WORLD TRADE ORGANIZATION
ORGANISATION MONDIALE DU COMMERCE
ORGANIZACIÓN MUNDIAL DEL COMERCIOWT/TPR/M/126/Add.2
25 March 2004
(04-1324)
Trade Policy Review Body
14 and 16 January 2004Original:  English/
anglais/
inglés
TRADE POLICY REVIEW
UNITED STATES
Minutes of Meeting
Addendum
Chairperson:  H.E. Mrs. Mary Whelan (Ireland)
This document contains the Interim Responses from the United States Government.1
__________________________________________________________________________________
Organe d'examen des politiques commerciales
14 et 16 janvier 2004
EXAMEN DES POLITIQUES COMMERCIALES
ÉTATS-UNIS
Compte rendu de la réunion
Addendum
Présidente:  S.E. Mme Mary Whelan (Irlande)
Le présent document contient les réponses intérimaires du gouvernement des États-Unis.1
__________________________________________________________________________________
Órgano de Examen de las Políticas Comerciales
14 y 16 de enero de 2004
EXAMEN DE LAS POLÍTICAS COMERCIALES
ESTADOS UNIDOS
Acta de la reunión
Addendum
Presidenta:  Excma. Sra. Mary Whelan (Irlanda)
En el presente documento figuran las respuestas preliminares del Gobierno de los
Estados Unidos.1
                                                     
1 In English only./En anglais seulement./En inglés solamente.WT/TPR/M/126/Add.2
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INTERIM RESPONSES FROM
THE UNITED STATES GOVERNMENT
Chapter 2 - INVESTMENT
(2) Foreign Investment Regime
Question (Korea)
Reference:  page 29, para. 76
Paragraph 76 describes restrictive measures on fishing operations and direct investment by foreigners.
Could the U.S. government provide us with information with respect to the reasons for placingrestrictions on fishing operations and direct investment by foreigners?
Answer
Given that fish are a limited and transient natural resource, governments must impose rules on the
allocation of the resource.  Over time, it has become common practice for countries to allocate this
resource on the basis of nationality.  Many countries thus impose certain restrictions on foreign
ownership in the fisheries sector.  Reasons for giving preference to nationals include practical limits
on the ability of governments to enforce domestic la ws with respect to foreign vessels collecting a
transient natural resource.  The United States, however, has sought to achieve an appropriate balancebetween these practical law enforcement concerns and its otherwise open investment policy by
providing various exceptions to these restrictions.  Exceptions exist, for example, for smaller-sized
fishing vessels, for vessels fishing in particular areas, and for vessels from countries that have entered
into bilateral fishing agreements with the United States.
Chapter 3 - BY MEASURE
(1) Customs Procedures, Rules of Origin, Tariffs, Customs Fees (including Customs Security
Issues)
Question (China #89)
Does the U.S. have any schedule to lower its tariff on textiles and clothing?
Answer
Under the Uruguay Round Agreement, the United States agreed to a phased reduction in tariff rates
for textiles and apparel products.   Tariffs on textile and apparel products will decline from a trade
weighted average of 17.2 percent ad valorem to a trade weighted average of 15.2 percent ad valorem.
The majority of these reductions were phased over the 10 years.  The final Uruguay Round tariff
reductions occurred on January 1, 2004.
With regard to the DDA negotiating agenda, the U.S. Government supports significant movement
toward the harmonization and/or elimination of textile and apparel tariffs and elimination of non-tariff
barriers.  Given the sensitivity of these products for a large number of WTO members, clearly
progress in this area can only be achieved in the context of broad participation encompassing key
players, both developed and developing.  This mo st likely would be facilitated through a sectoral
approach.
Question (China #90)WT/TPR/M/126/Add.2
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China would like to know what steps the U.S. will take to comply with the TMB recommendation.
Answer
The United States continues to believe that the methodology used is consistent with Paragraph 241 of
the Working Party Report and that, therefore, it would not be appropriate to make any adjustment tothe methodology applied.  The United States has asked that the TMB reconsider its recommendation.
Question (China #91)
How does the United States ensure that interested parties will be informed of the petition promptly?
Answer
On May 21, 2003 the Committee for the Implementation of Textile Agreements (CITA) published a
notice in the Federal Register setting forth procedures it would follow in considering requests from
the public for textile safeguard actions on imports from China under Paragraph 242 of the Protocol ofAccession.  (On August 18, 2003, CITA published another notice in the Federal Register clarifying
those procedures).  That notice specifies, inter alia , that with respect to any request for a safeguard
that CITA has accepted for consideration, CITA will publish a Federal Register notice requesting
public comments and commencing a 30 day comment period.  The Federal Register notice and the
request, with the exception of information marked “business confidential”, are posted by the
Department of Commerce’s Office of Textiles and Apparel on the internet.
Question (China #92)
How does it ensure that interested parties will get sufficient information?
Answer
The procedures set forth in the May 21, 2003 Federal Register notice provide that comments received
in response to a request, with the exception of in formation marked “business confidential”, will be
available for review by interested parties.
Question (China #93)
How does it ensure that interested parties will have enough time to defend themselves?
Answer
The procedures ensure that interested parties have a 30 day period during which such parties may
comment on any request for a safeguard that CITA has accepted for consideration.  With respect to
China, the procedures set forth in the May 21, 2003 Federal Register notice provide that, following an
affirmative determination on a request, CITA will request consultations with China within 30 days of
the receipt for request for consultations, and every effort will be made to reach agreement on amutually satisfactory solution within 90 days of receipt of the request for consultations.
Question (India #5)
Although India is a beneficiary of the GSP, it ha s been noticed that inappropriate customs duty is
being imposed by U.S. authorities on imports of Jute Yarn, Net Leon, Wave Fabric and Jute Bags.
Further, the U.S. authorities insist upon production of VISA for export of Jute Bag, which is normally
applicable to textiles under quota.  Would the U.S. authorities take steps to remove this anomaly.WT/TPR/M/126/Add.2
Page 4
Answer
Jute yarn and bags are bound at a zero rate effective 1/1/2004.  We do not have a textile visa
requirement for jute bags.  We are unfamiliar with the terms “Net Leon” and “Wave Fabric” and do
not know what they reference.
Question (India #9)
Burdensome customs procedures in textiles, clothing and footwear:  For these products, customs
formalities require providing excessively detailed and voluminous information.  Some of the
information asked for seems irrelevant for customs or statistical purposes.  For example, in the case of
garments with an outer shell of more than one co nstruction or material, it is necessary to give the
relative weight, percentage values and surface area of each component; for outer shell componentswhich are blends of different materials, it is also necessary to include the relative weights of each
component material.  Would the U.S. authorities give the underlying reason for seeking such
voluminous information?
Answer
The Bureau of Customs and Border Protection requires sufficient documentation in order to properly
classify products upon entry.  Proper classification is important for duty and quota purposes.
Documentary requirements are transparent as they are provided in published circulars and on the
website for the Bureau of Customs and Border Protection.
Question (India #27)
Unilateral changes in Rules of Origin by U.S.A have af fected trade in textiles and clothing.  As part of
its legislation implementing the results of the Uruguay Round, the U.S. substantially altered its rulesfor determining the origin of textiles and clothing products.  The modified rules, put into effect July
1996, have resulted in changes disadvantageous to developing countries.  As the process of
harmonization of Rules of Origin is in progress, India requests that no unilateral changes are made in
the Rules of Origin in detriment of developing countries.  Could the U.S. delegation offer its response
to this?
Answer
The United States fully justified its rules of origin in the WTO Dispute brought by India.  In DS243,
the Panel found that India failed to establish that  sec. 334 of the URAA, sec. 405 of the Trade &
Development Act of 2000, and the Customs Regulations contained in 19 C.F.R. 102.21, are
inconsistent with the Uruguay Round Agreement on Rules of Origin.WT/TPR/M/126/Add.2
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Question (India #28)
The Integration Programme for Stage 3:  The U.S. integration programme for stage 3, being
implemented from 1 January 2002, continues the trend witnessed in stages 1 and 2.  Thus, although it
would result in integration of the minimum of 18% required under the ATC, it has contributed little to
liberalization of quota restrictions.  The process of integration of items has been very reluctant and
tardy.  In effect, commercially meaningful integration has not been done.  Canada & Norway, on theother hand, who are also operating quotas under the ATC have significantly reduced the restraints
under the phase-out programme during the first two stag es.  On the contrary, the U.S. appears to have
adhered to the strictly ‘legal’ requirements of the integration process, without taking into account
commercial considerations.  We would like to have a clarification from the U.S. authorities on the
rationale behind the items selected for integration and whether the U.S. authorities are planning to
take steps to make the phase-out programme commercially more meaningful to textile exporting
developing countries.
Answer
At the request of importers for certainty and clarity, the U.S. published its complete integration
schedule in 1995 and fully met its obligations under the WTO Agreement on Textiles and Clothing.
Question (India #29)
Adverse Conversion factor for export of yarn:  The U.S. quota for yarn is indicated in Square Meter
Equivalent (SME) whereas yarn is exported in kilogrammes.  U.S. authorities use a standard
conversion factor from kgs to SME for yarn which is reportedly without any scientific basis.  This
creates an artificial barrier as quota utilisation is s hown to be higher than it should be in such cases.
Can the U.S. delegation indicate how this anomaly is to proposed to be addressed.
Answer
The SME (square meter equivalent) factors in our bilateral agreement with India were developed in
close consultation with our industry and are standard in our textile agreements, and have been notified
and continued under the WTO Agreement on Textiles and Clothing (ATC).
Question (Indonesia #2)
The customs procedures for import of textile and garment to the US require the presentation of
detailed and voluminous information, leading to additional costs and in some instances include
business confidential processing methods.  Indonesia believes that much of this information is
irrelevant for customs use or statistical purpose.  It is also Indonesia's concern that as the phasing-out
of the quota system draws near, the US industry is pressing the Administration to put in place an evencloser monitoring system that may require not only detailed information, but also additional
information for the purpose of imposing a trade remedy as necessary.
Answer
The Bureau of Customs and Border Protection requires sufficient documentation in order to properly
classify products upon entry.  Proper classification is important for duty and quota purposes.
Documentary requirements are transparent as they are provided in published circulars and on the
website for the Bureau of Customs and Border Protection.
Question (Japan #23)WT/TPR/M/126/Add.2
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The U.S. imposes high tariffs, for example 25% on most trucks (8704).  Compared with Japan, which
sets its rates at 0% on the same items, the U.S. figure remains considerably hight.  Japan would alsolike to know why the U.S. imposes tariff rates on trucks 10 times higher than those on passenger
vehicles (the bound rate being at 2.5%).  According to the minutes of the 2001 Trade Policy Review,
the U.S. stated its willingness to engage the matter in comprehensive market access negotiations on
goods based on the WTO’s built-in agenda.  Japan thus requests the earliest possible elimination of
the peak tariff.
Answer
The United States has continued to be an advocate of multilateral tariff reductions in the Doha
negotiations and will continue to be engaged on these topics as long as there continues to be ambition
among other members for multilateral liberalization.  Tariffs in sensitive sectors are included in this
approach – the U.S. has repeatedly stated its willingness to reduce and eliminate tariffs in sensitivesectors if other WTO members are willing to do the same.
Question  (Japan #41 & 42)
Reference:  p. 75, para. 193 and p. 59, para. 119
The sanctions measures taken by the U.S. based on related acts (the Iran and Libya Sanctions Act, the
Cuban Liberty and Democratic Solidarity Act, the Burmese  Freedom and Democracy Act as well as
local and municipal sanctions acts) discourage, significantly and unreasonably, investment into, and
the establishment of economic relations with, the countries targeted by those laws, which affects not
only U.S. private enterprises, but also those world-wide.  In legal terms, they constitute anextraterritorial application of domestic laws, whic h is not permissible under general international law
and may cause a problem of inconsistency with the WTO agreements.  Moreover, fairness,
transparency and predictability have not been observed in their applications.  Particularly regarding
the Iran and Libya Sanctions Act, Japan has taken every opportunity, including those available under
the Japan-U.S. Regulatory Reform and Competition Po licy Initiative, to urge the U.S. not to apply the
Act in a manner that may constitute a double standard.
Japan, therefore, strongly requests the U.S. to ensure the consistency of these acts with international
laws, and to implement them prudently.  The application of these acts to enterprises of third countries
is especially discouraged.  What is the U.S. view on these points?
Answer
We appreciate the views of all our trading partners in this matter.  The Iran and Libya Sanctions Act
(ILSA) remains U.S. law.  As you have noted, in August 2001, the Act was extended for a further five
years, until 2006, with amendments.  By its terms,  ILSA applies to those who engage in activities
covered by the statute, without distinction by nationality.  The legislative history of the Act indicates aconcern by Congress that the law be applied in a manner consistent with the international obligations
of the United States.
Question (Korea)
Compared with the average U.S. tariff rate of 2.4% on fisheries products, the 35% tariff rate on tuna
in oil in airtight containers seems to be excessive .  Is there any special reason for maintaining this
high tariff rate?
Answer
The United States, like all WTO members, has a small number of specific domestic sensitivities
where slightly higher tariff rates are sometimes applied (please note in para 50 of Chapter III thatWT/TPR/M/126/Add.2
Page 7
according to the WTO Secretariat, the number of total U.S. tariff lines exceeding 15% is only 6.6%).
The United States has continued to be an advocate of multilateral tariff reductions in the Dohanegotiations and will continue to be engaged on these topics as long as there continues to be ambition
among other members for multilateral liberalization.  Tariffs in sensitive sectors are included in this
approach – the United States has repeatedly stated its willingness to reduce and eliminate tariffs in
sensitive sectors if other WTO members are willing to do the same.
Question (Mexico)
According to the Report by the Secretariat the CBP and the Department of Commerce may apply
different criteria to determine the origin of goods.  On this basis, Mexico will appreciate that the U.S.
could indicate which criteria would prevail in cases where CBP and the Department of Commerce
consider that a product is originating of different countries and an indication of the costs that will be
incurred in such cases by importers due to the need of complying with different requirements.
Answer
No criterion prevails over another because the differing criteria are applied for the administration of
different programs.  CBP criteria determine, for ex ample, the country of origin for marking purposes,
while the Department of Commerce determines scope of an antidumping or countervailing duty order.
Question (Mexico)
The Report by the Secretariat states that country of origin markings are mandatory for most imported
manufactured products and for many agricultural pr oducts.  Therefore Mexico would appreciate that
the US could indicate the applicable criteria to exempt products of country of origin marking
requirements.
Answer
Exceptions to the country of origin marking requirements are set out in 19 U.S. Code Section 1304
and in the corresponding regulations in 19 Code of Federal Regulations Part 134.
Questions (New Zealand)
What is the U.S. justification for maintaining high tariff protection in sectors such as agricultural food
products?
What program does the U.S. have for the reduction and eventual elimination of such tariffs?When does the U.S. intend to reduce or eliminate tariff peaks?
Answer
The U.S. tariff rates for agricultural products are low, particularly compared to most WTO members.
The average rate for food products coming in to the United States is 12%, not counting the manyproducts that benefit from GSP.  To address the problems of high agricultural tariffs worldwide, the
United States has submitted a very ambitious and aggressive proposal for reducing tariffs in the WTO
negotiations.  In addition, the United States has proposed the elimination of all tariffs by a date
certain.  The United States is fully committed to further reform in world  agricultural trade.
Questions (New Zealand)WT/TPR/M/126/Add.2
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How does the United States justify the long-standi ng delay in resolving New Zealand’s request for
access to the United States for live honeybee and honeybee semen?  In particular when, in view ofNew Zealand’s honey bee health (New Zealand has superior honey bee status than Australia, Burma,
France, Great Britain, and Sweden) and there is no specific scientific basis for further denying such
access on SPS grounds?
When will USDA publish the Proposed Rule and associated Risk Assessment for New Zealand
honeybees?
Answer
The final rule on New Zealand honeybees is currently under review in the Office of General Council.
The most recent risk assessment was published in August 2002 and can be found at can be found in
the following location:http://www.aphis.usda.gov/ppq/pr a/honeybees/nzealandbee_pra.pdf
Question (New Zealand)
To what extent does USDA expect food aid donations to continue and to what volume?
Answer
The United States is currently planning to donate 3.5 - 4.0 million metric tons of food aid in U.S.
fiscal year 2004 (Oct. 1, 2003 - Sept. 30, 2004).  This is a decrease from the fiscal year 2003donations of approximately 4.5 million metric tons.  This fiscal year 2004 tonnage is only an estimate,
however, and may change during the fiscal year depending on whether or not any emergency food aid
needs arise.
Question (New Zealand)
What has been undertaken since the last US Tr ade Policy Review to minimize the potential
disruptions on trade caused by food aid?
Answer
The United States adheres to the “Principles of Surplus Disposal and Consultative Obligations” as laid
out by the Consultative Subcommittee on Surplus Disposal (CSSD).  The primary discipline under the
CSSD is the usual marketing requirement (UMR).  The UMR is an average of the preceding five
years of commercial imports for the particular recipient country and commodity in question.  The
maximum level of food aid to avoid commercial disruption is the difference between the country’s
consumption needs and the UMR plus domestic supplie s (production and stocks).  The United States
uses the UMR as a tool to determine whether food aid will displace normal commercial imports or
adversely affect domestic production.
Question (New Zealand)
Is the USDA notifying these donations through the CSSD mechanism of the FAO?
Answer
Yes, the United States notifies its food aid donations through the CSSD.  We are currently up-to-date
with the required notifications.WT/TPR/M/126/Add.2
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Chapter 3 - MEASURE
(2) Remedies: Anti-Dumping, Countervailing, and Safeguards ActionsQuestion (Canada #1)
The Secretariat Report refers to the current status of the Foreign Sales Corporation Repeal and
Extraterritorial Income Exclusion Acts  provisions.  Please indicate when the US proposes to rescind
its WTO-inconsistent corporate tax provisions with a view to ending its illegal export subsidies.
Answer
The United States has made clear its commitment to work with the U.S. Congress to fully comply
with the prior recommendations and rulings of the Dispute Settlement Body concerning the
Extraterritorial Income Act.  Both branches of Congress are currently considering legislative
proposals that would repeal the ETI Act.  While the United States cannot specify the precise date on
which this will occur, the United States is conf ident that the ETI Act will be repealed in the
reasonably near future.
Question
We understand that, out of the 361 sunset reviews of AD and CVD orders completed between July
1998 and July 2003, the question of whether the expiry of the duty would be likely to lead tocontinuation or recurrence of dumping or of subsid ization has been examined by the Department of
Commerce in 269 cases.  Out of these 269 cases, we understand that the Department of Commerce
has made negative determinations in only 3 sunset reviews.  Please briefly describe the factors
examined in making such determinations and explain why the proportion of negative determinations
is so low.
Answer
The AD and SCM Agreements provide for the conduct of expiry (sunset in U.S. parlance) reviews to
determine whether expiry of the duty (revocation of an order in U.S. parlance) would be likely to lead
to continuation or recurrence of dumping or subsid ization and injury.  Under the United States sunset
regime, there are two agencies that play a role in the conduct of sunset reviews.  The Department of
Commerce (“Commerce”) has the responsibility for determining whether revocation of an order
would be likely to lead to continuation or recurr ence of dumping or subsidization.  In making its
likelihood determination, Commerce considers, inter alia , information concerning dumping and
import volumes for the subject merchandise.  The U.S. International Trade Commission (“USITC”)
has the responsibility for determining whether revocation of an order would be likely to lead tocontinuation or recurrence of material injury.  Canada’s figures, even if accurate, are incomplete and
misleading because they do not reflect completed sunset reviews, i.e., where both Commerce and the
USITC have made their final likelihood determinations.  Of the 321 sunset reviews of antidumping
and countervailing duty orders initiated between July 1998 and December 1999, almost 50 percent
were revoked.
Question (Canada #3)
Canada would like to point out that the Continued Dumping and Subsidy Offset Act of 2000  (the
CDSOA, also known as the Byrd Amendment) was successfully challenged at the WTO and found tobe inconsistent with the United States' obligations under the Anti-Dumping and Subsidies
Agreements.  In June of 2003, an Arbitrator gave the US 11 months from the Appellate Body Report
to bring its measure into compliance with its WTO obligations.  Why has the US ignored theWT/TPR/M/126/Add.2
Page 10
reasonable period of time established by the Arbitrator (until December 27, 2003) and not complied
with the Appellate Body ruling? When can Canada ex pect the US to repeal this measure that has been
found to be WTO inconsistent?
Answer
The United States Administration proposed repeal of the Combined Dumping and Subsidy Offset Act
in its fiscal year 2004 budget, and has been working with the U.S. Congress on appropriate
legislation.  In addition, a bill was introduced in the U.S. Senate to amend the CDSOA in a WTO-
consistent manner.  The United States will continue to seek compliance with the DSB
recommendations and rulings.
Question (Canada #4)
The Report refers to the non-conformity of the Anti-Dumping Act of 1916  with multilateral rules and
recent bills introduced to address the issue.  Wi ll the Administration convey to Congress the urgency
of enacting a measure that repeals the Act and terminates pending cases (e.g., S 1080)?
Answer
The United States Administration has conveyed to Congress the importance of timely repeal of the
1916 Act which would terminate pending cases.  The Administration will continue to work with
Congress towards this end.
Question (Chile #1)
Given the significant increase in antidumping measures applied in recent years and their negative
impact on trade, in addition to the opinion of various WTO members on the lack of justification for
many of the investigations and measures adopted, does the U.S. think it is possible to decrease thediscretionality and substantially increase the number of investigations conducted and measures
adopted solely by making improvements in procedures that do not affect the substance of the AD and
SCM Agreements?
Answer
The mandate of the Doha Declaration, to "clarify  and improve" the AD and SCM Agreements, is not
limited either to substantive or to procedural provisions of those Agreements.  That being said, the
United States believes that there must be substantial progress made in improving the transparency of
trade remedy measures to allow Members and other interested parties to see that those measures have
been conducted in accordance with WTO Rules.  That is not to say that substantive clarifications and
improvements should not also be made; indeed, the United States has proposed a number of suchtopics for discussion in the Negotiating Group on Rules.
Question (Chile #2)
Does the U.S. believe that it is necessary to resolve the ambiguities and the gaps existing in the
Antidumping Agreement in order to prevent the prol iferation of excessively onerous investigations, of
arbitrary application, and misuse of antidumping measures?  If so, is it considering improving the
rules and disciplines of the Agreements in order to achieve this goal?
AnswerWT/TPR/M/126/Add.2
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The United States has made numerous proposals to the Negotiating Group on Rules to clarify and
improve the AD and SCM Agreements in ways which minimize the possibility for misuse of traderemedy measures while also increasing the effectiveness of those remedies.
Question (Chile #3)
The United States indicated in a communication to the Negotiating Group on Rules (document
TN/RL/W/27) the importance it attaches to the n eed to identify disciplines on trade-distorting
practices, in order to improve the ability to forecast trends in trade on the global level and reduce the
need to use trade remedies.  Does the United States believe that while disciplines that prevent
trade-distorting practices are being strengthened or established, trade remedies must not be restricted
or regulated more extensively in order to prevent the undue proliferation and discretional use of such
measures?
Answer
The discussion of disciplines on trade distorting practices does not preclude a parallel discussion of
other ways in which the AD and SCM Agreements should be clarified and improved.  The United
States has made numerous proposals to the Negotiating Group on Rules to clarify and improve theAD and SCM Agreements in ways which minimize the possibility for misuse of trade remedy
measures while also increasing the effectiveness of those remedies.
Question (Chile #4)
With regard to antidumping investigation procedures, especially the treatment of Section 201 and
Countervailing Duties, Chile has learned that the United States might change the way that the
Department of Commerce calculates the dumping margin so as to be able to deduct duties applicable
under Section 201 of the 1974 Trade Act and countervailing duties under the 1930 Customs Tariff Act
from the export price and the reconstructed export price in calculating the dumping margin.  Whendoes the U.S. Government anticipate that this change will become effective?  Does the U.S.
Government expect that there will be any in compatibility in this change with prior DOC
interpretations, or with WTO agreements, especially with respect to the application of Article VI of
the GATT or the Agreement on Subsidies and Countervailing Duties?
Answer
The U.S. government is currently considering its position on issue and is in the process of evaluating
public comments that have been filed.WT/TPR/M/126/Add.2
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Question  (China #20)
As the "reasonable period of time" for implementation has expired [regarding the Combined Dumping
and Subsidy Offset Act], what detailed measures will the United States adopt to implement the WTO
recommendation?
Answer
The United States Administration proposed repeal of the Combined Dumping and Subsidy Offset Act
in its fiscal year 2004 budget, and has been working with the U.S. Congress on appropriate
legislation.  In addition, a bill was introduced in the U.S. Senate to amend the CDSOA in a WTO-
consistent manner.  The United States will continue to seek compliance with the DSB
recommendations and rulings.
Question (China #21)
Is the US prepared to notify the detailed prog ramme and timetable to comprehensively repeal the
Byrd Amendment?
Answer
The U.S. Congress determines the timing and content of legislation in the United States.  The U.S.
Administration will continue to work with the U.S. Congress to achieve early passage of legislation
on the CDSOA bringing the United States into compliance with its WTO obligations.
Question  (China #22)
Could the US please elaborate whether there are relevant provisions on the procedures for an industry
or sector to apply for the market economy conditions pursuant to the criteria provided in the nationalanti-dumping legislation of the US.  If not, please inform us of the plan and timetable to provide such
procedures.
Answer
Section 771(18)(B) of the Tariff Act of 1930, as am ended, lists the six factors that the Department of
Commerce must consider in making a non-market economy country determination.  The Department
initiates an inquiry into a country's non-market economy status only on request from that country's
government.  Such inquiries are conducted within the framework of a quasi-judicial proceeding,
which is fully open to participation by the public and all interested parties and is subject to strict due
process and transparency requirements.  If, as a result of its inquiry, the Department determines that
graduation to market economy status is warranted, producers' prices and costs are then used forpurposes of calculating normal value.  NME producers can also have their prices or costs used to
calculate normal value if they operate in a market-oriented industry ("MOI").  The Department has
discussed with PRC government officials several tim es the Department's three-pronged MOI test and
the procedures for submitting a MOI claim, and the Department would be more than happy to do so
again.
Question (China #23)
Could the US Delegation provide some information about the progress of repealing 1916
Anti-dumping Act in the Congress?
AnswerWT/TPR/M/126/Add.2
Page 13
There are three bills pending in the U.S. Congress to repeal the 1916 Act.  One bill in the U.S. Senate,
S. 1080, would repeal the 1916 Act and terminate all pending cases.  Two bills, H.R. 1073 in the U.S.
House of Representatives and S. 1155 in the U.S. Senate, would repeal the 1916 Act but not affect
1916 Act litigation already underway.  The United States is continuing to work with the U.S.
Congress to pass legislation repealing the 1916 Act and terminating pending cases.
Question (China #33)
Please clarify the method adopted by the US [in the case of apple juice from China] for calculating the
average anti-dumping rate of enterprises subject to voluntary verification and the legal basis thereof.
Question (China #34)
Could the US please elaborate how it will avoid such  practices in future anti-dumping investigations?
Answer (China #33-34)
In calculating rates applied to cooperative exporters not selected for examination, the United States
generally follows the methodology described in section 735(c)(5) of the Tariff Act.
Question (China #41)
Regarding the “calculation methodology of “changing  ownership” used in countervailing measure
investigations and determinations,” prior to No vember 8, 2003, had the US DOC already rectified the
calculating methodology?  If not, please explain why.
Answer
On June 23, 2003, the U.S. Department of Co mmerce adopted a new methodology for analyzing
changes of ownership in the countervailing duty context.  Commerce is applying this new
methodology to all countervailing duty investigations and reviews initiated on or after June 30, 2003.
An explanation of this new methodology was published in the Federal Register  under Notice of Final
Modification of Agency Practice Under Section 12 3 of the Uruguay Round Agreements Act, 68 FR
37125 (June 23, 2003).
Question (Chinese Taipei)
Reference:  p. 3
In view of the fact that at least 6% of the anti-dumping measures currently enforced in the US involve
Taiwanese exporters, we would be particularly inte rested in knowing whether the US has any plan to
improve its investigation procedures regarding sunset reviews, in recognition of the principle of
terminating anti-dumping and countervailing measures after 5 years of implementation.
Answer
Article 11.3 of the AD Agreement and Article 21.3 of the SCM Agreement permit the authorities to
evaluate an antidumping or countervailing duty or der, respectively, five years from its imposition;
they do not require the termination of an order after five years if a sunset review results in a
determination that termination of the order would be likely to lead to continuation or recurrence of
dumping or subsidization and injury.  The Unites States' laws and regulations concerning the conductof sunset reviews are consistent with the applicable WTO obligations.
Question (India #21)WT/TPR/M/126/Add.2
Page 14
The WTO agreement provides for guidelines and procedures to be followed while imposing
anti-dumping duties.  The lesser duty principle (the lesser of dumping margin and injury margin) is
widely adopted in most countries while determining the antidumping duty.  However, the US follows
the dumping margin rule.  This results in imposition of unnecessarily higher dumping duties.  We
would like to have a clarification from the US authorities on the reasoning behind following this
methodology.
Answer
Article 9.1 of the Antidumping Agreement (AD Agr eement) states that "[i]t is desirable that
imposition [of antidumping duties] be permissive in the territory of all Members, and that the duty be
less than the margin [of dumping] if such lesser dut y would be adequate to remove the injury to the
domestic industry."  Consequently, Article 9.1 provides Members the option of implementing a"lesser duty rule".  Therefore, consistent with the WTO and in full compliance with Article 9.1 of the
AD Agreement, U.S. law does not contain a lesser duty provision.
The lesser duty provision of the AD Agreement assumes that an antidumping authority can make an
empirical computation of the amount of duty needed to remove injury to the domestic industry.  The
question refers to this as an “injury margin,” a term which does not exist in the AD Agreement.  Such
a calculation would entail considerable practical problems, and to our knowledge, there is no common
understanding of what could constitute a reasonable "injury margin" that reflects all the factors
specified in Article 3.4 of the AD Agreement.  Given that these factors are not all measurable in the
same manner, it is far from clear how any methodol ogy could derive a single “margin” from them.
In the Rules negotiating group, the United States has asked other Members to provide further
clarification on how they calculate a lesser duty.  To date, the United States has not received a clear
response from any Member as to how they implement a lesser duty rule and calculate a lesser duty.
Indeed, we are unaware of any WTO Member that has devised a method of quantifying injury that cantake into account all the factors specified in Article 3.4 of the AD Agreement.
Question (India #26)
State level subsidies:  Extensive subsidies are provided in the US at the state level for both export
promotion and industrial development.  These are often not even mentioned as subsidies and not
reported to the WTO under Article 25 of the Agreement on Subsidies and Countervailing Measures.
To name a few, these programmes include the Business Finance Programme of the states of Maryland
and Pennsylvania, business assistance programmes of the states of North Carolina and Washington
and the loan guarantee programme of the state of Indiana.  Could the United States provide details of
subsidy programmes in existence at the sub-federal level (viz, state level and below) and on their
WTO compatibility.
Answer
Pursuant to Article 25 of the Agreement on Subsidies and Countervailing Measures, the United States
has notified 330 sub-federal programs, including numerous programs from the specific statesmentioned in the question.  We refer India to document G/SCM/N/95/USA.  We stand ready to
answer any questions on specific programs India ma y have in the course of the review of the U.S.
subsidy notification during the upcoming meetings of the Committee on Subsidies and Countervailing
Measures.
Question (Korea)
Reference:  page 47, para. 74-76WT/TPR/M/126/Add.2
Page 15
The U.S. Department of Commerce is reportedly considering deducting Section 201 and CVD duties
from the constructed export price in dumping margin calculations.  What is the U.S. government’sposition on this matter?
Answer
The U.S. government is currently considering its position on this issue and is in the process of
evaluating public comments that have been filed.
Question (Korea p.48)
The U.S. government failed to implement th e WTO ruling against the Continued Dumping and
Subsidy Offset Act of 2000, also known as the Byrd Amendment Act, within an agreed reasonable
time period that elapsed on December 27, 2003.  Can the United States provide any detailed plan toimplement the ruling of the WTO/DSB?
Answer
The United States Administration proposed repeal of the Combined Dumping and Subsidy Offset Act
(the “Byrd Amendment”) in its fiscal year 2004 budg et, and has been working with the U.S. Congress
on appropriate legislation.  In addition, a bill was introduced in the U.S. Senate to amend the CDSOA
in a WTO-consistent manner.  The United States will continue to seek compliance with the DSB
recommendations and rulings.
Question (Switzerland #18)
§ 57 ff. outlines the safeguards in the steel sector.  On December 4, 2003, the U.S. announced the full
and immediate termination of its steel safeguards.  The decision had been taken by President George
W. Bush because the measures, introduced in March 2002, had achieved their purpose by helpingU.S. producers consolidate and regain competitiveness.  Nevertheless, the Steel Import Licensing
System, introduced on February 1, 2003 is still in place.  The system was put in place to provide
timely statistical data on steel imports to monitor significant changes in steel imports.  What are the
reasons to keep this system in place?  When or under what conditions will it be terminated?  What
measures have been taken that this system does not become an unduly administrative burden?
Answer
On December 4, 2003, the President issued a proclamation terminating the safeguard measures; he
also directed the Secretary of Commerce to continue the steel import licensing system which was
established effective February 1, 2003, until the earlier of March 21, 2005 or such time as the
Secretary of Commerce establishes a replacement program.
The licensing procedure is automatic and consistent with the Agreement on Import Licensing
Procedures.  Registered importing companies, their brokers or their agents may apply for a steel
import licence through the steel licensing website.  Licenses are issued immediately upon completion
of the electronic application form.  No fees are charged for either registering on the system or forapplying and obtaining a license.
Chapter 3 - BY MEASURE
(3) TBT/SPS Measures and Environment (including Bio-terrorism)WT/TPR/M/126/Add.2
Page 16
MMPA Questions (Canada)
Canada continues to have concerns regarding the consistency of the U.S.  Marine Mammal Protection
Act (MMPA ) with U.S. WTO obligations.  In past WTO reviews of US trade policy, the US delegation
has cited in defence of the MMPA , that a waiver is available, subject to certain conditions, to allow
imports of marine mammal products.  However, in response to the last TPR questions, the US
delegation stated that since 1975, no application for an import waiver had been received.
Question (Canada)
On what objective basis would the U.S. Secretary of Commerce grant a waiver for the commercial
import and retail of marine mammal products?
Answer
The U.S. Secretary of Commerce may waive the MMPA's moratorium on the taking of marine
mammals if such taking is in accord with sound principles of resource protection and conservation.  In
addition, in order to grant a waiver for the import of marine mammal products, the Secretary must
certify that the program for taking marine mammals in the country of origin is consistent with theMMPA.  Implementation of a waiver would entail formal rulemaking and the issuance of permits.
Thus, the waiver process provides relief from the MMPA's trade ban with respect to marine mammal
products.
Question (Canada)
If a country requested a waiver of the prohibition of importing marine products and provided
documentation of the following conditions, NOAA could waive the moratorium.  The population
stock from which the animals came would have to be within their Optimum Sustainable Population
levels, and the taking for importation would not cause the population level to drop below theiroptimum sustainable yield.  In addition, regardless of the waiver provision, there are several
prohibitions of the MMPA that would continue to apply to any import.  Marine mammals or marine
mammal products cannot be imported if the marine mammal was pregnant, nursing, or less than 8
months old at the time of the taking, taken from a stock designated as depleted, taken in an inhumane
manner, taken in violation of the MMPA or in vi olation of the law of the country in which it was
taken, or the sale of the marine mammal product is illegal in the country of origin.
Question (Canada)
If the conditions for a waiver were met, how would such a waiver be implemented for the commercial
import and retail of marine mammal products?WT/TPR/M/126/Add.2
Page 17
Answer
The process for waiving the moratorium is a formal  rule-making that includes a hearing before an
Administrative Law Judge, and any person could request, in writing, to be a party to the hearing.
The entire process can be summarized as follows:
1.  Waiver and regulations - Formal rulemaking process in accordance with 50 CFR part 228 and
considering the criteria described above.  If a waiver is warranted, NMFS would need to promulgate
regulations that would allow issuance of permits to import marine mammal products for commercial
purposes.
2.  Permits - NMFS could then issue permits in accordance with the regulations.
Question (Canada)
How can the waiver process be justified as relief from the import ban considering WTO obligations?
Answer
The United States believes that the regulatory regime under the Marine Mammal Protection Act, as
described in the detailed answers to Canada's questions, is consistent with our WTO obligations.
In addition to a waiver, Canada understands that permits would be required to import and sell marine
mammal products in the US.  However, the MMPA and its regulations do not provide for commercial
imports or sales in the United States.
Question (Canada)
How do permits allow for the commercial importation and retail of marine mammal products?
Answer
The waiver process itself involves formal rulemaking that would allow the issuance of permits to
import marine mammal products for commercial purposes.  The permits could be issued in
accordance to the regulations that were promulgated following the formal rulemaking and the waiver
of the moratorium.
Question (Canada)
How can that be justified considering WTO obligations?
Answer
The United States believes that the regulatory regime under the Marine Mammal Protection Act, as
described in the detailed answers to Canada's questions, is consistent with our WTO obligations.
If the waiver provisions of the MMPA  do provide relief from the trade ban with respect to marine
mammal products, then the Presidential order that consideration be withheld “...of any Canadian
requests for waivers to the existing moratorium on the importation of seals and/or seal products into
the United States” removes any possible relief from the trade ban for Canada.
Question (Canada)WT/TPR/M/126/Add.2
Page 18
How is this defensible under WTO obligations?
Answer
The United States believes that the regulatory regime under the Marine Mammal Protection Act, as
described in the detailed answers to Canada's questions, is consistent with our WTO obligations.
Question (Colombia #1)
Paragraph 128 of the Secretariat’s report states that in order to meet the Constitutional requirements of
due process, most States have enacted statutes containing transparency procedures.  For example,
most States have enacted administrative procedure acts whose procedures are similar to those of the
federal APA.  The majority of States have also enacted statutes that provide for public access toinformation and judicial procedures.  As regard s Technical Regulations applied to products, what
progress has been made in standardizing requirements at the state and federal level?
Answer
Title IV of the Trade Agreements Act of 1979 (Public Law 96-39), as amended by the Uruguay
Round Agreements Act (Public Law 103-465), prohibits U.S. agencies from employing standards,
technical regulations or conformity assessment procedures as unnecessary obstacles to trade.  This
legislation includes the Administration’s commitment to promote state agencies’ compliance with
U.S. obligations under the WTO through reasonable measures including through state-federalconsultation and cooperation.  Should specific questions regarding the WTO consistency of state or
local regulations or procedures be brought to our attention, USTR would engage in consultations with
interested state authorities to ascertain whether there is in fact a compliance issue and, if so, how best
to proceed.
Question (Colombia #5)
Paragraph 142 of the report explains that APHIS has regulatory responsibility to safeguard U.S.
animal and plant resources from exotic pests and diseases.  In the case of risk analysis specifically,
where there are delays in the approval process, have measures been taken to expedite the process?
Answer
USDA has substantially increased staffing to perform and review risk assessments over the past few
years.
Question (EU #5)
Reference:  Bio-terrorism Act of 2002
Why did the FDA not carry out a specific risk assessment during the development of the proposed set
of four far-reaching rules to implement the food-related provisions of this Act?WT/TPR/M/126/Add.2
Page 19
Answer
FDA has published the risk assessment with the interim final rule.  Under the U.S. system, legislation
is not normally put into effect until the final regulations take effect.  The risk assessment may be
found on the FDA Website at http://www.cfsan.fda.gov/~dms/rabtact.html.
Question:  What efforts are being made by the FDA to reduce the impact of these new measures on
trade?
Answer
FDA has encouraged public comment at every stage of the bioterrorism regulations’ development.
FDA developed and published proposed regulations which were open to public comment from both
domestic and foreign parties.  We also conducted numerous outreach meetings directed at foreignstakeholders, both within the U.S. to foreign embassy officials in Washington and via
videoconference.  We received numerous comments from foreign governments, industries, and trade
associations on both rules.  We reviewed each comment that was submitted during the comment
period and developed the final rule, taking the comments into account.  In the case of the prior notice
and registration regulations, we are allowing for several opportunities for interested individuals toprovide comments even as we begin implementing the interim final rule to make sure that we
minimized any negative effect on trade while ensuring our food safety and security.  We have
published a compliance policy guide that describes the US strategy for maintaining an uninterrupted
flow of food imports while improving their safety in accordance with the Public Health Security and
Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act) requirements.
Question:  Will there be a review mechanism of the parent legislation from the date of
implementation of the new measures, and if not, why not?
Answer
The Public Health Security and Bioterrorism Preparedness and Response Act of 2002 was signed into
law by President Bush, on June 12, 2002.  It is now public law (PL107-188).  It is the U.S. legislative
body - our Congress - that makes laws and amends existing laws.  From time to time, Congress
reviews existing legislation as it deems necessary.
Question:   More specifically regarding the new reco rd-keeping measures, what efforts are being
made to improve the manifest lack of communicati on between US agencies such as the FDA, Tax and
Trade Bureau, and US Customs?
Answer
FDA has worked closely with sister agencies in the development of the bioterrorism regulations.  In
the US regulatory system, the Office of Management and Budget coordinates all draft proposed and
final rules and ensures that all regulations are reviewed by any agency that may be affected by the
regulation.  Any affected agency may provide comments or not clear a regulation pending further
consideration.  This process makes sure that all affected agencies are consulted prior to a regulationbeing published.WT/TPR/M/126/Add.2
Page 20
Question (Korea)
Reference:  page 65, para.146-149
Does the US government have any intention to st reamline such burdensome procedural requirements?
Answer
FDA has encouraged public comment at every stage of the bioterrorism regulations’ development.
FDA developed and published proposed regulations which were open to public comment from both
domestic and foreign parties.  We also conducted numerous outreach meetings directed at foreign
stakeholders, both within the U.S. to foreign embassy officials in Washington and via
videoconference.  We received numerous comments from foreign governments, industries, and trade
associations on both rules.  We reviewed each comment that was submitted during the comment
period and developed the final rule, taking the comments into account.  In the case of the prior noticeand registration regulations, we are allowing for several opportunities for interested individuals to
provide comments even as we begin implementing the interim final rule to make sure that we
minimized any negative effect on trade while ensuring our food safety and security.  We have
published a compliance policy guide that describes the US strategy for maintaining an uninterrupted
flow of food imports while improving their safety in accordance with the Public Health Security and
Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act) requirements.
FDA included an economic impact analysis in the proposed rules for affected entities to review and
provide comment, and made revisions to the rules based on the comments we received to further
minimize the impact to trade consistent with the requirements in the Act.  Both interim final rules
include a regulatory impact analysis.
Question (Switzerland #1 set II)
Switzerland has taken note that the U.S. has not yet ratified neither the PIC, the POPs nor the Basel
Convention although the U.S. is one of the main financial contributors to these conventions.  What are
the U.S. intentions referring to the ratification of these chemical and waste conventions?
Answer
The United States intends to join the PIC, POPs and Basel Conventions and is currently developing
the necessary implementing legislation in order to join.
Chapter 3 - BY MEASURE
(5) Subsidies
Question (China #11 and #12)
FSC/ETI
(12)  Would the US Government expect that other Members will follow the practice of the US thus
harming the world environment of fair trade and the implementation of WTO Agreements?
(13)  Does the US have any plan on repealing or amending the relevant legislation inconsistent with
the WTO Agreements?
AnswerWT/TPR/M/126/Add.2
Page 21
The United States has made clear its commitment to work with the U.S. Congress to fully comply
with the prior recommendations and rulings of the Dispute Settlement Body concerning the
Extraterritorial Income Act.  Both branches of Congress are currently considering legislative
proposals that would repeal the ETI Act.  While the United States cannot specify the precise date on
which this will occur, the United States is confident that the ETI Act will be repealed in the
reasonably near future.
Question (Brazil)
How does the American federal government follow the initiatives of business assistance at local levels
and check their compatibility with the WTO rule s?  How are the U.S. commitments to the WTO
complied at local levels since those initiatives are not notified to the Federal Government?
Answer
The United States federal government has devoted considerable time and resources in working with
government officials at the sub-federal level to  ensure their cognizance of the commitments the
United States has undertaken as a WTO Member.  The current degree of close cooperation betweenfederal and sub-federal governments is evidenced by the subsidies notification made by the United
States in 2003 to the Committee on Subsidies and Countervailing Measures pursuant to Article 25 of
the Agreement on Subsidies and Countervailing Measures (see, G/SCM/N/95/USA).  In this
notification, the United States notified 330 sub-federal programs, nearly double the number of
programs notified in 2002.
Chapter 3 - BY MEASURE
(7) Intellectual Property Rights
Question (Canada)
Reference:  (v) Intellectual Property Rights; Section 337 investigations; Paragraph 297
In 1989, a GATT panel found that Section 337 of the United States Tariff Act of 1930 violated GATT
obligations and yet, as noted in paragraph 297, 47 new Section 337 investigations involving unfairpractices related to intellectual property rights we re initiated against foreign companies. What steps
are being taken by the United States to ensure that non-American companies do not face additional
procedural burdens in defending against allegations of intellectual property infringement, contrary to
international trade obligations?
Answer
The United States amended section 337 of the Tariff Act of 1930, 19 U.S.C. para. 1337, as part of
U.S. implementation of the Uruguay Round results.    These amendments addressed the
recommendations of the GATT panel cited in the question.
Specifically, inter alia , the amendments:
- Eliminated the requirement that the USITC issue a final determination within a fixed period of
time.  Instead, the amendment provides that th e ITC must complete its investigation "at the
earliest practicable time" and requiresthe USITC, within 45 days of initiating an investigation, to
establish a "target date" for its completion.  See 19 U.S.C. para. 1337(b)(1).  These requirementsare consistent with federal district court rules and district court efforts to avoid delay, such as by
establishing a schedule for the completion of various stages of litigation;WT/TPR/M/126/Add.2
Page 22
- Provide a means to prevent subjecting imported g oods  to infringement proceedings in two fora
simultaneously.  A district court hearing an infringement case is required to stay its proceedings,at the request of a respondent in a section 337 proceeding, in respect of any claim involving the
same issues as those pending before the ITC.  In addition, the statute provides for the record in an
ITC proceeding to be transferred to the Federal district court for its use, with the intended benefit
of eliminating any duplication of effort or expense;  and
- Provide that a respondent in a section 337 action may file with the USITC any counterclaim that
may be filed with a federal court.  If the claim is of the form of a defense to the alleged violation
of section 337, the USITC will consider the matter;  otherwise the counter claim is removed to a
federal district court.  See 19 U.S.C. para. 1337(c).
Question (Chile #9)
While the subject of exhaustion of rights with respect  to copyright and patents seems clear, such is
not the case with regard to manufacturing marks or trademarks.  Could you specify the rules that
apply to the exhaustion of rights for manufacturing marks or trademarks and the applicable norms or
case law?  Do the same legal provisions apply to geographic indications?
Answer
Current U.S. law provides owners of U.S. registered trademarks with the legal basis to stop parallel
imports.  The underlying law that establishes U.S. national exhaustion can be found in the U.S.
Customs provision 19 U.S.C. 1526(a)-(c).  Under 15 U.S.C. §1054, registered certification marks andcollective marks are afforded the same protection afforded to trademarks; therefore, the owner of a
registered geographical indication certification mark also has the legal basis to stop parallel
importation.  See also, K Mart Corp. v. Cartier, Inc. , 486 U.S. 281 (U.S. 1988) and Lever Bros. Co. v.
United States , 796 F. Supp. 1 (D.C. Cir. 1992).
Question (Chile #9 bis)
Is there any recent case law regarding Title 28 USC 1498?  Please indicate to what cases the pertinent
legal decisions refer.
Answer
Yes, there are several recent cases cited in the 2003 “Cumulative Annual Pocket Part (on pages 153-
158) of the United States Code Annotated  (© 1994, West Publishing Co., St. Paul, Minnesota),
dealing with a variety of issues, including what is “reasonable and entire compensation”,
infringement, jurisdiction, etc.  Because of the number and variety of cases, no attempt is made to
summarize them here.
Question (Chile #10)
Once a drug has been registered in the Orange B ook, the owner of a patent can prevent the entry on
the market of a generic competitor by filing a lawsuit.  This stays the entry of the generic product onthe market for a period of 30 months or until the suit is settled.  Does U.S. law provide for the
possibility that the generic drug can be put on the market if the patent expires during the 30-month
period or before the suit is settled?  Are there any statistics available as to how long these lawsuits
take?
AnswerWT/TPR/M/126/Add.2
Page 23
If the patent expires before the 30 -month period or before the law suit is settled, the generic is
permitted to enter the market.  On average the time between the filing of a patent infringement lawsuitand a district court decision in each case was 25 months and 13 days.
Question (China #75)
Reference:  p. 92, para 270
The U.S. is the only country in the world that adopts the “first invent” system in judging the novelty
of patents.  The “first invent” system prima facie conforms to National Treatment and MFN rule,
however it has caused many inconveniences to national of WTO Members.  For example, Article 102
of the Patent Act of the US states that criteria of novelty for inventions created in the US are different
from those for invention completed out of the US.  Comparing with the US applicants, the above
provision is obviously unfavorable to foreign applicants filing applications for patents in the US.
Please elaborate what actions the US intends to take to make foreign applicants in an equal position
with the US applicants.
Answer
See answer to Question # 50 (Japan) regarding the first-to-invent system.  The suggestion is made in
the question that the operation of Section 102 of U.S. patent law produces an effect that favors
nationals of the United States.  There is no basis for this suggestion.  Section 102(a) of the United
States patent statute does limit the patent-defeating effect of prior public knowledge or use to
knowledge or use of the invention in the United States.   The effect of section 102(a) is that aninvention claimed in an application for a United States patent will not be treated as being novel if the
invention has been disclosed or known to others in the United States.  Section 102(a), however, does
not distinguish between applications claiming inventions made in the United States versus those made
outside the United States; any application for patent that fails to possess novelty through operation of
section 102(a) is treated as unpatentable subject matter.  Application of section 102(a) is made in anidentical  fashion to applications for inventions developed in the United States and those that are made
outside the United States.
Question (China #76)
Reference:  p. 94, para 277
Section 1498 of the US Code states that when products manufactured and used by the US
Government or manufactured or used upon a request by the US Government involve a patent, the
patentee has no right to prevent the manufacturing and use of the products by the US Government.
This situation is akin to compulsory licensing system without the permission of the patentees as
stipulated in Article 31 of TRIPS, but protections to the patentees provided in relevant act of the US is
much weaker than those provided in Article 31 of TRIPS.
Please explain the consistency of this act with Article 31 of TRIPS.WT/TPR/M/126/Add.2
Page 24
Answer
Section 1498 of Title 28, United States Code, concerns a limitation on remedies that can be obtained
from the United States Government for public non-commercial use of a patented invention by it or a
party authorized by it.  The United States routinely seeks licenses or permission to use the patented
invention from the patentee.  In the unlikely event a patentee believes the United States is using the
patented invention without permission of the patentee, the United States has waived its sovereignimmunity to suits against the United States for in fringement of patents.  Section 1498 codifies the
explicit waiver.  Article 44.2 of the TRIPS Agreement authorizes Members to limit the remedies
available against non-commercial use of a right by the government to payment of remuneration in
accordance with paragraph (h) of Article 31.  The United States does limit remedies in this manner;
however, Section 1498 does provide for reasonable compensation for use or manufacture of a
patented invention by or for the United States.  In any event, to the extent applicable, all of the
relevant provisions of Article 31 are still complied with. The U.S. Federal Acquisition Regulations --codified uniform policies used by government agencies when acquiring goods or services -- call
Article 31(b) of TRIPS to the attention of the ag encies.  FAR 27.209 notifies contracting officers of
U.S. agencies that Article 31 of TRIPS applies where the law of a member country allows for the use
of patents without authorization and advises the co ntracting officers to consult with legal counsel
regarding questions under this section.
Question (China #77)
Reference:  p. 95, para 281
Please provide information on the implementation of the obligation to protect well-known trademark
under the TRIPS Agreement in the US domestic legislation and judicial practices.
Answer
The United States fully implements its obligations under both the Paris Convention and the WTO
Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) with regard to well-
known marks.  The United States protects registered as well as unregistered well-known marks, of
both domestic and foreign origin, from use and/or registration through the operation of Lanham Act
§43(a), §44(b) and §44(h) and under the Lanham Ac t §2(a) and 2(d). (15 U.S.C., §1125(a), §1126(b)
and (h), and §1052(a) and (d)).  In cases where there is no use in commerce of the well-known markin the United States, but the mark is still well-known in the relevant sector of the public, the mark will
receive U.S. federal unfair competition protection under the Lanham Act §43(a), §44(b) and §44(h).
Lanham Act §44 grants “national treatment” to foreigners entitled to the benefits of the Paris
Convention with regard to protection against unfair competition.
U.S. federal law protects a mark against infringement or registration by another, whether the mark is
registered or not, for goods or services that are the same, similar, related or even unrelated if there is alikelihood of confusion.  When making a determination of likelihood of confusion at the United States
Patent and Trademark Office (USPTO) or in an infringement action in U.S. federal court, U.S. case
law outlines a variety of non-exclusive and non-exhaustive factors that can be used in the analysis.
These factors include, but are not limited to, the similarity of the marks, the relatedness or proximity
of the goods and/or services, the strength of the plaintiff's mark including the level of commercialrecognition, marketing channels used including the similarity or dissimilarity between the consumers
of the parties' goods and/or services, the degree of care likely to be exercised by purchasers in
selecting goods and/or services, the defendant's inte nt in selecting its mark, the evidence of actual
confusion, the likelihood of expansion in product lines, etc.
USPTO Examining Attorneys may refuse to register marks that conflict with unregistered well-known
marks, foreign or domestic, whether used or not in the United States, under Lanham Act §2(a) and (d).
(15 USC §1052(a) and (d)).  The USPTO does not make a specific determination in examination as toWT/TPR/M/126/Add.2
Page 25
whether a mark is well-known.  USPTO evaluates the strength of the mark in determining the scope
of protection to afford a previously registered or unregistered mark against a pending application.Under U.S. law, strong or well-known marks have  a wider scope of protection than weaker marks
against use of the mark on similar goods or services or even against use on unrelated goods or
services.
Question (China #78)
Reference:  p. 97, para 293
The exceptions to copyright protection (Limitations on exclusive rights:  Exemption of certain
performances and displays) as specified in Article 110.5 of US Copyright Act is inconsistent with
Article 13 of TRIPS.
Is the US going to make any amendment to such prov ision so as to make it consistent with the TRIPS
Agreement?
Answer
Please see the response to Question 56 from Japan.
Question (China #79)
Does the US Government have any plan for such amendment?  If yes, please provide the detailed
information.
Answer
Please see the response to Question 56 from Japan.
Question (Colombia #1)
Paragraph 270 of the Report establishes that, in the case of USPTO-caused delays in the granting of
patents, there are formulas to calculate the extension of the term of patent protection.  Could you
explain how the formula works and give examples of its application?
Answer
35 U.S.C. § 154(a)(2) sets the term of a granted U.S. patent at 20 years from the effective U.S. filing
date.  35 U.S.C. § 154(b) sets forth conditions under which the patent applicant may extend the patent
term to recoup time lost due to administrative delays caused by the PTO.  There are five categories of
administrative delay for which patent term adjustment may be sought:
(1) failure by the PTO to take certain actions within a specified time;
(2) failure by the PTO to issue a patent within 3 years of the application filing date;
(3) delays due to successful appellate review;
(4) delays due to interference proceedings; and(5) delays due to secrecy orders.
The total period of term extension is the sum of the delays attributable to each of the above-listed
categories to the extent that they do not overlap.  Thus, the term cannot be extended beyond the actual
length of the delay caused, i.e., the same delay, though attributable to more than one category, is
counted only once.  The statute also allows for a reduction in the patent term restoration to the extent
of delays caused by the applicant’s failure to engage in reasonable efforts to prosecute the application.WT/TPR/M/126/Add.2
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The net restoration term is therefore the difference between the amount of delay caused by the PTO
minus the amount of delay caused by the applicant.
Once an application has been allowed, the PTO calculates what it considers the proper term of
adjustment, extending the term one day for each day of the pendency of the delays described above,
and provides the applicant with one opportunity to request reconsideration.  If, upon reconsideration,
the applicant is dissatisfied with the PTO’s determination of adjustment, the applicant may appeal byway of a civil suit against the Director in D.C. District Court.
Question (Colombia #2)
Is there a similar extension period for delays in the approval for marketing products undergoing the
permit process with regulatory agencies like the FDA or the EPA?
Answer
Yes.  The decision of the length of the patent term extension (PTE) is a decision made by the
United States Patent and Trademark Office, with input as to the length of the regulatory review
period, the approval date, and any prior approvals from the Food and Drug Administration (or theDepartment of Agriculture, if appropriate).  35 USC 156 provides that a patent owner may file an
application for PTE to the USPTO within 60 days of approval of the product by the Food and Drug
Administration (FDA).  Upon receipt of the appl ication, the USPTO reviews the application for
completeness, and forwards a copy of the applic ation to FDA, and requests FDA to confirm the
approval date of the product, and that the appr oval of the product was the first permitted use or
commercial marketing of the product under the pertinent section of the Federal Food, Drug and
Cosmetic Act.
If the application is found to be eligible for extension, the USPTO requests that FDA determine the
regulatory review period of the product.  FDA notifies the USPTO of the determination, and publishesthe determination of the regulatory review period in the Federal Register.  For a drug product, the
"testing phase" is the period from the beginning of testing (defined in the statute as the date an
exception under subsection (i) of section 505 of th e Federal Food, Drug, and Cosmetic Act (FFDCA)
became effective, and ending on the date an application was initially submitted for the drug product
under section 351 or 505 of the FFDCA (i.e., the fili ng of the new drug application (NDA)).  For a
drug product, the "approval phase" is the period beginning with the filing of the NDA and ending with
the approval of the NDA.  See 35 USC 156(g)(1)(A).  The time the marketing applicant takes to reply
to FDA queries is not taken out of this period.
The USPTO then determines the patent term extension.  The statute permits a patent owner who has
lost patent term due to regulatory review by the FDA to be compensated for the lost term that is no
longer than one half of the "testing phase" of the regulatory review plus all of the "approval phase" ofthe regulatory review.  If the number of days in the expression (½("testing phase") plus all of the
"approval phase") when added to the original expiration date of the patent would extend the patent to
more than 14 years after the approval date of the product by FDA, then the patent term extension is
shortened to the difference in time between the original expiration date of the patent and the date that
is fourteen years after the approval date of the product.  Finally, if the patent term extension accordingto the earlier calculations would be longer than 5 years, then the PTE is capped at five years.
However, if the patent issued before September 24, 1984, and testing began before September 24,
1984, then the cap would be two years, or, if the patent is to an animal drug product, if the patent
issued, and testing began, before November 16, 1988, then the cap would be three years.
Question (Colombia)WT/TPR/M/126/Add.2
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We have learned that the United States Congress passed the “Fairness in Music Licensing Act of
1998,” thereby amending article 110 (5) regarding limitations to exclusive rights.  We understand thislaw allows some uses without prior and express consent from the right-holder and without
remuneration.  This situation affects Colombian authors, as we understand it allows for the use, under
the conditions described above, of a wide arra y of Colombian musical works and performances
having a large audience in the United States.
Has the United States considered amending article 110(5)(A), given the harm this limitation causes
copyright-holders from other countries?
Answer
Please see the response to Question 56 from Japan.
Question (EU #45)
US law stipulates that the U.S. Government can allow use of the subject matter of a patent without the
authorization of the right holder.  Does US law provide that the right holder will be notified of such
decision as soon as reasonably possible, and does it foresee the payment of adequate remuneration tothe right holder?
Answer
Yes, see answer to question # 76 from China.
Question (EU #50)
According to US government information, CAFTA would include a provision regarding trade marks
and geographical indications based on a "first in time, first in right" principle.  Could the US elaborateabout these provisions?
Answer
While the US-CAFTA FTA text is not yet public, the Un ited States views the concept of "first in time,
first in right" as confirming the appropriate balance between trademarks and geographical indicationsand ensuring that trademarks are fully protected against later established geographical indications.
Question (Japan #45)
Reference:  p.90, para. 265
Please explain how many cases have been judged as having infringing importation (right to control
the imports of copyright products) under Article 602 of the Copyright Act?  Are there any other casesof having infringing importation, except for the musical CDs?  Please provide some statistics on these
infringing importation cases.  In addition, please explain the relation between controlling the imports
of a copyright product and the anti-trust law.
Answer
Section 602(a) of the U.S. Copyright Act makes the unauthorized importation into the United States
of “lawfully made” copies or phonorecords “acquired outside of the United States” an infringement of
the distribution right.  Section 602 (b) of the Act prohibits the importation of unlawfully made, or
piratical, copies or phonorecords.  Section 602 is not limited to a specific category of protected workWT/TPR/M/126/Add.2
Page 28
(such as sound recordings in the CD format), but ra ther covers all protected subject matter, including
literary works, works of visual art, and audiovisual works.  Under sections 602 and 603, U.S. Customsis authorized to seize imports at the border of articles that are made without authorization (i.e., were
unlawfully made) and does so on a regular basis.  U.S. Customs has no authority to stop the
importation of products lawfully made outside the U.S., so it cannot seize parallel imports at the
border (i.e., articles that infringe only Section 602(a).  Rightsholders, however, have a private right of
action under Section 602 to stop infringing parallel imports.
Customs does not break down its statistics concerning infringing imports in such a way that we can
determine the total number of infringing “parallel” imports seized.  Here is the link to the Customs
Rulings Online Search System (CROSS):
<http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure>.
A search of US federal case law reveals approximately thirty cases in which a US federal court has
cited Section 602 of the United States Copyright Act.  The cases represented many categories of
works, including videogames, toys, works embodied in consumer products, sound recordings, and
books.
US courts have held that the mere exercise of one of the copyright owner's exclusive rights does not
create an antitrust violation.  If the alleged infringer believes that the exercise of the importation right
creates an antitrust violation, then the defendant may raise antitrust or "copyright misuse" defenses.
Question (Japan #46)
Reference:  p. 91, para. 266, p. 92, para. 270 and p. 93, para. 272)
Japan has faithfully implemented the "Japanese Actions to be taken by the Patent Office", confirmed
by the Japan Patent Office (JPO) and the United States Patent and Trademark Office (USPTO) during
the 1994 intellectual property rights working group of the Framework Talks.  However, the US has
never entirely implemented the introduction of an early publication system without exceptions, northe improvement of re-examination.  Japan strongly requests the US to implement these items in
accordance with the agreed actions promptly.
Answer
The provisions for the adoption of an “early publication” system in the United States that were
originally sent to the U.S. Congress (in the 104
th Congress) were fully consistent with the obligations
of the 1994 United States-Japan patent accords.
U.S. obligations in those 1994 patent accords were satisfied by the timely introduction of the relevant
bill in the 104th Congress.  The U.S. made every effort to have legislation passed that was consistent
with the 1994 patent accords, and Congress enacted Public Law 106-113 on November 29, 1999.This law contains a provision to publish, within 18 months, most patent applications filed in the
United States.  The law also added new opportunities for third parties to participate in reexaminations,
including determinations made by the patent examiner to the Board of Patent Appeals and
Interferences, in accordance with the understanding reached as part of the Framework Talks.  The
U.S. Congress more recently passed legislation that would provide for third party appeals to theFederal Circuit in inter partes reexamination.  (See Section 13106 of 5P.L. 107-273.)
Question (Japan #47)
In particular, in order to tackle the following i ssues, Japan requests the US to promptly implement
these items in accordance with the agreed actions of the Framework Agreement in order to abolish the
early publication systems with exceptions, and  to disclose all applications, excluding those non-WT/TPR/M/126/Add.2
Page 29
pending and those under secret order, within 18 months after the first filing date of the patent
application.(a)The early publication system in the US, which was introduced in November 2000, provides
exceptions whereby patent applications filed in the US, but not filed overseas, or matters included in a
patent application filed in the US, but not included in the corresponding application filed overseas,
cannot be laid open at the request of the applicant. It might be, therefore, possible that a patent will be
granted after a long undisclosed period ("Submarine Patent").  Without knowing whether or notanother application is already on file for the same invention, it is unavoidable to invest in R&D in
duplication; thus, we are concerned that this system causes serious social and economic loss.
Answer
Because most patent applications filed in the United States are published within 18 months, we
believe that experience with our publication system will demonstrate over time that the need forexceptions will be proven to be unwarranted.  Moreover, continuing efforts to further reduce patent
pendency in the United States will help to alleviate any problems that these exceptions may cause.
(b)Furthermore, USPTO provides that patent protection may be extended to compensate for any
amount of processing delays and USPTO-caused delays.  Japan would like to point out that there is a
possibility of deliberate delays being caused, and that under the current US system of not having anadequate early publication system, there would be other opportunities to create a submarine patent
through the extension of patent terms.
Answer
Extensions of patent term are not available for delays caused by a patent applicant.
Question (Japan #48)
In addition, any pending applications, already filed with the USPTO at the time of the amendment of
the law (before June 8, 1995), continue to benefit from the former patent terms (i.e. a 17-year patent
term from the date of the patent grant);  the ame nded patent law not being applicable. There is still,
therefore, the possibility that additional submarine patents occur.
Answer
Because average patent pendency in the United States is approximately two years, the possibility of
submarine patents occurring based on applications pending on June 8, 1995, has greatly diminished
over time and will continue to do so.WT/TPR/M/126/Add.2
Page 30
Question (Japan #49)
Reference:  pp.91-94, paras. 268-279
Regarding the Plant Breeder's Right, Japan understand that the US is a member of the 1991 Act of the
UPOV Convention and that it protects new plant varieties through the Plant Variety Protection (PVP)
law and the patent law.
(a)Please explain the acts that will cause loss of "novelty" under both the PVP law and the patent law
as a plant patent.
Answer
Under 7 U.S.C. 2402 of the Plant Variety Protection Act (PVPA), a plant variety is deemed new if on
the date of filing of the application for plant variety protection, propagating or harvested material ofthe variety has not been sold or otherwise disposed of  to other persons, by or with the consent of the
breeder, or the successor in interest of the breeder, for purposes of exploitation of the variety (1) in the
United States, more than 1 year prior to the date of filing, or (2) in any area outside of the United
States, more than 4 years prior to the filing of the application or in the case of a tree or vine, more
than 6 years prior to the date of filing.  Under the PVPA, therefore, acts that do not meet theseconditions would result in a loss of novelty.  Any sexually reproduced or tuber propagated plant
variety (other than fungi or bacteria) are covered under the PVPA.   (See Section 3 of Public Law
103-349, 108 Stat. 3138, and Sec. 913(a) of Public Law 104-127, 110 Stat. 1186.)
Under the Plant Patent Act, a plant variety is deemed new unless:(a)  the invention was known or used by others in this country, or patented or described in a printed
publication in this or a foreign country, before the invention thereof by the applicant for patent, or
(b)  the invention was patented or described in a printed publication in this or a foreign country or in
public use or on sale in this country, more than one year prior to the date of the application for patent
in the United States, or
(c)  he has abandoned the invention, or
(d)  the invention was first patented or caused to be patented, or was the subject of an inventor’s
certificate, by the applicant or his legal representatives or assigns in a foreign country prior to the date
of the application for patent in this country on an application for patent or inventor’s certificate filed
more than twelve months before the filing of the application in the United States, or
(e)  the invention was described in — (1) an application for patent, published under section 122(b), by
another filed in the United States before the invention by the applicant for patent or (2) a patentgranted on an application for patent by another filed in the United States before the invention by the
applicant for patent, except that an international application filed under the treaty defined in section
351(a) shall have the effects for the purposes of this subsection of an application filed in the United
States only if the international application designated the United States and was published under
Article 21(2) of such treaty in the English language; or
(f)  he did not himself invent the subject matter sought to be patented, or(g)(1) during the course of an interference conducted under section 135 or section 291, another
inventor involved therein establishes, to the extent permitted in section 104, that before such person’sinvention thereof the invention was made by such other inventor and not abandoned, suppressed, or
concealed, or (2) before such person’s invention thereof, the invention was made in this country by
another inventor who had not abandoned, suppressed, or concealed it. In determining priority ofWT/TPR/M/126/Add.2
Page 31
invention under this subsection, there shall be considered not only the respective dates of conception
and reduction to practice of the invention, but also the reasonable diligence of one who was first toconceive and last to reduce to practice, from a time prior to conception by the other.
The Plant Patent Act 35 U.S.C. 161, applies to asexually reproduced varieties, other than a tuber
propagated plant or a plant found in an uncultivated state.  With respect to novelty, this Act
incorporates the requirements of 35 USC 102 in the Patent Act.  See Public Law 92-358, sec. 2, 86Stat. 501;  Public Law 94-131, sec. 5, 89 Stat. 691;  Public Law 106-113, sec. 1000(a)(9), 113 Stat.
1501A-565 (S. 1948 sec. 4505); Public Law 106-113, sec. 1000(a)(9), 113 Stat. 1501A-590 (S. 1948
sec. 4806); Public Law 107-273, sec. 13205, 116 Stat. 1903.)  Under United States law, however, in
order for a publication to defeat novelty, the publication must be an enabling publication under 35
U.S.C. 112, 1
st paragraph.  Any acts consistent with the above, will defeat novelty under the Plant
Patent Act.
Question
(i) Do the acts of publication, such as the publication of catalogues, the publication of the application
in other countries, or the publication of papers on a certain variety, cause a loss of "novelty" of the
variety in question?
Answer
A printed publication can serve as a statutory bar under 35 USC § 102(b) of the Plant Patent Act if the
reference, combined with knowledge in the prior art, would enable one of ordinary skill in the art toreproduce the claimed invention, see In re LeGrice , 301 F.2d 929 (CCPA 1962).  Therefore, if the
plant in question was publicly available, then the granted PBR certificate, combined with knowledge
in the prior art, would enable one of ordinary skill in the art to reproduce the claimed plant, and would
therefore constitute an enabling disclosure under 35 USC § 102(b), see Ex Parte Thomson , 24
USPQ2d 1618 (Bd. Pat. App. & Int. 1992).  The publi c availability referred to here may include
availability to the public in a foreign country.  For example, a foreign Plant Breeder’s Right (PBR)
certificate may be considered a “printed publication,” and may therefore be prior art against an
invention under 35 USC § 102(b), if it constitutes an “enabling disclosure”.
This availability must not be confused with the statutory bar of prior use or sale, also contained in
section 102(b), as foreign prior use or sale, as such, is not a bar to patentability in the United States.
Question
(ii) According to the UPOV Act, "the variety shall be  deemed to be new if, at the date of filing of the
application for a breeder's right, propagating or harvested material of the variety has not been sold or
otherwise disposed to others, by or with the consent of the breeder, for purposes of exploitation of thevariety".  However, the cases described above are acts of publication of the variety, and no act relating
to sale or otherwise disposed to others for propagating material or for harvested material are involved.
If the cases described above suffer a loss of "novelty" for a variety in the US, please explain why. In
addition, please provide the US’s interpretation of Article 6 of the 1991 Act of the UPOV Convention.
Answer
With the exception of tuber propagated plants (whi ch are subject to the PVPA), asexually reproduced
plant varieties are not subject to the PVPA under United States law.  Additionally, the United States
made a reservation pursuant to Article 35(2) of the 1991 UPOV Convention when it ratified theConvention, and therefore, asexually reproduced pl ants are not subject to the 1991 UPOV Convention
(with the exception of tuber propagated plants).  Thus, if an asexually reproduced variety loses
novelty based on a publication, this is because 7 USC 2402 (which is consistent with Article 6 ofWT/TPR/M/126/Add.2
Page 32
UPOV) is not the controlling law;  35 USC 102 is the law that is applied to asexually reproduced plant
varieties.
Some situations which would result in a loss of novelty under Article 6 of the 1991 UPOV
Convention would include sale of a variety in United States more than 1 year prior to filing for a plant
breeder’s certificate in the United States, sale of a variety in a foreign country more than 4 years (or 6
years for trees or vines) prior to filing for a plant  breeder’s certificate in the United States, or givingaway a variety for exploitation within the prescribed time periods, for example.
Question
(iii) The 1991 Act of the UPOV Convention states that there are certain grace periods for novelty:
one year for that taking place within the territory of the Contracting Party and four years (six years for
trees and vines) for that outside the territory.  Please provide information on the relevant provisions ofthe grace periods in the US, both under the PVP law and the patent law.
Answer
7 U.S.C. 2402 describes the circumstances for which novelty is defeated under the Plant Variety
Protection Act.
35 U.S.C. 102 describes the circumstances for which novelty is defeated under the patent law.  A
prima facie case is made out under 35 U.S.C. 102(a) if, within 1 year of the filing date, the invention,
or an obvious variant thereof, is described in a “printed publication” whose authorship differs in anyway from the inventive entity unless it is stated within the publication itself that the publication is
describing the applicant’s work. In re Katz, 687 F.2d 450, 215 USPQ 14 (CCPA 1982). The term
“others” in 35 U.S.C. 102(a) refers to any entity which is different from the inventive entity. The
entity need only differ by one person to be “by others.”  This holds true for all types of references
eligible as prior art under 35 U.S.C. 102(a) including publications as well as public knowledge anduse. Any other interpretation of 35 U.S.C. 102(a) “would negate the one year [grace] period afforded
under § 102(b).” In re Katz, 687 F.2d 450, 215 USPQ 14 (CCPA 1982).
Question
(b) Is there any plan to change the provisions for " novelty" in the US laws in the future?  If so, please
indicate the details of the changes and the timetable.
Answer
A bill has been introduced before the 108
th Congress, but when or if this Congress will take action on
this bill is unknown.WT/TPR/M/126/Add.2
Page 33
Question (Japan #50)
Reference:  p.92, para. 270
The US is the only country to use a "first-to-inven t" system, which, with regard to the patent system,
makes the US rather unique.  Moreover, this system lacks certainty and predictability in the sense that
a patentee’s status can be overturned by the appearance of a subsequent prior inventor.  This involves
additional burden to inventors, who are thus requir ed to prepare and keep documentary evidence to
prove the date of invention.  Many countries, including Japan, have pointed out that this issue creates
a barrier for foreign companies when trying to penetrate the US business community.  Although the
practice of maintaining the first-to-invent system  is not necessarily against the TRIPS Agreement,
Japan again requests the US to adopt the first-to-file system.  This is due to the necessity to maintain a
transparent and stable system, as well as to reduce the burdens borne by users through the differing
systems.
Answer
Although the U.S. first-to-invent patent system is  unique, it is clearly compatible with the TRIPS
Agreement, it has worked well and, indeed, has certain advantages.  For example, our system is fairer
than first-to-file systems in that it rewards the firs t inventor who files a patent application rather than
the first-to-file an application, regardless of whethe r that first applicant to file an application was,
indeed, the first inventor.
From a purely statistical viewpoint there would seem to be little difference in result between a first-to-
invent patent system and a first-to-file patent system.  More than 99.9% of patent applications filed inthe U.S. raise no dispute as to priority of invention.  Even when such disputes arise, the inventor who
filed first prevails in a significant majority of these cases.  The actual effect of a switch to first-to-file
system, thus, is likely to have little or no actual significance based upon these statistical findings.
With regard to the alleged burden imposed by a fi rst-to-invent system with regard to documentary
evidence to prove the date of invention, it should be kept in mind that inventors in most first-to-file
systems also maintain such evidence in order to be able to assert “prior user rights” or derivation.
Documentary and other objective evidence is required to establish prior user rights in cases where an
earlier inventor wishes to continue using an invention that was patented by another party that filed
first, and obtained, a patent on that invention.  Such evidence is also required prove inventorshipwhere the first person to file derived the invention from the true inventor and is not entitled to the
patent.
Question (Japan #51)
Reference:  p.93, para. 271
The "Hilmer" doctrine, which exists in the US, is an application which has a prior art effect only up to
the date of the application in the US.  Foreign applicants usually file applications, first in their own
country and then in the US, thereby claiming priority under the Paris Convention.  Due to the
"Hilmer" doctrine, such foreign applicants cannot prevent the patent grant from conflicting with
applications filed before the actual filing date of any subsequent applications in the US, even during
the priority period, and therefore may suffer a disadvantage.
Answer
The concerns of the Hilmer Doctrine, if any, were mitigated to a large extent by changes to the US
patent law that went into effect on June 8, 1995.  These changes permit all patent applicants, includingthose from Japan, to file provisional patent applications that will give them the earliest possible prior
art date for subsequently filed non-provisional applications.  It should also be noted that this issue is
under discussion in the ongoing substantive patent law harmonization talks in WIPO.WT/TPR/M/126/Add.2
Page 34
Question (Japan #52)
This might be against Article 4B of the Paris Convention, which stresses that acts by a third-party in
the priority period "cannot give rise to any third-party right or any right of personal possession" and
Article 2.1 of the TRIPS Agreement, which requires compliance with Article 4 of the Paris
Convention. Japan therefore requests the US to revise its system.
Answer
The effective date of a patent application as a prior art reference under the so-called "Hilmer" doctrine
is not inconsistent with the obligations of Article 4B of the Paris Convention, as it does not affect the
ability of an applicant to obtain a patent where the applicant has made a priority claim that establishes
an effective filing date prior to the effective prior art date of the patent.  Note that WIPO’s PatentCooperation Treaty explicitly allows countries to apply the Hilmer doctrine in Article 64.4.
Question (Japan #53)
Reference:  p.94, para. 275
Japan understands that the USPTO implemented a public comment procedure, and is trying to
harmonize its patent system with the international system of Patent Law.  However, with regard to the
unity of invention, under the current US patent system, the scope of inventions that can be included in
a single application is, according to what we have been requested so far, narrower than that under the
systems of the JPO and the European Patent Offi ce (EPO).  Thus, a patentee is obliged to submit
multiple applications, thereby increasing the burden. Ja pan repeats its request to the US to adopt the
same criterion for its unity of invention as that of Japan and Europe.
Answer
The U.S. Patent and Trademark Office has been studying the implementation of unity of invention for
national applications for many years.  There are serious implementation concerns including revenue,
resource allocation and labor management.  These concerns must be viewed in the context of the
difficulties in coping with application filings that continue to increase year-to-year, especially in high-
technology areas.  There are also concerns that the current unity standard may not be the best
approach to the issue of limiting the claiming of multiple inventions in single applications, especiallyin those emerging technologies.  To that end, the United States, in the ongoing discussions of WIPO’s
Standing Committee on the Law of Patents (SCP), has supported the formation of a Working Group to
further study this issue.
Question (Japan #54)
Reference:  p.97, para. 289
The Secretariat’s Report describes that the  Digital Millennium Copyright Act of 1998 implemented
the WCT and the WPPT. However, Japan is of the view that the US Copyright Law does not fully
protect the moral rights stipulated in Article 6 (2) of the Berne Convention applied to the WCT, the
moral rights of performers stated in Article 5 of the WPPT, the right of making available expressed in
Article 8 of the WCT and in Articles 10 and 14 of the WPPT, and the economic rights of performersin their unfixed performances mentioned in Article  6 of the WPPT.  Please explain, with the specific
provisions of legislation, how these rights are protected in the US.
AnswerWT/TPR/M/126/Add.2
Page 35
Moral rights are protected in the United States not under a single law, but rather through a
combination of federal copyright law, state common law, and other federal and state laws.  Moralrights are protected in the Copyright Act, not  only through section 106A, but also through the
application of the author’s economic rights in section 106, such as the right to prepare derivative
works under section 106(2).  For instance, the protection of the right of integrity will almost always
implicate the author’s (or other copyright owner’ s) right to reproduce the work or to prepare a
derivative work.  These are rights that would be involved in preparing a modification of an author’swork that could violate the right of integrity (which is probably the moral right most likely to be
violated in the digital manipulation of images or text).  Protections for the right of attribution are
provided under a combination of state, federal and common laws.
The US provides full rights of making available as required by the WCT and WPPT in Section 106
(4)-(6) of the Copyright Act, as further clarified by the definitions in Article 101 of the Act, as further
clarified by the definitions in Article 101 of the Act, as well as through case law.The United States protects unfixed or live performances under section 1101 of the Copyright Act.
Section 1101 was adopted as part of the Uruguay Round Agreements Act in order to comply with
certain portions of Article 14 of the TRIPs Agreement.  All of the various remedies for copyright
infringement are made available to those who are injured by violations of section 1101.
Question (Japan #55)
Reference:  p.97, para. 292
Regarding Articles 203 and 304 of the Copyright Act, which enables the right holders to terminate
transfers and licenses, Japan wishes to have concrete explanations on the following points: (a)thepurpose of this system; (b)the basis of the termination period, which is effective for 5 years after
expiration of the 35- year period from the date of execution of the grant; and (c)in the case where
someone doing business by using the transferred right notices the termination of a grant by the author,
how is the safety of the business assured?
Answer
-- Purpose of Sections 203 and 304 of the Copyright Act
In general, the purpose of Section 203 of the Copyright Act, which permits the termination of
transfers and licenses in copyrighted works made on or after January 1, 1978, is to allow the author, or
the author’s heirs, to recapture the value of the work.  The purpose of Section 304(c), which permits
the termination of transfers and licenses of renewal rights in copyrighted works made before January
1, 1978, is to allow the author, or the author’s heirs, to recapture the 19-year extension of the renewal
term under the 1976 Copyright Act.
-- Basis of the Termination PeriodUnder Section 203, termination may be effected at  any time during a five-year window, which begins
at the end of 35 years from the date of executions of the grant.  Under Section 304(c), termination
may be effected during the five-year window that begins 56 years from the date copyright protection
was originally secured (in the usual case, upon notification with proper notice).
-- Business SafetyUnder both Sections 203 and 304, there are exceptions to  termination that help to assure what the U.S.
understands as “business safety”.  Under Section 203, for example, the owner of a derivative workmade under a grant before termination may continue to use the derivative work after termination,
subject to a duty to continue to comply with the terms of the original grant (such as the payment of
royalties).  There is a similar provision for the use of derivative works under Section 304.  In addition,WT/TPR/M/126/Add.2
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works made for hire (such as works made by an employee of a business) are not subject to termination
under Sections 203 and 304.
Question (Japan #56)
Reference:  p.97, para. 293
As the US was unable to implement the recommendations of the WTO panel on the US Copyright
Act, in a reasonable period of the time, which is in violation of TRIPS obligations, the US made a
lump-sum payment of US$3.3 million to the EU over a three-year period ending in December 2004
US$1.1 million per year as compensation for the EU’s loss of benefit. Japan would like to ask the US
for an explanation on the legal process of this matter in the US.
Answer
Consistent with the Understanding on Rules and Procedures Governing the Settlement of Disputes ,
the United States and the European Communities reached a mutually satisfactory temporary
arrangement with respect to the dispute United States -_ Section 110(5) of the U.S. Copyright Act  (DS
160).  The arrangement, which the United States and the European Communities have notified to
WTO Members, covers the period commencing at the end of the “reasonable period of time” forimplementation in this dispute and ending December 21, 2004.
Pursuant to this arrangement, the United States made a lump-sum payment of $3.3 million to the
European Communities, to a fund established to finance activities of general interest to music
copyright holders, in particular awareness-raisin g campaigns at the national and international level
and activities to combat piracy in the digital network.  The funds were appropriated by the U.S.Congress.
The mutually satisfactory temporary arrangement addresses the dispute for a three-year period.  Prior
to the end of the period, the United States and the European Communities will enter into consultations
with a view toward reaching a final resolution.
Chapter 4 - BY SECTOR
(1) AgricultureQuestion (Chile #1)
Paragraph 12 indicates that the Farm Act does not include a budget ceiling, although there are a
number of mechanisms that impose limits on spending.  One of such measures is the “circuit breaker”
clause under which domestic supports would not exceed WTO limits.  How are the domestic supports
reviewed under this clause?  Has it been necessary to invoke this clause during this period?
Answer
The United States Department of Agriculture continually monitors actual spending in each of its
programs.  If actual spending levels approach commitment levels, the Secretary of Agriculture is
notified, and further spending is closely watched in case the "circuit breaker" provision of the 2002
Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to beinvoked.  This provision has not been used.
Question (Chile #2)WT/TPR/M/126/Add.2
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With respect to the agricultural notifications that must be made to the WTO, for what reason were
support programs for the period 1999-2000 not notified?  Does the failure to provide notificationaffect the monitoring system of the “circuit-breaker” clause?
Answer
The United States is in the process of preparing Domestic Support notifications to the Committee on
Agriculture. We will submit the notifications for programs under the 2002 Farm Act for which
exemption will be claimed as soon as possible.  The United States remains committed to the
notification process and will work to fulfill all its WTO obligations.  No, a lack of notification does
not affect the monitoring system of the “circuit-breaker” clause.  The USDA continually monitors
spending for each of its programs. If actual spending levels approach commitment levels, the
Secretary of Agriculture is notified, and further spending is watch in case the provision of the 2002
Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to beinvoked.  This provision has not been used.
Question (China #6)
Could the US Delegation please explain the reason why the notification obligations were not
implemented?  Please inform us of the plan on the earliest implementation of these obligations.
Answer
The United States is in the process of preparing Domestic Support notifications to the Committee on
Agriculture for programs under the 2002 Farm Bill for which exemption will be claimed and will
submit these notifications as soon as possible .  The United States remains committed to the
notification process and will work to fulfill all its WTO obligations.
Questions (China #16 & #17)Could the U.S. explain the consistency of this measure with WTO principle of national treatment?
Does the U.S. intend to modify the regime for peanut imports and enhance its transparency in
accordance with the WTO rules?WT/TPR/M/126/Add.2
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Answer
The U.S. peanut import tariff rate quota (TRQ) was implemented following the Uruguay round of the
WTO.  The TRQ set a maximum quantity of peanuts permitted into the U.S. each year at a reduced
tariff rate of 9.35 cents/kg (6.6 cents/kg for shelled peanuts).  The total quantity permitted under the
TRQ provision is 52,906 MT (shelled weight) and allocated between Argentina (43,901 mt) and other
(9,005 MT).  These amounts have remained unchanged since 2000.  Additional provisions under bi-lateral free trade agreements (FTA) allow for peanut imports at zero duty for select countries (Mexico,
Israel, Chile).  Duty rates and TRQ limits are published in the Harmonized Tariff Schedule of the
United States.  Provisions of the TRQ are provided in note 2 to the Chapter 12 duty rates and in
general note 15 to the tariff schedule concerning bi-lateral free trade agreements.
Since the TRQ was developed and set during WTO negotiations, it would thereby be consistent with
the WTO principle of national treatment.  The TRQ was designed to provide access for foreignsuppliers to the U.S. market.  The TRQ replaced pr evious market access provisions that effectively
barred access for foreign peanuts into the U.S. market.  All importers are given equal access into the
U.S. market with in their respective quota allotments.
Question (China #42)
Please provide information on what measures the U.S. has taken in this respect since then.
Answer
The U.S. Administrative Procedures Act requires the publication of proposed rules and comment
periods that conform to SPS obligations.
Questions (China #43, #44, and #45)
What domestic legislation prevents the U.S. from doing so?  We would appreciate it if the U.S. could
provide us the full text of the relevant legislation.
How would the U.S. justify the situation of a high percentage of inconsistency in terms of comment
period provided by the U.S. for the SPS notifications, for example 57.3% of the US SPS notificationswere less than or equal to 30 days, 92.3% less than 60 days for the year 2002?
What measures will the U.S. take in order to abide by the recommendations of the SPS committee and
the TBT Committee on the no less than 60 day comment period?
Answer
At any time any contracting party finds the comm ent period insufficient in length, they are
encouraged to contact the WTO inquiry point.
Questions (China #46 & 47)
Is it the consideration of the US behind this legislation that consumers would more likely choose
products originating in the U.S. when they are labeled with the country of origin?  If not, what is the
consideration behind the measure?
Since imported meat products have already underg one relevant inspection and quarantine, how does
the U.S. consider the impact of this practice on equitable competition between foreign and U.S.
products?WT/TPR/M/126/Add.2
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Answer
The effects of country of origin labeling (COOL) requirements on consumer behavior cannot be
determined at this time because much depends on how industry implements the regulation.  In a
nation of brand conscious consumers, the 2002 Farm Act COOL provision is Congress’ response to
consumer stated preferences for country of origin labeling.  USDA will be paying close attention to
ensure that the implementation of mandatory COOL regulations will be consistent with US tradeobligations.  Currently, the COOL compliance is only voluntary and it is not known when the
mandatory regulations will be fully implemented.
Question (China #48)
What are the inspection and quarantine standards adopted by the U.S. for Asian pears and apples from
China?  Are such standards different from international quarantine standards?
Answer
Inspection and quarantine standards are developed through analysis of the pest risk associated with
the imported commodity in accordance with international standards.
Question (China #49)
Is there a time limit for inspection and quarantine of  imported goods in the US?  Has such time limit
been respected in the inspections of Asian Pears and apples from China?
Answer
Time requirements for inspection at the port-of-ent ry are based on a variety of factors including
clearance of documentation through U.S. Customs and available time for agricultural inspection.
Every effort is made to expedite perishable commod ities.  All imported fruit is subject to some level
of inspection.
No specific time limits have been established for importation of China-origin pears.  China-origin
apples have never been authorized to be imported into the United States.  Once pests are found on
shipments of a specific commodity additional scrutiny is given to subsequent shipments.Additionally, with regard to China-origin pears, many of the current problems were not found at the
port-of-entry but rather in retail fruit markets.
Question (China #50)
Could the US please clarify the scientific justification in terms of SPS for refusing the importance of
Chinese bergamot pears?
Answer
The U.S. is not familiar with a market access request for China-origin bergamot pears.  However, we
are familiar with a market access request for fragrant pears.  Are fragrant pears and bergamot pearsthe same commodity?
The proposed rule to authorize importation of China-origin fragrant pears was published for public
comment during the summer of 2003.  Public comments are currently being addressed in  preparation
for publication of a final rule that would authorize importation of China-origin fragrant pears.
Question (China #51)WT/TPR/M/126/Add.2
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Why did the US refuse to conduct the pest risk analysis?
Answer
Again, the U.S. is not familiar with a market access re quest for China-origin bergamot pears.  If this is
the same commodity as fragrant pears a pest risk analysis was conducted.
Question (China #52)
Could the U.S. explain the necessity of these pr actices and their consistency with the rule of
harmonization and the principle of least trade restrictiveness contained in the WTO Agreement on
TBT and SPS?
Answer
These inspections are performed upon arrival to ensure that any peanuts imported into the United
States meet our standards, as applied to both imported and domestic product.
Question (China #80)
Why has the U.S. not yet notified WTO of this 2002 Farm Bill?
Answer
The Farm Security and Rural Investment Act of 2002 (i.e. the 2002 Farm Act) itself is not a program
to be notified, but instead encompasses a wide variety of agricultural programs.  The 2002 Farm Actextends many ongoing programs, thus only a few notifications of new programs are required.  As
regulations for new programs are put into place and the new programs get up and running, the United
States will submit the required DS-2 notifications to the WTO.
Question (China #81)What is the annual average amount of direct payment and counter-cyclical payments provided
according to the new Farm Bill?
Answer
The total amount to be paid to farmers through the direct payment and counter-cyclical payment
programs are calculated using data on historical crop yields and acreages.  Unlike direct payments,
counter-cyclical payments will be made only if certain crop prices drop below predetermined levels.
Since future prices are unknown, average spending levels for these programs is also unknown.  What
is known is that the United States will not exceed its $19.1 billion AMS ceiling as agreed to in the
Uruguay Round Agreement on Agriculture.
Question (China #82)
Please clarify the impact of such Bill on the prospect of the on-going multilateral agricultural
negotiation.
AnswerWT/TPR/M/126/Add.2
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In the current agricultural negotiations, the United States is committed to reaching substantial
reductions in trade-distorting support and export subsidies, coupled with substantial increases inmarket access.  As stated above, the United States is bound by the Uruguay Round agreement to limit
AMS spending to an agreed-upon level.
Question (China #83)
Is such a bill contradictory to the stated attitude of the US on the agricultural negotiations in the
“Doha Round” as appeared in the Report by the US Government?
Answer
In the current agricultural negotiations, the United States is committed to reaching substantial
reductions in trade-distorting support and export subsidies, coupled with substantial increases inmarket access.  As stated above, the United States is bound by the Uruguay Round agreement to limit
AMS spending to an agreed-upon level.  The United States will continue to abide by its Uruguay
Round commitments while continuing to push other countries to liberalize trade.
Question (China #84)
The increase of subsidies to agriculture by the US is contrary to the negotiation objective of
“reductions of, with a view to phasing out, all forms of export subsidies” as set out in Para 13 of the
Doha Ministerial Declaration.  What is the US opinion on this issue?
Answer
The United States remains committed to the Doha objective of reducing with a view to phasing out
export subsidies.  The 2002 Farm Act does not authorize increased use of export subsidies.
Question (China #85)
Does the US plan to make an amendment to this  bill so as to reduce the subsidies to agriculture
substantially?
Answer
The 2002 Farm Act will be in place through 2007.  If  the Doha round of negotiations finishes on
schedule, reductions commitments will begin at th e same time as the negotiations for the new farm
bill.  Therefore no amendments to the current bill are planned.
Question (China #86)
When will the US notify its domestic support da ta since 2000, including data of “Amber Box” and
de minimis ?
Answer
The Farm Security and Rural Investment Act of 2002 (i.e. the 2002 Farm Act) itself is not a program
to be notified, but instead encompasses a wide variety of agricultural programs.  The 2002 Farm Act
extends many ongoing programs, thus only a few notifications of new programs are required.  As
regulations for new programs are put into place and the new programs get up and running, the UnitedStates will submit the required DS-2 notifications to the WTO.
Question (China #87)WT/TPR/M/126/Add.2
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What is the US intention to expand offset loan price for its agricultural products and include more
products under its loan coverage?  Is the increase of loan by the US contrary to its initiative of
reducing trade-distorting domestic support to agricultural products at the multilateral since such loan
falls into the Amber Box?
Answer
While the 2002 Farm Act continues past programs such as loan deficiency payments to support
agricultural prices and farm incomes, we expect to fully meet our obligations under the Uruguay
Round Agreement on Agriculture.  The United States will not exceed our WTO limits.  Again, the
United States remains committed to an ambitious outcome of reducing global trade distortions in
agriculture through the WTO.  We strongly enco urage other countries to move forward in the
negotiations to achieve substantial reform.
Question (China #88)
How does the U.S. determine the target price of the counter-cyclical subsidy?
Answer
National average prices will be used to determine final counter-cyclical payment rates. USDA’s
National Agricultural Statistics Service (NASS) determines the annual average prices for the
marketing year.  NASS collects monthly data on prices paid to farmers.
Question (Colombia #1)
Has the United States defined any parameters for making headway in its agricultural policy, both in
terms of access and domestic aid, and export subsidies?
Answer
Recently, United States Ambassador Zoellick has sent a letter to your trade minister suggestion
options for negotiations.  We look forward to engaging in ambitious multilateral trade negotiations in2004.
Question (Colombia #2)
What is planned for tariff quotas on various types of products, including broomcorn brooms (HS
9603.10), tuna, and agricultural products?  High out-of-quota tariffs on agricultural products do not
allow for exports from developing countries in important sectors such as the sugar industry.
Answer
The United States has submitted a very ambitious and aggressive proposal for reducing tariffs in the
WTO negotiations.  In addition, the United States has proposed the elimination of all tariffs by a date
certain.  The United States is fully committed to further reform in world agricultural trade.
Question (EU #1)
What are the reasons for the continuing lack of US recognition of the principle of regionalization, as
incorporated in the WTO SPS Agreement, in cases of the outbreak of an animal disease?WT/TPR/M/126/Add.2
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Answer
USDA’s Animal and Plant Health Inspection Service (APHIS) has made significant progress in
regionalizing the European Union for Classical  Swine Fever (CSF).  On April 7, 2003, APHIS
published a final rule recognizing Austria, Belgium, Greece, Portugal, the Netherlands, and certain
regions of Germany and Italy as free of CSF.  France, Spain, and Luxembourg had been included in
the original proposed rule (published in June 1999), but they were not included in the final rulebecause of subsequent CSF outbreaks.  On November 24, 2003, APHIS published in the Federal
Register a completed risk analysis for CSF covering France and Spain.  After the public comment
period has closed in late January 2004 and depending on the nature of the comments, APHIS would
then proceed to publish a final rule to declare these two Member States free of CSF.  On October 16,
2003, APHIS published a final rule recognizing the CSF-free status of East Anglia.  APHIS is also
working on a draft novel rule that contains a new approach to the EU, which will involve recognition
of all 15 current EU member states as low risk for (not free of) CSF to allow for more flexibleresponse options in the case of future outbreaks.
Question (EU #7)
The EC notes that US continues to use food aid and export credits to reduce government stocks of
agricultural commodities. Is the US ready to consider helping the DDA-process move forward by
accepting to classify as export subsidies all measures used for subsidizing exports?
Answer
The US averages approximately $3.4 billion in credit guarantees annually, of which the subsidy
component is minimal.  Export credits and export subsidies are not interchangeable as they have
different policy objectives and different impacts on global markets.  Direct export subsidies are
clearly among the most trade-distorting measures in agricultural trade, designed to lower prices and
displace commercial competition.  On the other hand, export credit programs have a minimal impacton trade and are used to assist importing countries in financing commodity imports.  In recognition of
the importance of the elimination of export subsidies, the USG is willing to support a parallel
reduction of the trade-distorting component of export credits.  We also believe disciplines are
necessary to ensure that export credit programs do not circumvent export subsidy commitments and
that developing countries are able to access affordable credit to address food security and economicdevelopment needs.
Almost all of the food aid provided  by the United States is purchased from the open market and all
food aid is provided in response to an identified need. The United States does not agree that food aid
is an export subsidy.  However, in the WTO agricultural negotiations, the United States is working
with other Members on multilateral disciplines for food aid programs with the goal of continuing
necessary, humanitarian assistance.
Question (EU #8)
The main agriculture and industry lobbies in the US have been arguing for some years that the
strength of the dollar was hurting their export compet itiveness.  At the same time, the position of the
agriculture groups towards Congress and the US government has been to "max out" the tradedistorting agriculture support allowed to the US under the WTO.  Now that the US government and
Federal Reserve are no longer pursuing a strong dollar, can the world look forward to a substantial
reduction in US domestic subsidies as well?
AnswerWT/TPR/M/126/Add.2
Page 44
The United States is well within its WTO commitments in its support to farmers.  However, in the
negotiations of the DDA, we have called for substantial reductions in trade-distorting domesticsupport and have made consecutive proposals to achieve that goal, including the US/EU framework
mentioned in the previous question.  We look forward to working with  the EU and other WTO
members towards a bold, ambitious, comprehensive package of reforms for global agriculture.
Question (India #2)
Sugar Tariffs:  The sugar industry is protected by high tariffs (to the extent of 32.8% MFN tariffs on
raw sugar and 42.5% on refined sugar).  These tariffs, in addition to providing protection to domestic
sugar producers, have also increased the use of alternative sweeteners such as high fructose corn
syrup, eroding the natural sugar market in the U.S.  In the long run, the high tariffs will lead to a
permanent change in the sugar demand patterns in the U.S.  Please provide the U.S. view on this point
and on the unintended effects of high tariffs.
Answer
The U.S. government closely monitors all commodity markets and is always alert to changes in these
markets.  U.S. policy is created through numerous  means and with extensive consultation with all
stakeholders in an effort to create and administer programs that serve the interest of the Americanpeople.  Further information about the U.S. sugar program can be found  at several United States
Department of Agriculture websites, http://www.fas.usda.gov/htp/sugar/sugar.html,
http://www.fas.usda.gov/import.html , and http://www.fsa.usda.gov/ao/epas/dsa.htm.
Question (India #6)
TRQ on leaf tobacco:  Imports of leaf tobacco into USA are subject to TRQs from September 1995.
Of a total quota of under TRQ for 2002/2003 of 1,50,700  (sic) tons (both Flue cured and light air
cured tobacco including Burley), the bulk of the quot a is allocated to 9 designated quota recipient
countries.  A residual TRQ of 3,000 tons is available to all other countries including India, although
India is the second largest producer of tobacco in the world.  The out of quota tariff rate is 360%.
Prior to 1995 India could export any volume of tobacco at MFN duty rates to USA.  After
introduction of TRQ Regime in 1995, Indian exports of tobacco to the US are rendered uneconomical.
In view of this, the US delegation is requested for information on whether they propose to take action
to review TRQ regime in tobacco and enhance the residual quota from its present level of 3000 tons.The US authorities are also requested to provide information on the mechanism for allocating unfilled
TRQs in tobacco.WT/TPR/M/126/Add.2
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Answer
The tobacco TRQ was based on historical shipments of leaf tobacco to the United States.  The top 9
countries were given quota allotments.  According to the TRQ rules, a country is not required to fill
its quota in any given year and the unused quota is not reallocated.  If a quota country does not fill its
quota, it does not lose its allotment.  A non-country specific quota is set at 3,000 metric tons on a first
come/first-serve basis.  Only Congress can change TRQ allotments.
Question (India #11)
Payments into Escrow account on Bidi (tobacco) exports:  The US requires tobacco product
manufacturers and importers who are non-participating in the Master Settlement Agreement (MSA) to
pay a specified amount into a qualified Escrow acc ount for products sold in the US.  The amount to be
paid on this account works out to nearly four times the cost of manufacturing one Bidi.  This has acted
as a severe barrier for Bidi exporters from India and consequently, there have been no Bidi exports
from India to the US during this year.  We would like to have a clarification from the US authorities
on the reasoning behind the requirement to pay specified amounts into an Escrow account and the
basis for calculation of such amounts?  Given the severe market access problem faced by India on this
account, we are interested in knowing whether there is any move to dispense with the aboverequirement to remedy this problem?
Answer
There are 46 MSA states and 4 non-participating states.  Any non-participating company that sells a
cigarette product in a MSA state is required to pay a fee in escrow.  The escrow was set up in order to
cover any cost arising from tobacco litigation.  The fee is based on the number of cigarettes sold.
Each State has a specified fee for the escrow.  For example, a State may require a company to pay a
fee of .39 cents per cigarette.  If the company sells a million cigarettes in a State in a year, the
company is required to pay  $390,000 in fees in escrow for that State.  After 25 years, any unspentmoney in the escrow will be returned to the company.  This fee is required for both domestic and
international manufacturers that sell a cigarette product in a MSA State.
States will continue to collect fees for these escrow accounts in the future.  The United States goal is
to reduce cigarette smoking.  Most cigarette companies are raising prices in order to pay the fee.Health advocates feel that increased cost for cigarettes will deter some consumers from buying the
product.
Question (India #14)
Prohibition on imports of uncooked meat products:  Uncooked meat products such as sausage, ham,
and bacon have been subject to a long-standing prohibition on imports despite the fact that meatproducts may come from disease free regions and that the processing involved should render any risk
negligible.  Would the US authorities clarify the reasons for continuing with this prohibition and
whether there is any move to review this prohibition.
Answer
The United States does not have a prohibition on imports of uncooked meat products, but does have
food safety regulations for all meat sold in the United States.  To date, India has not petitioned for
certification of its meat inspection system (equivalence).  To petition for equivalence, please contact
the United States Embassy or the United States Department of Agriculture Food Safety and InspectionService.  For more information on the equivalence process, please visit the following website:
http://www.fsis.usda.gov/oppde/ips/EQ/EQProcess.htm.WT/TPR/M/126/Add.2
Page 46
Question (India #19)
SPS measures on egg products:  Import of egg produc ts into the US is allowed only under a regime
requiring continuous inspection of the production process whereas a system of periodic inspection of
the production process could also be acceptable from the point of view of safety of human health.
Continuous inspection is expensive, and thus has a negative effect on prices and competitiveness.
Please provide the US view on this point.  Is there a possibility of review of the existing system?
Answer
The United States does not have a prohibition on imports of eggs and products, but does have food
safety regulations for all eggs and products sold in the United States.  To date, India has not petitioned
for certification of its egg inspection system (equivalence).  To petition for equivalence, please
contact the United States Embassy or the United St ates Department of Agriculture Food Safety and
Inspection Service.  For more information on the equivalence process, please visit the following
website: http://www.fs is.usda.gov/oppde/ips/.
Question (India #23)
Subsidies on agricultural products:  The US operates a range of programmes which appear to be
designed to subsidize and/or promote export of US agricultural products.  Some such programmes are
(i) the Export Enhancement Program which allows US exporters to apply for a cash subsidy designed
to make US products competitive with subsidized exports from other countries;  (ii) the Market
Access Program which offers a share of costs for promotion campaigns for agricultural products; and(iii) the Export Credit Guarantee Program which offers US Government guarantees targeted at
countries which need guarantees to secure financing but show a reasonable ability to repay (The
program includes a specific list of commodities per country allocation.  It has recently become the
main export policy tool of USDA, with annual allocations exceeding US$5 billion and declared
annual subsidy levels of over US$400 million.  The program has a default rate of over 10%historically, and is reported to be characterized by uncertainty and lack of transparency with respect to
the implicit subsidy component stemming from rescheduling of payments.)  Would the US delegation
comment upon consistency of these schemes with various WTO Agreements including on Subsidies
and Agriculture.  The US delegation is requested for information on whether they  propose to review
these subsidy programmes.
Answer
The US averages approximately $3.4 billion in credit guarantees annually, of which the subsidy
component is minimal.  Export credits and export subsidies are not interchangeable as they have
different policy objectives and different impacts on global markets.  Direct export subsidies are
clearly among the most trade-distorting measures in agricultural trade, designed to lower prices anddisplace commercial competition.  On the other hand, export credit programs have a minimal impact
on trade and are used to assist importing countries in financing commodity imports.  In recognition of
the importance of the elimination of export subsidies, the USG is willing to support a parallel
reduction of the trade-distorting component of export credits.  We also believe disciplines are
necessary to ensure that export credit programs do not circumvent export subsidy commitments andthat developing countries are able to access affordable credit to address food security and economic
development needs.
Question (India #24)
Subsidies to sugar:  Producer support to sugar in the US amounted to well over US$1.3 billion per
year during 1999-2001.  The sugar programme supports in the USA depend on a tariff rate quotaWT/TPR/M/126/Add.2
Page 47
(TRQ) based on domestic output.  Production increases have reduced import quota volume.  This
decline and price erosion have adversely affected market access to the US sugar market.  Pleaseprovide the US view on this point.
Answer
The U.S. sugar tariff rate quota (TRQ) is allocat ed consistent with WTO rules.  Changes in U.S.
domestic sugar production cannot reduce sugar access below this minimum.  India’s fiscal year (FY)
2004 allocation is 8,424 metric tons raw value, which is the same access level as FY 2003.  Further
information about the U.S. sugar program can be found on the United States Department of
Agriculture’s sugar commodity page, http://www.fas.usda.gov/import.html.  Also the official United
States Trade Representative press release concerning the FY 2004 sugar allocations is available ontheir website, www.ustr.gov.
Question (India #1 Annexure)
We welcome the US assertion in the Government’s Report that the US remains firmly committed to
the WTO-based multilateral trading system, and that consistent with the objectives agreed in Doha,
the US shares a common purpose with WTO partners towards expanding economic opportunities tothe world’s citizens by reducing trade barriers.  We also note that as a part of its broader efforts to
liberalize trade, the US states that it is pursuant sever regional and bilateral initiatives for free trade
areas, in respect of some of which the US exports exceed its exports to “Russia, India, and Indonesia
combined” [paragraph 47].  It is our hope and expectation that the US regional initiatives will be
consistent with WTO rules, and will be nurtured in a manner that promotes the complementarity ofregional and bilateral initiatives with the multilateral Doha Development Agenda.  In paragraphs 110
through 113 of the Government Report, the US has dr awn attention to its domestic support to farmers
as well as export subsidies, including credits, envisaged in the 2002 Farm Bill.  The US asserts that it
has been making very limited use of export subsidies, and that the trends in outlays, as well the nature
of new programmes suggest that the US will cont inue to meet its Agreement on Agriculture domestic
support obligations.  We note with concern that the 2002 Farm Bill has a provision by which the AMS
ceiling can be exceeded.
Moreover, we note from paragraph 6 of the Secretariat Report that the US has not fulfilled its
notification obligations with respect to various agriculture notifications including on domestic supportand special safeguards applied in agriculture.  The US is well aware of the apprehensions of the bulk
of the WTO membership as regards the provisions in the 2002 Farm Bill in furthering distortions in
agricultural trade.  It would be highly desirable therefore for the US to make its notifications
expeditiously to that there is greater clarity and certainty as regards various proposals, including the
US proposals, on the modalities for negotiations on agriculture under the DDA.  We support the
apprehensions expressed, in paragraph 22 of the Secretariat Report on domestic support, regarding
monitoring of the domestic support levels under the 2002 Farm Bill and would like to know whatsteps are proposed to be taken in this regard.
Answer
The United States is in the process of preparing DS:2 notifications to the Committee on Agriculture
for programs under the 2002 Farm Act for which exemption will be claimed and will submit these
notifications as soon as possible.  The United States remains committed to the notification process and
will work to fulfill all its WTO obligations.
Question (India Annexure #2)WT/TPR/M/126/Add.2
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In its Government Report, paragraphs 123 through 126, the US inter alia outlines that the US will
continue to work within the Doha Agenda to reduc e poverty and raise the living standard across the
globe and that “an ambitious result in market access will be the greatest legacy of our work in the
DDA”.  As the US is aware, expanding market access in agricultural products alone will not serve to
reduce poverty and raise living standards.  Economist and agricultural experts have widely
documented that the largest welfare gains for the poor residing in the developing countries will sternfrom elimination of all forms of distorting subsidies, both domestic and on exports.  It is our hope that
they US will be able to factor in this harsh real ity into its approach toward s the successful conclusion
of the Doha Round.
Answer
We take note of India’s views.
Question (India #3 Annexure)
Paragraphs 1 and 11 of the Secretariat Report draw attention to market access in the US, applied inter
alia through non-ad valorem duties, prohibitive TRQs , tariff protection in the range of 50 – 350% and
tariff escalation across a number of agricultural products.  We would like to understand how the US
reconciles these barriers, which deny market access opportunities to developing country exports in
particular, with its call for trade liberalization under the Doha Development Agenda and the spirit and
objectives of the Agreement on Agriculture?
Answer
The TPR discussion has made clear that developing countries, including India, have depended on the
openness of the U.S. market to stimulate global growth.  As barriers around the world are reduced, it
should be possible for the United States to continue to reduce its remaining barriers, which, relativelyspeaking, are far fewer in the agricultural sector th an for example, those maintained by countries like
India.  The United States has submitted a very ambitious and aggressive proposal for reducing tariffs
in the WTO negotiations.  In addition, the United States has proposed the elimination of all tariffs by
a date certain.  The United States is fully committed to further reform in world agricultural trade.
Question (Japan #33)
What measures has the US taken to prevent the exportation  of GMOs which are unauthorized by the
relevant regulations in importing countries?  What measures does the US intend to take if unapproved
GMOs are found in agricultural products exported from the US to importing countries?
Answer
Once a biotech event is approved in the United States, it can legally circulate in interstate commerce
and be legally exported.  It is the responsibility of commercial interests to ensure that exports to a
particular country meet all import regulations, and the responsibility of the importing country to
implement and apply its import regulations.
Civil and legal penalties exist in the United St ates for cases where the regulatory requirements
regarding the development, testing, and release of biotech events are not respected.  The United States
takes seriously its biotech regulatory and food safety responsibilities to U.S. consumers and customers
around the world, and is committed to working closely with other governments on these issues.
Question (Japan #35)WT/TPR/M/126/Add.2
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Is the US ready to provide the necessary inform ation for detecting GMOs, unapproved in importing
countries, which are released into the environment in the US and/or which have the possibility ofbeing exported?
Answer
USDA’s Grain Inspection, Packer, and Stockya rds Administration (GIPSA) maintains a
biotechnology reference laboratory which works with grain handlers, test manufacturers, and life
science organizations around the world to help ensure the availability of reliable tests. GIPSA’s
reference lab also offers a Proficiency Program to organizations testing for biotechnology-derived
grains and oilseeds.  This program helps these organizations identify areas of concern and take
corrective actions to improve testing capability and reliability.  A number of testing laboratories in
Japan and other countries have participated in this program. In addition, officials from many
countries, including Japan, have toured the reference lab, and are welcome to visit at any time.
Question (Japan #58)
After abolishing its deficiency payments under the Federal Agriculture Improvement and Reform Act
of 1996 (FAIR Act), the US has been providing em ergency assistance since 1998 as an additional
protection measure under production flexibility contract payments, which was introduced instead, and
has introduced Counter Cyclical Payments under th e Farm Security and Rural Investment Act (FSRI)
of 2002.  Please explain why the US has established these payment systems and the background
(including why the production limitation is no longer a requisite for deficiency payments under the
2002 Act, while it was a requisite under the 1990 Act).  Measures and programs introduced under theFarm Security and Rural Investment Act (FSRI) have already entered into the phase of
implementation.  Does the US intend to notify some of those measures or programs as new or
modified domestic support measures exempt from the reduction commitment?  If so, the US should
submit a notification as soon as possible in order to ensure transparency and to expand the discussions
by Members on the US relevant support measures.
Answer
Counter-cyclical payments were designed as farm  support program that, although linked to prices,
would have less trade-distorting effects than traditional price support mechanisms.  There is norequirement to limit production because these programs were phased out, as no production is required
to receive these payments.  The counter-cyclical payments are completely decoupled from production.
USDA rulemaking is an open, transparent process.  The process and progress for the Farm Act
programs is documented on the USDA webpage. As regulations for new programs outlined in the
2002 Farm Act are put into place and the new programs get up and running, the United States will
submit the required DS-2 notifications to the WTO.WT/TPR/M/126/Add.2
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Question (Japan #59)
The US is proposing a drastic reduction in or even the elimination of, trade distorting measures in the
agriculture negotiations, while increasing its direct government payments (Report by the Secretariat,
p.102, Chart.1).  These two points are incompatible with  each other.  In particular, it is rational to
understand that the US price-related direct government payments and emergency assistance for
certain products, such as wheat, rice, soybean and cotton, have export enhancing effects since asizeable amount of those products is exported. According to the Report by the Secretariat (p.101), the
share of exports in terms of value of production was 48% for wheat, 42% for rice, 37% for soybeans,
and 39% for cotton. Under the FSRI, the US has in stitutionalized export enhancing payments by
introducing counter cyclical payments for such products and has increased actual payments since
2002.  Can the US explain how this policy, and the incr ease of such payments, are consistent with the
US position in the agriculture negotiations, i.e. to phase-out export subsidies?
Answer
The 2002 Farm Act does not authorize the increased use of export subsidies.  The United States
remains committed to the Doha Development Agenda objective of reducing, with a view to phasing
out, export subsidies.
Question (Japan #61)
Does the US AMS in 2003 exceed its commitment level?
Answer
No.  In 2003, the United States did not exceed its Uruguay Round commitment level of AMS
spending.
Question (Japan #62)
If the increase in direct government payments and emergency assistance in 2003 results from lower
market prices, it is thus possible that the increase in government payments cannot be controlled and
that the AMS level exceeds its commitment level when  the market price falls ever further.  The US
commented that no decision had been made as to whether regulations are needed to implement
Section 1601(e) of the FSRI (Report by the Secretar iat, p.107).  With what kind of measures can the
US properly monitor the increase in direct payments and ensure that its AMS level does not exceed its
commitment level?
Answer
The United Stated Department of Agriculture continually monitors actual spending in each of its
programs.  If actual spending levels approach commitment levels, the Secretary of Agriculture is
notified and further spending is closely watched in case the “circuit breaker” provision of the 2002
Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to be
invoked.
Question (Switzerland #8 & #9)
According to § 139 some U.S. import restrictions are taken as a response to risks posed by FMD and
BSE. In this context meat products are allowed to be directly imported into the US from a non-FMD-free country if certain measures (as described in the Code of Federal Regulations Title 9 Part 94.4) are
taken in the exporting country.  However if these measures on products originating in a non-FMD
country have taken place in a third country, the products are banned to be imported to the U.S.WT/TPR/M/126/Add.2
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What is the scientifically-based justification, including an assessment of the public health risk, of
these additional US import restrictions?
According to §142 APHIS has regulatory responsibility to safeguard U.S. animal resources from
exotic pests and diseases. According to §143 FSIS has specific responsibility for the safety of meat,
poultry and certain egg products.
How does the U.S. government ensure the cooperation of these two agencies, in order that various
regulations and different control systems by these two agencies do not become an unduly
administrative burden?
Answer
Inspections by APHIS and FSIS are required before equivalence determinations can be made.  Under
the WTO SPS agreement, we welcome products that co mply with United States food safety laws.  For
more information on the United States process for evaluating the equivalence of foreign meat and
poultry food regulatory systems, please visit the following website:
http://www.fsis.usda.gov/oppde/ips/EQ/EQProcess.htm.
The United States has very serious restrictions on FMD, because it is an extraordinarily devastating
disease, as the European continent has experienced.
Question (Switzerland #13)
As mentioned in para 12., page 102, the six-year Farm Act (2002-07) increases reliance on price-
dependent support.  Such type of measures are know n as production-distorting.  Could you explain the
reasons for the re-orientation (compared with the FAIR Act of 1996 reducing production-distorting
support in favour of income supplements) of the package of US support measures in favour ofproduction-distorting measures?
Answer
The United States has fully complied with WTO commitments.  However, to address the distortion in
the world marketplace for the agricultural sector, the United States has submitted an ambitious,
balanced, and reform-focused proposal focused on all three “pillars” for the WTO negotiations.
Question (Switzerland #14)
The new programme of counter-cyclical payments (CCPs) uses a target price as a reference.  As it
appears in the Table IV.3 on page 109, this target price is set rather higher than the average pricesrecorded during 1999-02.  Could you explain the mechanism allowing to set the target price at the
level established for the period 2004-07?  What is the basis for the calculation and which kind of
prevision model allows to determine this target price ?
Answer
The target prices are set in legislation.  For ad ditional information, please refer to the following
website: http://www.usda.gov/farmbill/index.html.
Question (Switzerland #15)WT/TPR/M/126/Add.2
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As mentioned in § 33 on page 110, federal milk marketing orders establish minimum  prices for milk
depending on its use by processors.  Could you please describe the types of use and how the prioritiesare set to support one or the other type?  Is it possible that some type of milk supported by these
measures is purchased by a processing plant at a lower price and therefore represents a form of
processing plant support?
Answer
The Federal Milk Market Order (FMMO) system is based on milk classes which in turn are based on
use.   Class I is beverage milk and cream—basically what one buys at the store.  Class 2 is for soft
products which include such things as ice cream and yogurt.  Class 3, the largest class is milk used for
cheese, while Class 4 is for making nonfat dry milk and butter.  In general, prices for class 3 and 4 are
set by the markets for the respective products while prices for Classes 1 and 2 are set by the higher of
Class 3 or Class 4.  Again, as a general rule, Class 2 is 70 cents/cwt higher while Class 1 has regional
differentials compared to Class 3 or 4.  (Timing and component prices significantly complicates these
general rules)  The system mainly regulates the firs t handler of milk after it leaves the farm, plus most
milk is delivered to farmer-owned cooperative so its unlikely significant quantities are sold at
discount prices.  More info can be obtained from http://www.ams.usda.gov/dairy/.
Question (Switzerland #16)
According to § 40. on page 111, the largest U.S. agricultural export promotion programmes are the
Export Credit Guarantee Programme (GSM-102) and the Intermediate Export Guarantee Programme
(GSM-103).  What is the share of these two prog rammes in the US total annual export volume and
value and for which kind of commodities are they allocated?
Answer
In FY 2003, based on value, 6.04% of US agricultural exports were traded using USDA's  Export
Credit Guarantee Programs. The Commodity Credit Corporation selects agricultural commodities and
products according to program criteria.  Please reference http://www.fas.usda.gov/excredits for a list
of eligible commodities.
Question (Switzerland #17)
According to table IV.2 (p. 104) some products covered by tariff quotas have reserved access for
distinct suppliers.  Some of these quotas show fill rates below two third like low fat cheese or even
0% for low- fat chocolate crumb.  How do the Un ited States. intend to reallocate unused quotas?
Answer
There are numerous quotas that are administered by the United States and many of these quotas differ
on how to reallocate unused portions.  It is the policy of the U.S. government to administer each quotaas effectively as possible within each individual set of requirements.  For more information, see the
following United States WTO notification: G/AG/N/USA/48.
Chapter 4 - BY SECTOR
(3) Maritime TransportQuestion (European Union #18)WT/TPR/M/126/Add.2
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The report of the Secretariat (Paragraphs 99 and 100) states that total international water-borne trade
(in volume) was 1.137 million tonnes in 2002 and that domestic water-borne trade was around 946
million tonnes.  Can the US indicate the share of domestic water-borne trade that relates to pre-
onward carriage of international cargo (“feeder transport”) between US seaports?  Can the US
indicate the share of domestic water-borne trade that relates to inland waterway transport?
Answer
The information on pre-onward carriage of international cargo is not available.  The inland waterway
share of domestic waterborne trade is 562.2 million metric tons or 59.4% of the domestic waterborne
trade.
Question (European Union #19)
The report of the Secretariat (paragraph 2) focuses on initiatives to upgrade and develop maritime
transport services in the US.  The US restrictions on domestic water-borne transport (paragraphs 104-
107) and the restrictions and nationality requirements in US ports (paragraphs 117-119) limits the
choice available to operators in terms of optimizing the transportation services they can offer to theircustomers (e.g. by having to rely more on road transport in stead of coastal shipping).  Does the US
have any estimation on the additional transportation cost that results from these restrictions?  Does the
US have an assessment of the environmental implic ations of using more road transport rather that
coastal shipping (by a rough estimation, trucks pollutes 3-4 times more than ships, causes congestions
etc.)?
Answer
Short sea shipping offers a viable mode of transport that could ease congestion on increasingly
crowded U.S. highways.  The Administration has asked the domestic maritime industry to take aleadership role in further developing this segment of our maritime transport system.
Question (European Union #20)
The report of the WTO Secretariat describes the ‘Merchant Marine Act’ (Jones Act) and its
implications.
a.  How many ships have been produced in the last years under the ruling of the Jones Act, kindly
specify type of ship, purchasing-price and the tonnage of the ships?
Answer
This information (except for ship purchase price) is reported annually to the WTO Secretariat.WT/TPR/M/126/Add.2
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Question (Norway #2)
In the Secretariat report, paragraph 98, it is stated that the U.S. recorded a deficit of US$10.2 billion in
freight and port services.  We would like to know if the incomes from vessels registered under foreign
flag and owned by U.S. shipping companies have been included when calculating these figures.
Answer
Balance of balance of payments calculations are based upon whether the company is domiciled in the
U.S. (for tax purposes) and not whether the vessels owned by these companies are registered under
foreign or U.S. flags.
Question (Norway #3)
In the Secretariat report, paragraph 104, it is stated that the Jones Act does not prevent foreign
companies from establishing shipping companies in the U.S. as long as they meet the requirements
with respect to U.S. employees.  Does this imply that foreign owned shipping companies established
in the U.S. may own and register vessels under U.S. flag operating in U.S. cabotage trades?
Answer
With respect to foreign ownership of Jones Act vessels, U.S. law permits bona fide non-citizen
leasing companies to own Jones Act vessels if those vessels are demise chartered to U.S. citizens for a
period of 3 years or shorter.  For detailed information on this subject please refer to 46 USC 12106(e).
Question (Norway #4)
In the Secretariat report, paragraph 108, it is stated that the U.S. international maritime transport
market is generally open to foreign participation, and para 114-116 describes the exemptions.  Wewould like to know if this implies that no cargo sharing agreements/requirements exist with foreign
countries or if such clauses are merely dormant.
Answer
We have no such agreements.
Question (Norway #5)
In the Secretariat report, paragraph 116, it is explained that the last Alaskan crude oil was exported in
April 2000.  Since then all Alaskan crude oil production has moved to the United States.  The existing
requirement of Alaskan crude oil exports to be carried by U.S.-flagged vessels seems therefore tohave become obsolete.  Is the United States considering to remove the requirement that Alaska crude
oil exports shall be carried by U.S.-flagged vessels?
Answer
No consideration is being given to removing this requirement.
Chapter 4 - BY SECTOR
(5) Telecommunication Services
Question (EU #25)WT/TPR/M/126/Add.2
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The report points out (paragraph 164) that the FCC considers various factors when considering a
licence application from a foreign operator. What kind of ““trade policy concerns”” can affect a
licence application from a foreign operator? What are the criteria’’s for assessing ““security
concerns”” for a licence application from a foreign operator?
Answer
The Commission takes into account the entire record and affords the appropriate level of deference to
Executive Branch expertise on national security, law enforcement, foreign policy and trade matters.We expect that concerns of trade and foreign policy would be raised only in very rare circumstances.
In addition, we note that to date, we have not denied any license based on any of these types ofconcerns.
Question (Korea)
Reference:  para. 169
Is it correct to understand that entities from WTO member countries are exempt from the public
interest review?
Answer
No.  As stated in the Secretariat’s report, in reviewing petitions for proposed foreign investment as
required pursuant to Section 310, the Commission relies on principles set forth in the 1997 Foreign
Participation Order, including a presumption that foreign investment in the U.S. market by entities
from the WTO member countries is consistent with the public interest.
Question (Korea)
Reference:  para. 172
Provide information explaining the reasons for the U.S. classification of DBS/DTH services as
telecommunications services.
Answer
One-way satellite transmission of DBS/DTH services do not have the characteristics of traditional
free-to-air broadcast services.  Thus, they are classified in the United States as telecommunications
services as opposed to broadcast services.
Question (Korea)
Reference;  para. 179
Does the U.S. feel that adopting a single standard would not help enhance the mobile penetration rate
in the U.S.?
Answer
No.  Having multiple competing standards has not proven to be a deterrent to wide-spread adoption of
mobile services in the United States.  In fact, wi thout adopting a single standard, 6 wireless operators
have nation-wide coverage, and are competing on the basis of innovation and price.
Question (Korea)WT/TPR/M/126/Add.2
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How does the U.S. government interpret the concept and scope of “legitimate public policy objectives
in telecommunications services?”
Answer
While the concept and scope of public policy objectives are not predefined, they have typically
included issues common to governmental oversight everywhere, such as safety, consumer protection,
competition, and national security.
Chapter 4 - BY SECTOR
(7) Financial Services
Question (Canada #8)
Under the Gramm-Leach-Bliley (GLB) Act introduced in 1999, US banks continue to have little
freedom to own and be owned by non-financial co mpanies.  The issue of whether banks would be
permitted to own non-bank companies as merchant banking investment may be reviewed five years
after the enactment of the GLB Act (2004).  Does the US foresee more liberalization of the bankingsector to permit banks to be owned and to own non-financial companies.
Answer
The United States does not foresee any changes at this time to the U.S. policy separating banking and
non-financial activities in the United States.  The Gramm-Leach-Bliley Act (GLBA) continued the
longstanding U.S. policy of separation of banking and non-financial activities, generally prohibiting
non-financial companies from owning banks.  Co mpanies that own banks (bank holding companies)
may, however, own non-financial companies through the merchant banking provisions of the GLBA.
Such investments are subject to the limitations  set forth in the GLBA and the implementing
regulations.  There is no current proposal to authorize banks directly to own non-financial entities
through the merchant banking provisions of the GLBA.
Questions (Canada #19)
While the United States has undertaken national tr eatment commitments, some restrictions remain in
the banking and insurance sub-sectors (e.g., registration requirements for foreign banks, certain
federal excise taxes on life and non-life insurance premiums).  In addition, at the state level, market
access restrictions remain in the banking and insurance sub-sectors (e.g., establishment, acquisition,
licensing).  Does the US contemplate a relaxation of these restrictions by state-level governments?
Answer
The U.S. believes that U.S. state treatment of foreign financial services providers is, in general, very
liberal.  That said, our initial GATS offer reflects some improvements undertaken by the states, for
example, in the area of insurance.  The U.S. will co ntinue to consult with the states for the purpose of
the negotiations.
Question (China #108)
How many licensing applications have been approved to foreign bankers and insurers since the
previous US trade policy review?
AnswerWT/TPR/M/126/Add.2
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Over 70 foreign bank applications have been approved by the Federal Reserve since April 1, 2001.
However, since the Federal Reserve is not the licensing authority for offices of foreign banks in the
United States, in most cases the relevant state or federal licensing authority also must approve the
application.  We are not aware of any instances during this time period where the Federal Reserve
approved an application by a foreign bank that was not also approved by the licensing authority.
In general, we note that there are a very large number of foreign banking organizations operating in
the United States.  These foreign banking organizations own approximately 18 percent of all U.S.
banking assets.
Question (China #109)
Have there been any applications rejected by the licensing authorities in the United States during the
same period?  If so, how many and why? How many licensing applications are pending for approval?
Answer
No applications by foreign banks have been rejected by the Federal Reserve during the period since
April 1, 2001.  Currently, there are five applications by foreign banks pending at the Federal Reserve.
Question (China #112)
(p. 149, Paras 203, 204, and 205) Various market access restrictions exist in the US banking sector, in
particular on the establishment of branches by foreign commercial banks.  Complicated approval
procedures and prolonged pending period are two common concerns of foreign banks.  Up till now,
all the applications by Chinese banks to establish branches or representative offices have been
pending for a long time with the only exception of Bank of China’s New York branch.  For example,
the application by Bank of China to set up a branch in San Francisco was filed 10 years ago but theapproval is still pending by now.  The reasons given by the US competent authorities are not
convincing since Bank of China has been approved to set up branches in several other countries in
addition to the branch already existed in New York City of the US.
Please specify the criteria for approving the establishment of branches of foreign banks.
Answer
The discussion on an individual application for a branch would seem outside the scope of the Trade
Policy Review Process.  The United States maintains a general policy of national treatment towards
the U.S. branches, agencies, securities affiliates, and other operations of foreign banks.  We welcome
any foreign bank that meets internationally accepted standards on capital adequacy and consolidatedsupervision.  The general criteria for the establishment of branches of foreign banks are set forth in
the Foreign Bank Supervision Enhancement Act, as implemented by Regulation K, whether or not an
interstate expansion is involved.
The following are criteria reviewed by the Federal Reserve in assessing applications by foreign banks
to establish branches in the United States.  In general, a foreign bank seeking to establish a branch in
the United States must be subject to comprehensive and consolidated supervision by its home country
supervisor.  In certain circumstances, approval may be granted if the home country supervisor is
actively working to establish arrangements for consolidated comprehensive supervision.  The foreign
bank also must have capital that is equivalent to  the capital required of a U.S. bank in comparable
circumstances.  The asset quality of the foreign bank is reviewed in making the capital assessment.
The Federal Reserve must determine that it will have access to necessary information to determineWT/TPR/M/126/Add.2
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and enforce compliance with applicable laws.  The Federal Reserve also reviews whether the foreign
bank has adopted and implemented procedures to combat money laundering, whether there is a legalregime in place in the home country to address money laundering, and whether the home country is
participating in multilateral efforts to combat money laundering.  Other criteria include whether the
home country supervisor shares supervisory information with other supervisory authorities and
whether the home country supervisor has consented to the establishment of the U.S. branch.  [Form
FR K-2 outlines the required information for an application. It is available on the web athttp://www.federalreserve.gov/boarddocs/reportforms/forms/FR_K-220021010_f.pdf.]
The federal or state licensing authority may have additional requirements, although such requirements
generally are similar to those mentioned above.
All of these standards are consistent with international norms.
Question (Chinese Taipei #1)
In addition to corporate income tax, foreign bank branches in the US are required to pay a 30%
“Branch Profit Tax” if the earnings of the foreign bank are not reinvested in the US. Furthermore, the
rates of the Branch Profit Tax vary, according to whether or not the home country of the foreign bankhas signed a tax treaty with the US. My delegation is of the view that this measure does not conform
to the principle of non-discrimination and has placed an excessive burden on Taiwanese banks
operating in the US.  We would therefore like to  see the US review this measure in due course.
Answer
The United States believes that “branch profit taxes” are fully consistent with our GATS obligations.
We note Chinese Taipei’s statement of interest.
Question (Chinese Taipei #2)
(Secretariat Report: p. 149, para. 205).  As indicated, a foreign bank is required to establish an insured
banking subsidiary in order to accept or maintain retail deposits of less than US$100,000.  These
restrictions, effective since 1991, have placed foreign banks operating in the form of branches in a
disadvantageous position, which seriously hampers their funding capability.
We recommend that the US affords the same treatment to foreign bank subsidiaries as it does to
branches whose parent banking institutions are properly insured in their domestic market.
Answer
We would highlight that foreign bank branches engaged in insured deposit-taking activities as of
19 December 1991 were exempted from this requirement.  We would note that even before 1991,
when they were permitted to accept retail deposits in branches, foreign banks were primarily involved
in wholesale banking.  The preference of foreign banks for branches may also be because, in some
cases where states allow branches, and for federal branches, foreign branches are generally not
required to commit organizational capital.  The treatment of capital varies by state, however.
Question (EU #31)
Could the US specify which are the 18 States allowing inter-state branching by de novo
establishment, and whether more States contemplate to allow such a possibility? (Reference is madeto paragraph 201 of the Secretariats report)WT/TPR/M/126/Add.2
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Answer
Connecticut, Hawaii, Indiana, Maine, Maryland, Massachusetts, Michigan, Nevada, North Carolina,
North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, Texas, Utah, Virginia, and West
Virginia, (plus Puerto Rico and the District of Columbia).
We do not have further information as to what other states might move to permit this type of interstate
branching.
Question (EU #32)
Under US law foreign banks branches may not be required to commit organisational capital omits that
they may be required to pledge a certain amount of their assets, computed as a percentage of theirthird-party liabilities.  Could the US explain the current state-of-play of the asset pledge requirements,
and possible improvements contemplated, especially in the State of New York? (Reference is made to
paragraph 205 of the Secretariats report).
Answer
Federal and state law require that as a condition of opening a branch or agency, a foreign bank must
maintain a pledge of high grade liquid assets in the state where that branch or agency is located.  This
condition is referred to as the “asset pledge” requirement or “capital equivalency deposit”.  The asset
pledge is intended to serve as a capital-like cushion for U.S. branches and agencies of foreign banks,as well as to protect creditors and cover liquidation costs in the event of a failure of the branch or
agency or foreign banking organization.  The United States considers federal and state asset pledge
requirements to be prudential and therefore does not list them in its reservations to market access or
national treatment.
Many states have recently modified their asset pledge requirements to reduce the economic costs
imposed on foreign banks.  For example, in Illinois, state legislation was amended to grant
discretionary authority to the state banking commissioner to apply asset-pledge requirements based on
a risk-focussed assessment of safety and soundness for individual banks.  In New York, legislation
recently reduced the pledge requirement from 5 percent of third party liabilities to 1 percent of thirdparty liabilities; capped the pledge amount to $400 million for well rated institutions; expanded the
type of assets that may be pledged, including more flexibility for well rated institutions; and allowed
the pledge to be calculated on a monthly basis.
In 2002, the Office of the Comptroller of the Curr ency (OCC) implemented more flexible capital
equivalency requirements for federal branches of foreign banks to reduce costs for institutions that
present low levels of risk.  Under U.S. law, federal branches of foreign banks maintain a CapitalEquivalency Deposit (CED) equal to 5 percent of their liabilities in trust accounts at other banks.  The
OCC reduced administrative burdens for low risk  branches, as they may now withdraw excess
deposits without seeking prior OCC approval.  Additionally, the liability base over which the CEDs
are calculated has been redefined to exclude liabilities booked on a federal branch’s International
Banking Facility, or IBF. An IBF may only accept deposits and extend credits to foreign companiesand individuals and to other IBFs.
The OCC has recommended legislation that would give the Comptroller the same flexibility that
states now have to adjust the 5 per cent CED requirement to take account of the particular
circumstances of an individual institution.
Question (Hong Kong #6)WT/TPR/M/126/Add.2
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We note with appreciation that interstate 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 granted nationaltreatment. Citizenship requirements are however sti ll maintained in US GATS initial offer and so are
the residency requirements (without specification of exact requirements and state coverage) for
directors, incorporators, organizers, or executive committee members of depository financial
institutions. We would appreciate it if the US could share with us some more details of the exact
requirements and the states included.
Answer
Citizenship, and in some cases residency, is required for incorporators or organizers of depository
financial institutions organized under state law, as listed in the US GATS schedule. In the case of
boards of directors, the US GATS schedule contains a list of state specific limitations on citizenship
requirements of which some would be eased under our latest offer. For example, Louisiana hasremoved citizenship requirements for board of directors, allowing residents to serve on boards as well
and Georgia has reduced their requirement from all to 3/4.  If Hong Kong has a more specific area of
interest we would be pleased to learn of it.
Question (Hong Kong #7)
We note that the US has inscribed registration requirements for foreign banks in the provision of
securities advisory and investment management services in its GATS schedule. Apart from the
registration requirement, we understand that some other discriminatory requirements also exist in US
laws, such as citizenship/residency requirements for the majority of the directors and officers,maintenance of assets in the US with a US bank, having a US entity as a principal underwriter and
have a US auditor for the company. We would appreciate it if the US could advise us on the
compatibility of these restrictions with the US GATS commitments.
Answer
We are not aware of any practices, including the ones mentioned and listed above by Hong Kong,
which are inconsistent with our GATS commitments.
Question (Japan #88)
Discriminatory measures against foreign banks in obtaining the status of financial holding companies
(p. 147, para. 197) In order for banks to enter a securities business through an affiliates, it is necessary
for them to obtain the status of Financial Holding Companies (FHCs), based on the Gramm-Leach-
Bliley-Act enacted in November 1999.  The Act provides that foreign banks are required to meet well-
capitalized and well-managed standards, comparable to those applied to US banks. Japan requests theUnited States to clarify the criteria of FRB's judgment regarding these standards.
Answer
Banks may enter the securities without obtaining FHC status.  So-called “section 20” companies may
conduct general securities activities, subject to certain limitations.  In order to establish “section 20”
companies, the foreign bank must meet capital and management standards as applied on a national
treatment basis.
With respect to the well-capitalized and well-man aged standards for becoming an FHC, the Gramm-
Leach-Bliley (“GLB”) Act requires capital and management standards for a foreign bank that are
comparable to the standards applied to a U.S. ba nk owned by a FHC, giving due regard to the
principle of national treatment and equality of competitive opportunity.  In assessing a foreign bank’sWT/TPR/M/126/Add.2
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capital, the Federal Reserve Board (Board) uses a capital screening test referencing tier 1 and total
capital levels calculated under the Basel Capital Accord.  The Board also believes, however, thatreview of a non-U.S. bank’s leverage ratio in particular cases may serve as an indicator that the bank’s
capital should receive further scrutiny in determin ing whether the bank has capital comparable to a
well-capitalized U.S. bank.  Consequently, a foreign bank’s leverage ratio will be considered by the
Board as one of the factors that can be taken into account for purposes of the comparability review.
Under this approach, the Board may consider whether the level of a foreign bank’s leverage ratio issuch that it indicates that additional analysis should be undertaken in assessing comparability.  Such
assessments would in all cases be based on all relevant factors, and not merely on the leverage ratio.
The foreign bank’s qualification for FHC status would not be dependent upon the leverage ratio.
Instead, qualification would depend on the overall capital strength of the foreign bank.  Moreover, the
Board expects that staff would consult with the foreign bank’s home country supervisor on issues
relating to capital.
The Board’s requirements are applied to banks on a consolidated basis. This is the internationally
accepted method of assessing bank capital.  U.S. banks have non-depository subsidiaries and those
subsidiaries are consolidated into the U.S. bank’s balance sheet for purposes of assessing capital.
Moreover, as noted above, a foreign bank would have the opportunity to submit a pre-clearance
request to the Board for a determination on capital status, and would be able to make arguments that itbelieves demonstrate why its capital should be considered acceptable under the tests.
The Board takes into account a foreign bank’s reliance on government support to meet capital
requirements in determining whether the foreign bank is well capitalized.  In order to assure equality
of competitive opportunity, the Board must be able to consider the impact of any assistance a foreignbanking organizations receives from its home country for purposes of meeting capital requirements.
A bank operating with government assistance is not competing on market terms.
With respect to management standards, the Board assesses the foreign bank’s U.S. operations and
requires the same rating that U.S. banks must achieve.  The Board also consults with the home
country supervisor to ensure that the supervisor believes the foreign bank has the capacity to engagein the expanded activities of an FHC.
Question (Japan #89)
Discriminatory measures against foreign banks for raising funds within the United States (p. 149,
para. 203) When a foreign bank raises funds within the United States, it is necessary to deposit a
certain amount of collateral with the authorities as a guarantee.  Under the New York State Banking
Law, for instance, the authorities demand bonds of hi gh liquidity as eligible collateral, mainly CDs
and CPs. Complying with the requirement causes a substantial opportunity cost, since a much higher
return could be expected if invested in other assets.  There are also other problems, such as the heavy
burden related to administrative procedures and price fluctuation risk of the collateral bonds.Furthermore, according to a research conducted by the Institute of International Bankers (IIB), United
States and Canada are the only countries among over 40 countries surveyed, that oblige 'fund
collateral posting’ by foreign banks' as business guarantee.  Therefore, Japan requests that such action
be abolished.  Should this not be possible, the qualifications for eligible collateral should be expanded
to include, for example, standard loan assets in or der to provide flexibility for foreign banks.  Japan
notes that the OCC has been reviewing this issu e. What is the current situation surrounding this
review?
Answer
Federal and state law require that as a condition of opening a branch or agency, a foreign bank must
maintain a pledge of high grade liquid assets in the state where that branch or agency is located.  This
condition is referred to as the “asset pledge” requirement or “capital equivalency deposit”.  The assetWT/TPR/M/126/Add.2
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pledge is intended to serve as a capital-like cushion for U.S. branches and agencies of foreign banks,
as well as to protect creditors and cover liquidation costs in the event of a failure of the branch oragency or foreign banking organization.  The United States considers federal and state asset pledge
requirements that may exist to be prudential and therefore does not list them in its reservations to
market access or national treatment.
Many states have recently modified their asset pledge requirements to reduce the economic costs
imposed on foreign banks.  For example, in Illinois, state legislation was amended to grant
discretionary authority to the state banking commissioner to apply asset-pledge requirements based on
a risk-focussed assessment of safety and soundness for individual banks.  In New York, legislation
recently reduced the pledge requirement from 5 percent of third party liabilities to 1 percent of third
party liabilities; capped the pledge amount to $400 million for well rated institutions; expanded the
type of assets that may be pledged, including more flexibility for well rated institutions; and allowed
the pledge to be calculated on a monthly basis.
In 2002, the Office of the Comptroller of the Curr ency (OCC) implemented more flexible capital
equivalency requirements for federal branches of foreign banks to reduce costs for institutions that
present low levels of risk.  Under U.S. law, federal branches of foreign banks maintain a Capital
Equivalency Deposit (CED) equal to 5 percent of their liabilities in trust accounts at other banks.  The
OCC reduced administrative burdens for low risk  branches, as they may now withdraw excess
deposits without seeking prior OCC approval.  Additionally, the liability base over which the CEDs
are calculated has been redefined to exclude liabilities booked on a federal branch’s International
Banking Facility, or IBF.  An IBF may only accept deposits and extend credits to foreign companies
and individuals and to other IBFs.
On January 20, 2004, revised regulations governing Federal branches and agencies of foreign banks
will go into effect.  Among the changes is a provision permitting a foreign bank with Federal branches
and agencies in more than one state to consolidate some or all of its CEDs into one depository bank.
A depository bank is considered to be located, under the revised regulations, in those states in which ithas its main office or a branch.  The revised regulations mark another way in which the OCC is
seeking to reduce any regulatory burden associated with the CED requirement.
Question (Japan #93)
Disclosure requirement in the issuance of new stoc ks as the reorganization.  If the US investors own
10 % or more of an equity of a Japanese company, the company must file a registration form to SEC
for the reclassification of securities, mergers, consolidations and the acquisitions of assets, in
accordance with Article 145 of the General Rules and Regulations promulgated under the Securities
Act of 1933.  As foreign investors increasingly own Japanese stocks, the above-mentioned
requirement is unreasonably burdensome to Japanese companies, which are forced to disclose relevant
information by US standards. Japan requests to increase a 10% threshold by about 30%.
Answer
We note your concern and statement on this matter.
Question (Japan #94)
Regulations regarding foreign mutual funds sold in the US (p.151. para.213) While approximately 20
US mutual funds are publicly offered in Japan, no Japanese funds have been offered in the US.  This
imbalance results, in part, from the SEC Rule 7d-1.  Whereby the requirements prevent Japanesemutual funds from being offered in the US markets. Japan, therefore, requests the US to relax these
requirements.WT/TPR/M/126/Add.2
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Answer
All funds that seek to sell their shares publicly in the United States generally must register with the
SEC as investment companies under the Investment Company Act of 1940 (“Company Act”).
Section 7(d) of the Company Act requires that any non-U.S. fund that wishes to register as an
investment company and publicly offer its securities in the United States must first obtain an order
from the SEC.  To issue such an order, the SEC mu st find that "by reason of special circumstances or
arrangements, it is both legally and practically feasible to enforce the provisions of [the Act against
the non-U.S. fund,] and that the issuance of [the] order is otherwise consistent with the public interest
and the protection of investors."  Section 7(d) represents a prudential standard that generally ensures
that U.S. investors receive the same essential investor protections, whether they acquire shares in a
non-U.S. fund or in a U.S. fund.  The section provides non-discriminatory, national treatment for non-
U.S. funds; that is, any non-U.S. fund that can provide the investor protections required by the
Company Act may legally access the U.S. market to the same extent as any U.S. fund.  Further, non-U.S. investment advisers may easily register in the United States as investment advisers and offer
their services to U.S. funds or establish funds that are organized in the United States.
Question (Japan #95)
Free participation of US investors in foreign ETF markets (p.151, para.213) It is unclear how the
ETFs publicly available in foreign markets are regulated under US law. ETFs are treated in Japan
similarly to stocks, but because the exemption clauses applicable to stocks in the US do not apply to
ETFs, US investors face difficulty in investing in Japanese ETFs.  Japan, therefore, requests the US to
exempt ETFs from the process of the filing of registration forms and prospectuses.
Answer
The regulation of foreign ETFs under the U.S. federal securities laws will depend on the particular
structure and characteristics of the ETF.  In general, however, the SEC would treat the offer and saleof non-U.S. ETF securities to U.S. investors in the same manner that it treats the offer and sale of any
non-U.S. fund securities to U.S. investors, which is on a national treatment basis.  As described above,
all non-U.S. funds that seek to sell their shares publicly in the United States must register with the
SEC as investment companies under the Company Act.  In addition, because ETFs operate differently
from traditional investment companies, U.S. ETFs  have had to seek exemptive relief from certain
provisions of the Company Act.  Non-U.S. ETFs likely would also have to seek exemptive relief to
register under the Company Act.
Question (Japan #96)
Securities services (p152, para.218) Corporate governance takes place in a variety of forms based on
regulatory and other differences.  Indeed, it seems that, there is no one-size-fit-all standard forcorporate governance, as proclaimed in the OECD Principle of Corporate Governance, which was
agreed by the OECD members including the US.  While recognizing the necessity of avoiding
conflicts with foreign legal systems, the Sarbanes-Oxley Act nonetheless requires that the foreign
companies listed in the US markets comply with the corporate governance standards.  For example,
while the Act allows the exemption of a board of corporate statutory auditor system, there exists nosimilar exemption of the committee system.  Th e Act also puts a burden on foreign companies
through such requirements as having to report and evaluate internal control.  The US should refrain
from applying its corporate governance to foreign companies.  It risks inhibiting access unduly to its
securities markets by foreign companies.  It is not enough to avoid conflicts of various legal systems.
Japan would like to seek the US views on this matter.WT/TPR/M/126/Add.2
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Answer
While the Sarbanes-Oxley Act generally makes no di stinction between US issuers and foreign private
issuers listed in the United States, the SEC is cogn izant of the fact that US requirements and foreign
requirements could come into conflict.  During implementation of the Act, the Commission and its
staff sought to learn from foreign regulators and market participants about how the requirements ofthe Act conflict with local law or local stock exchange requirements, and how foreign laws and
regulations address in alternative ways the same issues as the Act.  The SEC engaged the foreign
community through public roundtables, bilateral and multilateral meetings, and an analysis of foreign
comment letters.
Where appropriate, the SEC has made accommodations for foreign market participants, including in
the two areas raised by the Japanese: audit committee requirements and internal controls reporting.Regarding audit committee requirements, foreign private issuers will have additional time to comply
with new listing requirements (by 31 July 2005, rather than by 31 October 2004).  In addition, the
accommodations will, among other things, allow for alte rnative structures such as statutory auditors or
boards of auditors to perform auditor oversight functions where such structures are provided for under
local law, such as in Japan.  These accommodations take into account foreign corporate governanceschemes while preserving the intended result of the Act to ensure that those with oversight
responsibility for a company’s outside auditors be independent of management.
Regarding internal controls reporting, the SE C’s rules include the following accommodations for
foreign private issuers:
-- Foreign private issuers are not required to begin reporting on internal controls over financial
reporting on an annual basis until the first fiscal year ending on or after April 15, 2005.  Also,
disclosure of changes in internal controls over financial reporting will be made on an annual
basis rather than a quarterly basis.
-- Foreign private issuers must use a suitable framework for evaluating internal controls, but are
not required to use a US framework.
Questions (Korea)
Reference:  page 148-149, para. 205, 207
Paragraph 205 indicates that foreign branches and agencies are involved primarily in wholesale
banking and seldom in retail banking and this is partly because a foreign bank is required to establish
an insured banking subsidiary in order to accept or maintain domestic retail deposits of less than
US$100,000.
With regard to paragraph 205, please give us specific examples where a branch or an agency can
accept domestic retail deposits of less than US$100,000.  And please provide us with detailed
information on “insured deposits.”
Answer
Foreign bank branches engaged in insured deposit-taking activities as of 19 December 1991 can
accept domestic retail deposits of less than US$100,000.
Please consult FDIC.gov for detailed information about “insured deposits”.According to paragraph 207, the United States ma intains commercial presence limitations on market
access and national treatment for foreign banks at the state level, with respect to the type of businessWT/TPR/M/126/Add.2
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establishment coverage of business (i.e. restriction on retail deposits) and requirements of citizenship
or residence.
Does the U.S. government have any plan to address these restrictions at the Federal level?
Answer
Under the U.S. federal system, states retain sign ificant rights to regulate within their borders.
Moreover, in light of the dual banking system, foreign banks have the alternative to establish offices
at the federal level.  Accordingly, the U.S. government has no current plans to address the cited
restrictions at the state level.
What is the difference between “branch” and “agency” in terms of the conditions of establishment,
boundary of business and prudential regulation?
Answer
The requirements for establishment of branches and agencies are generally the same.  The prudential
regulation of such offices generally is the same as well.  However, agencies are more limited thanbranches in that deposits may only be accepted from persons and entities that are not citizens or
residents of the United States.
According to paragraph 210, “foreign investment advi sers registered with the SEC are not required to
have a U.S. place of business or set up a U.S. subsidiary or branch.”
Please clarify whether or not this means that cross-border supply (mode 1) and consumption abroad
are permitted by the foreign investment advisers registered with the SEC?
If so, since the United States has already adopted the Understanding on Commitments in Financial
Services whose paragraph B.3 (c) includes investme nt advisory services, is it correct to understand
that the United States has made such a commitment?
With regard to this issue, could the U.S. govern ment explain the meaning of the following statement
in the note on financial services as included in the initial U.S. offer:  “the United States will consider,
pending on the other Members’ willingness to do likewise, adopting additional mode 1 commitmentsfor certain other activities where the consumer is deemed sufficiently sophisticated to manage any
attendant risk, such as allowing mutual funds located in the United States to obtain certain investment
advice and portfolio management services from financial services suppliers located outside its
territory.”
Answer
As is the case for many members, actual practice in the U.S. is occasionally, more liberal than our
commitments, including in the area mentioned by the Korean delegation.  The U.S. stands ready to
negotiate reciprocal removal of such “binding gaps.”
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