WT/TPR/S/200/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.  As measured by the OECD , overall support to agriculture, including through 
border measures and government pa yments, accounted for 11% of gross farm receipts in 2006, down 
five percentage points from 2004.  This decline la rgely reflects higher commodity prices.  Certain 
commodities, including sugar and milk, continue to  receive high levels of assistance.  Moreover, 
payments under some commodity programmes (e.g. ma rketing assistance loans) provide incentives 
for resource use that may be inconsistent with ma rket signals and may affect trade when supported 
output finds its way into world markets.  Cert ain aspects of domestic support programmes were 
challenged under multilateral rules during the period under review.  The expiration of the 2002 Farm 
Act, and the current environment of high commodity  prices, would offer an opportunity to introduce 
policy changes aimed at further improving the market or ientation of the agriculture sector in benefit of 
both consumers and taxpayers. 
2. The United States is a major producer and consumer of minerals and energy.  U.S. energy 
policy places emphasis on domestic energy production and provides tax and other incentives for the 
supply of alternative and renewable fuels.  As sistance for domestic ethanol production includes tax 
incentives and import duties;  these measures could have a significant imp act on global production 
patterns.  The Energy Policy Act of 2005 contai ns provisions to address shortcomings in the 
regulatory framework governing electricity markets.   In computing fuel economy standards, NAFTA-
produced automobiles are treated differently from other vehicles. 
3. The United States is the world's leading producer of manufactured goods.  Multifactor 
productivity and output in the sector have expanded but the sector's share in total U.S. value added 
and employment has declined.  Manufacturing tariffs are generally low, but tariff peaks have sheltered 
a few industries from international competition, fo r example textiles, clothing, and footwear and 
leather. 
4. The financial services sector accounts for some 8% of GDP and 12% of trade in services.  
During the period under review, there have been no majo r changes in U.S. legislation with respect to 
financial services.  However, the sector has been considerably affected by the sub-prime mortgage 
turmoil (see Chapter I), suggesting the need for im provements in financial supervision.  In this 
respect, changes to existing regulations are under cons ideration to restrict certain mortgage practices. 
5. Initial entry into the U.S. market through the establishment or acquisition of a nationally 
chartered bank subsidiary by a foreign person is pe rmitted in all states.  U.S. bank subsidiaries of 
foreign banks are granted national treatment.  Ho wever, 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.  Branches and agencies of foreign banks have simi lar powers to banks but 
agencies may not accept deposits from U.S. citizens or residents.  At the state level, there are 
limitations to the acquisition or establishment of a state-chartered bank, and for the establishment of 
branches or agencies. 
6. Regulation for the insurance services sector is done  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  taken steps to facilitate multi-state operations.  
Foreigners may acquire an insurance company licen sed in any state, incorporate subsidiaries in 
47 states, or operate as branches in 36 states and the District of Columbia.  A federal tax on insurance United States WT /TPR/S/200/Rev.1 
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policies covering U.S. risks is imposed at a rate of 1% of gross premiums on all reinsurance but at 4% 
of gross premiums with respect to non-life insuran ce when the insurer is not subject to U.S. net 
income tax on the premiums. 
7. The U.S. telecommunications market, the world' s largest by revenue, is open to foreign 
participation and is highly competitive.  During th e period under review the Federal Communications 
Commission eliminated certain unbundling requirements to level the regulatory playing field between broadband internet access providers.  A comprehens ive inter-carrier compensation reform plan is 
under consideration.  The United States maintains several media ownership restrictions, with the 
objective of promoting competition, diversity, a nd "localism" in media production.  The FCC 
approved a relaxation of one of these restrictions in late 2007.  It has adopted rules to facilitate entry 
into the video services market. 
8. No significant policy or legislative changes have taken place with respect to maritime 
transport since 2006.  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.  Do mestic passenger services are subject to similar 
requirements.  However, waivers may be gran ted and foreign companies may establish shipping 
companies in the United States under certain conditions.  In contrast, the U.S. international maritime 
transport market is generally open to foreign competition although some cargo preferences are in 
place.  Cargo preference laws are estimated to have redirected significant volumes of cargo to U.S. ships although in practice the lion's share of in ternational maritime trans port is still carried out by 
foreign vessels. 
9. No significant legislative changes have aff ected the air transport sector since 2006.  
The profitability of U.S. airlines has improved, an d by end 2007 all major U.S. airlines had emerged 
from bankruptcy protection.  Market access restrictions remain in the form of U.S. ownership and control requirements, with foreign ownership in a U. S. carrier limited by statute to 25% of the voting 
shares.  The provision of domestic air services is permitted only by U.S. carriers.  The Fly America 
Act generally requires government-financed transporta tion to be on U.S.-flag air carriers, but foreign 
participation is possible under international agre ements.  The United States has bilateral aviation 
agreements with 97 countries, of which 79 are open skies agreements.  The U.S.-EU Air Transport Agreement, applied provisionally since 30 Ma rch 2008, introduced a number of liberalization 
measures.  All public-use U.S. airports with commercia l services are currently owned by state or local 
governments.  A law was passed in 1996 establishing an  Airport Privatization Pilot Program.  So far, 
one airport has participated, but it was s ubsequently returned to public ownership. 
10. There have been no major changes in professional services regulation in the past few years.  
States have responsibility for the regulation, licen sing, and oversight of the professions practiced 
within their jurisdictions.  The absence of a nati onal regulatory regime creates different market access 
conditions among the states.  Foreign market access in some states is affected by local presence, 
domicile, nationality, or legal form of entry requirements. WT/TPR/S/200/Rev.1 Trade Policy Review 
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(2) AGRICULTURE  
(i) Introduction 
11. The United States is among the world's largest  producers, exporters, and importers of 
agricultural products.  The value of agricultura l production was approximately US$292 billion in 
2007.1  The value of crop production, which accounts fo r around 51% of the total value of agricultural 
production, is forecast to reach a record level in  2008 (US$176 billion), primarily as a result of higher 
commodity prices.  Agricultural exports were  US$90 billion in 2007,  around 9% of total 
U.S. exports.2  Main exports were grains and feeds, soybeans, and red meats and their products.  
Agricultural imports were US$72 billion, around 4% of total imports.  Main imports were vegetables, 
fruits, and grains and feeds. 
12. 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 into law in Ma y 2002.  Additionally, Congress provides ad hoc 
emergency and supplementary assistance under separate legislation. 
13. The 2002 Farm Act provided support for commod ities harvested through 2007.  For other 
programmes, the 2002 Farm Act provided sup port until September 2007, and was extended to 
15 March 2008.  In the absence of new farm legisl ation, payments for commodities harvested in 2008 
will be made as provided under the permanent le gal framework governing farm support.  In 
early 2008, Congress was working on a new farm bill. 
14. The OECD's Producer Support Estimate (PSE) is a broad measure of support that includes 
government payments to producers and price support.   The average annual PSE for the United States 
was US$42.5 billion in 2004 and 2005.3  As a share of gross farm receipts, the PSE was 16% in both 
years, compared with around 30% for the OECD as a whole.  Provisional data for 2006 suggest a sharp decrease in the PSE to US$29.3 billion, or 11% of  gross farm receipts, the third lowest level in 
the OECD.  Among U.S. commodities tracked by th e OECD, sugar, wool, and milk received the 
highest single commodity transfers measured as a sh are of their gross farm receipts for 2004-06.  
Support for sugar and milk is primarily in the form of market price support whereas wool is mostly supported through output-based payments.  According to the OECD, the fall expected for 2006 in the 
PSE is a result of higher world commodity  prices rather than policy changes. 
15. The Commodity Credit Corporation (CCC), a federal corporation operated by the 
U.S. Department of Agriculture, manages most financial transactions for federal agricultural 
programmes.  Annual average net CCC outlays unde r the 2002 Farm Act (fiscal years 2002-07) were 
US$16.8 billion, around one billion more than the annual average for the previous six fiscal years.
4  
CCC outlays nearly doubled between 2004 and 2005,  to US$20.2 billion, reflecting low commodity 
prices and higher disaster and emergency assistance.  They remained at that high level in 2006.  
The U.S. Department of Agriculture forecasts a decline in net CCC outlays from 2007, as increased 
                                                      
1 Preliminary data.  USDA online information, "Farm Income:  Data Files".  Viewed at:  
http://www.ers.usda.gov/Data/FarmIncome/finfidmu.htm. 
2 USDA online information, "Foreign Agricultural Tr ade of the United States (FATUS)".  Viewed at:  
http://www.ers.usda.gov/Data/FATUS.  Th ese values differ from those in Chapter I because of differences in 
classification. 
3 OECD (2007a). 
4 CCC outlays do not include crop insurance payments. United States WT /TPR/S/200/Rev.1 
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demand for corn-based ethanol production results in higher prices for corn and other crops (see also 
section (3) below).5 
16. The United States has taken steps to comply with the Dispute Settlement Body's 
recommendations and rulings regarding a numbe r of U.S. support measures for upland cotton 
(see section (iv) below).  In this context, Br azil requested the establishment of a WTO compliance 
panel in August 2006.6  This panel found that certain changes to U.S. cotton programmes were 
insufficient to bring the measures challenged by Brazil into conformity with WTO rules.7  
The United States appealed some of the panel's findings in February 2008.8  In November 2007, 
Canada and Brazil requested the establishment of WT O panels to examine whether past U.S. domestic 
support to agriculture had exceeded the applicable WTO ceiling.9  The Dispute Settlement Body 
established a single panel covering both requests in December 2007. 
(ii) Border measures 
17. The average MFN applied tariff for agricultu re (WTO definition) in 2007 was 8.9% 
(including the ad valorem  equivalents of non- ad valorem  rates) (see also Chapter III(2)(iv)).  This is 
slightly more than twice the protection afforded to the non-agricultural sector. 
18. Around 195 tariff lines are subject to tariff quotas (Table AIV.1).  The simple average out-of-
quota MFN tariff in 2007 was around 42%;  the in-quota average was 9.1%.10  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 2003.11 
19. 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. 
20. Access to tariff quotas is on a first come, first served basis, except for dairy products and 
sugar.  Access for dairy is grante d to "historical" importers, importers designated by the government 
of an exporting country, 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.
12  Any importer, including 
manufacturers of like products, can apply for a licence 
21. Access to the tariff quota for raw sugar is grante d to exporting countries, not importers.  It is 
administered through certificates of quota eligibility.13  The Department of Agriculture issues these 
certificates based on allocations specified by the USTR.  In-quota imports of raw sugar must be 
                                                      
5 USDA (2007b). 
6 WTO document WT/DS267/30, 21 August 2006. 
7 WTO document WT/DS267/ RW, 18 December 2007. 
8 WTO document WT/DS267/33, 19 February 2008. 
9 WTO documents WT/DS357/12 and WT/DS357/13, 9 November 2007. 
10 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. 
11 WTO document G/AG/N/USA/54, 17 February 2005. 
12 The licensing system is not a statutory requirement.  The authority to allocate tariff quotas through 
licences was delegated to the Secretar y of Agriculture by Presidential Proclamation 3019 (8 June 1953).  
The procedures for submitting licence applications and other relevant provisions are contained in 7 CFR 6.20-
6.36. 
13 The regulations governing the system are contained in 15 CFR 2011. WT/TPR/S/200/Rev.1 Trade Policy Review 
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accompanied by a certificate of quota eligibility, validat ed by the certifying authority in the exporting 
country.  Certificates are issued free of charge. 
22. 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 import prices drop below a trigger price (price-based 
safeguards), or if quantities exceed a given thres hold (volume-based safeguards), in accordance with 
the special safeguard provisions of the WTO Agre ement on Agriculture.  The United States invokes 
price-based safeguards automatically on a shipment-by-shipment basis. 
23. In December 2007, the United States notified the WTO that it did not apply volume-based 
safeguards between 2003 and 2006.14  According to its notification, price-based safeguards were 
applied on bovine meat, dairy products, p eanuts, sugar, and food preparations.  
24. According to the U.S. International Trade Co mmission, some agricultural products, including 
beef, dairy, ethyl alcohol, sugar and sugar-containing  products, and tobacco remain subject to high 
import barriers.15  For example, the Commission estimates that the removal of barriers on imports of 
raw and refined sugar would expa nd imports of these two products by 281% and 553%, and increase 
U.S. welfare by US$811 million.  The Commission estimates that the elimination of barriers on 
imports of dairy products would add US$573 million to U.S. welfare;  the associated increase in 
imports of these products would range between 88% and 380%. 
(iii) Domestic programmes 
25. In October 2007, the United States submitte d its notification on domestic support for 
marketing years 2002-05.16  The total current Aggregate Measurement of Support averaged 
US$10.3 billion per year during this period (Table IV.1 ).  This was well below the previous four-year 
annual average of US$14.6 billion, and the appli cable WTO ceiling of US$19.1 billion per year.  
Annual average "green box" support was US$65.4 billion between marketing years 2002 and 2005, 
a 31% increase with respect to the average for the previous four marketing years. This increase mostly 
reflects higher expenditures on domestic food ai d, particularly the Food Stamp programme. 
Table IV.1 
Commitment levels and actual expenditure, 1999-05 
(US$ billion, unless indicated otherwise) 
 1999 2000 2001 2002 2003 2004 2005 
AMS commitment 19.899 19.103 19.103 19.103 19.103 19.103 19.103 
Current total AMS 16.862 16.803 14.413 9.637 6.950 11.629 12.938 
AMS commitment "used" (%) 84.7 88.0 75.4 50.4 36.4 60.9 67.7 
Product specific de minimis  payments 0.029 0.063 0.215 1.590 0.436 0.680 0.118 
Non-product-specific de minimis  payments 7.406 7.278 6.828 5.101 2.801 5.778 5.862 
Blue box 0 0 0 0 0 0 0 
Green box 49.749 50.057 50.672 58.321 64.062 67.425 71.829 
 
Source: WTO documents G/AG/N/USA/43, 51, and 60. 
                                                      
14 WTO document G/AG/N/USA/61, 17 December 2007. 
15 USITC (2007a). 
16 WTO document G/AG/N/USA/60, 9 October 2007. United States WT /TPR/S/200/Rev.1 
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26. In the context of the latest U.S. notification on domestic support, WTO Members raised 
several issues in the Committee on Agriculture.17  These included the categorization of direct 
payments as "green box", and of counter-cyc lical payments as non-product-specific.  
The United States responded that direct payments meet green box criteria, and that counter-cyclical 
payments are not product-specific because they are based on historical acreages and yields, and do not 
require specific crops to be grown. 
27. Average annual direct government payments to agricultural producers were US$16.3 billion 
between 2003 and 2007 (Table IV.2).  Estimates by the Department of Agriculture predict a fall in 
these payments from their peak of US$24.4 billion in  2005 to US$12 billion in 2007.  The decrease is 
driven partly by a sharp reduction in marketing loan  benefits, which cover loan deficiency payments, 
marketing loan gains, and certificate exchange gain s.  According to the Department of Agriculture, 
marketing loan benefits in 2007 were only available for upland cotton, wool, mohair, and pelts, due to 
high prices. 
Table IV.2 
Direct government payments, 2002-07a 
(US$ million) 
Component accounts 2002 2003 2004 2005 2006b 2007b 
Total direct payments 12,414.9 16,523.5 12,969.9 24,395.9 15,789.1 12,003.1 
Production flexibility contract paymentsc 3,499.8 -280.0 -4.2 -0.9 -0.3 0 
Fixed direct paymentsc 367.1 6,703.6 5,242.4 5,198.8 5,052.0 5,193.6 
Counter-cyclical paymentsc 203.4 2,300.7 1,122.0 4,073.8 4,035.9 1,184.8 
Loan deficiency payments 1,196.7 576.4 2,865.1 5,080.3 730.6 67.5 
Marketing loan gains 459.7 198.2 131.2 368.7 188.3 6.4 
Certificate exchange gains 1,178.6 556.4 475.7 1,614.0 873.3 872.8 
Peanut quota buyout payments 983.0 237.6 24.7 22.3 21.2 0 
Milk income loss programme payments 859.6 913.3 205.7 9.6 431.2 90.0 
Tobacco transition payment program me 0 0.0 0.0 2, 083.1 1,206.3 950.0 
Conservation programme payments 1,965.8 2,167.3 2,319.6 2,767.5 2,974.3 3,000.0 
Ad hoc and emergency programme payments 1,655.0 3,143.2 582.4 3,168.8 274.5 635.0 
Miscellaneous programme payments 46.1 6.8 5.4 9.9 1.7 3.0 
 
a Data are calendar year payments;  these may differ from data for the same programmes reported on a fiscal or crop year basis.  
b Preliminary. 
c The 2002 Farm Act terminated authority for production flexibility contract payments and establis hed authority for fixed direc t 
payments and counter-cyclical payments. 
 
Source:  USDA online information, "Farm Income :  Data Files".  Viewed at:  http ://www.ers.usda.gov /Data/FarmIncome 
 /finfidmu.htm. 
(a) Commodity programmes 
28. The main instruments of support in the 2002 Farm  Act are:  fixed direct payments, which are 
unrelated to prices and are based on historical acrea ge and yields;  counter-cyclical payments, which 
are also based on historical acreage and yields but are available to historical producers of specified 
crops when prices fall below levels established in legi slation;  and marketing assistance loan benefits, 
which are based on current production and prices, and cover loan deficiency payments, marketing 
loan gains, and certificate exchange gains.18  Payments under these programmes averaged 
                                                      
17 WTO online information, "Spotlight on U.S. Domestic Support in Agriculture Committee", 
21 November 2007.  Viewed at:  http://www.wto. int/english/news_e/news07_e/ag_com_21nov07_e.htm. 
18 For details on how each programme functions see WTO (2006). WT/TPR/S/200/Rev.1 Trade Policy Review 
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US$11 billion per year between 2003 and 2007, ar ound two thirds of total direct government 
payments to agricultural producers dur ing the same period (Table IV.2). 
29. Five crops (corn, rice, soybean, upland cotton,  and wheat), which account for around a quarter 
of farm cash receipts, received approximately 93%  of all "commodity programme payments" between 
crop years 2002 and 2005.19  Corn was by far the largest reci pient, with 46% of total commodity 
programme payments, followed by upland cotton (2 3.3%), wheat (10.2%), rice (8%), and soybeans 
(5.8%).  The share of commodity programme paymen ts in each crop's production value varies widely.  
For rice, commodity programme payments accounted  for 63% of production value between crop years 
2002 and 2005;  for cotton, the share was 50%, fo r corn 23%, for wheat 17%, and for soybeans 4%. 
30. A study by the Department of Agriculture found that farm programme payments "contain 
elements that provide incentives for resource use th at may be inconsistent with market signals".20  
According to the study, marketing assistance loans pr ovide an incentive to plant more than would be 
the case in their absence.  Accordi ng to other studies, counter-cyclical payments may provide for the 
reduction of price-related revenue risk, and could also have some influence on production decisions.21  
This would depend on expected market prices and farmers' level of risk aversion.  These studies conclude that counter-cyclical payments may distor t incentives in some situat ions but that any such 
distortions are to a lesser degree than "coupled" payments such as marketing assistance loans. 
(b) Insurance programmes and emergency assistance 
31. The federal Government offers subsidized insurance against los ses resulting from natural 
disasters and price fluctuations.  Farm insuran ce programmes are provided under the Federal Crop 
Insurance Act, as amended.
22  Producers may select between yield or revenue insurance.  Insured 
producers receive a payment when actual yield or re venue fall below an expected level due to an 
insured cause.  The shortfall in revenue may be caused by low prices or low production levels.  
The basic level of coverage is catastrophic risk cove rage, which is available for an administrative fee 
of US$100 per crop and per county.  The premium is fully subsidized.  Producers with catastrophic risk coverage who suffer losses in excess of 50% of yield receive a payment equal to 55% of 
the estimated market price of the insured crop.  Producers may purchase higher levels of coverage, but 
the portion of the premium that is subsidized d eclines as coverage increases.  The Department of 
Agriculture reinsures the companies that sell farm insurance, thereby covering a share of 
the underwriting risks and costs, and defrays  some of their administrative costs. 
32. The total insured liability under federal cr op insurance was US$67.4 billion in 2007.  
The federal Government subsidizes 58% of the to tal premium.  The total cost to the federal 
Government of the crop insurance programme av eraged US$3 billion per year between 2003 and 
2007.  The Department of Agriculture introduced an  insurance programme for pasture, rangeland, and 
forage from the 2007 crop year.
23 
                                                      
19 USDA (2006b).  This study defines commodity programme payments as fixed direct payments, 
counter-cyclical payments, and marketing assistance loan benefits.  Attributing fixed direct and counter-cyclical 
payments to specific commodities may over- or understate payments to current production of specific 
commodities, since fixed direct and counter-cyclical payments are based on historical production and may 
therefore be made to producers that ar e no longer planting those commodities. 
20 USDA (2006b). 
21 See, for example, Anton and Le Mouel (2004), and Westcott (2005). 
22 Two major amendments have been the Fede ral Crop Insurance Reform Act of 1994 and 
the Agricultural Risk Protection Act of 2000. 
23 USDA online information, "USDA Announces Ava ilability of New Insurance Tools for Pasture, 
Rangeland, and Forage".  Viewed at:  http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB? contentidonly=true&contentid=2006/08/0280.xml. United States WT /TPR/S/200/Rev.1 
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33. According to one study, increased participa tion in crop insurance programmes is correlated 
with additional acreage in wheat and to a lesser extent, corn.24  However, simulations conducted as 
part of the same study revealed that large insu rance premium decreases would have very modest 
effects on acreage. 
34. In addition to crop insurance, agricultura l producers receive ad hoc and emergency 
programme payments.  In 2007, these payments fell by approximately 80% from their high of 
US$3.2 billion in 2005 (Table IV.2). 
(c) Marketing orders 
35. 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 target a specific geographic 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 marketing order is always initiate d by producers.  Twenty-eight 
marketing orders for fruit and vegeta bles were in force in late 2007.
25 
36. Marketing orders may set minimum product requirements such as grade, size, quality, and 
maturity.  The Agricultural Marketing Agreement Act of 1937 requires that imported commodities 
meet the same or comparable grade, size, quality,  and maturity requirements as those established for 
domestic commodities under fe deral marketing orders.26  Imports of the following commodities are 
subject to such requirements (December 2007):  avocados, dates (other than for processing), 
hazelnuts, grapefruit, table grapes, kiwifruit, olives  (other than Spanish-style), onions, oranges, 
Irish potatoes, raisins, tomatoes, and walnuts. 
37. Marketing orders may also contain "supply ma nagement" provisions th at fix output levels, 
specify the proportion of output to be sold in speci fic markets, or provide for the creation of reserve 
pools of covered commodities.  Supply manageme nt provisions are in effect for Oregon and 
Washington hazelnuts, spearmint oil produced in sev eral western states, California raisins, and 
tart cherries grown in seven states.27  There are also 11 regional milk marketing orders, which 
establish minimum prices for milk depending on its use by processors. 
38. One of the supply management tools used by  marketing orders are so-called "producer 
allotments".  These set the quantity that growers ma y sell in a given year, normally based on historical 
sales.  Spearmint oil produced in several western states is subject to an allotment.  In the context of 
a proposed allotment for hops, the Department of  Justice commented in 2004 that "the producer 
allotment system would, in effect, be a government  sanctioned and enforced cartel of United States 
producers, where the central producer  committee ... could absolutely control the quantity of domestic 
hops marketed".28  The Department of Justice recommended that the Secretary of Agriculture reject 
the proposed order, which would "raise prices ab ove competitive levels, thereby misallocating the 
                                                      
24 Goodwin, Vandeveer, and Deal (2004). 
25 Agricultural Marketing Service online information, "L ist of Federal Marketing Orders".  Viewed at:  
http://www.ams.usda.gov/fv/moabmotab.htm. 
26 Section 8(e), Agricultural Marketing Agreement Act of 1937. 
27 See 7 CFR 905, 982, 985, and 989.  Additional info rmation can be viewed at:  http://www.ams.usda. 
gov/fv/moabmotab.htm. 
28 U.S. Department of Justice, Proposed Marketing Order No. 991, Hops Produced in Washington, 
Oregan, Idaho, and California, Post-Hearing Memorandum, Docket No. AO-F&V-991-A3; FV03-991-01, 18 February 2004. WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 86 
 
 
economy's resources and harming consumers and societ y as a whole".  The Department of Agriculture 
rejected the proposal to establish a marketing order for hops in 2005. 
(d) Other support programmes 
39. The Fair and Equitable Tobacco Reform Act of 2004 terminated all production quotas and 
other price support mechanisms for tobacco beginni ng with the 2005 crop year.  The Act establishes 
a levy on manufacturers and importers of tobacco pr oducts to fund compensation payments to tobacco 
quota holders and producers.29  Compensation payments, which bega n in 2005, 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.30 
(iv) Export subsidies, credit, insurance, and guarantees 
(a) Export subsidies 
40. The United States scheduled export subsidy reduction commitments under 
the WTO Agreement on Agriculture for 13 product groups.31  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 a notification on export subsidies for 2003-05.
32  According to the 
notification, total outlays for export subsidi es averaged approximately US$250 million per year 
between 2003 and 2005.  This amount includes paym ents to exporters under the Upland Cotton User 
Marketing Certificate Program.  In February 2006, th e United States enacted legislation to repeal this 
programme at the end of the 2005 marketing y ear, following a WTO panel and Appellate Body 
finding that certain payments under the pr ogramme were prohibited export subsidies. 
41. Under the Export Enhancement Program (EEP)  and the Dairy Export Incentive Program 
(DEIP), the United States provides cash bonus paymen ts to exporters of eligible commodities based 
on the quantity exported.  The commodities eligible  under 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.   Both programmes are authorized through 
15 March 2008.  There have been no expenditures under the EEP since fiscal year 2002, and no 
bonuses under the DEIP since 2004. 
(b) Export credits, insurance, and guarantees 
42. The United States operates two main export credit guarantee programmes:  the Export Credit 
Guarantee Program (known as GSM-102) and th e Facility Guarantee Program (FGP).  
The Intermediate Export Credit Guarantee Program  (GSM-103), and the Supplier Credit Guarantee 
Program were discontinued in 2005. 
                                                      
29 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.  The regulations on 
the compensation payments are contained in Federal Register, 70 FR 17150, 4 April 2005. 
30 USDA online information, "Announcing Preliminar y Tobacco Transition Payment Program 
Provisions".  Viewed a t:  http://price.house.gov/UploadedFiles/TPPP.pdf. 
31 Wheat and wheat flour, coarse grains, rice, vegetable oils, butter and butter oil, skim milk powder, 
cheese, other milk products, bovine meat, pigmeat, poultry meat, live dairy cattle, and eggs. 
32 WTO document G/AG/N/USA/62, 28 February 2008. United States WT /TPR/S/200/Rev.1 
 Page 87 
 
 
43. Under GSM-102, the CCC is authorized to guara ntee the repayment of credit made available 
to finance U.S. exports of agricultural goods on credit terms of up to three years.  The CCC generally guarantees 98% of the principal and a portion of th e interest.  It determines the eligibility of 
agricultural products based on market potential.
33  The exporter pays a fee calculated on the basis of 
the repayment terms and the risk category that the Department of Agriculture assigns to the country 
where the bank responsible for repayment is located.34  There are seven risk categories eligible for 
coverage under the GSM-102 programme.  According to the Department of Agriculture, this fee 
structure "responds to rulings by the [WTO] that e xport credit programs must be risk based and that 
fees must cover long-term program operating costs and losses".35  The fee cannot exceed the statutory 
cap of 1% of the guaranteed value of the transaction.36  In the context of its last Review, the United 
States indicated that the Administration was working with the Congress on legislation to repeal the fee 
cap.37 
44. Under the FGP the CCC extends credit guarantees  to U.S. banks for financing export sales of 
U.S. manufactured goods and services that improve ag riculture-related facilities in emerging markets, 
including storage, processing, and handling fac ilities.  The export credit guarantee for sales of 
manufactured goods and services is only extended to proj ects that are expected to benefit the export of 
U.S. agricultural products. 
45. The annual average value of exports covered by  officially supported export credit guarantees 
amounted to US$1.8 billion between fiscal years 2005 and 2007.38  The GSM-102 programme 
accounted for around 90% of this. 
(v) Food labelling 
46. Regulations issued under the Federal Meat Insp ection Act and the Poultry Products Inspection 
Act require that the country of origin appear in English on the immediate containers of all meat and 
poultry products entering the United States.39  When imported bulk meat or poultry products are 
processed in the United States, the label on the pr ocessed product or its container does not need to 
include the country of origin. 
47. Under the 2002 Farm Act, retailers must notify their customers of the country of origin of 
beef, lamb, pork, fish, shellfish, perishable agricultural commodities and, from September 2004, 
peanuts.  Commodities that are ingredients in processed food are exempt.  The Act specifies the criteria that commodities must meet to bear a "United States" label. 
                                                     
 
33 Foreign Agricultural Service online information, "Eligible Commodities Under the GSM 102 
Program".  Viewed at:  http://www.fas.usda.gov/excr edits/gsmcommodities.html. 
34 See Foreign Agricultural Service online information, "Country Risk Category".  Viewed at:  
http://www.fas.usda.gov/excredits/countryrisk.html. 
35 USDA (2007a). 
36 7 USC 5641(b). 
37 WTO document WT/TPR/M/160/Add.1, 27 September 2006. 
38 Foreign Agricultural Service online information, "Monthly Summary of Export Credit Guarantee 
Program Activity".  Viewed at:  http://www .fas.usda.gov/excredits/Monthly/ecg.html. 
39 Federal Meat Inspection Act, 21 USC 601 et seq., and Poultry Products Inspection Act, 21 USC 451 
et seq. WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 88 
 
 
48. The Department of Agriculture issued an interi m final rule for the country-of-origin labelling 
programme for fish and shellfish in October 2004.40  The rule became effective in April 2005.  A final 
rule is under preparation, and was re opened for public comment in June 2007.41  The application of 
country-of-origin labelling on beef, lamb, pork, peri shable agricultural commodities, and peanuts has 
been delayed twice, most recently until September 2008.42  The Department of Agriculture requested 
public comments on a proposed rule covering these commodities in mid 2007.43 
49. Preliminary estimates by the Department of Ag riculture for the direct incremental costs 
associated with the country-of-origin labelling requirement in the 2002 Farm Act range from 
US$582 million to US$3.9 billion during the first year of application.  This estimate is based on the 
proposed rule for all "covered commodities", that is , beef, pork, lamb, farm-raised and wild fish, 
perishable agricultural commodities, and peanuts.44  Annual costs to the U.S. economy after a ten-year 
adjustment period are estimated to range from US$138 million to US$596 million.  Based on the interim final rule published in October 2004, the Depa rtment of Agriculture es timates that the direct 
costs associated with the country -of-origin labelling requirement fo r farm-raised and wild fish are 
US$89 million for the first year of implementation;  the estimated cost to the U.S. economy after a 
ten-year adjustment period is US$62 million annua lly.  The benefits derived from country-of-origin 
labelling were found to be negligible .  The Department of Agriculture  also found little or no evidence 
that consumers are willing to pay a price premium fo r country-of-origin labelling or that they would 
increase their purchases of food bearing the U.S. origin label. 
(3) M
INING AND ENERGY  
(i) Main features 
50. The United States is among the world's largest producers of several minerals, including coal, 
salt, sulphur, aluminium, copper, and gold.  In  2006, the total value of raw non-fuel mineral 
production in the United States wa s approximately US$64.4 billion.45  In the same year, metal mine 
production was around US$23.5 billion, of which 60% was copper and gold, and 36% was iron ore, 
molybdenum, and zinc;  exports of raw and pro cessed mineral material were US$74 billion, and 
imports were US$138 billion. 
51. The United States is the world's largest energy  producer and consumer.  Energy is imported 
mostly in the form of petroleum.  The United Stat es has the twelfth largest proved oil reserves in the 
world (21.8 billion barrels in December 2005).46  Petroleum production in the United States was 
6.9 million barrels per day in 200647;  imports of petroleum were 10. 1 million barrels per day.  U.S. 
production of natural gas was 18.5 trillion cubic feet in  2006;  exports of natural gas were 4.2 trillion 
cubic feet, and imports were 749 billion cubic feet. 
                                                      
40 Federal Register , 69 FR 59708, 5 October 2004.  An interim final rule has the full force and effect of 
law.  However, before the interim final rule is revised or confirmed as a final rule, the agency concerned 
requests comments on specific aspects of it. 
41 Federal Register , 72 FR 33851, 20 June 2007. 
42 Section 792 of the Agriculture, Rural Development, Food and Drug Administration, and Related 
Agencies Appropriations Act of 2006. 
43 Federal Register , 72 FR 33917, 20 June 2007. 
44 Federal Register , 68 FR 61944, 30 October 2003. 
45 U.S. Geological Survey (2007). 
46 Energy Information Administration (2007b). 
47 Energy Information Administration (2007a). United States WT /TPR/S/200/Rev.1 
 Page 89 
 
 
52. Total electricity net generation was 4.1 trillion kWh in 2006.48  Fossil fuels (mostly coal) 
accounted for 71% of all net generation, nuclear electric power for 19%, and renewable energy for 
9%.  Three fourths of the net generation from renewable energy resources was derived from 
hydroelectric power.  Electricity imports were 42 billion kWh in 2006, and exports were 
25 billion kWh.  Most electricity trade occurred with Canada. 
53. The average retail rate of electricity fo r all customers in the United States was 
US$0.089 per kWh in 2006.49  It increased at an annual average rate of 4.3% between 2000 and 2006, 
reflecting higher fuel prices and, more recently, the li fting of retail price caps in some states.  Average 
industrial rates were US$0.062 per kWh in 2006, and commercial rates were US$0.095 per kWh. 
54. The federal Government has adopted measures to foster competition in wholesale electricity 
markets during the past three decades.50  In addition, some states began to allow retail customers to 
choose their power supplier during the 1990s.  Howe ver, high wholesale prices in California spot 
markets in 2000-01 highlighted shortcomings in the regulatory framework governing electricity markets.
51  For example, according to the Council of Ec onomic Advisers, the "mix of regulations ... 
has not done enough to encourage companies to invest in building new [transmission] capacity".52  
The Energy Policy Act of 2005 contains provisions to enhance wholesale competition in electricity.  
It allows the Federal Energy Regulatory Commissi on (FERC) to impose civil penalties for market 
manipulation, expands the FERC's authority to revi ew mergers and generation facility transfers to 
prevent increases in the exercise of market pow er, and contains provisions to enhance market 
transparency.  The Act also includes provisions to  strengthen the interstate power grid.  As at 
April 2006, 16 states and the District of Columbia  allowed at least some competition at the retail 
level.53 
55. The Tennessee Valley Authority (TVA) is a corpor ation owned by the Federal Government.  
The Tennessee Valley Authority Act of 1933 establis hed the TVA "in the interest of the national 
defense, for agricultural and industrial developm ent, and to improve navigation in the Tennessee 
River and to control the destructive flood wate rs in the Tennessee River and Mississippi River 
Basins".54  In addition to dams and hydropower faciliti es on the Tennessee River and its tributaries, 
the TVA has natural gas, coal, and nuclear power generation plants.  As at  September 2005, the TVA 
sold electricity to 158 retail distributors and 61 larg e retail customers.  Its service area covers most of 
Tennessee and parts of Alabama, Georgia, Kentuc ky, Mississippi, North Carolina, and Virginia. 
56. Under an exemption in the Energy Policy Act of 1992, the TVA is not required to allow the 
use of its transmission lines so that other utilities can  send power to TVA customers.  This reduces the 
opportunities for TVA customers to choose their supp lier.  The Consolidated Appropriations Act of 
2005, signed into law in December 2004, changed the TVA's management structure, and required the 
TVA to file financial reports with the Secur ities and Exchange Commission and to create an 
independent audit committee. 
                                                      
48 Energy Information Administration online information, "Energy Perspectives".  Viewed at:  
http://www.eia.doe.gov/emeu/aer/ep/ep_frame.html. 
49 Energy Information Administration online informa tion, "Average Retail Price of Electricity to 
Ultimate Customers: Total by End-Use Sector," Ta ble 5.3.  Viewed at:  http://www.eia.doe.gov/cneaf/ 
electricity/epm/table5_3.html. 
50 For an overview of legislative and regulatory effo rts to support competition in wholesale electricity 
markets see:  Federal Energy Regulatory Commission, Wholesale Competition in Regions with Organized 
Electric Markets, Docket Nos. RM07-19-000 and AD07-7-000, 22 June 2007. 
51 Suppanz, Wise, and Kiley (2004).  See also GAO (2005a). 
52 Council of Economic Advisers (2004). 
53 International Energy Agency (2006). 
54 16 USC 831. WT/TPR/S/200/Rev.1 Trade Policy Review 
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57. Foreign investment plays an important role in mining and energy.  The stock of foreign direct 
investment in the mining industry was US$55.5 b illion in 2006, up 80% from 2002 (historical cost 
basis).55  Approximately 32% of the total was in oil and gas extraction, and around 13% in metal ore 
mining.  The stock of foreign direct investment  in electric power generation was US$28.4 billion in 
2006, up 16% from 2002. 
(ii) Legal and policy framework 
58. The federal Government's mini ng and minerals policy is to foster and encourage private 
enterprise in the development of a stable domestic minerals industry, and in the orderly and economic 
development of domestic mineral resources.56 
59. The General Mining Law of 1872 governs access to hardrock minerals in federal public 
lands.57  It authorizes a prospector to stake a claim to land believed to contain a mineral deposit, 
subject to the payment of certain fees.  A claim gi ves the holder the right to develop the minerals, and 
may be "patented" to transfer the ownership of th e public land to the private sector.  The law does not 
require payment of royalties.  Many states have enacted laws governing mine ral rights on state-owned 
lands.  Although these laws va ry considerably, many authorize royalty payments.58 
60. The extent to which the General Mining Law of 1872 adequately balances mineral 
development with competing land uses is being debated in the United States.59  Congress imposed a 
mining claim patent moratorium in 1994;  the U.S. au thorities indicate that, except for 400 patents that 
were grandfathered, no new patent  applications are being accepted until Congress decides what to do 
with the moratorium.  In early 2008, there were about 380,000 mining claims located on federal lands 
in the western United States;  most cover about 20 acres. 
61. Federal oil and gas are subject to leasing under the Mineral Leasing Act.  Companies seeking 
to lease federal lands for oil and gas explorati on must pay a "bonus bid" determined through a 
competitive auction.  Companies must pay royalties based on a percentage of the cash value of the oil 
and gas produced and sold.  In general, royalty rates are 12.5% for onshore leases and between 12.5% 
and 16.7% for offshore leases.60  Under the Outer Continental Shelf Lands Act, the Secretary of the 
Interior has the discretion to establish higher royalt y rates for offshore leases.  The Department of the 
Interior reported that about 2,100 compan ies paid royalties totalling US$11.4 billion from 
approximately 28,980 federa l and Indian mineral leases in fiscal year 2007. 
62. The National Energy Policy, issued in Ma y 2001, places emphasis on domestic energy 
production.61  The policy identifies major investment needs in power plants, oil refineries, and gas and 
electric transmission networks, and calls for measu res to enhance energy efficiency and develop 
renewable energy.  State energy policies vary considerably. 
63. The Department of Energy has primary responsib ility for federal energy policy, while states 
are responsible for their own energy policies.  Th e FERC is an independent agency that regulates the 
                                                      
55 BEA online information, "International Economic  Accounts".  Viewed at:  http://www.bea.gov/ 
international/fdi_ind_0206.htm. 
56 30 USC 21a. 
57 30 USC 21 et seq.  Hardrock minerals include most metals and non-fuel non-metals, such as gold, 
silver, copper, zinc, barite, and fluorspar. 
58 For a survey of state laws governing hardrock mining see Flynn (2005). 
59 For a review of the arguments surrounding the claim patent system established by the General 
Mining Law see Humphries (2005). 
60 GAO (2007b). 
61 National Energy Policy Development Group (2001). United States WT /TPR/S/200/Rev.1 
 Page 91 
 
 
transmission of electricity, natural gas, and oil in  interstate commerce, and wholesale sales of electric 
energy and natural gas in interstate commerce.  It  acts under the authority of  the Federal Power Act, 
the Natural Gas Act, the Public Utility Regulatory Policies Act, the Interstate Commerce Act, the 
Energy Policy Act of 1992, and th e Energy Policy Act of 2005.  The states regulate electricity and 
natural gas sales at the retail level. 
(iii) Selected issues 
64. The energy tax structure seeks to provide in centives for the supply of alternative and 
renewable fuels (Table IV.3).  The Energy Policy Act of 2005, signed into law in August 2005, establishes tax incentives for domestic energy pr oduction and energy efficiency valued at 
approximately US$15 billion during 11 years.
62  The Act requires a doubling of biofuel use and 
authorizes several federal energy r esearch and development programmes. 
Table IV.3 
Selected energy tax incentives, early 2007  
Product Description Revenue loss, fiscal year 
2006 (US$ million) 
Oil and gas Exploration fi rms may deduct 100% of "i ntangible drilling costs" 
in first year (70% for integrated producers);  2 year amortization of 
geological and geophysical expens es (5 years for integrated 
producers) 1,100 
Fuel minerals Independent producers and royalty owners can deduct 15% of sales 
of oil and gas (up to 25% for marginal wells);  between 10% and 
20% for other fuel minerals;  only up to 1,000 barrels or equivalent 
per day 1,000 
Synthetic fuels from coal and gas 
produced from either 
geopressurized brine, Devonian shale, tight formations, or biomass Tax credit of US$6.40 per barrel of  oil equivalent or US$1.13 per 
1,000 cubic feet of gas 2,700 
Biomass ethanol Tax credit of US$0.51 per gallon (blenders) plus US$0.10 per 
gallon (small producers) 1,890 
Electricity from wind, closed-loop 
biomass, poultry waste, solar, 
geothermal Tax credit of US$0.018 per kWh 2,000 
Fuel cell, hybrid, lean burn, or other 
alternative fuel motor vehicle Tax credit of US$400-40,000 per unit  283 
State and local bonds for 
hydroelectric or biomass facilities 
that produce electricity Tax exemption for interest income 100 
Biodiesel (from vegetable oil or 
animal fat) Producer tax credit of US0.50 per gallon (recycled) or US$1 per 
gallon (virgin) 122 
Energy efficient appliances Manufacturer's tax credit of US$50-200 per unit 117 
 
Source:  WTO Secretariat, based on Lazzari (2006). 
65. Federal policy encourages biofuel production and use, through excise tax credits for ethanol 
and biodiesel blenders, tax credits for small ethanol and biodiesel producers, a tax credit for alternative fueling infrastructure development, and a special depreciation deduction for cellulosic 
ethanol facilities.  The largest of the biofuel tax expenditures is the volumetric ethanol excise tax 
                                                     
 
62 Lazzari (2006). WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 92 
 
 
credit, which provides a US$0.51 per gallon tax credit to blenders of ethanol and gasoline.  The cost 
of this programme in forgone ta x revenue was US$2.7 billion in 2006.63 
66. Imports of ethanol are subject to ad valorem  MFN tariff rates of 1.9% or 2.5% (fuel ethyl 
alcohol under subheadings HS 2207.1060 and HS 2207.2000).  An additional duty of 
US$0.1427 per litre (US$0.54 per gallon) is assessed  for imports of ethanol from MFN sources under 
subheading HS 9901.0050. 
67. The Energy Policy and Conservation Act estab lished fuel economy standards for passenger 
automobiles and light-duty trucks.64  Compliance with the standards is measured by calculating a 
sales-weighted mean of the fuel economies of a given manufacturer's product line.  Domestically 
produced and imported passenger automobiles must me et the standards separately (two-fleet rule).  
A vehicle is considered to be part of the domestic flee t if at least 75% of the cost of the content is of 
U.S., Canadian, or Mexican origin. 
68. In December 2007, Congress amended the Ener gy Policy and Conservation Act, mandating 
standards for passenger automobiles and light trucks  of model years 2011-2020 to ensure that the 
average fuel economy of the combined industry-wide fleet of passenger automobiles and light trucks 
in model year 2020 is at least 35 miles per gallon.65  The Department of Transportation must set these 
standards on the basis of a vehicle attribute such as size. 
69. In December 2005, the California Air Resources Board requested a waiver of pre-emption for 
its greenhouse gas regulations for certain new motor vehicles from model year 2009.  The Clean Air Act gives California special authority to enact ai r pollution standards for motor vehicles that are 
stricter than those of the federal Government.  However, the Environmental Protection Agency (EPA) 
must approve a waiver before California's regula tions can go into effect.  The EPA announced its 
intention to deny California's request for a waiver in late 2007;  it issued a denial document in 
February 2008 explaining its decision.
66  In the meantime, a federal district court issued a decision 
upholding the adoption of California's greenhouse gas re gulations by Vermont, one of 11 states that 
had adopted California's regulations as at mid 2007.67  The court concluded th at Vermont's regulations 
are not pre-empted by federal fuel economy laws, and do not "impermissibly intrude upon the foreign 
affairs prerogatives of the President and Congress of the United States".68 
70. The Energy Policy and Conservation Act author ized in 1975 the creation of a Strategic 
Petroleum Reserve (SPR) for the storage of up  to one billion barrels of petroleum products.69  
The SPR, which is managed by the Department of En ergy, contained enough oil to offset 59 days of 
U.S. oil imports as at 2006.70  The United States has spent about US$45.2 billion in 2005 dollars to 
                                                      
63 GAO (2007a). 
64 49 USC 32901 et seq. 
65 Title I, Energy Independence and Security Act of 2007. 
66 EPA online information, "California Greenhouse-Gas Waiver Request".  Viewed at:  http://www.epa. 
gov/otaq/ca-waiver.htm. 
67 California Environmental Protection Agency online information, "Frequently Asked Questions:  
Climate Change Emissions Standards for Vehicles".  Vi ewed at:  http://www.arb.ca. gov/cc/factsheets/ccfaq.pdf. 
68 United States District Court for the District of Vermont, Green Mountain Chrysler Plymouth Dodge 
Jeep, et al. v. George Crombie, et al. , No. 05-302, and The Association of International Automobile 
Manufacturers v. George Crombie, et al. , No. 05-304, D. Vt, 12 September 2007.  This decision is being 
appealed;  opening briefs were filed in March 2008 in th e U.S. Court of Appeals for the Second Circuit (No. 07-
4342-cv). 
69 42 USC 6231 et seq. 
70 GAO (2006). United States WT /TPR/S/200/Rev.1 
 Page 93 
 
 
build, maintain, fill, and manage the SPR since 1976.  There is also a Northeast Heating Oil Reserve 
that holds 2 million barrels of heati ng oil.  It has never been tapped. 
71. The Energy Policy and Conservation Act authorizes  the President to use the SPR in the event 
of a severe energy supply disruption.  Amendments adopted in 1990 authorized the President to use 
part of the SPR in reaction to "a circumstance that  constitutes, or is likely to become, a domestic or 
international energy supply shortage  of significant scope or duration".71  Under this authority, 
the President authorized the sale and lending of oil from the SPR in the aftermath of hurricanes Katrina and Rita in 2005. 
72. The Strategic and Critical Materials Stockpiling Act established a programme to maintain and 
manage certain materials for use during a national emergency.
72  The Defense Logistics Agency's 
Defense National Stockpile Center (DNSC) manage s the stockpile program.  It stores 28 commodities 
with a market value of around US$1.4 billion at 17 U.S. locations.73  The commodities include zinc, 
cobalt, chromium, platinum, palladium, and indus trial diamonds.  DNSC has sold approximately 
US$6.6 billion worth of excess stockpile materials since 1993. 
(4) MANUFACTURING  
73. The United States is the world's leading producer of manufactured goods, accounting for 
about 21% of world manufacturing value added.74  After a cyclical downturn that started in late 
summer 2000 and deepened in 2001, manufacturing output increased by almost 18% between 2002 
and 2006.75  However, the share of manufacturing in to tal U.S. value added declined during this 
period, to 12.1% in 2006, as other sectors experienced faster growth.  In 2006, the largest industries in 
terms of manufacturing value added were:  chemi cal products (13.8%);  food and beverage and 
tobacco products (10.4%);  computer and electr onic products (9.0%);  fabricated metal products 
(8.5%);  machinery (7.9%);  and motor vehi cles, bodies and trailers, and parts (6.3%).76  
Manufactured goods represented 80% of total U.S. merchandise exports in 2006, three percentage 
points less than in 2000;  70% of 2006 imports c onsisted of manufactures, compared with 77% in 
2000.  In absolute terms, however, manufacturing exports and imports increased by 24% and 40% 
between 2000 and 2006 (see Chapter I(6)(i)). 
74. Foreign direct investment (FDI) is important in manufacturing.  Assets of majority-owned 
non-bank U.S. affiliates in the manufacturing sector were almost US$1.1 trillion in 2005, almost one fifth of total U.S. affiliate assets.
77  U.S. affiliates of foreign companies in the manufacturing 
sector employed some 2 million workers.  Merchand ise exports by these affiliates were US$97 billion 
and imports US$160 billion in 2005.  Foreign-owne d manufacturing firms had 14% more value added 
and plant sizes five times larger than U.S. manufacturers, on average.78  They paid 14% higher wages, 
and had 50% greater output per worker than the av erage comparable U.S.-owned manufacturer.  At 
                                                      
71 42 USC 6241. 
72 50 USC 98 et seq. 
73 DNSC online information.  Viewed at:  http s://www.dnsc.dla.mil/contentview.asp?contentpage= 
inside&folder=dnsc. 
74 United Nations Industrial Development Organization online information.  Viewed at:  
http://www.unido.org/data/geostat.cfm?CC=USA. 
75 International Trade Administration online inform ation, "Industry Competitiveness and Regulatory 
Analysis".  Viewed at:  http://ita.doc .gov/td/industry/otea/OCEA/MBU/index.html. 
76 BEA online information, "Industry Economic Acco unts".  Viewed at:  h ttp://www.bea.gov/industry/ 
gpotables/gpo_action.cfm?anon=57018&table_id=19018&format_type=0. 
77 Anderson (2007). 
78 Jackson (2005). WT/TPR/S/200/Rev.1 Trade Policy Review 
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end 2004, the Netherlands, Switzerland, and the Unite d Kingdom were the principal sources of FDI in 
manufacturing on a historical cost basis.79 
75. The manufacturing sector accounts for 10% of non-farm payroll employment (September 
2007).80  Manufacturing employment fell by 2.7 milli on between February 2001  and February 2004, 
which was the biggest cyclical decline in manufacturing employment since 196081;  the downward 
trend continued in later years. 
76. Multifactor productivity in manufacturing increased at an annual average rate of 2.5% 
between 2000 and 2005, which was higher than in  the private non-farm business sector as a whole.82  
It increased in 68 of 86 manufacturing industries during this period.83  Of 16 foreign economies 
studied by the Department of Labor, only three ha d greater manufacturing productivity growth than 
the United States between 2000 and 2006.84 
77. In the context of the President's Manufact uring Initiative announced in March 2003, 
the Secretary of Commerce ordered a comprehe nsive review of the issues influencing the 
competitiveness of the U.S. manufacturing sector.  As part of this, the Department of Commerce held 
23 public roundtables to identify the challenges faci ng manufacturers.  In January 2004 it issued a 
report with 57 recommendations to address these challenges.85  The Interagency Working Group on 
Manufacturing Competitiveness coordinates the im plementation of these recommendations, which 
include to make permanent the research and experi mentation tax credit, modernize the U.S. legal 
system to eliminate disincentives to invest in manufacturing, iden tify priorities for future federal 
support for advanced manufacturing technology, and combat "unfair" trade practices affecting U.S. 
manufacturers.  The U.S. authorities indicate that 36 of the report's recommendations have already 
been implemented. 
78. In general, tariffs on manufactured goods ar e low.  The average applied MFN tariff for 
manufactures (WTO definition) was 4% in 2007.  However, the U.S. International Trade Commission 
has identified 12 sectors that are subject to relatively high tariffs.86  The Commission estimates that 
U.S. welfare gains from eliminating the tariffs on these products would range from US$2 million for 
edible fats and oils to US$249 milli on for footwear and leather products.87  The increase in imports 
resulting from this liberalization would range from 2% to 19%. 
79. The U.S. International Trade Commission has also identified textiles and apparel as subject to 
relatively high import barriers.88  One study estimates U.S. welfare gains from the elimination of 
                                                      
79 BEA (2005). 
80 Bureau of Labor Statistics online information, "Employment Situation", Table B-1.  Viewed at:  
http://www.bls.gov/news.rel ease/empsit.toc.htm. 
81 Forbes (2004). 
82 Multifactor productivity measures the changes in output per unit of combined inputs. 
83 Bureau of Labor Statistics online information,  "Multifactor Productivity Trends For Detailed 
Manufacturing Industries", Table 3.  Viewed a t:  http://www.bls.gov/news. release/prin3.toc.htm. 
84 USDOL (2007). 
85 USDOC (2004). 
86 These are:  ball and roller bearings;  ceramic wall and floor tile;  costume jewellery;  cutlery and 
hand tools;  edible fats and oils;  footwear and leather products;  glass and glass products;  musical instruments;  
pens, mechanical pencils, and parts;  processed fruits a nd vegetables;  table kitchenware;  and watches, clocks, 
and watch cases and parts.  USITC (2007a). 
87 In the case of ceramic tile, liberalization would lead  to a welfare loss of US$2 million.  Ceramic tile 
is considered as an input to residential and commercial buildings (investment goods) rather than a product 
purchased by consumers as end-users. 
88 USITC (2007a). United States WT /TPR/S/200/Rev.1 
 Page 95 
 
 
tariffs and remaining quantitative restrictions on imports of textiles and apparel at US$830 million 
and US$1.9 billion.89  The same study also considers the welfar e effects of textile and apparel rules of 
origin contained in U.S. preferential arrangements.  The study found that the elimination of origin requirements for textiles and appa rel would reduce foreign demand for U.S. textiles and apparel 
inputs, causing a loss in U.S. welfar e.  According to the study, this loss would be largely offset by the 
elimination of compliance costs embedded in rules of origin. 
80. In addition to tariffs, government assistance to the manufacturing sector includes export 
financing, direct payments, and tax be nefits (Chapter III(3)(iv) and (4)(ii)). 
81. Manufacturers spent US$158 billion for research and development (R&D) performed in the 
United States in 2005.
90  Federal government R&D expenditures in the manufacturing sector were 
approximately US$15.6 billion.  These expenditur es cut across a broad spectrum of industries, 
including computers and electronic products, aerospace products and parts, chemicals, and machinery.  
Together these industries accounted for approxi mately 72% of federal funds for R&D in 
manufacturing. 
82. The United States is currently in volved in two disputes settlement cases with the EC on trade 
in large civil aircraft under the WTO Agreemen ts, one as complainant and one as defendant.   
83. The United States maintains programmes to a ssist shipyards or ship-repair facilities.  
The Federal Ship Financing Program provides guara ntees for private-sector financing to construct, 
reconstruct, and recondition commercial vessels in U.S. shipyards.91  Guarantees may not cover 
financing for the acquisition of foreign component s unless the Department of Transportation grants 
a waiver.  No new loan guarantees were issued during fiscal year 2006.  US$2.94 billion in loan 
guarantees were outstanding in September 2006.92 
84. Under the Capital Construction Fund (CCF) programme, U.S. flag operators may defer 
federal taxes on certain deposits placed into a CCF to  construct, reconstruct,  or acquire eligible 
vessels built in and documented under the laws of th e United States.  Under the Construction Reserve 
Fund programme, U.S. flag operators may defer federa l taxes on gains attributable to the sale or loss 
of a vessel, provided that the proceeds are used to construct, reconstruct, or acquire an eligible, 
U.S. built vessel.93  Participation in both programmes is limited to U.S. citizens. 
85. U.S.-flag vessels repaired abroad are subject to a 50% duty, assessed on the cost of equipment 
and non-emergency repairs in foreign countries.  Th e duty is not applied on U.S.-owned foreign-flag 
vessels or in the context of U.S. free-trade agreements. 
(5) SERVICES  
(i) Introduction 
86. The services sector is by far the largest cont ributor to output and employment in the 
U.S. economy.  The private services sector accounted for 67.8% of GDP and 65.6% of total employment in 2006, or 80.2% and 83.4%, respectivel y, if government services are included.  Private 
services industries have been expanding faster than GDP during the period under review and 
                                                     
 
89 Fox, Powers and Winston (2007). 
90 Wolfe (2007). 
91 Title XI, Merchant Marine Act of 1936. 
92 MARAD online information.  Viewed at:  http://www.marad.dot.gov/T itleXI/title_xi_program.html. 
93 Section 511, Merchant Marine Act of 1936. WT/TPR/S/200/Rev.1 Trade Policy Review 
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contributed 2.75 percentage points to GDP growth in 2006.94  Productivity has been growing rapidly 
in most service activities, particularly telecommuni cations, but also retail and wholesale trade and air 
transportation.95  Services are also playing an important role in U.S. trade:  in 2006, services 
accounted for 29.2% of total U.S. exports and 15.6% of total imports. 
87. The United States made wide-ranging  sector-specific commitments under 
the General Agreement on Trade in Services (GATS).96  These include 11 of the 12 broadly defined 
service areas, or 111 of the approximately 160 services subsectors in the Services Sectoral Classification List.
97  The United States' horizontal commit ments include limitations regarding 
temporary entry and stay of natural persons, acquis ition of land, taxation measures, and subsidies.  
The United States submitted an initial offer on servi ces in the DDA in 2003, and a revised offer in 
2005.98 
(ii) Telecommunications and related services 
(a) Market structure99 
88. The U.S. telecommunications market is the world's largest by revenue (US$360 billion in 
2005).  Following a sharp decline between 2000 and 2004, telecommunication investment increased 
in 2005, reflecting partly the transition to fibr e-based broadband technologies, higher-speed mobile, 
and next-generation networks. 
89. There were 167.5 million residential and non -residential wireline switched access lines in 
service at end 2006, down from 192.4 million at end 2004.100  This decline reflects reductions in 
residential second lines and substitution of mobile  for fixed.  There were 213 million mobile 
telephone subscribers in the United States in De cember 2005, resulting in a nationwide penetration 
rate of approximately 71%.101  Although the number of cellular mobile subscribers has increased 
rapidly since 2000, penetration remains below the OECD average of 80%. 
90. The United States enjoys some of the lowest  prices for fixed-line telephony in the OECD.102  
The price of mobile telephony is close to the OE CD average;  the U.S. authorities note that this 
estimate overstates the cost of mobile telephony in the United States, as it does not take into account 
the high volume of use.  U.S. international calli ng charges are among the lowest in the OECD.  The 
United States has relatively well developed facilities-based competition. 
91. The main distribution platform for broadcasting services in the United States is cable, which 
in 2005 accounted for almost 60% of households equi pped with television.  The share of terrestrial 
television is 16%.  Both terrestrial television and cab le have lost share to direct broadcast satellite, 
which accounts for 25% of households equipped with television, up from 2% in 1995.  The Chairman 
of the FCC notes that competition is needed in the market for the delivery of video programming.  
                                                      
94 BEA (2007a). 
95 Bureau of Labor Statistics online informati on.  Viewed at:  http://www.bls.gov/schedule/ 
archives/prin_nr.htm#2006. 
96 GATT document, GATS/SC/90, 15 April 1994. 
97 WTO document MTN.GNS/W/120, 10 July 1991. 
98 The initial offer is contained in WTO document TN /S/O/USA, 9 April 2003.  For the revised offer 
see:  http://www.ustr.gov/assets/Trade_Sectors/Servi ces/2005_Revised_US_Services _Offer/asset_upload_file77 
_7760.pdf. 
99 Unless indicated otherwise, the data in this section is from OECD (2007d). 
100 FCC (2007). 
101 FCC (2006). 
102 OECD (2007d). United States WT /TPR/S/200/Rev.1 
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Cable prices have increased since 1996 while prices of other communication services have 
declined.103 
(b) GATS commitments and legal framework 
92. U.S. commitments on basic telecommunications a ttached to the Fourth Protocol of the GATS 
cover most services.104  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. 
93. The United States has reserved an exemption under GATS Article II (MFN) to discriminate 
between WTO Members "due to application of reciprocity measures or through international 
agreements guaranteeing market access or national treatment" for DTH, DBS, and digital audio 
services.105  The United States also reserved the right to "allow the deduction for expenses of an 
advertisement carried by a foreign broadcast undertaking and directed primarily to a U.S. market only where the broadcast undertaking is located in a fore ign country that allows a similar deduction for an 
advertisement placed with a U.S. broadcast undertaking".
106  The purpose of this MFN exemption is to 
"encourage the allowance of adver tising expenses internationally". 
94. The Federal Communications Commission (FCC) is  responsible for regulating interstate and 
international communications by radio, television,  wire, satellite, and cable.  Individual state 
commissions have the authority to regulate the rat es, terms, and conditions of intra-state, non-radio-
based basic telecommunications services. 
Foreign ownership and international settlements policy 
95. The FCC reviews foreign investment in F CC radio licences under Section 310 of the 
Communications Act of 1934, as amended.107  Under Section 310(a) of the Act, no radio licence may 
be granted to a foreign government or its representa tive.  Under Section 310(b) of the Act, broadcast 
and common carrier, and aeronautical radio licences cannot  be granted to or held by non-U.S. citizens, 
their representatives, corporations not organized under the laws of the United States, or foreign 
governments.  Nor may licences be granted to U.S. corporations of which more than 20% of the 
capital stock is owned of record or voted by any of these entities.  However, under Section 310(b)(4), 
licences may be granted to companies organized in  the United States that are controlled by holding 
companies organized 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 public interest. 
96. Following the adoption in 1997 of an "open entr y" standard with respect to WTO Members, 
the FCC presumes that indirect ownership by entities from WTO Members of common carrier 
wireless licences under Section 310(b)(4) is in the public interest.
108  However, the FCC reserves the 
right to attach conditions to or deny authorizati on to exceed the 25% forei gn ownership benchmark if, 
as a result of its public interest analysis, it finds th at such authorization would threaten competition in 
                                                      
103 Remarks of FCC Chairman Kevin J. Martin, Phoenix Center, U.S. Telecoms 2006 Symposium, 
6 December 2006.  Viewed at:  h5ttp://www.pho enix-center.org/symposiu ms/2006/MartinSpeech.pdf. 
104 See WTO document GATS/SC/90/Suppl.2, 11 April 1997. 
105 WTO document GATS/EL/90/Suppl.2, 11 April 1997. 
106 WTO document GATS/EL/90, 15 April 1994. 
107 47 USC 310. 
108 Rules and Policies on Foreign Participation in the U.S. Telecommunications Market, Report and 
Order and Order on Reconsideration, 12 FCC Rcd 23891 (1997) (“Foreign Participation Order”), Order on Reconsideration, 15 FCC Rcd 18158 (2000). WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 98 
 
 
the U.S. market.  In addition, the FCC accord s deference to legitimate national security, law 
enforcement, foreign policy, and trade concerns raised  by other federal agencies in its public interest 
analyses, although the U.S. authorities indicate that no  authorization has ever been denied on the basis 
of these concerns.  In previous Reviews of the Un ited States, several WTO Members have noted that 
the explicit incorporation of the open entry standa rd into U.S. legislation would provide the full 
security of the law to suppliers from WTO Members.109 
97. In the context of its open entry standard, the FCC has instituted a blanket authorization with 
respect to applications to supply domestic long- distance services on a facilities or resale basis.  
To supply international services, an individual authorization is required, but according to the 
U.S. authorities, the authorization process is genera lly pro forma, with most authorization granted 
automatically.  The authorities note that the pr ocessing time for applications depends on the 
complexity of each case;  processing takes from 14 days for routine authorizations to provide international services, to one year or longer for ap plications related to large, complex mergers or 
acquisitions.
110 
98. The international settlements policy (ISP) is one of several FCC regulatory safeguards to 
deter conduct by a foreign-based carrier that would harm competition in the U.S. telecommunications 
market.111  The ISP governs negotiations between U.S. a nd certain foreign carriers that have market 
power for the exchange of international switched tr affic.  It requires all rate agreements between 
U.S. and foreign carriers to provide for:  an equal division of accounting rates between foreign and U.S. carriers
112;  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 term ination rates exceed FCC-specified benchmarks.113  In 
early 2008, 165 routes were exempt from the ISP. 
99. In March 2006, three large operators requested  that the FCC remove ISP requirements from 
the remaining routes subject to such requirements.  FCC staff note that certain ISP requirements may 
no longer be necessary due to "meaningful economic competition between telecommunications 
service providers" and recommend the initiation of  a proceeding to consider this petition.114  T h e  
request is under consideration. 
Unbundling requirements and inter-carrier compensation 
100. 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 
unbundled basis at any technically feasible point on rates, terms, and conditions that are just, 
reasonable, and non-discriminatory…".115  Section 251 network elements must be priced "based on 
                                                      
109 See, for example, WTO documents WT/T PR/M/126/Add.3, 22 November 2004, and 
WT/TPR/M/88/Add.1, 8 January 2002. 
110 WT/TPR/M/160/Add.1, 27 September 2006. 
111 For a description of other regulatory safeguards besides ISP see WTO (2006). 
112 The accounting rate system refers to the pricin g 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. 
113 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. 
114 See, for example, FCC 2006 Biennial Regulat ory Review, 22 FCC Rcd 3138, 3166-67, 3175-78 
(IB 2007). 
115 47 USC 251(c). United States WT /TPR/S/200/Rev.1 
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the cost (determined without reference to a rate-of-r eturn or other rate-based proceeding) of providing 
the ... network element" and "may include a reasonable profit".116 
101. The Communications Act left the FCC to choo se the network elements to be "unbundled," 
specifying that the FCC must "consider, at a mini mum, whether ... the failu re to provide access to 
such network elements would impair the ability of the telecommunications carrier seeking access to 
provide the services that it seeks to offer."117  The FCC issued the results of a comprehensive re-
examination of its Section 251 unbundling rules in 2003.118  The rules obtained judicial approval in 
June 2006, after having been modified in response to court challenges.119  According to the FCC, its 
unbundling framework "builds on actions by the Commission to limit unbundling to provide 
incentives for both incumbent carriers and new entrants to invest in the telecommunications market in 
a way that best allows for innovation and sustainable competition."120 
102. Facilities-based common carriers that own tr ansmission facilities and provide "enhanced 
services" must allow other enhanced service providers to use their transmission facilities on a non-discriminatory basis.
121  In August 2005, the FCC relieved wireline broadband Internet access service 
providers from this "unbundling" requirement, wh ich is separate from the unbundling obligations 
under Section 251 of the Communications Act.  The FCC's decision responds to "the availability of 
Internet service from multiple broadband pipelines, including cable, wireless, satellite, and power line 
networks".122  According to the FCC, the decision "p uts wireline broadband Internet access service, 
commonly delivered by digital subscriber line (DSL) technology, on an equal regulatory footing with cable modem service, currently the market leader".
123 
103. Inter-carrier compensation is governed by a co mplex system of rules that differentiate 
between types of carriers and services.  Generall y, 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.  The FCC, whic h has been considering measures to reform its 
intercarrier compensation regime since 2001, notes that the distinctions between types of traffic, 
                                                      
116 47 USC 252(d)(1).  See also Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996,  Interconnection between Local Exchange Carriers and Commercial Mobile 
Radio Service Providers, First Report and Order, CC Docket Nos. 96-98, 95-185 (1996). 
117 47 USC 251(d)(2). 
118 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, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, CC Docket Nos. 01-338, 96-98, 98-147 (2003). 
119 Covad Communications Co. v. FCC,  450 F.3d 528 (D.C. Cir. 2006),  affecting Unbundled Access to 
Network Elements, Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Order on Remand, WC Docket No. 04-313, CC Docket No. 01-338, 20 FCC Rcd 2533 (2005). 
120 FCC online information, "FCC Adopts New Ru les for Network Unbundling Obligations of 
Incumbent Local Phone Carriers", 15  December 2004.  Viewed at:  http://hraunfoss.fcc.gov/edocs_public 
/attachmatch/DOC-255344A1.pdf.  For a description of  the particular facilities subject to unbundling 
requirements, see WTO (2006). 
121 Computer II Final Decision, 77 FCC 2d. 384, 474-75, para. 231 (1980).  Enhanced services combine 
basic service with computer processing applications that act on the format, content, code, protocol or similar 
aspects of the subscriber’s transmitted information, or provide the subscriber additional, different, or 
restructured information, or involve subscriber interaction with stored information. 
122 FCC online information, "FCC Eliminates Mandated Sharing Requirement on Incumbents' Wireline 
Broadband Internet Access Services", 5 August 2005 .  Viewed at:  http://hraunfoss.fcc.gov/edocs_public 
/attachmatch/DOC-260433A1.pdf. 
123 FCC online information, "FCC Eliminates Mandated Sharing Requirement on Incumbents' Wireline 
Broadband Internet Access Services", 5 August 2005 .  Viewed at:  http://hraunfoss.fcc.gov/edocs_public/ 
attachmatch/DOC-260433A1.pdf. WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 100 
 
 
carriers, and communication end-points create bot h opportunities for regulatory arbitrage, and 
incentives for inefficient investment and deployment decisions.124  In July 2006, the National 
Association of Regulatory Utility Commissioners' Task  Force on Intercarrier Compensation filed with 
the FCC an intercarrier compensation reform plan known as the "Missoula Plan".  The FCC sought 
comment on this and subsequent filings.125 
Satellite services 
104. Under the DISCO II Order adopted in November  1997, foreign operators may request that 
their satellites be permitted to provide service in th e United States.  This request may be made by 
filing an application for an earth station to acc ess the foreign satellite, or by filing a Petition for 
Declaration Ruling for the foreign satellite to serve U.S. customers.  In addition, foreign operators 
with satellites operating in the c onventional C-band or Ku-band may request that th eir satellites be 
considered for inclusion in the Permitted Space Station List.126  Satellites on this list may be accessed 
by any licensed earth station operating in specific bands and consistent w ith the FCC's technical 
requirements without further regulatory approval.   There are 25 foreign satellites on the Permitted 
Space Station List (December 2007);  an additional 16  are not included on the List but are authorized 
to provide service in the United States. 
105. In the absence of a bilateral agreement betw een the United States and another country, the 
FCC requires that foreign satellite operators wishi ng to provide satellite services that are excluded 
from U.S. commitments at the WTO (DTH, DBS, and digital audio services) perform an ECO-SAT 
analysis for the excluded service.  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 wishing to provide the excluded 
service.127  The United States has bilateral agreements with Argentina and Mexico.  Nine satellites are 
allowed to provide DTH, DBS, and dig ital audio services in the United States. 
                                                      
124 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. 
125 Comment Sought on Missoula Intercarrier Co mpensation Reform Plan, CC Docket No. 01-92, 
Public Notice, 21 FCC Rcd 8524 (Wireline Comp. Bur. 2006);  Developing a Unified Intercarrier Compensation 
Regime, CC Docket No. 01-92, Order, 21 FCC Rcd 9772 (Wireline Comp. Bur. 2006);  Comment Sought on 
Missoula Plan Phantom Traffic Interim Process and Call Detail Records Proposal, CC Docket No. 01-92, Public 
Notice, 21 FCC Rcd 13179 (Wireline Comp. Bur. 2006);  Developing a Unified Intercarrier Compensation 
Regime, CC Docket No. 01-92, Order, 21 FCC Rcd 13526 (Wireline Comp. Bur. 2006);  Developing a Unified 
Intercarrier Compensation Regime, CC Docket No. 01-9 2, Order, 21 FCC Rcd 14626 (Wireline Comp. Bur. 
2006);  Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Order, 21 FCC Rcd 
14761 (Wireline Comp. Bur. 2006);  Comment Sought on Amendments to the Missoula Plan Intercarrier 
Compensation Proposal to Incorporate a Federal Benchmark Mechanism, CC Do cket No. 01-92, Public Notice, 
22 FCC Rcd 3362 (Wireline Comp. Bur. 2007);  Pleading Cycle Extended For Comment on Amendments to the 
Missoula Plan Intercarrier Compensation Proposal to In corporate a Federal Benchmark Mechanism, CC Docket 
No. 01-92, Public Notice, 22 FCC Rcd 5098 (Wireline Comp. Bur. 2007). 
126 The conventional C-band comprises the 3700-4200/5925-6425 MHz frequency bands;  the 
conventional Ku-band comprises the 11.7-12.2/14.0-14.5 GHz bands.  Amendment of the Commission's Regulatory Policies to Allow Non-U.S. -Licensed Space Stations to Provide Domestic and International Satellite 
Service in the United States, First Order on Reconsider ation, IB Docket No. 96-111 (1999) (DISCO II First 
Reconsideration Order). 
127 For more on the ECO-SAT test, see DISCO II Order, paragraph 40. United States WT /TPR/S/200/Rev.1 
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Media ownership restrictions 
106. The United States maintains several media owne rship restrictions, with the objective of 
promoting competition, diversity, and "localism" in media production.  Under the rules in effect in 
January 2008, the dual network rule prohibits mergers between two or more of the "top four" 
networks, that is, ABC, CBS, Fox, and NBC.128  Under the radio/television cross-ownership rule, an 
entity cannot own more than two television and six radio stations, or one television and seven radio 
stations in markets with at least 20 separatel y owned television, radi o, cable, and newspaper 
"voices".129  There is a sliding scale for markets with fewer voices.  The newspaper/broadcast cross-
ownership rule bans a company from owning a daily newspaper and a broadcast station in the same 
market.130 
107. The local television multiple ownership rule  allows entities to own a maximum of two 
television stations in any local market, as long as one station is not a top four station, and there are at 
least eight independent television stations in that market.131  Under the local radio ownership rule, an 
entity cannot own more than eight radio stati ons in markets with 45 or more stations.132  There is a 
sliding scale for markets with less than 45 stations.  At the national level, Congress enacted legislation 
in 2004 allowing an entity to own an unlimited number of television stations in the United States, as 
long as their aggregate "national audience reach" does not exceed 39%.133 
108. The Telecommunications Act of 1996 requires the FCC to review its media ownership rules 
periodically to determine whether they are "n ecessary in the public interest as the result of 
competition".134  Congress determined in 2004 that these re views should be held every four years, 
rather than every two.  The FCC launched a co mprehensive review of these rules in June 2006135, and 
adopted an order in December 2007 (not yet in effect).136  In that order the FCC approved a relaxation 
of the newspaper/broadcast cross-ownership rule, leaving all other media ownership restrictions 
unchanged.137 
                                                      
128 47 CFR 73.658(g). 
129 47 CFR 73.3555(c). 
130 47 CFR 73.3555(c). 
131 47 CFR 73.3555(a). 
132 47 CFR 73.3555(a). 
133 Section 629, Consolidated Appropriations Act, 2004. 
134 Section 202(h). 
135 2006 Quadrennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules 
and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 2002 Biennial 
Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, Cross-Ownership of Broadcast Stations and 
Newspapers, Rules and Policies Concerning Multiple Ownership of Radio Broadcast Stations in Local Markets, 
Definition of Radio Markets, Further Notice of Proposed Rulemaking, MB Docket Nos. 06-121 and 02-277, and MM Docket Nos. 01-235, 01-317, 00-244 (2006). 
136 2006 Quadrennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules 
and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 2002 Biennial 
Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted 
Pursuant to Section 202 of the Telecommunications Act of 1996, Cross-Ownership of Broadcast Stations and 
Newspapers, Rules and Policies Concerning Multiple Ownership of Radio Broadcast Stations in Local Markets, 
Definition of Radio Markets, Ways to Further Section 257 Mandate and To Build on Earlier Studies, Public 
Interest Obligations of TV Broadcast Licensees, Report and Order and Order and Order on Reconsideration, MB Docket Nos. 06-121, 02-277 and 04-228, and MM Docket Nos. 01-235, 01-317, 00-244 and 99-360 (2007). 
137 FCC online information, "Chairman Kevin J. Martin Proposes Revision to the Newspaper Broadcast 
Cross-Ownership Rule", 13 November  2007.  Viewed at:  http://hraunfoss.fcc.gov/edocs_public/attachmatch/ 
DOC-278113A1.pdf. WT/TPR/S/200/Rev.1 Trade Policy Review 
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Authorization to provide cable services 
109. Section 621 of the Communications Act prohibits a cable operator from providing "cable 
service" in a particular area without obtaining an authorization or "franchise".138  Franchises are 
generally granted by county or municipal entities.  The Communications Act bans such entities from 
"unreasonably" refusing to award franchises to provide cable services.139 
110. In an earlier FCC proceeding, potential entran ts, primarily telecommunications companies, 
had cited several factors relating to the local fra nchising process that impeded their entry into the 
video services market.140  According to the FCC, the efficient operation of the local franchising 
process is especially significant for potential new en trants with existing facilities.  For example, 
one operator has indicated that it would have to negotiate with more than 10,000 municipalities to 
offer video programming throughout its service area.  Another operator has noted that it takes an average of 11 months to finalize a franchise agre ement.  A recent study estimated that a one-year 
delay in reforming the process to obtain cable franchises would cost American consumers US$8.2 billion.
141  Another study found that incumbent cable companies had reduced prices by up to 
42% in response to the entry of a major phone  company into the television services market.142 
111. The FCC adopted franchising rules in December 2006.143  The new rules set a time limit for 
franchising negotiations, establish limits on build-out and other requirements that may be imposed by 
local franchising authorities, and clarify the costs,  fees, and other compensation required by these 
authorities that may be counted toward the stat utory 5% cap on franchise fees.  The FCC applied 
certain elements of the new rules to franchises gove rning incumbent cable operators in October 2007. 
112. According to the National Cable Television Asso ciation, in mid 2007, eight states had passed 
state-wide cable franchise legislation designed to obviate the need for licensing locality by locality.144 
(iii) Financial services 
(a) Recent market developments 
113. The U.S. financial services sector accounted fo r 7.8% of GDP in 2006, about half of which 
was generated by banking activities, some 30% by insurance, 18% by securiti es trading activities, and 
2% by funds, trusts, and other financial vehicles.145  The sector employed 6.1 million people in 2005, 
                                                      
138 Cable service is defined as "the one-way transmission to subscribers of video or other programming 
service, and subscriber interaction, if any, which is required for the selection or use of such programming" 
(47 USC 522(6)). 
139 47 USC 541(a)(1). 
140 Implementation of Section 621(a)(1) of the Ca ble Communications Policy Act of 1984 as amended 
by the Cable Television Consumer Protection and Competition Act of 1992, Notice of Proposed Rulemaking, 
MB Docket No. 05-311 (2005). 
141 Ford and Koutsky (2006). 
142 Study by Bank of America Equity Research, cited in Ford and Koutsky (2006). 
143 Implementation of Section 621(a)(1) of the Ca ble Communications Policy Act of 1984 as amended 
by the Cable Television Consumer Protection and Co mpetition Act of 1992, Report and Order and Further 
Notice of Proposed Rulemaking, MB Docket No. 05-311 (2006). 
144 Missouri, Florida, Indiana, Georgia, Nevada, Connecticut, Ohio, and Illinois. 
145 BEA online information, "Industry Economic  Accounts".  Viewed at: http://www.bea.gov/ 
industry/gdpbyind_data.htm. United States WT /TPR/S/200/Rev.1 
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or some 4.3% of total employment.146  In 2006, exports of financial services, excluding insurance, 
amounted to US$42.8 billion;  exports of insuran ce services reached US$9.3 billion.  Also in 2006, 
imports of financial services amounted to US$14.3 billion, while imports of insurance services were US$33.8 billion.  Sales of financial services, including insurance, to foreign persons by U.S. 
multinational corporations amounted  to US$122.8 billion in 2005, while sales of financial services to 
U.S. persons by foreign multinational corporations were US$102.3 billion.
147 
114. There were 1,686 "large" commercial banks in th e United States at end-June 2007, each with 
consolidated assets of US$300 million or more.  Their total consolidated assets amounted to 
US$9.5 trillion, representing some three quarter s of GDP;  84.7% were domestic assets.148  A t  e nd  
June 2007, foreign banks from 60 countries and territories operated 479 institutions in the 
United States:  there were 219 branches, 41 agen cies and 149 representative offices of foreign banks, 
as well as 68 U.S. commercial banks at least 25% owned by foreign entities, and three Edge 
corporations.149  The assets of the 479 U.S. foreign bank ing institutions totalled some US$2.8 trillion 
at end-September 2007, accounting for approximately  25% of the total assets of the U.S. commercial 
banking system. 
115. The U.S. insurance market is the world's la rgest, with gross insurance premiums of 
US$1.17 trillion in 2006, or 31.5% of the world market;  US$533.6 billion were in life and health 
insurance, and US$636.5 billion in property and casualty insurance.150  The United States is sixth in 
the world with respect to insurance premiums per ca pita, with US$3,924 per head in 2006;  it is 14th 
with respect to premiums as a percentage of  GDP (8.8% in 2006).  Some US$65.3 billion in 
premiums were paid through cross-border trade to  foreign-based insurers to cover risks in the 
United States in 2006;  they consisted mostly of  reinsurance.  Some US$23.2 billion were paid to 
U.S.-owned insurers establi shed abroad.  In 2006, losses paid to  U.S. firms reached US$29.3 billion, 
while losses paid by U.S. firms were US$10.9 billion.151 
116. The United States has the largest securities markets in the world.  The market value of equity 
and options sales on U.S. exchanges was some US$25.1 trillion in mid-November 2007.  Some 
73.51% of the value traded in 2007 was on the New York Stock Exchange (NYSE);  the NYSE Arca 
and the American Stock Exchange (AMEX) came second with 19.9% of the value traded and the 
NASDAQ third with 16.1%.152  As at November 2007, there were 2,779 listed issuers in the NYSE, of 
which 423 were non-U.S. issuers from 45 countries.153  The non-U.S. percentage of NYSE group 
volume transactions was 11.9% for the first three quarters of 2007.  In April 2007, NYSE merged 
                                                      
146 BEA online information, "Industry Economic Accounts" .  Viewed at:  http://www.bea.gov/industry/ 
xls/GDPbyInd_VA_NAICS_1998-2006.xls.  Some 2.9 million people were employed in banking;  2.3 million 
in insurance;  822,000 in securities;  and 89,000 in funds, trusts and other financial activities. 
147 BEA online information, and International Economic Accounts database, "U.S. International 
Services".  Viewed at:  http://www.bea.gov/scb/pd f/2007/10%20October/1007_int_srvcs_tables.pdf. 
148 Federal Reserve Statistical Release, Large Commercial Banks, 30 June 2007  Viewed at:  
http://www.federalreserve.gov/re leases/lbr/current/default.htm. 
149 Federal Reserve, Structure and Call Report.  Data  for U.S. Offices of Foreign Entities by Type of 
Institution as of 30 June 2007.  View ed at:  http://www.federalreserve.gov/.  An Edge corporation is a subsidiary 
of a bank or bank holding company or financial holding company, chartered under the Edge Act of 1919, to 
engage in foreign banking activities. 
150 Swiss Re (2007). 
151 BEA, U.S. International Transactions Accounts Da ta.  Table 3:  Private Services Transactions.  
Viewed at:  http://www.bea.gov/international/bp_ web/simple.cfm?anon=71&table_id=3&area_id=3. 
152 NYSE online information.  Viewed at:  http://www.nyse.com/marketinfo/mktsummary/1108407 
157455.html.  The Amex typically lists stocks of younger or smaller companies.  The NYSE Arca, is a fully 
electronic stock exchange with broader eligibility requirements which allow the listing of smaller companies. 
153 NYSE online information.  Viewed at:  http://www.nyse.com/pdfs/07nonUSIssuers.pdf. WT/TPR/S/200/Rev.1 Trade Policy Review 
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with the European stock exchange Euronext, b ased in Paris, and formed NYSE Euronext, which 
operates the world's largest exchange group. 
117. The U.S. financial sector has been affected by the sub-prime mortgage crisis (see Chapter I), 
and several banks in the United States and ab road have been posting write downs and losses.154  The 
IMF views the crisis as the result of a macroec onomic environment with a prolonged period of low 
interest rates, high liquidity and low volatility, which led financial institutions to underestimate risks;  
lax credit and risk management practices in many fi nancial institutions;  and sh ortcomings in financial 
regulation and supervision.155  The IMF considers that this environment both fuelled a U.S. housing 
boom and encouraged banks and ot her institutions to take on excessi ve leverage to generate high 
returns, and that supervisory and regulatory frame works could not prevent the crisis, since mortgages 
were not subject to appropriate disclosur e and consumer protection requirements. 
118. The IMF deems that the resolution of the sub-pr ime mortgage crisis will require action in both 
macroeconomic and financial market areas.156  The Federal Reserve considers that bank holding 
companies (BHCs) will continue to face difficult  market conditions and persistent pressure on 
earnings, and that more asset write-downs are likely as the market continues to  adjust risk premiums 
and valuations change.  To offset this, loan quality will require close monitoring by banking 
institutions and supervisory agencies;  liquidity po sitions will need to continue to be actively 
managed;  and banking organizations will need to implement risk management improvements.  
Residential mortgage lending, consumer protection, bank liquidi ty and capital positions, consumer 
lending, commercial real estate, and commercial le nding are key areas of supervisory focus for the 
Federal Reserve.157  In this respect, the Federal Reserve has acknowledged that bank management in 
many cases was not fully aware of the latent risk s contained in various structures and financial 
instruments, and how those risks could manifest them selves.  To counter this in the future, financial 
market supervisors will be enhancing their focus on th e capacity of a firm as a whole to manage risk 
and to integrate risk assessments into the overall decision-making by senior management. 
119. The authorities consider that the U.S. banking  system remains in sound overall condition, 
having entered the period of recent financial turmoi l with solid capital and strong earnings.  They 
noted that the Federal Reserve and other bank ing agencies, have been working with banking 
organizations to identify and rectify shortcomings in  risk management and to ensure that the banking 
system continues to be safe and sound.158  Also, financial agencies have issued statements to 
encourage institutions that service residential mortgages to mitigate losses while preserving 
homeownership to the extent possible and appropriate. 
120. In December 2007, the Federal Reserve Board proposed changes to Regulation Z (Truth in 
Lending) to protect consumers from unfair or d eceptive home mortgage lending and advertising 
practices.  The rule, which would be adopted unde r the Home Ownership and Equity Protection Act 
(HOEPA) of 1994, would restrict a number of prac tices and would also require certain mortgage 
disclosures to be provided earlier in the tran saction.  Under the HOEPA, the Board has the 
                                                      
154 See Federal Reserve online information.  Viewed at:  http://www.federalreserve.gov. 
155 IMF (2008a). 
156 IMF (2008a). 
157 Testimony of Federal Reserve Board Vice Chairman Donald L. Kohn Before the Committee on 
Banking, Housing, and Urban Affair s, U.S. Senate, 4 March 2008, "Condition of the U.S. banking system".   
Viewed at:  http://www.federalreserve.gov/newsevents/testimony/kohn20080304a.htm. 
158 Testimony of Federal Reserve Board Vice Chairman Donald L. Kohn Before the Committee on 
Banking, Housing, and Urban Affair s, U.S. Senate, 4 March 2008, "Condition of the U.S. banking system" .  
Viewed at:  http://www.federalreserve.gov/newsevents/testimony/kohn20080304a.htm. United States WT /TPR/S/200/Rev.1 
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responsibility to prohibit acts and practices in connecti on with mortgage loans that it finds to be unfair 
or deceptive.159 
(b) Legislative and regulatory framework 
Consolidated financial sector regulation 
121. The Gramm-Leach-Bliley Act (Financial Services  Modernization) of 1999 (GLBA) is the 
main law regulating the consolidated financial sect or.  The GLBA allows domestic and foreign banks 
to affiliate with entities engaged in other activities that are financial in nature, or incidental or 
complementary to a financial activity, provided certa in capital and managerial standards are met.  
A U.S. bank may affiliate with insurance or other financial services companies by first setting up a 
bank holding company (BHC) under the Bank Holding Company Act;  foreign banks are not required 
to set up holding companies.  Qualifying BHCs, re ferred to as financial holding companies or FHCs, 
may control banking, securities, or insurance firms, and may engage in new financial activities subject 
to prior approval by the Federal Reserve and the Treasury Department.160  A U.S. bank that meets 
specified prudential standards may establish financia l subsidiaries to engage in certain financial 
activities.  The aggregate assets of all financial s ubsidiaries must not exceed 45% of the parent bank's 
assets or US$50 billion, whichever is less.  Secur ities and insurance companies can become FHCs by 
acquiring a bank, provided they meet certain criteria.  In November 2007, 654 bank holding 
companies had effectively become or were being treated as FHCs, including 45 foreign banks.161 
122. Under the Bank Holding Company Act of 1956,  BHCs and FHCs may not own non-financial 
corporations other than through FHC-authorized  merchant banking activities.  The non-financial 
activities of firms predominantly engaged in fina ncial activities (at least 85% financial) were 
grandfathered for ten years (until 2009), with a possi bility for a five-year extension;  the authorities 
indicate that no entities were covered by these provisions as at early 2008. 
123. The Federal Reserve is the umbrella regulator fo r financial conglomerates that include a bank.  
The activities 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 (FDIC) in the case of state-chartered 
banks;  the Securities and Exchange Commission (SEC ) in the case of securities firms;  and a State 
insurance commission in the case of insurance companies. 
124. U.S. bank subsidiaries of foreign banks are treate d as domestic banks.  Branches and agencies 
of foreign banks have similar powers to banks and are subject to similar supervision;  agencies, 
however, may not accept deposits from U.S. citizens or residents.  For a foreign bank with U.S. 
branches or agencies to qualify as an FHC, the GLBA provides that "well capitalized" and "well 
managed" standards comparable to those applied to  U.S. banks be applied to foreign banks operating 
a branch or agency in the United States "giving due regard to the principle of national treatment and 
equality of competitive opportunity".162  A composite rating along with the risk management sub-
component rating provide the basis to classify a BHC or FHC as "well managed.  In this respect, 
the Federal Reserve uses the Bank Holding Co mpany Rating System, under which each inspected 
                                                      
159 Federal Reserve Board online information.  View ed at:  http://www.federalreserve.gov/newsevents/ 
press/bcreg/20071218a.htm. 
160 The exceptions are insurance underwriting, merchant banking, insurance company portfolio 
investments, and real estate development and investment. 
161 For the list of institutions see Federal Reserve on line information.  Viewed at:  http://www.federal 
reserve.gov/generalinfo/fhc/. 
162 FRB online information.  Viewed at:  http://www.federalreserve.gov. WT/TPR/S/200/Rev.1 Trade Policy Review 
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BHC is assigned a composite rating based on an ev aluation of its managerial  and financial condition 
and an assessment of future potential risk to its su bsidiary depository institutions.  The composite 
component and subcomponent ratings are assigned to BHCs on the basis of a numeric scale from 
5 (lowest) to 1 (highest).163  Foreign banks that elect to be treated as FHCs, whose home country 
supervisors have adopted risk-based capital standa rds consistent with the Basle Accord, and whose 
capital is comparable to that of a U.S. bank owned by  an FHC, must maintain specified ratios.  Other 
foreign banks are assessed individually.  Bank transacti ons with affiliates are subject to some statutory 
restrictions.164  Regulation W implements these statutory restrictions. 
125. The Financial Services Regulatory Relief Act of 2006 introduced changes to U.S. financial 
service legislation, which affect banking, securiti es, and insurance business.  The Act authorized 
payment of interest on funds maintained by a de pository institution at a Federal Reserve bank and 
authorized the Federal Reserve Board to reduce to 0% the reserves required to be maintained by a 
depository institution as of 1 October 2011.  The cu rrent statutory requirement ranges from 3% to 
14%.  The Act also amended the Home Owners' Loan Act (HOLA) to prescribe conditions under 
which a federal savings association may convert to  a national or state bank, including prior FDIC 
approval for each bank if more than one nationa l or state bank results from the conversion. 
Banking services 
126. Banking sector supervision in the United States is the responsibility of a number of federal 
and state regulators.  The Federal Reserve Boar d (FRB) shares responsibility with the OCC, the 
FDIC, the Office of Thrift Supervision (OTS), as well as with State regulators.  The OCC charters, 
regulates, and supervises all federally chartered U. S. (national) banks, a nd supervises the federal 
branches and agencies of foreign banks, as well as th e international activities of U.S. national banks.  
The FDIC insures bank deposits.  State regulators are organized in the Conference of State Bank 
Supervisors (CSBS).165  By statute and judicial interpretation of statutes and the U.S. Constitution, 
federal banking statutes and the regulations and ot her guidance issued by federal banking regulatory 
agencies may pre-empt state laws that would regul ate certain activities of banking institutions and 
their subsidiaries. 
127. 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.
166 
128. Foreign banks may establish a commercial presence in the U.S. market either by establishing 
federal- or state-licensed branches, agencies, or representative offices, or by establishing or acquiring 
a national or state subsidiary bank.  In order to accept or maintain domestic retail deposits of less than 
US$100,000, a foreign bank must establish an insure d banking subsidiary, except in the case of a 
foreign bank branch that was already engaged in  insured deposit-taking activities before or on 
19 December 1991).  Branches of foreign banks ar e generally not required to commit organizational 
                                                      
163 Board of Governors of the Federal Reserve System (2004a). 
164 The restrictions are contained in sections 23A and 23B of the Federal Reserve Act, and 
implemented through FRB Regulation W.  Section 23A lim its a Federal Reserve System member 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%.  Section 23B requires  that certain transactions 
between a bank and its affiliates occur on market terms. 
165 CSBS online information.  Viewed at:  http: //www.csbs.org/AM/Templat e.cfm?Section=About_Us. 
166 WTO document GATS/EL/90/Suppl.3, 26 February 1998. United States WT /TPR/S/200/Rev.1 
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capital at the federal level and state level;  they  cannot benefit from fede ral deposit insurance.  
However, foreign bank branches and agencies are subject to an "asset pledge requirement" under 
applicable federal and state law.  At the federal level, the International Banking Act of 1978 provides 
that branches and agencies licensed  by the OCC must maintain a " capital equivalenc y deposit" equal 
to at least 5% of their third-party liabilities with a local custodian bank.  Requirements under state 
laws vary. 
129. The operations of foreign banks in the United Stat es are mainly governed by the International 
Banking Act of 1978 (IBA), which provides for the gr anting of national treatment to foreign banks 
and offers them the option of est ablishing federally licensed bran ches and agencies in addition to 
state-licensed offices. 
130. The Riegle-Neal Interstate Banking and Branchi ng Act (RNIBBA) of 199 4 allows interstate 
branching by merger or by de novo  establishment of branches.  Inters tate expansion by a foreign bank 
through the establishment of branches by merger with a bank located outside the home state of a 
foreign bank is permitted on a national treatment basis.   Certain size limitations apply:  the merged 
bank may not control more than 10% of the total deposits of insured deposito ry institutions in the 
United States, and there are deposit limitations at state level.  However, in accordance with the 
RNIBBA, an interstate merger transaction may invol ve the acquisition of a branch of a bank without 
the acquisition of the bank only if the law of the St ate in which the branch is located permits out-of-
state banks to do this.  Although all states have intr oduced legislation to give effect to the branching 
by merger provisions of the RN IBBA, interstate branching by de novo  establishment (opening a 
branch in another state instead of having to acquire  an entire bank) is permitted in only 21 states, the 
District of Columbia, Puerto Rico, and under conditions of reciprocity. 
131. Although foreign banks are generally subject to geographic and other limitations in the 
United States on a national treatment basis, some exceptions have been reserved in the U.S. GATS 
Schedule.  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.   Credit union, savings bank, home loan or thrift 
business may not be provided through branches of co rporations organized under a foreign country's 
law.  Foreign banks cannot be members of the Fe deral Reserve System;  foreign-owned U.S. bank 
subsidiaries are not subject to this measure. 
132. 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.   Initial entry or expansion by a 
foreign person (but not a domestic person) through acquisition or establishment of a state-chartered 
commercial bank subsidiary is prohibited or limited in 29 states.  There are some other limitations at 
the state level:  for example, br anch licences for foreign banks are not available in six states, but 
agency licences are.
167  Representative offices of foreign banks are not permitted in 18 states, and are 
subject to limitations in Oklahoma, while some st ates require the incorporation of representative 
offices.168  Some states also place limitations on the ac quisition by a foreign person of savings banks 
or loan associations (Delaware, Ohio, Tennessee, and Washington). 
                                                      
167 Delaware, Georgia, Louisiana, Mi ssissippi, Missouri, and Oklahoma. 
168 Representative offices of foreign banks are not permitted in Arizona, Arkansas, Colorado, Kansas, 
Kentucky, Michigan, Mississippi, Montana, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, Wisconsin, and Wyoming. WT/TPR/S/200/Rev.1 Trade Policy Review 
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133. The Nationwide State and Federal Supervisor y Agreement of 1996 established a series of 
principles to promote coordination in the superv ision of interstate ba nks.  In June 2004, new 
recommended practices were introduced incorporating procedures and techniques used by the Federal 
Reserve in working with the states in supe rvising state-chartered banking organizations.169 
134. Risk-based capital standards were first adopted in 1989 (Basel I).  In November 2007, the 
federal banking agencies approved fi nal rules to implement Basel II capital requirements for large, 
internationally active banks with at least US$250 b illion in total assets or US$10 billion in foreign 
exposure;  Basel II is optional for smaller banks.170  Before operating under the Basel II framework, 
banks are required to progress through three trans itional periods of at least one year each, during 
which there will be floors on potential declines in risk-based capital requirements.  A bank needs 
approval from its primary federal regul ator to move into each of the tr ansitional floor periods, and at 
the end of the third transitional floor period to move to full Basel II.171  It is estimated that Basel II 
regulations will be mandatory only fo r the 11 or 12 largest U.S. banks.172  The authorities note that 
some 11 large banks must follow the new approach, and estimate that 21 banks in all will apply it, 
including some voluntarily.  Federal banking agencies we re expected to issue a draft proposal in early 
2008 for smaller banks not required to implement Basel II.173 
135. The Financial Services Regulatory Relief Act of 2006 introduced several amendments to 
U.S. law with respect to banking.  The Act repealed the prohibition on the reduction of the capital stock by a national bank below certa in limits, and amended provisions with respect to community 
development investment (CDI) requirements for na tional banks and state member banks, raising the 
ceiling on aggregate CDIs from 10% to 15% of their capital stock.
174 
136. Lending limit regulations restrict the total amount  of loans and credits that a bank may extend 
to a single borrower.  For example, a national bank generally must limit its total outstanding loans and 
credits to any single borrower to no more than 15% of the bank's total capital and surplus.  State 
banking regulations also contain similar lendi ng limits applicable to state-chartered banks. 
137. Under the Federal Deposit Insurance Reform Act of 2005, the standard maximum deposit 
insurance coverage is US$100,000, or US$250,000 fo r certain retirement accounts;  this will be 
indexed to inflation beginning in 2010. 
                                                      
169 Board of Governors of the Federal Reserve System, Supervision of State-Chartered Banks, SR 04-
12, 30 June 2004.  Viewed at:  http://www.feder alreserve.gov/boarddocs/srletters/2004/sr0412.htm. 
170 FRB online information.  Viewed  at:  http://www.federalreserve.gov/newsevents/press/bcreg/bcreg 
20071102a1.pdf. 
171 Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance 
Corporation, and Office of Thrift Supervision, Risk-B ased Capital Standards: A dvanced Capital Adequacy 
Framework-Basel II , Final Rule, 72 Fe deral Register 69288 (December 7, 2007). 
172 Avery (2007). 
173 For the final proposal see Office of the Comptroller of the Currency (2007). 
174 Under 12 U.S.C. 24 (Eleventh), national banks are authorized to make community development 
investments designed primarily to promote the public welfare, such as by providing housing, services, or jobs.  
It is the OCC's stated policy to encourage national banks to make such investments, consistent with safety and soundness.  See OCC online informati on.  Viewed at:  http://www.occ.treas.gov/fr/cfrparts/12CFR24.htm. United States WT /TPR/S/200/Rev.1 
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Insurance services 
138. U.S. regulation of the insurance services sector takes place primarily at the state level as 
provided by the McCarran-Ferguson Act of 1945 (U.S. Code Title 15, Chapter 20).  Under the Act, 
insurance is exempt from federal antitrust statutes to  the extent that it is re gulated by the states.  
The GLB Act also reinforces the au thority of states to regulate insurance activities, and specifically 
protects 13 areas of state insurance regulation from federal pre-emption. 
139. Insurance companies, agents, and brokers must be licensed under the law of the state in which 
the risk they intend to insure is located, and are authorized to offe r insurance services only in the state 
where they are licensed.  In addition, in most states, insurers must obtain approval from state 
regulators for their premium rates.  Licensing requirements differ among states and by line of 
insurance, although states have been moving toward s adopting a more uniform approach (see below). 
140. The U.S. insurance market is open to forei gn direct investment through acquisition of a 
licensed insurance company.  Ma rket access for foreign companies may also take place through 
incorporation in a state as a subsidiary of a fo reign insurance company, with the exception of 
Minnesota, Mississippi, and Tennessee.  Foreign co mpanies may also be licensed to operate as 
branches in 36 states and the District of Columbia;  in this case, operations are limited in principle to 
writing premiums based on the capital deposited in  each state where the company intends to do 
business.175  In practice this requirement is often waived , particularly if the applicant has a qualifying 
deposit in another state. 
141. Foreign investors are liable for the full amount of their U.S. assets, and not  just for their assets 
in a particular state.  Compani es must be licensed in a state to conduct insurance business within its 
borders and across its borders by mail, telephone, or over the Internet;  there are some exceptions to 
residency requirement and these vary from state to st ate.  For example, several states exempt certain 
large industrial placements, MAT (marine, aviation,  or transport insurance) or "surplus lines" 
insurance.  Under certain specific conditions and w ith some exceptions, foreign reinsurers may write 
insurance in the United States even when  not licensed in a particular state. 
142. U.S. citizenship and in-state residency require ments apply in most states to brokers and 
suppliers of other services auxiliary to insurance. 
143. Non-U.S. licensed reinsurers must post collate ral (i.e., make a trust account deposit in the 
United States for the whole of the operation equivale nt, or submit a letter of credit for collateral), 
when they conduct cross-border rein surance businesses with U.S. licen sed companies in order for the 
U.S. licensed company to receive  a credit for the reinsurance. 
144. A federal tax on gross premium income is ch arged at 1% on all life insurance and on 
reinsurance, and at 4%, on non-life insurance premiu ms covering U.S. risks paid to companies not 
incorporated under U.S. law, or under the laws of countries with which the United States has double 
taxation treaties.  This national treatment ex ception was listed in the U.S. GATS Schedule. 
145. State legislators and regulators coordinate positi ons through their participation in bodies such 
as the National Conference of Insurance Legislators (NCOIL) and the National Association of Insurance Commissioners (NAIC).  The NCOIL is an  organization of state legislators whose main 
area of public policy concern is in surance legislation and regulation.
176  The NAIC is the organization 
                                                      
175 The exceptions are Arkansas, Arizona, Connecticut, Georgia, Hawaii, Kansas, Maryland, 
Minnesota, Nebraska, New Jersey, North Carolina, Tennessee, Vermont, and Wyoming. 
176 NCOIL online information.  Viewed at:  http://www.ncoil.org/. WT/TPR/S/200/Rev.1 Trade Policy Review 
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of insurance regulators from the 50 states, the Distri ct of Columbia and five U.S. territories, and 
provides a forum for the development of uniform policy when appropriate.177 
146. The NAIC plays a substantial role in the across-State standardization of regulatory 
requirements through the development of model la ws.  It has implemented the Uniform Treatment 
Project through which participating states agreed to license non-resident producers in good standing in 
their resident states, without imposing requirements additional to those asked of resident producers.  
To this end, the NAIC developed a Uniform A pplication for Individual Non-Resident Licence 
currently accepted in all states and the District of Columbia, and a Uniform Certificate of Authority 
Application.  The NAIC has also been involved in other uniformity initiatives, such as the System for 
Electronic Rate and Form Filing, (SERFF), the Un iform Regulation through Technology (URTT), and 
the National Insurance Producer Registry.  As of 1 January 2008, all 50 states, the District of Columbia, Puerto Rico and over 1,700 insurance co mpanies accepted SERFF filings;  40 states, the 
District of Columbia and Puerto Rico were co mpliant will all URTT initiatives to increase the 
uniformity of processing and regulation across states.  At the same date, all 50 states, the District of Columbia and Puerto Rico participat ed in the National Insurance Producer. 
147. The NAIC developed a state-based system in 2002 to promote harmonization of legislation 
and procedures across states.  The Interstate Insurance Product Regulati on Compact is aimed at 
developing uniform standards and a central clearinghouse to provide prompt review and regulatory approval for life insurance products.
178  The Compact became operational in May 2006, after 
26 individual states representing half of the U. S. premium volume passed enabling legislation.  
The Interstate Insurance Product Regulation Commissi on, a public entity, was created to provide the 
states with a vehicle to develop uniform nationa l product standards in life and long-term care 
insurance products, establish a central point of fili ng, and review product filin gs and make regulatory 
decisions according to uniform standards;  it became  operational in May 2006.  At end 2007, 30 states 
participated in the Compact. 
148. In previous U.S. Reviews, Members have argued that regulations at the state level result in 
unjustified burdens on insurers and prevent them from responding to customer needs in a timely 
manner.179  In its responses, the United St ates has stated that level regulation posed no barrier to trade, 
and that efforts were taking place towards uniformity of state regulations through the NAIC.180  Some 
insurance groups, such as the Insura nce Information Institute, the Am erican Insurance Association, 
and the American Council of Life Insurers (ACLI) are in favour of a federal charter for insurance 
regulation.181  The ACLI advocates the creation of an optional federal charter and has noted that 
uniform and efficient regulation is crucial to  the continued competitiveness of life insurers.182  I n  
May 2007, an ACLI study found that a federal char ter would save life insurers and their customers 
some US$5.7 billion a year in compliance costs rela ted to supervision by multiple state regulators.183 
                                                      
177 NAIC online information.  Viewed at:  http://www.naic.org/index_about.htm. 
178 An interstate compact is a contract between states  that allows them to co operate on multi-state or 
national issues while retaining state control.  Interstate compacts are mentioned in the U.S. Constitution. 
179 WTO documents WT/TPR/M/126/, 15 March 2004, and WT/TPR/M/160/, 9 June 2006. 
180 WTO documents WT/TPR/M/126/Add.3, 22 November 2004, and WT/TPR/M/160/Add.1, 
27 September 2006. 
181 Insurance Information Institute, Optional Federal Charter , October 2007.  Viewed at:  
http://www.iii.org/media/hottopics/insurance/opt/;  and ACLI, State Insurance Regulation.  Viewed at:  
http://www.acli.com/ACLI/Issues/42.htm. 
182 ACLI, State Insurance Regula tion.  Viewed at:  http://www.acli.com/ACLI/Issues/42.htm. 
183 Pottier (2007). United States WT /TPR/S/200/Rev.1 
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149. The GLB Act introduced uniformity or reciprocity requirements for agents and brokers 
among the states, requiring states to enact uniform laws and regulations or a system of reciprocal licensing by 12 November 2002, failing which a Nati onal Association of Registered Agents and 
Brokers (NARAB) would be created,  triggering federal pre-emption of state licensing laws.  As a 
response, all states except New Mexico, plus Guam, passed the Producer Licensing Model Act 
(PLMA) or other licensing laws, providing for th e required reciprocity.  Through NAIC's Uniform 
Treatment/Licensing Reciprocity project, participa ting states agree to license non-resident producers 
who are in good standing in their resident stat es, without imposing additional restrictions or 
qualifications not required of resident producers. 
150. The Terrorism Risk Insurance Act of 2002 (T RIA) introduced a three-year programme, from 
22 November 2002 to 31 December 2005.  TR IA was extended to 31 December 2007 by the 
Terrorism Insurance Extension Act of 2005, and ag ain until 31 December 2014 by the Terrorism Risk 
Insurance Program Reauthorization Act of 2007.  Under the programme, the U.S. Government pays 
85% of the insured losses of an insurer resulting from acts of terrorism after an insurer pays out an 
individual company deductible (20% of the prior year's earned premiums in commercial lines).  The 
Government's share of industry losses is capped at  an annual aggregate maximum of US$100 billion.  
Also, the Government does not share in any losses if industry-wide insured losses do not first exceed 
US$100 million. 
151. Companies licensed in a U.S. state may benef it from the TRIA;  non-licensed companies that 
are eligible surplus line carriers liste d in the Quarterly Listing of Alie n Insurers of the NAIC, or have 
been approved for the purpose of offering property  and casualty insurance by a federal agency in 
connection with maritime, energy, or aviation activiti es may also benefit.  Participating insurers are 
required to make terrorism insurance available to pol icyholders.  Insurers pay no premiums for TRIA 
reinsurance;  instead, federal payments are to be  collected later through surcharges assessed on all 
commercial policyholders.  At end 2007, no fede ral payments had been made under the TRIA. 
Securities services 
152. The main U.S. laws governing securities services at  the federal level are the Securities Act of 
1933, the Securities Exchange Act of 1934, the Trus t Indenture Act of 1939, the Investment Company 
Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002, and the Credit Rating Reform Act of 2006. 
153. The Securities Exchange Act of 1934 grants the Securities and Exchange Commission (SEC) 
broad authority over the securities industry, incl uding the power to register, regulate, and oversee 
brokerage firms, investment advisers, transfer agents, and clearing firms, as well as self-regulatory organizations (SROs), such as the various stock exch anges.  The 1934 Act also provides the SEC with 
disciplinary powers over regulated entities and persons  associated with them.  The Financial Services 
Regulatory Relief Act of 2006 amended the Securi ties Exchange Act of 1934 and the Investment 
Advisers Act of 1940 to include savings associations (t hrifts) in the definition of "bank".  This means 
that savings associations acting as investment advisers and broker-dealers are not subject to certain SEC registration requirements. 
154. Registration of securities with the SEC is required in principle, prior to their offer or sale;  
however, there are exceptions.
184  Foreign issuers can opt to use different registration and periodic 
                                                      
184 Exemptions from the registration requirement include:  private offerings to a limited number of 
persons or institutions;  offerings of limited size;  intras tate offerings; and securities of municipal, state, and 
federal governments.  By exempting many small offerings from the registration process, the SEC seeks to foster capital formation by lowering the cost of offering securities to the public. WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 112 
 
 
reporting forms than those used by domestic users.  Foreign private issuers that prepare their financial 
statements according to International Financial Re porting Standards, as issued by the International 
Accounting Standards Board, can submit financial statements to the SEC without reconciliation to 
U.S. Generally Accepted Accounting Principles.  Broker-dealers, whether foreign or domestic, are 
generally required to register with the SEC to so licit business with U.S. pers ons, although pursuant to 
Rule 15a-6, promulgated under the Securities Exch ange Act of 1934, foreign broker-dealers are 
allowed to engage in certain, limited securities acti vities in the United States without registering, 
under certain circumstances.  Clearing agen cies must also register with the SEC.  
155. The Investment Company Act (ICA) of 1940, as amended, grants the SEC regulatory 
authority over domestic and foreign investment companies, both of which must register with the SEC 
before selling shares to the public.  A foreign invest ment 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.  Domestic investment adviser s are regulated by state regulators if they manage 
less than US$25 million and do not advise an SEC-regist ered investment company;  otherwise, they 
are regulated by the SEC.  Foreign investment adviser s are able to register with the SEC regardless of 
the amount of assets under management;  the regist ration requirement involves record maintenance, 
inspections, submission of reports, and payment of a fee.  U.S. banks must register as investment 
advisers only if they advise an investment compan y registered with the SEC under the ICA, while 
foreign banks generally must register as investment  advisers if they provide investment advice for 
compensation.185  The United States took a national treatment reservation in the GATS for this 
different treatment. 
156. Foreign-owned dealers of U.S. government securities are granted national treatment, under 
the Primary Dealers Act of 1988 of as long as U.S. firms operating in the government debt markets of the foreign country are accorded "the same competitive opportunities" as domestic companies 
operating in those markets.  The United States took an MFN exemption in its GATS Schedule for 
participation in issues of government-debt securities. 
157. The Sarbanes-Oxley Act of 2002 (P.L. 107-204) introduced regulatory changes to reinforce 
the supervision of the securities industry, a nd a number of reforms to enhance corporate 
responsibility, enhance financial disclosures, and combat corporate and accounting fraud.  The Act 
created the Public Company Accounting Oversight Board (PCAOB), under the general oversight of 
the SEC, to supervise the audit of public compani es that are subject to U.S. securities laws, and 
enforce compliance with accounting and auditing standards. 
158. The Commodity Exchange Act and the Commodity Futures Modernization Act of 2000 grant 
the Commodity Futures Trading Commission (CFTC ), created by the CFTC Act of 1974, the 
regulatory authority over futures trading in the Un ited States.  Persons offering or selling foreign 
exchange-traded futures and option pr oducts to persons located in the United States must register with 
the CFTC or obtain an exemption.  CFTC Regul ation 30.10 allows the CFTC to provide such 
exemptions 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 21 regulatory and self-regulatory authorit ies from 11 trading partners benefited from 
Regulation 30.10 relief in November 2007.  Curre ntly, 156 non-U.S. firms operate under CFTC rule 
30.10 orders that have been issued to 13 self-regul atory and regulatory organizations in ten trading 
partners.
186 
                                                      
185 This does not include domestic branches of foreig n banks, which are treated the same as U.S. banks. 
186 Australia, Brazil, Canada, Chinese Taipei, Fran ce, Germany, Japan, Singapore, Spain, and the 
United Kingdom.  CFTC online information.  Viewed  at:  http://www.cftc.gov/cftc/cftcreports.htm. United States WT /TPR/S/200/Rev.1 
 Page 113 
 
 
(iv) Air transport services 
(a) Main features 
159. Over a quarter of U.S. trade by value is move d via air cargo, which is the main mode of 
transportation for high value and perishable goods.  U.S. air traffic accounts for about one third of the 
world aviation market, and 17 of the world's 30 busiest airports are located in the United States.  
There were some 19,854 airports in 2006, of which 5,270 for public use.187   
160. The profitability of U.S. airlines, which was c onsiderably affected by the 11 September 2001 
attacks, improved during the period under review.  F our of the major U.S. airlines (Delta, Northwest, 
US Airways, and UAL Corporation (United Airlines ' parent) filed for reorganization under Chapter 11 
of the U.S. Bankruptcy Code in 2005, but by  end 2007 they had all emerged from bankruptcy 
protection.  The U.S. Department of Transportation reported an operating profit margin of 8.8% in the 
second quarter of 2007, the highest since 2000, for a group of 21 selected passenger airlines including the seven largest network, low-cost, and regional carri ers in the United States.  For the first time since 
2000, airlines have posted five consecutive prof itable quarters.  The seven network carriers 
(Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, 
United Airlines, and US Airways) reported a profit of US$2.4 billion in the second quarter of 2007, 
a 1.7% improvement over the same period in 2006.
188 
161. All public-use U.S. airports with commercial services are owned by state or local 
governments, or local authorities;  this has been the case historically.  Some U.S. airports are partly or 
totally operated through outsourcing and management contracts, including with foreign operators;  
this type of arrangement is common in the provisi on of services such as terminal and parking area 
operations, ground transport, building maintena nce, baggage handling,  and construction and 
engineering.  The U.S. authorities consider that publ ic ownership of airports has worked well.  Under 
the Airport and Improvement Act of 1982, the F AA prepares an annual "National Airport Plan" for 
developing public airports.  In terms of general location and type  of development, the National 
Airport Plan specifies the maximum airport devel opment necessary to prov ide a system of public 
airports adequate to anticipate and meet the need s of civil aeronautics.  The authorities note that 
airport improvement public grants have had as a pre- condition that airlines be able to self-handle and 
that the use of airport facilities be non-discriminatory. 
162. There are no legal barriers that prevent U.S. airports with commercial service from being 
privately-owned.  Also, federal financial assistance is available both to private and public owners of 
commercial service airports.  However, legal restri ctions complicate financing and reduce profitability 
as well as incentives to privately owned airports.  First, U.S. state or local governments or local 
airport authorities can obtain funding from loca l and state tax revenues and may impose and use 
passenger facility charges to fund airport developm ent;  these sources of revenue are not available to 
private airport owners.  Second, there are U.S. Fe deral government policy and statutory limits on the 
use of airport revenue:  a federally funded public or private airport, for example, may not use proceeds 
from the sale of the airport for non-airport purposes;  i.e., the airport revenue must be used for the 
capital and operating costs of the airport.  Once a privately owned airport accepts federal assistance, such as grants of federal funding under the Airp ort Improvement Program (AIP) or transfers of 
federally owned land, the airport may only use ai rport revenue (federal a nd non-federal) as noted 
above.  If airport property is sold, the proceeds of the sale are considered airport revenue, so a city 
                                                     
 
187 Department of Transportation, Bureau of Transpor tation Statistics.  Viewed at: http://www.transtats. 
bts.gov. 
188 Department of Transportation, Bureau of Tran sportation Statistics.  Viewed at:  http://www. 
transtats.bts.gov. WT/TPR/S/200/Rev.1 Trade Policy Review 
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cannot sell its airport to a private operator and use the proceeds for general government purposes.  
This is a disincentive for local governments to transfer an airport to a private operator. 
163. Congress passed a law establishing an Airport Privatization Pilot Program in 1996 to produce 
alternative sources of capital for airport devel opment and improve customer service.  The law 
authorizes the FAA to grant exemptions from certain federal requirements for up to five airport 
privatization projects.  Commercial service airports  can be leased; general aviation airports can be 
leased or sold.  For example, if a local government privatizes its airport by selling it to a private operator, the Pilot Program permits the FAA to ex empt the local government from the requirement to 
use the proceeds of sale for airport purposes.  Also, if a private operator buys or leases a public airport 
under the programme, the private operator would be elig ible to receive federal airport grants and to 
collect passenger facility charges. 
164. Since 1997, when FAA published procedures for a pplications under the Airport Privatization 
Pilot Program, the FAA has approved only one a pplication for participation.  Several other 
applications were filed but withdrawn.  In 2000, Stewart International Airport, a small hub air carrier 
airport in Newburgh, New York, was leased to National Express Group, PLC (NEG) to manage and 
develop Stewart Airport.  The Port Authority of  New York and New Jersey, however, acquired the 
lease from NEG in October 2007 and Stewart Airport re turned to public owners hip.  In October 2006, 
the FAA approved the preliminary application for th e lease of Chicago Midway International Airport 
to a private operator under the Pilot Program.  If approved, Chicago Midway will be the first large 
hub airport to participate in the programme.
189 
165. Congestion remains a major problem at U.S. airpor ts:  some 26.5% of all flights were delayed 
by 15 minutes or more in 2007 (24.5% in 2006).190  Rising passenger demand and an industry 
preference for smaller planes may magnify this tr end in the near future.  Currently, the National 
Airspace System (NAS) handles 750 million passengers each year, and expects this number to reach 1 billion by 2015.  Suggested solutions to the prob lem include:  changes to U.S. policy on landing 
fees, designed to allow airports to use pricing to encourage more efficient use of their airfields, and 
attract additional resources to expand capacity;  pr ioritizing operational and capacity improvements;  
and setting flight caps.
191  With respect to changes in the pr icing policy, the FAA has launched a 
proposal to amend the 1996 Rates and Charges Policy  to give greater flexibility for operators of 
congested airports to use landing fees to provide in centives to air carriers to use the airport at less 
congested times or to use alternate air ports to meet regional air service needs.192 
(b) Regulatory framework 
166. The Office of the Secretary of Transportation (OST) at the DOT oversees the formulation of 
U.S. air transport policy.  The Federal Aviation Ad ministration at the DOT is responsible for safety 
issues, regulates U.S. commercial space aviation, an d monitors U.S. and foreign air carriers operating 
                                                      
189 FAA online information.  Viewed at:  http:// www.faa.gov/airports_airtr affic/airports/airport_ 
obligations/privatization/. 
190 Department of Transportation online statistics.  Viewed at:  http://www.transtats.bts.gov/HomeDrill 
Chart_Month.asp?Sel_Year=2007&Arr_Del=1&Sel_Carrier=000&Sel_Airport=000&URL_SelectYear=&URL
_SelectMonth=. 
191 "Aviation Congestion and the Way Forward:  No More Delay".  Remarks by Secretary of 
Transportation Mary Peters at the Aero Club of Washington, Washington, D.C., 22 January 2008.  Viewed at:  
http://www.dot.gov/affairs/peters012208.htm. 
192 Federal Aviation Administration, Policy Regarding Airport Rates and Charges:  Notice of proposed  
amendment [Docket No. FAA–2008–0036] RIN 2120–AF90].  FR Vol. 73, No. 12, 17 January 2008. United States WT /TPR/S/200/Rev.1 
 Page 115 
 
 
in U.S. territory.193  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 DOT can take ac tion under its statutory authority to preserve 
competition.  The Air Traffic Organization (ATO),  of the FAA, established in February 2004 to 
oversee the U.S. air traffic system, provides a ll air traffic services in the United States. 
167. U.S. airlines must be under actual control of U. S. citizens, as stated in the U.S. Code.  
U.S. citizens must hold at least 75% of the voting inte rest.  In addition, the president and at least two 
thirds of the board of directors and other managi ng officers must be U.S. citizens.  However, on a 
case-by-case basis, the DOT has allowed foreign citizen s to own up to 49% of an airline's stock by 
using non-voting shares above 25%, provided that actua l control remains in the hands of U.S. citizens 
and an open-skies agreement exists between th e United States and the homeland of the foreign 
investor. 
168. Domestic air services can be provided only by U. S. carriers.  Crews engaged in domestic air 
passenger and freight service must be U.S. nationals  or resident aliens.  Although, generally, only 
U.S. companies and U.S. citizens are eligible to lease  aircraft (with crew and, typically, maintenance, 
and insurance) to U.S. carriers, under certain limi ted conditions generally s tipulated in bilateral 
agreements, foreign air carriers are allowed to provide ai rcraft with crew to U.S. carriers.  In general, 
the Fly America Act (49 U.S.C. 40118) requires that whenever there is government-financed 
transportation of passengers and cargo, it must take place on U.S.-flag air carriers (or a U.S. carrier code-share on a foreign airline).  This restricti on may be waived when the United States enters into 
bilateral or multilateral agreements  and allows the provision of such services by foreign air carriers. 
169. The FAA's Aviation Insurance Program provides products that address the needs of the U.S. 
domestic airline industry that are not adequately  met by the commercial insurance market.  The 
programme is currently providing war risk hull lo ss and passenger, crew, and third-party liability 
insurance (until 31 August 2008), as required by th e Homeland Security Act of 2002 as amended by 
the Consolidated Appropriations Act 2008.  The pr ogramme charges premiums and has accumulated 
reserves to pay claims. 
170. The DOT manages programmes that provide subs idies to air carriers for service to certain 
small communities.  The DOT administers aviation regulatory programmes, including the Essential Air Service (EAS) programme under which approx imately US$100 million are spent each year for 
about 140 communities
194;  and the Small Community Air Service Development Pilot Program, which 
provides federal grants to small communities, and under which US$10 million was available for grant 
awards in FY2007.  No limits are set on the amount  of individual awards.  In FY2007, grants ranged 
from US$50,000 to US$800,000 for a total of near ly US$10 million granted to 26 communities.  
Incentives may also be granted at the state and local level, especially for airports in small and mid-
size cities.  
171. 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. 
                                                      
193 FAA online information.  Viewed at:  http://www.faa.gov. 
194 DOT, Office of Aviation Analysis, "Essential Air Service Program".  Viewed at:  http://ostpxweb. 
ot.gov/aviation/X-50%20Role_files/EAS.htm#Reports. WT/TPR/S/200/Rev.1 Trade Policy Review 
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172. The United States has bilateral aviation agreemen ts with some 100 countries, of which 79 are 
open skies agreements (OSAs), as defined by the DOT.195  The DOT views OSAs as providing an 
environment that produces the most competitive and price-sensitive service for consumers;  OSAs are also viewed as a necessary, although not the only, pr erequisite for antitrust immunity to be granted to 
alliances with foreign airlines.  The United States  participates, together with Brunei, Chile, New 
Zealand, Samoa, Singapore, Tonga, and Cook Is lands in the APEC Multilateral Open Skies 
Agreement, signed in May 2001.  In its bilateral air-transport agreements the United States has 
inserted clauses on ground handling. 
173. The U.S.-EU Air Transport Agreement, signed 30 April 2007, is scheduled to be applied 
provisionally from 30 March 2008.  The agreement, which replaces bilateral agreements between the 
United States and EU Member States, introduced a nu mber of liberalization measures with respect to 
air traffic freedoms, ownership and control, provisi on of aircraft with crew, and U.S. government 
procured transportation (see Box IV.1). 
(v) Maritime transport 
(a) Main features 
174. In 2006, U.S. water-borne commerce amounted to some 2.59 million tonnes.  Of this, 
928,000 tonnes were domestic commerce, reserve d for vessels built in the United States and 
registered under the U.S. flag.  The share of fo reign trade in the total volume of water-borne 
commerce continued to increase during the period under review, from 56% in 2001 to 60% in 2006, reflecting a rise in tanker imports and a decline in coastwise tanker trade.
196  As a consequence of 
increased foreign trade, foreign-flag participation in  U.S. water-borne trade has also grown in volume 
terms, reaching an estimated 60% in 2006, compar ed with 55% in 2001;  this includes domestic 
water-borne transport, reserved for U.S. flag vessels.   The traditional U.S. trade deficit in freight and 
port services reached US$19 billion in 2006.197  U.S. international maritime container traffic increased 
by 52% between 2001 and 2006, three times as fast as U.S. gross domestic output.198 
175. The U.S.-flag fleet, at 12 million deadweight tons (dwt) and with 286 vessels, was the 
fifteenth largest merchant marine fleet in the world at  end 2006.  On an ownership basis, the U.S. fleet 
is the world's fifth largest, with 684 vessels (at 39.6 million dwt).199  From 2001 to end 2006, there 
was a 15% reduction of the U.S.-flag fleet, and older vessels were removed from service.  Only 1.2% of international cargo was carried by U.S. flag vessels in 2006. 
                                                     
 
195 The list of open-skies agreements entered into  by the United States may be viewed at:  
http://www.state.gov/e/eeb/rls/othr/2007/22281.htm. 
196 MARAD (2007c). 
197 Exports totalled US$46.3 billion, while imports were US$65.3 billion.  BEA online information.  
Viewed at:  http://www.bea.gov/bea/international/b p_web/simple.cfm?anon=240&table_id=3&area_id=3. 
198 BTS online information.  Viewed at:  http:// www.bts.gov/publications/ame ricas_container_ports/ 
pdf/entire.pdf. 
199 MARAD online information.  Viewed a t:  www.marad.dot.gov/MARAD_statistics. United States WT /TPR/S/200/Rev.1 
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Box IV.1:  U.S.-EU Air Transport Agreement  
On 30 April 2007, the United States and the European Union signed a first-stage U.S.-EU Air Transport 
Agreement, with provisional applica tion from 30 March 2008.  The main ch aracteristics of the agreement are: 
• U.S. airlines are granted the righ t to perform international air transportation from points behind the 
United States via the United States and intermediate points to any point(s) in any EU Member State 
and beyond;  for all-cargo service, between the Czech Republic, France, Germany, Luxembourg, 
Malta, Poland, Portugal, and Slovakia and any point(s). 
• EU airlines are granted the right to perform air transport services from points behind the EU Member 
States via these States and intermediate points to an y U.S. point(s) and beyond;  for all-cargo service, 
between the United States and any point(s);  and for combination services, between any point(s) in 
the United States and any point(s) in any member  of the European Common Aviation Area (ECAA). 
• To benefit from these rights, for U.S. airlines, with some exceptions for all-cargo services, the 
transportation must be part of a service that incl udes the United States;  for EU airlines, with the 
exception of all-cargo serv ices and combination services between the United States and any member 
of the ECAA, the transportation must be part of a service that serves a Member State. 
• Airlines are allowed to determine the frequency and capacity of their international air transportation 
services, based upon commercial considerations;  neither party may unilaterally limit the volume of 
traffic, frequency or regularity of  service, or the aircraft type op erated by the airlines of the other 
party. 
• Prices for air transportation servi ces operated pursuant to the agr eement can be established freely and 
may not be subject to approval, nor may they be required to be filed. 
• EU airlines are granted direct  access to some U.S. Governme nt procured transportation. 
• Airlines of each party are allowed, under certain circumstances, to enter in to arrangements for the 
provision of aircraft with crew for international air transportation with airlines  of the parties or of a 
third country. 
• The agreement, in addition to recognizing the EU carrier concept, opens the possibility for EU 
investors to own or control airlines from Switzerland, Liechtenstein, members of the European 
Common Aviation Area (ECAA, apart from the 27  EU members, Norway , Iceland, Croatia, 
the former Yugoslav Republic of Macedonia, Alba nia, Bosnia and Herze govina, and Kosovo), 
Kenya, and U.S. open-skies partners in Africa, without  putting at risk such air lines' rights to operate 
in the United States. 
• Annex 4 of the agreement spells out the conditions  for ownership by nationals of an EU Member 
State of the equity of a U.S. airlin e, which is subject to the usual two limitations:  first, ownership by 
all foreign nationals of more than 25% of a corporation's voting equity is prohibited;  second, actual 
control of a U.S. airline by foreign nationals is also prohibited.  Ownership of up to 49.9% of the 
total equity of a U.S. airline is not deemed, of itself, to constitute control of that airline.  In the case of EU nationals, however, Annex 4 also specifies that ownership of 50% or more of the total equity 
of a U.S. airline by EU nationals is not to be pres umed to constitute control of that airline, and that 
such ownership is to be considered on a case-by-case basis.  Ownership by U.S. nationals of EU 
airlines shall also be subject to two limitations:  fi rst, Member States and/or their nationals must be 
majority owners and second, such Members States and/or their nationals must exercise effective 
control. 
• The agreement envisages starting second-stage negotiations not later than 60 days after the 
provisional application date, the agenda for which will include:  traffic rights liberalization; 
additional foreign investment opportunities;  eff ect of environmental measures and infrastructure 
constraints on the exercise of tr affic rights;  further access to Gove rnment-financed air transportation; 
and provision of aircraft with crew. 
• During the period of provisional application, bila teral U.S./EU Members agreements are suspended;  
upon entry into force of the agreemen t, they will be superseded by it. 
Source : WTO Secretariat, based on the U.S.-EU Air Transport Agreement. WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 118 
 
 
(b) Regulatory framework 
176. 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 offer on services in the Doha Development Agenda.200 
177. The Maritime Administration (MARAD) of the De partment of Transportation is responsible 
for promoting the development and maintenance of the U.S. merchant marine, ensuring that it is 
sufficient to carry U.S. domestic water-borne comme rce and a substantial portion of its water-borne 
foreign commerce, and capable of serving as a naval and military auxiliary in time of war or national 
emergency.201  The Federal Maritime Commission (FMC) regulates ocean-borne transport, including 
ocean transportation intermediaries, and oversees th e collective activities of shipping lines (which are 
not subject to U.S. antitrust laws for both U.S. an d foreign operators of lin er shipping services with 
fixed-schedules).202  The FMC is also responsible for re gulating rates of government-owned or 
- controlled carriers, and investigates and pro secutes malpractice, including market-distorting 
activities.203  The FMC also operates an Alternative Dispute Resolution programme. 
Water-borne trade 
178. Cabotage restrictions remain in place.  Sec tion 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 companies from establishing 
shipping companies in the United States as long as th ey meet some restrictions, like the requirements 
with respect to U.S. employees.  Under the Pa ssenger Vessel Services Act of 1886, domestic 
passenger services are subject to similar requirements.  MARAD estimates that the cargo preference laws generated over 10 million reve nue tons of cargo and US$1.3 billi on of ocean freight revenue in 
FY2006.
204 
179. Under certain circumstances, waivers to the J ones Act or the Passenger Services Act may be 
granted to foreign vessels and to U. S. vessels not protected by the Act.205  The Secretary of 
Transportation is authorized to waive the U.S. build requirements for foreign built or rebuilt small 
passenger vessels authorized to carry no more than 12 passengers in a specified area, provided this 
does not adversely affect U.S. vessel builders or  the coastwise trade business of any person who 
employs vessels built in the United States.  The Ma ritime Policy Improvement Act of 2002 allows for 
the granting of a Jones Act waiver for self-prope lled tank vessels not built in the United States, 
provided the person requesting the waiver is a pa rty to a binding legal contract, executed within 
24 months after the date of enactment of the Act, with a U.S. shipyard for the construction in the 
                                                      
200 WTO document TN/S/O/USA, 9 April 2003. 
201 MARAD online information.  Viewed at:  http://www.marad.dot.gov/welcome/mission.html. 
202 FMC online information.  Viewed at:  http://www.fmc.gov. 
203 For a description of the activities of the FMC (2006). 
204 MARAD (2007a). 
205 For example, Public Law 87-77 authorizes the transportation of passengers and merchandise in 
Canadian vessels between ports in Alaska and the rest of the United States, and Public Law 98-563 permits the transportation of passengers between Puerto Rico and other U.S. ports by foreign-flag carriers.  Also, water-
borne freight shipments between the U.S. Virgin Islands and other U.S. ports may be carried by foreign-flag 
vessels, and trade with Guam and other U.S. Pacific terr itories may be carried by foreign-built U.S.-flag ships 
that meet the ownership and crewing requirements. United States WT /TPR/S/200/Rev.1 
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United States of a self-propelled tank vessel.  Vessels benefiting from the waiver must be U.S.-owned.  
The waiver may not be granted to more than three vessels. 
180. The Shipping Act of 1984, as amended by the Ocean Shipping Reform Act of 1998 (OSRA), 
allows shipping lines to enter into individual long-te rm service contracts with  importers and exporters, 
without carrier groups being able to restrict them.  The United States has bilateral maritime 
agreements in effect with Brazil, China, Russia and Viet Nam;  an exchange of letters with Japan on 
port services has the effect of an agreement.206 
181. U.S. and foreign operators of liner shipping services and marine terminal operators in the 
United States have exemptions to an titrust laws with respect to thei r operations in U.S.-foreign ocean-
borne trade.  Agreements among liner operators and marine terminal operators to discuss, fix, or 
regulate transportation rates, and other conditions of  service, or cooperate on operational matters must 
be filed with the FMC, which reviews them to avoid anti-competitive behaviour.  Under the OSRA, 
the FMC must ensure that common carriers' tariff ra tes and charges for carriage in U.S.-foreign trade 
are published electronically and are accessible to the public.  The FMC is authorized 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. 
182. Section 19 of the Merchant Marine Act a nd the Foreign Shipping Practices Act of 1988 
(FSPA) empower the FMC to investigate and address conditions adversely affecting U.S. carriers in 
foreign trade that do not exist for foreign carriers in the United States.  The FMC is also authorized to 
investigate and address general or specific conditions  adverse to shipping in U.S.-foreign trade.  In 
FY2006, the FMC monitored shipping practices by a number of foreign governments but no action 
was taken.207  Under the Shipping Act of 1984, the FMC exercises special regulatory oversight on 
"controlled carriers", i.e. ocean common carriers ope rating in U.S.-foreign trade that are owned or 
controlled by foreign governments.  In May 2005,  the FMC published an updated list that included 
eight controlled carriers, from Algeria, Ch ina (four), India, Singapore, and Sri Lanka.208  At end 2007, 
the list had not been updated. 
183. The United States maintains a number of progra mmes to allow for the eventual use of its. 
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 Maritime Security 
Act of 2003 (MSA) creates a new MSP for FY2006-15.  The MSA authorized US$1.73 billion for FY2006-15 to support the operation of 60 U.S.-flag vessels.
209  Subject to annual appropriations, the 
programme is administered on the basis of rene wable one-year contracts, provided funding is 
available.  The Voluntary Intermodal Sealift Ag reement (VISA) programme provides assured access 
to commercial intermodal capacity during time of wa r or national emergency.  During 2007, 125 ships 
were enrolled in the VISA programme.  Some 77% of the VISA capacity comprises MSP participants' 
vessels.  VISA participants receive priority for award of DOD peacetime ocean freight contracts.210 
                                                      
206 MARAD (2007). 
207 FMC (2006). 
208 Federal Maritime Commission, Controlled Carr iers Under the Shipping Act of 1984, Notice, 
5 May 2005.  Viewed at:  http://www.fmc.gov/home/UpdatedC ontrolledCarrierList.asp. 
209 MARAD online information.  Viewed at:  http://www.marad.dot.gov/Programs/msp/. 
210 Maritime Administration Office of Statistical and Economic Analysis. WT/TPR/S/200/Rev.1 Trade Policy Review 
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184. The United States maintains some cargo prefer ences in international trade.  The Cargo 
Preference Act of 1904 requires all items 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, as 
amended, requires that at least 50% of the gr oss tonnage of all government-generated cargo be 
transported on privately owned, U.S.-flag commercia l vessels, to the extent such vessels are available 
at fair and reasonable rates.211  The Cargo Preference Act of 1954 also applies to the Strategic 
Petroleum Reserve (see section (3) above), which is required to use U.S.-flag tankers for at least 50% of oil transport. 
185. Under the Food Security Act of 1985, the minimum U.S.-flag requirement is 75% for 
shipments of agricultural cargoes under certain USDA  and USAID foreign assi stance programmes.  In 
2006, 83% of food-aid preference cargoes were carried by U.S.-flag vessels.
212  The Act also 
established the ocean freight differential (OFD ) programme under which MARAD reimburses the 
USDA and USAID for the cost differential of usi ng U.S.-flag ships to carry more than 50% of 
food-aid cargoes.213  The OFD programme funding level was US$175 million in FY2007, down from 
US$269 million in FY2006.  The Food Security Act of 1985 also foresees an additional 
reimbursement to the USDA, termed "Excess 20%", a pplicable if total costs incurred by the USDA 
for ocean freight and OFD on exports of agri cultural commodities and products under certain 
agricultural programmes exceed 20% of the va lue of the commodities exported under these 
programmes;  the reimbursement is made on the excess over 20%. 
186. Under Public Resolution No. 17 of 1934, exports for which a government agency makes 
export loans or credit guarantees, must be carried exclus ively in U.S. vessels;  this applies to credits of 
the Ex-Im Bank or other government instruments.  Waivers may be granted fo r partial use of national-
flag vessels of recipient countries, when U.S. vessel s are not available at reasonable rates, but the 
recipient country share may not exceed 50% of the total movement under the credit.  These waivers 
are subject to reciprocal treatment for U.S.-flag vessels by the recipient country.214 
Port services and shipbuilding 
187. The United States has 361 public ports handling mo st U.S. overseas trade.  In 2003, the top 
50 ports accounted for 90% of total U.S. cargo tonn age;  the 25 top container ports account for over 
98% of all U.S. container shipments.  Vessel calls to U.S. ports represent 10% of world vessel calls.  The volume of traffic into U.S. west-coast ports has been increasing rapidly,  due mainly to increased 
loads carried by vessels, stretching the capacity of some ports.  The DOT has made congestion relief a 
top priority and is currently working to reduce this problem.  The Port Development Program, run by 
MARAD, aims to address port congestion in th e medium term, by doubling the cargo-handling 
capacity in every major U.S. port by 2020.
215 
188. Vessels from Cambodia, Cuba, Iran, Libya, Nort h Korea, and Syria may not enter U.S. ports 
on national security grounds.   
                                                      
211 Agencies may opt for higher pref erence percentages.  See MARAD on line information.  Viewed at:  
http://www.marad.dot.gov/offices/cargo/laws.htm. 
212 U.S. Government (2006). 
213 The ocean freight differential (OFD) is the differe nce between the cost of shipping the same cargo 
on a U.S.-flag vessel and on a foreign-flag vessel. 
214 MARAD online information.  Viewed at: http://www.marad.dot.gov/offices/cargo/PR17 
waivers.html. 
215 MARAD online information.  Viewed at:  http ://www.marad.dot.gov/Head lines/factsheets/PDF%20 
Versions/Port%20Development-FS.pdf. United States WT /TPR/S/200/Rev.1 
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189. The United States maintains an MFN exemption covering restrictions on performance of 
longshore work by crews of foreign vessels owned and flagged in countries that similarly restrict U.S. crews on U.S.-flag vessels from longshore work.
216  The Immigration and Nationality Act of 
1952, as amended, prohibits non-U.S.-national crew members from performing longshore work in the 
United States, but provides a reciprocity exception. 
190. Under the Maritime Transportation Security Ac t of 2002, commercial vessels arriving in the 
United States from a foreign port are required to tr ansmit electronically, in advance, information on 
passengers, crew, and cargo.  Under the Port Security Grant Program (PSGP), U.S. port areas may receive federal government funding for the enhancem ent of security.  In FY2007, 57 ports were 
eligible, for a total of US$110 million.
217 
191. 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. 
192. MARAD provides financial assistance to ship-o wners and U.S. shipyards (section (3) above), 
and U.S. citizens owning or leasing vessels may obt ain tax benefits to build qualifying vessels.  
Assistance is also provided to construct tank vessel s in the United States and carry out improvements 
in small shipyards.  
(vi) Professional and business services 
(a) Introduction 
193. The United States has continued to maintain a sizeable trade surplus in professional and 
business services in recent years.  Business, prof essional, and technical services receipts (exports) 
increased to US$96.2 billion in 2006:  US$48. 8 billion were affiliated services, and 
US$47.4 unaffiliated.  Europe was the main destinati on of exports of unaffiliated services (40.6%), in 
particular the United Kingdom (12.8%), followed by Asia and the Pacific (25.4%) and Latin America 
and the Caribbean (12.2%).  The main export ar eas were:  R&D and testing services, and computer 
and information services.  Business, professional, an d technical services payments (imports) increased 
to US$58.2 billion in 2006;  US$42.4 billion we re affiliated services, and US$15.8 billion 
unaffiliated.  The main sources of unaffiliated service s imports in 2006 were Eu rope (43.2%), Canada 
(21%), Asia-Pacific (20.3%), and Latin America a nd the Caribbean (10%).  The main import areas 
were:  computer and information services, R&D an d testing services, and management, consulting, 
and public relations services.218 
194. States have responsibility for the regulation, licensing, and oversight of the professions 
practiced within their jurisdictions.219  Regulations vary from state to state and usually there is no 
automatic recognition of licences.  The absence of  a national regulatory regime creates different 
market access conditions among the states.  Some professions are subject to national qualifying examinations recognized in most states as part of  the licensing process, but there is no federal-level 
                                                     
 
216 WTO document S/C/W/71, 24 November 1998. 
217 U.S. Department of Homeland Security (2007). 
218 BEA (2007e). 
219 U.S. Department of Education online informati on.  Viewed at:  http://www.ed.gov/about/offices/list/ 
ous/international/usnei/us/edlite-state-reg.html. WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 122 
 
 
licensure that supersedes state regulation.  The co mpetent authorities for recognition, certification, and 
conferral of awards and titles are recognized ins titutions and programmes.  The federal government 
does not itself evaluate diplomas or credits or recognize qualifications.220   
195. In the context of previous U.S. reviews, the au thorities noted that, in practice, there is a high 
degree of commonality across the states for some  professions;  for example, single national 
examinations are recognized by state authorities for accounting, architectural, and engineering services.  They also noted that the Federal Govern ment encourages states to pursue regulatory policies 
that minimize trade effects.  While recognizi ng that residency and local presence requirements 
remained in a number of states, they noted that  these had been eliminated for over 75% of the 
U.S. market for accounting, architectural, engin eering, and foreign legal consultancy services, 
a market valued at over US$300 billion per year.
221 
196. In setting, evaluating, and enforcing standards for entry and continued competency in a 
profession, state regulatory authorities often use the services of independent institutions, including professional associations.  For example, state aut horities frequently recognize, contract with, or 
delegate legal authority to inde pendent boards or organizations for accreditation of professional 
education programmes and licensing examinations.
222 
197. The United States applies caps on visas under the Specialty Occupation Aliens and Fashion 
Models of Distinguished Merit and Ability (H-1B) visa programme.  The H1-B visa is a non-immigrant visa category under the Immigration a nd Nationality Act, section 101(a)(15)(H), which 
allows U.S. employers to employ foreign guest workers employed in specialty occupations.  H-1B 
work-authorization is limited to employment by th e sponsoring employer.  The duration of stay is 
three years, extendible to six.  There is an annual cap on H-1B admissions of 65,000 workers per fiscal year.  An additional 20,000 foreign nationals  holding a master's or higher degree from U.S. 
universities may be admitted beyond the 65,000 cap, under the H-1B Visa Reform Act of 2004;  H-1B 
non-immigrants who enter the United States to wo rk for universities and non-profit research facilities 
are not subject to the 65,000 cap.  Visa renewals do not count towards the annual limits.
223 
198. Some U.S. trade agreements contain temporary en try provisions that relate to market access 
for professional services.  Under the U.S.-Chile and U.S.-Singapore FTAs certain categories of persons (non-immigrant professionals) can seek to ente r the United States temporarily to engage in 
business activities subject to numerical limits (1,400 for Chile and 5,400 for Singapore).
224  The H1B1 
admission category was introduced in 2004 to implem ent the temporary entry provisions for these 
agreements.225  In addition, a citizen of a NAFTA country  may enter the United States temporarily to 
work in a professional occupation recognized under the terms of the NAFTA.  Numerical limitations 
do not apply to NAFTA professionals.   
                                                      
220 U.S. Department of Education online informati on.  Viewed at:  http://www.ed.gov/about/offices/list/ 
ous/international/usnei/us/edlite-uscompauth.html. 
221 WTO document WTO/TPR/M/160/Add.1, 15 June 2006, p. 365. 
222 Williams and Nersessian (2007). 
223 United States Citizenship and Immigration Se rvices online information.  Viewed at:  
http://www.uscis.gov/portal/site/uscis/menuitem.eb1 d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextoid=1847c9ee2f
82b010VgnVCM10000045f3d6a1RCRD&vgnextchannel=1847c9ee2f82b010VgnVCM10000045f3d6a1RCRD 
224 U.S.-Chile Free Trade Agreem ent Implementation Act Statement Of Administrative Action.  
Viewed at http://waysandmeans.house.gov/m edia/pdf/chile/hr2738ChileSAA7-15-03.pdf. 
225 U.S. Embassy in Singapore online information.  Viewed at:  http://singapore.usembassy.gov/fta 
_visas.html. United States WT /TPR/S/200/Rev.1 
 Page 123 
 
 
(b) Accounting services 
199. Accounting, auditing, and bookkeeping is th e only professional services activity where the 
United States runs a trade deficit.  Exports of accounting, auditing, and b ookkeeping services totalled 
US$420 million in 2006, while imports reached US$1 billion.226 
200. Accountancy services are subject to professional licensing at the state level, as well as 
oversight by federal agencies where appropriate.  The title of Certified Public Accountant (CPA) 
continues to be the statutory qualification for accountants.227  In most U.S. states, only CPAs are 
licensed to provide public attestation opinions on fi nancial statements (incl uding auditing).  However, 
in Arizona, Kansas, North Carolina, and Wyoming the CPA designation, but not the practice of 
auditing, is restricted to those meeting in-state requirements.  A few states have another tier of 
accountant qualification (Public Accountant - PA), wh ich is being phased out.  In a number of states 
an out-of-state CPA is restricted from using the CPA designation until a practice privilege licence or 
certificate from that State is obtained. 
201. Since 2002 the U.S. auditing and accountin g industry has undergone a significant 
transformation with respect to the expansion of auditors' duties vis-à-vis public companies, the 
creation of a new regulatory oversight, and its market structure.228  The Sarbanes-Oxley Act of 2002 
(P. L. No. 107-204, 116 Stat. 745) introduced impor tant accounting reforms, such as the creation of  
the Public Company Accounting Oversight Board (P CAOB), a private-sector, non-profit corporation, 
established to oversee the auditors of p ublic companies subject to securities law.229  An Institute of 
Internal Auditors Research Foundation assessment of the costs and benefits associated with the 
Sarbanes-Oxley Act concluded that there were si gnificant benefits associated with the control 
identification, documentation, and testing process.230  The SEC has recognized that, while most of the 
Act's benefits have been accomplished, there are also costs to public companies of achieving the full 
measure of the Act's objectives.231 
202. The higher market concentration of the large U. S. accounting firms since the Arthur Andersen 
2002 indictment has been noted as a factor influe ncing the auditing improvements mandated by the 
Sarbanes-Oxley Act of 2002.232  The remaining "big four" firms (PricewaterhouseCoopers, Deloitte 
Touche Tohmatsu, Ernst & Young, and KPMG), handle th e vast majority of audits for publicly traded 
companies as well as many private companies.233 
203. The American Institute of Certified Public  Accountants (AICPA) is the largest CPA 
professional association in the United States.234  The AICPA plays a major role in assisting practicing 
CPAs.  For example, under a contract with th e state boards, it has developed the Uniform CPA 
Examination, which is used by all states, and th e International Qualification Examination (IQEX), 
                                                      
226 BEA (2007e). 
227 American Institute of Certified Public Accounta nts online information.  Viewed at:  http://www. 
aicpa.org/. 
228 Talley (2006). 
229 PCAOB online information.  Viewed at:  http://www.pcaobus.org/. 
230 Rittenberg and Miller (2005). 
231 Testimony of U.S. Securities and Exchange Commission Chairman William H. Donaldson Before 
the House Committee on Financial Services  Concerning the Impact of the Sarb anes-Oxley Act, 21 April 2005.  
Viewed at:  http://www.sec.gov/news/testimony/ts042105whd.htm. 
232 Cunningham (2006). 
233 Rutgers Accounting Web online information.  Vi ewed at:  http://raw.rut gers.edu/raw/internet/ 
big5.htm. 
234 American Institute of Certified Public Accounta nts online information.  Viewed at:  http://www. 
aicpa.org/. WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 124 
 
 
which states can use for non-U.S. professionals cove red by a mutual recognition agreement (MRA).  
The National Association of State Boards of Ac countancy (NASBA) is an umbrella organization 
representing the accountancy boards in 55 U.S. jurisdictions that regulate the profession.235  
The NASBA promotes uniformity among the states as th ey carry out their roles, which include setting 
entry-level professional standards and licence-rene wal requirements (such as continuing professional 
education and firm-quality assurance reviews) and adopting and enforcing professional standards of 
the CPA qualification.   
204. Through the International Qualifications  Appraisal Boards, the AICPA and NASBA 
cooperate in setting up and mainta ining MRAS with foreign accountancy institutes.  In June 2006, 
agreements were in place with Australia, Cana da, Ireland, and Mexico.  Accountants from these 
countries who meet the specified criteria may sit fo r the IQEX as an alterna tive to the Uniform CPA 
Examination.  A state board of accountancy may desi gnate a professional accounting credential issued 
in a foreign country as substantially equivalent to  a CPA certificate and may accept that credential in 
partial satisfaction of its requirements. 
205. Issuing reports on financial statements and ot her attest and compilation services are reserved 
for CPAs, and auditors must be licensed by or ha ve obtained a practice privilege from the regulatory 
authorities of each State where they wish to pr actice.  There are no nationality requirements in 
48 states236;  the exceptions are Alabama and North Caro lina, where U.S. citizenship (or permanent 
residency, in North Carolina) is a requirement for licensing, except if there is international 
reciprocity.237  Thirteen states require state residency, empl oyment in the state, or an in-state office for 
licensing of accountancy.  Nearly all states re quire accounting firms to operate only as sole 
proprietorships, partnerships or pr ofessional corporations.  Auditors for all companies are regulated 
by the State Boards of Accountancy, and auditors  with public company clients (those defined as 
"issuers" under the Securities Exchange Act of 1934) , are also regulated by the SEC and the PCAOB. 
(c) Legal services 
206. U.S. exports of legal services increased significantly between 2001 and 2006, from 
US$3 billion to US$5 billion, while imports of le gal services increased more moderately, from 
US$740 million to US$914 million.238 
207. In accordance with its list of specific GATS comm itments, legal services in the United States 
must be supplied by a natural person.  Foreign la w firms may, however, establish subsidiaries in the 
United States, with the same rights as U.S. firms,  including the right to hire domestic lawyers.  
U.S. residency is required in order to practice befo re the U.S. Patents Office.  Nine jurisdictions 
maintain in-state office requirements for licensing,  and 15 jurisdiction maintain in-state or U.S. 
residency requirements for licensure.239  The 29 states with FLC rules represent 86% of the U.S. legal 
                                                      
235 There is a board for each of the 50 states, plus th e District of Colombia, Puerto Rico, U.S. Virgin 
Islands, Guam, and the North Mariana Islands.  Nationa l Association of State Boar ds of Accountancy online 
information.  Viewed at:  http://www.n asba.org/nasbaweb/NA SBAWeb.nsf/WPANP. 
236 American Institute Of Certified Public Accountants (2004). 
237 For Alabama, see http://www.ala bamaadministrativecode.state.al. us/docs/acc/4ACC.RTF;  and for 
North Carolina, see http://www.nccpaboard.gov/Clients/ NCBOA/Public/Static/license.htm#_North_Carolina_ 
Accountancy.  
238 BEA (2007e). 
239 District of Colombia, Indiana, Michigan, Minnesota, Mississippi, New Jersey, Ohio, South Dakota, 
and Tennessee have state office requirements.  Iowa, Kansas, Massachusetts, Michigan, Minnesota, Mississippi, 
Nebraska, New Jersey, New Hampshire, Oklahoma, Rhode  Island, South Dakota, Vermont, Virginia, Wyoming 
have residency requirements. United States WT /TPR/S/200/Rev.1 
 Page 125 
 
 
services market.240  The American Bar Association (ABA) and the American Law Institute represent 
lawyers as a profession.   
208. The United States has been active in the DDA serv ices negotiations and, together with other 
Members, has formulated a specific proposal on licensing of foreign lawyers.241  The United States 
has made GATS commitments to accord market access and national treatment for the provision of 
foreign legal consultancy services in 16 jurisdictions.242  Thirteen other states have implemented rules 
on foreign legal consultancy in recent years and foreign-licensed lawyers may provide consultancy 
services in these jurisdictions.243   
209. The practice of law in the United States requires admission to the bar of a particular state or 
jurisdiction.244  Each U.S. state/jurisdiction has its own rules for bar admission.245  All jurisdictions 
require that applicants for admission to the bar p ass a written bar examination;  all jurisdictions, 
except Maryland, Puerto Rico, Wisconsin, and Washi ngton, also require applicants to pass a separate 
Multistate Professional Responsibility Examination (MPR E).  Eighteen states limit eligibility for the 
bar exam to Juris Doctor or LL.B. graduates of ABA-approved law schools.  The remaining states have more extensive lists of a pproved law schools and/or allow othe r means for meeting the education 
requirement, including foreign law degrees.  Gra duates of foreign law schools are eligible for 
admission in 25 states, generally upon a determina tion of educational equivalency.  The state-
administered bar exam includes the Multistate Bar Examination (MBE), in all jurisdictions except 
Louisiana, Washington, and Puerto Rico.
246  Lawyers who have been admitted to the bar in one 
jurisdiction may be admitted to the bar in another without taking another examination if they meet the 
latter jurisdiction's standards, which usually include a specified period of legal experience.  In most 
cases, however, lawyers must pass the bar examination in  each state in which they plan to practice.   
210. Admission to a state bar does not entitle the admitte d attorney to appear and plead before the 
U.S. district courts or any U.S. Court of Appeals;   in some states admission to the bar does not entitle 
the admitted attorney to appear and plead before th e State's appellate courts .  Observers have noted 
that, because lawyers often represent individuals/c orporations with business dealings in multiple 
states, the regulation of legal practice at the state level tends to create impediments to the efficient 
delivery of legal services.247   
(d) Architectural and engineering services 
211. The United States posts a significant trade surplu s in architectural, engineering, and other 
technical services.  In general, both exports and im ports have increased rapidly in recent years:  
U.S. exports of these services increased to US $3.7 billion in 2006, while imports rose to US$169 
million.248  Commercial presence remains the most important mode of delivery.  
                                                      
240 U.S. Economic Census, 2002.  Viewed at:  http://www.census.gov/econ/census02/ index.html. 
241 WTO document TN/S/W/37, S/CSC/W/46, 24 February 2005. 
242 Alaska, California, Connecticut, District of Colomb ia, Florida, Georgia, Hawaii, Illinois, Michigan, 
Minnesota, New Jersey, New York, Ohio, Oregon, Texas, and Washington. 
243 Arizona, Delaware, Idaho, Indiana, Louisian a, Massachusetts, Missouri, New Mexico, North 
Carolina, North Dakota, Pennsylvania, South Carolina, and Utah. 
244 USDOJ, United States Attorneys' Manual.  Vi ewed at:  http://www.usdoj.gov/usao/eousa/foia_ 
reading_room/usam/index.html. 
245 For admission rules see:  http://www.abanet.org. 
246 A Lawyer's Guide to the United States.  Viewed at:  http://www.lexmundi.com/images/lexmundi 
/PDF/guide-unitedstates.PDF. 
247 Williams and Nersessian, (2007e). 
248 BEA (2007e). WT/TPR/S/200/Rev.1 Trade Policy Review 
Page 126 
 
 
Architectural services 
212. The U.S. GATS Schedule binds market access in modes 1, 2 and 3, with the exception of a 
commercial presence limitation applied by Michigan, wh ere two thirds of the officers, partners, and/or 
directors of an architectural firm must be licensed  in that state as architects, professional engineers, 
and/or land surveyors.   
213. The right to practice architecture and to use th e title "architect" is granted by registration 
boards in each of the 50 states, the District of Co lumbia, Guam, Puerto Rico, and the Virgin Islands, 
who also regulate the profession in their jurisdiction.249  The National Council of Architectural 
Registration Boards (NCARB), which represents st ate boards, works with its member boards to 
establish registration or licensing policies.  The National Architectural Accrediting Board (NAAB) is 
the sole agency authorized to accredit U.S. prof essional degree programmes in architecture.  Most 
state registration boards require a degree in ar chitecture from a NAAB accredited programme as a 
precondition to registration.250 
214. There is no reciprocal registration between foreign countries and the United States, with the 
exception of Canada, with which the United States ma intains a full mutual recognition and immediate 
access agreement, the Inte r-Recognition Agreement. 
215. To register as an architect in a U.S. jurisdicti on, a foreign architect must first comply with the 
education, training and examination requirements of that jurisdiction.  The NAAB examines non-
U.S. programmes in order to give NCARB a basis fo r deciding whether the architectural education in 
another country is comparable.251  Foreign architects credentiale d in countries that the NCARB 
determines offer reasonable reciprocal credentia ling opportunities for U.S. architects may apply for 
NCARB certification through the Broadly Experienced  Foreign Architects process.  The NCARB has 
worked to increase the mobility of architectural credentials through in ternational agreements;  at end 
2007, NCARB had agreements with entities in Aust ralia, Canada, China, the Czech Republic, Japan, 
Mexico, and New Zealand.  The agreement with Mexico will end once the trinational agreement 
under negotiation is operational.  Negotiations have been held with over 50 countries, including 
broader-scope MRA discussions with Australia and the EC.252 
Engineering and integrated engineering services 
216. In the GATS, the United States has undertak en market-access co mmitments regarding 
engineering and integrated engineering services.  The only reservations involve citizenship requirements for the licensing of professional engineer s in the District of Colombia and in-state 
residency requirements in 12 states.
253 
217. The registration of professional engineers is performed by the individual states.254  E a c h  
registration or licence is valid only in the State in which it is granted.  The licensing procedure 
                                                      
249 NCARB (1999). 
250 NCARB (2007). 
251 NAAB online information.  Viewed at:  h ttp://www.naab.org/newsletter1727/newsletter_show 
.htm?doc_id=14327. 
252 AIA International Enews, "NCARB Fosters Interna tional Mobility".  Viewed at:  http://www.aia.org 
/nwsltr_intl.cfm?pagename=intl_a_ncarb_07. 
253 Idaho, Iowa, Kansas, Maine, Mississippi, Nevada, Oklahoma, South Carolina, South Dakota, 
Tennessee, Texas, and West Virginia.  
254 For a list of the states' engineering sites, see:  http://www.nspenetforum.org/eweb/Dynamic 
Page.aspx?Site=NSPE1&Webcode=state_society_website. United States WT /TPR/S/200/Rev.1 
 Page 127 
 
 
requirements vary but in general include:  (i) graduation with a degree from an accredited four-year 
university programme in engineering;  (ii) comple ting a standard Fundamentals of Engineering (FE) 
written examination;  (iii) accumulating a certain amount of engineering experience (four years, in most states);  and (iv) completing a written Principles and Practice in Engineering examination.
255  
Some states also have state-specific examinations.256  Various states issue generic professional 
engineering licences, while others issue licences for specific disciplines.257 
218. The National Council of Examiners for Engin eering and Surveying (NCEES) is a non-profit 
organization composed of engineering and surveying licensing boards representing all states and U.S. territories.  NCEES develops, scores, and administ ers the examinations used for engineering and 
surveying licensure throughout the United States.  The accreditation of domestic and international 
engineering programmes from other countries consider ed to be substantially equivalent is performed 
by ABET.  The U.S. Council for International Engineering Practice (USCIEP) participates in 
international fora that facilitate international mobility for qualified professional engineers, including 
the APEC Engineer Coordinating Committee and the Engineers Mobility Forum.
258 
                                                      
255 National Council of Examiners for Engineering and Surveying (NCEES) online information.  
Viewed at:  http://w ww.ncees.org/licensure/l icensing_boards/. 
256 NCEES online information.  Viewed at:  http://www.ncees.org/exams/. 
257 National Society of Professional Engineers onlin e information.  Viewed at:  http://www.nspe. 
org/pd-home.asp. 
258 USCIEP online information.  Viewed at:  http://www.usciep.org/. United States WT /TPR/S/200/Rev.1 
 Page 129 
 
 
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http://www.bea.gov/scb/pdf/2007/08%20August/0807_foreign.pdf.  ANSI (2006), ANSI Essential Requirements:  Due Pro cess Requirements for American National 
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