to a pply additional tariffs on over-quota imports of 
products subject to tariff quotas, either if their im port prices drop below a trigger price, or if quantities 
exceed a given threshold, in accord ance with the special safeguard provisions of the WTO Agreement 
on Agriculture.  A volume-based safeguard may also be applied on sheep m eat products, although the 
U.S. schedule of concessions defines no tariff quo tas for such products.  In January 2004, the 
United States notified the WTO that it had applie d volume-based safeguards to imports of American-
type cheese during the last two months of 2002.13  The U.S. authorities indicated that the 
United States had not applied volume-based safeguards in 2003 and 2004. 
22. The United States invokes price-based safeguard s automatically on a shipment-by-shipment 
basis.  Its latest WTO notification covers the year 2002.14  According to the authorities, during 2003 
and 2004, price-based safeguards were applied to im ports of bovine meat, da iry products, peanuts, 
sugar, and food preparations. 
(iii) Domestic programmes 
23. The latest U.S. notification on domestic support covers the marketing years 2000 and 2001.15  
According to this notification, the total current  Aggregate Measurement of Support (AMS) for the 
United States was US$16.8 billion in 2000, and US $14.4 billion in 2001.  The applicable WTO 
ceiling since 2000 is US$19.1 billion per year.  Around US$50 billion of domestic support provided 
in each of these two years was classified as "green box", and was not subject to reduction 
commitments in the WTO. 
24. In the context of the latest U.S. notifi cation on domestic support WTO Members raised 
several issues in the Committee on Agriculture.16  These included:  the increase in expenditures under 
state programmes for agriculture and the emergenc y feed programme;  the high level of specific 
support for cotton, rice, and soybeans, and the rise in non-product specific support;  and the scope of government guarantees under U.S. crop insurance progr ammes.  Several Members also questioned the 
classification of crop market loss assistance paym ents under the non-produ ct-specific category. 
25. The latest U.S. notification on domestic s upport does not include support granted under any 
of the programmes encompassed by the 2002 Farm Ac t.  In order to pre-empt a breach of WTO 
commitments, under section 1601(e) of the Act, the Secretary of Agriculture must, "to the maximum 
extent practicable", adjust expenditures if  they exceed U.S. commitments in the WTO.
17  Before 
making any adjustment, the Secretary of Agriculture  must submit a report describing "the extent of 
the adjustment to be made" to the relevant committees in Congress.18  The U.S. authorities have 
indicated that a determination by the Secretary of  Agriculture under section 1601(e) would be "final 
and conclusive".19  These provisions have never had to be used. 
26. The main instruments of domestic support reaut horized or established by the 2002 Farm Act 
are direct and counter-cyclical payments, and lo an programmes (Table IV.1).  These accounted for 
62% on average of total government payments to agricultural producers in 2003-04.  In addition, the 
United States supports its agricultural sector th rough emergency assistance and crop insurance. 
                                                      
13 HTS 04.06.30.71.00 and 04.0690.84.00, WTO document G/AG/N/USA/49, 23 January 2004. 
14 WTO document G/AG//N/USA/49, 23 January 2004. 
15 WTO document G/AG/N/USA/51, 17 March 2004. 
16 WTO document G/AG/R/39, 16 July 2004. 
17 Section 1601(e), 2002 Farm Act. 
18 Section 1601(e), 2002 Farm Act. 
19 WTO document G/AG/R/31, 27 August 2002. United States WT /TPR/S/160/Rev.1 
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Table IV.1 
Government payments, 2001-05 
(US$ million) 
 2001 2002 2003 2004 2005a 
Production flexibility contract paymentsb 4,040.4 3,499.8 -280.0 -3.9 0.0 
Direct payments 0.0 367.1 6,703.6 5,242.4 5,045.0 
Counter-cyclical payments 0.0 203.4 2,300.7 1,122.0 4,100.0 
Loan deficiency payments 5,464.2 1,196.7 576.3 2,859.9 3,207.0 
Marketing loan gains 707.7 459.7 198.1 130.4 457.0 
Net value certificates .. .. 1,242.8 813.9 1,114.0 
Peanut quota buyout payments 0.0 983.0 237.6 24.7 4.0 
Milk income loss program payments 0.0 859.6 913.0 206.0 20.0 
Tobacco Transition Payment Pr ogram 0.0 0.0 0.0 0.0 962.3 
Conservation program payments 1,933.7 2,004.6 2,198.9 2,345.5 2,549.6 
Ad hoc and emergency program payments 8,508.1 1,616.2 3,111.3 557.2 3,915.0 
Miscellaneous program payments 73.3 46.1 6.8 5.4 6.0 
Total direct payments 20,727. 5 11,236.3 17,209.2 13,303.6 21,379.9 
 
.. Not available. 
 a Forecast. 
b Enactment of the 2002 Farm Act terminated the au thority for production flexibility contract payments. 
 
Source:  U.S. Department of Agriculture, Economic Research Service [Online].  Available at:  http://www.ers.usda.gov/
 Data/FarmIncome/Finfidmu.htm [17 October 2005]. 
(a) Direct payments 
27. Following the adoption of the 2002 Farm Act, di rect payments replaced production flexibility 
contract payments, which were in place until 200 2.  The commodities covered under the direct 
payments programme are:  wheat, corn, barley, so rghum, oats, upland cotton, rice, soybeans, other 
oilseeds, and peanuts.  Payments are based on hist orical acreage and yields.  They do not depend on 
current commodity prices.  The 2002 Farm Act se ts fixed payment rates on a per unit basis for 
2002-07. 
28. In general, producers receiving direct payments  for one crop are permitted to plant any other 
crop (or no crop at all) on land eligible for direct payments.  However, if producers plant and harvest 
fruit, vegetables, or wild rice, direct payments are eliminated or reduced.20  The U.S. authorities note 
that this limitation has been a feature of farm programmes since 1990, and that its intention is to 
discourage additional planting of horticultural products. 
(b) Counter-cyclical payments 
29. The counter-cyclical payments programme c overs the same commodities as the direct 
payments programme.  Payments are also based on historical acreage and yields.  However, they 
depend on current prices.  Counter-cyclical payments  are triggered when the higher of the loan rate 
(see below) or the season average price plus the direct  payment rate is below the target price set by the 
2002 Farm Act for each commodity covered.  The amount of a counter-cyclical payment equals the 
difference between the target price and the higher of the loan rate or the season average price plus the 
direct payment rate.  Under the programme, paymen ts are also eliminated or reduced if producers 
plant fruit, vegetables, or wild rice on land  eligible for counter-cyclical payments. 
                                                      
20 7 CFR 1412.407. WT/TPR/S/160/Rev.1 Trade Policy Review 
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(c) Loan programmes 
30. Loan programmes are available for producers of  wheat, rice, corn, sorghum, barley, oats, 
extra-long staple and upland cotton, soybeans, other oilseeds, sugar, peanuts, mohair, wool, honey, 
small chickpeas, lentils, and dry peas. 
31. Under commodity or marketing assistance loans, producers can obtain a government loan by 
pledging production as collateral.  The amount of the lo an is determined by the "loan rate", which is 
expressed in U.S. dollars per unit of output.  Loan rates are fixed by the 2002 Farm Act.  When 
market prices fall below the loan rate, producer s can forfeit the crop pledged as collateral to the 
Commodity Credit Corporation in  full settlement of the loan.21  As indicated in past Reviews of the 
United States, forfeitures support prices as they remove crops from the marketplace.22 
32. Alternatively, under the marketing loan progr amme, producers can repay a government loan 
at a "repayment rate".  This rate is the lower of the adjusted world market price for rice and cotton or a 
local market price for other commodities. 
33. Another alternative available to producers under the loan deficiency payments programme, is 
to collect the subsidy available under the marketing loan programme without having to take out and 
subsequently repay a commodity loan.  The amount of  the subsidy is expressed in U.S. dollars per 
unit of output and is the amount by which the loan  rate exceeds the loan repayment rate.  Under the 
loan deficiency payments programme, pr oducers sell their crops on the market. 
34. In early February 2006, Congress passed legi slation eliminating, as from August 2006, the 
user marketing certificate or "Step 2" programme, a special payment provision for upland cotton.  Under the programme, domestic users and exporters of upland cotton received payments when certain 
market conditions prevailed. 
(d) Emergency assistance and insurance programmes 
35. Ad hoc emergency payments to farmers comple ment programmed payments.  In addition, the 
Government offers subsidized insurance agai nst losses resulting from natural disasters and price 
fluctuations.  Farm insurance programmes are prov ided under the Federal Crop Insurance Act, as 
amended.
23  Insurance policies are available for more than 100 crops. 
36. Producers may select between yield or revenue insurance.  Insured producers receive a 
payment when actual yield or revenue fall below a targ et due to an insured cause.  The shortfall in 
revenue may be caused by low prices or low produc tion levels.  The basic level of coverage is 
catastrophic risk coverage, which is available for an administrative fee of US$100.  The premium is 
fully subsidized.  Producers with catastrophic ri sk coverage who suffer losses in excess of 50% of 
yield receive a payment equal to 55% of the estimat ed market price of the insured crop.  Producers 
may purchase higher levels of coverage, but the portion  of the premium that is subsidized declines as 
coverage increases.  The Department of Agriculture reinsures the companies that sell farm insurance, 
thereby covering underwriting costs, and defra ys some of their administrative costs. 
                                                      
21 The Commodity Credit Corporation is a financing institution for the Department of Agriculture's 
support programmes. 
22 WTO (2004). 
23 Two major amendments have been the Federal Crop Insurance Reform Act of 1994 and the 
Agricultural Risk Protection Act of 2000. United States WT /TPR/S/160/Rev.1 
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37. In 2004, premium subsidies totalled nearly US $2.5 billion and accounted for nearly 60% of 
total premium costs.24  Total crop insurance outlays rose by an average of nearly 14% per year 
between 1995 and 2003.25 
(e) Other support programmes 
38. The Fair and Equitable Tobacco Reform Act of 2004 terminated all production quotas and 
other price support mechanisms for tobacco beginning  with the 2005 crop year.  The Act establishes a 
levy on producers and importers of tobacco products  to fund compensation payments to tobacco quota 
holders and producers.26  The amount of the levy will be determined by the Commodity Credit 
Corporation on the basis of annual estimated e xpenditures under the Act and producer and importer 
market shares for each product subject to the levy.  Compensation payments are based on historical quota allotments and production, and will be paid in ten annual instalments.  Total expenditures under 
the Act are estimated at US$10 billion.
27 
39. The 2002 Farm Act establishes incentive payments  for producers of hard white wheat during 
the 2003 through 2005 crop years.  The incentives are paid at a rate of US$0.20 per bushel.  Payments cannot exceed US$12 per acre.  An additional payment of US$2 per acre is provided for each acre 
planted with certified seed. 
(f) Other programmes 
40. The Agricultural Marketing Agreement Act of 1937 authorizes the Secretary of Agriculture to 
issue binding marketing orders.  Marketing orders can  be issued for fruit, vegetables, specialty crops, 
and milk.  They are targeted to a specific geogr aphic area and are binding on "handlers", i.e. 
individuals who receive the commodity from producers,  grade, pack, transport, and make it available 
for sale.  The process leading to the adoption of a ma rketing order is always initiated by producers. 
41. Marketing orders may establish minimum prices, fix output levels, or provide for the creation 
of reserve pools of covered commodities.  They may set minimum product requirements such as grade, size, quality, and maturity.  Thirty-three ma rketing orders for fruit and vegetables were in force 
in 2004
28;  supply management provisions were in eff ect for four of these orders, affecting tart 
cherries, hazelnuts, spearmint oil,  and raisins.  There are 11 regi onal milk marketing orders, which 
establish minimum prices for milk depending on its use by processors. 
42. The Agricultural Marketing Agreement Act of 1937 requires that imported commodities meet 
the same or comparable grade, size, quality, an d maturity requirements as those established for 
domestic commodities under fe deral marketing orders.29  Imports of the following commodities are 
subject to such requirements (September 2005):  avocados, dates (other than for processing), 
hazelnuts, grapefruit, table grapes, kiwifruit, olives (other than Spanish-style), onions, oranges, Irish 
potatoes, plums, raisins, tomatoes, and walnuts.30 
                                                      
24 U.S. Department of Agriculture (2005b). 
25 Glauber (2005), pp. 1179-1195. 
26 Section 625(b), Fair and Equitable Tobacco Reform Act of 2004.  The regulations governing the 
application of the levy are contained in Federal Register , 70 FR 7010, 10 February 2005. 
27 USDA online information, "Announcing Preliminar y Tobacco Transition Payment Program 
Provisions".  Available at:  http://price.house.gov/ UploadedFiles/TPPP.pdf. 
28 Agricultural Marketing Service, "List of Fe deral Marketing Orders".  Available at:  
http://www.ams.usda.gov/fv/moabmotab.htm [12 June 2005]. 
29 Section 8(e), Agricultural Marketing Agreement Act of 1937. 
30 USDA online information, "Import Requirements for Fruits, Vegetables and Specialty Crops".  
Available at:  http://www.ams.usda.gov/fv/moab-8e.html [12 June 2005]. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 92 
 
 
43. Eligible farmers can apply for up to US$10,000 per year under the Trade Adjustment 
Assistance for Farmers programme, adopted as part of the Trade Act of 2002.31  Support under this 
programme is available when a commodity's average annual domestic price falls to less than 80% of 
the average domestic price for the preceding five years.  Increased imports of like or directly 
competitive products must be found to have "contribut ed importantly" to the price decline.  Cash 
payments are made per unit of production, at a ra te of half of the diffe rence between 80% of the 
average domestic price of the commodity for the preceding five years and the average annual 
domestic price for the most recent crop year.  Th ere were no payments under the Trade Adjustment 
Assistance programme in 2003.  Payments in 2004, amounted to US$11 million. 
(iv) Export subsidies, credit, insurance, and guarantees 
(a) Export subsidies 
44. The United States scheduled export subsid y reduction commitments under the WTO 
Agreement on Agriculture for 13 product groups.  The final bound ceiling since 2000-01 on export 
subsidy outlays for these commodities is US$594 million per year.  During the period under review, the United States made one notification on export subsidies, which covers 2002.
32  Total outlays for 
export subsidies in 2002 amounted to US$31.5 m illion.  The commodities that received export 
subsidies were butter and butter oil,  skim milk powder, and cheese. 
45. The United States may grant export subsidies under the Export Enhancement Program (EEP) 
and the Dairy Export Incentive Program (DEIP) .  The 2002 Farm Act extended both programmes 
until 2007.  Export subsidies are provided in the fo rm of a cash payment, which is based on the 
quantity exported.  The commodities eligible und er the EEP are wheat, wheat flour, rice, frozen 
poultry, barley, barley malt, table eggs, and vegeta ble oil.  Under the DEIP, the eligible commodities 
are milk powder, butterfat, and various cheeses. 
46. The U.S. authorities note that the EEP has not been used since 1995, except for small 
shipments of frozen poultry totalling US$15 milli on.  Between October 2003 and September 2004, 
total cash bonuses under the DEIP amounted to slightly less than US$2.7 million.33  Almost two thirds 
of the total was for exports of no n-fat dry milk (skim milk powder). 
(b) Export credits, insurance, and guarantees 
47. The United States has three main export credit guarantee programmes:  the Export Credit 
Guarantee Program (known as GSM 102), Interm ediate Export Credit Guarantee Program 
(GSM 103), and Supplier Credit Guarantee Program.  In mid 2005, applications for the GSM 103 programme, which operates in a similar fashi on to GSM 102, were no longer being accepted.
34 
48. GSM 102 and the Supplier Credit Guarantee Progr am are operated by the Commodity Credit 
Corporation.  The Corporation does not provide  financing but guarantees payments due from the 
importer's bank to a U.S. bank.  Until mid 2005, premiums payable under credit guarantee programmes did not necessarily reflect actual count ry risk.  The Department of Agriculture 
                                                     
 
31 The relevant regulations are contained in 7 CFR 1850. 
32 WTO document G/AG/N/USA/53, 2 June 2004. 
33 Foreign Agricultural Service online information, "Dairy Export Incentive Programme:  Summary 
Data for Fiscal Year 2004".  Available at:  http://w ww.fas.usda.gov/excredits/q uarterly/2004/04%20DEC%20 
DEIP%20table.pdf [12 June 2005]. 
34 USDA online information, "USDA Proposes Legi slative Changes to Cotton and Export Credit 
Programs to Comply with WTO Findings", 5 July 2005.  Available at:  http://www.usda.gov [11 July 2005]. United States WT /TPR/S/160/Rev.1 
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announced that it would use a "risk-based fee structure" for GSM 102 and the Supplier Credit 
Guarantee Programme beginning in July 2005. 
49. Under GSM 102, the Commodity Credit Corporatio n is authorized to guarantee the repayment 
of credit made available to finance U.S. exports of agricultural goods on cr edit terms between 90 days 
and three years.  The Corporation generally gua rantees 98% of the principal and a portion of the 
interest.  It determines the eligibility of agricultu ral products based on market potential.  The exporter 
pays a fee that is calculated on the basis of the amount guaranteed;  the fee cannot exceed the statutory cap of 1% of the guaranteed value of the transaction.
35 
50. Under the Supplier Credit Guarantee Program , the Commodity Credit Corporation issues 
guarantees for the repayment of credit made available by a U.S. exporter to an importer for the purchase of U.S. commodities on credit terms not ex ceeding 180 days.  The Corporation generally 
guarantees 65% of the principal and none of the inter est.  There is a statutory cap on the fee charged 
to the exporter equal to 1% of the guaranteed value of the transaction. 
51. In addition to the programmes describe above , the Commodity Credit Corporation extends 
credit guarantees to U.S. banks for financing expor t sales of U.S. manufactured goods and services 
that improve agriculture-related facilities in emergi ng markets, including storage, processing, and 
handling facilities.  These credit guarantees are is sued under the Facility Guarantee Program.  The 
export credit guarantee for sales of manufactured goods  and services is only extended to projects that 
are expected to benefit the export of U.S. agricu ltural products.  The U.S. authorities note that the 
Commodity Credit Corporation has issued one guarantee under this programme since 1997. 
52. The total value of exports covered by offici ally supported export credit guarantees amounted 
to US$3.7 billion in fiscal 2004, up from US$3.2 bil lion in fiscal 2003.  Almost 80% of the 2004 total 
were guarantees under GSM 102.
36 
(v) Food aid 
53. The United States provided 56% of global food aid (by volume) delivered in 2004.37  T h e  
total value of food aid delivered between October 2003 and September 2004 amounted to 
US$1.1 billion.38 
54. The United States provides food aid through various programmes, including the P.L. No. 480 
programme, Food for Progress, Section 416(b) of the Agricultural Act of 1949, and the McGovern-
Dole International School Feeding programme.  Around 70% of food aid provided was between 
October 2003 and September 2004, through P.L. No. 480, and 14% through the Food for Progress 
programme.  P.L. No. 480 governs the donation of food to meet emergency and non-emergency needs 
abroad (Title II), and provides for both food donations  under grant agreements and sales of food under 
long-term concessional loans to developing countries (Title I).  In 2004, approximately 65% of Title I 
resource allocations funded grant agreements;  the remainder supported long-term concessional loan 
agreements. 
                                                      
35 7 USC 5641(b). 
36 Foreign Agricultural Service online information, "Monthly Summary of Export Credit Guarantee 
Program Activity".  Available at:  http://www.fas.u sda.gov/excredits/Monthly/ecg.html [12 June 2005]. 
37 WFP online information, INTERFAIS:  "2004 Food Aid Flows".  Available at:  http://www.wfp.org/ 
interfais/index2.htm# [12 June 2005]. 
38 FAS online information.  Available at:  http://w ww.fas.usda.gov/ex credits/FoodAid/R eports/reports. 
html [12 June 2005]. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 94 
 
 
55. The Food for Progress programme allows for the purchase and donation of U.S. food products 
to developing countries that have food needs, are considered emerging democracies, and are fostering 
the expansion of private enterprise.  Section 416(b) covers the donation of surplus agricultural 
commodities owned by the Commodity Credit Corporation. 
56. Food donated under any U.S. food aid progra mme cannot have a "disruptive impact upon 
production, prices, and marketing of the same or like products within the importing country."39  A  
portion of the donated food under both Section 416(b) and the non-emergency provi sions of Title II of 
P.L. No. 480 may be "monetized", that is, sold in the recipient country.  Between October 1998 and 
September 2000, the latest year for which data ar e available, around 30% of food aid under Title II of 
P.L. No. 480 was monetized;  the corresponding figure for Section 416(b) was around 40%.40 
57. Several WTO Members have raised concerns ove r aspects of U.S. food aid, including the 
effect of monetization requirements on domestic  markets, and the use of proceeds from 
monetization.41  In the context of these discussions, the United States has pointed out that it adheres to 
the FAO Principles of Surplus Disposal and Cons ultative Obligations.  The United States has noted 
that its laws and regulations require monetized co mmodities to be sold at "reasonable local market 
prices".42 
(3) FINANCIAL SERVICES  
(i) Recent market developments 
58. The financial services sector, comprising banking,  insurance, and securities, remains one of 
the fastest growing activities in the U.S. economy.  It s share of GDP increased to 8.3% in 2004;  about 
half was generated by banking activities, some 30%  by insurance, and 20% by securities trading 
activities.  The financial sector in the United States  is estimated to have employed some 6 million 
people in 2003, or some 4.4% of total employment.43  Both exports and imports of financial 
(including insurance) services have continue d to expand rapidly;  exports amounted to 
US$33.5 billion and imports to US$41.1 billion in 2004.  Affiliate transactions are significantly larger 
than cross-border transactions;  receipts amount ed to US$122.2 billion and payments to 
US$98.8 billion in 2003, the last year for which data  were available (these figures exclude affiliate 
trade from commercial banks).44  The period under review was characterized by a widening in the 
financial services and insurance balance deficit, ma inly due to an increase in insurance payments 
abroad. 
59. At 31 December 2004, there were 1,469 commercia l banks in the United States with assets of 
US$300 million or more.  Total U.S. assets of these banks were US$7.74 trillion, representing some 
two-thirds of GDP;  87.5% were domestic assets.45  Foreign banks from 60 countries and territories 
operate in the United States.  The U.S. offices of foreign banks account for approximately 20% of the 
total assets of the U.S. commercial banking system. 
                                                      
39 See, for example, 7 CFR 1499.5(a). 
40 Foreign Agricultural Service (2001). 
41 WTO documents G/AG/R/35, 26 August 2003;  G/AG/R/38, 28 May 2004;  G/AG/R/39, 16 July 
2004;  and G/AG/R/40, 26 October 2004. 
42 WTO document G/AG/R/39, 16 July 2004. 
43 BEA online information, "Industry Economic Acco unts".  Available at:  http://www.bea.gov/bea/pn/ 
GDPbyInd_VA_NAICS.xlsSecurities Industry Association (2002). 
44 U.S. Department of Commerce, BEA (2005), an d BEA online information "International Economic 
Accounts", U.S. International Services.  Available at:  http://www.bea.gov/bea/. 
45 Federal Reserve online information.  Available at:  http://www.federalreserve.gov/releases/lbr/ 
current/lrg_bnk_lst.pdf. United States WT /TPR/S/160/Rev.1 
 Page 95 
 
 
60. The United States has the largest securities markets in the world.  The market value of equity 
and options sales on U.S. exchanges at end April 2005 was some US$23.3 trillion, of which 
US$16.2 trillion were in domestic stocks (over 1 30% of GDP), some US$6.8 trillion in stocks of 
foreign companies, and the rest was closed-ended fu nds.  Some 84.5% of the value traded was on the 
New York Stock Exchange (NYSE);  the American  Stock Exchange (AMEX) is the second largest, 
with 15% of the value traded.46  In May 2005, there were 2,779 listed companies in the NYSE, of 
which 452 were foreign. 
61. The U.S. insurance market is the world's la rgest, with gross insurance premiums of 
US$1.06 trillion in 2003 (35.9% of the world market );  approximately US$481.5 billion were in life 
and health insurance, and US$576 billi on in property and casualty insurance.47  The United States 
ranks fourth in the world with respect to insura nce premiums per capita, with US$3,651 per head in 
2003;  it is eighth with respect to premiums as a percentage of GDP;  premiums for the whole 
insurance business account for some 9.6% of GDP in 2003.  Some US$64.2 billion in premiums were 
paid through cross-border trade to foreign-based insure rs to cover risks in the United States in 2004.  
They consisted mostly of reinsurance.  Some US $14.6 billion were paid to U.S.-owned insurers 
established abroad.  In 2004, losses paid to U.S. firms continued to show a steep increase, reaching 
US$40.2 billion, more than twice as much as in 2000. 
(ii) Legislative and regulatory framework 
(a) Consolidated financial sector regulation 
62. Under the Gramm-Leach-Bliley (GLB) Act (Fin ancial Services Modernization) of 1999 
domestic and foreign banks may affiliate with entities that engage in other activities that are financial 
in nature or incidental to a financial activity, pr ovided that certain capital and managerial standards 
are met.  A U.S. bank wishing to affiliate with  insurance or other financial services companies 
generally must first set up a bank holding compan y (BHC) under the Bank Holding Company Act;  
foreign banks may, but are not required to set up hol ding companies.  Qualifying BHCs are referred to 
as financial holding companies or FHCs.  They ma y control banking, securities, or insurance firms, 
and may engage in financial activities and activities in cidental to financial activities.  FHCs may also 
own non-financial companies, through the merchant  banking provisions of the GLB Act, subject to 
certain conditions.48  However, the GLB Act does not alter the U.S. policy generally separating 
banking from commerce.  In its last Review, th e United States stated that it did not foresee any 
immediate changes to this policy.49  In July 2005, 648 financial organizations had effectively become 
or were being treated as FHCs, up from 550 reported at the time of the last U.S. Review.50  These 
included 37 foreign financial orga nizations (26 in May 2003).  The authorities indicate that most 
FHCs are set up by smaller U.S. banks seeking to engage in insurance brokerage activities. 
63. The Federal Reserve Board (FRB) is the umbrella  regulator for financial conglomerates that 
include a bank.  Securities and insurance companie s can become FHCs, by acquiring a bank, provided 
they meet certain prudential criteria.  The activiti es of subsidiaries of FHCs are regulated by the 
appropriate regulator:  the Office of the Comptroller of the Currency (OCC) in the case of national 
banks;  a state banking agency and the Federal Reserve or Federal Deposit Insurance Corporation 
                                                      
46 New York Stock Exchange online information.  Available at:  http://w ww.nyse.com/marketinfo/ 
p1020656068262.html?displayPage=%2 Fmarketinfo%2Fmarketinfor.html. 
47 Swiss Re, Sigma , No. 6/2004.  Available at:  http://www.swissre.com. 
48 The aggregate assets of all financial subsidiaries must not exceed 45% of the parent bank's assets or 
US$50 billion, whichever is less. 
49 WTO document WT/TPR/M/126/Add.3, 22 November 2004, p. 214. 
50 The list of institutions is available online at:  http://www.federalreserv e.gov/generalinfo/fhc/. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 96 
 
 
(FDIC) in the case of state-chartered banks;  th e Securities and Exchange Commission (SEC) in the 
case of securities firms;  and a State insurance commission in the case of insurance companies. 
64. Under the GLB Act, U.S. bank subsidiaries of foreign banks are treated as domestic banks.  
With respect to a foreign bank operating a branch or  agency in the United St ates, under the GLB Act, 
"well capitalized" and "well managed" standards compar able to those applied to U.S. banks must be 
applied "giving due regard to the principle of  national treatment and equality of competitive 
opportunity".51  Branches and agencies have similar powers and are subject to similar supervision; 
agencies, however, may not accept deposits from U.S. citizens or residents. 
65. In December 2004, the Federal Reserve appr oved a new rating system for BHCs, including 
FHCs.52  The revised rating system, which became effective 1 January 2005, emphasizes risk 
management, introduces a more comprehensive framewo rk for analysing and rating financial factors, 
and provides a framework for assessing and rating the potential impact of the parent holding company 
and its non-depository subsidiaries on the subsidiary depository institution(s).  Under the new system, 
a composite rating and the risk management component  forms the basis to classify a BHC or FHC as 
"well managed". 
66. Some statutory restrictions apply with resp ect to transactions between banks and their 
affiliates;  they are contained in sections 23A  and 23B of the Federal Reserve Act, and are 
implemented through FRB's Regulation W, effective 1 April 2003.  In general, section 23A limits a 
bank's covered transactions with any single affiliate to no more than 10% of the bank's capital stock 
and surplus, and transactions with all affiliates combined to no more than 20%, and requires all 
transactions between a member bank and its affiliat es to be on terms consis tent with sound banking 
practices.  Section 23B requires that certain tran sactions between a bank and its affiliates occur on 
market terms.  Regulation W implements these statutory restrictions and the FRB's exemptions from sections 23A and 23B.
53 
(b) Banking services 
67. The FRB shares responsibility for banking supervis ion in the United States with the OCC, the 
FDIC, the Office of Thrift Supervision (OTS), as well as with state regulators who regulate financial 
institutions chartered or licensed in their respectiv e states.  The FRB regulates and supervises all bank 
holding companies, including FHCs, as well as state-ch artered banks that are members of the Federal 
Reserve system and state-licensed branches and agencies of foreign banks.  The OCC charters, 
regulates, and supervises all national banks, and supervises the federal branches and agencies of 
foreign banks.  The FDIC insures bank deposits a nd regulates and supervises all state-chartered banks 
that are not members of the Federal Reserve system.  The OTS regulates and supervises federally-
chartered and many state-chartered thrift institutions and their holding companies. 
68. The International Banking Act of 1978 (IBA) is  the main legislation governing the operation 
of foreign banks in the United States.  The IBA provides for the granting of national treatment to 
foreign banks and offers them the option of estab lishing federally licensed branches and agencies in 
addition to state-licensed offices.  The Riegle-Nea l Interstate Banking and Branching Act (RNIBBA) 
of 1994 allows interstate branching by merger or by de novo  establishment of branches.  All states 
                                                      
51 Final rules implementing the financial holding provisions of the GLB Act are accessible in FRB 
online information.  Available at:  http://www .federalreserve.gov/regulations/defaukt.htm#y. 
52 Federal Reserve Board (2004a). 
53 Covered transactions include purchases of assets from  an affiliate, extensions of credit to an affiliate, 
investments in securities issued by an affiliate, guaranteed on behalf of an affiliate, and certain transactions that 
expose a bank to an affiliate's credit or investment risk. United States WT /TPR/S/160/Rev.1 
 Page 97 
 
 
have introduced legislation to give effect to th e branching by merger provisions of the RNIBBA.  
Inter-state branching by de novo  establishment is permitted in 21 States and the District of Columbia. 
69. The United States maintains a general policy of national treatment towards the U.S. branches, 
agencies, securities affiliates, and other operations  of foreign banks.  Bound commitments have been 
made by the United States in market access and national treatment for all subsectors included in the Annex on Financial Services in the GATS, and in  line with the Understanding on Commitments in 
Financial Services.
54  Foreign banks may establish a commercial pr esence in the U.S. market either by 
establishing federal or state-licensed branches or agencies, by establishing representative offices, or 
by establishing or acquiring a national or state-char tered subsidiary bank.  A foreign bank is required 
to establish an insured banking subsidiary (excep t for foreign bank branches engaged in insured 
deposit-taking activities as of 19 December 1991) in  order to accept or maintain domestic retail 
deposits of less than US$100,000.  Branches of fo reign banks are generally not required to commit 
organizational capital at the federal level and in some States that allow branches. 
70. Exceptions to national treatment have been re served as market access restrictions in the 
GATS.55  For example, all directors of a national bank must be U.S. citizens unless the bank is an 
affiliate or subsidiary of a foreign bank, in wh ich case only a majority of the board need be U.S. 
citizens;  approximately half of the states also require  all or the majority of the board of directors of 
depository financial institutions to be U.S. citizens.   Interstate expansion by a foreign bank through 
the establishment of branches by merger with a bank  located outside the "hom e state" of a foreign 
bank is granted national treatment.  Foreign banks, no t incorporated in the United States, are required 
to register under the Investment Advisers Act of 1940 to engage in securities advisory and investment 
management services in the United States, wh ile domestic banks, incl uding foreign banks 
incorporated in the United St ates, are exempt from registration unless they advise registered 
investment companies. 
71. Initial entry into the U.S. market through the establishment or acquisition of a nationally 
chartered bank subsidiary by a fo reign person is permitted in all st ates.  Additionally, there are 
relatively few limitations on the establishment of an  initial federal branch or agency by a foreign 
bank.  Initial entry or expansion by a foreign pe rson through acquisition or establishment of a state-
chartered commercial bank subsidiary is  subject to limitations in approximately half of the states.  The 
authorities note that most of the states that set lim itations are of limited commercial interest to foreign 
banks, and that, despite these limitations, there is very significant overall participation of foreign 
banks through state-chartered aff iliates.  As of 31 March 2005, 41 of the 67 U.S. banks majority-
owned by foreign banks were stat e chartered and 178 of the 228 U.S. branches of foreign banks were 
state-licensed.  Foreign banks may establish represent ative offices in approximately two thirds of the 
states. 
72. The Nationwide State and Federal Supervisor y Agreement of 1996 established a series of 
principles to promote coordination in the supe rvision of interstate banks.  New recommended 
practices incorporating procedures and techniques u sed by the Federal Reserve in working with the 
states in supervising state-chartered banking or ganizations, were introduced in June 2004.56  T h e  
recommended practices are expected to assist in continued implementation of the principles and goals 
of the Agreement and to enhance the overall coordina ted state-federal supervision of state-chartered 
banks. 
                                                      
54 WTO document GATS/EL/90/Suppl.3, 26 February 1998. 
55 WTO document TN/S/O/USA, 9 April 2003. 
56 Federal Reserve Board (2004c). WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 98 
 
 
73. The USA PATRIOT Act established new and enha nced measures to prevent, detect, and 
prosecute money laundering and terrorism, generally  through amendments to the Bank Secrecy Act 
that require financial institutions , such as banks, savings associations, and credit unions, to have 
customer identification programmes.  New Ba nk Secrecy Act examination procedures were 
introduced in October 2003 and July 2004.57  The Fair and Accurate Credit Transactions Act 
(P.L. No. 108-159 of 2003), amended the Fair Credit Reporting Act (15 USC 1681 et seq.), to 
increase the accuracy of credit reports, prevent identity  theft, and restrict the marketing of financial 
products using sensitive information that is shared with affiliates.58  In June 2005, the Federal 
Financial Institutions Examination Council issu ed the Bank Secrecy Act/Anti-Money Laundering 
(BSA/AML) Examination Manual.  The manual is a compilation of existing regulatory requirements, 
supervisory expectations, and sou nd practices in the BSA/AML area. 
74. The four federal banking agencies were expect ed to publish in the first quarter of 2006 a 
notice of proposed rulemaking with respect to the U.S. implementation of the Basel II Framework, by 
which banking organizations subject to the frame work would begin to operate beginning in 
January 2008.59 
(c) Securities services 
75. Securities services in the United States are gove rned by the Securities Act of 1933, the 
Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and th e Sarbanes-Oxley Act of 2002.  The Securities 
Exchange Act of 1934 grants the Securities and Exchange Commission (SEC) regulatory authority 
over U.S. securities markets and dealers.  The Act gives the SEC broad authority over all aspects of 
the securities industry, including the power to regist er, regulate, and oversee securities self-regulatory 
organizations (SROs), such as the various stock exch anges.  SROs must create rules that allow for 
disciplining members for improper conduct and for est ablishing measures to ensure market integrity 
and investor protection.  The SEC reviews and approves SRO proposed rules. 
76. Foreign and domestic broker-dealers who wish  to solicit business with U.S. persons, are 
generally required to register with the SEC  although foreign broker-dealers are exempt from 
registration requirements under certain circumstanc es.  National treatment is granted to foreign 
broker-dealers regarding registration with the SEC.  Most  states require broker-dealers to register with 
the state regulatory authorities.  Transfer agents and clearing agenci es must also register with the 
SEC. 
77. The Securities Act of 1933 and the Securiti es Exchange Act of 1934 generally require 
registration of securities with the SEC prior to their offer or sale;  however, foreign issuers can opt to 
use different registration and periodic reporting form s than those used by domestic users.  These 
forms generally allow foreign issuers to submit pe riodic reports to the SEC according to home country 
requirements. 
78. Pursuant to the Investment Company Act (ICA) of 1940, the SEC also has regulatory 
authority over domestic and foreign investment companies, both of which must register with the SEC before selling shares to the U.S. public.  A foreig n investment company may not publicly offer its 
shares in the United States unless the SEC issues an  order, on a case-by-case basis, permitting the 
company to register under the ICA, based on a fi nding regarding enforcement feasibility and public 
interest, and protection of investors considerations. 
                                                     
 
57 Federal Reserve Board (2004b). 
58 http://www.consumersunion.org/pub/cor e_financial_services/000745.html. 
59 Federal Reserve Board (2005e) United States WT /TPR/S/160/Rev.1 
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79. Under the Investment Advisers Act of 1940, regi stration with the SEC is generally required 
for persons or firms, whether fo reign or domestic, engaged in th e business of providing advice on 
securities for compensation.  Foreign investment advi sers registered with the SEC are not required to 
have a U.S. place of business or set up a U.S. subsidiary or branch, but are subject to certain 
requirements, such as record keepi ng, to enable the SEC to monito r compliance with the Investments 
Advisers Act.60  Foreign investment advisers may register with the SEC regardless of the amount of 
assets under management, while domestic advisers generally must register with state regulators if they manage less than US$25 million and do not advise an  SEC-registered investment company.  In 
addition, U.S. banks must register as investment advisers only if they advise an investment company 
registered with the SEC under the ICA, whereas fo reign banks generally must register as investment 
advisers if they provide investment advice for comp ensation.  The United States scheduled a national 
treatment reservation in the GATS for this different treatment. 
80. In December 2004, the SEC adopted a new rule and rule amendments requiring the 
registration of certain advisers to  hedge funds under the Investment Advisers Act.  An offshore hedge 
fund adviser must register with the SEC if it has more than 14 clients who are resident in the United States regardless of the amount of assets the adviser has under management, while U.S. 
advisers of hedge funds must register if they ha ve more than US$30 million in assets and more than 
14 investors.
61  In general, SEC-registered foreign adviser s to offshore hedge funds are not subject to 
as many substantive requirements of the Investment Advisers Act as their U.S. counterparts. 
81. The Primary Dealers Act of 1988 provides for na tional treatment of foreign-owned dealers of 
U.S. government securities, as long as U.S. firms operating in the government debt markets of the foreign country are accorded "the same competitiv e opportunities" as domestic companies operating 
in those markets.  The United States scheduled an MFN exemption for this reciprocity provision in its 
GATS Schedule for participation in issues of governme nt-debt securities.  The authorities note that, in 
practice, more foreign institutions have been d esignated as primary dealers than domestically owned 
institutions. 
82. The Sarbanes-Oxley Act of 2002 (P.L. No. 107-204) introduced regulatory changes to 
reinforce supervision of the securities industry, and introduced a number of reforms to enhance 
corporate responsibility, and financial disclosures,  and combat corporate and accounting fraud.  In 
April 2004, the SEC issued final rules for qualified foreign banks to obtain an exemption from the 
insider lending prohibition under Section 13(k) of th e Securities Exchange Act of 1934, as added by 
Section 402 of the Sarbanes-Oxley Act.
62  Until then, only domestic banks insured under the Federal 
Deposit Insurance Act were permitte d, under certain conditions, to obtain an exemption.  In March 
2005, the SEC amended its rules relating to Sec tion 404 of the Sarbanes-Oxley Act, extending the 
date by which foreign private issuers must begin to comply with the internal control provisions of Section 404 of the Sarbanes-Oxley Act.  Section 404 re quires issuers to include in their annual reports 
a report of management on the company's inte rnal control over financial reporting and an 
accompanying auditor's report.  Section 404 has alr eady been implemented by large U.S. issuers, 
while smaller U.S. and foreign private issuers must  begin to comply with Section 404 requirements 
for the first fiscal year ending on or after 15 July 2007. 
                                                     
 
60 For purposes of the rule amendment, the adviser to a hedge fund that does not permit its owners to 
redeem any portion of their ownership interests in the fund within two years of purchase, would not be subject 
to registration under the Investment Advisers Act. 
61 Generally, U.S. advisers of hedge funds with less than US$25 million in assets under management 
must register with state securities authorities.  U.S. advisers of hedge funds with US$25 million or more, but 
less than US$30 million, in assets under management may register with the SEC. 
62 17 CFR Parts 240 and 249, Foreign Bank Exemption from the Insider Lending Prohibition of 
Exchange Act Section 13(k).  The full text is available online at:  http://www.sec.gov/rules/final/34-49616.htm. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 100 
 
 
83. Under the Commodity Exchange Act (CEA) a nd the Commodity Futures Modernization Act 
of 2000 (CFMA), the Commodity Futures Trading Commission (CFTC) has regulatory authority over futures and options trading in the United States.  Generally, persons or entities that solicit or accept 
orders from persons located in the United States, its territories or possessions, and that accept money, 
securities or property to margin, guarantee or secure an y futures or options contract, must register as 
Futures Commission Merchants (FCM), or obtain exemption from registration.  National treatment is granted to foreign FCMs.
63  A revised minimum net capital requirement was set in August 2004, at 
the greater of US$250,000 or a computed merchant's risk-based capital requirement.64 
84. Rule 30.10 of the CFTC's regulations allows the CFTC to exempt a foreign FCM from 
compliance with registration requirements if, among other things, the firm's home-country regulator 
demonstrates that it provides a comparable system  of regulation and enters  into an information-
sharing agreement with the CFTC.  Some 18 re gulatory and self-regulatory authorities from ten 
countries currently benefit from Rule 30.10 relief.65  CFTC Rule 30.5 provides similar relief for non-
domestic introducing brokers, commodity pool operators, or commodity trading advisors. 
85. In August 2004, the CFTC published a rule to  clarify when foreign futures and options 
brokers who are members of a foreign board of trade must register or obtain an exemption from registration.  In general, registered or exempt  persons may offer or sel l foreign exchange-traded 
futures and option products to persons located in  the United States, its territories or possessions 
without additional approvals, although special procedur es apply in some cases, e.g. security index and 
foreign government debt futures and option products .  Foreign Government debt instruments issued 
by 21 countries have been desi gnated as exempted securities.
66 
(d) Insurance services 
86. The U.S. insurance services sector is regulated  primarily at the state level.  Insurance 
companies, agents, and brokers must be licensed unde r the law of the state in which the risk they 
intend to insure is located, and are authorized to offer insurance services only in the state where they 
are licensed.  In addition, in some states, for some ty pes of insurance, insurers must submit rate filings 
to receive approval from state regulators for th e premium rates they may charge.  Licensing 
requirements differ among states and by line of insurance, although all states accept a Uniform Certificate of Authority (UCAA) form (see below).  The authorities note that, although a licence is 
required in each state where an insurer does busin ess, primary responsibility for company oversight 
remains with the state regulator where the insurer is domiciled and, in practice, once an insurer 
establishes operations in its state of domicile, other states rely on that state regulator for primary oversight responsibilities, facilitating licensing in other states. 
87. As listed in the U.S. GATS Schedule, a federal tax on insurance policies covering U.S. risks 
is imposed at a rate of 1% of gross premiums on all life insurance and reinsurance, and at 4% of gross 
                                                     
 
63 As at 30 September 2004, 95 foreign brokers were registered with the CFTC (out of 8,699 brokers);  
31 foreign floor traders (out of 1,522);  and 1,948 foreign associated persons (out of 50,757).  Six foreign firms 
were registered as FCMs, out of a total of 215 (CFTC, 2004). 
64 The CFTC has proposed to amend these requirements ( Federal Register  Vol. 69, No. 155, 
pp. 49784-49800, 12 August 2004.  Available online at:  http://www.cftc.gov/files/ foia/fedreg04/foi040812a. 
pdf. 
65 Australia, Brazil, Canada, France, Germany, Japan, New Zealand, Singapore, Spain, and the 
United Kingdom.  Information available online at:  http://www.cftc.gov/cftc/cftcreports.htm. 
66 Argentina, Australia, Austria, Belgium, Brazil,  Canada, Denmark, Finland, France, Germany, 
Ireland, Italy, Japan, Mexico, the Ne therlands, New Zealand, Spain, Swed en, Switzerland, the United Kingdom, 
and Venezuela. United States WT /TPR/S/160/Rev.1 
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premiums with respect to non-life insurance when the insurer is not subject to U.S. net income tax on 
the premiums. 
88. The U.S. insurance market is open to foreign direct investment through acquisition of an 
insurance company licensed in a given state.  Ma rket access for foreign companies may also take 
place through incorporation in a given state as a s ubsidiary of a foreign insurance company, or as a 
branch of a foreign insurance company.  Minnesota, Mississippi, and Tennessee do not have a mechanism for licensing initial entry of a non-U.S. in surance company as a subsidiary;  the authorities 
indicate that they could, however, accord such rights if the company has been licensed in another U.S. 
state.  Thirteen states do not have a mechanis m for licensing initial entry of a non-U.S. insurance 
company as a branch;  however, they could accord su ch rights if the compan y has been licensed in 
another state.
67  For branches, operations are limited in principle to writing premiums based on the 
capital deposited in each state where it intends to do  business.  In practice this requirement is often 
waived, particularly if the applicant has a qualifying deposit in another state. 
89. Although companies must be licensed in a particular state to conduct insurance business 
within its borders and across its borders by mail,  telephone, or over the Internet, some residency 
requirement exceptions are in place;  they vary accor ding to the state.  For example, several states 
exempt certain large industrial place ments, MAT (marine, aviation, or transport insurance) or "surplus 
lines" insurance.  Under certain specific conditions and with some exceptions, foreign reinsurers may 
write insurance in the United Stat es even when not licensed in a particular state.  Some states apply 
residency requirements to brokers a nd suppliers of other services auxilia ry to insurance;  a few states 
apply U.S. citizenship requirements. 
90. Pursuant to the Gramm-Leach-Bliley Act, and in  an effort to streamline the licensing of 
insurance agents and brokers, a majority of states have implemented a reciprocal licensing system.  As of August 2004, all states except New Mexico, pl us Guam, had passed the Producer Licensing Model 
Act (PLMA) or other licensing laws with the intent  of satisfying the reciprocity licensing mandates of 
GLB Act.
68  Also, 42 states had been certified by the NAI C as meeting the requirements for producer 
licensing reciprocity under the GLB Act.  Pursuant to the Declaration of Reciprocity and the PLMA, a 
system of reciprocal licensing is being implemen ted whereby a resident producer may obtain a non-
resident licence through a uniform application process. 
91. The NAIC has implemented the Uniform Treatment Project through which participating states 
agreed to license non-resident producers, who are in  good standing in their resident states, without 
imposing restrictions or qua lifications additional to those required of  resident producers.  To this end, 
the NAIC developed a Uniform Application for Individual Non-Resident Licence and a Uniform 
Certificate of Authority Application (UCAA), curre ntly accepted in all states, allowing foreign and 
domestic insurers to file copies of the same appli cation for admission in all states.  The NAIC has also 
been involved in other uniformity initiatives, such as the System for Electronic Rate and Form Filing 
(SERF)69;  the Coordinated Advertising, Rate  and Form Review Authority (CARFRA)70;  and the 
Interstate Insurance Product Regulation Compact.71  A non-profit affiliate of the NAIC, the National 
Insurance Producer Registry implements an elect ronic producer database to streamline the producer 
                                                      
67 Arkansas, Arizona, Connecticut, Georgia, Hawaii, Kansas, Maryland, Minnesota, Nebraska, 
New Jersey, North Carolina, Tennessee, Vermont, and Wyoming. 
68 NAIC online information.  Available at:  http://www.naic.org/GLBA/narab.htm. 
69 As of June 2005, 49 states and the District  of Columbia accepted filings under the SERF. 
70 As of June 2005, 22 states ha d accepted filings under the CARFRA. 
71 As of end 2005, 19 states had enacted into law the Interstate Insurance Product Regulation Compact:  
Colorado, Hawaii, Idaho, Indiana, Iowa, Kansas, Maine, Maryland, Nebraska, New Hampshire, North Carolina, 
Pennsylvania, Rhode Island, Texas, Utah, Vermont, Virginia, Washington, and West Virginia.  Puerto Rico has also enacted the compact. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 102 
 
 
licensing process.72  In the previous Review of the United States, Members noted the NAIC's efforts 
toward achieving uniformity among the states' regulat ory regimes, but requested further deregulation 
regarding inter-state insurance businesses.  The Un ited States replied that it did not find that state 
level regulation posed a barrier to trade, and that  the U.S. states were welcoming towards foreign 
investment in insurance.73 
92. The Terrorism Risk Insurance Act of 2002 (TRIA,  P.L. No. 107-297), introduced a three-year 
programme, from 1 January 2003 to 31 December 2005,  to pay the federal share of compensation for 
insured losses resulting from acts of terrorism.74  The federal share of compensation for insured losses 
of an insurer is 90% of the portion of such losses ex ceeding the insurer's deductible up to an aggregate 
maximum of US$100 billion.  As of mid 2005, no bene fits had been paid nor claims been made under 
the TRIA.75  On 30 June 2005, the U.S. Treasury released  a report that found that TRIA had achieved 
its goals of stabilizing the private insurance ma rket, but recommended that any extension should 
expand the role of private insurance systems.   A modified two-year TRIA extension until 
31 December 2007, the Terrorism Risk Insurance Extension Act of 2005, P.L. No. 109-144, was 
passed by Congress in late 2005.  The new Act in troduced various changes to the TRIA, including a 
reduction in the federal share of compensation, in creases in the aggregate retention limits and the 
deductible, and the introduction of a programme trigger of aggregate industry insured losses. 
(4) TELECOMMUNICATION SERVICES  
(i) Institutional framework and market access 
93. The Federal Communications Commission (FCC) regulates the entry and operations of 
telecommunications carriers on the basis of the Communications Act of 1934, as amended by the 
Telecommunications Act of 1996.76  The FCC rules and regulations are codified in Title 47 of the 
Code of Federal Regulations.  Pursuant to the Co mmunications Act, the FCC has broad authority to 
regulate in the public interest.  Accordingly, the F CC has authority to adopt rules and regulations, to 
adjudicate disputes, to grant and revoke licences, an d to impose penalties and fines for violations of 
the law. 
94. Individual state commissions have the authority to regulate the rates, terms, and conditions of 
intra-state, non-radio-based basic telecommunications  services.  At the previous U.S. Trade Policy 
Review, Japan was concerned that the lack of uni form reporting standards across states was a burden 
on carriers.77 
95. U.S. commitments on basic telecommunications a ttached to the Fourth Protocol of the GATS 
cover most services.78  Excluded from the commitments are one-way satellite transmissions of direct 
to home (DTH) and direct broadcast satellite (DBS) television services, and of digital audio services.  
The U.S. commitments also include a restricti on on granting common carrier radio licences to:  
(1) foreign governments;  (2) non-U.S. citizens;  (3 ) corporations not organized under the laws of the 
United States;  and (4) U.S. corporations of whic h more than 20% of the capital stock is owned of 
                                                      
72 As of end 2005, 30 states participated.  See NAIC online information, available at:  
http://www.naic.org. 
73 WTO document WT/TPR/M/126/Add.3, 22 November 2004, p. 222. 
74.TRIA potential beneficiaries are co mpanies licensed in a U.S. state,  and non-licensed companies that 
are eligible surplus line carriers listed on the Quarterly Lis ting of Alien Insurers of the NAIC, or that have been 
approved to offer property and casualty insurance by a federal agency in connection with MAT activities. 
75 Congressional Budget Office (2005c). 
76 47 USC 151 et seq. 
77 WTO document WT/TPR/M/126/Add.3, 22 November 2004. 
78 See WTO document GATS/SC/90/Suppl.2, 11 April 1997. United States WT /TPR/S/160/Rev.1 
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record or voted by a foreign government, non-U.S. citizens, or a corporation not organized under the 
laws of the United States.  Indirect ownership of common carrier radio licensees by these entities through a U.S. holding company is not subject to li mitations.  The United States has reserved the right 
under GATS Article II to discriminate between WTO Members "due to application of reciprocity 
measures or through international agreements gua ranteeing market access or national treatment" for 
DTH, DBS, and digital audio services.
79 
96. Under Section 310 of the Communications Act of 1934, common carrier radio licences cannot 
be granted to or held by non-U.S. citizens, co rporations not organized under the laws of the 
United States, or foreign governments.80  Nor can licences be granted to U.S. corporations of which 
more than 20% of the capital stock is owne d of record or voted by any of these entities.81  However, 
licences may be granted to companies set up in the United States that are controlled by holding 
companies set up in the United States and in which foreign individuals, corporations, or governments 
own of record or vote more than 25% of the capital stock, unless the FCC finds that such ownership is 
inconsistent with the pub lic interest (see below). 
97. The United States implemented its WTO commitments for satellite services through the 
DISCO II Order adopted in November 1997.82  These commitments allowed foreign satellite operators 
to provide satellite services to th e U.S. market.  In 1999, the FCC streamlined the process by which 
foreign satellite operators may serve the U.S. mark et.  Foreign operators may request that their 
satellites be considered for inclusion in the Permitted Space Station List.83  Satellites on this list may 
be accessed by any licensed earth station operating in  specific bands and consistent with the FCC's 
technical requirements without further regulatory approval.  Exceptions are satellites that provide services excluded from the U.S. commitments at the WTO (DTH, DBS, and digital audio services).  
There are 24 satellites on the Permitted Space Station List (November 2005).  According to the U.S. 
authorities, several U.S. earth stations have b een authorized to communicate with an additional 
21 non-U.S.-licensed satellites that are not on the Permitted Space Station List. 
98. The FCC requires that foreign satellite operators on the Permitted Space Station List wishing 
to provide satellite services that are excluded from the U.S. commitments, perform an ECO-SAT 
analysis.  In this analysis, the applicant must show that there are no barriers to entry in the applicant's 
country for U.S.-licensed satellite operators.
84  In the context of this Review, the U.S. authorities 
noted that at least one satellite, Horizons I at 127 W.L., licensed by Japan, has met the ECO-SAT test.  
The authorities also noted that the FCC has allowed non-U.S-licensed  satellite operators (including 
the operators of four Canadian-licensed satellites) to  enter the U.S. market even though they did not 
meet the ECO-SAT test, in cases where it found th at entry would further the public interest. 
                                                      
79 WTO document GATS/EL/90/Suppl.2, 11 April 1997. 
80 47 USC 310. 
81 47 USC 310. 
82 Amendment of the Commission’s Regulatory Policie s to Allow Non-U.S.-Licensed Space Stations to 
Provide Domestic and International Fixed Satellite Services in the United States, Report and Order, IB Docket 
No. 96-111 (1997) (DISCO II Order). 
83 Amendment of the Commission's Regulatory Policie s to Allow Non-U.S.-Licen sed Space Stations to 
Provide Domestic and International Satellite Service in the United States, First Order on Reconsideration, 
IB Docket No. 96-111 (1999) (DISCO II First Reconsideration Order). 
84 For more on the ECO-SAT test, see DISCO II Order, paragraph 40. WT/TPR/S/160/Rev.1 Trade Policy Review 
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(ii) Selected regulatory issues 
(a) Public interest analysis and regulatory safeguards 
99. Under the Communications Act of 1934, the FCC must conduct a public interest analysis 
when evaluating applications to:  obtain authority to provide faciliti es-based or resold international 
services under Section 214;  receive authorization to  exceed the 25% foreign-ownership benchmark of 
Section 310(b)(4);  or obtain submarine cable landi ng licences.  The public interest analysis conducted 
in the context of an application by a supplier fro m a WTO Member relies on an "open entry" standard, 
whereby the FCC starts from a presumption (subject to  rebuttal) that foreign entry does not threaten 
competition in the U.S. telecommunications market.85  According to Canada, incorporating explicitly 
the open entry standard into legisl ation would provide "the full secu rity of law" to suppliers from 
WTO Members.86 
100. The public interest analysis of applications, including from WTO Members, also involves a 
consideration of policy concerns raised by fe deral government agencies in relation to national 
security, law enforcement, foreign policy, or trade policy issues.87  According to the authorities, no 
licence has been denied on the basi s of such concerns since 1997.  The U.S. authorities also note that 
between September 2000 and May 2004, the FCC gr anted approximately 700 authorizations to 
provide international services in the United Stat es to companies with 10% or greater foreign 
ownership. 
101. The FCC maintains several regul atory safeguards to deter conduct by a foreign carrier that 
would harm competition in the U.S. telecommunica tions market.  These safeguards include the "no 
special concessions" rule, the international settle ments policy, and benchmark and dominant carrier 
requirements.  The no special conc essions rule prohibits U.S. international carriers from agreeing to 
enter into exclusive arrangements with foreign carri ers that have sufficient market power to affect 
competition adversely in the U.S. market.  The types of arrangements covered by the no special 
concessions rule are those that affect traffic or revenue flows to or from the United States.  The 
Foreign Participation Order adopted a presumption (s ubject to rebuttal) that carriers with less than 
50% market share in the foreign market lack such market power.88 
102. The FCC's international settlements policy (I SP) governs negotiations between U.S. and 
foreign carriers for the exchange of internationa l switched traffic.  The ISP requires all rate 
agreements between U.S. and foreign carriers to pr ovide for:  an equal division of accounting rates 
between foreign and U.S. carriers89;  the non-discriminatory treatment of U.S. carriers;  and a share to 
U.S. carriers of U.S. inbound traffic proportionate to their share of U.S. outbound traffic.  Since March 2004, the FCC has applied its ISP only to  routes on which benchmark rates exceed those 
                                                     
 
85 Rules and Policies on Foreign Participation in the U.S. Telecommunications  Market, Market Entry 
and Regulation of Foreign-Affiliated Entities, Report a nd Order and Order on Reconsideration, IB Docket 
Nos. 97-142 and 95-22 (1997) (Foreign Participation Order), paragraph 50. 
86 WTO document WT/TPR/M/126/Add.3, 22 November 2004. 
87 Foreign Participation Order, paragraph 63. 
88 Foreign Participation Order, paragraph 17. 
89 The accounting rate system refe rs to the pricing principles used in interconnection agreements 
between international operators, to enab le the revenue for international calls to be shared between the operator 
in the country that originates traffic and the oper ator in the country that delivers the traffic. United States WT /TPR/S/160/Rev.1 
 Page 105 
 
 
specified by the FCC (see below).90  ISP-exempt routes are not subject to the no special concessions 
rule with respect to the terms and c onditions under which traffic is settled. 
103. The FCC's Benchmarks Order of August 1997 requires U.S. carriers to negotiate the 
international settlement rates paid to foreign carrier s for terminating calls at a level no higher than the 
specific rates tied to the economic developm ent of the country where calls terminate.91  Benchmark 
rates range from US$0.15 per minute for upper-inc ome countries to US$0.23 per minute for lower 
income countries.  A U.S. carrier with an affiliate that has market power in a foreign market will only 
receive FCC authorization to provide facilities-based switched international services to that market if 
its affiliate agrees to offer all U.S. carriers a settle ment rate that is not higher than the benchmark 
rate.92  On ISP-exempt routes, FCC rules permit a foreign carrier to offer to its affiliated U.S. carrier a 
settlement rate that is different from the rate offere d to unaffiliated U.S. carriers;  however, the foreign 
carrier must offer all U.S. carriers a settlement ra te that is not higher than the benchmark rate. 
104. U.S. carriers classified as dominant due to th eir affiliation with a foreign carrier that has 
market power on the foreign end of a U.S. interna tional route are subject to specific requirements in 
the provision of U.S. international service on that route, including separation and quarterly reporting requirements.
93  In 2003, the most recent year for whic h annual data exist, approximately 14 U.S. 
carriers reported operating as dominant U.S. international carriers. 
105. The Foreign Participation Order foresees the possibility that the FCC's regulatory safeguards 
would be inadequate in preventing a foreign carri er from harming competition in the U.S. market.  
Accordingly, the FCC reserves the right to attach other conditions to an authorization or licence.  
Such conditions could entail additi onal reporting requirements and prio r approval for circuit additions.  
The U.S. authorities indicated that the FCC has exer cised this right only once, in the context of an 
authorization to provide facilities-based service on the U.S.-Jamaica and U.S.-St. Kitts and Nevis 
routes.94  In addition, the FCC reserves the right to de ny an application in cases where an application 
poses a "very high risk" to competition in the U.S. market.95  The U.S. authorities have indicated that 
no specific criteria exist for determining whether an  application poses a very high risk, due to the 
highly fact-specific nature of such a determination.96 
106. Under Section 1377 of the Omnibus Trad e and Competitiveness Act of 1988, the 
United States annually reviews trading partners' co mpliance with their obligations under agreements 
covering telecommunications entered into with the United States.  The 2005 report lists a number of 
country-specific complaints.97 
(b) Unbundled access to network elements 
107. Section 251 of the Communications Act of 1934 requires that all "incumbent local exchange 
carriers" provide requesting carriers with “non- discriminatory access to network elements on an 
                                                      
90 International Settlements Policy Reform, International Settlement Rates, Report and Order, IB 
Docket Nos. 02-324 and 96-261 (2004).  The list of inte rnational routes that are not subject to the ISP is 
available at:  http://www.fcc.gov/ib/pd/pf/isp_exempt.html. 
91 International Settlement Rates, Report and Order (1997) (Benchmarks Order). 
92 Report and Order on Reconsideration and Order Li fting Stay (1999) (Ben chmarks Reconsideration 
Order). 
93 Foreign Participation Order, paragraphs 215-292. 
94 Cable & Wireless, Inc., Order, Authoriza tion and Certificate (1998), paragraph 19. 
95 Foreign Participation Order, paragraph 51. 
96 WTO document WT/TPR/M/126/Add.3, 22 November 2004. 
97 The report is available online at:  http://www.us tr.gov/Trade_Sectors/Telecom-E-commerce/Section_ 
1377/Section_Index.html. WT/TPR/S/160/Rev.1 Trade Policy Review 
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unbundled basis at any technically feasible point on rates, terms, and conditions that are just, 
reasonable, and non-discriminatory…".98  Section 251 network elements must be priced "based on the 
cost (determined without reference to a rate-of-retu rn or other rate-based proceeding) of providing 
interconnection or network element" a nd "may include a reasonable profit".99  The Act further 
authorizes the FCC to determine the elements that are subject to unbundling pu rsuant to Section 251, 
directing it to consider, “at a minimum”, whethe r access to proprietary network elements is 
“necessary”, and whether failure to provide a non-pr oprietary element on an unbundled basis would 
“impair” a requesting carrier’s ability to provide service.100  In addition to Section 251, which applies 
to all incumbent local exchange carriers, Bell Operating Companies must provide unbundled access to 
the list of network elements specified in Sec tion 271(c)(2)(B) of the Act, known as the “competitive 
checklist”. 
108. In December 2004, the FCC adopted its most recent rules addressing the extent to which 
incumbent local exchange carriers mu st to make available elements of their network to other carriers 
(usually referred to as "competitive local exchange carriers").101  The rules respond to a March 2004 
decision by the U.S. Court of Appeals for the D.C. Circuit that overturned portions of the FCC's unbundling rules as specified in the Triennial Review Order of August 2003.
102 
109. According to the FCC, the new rules impose unbundling obligations only where the 
Commission finds that "carriers genuinely are impair ed without access to particular network elements 
and where unbundling does not frustrate sustainable, f acilities-based competition.  It further notes that 
this approach ensures the right incentives" for both incumbent and competitive local exchange carriers 
to invest rationally in the telecommunications mark et in the way that best allows for innovation and 
sustainable competition".103 
110. Following the adoption of the new rules, unbundling obligations continue to apply to 
dedicated inter-office transport on routes connecting all but the largest markets, and certain high 
capacity loops (subject to caps) in all but the largest  markets.  Incumbent local exchange carriers are 
not required to provide requesting carriers with unbundled access to mass market local circuit 
switching.  Consequently, the unbundled network elem ent platform or UNE-P (i.e. the combination of 
an unbundled loop, unbundled local circuit switching,  and shared transport), is no longer required, 
although the pre-existing unbundlin g obligations associated with local loops remain in place. 
111. It has been observed that the unbundled network element platform became carriers' preferred 
entry strategy after the collap se of the information and communication technology stocks in 2000.104  
The FCC found, however, that reliance solely on UN E-P deterred investment in competing carriers’ 
                                                      
98 47 USC 251 et seq. 
99 47 USC 252(d)(1).  See also Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996;  Interconnection betw een Local Exchange Carriers and Commercial Mobile 
Radio Service Providers, CC Docket  Nos. 96-98, 95-185, First Report and Order (1996) (Local Competition 
Order). 
100 47 USC 251(d)(2). 
101 Unbundled Access to Network Elements, Review of the Section 251 Unbundling Obligations of 
Incumbent Local Exchange Carriers, WC Docket No . 04-313, CC Docket No. 01-338, Order on Remand 
(2004-2005) (Triennial Remand Order). 
102 Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 
Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Deployment of 
Wireline Services Offering Advanced Telecommunications Capability, CC Dockets Nos. 01-338, 96-98, 98-14, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, (2003) (Triennial Review 
Order). 
103 Federal Register , 70 FR 8941, 24 February 2005. 
104 Bauer (2005). United States WT /TPR/S/160/Rev.1 
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own facilities.105  According to the U.S. authorities, this finding partly led the FCC to eliminate 
unbundled local circuit switching.  In making this finding, the FCC also relied on the state of intermodal competition for broadband service, particularly from cable modem services.
106  T h e  
authorities also noted that, as a result, the F CC has pursued a policy of creating incentives to 
broadband deployment since 2003, by not requiri ng the incumbent local exchange carriers to 
unbundle new facilities that are designed to provide broadband services to residential customers, such 
as fiber-to-the-home loops, fiber-to-the-curb loops, the high-frequency portion of the loop used for 
line sharing, and hybrid loops.107  The FCC has expanded these policies to the unbundling 
requirements for Bell Operating Companies under S ection 271 of the Communications Act of 1934. 
112. Carriers using network elements that are no lo nger required to be made available under the 
new rules have to migrate their services to alte rnative facilities within 12 or 18 months, depending on 
the element involved.  During the transition, carri ers will retain access to UNE-P, dedicated inter-
office transport, and high capacity loops, for whic h unbundling obligations were eliminated, but at a 
higher ceiling rate.108 
(c) Inter-carrier compensation 
113. Since 2001, the FCC has been considering measure s to reform its inter-carrier compensation 
regime.109  Inter-carrier compensation is governed by a complex system of rules that differentiate 
between types of carriers and services.110  Generally, these rules can be classified as "reciprocal 
compensation" rules, which govern compensation rela ted to local traffic, and "access charge" rules, 
which apply to long-distance calls.  At the previ ous U.S. Trade Policy Review, Japan called on the 
FCC to eliminate or reduce "the disparity and inconsistencies" among access charges.111 
114. According to the FCC, there is a need to re place the existing "patchwork" of inter-carrier 
compensation rules with a "unified" approach.112  The FCC also notes that the distinctions between 
types of traffic, carriers, and communication end points create both opportunities for regulatory 
arbitrage, and incentives for inefficient investment and deployment decisions.113 
115. In March 2005, the FCC issued a "further notice of proposed rulemaking" related to its plans 
to introduce a unified inter-carrier compensation regime.114  In the context of the reform, the FCC has 
identified "bill and keep" as a possible alternative appr oach to inter-carrier compensation.  Under this 
approach, neither of the interconnecting networks ch arges the other for terminating traffic.  Instead, 
carriers recoup all of the costs of originating and terminating traffic from their customers. 
                                                      
105 Triennial Remand Order, paragraph 220. 
106 See, for example, Triennial Review Order, paragraph 292. 
107 See Triennial Review Order, paragraphs 273-97, and Review of the Section 251 Unbundling 
Obligations of Incumbent Local Exchange Carriers;  Implementation of the Local Competition Provisions of the 
Telecommunications Act of 1996;  Deployment of Wireli ne Services Offering Advanced Telecommunications 
Capability, CC Docket Nos. 01-338, 96-98, 98-147, Order on Reconsideration, paragraphs 7-9. 
108 Triennial Remand Order, paragraph 228. 
109 The term "inter-carrier compensation" refers to the payments among telecommunications carriers 
with interconnecting networks for the tr ansport and termination of traffic. 
110 Developing a Unified Intercarrier Compensation Regime, Further Notice of Proposed Rulemaking, 
CC Docket No. 01-92 (2005), paragraph 5. 
111 WTO document WT/TPR/M/126/Add.3, 22 November 2004. 
112 CC Docket No. 01-92 (2005), paragraph 3. 
113 Regulatory arbitrage arises when entities subject to  regulation rearrange their transactions to exploit 
a more advantageous regulatory treatme nt, even though such actions, in the absence of regulation, would be 
viewed as costly or inefficient. 
114 Federal Register , 70 FR 15030, 24 March 2005. WT/TPR/S/160/Rev.1 Trade Policy Review 
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(5) MARITIME TRANSPORT  
(i) Main features and competition policy considerations 
116. Foreign-flag participation in U.S. water-borne trade continued to increase in volume terms in 
the period under review, reaching 55.5% in 2003, co mpared with 53.9% of the total in 2001, and 
45.1% in 1991;  this includes domestic water-bor ne transport, reserved for U.S. flag vessels.  
Considering only foreign wa ter-borne traffic, the share of trade transported in foreign vessels was 
97.9%.  Water-borne imported cargo was worth reach ed US$604.6 billion in 2003, while water-borne 
exports totalled US$202.5 billion;  total water-borne cargo accounted for over 40% of the value of 
U.S. trade.  The traditional U.S. trade deficit in  freight and port services reached US$17.2 billion in 
2004.115 
117. Domestic water-borne cargo (on routes cove red by the Jones Act) totalled 921.7 million 
tonnes in 2003, or 43.3% of the U.S. cargo carried by water down from 44.8% in 2001 and 51.6% a decade earlier.
116  The U.S.-flag fleet, at 13 million deadweight tons (dwt) and with 412 vessels, was 
the twelfth largest merchant marine feet in the world as at 1 July 2004.  On an ownership basis, the U.S. fleet is the world's sixth largest, with 931 vessels (at 39.6 million dwt).
117  O n l y  2 %  o f  
international cargo was carried under the U.S. flag in 2003. 
118. The United States did not table an offer in the WTO Negotiations on Maritime Transport 
Services, suspended in June 1996.  It has not tabled an offer with respect to maritime transport 
services in its initial offer on services in the Doha Development Agenda.118 
119. The Maritime Administration (MARAD) of the Department of Transportation promotes the 
"development and maintenance of an adequate, well -balanced U.S. merchant marine, sufficient to 
carry the U.S. domestic waterborne commerce and a substantial portion of its waterborne foreign 
commerce, and capable of serving as a naval and military auxiliary in time of war or national 
emergency".119  The Federal Maritime Commission (FMC), an independent agency, regulates ocean-
borne transport, including ocean transportation in termediaries, and oversees the collective activities of 
shipping lines (which are not subject to U.S. antitrus t laws for both U.S. and foreign operators of liner 
shipping services with fixed-schedules).120  The FMC is also responsible for regulating rates of 
government-owned or -controlled carriers.  The FM C also investigates and prosecutes malpractice 
including market-distorting activities.  Most of these investigations result in compromise settlement of 
civil penalties;  these amounted to US$3.13 milli on in FY 2003.  The FMC also operates an 
Alternative Dispute Resolution programme. 
(ii) Domestic water-borne trade 
120. Section 27 of the Merchant Marine Act of 1920, commonly referred to as the Jones Act, 
reserves cargo service between two points in the United States (including its territories and possessions), either directly or via a foreign port,  for ships that are registered and built in the 
United States and owned by a U.S. corporation, and on which 75% of the employees are U.S. citizens.  
The Jones Act does not prevent foreign compan ies from establishing shipping companies in the 
                                                     
 
115 Exports totalled US$37 billion, while imports were US$54.2 billion.  BEA online information.  
Available at:  http://www.bea.doc.gov/bea/internationa l/bp_web/simple.cfm?anon=240&table_id=3&area_id=3. 
116 MARAD online information.  Available at:  www.marad.dot.gov/MARAD_statistics. 
117 MARAD online information.  Available at:  h ttp://www.marad.dot.gov/MAR AD_statistics/Country-
MFW-7-04.pdf. 
118 WTO document TN/S/O/USA, 9 April 2003. 
119 MARAD online information.  Available at:  http://www.marad.dot.gov/welcome/mission.html. 
120 FMC online information.  Available at:  http://www.fmc.gov. United States WT /TPR/S/160/Rev.1 
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United States as long as they meet the requirement s with respect to U.S. employees.  Domestic 
passenger services are subject to similar requireme nts under the Passenger Vessel Services Act of 
1886. 
121. There are certain exemptions to the applicati on of the Jones Act and the Passenger Vessel 
Services Act.  For example, the Secretary of Tran sportation may waive the U.S.-built requirements for 
vessels authorized to carry no more than 12 passengers  in a specified area provided certain criteria are 
met.121 
(iii) International water-borne trade 
122. Approximately 98% of U.S. ocean-borne foreign trade is carried on foreign-flag vessels.  The 
Shipping Act of 1984, as amended by the Ocean Sh ipping Reform Act of 1998 (OSRA), is aimed at 
enhancing competition in the intern ational shipping sector by allowing shipping lines to enter into 
individual service contracts with impor ters and exporters without carrier  groups being able to restrict 
this function.  The United States has negotiated bila teral maritime agreements  with four countries.  
One such understanding was reached with Brazil in 2005. 
123. U.S. and foreign operators of liner shipping services and marine terminal operators in the 
United States benefit from exemptions to antitrus t laws, including the Sherman and Clayton Acts 
(see Chapter III(4)(ii)), with respect to their operati ons in U.S.-foreign ocean-borne trade.  Under the 
Shipping Act of 1984, agreements among liner oper ators and marine terminal operators (MTOs) to 
discuss, fix, or regulate transportation rates, an d other conditions of service, or cooperate on 
operational matters must be filed with the FMC, wh ich is responsible for re viewing the arrangements 
to avoid anti-competitive behaviour.  The FMC has the authority to seek to enjoin agreements it finds 
substantially anti-competitive.  After a fact-finding investigation held in 2002-03, the FMC entered 
into a settlement agreement with 14 carrier memb ers of the Transpacific Stabilization Agreement, 
resulting in limitations placed on the matter carriers may coordinate under the Agreement.122 
124. Under the OSRA, which introduced competition- enhancing amendments to the Shipping Act 
of 1984 promoting the use of service contracts with  importers and exporters, the FMC is charged with 
ensuring that common carriers' tariff rates and char ges for carriage in U.S.-foreign trade are published 
electronically and are accessible to the public.  Th e FMC also maintains an electronic system 
containing service contracts between ocean common carriers and shippers, which are required by law 
to the filed with the FMC.  The FMC granted an exemption in January 2005 from the otherwise-
applicable tariff adherence requirements for non- vessel operating common carriers (NVOCCs) that 
enter into service arrangements with their shippers  on an individual basis.  The exemption requires 
NVOCCs to file these rates with the FMC and to publish their essential terms.  The FMC also holds 
the authority to review the rates of government -owned and-controlled ocean common carriers to 
ensure that the commercial carriers with whom  they compete are not unfairly disadvantaged. 
125. Under the Foreign Shipping Practices Act of 1988 (FSPA), the FMC is empowered to 
investigate and address conditions adversely affecti ng U.S. carriers in foreign trade, where such 
conditions do not exist for foreign carriers in the Un ited States.  The FMC is authorized to investigate 
and address general or specific c onditions adverse to shipping in U.S.-foreign trade under section 19 
of the Merchant Marine Act, 1920.  In FY 2004,  the FMC monitored shipping practices by a number 
of foreign governments but no action was taken.123  Under the Shipping Act of 1984, the FMC 
exercises special regulatory oversight on "controlle d carriers", i.e. ocean common carriers operating in 
                                                      
121 MARAD online information.  Available at:  http://www.marad.dot.gov/programs/smallvessel/ 
small_vessel_waivers.html. 
122 Federal Maritime Commission (2002). 
123 Federal Maritime Commission (2005). WT/TPR/S/160/Rev.1 Trade Policy Review 
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U.S.-foreign trade that are owned or controlled by  foreign governments.  In May 2005, the FMC 
published an updated list that included eight controlle d carriers, from Algeria, China (four), India, 
Singapore, and Sri Lanka.124 
126. A number of programmes are in place to allow fo r the eventual use of  the U.S. commercial 
fleet for defence purposes.  The Maritime Security  Program (MSP) supports the U.S.-flag merchant 
marine by providing a fixed payment to U.S.-flag vessel operators.  The ten-year MSP provides funding for 47 vessels to ensure that a certain num ber of militarily useful vessels from the commercial 
fleet are available to meet U.S. sealift requirements in time of war or national emergencies.  Funding 
of up to US$98.7 million per year is authorized through FY 2005, but must be appropriated by the 
U.S. Congress every year.  In FY 2004, direct pa yments of US$98.7 million were made by MARAD 
for the MSP.
125  The current MSP expires at the end of FY 2005. 
127. A new ten-year programme begins 1 Oct ober 2005 and provides funding for 60 ships 
receiving MSP assistance subject to annual Congressiona l appropriations.  The authorized funding for 
FY 2006 through FY 2008 is US$2.6 million per vessel annually;  it increases to US$2.9 million per vessel annually for FY 2009-11, and US$3.1 million during FY 2012-15. 
128. The Voluntary Intermodal Sealift Agreement (V ISA) programme, introduced in January 1997 
and sponsored by MARAD, provides the Departme nt of Defense (DOD) with assured access to 
commercial intermodal capacity during time of war or national emergency.  As of 1 March 2005, 
there were 59 participants in the VISA. MSP par ticipants' vessel capacity makes up to 69% of the 
VISA capacity.  VISA participants receive priority consideration for award of DOD peacetime ocean 
freight contracts.
126 
129. The Cargo Preference Act of 1904 requires a ll items (end products and component parts) 
procured for or owned by U.S. military departments and defence agencies to be carried exclusively on 
U.S.-flag vessels.  The Cargo Preference Act of 1954 (P.L. No. 83-664), as amended, requires that at 
least 50% of the gross tonnage of all government-g enerated cargo be transported on privately owned, 
U.S.-flag commercial vessels to th e extent such vessels are available at fair and reasonable rates.127  
Under the 1954 Act, ships built or rebuilt abroad must be registered under the U.S. flag for three years 
to be eligible to carry preference cargoes covered by the Act.  This eligibility requirement does not 
apply to U.S.-flag vessels carrying cargoes under the 1904 Act or Public Resolution 17 (see below).  
All U.S.-flag vessels that carry preference cargoes participate in the VISA programme.  The Cargo 
Preference Act of 1954 also applies to the Stra tegic Petroleum Reserve, administered by the 
Department of Energy, which is required to use U.S. -flag tankers for at least 50% of oil transport. 
130. The Food Security Act of 1985 amended the Cargo Preference Act of 1954 to increase the 
minimum U.S.-flag requirement to 75% of shipme nts of agricultural cargoes under certain foreign 
assistance programmes of the USDA and the Agency  for International Development.  The Food 
Security Act of 1985 also established the Oc ean Freight Differential (OFD) Programme.128  MARAD 
reimburses the USDA for its share of such costs above 50% of the gross tonnage.  OFD payments in FY 2004 totalled US$61 million, down from US$113 million in FY 2003. 
                                                     
 
124 Federal Maritime Commission, Controlled Carriers Under the Shipping Act of 1984, Notice, 5 May 
2005.  Available at:  h ttp://www.fmc.gov/Doc kets/FR%20Notice%202 005%20Controlled%20Carrier%20List. 
htm. 
125 MARAD (2003a). 
126 Maritime Administration Office of Statistical and Economic Analysis. 
127 Agencies may opt for higher preference percentages.  See MARAD (2004), p. 35. 
128 The ocean freight differential (OFD ) is defined as the difference between the cost of shipping cargo 
on a U.S.-flag vessel as compared with shippi ng the same cargo on a foreign-flag vessel. United States WT /TPR/S/160/Rev.1 
 Page 111 
 
 
131. The Food Security Act of 1985 also foresees an additional reimbursement to the USDA, 
termed "Excess 20%", applicable if total obligatio ns incurred by the USDA for ocean freight and OFD 
on exports of agricultural commodities and produc ts under certain agricultural programmes exceed 
20% of the value of the commodities exported unde r these programmes;  the reimbursement is made 
on the excess over 20%.  In cargo preference year  (CPY, 1 October-30 Se ptember) 2003-04, 75% of 
food aid commodities were transported on U.S.-flag  vessels;  agricultural cargo preference laws 
generated US$460 million in revenue for U.S.-flag  vessel owners, and employed 113 U.S.-flag 
vessels.  MARAD estimates that most of the 113 participating vessels woul d probably not be U.S.-
flag without the revenues generated by cargo preference cargos.129 
132. Public Resolution No. 17 of 1934 provides th at where a government agency makes export 
loans or credit guarantees, the exported products must  be carried exclusively in U.S. vessels.  The 
Resolution is applicable to credits of the Ex-Im Ba nk or other government instruments.  Applications 
for statutory waivers may be made when U.S. vessels are not available within a reasonable time or at 
reasonable rates.  Waivers may be granted for pa rtial use of national-flag vessels of recipient 
countries, even if U.S.-flag vessels are available, but the ocean carriage of the recipient country may 
not exceed 50% of the total movement under the credit.   Waivers are subject to reciprocal treatment 
for U.S.-flag vessels on the part of the recipient country. 
(iv) Port services 
133. The United States has 361 public ports, which handl e most U.S. overseas trade.  In 2003, the 
top 50 ports accounted for 90% of total U.S. car go tonnage;  the 25 top container ports account for 
over 98% of all U.S. container sh ipments.  Vessel calls to U.S. ports represent 10% of world vessel 
calls.  The volume of traffic into U.S. west coas t ports has been increasing rapidly, due mainly to 
increased loads carried by vessels, st retching the capacity of some ports.130  In mid 2004 as a result of 
container terminal congestion at the ports of Los Angeles and Long Beach in California, it took 
between 6-8 days to unload the cargoes from a vessel , twice the normal time.  The authorities indicate 
that port congestion causes many problems, including higher shipping costs and significant cargo 
transit delays.  Port congestion also  affects New York and New Jersey. 
134. MARADS's Port Development Program has b een designed to address the problem of port 
congestion in the medium run, aiming to double, at least, the volume of cargo handling capacity in 
every major U.S. port by 2020 to meet growing trade demand.131  MARAD has several initiatives to 
address the problem, including the Short Sea Shi pping programme;  the Marine Transportation 
System (MTS) initiative;  the Port Co Conveyance Program;  and the Cargo Handling Cooperative Program.
132 
135. U.S. port services are available on a non-discrim inatory basis.  The United States does not 
grant preferential treatment with respect to the use of port and harbour facilities.  Vessels from 
Cambodia, Cuba, Iran, Iraq, Libya, North Korea, and Syria may not enter U.S. ports on national security grounds.  The United States maintains an MFN exemption covering restrictions on 
performance of longshore work by crews of fore ign vessels owned and flagged in countries that 
similarly restrict U.S. crews on U.S.-flag vessels from longshore work.
133  The Immigration and 
                                                      
129 MARAD (2003a). 
130 Vessel capacity calling at U.S. Pacific ports increased by over 30% between 1999 and 2003.  
(MARAD, 2004). 
131 MARAD online information.  Available at:  http://www.marad.dot.gov /Headlines/factsheets/ 
PDF%20Versions/Port%20Development-FS.pdf. 
132 MARAD online information.  Available at:  http://www.marad.dot.gov/programs/port.html. 
133 WTO document S/C/W/71, 24 November 1998. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 112 
 
 
Nationality Act of 1952, as amended, prohibits non-U.S.-national crewmembers from performing 
longshore work in the United States, but provides a reciprocity exception. 
136. Under Title I of the Maritime Transportation Security Act of 2002 (P.L. No. 107-295), 
commercial vessels arriving in the United States from a foreign port are required to transmit electronically, in advance, information on passe ngers, crew, and cargo (Chapter III(2)(i)(b)).  The 
Maritime Transportation Security Act of 2004 amende d federal shipping law to grant U.S. district 
courts jurisdiction to restrain violations of cer tain port security requirements, and authorized the 
Secretary of Transportation to refuse or revoke port cl earance to any owner, agent, master, officer, or 
person in charge of a vessel that is liable for a pe nalty or fine for violati on of such requirements. 
137. Under the Port Security Grants (PSG) Program, owners and operators of U.S. ports and 
terminals, U.S. inspected passenger vessels and ferries,  as well as port authorities and state and local 
agencies, may benefit from grants from the U.S. Department of Homeland Security, Office of 
Domestic Preparedness, to improve security fo r operators and passengers through physical security 
enhancement.
134  In FY 2005, 66 U.S. ports were elig ible for funding and US$140.9 million were 
allocated for the programme.135 
(v) Shipbuilding and ship repairs 
138. Under the Jones Act, only U.S. shipbuilders may supply ships on domestic routes;  the 
United States was granted an exemption from GATT rules for measures prohibiting the use, sale, or 
lease of foreign-built or foreign-reconstructed vess els in commercial applications between points in 
national waters or the waters of an exclusive ec onomic zone.  There are no restrictions on foreign 
investment in U.S. shipyards or ship-repair fac ilities, but benefits under certain programmes may be 
contingent upon nationality requirements. 
139. MARAD provides financial assistance to ship-own ers and U.S. shipyards through the Federal 
Ship Financing Program (Title XI), established pursu ant to Title XI of the Merchant Marine Act, 
1936, as amended.  This programme , consists of federal government  guarantees of private-sector 
financing or refinancing obligations  for ship construction or reconstr uction of U.S. and foreign-owned 
vessels in U.S. shipyards.  The guarantee is based on the "actual cost" of the vessels or the technology 
used in shipbuilding, which generally includes the cost of construction, reconstruction, or 
reconditioning of the vessel, together with cons truction period interest and the guarantee fee.136  The 
guarantees are up to 87.5% of the value of the proj ect, for up to 25 years depending on the type of 
project.  In FY 2004, new applications from two companies for projects totalling US$178 million 
were approved, representing US$152 million in guara ntees.  Three applications were approved in 
FY 2003 for projects costing US$446.6 milli on with guarantees of US$345.4 million.  On 
30 September 2004, Title XI guarantees totalling US$3. 5 billion were outstanding, and applications 
totalling over US$1.5 billi on were pending approval. 
140. Under the Capital Construction Fund (CCF) and Construction Reserve Fund (CRF), U.S. 
citizens owning or leasing vessels may obtain tax bene fits to construct qualified vessels.  The CCF 
provided tax-deferral benef its to vessel operators in U.S.-foreign commerce, Great Lakes operations, 
non-contiguous domestic trade, and U.S. fisheries.  CCF vessels must be built in the United States and 
documented under the laws of the United States.137  The stated purpose of the CCF is to make up for 
the competitive disadvantage operators of U.S.-flag  vessels face in the construction and replacement 
                                                      
134 Transport and Security Administration online information.  Available at:  http://www.tsa.gov/ 
public/. 
135 U.S. Department of Homeland Security (2005). 
136 MARAD online information.  Available a t:  http://www.marad.dot.gov/TitleXI/crf.html. 
137 MARAD online information.  Available a t:  http://www.marad.dot.gov/TitleXI/crf.html. United States WT /TPR/S/160/Rev.1 
 Page 113 
 
 
of their vessels relative to forei gn-flag operators whose vessels are registered on countries that do not 
tax shipping income.  The CRF is a financial assist ance scheme that provides tax-deferral benefits to 
U.S.-flag operators with respect to gains attribut able to the sale or loss of a vessel, provided the 
proceeds are used to expand or m odernize the U.S. merchant fleet. 
141. Under the Manufacturing Extension Program, s ection 8062 of P.L. No. 108-87, approved 
30 September 2003, U.S. naval shipyards are eligible  to participate in any manufacturing extension 
programme financed by funds appropriated by any Act.138 
142. At end 2004, there were 135 shipyards and ship -repair facilities in the United States;  the 
major shipyards employed approximately some 78,200 persons.  The order book at the end of 2004 
was estimated at US$1.2 billion;  it comprised seven  commercial vessels eligible under the Jones Act, 
financed under Title XI or the CCF.139  U.S.-flag vessels repaired abroad face a 50% ad valorem  duty, 
assessed on the cost of equipment and non-emergenc y repairs in foreign countries.  U.S.-owned 
foreign-flag vessels are not subject to the duty,  and under the NAFTA and the Chile and Singapore 
FTAs, this duty was eliminated. 
143. The Maritime Security Act of 2003 provides fo r the establishment of a programme to grant 
financial assistance for the construction in the United States of a fleet of up to five privately owned 
U.S.-flag product tank vessels, to be operated in fore ign trade and capable of carrying militarily useful 
petroleum products and potentially available for na tional defence purposes.  A ssistance is for up to 
75% of the actual construction cost of the vessel but no more than US$50 million per vessel;  it is contingent upon meeting U.S.-content requirements,  i.e. that foreign components of the hull and 
superstructure do not constitu te more than 5% of the total steel weight of the vessel individually or of 
10% in aggregate.  Applicants for construction assi stance must either be a shipyard located in the 
United States or a U.S. citizen.
140  The authorities indicate that no contracts have been awarded to date 
for new tank vessel construction under the pr ogramme, and no funds have been disbursed. 
(6) AIR TRANSPORT SERVICES  
(i) Main features 
144. Over a quarter of U.S. trade, by value is m oved via air cargo.  U.S. air traffic accounts for 
about one third of the world aviation market, and ove r half of the world's 30 busiest airports are 
located in the United States.  Most U.S. airports with commercial services are owned by state or local 
governments, although some airports are operated th rough outsourcing and management contracts;  
this type of arrangement is common in the provisi on of more limited scope airport services such as 
terminal and parking area operations, ground transpor t, building maintenance,  advertising, baggage 
handling, and construction and engineering. 
145. There are 78 U.S. domestic scheduled air passenger carriers (14 major, 17 national and 
47 regional).  U.S. air carriers were severely affected by the 11 September 2001 attacks and the 
airlines have continued to face financial diffi culties during the period under review, affected by 
rapidly rising fuel prices and sharp competition.  In particular, four of the major U.S. airlines (Delta, 
Northwest, US Airways, and UAL Corporation (Unite d Airlines' parent) were in reorganization under 
                                                      
138 U.S. Department of Transportation (2005a), Maritime Administration, Compilation of Maritime 
Laws , April 2005.  Available at:  http://www.marad.dot .gov/Publications/05%20reports/MaritimeLaws(2005) 
qxd.pdf. 
139 MARAD (2003b). 
140 National Defense Tank Vessel Construction Program.  Available at: https://voa.marad. 
dot.gov/ndtvc/. WT/TPR/S/160/Rev.1 Trade Policy Review 
Page 114 
 
 
Chapter 11 of the U.S. Bankruptcy Code in Oc tober 2005.  A low cost airline, ATA Airlines  also filed 
a Chapter 11 petition in October 2004. 
146. The Department of Transportation (DOT) publishes statistics on the performance of 
31 selected carriers, the major group carriers and the national carriers group.  The major passenger 
carriers have reported a net loss in every year sin ce 2001, and posted a US$3.4 billion loss in the first 
quarter of 2005.  With the exception of 2003, the national passenger carriers have also reported a net loss every year, but reported a US$57 million profit in the first quarter of 2005.
141 
(ii) Regulatory framework 
147. The Office of the Secretary of Transportation (OST) at the DOT has responsibility for air 
transport policy in the United States.  The Federal Aviation Administration (FAA) at the DOT 
oversees the safety of certified air carriers, and monitors foreign air carriers operating in U.S. territory.
142  Anyone who wishes to provide air transport services as a U.S. air carrier must obtain two 
separate authorizations from the DOT:  "economic" authority from the OST and "safety" authority 
from the FAA.  The OST reviews applications to ensu re that the carrier is fit, willing, and able to 
provide air transport.  The DOT can take action under its statutory authority to preserve competition. 
148. By statute, U.S. airlines must be under actual control of U.S. citizens.143  Any foreign 
ownership in a U.S. carrier is limited to a maxi mum of 25% of voting shares.  In addition, the 
president and at least two thirds of the board of directors and other managing officers must be U.S. 
citizens.  However, on a case-by-case basis, the DO T has allowed foreign citizens to own up to 49% 
of an airline's stock by using non-voting shares a bove 25%, provided that actual control remains in the 
hands of U.S. citizens and an open-skies agreement exists between the United States and the 
homeland of the foreign investor (e.g. KLM's i nvestment in Northwest in the early 1990s). 
149. The provision of domestic air services is permitted only to U.S. carriers.  Crews engaged in 
domestic air passenger and freight service must be U.S. nationals or resident aliens.  The "wet" leasing of aircraft (with crew and, typically, maintena nce, and insurance) to U.S. carriers is restricted 
to U.S. companies and U.S. citizens.  The Fly America Act (49 USC 40118) requires U.S. 
government-financed transportation of passengers a nd cargo to be on U.S.-flag air carriers (a U.S. 
carrier code-share on a foreign airline is considered as a U.S. carrier service for these purposes), but grants authority for the United States to enter into  bilateral or multilateral agreements to allow the 
provision of such services by foreign air carriers,  if such agreement is consistent with U.S. 
international aviation policy objectives and provides for the exchange of rights or benefits of similar 
magnitude. 
150. Until 31 August 2005, the FAA's Aviation Insura nce Program provided coverage for the 
insurance needs of the U.S. domes tic airline industry that could not  be met on reasonable commercial 
terms.  The Program is providing war risk hull loss, and passenger, crew, and third-party liability 
insurance as required by the Homeland Security  Act of 2002 as amended by the Consolidated 
Appropriations Act, 2005. 
151. The DOT manages federal support programmes for services to remote areas.  The main 
programmes are the Essential Air Service (EAS) Subsidy Program, under which approximately US$100 million are spent per year
144, and the Small Community Air Service Development Pilot 
                                                      
141 Department of Transportation (2005b). 
142 Federal Aviation Administration (FAA) online information.  Available at:  http://www.faa.gov. 
143 49 U.S.C. 40102 (a)(15). 
144 DOT, Office of Aviation Analysis, Essential Air Service Program.  Available at:  http://ostpxweb. 
dot.gov/aviation/X-50%20Role_files/EAS.htm#Reports. United States WT /TPR/S/160/Rev.1 
 Page 115 
 
 
Program, under which funds were appropriated for the first time in FY 2002.  Under the small 
community Programme US$19.8 million was available for grant awards in FY 2004 and US$20 million in FY 2005.  No limits are set on the amounts of individual awards;  since the 
beginning of the programme, they have ranged from US$85,000 to nearly US$1.6 million.  Apart 
from support at the federal level, incentives may be gr anted at the state and local level, especially for 
airports in small and mid-size cities.
145 
152. The FAA has slot regulations in place at three U.S. airports:  New York’s Kennedy and 
La Guardia airports and Washington's Reagan Nationa l Airport.  The slot regulations at Kennedy and 
La Guardia are set to expire on 1 January 2007.  The slot restrictions at Ronald Reagan Airport remain 
in effect with no scheduled expiry date;  however , in April 2004, the DOT issued two orders granting 
20 slot exemptions, following the requirements of the Vision 100-Century of Aviation Reauthorization Act of 2003, P.L. No. 108-176.
146  Slot administration is handled by the FAA, 
although the DOT's Office of Aviation Analysis is responsible for allocation and exemptions. 
153. The authorities note that, due to delays that occurred at Chicago's O'Hare International 
Airport after slots were lifted there on 1 July 2002 , the FAA reached agreements with U.S. airlines 
serving O'Hare to reduce or adjust their scheduled op erations.  The agreements were incorporated in a 
FAA order issued 16 august 2004 and the airlines have  been operating in accordance with its terms.  
Foreign airlines are exempt from the order, but must  comply with the FAA's designation of O'Hare as 
a Schedules Facilitated Airport.  The FAA is undertaking a rulemaking proceeding to address the 
issue of future limitations on scheduled operations at O'Hare. 
154. Air navigation services are supplied mainly by the FAA, but the FAA contracts out to private 
companies to staff air traffic control towers at small airports.  In 2004, out of 522 control towers in the 
United States, 231 were operating under a contract.147  The Air Traffic Organization (ATO), a 
performance-based organization within the FAA, was established in February 2004 to oversee the 
U.S. air traffic system.148  In its first Annual Performance Pl an, the ATO noted that it had lowered 
operational unit costs while increasing the arrival cap acity at 35 targeted airports and enhancing 
safety.149 
(iii) International agreements 
155. The United States has GATS commitments with resp ect to aircraft repairs and maintenance, 
and has scheduled MFN exemptions with regard to  the sale and marketing of air transport services 
and the operation and regulation of  CRS services.  In its bilateral air-transport agreements the 
United States has inserted clauses on ground handling. 
                                                      
145 GAO (2003). 
146 USDOT Order 2004-4-1 and 2004-4-2, 1 April 2004 .  Available online at:  http://ostpxweb.dot.gov/. 
147 Air Traffic Organization (2005). 
148 ATO online information.  Available at:  http://www.ato.faa.gov/DesktopModules/PrintArticle.aspx 
?Itemid=224&srcid=0. 
149 Air Traffic Organization (2005). WT/TPR/S/160/Rev.1 Trade Policy Review 
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156. The United States has bilateral aviation agreemen ts with 100 countries.  Many are open-skies 
agreements (OSAs);  the United States  has negotiated 74 such agreements.150  The DOT believes that 
OSAs provide an environment that produces the most competitive and price-sensitive service for 
consumers;  OSAs are also viewed by the DOT as a necessary, although not the only, prerequisite for 
antitrust immunity to be granted to alliances with foreign airlines.  The United States participates, 
together with Brunei, Chile, New Zealand, Sa moa, Singapore, and Tonga in the Multilateral 
Agreement on the Liberalization of Internati onal Air Transportation, signed in May 2001. 
                                                      
150 The list of Open-Skies Agreements entered into by the United States is available online at:  
http://ostpxweb.dot.gov/aviation/intav/avtnintl.htm. United States WT /TPR/S/160/Rev.1 
 Page 117 
 
 
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