THE YEAR 

IN TRADE 

Operation of the Trade 

Agreements Program 

1991 

United States 

International 

Trade 

Commission 

43d REPORT 

US1TC Publication 2554 

AUGUST 1992 

• ' 

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44- 

'et 

Z" •
UNITED STATES INTERNATIONAL TRADE COMMISSION 

COMMISSIONERS 

Don E. Newquist, Chairman 

Peter S. Watson, Vice Chairman 

David B. Rohr 

Anne E. Brunsdale 

Carol T. Crawford 

Janet A. Nuzum 

Address all communications to 

Secretary of the Commission 

United States International Trade Commission 

Washington, DC 20436 
THE YEAR IN TRADE: 

OPERATION OF THE TRADE 

AGREEMENTS PROGRAM 

43d REPORT 

1991 

AreAM. 

41/1111111 

Iliffirg111 11, 

UNITED STATES 

INTERNATIONAL 

TRADE COMMISSION 

USITC PUBLICATION 2554 

AUGUST 1992 

Prepared in Conformity With 

Section 163(b) of the 

Trade Act of 1974 
Report prepared principally by 

Office of Economics 

Joseph F. Francois 

Acting Director 

Martin F. Smith 

Chief, Trade Reports Division 

Kim S. Frankena 

Chief, Major Trading Nations Branch 

Vivian Noble 

Paul Gibson 

Project Leaders 

Joanne E. Guth Diane L. Manifold 

Constance A. Hamilton Todd T. Schneider 

Thomas F. Jennings James E. Stamps 

Magdolna B. Kornis Edward C. Wilson 

Michael S. Youssef 

Office of Investigations 

Anita Miller 

Office of the General Counsel 

Andrea C. Casson 

William T. Kane 

Lyle Vander Schaaf 

Office of Tariff Affairs and Trade Agreements 

Janis Summers 

Office of Industries 

Mary Elizabeth Sweet 

Office of Unfair Import Investigations 

Jeffrey Whicldon 

Office of Management Services 

David Saia, chief editor 

Clifford Brown, Helen Troupos, associate editors 

Pamela Chase, chief designer 

Keven Blake, Joyce Bookman, and Paulette Henderson, designers 

With the assistance of 

Dean Moore and 

interns Sandra Burnis and Cortney Todd 

Supporting assistance was provided by: 

Paula Wells, secretarial services 

Linda Cooper, clerical services 
PREFACE 

The annual Operation of the Trade Agreements Program report is one of the principal means by 

which the U.S. International Trade Commission (USITC) provides the U.S. Congress with factual 

information on trade policy and its administration. The report also serves as an historical record of 

the major trade-related activities of the United States, for use as a general reference by Government 

officials and others with an interest in U.S. trade relations. This report is the 43d in a series 

submitted under section 163(b) of the Trade Act of 1974 and its predecessor legislation.' The trade 

agreements program includes "all activities consisting of, or related to, the administration of 

international agreements which primarily concern trade and which are concluded pursuant to the 

authority vested in the President by the Constitution" and congressional legislation. 2Among such 

laws are the Reciprocal Trade Agreements Act of 1934 (which initiated the trade agreements 

program), the Trade Expansion Act of 1962, the Trade Act of 1974, the Trade Agreements Act of 

1979, the Trade and Tariff Act of 1984, and the Omnibus Trade and Competitiveness Act of 1988. 

The report consists of an introduction, five chapters, a statistical appendix, and an index. The 

introduction sketches the economic and international trade environment within which U.S. trade 

policy was conducted in 1991. Chapter 1 treats selected topics in trade. Chapter 2 focuses on 

activities in the General Agreement on Tariffs and Trade (GATT), the main area of multilateral 

trade agreement activities. Activities outside the GATT are reported in chapter 3. Chapter 4 

discusses bilateral relations between the United States and its major trading partners. Chapter 5 

discusses the administrative actions taken under U.S. laws, including decisions taken on remedial 

actions available to U.S. industry and labor. The period covered in the report is calendar year 1991, 

although events in early 1992 are occasionally mentioned, to help the reader understand 

developments more fully. 

1 Section 163(b) of the Trade Act of 1974 (Public Law 93-618, 88 Stat. 1978) directs that "the International 

Trade Commission shall submit to the Congress, at least once a year, a factual report on the operations of the trade 

agreements program." 

2Executive Order No. 11846, Mar. 27, 1975. 

iii 

TABLE OF CONTENTS 

Page 

Preface 

Introduction xiii 

Trade policy in 1991 xiii 

The international economic environment in 1991 xv 

North America xvi 

European Community xvii 

Asia xviii 

Latin America xix 

Eastern Europe/Soviet Union xix 

Chapter 1. Selected topics in trade 

North American Free-Trade Agreement 1 

Toward an accord 1 

Issues on the table 2 

Parallel issues 7 

Striking a deal 7 

Uruguay Round negotiations in 1991 8 

Technical talks resumed and groups restructured 8 

Final negotiating group texts prepared 8 

Introduction of the Dunkel text 8 

Four-track process to conclude Round 9 

Dunkel text highlights 9 

Trade and the environment 13 

The impact of trade policy on the environment 14 

The impact of environmental policy on trade 14 

Not a zero-sum game 15 

Years of concern 15 

National enviromental measures with trade provisions 16 

International environmental agreements with trade provisions 17 

Conflicts in the making: GATT and the environment 18 

Common ground? 21 

Chapter 2. The General Agreement on Tariffs and 

Trade and the Tokyo Round agreements 

Regular GATT activities and work of committees 33 

GATT Ministerial 33 

Council of Representatives 35 

Committee on Tariff Concessions 35 

Committee on Trade and Development 35 

Committee on Balance-of-Payments Restrictions 35 

Working Group on the Export of Domestically Prohibited Goods and 

Other Hazardous Substances 36 

Textiles Arrangement and Committee 36 

Actions under articles of the general agreement 36 

Emergency actions on imports 36 

Dispute settlement Panels and followups requested by the United States 36 
TABLE OF CONTENTS-Continued 

Page 

Chapter 2. The General Agreement on Tariffs and 

Trade and the Tokyo Round agreements—Continued 

Dispute settlement: Panels and followups examining U.S.measures 38 

Customs unions and free-trade areas 39 

Negotiations on modifications of schedules 39 

Accessions to the general agreement 39 

Review of trade measures from German unification 40 

Trade Policy Review Mechanism 40 

Implementation of the Tokyo Round agreements 40 

Code on Subsidies and Countervailing Duties 40 

Antidumping Code 41 

Customs Valuation Code 42 

Agreement on Import Licensing Procedures 42 

Standards Code 43 

International Dairy Arrangement 43 

Arrangement Regarding Bovine Meat 44 

Government Procurement Code 44 

Agreement on Trade in Civil Aircraft 45 

Chapter 3. Trade activities outside the GATT 

Organization for Economic Cooperation and Development 55 

Ministerial communique 55 

Agricultural policy reform 56 

Trade and the environment 56 

Central and Eastern Europe 57 

Development Assistance Committee 57 

OECD investment instruments 57 

Export Credits Arrangement 58 

Customs Cooperation Council 58 

HS administration 58 

Other activities 59 

United Nations Conference on Trade and Development 59 

Generalized System of Preferences 59 

Trade finance 60 

Restrictive business practices 60 

Shipping 61 

Negotiation and operation of international commodity arrangements 61 

Other trade agreements 67 

Enterprise for the Americas Initiative 67 

Steel import program 67 

Arrangement Regarding International Trade in Textiles 68 

Bilateral Investment Treaty Program 71 

U.S.-Canada Free-Trade Agreement 72 

U.S.-Israel Free-Trade Area Agreement 72 

U.S.-Soviet Union Long-Term Grain Agreement 74 

vi 
TABLE OF CONTENTS-Continued 

Page 

Chapter 4. Developments with major 

U.S. trading partners 

The European Community 81 

Merchandise trade with the United States 81 

Major policy developments affecting trade 83 

U.S.-EC bilateral trade issues 87 

Canada 94 

Merchandise trade with the United States 94 

Major policy developments affecting trade 95 

U.S.-Canadian bilateral trade issues 97 

Japan 101 

Merchandise trade with the United States 101 

Major policy developments affecting trade 103 

U.S.-Japanese bilateral trade issues 103 

Mexico 111 

Merchandise trade with the United States 111 

Major policy developments affecting trade 115 

U.S.-Mexican bilateral trade issues 117 

Republic of Korea 120 

Merchandise trade with the United States 120 

Major policy developments affecting trade 120 

U.S.-Korean bilateral trade issues 122 

Taiwan 123 

Merchandise trade with the United States 123 

Major policy developments affecting trade 125 

U.S.-Taiwan bilateral trade issues 125 

Brazil 127 

Merchandise trade with the United States 127 

Major policy developments affecting trade 127 

U.S.-Brazilian bilateral trade issues 129 

Chapter 5. Administration of U.S. trade 

laws and regulations 

Import relief laws 147 

Safeguard actions 147 

Market disruption 147 

Adjustment assistance 147 

Laws against unfair trade practices 148 

Antidumping investigations 148 

Countervailing-duty investigations 149 

Reviews of outstanding antidumping and countervailing-duty orders 150 

Section 337 investigations 150 

Enforcement of trade agreements and response to unfair foreign practices 151 

vu 
TABLE OF CONTENTS-Continued 

Page 

Chapter 5. Administration of U.S. trade 

laws and regulations-Continued 

Other import administration laws 156 

Agricultural Adjustment Act 156 

Meat Import Act of 1979 156 

National security import restrictions 157 

Generalized System of Preferences 157 

Caribbean Basin Economic Recovery Act 162 

Andean Trade Preference Act 163 

Figures 

1. Dates in trade, 1991 xiv 

2. Organizational structure of the GATT 34 

3. U.S. imports of textiles and apparel by major suppliers, 1985 

and 1991 71 

4. U.S. trade with the European Community, by product sector, 1991 82 

5. U.S. trade with Canada, by product sector, 1991 95 

6. U.S. trade with Japan, by product sector, 1991 103 

7. U.S. trade with Mexico, by product sector, 1991 112 

8. U.S. trade with Korea, by product sector, 1991 120 

9. U.S. trade with Taiwan, by product sector, 1991 124 

10. U.S. trade with Brazil, by product sector, 1991 128 

Tables 

1. Contracting parties to the GATT: Status as of Dec. 31, 1991 47 

2. Signatories to the Tokyo Round Agreements: Status as of Dec. 31, 1991 48 

3. ICCA reference, intervention, and trigger prices for buffer—stock operations, 1991 62 

4. Green coffee: International Coffee Organization monthly average 

composite indicator prices, on the basis of the 1979 agreement, 1987-91 63 

5. Raw and refined sugar: World market prices, contract No. 11, 

f.o.b. Caribbean ports, and contract No. 5, f.o.b. Europe, U.S. cents/lb. 64 

6. - INRA reference, intervention, and trigger prices for buffer-stock operations, 1991 65 

7. Countries subject to VRAs and their respective limits, under 

initial and extended restraint agreements, 1984-92 69 

8. Countries with U.S. textile and apparel agreements or quotas: 

U.S. general imports of textiles and apparel subject to the MFA, 

in 1991, and expiration dates of agreements or quotas in place 

during 1991, as of July 13, 1992 70 

9. Leading U.S. imports for consumption, under special duty provisions 

of the U.S.-Israel FIA, customs value, 1990-91 73 

10. U.S. merchandise trade with the European Community, by SITC 

Nos. (revision 3), 1989-91 83 

viii 
TABLE OF CONTENTS-Continued 

Page 

Tables-Continued 

11. U.S. merchandise trade with Canada, by SITC Nos. (revision 3), 1989-91 94 

12. Leading categories of trade between the United States and the 

Province of Quebec, 1989-91 97 

13. U.S. merchandise trade with Japan, by SITC Nos. (revision 3), 1989-91 102 

14. U.S. merchandise trade with Mexico, by SITC Nos. (revision 3), 1989-91 111 

15. U.S. imports from Mexico entered under HTS items 9802.00.60 and 9802.00.80 

and under GSP provisions, 1987-91 114 

16. U.S. merchandise trade with Korea, by SITC Nos. (revision 3), 1989-91 121 

17. U.S. merchandise trade with Taiwan, by SITC Nos. (revision 3), 1989-91 124 

18. U.S. merchandise trade with Brazil, by SITC Nos. (revision 3), 1989-91 128 

19. U.S. imports for consumption from GSP beneficiaries and the world, 1991 160 

20. U.S. imports for consumption under the GSP from leading beneficiaries, and total, 1991 161 

21. U.S. imports for consumption from countries designated under CBERA, 

by duty treatments, 1989-91 163 

22. Leading U.S. imports for consumption entered under CBERA provisions, by descending 

customs value of duty-free imports, 1988-91 164 

Appendix tables 

A-1. Countervailing duty actions reported by signatories to the GATT 

Committee on Subsidies and Countervailing Measures, by reporting countries, 1991 174 

A-2. Antidumping actions reported by signatories to the GATT Committee 

on Anti-Dumping Practices, by reporting countries, 1991 175 

A-3. Leading items exported to Israel, by HS items, 1989-91 183 

A-4. Leading items imported from Israel, by HS items, 1989-91 184 

A-5. Leading items exported to the European Community, by HS items, 

1989-91 185 

A-6. Leading items imported from the European Community, by HS items, 

1989-91 186 

A-7. Leading items exported to Canada, by HS items, 1989-91 187 

A4. Leading items imported from Canada, by HS items, 1989-91 188 

A-9. Leading items exported to Japan, by HS items, 1989-91 189 

A-10. Leading items imported from Japan, by HS items, 1989-91 190 

A-11. Leading items exported to Mexico, by HS items, 1989-91 191 

A-12. Leading items imported from Mexico, by HS items, 1989-91 192 

A-13. Leading items exported to Korea, by HS items, 1989-91 193 

A-14. Leading items imported from Korea, by HS items, 1989-91 194 

A-15. Leading items exported to Taiwan, by HS items, 1989-91 195 

A-16. Leading items imported from Taiwan, by HS items, 1989-91 196 

A-17. Leading items exported to Brazil, by HS items, 1989-91 197 

A-18. Leading items imported from Brazil, by HS items, 1989-91 198 

A-19. Antidumping cases active in 1991, filed under authority of title VII of the 

Tariff Act of 1930, by final outcome and by USITC investigation number 199 

A-20. Antidumping orders and findings in effect as of Dec. 31,1991 202 

ix 
TABLE OF CONTENTS-Continued 

Page 

Appendix tables-Continued 

A-21. Countervailing cases active in 1991, filed under authority of 

sec. 303 or title VII of the Tariff Act of 1930, by final 

outcome and by USITC investigation number 207 

A-22. Countervailing duty orders and findings in effect as of Dec. 31, 1991 209 

A-23. Sec. 337 investigations completed by the U.S. International 

Trade Commission during 1991 and those pending on Dec. 31, 1991 211 

A-24. Outstanding sec. 337 exclusion orders as of Dec. 31, 1991 214 

A-25. U.S. imports for consumption, designated and nondesignated 

countries under CBERA, 1987-91 217 

A-26. U.S. imports for consumption of leading GSP-eligible items, by 

descending value of GSP duty-free imports, 1991 218 

A-27. U.S. imports for consumption and imports eligible for GSP 

treatment, by import categories based on the Harmonized 

Tariff System (HTS), 1991 221 

A-28. U.S. imports for consumption and imports eligible for GSP 

treatment, by import categories based on the standard 

industrial classification (SIC), 1991 222 

INDEX 223 
List of Frequently Used Abbreviations 

and Acronyms 

ATPA Andean Trade Preference Act 

BIT bilateral investment treaty 

CAP Common Agricultural Policy 

CBERA Caribbean Basin Economic Recovery Act 

CCC Customs Cooperation Council 

CFTA U.S.-Canada Free-Trade Agreement 

EM Enterprise for the Americas Initiative 

EC European Community 

FTA free-trade agreement 

GATT General Agreement on Tariffs and Trade 

GSP Generalized System of Preferences 

HS Harmonized System 

IPR intellectual property rights 

MFA Multifiber Arrangement 

MFN most favored nation 

MOSS market-oriented, sector-selective 

NAFTA North American Free-Trade Agreement 

NICs newly industrializing countries 

NTMs nontariff measures 

OECD Organization for Economic Cooperation and Development 

STI Structural Impediments Initiative 

SITC standard international trade classification 

TAA trade adjustment assistance 

TRIPs trade-related aspects of intellectual property rights 

TRIMs trade-related investment measures 

UNCTAD United Nations Conference on Trade and Development 

USITC U.S. International Trade Commission 

USTR United States Trade Representative 

VRA voluntary restraint agreement 

xi 

INTRODUCTION 

'frade Policy in 1991 

The year 1991 saw the emergence of several 

cross-cutting trends in trade policy. In the Uruguay 

Round of the General Agreement on Tariffs and Trade 

(GATT), efforts to reach a multilateral consensus on 

liberalizing global trade were stymied by a U.S.-EC 

disagreement on agriculture. Although some progress 

was made during the year in areas such as services, the 

overall effect of the disagreement was to slow 

momentum in the Round and to encourage major 

trading nations to pursue their commercial objectives 

through other means and forums. There was a spate of 

highly publicized disputes between the United States 

and its major trading partners, as well as more 

purposeful efforts toward forging regional accords, 

such as the proposed North American Free-Trade 

Agreement (NAFTA) among the United States, 

Canada, and Mexico. Some viewed this trend toward 

creating regional spheres of economic influence as a 

threat to the multilateral trading system. Others, 

notably environmentalists, worried that stronger 

international trade disciplines might limit the options 

available to achieve environmental protection. The 

year also saw a rise in the use of trade policy for 

foreign policy purposes, as the major industrialized 

countries launched trade liberalization initiatives 

intended to integrate the former Communist countries 

into the global market. (See figure 1 for a listing of 

significant events in trade during the year.) 

The stated U.S. trade policy priority in 1991 was 

the successful conclusion of the GATT Uruguay 

Round, which has been in progress for more than five 

years. The negotiations, which had stalled at the end 

of 1990, were resumed in February 1991. The talks, 

however, continued to be weighted down by the issue 

of agriculture, leading GATT Director-General Arthur 

Dunkel to introduce his own draft version of a final 

text in December. Despite the mixed reception it 

received, the 1991 Dunkel text was the most 

comprehensive text yet to emerge from the Uruguay 

Round. It was still being reviewed by Round 

participants at year's end. 

The focus for U.S. trade policy on the regional 

level was the negotiation of a NAFTA with Mexico 

and Canada. Building on the free-trade agreement 

negotiated between Canada and the United States in 

1988, the NAFTA is projected to create a free market 

of some 360 million consumers, with a total output of 

$6 trillion. President Bush, Mexican President Carlos 

Salinas, and Canadian Prime Minister Brian Mulroney 

announced in early February that they would seek a 

trilateral NAFTA; the next month, President Bush 

formally requested an extension of "fast-track" 

negotiating authority from Congress to pursue the 

NAFTA (and Uruguay Round) negotiations. Congress 

could have disapproved U.S. participation, but 

resolutions to do so were defeated in late May. The 

NAFTA negotiations were formally inaugurated in 

Toronto in mid-June, and were still in progress at 

year's end. 

Once it is concluded, the NAFTA is expected to 

serve as a model for the negotiation of free-trade 

agreements with other Latin American countries, as 

envisioned by President Bush's Enterprise for the 

Americas Initiative (EAT). In 1991 framework trade 

agreements were concluded under the auspices of the 

EAI with 24 nations in Latin America and the 

Caribbean, bringing to 30 the total number of such 

agreements concluded since the EM was announced in 

1990. Countries in these regions were also the target 

of U.S. preference programs such as the ongoing 

Caribbean Basin Economic Recovery Act (CBERA), 

which accounted for $1.1 billion in duty-free U.S. 

imports in 1991, and the new Andean Trade Preference 

Act (ATPA), which is aimed at slowing drug traffic 

from such nations as Bolivia, Colombia, Ecuador, and 

Peru by enhancing their legitimate trade revenues. The 

ATPA was enacted late in the year. 

On a more global scale the U.S. Generalized 

System of Preferences (GSP) program provided 

duty-free entry for $13.4 billion in U.S. imports from 

more than 130 countries, representing an increase of 

more than $2 billion from the previous year. With the 

demise of communism in Eastern Europe, the U.S. 

GSP program expanded to new territory in 1991: the 

Czech and Slovak Federal Republic and Bulgaria both 

became eligible for GSP treatment in the course of the 

year. (Immersed in a bitter ethnic civil war Yugoslavia 

was, in contrast, suspended from the program.) 

In addition, President Bush announced in March 

the Trade Enhancement Initiative, which is designed to 

improve bilateral trade between the United States and 

the formerly Communist states of Central and Eastern 

Europe. Concerning the Soviet Union, the United 

States renewed its long-term grain agreement in 

January, for a period of 5 years. However, given the 

demise of the Soviet Union on Christmas Day, and its 

devolution into 12 independent republics, the future of 

the agreement—and of general trade relations with the 

region—became uncertain. 
President Bush formally requests Congress for renewal of fast-track authoritylo pursue a 

NAFTA with Canada and Mexico and to complete the GATT Uruguay Round 

Treaty of Asuncion signed by Brazil, Argentina, Paraguay, and Uruguay, establishing 

Southern Common Market (MERCOSUR) 

President Bush announces Trade Enhancement Initiative 

Czech and Slovak Federal Republic granted GSP benefits 

March 26: 

March 

APRIL 

Market-oriented sector selective (MOSS) talks on auto parts held between United States 

and Japan in Tokyo. Auly.;3424, 

Muitifiber Arrangement extended for fourth time, to December 31, 1992 

Draft of U.S.-Mexico Integrated Border Environmental Plan released 

•,SEFTEMBE.FL.: 

ptember 15 Mexico and Chile sign free-trade . accord 

.............. ....... .......... . • 

COngrese:sapproves:AndeanTrade::Preference Act.(AT.PA):• • • . ....:..:......:..::.......: ......... 

Figure 1 

Dates In Trade, 1991 

JANUARY 

January 1: 

FEBRUARY 

February 5: 

February 26: 

U.S.-Soviet Union Long-Term Grain Agreement enters into force 

President Bush, President Salinas, and Prime Minister Mulroney announce intention to 

pursue trilateral North American Free-Trade Agreement (NAFTA) 

GATT Uruguay Round talks resume 

May 24i 

flee 'anrrUelimport on Structural ImpedimentsInitratiVe($11).released : Senate rejects resolution:denying renewal of laSt4racicaUthOrity :(for negotiating; Uruguay 

Round and NAFTA) by a:Vote of 9-36 

JUNE 

June 1: 

June 4-5: 

United States and Japan conclude agreement on construction-related services 

Annual ministerial meeting of the Organization for Economic Cooperation and Development 

(OECD) 

United States and Japan formalize new semiconductor agreement 

NAFTA negotiations initiated in Toronto 

OCTOBER 

October 22: 

October 29: 

EC and EFTA (European Free-Trade Association) agree to form European Economic Area 

(EEA) 

President Bush announces embargo on nonhumanitarian exports to and most imports from 

Haiti 

DECEMBER 

December 3-4: 

December 4: 

December 4: 

December 4: 

December 5: 

December 9-10: 

December 14: 

December 20: 

December 25: 

47th meeting of GATT contracting parties 

President Bush signs ATPA 

President Bush invites high-level U.S. auto executives to participate in mission to Japan 

Bulgaria receives GSP benefits 

Yugoslavia suspended from eligibility for GSP benefits 

At Maastricht summit, EC members agree to text of Treaty on European Union 

Presidents Bush and Salinas meet at Camp David, reaffirm commitment to NAFTA 

GATT Director-General Arthur Dunkel releases draft final text of Uruguay Round 

agreement 

Soviet Union is dissolved 

xiv 
The Office of the United States Trade 

Representative (USTR) initiated six investigations 

relating to unfair trade practices under section 301 of 

the Trade Act of 1974—double the number initiated in 

the previous year. Two of the investigations focused 

on intellectual property, an area of particular concern 

for U.S. trade policy makers. An increase in the 

number of filings under the U.S. antidumping and 

countervailing-duty laws was seen as likely in light of 

President Bush's 1991 announcement that he would 

allow voluntary export restraints on steel to expire in 

early 1992. 

A handful of U.S. disputes with major trading 

partners—Japan, the EC, and Canada—dominated 

bilateral relations and attracted considerable press 

attention in 1991. The $44.3 billion U.S. merchandise 

deficit with Japan, continued high imports of Japanese 

autos and auto parts, and the persistent U.S. recession 

all led to calls by members of Congress and the U.S. 

auto industry for protection and Japanese concessions. 

In early December President Bush invited the chief 

executive officers of Chrysler, Ford, and General 

Motors to accompany him on a winter "trade mission" 

to Tokyo. For its part, Japan put protectionist 

sentiment on display in an incident in March, when 

Japan's Ministry of Agriculture demanded the removal 

of samples of raw U.S. rice at the Tokyo Trade Fair. 

Nevertheless, bilateral negotiations continued on a 

number of other issues. Progress was announced on 

such measures as the Structural Impediments Initiative, 

which seeks to identify and remove basic impediments 

to trade, competition, and balance-of-payments 

adjustments. Additional progress came when U.S. and 

Japanese negotiators agreed in June on a revised, 

5-year U.S.-Japanese Semiconductor Arrangement, and 

with the expansion of an agreement on 

construction-related services to permit U.S. firms to 

bid on more Japanese public-works projects. 

Longstanding disputes over oilseeds, meat imports, 

and Airbus Industrie continued to color U.S. trade 

relations with the EC. Particularly contentious was the 

issue of the EC's Common Agricultural Policy (CAP). 

In July the EC Commission made a formal proposal to 

reform the CAP radically, which was still being 

debated at year's end. The EC continued its march 

toward economic and monetary union and a measure of 

political union as well. In 1991 its efforts culminated 

in the Treaty on European Union, the result of a 2-day, 

12-member conference held in December in the Dutch 

city of Maastricht. The EC also concluded an 

agreement in October for a European Economic Area 

with the seven countries of the European Free-Trade 

Association. 

Present and future trade agreements with the 

United States were the focus of considerable attention 

in Canada, the United States' single largest trading 

partner. As the Canadian Government sought to avert 

a constitutional crisis that could lead the Province of 

Quebec to secede from Canada, the issue of whether an 

independent Quebec would be included in the 

U.S.-Canada Free-Trade Agreement (CFTA) arose. In 

its 3d year of operation in 1991, the CFTA had 

increased bilateral trade by 13.9 percent, according to 

U.S. estimates. Nonetheless, the pact received a 

measure of criticism in recession-plagued Canada, 

where many complained that it had caused significant 

job losses. Adding to the tension were unusually 

heated disputes between the two countries that centered 

on pork, softwood lumber, and beer. These disputes, 

however, did not appear to obstruct the NAFTA 

negotiations that Canada was conducting with the 

United States and Mexico. 

In light of the NAFTA negotiations, Mexican trade 

disputes with the United States were down-played. 

The largest dispute, over a U.S. embargo on Mexican 

tuna, was referred to a GATT panel, which in 

September circulated a report that largely supported the 

Mexican position; however, both countries 

subsequently requested that the issue be removed from 

GATT consideration so they might resolve it between 

themselves. Mexico indicated its increasing 

commitment to open trade throughout 1991 by 

enacting legislation that more vigorously protects 

intellectual property rights, by continuing its massive 

program of privatization, and by concluding a 

free-trade agreement with Chile. Mexico also worked 

toward dismantling its import-licensing requirements. 

This move was echoed in Brazil and Taiwan, which 

also sought to lower tariffs and other barriers to trade. 

Joining with Argentina, Paraguay, and Uruguay, Brazil 

signed the Treaty of Asuncion in March, agreeing to 

establish the Southern Common Market. 

The increasing emphasis on plurilateral trade pacts 

that characterized the 1991 world'trading environment 

helped to focus unprecedented attention on a new 

consideration: the relationship (and tensions) between 

trade and environmental policy. Congressional and 

public concern over the environmental effects of a 

NAFTA, for example, led the Bush administration to 

make a commitment to address the subject "in parallel" 

with the NAFTA negotiations. In May the GATT 

Council held a structured debate centered on 

environmental issues, and a good portion of the annual 

Ministerial statement issued by the Organization for 

Economic Cooperation and Development (OECD) was 

devoted to trade and the environment. Further, 

domestic restrictions to achieve environmental goals 

were introduced or enacted in a number of nations, 

including the United States and the countries of the 

EC. Such efforts seem likely to expand in coming 

years, but the effect that they will have on trade 

initiatives in the United States and elsewhere remains 

to be seen. 

The International Economic 

Environment in 1991 

World output and trade grew relatively slowly in 

1991. World real output grew at an estimated annual 

rate of 1.2 percent in 1991, in contrast to actual growth 

rates of 2.1 percent in 1990 and 3.3 percent in 1989. 

xv 
The slowdown reflected sluggish growth in major 

industrial countries and actual declines in output in the 

Middle East, Latin America, Eastern Europe, and the 

former Soviet Union. 

Concomitant with the slowdown in world output 

was a slowdown in world trade growth. GATT 

estimates show that the nominal value of world trade 

expanded by 1.5 percent in 1991, compared with an 

increase of 13.5 percent in 1990. The 1991 increase 

was the smallest since 1983 and reflected weak 

investment spending in export-oriented industries. 

Further, the breakdown of the trading system among 

the former Eastern Bloc countries dramatically reduced 

these countries' trade with one another. 

In the 24 countries of the OECD as a group, output 

grew by an estimated 1.1 percent in 1991, down from 

an actual growth rate of 2.6 percent in 1990 and 3.3 

percent in 1989. Inflation is estimated at 4.8 percent in 

1991-slightly lower than the 4.9-percent inflation rate 

in 1990 but higher than the 4.3-percent inflation rate in 

1989. Unemployment is estimated to have risen to 6.8 

percent in 1991 from 6.2 percent in 1990 and 1989. 

OECD exports increased by 2.5 percent in 1991, 

compared with an increase of 5.1 percent in 1990; 

imports increased by 3.1 percent, compared with a 

5.0-percent increase in 1990. 

Debt remained a major concern for developing 

nations, whose collective external debt rose in nominal 

value by 4.4 percent in 1991. The IMF's 

developing-country debt table shows that the external 

debt of these countries rose by an estimated 

$56 billion, to $1,362.2 billion in 1991. Exchange-rate 

adjustments, a net rise in interest rates, and rescheduled 

interest arrears increased the debt stock. Some 

indebted countries experienced faster growth in exports 

than in debt, and thus their creditworthiness improved 

somewhat. However, arrears of the severely indebted 

groups grew rapidly. 

North America 

United States 

In the United States real growth slowed in 1991. 

Real gross domestic product (GDP) fell in 1991 by 1.2 

percent, compared with an increase of 1.0 percent in 

1990. With inflation slowing to an annual rate of 4.0 

percent, down from 5.0 percent in 1990, the Federal 

Reserve concentrated in 1991 on strengthening 

domestic demand by cutting bank reserve requirements 

and key interest rates to their lowest levels in many 

years. However, in spite of the Federal Reserve's 

progressive easing of monetary policy, sagging 

consumer confidence, high levels of consumer and 

business debt, and more cautious bank lending 

practices combined to limit demand growth. Private 

consumption spending increased by just 0.3 percent in 

1991, down from an increase of 1.2 percent in 1990. 

Public spending, restrained by the recession and by the 

Omnibus Budget Reconciliation Act, increased by a 

meager 0.7 percent after increasing by 3.2 percent in 

1990. Domestic private fixed investment declined by 

6.6 percent. Moreover, the Federal budget deficit 

deepened in 1991. The economic slowdown reduced 

Government revenue at the same time that a massive 

bailout of savings and loan institutions required higher 

outlays, suggesting that in spite of a hard-fought 1990 

budget compromise, tremendous efforts may still be 

needed to balance the budget. According to 

Congressional Budget Office estimates, the Federal 

deficit was expected to grow from $220.5 billion in 

1990 to $268.7 billion in 1991. Slow economic growth 

increased the unemployment rate to 6.7 percent from 

5.5 percent in 1990. 

The United States regained its position as the 

world's largest merchandise exporter in 1991, after 

losing it to the Federal Republic of Germany in 1990. 

In 1991 the U.S. merchandise trade deficit reached its 

lowest level since 1983, declining to $66.2 billion from 

$101.7 billion in 1990. Exports rose by 7.2 percent in 

1991 to an all-time high of $421.9 billion from $393.6 

billion in 1990, and imports declined by 4.6 percent, to 

$488.1 billion, from $495.3 billion in 1990. Exports 

grew in almost every end-use category: capital goods 

gained 9.2 percent, automotive vehicles and pans 

gained 6.7 percent, consumer goods gained 6.5 percent, 

and industrial supplies and materials gained 4.6 

percent. Exports of manufactures grew by 9.3 percent, 

to $325.9 billion, and constituted 77.3 percent of total 

exports. Within the manufactured goods category, 

exports of advanced-technology products grew by 7.0 

percent; the United States ran a trade surplus in these 

products of $36.7 billion in 1991. Other exporting 

sectors showed balanced growth and contributed 

variably to total exports. Airplanes and parts, scientific 

instruments, specialized industrial machinery, and 

general industrial machinery contributed markedly to 

the surge in U.S. exports in 1991. Imports of oil 

declined to $37.2 billion in 1991 from $43.8 billion in 

1990. 

U.S. trade performance improved significantly in 

1991 with all its major trading partners except Japan 

and China. The 1991 merchandise trade deficit with 

Canada declined by around $1.7 billion, and the trade 

deficit with the newly industrializing countries (NICs) 

declined by about 45 percent, to $1.8 billion from $3.2 

billion. Most notable was the large decline in the U.S. 

trade deficit with the Organization of Petroleum 

Exporting Countries (OPEC). This deficit declined by 

around $11.0 billion to $13.9 billion, due to decreasing 

oil prices. The trade surplus with the EC increased 

fourfold, to $16.7 billion. U.S. total trade (exports plus 

imports) with Eastern European countries grew to 

$6.6 billion in 1991 from $6.4 billion in 1990. The 

United States incurred a trade surplus with the former 

Soviet Union of $2.0 billion in 1991 and a small trade 

deficit with other Eastern European countries. The 

1991 trade deficit with Japan increased by $2.3 billion, 

to $43.4 billion. U.S. exports to Japan amounted to 

$46.1 billion, and imports amounted to $90.5 billion. 

The deficit with China increased by $2.2 billion, to 

xvi 
$12.7 billion in 1991, and U.S. total trade with China 

climbed to $25.3 billion from $20.0 billion in 1990. 

Surges in exports of goods and services and in the 

surplus in transfer payments reduced the U.S. current 

account deficit. The deficit dropped to $8.6 billion in 

1991 from $92.1 billion in 1990. This marked decline 

reflected a dramatic decrease in the merchandise trade 

deficit, an increase in the surplus in services 

transactions, and an increase in the surplus in transfer 

payments (mainly due to contributions from U.S. allies 

for the Persian Gulf War). The U.S. surplus in services 

trade increased to $35.9 billion from $26.4 billion in 

1990. The surplus on unilateral transfers reached 

$19.7 billion in 1991, following a deficit of $22.3 

billion in 1990. In contrast the U.S. surplus in income 

from foreign investment declined to $9.4 billion in 

1991, compared with a surplus of $12 billion in 1990, 

because of the decline in earnings of U.S. affiliates 

abroad. These earnings were depressed by the 

economic slowdown in the major industrial countries 

and the sharp drop in foreign interest rates. Net 

inflows of capital into the United States declined to 

$11.8 billion in 1991 from $28.6 billion in 1990, 

reflecting increased U.S. purchases of foreign portfolio 

assets and declining participation by foreigners in the 

U.S. securities market. 

Canada 

In Canada, a deep recession seemed to have ended 

in the second quarter of 1991, after four consecutive 

quarters of output contraction. Although economic 

activity started picking up after the 1991 second 

quarter, output for 1991 as a whole declined by 1.5 

percent, following the positive growth rate of 0.5 

percent in 1990. The upturn in economic activity in 

the second half of 1991 was a result of growth in 

government spending on public investment and growth 

in foreign demand. Canada's trade surplus was $9.3 

billion in 1990 but fell to $6.4 billion in 1991 as a 

strong Canadian dollar hurt exports. Canada's deficit 

on the current account, moreover, increased to $23.4 

billion from $18.9 billion in 1990. Canada's consumer 

price index rose by 5.6 percent in 1991, up from 4.8 

percent in 1990, reflecting the introduction of the 

Goods and Services Tax and other indirect tax 

increases. The unemployment rate rose to 10.3 percent 

from 8.1 percent in 1990. 

Mexico 

In Mexico output grew by an estimated 4.0 percent 

in 1991. Consumer price inflation rose by 18.8 

percent. Expectations for lower inflation were 

improved by Mexico's adoption of fiscal restraint 

policies, which generated a surplus of $1.4 billion in 

the budget, following a deficit of $3.2 billion in 1990. 

The surplus was supplemented by the privatization of 

the Government telephone company (TELMEX) and 

other former Government-owned firms. Oil exports 

amounted to around $7.5 billion in 1991. Total 

merchandise exports grew to $27.2 billion, and imports 

grew to $38.0 billion, resulting in a trade deficit of 

around $10.8 billion. Foreign investment flows are 

expected to increase and help finance Mexico's current 

account deficit, which is estimated to reach more than 

$4 billion in 1991. An improvement in invisible 

receipts from services and tourism, combined with a 

fall in Mexico's interest payments on external debt, 

was expected to bring the services account deficit 

down to $4.3 billion in 1991 from $5.7 billion in 1990. 

Capital inflows soared in 1991, with portfolio 

investment showing the most dramatic increase, 

followed by inflows of direct investment and new 

loans to the private and public sectors. Such inflows 

produced a substantial capital account surplus and an 

increase in Mexican reserves of $7 billion in 1991. 

European Community 

In the European Community (EC) as a whole 

output growth slowed to an average of 1.4 percent in 

1991, compared with actual growth of 2.9 percent in 

1990 and 3.5 percent in 1989. EC world exports 

increased slightly, to $1.11 trillion in 1991 from $1.1 

trillion in 1990; imports increased to $1.2 trillion from 

$1.1 trillion in 1990, resulting in a trade deficit ($95.6 

billion) that was almost double the trade deficit in 1990 

($47.7 billion). Inflation declined to 5.0 percent from 

5.2 percent in 1990, and unemployment increased 

slightly, to 8.6 percent from 8.4 percent in 1990. EC 

economic and monetary policies have been determined 

by EC moves toward fuller economic and monetary 

integration. The first stage toward economic and 

monetary union (EMU) will include the completion of 

the single market, full participation of all EC 

currencies in the narrow band of the exchange-rate 

mechanism (2-1/4 percent on each side), and enhanced 

policy coordination. Obstacles remain, however, with 

regard to major issues such as the role of the European 

Currency Unit in replacing national currencies, the 

nature and length of the transition period to full 

economic and monetary union, the constraints to be 

placed on national budget policies, and the design and 

powers of the new European System of Central Banks. 

Similarly the approximation of the value-added tax and 

excise duty rates, rate structures, and documentation 

requirements continued to represent a difficult 

challenge for the EC. Resolution of the indirect tax 

issue is necessary as a prerequisite to the removal of 

customs frontiers at the end of 1992 under the EC 92 

program. However, considerable progress was made 

during 1991, and it appeared likely that agreement on 

the necessary tax issues could be reached in 1992. 

Germany 

In Germany real output grew by 3.2 percent in 

1991, compared with 4.5 percent in 1990 and 3.8 

percent in 1989. Consumer prices increased by 3.4 

percent in 1991 due to an increase in indirect taxes, 

compared with increases of 2.6 percent in 1990 and 3.1 

percent in 1989. Investment in plant and equipment 

xvii 
rose by 10 percent in 1991, compared with a 

12.9-percent increase in 1990. Investment as a ratio of 

gross national product (GNP) rose to 22.2 percent, the 

highest since 1973, from 21.5 percent in 1990. 

Germany's unemployment rate was 6.4 percent in 

1991, down from 7.2 percent in 1990 and 7.9 percent 

in 1989. Germany's merchandise exports declined to 

$383 billion in 1991 from $391 billion in 1990, and 

imports increased to $363 billion from $318.1 billion 

in 1990. As a result Germany's 1991 merchandise 

trade surplus declined to $20 billion from $72.9 billion 

in 1990. Germany's current account surplus of $47.9 

billion in 1990 turned into a deficit of $21 billion (6 

percent of GNP) in 1991, reflecting both increased 

spending on imports of capital goods (following 

German reunification) and public transfer payments for 

the 1991 Persian Gulf War. Short-term capital inflows 

financed the current account deficit. (The above 

statistics do not include the former East Germany.) 

United Kingdom 

The United Kingdom's recession seemed to have 

ended by the third quarter of 1991. Overall, output 

declined in 1991 by 1.9 percent, after growing by 0.8 

percent in 1990. Consumer prices increased by 6.2 

percent, up from 6.0 percent in 1990, and the 

unemployment rate climbed to 8.7 percent, up from 5.9 

percent a year earlier. The monetary policy of the 

United Kingdom has remained tight and has continued 

to focus on keeping the pound within its European 

Monetary System bands and on attaining a low rate of 

inflation. Increased public consumption and exports 

appear to have started a modest recovery in the third 

quarter of 1991. British merchandise exports in 1991 

increased to $184 billion from $182.5 billion in 1990, 

and imports declined to $201 billion from $214.5 

billion. The result was a reduction of the merchandise 

trade deficit to $17 billion in 1991 from $32.0 billion 

in 1990. Reflecting the economic slowdown, which 

caused imports to decline, the British current account 

registered a lower deficit of $11 billion, down from a 

deficit of $24.5 billion in 1990. 

Asia 

In Japan economic activity continued to expand in 

1991, but more slowly. In other Asian countries, the 

introduction of market-oriented policies that enhance 

the efficient allocation of resources and open up 

economies to free international trade improved 

prospects for continued economic growth. Particularly 

brisk output gains were recorded in the Asian NICs, 

which together expanded at an estimated rate of 6.3 

percent. Among Asian countries economic growth has 

been strongest and most sustained in China, Hong 

Kong, Indonesia, Korea, Malaysia, Singapore, Taiwan, 

and Thailand. Output in these countries is estimated to 

have grown on average by 7 to 8 percent in 1991. 

Japan 

Japan's output grew by 4.5 percent, following a 

growth rate of 5.6 percent in 1990. Gross fixed 

investment expenditures grew by 4.0 percent in 1991, 

after growing by 10.9 percent in 1990. Administrative 

controls over banks' activities, in addition to more 

cautious bank lending and balance sheet adjustments, 

restricted banks' supply of new loans. However, an 

increase in private consumption and in public spending 

cushioned the impact of the decline in investment 

spending. Exports of goods increased by 9.6 percent, 

to $307 billion in 1991, from $280 billion in 1990; 

imports declined by 6.4 percent in 1991, to $203 

billion, following an increase of 11.9 percent in 1990, 

to $217 billion. Japan's merchandise trade surplus 

grew to $103.3 billion from $63.5 billion in 1990. The 

rise in the trade surplus is expected to be a source of 

friction between Japan and its trading partners. Japan's 

current account surplus doubled to $72.6 billion in 

1991 from $35.8 billion in 1990. Japanese industries 

facing tight bank credit and tight labor markets 

experienced declining profits. However, in spite of 

such constraints, the Japanese economy is still 

operating at a high level of capacity utilization due to 

labor-saving techniques and technology-enhancing 

investment. Business investment has been maintained 

at 20 percent of GNP through corporate internal 

financing. Inflation in Japan rose by 3.2 percent in 

1991 and 3.1 percent in 1990. The unemployment rate 

reached 2.2 percent---0.1 percent higher than in 1990. 

Korea 

In the Republic of Korea output growth reached 

8.5 percent, led by a surge in domestic demand, 

investment in housing, and high rates of investment in 

capital-intensive production equipment to compensate 

for labor shortages. Korean exports were buoyed by 

increasing demand in Europe and Southeast Asia, as 

well as by the opening of new markets in the formerly 

socialist countries. Exports in 1991 totaled $72 billion, 

up from $65 billion in 1990, and imports totaled $82 

billion, up from $70 billion in 1990. The result was a 

trade deficit of $10 billion in 1991, up from 

$4.8 billion in 1990. Korea's current account is 

expected to show a deficit of $8.5 billion in 1991, up 

from a $2.1 billion deficit in 1990, largely reflecting 

the increase in the merchandise trade deficit. Korea's 

foreign reserves, excluding gold, declined slightly, by 

$1.3 billion to $23 billion; Korea's total external debt 

increased to $38.7 billion from $31.7 billion in 1990. 

The growth in Korea's domestic demand in 1991 led to 

a 10-percent inflation rate. Tight monetary policy, 

however, is expected to reduce Korea's inflation in 

1992, in spite of the growth in wages. 

xviii 
Taiwan 

In Taiwan output growth reached 7.0 percent in 

1991, sustained by increased Government spending 

and easy monetary policy. With inflation stabilizing at 

a moderate rate of about 4 percent a year, the Central 

Bank cut its discount rate to boost private investment. 

Taiwan's trade with mainland China sharply increased: 

exports to China rose by 16 percent in 1991, and 

imports from China rose by 19.5 percent. Taiwan's 

total exports were around $76 billion; its total imports, 

around $63 billion. Taiwan's merchandise trade 

surplus reached $13 billion, and the current account 

recorded a surplus of $11.5 billion in 1991. Taiwan's 

foreign reserves, excluding gold, swelled to $72 

billion, and its public external debt declined sharply. 

Latin America 

In Latin America growth has recovered in some 

countries following the implementation of structural 

economic changes. Restored confidence in the world 

financial markets allowed these countries a limited 

access to new credit. Moreover, foreign direct 

investment flows to these countries increased, 

financing deficits on their current accounts. Nonetheless, some countries—notably Brazil—continued to 

face severe economic setbacks in 1991. 

Brazil 

In Brazil the failure of yet another economic 

stabilization program introduced in January 1991 to 

stimulate strong growth and reduce inflation resulted in 

economic disarray in the second half of the year. 

Wages rose, and annual inflation crested at 466 

percent. Output, though, increased in real terms by 1.0 

percent, a significant improvement following a 

3.8-percent contraction in 1990. A trade surplus of 

$10.6 billion was recorded in 1991, down from $11.1 

billion in 1990. After payment of interest on foreign 

loans, the current account recorded a surplus of $3.0 

billion in 1991, up from a surplus of $1.6 billion in 

1990. Promising developments included renewed 

access to international capital markets by some private 

firms. However, the securing of a $2.0 billion standby 

loan from the International Monetary Fund (IMF), and 

an agreement with commercial banks to reschedule $52 

billion in medium- and long-term debts, remained 

crucial to a restoration of confidence. 

Eastern Europe/Soviet Union 

The economies of Eastern Europe and the former 

Soviet Union declined at an average rate of 11.9 

percent. Eastern European countries as a group 

recorded a loss of output at an estimated annual rate of 

9.8 percent in 1991. The collapse of trade within the 

Council for Mutual Economic Assistance (CMEA) 

countries was an important element in the decline. The 

former Soviet Union recorded an estimated decline of 

output of 12.5 percent in 1991. Production 

bottlenecks, a reduction in imports of industrial inputs 

and spare parts, the collapse of traditional distribution 

channels, hyperinflation, and the breakdown in 

budgetary and monetary controls have contributed to 

the decline in the region's economy) 

The previous section was compiled using data 

from the U.S. Department of Commerce; World 

Economic Outlook, International Monetary Fund, May 

1991; GATT Annual Report on International Trade, 

1991; IMF Survey, Apr. 13, 1992; OECD, World 

Economic Outlook, vol. 50, Dec. 1991; U.S. 

Department of Commerce News, Mar. 17, 1992; U.S. 

Department of Commerce News, Apr. 28, 1992; 

Economic Report of the President, Feb. 1992; 

Bureau of Labor Statistics Newsletter, Mar. 1992; 

Federal Reserve Bulletin, Mar. 1992; International 

Economic Review, USITC, Mar. 1992; U.S. Bureau of 

the Census, Foreign Trade Division, Report FT 900, 

Feb. 15, 1992; Deutsche Bank Research, Focus 

Germany: The German Economy in 

1991—Investment-Led Growth, Feb. 1992; U.S. 

Department of the Treasury, Canada: Economic 

Situation and Outlook, Mar. 16, 1992; IMF, 

International Financial Statistics, Apr. 1992; Monthly 

Economic Review of Japan (several issues); Japan 

Economic Journal, Dec. 15, 1992; U.S. Department 

of Commerce, Office of EC Affairs, Community Fact 

Sheet, Apr. 1992; Economist Intelligence Unit, Mexico 

Report, No. 11992; Economist Intelligence Unit, Brazil 

Report, No. 11992. 

xix 

CHAPTER 1 

Selected Topics in Trade 

This chapter highlights three major developments 

in U.S. trade policy in 1991: the launching of 

negotiations toward a comprehensive North American 

Free-Trade Agreement (NAFTA), the ongoing 

Uruguay Round of Multilateral Trade Negotiations, 

and the relationship between trade and the 

environment. Free trade among the United States, 

Canada, and Mexico moved closer to reality when the 

countries' leaders resolved in February to build upon 

the liberalization embodied in the U.S.-Canada 

Free-Trade Agreement (CFTA). By the end of the 

year, negotiations were well under way to eliminate or 

further reduce barriers to the flows of goods, services, 

and investment among the North American partners. 

Progress was less noticeable in the Uruguay Round, 

launched in 1986 in hopes of overhauling the General 

Agreement on Tariffs and Trade (GATT) to reflect new 

market realities. The Round's collapse in December 

1990 was attributed to lack of substantive agreement 

on numerous issues. Agriculture was the most 

conspicuous example, but intellectual property rights, 

antidumping measures, and services were also areas of 

contention. Although the over 100 participants came 

back to the table in February 1991, little headway had 

been made by December in bridging the divide over 

agriculture, which was considered the linchpin for 

achieving progress in all other areas of the 

negotiations. 

In addition to ongoing bilateral and multilateral 

trade discussions, world trading partners faced another 

challenge in 1991: how to address concerns about the 

protection of the earth's environment within a 

rule-based system designed to ensure predictable, 

nondiscriminatory commerce among nations. 

Recognizing the significance of this debate, the GATT 

and other international organizations grappled with 

these tensions formally by reviving or creating new 

forums for discussion on how best to balance the two 

policy goals. 

North American 

Free-Trade Agreement 

Toward an Accord 

Announced on June 27, 1990, President George 

Bush's Enterprise for the Americas Initiative (EAI) 

envisioned a hemispheric free-trade area extending 

"from Alaska to Argentina." 2One of the key elements 

in the initiative was the negotiation of a free-trade 

agreement with Mexico, which was to set a precedent 

for similar agreements with countries throughout Latin 

America and the Caribbean. On September 25, 1990, 

President Bush informed Congress of his intention to 

pursue negotiations for a free-trade agreement with 

Mexico. The President's announcement also mentioned 

Canada, which had signed a free-trade agreement with 

the United States in 1988 and wished to participate in 

the new negotiations. 3On February 5, 1991, President 

Bush, Canadian Prime Minister Brian Mulroney, and 

Mexican President Carlos Salinas de Gortari issued a 

joint communique announcing their intention to pursue 

a trilateral NAFTA. 

President Bush made a formal request in his March 

1, 1991, report to the Congress for an extension of the 

fast-track authority granted him under the Omnibus 

Trade and Competitiveness Act of 1988. 4By this time, 

however, public debate over the merits of a NAFTA 

had reached a critical level. Labor and environmental 

groups had been particularly vocal in the NAFTA 

debate, predicting job loss and environmental 

degradation as two major byproducts of a NAFTA. 

Such concerns were echoed in the U.S. Congress and 

threatened the extension of fast-track authority. By 

way of addressing the controversy, the administration 

articulated its position on NAFTA in a May 1 

document entitled Response of the Administration to 

Issues Raised in Connection With the Negotiation of a 

North American Free Trade Agreement (May 1 

Response). In this statement, the administration not 

only made a case for the merits of a possible NAFTA, 

but also committed itself to reviewing labor, 

environmental, and health and safety issues associated 

with the agreement. These reviews were to be held in 

parallel with, but not as a part of, the NAFTA 

negotiations. (See "Parallel Issues" section below; see 

also the "Trade and the Environment" section of this 

chapter.) 

On May 23 the U.S. House of Representatives 

defeated a resolution that would have denied President 

Bush's request for fast-track authority, and voted 329 

to 85)to support a resolution that called on the Bush 

administration to adhere to the commitments it had 

made in its May 1 Response. On the following day the 

Senate defeated by a vote of 59 to 36 another 

resolution to deny the President fast-track authority, 6 

 thus freeing the administration to pursue its goal of 

1 
creating "the largest market in the world." 7The 

administration's fast-track authority was extended 

through June 1, 1993. 

On June 12, 1991, United States Trade 

Representative Carla Hills, Mexican Commerce 

Secretary Jaime Serra Puche, and Canadian 

International Trade Minister Michael Wilson convened 

in Toronto to initiate NAFTA negotiations. 8It was 

agreed that the talks would be used to build on the 

liberalization already incorporated into the 1988 

CFTA. Agreement was also reached on the structure of 

the talks, and the trade ministers designated six areas to 

be the focus of future discussions: trade rules, 

services, investment, intellectual property, dispute 

settlement, and market access. 9Initially, 17 groups 

were set up to deal with the issues to be covered in the 

negotiations: 10the number was later expanded to 19. 

Under the aegis of market access were groups focusing 

on tariff and nontariff barriers, rules of origin, 

government procurement, agriculture, automobiles, and 

other industrial sectors (including textiles and energy). 

There were three groups under trade rules: safeguards, 

subsidies and trade remedies, and standards (including 

sanitary and phytosanitary standards, health and 

environment standards, and industry standards). Under 

services, the working groups were: principles for 

services, financial, insurance, land transportation, 

telecommunications, and other services. A group 

focusing on principles and restrictions operated under 

the aegis of investment. The areas of intellectual 

property and dispute settlement were not subdivided 

into special working groups. There were no special 

groups devoted to examining antidumping or 

countervail mechanisms. 11 

From August 18 to 20, the ministers reconvened in 

Seattle, Washington, and reported on August 20 that 

progress had been made on "broad overarching issues" 

such as services, investment, and dispute resolution. 12 

 As a result Canada, the United States, and Mexico 

exchanged initial tariff staging proposals, as well as 

non-tariff-barrier request lists, on September 19 in 

Dallas, Texas. 13About a month later, from October 25 

to 28, the ministers met again in Zacatecas, Mexico. 

After this consultation, they directed the working 

groups—which had been concentrating on setting out 

negotiation issues, sharing information, and organizing 

work—to start writing draft texts for a NAFTA and to 

exchange those texts. 14 

As negotiations proceeded, however, the NAFTA 

continued to be a subject of intense controversy. The 

prolonged U.S. recession, increased calls for protection 

from U.S. industries, and the surprise victory of Harris 

Wofford (an opponent of extending fast-track authority 

for the NAFTA) in a Pennsylvania race for U.S. 

Senator in the fall of 1991 created a climate that some 

believed could jeopardize congressional approval of 

the agreement. After a December 14 meeting at Camp 

David between Presidents Bush and Salinas, however, 

the two reaffirmed their commitment to the NAFI -A. 13 

 President Bush stated that he wished to complete the 

agreement as soon as possible. The leaders asked 

Ambassador Hills and Mexican Commerce Secretary 

Serra to present a composite draft text, with brackets 

highlighting areas of disagreement, by the end of 

January 1992. 16 

Issues on the Table 

As the Bush administration envisioned it in 1991, 

the NAFTA would entail a North American market of 

360 million consumers, with a total output of $6 

trillion. 17Several factors provided the impetus for 

creating this enormous open market: (1) the respective 

movements of the European Community (EC) and East 

Asia toward creating regional trading blocs; (2) the 

negotiation (and subsequent success) of the CFTA; (3) 

the attraction that the concept of hemisphere-wide 

trade integration, embodied in the EAI, has held for 

numerous U.S. administrations; (4) liberalization 

measures that Mexico has undertaken in recent years; 

and (5) the consequent leap in trade volume between 

Mexico and the United States. Mexico is the world's 

fastest-growing major market for U.S. exports, which 

have increased at an average annual rate of 23 percent 

since 1987. U.S. exports of capital goods to Mexico 

have risen from $5 billion to about $9.5 billion; U.S. 

exports of consumer goods have tripled, from $1 

billion to $3 billion. Certain sectors have grown 

especially quickly. Since 1986, for example, U.S. 

exports of telecommunications equipment have 

doubled to about $1.2 billion (in 1990). In 1991 

Mexico was the United States' third-largest single 

trading partner 18behind Japan and Canada, which 

remains the United States' largest single partner in 

trade. 

Nonetheless, Mexico has maintained many trade 

barriers that prevent full access for U.S. exports. 

Tariffs and other barriers related to rules of origin, 

foreign investment, services, standards, petroleum, and 

agriculture were among the special concerns of the 

U.S. NAFTA negotiating teams. Canadian concerns, 

on the other hand, centered on preserving the rights 

that Canada had acquired in its 1988 accord with the 

United States and on addressing long-term questions 

relating to such key areas as trade in automobiles. For 

its part, Mexico sought to ensure secure access to the 

U.S. market, to attract foreign capital and investment, 

to increase national employment, and to enhance 

productivity and competitiveness. The following 

sections delineate activity in selected negotiating 

groups during 1991. 

Tariffs and Nontariff Measures 

Mexico has a 50-percent allowable tariff ceiling 

under the GATT. 19However, Mexico chose to set its 

maximum tariff rate a full 30 percentage points lower, 

at 20 percent. Currently, Mexico's trade-weighted 

average applied tariff is roughly 10 percent, 2° 

compared with 4 percent for the United States. In 1991 

some 12.6 percent of Mexico's exports to the United 

States were granted duty-free status under the U.S. 

2 
Generalized System of Preferences program. 21 In the 

two-way trade between Canada and the United States, 

the question of tariffs has been addressed in the CFTA, 

which calls for the elimination of tariffs over a 10-year 

period (by 1998). 22 

In the NAFTA negotiations the United States 

sought trilateral tariff elimination (either immediately 

or over a number of years) as well as a reduction in 

nontariff trade measures (NTMs). More than 27,000 

tariff line items—the full range of tradables among the 

United States, Canada, and Mexico currently covered 

by tariffs—were to be under negotiation. 23In 

mid-September the three countries exchanged lists that 

reportedly specified about 8,000 products. These 

products were classified according to a desired 

timeframe for reduction or elimination of tariffs or 

NTMs. The three nations agreed to consider different 

tariff phaseout periods (immediate, medium-term, and 

long-term) for three categories of products and later 

considered a fourth, "extra-long" category for 

especially sensitive products. 24 

The products within these categories were said to 

vary considerably from from one country's list to 

another's. The U.S. proposal reportedly sought to 

eliminate immediately duties on products already 

subject to low tariffs (about 15 percent of imports from 

Mexico) and to retain the status quo for the 44 percent 

of Mexican imports that enter the United States duty 

free. It also called for an intermediate phaseout of 

tariffs on 6 percent of imports, and long-term 

phaseouts for such products as glassware, citrus fruits, 

and textiles. In contrast, Mexico's proposal was said to 

opt for the immediate elimination of duties on 25 

percent of its imports, an intermediate phaseout of 

duties on 10 percent of imports, and a long-term 

phaseout for 65 percent of imports. 

In November the negotiating parties began a 

line-by-line review of each country's position on tariff 

elimination, which continued well into 1992. 25 

 Negotiators also continued discussions on safeguard 

measures that would allow a temporary suspension of 

NAFTA tariff reductions if potentially injurious import 

surges were to result from the agreement. 26In the area 

of nontariff barriers subjects for review included 

import licenses and quotas. Many nontariff barriers, 

however, were dealt with in other negotiating groups. 2 / 

Rules of Origin 

A primary goal of the NAFTA talks was to ensure 

that the benefits of the agreement would be limited to 

its signatories. To this end negotiators sought to 

establish rules of origin that would indicate which 

items could and could not be treated as "North 

American" for trade purposes. The United States, 

Mexico, and Canada concurred on the need for a single 

set of rules of origin for traded goods and agreed that, 

in general, "origin" under NAFTA would be 

determined according to the "change of tariff heading" 

test that is currently the basic eligibility standard used 

in the CFTA.28Using this standard a good originating 

in a nonparticipating country is eligible for preferential 

treatment if, after importation into a participating 

country, it undergoes enough processing to change its 

tariff classification before being exported to another 

participating country. An additional method of 

determining origin that applies to some goods under 

the CFTA, the so-called value-content test, was under 

discussion in the NAFTA negotiations for a small 

number of sectors, among them chemicals, 

automobiles, and auto parts. Under value-content 

rules, a good must contain at least a certain percentage 

of "North American" content, measured by the value of 

its originating materials and the direct costs of 

processing them. 

Harmonization and simplification of customs 

procedures was another goal of the NAFTA talks on 

market access, but the sheer number of agencies 

involved in customs clearance made it an uncertain 

prospect. 

Automobiles 

Automotive products have traditionally been a 

mainstay of North American trade, accounting for 

more than $62 billion in three-way trade among the 

NAFTA parties in 1991. 29Automotive trade between 

the United States and Canada is governed by the 1965 

U.S.-Canadian agreement popularly referred to as the 

Auto Pact.30The agreement provides for duty-free 

entry of specified motor vehicles and original 

equipment parts that are produced in the United States 

or Canada. Vehicles entering the United States must 

meet a local value-content requirement of 50 percent. 

Vehicles not covered by the Auto Pact are covered by 

the CFTA, under which most vehicles that meet the 

requirement of 50-percent North American content by 

value are now duty-free. Vehicles imported from 

Mexico, in contrast, are dutiable at MFN rates, 

although they usually enter at lower duties under 

various U.S. duty-reduction programs. 31Imports of 

automobiles into Mexico are subject to a 20-percent ad 

valorem tariff, are limited to 15 percent of total 

Mexican auto sales, and are limited by individual 

importers' export performance. (In the 1991 model 

year, automakers had to earn $2.50 in auto exports for 

each dollar's worth of auto imports.) 32 

Over the years the U.S. auto trade with Mexico has 

been determined in great part by Mexico's Auto 

Decrees. These decrees, issued from the 1960s 

through the 1980s, protected Mexico's automotive 

industry and placed heavy restrictions on foreign auto 

manufacturers with plants in Mexico—such as local 

content requirements, limits to the number of lines and 

models that foreign manufacturers could produce, and 

foreign-exchange regulations. On December 11, 1989, 

the Mexican Government published two new decrees 

that eased restrictions on these automakers and allowed 

for greater foreign investment in the auto-parts 

industry. 33 

In the NAFTA negotiations the United States 

sought to eliminate the Mexican Auto Decrees entirely, 

3 
as well as to develop rules of origin that are 

clearer—and less expensive to administer—than the 

rule used in the CFTA. Responding to industry 

concerns that under a NAFTA Mexico might be used 

as an automobile export platform to Canada and to the 

United States by third-country producers, the U.S. 

negotiating team favored a rule that would require 

automobiles to contain at least 60-percent North 

American content by value to qualify for duty-free 

treatment. Both Canada and Mexico, whose 

automobile industries are composed primarily of U.S. 

or other foreign subsidiaries, 34preferred 50-percent 

North America content. The negotiations were 

ongoing at year's end. 35All three parties, however, 

recognized the need for transition provisions to allow 

for orderly adjustment to increased competition. 36 

Foreign Investment 

The United States is Mexico's largest foreign 

investor, accounting for almost two-thirds of all direct 

foreign investment in 1990. 37Such investment is 

regulated by the 1973 Law to Promote Mexican 

Investment and to Regulate Foreign Investment and by 

the Mexican Constitution. 38The 1973 law prohibits 

foreign investment in certain sectors and limits foreign 

ownership in others, generally to 49 percent. 9 

 Executive regulations in 1989 interpreting the 1973 

law resulted in greater effective foreign investment in 

sectors that, all told, account for the majority of 

Mexico's economic output. 4° The approval process for 

foreign investment was simplified as well.'" 

Nonetheless, "activities" in 141 areas—including 

transportation equipment, transportation services, 

secondary petrochemicals, mining, and auto parts—

remain "classified" and hence limited. 42In contrast 

the CFTA calls for national treatment of most foreign 

investment. Existing laws and regulations are, 

however, "grandfathered," which means that 

restrictions on foreign ownership in certain sectors 

(such as the communications and transportation 

industries) still apply. In addition, Canada has retained 

the right to review the acquisition of Canadian firms by 

U.S. investors.43 

The U.S. position on investment traditionally has 

called for a "foundation of principles" that would apply 

to investments in every goods and services industry. 44 

 In the NAFTA negotiations U.S. negotiators declared 

themselves committed to establishing an "open" 

investment climate 45and pushed for national treatment 

in most areas, save those related to national security. 

Although Mexico, the United States, and Canada 

generally agreed that North American companies 

should be able to .operate subsidiaries, operate 

partnerships, and take over other firms in one another's 

countries, 46exceptions were requested—for example, 

in the case of Mexico's petroleum sector (see 

"Petroleum" section below). 

Services 

Financial services 

Under current law the U.S. financial-services 

market is generally open to Mexican banks, as is the 

Canadian market 4 7Mexico opened Government 

banks to foreign and domestic investors in 1989; in 

January of the next year, it altered its Constitution to 

allow privatization of its banks." Nonetheless, 

Mexico still imposes considerable limitations on 

activities by U.S. banks within its borders. More than 

40 U.S. banks maintain representative offices in 

Mexico, but only one U.S. bank, Citibank, conducts 

business within Mexico. (Citibank, however, is 

prohibited from opening new offices in Mexico and 

from offering a full range of banking services.) Under 

current law foreign ownership in Mexican banks is 

limited to 30 percent of voting stock. 49Other 

restrictions include limitations on the entry of U.S. 

broker-dealers into Mexican capital markets. Again, 

foreign firms are limited to a roughly 30-percent equity 

stake and, although they may conduct research, cannot 

offer broker-dealer services. )° 

Even before the NAFTA negotiations began, many 

Mexicans claimed that because their country's 

financial-services industry had been privatized only 

recently, it would suffer unfair competition from other, 

more established North American firms. The U.S. 

administration nonetheless maintained that it wished to 

seek openings in a variety of financial services, such as 

banking.51According to press reports Mexico was 

willing to ease restrictions on foreign investment in its 

banks. A December 1 draft of the Mexican position 

reportedly indicated that Mexico would permit U.S. 

and Canadian financial institutions to establish 

subsidiaries inside its borders in 1998. These 

subsidiaries, however, would be limited to an 

investment ceiling of 0.5 percent of total industry 

capital. This ceiling would be increased in subsequent 

years, attaining a maximum of 5 percent by 2010. 52 

Other services 

With regard to land transportation, the United 

States sought to liberalize "laws prohibiting 

foreign-owned or -operated motor carriers from doing 

business in a country, and [address] other barriers that 

impede transportation efficiency among the three 

countries."53According to early reports, the United 

States, Canada, and Mexico concurred that the 

agreement should cover international trucking, 

railroads, and buses, and landside aspects of ports. 

Among the areas excluded were maritime shipping and 

civil aviation. 

Trade in telecommunications services was a topic 

of consideration in the NAFTA negotiations as well. In 

this context the United States sought "to ensure access 

and use of the services of the public 

telecommunications network for the provision of 

covered goods and services." 54One area of 

4 
disagreement that arose at the beginning of the 

negotiations was so-called cultural industries (such as 

broadcasting and publishing), which had been 

exempted almost entirely from the provisions of the 

CFTA 55In the NAFTA negotiations Canada 

continued to maintain that its cultural industries 

required protection; the United States held that such 

industries should be open to foreign competition. 

Ambassador Hills repeatedly indicated that the United 

States wished to include cultural industries in the 

NAFTA if possible. 56 

Finally, barriers to professional service providers 

(such as accountants, architects, and lawyers) were also 

discussed among the NAFTA parties. Both the United 

States and Canada wished to follow the lead of the 

CFTA in this area, 57which seeks to ensure that 

Canadian and U.S. businesses and service providers 

have the necessary access to each other's markets to 

supply their goods and services. 58 

Standards 

The Mexican Government is extensively involved 

in the setting of product, labor, health, safety, and 

environmental standards. Since the passage of 1988 

legislation addressing the subject, the Government has 

developed about 5,500 national standards, both 

mandatory and voluntary. 59This degree of 

involvement has not, however, ensured a fully 

transparent system of establishing standards and 

technical regulations. In Mexico public notification of 

standardsmaking is virtually nonexistent, and the 

channels through which the private sector can 

participate in the process are limited. 6° 

Further, Mexican standards affecting the 

environment, labor practices, and working conditions 

have caused concern because they are in some cases 

not as stringent as U.S. standards, not adequately 

enforced, or both. Questions about the potential 

impact of Mexico's standards regime within a NAFTA 

led to a trilateral factfinding meeting that was held 

May 14 to 16 in Mexico City and that focused on the 

country's standards system. 

In the subsequent NAFTA negotiations the 

standards group generally did not address issues related 

to labor or the environment. These topics were dealt 

with in separate, "parallel" forums. (See "Parallel 

Issues" section below.) Instead, the group focused its 

efforts on the subjects of sanitary and phytosanitary 

conditions; other health and safety issues such as 

medical devices, hazardous materials, pharmaceuticals, 

and cosmetics; and technical standards and regulations 

affecting industrial and consumer products. 61 

The focus was not on standards themselves but on 

the process by which they are established. 62The 

United States sought to increase access to the Mexican 

system through the creation and maintenance of a 

system for both mandatory and voluntary standards 

that would be open to input from domestic and foreign 

parties. The U.S. negotiators also sought agreement on 

the following issues: the importance of compatible 

standards among the United States, Mexico, and 

Canada; assurances that standards and technical 

regulations would not pose barriers to trade; 

recognition of the right of each country to establish 

regulations necessary to address safety, health, and 

environmental concerns; elimination of redundant or 

excessive testing and other approval requirements; and 

the creation and maintenance of conformity-assessment 

regimes that would be open to both foreign and 

domestic parties.63 

Government Procurement 

Both the United States and Canada are signatories 

to the GATT Government Procurement Code, which 

requires them to allow suppliers from all code 

signatories to compete for government contracts under 

conditions no less favorable than those given to 

domestic suppliers. 64Accordingly, the CFTA was 

based on the GATT code with a few exceptions: it has 

lower threshold criteria for choosing what should be 

open to competitive bidding, for example, and it 

improves on the transparency procedures outlined in 

the code by incorporating an effective set of 

bid-challenge procedures. 65 

In its NAFTA negotiations on government 

procurement, the United States sought to extend the 

agreement negotiated under the CFTA to cover Mexico 

(which is not a signatory to the GATT code) and to 

liberalize it wherever possible 6 6Issues to be 

negotiated included transparency of procurement 

procedures, a bid-protest mechanism, coverage, 

thresholds for coverage, and rules of origin. 

Safeguards 

In the NAFTA negotiations, as in the CFTA 

negotiations, all parties shared concerns about possibly 

injurious increases in imports resulting from a future 

accord. To that end there was agreement in both sets 

of negotiations on the need for "safeguards" that would 

temporarily curtail import surges causing harm to 

domestic agricultural and industrial sectors. However, 

them was also concern that this privilege not be 

abused. Under the CFTA, safeguards (in the form of a 

suspension of duty reductions or a temporary return to 

a most-favored-nation tariff level) could be employed 

only in response to serious injury during the 

agreement's "transition period" (until the end of 1998). 

These safeguards could not last longer than 3 years and 

could not extend beyond 1998. 67 

In the 1991 negotiations the United States sought a 

"two-track" safeguard system. It would include (1) a 

bilateral provision during a transition period enabling 

an injured party to respond "quickly and effectively" to 

increases in imports from a NAFTA partner that 

adversely affected any industrial or farm sectors, and 

(2) a global provision that would allow a NAFTA party 

employing a safeguard measure to limit imports from 

other NAFTA members as well as from all sources." 

(For more on safeguard measures discussed in the 

talks, see "Agriculture" section below.) 

5 
Dispute Settlement 

One of the chief innovations of the CFTA was its 

dispute-settlement mechanism. Under the CFTA 

general trade disputes between the United States and 

Canada can be referred to a binational panel of five 

trade experts—two each chosen by each side, and the 

fifth chosen jointly. 69There is also provision for a 

binational panel of experts to review antidumping and 

countervailing-duty determinations. 70 

In the NAFTA negotiations the United States also 

sought to establish a panel system to quickly resolve 

controversies. However, it was noted that the actual 

drafting of the text for such a panel would occur at a 

more distant point in the negotiations, once the actual 

framework of the NAFTA was clearer. 71 

Intellectual Property 

In congressional testimony on May 15, 1991, 

Ambassador Hills noted that "the Mexican intellectual 

property regime has suffered from a number of 

deficiencies." Among the deficiencies she cited were a 

weak industrial property law and copyright laws that 

(1) did not protect producers of sound recordings, (2) 

granted no explicit protection to computer programs, or 

(3) had lax provisions that led to considerable 

misappropriation of copyrighted U.S. works such as 

films and computer programs. Ambassador Hills 

pointed out that as a result of such practices Mexico 

had been placed on the Special 301 "priority watch 

list" in 198972 but had been removed when, in early 

1990, the Salinas administration announced plans to 

revise the country's industrial property law. The 

Salinas government went on to introduce revised 

copyright legislation in May of 1990. If these new 

laws were enacted, Ambassador Hills said, the U.S. 

negotiating team would "use the NAFTA negotiations 

to codify. .. our respective regimes and to correct any 

remaining deficiencies." 73 

In June 1991 the Mexican Congress passed the new 

industrial property law, which extended product patent 

protection to pharmaceutical, chemical, and metal alloy 

products, and even to some biotechnological 

inventions.74The Mexican Congress also passed the 

revised copyright law in July. ' 5After U.S. and 

Mexican industry expressed dissatisfaction with the 

limited scope of the copyright legislation, the law was 

amended in August to include larger fines for 

copyright violators and to add protection for computer 

software. As a result of this new legislation, the 

director of intellectual property for USTR declared that 

intellectual property had ceased to be "an issue of 

contention" between the United States and Mexico in 

the NAFTA negotiations.76The NAFTA parties 

"generally agreed on the structure of the [NAFTA] 

chapter on intellectual property," thus permitting the 

United States to present an initial chapter text in 

November.77 

Petroleum 

Petroleum has long been the United States' chief 

import from Mexico. 18Petroleum is, however, a 

highly protected sector in Mexico, and it is controlled 

by the Government-owned Petroleos Mexicanos 

(PEMEX). Under the Mexican Constitution crude 

petroleum exploration and production, production of 

refined products and primary petrochemicals, and the 

profits stemming from such activities are the province 

of PEMEX alone.79 

Although a number of Government-owned 

enterprises, such as TELMEX, Mexico's telephone 

company, were privatized in 1990, 80it seemed unlikely 

that the petroleum sector would follow suit or be 

opened significantly to foreign entrepreneurs. In June 

1991 Ambassador Hills declared that Mexico's 

constitutional prohibition on foreign ownership was 

considered to be off the negotiating table. 81In early 

November, President Salinas vowed in his State of the 

Nation address that he would not seek to alter 

constitutional bans on foreign ownership of either oil 

or electricity. 82Throughout the fall, however, 

Ambassador Hills noted that Mexico's constitutional 

restrictions did not preclude liberalization of the oil 

sector in areas not covered by the constitution, such as 

joint ventures and service agreements. She said that, in 

this context, the Bush administration wished to open up 

the Mexican oil sector as much as possible. 83 

Agriculture 

Mexico and the United StatCS have traditionally 

engaged in an active trade in agricultural products. 

Three-quarters of Mexico's agricultural imports come 

from the United States and, in 1990, the United States 

purchased a full 90 percent of Mexico's total farm 

exports. In 1990 the value of this trade was almost 

equal in each direction, at $2.55 billion (U.S. exports to 

Mexico) and $2.6 billion (U.S. imports from Mexico). 

However, U.S. exports to Mexico have continually 

faced a number of barriers, including tariffs, sanitary 

requirements, and import-licensing and exportperformance regulations. The Mexican importlicensing system covers 200 product categories" and 

applies to about 40 percent of the value of U.S. exports 

to Mexico. 85Mexican agricultural exports to the 

United States have for their part faced tariffs and other 

barriers such as quantitative restrictions, health and 

sanitary requirements, and marketing orders. 

In 1991, as part of an ongoing effort to reduce the 

number of foreign products subject to import-licensing 

requirements, Mexico determined that nectarines, 

peaches, and apples did not require further licensing. 

Commodities that still had to be licensed, however, 

included poultry, table grapes, potatoes, corn, wheat, 

barley, malt, and most dairy products. 86Maintaining 

that such licenses "are granted or withheld in an 

arbitrary manner and often act as import bans," 

Ambassador Hills expressed a desire to "dismantle" 

both the licensing system and the export-performance 

regulations through the NAFTA negotiations.87 

6 
The U.S. position in the NAFTA talks also called 

for "an effective transition mechanism to enable 

sensitive sectors to adjust to trade liberalization, as 

well as a timely safeguard provision for certain 

agricultural items." 88Notably, the mechanism under 

consideration in the NAFTA talks was not the "snap 

back" tariff for agricultural products that had been 

negotiated under the CFTA. 89(Under this scheme, a 

high tariff could be reinstated if imports of a 

"sensitive" agricultural product were large enough to 

cause potential injury to domestic industry.) Instead, 

U.S. NAFTA negotiators reportedly presented their 

Mexican and Canadian counterparts in December with 

a proposal to replace the "snap back" tariff in favor of 

a tariff-rate quota. Under the U.S. proposal two sets of 

tariffs would apply to sensitive agricultural goods: one 

would apply under normal circumstances, and a higher 

one would be instituted when imports exceeded a 

predetermined level. Over time, the "normal" tariff 

would be reduced and the quota expanded 90 

Food safety—particularly the effect of 

contamination from pesticides used by Mexican 

farmers—has been a major concern of the U.S. 

administration, which in its May 1 Response 

committed itself to "maintain the right in the FTA to 

exclude any products that do not meet our health and 

safety re,quirements." 91In the NAFTA negotiations it 

was expected that Mexico might seek agreement to 

permit agricultural products to be shipped from 

disease- and pest-free zones as a way to ease the effect 

of meeting U.S. sanitary and phytosanitary regulations 

on Mexican shipments. The subject of U.S. 

marketing-order requirements is also expected to be 

addressed.92 

As .a liberalizing coda to the year, President Salinas 

introduced a bill on November 7 that, by amending 

article 27 of the Mexican Constitution, dismantled 

barriers to private and foreign investment in the 

country's ejido (communal farm) system. 93The bill 

passed both houses of the Mexican Congress in 

December. 

Parallel Issues 

Environment 

One issue that was not covered in great depth in the 

NAFTA talks but was of particular concern on Capitol 

Hill and within the environmental communities in all 

three countries was the impact of a NAFTA on recently 

industrialized Mexican areas along the 2000-mile 

border region between the United States and Mexico. 

This so-called "maquiladora" region has served as a 

home to foreign-owned production facilities, or 

maquilas, since the adoption of Mexico's Border 

Industrialization Program in 1965. 94Among other 

concerns it was feared that the increased volumes of 

trade expected under the NAFTA would lead to further 

degradation of this environment—as well as the 

general environments of all three NAFTA countries. 

In its May 1 Response, the administration 

committed itself to addressing environmental issues 

related to the NAFTA "in parallel" with, but not as part 

of, the actual negotiations. Several moves, including 

an independent environmental review, were made in 

this direction. (For additional discussion of this issue, 

see the "Trade and the Environment" section of this 

chapter.) 

Labor 

The possible effect of a NAFTA on U.S. jobs and 

on labor standards was also a topic of intense 

discussion. The Bush administration forecast a net 

gain of up to 64,000 U.S. jobs within 10 years; 95other 

sources predicted net gains of up to 130,000 U.S. 

jobs.96Estimates of jobs lost in absolute terms ranged 

from 21,10097to 112,00098to as many as 550,000.99 

 Workers in such sectors as construction, medicine, 

hotels, apparel, lumber, finance, and real estate were 

considered to' be among the most vulnerable. 

Accordingly, unions in both the United States and 

Canada voiced strong opposition to the agreement.m 

U.S. law currently provides for adjustment 

assistance in the case of worker dislocation through 

such programs as the Trade Adjustment Assistance 

program (TAA) and the Economic Dislocation and 

Worker Adjustment Assistance Act (EDWAA). (For 

additional discussion of the TAA program, see chapter 

5, "Import Relief Laws" section.) Although President 

Bush's budget for 1993 proposed eliminating the TAA 

program, the, administration's May 1 Response 

included , .a commitment to "a worker adjustment 

program that is adequately funded and ensures that 

workers who may lose their jobs as a result of an FTA 

with Mexico will receive prompt, comprehensive, and 

effective services." In addition, the administration 

announced its intention to pursue a parallel review on 

workers rights issues through the U.S.-Mexican 

Binational Commission. 101It also announced that on 

May 3 it had signed a Memorandum of Understanding 

with Mexico that called for joint action and 

cooperation on health and safety conditions, as well as 

labor standards and enforcement. By the end of 1991, 

USTR reported, the U.S. Department of Labor and its 

Mexican counterpart had set up with organized labor a 

series of conferences on hazardous industry. A study 

on child labor was under way, and Mexican and U.S. 

officials responsible for enforcement of workplace 

safety standards and industrial hygiene testing had 

exchanged visit.s. 102 

Striking a Deal 

As Ambassador Hills maintained throughout the 

year, the timing of the NAFTA was secondary to its 

content. The talks, she said, would "take as long as 

necessary to produce a good agreement." 1 °3At the 

outset some believed that the negotiations could take 

7 
anywhere from 18 months to 2 years to complete. 1 °4 

 Significantly, ongoing trade disputes involving the 

NAFTA partners—notably over pork, softwood 

lumber, beer, and tuna—did not appear to sidetrack the 

negotiations. At year's end it seemed that the NAFTA 

talks were well on their way and that an agreement 

might be ready for initialing in the summer of 1992. 

Uruguay Round 

Negotiations in 1991 

Technical Talks Resumed and 

Groups Restructured 

The Uruguay Round of multilateral trade 

negotiations resumed on February 26, 1991, more than 

4 years after the Round opened on September 20, 1986. 

The February date marked the resumption of talks that 

had been suspended the preceding December, when 

negotiators in Brussels reached an impasse on 

agricultural subsidies.m5Arthur Dunkel—who, in his 

capacity as GATT director-general (D-G), presides 

over the Round—announced the resumption at the 

brief February meeting of the Trade Negotiating 

Committee (TNC), the body that oversees Round 

activities. D-G Dunkel also announced that the 

original 15 Uruguay Round negotiating groups would 

be restructured into 7 issue-specific groups: 

agriculture, textiles and clothing, services, rulemaking, 

trade-related investment measures (TRIMs) and 

trade-related intellectual property rights (TRIPs), 

dispute settlement and the final act,lue' and market 

access. These groups began technical-level talks on 

March 1, 1991, and chairmen for the groups were 

announced in April. 

Final Negotiating Group Texts 

Prepared 

Following the March resumption of talks, 

negotiators concluded that new deadlines for the 

Round would be of little value until differences evident 

at the Brussels meeting were narrowed further—and, in 

particular, until the outcome of the effort to renew 

"fast-track" negotiating authority in the United States 

was clear. In May 1991, however, the U.S. House of 

Representatives, followed by the Senate, voted not to 

oppose the 2-year extension of fast-track authority. 

On July 30 D-G Dunkel held a brief TNC meeting 

to review the progress made in 1991's technical-level 

talks. He announced that all elements were at hand to 

enter the decisive phase in September, following the 

summer recess, that would conclude the Round. At the 

review he singled out agriculture, textiles, market 

access, and services as areas that could move into 

"negotiations proper," following work done both 

before and after the Brussels meeting. TRIPs, as well 

as some areas covered under the rulemaking group, 

were deemed "ripe for the final political tradeoffs." 

D-G Dunkel even foresaw agreements in such areas as 

TRIMs and antidumping—for which no common 

negotiating text yet existed. He asserted that such 

agreements would "fall into place fairly quickly" once 

the essential political decisions were taken.lw 

Introduction of the Dunkel Text 

On September 20 D-G Dunkel announced that 

trade negotiators shoUld aim to reach agreement on all 

negotiating texts by late October or early November, in 

order to conclude the Round by the end of 1991. He 

indicated that he would present governments with a 

complete revision of the Uruguay Round Final Act 

presented at the Brussels meeting. i° 8 

At a TNC meeting on December 20, 1991, D-G 

Dunkel issued this revision of a complete Uruguay 

Round agreement, with final texts for all subjects. 

Entitled the Draft Final Act Embodying the Results of 

the Uruguay Round of Multilateral Trade Negotiations. 

the document included proposed compromise texts 

that, drawn up on the initiative of the director-general 

in consultation with the chairmen of the negotiating 

groups, covered areas in which negotiators had not yet 

reached agreement. As he explained it, "This 

document is the outcome both of intensive negotiation 

and/or arbitration and conciliation: negotiation among 

you, the participants, and arbitration and conciliation 

by the Chairmen when it became clear that, on some 

outstanding points, this was the only way to put before 

you a complete, consolidated text."I° 9 

D-G Dunkel noted that his draft agreement 

(commonly known as the "Dunkel text") represented 

the first comprehensive text available. It would, he 

observed, permit Round participants to begin assessing 

the balance of potential benefits and concessions that 

would accrue from an overall trade-liberalization 

package. D-G Dunkel underscored the fact that the 

Punta del Este declaration, which inaugurated the 

Round, called for negotiations to take place as a 

"single undertaking" and that, as such, "these 

negotiations are governed by the principle that nothing 

is final until everything is agreed." Accordingly, the 

director-general urged participants to evaluate the draft 

text on its merits as a single package. 

Once a final text was agreed upon, D-G Dunkel 

noted, there would be several outstanding matters to 

resolve before the Uruguay Round could conclude. 

Foremost among them was the completion of 

commitment schedulesi 1 ° for the market-access 

negotiations, agriculture negotiations (including 

reductions for both domestic supports and export 

subsidies), and trade- in-services negotiations. 

Completion of these schedules would allow the Group 

of Negotiations on Goods (GNG) to proceed with its 

final evaluation of the Uruguay Round package of 

agreements, as called for in the Punta del Este 

declaration. The sole remaining requirement would be 

8 
to review the entire package for legal conformity and 

internal consistency. 

On a final note at the December meeting, D-G 

Dunkel called for the TNC to reconvene on January 13, 

1992. After an initial review of the director-general's 

text, participants would enter the final leg of 

negotiations in the Uruguay Round. During this time, 

they would amend the text in accordance with tradeoffs 

negotiated by the highest level officials of governments 

participating in the Round. 

Four-Track Process to Conclude 

Round 

At the TNC meeting held on January 13, 1992, 

participants agreed to follow a four-track process 

toward conclusion of the Uruguay Round. D-G 

Dunkel set out four areas that, although not precisely 

defined, would be pursued simultaneously by countries 

engaged in the Round. These areas included— 

(1) Negotiations on market-access issues, such 

as tariff and nontariff barriers, in bilateral 

and multilateral meetings; 

(2) Negotiations on opening markets to trade 

in services; 

(3) Legal review of the conformity and 

internal consistency of the Dunkel text, 

which would in particular focus on 

enforcement procedures to ensure a strong 

legal foundation and sanctions against 

noncompliance; and 

(4) Possible changes or adjustments to specific 

items in the Dunkel text, to be agreed at the 

TNC level. 

No formal schedule was set at the January meeting 

for completing this four-track process, although at the 

time negotiators initially saw Easter (April 19, 1992) as 

an informal target date. Participants believed that after 

Easter, political events, such as elections in the United 

States and a number of European countries, would 

begin to overtake events in the Round and would 

disrupt the negotiations necessary at the political level 

until late in 1992. Thus, in January 1992 negotiators 

were aiming to reach an agreement in principle among 

all participating governments that would "conclude" 

the Round in a few months, although drafting of 

implementing legislation and ratification by national 

governments might extend beyond that time. 111 

Dunkel Text Highlights 

D-G Dunkel stressed that his text was 

comprehensive and took account of the "substantial 

progress" made since January 1991, striking the "best 

possible balance across the board of the long 

negotiating agenda of this Round," while pointing out 

missing ingredients (schedules of commitments from 

each country for the three areas of market access, 

agriculture, and services). Dunkel indicated that work 

from January 1992 onward would be based on a global 

approach—meaning, among other things, that nearly 

all of the individual negotiating groups under the GNG 

would cease to exist. The sole survivor, the Market 

Access Group, would continue to help complete 

country commitments in the market-access area, as the 

Group of Negotiations of Services (GNS) would 

continue to help complete country commitments in its 

area of services. 112Following are highlights of the 

text's 113 key provisions. 114 

Agriculture 

Agriculture remained the most hotly disputed item 

in the 1991 sessions of the Uruguay Round. The 

Government of France announced its rejection of the 

Dunkel text even before the text was released, 115and 3 

days after the text became public, trade and agriculture 

ministers of the EC said that substantial revisions 

would be required before they could agree to it. 116 

The agriculture text presented a complicated 

regime of support reductions in the three areas under 

discussion—internal support, market access, and 

export competition—over the 6-year span from 1993 to 

1999. Developing countries would receive special and 

differential treatment: they would be allowed up to 10 

years to implement the measures. The text called for a 

review of the reform process after 5 years, with a view 

to continuing to liberalize trade in agriculture.. 

Internal support 

Except for agreed exemptions internal support 

prices would be cut by 20 percent, using an aggregate 

measure of support (AMS) based on average support 

levels prevailing in 1986-88. Agricultural programs 

with little or no production- or trade-distorting effects 

would be eligible for exemption from support 

reductions. These programs included general 

government service programs (research, pest control, 

extension services, and so on); food-security 

stockpiles; domestic food aid; direct producer 

payments, decoupled income support, and income 

safety-net programs; disaster-relief payments; 

structural adjustment and environmental payments; and 

regional assistance programs. All programs not 

exempt would be reduced, although credit would be 

allowed for liberalization measures taken since 1986. 

Reductions would also not be required below a de 

minimis level of 5 percent (10 percent for developing 

countries). 

Market access 

Barriers to market access would be converted to 

tariffs (so-called "tariffication"), would be bound in the 

tariff schedules, and would be reduced by an average 

9 
of 36 percent from 1993 to 1999. The minimum 

reduction per tariff line item was 15 percent. Although 

there was no provision in the draft text for 

"rebalancing" as proposed by the EC—a process 

through which certain tariff barriers could be increased 

in return for reductions in others—the 15-percent 

minimum reduction meant that some products could be 

reduced by this minimum reduction and others could 

be reduced more than the average to achieve the 

overall 36-percent reduction. The text also contained a 

provision that would ensure, beginning in 1993, 

minimum access equal to 3 percent of domestic 

consumption to be established in countries where there 

is no current access or access less than 3 percent. This 

3 percent minimum would rise to 5 percent by 1999. 

Countries with access above 3 percent would maintain 

and increase that percentage during 1993-99. The 

market-access provisions also included agricultural 

safeguard provisions, which would be triggered by 

changes in both prices and quantities. Participants 

would initiate negotiations to continue the reform 

process 1 year before the implementation period ends. 

Export competition 

The export-subsidy reductions in the Dunkel text 

focused primarily on subsidies that are linked to export 

performance. Export subsidies would be reduced by 

24 percent in terms of volume and by 36 percent in 

terms of budget outlays, based on export subsidies in 

force during 1986-90. Export subsidies for primary 

products used in processed products would be subject 

to the budgetary reductions only. Participants would 

undertake to avoid introducing export subsidies on 

agricultural products not already included during the 

base period. 

Health measures 

A Draft Agreement of Sanitary and Phytosanitary 

Measures provided that signatories would endeavor to 

apply only health measures based on scientific 

evidence to traded agricultural goods. The text 

encouraged use of international standards, although it 

recognized the right to use stricter ones. It also 

recognized the benefit of agreement on the equivalency 

of standards and on pest- and disease-free areas (areas 

or regions that do not necessarily cover the same area 

as do national political boundaries). 

Textiles 

Textile negotiations in the Round have resulted in a 

complicated proposal for a regime to bring world 

textile trade under GATT rules within 10 years. The 

liberalization of trade in textiles, according to the 

Dunkel text, would be achieved through a three-stage 

phaseout of the textile quotas under the Multifiber 

Arrangement (MFA), while items remaining under 

quota during the transition would receive increases in 

within-quota growth rates that are greater than those 

already in place. Stage one would be the 3-year period 

from 1993 to 1995; stage two would be the 4-year 

period from 1996 to 1999; and stage three was slated to 

last 3 years, from 2000 to the end of 2002. 

At the start of stage one, products which in 1990 

accounted for not less than 16 percent of the total 

volume of products covered by the agreement would 

be integrated into GATT disciplines and removed from 

quota restrictions. These products shall include items 

in each of the textile groupings of tops and yarns, 

fabrics, madeup textile products, and clothing. In stage 

two, 17 percent would be removed from quota. In 

stage three, 18 percent would be removed. Any 

remaining textile quotas would be eliminated in 2003 

at the end of stage three, and all textiles under the 

agreement would be integrated into the GATT. 

Items remaining under a quota during the transition 

would enjoy an increase in the quota growth rates 

already existing under bilateral agreements in 1992. In 

stage one, the level of each quota would increase 

annually by 16 percent more than the existing growth 

rate; in stage two, the growth rate mandated by the first 

stage must be raised annually by 25 percent; and in 

stage three, the rate established in the second stage 

must be raised annually by 27 percent. When 

restrictions applied by an importer to a supplier 

represent 1.2 percent or less of an importer's total 

restrictions, as measured at the end of 1991, market 

access for the supplier would be qualified to advance 

one stage in quota growth rates or gain improved 

market access through equivalent improvements 

mutually agreed by the two parties. 

Signatories would be authorized during this 

transition to apply GAIT article XIX safeguard 

restrictions to trade in textiles based on certain 

provisions for selective, rather than nondiscriminatory, 

most-favored-nation (MFN) safeguard action, until 

these products are integrated into the GATT under the 

draft agreement. Safeguard action would be based on 

the concept of cumulative damage from increased 

quantities in total imports of a product rather than from 

injuries sustained from individual instances. The text 

also provided for action consistent with domestic laws 

and procedures to prevent illegal transshipments. In 

addition, it would require both industrialized and 

developing countries to improve market access for 

textiles, although the text would apply only to current 

GATT members. 

Services 

Framework Agreement 

Negotiations on a General Agreement on Trade in 

Services (CATS) made up one of the four tracks set out 

by D-G Dunkel at the January 1992 TNC meeting. 

Discussions would revolve around (I) the "framework" 

agreement that sets out basic obligations, such as MFN 

treatment and transparency; (2) annexes that would 

10 
contain additional provisions for particular sectors, 

which currently include financial services, labor 

mobility, telecommunications, and air-transport 

services; and (3) market-access commitments that 

would secure the specific elements to which the 

general legal provisions apply in (1) and (2). 

The draft framework in the Dunkel text set out 

universal obligations that apply to trade in services, 

presented in six sections or parts. Part I contained an 

introduction. In part II the Dunkel text included 

articles on general obligations and disciplines that 

concern MFN, transparency, disclosure of confidential 

information, increasing participation of developing 

countries, economic integration, domestic regulation, 

recognition, monopolies and exclusive service 

providers, business practices, emergency safeguard 

measures, payments and transfers, restrictions to 

safeguard the balance of payments, government 

procurement, general exceptions, security exceptions, 

and subsidies. 

Other parts of the draft CATS covered specific 

commitments on market access (part III), such as 

national treatment; progressive liberalization (part IV), 

including negotiating schedules of commitments and 

their modification; institutional provisions (part V), 

such as dispute settlement, joint action, and a CATS 

Council, as well as relations with other international 

organizations; and final provisions (part VI) covering 

accession, denial of benefits, and annexes. 

Sector annexes 

The four sector annexes to the draft CATS covered 

financial services, labor mobility, telecommunications, 

and air-transport services. Previous discussions 

concerning an audiovisual annex or cultural exemption 

for national media industries were dropped from the 

text. 117The financial services annex would allow 

regulators to take prudential measures to safeguard the 

integrity of financial systems and to harmonize with 

the prudential measures of another country. The 

market-access and national-treatment provisions in the 

annex were reduced from obligations to guidelines. 

MFN derogations 

A sanctioned departure from otherwise accepted 

GATT rules, a derogation is, considered an adaptation 

by a contracting party to the accepted norm that does 

not lessen or challenge the accepted or permanent 

validity of the general rule or regime. According to the 

Dunkel text derogations from applying MFN treatment 

would still be possible on a sector-by-sector basis, but 

in principle derogations would last for no longer than 

10 years (with a review after the first 5 years). An 

overriding aspect of any MFN derogation from a draft 

services agreement is that the United States has 

insisted that no services agreement can go forward 

containing provisions for generalized MFN treatment 

until satisfactory market-access commitments have 

also been agreed.' 18The United States has argued that 

without substantial market-access commitments from 

other countries, across-the-board MFN treatment 

would tend to keep U.S. markets for certain services 

open, while operating to keep other countries' markets 

closed. 119Thus the United States has sought a tradeoff 

between granting MFN treatment in services and other 

countries' commitments to open their markets to 

foreign competition concerning those services. 12° 

The United States has also sought specific 

derogations from market-access opening and 

national-treatment commitments in service sectors that 

have been extensively covered by bilateral agreements, 

such as the maritime and civil aviation sectors. 121 The 

United States has sought exemption as well from 

applying MFN commitments for basic long-distance 

services in the telecommunications sector. However, 

U.S. negotiators have made it clear that this derogation 

may be open to negotiation, in a bid to ensure that 

other countries meet certain liberalizing conditions in 

their home markets. 

GATT Rulemaking 

Safeguards 

As presented in the Dunkel text, the safeguards 

agreement would require that a country taking a 

safeguard action under GATT article XIX follow more 

open, transparent procedures in taking such action. 

The text would discourage taking safeguard-like 

actions outside of GATT disciplines, so-called "gray 

area" measures such as voluntary restraint agreements 

(VRAs), by prohibiting their future use. The draft text 

also would require a phaseout of VRAs and similar 

"gray area" measures over a "reasonable" period of 

time. But, as a tradeoff, the text would also provide 

that affected exporters waive their rights to retaliation 

for the first 3 years of any safeguard action. Safeguard 

measures would be limited to a maximum of 8 years. 

Procedures to ensure a transparent, public process for 

taking safeguard measures against imports surges 

would include (1) a public hearing or similar 

opportunity to present and challenge opposing views, 

(2) a published report with a detailed analysis by the 

investigative body explaining the decision to take 

safeguard action, (3) clearly defined criteria for injury 

determinations, (4) progressive liberalization of 

safeguard measures each year they are effective, and 

(5) the right to take special safeguard measures when 

perishable products are concerned. 

Trade-related investment measures 

The Dunkel text would strengthen disciplines 

regarding TRIMs by prohibiting both domestic-content 

and trade-balancing requirements where firms must 

export in order to import. This prohibition would 

apply whether export balancing were a requirement to 

invest or a precondition to qualify for certain benefits. 

11 
However, the text would not prohibit export 

requirements. 

Industrial countries would be given 2 years to ban 

these trade-balancing measures. Developing countries, 

which typically make use of such investment measures, 

would be given 5 years to phase out investment 

measures that conflict with the text's prohibitions. 

Least developed countries would be given 7 years to 

remove trade-balancing rules. However, new firms 

entering the market could have equivalent TRIMs 

imposed on them during this phaseout, so that they 

would not put firms already present at a disadvantage. 

Antidumping 

The Dunkel text contained a number of additions 

and clarifications to the Antidumping Code. The text's 

anticircumvention provisions would address, for the 

first time, cases in which foreign exporters invest in 

minimal assembly plant operations in a host country so 

that they can avoid (or "circumvent") antidumping 

duties.'" Concerns about circumvention had been 

raised by both the EC and the United States. 

The text also addressed requirements to be 

followed in antidumping proceedings, (1) providing a 

de minimis dumping margin of 2 percent; (2) 

instituting a "sunset" provision to phase out dumping 

orders after 5 years; and (3) changing certain 

methodologies currently used to determine dumping 

margins, such as national price averaging. These 

changes have been very controversial with U.S. 

manufacturing interests. 

Subsidies 

The Dunkel text would provide stricter disciplines 

for trade-distorting subsidies than currently exist. The 

text would prohibit both de facto and de jure export 

subsidies, as well as local-content subsidies. The text 

also would provide that large domestic 

subsidies—greater than 5 percent of total ad valorem 

value—would be considered automatically as likely to 

have injurious effects on the trade interests of other 

signatories. The Dunkel text set out a category of 

subsidies that signatories would agree not to challenge. 

Certain regional development subsidies would be 

permitted, as well as certain research subsidies. Basic 

industrial research subsidies, totaling up to 50 percent 

of the total research cost, would be allowed; applied 

industrial research subsidies of up to 25 percent of cost 

would also be permitted. No development or prototype 

subsidies, however, would be allowed. For the same 

reasons as in the antidumping text (above), the draft 

text on subsidies and countervailing measures also 

would provide anticircumvention provisions to prevent 

an exporter's minimal investment in plant operations in 

a host country as a means to avoid or "circumvent" 

countervailing duties that have been levied on a 

product. 

Government procurement 

Negotiations concerning the GATT Government 

Procurement Code proceeded in the GATT Committee 

on Government Procurement; they were held in 

parallel with, but were not part of, the Uruguay Round. 

A yearend draft of the Government Procurement Code, 

released under the responsibility of the Committee 

chairman, indicated that issues concerning coverage of 

the code were the main items to be concluded in 1992. 

The Dunkel text would, however, seek to clarify the 

existing procedures for accession aimed at helping 

developing countries join the code. 

Key signatories, notably the United States and the 

EC, favor expansion of the code to cover as much 

remaining central government procurement as possible. 

This expansion would include coverage of the 

European government-dominated utilities industries, 

encompassing the energy, telecommunications, and 

transportation sectors. These sectors, which U.S. 

negotiators have sought to include, were excluded 

under the original Government Procurement Code, 

which was negotiated during the Tokyo Round. 

Negotiators have also sought coverage of procurement 

markets for services. However, a particular stumbling 

block for EC negotiators has been equivalent coverage 

of the U.S. telecommunications sector, which is 

dominated by private firms, notably the regional Bell 

operating companies that enjoy monopolies in the 

provision of certain basic telephone services. The 

yearend draft of the code covers only 

government-controlled telecommunications entities, 

such as European Post, Telephone, and Telegraph 

(PTT) agencies or Telecommunications Administrations (TA). Hence, the code would not extend to 

U.S. private telecommunications firms unless specifically negotiated. The draft provisions of the code 

would prohibit procurement offsets for developedcountry signatories and also improve enforcement of 

the code through a bid-challenge procedure. 

Dispute settlement 

The Dunkel draft envisions an integrated 

dispute-settlement system that would aim to provide 

stricter GATT disciplines to all Uruguay Round 

agreements. The text would provide for more 

automatic establishment of panels, adoption of panel 

reports, and compensation. 

Under the Dunkel draft, panel reports would be 

adopted within 60 days unless GATT Council members 

rejected the report by consensus. Panel reports could 

be appealed to a newly created Appellate Body, which 

would ensure consistent interpretation of all the 

Uruguay Round accords. The Appellate Body would 

be composed of a pool of seven members, each a 

recognized authority in law, international trade, and 

GATT matters. Three members chosen from this pool 

would serve on any one case. Failing implementation 

of panel recommendations, compensation through 

retaliation would be permitted within 30 days of a 

request by the injured party, unless GATT Council 

12 
members were to reach a consensus and reject the 

request. The Dunkel draft would also provide for the 

principles for "cross-retaliation" across sectors and 

agreements. Such cross-retaliation could serve to 

increase the effectiveness of the dispute-settlement 

system by strengthening the leverage of sanctions 

against traded items considered more significant by the 

offending disputant. 

Intellectual Property Rights 

The text concerning trade-related intellectual 

property would set new or higher standards for 

protection of the intellectual property rights embodied 

in patents, copyrights, trademarks, trade secrets, and 

semiconductor chips, as well as for enforcement of 

these standards within countries and at their borders. 

The Dunkel draft would protect a patent for 20 

years from its filing date, would limit compulsory 

licensing, and would protect product and process 

patents for such goods as pharmaceuticals and 

agricultural chemicals. The text would require 

signatories to provide copyright protection to sound 

recordings for 50 years, give computer software the 

same protection as "literary works," afford data bases 

protection as compilations under copyright, and extend 

exclusive rental rights to sound recordings and 

computer programs. 

Trademark protection would be extended to 

include service marks and would be strengthened for 

internationally known trademarks. The draft text 

would also prohibit compulsory licensing or linking of 

trademarks. In addition, it would protect trade secrets. 

Developing countries would have a 10-year 

transition period before they would be required to 

comply with the text's patent and copyright provisions. 

Signatories would aim to avoid conflict over 

geographical indications by avoiding future situations 

in which misleading names might misrepresent a 

product to consumers. Such indications already in use, 

however, would not be required to be changed. 

GATT Institutions 

The draft text would establish a Multilateral Trade 

Organization (MTO), which would administer (1) the 

GATT and the Tokyo Round agreements, as amended 

by the final act of the Uruguay Round; (2) the CATS; 

(3) the Agreement on TRIPs; (4) the integrated 

dispute-settlement process; and (5) the trade policy 

review mechanism. The MTO would therefore be in a 

position to administer already-concluded GATT rules 

and agreements covering trade in goods on a consistent 

and integrated basis with the new agreements 

negotiated during the Uruguay Round, such as for trade 

in services and for TRIPs. Membership would be 

limited to those GATT contracting parties that would 

accept the entire package of rights and obligations. As 

a result the problem of "free riders"—nations that take 

advantage of rights arising from certain GATT rules 

but that do not honor the obligations of other 

rules—would be avoided. Many members of Congress 

have been critical of the MTO, stating their beliefs that 

U.S. laws would be undermined by this "higher 

authority," particularly that the United States would not 

be permitted to have tougher trade laws than those 

agreed to in the Uruguay Round (e.g. concerning 

antidumping laws). However, the U.S. administration 

does not agree that the MTO would have this kind of 

authority, being instead more of an elaboration of the 

present organization simply in order to give the current 

GATT a clearer legal status. 

Market Access 

Negotiations on market-access commitments that 

involve reductions of tariff and nontariff barriers to 

goods (including tropical products), were slated to 

continue into 1992, as one of the four tracks outlined 

by D-G Dunkel at the January 13 meeting of the TNC. 

The commitments offered in these market-access 

negotiations will depend in large part on what is 

ultimately agreed to in the final text of the other 

Uruguay Round agreements. These access 

commitments will help adjust or "fine tune" the 

balance of rights and obligations undertaken by 

signatories accepting the final text. Major items still at 

issue include the U.S. initiative for reciprocal duty 

elimination ("zero-for-zero" proposals) in nine 

industrial areas 123and the EC's desire to reduce certain 

U.S. tariff peak rates. 

Trade and the Environment 

The formulation of trade and environmental 

policies have, up to now, been pursued on largely 

separate tracks. However, the Office of Technology 

Assessment (OTA) has suggested that "the potential for 

conflict between environmental concerns and 

international trade is increasing," as a result of a 

proliferation of domestic and international 

environmental rules and the rapid expansion of global 

trade and investment flows. 124Several developments 

in 1991 pinpointed potential conflicts between trade 

and environmental interests and spurred global efforts 

to find common ground. Late in the year a GATT 

panel ruled against an environmentally driven U.S. ban 

on Mexican tuna, and pressure was exerted on the U.S. 

administration to address environmental issues in the 

context of negotiations toward a North American FreeTrade Agreement (NAFTA). 

Partly as a result, several important steps were 

taken by international organizations in 1991 to address 

the tensions between trade and environmental policies. 

The GATT Council held a discussion on the issues on 

May 29-30, 1991, and in the fall decided to reactivate 

the long-dormant Group on Environmental Measures 

and International Trade. In June, the Organization for 

Economic Cooperation and Development (OECD) 

issued a report on the matter and undertook to pursue 

additional study. Extensive preparatory work was also 

13 
under way for the United Nations Conference on 

Environment and Development slated to be held in 

June 1992 in Rio de Janeiro, Brazil. Various other 

organizations and academics also attempted to analyze 

the interrelationship between trade and environmental 

policy. 

This work has already resulted in the publication of 

numerous papers on the matter, and much more is in 

process. A review of several of the studies suggests 

that there is widespread agreement that trade policy 

can affect the environment and vice versa. However, 

there is considerable debate about the nature of these 

effects. This section looks at the issue from a trade 

policy perspective. It briefly reviews some of the 

major policy connections identified so far; describes 

several major institutions, international agreements, 

and U.S. domestic laws relevant to trade and the 

environment; and highlights the steps taken in 1991 to 

respond to the challenge of achieving the dual 

objectives of maintaining a liberal system for the 

conduct of international trade and protecting the earth's 

environment in the interest of current and future 

inhabitants. 

The Impact of Trade Policy on 

the Environment 

The GATT Secretariat notes that "views differ 

regarding the impact of international trade on the 

quality of the natural environment. For some, 

expanding trade is a source of increased wealth and 

diffusion of technology, both of which enhance 

societies' ability to protect and up-grade their 

environments. Others argue that unrestricted trade can 

be harmful to the environment, especially when a 

country's environmental policies are weak or 

non-existent." 125Because prices and markets do not 

necessarily fully account for environmental benefits 

and costs, the OECD notes that "trade can sometimes 

contribute to environmentally adverse patterns of 

production, unsustainable exploitation of natural 

resources, or commerce in polluting or hazardous 

products."126At a more general level, there is concern 

about the environmental impact of increased economic 

growth engendered by trade liberalization and by rapid 

economic development.I 27 

Sectoral trade policy may affect the environment in 

a number of ways. 128The structure of trade barriers 

and preferences in developed countries, for instance, 

may encourage less developed countries to export 

products involving manufacturing processes or 

agricultural practices that harm the environment. 

Agriculture is one sector in which this deleterious 

effect has been alleged. Developed countries like the 

United States, Japan, and the EC restrict access to their 

markets for foreign agricultural goods and sometimes 

dispose of surplus crops on world markets, depressing 

prices and thereby discouraging agricultural production 

in the developing world. Export subsidies on products 

such as agricultural commodities and domestic 

subsidies on fertilizers and water credits can lead to the 

overuse of land resources in developed countries. 

Some allege that, on balance, these practices harm the 

en v ironment. 129 

Perhaps the most common concern expressed by 

environmentalists is that trade liberalization may result 

in a lowering of environmental standards. There are 

two principal ways this relaxation of standards may 

come about. First, there is concern that trade and 

investment liberalization could result in pressure on 

domestic regulatory authorities to loosen enforcement 

or lower standards so that they might preserve local 

jobs and income.I 30Second, environmentalists 

sometimes perceive that efforts to remove nontariff 

trade barriers and equalize regulatory burdens on 

producers undermine the goal of environmental 

protection. For example, there are fears that efforts to 

create uniformity in environmental regulation through 

the harmonization of standards may result in a 

lowest-common-denominator approach. Furthermore, 

to the extent that regional and multilateral trade 

liberalization efforts strengthen the process for 

imposing and enforcing environmental standards, 

environmentalists warn that these efforts may also limit 

the options available to policymakers to achieve 

environmental goals. 131For this reason some U.S. 

environmental groups have expressed concern about 

efforts within the GATT Uruguay Round intended to 

ensure not only that domestic regulations are fully 

justified by scientific evidence, but also that such 

regulations are no more stringent than needed to 

achieve the desired end. They argue that flexibility 

may be needed to prevent environmental damage even 

in the face of uncertain scientific evidence. 132 

The Impact of Environmental 

Policy on Trade 

Environmental policy can have both direct and 

indirect effects on trade. The most straightforward 

effects on trade result from the use of trade measures as 

a means of advancing environmental goals. Import and 

export controls have been imposed to restrict or 

prevent shipment of hazardous materials and scarce 

resources. Unilateral or multilateral trade restraints 

have been used to deter trade in endangered species 

and to prevent the transborder spillover of pollution. 

Some countries have used trade measures in an attempt 

to influence other nations' environmental priorities and 

practices. Among the reasons cited for such actions 

are the need to preserve endangered species that belong 

to a foreign or international habitat or to end 

production practices that are considered cruel to 

animals. Furthermore, trade measures have been used 

to encourage participation in multilateral agreements 

intended to deal with global environmental problems. 

More subtle effects may result from domestic 

environmental regulation. The OECD notes that 

"environmental policies have been dominated by 

14 
regulatory approaches" such as the setting of 

mandatory standards for environmental performance 

by producers (such as controlling factory emissions of 

pollutants or the handling of hazardous wastes) and 

their products (such as the use of emission controls on 

automobiles). However, a country's use of standards 

labeled as environmental may actually serve as a trade 

barrier. For example, the requirements may be unclear 

or difficult to comply with, inconsistently 

administered, or "unnecessary." 133Deciding whether a 

particular measure is "necessary" involves an 

assessment of the risk associated with the situation at 

hand as well as the availability of other, less onerous 

measures to achieve the goal. 134 

From a trade policy perspective, it is important to 

draw a distinction between regulations regarding 

production processes and those addressing end 

products in terms of their final characteristics, use, or 

disposal. Differences in the former types of 

environmental regulation among nations can affect the 

international competitiveness of producers, as they are 

generally only applicable to manufacturers or farmers 

located within a country's own territory. For instance 

domestic regulations that prohibit certain 

manufacturing processes or ban or restrict the use of 

certain inputs in the manufacture of a product may 

raise production costs and constrain domestic firms' 

participation in the global market. Competing firms in 

other countries may be able to produce the same 

product through cheaper but less environmentally safe 

procedures and then market this product at lower 

prices.I 35 

The OECD has suggested that domestic regulatory 

authorities often fail to take into account how the cost 

of compliance with new environmental standards 

affects the global competitiveness of producers.I 36 

 Partly as a result, domestic producers may complain 

that they are no longer operating on a "level playing 

field" and urge action to rectify the situation. These 

business interests often find common cause with 

environmental groups and with workers wishing to 

deflate political pressures to lower the standards at 

home, the GATT Secretariat notes. 137 

One result is that trade liberalization initiatives 

have increasingly been accompanied by efforts to 

encourage countries with lower environmental 

standards to raise them to levels comparable to those of 

the importing country. 138 This proposition certainly 

was suggested in the U.S. debate on NAFTA, although 

it was not ultimately part of the formal NAFTA 

agenda. As part of its 1992 program, the European 

Community (EC) is in fact "harmonizing" a number of 

disparate national standards. The effort is difficult 

since it involves bridging differences in regulations 

reflecting the various climatic conditions, social 

values, and wealth of 12 countries whose histories of 

environmental protection are quite different. 

Nevertheless, at least one analyst has concluded that 

the EC is succeeding in "harmonizing up" regulatory 

requirements. 139A slight variation on the theme is 

contained in 1990 amendments to the Clean Air 

Act. 14° Among other things, Congress directed the 

President to: 

. . . identify and evaluat[e] the economic 

effects of [the differences between U.S. and 

foreign] air quality standards and controls, 

[and to propose a strategy] for addressing 

such economic effects through trade 

consultations and negotiations. 

Alternatively, producers and environmentalists 

have joined to advocate the provision of subsidies, 

such as pollution-abatement assistance, to cover the 

costs incurred in complying with strict domestic 

regulations. These subsidies may, however, represent 

competitive barriers to foreign producers. 141 

 Similarly, the use of environmental taxes and charges 

may have trade implications if their impact on 

domestic and foreign suppliers differs. 142It has also 

been suggested that cooperative international 

programs, such as tradeable emission quotas and 

permits, can be used to control transborder 

poll ution . 143 

Not a Zero-Sum Game 

Some experts believe that trade and environmental 

concerns can not only complement each other, but 

actually can often be mutually beneficia1. 1 " In a 

recent book, Michael Porter argues that— 

stringent standards for product performance, 

product safety, and environmental impact 

contribute to creating and upgrading 

competitive advantage. They pressure firms 

to improve quality, upgrade technology, and 

provide features in areas of important 

customer (and social) concern.. „Particularly 

beneficial are stringent regulations that 

anticipate standards that will spread 

internationally.) 45 

With the advancement of environmental regulation, 

such countries as the United States have seen the 

growth of an entire multifaceted environmental 

industry comprising developers of environmental 

technology, manufacturers of environmental controls, 

engineers, and consultants. As other countries move 

toward more environmental regulations, firms that can 

offer such products and skills are likely to be among 

the beneficiaries. By the same token, trade can benefit 

the environment by fostering greater access to 

environmental technology and less ecologically 

damaging inputs (for instance low- as opposed to 

high-sulfur coal). 146 

Years of Concern 

Unlike the global trading system, which has been 

largely governed by a single set of rules and an 

international institution, the GATT, to administer them 

for nearly half a century, there is no comprehensive 

international agreement or single body on 

environmental matters. International attention to 

15 
environmental issues was institutionalized in 1972 with 

the adoption of the Stockholm Declaration on Human 

Environment. That declaration codified basic 

international principles recognizing the responsibility 

of nations to ensure that activities within their 

jurisdiction do not cause damage to the environment of 

other countries. 147The Stockholm Conference at 

which the declaration was adopted was the first major 

international conference on the global environment.'" 

Another important contribution of the conference was 

the establishment of the United Nations Environment 

Programme (UNEP), which continues to facilitate 

international research and education programs and to 

bring countries together to negotiate treaties. 149 

A recurring theme underlying discussions of the 

environment is that of "sustainable development," 

which the GATT Secretariat says connotes two notions: 

the need to do a better job of identifying and valuing 

the environmental effects of economic activity, and the 

desirability of passing on to future generations at least 

as much environmental and manmade capital as the 

present generation inherited. 15° One outgrowth of this 

concept is an increasing awareness of the need to 

reconcile trade rules with the fostering of 

environmentally sustainable growth. This need is 

particularly pressing in light of the marked disparity 

between the economic conditions in developed and 

undeveloped countries. Less developed countries often 

have to cope with such overwhelming problems as 

unemployment, malnutrition, and infectious disease, 

and therefore lack the resources to turn their attention 

to environmental quality and occupational health 

risks. 151 

In 1983, the World Commission on Environment 

and Development (the Brundtland Commission), 

established by the United Nations (U.N.) General 

Assembly, called for the mandates of the GATT and 

the U.N. Conference on Trade and Development to 

include attention to the environmental problems of 

developing countries. In 1987 the Brundtland 

Commission presented a report emphasizing that the 

activities of these organizations "should reflect concern 

with the impacts of trading partners on the 

environment and the need for more effective 

instruments to integrate environmental and 

developmental concerns into international trading 

agreements."152The main findings and 

recommendations of the Brundtland Commission were 

approved by consensus by the U.N. General Assembly 

in 1987, along with another document prepared by 

UNEP entitled Environmental Prospective to the Year 

2000 and Beyond. 153 

These documents provided a broad framework for 

national action and international cooperation on 

programs aimed at sound environmental development 

and served as the foundation for the concept of the 

1992 United Nations Conference on Environment and 

Development (UNCED), otherwise known as the Earth 

Summit. This conference, marking the 20th 

anniversary of the Stockholm Conference, was to be 

held in June 1992 in Rio de Janeiro, Brazil. It was to 

focus on sustainable development issues, which in turn 

address trade-related matters such as technology 

transfer from developed to developing countries; 

monitoring of energy supplies; protection of depletable 

natural resources (water, soil, forests, biological, and 

genetic resources); changes in the systems of 

incentives and penalties that motivate economic 

behavior, and transitions in production and 

consumption patterns in industrialized countries. 154In 

addition, some environmental organizations recommended that UNCED endorse the establishment of 

a U.N. environmental organization with the authority 

to set international environmental standards. 155 

National Environmental 

Measures With Trade Provisions 

The environmental interests in some countries have 

garnered support for the passage of environmentally 

based laws that affect international commerce. For 

example, the treaty that established the European 

Economic Community permits member states to 

promulgate national environmental measures that are 

more stringent than those adopted by the Community 

as a whole. 156(U.S. environmental laws also generally 

allow individual states to adopt state programs that 

incorporate more stringent requirements than those 

imposed by the Federal law.) This provision has been 

cited as justification for some member states, such as 

Germany, Denmark, and the Netherlands, to pass 

bottling and packaging laws that affect trade by 

restricting the types of containers in which certain 

products can be imported. Although the European 

Court of Justice upheld a Danish law mandating the 

use and recycling of bottles, 157the EC Commission 

threatened to challenge Germany's plastic-bottle 

deposit scheme, under which only shopkeepers could 

collect returns. The other members of the EC believed 

that this provision was discriminatory because it 

favored local producers: first, because local producers 

were more likely to use glass rather than plastic bottles 

and, second, because shopkeepers would not have 

foreign bottles cluttering up their shelves when local 

bottles could be returned more easily. Germany 

eventually modified its law. 158 

Several U.S. laws either already in effect or under 

consideration address the protection of the 

environment through trade-related measures. Virtually 

all existing measures are aimed at the protection of 

marine life. 159These laws date back to 1971, when 

Congress enacted the Pelly amendment to the 

Fisherman's Protective Act of 1967. 16° Originally 

enacted to conserve Atlantic salmon, the amendment 

now includes protection for all species of fish as well 

as endangered wildlife. 161It grants the President 

discretionary authority to prohibit the importation of 

fish or wildlife products from a country that has 

conducted fishing operations or has taken an 

endangered species in a manner that diminishes the 

effectiveness of an international conservation program. 

16 
The theme of the Pelly amendment has been 

carried over into a number of marine protection 

statutes. For example in 1972 Congress passed the 

Marine Mammal Protection Act (MMPA), which 

restricted imports of certain types of fish and fish 

products 162from countries that partake in fishing 

practices that incidentally kill marine mammals, such 

as whales, dolphins, porpoises, seals, walruses, and sea 

otters. 163The statute permits imports of covered fish 

when the foreign country can show that U.S. standards 

are being met. However, 1984 and 1988 amendments 

to the MMPA have made it increasingly difficult for 

other countries to meet U.S. standards with respect to 

the harvesting of yellowfin tuna. 164The MMPA was 

amended again in 1990 to ban imports of fish harvested 

using large-scale driftnets on high seas.I 65A court 

order imposing an MMPA-based embargo on tuna and 

tuna products from Mexico prompted a GATT 

challenge, discussed below. 

Similarly, other statutes provide for the imposition 

of trade embargoes on fish or fish products harvested 

in a manner that may cause the incidental taking of 

whales 166and sea turtles. 167The Driftnet Impact 

Monitoring, Assessment, and Control Act of 1987 was 

enacted to protect Pacific Coast salmon that are 

hatched in U.S. rivers and then migrate beyond U.S. 

waters, by encouraging the negotiation of bilateral 

agreements to manage the use of driftnet salmon 

fishing. 168As amended in 1990, the statute reaches 

beyond salmon fishing and sets a national policy 

supporting a permanent ban on all large-scale, high-sea 

driftnet fishing. 169A pending bill would require an 

embargo on all fish and fish products that are harvested 

using driftnets, 17° but the Bush administration 

reportedly does not support this proposed legislation. 

Congressional efforts to achieve environmental 

protection through the use of trade measures may 

eventually extend beyond fish and wildlife laws. A bill 

proposed by Senator Boren, although reportedly not 

likely to be passed by the 102d Congress, is notable 

because it reflects coextensive attention to environment 

and trade concerns. 171 Under the proposed 

International Pollution Deterrence Act (the Boren 

bill), 172the failure to impose and enforce effective 

pollution controls and environmental safeguards would 

constitute a subsidy. The goods produced abroad under 

such less strict environmental standards would be 

subject to a countervailing duty. This added duty 

would be equal to the cost that would have been 

incurred by the manufacturer to comply with 

environmental standards imposed on U.S. producers of 

the same kind of merchandise. The duty would be 

used to support the research and development of new 

environmental technologies and to finance their 

introduction into developing countries)" 

International Environmental 

Agreements With Trade 

Provisions 

Trade provisions have also been used in 

multilateral environmental agreements. 174Of the 127 

active multilateral agreements on environmental 

matters, 17 have trade provisions. 175The majority of 

these 17 concern the protection of fauna, flora, and 

wildlife. Most notably, the Convention on 

International Trade in Endangered Species of Wild 

Fauna and Flora (CITES) protects certain species of 

plants and animals from overexploitation through 

international trade. CITES regulates trade in species 

that either are threatened with extinction or may 

become endangered if their trade is not regulated." ' 

For instance all signatories to CITES have agreed to a 

ban on trade of ivory from tusks of African elephants, 

and some signatories have further agreed to bans on the 

trade of other endangered species. 

In addition to direct incorporation of trade 

measures, a number of international conventions for 

the protection of marine mammals and endangered 

species arc linked implicitly to U.S. trade measures. 

As explained above, the Pelly amendment permits the 

President to impose an embargo on imports of fish or 

wildlife caught in contravention of an international 

conservation program. There have been several 

occasions when the United States threatened use of the 

Petty amendment to impose trade sanctions against 

countries that, in the view of the Secretary.of 

Commerce, condoned whaling practices that 

contravened the International Whaling Convention. 1 

 Likewise the recently adopted South Pacific Drift Net 

Convention, which has not yet been adopted by 

Congress, provides a vehicle for imposition of trade 

sanctions under the Pelly amendment for foreign 

driftnet fishing. 

The International Tropical Timber Agreement of 

1985 (1TTA) also reflects an effort to control 

commercial exploitation of a natural resource. Among 

other objectives, the agreement aims to provide an 

effective framework for cooperation and consultation 

between tropical timber-producing and timberconsuming countries with a view to the diversification 

of international trade in tropical timber and the 

encouragement of sustainable use and conservation of 

tropical forests. (For additional discussion of this 

agreement, see chapter 3, "United Nations Conference 

on Trade and Development" section.) 

There has been an increasing movement toward 

international negotiation of far-reaching global 

environmental treaties with important implications for 

international commerce. Examples of recent 

environmental agreements with strong trade implications are the Montreal Protocol on Substances that 

Deplete the Ozone Layer 178and the Basel Convention 

on the Transboundary Movement of Hazardous Wastes 

and Their Disposal) /9Both of these agreements were 

negotiated under the auspices of the UNEP. In 

17 
addition, in February 1991, 130 countries began 

negotiating a treaty on global warming that will seek to 

reduce emissions of greenhouse gases. 18°' This treaty 

was to be one of the focal points at the UNCED 

conference. 

The Montreal Protocol is the first global agreement 

adopted to protect the earth's atmosphere. It includes 

trade restrictions on ozone-depleting chemicals, as well 

as the technologies for manufacturing them. Resulting 

from action first begun in 1977, the protocol was 

adopted in 1987 and has been ratified by 63 countries 

(including the United States), representing more than 

99 percent of the production of and 90 percent of the 

consumption of ozone-depleting chemicals. 181It 

commits signatories to reversing the depletion of the 

earth's ozone layer by, among other things, restricting 

the production, use, and sale of ozone-depleting 

substances, most notably chlorofluorocarbons (CFCs). 

It further encourages a market shift to safer substitutes. 

A primary objective of the Basel Convention was 

to regulate the flow of hazardous and toxic materials 

from industrialized nations to developing nations. The 

convention regulates the movement of hazardous 

wastes, municipal wastes, and municipal incinerator 

ash across international borders. It sets a standard of 

"environmentally sound management" as the basis for 

all movements of covered wastes and requires notice 

and consent prior to waste export. Parties to the 

convention will be prohibited from exporting covered 

wastes to or importing them from nonsignatory 

countries, absent a separate agreement that ensures 

environmentally sound waste management. 

Negotiations of the Basel Convention were 

completed in 1989, and more than 50 countries, 

including the United States, have become signatories. 

The United States has not yet, however, ratified the 

convention. Implementing legislation has been 

introduced in Congress, but its passage is linked to the 

reauthorization for the domestic waste management 

statute, the Resource Conservation and Recovery Act 

(RCRA). 

The Montreal Protocol, the Basel Convention, and 

the proposed global warming treaty are the most 

prominent international agreements that have forced 

confrontation with issues related to sustainable 

development. The developing countries have indicated 

that their willingness to join international 

environmental agreements is at least in part contingent 

upon the receipt of financial and technical assistance 

from the developed countries. This assistance will 

enable the developing nations to employ measures 

aimed at environmental protection and at the 

conservation of their natural resources.I 82 

In addition to committing developed countries to 

reduce their reliance on ozone-depleting chemicals, the 

Montreal Protocol calls for developed countries to help 

developing countries to achieve the protocol's purposes 

through multilateral financial assistance and the 

transfer of technology. In this regard developed 

countries, especially the United States, have promised 

that trade barriers will not hinder any technology 

transfer. 183Some developed countries want such 

transfers to be made on a strictly commercial basis, 

whereas developing countries are generally calling for 

concessionary terms. The enforcement and sanction 

schemes that arc to accompany these agreements are 

also receiving increasing attention. 

Conflicts in the Making: GATT 

and the Environment 

The relationship between these environmentally 

motivated trade measures and international trade 

commitments is now being tested. Although 

environmental measures are not explicitly addressed in 

GATT, the GATT Secretariat has recognized that the 

trade provisions of such environmental agreements as 

CITES, the Montreal Protocol, and the Basel 

Convention create potential conflicts with GATT 

rules. 1 " Specifically, these agreements require the 

parties to apply more restrictive trade provisions to 

nonparties than to parties. GATT members have not 

yet been faced with the need to decide whether such 

departures from GATT's nondiscrimination principle 

can be justified. 

Although environmental measures are not 

explicitly addressed in the GATT, two of the 

exceptions contained in article XX implicitly apply to 

environmentally motivated standards and regulations. 

Under article XX, measures that would otherwise 

violate GATT obligations may nevertheless qualify for 

trade exceptions as follows: 

Subject to the requirement that such 

measures are not applied in a manner which 

would constitute a means of arbitrary or 

unjustifiable discrimination between countries 

where the same conditions prevail, or 

disguised restriction on international trade, 

nothing in the Agreement shall be construed 

to prevent the adoption or enforcement by a 

contracting party of measures: 

* * * 

(b) necessary to protect human, animal or 

plant life or health; [or) 

* * * 

(g) relating to the conservation of 

exhaustible natural resources if such 

measures are made effective in 

conjunction with restrictions on domestic 

production or consumption.I 85 

The interpretation of the terms and reach of these 

provisions raise myriad issues, 186some of which have 

been addressed by the handful of GATT disputes 

involving these provisions. Although the first 30 years 

of GATT marked little activity concerning 

18 
environmental provisions, the use of the environmental 

exceptions has been the subject of five GATT panel 

reports in the past decade. Two of these disputes 

involved efforts to justify import or export bans under 

the article XX(g) exception for measures relating to the 

conservation of exhaustible natural resources. The 

panels in both matters rejected the claims of 

justification. In one dispute the panel found that a U.S. 

ban on tuna imports from Canada was not justified on 

conservation grounds, given that the United States did 

not have coextensive catch limits on its own fishing 

fleets. 187In the other dispute involving subsection (g), 

the panel found that, because there were no limits on 

Canadian consumption of herring and salmon, a 

Canadian restriction on the export of unprocessed 

herring and salmon was not "primarily aimed" at 

conservation. 188 

In a third case, Thailand attempted to justify a ban 

on imported cigarettes as a measure "necessary" to 

protect human life or health, under article XX(b). The 

panel, noting that Thailand did not restrict domestic 

production and Sales of cigarettes, found that 

Thailand's ban was not "necessary" because other, 

nondiscriminatory , measures were available to control 

the quantity and quality of cigarettes for public health 

reasons.189 

The fourth GATT panel report involving 

environmental concerns addressed U.S. taxes on 

petroleum and on certain imported substances 

(manufactured from chemicals taxable in the United 

States), which were used to finance the Su round 

program for cleaning up toxic waste. sites.I 9° In 

addressing the legitimacy of the import taxes, the panel 

indicated that the environmental purpose of the taxes 

was not relevant and that the dispute would be resolved 

as a normal tax dispute. The panel found that the tax 

on the nonpetroleum imports constituted a legitimate 

border-tax adjustment permissible under GATT'. 

However, the panel also found that the tax on imported 

petroleum was inconsistent with GATT rules on 

national treatment, because imports were taxed at a 

higher rate than domestic petroleum. 

The most recent environmentally based GATT 

dispute, brought by Mexico, involved the U.S. 

embargo on tuna from countries that could not prove 

that their tuna fleets (or the tuna fleets from which 

they, as intermediaries, purchase their tuna) meet the 

dolphin protection standards set out in the U.S. 

MMPA. As discussed above, the MMPA, among other 

things, outlines the regulatory program on incidental 

dolphin taking that a foreign country must adopt before 

yellowfin tuna captured by its vessels can be imported 

into the United States. Following the implementation 

of the 1988 amendments, Mexico submitted the 

necessary documentation reflecting conformance with 

the MMPA and was permitted to export ycllowfin tuna 

to the United States. However, a challenge to the 

implementation of the 1988 amendments resulted in 'a 

judicial order imposing an embargo on imports of 

yellowfin tuna from Mexico. 191 

Mexico challenged this embargo under the GATT. 

Mexico argued that the measures prohibiting imports 

of yellowfin tuna and yellowfin tuna products were 

quantitative restrictions on importation—which are 

prohibited by GATT article XI:1 . The U.S. responded 

that the measures were not quantitative restrictions but 

were "internal regulations enforced at the time or point 

of importation." Such regulations are permitted under 

GATT article III:4, as long as they do not discriminate 

among products of other countries in violation of MFN 

principles, are not applied so as to afford protection to 

domestic production, and accord to imported products 

treatment no less favorable than that accorded to like 

domestic products. 

In finding that the U.S. embargo was inconsistent 

with GATT, 192the panel rejected the U.S. contention 

that the measures were internal regulations enforced at 

the time or point of importation under article In 

considering the arguments put forward by the United 

States and Mexico, the panel examined the language of 

article III (the national treatment provision), and in 

particular the following language of Note Ad article 

Any , internal tax or other internal charge, or 

any law, regulation or requirement of the kind 

referred to in article III:1 which applies to an 

imported product and the like domestic 

product and is collected or enforced in the 

case of the imported product at the time or 

point of importation, is nevertheless to be 

regarded as an internal tax or other internal 

charge, or a law, regulation or requirement of 

the kind referred to in article III:1 and is 

accordingly subject to the provisions of article 

The panel focused on whether the tuna harvesting 

regulations could be regarded as a measure that 

"applies to" imported and domestic tuna. The panel 

indicated that the note covers only measures applied to 

imported products that are of the same nature of those 

applied to the domestic products, and determined that 

the note covers only those measures applied to the 

product as such. The products that the United States 

claimed to be regulating were tuna and tuna products; 

but, according to the panel, the MMPA does not 

regulate tuna as a product. Instead, it regulates the 

domestic harvesting of ycllowfin tuna to reduce the 

incidental taking of dolphin. The panel found that the 

MMPA therefore "could not be regarded as being 

applied to tuna products as such because they would 

not directly regulate the sale of tuna and could not 

possibly affect tuna as a product." 193 

The United States argued that, even if the MMPA 

were not consistent with article HI, the regulations 

imposed under the MMPA were covered by the 

exceptions contained in GATT article XX(b) and (d) 

and (g). The panel rejected these arguments. First, the 

panel suggested that these provisions do not permit 

ex tra j uri sd ictional protection (i.e., measures necessary 

to protect life or health or exhaustible resources outside 

the jurisdiction of the importing country.) Although 

19 
the panel conceded that the text of these articles "refers 

to life and health protection generally without 

expressly limiting the protection to the jurisdiction of 

the contracting party concerned" 194and permits "each 

contracting party to set its human, animal or plant life 

or health standards," 195it found the interpretation of 

article XX(b) and (g) proposed by the United States too 

broad. If the U.S. interpretations of these provisions 

were accepted, the panel warned, "each party could 

unilaterally determine the life or health protection 

policies from which other contracting parties could not 

deviate without jeopardizing their rights under the 

General Agreement." 196The panel also found that the 

MMPA did not in any event meet the requirements that 

would qualify it as a measure under article XX(b) 

because the measure was not, in its view, "necessary." 

Among other things, the panel said that the United 

States could have tried other approaches; namely, the 

negotiation of international agreements, 197as Mexico 

had suggested, to achieve the desired. ends. The panel 

therefore concluded that the ban on the importation of 

Mexican harvested tuna was inconsistent with U.S. 

obligations under article XI, which prohibits resort to 

quantitative restrictions. 

Mexico has deferred submission of the 

tuna-dolphin panel report to the GATT Council for 

formal adoption in view of its efforts to resolve the 

matter bilaterally with the United States. Under a 

recently introduced bill supported by President Bush, 

the tuna embargo would be lifted if Mexico promises 

to stop netting dolphins for a 5-year period beginning 

in March 1994, as well as to take interim measures to 

reduce dolphin mortalities. 198Mexico has already 

notified the State Department of its intention to honor 

these commitments. 199(For other coverage of this 

dispute, see chapters 2 and 4.) 

In addition to article XX of the general agreement, 

several other agreements supplementing the GATT 

speak to or have implications for environmental 

concerns. The 1979 Agreement on Technical Barriers 

to Trade (the Standards Code), which emerged from 

the Tokyo Round, encourages its parties to use 

international standards whenever possible. 2m 

Nonetheless, the code allows the parties to deviate 

from such standards if they are "inappropriate for the 

Parties concerned" for reasons such as "protection for 

human health or safety, animal or plant life or health, 

or the environment; [or] fundamental climatic or other 

geographic factors." Any such derogation is 

permissible only insofar as it does hot result in an 

unnecessary obstacle to trade. A rarely used dispute 

mechanism allows an exporting country to challenge 

another country's ban on the sale of a particular 

product on the grounds that the ban is not based on 

scientific criteria and, therefore, creates an unnecessary 

obstacle to trade. 

Signatories to the Standards Code are required to 

provide notification of products to be covered by their 

proposed technical regulations. Whenever a regulation 

is expected to have a significant effect on the trade of 

other parties, the country promulgating the regulation 

must briefly indicate the objective of the regulation and 

provide notification of, as well as the rationale for, any 

deviation from international standards. A 

determination by the promulgating country that 

compliance with existing international standards is 

inappropriate for health or environment reasons 

constitutes a permissible reason for deviation from 

international standards. 

From 1980 to 1990, code signatories made 211 

notifications of deviation based on protection of the 

environment and 168 notifications of deviation based 

on public health and safety. Of the 211 

environmentally based deviations, 160 concerned 

ozone-depleting substances, particularly CFCs and 

halons.2° 

A revised and expanded Standards Code has been 

tentatively agreed to and included in the December 

1991 Dunkel text. Among other things, the revisions 

would extend the code's coverage to include standards 

stated in terms of processes and production methods 

(which prescribe how a product is made rather than the 

characteristics of the cad product. itself). The Dunkel 

text would require parties to ensure that "technical 

regulations and standards are not prepared, adopted, or 

applied with a view to or the effect of creating 

unnecessary obstacles to trade." (The phrase "the 

effect of" is newly added.) 

In explaining the concept of "unnecessary 

obstacle," the Dunkel text states that "technical 

regulations shall not be more trade-restrictive than 

necessary to fulfill the legitimate objective, taking into 

account the risks non-fulfillment would create." 2u2A 

footnote explains that "this provision is intended to 

ensure proportionality,"203a well-established EC 

litmus test for determining whether member-state and 

EC actions arc justified. In this context, 

"proportionality" means that the efforts directed 

toward achieving a given end must be proportional to 

the objective—that is, no more than that which is 

reasonable and necessary to achieve the desired end. 

Article 11:3 States that "technical regulations shall not 

be maintained if the circumstances or objectives giving 

rise to their adoption nor longer exist or if the changed 

circumstances or objectives can be addressed in a less 

trade-restrictive manner." 

With respect to sanitary and phytosanitary (SPS) 

measures, the Dunkel tekt requires that they be "based 

on scientific principles" and not be "maintained against 

available scientific evidence." Furthermore, if a 

country decides to impose a measure that differs from 

international standards, guidelines, or 

recommendations, it must have "a scientific 

justification "204Both the revised Standards Code and 

the SPS agreement would require signatories to ensure 

that subnational governments within their jurisdiction 

follow the code's rules. 

The 1979 GATT Subsidies Agreement, which also 

emerged from the Tokyo Round, contains an exception 

for environmental purposes. The Subsidies Code 

stipulates that the parties are not restricted from using 

certain types of subsidies, including those for "the 

20 
redeployment of industry in order to avoid . . . 

environmental problems." Thus these types of 

subsidies would be exempt from countervailing-duty 

measures. Participants in the Uruguay Round are 

considering whether to extend this exemption to 

domestic transitional assistance for certain pollution 

abatement expenditures. 

A controversial twist on this proposal—and one 

that is unlikely to be seriously considered at this late 

date in the Uruguay Round—would allow an importing 

country to impose countervailing duties to offset weak 

environmental regulations in the exporting country, 

based on the notion that the exporting manufacturer 

has effectively received an implicit subsidy by not 

being required to adhere to stricter environmental 

standards. This concept of using countervailing duties 

to offset weak environmental regulation is reflected on 

the national level in the proposed Boren bill, discussed 

above. 

Other issues under consideration in the Uruguay 

Round, such as agricultural trade liberalization and 

strengthened dispute resolution mechanisms, have also 

been identified as potentially relevant to environmental 

policy.205For example, the Dunkel draft's chapter on 

agriculture would exempt certain subsidies for land 

conservation and environmentally related R&D from 

application of countervailing duties. 206 

Some environmental groups have recently 

expressed concern about the impact of current and 

proposed GATT rules on environmental policymaking. 

For example, some have expressed strong reservations 

about efforts within the Uruguay Round to remove 

technical trade barriers associated with sanitary and 

phytosanitary standards, particularly to the extent that 

these efforts could limit the capacity of nations to 

impose and enforce rigorous standards for 

environmental protection. A key issue in both the 

agricultural and rulemaking (standards) negotiating 

groups has been the circumstances under which 

regulatory officials will be permitted to deviate from 

international standards in their domestic regulation. 

Others warn that measures may be deemed 

unnecessary precisely because they have been 

successful: conservation efforts are now restoring 

populations of some endangered species, for example. 

Some analysts also believe that the requirement to have 

a scientific justification could put GATT 

dispute-settlement panels in the position of weighing 

questions they are ill-equipped to resolve: first, such 

panels are typically composed of trade, not scientific, 

experts, and second, since reasonable minds can 

disagree on how to interpret and what to do about 

available scientific evidence, tradeoffs among 

environmental measures, economic effects, and 

societal values are at root political. 207Environmental 

organizations say that the GATT panel finding in the 

tuna-dolphin case could be invoked to prevent the use 

of trade restrictions to achieve environmental ends. A 

particular worry is that the ruling could make 

imposition of process-based standards more vulnerable 

to GATT challenge.208Finally, changes under 

consideration in the Round could make it easier for 

aggrieved countries to retaliate should these measures 

be subject to a negative dispute-settlement panel 

ruling. 

Common Ground? 

Trade institutions took several steps in 1991 aimed 

at reconciling these tensions. In October 1991 GATT 

decided to convene for the first time the Group on 

Environmental Measures and International Trade, 

which was established by the contracting parties 20 

years earlier but had never met. In February 1992, the 

GATT Secretariat published the organization's 

first-ever report on trade and the environment. 2°9In 

that report the Secretariat stressed the GATT's central 

rule of ensuring nondiscriminatory trade by stating— 

The rules of the General Agreement are 

concerned primarily with preventing 

discrimination, that is, with limiting the extent 

to which countries can discriminate between 

home products and imports, between imports 

from different countries, and between goods 

sold in the home market and those exported. 

It is reasonable to conclude, therefore, that 

even though the General Agreement does not 

mention the environment explicitly, 

non-discriminatory environmental policies 

ordinarily would not be subject to GATT 

constraints.210 

In this respect, a law or regulation covering 

environmental concerns, like other domestic laws and 

regulations, normally would not violate the GATT as 

long as the measure applies equally to imported and 

domestic goods. 21 I The GATT' report lists examples of 

nondiscriminatory measures: sales taxes on products, 

such as those containing CFCs; deposit refund schemes 

for recyclable waste; favorable tax treatment for 

environmentally friendly products; and taxes or limits 

on polluting activities.212 

The GATT report notes that, even if a trade 

measure is discriminatory, a signatory may be able to 

justify its necessity under article XX. Failing that, 

countries wishing to use trade measures to achieve 

environmental ends have the option of seeking a 

waiver from GATT rules or their amendment. Both 

actions would be possible if two-thirds of GATT 

members agreed (currently, 69 out of 103 countries). 

However, the Secretariat stated that "in principle, it 

is not possible under GATT's rules to make access to 

one's own market dependent on the domestic 

environmental policies or practices of the exporting 

country."213The report argued that unilateral trade 

restrictions, imposed either in an effort to offset cost 

advantages of producers with taxer environmental 

controls or as a means to encourage other countries to 

accept one's own environmental standards, are both 

dangerous for the international trading system and 

unlikely to be the best means of achieving 

environmental ends. In that regard, the Secretariat 

21 
observed that environmental regulations are just one of 

many policy areas on which the GATT has remained 

silent, even though differences in such policy areas 

among nations may have an impact on international 

competitiveness. (Other such areas include tax, social 

welfare, and labor.) 214 

In June 1991 the economics and trade Ministers of 

the OECD endorsed a joint committee report that 

identifies major connections between the policy areas 

of trade and the environment. (For additional 

discussion, see chapter 3, "Organization for Economic 

Cooperation and Development" section.) The 

Ministers directed the OECD to continue its initial 

work on trade and environment issues and called for a 

progress report at the 1992 OECD ministerial meeting. 

In an effort to forge common, organization-wide 

positions on issues related to UNCED, the environment 

and development Ministers met jointly in December 

1991. 

Reflecting the growing awareness of the linkage 

between trade and environmental policy, U.S. 

authorization of the negotiation of a North American 

Free-Trade Agreement among the United States, 

Canada, and Mexico was linked to the initiation of a 

series of steps intended to address environmental 

concerns. After the President's announcement in 1990 

that the United States would commence free-trade talks 

with Mexico, environmental and labor activists in all 

three negotiating countries voiced strong concerns 

about the impact that the negotiation of a NAFTA 

would have on environmental, safety, and health 

protections 2 15They argued that a free-trade 

agreement would encourage many U.S. companies that 

pollute to move to Mexico, where enforcement of 

environmental regulations is considered to be less strict 

than in the United States. They further expressed 

concern that the competition for investment among 

jurisdictions in a free-trade area could push standards 

and compliance to the lowest common denominator. 216 

 Some environmental groups also pointed to the 

possibility that a free-trade agreement would ease the 

importation into the United States of environmentally 

unsafe products, such as agricultural products with 

high levels of pesticides. A coalition of consumer and 

environmental groups has sued the Office of the United 

States Trade Representative, thus far unsuccessfully, to 

force the U.S. Government to file an 

environmental-impact statement on the effects of the 

NAFTA.217 

The allegedly inadequate enforcement of 

environmental standards in Mexico created the real 

possibility, in the views of environmental groups and 

others, of cost advantages that would encourage U.S. 

firms to relocate, to the detriment of environmental 

protection.2 I8Furthermore, there was particular 

concern about the impact of a NAFTA on the border 

"maquiladora" region between the United States and 

Mexico, portions of which are already regarded as 

highly polluted. The maquiladora region has served as 

a home to foreign-owned production facilities, or 

maquilas, since the adoption of Mexico's Border 

Industrialization Program in 1965. Among other 

concerns, it was feared that the increased volumes of 

trade expected under the NAFTA would lead to further 

degradation of this environment as well as the general 

environments of all three NAFTA countries. 

Congress raised these issues in a letter to the 

President from Senator Bentsen and Representative 

Rostenkowski, in their capacity as Chairmen of the 

Senate Finance and House Ways and Means 

Committees, and from House Majority Leader 

Gephardt. In May 1991, the President issued a 

response to Congress in which he committed the 

administration to a review of U.S.-Mexican 

environmental issues 2! 9In addition, the President 

agreed to ensure the participation of U.S. Government 

environmental experts during NAFTA negotiations of 

any environment-related provision; to pursue with 

Mexico a comprehensive environmental program 

independent of, but parallel to, acttial NAFTA 

negotiations; and to broaden the private-sector 

trade-negotiation process to include individuals with 

environmental expertise. Several moves were made in 

this direction, among them the appointment, on August 

16, of five environmental experts to trade negotiations 

advisory committees on agricultural, intergovernmental, investment, industry, and services policy. 

The administration also pursued an independent 

review of U.S.-Mexican environmental issues. This 

review featured an analysis of the possible 

environmental effects of a NAFTA. USTR coordinated 

the effort with the assistance of such agencies as the 

U.S. Environmental Protection Agency (EPA), the 

Food and Drug Administration, the Fish and Wildlife 

Service, the Council of Economic Advisors, the Office 

of Management and Budget, and the Departments of 

State, Agriculture, Treasury, Justice, Commerce, 

Transportation, Labor, and the Interior. 22° A round of 

public hearings on the desirability, agenda, and 

economic effects of a NAFTA—which included 

substantial testimony on the agreement's potential 

effects on the environment—was held from August 21 

to September 11 in six cities. 221 The interagency 

group issued a draft of the promised environmental 

study, Review of U.S.-Mexico Environmental Issues, on 

October 15; the group issued its final report on 

February 25, 1992. 222 

The report reviews all aspects of the U.S.-Mexican 

environmental relationship and the effect a free-trade 

agreement may have on border pollution, air and water 

quality, toxic chemical control, waste, chemical 

emergencies, and wildlife and endangered species. It 

concludes that a NAFTA would likely ameliorate, not 

exacerbate, environmental conditions along the 

U.S.-Mexican border. The interagency group found 

that, although growth in or outside the border area as a 

result of a NAFTA may lead to certain adverse 

environmental impacts, any negative consequences 

will be offset by the advantages that stimulation of 

economic growth will have on improving 

environmental protection. In this respect, the report 

suggests that it is easier to raise environmental 

22 
protection in a growing economy, as growth allows 

companies to invest in the latest environmental 

technology (e.g., pollution-abatement controls), 

provides more government revenues for addressing 

public infrastructure aspects of environmental 

protection (e.g., sewage treatment, water-supply 

facilities), and reduces the burden of government's 

other human services responsibilities, which compete 

with the environment for scarce funding. 223 

With respect to border pollution, the report 

concludes that economic growth and industrialization 

in the border region are likely to continue irrespective 

of NAFTA. Accordingly, it stresses the importance of 

the completion and implementation of the 

U.S.-Mexican Integrated Border Environmental Plan 

independent of NAFTA negotiations. The project had 

been planned and was under way before the President 

requested fast-track authority to pursue a NAFTA. The 

Border Plan, a draft of which was released in August 

1991, contains air-quality improvement measures, 

provides for increased investment in waste-water 

treatment plants, places greater restrictions on 

transborder hazardous waste shipments, and calls for 

the hiring of more enforcement officials by Mexico's 

environmental protection agency, the Secretariat of 

Urban Development and Ecology (SEDUE). 

In further response to the environmental concerns 

raised by the NAFTA negotiations, the U.S. 

Government established a position for an EPA 

representative at the U.S. Embassy in Mexico. This is 

the first EPA position created at any U.S. Embassy. 

One function of the U.S. representative will be to work 

with SEDUE on enforcement of environmental laws 

and regulations in Mexico. 

23 
ENDNOTES 

1For a discussion of these disagreements, see 

Operation of the Trade Agreements Program (OTAP), 

42nd Report, 1990, USITC publication 2403, July 

1991. 

2President, "Remarks Announcing the Enterprise 

for the Americas Initiative," Weekly Compilation of 

Presidential Documents, June 27, 1990, pp. 

1009-1013. 

3U.S. House of Representatives, Committee on 

Ways and Means, Subcommittee on Trade, 

Ambassador Carla A. Hills, testimony before the 

subcommittee, 102d Cong., 1st sess., Feb. 20, 1991. 

4 Such "fast-track" authority assures the 

President that Congress will either pass or veto 

implementing legislation for a trade agreement 

without amendment within 90 session days. In return 

the President agrees to consult actively with 

Congress and the private sector throughout the 

negotiation of the trade agreement. Before the 

President made his request, fast-track authority had 

been set to expire May 31, 1991. The 1988 

legislation calls for an automatic 2-year extension of 

fast-track authority, provided that (1) the President 

submits his request for renewal to Congress with a 

report on progress made in the negotiations by 

March 1, 1991; and (2) the request is not overridden 

by a vote of Congress. Omnibus Trade and 

Competitiveness Act of 1988, sec. 1101-A, 19 U.S.C. 

2903(b). 

5H.R. Res. 146, 102nd Congr., 1st sess., 1991. 

6S. Res. 78, 102nd Cong., 1st sess., 1991. 

7President, Response of the Administration, May 

1, 1991, p. 1. 

8By this time, the three had already chosen the 

individuals who would serve as chief negotiators in 

the NAFTA talks. Deputy United States Trade 

Representative Julius Katz was designated chief 

negotiator for the United States, John Weekes was 

chosen to represent Canada, and Herminio Blanco 

was to negotiate for Mexico. 

9 U.S. Department of Commerce, International 

Trade Administration, Mexigram, July 1991. 

10 For additional information, see "Free Trade 

Negotiators Name 17 Working Groups," North 

American Report on Free Trade, June 24, 1991, p. 2. 

11Office of the United States Trade 

Representative (USTR), "The Negotiating Groups," 

Nov. 1991. 

12For additional information, see "Trade 

Negotiators Report Progress on NAFTA Agreement," 

International Trade Reporter, Aug. 21, 1991, p. 1236. 

13 NAFTA Review, USTR, vol. 1, No. 1 (Jan. 

1992). 

14USTR, 1992 Trade Policy Agenda and 1991 

Annual Report of the President of the United States 

on the Trade Agreements Program, 1992, p. 65. For 

additional information, see "Trade Negotiations Reach 

New Stage at Trilateral Ministerial Talks in Mexico," 

U.S.-Mexico Free Trade Reporter, Nov. 4, 1992, p. 1. 

15 NAFTA Review, USTR, vol. 1, No. 1 (Jan. 

1992). For additional background information, see 

"Salinas Is Expected to Pressure Bush for Quick 

Conclusion of NAFTA Talks," U.S.-Mexico Free Trade 

Reporter, Dec. 2, 1991, p. 1. 

16Ibid. 

17President, Response of the Administration, 

May 1, 1991. 

18Statistics from U.S. Department of Commerce, 

Office of Mexico, Feb. 1, 1992. 

19 Report of the Working Party on the Accession 

of Mexico, adopted on July 15, 1986, GATT, Basic 

Instruments and Selected Documents, 33d supp., 

Protocols, Decisions, Reports, 1985-1986 and 42nd 

sess., June 1987, p. 59. 

20 USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 68. 

21Based on official statistics of the U.S. 

Department of Commerce. 

22 U.S.-Canada Free-Trade Agreement, ch. 4, art. 

401 (1). 

23USTR, "The Negotiating Groups," Nov. 1991. 

24Three phaseout periods—ending January 1, 

1989, January 1, 1993, and January 1, 1998—were 

used in the CFTA. For additional information, see 

"'Extra-Long' Phaseout Period May Be Added for 

Tariff Reductions," U.S.-Mexico Free Trade Reporter, 

Oct. 7, 1991, p. 1. 

25USTR, "The Negotiating Groups," Nov. 1991. 

26 NAFTA Review, USTR, vol. 1, issue 1 (Jan. 

1992). 

27USTR, "The Negotiating Groups," Nov. 1991. 

28 For a detailed discussion of this issue, see 

U.S. International Trade Commission, Rules of Origin 

Issues Related to NAFTA and the North American 

Automotive Industry (investigation No. 332-314), 

USITC publication 2460, Nov. 1991, p. vii. 

29Derived from official U.S. Department of 

Commerce statistics. 

30 Agreement Concerning Automotive Products 

Between the Government of the United States of 

America and the Government of Canada, Jan. 16, 

1965, 17 U.S.T. 1372. 

31The rates are lowered by foreign trade zones 

and tariff provisions that impose no duties on parts of 

U.S. origin. 

32For additional information, see USITC, Rules 

of Origin Issues Related to NAFTA, USITC 

publication 2460, p. 6. 

33Executive Decree of Dec. 8, 1989, Diario 

Oficial de la Federacion, Dec. 11, 1989. For further 

discussion, see USITC, Review of Trade and 

Investment Liberalization Measures by Mexico and 

Prospects for Future United States-Mexican 

Relations, (investigation No. 332-282), USITC 

publication 2275, Apr. 1990, pp. 4(9)-4(11), and 

USITC, The Likely Impact on the United States of a 

Free Trade Agreement with Mexico (investigation No. 

24 
332-297), USITC publication 2353, Feb. 1991, pp. 

4(17)-4(22). 

34 General Motors, Chrysler, Ford, Volkswagen, 

and Nissan all operate plants in Mexico. 

35 Rules of became a subject of heated 

debate in a related context when, in early 1992, the 

U.S. Customs Service ruled that Canadian-made 

Honda Civics failed to meet local-content 

requirements for duty-free export. The Customs 

Service requested $17 million in back duties from 

Honda North America. 

ss USTR, "The Negotiating Groups," Nov. 1991. 

37 Statistics from U.S. Department of Commerce, 

Office of Mexico, Feb. 1, 1992. 

38 Mexican Constitution, art. 27, sec. 1. 

39 This figure can be increased if greater foreign 

ownership is deemed in the national interest. 

40 For further discussion of this topic, see USITC, 

Review of Trade and investment Liberalization 

Measures by Mexico (investigation No. 332-282), 

USITC publication 2275, pp. 5-7, 5-8. 

41 Gist, U.S. Department of State, Jan. 14, 1992, 

p. 2. 

42 USTR, 1992 Trade Policy Agenda and 1992 

Annual Report, 1992, p. 67. 

43 U.S.-Canada Free-Trade Agreement, ch. 16, 

arts. 1602-1611. 

44 These principles were to incorporate "the 

principles customarily included in bilateral investment 

treaties, such as national treatment, right of 

establishment, right to repatriate profits, guarantees 

against unfair expropriation, and access to arbitration 

for settlement of disputes." USTR, "The Negotiating 

Groups,' Dec. 1991. For a discussion of the U.S. 

Bilateral Investment Treaty (BIT) program and model 

BITs, see USITC, OTAP, 1983, USITC publication 

1535, June 1984, pp. 36-43. 

45 According to Assistant USTR for North 

American Affairs Charles E. Roh, Jr., the U.S. 

negotiators sought "an open, nondiscriminatory 

investment environment in Mexico, free of 

performance requirements and investment restrictions 

that distort trade and investment flows." U.S. House 

of Representatives, Committee on Banking, Finance, 

and Urban Affairs, Subcommittee on International 

Development, Finance, Trade, and Monetary Policy, 

testimony before the Subcommittee, Apr. 16, 1991. 

46 USTR, "The Negotiating Groups," Nov. 1991. 

47 Under the CFTA, rules governing financial 

services are designed to preserve, and in some 

cases increase, access for both U.S. and Canadian 

banks to each other's markets. One exception is the 

retention of Canada's 10-percent limitation on any 

individual resident or nonresident shareholder in a 

Canadian bank. This limitation, which applies to 

Canada's larger banks, is designed to ensure 

Canadian ownership of these banks. 

48 Regulation of May 15, 1989, Diario Oficial de 

la Federacion, May 16, 1989; Regulation of Jan. 25, 

1990, Diario Oficial de la Federacion, Jan. 26, 1990. 

k 49 U.S. Department of the Treasury, National 

Investment Study, 1990, pp. 277-278. 

50 Regulation of May 15, 1989, Diario Oficial de 

la Feoeracion, May 16, 1989. For additional 

discussion of this issue, see USITC, Likely Impact of 

an FTA With Mexico, USITC publication 2353, pp. 

4(41)•4(42); USITC, OTAP, 1990, USITC publication 

2403, July 1991, pp. 132-133; and Kraus, James R., 

"U.S. Banks Say Free Trade Means Open U.S. 

Market," North American Report on Free Trade, May 

27, 1991, p. 6. 

51 U.S. House, Roh testimony, Apr. 16, 1991. 

52 For additional information, see "Mexico's 

Financial Services Proposal Would Limit Foreign 

Subsidiaries," U.S.-Mexico Free Trade Reporter, 

Feb. 24, 1992, p. 1. 

53 USTR, "The Negotiating Groups," Nov. 1991. 

Another effort to enhance cross-border transportation 

was made through the late 1991 signing of a 

Memorandum of Understanding between the United 

States and Mexico that became effective April 1, 

1992. It allowed for recognition of each country's 

commercial driver's licenses by the other, and 

ensured that bus and truck drivers from both nations 

would have comparable safety and operating skills. 

Department of Transportation, Federal Highway 

Administration, 49 C.F.R., part 383; RIN 2125-AC 98. 

54 USTR, "The Negotiating Groups," Nov. 1991. 

55 U.S.-Canada Free-Trade Agreement, ch. 20, 

art. 2005(1). 

56 On July 11, Ambassador Hills noted that in the 

case of cultural industries, "we (the United States 

and Canada] just agreed to disagree, and we still 

disagree. . . If we can make improvements and 

enhance the competitiveness of this region, then of 

course we will do so." However, she said, "we are 

not walking away from the Canada FTA." For 

additional information, see "Hills Doubts Trade Pact 

Threatens Canada's Culture," North American Report 

on Free Trade, July 22, 1991, p. 1. 

57 USTR, "The Negotiating Groups," Nov. 1991. 

58 The CFTA provides highly specific lists of 

professions and activities that are allowable under 

this provision. U.S.-Canada Free-Trade Agreement, 

ch. 15, art. 1502 (1). 

59 The latest Mexican legislation on standards is 

the Federal Law on Metrology and Standardization, 

which became effective on January 26, 1988, the 

date it was published in Mexico's Diario Oficial. For 

additional information, see Kim Frankena, "Role of 

Standards in NAFTA Talks," International Economic 

Review, USITC, Aug. 1991, pp. 12-15. 

60 "Standards in the North American Free Trade 

Agreement," U.S Department of Commerce, Office 

of Mexico, Oct. 17, 1991. 

61 Ibid. 

62 USTR, "The Negotiating Groups," Nov. 1991. 

63 Ibid. 

" GATT, GATT Activities, 1990, p. 119. 

65U.S. -Canada Free-Trade Agreement, ch. 13, 

arts. 1304-1305. 

66 USTR, "The Negotiating Groups," Nov. 1991. 

25 
67 U.S.-Canada Free-Trade Agreement, di. 11, 

arts. 1102-1102. 

" This proviso echoes article 1102 of the 

U.S.-Canada Free-Trade Agreement. For additional 

detail on the U.S. position, see USTR, "The 

Negotiating Groups," Nov. 1991, p. 4. 

69 U.S.-Canada Free-Trade Agreement, ch. 18, 

arts. 1806-1807. 

70U.S.-Canada Free-Trade Agreement, ch. 19, 

art. 1904(1). 

71 USTR, "The Negotiating Groups," Nov. 1991, 

P. 8. 

72 According to USTR, "the objective of Special 

301 is to enhance the Administration's ability to 

negotiate improvements in foreign intellectual property 

regimes through bilateral and/or multilateral 

initiatives." The law requires USTR to identify "those 

foreign countries that deny adequate and effective 

protection of intellectual property rights, or deny fair 

and equitable market access for U.S. persons relying 

on intellectual property protection, and to determine 

which of those countries are priority foriegn 

countries." Trading partners not named as "priority 

foreign countries" but whose environment for 

protection of intellectual property rights is of concern 

to the United States may be placed on a "priority 

watch list" or a "watch list." Trading partners 

designated as a "priority foreign country" are subject 

to a 6-month section 301 investigation and face 

possible retaliation. For more details, see USTR, 

"Fact Sheet: 'Special 301' on Intellectual Property." 

Apr. 26, 1991. For a discussion of Special 301, see 

USITC, OTAP, 1989, USITC publication 2317, Sept. 

1990, pp. 6-7. 

73 U.S House, Committee on the JudiCiary, 

Subcommittee on Intellectual Property and Judicial 

Administration, statement of Ambassador Carla A. 

Hills, May 15, 1991. 

74 The Law of Development and Protection of 

Industrial Property, Diario Oficial de la Federacion, 

June 27, 1991. 

75 Executive Decree of July 11, 1991, Diario 

Oficial de la Federacion, July 17, 1991. 

76 For additional information, see "Some U.S. 

Firms Seek Changes in Mexican Patent, Copyright 

Laws," U.S.-Mexico Free Trade Reporter, July 26, 

1991, p. 2. 

77 USTR, "The Negotiating Groups," Nov. 1991. 

78 This remains the case even though U.S. 

imports of crude petroleum decreased from more 

than half of total U.S. imports from Mexico in 1982 to 

17.6 percent in 1990. For additional discussion of 

this trend, see USITC, OTAP, 1990, USITC 

publication 2403, July 1991, p. 130. 

79 Mexican Constitution, art. 27. A pressing need 

for capital has, however, led PEMEX to engage in 

some joint ventures in oil exploration and 

petrochemical processing with foreign companies. 

For additional information, see "Mexicans Debate 

Whether Oil Is Subject of Free Trade Talks," 

U.S.-Mexico Free Trade Reporter, July 26, 1991, 

p. 6. 

80For a discussion of Mexico's privatization 

efforts in 1990, see USITC, OTAP, 1990, USITC 

publication 2403, July 1991, pp. 132-133. See also 

chapter 4, "Mexico" section. 

81 For additional information, see "Trilateral FTA 

Negotiations Get Under Way," Washington Trade 

Daily, June 17, 1991, p. 1. 

82President Salinas, 3d State of the Nation 

Report, Nov. 2, 1991. For additional information, see 

"Salinas Vows Not To Give In on Energy, Sees 

Agriculture and Education as Key," U.S.-Mexico Free 

Trade Reporter, Nov. 18, 1991, p. 3. 

83 For additional information, see Damian Fraser, 

"Mexicans Resist US on Oil," Financial Times, Dec. 

18, 1991. 

" U.S. Department of Commerce, Office of 

Mexico, Feb. 1, 1992. 

85 President, Reponse of the Administration, May 

1, 1991, p. 3. 

86 USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, pp. 67-68. 

87 U.S. Department of Agriculture, Annual 

Agricultural Outlook Conference, remarks by 

Ambassador Carla A. Hills, Dec. 3, 1991. The U.S. 

position on agriculture made it likely that Canada, 

which maintains an extensive supply management 

system for such commodities as dairy products, 

would exempt itself from agricultural agreements 

made under the NAFTA. The supply management 

system had been permitted to continue under the 

CFTA. 

88 USTR, "The Negotiating Groups," Nov. 1991. 

89U.S.-Canada Free-Trade Agreement, ch. 7, 

art. 702. 

9° For additional information, see "Proposed 

Safeguard Would Use 'Tariff-Rate Quotas,' Not 'Snap 

Backs,'" U.S.-Mexico Free Trade Reporter, Feb. 24, 

1992, pp. 4-5. 

91 President, Response of the Administration, 

May 1, 1991, p. 11. 

92 For a discussion of these issues, see Kim 

Frankena and Allen Ruby, "Food Safety Issues in 

NAFTA," International Economic Review, Sept. 1991, 

pp. 12-16. 

93 The ejido system has historically been viewed 

as one of the most important outcomes of the 

1910-17 Mexican Revolution. For additional 

information, see "Salinas' Land Reform Proposals 

Would Reverse Years of Mexican Law," U.S.-Mexico 

Free Trade Reporter, Nov. 18, 1991, p. 6. 

" For background information, see USITC, 

OTAP, 1990, USITC publication 2403, July 1991, 

p. 130. See also USITC, The Impact of Increased 

United States-Mexico Trade on Southwest Border 

Development (investigation No. 332-223), USITC 

publication 1915, Nov. 1986. 

88President, Response of the Administration, 

May 1, 1991, p. 3, citing Interindustry Economic 

Research Fund, Inc., Industrial Effects of a Free 

Trade Agreement Between Mexico and the USA, 

1990. This study is known as the Clopper Almon 

study. 

26 
96Gary Clyde Hufbauer and Jeffrey J. Schott, 

North American Free Trade: Issues and 

Recommendations, Institute for International 

Economics, 1992, p. 110. 

97Over 5 years. Interindustry Economic 

Research Fund, Inc., Industrial Effects of a Free 

Trade Agreement Between Mexico and the USA 

(Clopper Almon study), research summary by Clinton 

R. Shiells and Robert C. Shelburne, U.S. Department 

of Labor, Mar. 12, 1991, pp. 4-9. 

98Hufbauer and Schott, North American Free 

Trade, p. 110. 

99Jeff Faux and William Spriggs, "U.S. Jobs and 

the Mexico Trade Proposal," Briefing Paper, 

Economic Policy Institute, May 1991, p. 1. 

100The opposition voiced by U.S. and Canadian 

labor was not, however, shared by Mexican 

organized labor. In April the Mexican Workers 

Confederation, which boasts 5.5 million members and 

is the country's largest trade union, endorsed . 

President Salinas' initiatives. Sovereign Assessment 

Group, "North American Free Trade Agreement: 

Prospects Improve Dramatically," Salomon Brothers, 

June 20, 1991, p. 3. 

101President, Response of the Administration, 

May 1, 1991, pp. 6-9. 

1°2 NAFTA Review, USTR, vol. 1, issue 1 (Jan. 

1992), p. 3. 

103For additional information, see "Hills Says No 

Deadline Has Been Set for NAFTA Talks," 

international Trade Reporter, June 19, 1991, p. 935. 

104Sovereign Assessment Group, "North 

American Free-Trade Agreement: Prospects Improve 

Dramatically," Salomon Brothers, June 20, 1991, p. 5. 

105For a discussion of how near to agreement 

the 15 negotiating groups were at the end of the 

Brussels Ministerial, see OTAP, 1990, USITC 

publication 2403, July 1991, pp. 1-3. 

106The final act will be the agreement that will 

encompass all negotiations reached and that will be 

implemented by national governments. 

107 GATT, "News of the Uruguay. Round of 

Multilateral Trade Negotiations," press release No. 

49, Aug. 6, 1991, pp. 2-3. 

108 GArr, 

p. 2. 

109 GAR Draft Final Act Embodying the Results 

of the Uruguay Round of Multilateral Trade 

Negotiations, MTN.TNC/W/FA, Dec. 20, 1991. 

110The lists of trade restrictions to be removed 

by each country as well as time schedules for their 

removal. 

111Notwithstanding a number of attempts at even 

the highest political levels, including discussions 

between the President of the United States and the 

President of the EC Commission, President of 

France, and the Chancellor of Germany, no 

conclusion to the Round was forthcoming as of 

mid-1992. 

112GATT, GATT Focus, No. 87, Jan.-Feb. 1992, 

p. 2. 

113GATT, Draft Final Act. 

114For another discussion of the Dunkel text, 

see U.S. Department of Commerce, Uruguay Round 

Update, Apr. 1992. 

115For background information, see William 

Dullforce, "Paris Quick to Oppose GATT 

Conclusions," Financial Times, Dec. 19, 1991, p. 6; 

"Farm Issue Is Still Snarling Trade Session," Chicago 

Tribune, Dec. 19, 1991, p. 2-1. 

116For background information, see Keith M. 

Rockwell, "EC Council Rejects Proposal on Farm 

Subsidy," Journal of Commerce, Dec. 24, 1991, 

p. A-1. 

117For further background, see GATT, "News of 

the Uruguay Round of Multilateral Trade 

Negotiations," press release No. 41, Oct. 9, 1990, 

pp. 11-12. 

118President, Report to the Congress on the 

Extension of Fast Track Procedures, Mar. 1, 1991, 

annex, pp. 55-56. 

119Ibid., pp. 55-56; U.S. delegation in Brussels, 

Uruguay Round Daily Report, "Report on Additional 

Issues," Brussels, Dec. 3, 1990, p. 6. 

12°See Ambassador Rufus Yerxa, "GATT 

Ministerial: U.S. Briefing Transcript," Brussels, Dec. 

4, 1990, p. 13. 

121President, Report to the Congress on the 

Extension of Fast Track Procedures, Mar. 1, 1991, 

annex, p. 56. See also Ambassador Rufus Yerxa 

and Jeffrey Shane, Assistant Secretary for Policy and 

International ;Affairs, U.S. Deptartment of 

Transportation, "GATT Ministerial: U.S. Briefing 

Transcript," Brussels, Dec. 3, 1990, p. 2. 

122The antidumping duties are likely to be levied 

on imports if their imported sales price is below the 

price prevailing for the same good on its home 

market. Foreign exporters therefore have an 

incentive to avoid importing the completed product, 

already assembled, by setting up assembly plants 

abroad where the good is to be marketed; they 

import nearly complete component parts for final 

assembly at the final market destination. 

123These areas include beer, electronics, 

construction equipment, fish, nonferrous metals, 

paper, pharmaceuticals, steel, and wood. 

124U.S. Congress, Office of Technology 

Assessment (OTA), Trade and the Environment: 

Conflicts and Opportunities, OTA-BP-ITE-94 

(Washington, DC: GPO, May 1992). 

125GATT, Trade and the Environment, 

GATT/1529, Feb. 3, 1992, derestricted Feb. 12, 

1992, p. 2. 

126Organization for Economic Cooperation and 

Development (OECD), Joint Report on Trade and 

Environment, OECD/GD(92)25, June 1991, 

derestricted in Feb. 1992, p. 7. 

127Ibid., p. 8. In its report on Trade and the 

Environment, p. 39, OTA observes, "As the scale and 

rate of economic growth increases, environmental 

degradation may outpace environmental gains made 

through the use of environmentally preferable 

technology." 

128For a general discussion of interrelated issues 

see, for example, comments of Gary Stanley, Esq., 

GATT Focus, No. 87, Jan.-Feb. 1992, 

27 
American Bar Association Conference on 

International Environmental Law: Recent 

Developments and Implications, Oct. 31-Nov. 1, 1991. 

129For a discussion, see GATT, Trade and the 

Environment, pp. 32-35, and OTA, Trade and the 

Environment, pp. 40-42. 

139GATT, Trade and the Environment, p. 17; 

OTA, Trade and the Environment, p. 8. On pages 

20-21 of the GATT report the GATT Secretariat 

states that "empirical studies generally suggest 

caution in asserting that cost differences due to 

differences in environmental regulations are 

substantial, or that trade and investment effects 

within particular industries are large." However, it 

continues, there is "limited evidence of cross border 

relocation of business firms in response to national 

differences in environmental policy climates." 

131OECD, Joint Report on Trade and 

Environment, p. 8. 

132See, for example, James Cameron and Juli 

Abouchar, "The Precautionary Principle: A 

Fundamental Principle of Law and Policy for the . 

Protection of the Global Environment," Boston 

College International and Comparative Law Review, 

vol. XIV, No. 1 (1991), p. 2, as cited in OTA, Trade 

and the Environment, p. 63. 

133OECD, Joint Report on Trade and 

Environment, p. 5. 

134For a discussion, see Ibid., p. 11, and GATT, 

Trade and the Environment, p. 8. 

135OTA, Trade and the Environment, p. 59. 

136OECD, Joint Report on Trade and 

Environment, p. 5. 

137GATT, Trade and the Environment, p. 17. 

138 Ibid. For example, article 18 of the EC's 

Single European Act, adding article 100A to the 

Treaty of Rome, requires the EC Commission "to 

take as a base a high level of protection" when 

preparing proposals concerning the protection - of 

health, safety, environment, or consumers. 

139Charles S. Pearson and Robert Repetto, 

"Reconciling Trade and the Environment: The Next 

Steps," paper prepared for EPA, National Advisory 

Council on Environmental Policy and Technology, 

Trade and Environment Committee, Dec. 1991, pp. 

11-12. 

140 Pub. Law 101-549, sec. 811(b), 

• 41For a discussion, see OTA, Trade and the 

Environment, p. 32; OECD, Joint Report on Trade 

and Environment, p. 6; and GATT, Trade and the 

Environment, p. 17. 

142OECD, Joint Report on Trade and 

Environment, p. 6. 

143See, for example, Peter A.G. van Bergeijk, 

"International Trade and the Environmental 

Challenge," Journal of World Trade, vol. 25, No. 6 

(Dec. 1991). The concept of tradeable emission 

permits is a central feature of the recently adopted 

U.S. Clean Air Act Amendments of 1990. 52 U.S.0 

7401-7671q (1990). 

144The OECD, on page 9 of its Joint Report on 

Trade and Environment„observes that "stringent 

regulations can contribute to trade competitiveness 

through encouraging the use of more efficient 

production technologies and the sale of 

environmental products and services." A 1986 OTA 

report reaches a similar conclusion. See U.S. 

Congress, OTA, Serious Reduction of Hazardous 

Waste: For Pollution Prevention and Industrial 

Efficiency, OTA-ITE-307 (Washington, DC: GPO, 

Sept. 1986), pp. 6, 20, 77. 

145Michael Porter, The Competitive Advantage of 

Nations (London: MacMillan, 1990), pp. 647-648. 

146GATT; Trade and the Environment, p. 2. 

147For a discussion see, for example, Louis B. 

Sohn, "From the Hills of Tennessee to the Forests of 

Brazil: A Short History of International Environmental 

Law," ch. in International Environmental Law: Recent 

Developments and Implications (Chicago: American 

Bar Association, 1991). 

145For a discussion see, for example, Elizabeth 

P. Barrett-Brown. "Building a Monitoring and 

Compliance Regime Under the Montreal Protocol," 

Yale Journal of International Law, vol. 16, No 2 

(summer 1991). pp. 519-521. 

149 ibid. 

10GATT, Trade and the Environment, p. 3. For 

a compendium of definitions of the term "sustainable 

development," see D.W. Pearce, E.B. Barbier, and A. 

Markyardya, Sustainable Development: Environment 

and Economics in the Third World (London: Edward 

Eiger, 1989). 

151For a discussion, see C. Ford Runge, "Trade 

Protectionism and Environmental Regulations: The 

New Nontariff Barriers," Northwest Journal of 

International Law and Business, vol. 11, No. 1 

(1990), p. 52; U.S. Senate, Committee on Finance, 

Subcommittee on International Trade, Dr. Joseph 

LaDou. testimony before the subcommittee, 102d 

Cong., 1st sess., Oct. 25, 1991 (LaDou testimony). 

152United Nations, World Commission on 

Environment and Development. Our Common Future, 

1987, p. 84, quoted in J. Patrick Adcock and Judith 

T. Kildow, "Environment and the Trading System," 

The Fletcher Forum, vol. 16, No. 1 (winter 1992). 

153U.N. Resolutions 42/186 and 42/187. Sohn. 

"From the Hills of. Tennessee," pp. 55 and 59. 

154U.N. General Assembly, "Structure and 

Organization of Agenda 21," report of the 

Secretary-General of UNCED, July 9, 1991. The 

three issues that received the most attention at the 

summit were climate, as addressed in the Global 

Warming Treaty; biodiversity (i.e., preservation of 

plant and animal life), and forestry, as addressed in 

the Global Forestry Convention. 

155Consortium for Action to Protect the Earth 

(composed of the Environmental Defense Fund, 

Friends of the Earth, the Audubon Society, the 

National Wildlife Federation, the Natural Resources 

Defense Council, and the Sierra Club), "Working 

Paper on Reform of Global Environmental 

Institutions," June 10, 1991. 

156 Treaty of Rome, art. 130t. 

• 

28 
157European Court of Justice, Case 302/86, 

Commission vs. Denmark, judgement of Sept. 20, 

1988. 

158 European Report, No. 1578, (Mar. 1, 1990) 

Internal Market, p. 2. For a discussion see OTA, 

Trade and the Environment, pp. 89-90. 

159For a thorough discussion of these statutes 

and their international trade implications, see Ted L. 

McDorman, "The GATT Consistency of U.S. Fish 

Import Embargoes to Stop Driftnet Fishing and Save 

Whales, Dolphins, and Turtles," George Washington 

Journal of International Law and Economics, vol. 24, 

No. 77 (1991). 

160 Pelly amendment, Pub. L. No. 92-219, 85 

Stat. 786 (1954), codified as amended at 22 U.S.C. 

1978 (1988). Fisherman's Protective Act of 1967, 

22 U.S.C. 1971-1980 (1988). 

161 McDorman, "GATT Consistency of U.S. Fish 

Import Embargoes," pp. 482-485. To date all 

Presidential invocations of the Pelly amendment have 

concerned marine protection. 

162Under regulations promulgated by the 

Department of Commerce, the ban applies to imports 

of halibut, salmon, and yellowfin tuna and products 

containing these fish. 50 CFR 216.24(e) (1990). 

16316 U.S.C. 1371. 

164McDorman, "GATT Consistency of U.S. Fish 

Import Embargoes," pp. 492-493. For example, the 

1984 amendments required exporting countries to 

show that their regulatory programs governing the 

incidental intake of marine mammals and the average 

rate of incidental taking of marine mammals per 

foreign vessel were comparable with that of the 

United States. H. Rept. No. 758, 98th Cong. 2d 

sess., reprinted in U.S. Code Congressional & 

Administrative News, pp. 635, 640-641. The 1988 

amendments added more detail to the regulatory 

program that must be matched by the foreign 

government and added provisions that prevent 

circumvention of a U.S. embargo by transporting tuna 

through an intermediary country. 16 U.S.C. 

1371(a)(2)(B),(C)• 

165Driftnet Act Amendments, Pub. L. No. 

101-627 (1990), codified at 16 U.S.C. 1826. 

Large-scale driftnets are used on the high seas 

primarily to harvest tuna, but they are also used to 

harvest salmon and squid. The use of driftnets has 

been associated with a high number of deaths of 

nontargeted species, such as dolphins. 

166The Packwood-Magnuson amendment to the 

1976 Magnuson Fishery Conservation and 

Management Act allows the President to impose an 

embargo on all fish imported from a country that 

does not comply with the International Whaling 

Convention. 16 U.S.C. 1821(e)(2) (1988); 22 U.S.C. 

1978(a)(4)(1988). McDorman, "GATT Consistency of 

U.S. Fish Import Embargoes," pp. 478-479. 

167In 1989 Congress amended the 1973 

Endangered Species Act to include a provision 

prohibiting the importation of shrimp or shrimp 

products from countries that do not have regulatory 

programs comparable with the U.S. program for 

protection of sea turtles. Conservation of Sea 

Turtles: Importation of Shrimp, Pub. L. No. 101-162 

609(a), 103 Stat. 1037, 19 U.S.C. 1537 note (1989). 

McDorman, "GATT Consistency of U.S. Fish Import 

Embargoes," pp. 479, 495-496. 

168Pub. L. No. 100-220, 4004-4009, 101 Stat. 

1477, 1478-80, 16 U.S.C. 1822 note (1987). 

169Driftnet Act Amendments, Pub. L. No. 

101-627, sec. 107, 104 Stat. 4436, 4441, 16 U.S.C. 

1826 (1990). 

170H.R. Rep. No. 2152, 102d Cong. 2d sess. 

(1991), introduced on April 30, 1991. The bill would 

deny driftnet fishing vessels access to U.S. ports and 

bar the importation of fish, fish products, and sport 

fishing equipment from countries that use large-scale 

driftnets. 

171Various resolutions passed by the 102d 

Congress underline the desire of Congress to ensure 

that environmental interests are considered when 

negotiating trade agreements. For example, H.R. 

146 indicated that the United States under NAFTA 

must be able to maintain and enforce strict health 

and safety standards for imported agricultural 

products and emphasized the importance of a joint 

border environmental program. House Concurrent 

Resolutions 246, 227, and 247 urge the President to 

ensure that U.S. obligations under the GATT do not 

undermine U.S. environmental laws, notably the 

Marine Mammal Protection Act. 

172"The International Pollution Deterrence Act," 

S. 984, 102d Cong., 1st sess. (1991). 

173LaDou testimony. 

174Adcock and Kildow, "Environment and the 

Trading System." 

175GATT, Trade and the Environment, p. 11. 

For a description of such agreements see USITC, 

International Agreements to Protect the Environment 

and Wildlife, (investigation No.332-287), USITC 

publication 2351, Jan. 1991. 

176For a fuller description of the CITES treaty, 

see Ibid., pp. 5-29 to 5-33. 

177McDorman, "GATT Consistency of U.S. Fish 

Import Embargoes," pp. 484-490. 

178 International Legal Materials, vol. 26 (Sept. 

16, 1987), pp. 1541, 1544. 

179 International Legal Materials, vol. 28 (Mar. 22, 

1989), p. 657. 

180See, for example, Barratt-Brown, "Building a 

Monitoring and Compliance Regime," and U.S. 

Department of Justice, "A Comprehensive Approach 

to Addressing Potential Climate Change," Report of 

the Task Force on the Comprehensive Approach to 

Climate Change, Feb. 1991. 

181Barratt-Brown, "Building a Monitoring and 

Compliance Regime." 

182OTA, Trade and the Environment, p. 9. 

183Lori B. Talbot, "Recent Developments in the 

Montreal Protocol on Substances That Deplete the 

Ozone Layer: The June 1990 Meeting and Beyond," 

The International Lawyer, vol. 26, No. 1 (spring 

1992), p. 176. 

184GATT, Trade and the Environment, p. 11. 

185The discussions concerning the drafting of 

this particular exception reportedly focused on export 

29 
rather than import restrictions. Steve Charnovitz, 

"Exploring the Environmental Exceptions in GATT 

Article XX," Journal of World Trade, Oct. 1991, p. 45. 

186For a discussion of potential issues see, for 

example, OTA, Trade and the Environment, chs. 2 

and 4 and app. A; GATT, Trade and the 

Environment, ch. 2; and OECD, Joint Session of 

Trade and Environment Experts, The Use of Trade 

Provisions in International Trade Agreements, 

OECD/COWENV/TD (92) 6, Jan. 29, 1992, draft. 

187GATT, United States—Prohibition of Imports 

of Tuna and Tuna Products From Canada, reprinted 

in GATT, Basic Instruments and Selected Documents, 

Twenty-Ninth Supplement (1983), p. 91. 

1 " GATT, Canada—Measures Affecting Exports 

of Unprocessed Herring and Salmon, reprinted in 

GATT, Basic Instruments and Selected Documents, 

Thirty-Fifth Supplement (1989), p. 98. 

189GAIT, Thailand—Restrictions on Importation 

of and Internal Taxes on Cigarettes, reprinted in 

GATT. Basic Instruments and Selected Documents, 

Thirty-Seventh Supplement (1991), p. 200. 

190GATT, United States—Taxes on Petroleum 

and Certain Imported Substances, reprinted in GATT, 

Basic Instruments and Selected Documents, 

Thirty-Fourth Supplement (1988), p. 160. 

191For a brief overview of the litigation, see 

Earth Island Institute v. Mosbacher, 746 F.2d 964, 

976 (N.D. Cal. 1990), aff'd, 929 F.2d 1449 (9th Cir. 

1991). 

192The text of the panel report is reprinted in 

International Legal Materials, vol. 30, pp. 1594-1623. 

On November 29, 1991, the report was derestricted 

at the joint request of Mexico and the United States. 

193Panel report, par. 5.14. 

194Ibid., par. 5.25. 

195Ibid., par. 5.27. 

196Ibid., pars. 5.27 and 5.32. 

197Ibid., pars. 5.28. 

198"International Dolphin Conservation Act," H.R. 

5419, 102d Cong., 2d sess. (1992). The bill was 

reported out of the House Committee on Merchant 

Marine and Fisheries on July 1, 1992, and marked 

up in the Ways and Means Committee on July 23, 

1992. 

199 Congressional Record, vol. 49, No. 87 (1992), 

p. 4765. 

200 The Standards Code entered into force in 

1980, but only by a limited membership. 

201 GAIT, Trade and the Environment, box 4, 

p. 23. 

202Dunkel text, pp. G-2 and G-3, par. 2.2. 

203 Ibid., p. G-3, ftn. 1. 

204 ibid.,p. L-37, pars. 10 and 11. 

205 Other topics dealt with in the GATT Council's 

May 1991 debate were whether article XX should be 

amended to specifically include measures necessary 

to protect the environment, environmental issues 

related to the patenting of animal and plant varieties 

or their biological processes, and whether the draft 

framework agreement for the General Agreement on 

Trade in Services should include an exemption 

similar to article XX for the environment. For a 

discussion of other possible issues, see OTA, Trade 

and the Environment, pp. 25, 41, and 68. 

206 Dunkel draft, pp. L-20, 8, L-28, L-13, and 

L-17 (par. 10). 

207OTA, Trade and the Environment, p. 63. 

208 For a discussion of possible ramifications of 

the panel ruling, see OTA, Trade and the 

Environment, pp. 46-52. 

209 GATT, Trade and the Environment. 

210 Ibid., p.7. 

211For additional discussion, see Charles S. 

Pearson and Robert Repetto, Reconciling Trade and 

the Environment: The Next Steps (draft, Dec. 1991). 

212Although no measures of this type have been 

challenged under GATT, some of these types of 

measures could be challenged as discriminatory. 

213 GATT 

214 Ibid., p. 20. 

216Labor leaders also objected to fast-track 

authority for negotiation of NAFTA based on 

concerns about other labor issues, such as workers' 

rights. Except to the extent that labor-related 

concerns include worker safety and health, these 

issues are beyond the scope of this discussion. 

216For a discussion see, for example, Peter 

Morici, University of Maine, A Social Charter for a 

North American Free Trade Area? 

217 Public Citizen, Friends of the Earth, and 

Sierra Club v. Office of the United States Trade 

Representative and George Bush, 782 F. Supp. 139 

(D.D.C. 1992). The district court decision was 

appealed to the U.S. Court of Appeals for the District 

of Columbia (No. 92-5010, docketed Jan. 15, 1992), 

where it has been briefed and argued but is awaiting 

decision. 

218It should be noted that the focus of the 

environmentalists' concerns was mainly on the 

enforcement of existing laws rather than on the 

absence of any Mexican environmental laws 

altogether. Since March 1988 Mexico has had on 

the books a comprehensive environmental protection 

law (the Ecologic Equilibrium and Environmental 

Protection Act) as well as implementing regulations, 

but resources for enforcement have been scarce. 

219President, Response of the Administration. 

220 U.S. House, Committee on Small Business, 

Subcommittee on Regulation, Business Opportunities, 

and Energy, Daniel C. Esty, Deputy Assistant 

Administrator for Policy, Planning, and Evaluation, 

U.S. Environmental Protection Agency, testimony 

before the subcommittee, 102d Cong., 1st sess., 

Sept. 30, 1991. 

221U.S. House, Committee on Energy and 

Commerce, Subcommittee on Commerce, Consumer 

Protection, and Competitiveness, Charles Ries, 

Deputy Assistant USTR for North American Affairs, 

testimony before the subcommittee, 102d Cong., 1st 

sess., Oct. 31, 1991. The hearings, held in Seattle, 

Houston, Atlanta, Washington, Cleveland, and 

, Trade and the Environment, p. 10. 

30 
Boston, were conducted by an interagency panel of 

USTR's Trade Policy Staff Committee. 

222U.S. Government Interagency Task Force on 

U.S.-Mexico Environmental Issues, Review of 

U.S.-Mexico Environmental Issues, Feb. 25, 1992. 

223The report states that "without a NAFTA. . . 

the border area could be under as much or more 

[environmental) stress," and that "completion and 

implementation of the NAFTA. . . is likely to 

strengthen the two countries' commitment to 

cross-border environmental cooperation." Ibid., p. 4. 

31 

CHAPTER 2 

The General Agreement on Tariffs 

and Trade and the Tokyo Round 

Agreements 

Operating both as a set of rules drawn up in 1947 

to govern world trade in goods and as an organization 

based in Geneva, Switzerland, that oversees 

administration of these rules, the General Agreement 

on Tariffs and Trade (GATT) provides an ongoing 

forum for discussion among members on trade matters 

in general and interpretation and implementation of the 

GATT rules in particular. Members, known as 

contracting parties! to the general agreement, conduct 

its administration through the GATT Council of 

Representatives. The Council also oversees 

administration of the 1979 Tokyo Round agreements, 

even though these agreements have a limited 

membership and are not actually part of the general 

agreement itself. (See section below for further details 

on the Tokyo Round agreements.) 

The contracting parties meet approximately eight 

times a year on a roughly monthly schedule for GATT 

Council sessions. An annual session is usually held in 

December to review GATT activities of the past year 

and to decide on work plans for the upcoming year. 

The Council acts on behalf of the contracting parties on 

virtually all GATT activities, both routine and urgent, 

with proposals debated at Council meetings until a 

consensus is reached on what course of action to take. 

Work is then delegated to committees or specially 

created bodies. (See figure 2 for an organizational 

structure of the GATT.) 

As the Uruguay Round to improve current GATT 

rules and design new ones spilled over into 1992, 

existing rules and the Tokyo Round codes of conduct 

continued to be addressed by the GATT. The 

following describes events taking place during 1991 in 

the GATT, as distinct from 1991 events in the Uruguay 

Round discussed in chapter 1. It includes the work of 

the standing bodies and committees, dispute-settlement 

cases, and actions under the authority of the Tokyo 

Round agreements. 

Regular GATT Activities 

and Work of Committees 

The standing GATT bodies continued their usual 

work in 1991 and, despite the demands of the ongoing 

Uruguay Round trade negotiations, expanded regular 

GATT activity on Eastern Europe's developing market 

economies as well as on the issue of trade and the 

environment. Bulgaria began negotiations to join the 

GATT, and the former Soviet Union took up an 

observer role in the GATT committees for the 

antidumping and import-licensing codes. On trade 

matters related to the environment, the GATT 

contracting parties re-established the Working Group 

on Trade and the Environment, continued efforts in the 

Working Group on the Export of Domestically 

Prohibited Goods and Other Hazardous Substances, 

and addressed a panel dispute between the United 

States and Mexico over environmentally based import 

restrictions on tuna. 

GATT Ministerial 

The 47th session of the contracting parties to the 

general agreement was held in Geneva from December 

3 to 4, 1991. The major concern of the meeting was 

the need to complete the Uruguay Round of 

Multilateral Trade Negotiations. 

The chairman of the contracting parties also 

conducted the annual review of work in GATT 

governing bodies, highlighting four international 

developments that should spur members to conclude 

the Round promptly: 2 

• Three years of decelerating growth in 

world production and trade; 

• The breakdown of trade among the 

countries of Central and Eastern Europe 

and the former Soviet Union, as well as 

33 
Committee on Tariff 

Concessions 

Sub-Committee on 

Adjustment 

Committee on Safeguards Technical Sub-Group 

on Adjustment 

Council of Representatives 

-wasszvoicilansem, 

Committee on Trade and 

Development 

Sub-Committee on Trade of 

Least-Developed Countries 

Committees Established Under 

Certain Arrangements 

Standing Bodies of the GATT 

Consultative Group of Eighteen 

Committee on Balance-of-Payments 

Restrictions 

Committee of Participating Countries 

(Protocol relating to trade negotiations 

among developing countries) 

Committee on Budget, 

Finance and Administration 

Textiles Committee 

Sub-Committee on 

Protective Measures 

Technical Group on Quantitative 

Restrictions and Other 

Non-Tariff Measures 

Joint Advisory Group on the 

International Trade Centre 

UNCTAD/GATT 

Figure 2 

Organizational structure of the GATT 

Source: The GATT. 

34 
poor trade performance by most of the 

heavily indebted developing countries of 

the world; 

• The need to support political and economic 

reforms undertaken by many developing 

countries; and 

• Increasing nonimplementation of GATT 

dispute-settlement panel reports. 

Council of Representatives 

At the Ministerial meeting, the chairman of the 

GATT Council stressed problems with the 

dispute-settlement process. 3The first problem, he 

noted, was the growing incidence of 

nonimplementation of panel reports, despite new 

procedures instituted in 1989 to streamline 

dispute-settlement procedures. This tendency 

undermined the credibility of the process, said the 

chairman, and would have adverse consequences for 

the world trade system if not soon halted. The second 

problem he highlighted was "forum shopping," the 

inclination of some members to pick and choose 

different GATT bodies for raising particular disputes. 

This practice pointed up the need to strengthen the 

GATT dispute-settlement procedures—a subject being 

addressed in the Uruguay Round. 

Committee on Tariff 

Concessions 

The Committee on Tariff Concessions, inter alia, 

oversees the maintenance of concessions negotiated 

during successive GATT trade negotiations. The 

principal focus of the Committee in 1991 continued to 

be the preservation of the balance of concessions as 

contracting parties convert from their previous national 

tariff schedules to the common international 

nomenclature embodied by the Harmonized System 

(HS), which standardizes the nomenclature used to 

classify traded goods. Each conversion of a national 

tariff schedule to the HS must be accompanied by 

article XXVIII (Modification of Schedules) 

negotiations to ensure this balance. Forty-eight 

countries have changed over to the HS but have not 

completed article XXVIII negotiations. Eighteen 

countries have finished these negotiations and annexed 

their HS tariff schedules in a protocol to the general 

agreement. In 1991 the Committee agreed on 

procedures that would facilitate the implementation of 

the first amendments to the HS nomenclature, which 

entered into force on January 1, 1992, and which could 

result in the modification of some rates of duty. 4 

Requests by members for waivers from their GATT 

obligations under article II (Schedules of Concessions) 

rose significantly in 1991, as a number of contracting 

parties sought to implement the HS before completing 

article XXVIII negotiations. 5More than half of the 

contracting parties that are not members of the 

Organization for Economic Cooperation and 

Development (OECD) are renegotiating their tariff 

obligations; half of these members requested article II 

waivers or extensions of waivers. 6 

Committee on Trade and 

Development 

At the two 1991 meetings of the GATT Committee 

on Trade and Development, Uruguay Round issues 

dominated discussions, as they did in the 

Subcommittee on Trade of the Least-Developed 

Countries? The Committee has been a major conduit 

to developing countries for the assistance provided by 

the GATT Technical Cooperation program, as well as 

by other international organizations, in helping these 

countries analyze the trade consequences of the 

negotiations. The Committee expressed the hope that 

after the Uruguay Round concludes, the assistance 

program would be strengthened so that developing 

countries could better assess and take advantage of the 

Round's results. 

The Committee also discussed the Generalized 

System of Preferences and regional integration 

schemes (e.g., integration efforts in Latin America) in 

relation to the "enabling clause" introduced into the 

general agreement as part of the Tokyo Round. 8The 

clause allows exports from developing countries to 

receive special treatment without violating the 

nondiscrimination principle of the general agreement. 

Committee on 

Balance-of-Payments 

Restrictions 

The Committee on Balance-of-Payments 

Restrictions met three times in 1991 to review trade 

restrictions that members impose to preserve stability 

in their balance of payments (as _pe.nnitted by article 

XVIII of the general agreement).' In 1991 complete 

examinations of trade restrictions based on 

balance-of-payments concerns ("full consultations") 

were held with the Czech and Slovak Federal Republic, 

Israel, and Yugoslavia. Briefer reviews ("simplified 

consultations") were held in 1991 with Nigeria, the 

Philippines, Tunisia, and Turkey. The Committee also 

decided that full consultations for these four countries 

would be appropriate. 

During the year Argentina, Brazil, and Peru took 

the unusual step of renouncing trade restrictions they 

had imposed based on article XVIII, thus ending the 

need for consultations with the Committee. 

Consultations scheduled for 1991 with Colombia, 

India, Pakistan, and Sri Lanka were put off until 1992 

due to attention focused on the Uruguay Round. 

35 
Working Group on the Export 

of Domestically Prohibited 

Goods and Other Hazardous 

Substances 

At the end of 1991 the Working Group on the 

Export of Domestically Prohibited Goods and Other 

Hazardous Substances reported to the GATT Council 

that it had reached an impasse in efforts to finalize and 

adopt a draft Decision on Products Banned or Severely 

Restricted in the Domestic Market. 10The working 

group recommended that consultations continue in 

1992. The draft decision aims to place all trade in 

domestically prohibited goods under the oversight of at 

least one international body, such as the World Health 

Organization or the Food and Agriculture 

Organization 

Textiles Arrangement and 

Committee 

The Arrangement Regarding International Trade in 

Textiles, known as the Multifiber Arrangement (MFA), 

has been extended four times since it entered into force 

on January 1, 1974. 11The third extension, agreed 

upon in 1986, expired on July 31, 1991. On that date 

the Textiles Committee moved to renew the MFA for a 

fourth time, under the 1991 Protocol of Extension. 

Consequently, the MFA will remain in force for 

another 17 months, from August 1, 1991, to December 

31, 1992, with the expectation that a trade regime 

negotiated in the Uruguay Round will enter into force 

immediately thereafter. 

The current MFA has 41 participants,12 which 

account for roughly $196 billion, or two-thirds, of 

world textile and clothing exports. The participants 

make up the membership of the Textiles Committee, 

which oversees operation of the MFA. The daily 

administration of the MFA is carried out by the 

Textiles Surveillance Body (TSB), composed of the 

MFA chairman and 10 Committee members chosen for 

a balanced representation of the arrangement's 

membership. The TSB examines all unilateral and 

bilateral textile restrictions to ensure that they conform 

with the provisions of the MFA. It also provides a 

forum for settling disputes. 

Actions Under Articles of 

the General Agreement 

Emergency Actions on Imports 

Article XIX (Emergency Action on Imports of 

Particular Products) of the general agreement allows 

contracting parties to escape temporarily from their 

GATT obligations and impose emergency trade 

restrictions when increased imports are causing or 

threatening serious injury to a domestic industry." A 

country invoking article XIX must notify the GATT 

and consult with affected exporting countries to 

arrange compensation. Because affected countries 

have the right to suspend "substantially equivalent 

concessions or other obligations" unilaterally, countries 

invoking article XIX have an incentive to limit such 

"safeguard" actions—or simply to avoid using article 

XIX altogether and negotiate directly with other 

nations. 

As of mid-April 1991 there were 24 article XIX 

actions in force. One-third involved agricultural 

products. During the year one new safeguard measure 

plus several extensions were notified to the GATT In 

early 1991 the European Community (EC) imposed 

duties on imports of certain frozen or preserved 

strawberries and raspberries. Early in the year the EC 

notified a safeguard restriction on provisionally 

preserved cultivated mushrooms. In addition, the EC 

extended a measure on processed cherries that had 

been introduced in 1989. 14 

In early 1991 Austria announced the extension of a 

safeguard action begun in March 1990 on prepared 

fowls. 15 . Later, Austria notified the GATT of a new 

article XIX action concerning certain types of cement 

and preparations containing cement; it set a global 

quota for the year beginning September 1, 1991. 

However, imports of the affected products coming 

from members of the EC or the European Free Trade 

Association (EFTA) were exempt from the action. In 

response to concerns expressed by a number of 

contracting parties about the selective nature of its 

action, Austria maintained that exceptions to 

most-favored-nation (MFN) treatment are permitted 

under GATT article XXIV (Free-Trade Areas and 

Customs Unions) for members of free-trade areas. 

Austria is a member of EFTA and has a free-trade 

agreement with the EC. 16 

Dispute Settlement: Panels and 

Followups Requested by the 

United States 

Panel on Alcoholic Beverages 

In February 1991 the GATT Council agreed to 

form a new panel, using the original panelists 

whenever possible, to address a U.S. complaint that 

Canada had failed to implement a previous panel 

report, adopted in March 1988, that addressed the issue 

of discriminatory practices of Canada's Provincial 

marketing boards against imported alcoholic 

beverages. The original panel had been requested by 

the EC to examine the liquor boards' discriminatory 

treatment of imports of EC wine. The United States 

requested a new panel, however, contending that 

36 
Canada had not only maintained the previous practices, 

but had instituted new ones as well (in particular, 

against beer imports). Canada responded that the 

practices of its Provincial liquor boards did not 

discriminate against imported beer and were in full 

compliance with the GATT. 17 

The . panel report, circulated to the contracting 

parties in October 1991 and first presented for adoption 

in December 1991, found in favor of the United States. 

It concluded that certain practices of the Canadian 

Provincial liquor boards were inconsistent with the 

general agreement. Canada announced that it would 

agree to adopt the report in 1992 and would report on 

measures to implement the panel recommendations in 

March and July 1992. 18(For additional information on 

this subject, see Chapter 4, "Canada" section.) 

requested that the panel be reconvened to determine 

whether a pending EC oilseed regulation conformed 

with the panel's findings and recommendations. In 

December the EC agreed to reconstitute the panel once 

the regulation was finalized.21In turn the GATT 

Council agreed to reconvene the members of the panel 

upon notice that the EC oilseed regulation was 

finalized.n Accordingly, upon notice from the EC of 

final adoption of its oilseed regulation on December 

12, 1991, the panel was reconvened and issued its 

followup report on March 16, 1992.24(For additional 

discussion of this dispute, see chapter 4, "European 

Community" section, and chapter 5, "Enforcement of 

Trade Agreements and Response to Unfair Foreign 

Practices" section.) 

Followup on Ice Cream and Yogurt 

In February 1991 the GATT Council again 

reviewed a U.S. request for implementation of a panel 

report that addressed a U.S. complaint on Canadian 

import restrictions on ice cream and yogurt. Canada 

maintained that it would implement the report, which 

was originally adopted in 1989, once possible changes 

resulting from the Uruguay Round of negotiations on 

agriculture were agreed upon. 19 

Followup on Agricultural Import 

Restrictions 

In February 1991 the United States asked for an 

update on the implementation of a panel report 

concerning Japanese import restrictions on certain 

agricultural products (dairy products and starch in 

particular). The report had been adopted in February 

1988. However, rather than adopt new measures that 

conform to the general agreement, Japan had 

established annual minimum access for these products 

through March 31, 1991, the United States said. Japan 

responded that it continued to have reservations about 

the panel's interpretation of article XI:2 (General 

Elimination of Quantitative Restrictions) concerning 

starch and, dairy products, and that it would await the 

outcome of agriculture discussions in the Uruguay 

Round addressing article XI before deciding which 

measures to take on these commodities.20 

Followup on Oilseeds 

In April and throughout 1991 the United States 

expressed concern that a panel report addressing a U.S. 

complaint on EC subsidies to oilseed processors and 

producers had not yet been implemented. The report 

had been adopted in • January 1990. In October, 

November, and December 1991 the United States 

Followup on Third Country Meat 

Directive 

In July 1991 the United States requested a panel 

under article XXIII:2 to examine whether EC meat 

importpractices under the Third Country Meat 

Directive were in conformity with various provisions 

under the general agreement, notably article I (MFN 

Treatment), article III (National Treatment), and article 

XI (General Prohibition of Quantitative 

Restrictions).26A panel established in December 1987 

to examine this directive was never convened because 

a bilateral agreement had temporarily defused the issue 

by allowing U.S. meat shipments to continue. 

However, an EC decision that effectively halted U.S. 

shipments of beef, pork, and lamb to the EC by 

January 1, 1991, led the United States to request a new 

panel; The, EC did not agree to a new panel at the July 

GATT Council meeting, saying that it wished to study 

the U.S. request further. (For additional discussion of 

this dispute, see chapter 4, "European Community" 

section, and chapter 5, "Enforcement of Trade 

Agreements and Response to Unfair Foreign Practices" 

section.) 

Followup on Apples and Pears 

In July 1991 the United States raised with the 

GATT contracting parties the issue of continued 

restrictions on imports of apples and pears into 

Norway. In response to an earlier U.S. complaint, a 

panel had been formed in March 1988, and in June 

1989 it determined that Norway's restrictions on these 

products conflicted with the GATT. Norway had since 

changed its import regime on apples and pears, and 

responded to , the 1991 U.S. complaint by asserting that 

its now import regime on apples and pears conformed 

to its GATT* obligations. 27Norway added, however, 

that it would reassess its import policy in light of new 

rules concerning agriculture reached in the Uruguay 

Round. 

37 
Dispute Settlement: Panels and 

Followups Examining U.S. 

Measures 

Panel on lima 

In February 1991 Mexico requested a panel to 

examine a U.S. ban on imports of yellowfin tuna and 

its products. The U.S. prohibition28came into effect in 

October 1990 under the U.S. Marine Mammal 

Protection Act (MMPA). The act is aimed at 

protecting dolphins that swim above schools of 

yellowfin tuna and become trapped in the purse seine 

nets used to catch the tuna. Under the MMPA the 

United States is required to prohibit imports from 

countries whose fishing methods are found to result in 

a higher dolphin mortality rate than that incurred by 

the U.S. fishing fleet. In December 1990 the United 

States adopted additional requirements for labeling 

tuna products through the Dolphin Protection 

Consumer Information Act, which was aimed at 

identifying "dolphin-safe" tuna products. 29 

Mexico contended that these practices violated 

GAIT articles I (General MFN Treatment), XI 

(General Elimination of Quantitative Restrictions), and 

XIII (Nondiscriminatory Administration of 

Quantitative Restrictions). For its part, the United 

States argued that article III (National Treatment, on 

Internal Taxation and Regulation) allowed border 

enforcement of protection standards for dolphins as set 

out in the MMPA." The United States also 

maintained that the import ban could be justified under 

article XX (General Exceptions), because its purpose is 

to protect animal health or exhaustible natural 

resources. 

In February 1991 the GATT Council established a 

panel. The panel's report,31which was completed in 

August and was circulated to contracting parties on 

September 3, 1991,32favored Mexico regarding the 

import ban but favored the United States concerning 

the labeling law. 33The panel concluded that the U.S. 

import ban violated article XI and was not justified 

under articles III and XX. 34In October, Mexico and 

the United States requested that the report be removed 

from GATT Council consideration pending attempts by 

both parties to reach a bilateral solution. 35(For 

additional discussion of this matter, see chapter 1, 

"Trade and the Environment" section, and chapter 4, 

"Mexico" section.) 

Panel on Nonrubber Footwear . 

In March and again in April 1991 Brazil asked that 

the GATT Council establish a dispute-settlement panel 

to examine certain issues arising out of a case 

established under the Subsidies Code at Brazil's 

request in October 1988. The case before the 

Subsidies Code examined whether U.S. countervailing 

duties levied on nonrubber footwear from Brazil 

conforme41 with U.S GATT obligations. It was 

decided in October 1989, in favor of the United States. 

Brazil's 1991 request for a dispute-settlement panel 

before the GATT Council' was to examine whether the 

United States, removed these countervailing duties on 

Brazil's exports of nonrubber footwear in a 

discriminatory manner. 

The issue revolved around U.S. countervailing 

duties in place on January1, 1980, when the Subsidies 

Code entered into effect." Brazil contended that U.S. 

duties were lifted promptly in January 1980 against a 

number of other products from other countries, 37but 

that the duties on Brazilian footwear were not lifted 

until October 1981. The United States responded that 

the case had already been adjudicated, with Brazil 

blocking adoption of the Subsidies Code report three 

times. Brazil stressed that its request was not an appeal 

of the panel report of the Subsidies Code but instead 

raised an issue based on GATT articles I (General 

MFN Treatment) and VI (Antidumping and 

Countervailing Duties), which had not been considered 

by the code panel. Brazil maintained that the 1979 

Tokyo Round agreements, one of which is the 

Subsidies Code, could not be considered a greater 

authority than the general agreement, adopted in. 1948. 

In April 1991 the GATT Council established a panel to 

examine the complaint. 38 

Panel on Alcoholic and Malt 

Beverages 

In April and again in May 1991 Canada requested 

a panel to examine U.S. measures affecting alcoholic 

and malt beverages. Canada contended that measures 

by the Federal and State GovernmentS of the United 

States affect the pricing, distribution, and sale of 

alcoholic and malt beverages and discriminate in 

particular against beer, wine, and cider imports. 

Canada held that these measures39violated GATT 

articles III (National Treatment) and XI (General 

Elimination of Quantitative Restrictions). The United 

States responded that Canada's complaint was vague. 

It also asserted That the case should be limited to 

measures raised by Canada in bilateral consultations 

already held in March and April 1991. The Council 

established a panel in May 1991 to examine the 

sue.40(For additional discussion of this dispute, see 

chapter 4, "Canada" section.) 

Followup on Pork 

In July 1991 the GATT Council adopted a panel 

report that, in response to a Canadian complaint, 

concluded that the United States had levied 

countervailing duties on fresh, chilled, and frozen pork 

from Canada in a manner inconsistent with GATT 

article VI:3. The report had been presented in October 

1990. (For additional discussion of this dispute, see 

chapter 4, "Canada" section.) 

38 
Followup on Section 337 

In March and again in April 1991 Japan asked for 

an update on the implementation of a panel report 

adopted in November 1989 that in response to a 

Japanese complaint found inconsistencies between 

section 337 of the U.S. Tariff Act of 1930 and U.S. 

GATT obligations.41Japan noted that, rather than 

align U.S. legislation with the panel recommendations 

to conform with its GATT obligations, the United 

States had moved in the opposite direction and initiated 

a new section 337 case. The case, brought before the 

U.S. International Trade Commission in February 

1991, involved possible intellectual-property-right 

infringement by a Japanese company (Seiko Epson 

Corp.) over static random-access memories. 42The 

United States responded that it remained committed to 

developing a GATT-consistent section 337 mechanism 

and had worked diligently to that end since January 

1990 by way of an interagency task force. However, 

the United States could not condone U.S. patent 

infringement in the interim before conclusion of the 

Uruguay Round, when U.S. legislation aligning section 

337 with the panel's recommendations would most 

likely be implemented. 43 

Followup on Customs Users Fee 

In March 1991 the EC notified the GATT Council 

of its concerns that, while U.S. implementing 

legislation had been enacted aimed at aligning U.S. law 

with the recommendations of a panel report on customs 

users fees, this legislation may not fully address the 

panel report. (The panel had been established in 

response to an EC complaint, and its report had been 

adopted in February 1988. The panel had concluded 

that a U.S. customs fee was inconsistent with the 

GATT to the extent that the fee levied a charge in 

excess of actual processing costs and services rendered 

for any given imported product.) 44The EC expressed 

the view that although progress was apparent on the 

issue in the report concerning GATT articles II 

(Schedules of Concessions) and VIII (Fees and 

Formalities Connected with Importation and 

Exportation), the U.S. legislation might be insufficient. 

The United States responded that by enacting 

minimum and maximum fees it had directly addressed 

the issues raised by the panel. 45 

provided that these members submit such regional 

arrangements to the GATT for examination. Article 

XXIV permits the formation of these arrangements, 

notwithstanding the GATT MFN principle, in the belief 

that closer integration of regional economies on 

balance supports the basic economic and 

trade-liberalization aim of the general agreement. The 

regional arrangement must, however, liberalize 

"substantially all the trade" among members of the 

union, and the trade barriers among those in the 

arrangement and those outside it must not be "on the 

whole...higher or more restrictive than. . .prior to the 

formation of such union."47Working parties are 

typically formed to examine these agreements, 

although to date no formal ruling has been made on the 

conformity of any regional arrangement with the 

provisions of the general agreement. 48Parties to a 

regional arrangement typically submit a biannual 

report on the functioning of their agreement. 

The working party report on the CFTA was unable 

to conclude whether the agreement conforms with 

GATT provisions. Both Canada and the United States 

maintained that the agreement is fully consistent with 

the provisions of GATT article XXIV. However, 

working party members expressed concerns related to 

(1) the availability of statistics that would illuminate 

whether the agreement was trade-creating or 

trade-diverting, (2) exceptions allowing import 

restrictions on certain agricultural goods, (3) the 

restrictive effects of the rules of origin embodied in the 

agreement, and (4) provisions for selective exemption 

from safeguard action undertaken by the two parties. 

Negotiations on Modifications 

of Schedules 

In 1991 a significant increase in requests for 

waivers was registered in conjunction with members' 

efforts to implement HS tariff nomenclature, which 

entered into force internationally on January 1, 1988." 

These requests sought to waive certain obligations 

under article II (Schedules of Concessions) concerning 

tariff schedules, until renegotiation of the conversion 

from national tariff schedules to the HS schedule is 

completed under article XXVIII (Modification of 

Schedules). (For further detail, see "Committee on 

Tariff Concessions" section.) 

Customs Unions and 

Free-Trade Areas 

In November 1991 the working party report on the 

U.S.-Canada Free-Trade Agreement (CFTA) was 

presented and adopted under article XXIV (Customs 

Unions and Free-Trade Areas) of the general 

agreement. 46Article XXIV permits contracting parties 

to form free-trade areas or customs unions that provide 

mutual preferential treatment in contravention to the 

MFN-treatment principle of the general agreement, 

Accessions to the General 

Agreement 

Macao acceded to the GATT under article XXVI 

(Acceptance, Entry Into Force and Registration) on 

January 11, 1991, as the general agreement's 101st 

contracting party. 3° Macao initially promised to set a 

tariff schedule within a year of accession but requested 

a year's extension in late 1991. 

Two other countries—El Salvador and 

Guatemala—acceded under article XXXIII 

39 
(Accession) in May and in October. 51At the end of 

1991 there were 103 contracting parties to the GATT, 

as well as 29 other countries that apply the general 

agreement on a de facto basis. (See table 1 for a list of 

GATT signatories.) 

Working parties that had previously been 

established to examine accession petitions by Bulgaria 

and Paraguay were activated again; working parties for 

Algeria, Honduras, and Nepal remained dormant. 52 

 Mongolia and Panama petitioned to begin the 

accession process. The working party on China's 

accession did not meet during 1991. In 1991 the 

United States announced its intention to work with 

other contracting parties in support of Taiwan's request 

to accede to the general agreement as the Taiwan, 

Penghu, Kinmen, and Matsu Customs Territory. 53 

Review of Trade Measures from 

German Unification 

The working party that was set up following 

German unification on October 3, 1990, met twice in 

1991 to review the transitional trade measures 

established to support previous trade agreements made 

between the former East Germany and Eastern 

European countries. 54 

Trade Policy Review Mechanism 

In 1991 the GATT Council in special session met 

three times to conduct examinations of the trade 

policies of certain contracting parties under the Trade 

Policy Review Mechanism (TPRM). The TPRM was 

introduced provisionally in 1989, following the 

Montreal Mid-Term Review of the Uruguay Round. 55 

 Until the TPRM is adopted permanently, only _countries 

that volunteer for review are examined. 3° Eight 

reviews—of Chile, the EC, Hungary, Indonesia, 

Nigeria, Norway, Switzerland, and Thailand—were 

held in 1991.57Three of these reviews (of the EC, 

Hungary, and Indonesia) were held over from 1990. 

Reviews that were scheduled in December 1991 for 

Argentina, Austria, Finland, Ghana, Singapore, and the 

United States were postponed because of the Uruguay 

Round. 

Implementation of the 

Tokyo Round Agreements 

The Tokyo Round agreements and arrangements 

(known informally as the Tokyo Round codes)58 

 extend additional rights and obligations to code 

signatories for the subjects they cover. GATT 

contracting parties are not required to become 

signatories to any of the Tokyo Round codes, nor are 

code signatories required to extend code benefits to a 

nonsignatory country.59(See table 2 for a list of code 

signatories.) 

The six codes govern nontariff barriers to trade: 

dumping, subsidies, customs valuation, 

import-licensing procedures, standards, and 

government procurement. Three additional agreements 

cover the specific sectors of bovine meat, dairy 

products, and civil aircraft. A committee)composed 

of the particular code's signatories administers the 

procedures of that code, such as notification matters or 

dispute-settlement proceedings. 

Code on Subsidies and 

Countervailing Duties 

The Code on Subsidies and Countervailing 

Duties61elaborates on provisions in the general 

agreement concerning the use of subsidies and 

countervailing measures. The code provides a 

mechanism to oversee the international use of subsidies 

and countervailing measures through a process of 

notification and review of the subsidy programs of its 

signatories. It sets guidelines for resort to 

countervailing duties and also creates rights and 

obligations to ensure that the subsidy practices of one 

member do not injure the trading interests of another. 

In addition, the Subsidies Code provides 

dispute-settlement procedures. 

The Committee on Subsidies and Countervailing 

Measures oversees operation of the Subsidies Code. 

The code entered into force January 1, 1980, and in 

1991 had 24 signatories. Poland and Yugoslavia have 

signed but not yet ratified the agreement. 

Notification and Review 

In 1991 the Committee reviewed notifications of 

national countervailing-duty legislation, circulated 

reports on actions taken under countervailing-duty 

laws, and examined subsidy notifications by code 

signatories. By late in the year virtually all of the 24 

signatories to the code had submitted national 

legislation concerning countervailing duty procedures 

for Committee examination. The Committee finished 

reviewing the countervailing-duty legislation for 

Canada and New Zealand and continued examining the 

countervailing-duty legislation for Australia, Chile, 

Colombia, and Turkey. 

The code requires signatories to submit semiannual 

reports on any countervailing-duty action taken during 

the previous 6 months. 62In the first half of 1991, 15 

signatories63notified the Committee that no 

countervailing-duty action had been taken; five gave 

notice of countervailing-duty actions. 64No notice was 

forthcoming from the EC, Indonesia, Pakistan, the 

Philippines, or Uruguay as of late 1991. 

When signatories do resort to subsidies, GATT 

article XVI:1 requires them to notify in writing the 

extent and nature of the subsidization, its estimated 

effect on the affected product(s), and the circumstances 

that require the subsidy. 65In practice, GATT 

signatories are to respond once every 3 years to a 

40 
questionnaire from the Committee on Subsidies and 

Countervailing Measures concerning their subsidy 

programs and to update these "full subsidy 

notifications" in intervening years between each 

review cycle.66The most recent review cycle began in 

1990; the previous cycle began in 1987. In 1991 the 

Committee continued its examination of subsidy 

notifications required under GATT article XVI:1 that 

were submitted as part of the 1987 review cycle, and 

began to examine notifications submitted as part of the 

1990 cycle. 

Consultations and Dispute 

Settlement 

The Subsidies Committee established three new 

dispute panels under the code, undertook to reconcile 

two signatories concerning a fourth case, and 

continued to consider five panel reports. 67In March 

1991 the Committee established a panel following a 

U.S. complaint about an exchange-rate "insurance" 

scheme that was offered by the German Government to 

counter losses incurred by Deutsche Airbus. (For 

additional discussion of this dispute, see "Agreement 

on Trade in Civil Aircraft" section below, and chapter 

4, "European Community" section.) In September 

1991 the Committee established a panel in response to 

a Norwegian complaint about U.S. countervailing 

duties on imports of fresh and chilled Atlantic salmon 

from Norway. The Committee established another 

panel in September, following a U.S. complaint about 

Canadian countervailing measures against grain corn. 

The Committee also undertook in September to resolve 

a U.S. complaint against the EC regarding subsidies to 

the Airbus consortium, an issue separate from the U.S. 

complaint against the aforementioned German 

exchange-rate scheme. (For additional discussion of 

this dispute, see chapter 4, "European Community" 

section.) At a special meeting in December 1991, the 

Committee established a panel regarding a Canadian 

complaint against the United States concerning U.S. 

trade measures that Canada considered inconsistent 

with U.S. obligations under the Subsidies Code. 

Canada contested both the U.S. imposition of a 

bonding requirement on imports of softwood lumber 

products from Canada and the initiation of a U.S. 

countervailing-duty investigation into Canadian 

policies on natural resource use and pricing, of which 

particular Provincial practices for harvesting lumber 

were to be scrutinized. (For additional information, 

see chapter 4, "Canada" section.)68 

Antidumping Code 

The GATT Antidumping Code elaborates the 

provisions of article VI (Antidumping and 

Countervailing Duties) under the general agreement on 

the use of antidumping duties to offset the margin of 

dumping. Antidumping duties may be imposed only 

upon an official finding of dumping, as well as upon a 

finding that a domestic industry is being injured, 

threatened with injury, or that the establishment of a 

domestic industry is being retarded by reason of 

imports. Such injury arises typically from imported 

merchandise being sold, or "dumped," at prices below 

those prevailing in the domestic market where the 

products originate, but also from those imports sold at 

prices below the cost of production. The code provides 

for surveillance of antidumping measures by 

signatories through its notification and review 

requirements. Members must, for example, notify their 

antidumping legislation and regulations to the 

Committee for examination and twice a year must 

report antidumping actions taking place in the previous 

6 months. The code also governs the 

dispute-settlement procedures under the agreement. 

The code is administered by the Committee on 

Antidumping Practices, which is composed of code 

signatories. In 1991 there were 25 signatories plus 

Argentina, which signed the agreement provisionally in 

April. No meetings took place of the Ad-Hoc Group 

on the Implementation of the Antidumping Code 

during 1991. 

Notification and Review 

By late 1991, 22 signatories had notified the 

Committee about their domestic antidumping 

legislation. Four signatories—Australia, Poland, the 

United States, and Yugoslavia—informed the 

Committee of changes to their antidumping legislation. 

The Committee proceeded to examine the changes and 

continued examining particular antidumping laws and 

regulations from Australia, the EC, Korea, and the 

United States.. The Committee finished examining 

other antidumping legislation from Australia, Canada, 

New Zealand, and the United States during 1991. 

By late 1991, 14 signatories" had told the 

Committee that they had instituted no antidumping 

action during the first half of 1991. Ten signatories, on 

the other hand, notified the committee of antidumping 

action during this period; they were Australia, Brazil, 

Canada, the EC, Finland, Korea, Mexico, New 

Zealand, Poland, and the United States. 

Consultations and Dispute 

Settlement 

In 1991 the Committee continued with the one case 

pending before it71and, in October, established two 

new dispute-settlement panels under the code. One 

panel dealt with a complaint brought by Norway 

against the United States, concerning antidumping 

duties levied on imports of fresh and chilled Atlantic 

salmon. The other panel focused on a complaint from 

Mexico against the United States, concerning 

antidumping duties imposed on imports of grey 

Portland cement and cement clinker from Mexico. 

The Committee also assisted in consultations and 

attempted conciliation in a number of complaints 

brought by code signatories during 1991. Hong Kong 

41 
requested the Committee's assistance in resolving a 

case concerning U.S. antidumping duties on 

manmade-fiber sweaters from Hong Kong. Another 

complaint was brought by the United States against 

Korea and concerned antidumping duties imposed on 

imports of polyacetal resins from the United States. A 

third complaint was registered by Sweden against the 

United States and its antidumping duties on imports of 

stainless steel plate from Sweden. 

Several signatories informed the Committee that 

bilateral consultations would be held under the 

auspices of code article 15:2. Brazil informed the 

Committee of its request for bilateral consultations 

with the EC, concerning antidumping proceedings 

initiated on imports of cotton yarn from Brazil. Japan 

informed the Committee that it had asked for bilateral 

consultations with Korea regarding polyacetal resins 

and with the EC over audiocassettes and tapes. 

Other topics discussed during 1991 included- 

• A review of EC duties levied on 

audiocassettes, tapes, and electronic 

typewriters from Japan; and 

• U.S. antidumping actions concerning 

antifriction bearings from Sweden; 

portable electric typewriters from Japan 

and Singapore; circular welded steel pipe 

and tube from Mexico; flat-panel displays 

from Japan; and magnesium, nepheline 

syenite, and brass sheet and strip from 

Canada. 

Customs Valuation Code 

The Customs Valuation Code establishes a single 

set of rules to determine the customs value of imported 

goods. These rules, which are intended to provide a 

fair, uniform, and neutral system of valuation, 72are 

used to help customs officers in participating countries 

determine the value of imports, as a basis in assessing 

ad valorem duties. The code has given greater 

precision to the provisions on customs valuation 

already found in the GATT and has led to widespread 

harmonization of valuation systems. For traders it has 

made the cost of duties more predictable. 73 

The Customs Valuation Code took effect on 

January 1, 1981, with 16 original signatories. By late 

1991 it had 28 signatories, plus Poland which has 

accepted the code pending ratification. Poland has 

been implementing the code's provisions since January 

1, 1990, as part of basic legislation aimed at 

transforming the Polish economy. Thirty-four 

countries plus three international organizations / 4also 

take part as observers to the code. 

Committee Activities 

The Committee on Customs Valuation met twice 

during 1991 to discuss matters related to the code's 

implementation and administration. To promote 

transparency, signatories must inform the Committee 

of changes in customs laws and regulations and in their 

administration. During 1991 the Committee examined 

the implementation and administration of the code by 

Australia, Argentina, Cyprus, the EC, India, Malawi, 

and Zimbabwe and concluded an examination of 

amendments to Korean legislation. The Committee 

also completed its 1 1 th annual review of the 

implementation and operation of the code. 

Technical Committee 

At its only meeting in 1991, the Technical 

Committee of the Customs Valuation Code heard a 

report from the GATT Secretariat on the latest 

developments in the Uruguay Round, including 

negotiations concerning valuation. Several observers 

indicated that adoption of the measures agreed to in 

October 1990 could remove the last obstacle to their 

joining the code. These measures include a decision to 

allow customs officials to require additional proof from 

importers concerning the declared value of goods and 

another that sets out a 5-year transition period in which 

developing countries can retain valuation systems 

based on officially fixed prices (not otherwise 

permitted under the code). 75The new draft text of the 

Uruguay Round Final Act, announced in December 

1991, retained these customs valuation measures. 76 

 Other topics discussed in the Technical ComMittee 

included the publication of a customs valuation control 

handbook, technical assistance and training seminars, 

confirmation of commissions, and the definition of 

royalties and license fees. 

Agreement on Import Licensing 

Procedures 

The Agreement on Import Licensing Procedures is 

aimed at simplifying the procedures that importers 

must follow to obtain licenses. The agreement 

enterered into effect January 1, 1980.- The agreement's 

membership remained constant throughout 1991, 

currently covering 26 countries plus Argentina, whose 

signature is pending ratification. Thirty other 

governments and two international organizations—the 

International Monetary Fund and the United Nations 

Conference on Trade and Development—have 

observer status. 

The Committee held two meetings in 1991, in 

March and in October. At the March meeting the 

Committee received further replies to a GATT 

questionnaire on import licensing from signatories. At 

the same meeting the Committee welcomed Bolivia as 

a new observer and agreed to grant observer status to 

the Soviet Union? / Romania also briefed the 

Committee on the details of a liberalized import- and 

42 
export-licensing system that the country planned to 

adopt. 

At the October meeting the Committee took note of 

revised, corrected, or updated replies to the 

questionnaire from certain signatories and of 

information on the implementation and administration 

of some signatories' import-licensing systems. The 

Committee acknowledged as well that Romania had 

instituted its new licensing system. In addition, the 

Committee undertook its sixth biennial review of the 

implementation and operation of the agreement. 

At both 1991 meetings the Committee received 

publications from some signatories on their 

import-licensing procedures. Throughout the year, the 

Committee continued its discussion on the relationship 

of its own work to the import-licensing work done in 

the Uruguay Round. Talks on amending the original 

agreement were held in the Round throughout 1991 

under the auspices of the Negotiating Group on MTN 

Agreements and Arrangements. 78 

Standards Code 

The Standards Code, formally known as the 

Agreement on Technical Barriers to Trade (TBT), 

entered into force on January 1, 1980. The aim of the 

code is to ensure that procedures and systems relating 

to product standards, technical regulations, 79testing, 

and certification of products do not create unnecessary 

barriers to trade. The code currently has 38 

signatories plus Argentina and Rwanda, whose 

signatures are pending national ratification. There 

were no new signatories in 1991. 

The group negotiating standards in the Uruguay 

Round tentatively agreed to a revised Standards Code 

in December 1991. The revised code is broader in 

scope than the current one and allows for coverage of 

regional standards bodies, strengthened rules on 

conformity assessment, coverage of processes and 

production methods, and improved dispute-settlement 

provisions. 81(For further information on the 

negotiation of the new Agreement on Technical 

Barriers to Trade, see chapter 1, "Trade and the 

Environment" section.) 

Committee Activities 

The Committee on Technical Barriers to Trade 

(TBT), which administers the code, met twice during 

1991 to discuss proposed improvements and problems 

in implementing the code, to exchange information, 

and to handle administrative matters. Although it was 

primarily concerned with the implementation of 

existing provisions and administration of the code, 

during 1991 the TBT Committee continued to focus on 

individual signatories' proposals to improve, clarify, 

and expand the code as part of the Uruguay Round. 52 

 In October the TBT Committee held its 12th annual 

review of the operation and implementation of the 

code. 

Code of Good Practice 

A significant topic of discussion in 1991 was the 

addition to the Standards Code of a Code of Good 

Practice for the preparation, adoption, and application 

of standards by central governments, State and local 

governments, nongovernmental bodies, and regional 

standards organizations. 83As part of the Uruguay 

Round, the group negotiating standards further 

developed the draft Code of Good Practice, which was 

tentatively agreed to in December 1991. This Code of 

Good Practice would require advance notification of 

new or proposed standards that could affect 

international trade, and it would also require 

signatories to provide interested parties with an 

opportunity to comment on the draft standards. Central 

governments would also be required to ensure that 

State and local government bodies that develop 

standards abide by the Code of Good Practice. 54 

 However, the Central Secretariat of the International 

Standards Organization (ISO), as a technical body 

advising the Standards Code Committee, voiced 

private-sector opposition to the Uruguay Round Code 

of Good Practice and suggested the development of an 

alternative, voluntary code based on international 

consensus—a position supported by the United 

States.85In November the Committee decided that 

upon final completion of the ISO/IEC Code, 86it would 

evaluate the ISO code's implications for the operation 

of the 1991 Agreement on Technical Barriers to 

Trade. 87 

Other Committee discussions in 1991 centered on 

trade and the environment and on notification and 

comment periods for proposed standards. Bilateral 

consultations were held under the auspices of the 

Committee. 

International Dairy 

Arrangement 

The principal objectives of the International Dairy 

Arrangement (IDA) are to expand and liberalize world 

trade in dairy products, to avoid surpluses and 

shortages of dairy products in international markets, 

and to maintain prices at equitable levels. 88These 

objectives are pursued through the activities of the 

International Dairy Products Council, which oversees 

the arrangement and meets twice a year to evaluate the 

world dairy products market. The arrangement came 

into operation on January 1, 1980, and has been 

extended until December 31, 1994. 89It currently has 

15 signatories (including the 12 EC member states, 

which count as one signatory) plus Egypt, whose 

signature awaits ratification. The United States is not 

currently a participant in the arrangement. 9° 

In addition to the International Dairy Products 

Council, the arrangement also established three 

Committees to supervise the three protocols annexed to 

it.9 I The three protocols set out minimum export 

prices for dairy products, 92with their respective 

Committees overseeing compliance by participating 

43 
countries 93During 1990 the Protocol Committees, 

concerned about the unsatisfactory situation in the 

world dairy market, called upon participants to observe 

the minimum export prices fully. An appeal was also 

made to nonparticipants not to sell dairy products at 

prices below prevailing market prices and not below 

the agreed minimum export prices." 

The Council held two meetings in 1991 to 

evaluate95conditions in the international dairy 

products market. In a report issued by the GATT 

Secretariat" it was noted that events in the former 

Soviet Union,97which accounts for roughly 25 percent 

of world butter consumption, were having a major 

effect on the world butter market. A growing 

consumer preference for low-calorie products also 

added to the downturn in butter prices and the 

50-percent rise in world butter stocks in 1990-91. 

World butter stocks are estimated to have increased to 

1.08 million tons in 1991, with the EC and the United 

States being the principal holders of stocks. 98 

The Secretariat's report also indicated that prices 

for milk powders in 1990 had suffered due to 

depressed market prices for butter. In 1991, however, 

powder prices firmed following a weakening of the 

U.S. dollar and further restraints in milk deliveries, 

notably in the EC. The Secretariat reported that world 

cheese exports grew by 2 percent in 1990 and were 

expected to increase by another 2 percent in 1991. 99 

Arrangement Regarding Bovine 

Meat 

The Arrangement Regarding Bovine Meat 

promotes international cooperation toward expansion, 

liberalization, and stabilization of trade in meat and 

livestock.m The International Meat Council (IMC) 

supervises the arrangement and evaluates the world 

market situation for meat products. The Meat Market 

Analysis Group (MMAG), a subsidiary body set up by 

the IMC in June 1981, assists the Council in the 

analysis and evaluation of reports submitted to it on 

trends in the world meat market. This group of experts 

meets twice a year, before sessions of the IMC. 

In 1991 the arrangement had 24 signatories plus 

Belize and Paraguay, which have signed pending 

ratification. 1 °1No new members joined during 1991. 

Participants in the arrangement account for about 90 

percent of the world's exports of fresh, chilled, and 

frozen beef and veal (excluding intra-EC trade) and 

more than 60 percent of both world consumption and 

production. 1132Members encompass all major beef 

exporting and importing countries, with the exception 

of the former Soviet Union. The arrangement provides 

for the collection and distribution of data on meat 

production and trade, holds consultations on market 

conditions, and provides a forum for discussion of 

issues raised by participating countries. 

The IMC held meetings in June and December of 

1991 to discuss the operation of the arrangement, the 

situation and outlook in the international meat market, 

and policy questions. In its regular sessions the IMC 

noted that no substantive discussion regarding the 

functioning of the arrangement had taken place since 

the beginning of the Uruguay Round negotiations. In 

the area of policy questions, discussion centered on 

stabilization mechanisms introduced by the EC in both 

the sheep meat and beef sectors. Policy changes in the 

United States, Poland, Bulgaria, Brazil, South Africa, 

and Japan were also discussed. 

With regard to market conditions the GATT 

Secretariat's report for the IMC 103noted that the 

international beef market faced low prices in 1991, 

reflecting a continued excess of global production. 

Large supplies of competing meats added to downward 

pressure on beef prices, and a major drop in prices was 

averted mainly because import demand sharply 

increased in the former Soviet Union.'" Although 

global beef imports increased by an estimated 3.5 

percent in 1991, purchases by the United States and 

Japan declined. Following a surge in beef imports 

earlier in the year, the United States signed voluntary 

export-restraint agreements with Australia and New 

Zealand in November 1991. In terms of market 

outlook the IMC predicted that poor global economic 

prospects would dampen demand for beef in 

industrialized countries in 1992. Competition from 

other meats was expected to persist, but beef import 

demand was expected to strengthen in the Middle East, 

North Africa, and Asia. Overall the IMC estimated 

that the international beef trade would show a slight 

decrease in 1992. 105 

Government Procurement Code 

The Government Procurement Code entered its 

11th year of operation in 1991. The code seeks to 

increase transparency in the laws, regulations, 

procedures, and practices relating to government 

procurement and to ensure that they do not serve to 

protect domestic products or suppliers from 

international competition. 106It requires signatories to 

allow suppliers from other signatories to compete for 

government contracts on conditions no less favorable 

than those accorded to domestic suppliers. The code 

also establishes common procedures aimed at 

improving transparency by providing information on 

proposed government purchases, on the opening and 

awarding of bids by signatories agencies, and by 

settling disputes. As of late 1991 the code had 12 

signatories. 

The Committee on Government Procurement, 

which administers the code, met in session six times in 

1991 and four times in its Working Group on 

Negotiations. Their discussions focused on attempts to 

overcome the impasse over article IX:6(b),I 07reached 

in December 1990 in conjunction with the Uruguay 

Round Ministerial meeting in Brussels, Belgium. The 

key issues under discussion included (1) expansion of 

the code to cover new areas of procurement, 

particularly utilities and entities purchasing 

44 
telecommunications and heavy electrical equipment; 

(2) renegotiation of the code to cover services 

contracts;: and (3) extension of the code to subcentral 

government entities. 1 °8 

Differing U.S. and EC approaches to utilities and 

subcentral government procurement coverage have 

been an obstacle in renegotiating the code. 109During 

1991 , EC' negotiators expressed a keen interest in 

bringing the procurement activities of subcentral 

entities including those at the State level, under the 

code.tib The EC offered to cover 100 percent of its 

central and subcentral procurement above the current 

code threshold, challenging other signatories to 

respond. 111 

The United States answered that it would offer to 

cover central government procurement not currently 

covered by the code. In addition, the United States 

was willing to include procurement contracts that had 

been volunteered by its State Governments, which 

would represent a significant portion of subcentral 

government procurement. U.S. negotiators also made 

it clear, however, that such coverage of State 

procurement would depend on the inclusion of EC 

utilities under the code 1 t 2—particularly entities that 

purchase telecommunications and heavy electrical 

equipment. 113 

Although the United States and the EC were unable 

to bridge the gap between their respective positions 

before the end of 1991, the negotiations of the 

Committee culminated in a draft agreement, issued on 

December 20, 1991, by the chairman on his own 

responsibility. 114Significantly, the chairman's text 

included expanded coverage in all areas of greatest 

importance to the United States, in particular 

telecommunications and heavy electrical equipment. 

The draft agreement also included provisions for 

coverage of services contracts, as well as new 

disciplines limiting the use of offset practices and 

requiring all signatories to establish a local 

bid-challenge system for improving enforcement of the 

code.I 15The chairman's text was only a proposal, 

however, and negotiations were to continue in 1992. 

During 1991 the Committee concluded its 1988 

statistical review. Discussion continued regarding the 

establishment of a uniform classification system for 

statistical reporting. The Committee decided to 

continue its appraisal of different statistical 

classification systems when it became more clear to 

what extent services would be covered as a result of 

the negotiations. 

In 1991 the chairman announced that the Republic 

of Korea wished to accede to the Agreement on 

Government Procurement and to take part in the code's 

renegotiations. Korea's application to join the 

agreement is currently under consideration by the 

Committee. In other developments two new 

dispute-settlement cases were initiated during 1991. 

The United States initiated a complaint against Norway 

for discriminating against a U.S. supplier of electronic 

toll-collection equipment that attempted to bid on a 

government-procurement contract for the city of 

Trondheim. (For additional discussion of this case, see 

chapter 5, "Enforcement of Trade Agreements and 

Response to Unfair Foreign Practices" section.) The 

EC also initiated a case against the United States 

regarding a NASA procurement, involving sonar 

mapping equipment, which the EC considered to be 

inconsistent with the provisions of the code. In both 

cases panels have been established and are being heard 

under the terms of article VII of the code. 116 

Agreement on Trade in Civil 

Aircraft 

The Agreement on Trade in Civil Aircraft provides 

for duty-free treatment of identified civil aircraft, civil 

aircraft engines, and civil aircraft parts. The agreement 

also seeks to eliminate nontariff measures such as 

official export credits and certain government 

procurement policies. The number of signatories 

throughout 1991 remained at 21 plus Greece, which 

has signed the agreement pending national ratification. 

The Committee on Trade in Civil Aircraft held two 

regular meetings and one special meeting in 1991. At 

each meeting the agenda was dominated by a U.S.-EC 

dispute regarding the subsidiia'ion of the EC's Airbus 

Industrie—particularly the exchange-rate guarantees 

that the German Government provides to the parent 

company of Deutsche Airbus, the German Airbus 

partner, for losses due to exchange-rate fluctuations. 

(For additional discussion of this issue, see chapter 4, 

"European Community" section.) One ongoing area of 

discussion relates to which GAIT Committee—the one 

concerning civil aircraft or the one on subsidies and 

countervailing measures—should have jurisdiction 

over the dispute. Debate within the Aircraft 

Committee over the appropriate Committee began in 

1990, when the United States referred the matter to the 

Subsidies Committee. The dispute also led to 

discussions on revising the agreement itself. 

The Committee continued ongoing bilateral 

consultations stemming from the Airbus dispute on the 

interpretation of article 4 (Government-Directed 

Procurement, Mandatory Subcontracts, and 

Inducements) and article 6 (Government Support, 

Export Credits, and Aircraft Marketing) under the Civil 

Aircraft Code, and including article 8 (Surveillance, 

Review, Consultation, and Dispute Settlement). The 

Committee discussed at great length the German 

Government's exchange-rate scheme and held informal 

consultations on the EC request to renegotiate the 

agreement. 

The EC delegation called a special meeting in 

April 1991, objecting to the United States' referral of 

the dispute over the German Government's 

exchange-rate subsidies to the Subsidies Committee 

instead of to the Committee on Trade in Civil Aircraft. 

At the time of the meeting a dispute-settlement panel 

under the Subsidies Code was examining the 

exchange-rate scheme, and the United States had 

45 
recently requested an additional Subsidies Code panel 

to examine the Airbus program in general. The EC 

delegation declared that it reserved the right to ignore 

the panel's ruling if the EC deemed it unsatisfactory. 

The EC delegation also noted that the Aircraft 

Agreement was in need of a comprehensive revision. 

The U.S. delegation defended its decision to pursue 

the exchange-rate dispute under the Subsidies Code. It 

asserted that the Civil Aircraft Code did not prohibit it 

from referring the matter to the Subsidies Code and 

that the primary issue was subsidies. The United 

States stressed that the Aircraft Agreement did not 

exempt the EC from honoring its obligations under the 

Subsidies Code. 

Regular discussions during the year devoted to 

renegotiating the agreethent concluded that there was a 

common understanding that articles 4, 6, and 8 should 

be addressed, although there was' no consensus on the 

formal launching of a procedure for renegotiating the 

agreement. The EC delegation noted that it wished 

such negotiations to begin as soon as possible. In a 

separate matter the U.S. delegation voiced concern 

over the Canadian Government's plans for the 

sole-source procurement of flight simulators , for 

Citation aircraft. The U.S. delegation contended that 

such a purchase could conflict with article 4 of the 

agreement. 

46 
Table 1 

Contracting Parties to the GATT: Status as of Dec. 31, 1991 

Contracting Parties to the GATT (103) 

Antigua and Denmark Luxembourg South Africa 

Barbuda Dominican Republic Macao1 Spain 

Argentina Egypt Madagascar Sri Lanka 

Australia El Salvador1 Malawi Suriname 

Austria Finland Malaysia Sweden 

Bangladesh France Maldives Switzerland 

Barbados Gabon Malta Tanzania 

Belgium Gambia Mauritania Thailand 

Belize Germany Mauritius Togo 

Benin Ghana Mexico Trinidad and 

Bolivia Greece Morocco Tobago 

Botswana Guatemala 1 Myanmar Tunisia 

Brazil Guyana Netherlands Turkey 

Burkina Faso Haiti New Zealand Uganda 

Burundi Hong Kong Nicaragua United Kingdom 

Cameroon Hungary Niger United States 

Canada celand Nigeria of America 

Central African ndia Norway Uruguay 

Republic ndonesia Pakistan Venezuela 

Chad reland Peru Yugoslavia 

Chile srael Philippines Zaire 

Colombia taly Poland Zambia 

Congo Jamaica Portugal Zimbabwe 

Costa Rica Japan Romania 

Cote d'Ivoire Kenya Rwanda 

Cuba Korea Senegal 

Cyprus Kuwait Sierra Leone 

Czech & Slov. Fed. Rep. Lesotho Singapore 

I New member in 1991. 

Countries to whose territories the GATT has been applied and that now, as independent states, 

maintain a de facto application of the GATT pending final decisions as to their future commercial 

policy (29) 

Algeria Fiji Saint Christopher Solomon Islands 

Angola Grenada and Nevis Swaziland 

Bahamas Guinea-Bissau Saint Lucia Tonga 

Bahrain Kiribati Saint Vincent and Tuvalu 

Brunei Darussalam Mali the Grenadines United Arab 

Cambodia Mozambique Sao Tome and Emirates 

Cape Verde Namibia Principe Yemen 

Dominica Papua New Guinea Seychelles 

Equatorial Guinea Qatar 

Source: GATT, International Trade 90-91, Geneva, 1992. 

47 
Table 2 

Signatories to the Tokyo Round Agreements: Status as of Dec. 31, 1991 

(Accepted (A); signed, acceptance pending (S); provisional acceptance (P)) 

Gov't Dairy Customs Import Civil AntiStan- procure- Subsi- Bovine prod- valu- licen- air- dumpdards ment dies meats ucts ation sing craft ing 

Contracting Parties: 

Argentina S A A A' S S 

Australia A' A A A A A 

Austria A A A A A A A A 

Belgium A A 

Belize P 

Botswana A' 

Brazil A A A A' A 

Canada A A A A A A' A A 

Chile A A A 

Colombia A' A 

Cyprus A 

Czech & Slov. Fed.Rep. A' A A A 

Denmark A' A' 

Egypt A A S A A A 

C1 A A A A A A A A A 

Finland A A A A A A A A 

France A A 

Germany A' A' 

Greece A S 

Guatemala A' 

Hong Kong2 A A A A A A 

Hungary A' A A A A A 

India A A A' A A 

Indonesia A' 

Ireland A A 

Israel A A A' 

Italy A A 

Japan A A A A A A A A A 

Korea A A A' A 

Lesotho A' 

Luxembourg A A 

Malawi A' 

Mexico A A' A A 

Netherlands A A 

New Zealand A A A A A' A A 

Nigeria A A 

Norway A A A A A A A A A 

Pakistan A A A A 

Philippines A A' A 

Poland S A A S A A 

Portugal A A 

Romania A A A A A A A 

Rwanda S 

Singapore A A A A 

South Africa A A A A 

Spain A A A 

Sweden A A A A A A A A A 

Switzerland A A A A A A A A A 

Tunisia A A 

Turkey A A' 

United Kingdom A A 

United States A A A A A A A A 

Uruguay A A A 

Yugoslavia A S A A A A 

Zimbabwe A 

Noncontracting Parties: 

Bulgaria A A 

Paraguay P 

See footnotes at end of table. 

48 
Table 2-Continued 

Signatories to the Tokyo Round Agreements: Status as of Dec. 31, 1991 

(Accepted (A); signed, acceptance pending (S); provisional acceptance (P); new member 1991(+)) 

Gov't Dairy Customslmport Civil AntiStand- procure- Subsi- Bovine prod- valu- licen- air- dumpards ment dies meats ucts ation sing craft ing 

Total signatories 38 12 24 24 15 28 26 21 25 

Reservation, condition, declaration, or any combination. 

1The EC is a signatory to all the agreements. Because the Standards Agreement and the Civil Aircraft 

Agreement cover matter that go beyond the authority of the EC, each of the EC member states is a signatory to these 

agreements. 

2Hong Kong, which had been applying several of the codes under the auspices of the United Kingdom, changed 

its status under the codes in 1986, and is now a signatory in its individual capacity. 

Source: GATT, GATT Activities 1990, Geneva, July 1991, Annex III, pp. 142-144. 

49 
ENDNOTES 

1When acting in concert as a whole to adopt 

decisions, the convention is to capitalize the words 

contracting parties, as in "Ministers, meeting on the 

occasion of the Special Session of the 

CONTRACTING PARTIES at Punta del Este, have 

decided to launch Multilateral Trade Negotiations 

(The Uruguay Round)." The contracting parties seek 

to adopt decisions by consensus, that is, 

unanimously. 

2GATT, "Forty-Seventh Session Of the 

Contracting Parties," press release No. 1524, Dec. 4, 

1991, pp. 1-6. 

3GATT, GATT Focus, No. 87, Jan.-Feb. 1992, 

p. 2. 

4USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 33. 

5Article XXVIII (Modification of Schedules) and 

article XXVIII bis (Tariff Negotiations) provide the 

mechanism by which a contracting party may modify 

or withdraw tariff concessions. A GATT member 

wishing to change previously agreed concessions, i.e. 

concessions covered under article II (Schedules of 

Concessions), must enter into negotiations, as stated 

in article XXVIII, with members "determined by the 

CONTRACTING PARTIES to have a principal 

supplying interest" as well as with "any other 

contracting party determined by the CONTRACTING 

PARTIES to have a substantial interest" in such a 

concession. GATT, "Text of the General Agreement," 

Basic Instruments and Selected Documents, vol. IV, 

Geneva, Mar. 1969, pp. 46-48. 

6USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 30. 

7GATT, GATT Focus, No. 87, Jan.-Feb. 1992, 

p. 4. 

8USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 32. 

9Ibid. 

10GATT, GATT Focus, No. 87, Jan.-Feb. 1992, 

p. 6. 

11GATT, "MFA Extended for 17 Months," press 

release No. 1516, Aug. 2, 1991, pp. 1-3. The MFA 

succeeded the Long-Term Arrangement on World 

Trade in Cotton Textiles, in place since 1962. 

12Argentina, Austria, Bangladesh, Brazil, 

Canada, China, Colombia, Costa Rica, the Czech 

and Slovak Federal Republic, Dominican Republic, 

the EC, Egypt, El Salvador, Fiji, Finland, Guatemala, 

Hong Kong, Hungary, India, Indonesia, Jamaica, 

Japan, Korea, Macao, Malaysia, Mexico, Norway, 

Pakistan, Peru, Philippines, Poland, Romania, 

Singapore, Sri Lanka, Sweden, Switzerland, Thailand, 

Turkey, United States, Uruguay, and Yugoslavia. 

13Article XIX is also known as the "escape" 

clause and its actions as "safeguard" actions. 

Safeguard action is temporary under article XIX 

wording in the general agreement, which allows a 

concession to be suspended, withdrawn, or modified 

only "to the extent and for such time as may be 

necessary to prevent or remedy" the injury. 

14GATT, "Unilateral Trade Liberalization 

Undertaken by 45 Countries, Reports the 

Director-General of GATT," press release No. 1509, 

Apr. 18, 1991, p. 10. 

15Ibid. 

16GATT, GATT Focus, No. 85, Oct. 1991, pp. 2, 

6. 

17GATT, GATT Focus, No. 78, Jan.-Feb. 1991, 

p. 2. See also USITC, Operation of the Trade 

Agreements Program (OTAP), 42nd Report, 1990, 

USITC publication 2403, July 1991, p. 47. 

18GATT, GATT Focus, No. 87, Jan.-Feb. 1992, 

p. 5. The panel report was subsequently adopted 

Feb. 18, 1992. 

19GATT, GATT Focus, No. 78, Jan.-Feb. 1991, 

p. 4. 

20Ibid. 

21On July 31, 1991, the EC Commission 

adopted a proposal for an EC Council Regulation 

establishing a system of support for producers of 

soya, colza, and sunflower, applicable for 1992/93. 

The proposal contains most of the elements of the 

new oilseed regimen set out in the EC Commission's 

communication on the development and future of the 

Common Agricultural Policy (CAP) (COM(91)258). 

See Commission of the European Communities, 

"Commission Adopts Proposal on Support for 

Producers of Oilseeds," Information Memo P-62, July 

31, 1991, 3 pp. 

22GATT, GATT Focus, No. 87, Jan.-Feb. 1992, 

P. 5. 

23European Community regulation No. 3766/81 

of Dec. 12, 1991, establishing a support system for 

producers of soya beans, rapeseed and colza seed, 

and sunflower seed. See GATT, GATT Focus, No. 

87, Jan.-Feb. 1992, p. 8. 

24USTR, "U.S. Announces Possible Products for 

Retaliation in Oilseeds Dispute With EC," press 

release, June 9, 1992; also 57 F.R. 25087. 

25Directive 72/462/EEC sets meat-handling 

standards for imported meats, including 

slaughterhouse standards. 

26 GATT, GATT Focus, No. 83, Aug. 1991, p. 9. 

27Ibid. 

28The ban applies to tuna imports directly from 

Mexico, Vanuatu, and Venezuela, as well as to 

indirect imports through the intermediary countries of 

Costa Rica, France, Italy, Japan, and Panama. See 

GATT, GATT Focus, No. 86, Nov.-Dec. 1991, p. 6. 

29 GATT, GATT Focus, No. 78, Jan.-Feb. 1991, 

p. 2. 

30GATT, "Expanding Trade Can Help Solve 

Environmental Problems, Says Report," press release 

No. 1529, Feb. 3, 1992, p. 15. 

31Although not adopted as of mid-July 1992, the 

United States and Mexico requested that the report 

be derestricted. The report can be found in 

American Society of International Law, International 

Legal Materials, vol. XXX, No. 6, November 1991, 

pp. 1598-1623. 

50 
32 GATT, GATT Focus, No. 85, Oct. 1991, p. 4. 

33 GATT, "Expanding Trade Can Help Solve 

Environmental Problems," p. 14. 

34 Ibid. 

35 GATT, GATT Focus, No. 85, Oct. 1991, p. 4. 

36 GATT, GATT Focus, No. 80, Apr. 1991, p. 10. 

37 Fasteners from India, wire rod from Trinidad 

and Tobago, and lime and certain textile products 

from Mexico. 

38 GATT, GATT Focus, No. 81, May-June 1991, 

p. 13. 

39 Federal Government measures include the 

U.S. Omnibus Budget Reconciliation Act of 1990, 

sec. 11201, which among other things increased the 

excise tax on beer but provided for reduced rates for 

certain smaller U.S. producers. State Government 

measures include discriminatory taxes on imported 

beer and wine and lower tax rates on locally 

produced beverages. 

40 GAIT, GATT Focus, No. 82, July 1991, p. 3; 

and GAIT GATT Focus, No. 81, May-June 1991, p. 

13. 

41 For additional background, see USITC, OTAP, 

1989, USITC publication 2317, Sept. 1990, p. 47. 

42 GATT, GATT Focus, No. 80, Apr. 1991, p. 11. 

43 GATT, GATT Focus, No. 81, May-June 1991, 

pp. 12-13. 

" For additional background, see USITC, OTAP, 

1988, USITC publication 2208, July 1989, p. 33. 

45 GATT, GATT Focus, No. 80, Apr. 1991, p. 10. 

46 GATT, GATT Focus, No, 86, Nov.-Dec. 1991, 

P. 5. 

47 GATT, "Text of the General Agreement," Basic 

Instruments and Selected Documents, vol. IV, 

Geneva, Mar. 1969, pp. 42-43. 

48 The chairman of the working party noted that 

"over 50 working parties on individual customs 

unions or free-trade areas have been unable to 

reach unanimous conclusions on the compatibility of 

these agreement[s] with the GATT-on the other 

hand, no such agreement has been explicitly 

disapproved." See GATT, GATT Focus, No. 86, 

Nov.-Dec. 1991, p. 5. 

49 USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 33. The United States 

converted its tariff schedules to a harmonized system 

basis effective Jan. 1, 1989. 

5° GATT, "Macao Becomes GATT's 101st 

Member," press release No. 1501, Jan. 14, 1991. 

51 GATT, "Guatemala Confirmed as GATT's 103rd 

Member," press release No. 1522, Oct. 10, 1991, pp. 

1-4. 

52 USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 31. 

53 President George Bush, letter to Senator Max 

Baucus, chairman, House Subcommittee on 

International Trade, July 19, 1991. 

54 USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 30. 

55 For additional background, see USITC, OTAP, 

1988, USITC publication 2208, July 1989, p. 12. 

ss USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 30. 

57 See GATT, GATT Focus, No. 81, May-June 

1991, pp. 2-11, for TPRM country reviews of the EC, 

Hungary, and Indonesia; GATT, GATT Focus, No. 83, 

Aug. 1991, pp. 2-8, for reviews of Chile and 

Thailand; and GATT, GATT Focus, No. 84, Sept. 

1991, pp. 2-7, for reviews of Nigeria, Norway, and 

Switzerland. 

56 The six codes are formally entitled (with their 

informal name(s) in parentheses) the Agreement on 

Implementation of Article VI of the General 

Agreement on Tariffs and Trade (Antidumping Code); 

Agreement on Interpretation and Application of 

Articles VI, XVI, and XXIII of the General Agreement 

on Tariffs and Trade (Code on Subsidies and 

Countervailing Duties or Subsidies Code); Agreement 

on Implementation of Article VII of the General 

Agreement on Tariffs and Trade and Protocol 

(Customs Valuation Code); Agreement on Import 

Licensing Procedures (Import Licensing Code); 

Agreement on Technical Barriers to Trade (Standards 

Code); and the Agreement on Government 

Procurement (Government Procurement Code). In 

addition, three additional agreements were developed 

during the Tokyo Round that are not customarily 

referred to as "codes": the Arrangement Regarding 

Bovine Meat; the International Dairy Arrangement; 

and the Agreement on Trade in Civil Aircraft. 

55 The Tokyo Round codes entered into force 

Jan. 1, 1980, with the exception of the Government 

Procurement Code and Customs Valuation Code, 

which became effective 1 year later, on Jan. 1, 1981. 

However, the United States and the EC implemented 

the Customs Valuation Code earlier, on July 1, 1980. 

60 The International Meat and Dairy 

Arrangements are governed by the International Meat 

Council and the Dairy Products Council, respectively. 

61 Countervailing duties are measures imposed 

by countries on imports to offset a domestic or 

export subsidy that unfairly benefits an export 

product. If subsidized exports from one signatory 

cause material injury to the domestic industry of 

another signatory, the injured party may either 

impose a countervailing duty to offset the subsidy or 

request that the exporting country eliminate or limit 

the effect of the subsidy, although the code signatory 

must show material injury to its domestic industry 

due to the imports. The code also provides a 

procedure for signatories to redress harm in cases 

where subsidized exports from one signatory displace 

exports from another in third-country markets. 

62 Specified under Subsidies Code art. 2:16. 

63 Austria, Brazil, Colombia, Egypt, Finland, Hong 

Kong, India, Indonesia, Israel, Japan, Korea, Norway, 

Sweden, Switzerland, Turkey, and Yugoslavia. 

" Australia, Canada, Chile, New Zealand, and 

the United States. 

65 GATT, "Text of the General Agreement," pp. 

26-27. 

51 
66 For additional information, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, pp. 52-53. 

67 The cases pending before the committee 

concern (1) EC subsidies on wheat flour exports 

(1983), (2) EC subsidies on exports of pasta 

products (1983), (3) U.S. definition of industry 

concerning wine and grape products (1986), (4) 

Canadian countervailing duties on manufacturing beef 

imports from the EC, and (5) U.S. countervailing 

duties on nonrubber footwear from Brazil (1989). 

GATT, GATT Activities 1990, Geneva, July 1991, p. 

116. 

68 GATT GATT Focus, No. 87, Jan.-Feb. 1992, 

P. 8. 

69 The Tokyo Round Agreement on Anti-Dumping 

Practices, or Antidumping Code, was negotiated 

during the 1973-79 Tokyo Round to replace the one 

negotiated during the 1963-67 Kennedy Round of 

Multilateral Trade Negotiations. 

70 Austria, the Czech and Slovak Federal 

Republic, Egypt, Hong Kong, Hungary, India, Japan, 

Norway, Pakistan, Romania, Singapore, Sweden, 

Switzerland, and Yugoslavia. 

71 The committee established a panel in January 

1989 to settle a dispute brought by Sweden against 

the United States concerning antidumping duties 

levied on imports of seamless stainless steel hollow 

products from Sweden. The panel found in favor of 

Sweden, but the Committee has been unable since 

then to adopt this report over the objection of the 

United States. For its part, the United States has 

said it has no substantial objection with the report 

but that its concern is over the specific panel 

remedy. (The usual procedure is for governments to 

determine how to implement panel reports.) GATT, 

GATT Focus, No. 77, Dec. 1990, p. 6. 

72 The code establishes a set of rules for 

valuation of imports that revise and expand existing 

customs valuation provisions under the general 

agreement. The code details five valuation methods 

to be used in sequence by customs officials in all 

participating countries. GATT, "Agreement on 

Implementation of Article VII of the General 

Agreement on Tariffs and Trade and Protocol," Basic 

Instruments and Selected Documents, supp. 26, 

Geneva, Mar. 1980, pp. 116-153. 

73 GATT, GATT Activities 1990, Geneva, July 

1991, p. 121. 

74 The Customs Cooperation Council, 

International Monetary Fund, and the United Nations 

Conference on Trade and Development. 

76 GATT, "News of the Uruguay Round of 

Multilateral Trade Negotiations," press release No. 

42, Oct. 24, 1990, p. 4. 

76 GATT, "Draft Final Act Embodying the Results 

of the Uruguay Round of Multilateral Trade 

Negotiations," MTN.TNC/VV/FA, Dec. 20, 1991, 

section G, pp. 1-27. 

77 Subsequently, in December 1991, the Soviet 

Union broke up into 12 independent republics. 

78 Encompassed under the rulemaking group 

formed at the resumption of the Uruguay Round 

negotiations in February 1991. 

79 Compliance with a technical regulation is 

mandatory, and compliance with a product standard 

is voluntary. 

80 Signatory governments are required to ensure 

that technical regulations and standards are not 

prepared, adopted, or applied in such a way as to 

unnecessarily obstruct international trade. Whenever 

possible, standards are to be stated in terms of 

performance characteristics, rather than specific 

designs. The agreement also seeks to open further 

national standards-setting procedures to foreigners by 

allowing interested parties time to comment on 

proposed standards, technical regulations, and 

certification systems that may affect trade. 

81 Information provided by U.S. Department of 

Commerce, International Trade Administration, Office 

of Multilateral Affairs, Office of GATT Affairs. 

82 USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 33. 

83 Initial U.S. efforts to gain access to the 

standards development process in EC standards 

organizations led to negotiations and later formulation 

of a code of good practice to address this concern. 

A draft code of good practice was tentatively agreed 

to in October 1990. USITC, OTAP, 1990, USITC 

publication 2403, July 1991, p. 58. 

" As it stands the revised Code of Good 

Practice rejects the "best efforts" approach supported 

by the United States with regard to standards 

organizations below the central government level. 

For additional background, see USITC, The Effects 

of Greater Economic Integration Within the European 

Community on the United States: Fourth Followup 

Report (investigation 332-267), USITC publication 

2501, Apr. 1992, p. III-8. 

88 U.S. opposition to the current Code of Good 

Practice negotiated in the Uruguay Round is fueled 

by the concern of private-sector standards developers 

over what they see as the prescriptive nature of the 

code and the regulatory role of government over their 

activities that it could imply. 

86 The technical advisory group charged with 

electrotechnical matters is the International 

Electrotechnical Commission rather than the ISO. 

87 Information provided by U.S. Department of 

Commerce, International Trade Administration, Office 

of Multilateral Affairs, Office of GATT Affairs. 

88 GATT, "Cheese Prices Firm Up but Butter 

Trade Hit by Softening Demand and High Stocks, 

Says GATT Dairy Report," press release No. 1526, 

Dec. 19, 1991, p. 4. 

89 Ibid., p. 3. 

99 The United States withdrew from the IDA in 

1985. For a discussion of the controversy over 

reduced-price sales of surplus butter by the EC to 

the Soviet Union that prompted the U.S. withdrawal, 

see USITC, OTAP, 1984, USITC publication 1725, 

July 1985, p. 72. 

91 The Committee of the Protocol Regarding 

Certain Milk Powders, the Committee of the Protocol 

Regarding Milk Fat, and the Committee of the 

Protocol Regarding Certain Cheeses. 

92 Minimum export prices have been established 

for skimmed milk powder, whole milk powder, 

52 
buttermilk powder, anhydrous milk fat, butter, and 

certain cheeses. See GATT, "Cheese Prices Firm 

Up," p. 4. 

83Minimum export prices under the IDA were 

last set in September 1989. For a further discussion 

of these prices, see USITC, OTAP, 1990, USITC 

publication 2403, July 1991, p. 58. 

" GATT, GATT Activities 1990, Geneva, July 

1991, p. 125. 

95The Council based its evaluation on material 

from the Committees on Protocols; on information 

from participating members-typically concerning 

dairy production, consumption, and trade as well as 

national dairy, food aid, and trade policies; and on 

documentation from the Secretariat. For more 

information, see USITC, OTAP, 1989, USITC 

publication 2317, Sept. 1990, p. 64. 

96GAT'', The World Market for Dairy Products 

1991, Dec. 16, 1991. 

87In December 1990 the Committee of the 

Protocol Regarding Milk Fat granted the Soviet Union 

a derogation from minimum export prices. With food 

relief requirements in the former Soviet Union 

expected to increase, a number of signatories to the 

IDA have sought assurances that any decision to 

provide food aid should cause only minimal disruption 

to the commercial butter market. 

88GATT, "Cheese Prices Firm Up," p. 3. 

99Ibid. 

100GATT, "Arrangement Regarding Bovine Meat," 

Basic Instruments and Selected Documents, supp. 

26, Geneva, Mar. 1980, pp. 84-90. 

101The EC, comprising 12 member states, has 

signed as a single signatory. 

102 GATT, GATT Activities 1990, Geneva, July 

1991, p. 123. 

103The GATT Secretariat publishes for the IMC 

an annual report on the trends in production, 

consumption, and trade in bovine meat. GATT, 

International Markets for Meat 1991/92, Geneva, Feb. 

14, 1992. 

104GATT, "Beef Oversupply to Persist Failing 

Structural Changes in the Meat Sector Says GATT 

Report," press release No. 1532, Feb. 14, 1992, p. 1. 

105Ibid. 

106GA-n, Agreement on Government 

Procurement - Revised Text, Geneva, 1988. 

107This article requires signatories to broaden 

and improve the agreement. Renegotiations were 

started in November 1983, after the code came into 

effect on Jan. 1, 1981. The Committee completed 

the first phase of renegotiations on Nov. 21, 1986, 

when it adopted a series of amendments to improve 

the functioning of the code developed by the Working 

Group on Negotiations. These amendments were (1) 

to continue to work toward covering services 

contracts under the code, and (2) to increase the 

number of entities and procurement covered under 

the code. The working group's mandate was 

expanded in 1987 to encompass new issues not 

previously covered by the code. Thus, the current 

round of renegotiations, under way in tandem with 

the Uruguay Round of multilateral trade negotiations, 

has three principal aims: (1) to improve the code's 

operation; (2) to explore possible extension of the 

code to services and leasing contracts; (3) to 

broaden the code by covering additional entities 

and/or lowering the minimum contract amount to 

which the agreement applies. USITC, OTAP, 1987, 

USITC publication 2095, July 1988, pp. 2-21 to 2-22. 

108 USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 34. 

109USITC, OTAP, 1990, USITC publication 2403, 

p. 60. 

110Louis J. Murphy, Director, Office of Multilateral 

Affairs, U.S. Department of Commerce, "The Uruguay 

Round Trade Negotiations and the States: A Speech 

to the National Conference of State Legislatures," 

Dec. 12, 1991, p. 20. 

111USTR, The Agreement on Government 

Procurement—Participation of State and Local 

Governments, brochure (Sept. 1991), p. 13. 

112 Murphy, "The Uruguay Round Trade 

Negotiations and the States," p. 20. 

113The four utility areas of energy, 

telecommunications, transport, and water were 

sectors originally left out of the GATT Procurement 

Code negotiations because the EC Commission 

lacked jurisdiction over member states in this area at 

the time. Recent EC procurement directives now 

cover all public contracts (including the previously 

excluded sectors), thereby permitting EC negotiators 

to bring utilities under the coverage of the GATT 

Government Procurement Code. 

114GATT, Committee on Government 

Procurement, Draft Agreement on Government 

Procurement - Chairman's Paper on his Own 

Responsibility Without Prejudice to Negotiator's 

Positions, GPR/64, Geneva, Dec. 20, 1991. 

115USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 34. 

116 Ibid., p.35. 

53 

CHAPTER 3 

Trade Activities Outside the GATT 

Although the General Agreement on Tariffs and 

Trade (GATT) provides the multilateral framework 

dedicated to international trade, several international 

organizations also address world trade matters as part 

of their focus on other international economic matters. 

The Organization for Economic Cooperation and 

Development (OECD) and the United Nations 

Conference on Trade and Development (UNCTAD) 

both provide a forum for consultation and policy 

coordination on a host of economic issues of primary 

interest to different country groupings. The OECD 

addresses economic issues of interest to the 24 

industrialized countries that make up its membership; 

UNCTAD focuses on economic matters relevant to 

developing countries worldwide. Both cover a wider 

range of subjects than does the GATT and do not aim 

for the degree of international obligation specified 

under the GATT framework. Nonetheless, work done 

in the OECD and UNCTAD often complements that 

done in the GATT, as well as serving on occasion as 

the starting point for issues to be considered in the 

GATT at a later stage. Other bodies, such as the 

Customs Cooperation Council (CCC) and the 

international commodity organizations, cover a 

narrower range than the GATT, and so provide a basis 

for coordinating and regulating specific aspects of 

international trade. 

The following sections detail U.S. participation in 

these different bodies during 1991. In addition, 1991 

activities in the Enterprise for the Americas Initiative 

(EAI), steel import program, and U.S. Bilateral 

Investment Treaty (BIT) program are covered, along 

with the U.S.-Israel Free-Trade Agreement, the 

Long-Term Grain Agreement originally signed 

between the United States and the Soviet Union, and 

U.S. participation in the Multifiber Arrangement 

(MFA) and international trade in textiles. 

Organization for Economic 

Cooperation and 

Development 

Founded in 1960, the Organization for Economic 

Cooperation and Development is the principal forum 

for the world's industrialized countries to consult and 

coordinate on a broad range of economic issues. Its 

three basic aims are (1) to promote the financial 

stability and economic growth of its members, (2) to 

promote sound economic development in nonmember 

countries, and (3) to contribute to the expansion of 

world trade on a multilateral, nondiscriminatory basis.' 

The OECD's 24 member countries are listed below: 

Norway 

Portugal 

Spain 

Sweden 

Switzerland 

Turkey 

United Kingdom 

United States 

Yugoslavia and the Commission of the European 

Communities, under special status, have also taken part 

in OECD activities. 

The OECD Council is the most authoritative arm 

of the organization. Meeting annually at the 

Ministerial level, the Council brings together Ministers 

of economics, fmance, and trade—as well as other 

leaders—from each member country. 2At this meeting 

the Council discusses major economic and social issues 

facing member countries and, in accordance with 

decisions reached at the Ministerial meeting, the 

Council takes action by directing the OECD work 

program on these issues. The Ministerial communique 

that follows the annual meeting typically addresses 

these issues. 

The OECD Council is assisted by the OECD 

Executive Committee, which oversees the work 

program and prepares Council meetings. The 

organization also comprises more than 20 other 

committees, as well as working parties and expert 

groups, that cover topics ranging from economic policy 

and the environment to capital movement and 

computers. 3These committees, and the OECD 

Council itself, are supported by the Office of the 

OECD Secretary-General. 4 

In 1991 the OECD concentrated on the multilateral 

trading system, national economic policies, reform of 

member-state agricultural policies, relations with 

developing countries, and the environment. The 

OECD also continued to examine its new role in 

promoting economic reforms in the countries of 

Central and Eastern Europe. 

Ministerial Communique 

The annual Ministerial meeting of the OECD 

Council was held in Paris, France, from June 4 to 5, 

Australia Greece 

Austria Iceland 

Belgium Ireland 

Canada Italy 

Denmark Japan 

Finland Luxembourg 

France Netherlands 

Germany New Zealand 

55 
1991. In the face of slowed economic growth in the 

industrial countries, the Ministers affirmed their 

commitment to macroeconomic policies that support 

noninflationary growth but stressed as well the 

importance of policies that actively promote structural 

change. These policies cover, as pointed out in the 

Ministers' communique, "the full span of economic 

and social domains." 

The Ministers accorded their highest priority on the 

global economic agenda to an early conclusion of the 

Uruguay Round of the GATT.5The Ministers 

reaffirmed their governments' "standstill" 

commitments, agreed as part of the Round, to eschew 

trade actions that would be contrary to their obligations 

under the GATT. The Ministers stressed that 

negotiations under way should not provide a pretext for 

delays in trade-oriented structural adjustment. They 

also rejected policies of managed trade, unilateralism, 

bilateralism, and sectoralism, although they did 

acknowledge that regional integration can further 

stimulate the liberalization process, provided that it 

remains in conformity with the goal of strengthening 

the multilateral trading system. Accordingly, the 

Ministers asked the OECD to continue to monitor 

developments in regional integration. The OECD 

Ministers also touched upon the need for a more global 

perspective on trade-policy aspects of issues 

traditionally considered to be largely domestic 

concerns, such as agricultural policy. 

The Ministers highlighted as well several issues in 

the area of competition policy. They asked the OECD 

to continue work on the interaction of competition 

policies with trade and industrial policies. Industrial 

subsidies, the Ministers reiterated, generally hinder 

rather than improve structural adjustment, leading to 

trade distortions and increased fiscal pressures. The 

Ministers invited the OECD to systematically observe 

the use of industrial subsidies whose monitoring, they 

noted, could lead to the eventual definition of 

commonly accepted OECD guidelines on the use of 

such subsidies. The Ministers also welcomed progress 

made toward a future agreement reducing the trade and 

aid distortions that result from subsidized export 

credits and tied-aid credits. 

Agricultural Policy Reform 

As noted in the Ministers' communique, 

agricultural policy reform is a central concern of the 

OECD. The OECD Ministers reaffirmed their 

commitment to achieving substantial progressive 

reductions in agricultural support and protection. They 

noted that participants in the Uruguay Round had 

agreed to conduct negotiations to achieve specific 

binding commitments that entail reductions in 

domestic support, market access barriers, and export 

subsidies. 

However, the Ministers acknowledged that there 

had been limited progress in agricultural reform to 

date. Since 1987, when the Ministerial Council 

decided to address the issue of agriculture, 6the OECD 

has monitored member-state agricultural policies. As 

part of this effort it has issued an annual report that 

uses quantitative indicators to gauge the level of 

official involvement in the agricultural sector.? In May 

1991 the OECD issued its fourth such report, which 

showed that two major indicators of agricultural 

subsidy levels in industrialized countries—producer 

subsidy equivalents (PSEs) and consumer subsidy 

equivalents (CSEs)—had increased from 1989 to 

1990.8Net PSEs for the OECD as a whole climbed 

from 41 percent to 44 percent; CSEs rose from 33 to 

36 percent. The net percentage PSE for the United 

States increased by 1 percent, to 30 in 1990; the net 

percentage PSE for the European Community (EC) 

increased from 41 to 48 percent. 9 

Despite stated commitments and heavy rhetoric 

from all sides, agricultural support policies remain 

extremely resistant to modification in most countries. 10 

 The implications for the success of the Uruguay Round 

were not overlooked in the OECD report. "Given the 

existence of viable alternatives to current policies," the 

report stated, "it should be possible to overcome some 

of the major obstacles to reform. The agricultural 

sector must, at last, grasp the opportunity afforded both 

by the Uruguay Round and the efforts to develop better 

policy instruments." 11 

Trade and the Environment 

In their communique, the Ministers endorsed a 

report, prepared jointly by the OECD Trade and 

Environment Committees, that identifies major 

connections between the policy areas of trade and 

environment. The Ministers called for additional 

progress in this area to be reported at the 1992 

Ministerial meeting and observed that such work could 

contribute to the United Nations Conference on 

Environment and Development (UNCED) in June 

1992 in Rio de Janeiro, Brazil. (For additional 

discussion of this topic, see chapter 1, "Trade and the 

Environment" section.) 

Celebrating its 100th session in 1991, the OECD 

Trade Committee advised Ministers that the linkage 

between trade and the environment was an issue that 

may well become highly visible in the future. Initially, 

the Trade Committee and the Environment Committee 

each addressed the issue separately; it was addressed in 

1991 by a joint trade and environment experts group to 

examine further issues intersecting both areas. The 

OECD countries account for only 16 percent of world 

population and 24 percent of world land area, yet 

produce nearly three-quarters of world GNP and trade 

and account for fully one-half of world energy use, 45 

percent of world carbon dioxide emissions, and 60 

percent of the world's industrial waste. 12 

The OECD Environment Committee met in 

January 1991 for the first time at the Ministerial level. 

The environment Ministers drew attention to the 

progress made toward integrating economics and 

environmental decision making. The three main issues 

discussed were (1) the state of the environment, (2) 

reconciling the objectives of economic growth and 

environmental protection, and (3) an environmental 

56 
strategy for the 1990s. 13The environment Ministers 

affirmed in their communique that the key to 

sustainable economic development — and thus to 

ensuring sound environmental management — was 

"the full integration of economic and environmental 

policies." 14"Environmental considerations," the 

Ministers maintained, "must be brought to bear 

systematically on economic policy making." 15The 

Ministers called for governments to improve their 

policy integration and to eliminate economic policies 

(subsidies, taxes, or other market interventions) that 

adversely affect environmental objectives. ' The 

Ministers also identified energy, agriculture, transport, 

and coastal zone management as four sectors in which 

the integration of economic and environmental policies 

could be improved and in which application of the 

OECD "polluter pays" principle was endorsed. 16 

In December 1991, Ministers of environment and 

development met jointly to focus on new cooperative 

approaches to achieve sustainable development. A 

major focus of the meeting was an effort to forge 

common OECD positions on issues relevant to the 

1992 UNCED. 

Central and Eastern Europe 

Political and economic reforms in Central and 

Eastern Europe continued to receive substantial 

attention in 1991, both at the Ministerial meeting in 

June and at other OECD meetings during the year. 

Integrating these countries more fully into an open 

world trading and economic system is a principal aim 

of the OECD. In acknowledgement of these countries' 

move away from authoritarian regimes and centrally 

planned economies, the Ministers announced in their 

communique their intention to expand economic 

relations with nonmember countries. They enumerated 

the many governments and multilateral organizations 

involved in channeling international assistance to these 

countries to support their reforms and foster market 

disciplines.'? 

The Ministers also sought to agree that the OECD 

Export Credits Arrangement 18would help Central and 

Eastern Europe with grant aid (such as food aid, 

humanitarian aid, or outright donations) but would not 

use tied-aid credits. However, a final agreement on 

this point was not reached in time for the Ministerial 

meeting, and the Ministers expressed their commitment 

to overcoming remaining obstacles before the end of 

1991. 

The Ministers offered Central and Eastern 

European countries the technical expertise of the 

OECD on formulation of government policies. In 

particular, the Ministers underscored the role that the 

Center for Co-operation with European Economies in 

Transition (CCEET) 19could play in forming a 

comprehensive and coherent assistance program for 

these governments. They went on to emphasize the 

special services and assistance available from the 

OECD to countries under the CCEET's Partners in 

Transition (PIT) program, which was specially 

designed for countries that are demonstrably 

committed to a rapid transition to pluralist democracy 

and a market economy. The PIT programs are 

intended to aid these countries in the formulation and 

development of sound market-oriented economic 

policies. The Trade Committee hosted a special 

workshop on problems encountered during the 

transition to a market economy, directed principally at 

Central and Eastern European economies. On June 4 

the OECD signed memorandums of understanding 

establishing PIT programs with the Czech and Slovak 

Federal Republic, Hungary, and Poland. 

Development Assistance 

Committee 

In December 1991 the annual high-level meeting 

of the Development Assistance Committee (DAC) was 

held with the heads of national aid agencies and major 

multilateral institutions. In September 1991 the DAC 

annual report was issued, showing the levels of official 

development assistance (ODA) for member states and 

for the OECD as a whole. 

The official United Nations target for ODA is 0.70 

percent of gross national product (GNP). Although 

these assistance levels for the OECD increased by 4.5 

percent in real terms in 1991, ODA remained at only 

half (035 percent of GNP) the targeted level. 

According to the OECD highlights of the report, ODA 

levels "have been amazingly constant...for decades?" 20 

On an individual level, the figures 21were as 

shown: 

Norway ... 1.17 Belgium . 0.45 Switzerland 0.31 

Netherlands 0.94 Canada . 0.44 United Kingdom 0.27 

Denmark .. 0.93 Germany 0.42 Austria 0.25 

Sweden ... 0.90 Australia 0.34 New Zealand 0.22 

Finland .... 0.64 Italy .... 0.32 United States 0.21 

France .... 0.55 Japan ... 0.31 Ireland 0.1622 

The report acknowledged the increased global 

competition for the limited resources available for 

development assistance and suggested that "the 

capacity and resolve" of donor countries would be 

severely tested over the next few years. 

OECD Investment Instruments 

Investment has long been a central point of 

discussion in the OECD.23Much of the present 

cooperation among members on this issue is based on 

the 1976 Declaration on International Investment and 

Multinational Enterprises and its procedural 

decisions.24The declaration contains four interrelated 

instruments: (1) the National Treatment Instrument, 

(2) Guidelines for Multinational Enterprises, (3) 

International Investment Incentives and Disincentives, 

and (4) Conflicting Requirements. 25 

Following one of the periodic reviews of the 

OECD declaration and decisions, completed in 1991, a 

57 
number of improvements were made. First, members 

agreed to more stringent obligations regarding 

notification and examination, on a country-by-country 

basis, of exceptions taken to the principle of national 

treatment. Second, a new chapter on the environment 

was added to the guidelines on multinational 

enterprises, in recognition of the role that multinational 

firms can play in better protecting the environment. 

Third, members amended the declaration to include a 

1984 agreement on general considerations and 

practical approaches that could avoid or minimize the 

imposition of conflicting requirements on 

multinational firms by member-country governments. 

The greater willingness of member states to hold 

bilateral consultations under the 1984 amendment 

would effectively promote greater transparency of 

national legislation affecting multinational firms. 

Formal or informal arrangements among member 

states would be easier to initiate as a result of this 1984 

decision, particularly in situations in which no bilateral 

investment arrangements exist between two member 

states. Ministers agreed at the 1991 OECD Ministerial 

meeting to continue efforts to reinforce and broaden 

disciplines in the area of foreign direct investment. 

Export Credits Arrangement 

Following a 1990 mandate from the OECD 

Council, participants in the Arrangement on Guidelines 

for Officially Supported Export Credits tried to 

strengthen the arrangement in time for the 1991 OECD 

Ministerial meeting. The arrangement is designed to 

regulate government-sponsored subsidies on export 

credits.26 Although the chairman of the Export Credit 

Bodies advanced a proposal at the OECD Ministerial 

meeting, it was accepted by neither the Ministers at the 

OECD Council in June 1991 nor the heads of state 

meeting later at the London economic summit of the 

seven major industrial governments (G-7) in July 1991. 

As a result the OECD Ministerial communique, issued 

on June 5, 1991, called only for a strengthening of 

disciplines under the arrangement. Ministers 

committed themselves to overcoming the remaining 

obstacles to strengthening the arrangement no later 

than the end of 1991. 

In October 1991, participants in the Export Credit 

Committee reached a provisional agreement that would 

further measures to reduce subsidies in the financing of 

exports and in tied-aid credits. These measures aim to 

ensure that trade flows are based on market forces, as 

well as at seeing that development aid is directed to 

countries most in need of such assistance. By 

December 1991, all participants confirmed this 

agreement, known as the "Helsinki package." This 

package was expected to enter into force by February 

1992. However, as of January 1992, participants were 

unable to agree whether credit lines recently awarded 

by several member countries were covered under the 

new accord Z7 

Customs Cooperation 

Council 

Founded by international convention in 1950, the 

Customs Cooperation Council (CCC) promotes 

uniformity in and simplification of customs procedures 

among nations. Initially, the CCC was charged with 

administering the Brussels Tariff Nomenclature (BTN), 

a system for categorizing goods in trade. Later, the 

CCC significantly revised the BTN and changed its 

name to the CCC Nomenclature (CCCN). 

Beginning in 1973 the CCC undertook to prepare a 

new product nomenclature based on the CCCN and 

known as the Harmonized Commodity Description and 

Coding System (HS). Since 1988, the HS has been 

adopted by 63 countries plus the EC 28as the basis for 

national tariffs. Among other tasks, the CCC has 

continued to help standardize customs valuation 

practices, to ensure that developing countries receive 

technical assistance in customs and tariff matters, to 

seek common rules on the origin of goods in trade, and 

to coordinate with other international organizations 

responsible for customs matters and trade statistics. 

Under 19 U.S.C. sections 1209 to 1210, the U.S. 

Customs Service is the agency designated to supply the 

U.S. delegation to the CCC. Overall policy with 

regard to the HS is coordinated by the Office of the 

United States Trade Representative (USTR). In 

addition, staff of the U.S. International Trade 

Commission participate as U.S. representatives on 

several bodies of the CCC. 29 

HS Administration 

In 1983, after 12 years of multilateral work, the 

CCC opened for signature a convention on the 

implementation of the HS as a uniform nomenclature 

for tariff, statistical, and freight documentation 

purposes. The United States, which had not adopted 

the BTN or the CCCN, did approve the HS convention 

and subsequently adopted a new HS-based tariff 

schedule. Enacted in the Omnibus Trade and 

Competitiveness Act of 19883° and implemented by 

Presidential Proclamation 5911 of November 19, 

1988,31the Harmonized Tariff Schedule of the United 

States became effective January 1, 1989. 32 

In 1991 U.S. Government officials continued to 

play an active part in the work of the CCC, its HS 

Committee, the Scientific Committee (charged with 

studying matters requiring particular expertise and 

making recommendations relating thereto), and most 

recently the Review Subcommittee. The latter group is 

engaged in a multiyear reexamination of the HS and 

the accompanying Explanatory Notes and 

Classification Opinions, so that these can be updated to 

reflect changes in technology, production, and patterns 

of trade. 33The Review Subcommittee has already 

submitted recommendations concerning many chapters 

of the HS and its related documents; the 

recommendations are reviewed and approved first by 

the HS Committee and then by the CCC itself. 34This 

58 
work will continue until all 97 international-level 

chapters of the nomenclature and their related notes 

and opinions have been considered. 

The HS and Scientific Committees, the 

Nomenclature and Classification Directorate (a body of 

experts within the CCC providing advice and training), 

and the CCC continued to address questions regarding 

the classification and description of particular goods in 

trade. Among the many products considered in 1991 

were safety lights, tissue stock, rubber boot bottoms, 

track suits and ski ensembles, bulk containers, and 

various chemicals. The work of these groups has also 

focused on the use of the HS as a descriptive system 

for other purposes. In that regard new subheadings for 

ozone-depleting chemicals and for illegal drugs are 

being reviewed as potential additions to the HS, so that 

the movement of these goods can be monitored more 

easily.35 

Other Activities 

Review of the draft Customs Valuation Control 

Handbook, which is being disseminated to interested 

governments to help them achieve consistent practices, 

was completed by the Valuation Directorate in 1991. 

The Technical Committee on Customs Valuation was 

also active, examining such issues as the meaning and 

scope of the term "right to reproduce the imported 

goods" and that right's relationship to pricing of goods 

and to the interpretation of conditions in sales 

agreements (such as the valuation of royalty and 

franchising fees). 36 

The HS Committee and the Council have for some 

time been involved in a review of member countries' 

preentry classification information programs. Both 

bodies encourage the member countries to adopt a 

resolution or recommendation on the establishment of 

such programs, which involve preentry binding rulings 

on classifications of particular goods. The Council 

also collects and disseminates classification opinions 

among the member states, to assist in the consistent 

application of the HS and to provide advice about new 

products in trade. 37 

Other projects on which considerable progress has 

been made include a customs lab guide to assist in the 

classification of chemicals and pharmaceutical 

products. In addition, the CCC and its subordinate 

bodies are working with the United Nations Statistical 

Office, the Secretariat of the GATT, EUROSTAT (the 

statistical entity of the EC), and other groups in 

coordinating the collection and dissemination of world 

trade and production data. The CCC is also focusing 

on establishing an electronic commodity data base 

using the HS nomenclature structure and is attempting 

to achieve the use of uniform statistical units (such as 

value or kilograms) in national tariffs. 38The use of 

common measurements for particular tariff categories 

would promote the comparability of trade data and 

would thereby facilitate analysis and decision making. 

United Nations Conference 

on Trade and Development 

The United Nations Conference on Trade and 

Development (UNCTAD) was created as an organ of 

the United Nations General Assembly in 1974 to 

promote international trade as a means of accelerating 

the economic advancement of developing countries. 

Since its inception UNCTAD's role has been limited 

largely to the exchange of views on trade and aid 

programs among countries that are at different stages 

of economic development or that have different 

economic systems. 39UNCTAD also has been the 

forum for negotiation of multilateral agreements on 

trade in various commodities such as coffee, sugar, and 

cocoa. 

UNCTAD convenes once every 4 years. UNCTAD 

VII was held in July-August 1987. UNCTAD VIII was 

originally scheduled for September-October 1991, but 

was delayed when Uruguay withdrew its offer to host 

the conference in Punta del Este . 4° Between 

conferences, the Trade and Development Board (TDB) 

holds two' or more regular sessions per year and an 

occasional special session. In addition, various 

committees conduct research and pursue consensus on 

specific issues related to international trade and 

development. 

The UNCTAD organizational structure was 

modified during 1991. In the past, members were 

divided into developed countries, developing countries 

(the Group of 77), the People's Republic of China, and 

the former Communist countries of Eastern Europe and 

the Soviet Union. Each group was represented at 

conferences by a spokesperson who voiced the 

consensus opinion of the group. Under the new 

system, each country is free to express its views 

directly on all issues under consideration at 

conferences at 

Generalized System of 

Preferences 

The Generalized System of Preferences (GSP) is a 

framework under which developed countries provide 

preferential tariff treatment to certain goods exported 

by developing countries. The GSP program was 

discussed initially at the first UNCTAD. The authority 

for GATT members to establish such a system of 

preferences was granted in 1971 through a waiver of 

article I of the GATT, which requires 

nondiscriminatory application of MFN tariffs. 42The 

UNCTAD Special Committee on Preferences is 

responsible for overseeing the GSP. 

The Committee on Preferences held its 18th 

session in May 1991. The Committee unanimously 

reaffirmed the importance of the system's objectives 

and recognized that UNCTAD VIII would provide an 

opportunity for further consideration of the GSP as an 

instrument of development. Several countries that 

grant GSP treatment, including Japan, Finland, 

Switzerland, Austria, Norway, Sweden, and Poland, 

59 
had decided before the meeting to extend their schemes 

for additional periods 4 3The United States, however, 

indicated that renewal of its GSP scheme would reflect 

an assessment of the outcome of the Uruguay Round, 

and thus renewal would probably not be considered 

until 1992.44(For additional discussion of the U.S. 

GSP program, see chapter 5.) 

The Committee estimated that developing-country 

products exported under the GSP schemes of OECD 

countries increased from $32 billion to more than 

$60 billion between 1982 and 1990. 45Despite this 

impressive growth, however, much of the 18th session 

focused on the shortcomings of the GSP system and 

individual country schemes. The most significant 

problems cited by the Committee were (1) the 

prevalence of nontariff barriers, (2) a basic mismatch 

between what developing countries could export and 

the products covered under the major GSP schemes, 

and (3) limitations and restrictions and differentiated 

granting of preferential treatment to beneficiaries. 46 

Further discussion centered on the lack of 

consistency among various GSP schemes with regard 

to product coverage. Developing countries pointed out 

that restrictions on preferential treatment are imposed 

on a yearly basis in most schemes, making the 

preferences unpredictable and too complicated to use. 

The U.S. GSP scheme, for example, uses the 

"competitive-need" criterion, which provides for the 

withdrawal of preferential treatment when imports of a 

particular product from a particular beneficiary exceed 

50 percent of total U.S. imports of that product or a 

certain dollar value.47 

Another issue addressed was simplification and 

improvement of the various rules of origin under the 

GSP. Some developing countries complained that rules 

of origin are often too strict, limiting market access for 

a number of important developing-country exporis.48 

The Committee urged developed nations to consider 

incorporating a new provision into their GSP schemes 

whereby the value of imported inputs from countries 

granting GSP treatment further processed in the 

beneficiary country would be counted under the GSP 

rules of origin, making it easier for the rules-of-origin 

requirements to be met. 49 

The main changes in GSP schemes worldwide 

described by the Committee in the period since its 17th 

session in March 1990 included the extension of 

beneficiary status, on a temporary basis and within the 

context of the fight against drugs, by the EC to 

Colombia, Bolivia, Peru, and Ecuador.50Namibia 

became a beneficiary of the schemes of Austria, 

Finland, Norway, Sweden, Switzerland, the United 

States, and the EC. Mongolia became a beneficiary of 

the schemes of the EC, Austria, and Switzerland. 

During 1990-91 the EC and Austria also extended 

preferential treatment, on a temporary and exceptional 

basis, to Poland, Hungary, the Czech and Slovak 

Federal Republic, Bulgaria, and Romania. 5 I The 

United States in 1991 also explored the possibility of 

granting preferential treatment to these countries, 

extending GSP treatment to the Czech and Slovak 

Federal Republic on April 25, 1991, and to Bulgaria on 

December 4, 1991. 

Trade Finance 

Following up a resolution adopted during the fifth 

session of the UNCTAD Committee on Economic 

Cooperation among Developing Countries, the 

UNCTAD Secretariat, along with relevant international 

organizations, issued several reports during 1991 on 

the issue of trade finance. UNCTAD's concern was 

that the current efforts of developing countries to 

liberalize and expand their mutual trade could be 

limited by the inadequacy of their trade-financing 

systems, both in terms of overall capacity and degree 

of specialization. 

A report issued by the Secretariat in July 1991 took 

the view that trade financing is unavailable to most 

exporters in developing countries because of external 

and internal factors that include imperfect market 

conditions, lack of capital, and foreign-exchange 

constraints imposed by national monetary authorities. 2 

 The Secretariat's report further argued that 

trade-finance operations in many developing countries 

lack specialization in trade-finance services and are 

often subsidiary to other functions, such as banking. 53 

 UNCTAD estimated that the financing need for 

developing-country exports currently ranges from $6.3 

billion to $14.9 billion annually. 

UNCTAD, working with a U.S. consulting firm, 

also issued a study in May 1991 that considered 

whetheran interregional trade-financing facility 

(111-0, for financing trade among developing 

countries in nontraditional export; 34could be 

established on a commercially viable 53basis.56The 

study demonstrated that even under 10 different 

scenarios that tested sensitivity to changes in the base 

model, an ITFF could remain commercially viable. 

The report also argued that, using UNCTAD estimates 

of projected need for nontraditional export financing, 

an ITFF for such exports might increase South-South 

trade (that is, trade among developing countries and the 

need to finance it) by approximately 6 percent 

annually.57The report indicated that under the most 

realistic scenarios conceived the ITFF should be able 

to provide between $1.4 billion and $7.9 billion 

annually in trade finance within 5 years. 58 

The TDB, at its 38th session held in Geneva from 

September 23 to October 4, 1991, adopted resolution 

394, which called upon the UNCTAD Secretariat to 

undertake consultations with all interested 

governments on the feasibility of establishing an ITFF 

among developing countries. 39The United States and 

other industrialized countries are expected to respond 

to the Secretariat's proposals by the end of 1992. 6° 

Restrictive Business Practices 

Resolution 35/63, adopted at UNCTAD's fifth 

conference on December 5, 1980,61calls upon the 

organization to act in an advisory and training role to 

assist developing countries in detecting and effectively 

60 
controlling restrictive business practices (RBPs). 

UNCTAD has concentrated on two categories of RBPs: 

(1) "horizontal RBPs," or cartel arrangements, that 

dominate the domestic market, imports, exports, or 

world markets, and (2) "vertical RBPs," or practices 

such as actual or threatened refusals to deal, resale 

price maintenance tiedselling, exclusive dealing, and 

predatory pricing.bz 

An Intergovernmental Group of Experts (IGE) 

meets annually to review cases of RBPs encountered 

by developing countries and to discuss legislation 

introduced by various countries to control RBPs. At 

the 10th annual meeting of the IGE, held in Geneva on 

October 21 to 25, 1991, the UNCTAD Secretariat 

reported that it had substantially expanded its technical 

assistance activities in the area of RBPs during 1991 63 

According to the Secretariat developing countries, as 

well as countries in transition from centrally planned to 

market economies, have recently shown considerable 

interest in competition policies and RBP control. A 

major reason for this increased level of interest relates 

to the economic reforms adopted in a growing number 

of countries that involve a divestment of state 

monopolies, privatization, and the dismantling of 

subsidies and price controls. 64 

Another area of concern covered by the IGE in its 

10th meeting was the recent increase in mergers, 

acquisitions, and joint ventures and their effects on 

international markets and developing economies. In a 

report issued by the UNCTAD Secretariat, the IGE 

noted that there was a massive increase in mergers in 

developed countries during the 1980s and that the level 

of activity is likely to continue in the 1990s. 65On the 

other hand, there has been relatively little merger 

activity in developing countries, but the growth rate 

has been significant in such regions as Latin America. 

The IGE pointed out that the increased level of merger 

and acquisition activity, although not without benefits 

for developing countries, may also give rise to 

monopolies, cartels, and other conditions of imperfect 

competition. The group recommended that developing 

countries exert "greater vigilance to ensure that 

horizontal arrangements do not eliminate competitors, 

that vertical arrangements do not foreclose production 

inputs or distribution channels, or that conglomerate 

mergers do not lead to the control of small economies 

resting in a few hands."66The group also 

recommended full implementation of the Set of 

Principles and Rules on Restrictive Business 

Practices,67improved transparency and information 

sharing among governments on arrangements affecting 

competition, and further study of the interrelationships 

between competition and trade policy. 68 

Shipping 

In its 14th session in June 1990, the UNCTAD 

Committee on Shipping adopted resolution 67 (XIV), 

which requested the Secretary General of UNCTAD to 

convene a group of experts during 1991 to discuss 

developments in multimodal transport and to take stock 

of the principal problems experienced by users and 

providers of multimodal transport in operations with 

developing countries. To facilitate the work of the 

group of experts, the Committee on Shipping also 

requested the UNCTAD Secretariat to provide the 

group with a series of studies on different aspects of 

multimodal transport before their meeting in March 

1992.69 

Many of the UNCTAD Secretariat's efforts have 

focused on present inefficiencies in the transport and 

shipping sectors of developing nations and the effects 

of those inefficiencies on international trade. A report 

issued by the Secretariat in November 1991 dealt with 

the practical problems faced by government and 

commercial parties in transporting goods to and from 

developing countries. The report indicated that 

inefficient road, air, railway, and shipping services can 

act as significant impediments to regional and 

international trade. 7° The report also noted that the 

shipping industry in most developing countries is under 

strong government direction and control, and that this 

control can severely constrain the ability of shipping 

companies in these countries to apply coherent 

business policies. 71Further, the Secretariat's report 

pointed out that the governments of many developing 

countries appear to look on shipping as an ancillary 

service for promoting foreign trade rather than as a 

commercial business enterprise in a highly competitive 

environment.72 

Another report published by the UNCTAD 

Secretariat in November 1991 described the 

importance of electronic data interchange (EDI) and 

electronic data processing (EDP) technology as a 

means of administering transport information and 

facilitating international trade. 7' The report indicated 

that the adoption of such technology will become 

increasingly vital to the shipping industries of 

developing countries as more advanced shipping 

nations develop a global EDI system. 74 

Negotiation and Operation of 

International Commodity 

Arrangements 

Within the United Nations system UNCTAD is the 

primary organization responsible for international 

commodity policy and commodity trade. In this role 

UNCTAD has promoted the negotiation of 

international commodity agreements among producing 

and consuming countries to stabilize market conditions 

for a wide range of primary products of vital economic 

importance to developing countries. UNCTAD's 

Committee on Commodities annually monitors the 

operation of international commodity agreements. 

At the end of 1991 the United States was a member 

of six international commodity agreements, which 

cover coffee, natural rubber, jute, sugar, tropical 

timber, and wheat. The United States was not a 

participant in a seventh agreement, which covers 

cocoa. The United States may enter into such 

agreements through executive agreements, treaties 

requiring ratification by a two-thirds majority of the 

61 
Senate, or through specific enacted legislation. A 

treaty is the customary route. In general, the United 

States has expressed concern regarding the potential 

for long-term market distortions under international 

price-stabilization mechanisms. The United States 

contends that world markets should be allowed to 

operate freely and without government interference. 

U.S. efforts are focused on promoting research and 

development funding rather than on market 

intervention.75However, the United States has shown 

that it is willing to consider participation in a 

commodity agreement if there is a demonstrated need 

in an economically sound market and a balance 

between producer and consumer interests. 76 

Three of the agreements (cocoa, coffee, and natural 

rubber) contain specific mechanisms designed to 

reduce fluctuations in prices, to improve long-run 

producer earnings, and to deliver a steady, adequate, 

and reasonably priced supply of the commodity to the 

consumer. The cocoa and natural rubber agreements 

provide for market intervention through the buying and 

selling of buffer stocks to moderate price swings. The 

coffee agreement, on the other hand, uses export quotas 

to stabilize prices. For a price-stabilization 

arrangement to be viable, the proposed price range 

must be compatible with the anticipated long-term 

market trend. In addition, the price-affecting 

mechanism must be sufficiently flexible to allow prices 

to move up or down in response to changes in 

international supply and demand. The agreements 

covering jute, sugar, tropical timber, and wheat are not 

specifically designed to stabilize prices. Instead these 

agreements seek to promote research on and market 

development of their respective commodities. 

Cocoa 

The current International Cocoa Agreerqent 

(ICCA)77was concluded in July 1986 and officially 

went into effect in January 1987. 78Unlike the 

previous 1980 agreement, the 1986 ICCA included as a 

member the world's largest producer of cocoa: Cote 

d'Ivoire. The agreement was scheduled to be in effect 

through 1990. However, because the signatory 

countries were unable to negotiate a new agreement by 

the end of that year, the 1986 ICCA was extended for 

an additional 3 years.79Many unresolved problems 

pose obstacles to the successful conclusion of a new 

ICCA—among them the fact that producers favor an 

export-quota system to regulate supply, whereas 

consumers have proposed a withholding scheme in the 

producing countries to complement present buffer 

stock remaining from the 1986 ICCA. 

The United States has not been a member of any 

of the ICCAs for a variety of reasons. Most notably 

the U.S. Government believes that buffer-stock 

agreements—arrangements whereby reserve stocks of 

a given commodity are bought and sold to stabilize 

price levels—generally do not work, that the cocoa 

agreements have been inadequately funded, and that 

unrealistic price ranges are specified in the 

agreements. 8° The 1986 ICCA's 250,000-metric-ton 

(mt) buffer stock includes 100,000 mt of cocoa carried 

over from the 1980 ICCA. The buffer stock is 

financed by a 1.4-cent-per-pound levy on member 

exports and on member imports from nonmembers. 

The ICCA provides for semiautomatic adjustment 

mechanisms and price reviews. Prices in the current 

ICCA are denominated in special drawing rights 

(SDRs) to moderate currency fluctuations. 81Table 3 

lists the price ranges82of the ICCA for buffer-stock 

operations in 1991. 

Cocoa prices under the agreement are determined 

by reference to a daily price and by an indicator price 

expressed in SDRs per mt. Prices are reviewed 

annually and are adjusted automatically by 115 SDRs 

per mt, up or down, if they are not within the 

mandatory intervention levels and if the buffer-stock 

manager has bought or sold 75,000 mt of cocoa within 

a 6-month period. 83 

The ICCA also includes a provision for a 

withholding scheme in case the buffer stock is unable 

to maintain prices within the designated range." The 

release of cocoa from the withholding scheme would 

begin when the indicator price has been at or above the 

median price for 10 consecutive market days. 

Buffer-stock sales cannot resume until all cocoa has 

been released from the withholding scheme. 

Coffee 

The current International Coffee Agreement (ICA) 

entered into force provisionally in October 1983 and 

definitively on September 11, 1985. The United States 

participates in the ICA along with 74 other nations, 

Table 3 

ICCA reference, Intervention, and trigger prices for buffer-stock operations, 1991 

SOR/mt 

Approx. 

dollar/lb. 

Upper trigger action (must sell) price 

Upper intervention (may sell) price 

2,155 

2,100 

$1.33 

1.29 

Median price 1,820 1.12 

Lower intervention (may buy) price 1,540 .95 

Lower trigger action (must buy) price 1,485 .92 

Source: International Cocoa Organization. 

62 
including 50 producing countries that account for more 

than 99 percent of all coffee traded on the world 

market. The present agreement, which will expire on 

September 30, 1993, is the second 2-year extension of 

the original 6-year agreement, which came into force 

on September 30, 1983. The International Coffee 

Organization (ICO) administers the ICA under rules 

and regulations established by the International Coffee 

Council (ICC). 

On July 3, 1989, the ICC suspended export quotas, 

and it has elected to maintain the suspension until the 

expiration of the current agreement in September 1993 

or until a new ICA can be negotiated. Following the 

suspension and the resulting increase in supply, coffee 

prices declined significantly. The 1991 yearend ICO 

composite indicator price fell by 7 percent from the 

1990 composite price to 67 cents per pound, nearing a 

16-year low (table 4). Officials at the U.S. Department 

of Agriculture (USDA) report that disagreements 

among ICA members over market shares, discount 

sales to nonmembers, and the problem of availability 

of the types and qualities of coffee desired by 

consuming countries continue to undermine 

negotiations aimed at restoring the ICA's export quota 

system. 

The September 1991 meeting of the International 

Coffee Council ended without establishing a basis for a 

new ICA, but members did agree to set up a working 

group to review all proposals for a new ICA. 85The 

major topic of disagreement continues to be which 

market regulatory system to adopt in a new ICA. 86 

 There is widespread agreement, however, that the 

market must be regulated and that all importing and 

exporting countries should participate in such 

regulation. Most producing and consuming countries 

want a return to export quotas, the latter being the focal 

point of the most recent pact. Even Brazil, which had 

stood in opposition to export quotas, has stated that it is 

prepared to accept export quotas provided "the 

allocation. ..reflects the real capacity of exporting 

countries to supply the market."81 

Table 4 

Green coffee: International Coffee Organization monthly average composite indicator prices, on 

the basis of the 1979 agreement, 1987-91 

(Dollars per pound) 

Month 1987 1988 1989 1990 1991 

January $1.18 $1.15 $1.27 $0.63 $0.69 

February 1.16 1.21 1.18 .67 .71 

March 1.01 1.18 1.17 .75 .73 

April 1.04 1.16 1.18 .75 .72 

May 1.11 1.16 1.16 .73 .68 

June 1.02 1.19 1.05 .70 .66 

July .96 1.14 .77 .68 .64 

August .98 1.07 .69 .74 .63 

September 1.05 1.14 .69 .76 .67 

October 1.11 1.14 .61 .74 .63 

November 1.16 1.14 .62 .70 .64 

December 1.15 1.24 .62 .73 .63 

Average 1.08 1.16 .92 .72 .67 

Source: Compiled from ICO data reported by the U.S. Department of Agriculture and the U.S. Department of 

Commerce. 

Sugar 

The 1987 International Sugar Agreement (ISA) 

entered into force on January 1, 1988, following the 

expiration of its predecessor, the 1984 ISA. The 

International Sugar Organization (ISO), located in 

London, administers the agreement. Concluded on 

September 11, 1987, the current ISA operated for its 

slated 3 years and was scheduled to expire on 

December 31, 1990. The ISO Council, however, voted 

in November 1990 to extend the 1987 agreement for 

another year, hoping that within this time the Uruguay 

Round of the GATT would be concluded. The 1987 

ISA allows for two such extensions, which require a 

two-thirds vote by the exporting members and a 

two-thirds vote by the importing members. When 

itbecame clear that the Uruguay Round would not be 

concluded before the end of 1991, the Council voted to 

extend the 1987 agreement a second time,88allowing it 

to run through December 31, 1992. 89 

Like its predecessor, the 1987 ISA is merely an 

administrative agreement and does not contain 

economic provisions to control prices. 9° The only 

change the 1987 ISA makes with regard to the previous 

agreement is the method of financing the ISO. Rather 

than an even split between importers and exporters, 

importers are liable for only 42.5 percent of the costs, 

and exporters are accountable for the remaining 57.5 

percent. This change was made to distribute more 

equally the burden of payment between the two groups, 

as more exporters than importers are signatories to the 

ISA. 

As of November 1991 the ISO listed 45 

signatories. (The 12 EC countries constitute 1 

member.) Since then, however, the United States, 

Pakistan, and Canada have withdrawn from the ISO, 

and the exact status of the republics that formerly made 

up the Soviet Union is uncertain. Following the initial 

breakup of the Soviet Union, however, the republic of 

63 
Russia assumed its seat on the ISO Council and paid 

the required membership dues. 91At year's end Russia 

was the only former Soviet republic participating in the 

agreement. 

Voting rights are assessed in proportion to each 

member's contribution to the administrative budget. In 

November 1988 the voting rights and the Council seat 

of the United States were suspended for failure to pay 

the 1988 budget assessment in full. The United States 

has since been in arrears in its payments to the ISO. 

According to the U.S. Department of State, the amount 

owed by the United States as of August 1990 was 

approximately $215,000. The United States regained 

its voting rights and seat on the Council in December 

1991, however, and also (before leaving the ISO in 

March 1992) paid its dues for the current year. The 

full amount still owed by the United States is 

scheduled to be repaid by the end of 1992. 

The use of target prices for sugar was discontinued 

after 1984. Actual prices have remained below the 

1982-84 target range. Table 5 presents world market 

prices for sugar from January 1987 to November 1991. 

Natural Rubber 

The current International Natural Rubber 

Agreement (INRA), also known as INRA II, was 

negotiated in March 1987 at the 4th United Nations 

Conference on Natural Rubber and became 

provisionally effective on December 29, 1988. 92This 

second international rubber agreement replaced the 

highly successful INRA I (1979)," which came to a 

formal close after the 18th session of the International 

Natural Rubber Council in March 1989. INRA II has a 

term of 5 years, with provisions for a possible 2-year 

extension. 

The International Natural Rubber Organization 

(INRO), established under INRA I and continuing 

under INRA H, supervises the operations and 

administers the provisions of the agreement. 

Membership in this organization is composed of 

exporting and importing members; each group has half 

of the voting power and financing responsibilities. By 

the end of 1991 the membership included 6 exporting 

countries, 20 importing countries, and the EC. The 

accession in late 1991 of Cote d'Ivoire, the second 

African country to join the exporters' group, broadened 

the geographic representation of the organization's 

membership .94 

The objectives of INRA are to stabilize natural 

rubber prices without distorting long-term market 

trends and to expand the supply of natural rubber at 

reasonable prices. The agreement seeks to alleviate the 

instability of prices through the use of the buffer 

stock-the sole instrument of market intervention. 

Members are committed to financing the total cost of 

the normal buffer stock of 400,000 mt, and the 

contingency buffer stock of 150,000 mt. Market 

intervention by the buffer-stock manager (BSM) is 

guided by the daily market indicator price (DMIP) and 

the INRA reference, intervention, and trigger action 

prices.95Table 6 lists the price ranges 96of INRA for 

buffer-stock operations. 

Natural rubber prices were relatively steady during 

the first half of 1991 and did not require intervention 

by the BSM. The DMIP remained within two cents of 

the BSM's "may buy" price of M/S$1.76 (US$0.78) 

during March, April, and May. 97In the second half of 

1991, however, the BSM decided to intervene in the 

market and purchased natural rubber. 98Prices 

remained weak for the remainder of 1991, and the 

INRO Council considered a downward revision of the 

reference price during its 24th session in October 1991. 

Table 5 

Raw and refined sugar: World market prices, Contract No. 11, F.O.B. Caribbean Ports, and 

Contract No. 5, F.O.B. Europe, U.S. cents/lb., 1987-91 

Year, 

quarter, 

and month 

World 

raw 

sugar 

World 

refined 

sugar 

Spread between 

world raw and 

refined sugar price 

1987 6.71 8.75 2.04 

1988 10.17 12.01 1.84 

1989 12.79 17.15 4.36 

1990 12.55 17.32 4.77 

1990 

14.80 19.53 4.73 

II 14.28 19.67 5.39 

III 11.28 16.12 4.84 

IV 9.83 13.95 4.12 

1991 

8.89 13.55 4.66 

II 8.60 13.25 4.65 

III 9.70 14.07 4.37 

Oct 9.10 13.03 3.93 

Nov 8.79 12.71 3.92 

Source: Coffee, Sugar, & Cocoa Exchange, Inc., London Commodity Exchange, U.S. Department of Agriculture. 

64 
Council members determined that the prior 6-month 

average reference price of M/S$1.77 was above the 

lower intervention price of MIS$1.76,99and therefore 

no revision took place. 10° Also during the 24th session 

the Council addressed the possible renegotiation of 

INRA. 1 ° 1The two main sources of natural rubber 

statistics reported different production and 

consumption figures for natural rubber in 1991. 

However, they both showed similar trends: increases 

in production and slight decreases in consumption. 

One source reported that worldwide consumption of 

natural rubber amounted to 5.20 million mt in 1991, 

down by nearly 1.0 percent from 5.25 million mt in 

1990. Production of natural rubber reached 5.21 

million mt in 1991, 1.2 percent higher than the 

5.15 million mt in 1990. 102A second source reported 

consumption at 5.16 million mt in 1991, compared 

with 5.22 million mt in 1990. Production was 

estimated to have increased by 1.0 percent, from 5.21 

million mt in 1990 to 5.26 million mt in 1991. 103 

Jute 

The present International Jute Agreement (UA) is a 

continuation and extension of the original UA,I 04 

 which was initiated in 1982 under the auspices of 

UNCTAD. The current UA entered into effect 

provisionally in January 1991 and came fully into force 

on April 12, 1991, after the required number of 

signatories was obtained. 105The number of 

signatories to the present UA (3 exporting members 

and 21 importing members, including the United 

States) represents a decline in membership from the 

original agreement. The present UA is scheduled to 

expire on January 9, 1996, although it can be extended 

for two periods of up to 2 years each. 106 

Traditionally, the main objectives of the UA have 

been to improve the competitiveness and quality of jute 

and jute products, to ensure adequate supplies, and to 

maintain and develop the demand for jute. The present 

LTA more specifically emphasizes achievement in the 

following areas: 

1. Promoting expansion and diversification 

of international trade in jute and jute 

products by developing new end uses for 

jute and jute products and by encouraging 

increased consumption of jute and jute 

products; 

2. Providing a more effective framework for 

cooperation and consultation among 

members; 

3. Providing increased awareness of jute's 

environmental benefits; 

4. Improving the availability of information 

concerning the international jute market; 

5. Improving the quality and increasing the 

production yield of jute fiber; and 

6. Improving the quality and reducing the 

production cost of jute products. 

The new UA continues to operate without any 

economic provisions such as buffer stocks, price 

stabilization measures, or export quotas. 

The International Jute Organization (UO), which 

administers the UA with the assistance of the 

International Jute Council (UC), is headquartered in 

Dhaka, Bangladesh. The UC's main responsibilities 

are to organize and conduct semiannual sessions and to 

oversee the meetings of the Committee on Projects. 

The UO concentrates on assembling information, 

undertaking research and development projects, and 

conducting studies pertaining to problems in the world 

jute market. 

Wheat 

The International Wheat Agreement (IWA), unlike 

many other international commodity agreements, has 

no provisions for buffer stocks, intervention ranges, or 

export quotas. The activities of the IWA are allocated 

to two conventions: a Wheat Trade Convention, with 

48 member countries, and a Food Aid Convention, 

with 23 member countries. As part of its 

Table 6 

INRA reference, intervention, and trigger prices for buffer-stock operations, 1991 

Malaysian/Singapore 

dollars per kilogram 

Approx. 

USS/kg* 

Upper trigger action (must sell) price 

Upper intervention (may sell) price 

Median price 

Lower intervention (may buy) price 

Lower trigger action (must buy) price 

2.38 

2.49 

2.07 

1.76 

1.66 

1.11 

1.06 

.92 

.78 

.74 

The exchange rate used is the mathematical average of the Malaysian currency exchange rate and the 

currency exchange rate. For 1991, the rate used was calculated from data provided by the International 

Fund, International Financial Statistics, April 1992, pp. 351 and 471. 

Source: The Economist Intelligence Unit, Rubber Trends, March 1992, p. 17. 

Sin 

Monetary

gapore 

65 
responsibilities, the IWA provides technical studies, 

collects market information, and coordinates food-aid 

pledges by exporters and importers to needy 

developing nations. The various functions of the IWA 

have been administered by the International Wheat 

Council (IWC), the only commodity organization in 

which the United States has had membership as an 

exporting nation. Brazil, a large importer of grain, 

backed out of the IWC in 1991 citing chronic 

budgetary constraints. As of December 1991 there 

were 48 signatories to the IWA. 

The original agreement for the TWA, negotiated in 

1971, was extended eight times. A new IWA was 

negotiated in 1986. Although it continues the 

functions and organizational structures of previous 

agreements, the latest IWA expanded the scope of 

research and reporting to include other grains. It also 

includes increased pledges under the Food Aid 

Convention. The new agreement still does not 

empower the IWA to intervene in the world market to 

regulate supplies and prices, an activity the United 

States opposes. In fact the new IWA downplays the 

language in the original IWA dealing with eventual 

price intervention. 

Both the Wheat Trade Convention and the Food 

Aid Convention of the IWA were to expire June 30, 

1991. The Food Aid Committee, during its 61st 

session on December 13, 1990, agreed to extend the 

Wheat Trade Convention and the Food Aid Convention 

to June 30, 1993. 107 

In marketing year July 1990 through June 1991 

world consumption of wheat and wheat flour rose to 

572.1 million mt, up from 534.4 million mt in 

marketing year 1989/90. Total world production 

increased by just over 10 percent, from 537.9 million 

mt in 1989/90 to 593.3 million mt in 1990/91. 

Significantly, wheat production by major importers 

(the EC, the former Soviet Union, Eastern Europe, 

Japan, and China) rose by nearly 9 percent, from 

305.8 million mt in 1989/90 to 332.0 million mt in 

1990/91. For the 2nd year in a row, consumption did 

not exceed production and world stocks of wheat and 

wheat flour consequently did not decrease 

significantly. 1 °8The USDA forecast for 1991/92, 

however, indicated a reversal of the recent increase in 

world production and stocks, primarily because of 

production drops in the United States and the former 

Soviet Union. 1 °9The USDA also estimated that world 

wheat stocks would decrease by roughly 7 percent by 

the end of marketing year 1991/92, despite large 

increases in Canada and the EC. Prospects of reduced 

stocks and expectations of strong import demand have 

reportedly been fueling a rise in prices since July 

1991 . 110 

From 1989/90 to 1990/91, world trade in wheat 

declined by approximately 3 percent, from 96.1 million 

mt to 93.5 million mt. Factors contributing to this 

decline included increased production by world wheat 

importers, increased world wheat stocks, and a world 

wheat market made highly competitive by excess 

production. Overall the U.S. share of the world wheat 

market declined from 34.9 percent in 1989-90 to 303 

percent in 1990-91. 

Tropical Timber 

The International Tropical Timber Agreement 

(ITTA) came into force on April 1, 1985, following 8 

years of negotiations carried out under the aegis of 

UNCTAD. Since it entered into force the agreement 

has been signed by 18 producer countries and 23 

consumer countries, which form the International 

Tropical Timber Organization (ITTO). These countries 

account for more than 95 percent of world trade in 

tropical timber."' 

The objectives of the ITTA reflect a recognition by 

member governments that tropical timber is an unusual 

commodity because (1) it is harvested mostly from 

virgin forests, (2) it is a product of highly fragile 

ecosystems, and (3) it is renewable only over a long 

timespan. Broadleaved hardwood forests need a 

minimum of 30 to 50 years to produce logs that can be 

harvested. This long growout period makes the 

management of tropical timber very different from that 

of other agricultural resources. Another unique feature 

of the commodity is that tropical forests not only yield 

valuable timber for export, but also play an important 

role in the protection of the planetary environment. 

Tropical forests also provide a life-support system for 

the people who live in or near these forests. For these 

reasons the ITTA seeks to ensure that commercial 

harvesting of tropical timber is kept in balance with 

conservation and environmental needs. It is the only 

international commodity agreement to include such 

objectives. 

The ITTA was the third commodity agreement to 

be negotiated under the framework of UNCTAD's 

Integrated Program for Commodities. Its objectives 

are (1) to provide an effective framework for 

cooperation and consultation between tropical timber 

producing and consuming countries with a view to the 

promotion, expansion, and diversification of 

international trade in tropical timber and (2) to improve 

structural conditions in the tropical timber market. To 

these ends the ITTA promotes research and 

development aimed at improving forest management, 

wood use, and market intelligence, and at encouraging 

further processing of tropical timber in producing 

countries. The MIA also works to improve the 

marketing and distribution of tropical timber exports, 

and to encourage national policies aimed at sustainable 

use and conservation of tropical forests. Projects in 

these areas are financed by an internal UNCTAD 

account (the Second Account of the Common Fund for 

Commodities), by regional and international fmancial 

institutions, and by voluntary contributions. 

The ITTO held its 10th Council session in Quito, 

Ecuador, in early June 1991. The focus of this session 

was to ensure that international trade does not 

completely dominate the tropical timber industries of 

member countries. (For additional discussion of this 

topic, see chapter 1, "Trade and the Environment" 

66 
section.) A number of signatories expressed concern 

that there should be enough tropical timber resources 

in the long term to meet the needs of the producing 

countries themselves and still provide a surplus for 

export. ' 12 

The 11th Council session of the MO was held in 

Yokohama, Japan, from November 28 to December 4, 

1991. The meeting's main achievement was the 

adoption of a definition and set of criteria for 

sustainable management of tropical timber. Criteria 

adopted for sustainability include1. The forest resource base, 

2. The continuity of flow of forest products, 

3. The level of environmental control, 

4. Socioeconomic effects, 

5. Institutional frameworks, 

6. Resource security, 

7. The continuity of timber production, 

8. The conservation of flora and fauna, 

9. An acceptable level of environmental 

impact, and 

10. Planning and adjustment to experience. 

Examples of indicators were outlined under each 

criterion. The ITI'O emphasized that the lists were not 

all-inclusive and must be adapted to the specific nation 

or management unit. The Council also reiterated the 

target date of the year 2000 for sustainable yield 

management for tropical forests. 

Other Trade Agreements 

Enterprise for the Americas 

Initiative 113 

President Bush formally announced the Enterprise 

for the Americas Initiative (EAI) on June 27, 1990, 

following a review of U.S. economic policies regarding 

Latin America. The purpose of the EAI is to recognize 

and to encourage ongoing economic reforms in Latin 

America. The three key components of the EAI are (1) 

expanded trade among countries in the hemisphere, 

with the long-term objective of a Western Hemisphere 

free-trade zone, (2) investment promotion and support 

for economic reforms that encourage private 

investment, and (3) debt relief for Latin American and 

Caribbean countries. 

In announcing the EAI, President Bush stated that 

the United States was prepared to sign "framework 

agreements" with any interested eligible country or 

group of countries in Latin America that wish to work 

toward freer trade in the hemisphere. The EAI 

framework agreements are modeled on the 

U.S.-Mexico Framework on Principles and Procedures 

for Consultation Regarding Trade and Investment 

Relations agreement signed in 1987. 114The EAI 

agreements contain a statement of agreed principles 

recognizing (1) the benefits of open trade and 

investment, (2) the importance of trade in services, (3) 

the need for adequate intellectual property rights 

protection, (4) the importance of observing and 

promoting internationally recognized worker rights, 

and (5) the desirability of resolving trade and 

investment problems expeditiously. The agreements 

also establish intergovernmental councils to discuss 

trade and investment issues on a regular basis and, 

when appropriate, to negotiate the removal of trade and 

investment barriers. 

In all, the United States has signed EAI framework 

agreements covering 30 Latin American countries 

(excluding the agreement signed with Mexico). The 

United States signed EAI framework agreements with 

24 Latin American and Caribbean countries in 1991. 

Bilateral agreements were signed with the Dominican 

Republic, El Salvador, Guatemala, Nicaragua, Panama, 

Peru, and Venezuela. The United States also signed 

two multilateral EAI framework agreements: one with 

the Southern Common Market (MERCOSUR) 

countries of Argentina, Brazil, Uruguay, and Paraguay, 

and the other with the 13 English-speaking Caribbean 

Community (CARICOM) countries of Antigua and 

Barbuda, the Bahamas, Barbados, Belize, Dominica, 

Grenada, Guyana, Jamaica, Montserrat, St. Kitts and 

Nevis, St. Lucia, St. Vincent and the Grenadines, and 

Trinidad and Tobago. Agreements with Bolivia, Chile, 

Colombia, Costa Rica, Ecuador, and Honduras were 

signed in 1990. The only independent Latin American 

countries the United States has not signed framework 

agreements with as of this writing are Cuba, Haiti, and 

Suriname. 

Steel Import Program 

Background of the Voluntary 

Restraint Agreement Program 

In 1984, following an investigation under section 

201 of the Trade Act of 1974, the U.S. International 

Trade Commission found that increased imports of 

certain steel products were a substantial cause of 

serious injury, or threat of serious injury, to the 

domestic steel industry. On September 18 of that year, 

however, the President determined that import relief 

for the steel industry was not in the national economic 

interest. 115Instead of granting relief through quotas or 

higher import duties, the President outlined a program 

of VRAs specially designed to help the domestic steel 

industry to compete with imports. 116The President 

directed USTR to negotiate —surge control' arrangements or understandings" (VRAs) with countries 

whose steel exports to the United States had increased 

significantly due to an "unfair surge in imports." 117 

67 
These VRAs were to be negotiated for the period 

October 1, 1984, to September 30, 1989. Under them, 

imports of finished steel products would be limited to 

18.0 million tons, or 18.5 percent of the domestic 

market. (That share excluded semifinished steel 

imports, which were subsequently limited to about 1.7 

million tons annually.) 118 

As of 1986, USTR had negotiated VRAs with 19 

countries and with the EC, excluding Spain and 

Portugal. (These two countries negotiated separate 

agreements because they were not yet members of the 

Ec.)119 The agreements contained market-share 

arrangements, quotas, or a combination thereof. 

Arrangements differed among countries, with 

considerable variations in the number of products 

subject to limitation. Each arrangement, however, 

involved an agreement by the foreign country to limit 

exports of certain steel products to the United States. 

To bring these agreements into effect, U.S. producers 

withdrew their pending unfair trade petitions and the 

U.S. Government suspended antidumping and 

countervailing duties that were in effect on steel 

products. 120 

Extension of the VRAs 

On July 25, 1QX9, the President announced a Steel 

Trade Liberalization Program, under which the VRAs 

were extended for 2 1/2 years, until March 31, 

1992.121 Under this program, the President also 

directed USTR to negotiate Bilateral Consensus 

Agreements (BCAs) with all major steel-trading 

countries to open their markets and eliminate 

government subsidies. BCAs include commitments by 

countries to prohibit subsidies for steel production and 

keep markets open for steel through the elimination of 

nontariff measures. They also contain a 

binding-arbitration mechanism to provide quick and 

effective remedies if countries violate the 

agreements. 122 

VRAs were to be concluded at a base restraint 

level (the initial export restraint level) of 18.4 percent 

of the domestic market (the same as the 1988 VRAs 

import penetration level). However, to provide 

incentives for countries to eliminate trade-distorting 

practices and to respond to steel consumers' concerns 

about an adequate supply of raw materials, the 

President authorized additional import penetration, up 

to 1 percent annually, for countries entering into 

BCAs. 123 

On December 12, 1989, USTR announced that 

negotiations covering a 2 1/2 year extension of the 

VRAs had been completed with the EC and the 16 

other countries 124that previously had VRAs. 125As a 

result of these negotiations, the restraint levels for steel 

mill products (including semifinished steel) increased 

to a 19.1-percent share of domestic consumption in the 

first period of the new VRA program (table 7). 

Additional increases in restraint levels were authorized 

for subsequent years for countries that entered into 

BCAs with the United States. The parties with which 

the United States has negotiated BCAs are Australia, 

Austria, Brazil, the EC, Finland, Japan, the Republic of 

Korea, Mexico, Trinidad and Tobago, and Yugoslavia. 

These parties accounted for more than 97 percent of 

U.S. steel imports from countries included in the VRA 

program in 1991. 126Product coverage under the 

extended VRAs remained essentially unchanged, 

although the agreements were modified to include 

specialty steel products that were previously subject to 

relief under section 203 of the Trade Act of 1974. 127 

From 1986 to 1991, when the VRAs were in effect, 

conditions in the domestic steel industry improved. 

Imports decreased by 24.0 percent, and exports 

increased by 578 percent (from 980 thousand short 

tons to 6,617 thousand short tons in 1991). Domestic 

demand increased, and as a result domestic producers' 

shipments rose by 12.8 percent (from 70.3 million 

short tons to 78.9 million short tons. Imports as a 

percentage of apparent consumption declined to 18.3 

percent in 1991, from 23.6 percent in 1986. From 

1986 to 1991, imports from VRA countries as a 

percentage of apparent consumption fell to 13.6 

percent from 17.7 percent, whereas imports from 

non-VRA countries as a percentage of total apparent 

consumption decreased to 4.7 percent from 5.9 percent. 

In 1991 Canada was the largest non-VRA supplier, 

followed by Sweden, Argentina, Taiwan, Turkey, New 

Zealand, India, Colombia, Norway, and Singapore. 128 

 Table 7 shows countries subject to VRAs and their 

respective limits, under initial and extended restraint 

arrangements. 

Arrangement Regarding 

International Trade in Textiles 

The Arrangement Regarding International Trade in 

Textiles, known as the Multifiber Arrangement (MFA), 

has controlled much of world trade in textiles and 

apparel since 1974. 129Created under the aegis of the 

GATT, the MFA is intended to promote orderly world 

trade in these products and to prevent market 

disruption. To this end the MFA allows signatories to 

negotiate bilateral agreements that establish 

quantitative limits, or quotas, on imports of most types 

of textiles and apparel. In the absence of a mutually 

agreeable limit, a country may impose unilateral quotas 

for up to 2 years. Under most agreements or 

unilaterally imposed restraints, the quotas are increased 

annually by 1 percent for wool products and by 6 

percent for all other covered products. Considerably 

lower growth rates may be applied to products from 

major suppliers. Developed countries generally have 

established quotas under the MFA on shipments from 

developing countries and from newly industrialized 

68 
Table 7 

Countries subject to VRAs and their respective limits, under initial and extended restraint 

arrangements, 1984-92 

Country VRA/ 

1984-89 

First 

period 

Oct 89- 

Dec.90 

Second 

period 

1991 

Third 

period 

Jan-March 

1992 

Market share in percent 

Australia 0.26 0.39 0.49 0.59 

Austria 0.24 0.25 0.25 0.25 

Brazil 1.35 1.80 2.10 2.10 

Czech and Slovak Federal Republic 0.04 0.04 0.04 0.04 

EC 6.94 7.00 7.00 7.00 

Finland 024 0.25 0.25 0.25 

East Germany 1 0.11 0.10 0.10 0.10 

Hungary 0.03 0.05 0.05 0.05 

Japan 6.19 5.00 5.30 5.30 

Korea 1.92 2.45 2.62 2.62 

Mexico 0.49 0.95 1.10 1.10 

PRC 0.08 0.08 0.09 0.09 

Poland 0.09 0.13 0.13 0.13 

Romania 0.11 0.11 0.11 0.11 

Trinidad and Tobago 0.04 0.12 0.13 0.15 

Venezuela 021 0.33 0.33 0.33 

Yugoslavia 0.02 0.05 0.05 0.05 

Total 18.36 19.10 20.14 20.26 

1The administration of East Germany's VRA was transferred to the EC after unification. The export ceiling 

remains unchanged for steel works located in what used to be East Germany. 

Note.-Percentages are approximate because some VRAs were negotiated for two 15-month periods, and others 

were negotiated for other combinations totaling 30 months. Market shares are based on 1989 apparent consumption. 

Source: USTR press release, Dec. 12, 1989, and USITC Quarterly Report on the Status of the Steel Industry, USITC 

Publication No. 2486. 

economies. The quotas are a departure from the 

GATT, as they are applied on a country-specific basis 

in contradiction to the nondiscrimination principle, 

which prescribes that all GATT member countries be 

treated equally with regard to quotas or other trade 

restrictions. 

On August 1, 1991, the MFA was extended without 

change for the fourth time in its 18-year history, to 

December 31, 1992. The expiration of this rollover is 

intended to coincide with the anticipated 

implementation of an agreement on textiles in the 

Uruguay Round. Negotiators reached a tentative 

agreement in November 1990 to phase out the MFA 

and integrate textile trade into normal GATT rules. 

The most recent draft calls for phasing out the MFA 

over 10 years, beginning on January 1, 1993. (For 

additional discussion of this issue, see chapter 1, 

"Uruguay Round Negotiations in 1991" section.) In 

1991 the United States had bilateral agreements or 

quotas in place with some 40 countries, 13u as shown in 

table 8. Most of the agreements scheduled to expire in 

1991 were renegotiated or extended, including those 

with three major suppliers (China, Hong Kong, and 

Korea) and with several secondary sources 

(Bangladesh, Egypt, India, Macao, Malaysia, Mexico, 

and the Philippines). A new agreement was concluded 

with Thailand to replace ones that had expired in 1988. 

In the intervening period some imports from Thailand 

had been subject to unilateral U.S. restraints. The 

agreements with Japan, Peru, and Trinidad and Tobago 

were permitted to expire without renewal. The United 

States renegotiated its agreements with the Czech and 

Slovak Federal Republic, Hungary, and Poland to 

provide increased market access under the Bush 

administration's Trade Enhancement Initiative for 

Central and Eastern Europe. The growth in U.S. 

imports of MFA products 131has slowed considerably 

in recent years. After averaging 11 percent annually 

(in terms of quantity) in the 1980s, import growth was 

less than 1 percent in 1990 and 5 percent in 1991, 

when the volume of imports reached a record 12.8 

billion square meter equivalents (SMEs), valued at 

almost $29 billion. Imports of apparel, which account 

for about 80 percent of the total quantity, increased by 

4 percent in 1991, to 7.7 billion SMEs, valued at $23 

billion, and imports of textiles increased by 7 percent, 

to 5.0 billion SMEs, valued at $5 billion. U.S. 

producers' shipments of apparel increased by an 

estimated 7 percent, to $69 billion in 1991. 132U.S. 

producers' shipments of textile products rose by just 

under 1 percent, to $64 billion. 

69 
Table 8 

Countries with U.S. textile and apparel agreements or quotas: U.S. general imports of textiles and 

apparel subject to the MFA, in 1991, and expiration dates of agreements or quotas in place during 

1991, as of July 13, 1992 

Country 

Value of 

imports 

Expiration 

date 

(1,000 

dollars) 

Argentina* 1 9,371 03/31/92 

Bangladesh* 1,450,225 01/31/95 

Brazil* 218,011 03/31/93 

Burma 11,677 09/30/92 

China* 3,750,745 12/31/93 

Commonweath of Independent States2 10,150 12/31/92 

Costa Rica* 445,813 05/31/92 

Czech and Slovak Federal Republic* 25,708 05/31/93 

Dominican Republic' 957,888 05/31/92 

Egypt* 126,156 12/31/93 

El Salvador* 106,861 12/31/92 

Fiji 

Guam3 07/31/92 

27,971 

(4) 

12/31/92 

Guatemala* 349,586 12/31/92 

Haiti 152,421 12/31/93 

Hong Kong* 3,941,897 12/31/95 

Hungary* 51,862 12/31/93 

India* 833,067 12/31/93 

Indonesia* 649,024 06/30/94 

Jamaica* 254,577 12/31/92 

Korea* 2,448,444 12/31/93 

Macao* 390,062 12/31/93 

Malaysia* 580,123 12/31/92 

Mauritius 98,906 09/30/93 

Mexico* 879,395 12/31/92 

Nepal 45,209 12/31/93 

Nigeria 3,005 12/31/92 

Northern Mariana Islands3 

Pakistan* 

(4) 

465,045 

10/31/91 

12/31/92 

Panama 63,029 03/31/93 

Peru's 89,116 12/31/91 

Philippines* 1,059,532 12/31/93 

Poland* 59,251 12/31/93 

Romania 18,182 12/31/93 

Singapore* 609,751 12/31/95 

Sri Lanka* 505,098 06/30/94 

Taiwan 3,196,680 12/31/95 

Thailand* 695,590 12/31/93 

Trinidad and Tobago1 1,232 12/31/91 

Turkey* 301,031 12/31/93 

United Arab Emirates 83,470 12/31/93 

Uruguay* 45,135 06/30/92 

Yugoslavia* 66,670 12/31/92 

*Signatory to the MFA Protocol that went into effect on 08/01/91. 

1The agreement with this country was allowed to expire without being renewed. 

2 The former Soviet Union. The Committee for the Implementation of Textile Agreements issued a directive on 

July 24, 1992 directing that the quota applicable to exports from the former Soviet Union would be applied 

cumulatively to exports from the 12 successor states for the period January 1, 1992 through December 31, 1992. 

3 The agreements with Guam, a U.S. territory, and the Northern Mariana Islands, a U.S. commonwealth, are 

"quota exceptions" for sweaters classified as products of foreign countries, but assembled in these insular areas. In 

general, quota-free entry is allowed for a specified number of sweaters provided that at least 40 percent of the 

assembly workers were citizens or nationals of certain areas or the United States. Imports in excess of the specified 

amounts are charged to quotas established for the country of origin, usually the country where the sweater parts were 

knitted. 

4 Not applicable. 

Source: Trade data compiled from official statistics of the U.S. Department of Commerce. Other information from the 

Office of the United States Trade Representative, Office of the Chief Textile Negotiator; U.S. Department of State, 

Bureau of Economic and Business Affairs, Textiles Division; and U.S. Department of Commerce, International Trade 

Administration, Office of Textiles and Apparel. 

70 
Canada 

7% 

Canada 

2% ONIONIMIM= 

MOM= MO 

=MOM= 

MN IMINE 

MI= 

Mexico/ 

Caribbean 

Basin 

13% 

1991 (Total $29 billion) 

Other 9% 

1985 (Total $16 billion) 

Figure 3 

U.S. Imports of textiles and apparel by major 

suppliers, 1985 and 1991 

Other Asia consists of the following countries: ASEAN countries (Thailand, Malaysia, Singapore, Brunei, and the 

Phillippines), Bangladesh, India, Japan, Pakistan, Sri Lanka, Macao, United Arab Emirates, Oman, Bahrain, Qatar, 

Maldives, and Nepal. 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

The major suppliers showed little growth in their 

exports to the U.S. market in 1991. Shipments from 

Hong Kong, Korea, and Taiwan, which are limited to 

roughly 1 percent annual quota growth, actually fell by 

somewhat less than 1 percent in 1991, to 3.2 billion 

SMEs. The value of imports from these three rose by 1 

percent, to $9.6 billion. The "Big Three" faced rising 

production costs that forced them to trade up to higher 

valued-added goods and to shift production of basic 

goods to lower cost countries. As a result of these 

changes and generally tight U.S. quotas, the Big 

Three's relative importance as suppliers has declined in 

recent years, as illustrated in figure 3. Their share of 

total U.S. imports of MFA products in terms of 

quantity decreased to 25 percent in 1991 from 37 

percent in 1985. The largest increase in import shares 

was for Canada and China. Imports from China, the 

United States' largest single supplier in 1991, with 13 

percent of total MFA import volume, comprise the 

types of products (chiefly apparel) that directly 

compete with imports from the Big Three. These 

imports are limited under a bilateral agreement to 

about 3 percent annual quota growth and rose by only 

1 percent in 1991, to 1.7 billion SMEs. Canada's share 

of U.S. imports rose to 7 percent of the 1991 total, or 

0.9 billion SMEs, from 0.8 billion SMEs in 1990. 

Canadian shipments to the United States, which are 

mostly manmade-fiber textile products, are not subject 

to U.S. quotas under the MFA and benefit from 

preferential tariff treatment under the U.S.-Canada 

Free-Trade Agreement. 

Significant growth in U.S. imports of MFA 

products was generated by smaller low-cost suppliers, 

especially the Caribbean Basin Initiative (CBI) nations 

and Mexico. In 1991, imports from Mexico and the 

CBI countries combined grew by 24 percent, to 1.6 

billion SMEs, or 13 percent of total import volume. A 

large share of these imports is apparel assembled in 

those areas from parts cut in the United States. 

Bilateral Investment Treaty 

Program 

The U.S. Bilateral Investment Treaty (BIT) 

program was launched in 1981 to help promote U.S. 

direct investment abroad. 133BITs with interested 

partners—usually low- and middle-income developing 

countries—guarantee U.S. investors abroad certain 

rights and protections. The program is based on the 

idea that when some of the risks and restrictions 

associated with overseas investment are eliminated, 

U.S. international investment flows should increase. 

The U.S. Government negotiates BITs using a 

prototype treaty that has the following objectives: 

71 
1. To ensure that investors are accorded 

national treatment and are free to operate 

their businesses without undue constraints; 

2. To see that capital and profit repatriation 

are unrestricted; 

3. To see that expropriation protection is 

based on the "fair market value" of the 

investment; and 

4. To provide for binding third-party 

arbitration to resolve disputes. 

These objectives are based on a version of the original 

BIT prototype, which was last updated in February 199034 

As of yearend 1991 the United States had signed 

BITs with 16 countries, covering approximately $13.9 

billion135in U.S. foreign direct investment (FDI), or 

about 3 percent of the total FDI stock, which stood at 

$421.5 billion 136at the end of 1990. 137Of the 16 BITs 

signed, 8 were in force as of January 1992. 138Another 

11 BITs were under negotiation, 139and at least 18 

other countries have indicated an interest in the 

program. During 1991 the United States signed a BIT 

with Sri Lanka in September, with the Czech and 

Slovak Federal Republic in October, and with 

Argentina in November. All three treaties are expected 

to be submitted to the Senate in 1992. 140 

import sensitivity. Duty reductions for products on the 

A and B lists began on September 1, 1985. By January 

1, 1989, duties on the less sensitive A-list products 

were completely eliminated. Duties on the more 

sensitive B-list products were lowered to 10 percent of 

most-favored-nation rates on January 1, 1992, 143and 

are scheduled to be completely phased out by January 

1, 1995. Duties on C-list goods,' the most 

import-sensitive products, were frozen until January 1, 

1990. After that date a schedule for liberalization was 

to be determined by the Governments of Israel and the 

United States. As of yearend 1991, however, no 

progress had been made in reducing tariffs on either of 

the two countries' C lists, although the issue remains 

under discussion. 145According to the FTA, duties on 

all goods traded between the United States and Israel 

must be eliminated by January 1, 1995. 

Duty-free trade of goods covered under the 

U.S.-Israel FTA continued to grow in 1991. Total U.S. 

imports from Israel amounted to $3.5 billion in 1991. 

Products entering the United States duty free under the 

FTA accounted for $947.4 million, or 27 percent of the 

total. Although the value of U.S. imports from Israel 

under the FTA increased by 11 percent over 1990, the 

share of total imports occupied by products imported 

duty free under the FTA actually dropped by 1.3 

percentage points from 1990. Table 9 lists the top 20 

items imported from Israel under the FTA during 

1990-91. 146 

U.S.-Canada Free-Trade 

Agreement 

(See chapter 5, "Canada" section.) 

U.S.-Israel Free-Trade Area 

Agreement 

The U.S.-Israel Free-Trade Area (FTA) 

Agreement, established on September 1, 1985, was the 

first FTA entered into by the United States. 141Under 

the agreement tariffs on all goods in trade originating 

in the two countries will be eliminated by January 1, 

1995. The FTA covers not only manufactured goods 

and agricultural products, but also areas that are not 

currently covered by the GATT, such as trade in 

services, intellectual property rights, and trade-related 

investment performance requirements. 

When it was signed, the FTA immediately 

eliminated duties on products that both the United 

States and Israel considered the least 

import-sensitive. 142More sensitive products were 

placed on one of three lists (the A, B, and C lists) for 

gradual, phased liberalization. Each list follows a 

different liberalization schedule based on the products' 

Trade Dispute on Machine Tools 

The year 1991 saw the resolution of the first major 

trade dispute under the U.S.-Israel FTA. On May 8, 

1990, Israel informed the United States that it was 

activating the FTA's dispute-resolution mechanism in 

response to a U.S. decision to count substantially 

complete Taiwan machine tools, which are then further 

processed in Israel, against the numerical limits of the 

existing voluntary restraint agreement (VRA) on 

machine tools from Taiwan." The U.S. Customs 

Service separately ruled that these imports qualified for 

duty-free treatment under the FTA, but the Customs 

ruling was not considered an issue in the dispute. 

On June 14, 1991, a three-member arbitration 

panel, formed under the dispute-resolution procedures 

of the FTA, handed down a ruling that the original U.S. 

decision was at first view contrary to article 4 of the 

FTA. The panel noted, however, that this contrary 

measure could be remedied if permitted as an 

exception to the FTA or the GATT, or if it constituted 

an exception "implicit in article 4" of the FTA. 148 

 Subsequently Israel indicated that it would restrain its 

exports of machining centers 149qualifying for 

duty-free treatment under the FTA through December 

1991, when the VRA with Taiwan was scheduled to 

expire. The two countries agreed to renegotiate article 

4 of the FTA, which prohibits the imposition of new 

trade bathers. 

72 
Table 9 

Leading U.S. Imports for consumption, under special duty provisions of the U.S.-Israel FTA, 

customs value, 1990-91 

HS Item 

No. Description 

Time Period 

1990 1991 

7113.19 Articles of jewelry and parts thereof, 

of precious metal, (excluding silver) 

- (Thousands of dollars) - 

25,555 114,592 

8517.90 Parts of telephonic or telegraphic apparatus 28,657 42,552 

6110.20 Sweaters, pullovers, sweatshirts, waistcoats (vests) 

and similar articles, knitted or crocheted, of cotton 16,074 33,397 

6104.62 Women's or girl's trousers, bib and brace overalls, 

breeches and shorts, of cotton 16,882 25,909 

9015.80 Surveying, hydrographic, oceanographic, 

hydrological, meteorological or 

geophysical instruments and appliances 21,282 18,126 

2921.43 Toluidines (aminotoluenes) and their 

derivatives 8,421 17,449 

8533.21 Electrical fixed resistors, other than 

composition or film type carbon resistors, 

for a power handling capacity 

not exceeding 20 W 14,713 16,157 

6109.10 T-shirts, singlets, tank tops etc, 

knit etc, cotton 14,907 14,947 

6112.41 Women's or girl's swimwear synthetic fibers, knit 12,441 13,823 

8525.20 Transmission apparatus incorporating 

reception apparatus 22,842 13,560 

9018.90 Instruments and appliances used in 

medical, surgical, dental and veterinary 

sciences n.e.s. 18,285 13,242 

9031.40 Other optical instruments and appliances 24,344 12,928 

2930.90 Organo-sulfur compounds n.e.s. 4,055 12,152 

2008.30 Citrus fruit (including mixtures), 

prep etc, n.e.s. 8,833 12,078 

5603.00 Nonwovens, whether or not impregnated, 

coated etc 7,467 12,041 

2710.00 Oil (not crude) from petrol & 

bituminous mineral, etc 19,162 10,962 

3908.10 Polyamicie-6,-11,-12,-6,6,-6,9,-6,10 

or -6,12 7,397 10,076 

2924.21 Ureines and their derivatives; salts 

thereof 11,001 9,797 

3004.90 Medicaments nesi, measured doses, 

retail packaged n.e.s. 1,618 9,058 

3917.32 Tubes etc, not reinforced etc, 

without fittings 8,557 8,414 

Total of items shown 292,493 421,258 

Total other 560,160 526,145 

Total all commodities 852,653 947,403 

Source: Compiled from official statistics of the U.S. Department of Commerce. Top 20 commodities sorted by 

imports for consumption, customs value in 1991. 

Occupied Territories and the FTA 

After receiving considerable criticism in the Israeli 

press, the U.S. consulate in Jerusalem announced in 

July 1991 that it had no immediate plans to carry out a 

survey of Israeli industry in the West Bank and East 

Jerusalem. Because the United States does not 

currently recognize Israeli sovereignty over these 

territories, such a survey might have rendered the 

Israeli industries there ineligible for special treatment 

under the FTA.I 50The survey might also have allowed 

the filing of unfair competition suits against these 

industries by corresponding U.S. industries. 151 

 Although the survey has been listed on the consulate's 

annual working plan for several years, it never has 

been implemented. 152 

Negotiations on the FTA 

The U.S.-Israel Free Trade Area Joint Committee 

convened its 6th annual session in Washington on July 

23 and 24, 1991, to review progress on implementation 

of the FTA. In addition to the machine-tool trade 

dispute, several other major FTA-related issues were 

73 
discussed. The U.S. delegation expressed particular 

concern over Israel's use of import quotas and .variable 

levies on many U.S. agricultural products. The U.S. 

side stated that variable levies, in particular, reduce the 

benefits of negotiated tariff reductions. 153Further 

negotiations on agricultural products were held March 

23 to 26, 1992, as part of regular bilateral consultations 

concerning the agreement. 154In the area of 

government procurement the United States expressed 

its concern over Israel's offset 155provisions in 

government contracts, noting that some U.S. 

businesses had complained that offsets as high as 40 

percent are sometimes required. The Israeli delegation 

responded that overall offset provisions have been 

reduced to 20 percent in accordance with the FTA, and 

indicated that they will be relaxed further as 

privatization proceeds in the Israeli economy. The 

U.S. delegation also urged the Israeli Government to 

make an offer on Government agency or "entity" 

coverage (including the coverage of utilities such as 

energy, water, telecommunications, and transport) in 

the GATT Procurement Code negotiations. 

Another U.S. concern was the discriminatory use 

of purchase taxes. The United States asserted that 

Israeli purchase taxes are often used to create duty 

equivalents against U.S. exports and that Israel should 

grant equal treatment to similar products. 156The 

Israeli delegation responded that purchase taxes are a 

fiscal issue, not a trade issue, and that the purchase tax 

is equally applicable to domestic and imported 

products. The U.S. delegation also raised the issues of 

the TAMA and the Harama system. TAMA is a 

Hebrew acronym that refers to a selective import tax 

that affects about 15 percent of U.S. exports to Israel. 

Harama is the Israeli method of evaluating goods for 

customs purposes. It has allegedly had the effect of 

increasing import duties, thereby making imports more 

expensive in the Israeli market. In 1988 Israel agreed 

to phase out the use of the TAMA over a 5-year period 

beginning January 1, 1991. 157In the 1991 Joint 

Committee meeting a representative of the Israeli 

Customs Authority stated that Israel would consider 

elimination of the Harama after a year had passed 

under the reformed TAMA system.' 58The United 

States believes that use of the Harama system 

decreases the value of duty reductions under the FTA, 

and it will continue to encourage Israel to bring its 

customs practices into conformity with the GATT. 159 

U.S.-Soviet Union Long-Term 

Grain Agreement 

Since the mid-1970s, U.S. grain trade with the 

former Soviet Union (now the Commonwealth of 

Independent States, or CIS) has been conducted under 

the auspices of long-term bilateral accords. 160The 

current long-term grain agreement (LTGA) entered 

into force on January 1, 1991, with a term of 5 

y 161 ears. 

With the breakup of the Soviet Union, the LTGA is 

now officially "under review," while the U.S. 

Department of Agriculture (USDA) determines how to 

apply the terms of the accord to the independent 

successor states to the former Soviet Union. Because 

the agreement is basically an accounting mechanism, 

the review is not preventing any grain sales. 162 

The 1991 grain harvest in the former Soviet Union 

was the worst since 1984, down by 26 percent from 

1990. 163Most of the former Soviet republics produced 

and procured less grain Kazakhstan's production was 

particularly low, down by 58 percent from the previous 

year. 164Russia produced only 89 million tons of grain 

instead of the anticipated 100 million tons, and 

Ukraine's production was down by almost 10 million 

tons from the previous year. Reasons for the low 

harvest included unfavorable weather, a lack of inputs 

(machines, fertilizer, fuel, and pesticides), and a 

reduced planting area. 

Total procurement for the former Soviet Union in 

1991 was 39.8 million tons, down by 38 percent from 

64.3 million tons in 1990. 165State procurement was 

low due to a number of factors, including the 

unattractiveness of the ruble, which made farms less 

willing to sell; low prices relative to those offered by 

commodity exchanges; and the need to keep grain on 

the farms for livestock feed and barter. Additionally, a 

strong central authority and the mechanisms used in 

the past to coerce state and collective farms to sell their 

grain ceased to exist. 166 

The new LTGA required the former Soviet Union 

to purchase annually a minimum of 4 million mt of 

wheat, 4 million mt of feed grains, and 2 million mt of 

feed grains, wheat, or soybeans/soybean meal. 

Throughout 1991, sales of wheat and corn totaled 14.2 

million mt. 

Grain sales under the Commodity Credit 

Corporation (CCC) guarantee program of USDA were 

expanded during 1991. 167The former Soviet Union 

initially received $1 billion in credits for the purchase 

of U.S. farm products, but in April President 

Gorbachev requested additional CCC guarantees to 

meet the country's needs. President Bush responded 

by extending an additional $1.5 billion in agricultural 

credits, the payments of which were to be staggered 

through February 1992. Some of these credits were 

released early, however, in light of the difficult winter 

faced by the former Soviet republics. 168The 

importation of U.S. grains will continue to be 

important for what is now the CIS, especially while the 

former republics attempt land reforms and face 

difficulties in transporting and distributing crops. 

74 
ENDNOTES 

1Organization for Economic Cooperation and 

Development (OECD), OECD Convention, art. 1. 

2OECD, OCDE OECD, Sept. 1985, p. 5. The 

Commission of the European Communities is also 

represented at meetings of the Council. 

3These committees include the Economic Policy 

Committees, composed of the Economic Policy 

Committee, the Economic and Development Review 

Committee, and the Consortium for Turkey; 

Committee for Energy Policy, Development 

Assistance Committee, Technical Co-operation 

Committee, Trade Committee, Financial and Fiscal 

Affairs Committees, composed of the Committee on 

International Investment and Multinational Enterprises, 

Committee on Capital Movements and Invisible 

Transactions, Payments Committee, Insurance 

Committee, Committee on Financial Markets, 

Committee on Fiscal Affairs, and Committee of 

Experts on Restrictive Business Practices; Manpower 

and Social Affairs Committee and Education 

Committee; Environment Committee and Ad Hoc 

Group on Urban Problems; Committee for 

Information, Computer and Communications Policy; 

Committee for Scientific and Technological Policy; 

Industry Committee; Steel Committee; Committee for 

Agriculture; and Fisheries Committee. 

4These directorates cover the subjects followed 

by the committees, often grouping together related 

topics such as financial, fiscal, and enterprise affairs; 

manpower, social affairs, and education; agriculture 

and fisheries; science, technology, and industry; and 

directorates for subjects such as administration, data 

processing, and public information. 

5At the 1990 Ministerial meeting, the successful 

completion of the Uruguay Round was also deemed 

the most important issue on the international 

economic agenda. OECD, press release, Press/A 

(90)32, Paris, May 31, 1990. 

6"Agricultural Policy and the Urgency of Reform," 

OECD Observer, Feb./Mar. 1991, pp. 30-35. 

7The methodology used for quantifying such 

government involvement has been adapted for use in 

the Uruguay Round. 

8Figures in the report for 1989 are estimates; 

those for 1990 are provisional. 

9The 1990 level of the PSE and the percentage 

change from 1989 for the other OECD countries 

covered in this (OTAP) report are Canada--41 

percent, up 4 percentage points; Japan--68 percent, 

down 3 points. Japan was the only OECD country 

to show a decrease in the amount of the PSE from 

1989 to 1990. OECD, "Agricultural Policies, Markets 

and Trade: Monitoring and Outlook 1991," SG/Press 

(91)28, May 29, 1991, p. 3. 

10 Gerard Viatte and Carmel Cahill, "The 

Resistance to Agricultural Reform," OECD Observer, 

Aug./Sept. 1991, pp. 4-8. 

11OECD, "Agricultural Policies, Markets and 

Trade: Monitoring and Outlook 1991," p. 2. 

12Christian Averous, "An Uneven Track Record 

on the Environment," OECD Observer, Feb./Mar. 

1991, p. 9. 

13OECD, "OECD Environment Ministers to 

Meet," press release, SG/Press (91)3, Jan. 15, 1991. 

14OECD, "An Environmental Strategy in the 

1990s," press release, SG/Press (91)9, Jan. 31, 

1991, p. 5. 

15 Ibid. 

16Ibid., p. 6. 

17This help includes the OECD, the European 

Bank for Reconstruction and Development (EBRD), 

the International Monetary Fund (IMF), the World 

Bank, the G-24 process chaired by the Commission 

of the European Communities, the Conference on 

Security and Co-operation in Europe (CSCE), the 

Economic Council for Europe (ECE), and the 

International Labor Organization (ILO). 

18Formally known as the Arrangement on 

Guidelines for Officially Supported Export Credits. 

19The Center for Cooperation with European 

Economies in Transition (the Center) was created in 

March 1990. The Center, which works under the 

Secretary-General of the OECD, was established to 

design and implement a program of activities to 

assist the process of economic reform in Central and 

Eastern European countries. See "The OECD 

Center for Cooperation With European Economies in 

Transition," OECD Observer, Apr./May 1991, p. 169; 

and OECD, "Invitation by the OECD to the Baltic 

States to Participate in the Activities of the Center for 

Co-operation With European Economies in 

Transition," SG/Press (91)52, Sept. 19, 1991. 

20OECD, Development Co-operation--Highlights, 

Paris, brochure (1991). 

21Net ODA as a percent of GNP in 1990. 

22OECD, "Financial Resources for Developing 

Countries: 1990 and Recent Trends," press release, 

SG/Press (91)55, Sept. 26, 1991, p. 4. 

23In 1961 the OECD Council announced a 

binding decision that established the OECD Codes 

on balance-of-payments flows: the Code of 

Liberalization of Capital Movements and the Code of 

Liberalization of Current Invisible Operations. These 

codes provide the framework within which member 

governments work to reduce restrictions on capital 

flows and invisibles payments. The OECD 

Committee on Capital Movements (CMIT) monitors 

member capital restrictions and recommends their 

liberalization or removal. 

24OECD, The OECD Declaration and Decisions 

on International Investment and Multinational 

Enterprises--Basic Texts, Paris, 1992. The OECD 

Committee on International Investment and 

Multinational Enterprises (CIME) monitors the 

Declaration's guidelines. 

25The national treatment instrument records 

members' commitments to accord foreign enterprises 

operating within their territories treatment that is no 

less favorable than that accorded to domestic 

75 
enterprises in like situations. The guidelines for 

multinational enterprises are a voluntary code of 

conduct directed to multinational enterprises 

themselves concerning their investment behavior 

abroad. The instrument on international investment 

incentives and disincentives provides an opportunity 

for members to improve cooperation over measures 

in the field of international direct investment. The 

instrument on conflicting requirements calls for 

members to minimize or avoid conflicting rules of 

governments in different countries on multinational 

firms. 

26 The minimum interest rates authorized under 

the OECD arrangement are typically reviewed every 

6 months (in January and July) to reflect changes in 

the market rates of interest among member 

countries, although there have been instances when, 

by consensus, the semiannual review did not take 

place. 

27 For example, Spain has recently notified the 

committee of several large credit lines to Mexico and 

Venezuela, and some signatories believe these 

credits should be covered under the package. 

28 Additional countries have issued HS-based 

tariff and statistical schedules; however, as of 

October 31, 1991, the number of signatory countries 

totaled 63. The EC is considered a single customs 

territory, rather than a single or separate countries. 

CCC Doc. 37.100 E of Oct. 31, 1991 (HSC/8/Oct. 

91). 

29 As was set forth in USTR's notice of 

November 1988, appearing at 53 F.R. 45646 (Nov. 

10, 1988). 

3° Pub. L 100-416. 

31 53 F.R. 47413. 

32 The HTS can also be used to report data 

concerning nearly all exports with the remainder 

(products of particular national interest) reported in 

the United States under the HS-based Schedule B of 

the U.S. Bureau of Census. 

33 See various notices issued by the Commission 

on July 19, 1989 (54 F.R. 30284); Jan, 18, 1990 (55 

F.R. 1736); Jan. 6, 1991 (56 F.R. 873); and Oct. 16, 

1991 (56 F.R. 54888). 

34 See, for example, the report of the HS Review 

Subcommittee set forth in annex E to CCC Doc. 

36.600E (HSC/7/Apr. 91), which references numerous 

working documents pertaining to the ongoing review 

project. See also annexes K and L of the same 

document, in which the HS Committee proposed to 

the CCC various nomenclature and explanatory note 

amendments arising from the work of the Review 

Subcommittee. See annex D to Doc. 37.100E 

(HSC/8/Oct. 91) for a similar report and the two 

annexes U and K for other proposed amendments to 

the HS nomenclature and explanatory notes. 

35 See doc. 36.600E, referencing many related 

working documents on these issues, and its annexes 

B/2 and F; also doc. 37.100E and annexes C/2, E, 

and F, all referencing supporting documents. 

36 Docs. 36.611, 36.961-36.968, 36.978, 

36.981-36.991, 37.001-37.005. 

37 Doc. 36.600E (referencing docs. 36.445, 

36.483, and 36.491) and annexes D and M; Doc. 

37.100E (and working docs. 36.874, 36.822, 36.876, 

37.007, and 37.061); 36.960E RSC/5/Sept. 91). 

38 Doc. 36.600E, annex C (and working docs. 

36.452, 36.392, 36.537, and 36.664). 

39 Membership in UNCTAD is open to all 

countries that are members of the United Nations or 

any of the agencies related to the organization. 

4° U.S. Department of State Telegram, "Site for 

UNCTAD VIII," Feb. 1, 1991, Geneva, message 

reference No. 01194. The conference was held 

instead in February 1992 in Cartagena de Indias, 

Colombia. 

41 U.S. Department of State Telegram, "UNCTAD 

VIII--Wrap Up," Feb. 27, 1992, Bogota, message 

reference No. 03005. 

42 GATT, "Trade Negotiations Among Developing 

Countries," decision of Nov. 26, 1981 (L/3636). 

43 UNCTAD, "The Generalized System of 

Preferences Comes of Age," UNCTAD Bulletin, 

May-June 1991, p. 3. 

" UNCTAD, "Report of the Special Committee 

on Preferences on Its Eighteenth Session; 

TDB/C.5/140, May 10-17, 1991, p. 27. 

45 UNCTAD, "The Generalized System of 

Preferences Comes of Age," p. 3. 

46 UNCTAD, "Report of the Special Committee 

on Preferences," p. 7. 

47 Ibid., p.8. 

46 Ibid., p. 31. 

49 UNCTAD, "The Generalized System of 

Preferences Comes of Age," p. 4. 

5° UNCTAD, "Report of the Special Committee 

on Preferences," p. 18. 

51 Ibid., p. 10. 

52 UNCTAD Secretariat, Evaluation of 

Performances and Issues of Trade Financing in 

Developing Countries: The Case for and the Viability 

of an Interregional Facility, TD/B/1300, July 26, 1991, 

p. 4. 

" Ibid., p. 5. 

54 For purposes of this analysis, nontraditional 

exports consist of products classified as capital plant 

and equipment plus some manufactures. 

55 "Commercially viable" in this context was 

defined as the ability of the ITFF to fund itself at 

affordable premiums in global capital markets. 

56Multinational Strategies Inc., Feasibility Study 

for an International Trade Finance Facility Supporting 

Non-Traditional Developing Country Exports, May 

1991. 

57Ibid., p. 2. 

59 Ibid., p. 7. 

U.S. Department of State Telegram, "UNCTAD 

Requests USG Views on New Export Financing 

Facility," Jan. 30, 1992, Geneva, message reference 

No. 00779. 

76 
6° U.S. Department of State, Bureau of 

International Organization Affairs, telephone 

conversation with USITC staff, May 21, 1992. 

61 Adopted as "The Set of Multilaterally Agreed 

Equitable Principles and Rules for the Control of 

Restrictive Business Practices," 

TD/RBP/CONF/10/Rev.1, Dec. 5, 1980. This 

document is UNCTAD's code of conduct on 

restrictive business practices. 

62For additional background, see USITC, 

Operation of the Trade Agreements Program (OTAP), 

41st Report, 1990, USITC publication 2403, p. 69. 

63 UNCTAD Secretariat "Activities Relating to 

Specific Provisions of the Set: Technical Assistance, 

Advisory and Training Programmes on Restrictive 

Business Practices," TD/B/RBP/83, Aug. 6, 1991, p. 

1 

" Ibid. 

65 UNCTAD Secretariat, "Concentration of Market 

Power, Through Mergers, Take-Overs, Joint Ventures 

and Other Acquisitions of Control, and Its Effects on 

International Markets, in Particular the Markets of 

Developing Countries," TD/B/RBP/80, Aug. 22, 1991, 

p. 1 

66Ibid. 

67 Adopted as "The Set of Multilaterally Agreed 

Equitable Principles," this document is UNCTAD's 

code of conduct on restrictive business practices. 

68Ibid., p. 5. 

69 UNCTAD, "UNCTAD Shipping Committee to 

Study Multimodal Transport," UNCTAD Bulletin, 

Sept.-Oct. 1990, p. 14. 

70 UNCTAD Secretariat, Practical Problems 

Faced by Governments and Commercial Parties 

Involved in Multimodal Transport Operations to and 

From Developing Countries, TD/B/C.4/AC.11/4, Nov. 

21, 1991. 

71 Ibid., p. 7. 

72 Ibid. 

73 UNCTAD Secretariat, "The Effects of EDP and 

EDI on Transport Organizations and Users," 

TD/B/C.4/AC.11/5, Nov. 21, 1991. 

74 ibid .,p.3. 

USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 38. 

76 For a discussion, see USITC, OTAP, 1990, 

USITC publication 2403, July 1991, p. 72. 

77The two C's in the initials for the International 

Cocoa Agreement (ICCA) and International Cocoa 

Organization (ICCO) are used to distinguish it from 

the international Coffee Agreement (ICA) and 

International Coffee Organization (ICO). 

78 Ratification by countries accounting for 80 

percent of world exports and 65 percent of world 

imports is needed for the agreement to enter into 

force. 

79 The current ICCA was extended to September 

30, 1993, and has been operating on an 

administrative basis only since 1988. At the 

February 1992 meeting of the ICCO in London, it 

was decided to ask the UNCTAD Secretariat to 

convene negotiating conferences in Geneva in an 

effort to conclude a new ICCA with economic 

clauses. The Secretariat will submit the 1986 ICCA, 

as extended, to UNCTAD as the basis for the 

negotiations. The Preparatory Working Group of the 

ICCO will meet prior to the negotiating conference 

(March 30 to April 16, 1992) to develop an outline of 

the economic measures to be included in the new 

agreement. 

843 U.S. Department of State, "International 

Commodity Agreements," Gist, Aug. 1985. 

81 For 1991, according to International Monetary 

Fund calculations, the average SDR exchange rate 

was 1.37 SDR per U.S. dollar. 

82 Based on USITC calculations. 

83The daily price is the average daily quote for 

cocoa beans of the nearest three active future 

trading months on the London Cocoa Terminal 

Market and on the New York Coffee, Sugar, and 

Cocoa Exchange at the time of the London daily 

close. The indicator price is the average of the daily 

prices over 10 consecutive market days. 

84 Under the supervision of the buffer stock 

manager, the scheme provides for the withholding of 

a maximum of 120,000 metric tons of cocoa from the 

market by producers when the indicator price is at or 

below the lower intervention price for 5 or more 

consecutive days, or when either 80 percent of the 

maximum capacity of the buffer stock has been filled, 

or when the net financial resources of the buffer 

stock are only sufficient to purchase 30,000 metric 

tons of cocoa. 

85A meeting of the working group of the ICO 

was held in London on February 5 to 7, 1992, to 

discuss a new ICA, but talks concluded without 

making much headway. The working group met in 

April and June 1992, and reported making some 

progress on the basic issues that must be worked 

out before any agreement can be written. 

86 U.S. Department of Agriculture, telephone 

conversation with USITC staff, Mar. 1992. 

87 National Coffee Association of U.S.A., Inc., 

Newsletter, Apr. 6, 1992. 

88 U.S. Department of State, Bureau of 

International Organization Affairs, telephone 

conversation with USITC staff. 

89 A new accord maintaining the existence of the 

ISA was negotiated in Geneva on March 24, 1992. 

The United States withdrew from the ISO and the 

ISA shortly thereafter, citing disagreement with other 

major members over the contribution formula. U.S. 

Department of State telegram, "Background on U.S. 

Withdrawal from International Sugar Agreement," 

June 3, 1992, message reference No. 177095. 

90 The 1977 ISA, predecessor to the 1984 ISA, 

contained a market stabilization mechanism that 

functioned through a system of buffer stocks and 

export quotas that were manipulated to dampen 

fluctuations in the free market price of sugar. The 

1977 ISA was generally ineffective in controlling the 

free market sugar price. This ineffectiveness was in 

large part the result of the sugar market's unique 

characteristics. For more detail, see USITC, OTAP, 

1990, USITC publication 2403, p. 77. 

77 
91U.S. Department of State, telephone 

conversation with USITC staff. 

02INRA 1987 was negotiated in March 1987 at 

the Fourth U.N. Conference on Natural Rubber 

convened by UNCTAD. The agreement was signed 

on behalf of the United States on August 28, 1987, 

but was not ratified by the U.S. Government until 

November 1988. For a detailed discussion of the 

INRA's origin and its operation, see OTAP, 1981, 

USITC publication 1308, 1982, pp. 91-94; and OTAP 

1986, USITC publication 1995, 1987, pp. 3-14 and 

3-15. For further information on U.S. participation in 

INRA 1987, see U.S. Department of State Airgram, 

Dec. 5, 1988, message reference No. A 301. 

93Official press communique issued at end of 

the Twenty-Third International Natural Rubber Council 

Session, May 21-22, 1991, CL/23/Communique, 

agenda item 6. 

94Nigeria was the first African nation to join the 

exporters group of the agreement. The other 

members of the exporting group are Malaysia, 

Thailand, Singapore, and Sri Lanka. Official press 

communique, issued at end of the Tenth Special 

International Natural Rubber Council Session, Jan. 

21-22, 1992, CL/S10/Communique, agenda item 3. 

05The DMIP is a composite, weighted average 

of daily official current-month prices (converted to 

Malaysian/Singapore currency) in the Kuala Lumpur, 

London, New York, and Singapore markets. The 

INRA reference price is a mid-range price level that 

reflects recent market prices. The INRA intervention 

price is calculated at plus and minus 15 percent of 

the reference price; the trigger action price is 

calculated at plus and minus 20 percent of the 

reference price. For more information, see 

International Natural Rubber Agreement, 1987, treaty 

document 100-9, 100th Cong., 1st sess., Oct. 20, 

1987, arts. 29-32.. 

06Based on USITC calculations. 

97 Rubber Trends, The Economist Intelligence 

Unit, London, June 1991, p. 15. The composite 

currency used to denominate transactions of the 

INRO is a mathematical average of the Malaysian 

ringgit and the Singapore dollar exchange rates. 

98Rubber Trends, The Economist Intelligence 

Unit, London, Sept. 1991, pp. 14-15. 

99 Rubber Trends, The Economist Intelligence 

Unit, London, Dec. 1991, p. 17. 

100According to article 31, paragraph 2 of INRA, 

the executive director will call a special session of 

the Council when there is a net change of 100,000 

mt to the buffer stock in order to assess the 

situation. On January 21-22, 1992, a special Council 

session convened following a cumulative addition of 

100,000 mt of rubber to the buffer stock. An 

importing member proposed a reduction in the 

reference price by 3 percent, but this proposal was 

opposed by producing members and the majority of 

importing members. No revision to the reference 

price was made, and members reaffirmed their 

commitment to INRA and the buffer-stock operations. 

For further information, see U.S. Department of State 

Telegram, Jan. 24, 1992, Kuala Lumpur, message 

reference No. 00535. 

101Renegotiation discussions are scheduled for 

the next regular Council meeting in May 1992. U.S. 

Department of State Telegram, Dec. 27, 1991, Kuala 

Lumpur, message reference No. 10215. 

102 Rubber Trends, The Economist Intelligence 

Unit, London, Dec. 1991, p. 16. 

103"Rubber Consumption Dips by 3%," European 

Chemical News, Dec. 16, 1991, p. 11. 

104The original IJA, the second commodity 

agreement to be negotiated under the framework of 

UNCTAD's Integrated Program for Commodities, 

entered into force in January 1984 for a 5-year term. 

This agreement expired in 1989 but was later 

extended for another 2 years until January 1991. 

105UNCTAD, "Report of the Chairman of the 

Meeting," TD/JUTE.2/7, Apr. 17, 1991. 

106 Ibid. 

107From the memorandum issued by the 

executive director, International Wheat Council, dated 

Dec. 17, 1990, addressed to the members of the 

Council, as supplied to the U.S. International Trade 

Commission by the U.S. Department of State. 

108 World stocks of wheat and wheat flour had 

declined by nearly 34 percent, from 176.4 million mt 

in 1986/87 to a low of 118.3 million mt in 1988/89. 

109 USDA, Economic Research Service (ERS), 

Wheat, Situation and Outlook Report, WS-295, Nov. 

1991. 

110USDA, ERS, "Increased Soviet and Chinese 

Imports Boost World Trade," Wheat, Situation and 

Outlook Report, WS-295, Nov. 1991, p. 7. 

111For the purposes of the ITTA, "tropical timber' 

is defined as nonconiferous tropical wood that grows 

or is produced for industrial uses in the countries 

situated between the Tropic of Cancer and the Tropic 

of Capricorn. The term covers logs, sawn wood, 

veneer, and plywood. 

112International Hardwood Products Association, 

Newsletter, Oct. 1991. 

113For more background on the EA!, see USITC, 

OTAP, 1990, USITC publication 2403, July 1991, p. 

39, and President, "Remarks Announcing the 

Enterprise for the Americas Initiative," June 27, 1990, 

Weekly Compilation of Presidential Documents, 1990, 

pp. 1009-1013. 

114See USITC, OTAP, 1988, USITC publication 

2208, 1989, p. 118, and USITC, Review of Trade 

and Investment Liberalization Measures by Mexico 

and Prospects for Future United States-Mexican 

Relations (investigation No. 332-282), USITC 

publication 2275, Apr. 1990, p. 2-3. 

115Memorandum of Sept. 18, 1984 from the 

President to the USTR, 49 F.R. 36813. For 

additional details on the steel import program, see 

USITC OTAP, 1984, USITC publication 1735, July 

1985, p. 16. 

116On July 19, 1983, the President had 

announced his decision to grant import relief to the 

specialty steel industry for a period of 4 years (53 

F.R. 52897). The relief program was scheduled to 

expire on July 19, 1987. Under the relief program, 

quotas were placed on imports of stainless steel 

bars, stainless steel wire rod, and certain alloy tool 

78 
steel products; and increased duties were imposed 

on stainless steel plates and stainless steel sheets 

and strip. On July 16, 1987, the President extended 

the import relief program in the form then in effect for 

a period from July 20, 1987, through September 30, 

1989. Since the import relief program was not 

extended after its expiration on September 30, 1989, 

product coverage of the VRAs was extended to 

include specialty steel products that were previously 

subject to import relief. Countries which signed the 

VRAs agreed to limit their exports of stainless steel 

plates, sheets and strips to their market share level. 

These countries were exempted from having to pay 

additional duties with the exception of Finland, whose 

VRA did not include stainless steel flat-rolled 

products. Quotas were unaffected by the VRAs for 

all countries except the EC 10, which negotiated 

limits on rods, bars, and alloy tool steel as part of its 

VRA, and Austria, which included alloy tool steel in 

its VRA. 

117Memorandum of Sept. 18, 1984, from the 

President to the USTR, 49 F.R. 36813. 

118Ibid. 

118USITC, OTAP, 1990, USITC publication 2402, 

July 1991, p. 181. 

128USITC, Quarterly Report on the Status of the 

Steel Industry, USITC publication 2486, p. xv. 

121Ibid. 

122 Ibid. 

123 Quarterly Report on the Status of the Steel 

Industry USITC publication 2486, p. xv. 

124Initially, 19 countries negotiated VRAs with 

USTR. However, Spain, Portugal and South Africa 

were dropped from this total. Spain and Portugal, 

which previously negotiated separate agreements, 

were included in the EC after joining the 

Communities. South Africa was dropped from the 

VRAs due to the embargo under the Comprehensive 

Anti-Apartheid Act of 1986. Thus the total number of 

countries was reduced to 16. 

125 USITC, Quarterly Report on the. Status of the 

Steel Industry, USITC publication 2486, p. xv. 

126 Ibid. 

127The BCAs were to be multilateralized within 

the GATT through incorporation in the Uruguay 

Round. As envisioned, negotiations were to be 

completed by Dec. 1990 on the new accord, called 

the Multilateral Steel Agreement (MSA). On Mar. 31, 

1992, negotiations on the MSA were suspended 

without agreement, although considerable progress 

had been made. Negotiators reportedly agreed to 

meet bilaterally and multilaterally, but no specific time 

schedule was set. 

128USITC, Quarterly Reports on the Status of 

the Steel Industry, USITC publication 2486, p. xv. 

129 The MFA replaced GATT programs developed 

in the 1960s to control trade in cotton goods. 

130 Most of these agreements were negotiated 

under the aegis of the MFA; those with 

nonsignatories to the MFA were negotiated under 

section 204 of the Agricultural Act of 1956 (7 U.S.C. 

1854). 

131MFA products are those textile products of 

cotton, wool, manmade fibers, other vegetable fibers 

(mostly flax and ramie), and silk blends that may be 

controlled by quotas established through bilateral 

agreements or unilaterally imposed under the MFA. 

132Data on U.S. shipments compiled from data 

of the U.S. Bureau of the Census. 

133For a more detailed discussion of the BIT 

program, see USITC, OTAP, 1983, USITC publication 

1535, 1984, pp. 36-43. 

134U.S. Department of Commerce, Office of 

Multilateral Affairs, telephone conversation with 

USITC staff, Mar. 25, 1992. 

135U.S. Department of Commerce, Office of 

Multilateral Affairs, fax message, Apr. 1, 1992. 

136 U.S. Department of Commerce, Bureau of 

Economic Analysis, Survey of Current U.S. Business, 

Aug. 1991. 

137An additional $235.8 billion, or 56 percent of 

U.S. foreign direct investment in 1990, was protected 

by 48 bilateral treaties of friendship, commerce, and 

navigation. 

138As of January 1992 the United States had 

BITs in force with Bangladesh, Cameroon, Grenada, 

Morocco; Panama, Senegal, Turkey, and Zaire. The 

United States has also ratified a BIT with Egypt and 

is awaiting Egyptian ratification. A BIT with Poland 

has been ratified by both countries and awaits an 

exchange of instruments to bring it into force. Three 

other BITs (Congo, Haiti, and Tunisia) have been 

submitted to the U.S. Senate Foreign Relations 

Committee. 

138As of January 1992 the United States was in 

an advanced state of negotiations for BITs with 

Bolivia, Bulgaria, Hungary, Jamaica, Nigeria, Uruguay, 

Yugoslavia, Costa Rica, Hong Kong, and Pakistan. 

Negotiations with the Soviet Union were held up 

pending a decision on how to proceed with 

successor governments. 

140U.S. Department of Commerce, International 

Trade Administration, Office of Multilateral Affairs, fax 

message, Apr. 1, 1992. As of July 1, 1992, the 

United States had concluded an additional three BITs 

with Kazakhstan on May 17, Romania on May 28, 

and Russia on June 17, 1992. The number of BITs 

actually in force was raised to 9 when the BIT with 

Egypt came into force on June 27, 1992. Of the 

three BITs with Sri Lanka, Argentina, and the Czech 

and Slovak Federal Republic in 1991, only the treaty 

with Argentina had not been submitted to the Senate 

by July 1, 1992. U.S. Department of Commerce, 

International Trade Administration, Office of 

Multilateral Affairs, informal communication with 

USITC staff, Aug. 17, 1992. 

141For a more detailed discussion of the 

U.S.-Israel Free-Trade Area Agreement, see USITC, 

OTAP, 1984, USITC publication 1725, July 1985, pp. 

26-33. 

142For a more detailed analysis of the results of 

the FTA during its 1st full year of operation, see 

USITC, OTAP, 38th Report, 1986, USITC publication 

1995, July 1987, pp. 3-18 to 3-19. 

79 
143U.S. Department of State Telegram, "1992 

Trade Act Report: Israel," Nov. 6, 1991, Tel Aviv, 

message reference No. 14501. 

144Israel's C-list of sensitive import items 

constitutes approximately 1,500 products, or about 12 

percent of 1991 U.S. exports to Israel in value terms. 

The U.S. C-list is relatively small and is composed 

mainly of agricultural products and bromine 

compounds. 

145U.S. Department of State Telegram, "1992 

Trade Act Report: Israel," Nov. 6, 1991, Tel Aviv, 

message reference No. 14501. 

146Leading items exported to and imported from 

Israel are contained in tables A-3 and A-4. 

147For information on the U.S. VRA agreement 

with Taiwan on imports of machine tools, see USITC, 

OTAP, 1986, USITC publication 1995, July 1987, p. 

4-41. 

149U.S. Department of Commerce, International 

Trade Administration, telephone conversation with 

USITC staff, Apr. 27, 1992. 

149 A type of machine tool. 

159Bureau of National Affairs, Inc., "Israeli 

Industry in West Bank, East Jerusalem Will Not Now 

Be Studied by U.S. Consulate," International Trade 

Reporter, July 10, 1991, p. 1047. 

161"Israeli Industry Will Not Now Be Studied," p. 

1047. 

152 This issue was passed over during the 

negotiation of the FTA in 1985 because the two 

countries could not reach an unequivocal solution. 

153 United States-Israel Joint Committee, Protocol 

on the U.S.-Israel Free Trade Area Joint Committee 

Meeting in Washington on July 23-34, 1991, July 25, 

1991 (2nd draft), p. 2. 

154USDA, Foreign Agricultural Service, telephone 

conversation with USITC staff, Mar. 20, 1992. 

155Offset is a common form of countertrade 

among industrialized countries and refers to 

compensatory transactions. For example, the sale of 

equipment may be contingent upon the coproduction 

or subcontracting of some of the components in the 

buyer's country. 

156The U.S. delegation pointed to the example 

of an Israeli purchase tax on large-volume 

refrigerators, which are produced in the United States 

but not in Israel. The Israelis asserted that the tax 

was part of a larger program to discourage domestic 

purchases of luxury goods. 

157United States-Israel Joint Committee, Protocol 

on the U.S.-Israel Free-Trade Area Joint Committee 

Meeting, October 17 to November 4, 1988, Nov. 5, 

1988. Although the two sides agreed on a schedule 

to phase out the TAMA in the 1988 consultations, the 

Israeli Knesset did not transpose the agreement into 

law until Sept. 1990. 

1513During U.S.-Israel FTA consultations held on 

March 23 to 24, 1992, the Israeli delegation stated 

that Israel plans to accede to the GATT Customs 

Valuation Code in 5 years, coincident with its 

planned reduction of MFN tariff rates. Accession to 

the code will likely require elimination of the Harama 

system of customs valuation. U.S. Department of 

State Telegram, "U.S. Israel Free Trade Area 

Consultations," Apr. 21, 1992, Tel Aviv, message 

reference No. 05708. 

159U.S. Department of State Telegram, Jan. 18, 

1992, Tel Aviv, message reference No. 017248. 

160 The Soviet Union ceased to exist as a nation 

on December 25, 1991. The Baltic states of Estonia, 

Latvia, and Lithuania were declared independent in 

September 1991. Of the 12 remaining states, 11 

formed the Commonwealth of Independent States. 

Georgia did not join. 

161This agreement, which commits the former 

Soviet Union to purchasing at least 10 million mt of 

U.S. grains annually for the next 5 years, replaced 

the long-term grain pact that expired on December 

31, 1990. For additional information, see the USITC, 

Trade Between the United States and NonmarIcet 

Economy Countries During April-June 1990, 63rd 

Quarterly Report, USITC publication No. 2329, Nov. 

1990, pp. 11-12. 

162USDA official, telephone conversation with 

USITC staff, Feb. 18, 1992. 

163USDA, "1991 Agricultural Performance in the 

Former USSR," Economies in Transition Agriculture 

Report, Jan./Feb. 1992, p. 2. 

164Ibid. 

165Ibid. 

166Ibid. 

167These credits allow the Soviet Union to 

purchase U.S. agricultural products using loans from 

U.S. banks. The CCC of the USDA backs these 

loans with a promise to pay back 98.0 percent of the 

principal and 4.5 percent of the interest if the client 

defaults. (Some of the credits extended during fiscal 

1991 were backed 100 percent as a result of some 

hesitancy on the part of U.S. banks to extend loans 

to the former Soviet Union.) 

168 For additional information, see USITC, Trade 

Between the United States and Nonmarket Economy 

Countries During January-June 1991, 67th Quarterly 

Report, USITC publication 2451, Oct. 1991, pp. 9-10. 

During U.S. Secretary of State Baker's February trip 

to the CIS, Russian President Boris Yeltsin reportedly 

asked for $600 million more in additional credits, 

since the current credit guarantees will be depleted 

by April. Secretary Baker noted that the CIS would 

have to maintain payments of principal and interest 

on past credits in order for any additional credits to 

be authorized. The United States has supplied a 

total of $3.75 billion in grain credit guarantees to the 

former Soviet Union during the past 2 years. 

80 
CHAPTER 4 

Developments With Major 

U.S. Trading Partners 

This chapter reviews trade relations with seven 

major U.S. trading partners in 1991. U.S. trade with 

the European Community (EC), Canada, Japan, 

Mexico, the Republic of Korea, Taiwan, and Brazil is 

covered and major bilateral trade issues discussed. 

The 12-member EC, which collectively is the 

United States' most important export destination, again 

proved to be a trouble spot in U.S. trade policy. 

Longstanding disputes on issues ranging from 

agriculture to aircraft were subjects of much debate, 

affecting both bilateral and multilateral trade 

discussions. The EC's efforts at resolution reflected in 

part a preoccupation with internal matters, including its 

drive to further integrate the Western European nations 

politically and economically, and in part a 

preoccupation with developments in Eastern Europe 

and in the former Soviet Union. 

Canada, the largest single-country market for U.S. 

goods, also had domestic constraints—notably Quebec's quest for secession. The liberalization associated 

with the U.S.-Canada Free-Trade Agreement (CFTA) 

continued to elicit protest from Canadian workers, 

even as the country moved to join the United States 

and Mexico in the negotiation of a North American 

Free-Trade Agreement (NAFTA). Meanwhile, 

disputes over softwood lumber, beer, and pork were 

matters of contention on both sides of the border. 

U.S.-Japanese relations were dominated by 

discussions on automobiles and auto parts, which 

account for three-fourths of the persistent U.S. bilateral 

trade deficit. U.S. complaints about access to Japan's 

market for computers, construction services, and 

semiconductors, in contrast, were resolved in a fairly 

straightforward manner. 

Mexico continued to move its economy in a 

market-driven direction, privatizing its huge 

Government-owned sector and strengthening 

intellectual property rights protection. Korea, on the 

other hand, continued its drive to discourage 

consumption of luxury goods. The anti-import 

campaign gained official support in the face of a 

deteriorating trade balance and an upward wage spiral. 

Taiwan continued to press its bid for GATT 

membership and agreed, under threat of U.S. 

retaliation, to liberalize its market for distilled 

beverages. Brazil continued its recent liberalization of 

imports, repealing another part of its Law of Similars, 

changing its onerous import-licensing regime, and 

further reducing tariffs. Nevertheless, the country's 

overall economic program was undermined by its 

inability to reduce its inflation rate. 

The European Community 

Merchandise Trade With the 

United States 

In 1991 trade between the United States and the 

12-nation European Community totaled $182.7 billion, 

or 20.7 percent of total U.S. trade. U.S. exports to the 

EC reached $97.6 billion, up by 4.7 percent from 

$93.1 billion in 1990. In contrast, U.S. imports from 

the EC declined by 6.3 percent, to $85.1 billion. 

Exports to the EC amounted to 24 percent of total U.S. 

exports, and imports from the EC accounted for 18 

percent of total U.S. imports, making the EC the 

United States' most significant export destination and 

its third-largest source of imports. 

Export growth boosted the 1991 U.S. trade surplus 

with the EC to a record high of $12.5 billion. Since 

1987, when the U.S. trade deficit with the EC stood at 

$22.9 billion, U.S. exports have risen by more than 

two-thirds, but imports have grown by only 

6.2 percent. Strong U.S. export performance was due 

to the depreciation of the dollar, healthy economic 

growth (and hence increased demand for imports) in 

the EC during the second half of the 1980s, more 

favorable business operating conditions for U.S. 

investors stemming from the EC's single-market 

program, and improved manufacturing competitiveness 

of U.S firms. 

During 1991 the United States improved its 

merchandise trade balance with all member states 

except Ireland and Portugal, where surpluses declined. 

In 1991 the United States reduced its deficit with 

Germany' to $5.6 billion; with Italy to $3.4 billion; 

and with Denmark to $120 million. Surpluses 

increased with the United Kingdom to $2.8 billion; 

with France to $1.3 billion; with the Netherlands to 

$7.9 billion; with Belgium to $5.9 billion; with Spain 

to $2.5 billion; and with Greece to $628 million. The 

81 
Manufactured 

goods 

$77.5/79.4% 

Fuel/raw 

materials 

$9.7/10.0% 

Food 

$6.4/6.6% 

All other goods 

$4.0/4.1% 

U.S. Exports 

(billion dollars and percent) 

Manufactured 

goods 

$72.2/84.8% 

Food 

$4.7/5.5% 

All other goods 

$4.2/4.9% 

FueVraw 

materials 

$4.1 /4.8% 

U.S. Imports 

(billion dollars and percent) 

U.S. trade balance with Luxembourg moved from a 

deficit to a surplus of $26 million in 1991. Surpluses 

declined with Portugal to $60 million, and with Ireland 

to $598 million. The United Kingdom ranked as the 

EC's top destination for U.S. exports ($20.9 billion), 

followed by Germany ($20.0 billion) and France 

($14.6 billion). Germany was the largest source of 

U.S. imports ($25.6 billion), followed by the United 

Kingdom ($18.1 billion) and France ($132 billion). 

Figure 4 shows that manufactures dominated 

U.S.-EC bilateral trade, accounting for about 79.4 

percent of U.S. exports to the EC and about 84.8 

percent of U.S. imports from the EC. The United 

States exported 5.1 percent more fuel/raw materials 

and 1.1 percent more food to the EC than it imported 

from the EC, but exported 0.8 percent less than it 

imported in all other categories of goods. The 

composition of this bilateral trade has not changed 

dramatically in the past 5 years. 2 

Table 10 depicts U.S.-EC trade grouped according 

to Standard International Trade Classification (SITC) 

section numbers. Exports in nearly every section grew 

in recent years. The exceptions were section 2 (crude 

materials, inedible, except fuels), which has been 

declining since 1989, and section 1 (beverages and 

tobacco), which declined in 1991. 

In contrast to 1990, 1991 imports decreased in 

most sections. The sections in which imports 

continued to increase were section 0 (food and live 

animals), section 4 (animal and vegetable oils, fats, and 

waxes), and section 5 (chemicals and related products, 

not elsewhere specified). 

The top 20 U.S. exports to the EC are shown in 

table A-5. Aircraft remained the leading U.S. export: 

1991 sales rose by about 20 percent over the previous 

year and exceeded $8.6 billion. Parts and accessories 

of automatic data-processing machines was the 

second-largest category of exports, at $4.3 billion. 

Parts of airplanes or helicopters, declining slightly 

from 1990 levels, remained third, with more than $3.1 

billion in sales. Related merchandise included in the 

top 20 included digital processing units, storage units, 

automatic data-processing machines, and digital 

automatic data-processing machines, as well as 

turbojets and turbojet parts. Turbojet exports grew by 

219 percent since 1990. 

The top 20 U.S. imports from the EC are shown in 

table A-6. Motor vehicles, aircraft, and related parts 

continued to dominate these imports. Although cars 

with a cylinder capacity not over 3,000 cc remained the 

largest import category, with sales exceeding $3.4 

billion, the value of such imports dropped by nearly 35 

percent since 1990. Similarly, imports of cars with a 

cylinder capacity exceeding 3,000 cc, the third-largest 

category of imports, declined by 18 percent, to $2.1 

billion. Also in the top 20 were motor vehicle parts, 

tractors, engines, turbojets, parts of turbojets, parts of 

airplanes and helicopters, airplanes, and certain other 

aircraft. 

Figure 4 

U.S. trade with the European Community by product sector, 1991 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Note.—Because of rounding, figures may not add up to 100 percent. 

82 
Table 10 

U.S. merchandise trade with the European Community by SITC Nos. (Revision 3), 1989-91 

(Thousands of dollars) 

SITC 

section 

no. Description 1989 1990 1991 

U.S. exports 

0 Food and live animals 3,423,876 3,721,335 3,980,441 

1 Beverages and tobacco 1,764,092 2,663,483 2,227,635 

2 Crude materials, inedible, except fuels 6,588,444 6,307,491 5,795,031 

3 Mineral fuels, lubricants and related materials 2,731,792 3,724,002 3,931,703 

4 Animal and vegetable oils, fats and waxes 146,067 162,614 196,032 

5 Chemicals and related products, n.e.s. 9,757,770 10,509,668 11,256,834 

6 Manufactured goods classified chiefly by material 5,067,116 5,576,705 5,885,721 

7 Machinery and transport equipment 40,192,606 44,897,866 47,882,280 

8 Miscellaneous manufactured articles 10,128,748 11,489,275 12,425,687 

9 Commodities & transact not class elsewhere in SITC 2,724,195 4,007,087 4,016,226 

Total all commodities 82,524,708 93,059,526 97,597,591 

U.S. imports 

0 Food and live animals 1,945,114 2,079,649 2,094,190 

1 Beverages and tobacco 2,401,270 2,483,583 2,311,302 

2 Crude materials, inedible, except fuels 1,084,898 1,032,586 975,435 

3 Mineral fuels, lubricants and related materials 3,637,211 4,486,507 3,115,671 

4 Animal and vegetable oils, fats and waxes 192,010 254,828 271,770 

5 Chemicals and related products, n.e.s. 8,988,470 9,504,611 10,095,234 

6 Manufactured goods classified chiefly by material 13,291,474 13,264,779 12,218,659 

7 Machinery and transport equipment 35,922,770 39,326,294 36,913,844 

8 Miscellaneous manufactured articles 13,046,276 13,999,036 12,950,665 

9 Commodities & transact not class elsewhere in SITC 3,515,858 4,367,075 4,151,303 

Total all commodities 84,025,352 90,798,948 85,098,074 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Major Policy Developments 

Affecting Trade 

1992 Program 

The EC's self-imposed deadline for creating an 

integrated internal market is December 31, 1992. By 

the end of 1991 the EC Council had adopted about 

three-fourths of the 282 directives (laws) that were 

needed to create this market, as outlined in the EC 

Commission's 1985 White Paper. The directives still 

pending, however, were among the most politically 

contentious: harmonization of tax and company laws, 

removal of restrictions on the movement of labor, and 

elimination of border controls. Furthermore, 

member-state implementation of EC directives remains 

a stumbling block to completing the Internal Market 

program by the deadline. As of December 1991 

member states should have implemented 136 

directives, but only 41 percent had been fully 

implemented by all 12 member states. 

Implementation rates ranged widely: as of December 

1991, Denmark had implemented 95 percent of the 

directives, but Italy had implemented only 3.4 

percent.4 

It has been U.S. policy to monitor the EC's 1992 

program and to intervene when U.S. interests are 

jeopardized by any restrictive or discriminatory 

practices. Among the areas monitored with special 

interest in 1991 were telecommunications; public 

procurement; standards, testing, and certification; and 

the Broadcast Directive, which among other things 

established a local-content requirement for EC 

television programming. 5 

In the area of telecommunications the United 

States addressed several new issues, including 

directives on satellite service and data protection laws. 

U.S. officials expressed concern that the Data 

Protection Directive, which contains a provision 

requiring member states to prohibit data flows to 

countries without "adequate" data protection laws, 

could hinder transborder flows of information. 6Also, 

in the area of public procurement the United States 

urged the EC to eliminate a provision in its Utilities 

Directive that would allow utilities to favor EC over 

foreign suppliers.? 

As the result of an ongoing disagreement over the 

Broadcasting Directive's local-content provision, the 

U.S. Government placed the EC on the special 301 

priority watch list. 8The local-content provision 

requires EC television broadcasters to reserve the 

83 
majority of their transmission time for European 

programming "where practicable." All member states 

were required to implement the directive by October 3, 

1991, but implementation was uneven. Germany 

considered the provision to be voluntary and had not 

implemented it, France had introduced minimumFrench-content requirements in addition to the EC 

requirements, and other member states had 

implemented the directive using various definitions of 

minimum European content. The United States not 

only opposed the local-contents provisions, but was 

also concerned that member states could further tighten 

them.9 

In 1991 the U.S. expressed concerns in the area of 

standards for industrial and agricultural products. 

Standards play an integral role in the completion of the 

internal market: more than half of the 282 directives 

required to complete the internal market are related to 

standards. U.S. firms in some fields have been able to 

influence the development of certain EC standards. 

However, the United States remained concerned in 

1991 that it sometimes did not receive adequate 

information during the standards-development process. 

The United States also became increasingly concerned 

about delays in implementing the new standards. By 

the end of 1991 only one standards-related directive 

was being implemented, and only in two-thirds of the 

member states. U.S. firms were also concerned about 

the need to submit their products to EC-based labs for 

approval, although talks during the year improved the 

prospect that the EC will accept U.S. tests for purposes 

of regulatory approval in some circumstances. 10 

The U.S. administration has indicated that it will 

continue to support the EC's transition to a single 

internal market, provided that the EC does not replace 

national barriers with new barriers at the Community 

level. 11Citing increasing levels of U.S. exports to the 

EC, a U.S. Chamber of Commerce report noted that the 

Internal Market program has generally been good for 

U.S. firms. However, the report raised concerns about 

rising EC protectionism in sensitive sectors such as 

automobiles, consumer electronics, and semiconductors; market access for small and medium-sized 

firms; and the EC's use of rules of origin, local-content 

requirements, and antidumping legislation. 12 

The Maastricht Summit 

EC heads of state and government agreed to the 

text of the Treaty on European Union at the Maastricht 

summit, held on December 9 and 10, 1991. This treaty 

was designed to produce a level of integration much 

deeper than that envisioned in the EC's 1985 White 

Paper and was hailed in the press as one of the most 

significant turning points in the EC since the Treaty of 

Rome (which founded the EC). The Treaty on 

European Union resulted from a process set out by the 

EC heads of state and government at their December 

1990 Rome summit, where it was decided to pursue 

economic and monetary union (EMU) and European 

political union (EPU). The leaders subsequently 

signed the treaty on February 7, 1992, but it will not 

take effect until it is ratified by each member state. 13 

EMU will be achieved in three stages. 14The EC 

has already entered stage one, which required members 

to dismantle controls on capital movements and to 

strengthen economic and monetary policy coordination. Stage two, which will begin in 1994, is a 

transition period and calls for the establishment of a 

European Monetary Institute to further strengthen the 

coordination of national monetary policies. During the 

final stage member states will establish a European 

central bank and introduce a common currency. 15 

 Eligibility of the member states to join the common 

currency will be based on their ability to meet the 

convergence criteria, which set standards for inflation, 

interest rates, budget deficits, and exchange rates. 

Stage three could begin as early as 1997, if the EC 

Council determines that at least 7 member states have 

met the criteria for joining the common currency. If 

not, stage three will begin automatically on January 1, 

1999, for member states that meet the criteria, even if 

they do not form a majority. Alone among EC 

members, the United Kingdom was given the right to 

choose when and if to commit to the single-currency 

provision. The concession was made as part of a 

compromise that was necessary to pass the treaty. 16 

EPU encompasses several areas. Member states 

agreed to a common defense policy that would be 

based on the Western European Union 17and would be 

compatible with NATO. Member states will pursue a 

common foreign policy if all member states agree that 

the issue should be dealt with at the EC level. Member 

states also agreed to a common visa policy, as well as a 

form of EC citizenship that will allow EC citizens to 

vote in local elections outside their native countries. A 

protocol accompanying the treaty called for the 

creation of a "cohesion fund" to help finance certain 

projects for the poorer member states. 18In addition, 

EC membership was opened to any democratic 

European state. Finally, two more concessions were 

granted to the United Kingdom: (1) a chapter relating 

to a common social policy, which would have 

regulated such things as working conditions and 

unions, was removed from the treaty and put in a 

separate protocol, and (2) in the final draft of the treaty 

a reference to a "union with a federal goal" was 

replaced with a reference to an "ever-closer union." 19 

The treaty specifies important institutional 

changes. The powers of the European Parliament were 

expanded to include the ability to veto legislation and 

to subject the entire EC Commission to a vote of 

confidence. Majority voting in the EC Council was 

extended to a broader range of issues, including certain 

environmental, educational, health, and consumer 

protection matters, which had previously required 

unanimous consent (or two-thirds majority) for 

approval. The size of the EC Commission was to be 

reduced from 17 commissioners to one commissioner 

per member state, and the EC Commission president 

was to be chosen through a consensus of EC 

84 
member-state governments after consultation with the 

European Parliament. 2° 

Even though reaction to the treaty was generally 

positive on the part of EC members, concerns were 

voiced. The president of die EC Commission 

reportedly praised the progress on EMU but criticized 

the foreign policy provisions, which he believed would 

make it impossible for the EC to respond quickly to 

world events.21Even though the Italian Foreign 

Minister praised the treaty, Italian economists, 

industrialists, and politicians expressed skepticism that 

Italy could reform its economy to comply with the 

convergence criteria. 22German banks and industry 

also expressed doubts about whether it would be 

possible for all of the countries to meet the 

convergence criteria. The German Chancellor called 

the summit a breakthrough in that it makes a European 

union irreversible, although he stated that it did not go 

far enough. The Chancellor, as well as German banks 

and industry, was said to have preferred to see a strong 

link between EMU and EPU. 23In the United 

Kingdom the opposition Labor party contended that the 

Prime Minister's position on EMU and the Social 

Chapter amounted to placing the United Kingdom in 

the slow lane of a two-speed Community, and that this 

action had eroded the United Kingdom's ability to 

exert maximum influence in Brussels. 24 

The European Economic Area and 

Other Agreements 

While the EC was deepening its internal 

integration through more binding economic, political, 

and institutional ties, it was also making efforts to 

broaden its influence by concluding agreements with 

countries outside the Community. The boldest of these 

efforts was an agreement to form a European 

Economic Area (EEA), which was concluded with the 

European Free-Trade Association (EFTA) on October 

22, 1991.25The agreement will become effective on 

January 1, 1993, coincident with the completion of the 

EC's internal market. It would create the world's 

largest common market, containing more than 380 

million people and accounting for 43 percent of world 

trade.26EFTA currently accounts for 25 percent of the 

EC's trade; the EC accounts for 60 percent of EFTA's 

trade. 27Many EFTA countries regard the EEA as a 

stepping stone, rather than as an alternative, to EC 

membership. 

The purpose of the EEA is to enable the freest 

possible movement of goods, people, services, and 

capital among the 19 EC and EFTA countries. The 

EEA will extend the reach of the directives and 

policies that compose the Internal Market program to 

the seven EFTA nations. It also commits them to 

applying Community rules for steel aid, the 

transportation sector, competition policy, state aid, 

mergers, and social and consumer policy, but not for 

taxation or agriculture. In addition, the EEA creates a 

number of institutions, such as a Council, which acts as 

a legislative branch, and a Joint Committee, which acts 

as an executive branch and is responsible for ensuring 

the effective implementation and operation of the 

agreement. 28 

Disagreement among the parties delayed 

agreement to establish an EEA for months. One 

disagreement centered on Austria's and Switzerland's 

objections to increased alpine truck transit for 

environmental reasons. Another centered on Iceland's 

and Norway's refusal to allow free access to their 

fishing waters as demanded by Portugal and Spain, 

which were seeking compensation for the removal of 

the EC's fish import barriers. Similarly, the United 

Kingdom and Ireland desired protection for their 

fledgling fish-farming industries. A further stumbling 

block was presented by the concept of a cohesion fund, 

through which the wealthy EFTA states would make 

transfer payments to the EC's poorer member states. 

Once EFTA agreed to the fund in principle, the debate 

revolved around the amount and form of funding. 29 

After EFTA and the EC were able to compromise 

on the aforementioned issues and conclude the EEA 

agreement, a more serious challenge to the EEA came 

from the European Court of Justice (ECJ), the 

Community's "Supreme Court," in December 1991. 

The ECJ objected to the EEA as incompatible with the 

Treaty of Rome, ruling that the establishment of a 

parallel legal system under the EEA Agreement 

undermined the legal independence of the ECJ and 

raised the problem of inconsistent rulings from the two 

legal systems. 3° 

During 1991 the EC also strengthened its ties with 

other nonmember countries. In July 1991 it entered 

into customs unions with San Marino and Andorra. On 

December 16, 1991, it concluded European 

Association Agreements 3 I with Hungary, the Czech 

and Slovak Federal Republic, and Poland. The aim of 

these agreements is to provide for a free-trade zone 

within 10 years. The agreements provide for the 

progressive liberalization of the movement of goods, 

services, people, and capital. Tariffs, quotas, and other 

import restrictions will be phased out, and the EC will 

open its markets first. The laws of the associated 

countries—such as company law, rules of competition, 

consumer protection, intellectual property, and indirect 

taxation—will progressively approximate those of the 

EC. Although the agreements do not guarantee EC 

membership, their preamble recognizes that possibility 

in the future. While the agreements are being ratified 

by individual member parliaments and the European 

Parliament, the parties involved intend to proceed with 

some interim measures. 32 

Throughout 1991 there appeared to be some 

differences of opinion over the speed at which to admit 

new members. Some EC officials wanted new 

members to be considered only after the introduction 

of EMU and EPU. Other officials advocated 

strengthening internal integration and enlarging the EC 

simultaneously. In any case, reports suggest that no 

new applications will be considered before 1993. 33By 

the end of 1991 five countries had applied for EC 

85 
membership: Sweden, Austria, Malta, Cyprus, and 

Turkey.34 

Agriculture 

The EC's Common Agricultural Policy (CAP) 

established a common market in agricultural 

commodities with five major objectives: (1) to 

increase productivity, (2) to ensure a fair standard of 

living for the EC's 10 million farmers, (3) to stabilize 

markets, (4) to guarantee food supplies, and (5) to 

provide food to consumers at reasonable prices. The 

CAP uses a variety of mechanisms, including price 

supports, to meet these objectives. 

The CAP has been a perennial source of tension 

between the EC and other agricultural exporters, 

particularly the United States. In 1991 the EC 

Commission itself acknowledged some problems of the 

CAR35One of the most serious drawbacks, the EC 

Commission noted, was that the CAP's price 

guarantees provide incentives for farmers to 

overproduce. This overproduction either adds to 

already abundant surpluses, which are extremely 

expensive to store and dispose of, or, to the chagrin of 

other agricultural exporters, must be exported to a 

glutted world market, thereby depressing world prices. 

The EC Commission has also noted that the CAP's 

inherent incentives to intensive production threaten the 

environment and that farm incomes remain low despite 

the fact that CAP expenditures have risen rapidly. The 

CAP has been absorbing almost 60 percent36of the 

EC's budget in recent years. 

CAP reform 

Determined to make EC agriculture more 

competitive, the EC Commission formally proposed a 

radical CAP reform in July 1991. The reform, which 

was to begin in 1993 and be fully implemented by 

1996, introduced such measures as compensation to all 

farmers for price cuts and to small and medium-sized 

farmers for taking land out of production, as well as 

proposals to divert aid from large farms, which absorb 

80 percent of subsidies, to small and medium-sized 

farms. "Accompanying measures" called for 

afforestation (to convert farmland to forests) and 

agri-environmental programs, in addition to measures 

that would encourage full-time farmers to retire early. 

More important, however, the reform proposal 

contained the deepest price-support cuts ever proposed 

by the EC Commission: 35 percent for cereal, 10 

percent for milk, 15 percent for butter and beef, and 5 

percent for skim milk powder. Corresponding price 

supports for pork, poultry, meat, eggs, and processed 

agricultural production would also be reduced. The 

proposal also called for supply-control measures that 

included a land setaside program for cereals, lower 

milk-production quotas, lower tobacco-production 

quotas, upper limits on sheep premiums (subsidies), 

and a new calf-disposal premium for beef. 37 

The EC Commission envisioned many benefits 

from reform, ranging from more equitably distributed 

and stable incomes for farmers to lower prices for 

consumers and a better environment. Further, the EC 

Commission asserted, this refonn would eliminate the 

link between income support and production levels, so 

that farmers would have an incentive to produce less, 

not more.38Reduced output could provide a more 

balanced domestic market and could diminish the EC's 

reliance on subsidized exports to dispose of its 

surpluses. 

All of the Ministers agreed that reform was 

essential and generally concurred with the philosophy 

and principles of the EC Commission's proposal. 

Nonetheless, they faulted the proposal in several basic 

areas. Reportedly, the British, Dutch, and Danish 

Ministers complained that the plan discriminated 

"against large efficient farmers by providing full 

compensation for lost revenue only to small farmers 

who can never be viable."39German officials 

predicted that compensatory payments would grow and 

that farmers would become dependent on political 

decisions, rather than the market, to earn a living. 40 

 Some Ministers criticized budget projections because, 

even with very optimistic cost assumptions, the budget 

was still estimated to increase through 1997. 41 

 Generally, all seemed to support the "accompanying 

measures."42Although the Ministers made some 

progress during their fall council meetings, by year's 

end they still disagreed over certain technical issues in 

the reform plan, particularly in the cereals and beef 

sectors." 

Debate between the United States and the EC over 

agricultural issues has been singled out as the main 

stumbling block in the Uruguay Round of negotiations 

for the General Agreement on Tariffs and Trade 

(GAIT). Among other things, the United States has 

demanded deep cuts in subsidies and tariffication of 

such nontariff barriers as quotas. EC Commission 

officials have denied any linkage between the proposed 

CAP reform and the GATT talks,44but a European 

Parliament report said a link "clearly exists" and urged 

that care be taken so that reform measures conform to 

any new GATT decisions. 45 

Annual price package 

Independently of CAP reform negotiations, the EC 

Council adopted a modified version of the EC 

Commission's proposed agricultural price package for 

the 1991/92 marketing year. The EC adjusts its price 

package each spring. Because projected 1991 CAP 

expenditures were expected to exceed the budget 

ceiling of ECU 33 billion set in February 1988, 46the 

EC Commission recommended freezing price supports 

for most commodities and reducing price and other 

supports for the sectors that cost the most, such as 

cereals and beef.47The EC Commission ascribed the 

budget difficulties to overproduction and weak prices, 

particularly for cereals, beef, sheepmeat, milk, and 

tobacco." 

86 
Farmers' lobbies, the European Parliament, and 

most farm Ministers disagreed with the EC 

Commission's analysis of the problem and opposed the 

proposed budget cuts. They attributed the 

overspending to expenses arising from circumstances 

unforeseen when the CAP ceiling was set in 1988, not 

to the structure of the CAP itself." They blamed the 

integration of East Germany into the CAP, but they 

also cited increased imports from Eastern Europe, 

reduced EC exports as a result of the Gulf War, low 

world market prices for agricultural goods, and a weak 

dollar.50The European Parliament issued an opinion 

supporting increased spending that would exceed the 

ceiling, and this debate dominated Farm Council 

meetings held during the spring. 

On May 24, the EC Council adopted the majority 

of the price supports and related measures for the 

1991/92 farm price package. By that time the EC 

Commission had backed down on some of the cuts it 

had originally recommended. Also the EC Council 

agreed to respect the CAP budget ceiling, although the 

Council's changes added approximately ECU 500 

million to the EC Commission's initial proposa1. 51 

 This agreement was interpreted by some as a signal of 

the resolve of both the EC Council and EC 

Commission to reform the CAP. 52The main 

provisions of the price package included the following: 

Milk production quotas were reduced by 2 

percent, but offsetting measures were 

introduced, such as compensation and a 

program that would allow member states to buy 

milk; 

The beef intervention safety-net system for 

buying surplus meat was maintained. However, 

to encourage farmers to produce for the market 

and not the system, prices would have to fall 

lower before government surplus purchases 

would be triggered; 

The cereals basic co-responsibility levy (tax) 

was increased from 3 percent to 5 percent, and a 

special land setaside program was introduced to 

help control overproduction; 

Sugar support prices were not changed; 

Oilseeds support prices were reduced by 1.5 

percent, and the bonus for double-zero 

rapeseed—a high-quality, predominant 

variety—was cut by 50 percent; 

Prices of peas and beans were reduced by 1.5 

percent, although monthly increments in 

minimum support prices were to be maintained; 

The present wine guide and distillation support 

prices were maintained; 

Tobacco support prices and premiums would 

either be frozen or cut by 6 percent or 13 

percent, depending on the variety; 

Sheepmeat prices were reduced by 2 percent, 

although the supplementary ewe premium 

granted to disadvantaged areas was increased 

from ECU 1.5 per ewe to ECU 4 per ewe; and 

The EC Commission would examine the 

possibility of applying the private storage aid 

system for pigmeat more selectively. 53 

In June the EC Council decided to freeze all cereals 

prices except that of durum wheat, which would be cut 

by 3.5 percent. The Ministers did not reduce 

pmduction aid, but they did reduce by 50 percent the 

price bonus for rye used in breadmalcing. 54Later, 

prices were agreed upon for fruits and vegetables, nuts, 

and the textile crops. 

U.S.-EC Bilateral Trade Issues 

During 1991—as in previous years—most of the 

trade tensions between the United States and the EC 

involved agricultural issues. The EC's oilseeds 

subsidy program was the most contentious. After a 

long delay the EC reformed its oilseeds subsidies to 

comply with a 1989 GATT dispute-settlement panel 

ruling. The United States contended, however, that 

this reform did not satisfy the panel requirements. 

Both sides again referred the matter to a GATT 

dispute-settlement panel for a final resolution. 

The EC's Third Country Meat Directive, which 

sets hygiene and inspection requirements for imported 

meat, sparked a dispute when the EC effectively 

banned imports of U.S. pork in November 1990 and 

U.S. beef in January 1991. By the end of 1991 some 

U.S. exports resumed, and both sides began to work on 

a permanent solution, based on establishing 

equivalency between U.S. and EC hygiene and 

inspection regulations for meat. A separate dispute 

that disrupted U.S. exports of horsemeat to the EC was, 

however, quickly resolved. 

Market access for corn gluten feed, another 

important U.S. agricultural export to the EC, was 

threatened when the EC denied it duty-free entry on the 

grounds that the U.S. product did not meet the required 

technical specifications. Officials successfully 

resolved the matter after clarifying the definition. 

Two agricultural issues were put off for resolution 

at a future date. A temporary agreement under which 

the EC compensates the United States for lost feed 

grain sales to Spain was extended until June 1992. 

Also, the EC announced it would not make a final 

ruling on removing a ban it had placed on BST, a 

U.S.-invented, milk-enhancing hormone, until the 

summer of 1992. 

In the industrial sector the United States continued 

to object to the financial assistance that certain EC 

87 
governments have granted to the companies in the 

Airbus consortium (which produces large civil 

aircraft). In a separate but related matter, in February 

1991 the U.S. Government filed a complaint under the 

GATT Subsidies Code over the German Government's 

exchange-rate subsidies to the German Airbus partner 

and its suppliers. 

There were a number of other areas of interest to 

the United States in the EC. Intellectual property 

rights protection remained a concern in certain EC 

member states, particularly as it related to copyright 

infringements of software and audio and visual 

products.55In 1991 the U.S.-EC High Technology 

Working Group, established at the December 1983 

U.S.-EC Ministerial meeting, discussed biotechnology, 

trade-related aspects of recycling, and the need to 

identify and promote critical technologies. Also, U.S. 

and EC representatives conducted a number of 

meetings relating to satellite launch services. These 

meetings were held as a result of a directive signed by 

President Bush that called for negotiations with the 

European Space Agency (ESA) and its member states 

on (1) government support for commercial launch 

operators and (2) a common approach to 

non-market-economy launch providers. 56 

In 1991 the EC issued the sixth in a series of 

annual reports listing U.S. trade practices that pose 

obstacles to EC exports and investment. The list of EC 

complaints about U.S. trade practices in the 1991 

report did not differ much from that of previous years. 

The EC evinced particular concern about the tendency 

toward extraterritoriality and unilateralism in U.S. law, 

particularly the use of section 301. 

Oilseeds 

During 1991 the United States and the EC 

remained engaged in a longstanding dispute over EC 

oilseeds57subsidies—which, the United States 

contends, not only violate GATT rules, but also cause 

annual U.S. trade losses of between $1.5 and $2 

billion.58A GATT dispute-settlement panel report 

adopted in 1990 supported the U.S. position and 

recommended that the EC reform its oilseeds subsidy 

regime, but the United States and the EC were at odds 

over whether the EC's subsequent reforms actually met 

the GATT panel requirements. Overall, 1991 was 

marked by a tension between the U.S. Congress and 

U.S. producer associations on the one hand, which 

urged retaliation against the EC for its unsatisfactory 

progress in reform, and the Bush administration on the 

other, which opposed retaliation reportedly because it 

could jeopardize the Uruguay Round. By December 

the parties had come full circle: at U.S. urging the EC 

agreed to reconvene the same GATT dispute-settlement 

panel to review the latest EC oilseeds reform. 

The oilseeds case that was brought before a GATT 

dispute-settlement panel in 1988 involved EC subsidies 

to producers and processors of oilseeds. 59According 

to the United States60the EC was providing subsidies 

equaling nearly three times the world market price to 

EC processors, to compensate them for the high price 

of domestic oilseeds. 61These subsidies were 

calculated to encourage purchases of domestic 

products over imports. As a result, it was alleged, 

imported oilseeds received less favorable treatment 

than domestic oilseeds. 62 

Also central to the dispute was the zero binding, or 

duty-free access, for oilseeds that the EC granted to the 

United States in 1962. The United States charged that 

the oilseed subsidies effectively impaired the benefits 

of this zero binding 63The dispute-panel report, 

adopted by the GATT Council on January 25, 1990, 

backed the U.S. position but recommended that the 

United States allow the EC reasonable time to reform 

its regulations to comply with the ruling before 

pursuing further action. The EC stated that it would 

implement reforms beginning in the 1991/92 marketing 

year. However, it linked these reforms to the 

successful outcome of the Uruguay Round, which at 

the time was expected to conclude in December 

1990.64 

According to the U.S. Government, during the 

Round the EC intended to renegotiate the zero binding 

under the guise of rebalancing. 65Rebalancing, a key 

objective for the EC in its agriculture negotiations, 

essentially involves raising import barriers for some 

products while reducing them in other areas. In 

particular, the EC wanted to increase protection on 

nongrain feed substitutes such as oilseeds in exchange 

for lower protection on grains. 66There has been 

speculation that in the EC view, rebalancing its tariff 

protection on oilseeds could have enabled it to comply 

with the panel findings without addressing the issue of 

impairment and nullification. 67The EC did not, 

however, negotiate the rebalancing it desired. When 

the Uruguay Round failed to conclude as scheduled in 

December 1990 and EC officials in March 1991 

formally rejected implementing the GATT panel 

findings in their 1991/92 farm price package, the 

bilateral conflict escalated. 

The Office of the United States Trade 

Representative (USTR) warned the EC of possible 

retaliation (although the rest of the administration 

reportedly opposed such action)69EC Agriculture 

Commissioner Ray MacSharry responded that the EC 

was committed to comply with the panel only within 

the context of the Uruguay Round and not necessarily 

by 1990. He stressed that any retaliation would 

undermine the Uruguay Round 70 Nonetheless, at the 

May 29 GATT Council meeting, the EC agreed that by 

July 31 the EC Commission would propose a reform 

package and that farm Ministers would rule on it by 

October 31. 71 

On July 31 the EC Commission unveiled its 

oilseeds reform package. It mirrored the EC 

Commission's earlier proposal for reform of the CAP, 

which aimed to move away from production subsidies 

and toward direct income-support payments for 

farmers. The most important aspect of the reform 

entailed shifting payments from processors to 

88 
producers72and guaranteeing producers a level of 

return for each hectare cultivated instead of total 

output. This guaranteed return would consist of the 

amount the producer would receive for•elling oilseeds 

on the open market and a direct payment. The amount 

of the direct payment would equal the difference 

between a specified guaranteed income level less a 

specified projected market price. However, only when 

actual market price differed from the projected market 

price by more than 8 percent would the direct payment 

be adjusted.73 

Calculation of the direct payment was potentially 

complex. Although producers were to be compensated 

for each hectare cultivated (with the total number of 

hectares eligible for compensation in 1992/93 limited 

to a "maximum guaranteed area"), the projected price 

upon which the direct payment would be based was set 

on a per-ton basis. An average oilseeds yield would be 

used to convert this aid to a per-hectare basis. In 

addition, the direct payment would vary according to 

variations in regional yields and would decline if the 

number of hectares cultivated EC-wide exceeded the 

maximum guaranteed area. 74 

The other important aspect of the reform was that 

total support was based on a ratio between the yields of 

oilseeds and cereals. The EC Commission linked the 

crops, maintaining that a very close relationship exists 

between cereals and oilseeds and that statistics are 

more reliable and accurate for cereals than for oilseeds. 

The EC Commission reportedly set this ratio so that 

producers would be indifferent to planting either crop. 

The EC Commission also hoped that linking oilseeds 

reform to the planned cereals subsidies reform would 

facilitate full CAP reform in 1992. 75 

The U.S. Government swiftly opposed the plan. 

Although the proposals had the potential to end 

discrimination against foreign suppliers, the U.S. view 

was that the benefits of the zero binding would 

continue to be impaired. Maintenance of subsidy 

levels that were double the EC Commission's estimate 

of medium-term world prices now extended to an 

acreage even greater than that of 1990/91, would 

continue to shield EC producers from variations in 

world market prices, and would provide them with 

little incentive to reduce production. According to the 

United States, the high subsidy levels would also make 

the 8-percent price band meaningless. In the opinion 

of USTR Carla Hills and U.S. Secretary of Agriculture 

Ed Madigan, "the lowering of import duties continues 

to be prevented from having any impact on the 

competitive relationship between domestic and 

imported oilseeds." 76The U.S. objections were 

followed by criticism from the EC Council of 

Ministers, which rejected the EC Commission 

proposal. Some Ministers questioned the reasoning 

behind tying the aid to cereals. 77Others argued that 

the 8-percent price band was too high, and one 

Minister pressed for a higher oilseeds-to-cereals price 

ratio.78 

At the October 8 GATT Council meeting, the 

United States requested that the EC ratify reforms that 

complied with the panel report by October 31. Further, 

the United States said, it would formally request that 

the panel be reconvened at the November GATT 

Council if no action were taken. 79 

On October 22 the EC Council approved a 

compromise oilseeds reform 80that weakened, in the 

U.S. view, an already inadequate proposal. This 

compromise empowered member states to choose 

between average oilseed yields or average cereals 

yields when determining compensation. In addition, 

the EC Council package enabled oilseed producers to 

become eligible for a lower subsidy for 

double-cropped81 soybeans, which are those sown 

following the early summer harvest of winter crops, 

generally wheat. 82 

Despite strong pressure from Congress and U.S. 

producer associations to retaliate, the administration 

pressed for a multilateral solution to the dispute. It was 

reported that aside from jeopardizing the Uruguay 

Round, the administration was reluctant to pursue 

retaliation because (1) industry groups were thought to 

fear counterretaliation; 83(2) it would be difficult to 

devise a retaliation list, as executive agencies were 

unable to agree on the actual damage caused by the EC 

oilseeds policy; 84and (3) the estimate of at least $1.5 

billion in damage cited in the United States' GATT 

complaint would cover more than agricultural products 

in a retaliatory effort. 85 

On October 30 the United States proposed to 

reconvene the panel. At the December 3 meeting of 

GATT contracting parties, the EC agreed to reconvene 

the panel, which met on December 12, 1991, and on 

February 3 and 20, 1992. 86 

Third Country Meat Directive 

Claiming that U.S. meat plants did not comply with 

its Third Country Meat Directive, the EC effectively 

banned all imports of U.S. pork on November 1, 1990, 

and U.S. beef on January 1, 1991, by revoking the right 

of U.S. meat plants to export to the EC. The directive 

specifies hygiene and inspection requirements that 

foreign companies must meet to export their products 

to the EC. Foreign companies must be examined by 

EC inspectors for compliance with the directive and 

must then be placed on an official list of certified 

suppliers by the EC Standing Veterinary Committee. 

Before the directive was fully implemented against 

the United States in 1988, nearly 400 U.S. pork and 

beef plants exported their products to the EC. Since 

the directive was implemented the number of listed 

U.S. pork and beef plants has steadily declined. By 

1990 only 25 remained eligible to export to the EC." 

Significantly, few EC plants meet the directive's 

requirements, 88and they do not have to meet 

corresponding standards until January 1, 1993. Even 

then, temporary exceptions will be allowed until 1995. 

Permanent exceptions will be permitted for very small 

plants.89 

89 
On January 10, 1991, USTR initiated a section 301 

investigation of the EC's inspection requirements for 

imported meats, in response to a petition filed in 

November 1990 by the National Pork Producers 

Council and the American Meat Institute. 90The 

petitioners alleged that the directive violated GATT 

rules and discriminated against U.S. exporters; that it 

was used to regulate U.S. meat much more strictly than 

most meats produced in Europe; that it was not fully 

enforced for intra-EC trade; and that it was not based 

on, or justified by, any scientific analysis 9 1Also, the 

petitioners alleged that in addition to lost EC sales, 

U.S. producers would incur losses because they had 

spent millions on testing and on plant investment to 

comply with the directive and because the resulting 

surpluses would depress domestic prices. 92 

In letters to USTR urging acceptance of the section 

301 petition, 41 U.S. Senators and 30 U.S. 

Representatives denounced the directive as a trade 

barrier. They accused the EC of using it to unload a 

growing inventory of surplus beef and complained that 

"efforts by U.S. businesses to comply with the 

Directive have for years been followed by new and 

ever-increasing demands, all targeted at curbing our 

exports."93 

Bilateral discussions on the matter began in 

December 1990 but stalled in March 1991. In these 

discussions U.S. officials focused on establishing 

minimum requirements that U.S. plants must meet to 

be listed as qualified suppliers, and on determining 

how U.S. procedures could differ from the EC's 

procedures and yet produce equivalent results. The EC 

maintained that exporting countries should have 

identical, as opposed to equivalent, regulations. 

A breakthrough occurred in May when, through an 

exchange of letters, U.S. and EC officials established a 

two-stage process by which to resolve the dispute 

permanently. The objective of the first stage was to 

relist the U.S. plants that had been certified ineligible 

to export to the EC. Plants that had lost their listings 

would have to be re-inspected jointly by U.S. and EC 

officials and would have to satisfy certain minimum 

criteria relating to the role of U.S. inspection, general 

hygiene, post mortem inspection, and trichina control 

as specified in the annex of the letter sent by EC 

officials.94Stage two outlined a process for 

determining whether U.S. and EC meat inspection 

requirements are equivalent. It was to begin after both 

sides agreed that stage one had been concluded 

satisfactorily and was to conclude by December 31, 

1991. The agreement stipulated that if equivalence 

were established, "reviewers of both parties will accept 

the corresponding procedure when inspecting 

establishments otherwise deemed acceptable." 95No 

provision was made specifying how any disagreements 

during the course of discussions would be resolved. 

At the end of May the EC sent its inspectors to 

reexamine U.S. plants in order to lift the ban. In June, 

based on the inspectors' reports, the EC Veterinary 

Committee recertified only 1 plant out of 25 

inspected.96In August EC inspectors returned to 

re-inspect 17 of the plants still willing to export to the 

EC, and by October a total of 14 plants were relisted. 97 

 Also in late June the EC proposed a series of six 

meetings intended to establish the equivalency of 

sanitary rules by the December deadline. U.S. officials 

did not want, however, to enter into discussions until 

more progress had been made in stage one. The 

equivalency discussions did not begin until November. 

On June 7, USTR announced that it would 

formally request a dispute-settlement panel at the 

GATT Council meeting on July 11, 1991, despite signs 

that the EC was interested in reaching a bilateral 

solution.98At that meeting, however, the EC turned 

away the panel request, saying it wished to study the 

U.S. request.99Because both sides remained strongly 

committed to finding a solution and the negotiations 

progressed fairly wel1, 113° the United States did not 

repeat its request for a dispute-settlement panel in 

1991. 101The December 31, 1991, deadline passed 

without a solution. 102(For additional discussion of 

this dispute, see chapter 5, "Enforcement of Trade 

Agreements and Response to Unfair Foreign Practices" 

section.) 

Horsemeat 

Following the lead of French officials, the EC 

imposed a ban on imports of fresh U.S. horsemeat in 

March 1991 after an outbreak of trichinosis. Most of 

the cases were linked to 1 of the 12 U.S. 

slaughterhouses approved to export horsemeat to the 

EC. The ban was imposed to allow EC veterinary 

experts time to inspect the horse slaughterhouses.)

In May officials lifted the ban after approving U.S. 

testing procedures for the trichinella worm. EC 

officials relisted all but one plant. 104In 1991 the 

United States exported $112 million, or 79 percent, of 

its total horsemeat exports to the EC. 1 °5 

Corn Gluten Feed 

On October 16, 1991, U.S. and EC officials agreed 

on a definition of what constitutes corn gluten feed and 

on terms for its testing and certification, thus ending a 

dispute that emerged during the summer of 1991 when 

certain EC member states terminated duty-free access 

for imports of U.S. corn gluten feed. 1 °6Corn gluten 

feed is the United States' second-largest agricultural 

export to the EC; 97 percent of all U.S. corn gluten 

exports are imported by the EC. In 1991 U.S. exports 

of corn gluten feed to the EC rose to about $696 

million, from $655 million in 1990 and $640 million in 

1989. 107 

The dispute began in May 1991, when Dutch 

customs officials reclassified U.S. corn gluten feed 

under a dutiable category, after tests revealed that some 

samples consisted of up to 40 percent corn germ 

mea1. 108The Dutch, backed by EC officials who 

encouraged all member states to follow suit, 

maintained that to qualify for duty-free treatment, corn 

90 
gluten feed could contain no more than 5 percent of 

such diverse residues.. These officials also asserted that 

even though pure corn gluten feed and corn germ meal 

could each be imported separately duty free, a mixture 

of the two would be subject to a $200-per-ton variable 

levy." Some member states introduced requirements 

for mandatory rather than random testing and posting 

of bonds for corn gluten feed imports." The EC 

Association of Millers (CAM) demanded that further 

imports of U.S. corn gluten feed mixed with corn germ 

meal be banned pending a precise definition. 111 

This reaction drew criticism both from the United 

States and within the Community. British officials 

noted that they were satisfied with the current customs 

classification and questioned the reasoning behind the 

decision to assess a duty on a mixture of two duty-free 

products. 112Although Belgian officials supported a 

stricter customs classification, they continued to 

support duty-free access and opposed the EC's 

proposed method of testing. 113For its part the United 

States requested that the EC change its definition of 

corn gluten feed to permit a mixture. 114Pending a 

new definition the Dutch eventually raised the limit of 

allowable diverse residues from 5 percent to 20 

percent. 115 

In the process of devising a definition, both sides 

remained bogged down over the best way to detect the 

presence of corn germ meal in corn gluten feed. The 

EC insisted that fat content would best indicate such a 

presence and proposed setting a 3-percent maximum 

limit on fat. U.S. exports have an average fat content 

of 3.5 percent, however, so this limit would have 

blocked about half of U.S. exports to the EC market. 

The United States suggested instead that starch content 

would be the appropriate indicator and that a limit on 

fat would not automatically limit the corn germ meal. 

The U.S. definition set a 5-percent limit on fat and a 

28-percent limit on starch. The EC accepted the 

28-percent limit on starch but refused to compromise 

on the fat content. As a result on August 19, 1991, the 

administration lodged a formal diplomatic protest with 

the EC Commission, and U.S. producer associations 

sought retaliation. 116 

Another point of contention addressed the method 

for testing the content of corn gluten feed. The EC's 

Customs Nomenclature Committee wanted member 

states to use an advanced microscopic analysis, which 

directly identifies components. Only Germany and the 

Netherlands used this method. Instead, the United 

States demanded that chemical analysis be used, which 

identifies the amount of starch, protein, and fat content 

present in the product. In the end the EC accepted 

chemical analysis. 

The dispute was not based on pure technicalities. 

Dutch and French officials charged that germ meal had 

been intentionally and fraudulently mixed with the 

corn gluten feed,'17 and EC officials maintained that 

the levels of corn germ meal in U.S. shipments had 

increased over the past 4 years. 118The United States 

reportedly replied that corn germ meal was present in 

the corn gluten feed because it is a natural byproduct of 

the milling process and that corn gluten feed had 

contained varying amounts of corn germ meal since 

well before the zero binding was established. The 

United States also argued that no chemical standards 

were specified with regard to this zero-tariff 

binding. 119The EC eventually conceded the point. 

Politics, too, factored into the dispute. EC farm 

Ministers asserted that a solution to the dispute 

regarding corn gluten feed could be found only within 

the context of rebalancing. 120As noted previously, the 

EC wishes to use rebalancing to impose a higher level 

of protection on some products—particularly nongrain 

feed substitutes such as corn gluten feed—in return for 

lowered protection on others such as grain. 121 

The United States and the EC formally resolved the 

dispute through consultations outlined in GATT article 

XXIII:1 . As a result of these consultations U.S. and 

EC officials ended the stalemate over an acceptable fat 

content for corn gluten feed and signed a 

Memorandum of Understanding (MOU) on October 

16, 1991. Among the provisions of the MOU, both 

sides agreed that for continued duty-free treatment, 

corn gluten feed could contain no more than 28 percent 

starch, 4.5 percent fat, and 40 percent protein. Both 

sides agreed to the basis for calculating the percentages 

and the method of testing for fat. Additionally, both 

sides noted that the U.S. industry planned to certify 

corn gluten feed to ensure that the standards specified 

in the agreement would be met. Finally, the EC agreed 

to refund the variable levies and bonds that had been 

collected on corn gluten feed. 122On November 29, 

1991, the EC passed legislation implementing the 

MOU, which took effect January 1, 1992. 123 

Enlargement-Related Farm Trade 

Dispute 

In 1991 U.S. and EC officials did not, as hoped, 

permanently resolve a dispute over compensating the 

United States for feed grain exports lost when Spain 

and Portugal joined the EC. (For additional discussion 

of this dispute, see chapter 5, "Enforcement of Trade 

Agreements and Response to Unfair Foreign Practices" 

section.) Instead, the EC extended until the end of 

1992 a temporary agreement, struck in 1987, that 

guaranteed the United States access to the Spanish feed 

grain market. Conflicting interpretations of GATT 

article XXIV:6, which governs compensation to trading 

partners injured by an enlargement of a customs union, 

underlie the dispute. 

This dispute arose when Spain joined the EC in 

1986 and was obligated to adopt the EC's system of 

variable import levies to comply with the EC's CAP. 124 

 In doing so Spain breached its tariff binding on imports 

of corn and sorghum. With about $200 million in 

annual corn and sorghum exports 125 to Spain 

jeopardized, the United States threatened to retaliate. 

In January 1987 the United States and the EC 

concluded an agreement under which Spain would 

import duty free 2 million metric tons of corn and 

91 
specified nongrain feed ingredients, as well as 300,000 

metric tons of sorghum, from non-EC suppliers 126 

 annually until December 1990. The EC also reduced 

tariffs on about 25 products. When the agreement 

expired in 1990 the EC extended it through 1991 to 

avoid retaliation. 

Both sides pledged to achieve a permanent solution 

in 1991. Despite meetings in June and in September, 

however, no permanent solution was reached. In 

October, as the United States prepared to retaliate, the 

EC offered to extend the agreement informally for 1 

more year. The EC did not want to extend the 

agreement through a formal exchange of letters 

because EC officials believed a formal exchange would 

be tantamount to accepting the U.S. interpretation of a 

GATT' article underlying the dispute. 127Conversely, it 

was reported that the United States did not want an 

informal extension because such an action would be 

difficult to enforce under the GATT. 128As a 

compromise the EC offered to "inform the GATT that 

the relevant parts of the 1987 agreement remain in 

force and that the GATT rights reserved in that 

agreement for both sides are still valid."t 29 Both sides 

agreed to review the issue in June 1992 in light of the 

outcome of the Uruguay Round. 

The GATT article in dispute, XXIV:6, addresses 

compensation to trading partners for trade lost when a 

customs union has been enlarged. The EC reportedly 

interpreted this article to mean that tariff changes 

across all sectors must be considered when assessing 

compensation. 13° In the EC view the United States 

was not entitled to additional and permanent 131 

 compensation because any disadvantages in 

agricultural trade have been offset by gains in the 

manufacturing sector. The EC contended that relative 

to those of third countries, U.S. exports to Spain have 

experienced an above-average increase. 132 

In contrast the United States reportedly interpreted 

the article to mean that compensation should be 

determined by comparing tariff changes for specific 

products 133 The United States demanded a permanent 

concession for lost trade and maintained that incidental 

trade benefits were irrelevant. 134Because the United 

States is expected to insist on further compensation 

when the parties reexamine the agreement in June 

1992, it will probably be referred to a GATT 

dispute-settlement pane1. 135Resolving this matter 

takes on added importance in view of the fact that the 

EC may soon admit new member states. 

Moratorium on Milk-Enhancing 

Hormone (BST) 

In December 1991 the EC extended until 

December 31, 1993, a moratorium on the use of bovine 

somatotropin (BST), a genetically engineered natural 

hormone that boosts milk production by an average of 

25 percent in dairy cows. The EC Commission 

introduced the ban in September 1989 so that BST 

could be scientifically tested to determine whether it 

should be approved for use in the EC market. 136The 

EC Commission stated that it will issue its findings and 

proposals by June 30, 1993. 137 

The controversy surrounding BST approval is part 

of the larger issue of whether socioeconomic impact 

(the so-called fourth criterion) should be considered 

along with the traditional criteria of safety, efficacy, 

and quality when assessing new biotechnology-based 

products. 138In March 1991 the EC's Committee for 

Veterinary Products unanimously agreed that BST is 

safe for humans, and a majority agreed that it is safe 

for animals. However, BST still needs approval from 

the EC Council of Farm Ministers before it can be 

authorized for use. Farm Ministers must be convinced 

that there is a need for a hormone that increases the 

productivity of cows, especially when growing dairy 

surpluses already cost the EC taxpayers billions of 

dollars in aid each year. Furthermore, the surplus 

could be exacerbated on the demand side. EC officials 

are concerned that consumption of dairy products may 

decline among consumers who fear the hormone, and 

that dairy exports destined for countries that forbid 

BST would be harmed. 139 

The European Campaign Against BST, composed 

of more than 30 national farming, animal welfare, and 

environmental groups—and political parties—lobbied 

for the continuation of the moratorium and proposed 

that the current legal framework for assessing new 

products include socioeconomic criteria. For example, 

the group argued that BST would harm the health of 

cows, would conflict with changing consumer 

preference toward more natural food, would force 

many small farmers out of business, and would harm 

the environment because it would encourage intensive 

farming methods. The group believed there was 

insufficient evidence that BST is safe for humans, 

particularly babies. 14° In contrast the European 

Federation of Animal Health, representing 

manufacturers of veterinary drugs, objected to 

extending the moratorium. The group argued that 

imposing a moratorium for socioeconomic reasons 

would stifle progress and innovation. 141 

The United States urged EC officials to base BST 

approval solely on scientific criteria. 142Although BST 

is manufactured by U.S. firms, the Food and Drug 

Administration has not yet approved BST for use in the 

U.S. market. 143 

Airbus 

Airbus Industrie is a consortium of airplane 

manufacturers from Germany (Deutsche Airbus), 

France (Aerospatiale S.A.), the United Kingdom 

(British Aerospace PLC), and Spain (Construcciones 

Aeronauticas S.A.). Since 1986 the United States has 

claimed that Airbus receives unfair subsidies from the 

governments of the four partners, placing U.S. aircraft 

manufacturers at a disadvantage. 1 ' The EC, which 

negotiates on behalf of the partner governments, has 

countered that U.S. manufacturers receive indirect 

subsidies through defense contracts. 

92 
The United States and the EC have negotiated the 

issue of aircraft subsidies over the past 5 years, but 

without much success. The major point of contention 

has concerned limitations on the level of development 

subsidies. Airbus has been estimated to receive 

between 70 and 90 percent 145of its development costs 

in a direct subsidy that is repayable through royalty 

arrangements. The U.S. Department of Commerce 

estimated that the four partner governments had 

committed more than $13.5 billion to Airbus by 1989, 

of which only $462 million had been repaid. 146 

Negotiations were suspended in February 1991, 

when the United States rejected the most recent EC 

proposal. The EC had suggested eliminating 

production subsidies and capping development 

subsidies at 45 percent of the development cost, 147but 

the United States insisted on an eventual reduction to a 

25-percent cap, plus the conclusion of a multilateral 

agreement that would include other GATT nations 

involved in the civil-aircraft industry, such as Canada 

and Japan. Other differences also remained 

unresolved: for example, the United States wanted any 

agreement to cover aircraft with more than 100 seats, 

whereas the EC wanted to limit coverage to aircraft 

with more than 140 seats. In addition, there was 

disagreement over whether, and how, to include 

indirect subsidies in the negotiations. The United 

States and the EC were ultimately unable to resolve 

these differences, leading the United States to pursue 

complaint procedures in the GATT. 

The United States' first action was to request on 

February 14, 1991, that the GATT Subsidies 

Committee establish a dispute-settlement panel to 

investigate a German exchange-rate guarantee scheme. 

In 1988 the German Government agreed to protect 

Deutsche Airbus from currency fluctuations as part of 

its efforts to privatize Messerschmiu Bolkow-Blohm, 

of which Deutsche Airbus is a wholly owned 

subsidiary, through a merger with Daimler-Benz. The 

exchange-rate scheme offered by the German 

Government covers the fmancial risks of current and 

future projects through 2000 by offsetting adverse 

exchange-rate fluctuations between the German mark, 

in which production costs are incurred, and the U.S. 

dollar, the currency of the civil-aviation market. The 

United States alleged that the German Government 

distributed 390 million Deutschemarks ($244.4 

million) in 1990 to Daimler-Benz under the 

exchange-rate scheme, resulting in an average subsidy 

of about $2.5 million for each completed aircraft 

delivered in 1990. 148The U.S. complaint reflected 

concern that this scheme was cushioning the German 

aircraft-component industry from the effect of the 

weakening dollar and decreasing the competitiveness 

of U.S. aircraft components. On January 15, 1992, the 

GATT panel ruled that the German Government was 

violating the GATT Subsidies Code by providing 

exchange-rate guarantees to Deutsche Airbus. If the 

panel's findings were accepted by the 22-nation GATT 

Subsidies Committee, Germany would be required to 

stop payments under the guarantee scheme but would 

not necessarily be required to arrange restitution 

payments. Since nearly all such panel reports have 

been blocked in the Subsidies Committee by the losing 

party, 149there remained a strong possibility that the 

European members of GATT might move to veto 

acceptance of the panel's findings. 13° 

In May 1991 the United States announced its 

intention to file a second, broader complaint about 

Airbus production and development subsidies under 

the GATT Subsidies Code. Even though this 

announcement prompted the EC to call for a 

resumption of bilateral or multilateral negotiations over 

the subsidies issue, the United States formally 

requested consultation procedures under the Subsidies 

Code on May 31 to review the full range of subsidies 

provided to Airbus. 

Throughout 1991 the EC objected to the use of the 

Subsidies Code over Airbus disputes and instead 

insisted that these disputes should be resolved under 

the Civil Aircraft Code. Currently the Civil Aircraft 

Code states that the Subsidies Code applies to aircraft 

but also permits signatories to consider "special 

factors" that might justify government subsidization of 

the aircraft industry. 151In March 1991 the EC 

encouraged reform of the Civil Aircraft Code to clarify 

its provisions regarding subsidies and filed a request 

with GATT to renegotiate the Civil Aircraft 

Agreement. 152On several occasions the EC attempted 

to have the two U.S. complaints resolved under the 

Civil Aircraft Code or through a joint Civil 

Aircraft-Subsidies Committee. The EC position is 

reportedly a potential indication that the EC will move 

to block any effort made by the Subsidies Committee 

to mediate the dispute. 153 

While continuing to dispute the U.S. choice of the 

Subsidies Code as the proper forum for discussion, the 

EC finally agreed to meet with the United States in 

early August to discuss both the substance and 

procedures associated with the consultation process. 154 

 Unsatisfied with the EC response at this August 

meeting, the United States proceeded with the next step 

in the complaint procedures 155on August 21 by asking 

the Subsidies Committee to act as a mediator in a 

conciliation phase. 156After a GAIT Subsidies 

Committee meeting in late September, the EC and the 

United States agreed to continue negotiations and, by 

January 1992, had set early 1992 157as a target date for 

concluding the negotiations. 158 

The issues under dispute at the end of 1991 were 

the same as those that stymied talks in early 1991. The 

proposed cap on development subsidies continued to 

be a prominent issue. The EC buttressed its argument 

for including indirect subsidies provided by the U.S. 

defense contracting system in the talks by releasing a 

report on December 4 that the EC Commission had 

requested from a private U.S. law firm, Arnold & 

Porter. The report concluded that the U.S. Government 

provided between $18 billion and $22 billion in direct 

and indirect support to the U.S. commercial aircraft 

industry between 1976 and 1990. 159The three major 

sources of U.S. support identified by the report were 

93 
In 1991 the United States recorded a $12.2 billion 

merchandise trade deficit with Canada (table 11). The 

lowest bilateral deficit with Canada since 1987, the 

figure reflected a slight drop from the 1990 level of 

$13.0 billion. The bilateral balance with Canada 

represented 15 percent of the overall U.S. merchandise 

trade deficit of $82.2 billion. 

After rising by more than 43 percent from 1989 to 

1990, the value of U.S. exports to Canada increased 

only slightly (0.6 percent) during 1991, to $78.7 

billion. U.S. exports to Canada in 1991 rose in 7 of 10 

SITC sections (table 11). Slight declines were 

registered in crude materials (section 3) and machinery 

and transport equipment (section 7). Exports in the 

mineral fuels category (section 4) decreased by more 

than 40 percent. More than 85 percent of the products 

exported to Canada are manufactured goods (figure 5). 

The major items of bilateral trade are highlighted 

in tables A-7 and A-8. The leading U.S. exports to 

In 1991 the United States and Canada remained Canada in 1991 were automobiles and parts of motor 

each other's largest trading partners, accounting for the vehicles, reflecting the high degree of integration 

greatest volume of trade between any two countries in between the U.S. and Canadian automobile industries. 

the world. Totaling $170 billion, the value of U.S. Although the list of products was generally unchanged 

trade with Canada was nearly 20 percent higher than from 1990, the decline in exports of printed circuits (39 

that with any other single country, including Japan, and percent), together with the increase in parts for digital 

was only $13.1 billion less than the value of all trade processing units (15 percent), altered the hierarchy 

between the United States and the 12-nation European slightly in 1991. Exports of half the items on the list 

Community (EC). decreased from 1990 to 1991. 

Table 11 

U.S. merchandise trade with Canada, by SITC Nos. (Revision 3), 1989-91 

(Thousands of dollars) 

SITC 

section 

no. Description 1989 1990 1991 

U.S. exports 

0 Food and live animals 1,902,959 3,764,648 4,204,056 

1 Beverages and tobacco 83,038 125,874 140,741 

2 Crude materials, inedible, except fuels 2,288,497 2,923,63$ 2,747,873 

3 Mineral fuels, lubricants and related materials 1,678,317 2,154,800 1,240,336 

4 Animal and vegetable oils, fats and waxes 47,010 57,524 64,110 

5 Chemicals and related products, n.e.s. 4,210,236 6,050,164 6,554,645 

6 Manufactured goods classified chiefly by material 5,865,041 9,822,800 10,266,449 

7 Machinery and transport equipment 33,194,049 42,746,260 42,289,120 

8 Miscellaneous manufactured articles 4,325,923 7,508,083 8,122,351 

9 Commodities & transact not class elsewhere in SITC 21,382,400 3,064,167 3,082,109 

Total all commodities 74,977,469 78,217,958 78,711,789 

U.S. imports 

0 Food and live animals 3,515,355 3,755,819 3,934,951 

1 Beverages and tobacco 548,983 654,845 692,695 

2 Crude materials, inedible, except fuels 7,855,915 7,335,834 6,253,552 

3 Mineral fuels, lubricants and related materials 7,741,886 9,810,313 10,240,523 

4 Animal and vegetable oils, fats and waxes 89,130 92,340 132,576 

5 Chemicals and related products, n.e.s. 3,927,606 4,282,363 4,348,228 

6 Manufactured goods classified chiefly by material 16,697,375 15,774,898 15,316,044 

7 Machinery and transport equipment 39,123,230 40,753,015 40,548,726 

8 Miscellaneous manufactured articles 3,600,183 3,588,667 3,635,340 

9 Commodities & transact not class elsewhere in SITC 4,887,988 5,150,214 5,821,188 

Total all commodities 87,987,651 91,198,308 90,923,823 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Department of Defense grants to conduct private 

research and development (R&D), R&D conducted by 

the National Aeronautics and Space Administration 

(NASA), and the U.S. system for taxing contract 

income. 160Other areas of continuing U.S. concern, 

particularly to U.S. industry, were government 

guarantees of loans made by Airbus to customers and 

the royalty-based system of repaying Airbus 

subsidies. 16 ' 

Canada 

Merchandise Trade With the 

United States 

94 
Manufactured 

goods 

$67.2/85.4% 

Food 

$4.4/5.6% 

Fuel/raw 

materials 

$4.0/5.1% 

All other goods 

$3.1/3.9% 

U.S. Exports 

(billion dollars and percent) 

Manufactured 

goods 

$63.8/70.2% 

Fuel/raw 

materials 

$16.5/18.1% 

Food 

$4.8/5.2% 

All other goods 

$5.8/6.4% 

U.S. Imports 

(billion dollars -andpercent) 

Figure 5 

U.S. trade with Canada by product sector, 1991 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Note.--Because of rounding, figures may not add up to 100 percent. 

U.S. imports from Canada were valued at $90.9 (CFTA) and provides for duty-free treatment of 

billion in 1991, a slight (.30 percent) decline from the imports of specified automotive products. 

previous year. Trade in individual sector groupings 

was generally unchanged from 1990. The decline in 

imports from Canada occurred at a time when overall Major Policy Developments 

U.S. imports dropped by 1.5 percent. The leading Affecting Trade categories of items imported from Canada in 

1991—automobiles, 162 trucks, petroleum oils, and 

newsprint—accounted for 33.0 percent of total U.S. North American Free-Trade imports from Canada and were the same items that led 

the list of imports from Canada in 1990. U.S. imports Agreement 

of natural gas rose by 18 percent during the year, and The North American Free-Trade Agreement 

shipments of nonmonetary gold soared by 176 percent. (NAFTA) evolved from a plan to establish a free-trade 

agreement (FTA) between the United States and 

Machinery and transport equipment (SITC section Mexico.I 64 It was not until early 1991, when Canada 

7) was the major area of bilateral trade, between the officially decided to participate in what had been 

United States and Canada: it accounted for bilateral talks on a U.S.-Mexico FTA, that the concept 

53.7 percent of overall shipments to Canada and of a continent-wide agreement was formally 

44.6 percent of goods received from Canada in 1991. established. 165 The Canadian Government indicated 

Nonetheless, trade in this sector declined in both that it was interested in a broad agreement 

directions. Plant shutdowns (both temporary and encompassing intellectual property rights, all goods 

permanent) and a gradual erosion of market share for and services, investment, and a range of issues similar 

North American cars in the U.S. market contributed to to those under consideration in the Uruguay Round. 

the general weakening of cars and auto parts exports Although two-way trade between Canada and Mexico 

from Canada. 163This trade is largely governed by a is minuscule relative to U.S.-Canadian trade, 166 the 

longstanding agreement, the 1965 Auto Pact, that Canadian desire to expand economic ties with Mexico, 

antedates the U.S.-Canada Free-Trade Agreement though important, was considered by many to be 

95 
secondary to the desire to prevent erosion of any gains 

made in its bilateral pact with the United States. (For a 

detailed discussion of the NAFTA negotiations, see 

chapter 1.) 

Interprovincial Trade Barriers 

For decades Canada's Provinces have maintained 

numerous barriers to open trade: discriminatory 

Provincial procurement procedures, differing 

certification and licensing procedures, and restrictions 

on trade in agricultural products and alcohol. 167The 

problem has been acknowledged, but efforts to resolve 

it have been unsuccessful----in part because the 

Canadian Provinces wield considerable power relative 

to the Federal Government and are not constitutionally 

required to obey all of its dictates. Even though 

additional efforts were made in 1991, progress was not 

significant. 

Canada's interprovincial barriers have been 

estimated by the Canadian Manufacturers Association 

to cost the Canadian economy about Can$6.5 billion a 

year. 168The problem was also highlighted in studies 

that the Government itself commissioned and, in 1991, 

became a focus for increasing international 

criticism. 169In response the Government proposed a 

constitutional amendment in September of that year. 

Presented as part of a broader package to promote 

economic union in Canada, the amendment was to 

guarantee free movement of goods, services, capital, 

and people throughout Canada. July 1, 1995, was the 

proposed target date for elimination of all internal 

barriers among the Provinces. The amendment and the 

economic package were well received in business 

circles but were still under discussion at year's end. 

Constitutional 

Developments—Quebec 

In the past several years the Canadian Government 

has had to face a growing crisis with regard to the 

French-speaking Province of Quebec. The 

debate—which focuses on the question of whether 

Quebec should remain inside Canada's federal 

structure or become a sovereign state—came to a head 

in June 1990, when two of Canada's 10 Provinces 

failed to ratify the Meech Lake Accord. The accord 

would have brought Quebec under the aegis of the 

Canadian Constitution—a document that Quebec has 

consistently refused to approve since the early 1980s, 

when it was ratified by the other Canadian 

Provinces. 17° 

Since the failure of the accord, pressures for 

secession have grown in Quebec, accompanied by 

related political fragmentation in the rest of Canada. 

As a result considerable time was devoted by both 

government and private institutions in 1991 to studying 

the possible political and economic impact of an 

independent Quebec, as well as the need for reform of 

the nation's current federal structure. 171On September 

24, 1991, Prime Minister Mulroney issued a 28-point 

package of proposed constitutional reforms aimed at 

strengthening Canada's federal structure and easing 

secessionist pressures in Quebec. 172The proposed 

changes went before an all-party parliamentary 

commission in September 1991 for 5 months of public 

hearings. The Government was expected to present 

formal constitutional amendments by mid-1992. The 

Quebec Government, however, stated that if Ottawa 

failed to propose an acceptable set of constitutional 

reforms, it would hold a referendum on sovereignty no 

later than October 1992. 173 

The term "sovereignty" has acquired various 

definitions in the course of the national debate. Some 

Quebecois have advocated complete separation from 

Canada; many have proposed a system 

("sovereignty-association") under which Quebec could 

function as a separate political entity while retaining 

such privileges as use of the Canadian dollar and 

coverage under the FTA. The Canadian Government's 

vehement rejection of the notion of "pan-time 

Canadians,"' /4however, makes this option seem 

unlikely—a conclusion also reached by a recent C.D. 

Howe Institute report on the Quebec crisis. According 

to this study it would be unrealistic to believe that an 

arrangement such as sovereignty-association could be 

constructed to maintain an economic union or to create 

a common market between Quebec and Canada. 175A 

free-trade agreement, the study claimed, would be the 

most that could be negotiated, and it would still result 

in increased border control to monitor the flow of 

people, services, and goods. 176In addition, the report 

indicated that some sectors in Quebec—dairy, textiles, 

clothing, footwear, and furniture—would suffer greatly 

from lack of the protection they currently enjoy.' 

Further, the study noted, Quebec would be forced to 

take on increased responsibilities as a national 

government. These responsibilities would require 

certain Quebec policies and programs to be suspended, 

especially if Quebec were to become part of a new FrA. 178 

The effect of sovereignty on trade is a crucial issue 

for Quebec. Second only to Ontario, Quebec is the 

Canadian Province that depends most on exports (to 

other Canadian Provinces as well as to other countries) 

for its economic growth. A survey of Quebec's trade 

patterns indicated that exports to other Provinces and 

the rest of the world accounted for roughly 40 percent 

of the Province's gross domestic product in 1987. 179 

 Quebec's main exports are from the paper, aluminum 

and aluminum alloys, automobiles, telecommunications equipment, and airplane-engine sectors. 18° In 

1989 more than 74 percent of Quebec's exports went to 

the United States. 181 

The leading items exported to and imported from 

the United States by Quebec in 1991 are shown in table 

12. Although exports from Quebec to the United 

States declined by 4.3 percent from 1990 to 1991, 

imports into the Province dropped by 7.4 percent. The 

Province had a positive trade balance (equaling about 

$6.8 billion) with the United States in 1991, but a 

96 
negative trade balance ($3.0 billion) with the world as 

a whole. 

Quebec's strong dependence on trade-and on the 

United States as the primary market for its 

exports-leads to the question of how Quebec's 

possible secession from Canada would affect the 

Province's relations with the United States and its 

standing in the CFTA. For its part the United States 

has traditionally followed a two-track policy with 

regard to Quebec's aspirations for independence. On 

the one hand successive U.S. administrations, 

including that of President Bush, have declared that the 

issue is one for Canadians to resolve. On the other, the 

United States has supported a united Canada. 182 

Were Quebec to secede from the rest of Canada, it 

is unclear whether the United States would extend the 

current CFTA, or a future NAFTA, to include Quebec. 

Indeed, in the event of an acrimonious breakup with 

Canada, any kind of FTA between the United States 

and Quebec might not be possible. Even if Quebec's 

independence engendered little rancor, however, 

extension of the CFTA to an independent Quebec 

would not be automatic. Current legal thinking 

suggests that congressional approval would be 

required, a process that in turn could result in efforts to 

restructure the agreement. Further, as an independent 

state, Quebec's trading practices would no longer be 

shielded from the full rigors of an FTA. The new, state 

Table 12 

Leading categories of trade between the United 

(Thousands of 

might also face demands to eliminate the program of 

government subsidies so crucial to the so-called 

"Quebec Inc." strategy 183before entering into an FTA 

with the United States. 1 " ("Quebec Inc." is the term 

used to describe the partnership among government, 

business, and labor that has boisicred the industrial 

development of the Province over the past three 

decades.) 

Concern over remaining a pan of an FTA with the 

United States and over access to Canadian markets will 

undoubtedly play a large role in Quebec's Provincial 

referendum on sovereignty. Combined with the current 

recession and high levels of unemployment (12.5 

percent in the Province as of March 1992), these 

concerns could very well inhibit the strong political 

desire for independence, making economic uncertainty 

a stronger influence on the outcome of the issue than is 

generally acknowledged. 

U.S.-Canadian Bilateral Trade 

Issues 

The U.S.-Canada Free-Trade Agreement continued 

to be the centerpiece of bilateral relations in 1991, 

although the NAFTA negotiations pointed up the 

increasing importance of strengthening regional trading 

relationships in North America. A number of specific 

States and the province of Quebec, 1989-91 

Canadian dollars) 

Description 1989 1990 1991 

Quebec Exports 

Telecommunications equipment 1,335,927 2,665,726 3,015,737 

Newsprint 2,434,529 2,421,538 2,382,523 

Aluminum, including alloys 1,842,725 1,670,391 1,664,207 

Special commercial transactions 253,389 1,261,074 1,171,298 

Certain autos & chassis 1,784,668 1,701,693 689,420 

Airplanes, including motors 296,621 398,848 579,612 

Airplane motors & parts 564,880 524,168 415,700 

Copper & alloys 374,698 328,911 363,485 

Softwood lumber 451,093 349,123 327,359 

Wood pulp 367,788 341,837 283,795 

Subtotal, 10 principal products 9,706,318 11,663,310 10,893,137 

Total all commodities 16,954,467 19,854,801 19,004,446 

Quebec Imports 

Certain autos & chassis 2,112,855 1,793,771 1,820,242 

Electric tubes & semiconductors 932,969 1,042,520 953,470 

Telecommunications equipment 479,353 1,520,801 934,830 

Trucks, tractors, bodies & chassis 488,287 474,630 512,874 

Special commercial transactions 281,577 311,656 414,212 

Airplane motors & parts 383,672 387,639 366,064 

Inorganic chemicals 389,934 298,332 356,347 

Airplane parts, except motors 317,444 310,500 316,107 

Computers 315,824 272,971 263,240 

Organic chemicals 201,271 254,765 232,022 

Subtotal, 10 principal products 5,903,186 6,667,585 6,169,407 

Total all commodities 12,323,452 13,205,046 12,222,152 

Source: Quebec Office of Statistics. 

97 
bilateral disputes were considered within the terms of 

the CFTA: most notably softwood lumber, beer, pork, 

and automobiles. By year's end, the tension generated 

by some of these disputes had reached unusually high 

levels in both Canada and the United States. 

U.S.-Canada Free-Trade Agreement 

January 1, 1992, marked the beginning of the 4th 

year of operation of the U.S.-Canada Free-Trade 

Agreement (CFTA). So far the agreement appears to 

have been successful in opening the border to 

increased commerce: bilateral trade has increased by 

13.9 percent since the pact went into effect. In 

addition, the agreement has arguably been a catalyst in 

the movement toward a wider, hemispheric agreement 

involving Mexico. Equally important, the CFTA 

functions as a major channel through which the United 

States and Canada may address trade disputes. 

Testimony to the pact's role in expanding two-way 

commerce is the large number of petitions considered 

each year for accelerated tariff reduction. In 1990 

more than 400 tariff items, covering approximately $6 

billion in two-way trade, were reduced. In 1991 

accelerated reductions affected 250 tariff items worth 

about $2 billion in two-way trade. 185 

When the CFTA was negotiated in 1987 both sides 

attempted to construct a mechanism that would address 

the resolution of trade disputes in a more timely 

fashion than was afforded them under existing GATT 

procedures. The consensus was that a bilateral process 

might be more open, more direct, and swifter than 

multilateral procedures. An innovative step was taken 

with the decision to provide for review through panels 

of trade experts, chosen by each side. Strict guidelines 

for due process and timeliness were set out. The aim 

was to lessen the political sensitivity that has 

traditionally been associated with U.S.-Canadian trade 

disputes. 

Disputes under the CFTA are handled in one of two 

ways. General disputes arising out of the operation of 

the agreement, which cannot be resolved through 

consultations, are addressed under the CFTA's chapter 

18 by a panel of five independent experts. Two are 

chosen by each side, and the fifth is chosen jointly. 

The second arrangement (under chapter 19 of the 

CFTA) allows for binational review of national 

antidumping and countervailing-duty determinations. 

Also conducted by a binational panel of experts, this 

review replaces review by national courts. 

Since the inception of the CFTA in 1989, there 

have been a number of instances of consultation and 

review under chapter 18. Only two of these 

cases—concerning lobsters (1990) and salmon and 

herring (1989)—resulted in the formation of panels. 

There were no panels in operation last year, although 

consultations were requested on a number of issues, 

including rules of origin on automobiles and Provincial 

liquor board policies. Consultations are continuing on 

these issues. 

In the 3-year history of the pact, there have been 23 

cases involving binational review of antidumping or 

countervailing-duty determinations (chapter 19). 

Eighteen of them had been resolved by the start of 

1992. Most of the decisions were unanimous, although 

individual panelists on occasion wrote dissenting 

opinions. At the end of 1991 there were five cases 

pending. They involved live swine from Canada (two 

cases), beer from the United. States (two cases), and 

replacement parts for bituminous paving equipment 

from Canada. 

The panel-review process embodied in chapter 19 

of the CFTA has proven to be a practical mechanism 

for resolving bilateral antidumping and 

countervailing-duty disputes. The general 

consultation/dispute procedures of chapter 18 have also 

proven constructive as a means of addressing 

high-profile difficulties without rancor. Nevertheless, 

a number of bilateral issues were the subject of 

considerable attention on both sides of the border 

during the year. Disputes over cars and 

lumber—Canada's chief exports to the United 

States—were not subject to the bilateral dispute 

process in 1991, but generated enormous controversy. 

As a result of a U.S. Customs determination on 

domestic content, additional duties were imposed on 

certain automobiles (Hondas) imported from 

Canada. 186 

Although the CFTA appears to have met the 

obligation of resolving bilateral disputes, with both 

countries struggling through the effects of recession, 

more disputes are likely in the medium term. 187 

Softwood Lumber 

The origins of the Canada-U.S. softwood lumber 

dispute date back to 1986, when the U.S. lumber 

industry filed a complaint asking for the imposition of 

a countervailing duty on Canadian lumber exports. 188 

 The industry claimed that Canadian "stumpage" fees, 

paid by timber producers to compensate the Provinces 

for access to and harvest of Provincial timber, 189were 

artificially low and constituted a subsidy that benefited 

Canadian lumber producers. The U.S. lumber industry 

claimed that subsidized imports of Canadian lumber 

were a cause of material injury. Before final 

determinations were issued in the resulting 

countervailing-duty investigation, Canada and the 

United States entered into a Memorandum of 

Understanding (MOU) on December 30, 1986. 190The 

MOU required Canada to impose a 15-percent export 

charge on softwood lumber exports to the United 

States, which could be reduced on exports from 

Provinces that exacted qualifying "replacement 

measures" that had the effect of raising charges for 

access to and harvest of timber. In return, the U.S. 

lumber industry withdrew , its countervailing-duty 

petition, terminating the investigation before final 

determination and possible implementation of a 

countervailing duty. 191The MOU was signed before 

the negotiation of the CFTA and in fact was 

incorporated into the CFTA in article 2009. 

98 
Although the MOU had no expiration date, it did 

state that either country could terminate the agreement 

with 30 days' notification. Canada announced its 

intention to terminate the MOU on September 3, 1991, 

effective October 4, 1991. It cited three reasons for the 

termination. First, Canada claimed, the MOU had 

served its purpose: 192since the MOU was signed in 

1986, many Canadian Provinces had adopted policies 

that increased the costs of resources used by the lumber 

industry. The Canadians stated that British Columbia, 

which accounted for 78.4 percent of Canadian exports 

of softwood lumber in 1990, had replaced its export 

charge with increased stumpage and other forestry 

charges. These changes cost the lumber industry an 

additional $620 million in 1990, in contrast to the 1987 

export charge of $300 million. 193Canada also claimed 

that Quebec, accounting for 10.9 percent of U.S. 

softwood lumber imports from Canada in 1990, had 

implemented policies that were costing the industry an 

added $52 million per year, compared with $45 million 

in 1987. 194Further, Canada maintained, the rate 

imposed on Alberta softwood lumber producers was 

still the full 15 percent export charge, despite increased 

costs to the industry. 195 

Canada's second reason for termination was its 

claim that there was no subsidy to Canadian lumber 

producers in place. 196Canada claimed that the 

Provincial forest revenues exceeded Provincial forest 

costs. This conclusion was reached after Canada 

applied a U.S. program, the Timber Sales Program 

Information Reporting System (TSPIRS), to the 

forestry accounts of British Columbia, Alberta, 

Ontario, and Quebec, the four major Canadian 

softwood lumber producers. 197 

Finally, Canada stated that the Canadian share of 

the U.S. softwood market was decreasing. 198Canada's 

share of the U.S. market peaked at 32.8 percent in 

1985. By the first quarter of 1991 it had declined to 

26.1 percent. This drop could be attributed at least 

partially to the increase in the value of the Canadian 

dollar and, according to Canada, to the increase in 

stumpage fees, which drove up log costs. 199 

Termination of the agreement caused a predictable 

uproar. The U.S. Department of Commerce 

(Commerce) self-initiated a countervailing-duty 

investigation under title VII of the Tariff Act of 

19302w and, in an effort to preserve the status quo, 

USTR, pursuant to an investigation initiated under 

section 302 of the Trade Act of 1974, directed U.S. 

Customs on October 4 to withhold liquidation and 

collect a bond on entries of Canadian softwood 

iumber.201 The amount of the bond corresponded with 

the export charge previously collected by Canada for 

each Province—which meant that British Columbia, 

the largest Provincial exporter of lumber, was exempt 

from the bond requirement, as the export charge under 

the MOU had been eliminated following the enactment 

of qualifying replacement measures. 202The Canadian 

Government complained to the GATT Committee on 

Subsidies and Countervailing Measures in October 

1991, and a trade dispute panel was formed in 

December to examine the issue. 

On December 12, 1991, the U.S. International 

Trade Commission made a preliminary decision that 

there was a reasonable indication that Canada's 

allegedly subsidized softwood lumber imports were 

causing material injury to domestic lumber 

producers. 2°3Commerce continued to investigate the 

question of whether Provincial stumpage regimens and 

log export restrictions constituted countervailable 

subsidies under U.S. law. 2°4 

Beer 

Although it required that trade barriers to most 

products traded between the United States and Canada 

be reduced, the CFTA expressly exempted the brewing 

industry from such requirements. Existing practices 

governing the internal sale and distribution of beer 

were recognized, thus preserving the State and 

Provincial controls that were in place at the time the 

agreement was signed. The CFTA did, however, 

commit both sides to refraining from introducing any 

further discriminatory practices. 

In 1991, procedures involving the sale of beer 

became the focus of intense bilateral disputes, 205 

 resulting from claims on each side that imports of beer 

(and in the United States, wine) were discriminated 

against by State and Provincial restrictions. Many of 

the Canadian Provincial practices were determined to 

be inconsistent with the GATT in 1988, following a 

complaint brought by the EC. 

U.S. claims about Canadian beer 

Canadian breweries supply about 1 percent of the 

U.S. beer market, or $190 million in imports. U.S. 

breweries sell $30 million in Canada, which gives them 

a 3-percent share of the Canadian market. In Canada, 

Provincial liquor boards have exclusive control over 

the listing, distribution, pricing, and sale of all 

alcoholic beverages. The procedures and requirements 

vary from Province to Province. In addition, 

Provincial boards determine whether imported wines 

and beer may be sold in outlets other than Provincially 

controlled government liquor stores. 

"Listing" is the process whereby a particular 

alcoholic beverage product is made available for 

purchase through a Provincially approved outlet. 

Provincial boards require U.S. producers (and 

Canadian producers from other Provinces) to apply for 

a separate listing for every product sold in the 

Province. For example, a manufacturer that brews four 

different brands of beer must receive a different listing 

for each brand, as well as a separate listing for each 

type of container in which the beers are sold. Further, 

the locations where foreign beer may be sold are 

controlled by the liquor control boards. Although most 

Canadian beers are sold through private retail outlets, 

the sale of imported beer is generally restricted to 

Government-owned stores. 

99 
In 1990 these restrictive practices were augmented 

by new pricing and sale policies in the Provinces of 

Ontario and Saskatchewan. First, in September 1990, 

the Liquor Control Board of Ontario instituted a new 

policy that established minimum prices below which it 

would not buy beer. Then, in October 1990, 

Saskatchewan removed the last prohibition on the sale 

of U.S. beers at the Provincial level. Only four U.S. 

brands were allowed, however, and they had to be 

priced within a specific range. Although the 

Saskatchewan markup on U.S. beer was the same as 

for domestic products, U.S. beer was subject to an 

additional surcharge of more than $3.50 per dozen to 

cover storage and shipping. 

The United States maintained that a policy such as 

Ontario's could prevent certain U.S. brands from 

competing on the basis of price in the Province's 

market. As a result of these ongoing concerns, and in 

response to a complaint from U.S. breweries (G. 

Heileman Brewing Co. and Stroh Brewery Co.)," 

USTR initiated a section 301 investigation in June 

1990.207The United States maintained that Canadian 

Provincial liquor boards discriminated against U.S. 

beer in regard to listing, distribution, and pricing. 

Because existing beer distribution restrictions were 

grandfathered into the CFTA, USTR declined to pursue 

the U.S. industry's complaint through the bilateral 

pact's dispute-settlement mechanism. Instead the 

matter was pursued in the GATT through its normal 

dispute-settlement process, with bilateral consultations. 

A panel was formed in February 1991 and its report, 

circulated to the contracting parties in October 1991, 

called for an end to discriminatory pricing practices 

against U.S. beer, as well as for the termination of 

other unfair practices. The panel report was first 

presented to the contracting parties for adoption in 

December 1991208 

In that month the United States announced its 

intent to impose, under authority of section 301, 

additional duties on Canadian beer if the actions that 

had been found inconsistent with the GATT were not 

adequately addressed. A deadline of April 10, 1992, 

was given for the U.S. retaliatory action. 209 

Canadian claims about U.S. beer 

While the United States was pursuing the matter of 

unfair trade practices by Canadian Provincial liquor 

boards in the GATT, the Canadian Government 

initiated an antidumping investigation against imports 

by Heileman, Stroh, and the Pabst Brewing Cos. in 

March 1991. The Canadian case was initiated by a 

complaint jointly filed by Labatt Breweries, Molson 

Breweries, and Pacific Brewing Cos. These three 

companies account for about 98 percent of the beer 

produced in the Province of British Columbia and had 

seen the market share of the three U.S. producers 

increase from 6.8 to 9.2 percent in the Province since 

1988. The U.S. industry alleged that Canadian 

breweries were unable to be cost-competitive because 

of internal barriers that restrict the shipment of beer 

across Provincial borders. The Canadian Bureau of 

Competition Policy (CBCP) entered into the case, 

arguing before the Canadian International Trade 

Tribunal (CITT) that the imposition of antidumping 

duties would not be in the public interest because it 

would impede competition with U.S. brewers. The 

CBCP further maintained that such competition would 

allow Canadian breweries to lower prices and be more 

competitive. The CITT found injury or likelihood 

thereof in October 1991, and antidumping duties of 

approximately 30 percent on beer from the United 

States were imposed.21 ° 

Another Canadian complaint concerned the special 

tax treatment accorded certain U.S. beer producers. 

The U.S. Federal excise tax on beer provides for 

reduced tax treatment on beers made by U.S. 

producers, with no comparable treatment for foreign 

competitors. 211Canada maintained that the tax 

treatment discriminates against small Canadian 

producers. In February 1991 the Canadians, citing 

their problems not only with the excise tax but with 

State regulations and practices affecting beer and wine 

distribution and sale as well, called for GATT 

consultations. The Government of Canada had 

compiled a list of State practices that it considered to 

be discriminatory in the treatment of Canadian beer. 212 

 In May 1991 the United States agreed to the formation 

of a panel in the GATT to examine the Canadian 

complaints. The Canadian request for a panel review 

of its complaints was supported by Australia, the EC, 

New Zealand, and Venezuela, all of which export beer 

to the United States. 213 

Pork 

In July 1989 the International Trade 

Administration (ITA) of the Department of Commerce 

(Commerce) determined that producers and exporters 

in Canada of fresh, chilled, or frozen pork were being 

provided benefits that constitute subsidies within the 

meaning of the countervailing-duty law. In September 

1989 the U.S. International Trade Commission 

(Commission) determined that the U.S. industry was 

threatened with material injury by reason of imports of 

subsidized fresh, chilled, or frozen pork from 

Canada.214Among the issues that the agencies 

addressed in the investigation were (1) the extent to 

which a subsidy to a primary product may be passed 

along in the production process; and (2) whether the 

domestic industry subject to investigation consisted of 

only pork producers (i.e., packers and processors), or 

both producers and live swine growers. Both 

determinations were challenged under article 1904 of 

the CFTA. 

The Commerce and Commission determinations on 

pork from Canada were reviewed by separate 

binational panels. By the end of 1990 the panel 

reviewing the Commerce decision had affirmed in part 

a determination of the ITA that it had properly applied 

U.S. law in attributing subsidies to swine producers as 

subsidies to pork producers. The panel, however, 

100 
remanded the case to the ITA to reconsider whether 

some of the Canadian subsidy programs were 

appropriately included as part of the countervailing 

determination.215 

In August 1990, after a statistical discrepancy was 

discovered in the data on which at least part of the 

Commission's determination was based, the panel 

reviewing the Commission's determination remanded 

that determination to the Commission. 216After 

making the correction, which resulted in a change to 

the data on Canadian pork production, and receiving 

additional information, the Commission reanalyzed the 

evidence and reaffirmed its prior determination. 217 

The Commission's remand determination was 

again appealed to the same binational panel. The panel 

again remanded the case to the Commission in January 

1991.218 Phrased in unusually blunt language, the 

panel's second remand determined that "the ITC's 

failure to follow its own notice was an error of law and 

that the majority Commissioners' findings of a threat 

of imminent material injury are not supported by 

substantial evidence."219The Commission was given 

3 weeks to report back to the binational panel. It did so 

on February 12, 1991, when it unanimously determined 

that there was no injury or threat thereof to a domestic 

industry in the United States. In its majority opinion 

the Commission asserted that— 

notwithstanding this determination, this 

Second Panel Decision violates fundamental 

principles of the United States-Carrada 

Free-Trade Agreement and contains 

egregious errors under U.S. law. Had this 

decision come from the Court of International 

Trade ... we would have directed counsel to 

appeal it to the Court of Appeals for the 

Federal Circuit ... thus, we will not change 

our practice or procedure to conform with 

[certain] aspects of the Panel opinion 220 

We disagree with what we consider to be the 

Panel's faulty disposition of the appeal in this 

investigation. However, because we arc 

bound by the Panel's determination that there 

is no substantial evidence of any likelihood of 

product shifting, or of causation, we 

determine that a domestic industry is not 

materially injured . . . .Due, however, to the 

number of legal errors and violations of the 

FTA contained in the Panel's Second Remand 

Decision, we will not, in future investigations, 

regard as persuasive or follow the procedural 

or substantive decisions contained in this 

Decision.221 

On March 29, 1991, the United States requested 

the fffst extraordinary challenge under the CFTA. 222 

 An extraordinary-challenge committee of three judges 

(two Canadians and one American) heard the case, and 

on June 14, 1991, dismissed the U.S. request on the 

grounds that the standards for an extraordinary 

challenge had not been met. The effect of the 

committee's opinion was to eliminate any duties on 

Canadian fresh, chilled, or frozen pork entering the 

United States. 

Another dispute evolved later, in October 1991, 

when Commerce increased duties on imports of live 

Canadian hogs by more than 200 percent. The charge 

per animal under this new duty averaged $18. It was 

the second increase since the beginning of the year, 

when Canadian farmers paid approximately $5 per 

hog. The duties were imposed on the basis of 1989 

and 1990 Canadian farm support that the U.S. claimed 

was countervailable. 223In October the Canadian pork 

industry requested binational panel review of the new 

countervailing duties imposed by the United States. 224 

While the Commerce and Commission 

determinations were being reviewed under the terms of 

the FTA, a related consultation was being pursued 

multilaterally under the GATT Subsidies Code. 

Canada had challenged the original Commerce 

determination finding countervai table subsidies 

provided to Canadian pork producers. 225The central 

issue in the GATT proceeding was the pass-through of 

a benefit from one level of production to another. 

Commerce had found that Canadian pork producers 

benefited because of subsidies paid to swine farmers at 

the primary production level in Canada. A GATT 

panel was formed, and it subsequently found that the 

U.S. countervailing duties on pork from Canada were 

being levied in a manner that was inconsistent with 

GATT ruiCS.226 

Japan 

Merchandise Trade With the 

United States 

The U.S. merchandise trade deficit with Japan rose 

to $44.3 billion in 1991, up by 4 percent from $42.7 

billion in 1990. The value of imports from Japan 

increased by 2 percent, from $88.8 billion in 1990 to 

90.5 billion in 1991 (table 13). Imports of 

manufactured goods (SITC sections 5, 6, 7, and 8) 

totaled $88.5 billion and accounted for 98 percent of 

U.S. imports (figure 6). The largest category of 

manufactured imports was passenger motor vehicles 

with engines of between 1,500 cc and 3,000 cc. The 

value of these imports fell from $19.4 billion in 1990 

to $18.9 billion in 1991, marking the 3d straight year 

of decline. This decline was primarily a result of 

falling demand in the United States and increased 

production of Japanese automobiles at transplants in 

the United States. Nonetheless, the category continued 

to account for 21 percent of total manufactured imports 

from Japan. (See table A-10.) 

Strong demand for Japanese computer and 

computer-related products persisted in the United 

States. The second-largest category of imports from 

Japan was automatic data-processing machines, with or 

without input/output units ($3.6 billion). The 

fourth-largest category was parts and accessories for 

101 
automatic data-processing machines ($2.6 billion). 

The fifth-largest category was digital monolithic 

electronic integrated circuits ($2.5 billion), and the 

sixth-largest category was storage units of automatic 

data-processing machines ($2.4 billion). Imports of 

television cameras increased in value from $1.9 billion 

in 1990 to $2.2 billion in 1991. Other product 

categories that exhibited increases included parts and 

accessories for photocopiers (20 percent) and 

sound-reproducing apparatus (17 percent). 

Imports of U.S. passenger motor vehicles with 

engines of 3,000 cc and over, the third-largest import 

category, increased in value from $2.0 billion in 1990 

to $3.3 billion in 1991, or by 65 percent. The increase 

was primarily attributed to a rise in U.S. imports of 

luxury automobiles, such as the Toyota Lexus and the 

Nissan Infinity. The value of U.S. imports of 

passenger motor vehicles with engines of between 

1,000 cc and 1,500 cc increased from $1.4 billion in 

1990 to $1.7 billion in 1991, or by 23 percent. Imports 

of auto parts declined by 11 percent, to $1.2 billion in 

1991, reflecting a decline in purchases by U.S. auto 

producers and an increase of sales by Japanese auto 

parts producers in the United States to Japanese 

transplants. Imports of video recorders, video games, 

and telegraphic apparatus (telecommunications 

equipment) continued to decline in 1991 as lower 

priced products from the Far East continued to replace 

Japanese imports. 

Total U.S exports to Japan remained at roughly 

$46.1 billion during both 1990 and 1991. U.S. exports 

of manufactured goods (SITC sections 5, 6, 7, and 8) 

reached $28.6 billion, or 62 percent of total U.S. 

exports to Japan during 1991, compared with 

$27.8 billion in 1990. The leading U.S. export to 

Japan in 1991 was airplanes. The value of airplane 

exports decreased from $2.1 billion in 1990 to 

$1.9 billion in 1991, however, reflecting the downturn 

in worldwide deliveries of aircraft and a decline in 

passenger traffic. The second-largest export category 

was corn, which decreased by 8 percent, from 

$1.6 billion in 1990 to $1.5 billion in 1991. Other 

categories exhibiting declines included coniferous 

wood in the rough (16 percent), parts of airplanes or 

helicopters (8 percent), boneless frozen beef (20 

percent), bituminous coal (10 percent), coniferous 

wood sawn or chipped lengthwise (2 percent), cotton 

(17 percent), passenger motor vehicles with engines 

between 1,500 cc and 3,000 cc (7 percent), and parts of 

turbojets or turbopropellers (3 percent). Leading U.S. 

exports to Japan that showed increases in 1991 were 

parts and accessories for digital processing units (1 

percent), cigarettes (3 percent), digital processing units 

Table 13 

U.S. merchandise trade with Japan, by SITC Nos. (Revision 3), 1989-91 

(Thousands of dollars) 

SITC 

section 

no. Description 1989 1990 1991 

U.S. exports 

0 Food and live animals 7,283,424 7,323,076 7,408,330 

1 Beverages and tobacco 1,387,231 1,839,113 1,797,777 

2 Crude materials, inedible, except fuels 7,232,707 6,877,590 6,076,825 

3 Mineral fuels, lubricants and related materials 1,509,649 1,454,548 1,305,916 

4 Animal and vegetable oils, fats and waxes 67,535 67,854 72,817 

5 Chemicals and related products, n.e.s. 4,663,893 4,581,762 5,046,500 

6 Manufactured goods classified chiefly by material 3,712,407 3,725,479 4,004,656 

7 Machinery and transport equipment 11,460,290 14,301,567 14,312,851 

8 Miscellaneous manufactured articles 4,782,880 5,184,408 5,199,331 

9 Commodities & transact not class elsewhere in SITC 664,256 783,039 919,065 

Total all commodities 42,764,273 46,138,436 46,144,069 

U.S. imports 

0 Food and live animals 301,713 303,088 287,884 

1 Beverages and tobacco 29,951 31,904 31,552 

2 Crude materials, inedible, except fuels 180,485 165,006 163,823 

3 Mineral fuels, lubricants and related materials 140,359 89,489 94,685 

4 Animal and vegetable oils, fats and waxes 17,875 19,185 20,277 

5 Chemicals and related products, n.e.s. 2,367,382 2,387,213 2,738,844 

6 Manufactured goods classified chiefly by material 7,160,446 6,599,900 6,362,098 

7 Machinery and transport equipment 72,045,273 68,733,657 70,410,725 

8 Miscellaneous manufactured articles 8,542,897 9,144,734 8,991,581 

9 Commodities & transact not class elsewhere in SITC 1,055,385 1,360,103 1,367,352 

Total all commodities 91,841,766 88,834,279 90,468,823 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

102 
Fuel/raw 

materials 

$7.4/16.0% 

U.S. Exports 

(billion dollars and percent) 

U.S. Imports 

(billion dollars and percent) 

All other 

goods 

$1.4/1.5% 

Fuel/raw 

materials 

$0.26/0.3 

Food 

$0.34/0.4% 

Figure 6 

U.S. trade with Japan by product sector, 1991 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Note.—Because of rounding, figures may not add up to 100 percent. 

(5 percent), soybeans (6 percent), enriched uranium (14 

percent), frozen crabs (18 percent), and unwrought 

aluminum (22 percent). Table A-9 lists leading U.S. 

exports to Japan in 1991. 

Major Policy Developments 

Affecting Trade 

The Government of Japan has initiated a number of 

import-promotion programs in recent years, including 

six market-opening packages (since 1982) and a 1990 

plan to offer tax credits to manufacturers if they 

increase their imports by 10 percent. In November 

1991 the Ministry of International Trade and Industry 

(MM) asked 17 trade associations and business groups 

to support its new Business Initiative for Global 

Partnership by having companies draw up plans to 

increase purchases of imported products and inputs and 

to increase local procurement by Japanese subsidiaries 

abroad. By year's end 88 companies and 22 industrial 

associations had agreed to participate in the initiative. 

Among the participants were 23 Japanese companies in 

the electronics, auto, and machinery industries, which 

planned to increase imports by about $10 billion in 

Japanese fiscal year (JFY) 1993. 227Japanese officials 

indicated that it would be several years before the 

program could be expected to have any impact on 

imports. 

U.S.-Japanese Bilateral Trade 

Issues 

In general, U.S.-Japanese trade issues took second 

place in 1991 to the U.S. Government's preoccupation 

with the depressed economy and U.S. negotiators' 

emphasis on the Uruguay Round and NAFTA 

negotiations. However, pressures were placed on the 

bilateral relationship at two levels. At one level, 

perennial discussions on bilateral market-access issues 

continued to occupy negotiators' time and both 

countries' attention. The United States raised new 

sectoral issues with Japan (paper and computers) and 

engaged in discussions on old ones (semiconductors, 

automobiles and auto parts, construction services, and 

agriculture issues). During the first half of the year, 

agreements were reached on extending the 1986 

semiconductor pact, expanding the major projects 

(construction services) agreement, and improving 

access to Japan's market for computers and auto parts. 

On another level, broader policy questions relating 

to the functioning of the two economies and corporate 

behavior in both countries--and the role of each 

country in global economic and security 

affairs--became increasingly prevalent. Discussions 

with Japan on so-called structural issues continued 

under the rubric of the Structural Impediments 

Initiative (SID. However, there were also signs of 

tensions associated with changes in the relative 

103 
positions of the United States and Japan in the global 

economy. 

In July it became apparent that the bilateral deficit 

with Japan was widening. Concerns over the growing 

deficit were translated into action by policymakers in 

the fall. In November U.S. Representatives Gephardt 

and Levin introduced legislation that would extend and 

strengthen the "Super 301" provision of the Omnibus 

Trade and Competitiveness Act of 1988, calling for 

"reciprocity" and trade sanctions for countries, such as 

Japan, with which the United States runs persistently 

high deficits. 228By the end of 1991 election year 

concerns in the United States were beginning to spill 

over into the bilateral relationship. On December 4 

President Bush invited high-level executives from 15 

U.S. companies, including the heads of the Big Three 

U.S. auto firms (Ford, Chrysler, and General Motors), 

to accompany him on a "trade mission" to pressure 

Japan to open its market to foreign products. The trip, 

to Japan and Southeast Asia, had originally been 

scheduled for the fall of 1991 as a "goodwill tour" to 

help shore up U.S. relations in the region. For its part, 

Japan had hoped that the first state visit by President 

Bush would signify a new era of global partnership 

between the United States and Japan. Shortly 

thereafter, mounting calls for President Bush to devote 

more attention to the domestic economy led to the 

postponement of his visit. General Motors' 

announcement of large layoffs and plant closings in 

mid-December created further pressures on the 

President to raise the auto issue in Tokyo. By January 

1992, when the President embarked on his trip, it was 

being billed as a mission to secure jobs for Americans. 

Although the White House released a list of economic 

accomplishments after the trip, there was some 

criticism regarding the President's choice of industry 

representatives (many observers believed that different 

industries should have been selected) and skepticism 

regarding whether Japanese "commitments" would 

eventually be turned into "sales." 

Autos and Parts 

The principal sectoral issue facing the United 

States and Japan during the year 1991 was the U.S. 

deficit in autos and parts, which reached $27.8 billion 

during 1991 229 Imports of passenger vehicles totaled 

1.8 million units, or $20.6 billion; imports of auto parts 

from Japan totaled $7.2 billion. Japanese automobiles 

accounted fOr almost 30 percent of the U.S. passenger 

car market in 1991.230 

During 1991 two major issues garnered the 

attention of policymakers and the auto industry: low 

levels of U.S. sales of autos and parts in Japan and 

sales of parts to Japanese original equipment 

manufacturers (OEMs) in the United States. 

U.S. sales of vehicles and parts in 

Japan 

Total new registrations of cars in Japan increased 

from 42.9 million vehicles as of March 31, 1984, to 

55 million vehicles 231as of March 31, 1990. 

However, U.S.-made automobiles accounted for only 

0.5 percent of the 5.1 million new vehicle registrations 

during 1990. Imports from all sources accounted for 

only 3 percent of Japan's market in 1990.232Several 

reasons were suggested to explain the United States' 

relatively lackluster sales performance. The Japanese 

claimed that U.S. producers failed to make high-quality 

products tailored to the Japanese market, that they had 

not made a serious commitment to the market (they 

had established no design centers and only a few 

dealerships in Japan),23 and that in general their 

products simply did not "measure up" to Japanese 

products. The U.S. industry countered by saying that it 

had improved the quality and competitiveness of its 

products, that Japanese auto dealers refused to handle 

its products, and that Japanese business practices and 

consumer attitudes made it difficult to sell in Japan. 

In 1990 U.S. automotive parts suppliers accounted for 

less than 1 percent of Japan's $102 billion auto parts 

market. 234Access to Japan's market for OEM auto 

parts has been the subject of bilateral discussions since 

the market-oriented sector selective (MOSS) talks on 

auto parts began in August 1986. The principal goal of 

the MOSS talks has been to give U.S. parts makers the 

opportunity to develop long-term design, engineering, 

and supply relationships between the U.S. auto parts 

suppliers and Japanese OEMs. 235One of the major 

problems identified by U.S. industry and policymakers 

in selling parts to Japan was the lack of opportunity to 

participate in the design and engineering phase of new 

components (design-in process), including insufficient 

information and time to bid. 23° 

U.S. parts and equipment sales to 

Japanese transplants in the United 

States 

As of May 1991 Japanese investments in auto 

facilities in the United States totaled $6.2 billion. 

These facilities, known as transplants, will have the 

capacity to produce 2.1 million automobiles and light 

trucks by the end of 1992. 237The U.S. auto parts 

industry expressed concerns about increasing numbers 

of Japanese parts suppliers moving to the United States 

and the low levels of procurement of parts from U.S. 

suppliers by Japanese-owned automaking facilities. 238 

 Japanese parts suppliers have followed the 

Japanese-owned automobile manufacturers to the 

United States. 

The majority of Japanese investments in the auto 

and auto parts industries are characterized by keiretsu, 

or other close relationships between producers and 

suppliers. The term keiretsu is generally used to 

describe corporate groupings in Japan whose ties 

among member firms are reinforced through friendly 

104 
cross-shareholding, exchange of personnel, 

interlocking directorates, intrafirm financial relations, 

and historical ties. However, keiretsu may exhibit 

different characteristics or structures. In this 

discussion keiretsu is used to refer to kigyo keiretsu 

(intramarket or industrial keiretsu), which are 

organized around an independent company and its 

subsidiaries and affiliates. Toyota Motor Corp., for 

example, owns 22.2 percent in Nippondenso, one of its 

leading parts suppliers. Nippondenso itself has 

relations with approximately 65 other lower tier 

suppliers. The U.S. auto industry has criticized these 

relationships for resulting in "implicit business 

contracts that preclude substantive procurement from 

new, 'outside' suppliers." 239Japanese-owned 

automaking facilities claimed that they had tried to 

increase their purchases of U.S. automotive parts but 

were unable to find reliable suppliers in the United 

States or suppliers willing to meet their specifications 

for high-quality parts. 14° The advantages and 

disadvantages of keiretsu in the United States, 

including the possible anticompetitive effects of such 

groupings, were the subject of studies conducted by the 

U.S. Department of Justice, the Federal Trade 

Commission, and the General Accounting Office 

during 1991. 

Developments 

During 1991 the U.S. auto industry and some 

Representatives in Congress increased pressures on 

Japanese auto producers by filing a petition with the 

U.S. International Trade Commission alleging 

dumping of minivans, 241holding several congressional 

hearings on auto-related issues, and introducing 

trade-reciprocity legislation. High-level U.S. officials 

raised the auto issue with Japanese Government 

representatives at almost every opportunity throughout 

the year. 

In April 1991 the University of Michigan released 

a study242commissioned by the Auto Parts Advisory 

Committee (APAC)243The study predicted that the 

U.S. deficit in automotive parts with Japan could reach 

$22 billion during 1994, and that half of all U.S. 

automotive parts suppliers would go out of business by 

the end of the 1990s unless action were taken to curtail 

discriminatory Japanese procurement practices. At the 

same time, the APAC recommended that the 

administration self-initiate a section 301 investigation 

of Japanese automotive parts procurement practices in 

the United States 244 

On June 27 a joint study by the Department of 

Commerce and Japan's MITI indicated that of 68 

uninstalled aftermarket parts surveyed, 87 percent were 

priced higher in Japan than in the United States, and 

that of 65 installed parts surveyed, 80 percent were 

priced higher in Japan than the same or comparable 

U.S. parts.245Also in June U.S. Customs announced 

an audit of Honda Manufacturing's operations in 

Canada to investigate whether Honda had complied 

with the 50-percent North American content 

requirement under the U.S.-Canada Free-Trade 

Agreement. Customs began investigating whether 

Honda should have paid duties on vehicles produced at 

its facility in Allison, Ontario. A preliminary version 

of the audit showed that Honda automobiles contained 

only 36 percent North American content. 246 

Followup MOSS talks were held in Tokyo from 

July 23 to 24, at which time Japan agreed to add the 

issue of how to increase U.S. sales of automobiles in 

Japan to the MOSS agenda. The two countries agreed 

to conduct research on distribution of automobiles in 

Japan and Japanese safety and inspection requirements. 

The scope of the studies was to be further defined at 

meetings in September. 

During high-level talks in mid-September, the two 

countries further agreed to conduct joint studies on 

auto-related issues. The studies were to address three 

major areas: (1) costs resulting from 

homologation/certification processes (environmental 

guidelines and standards and certification procedures), 

(2) business practices associated with distribution of 

auto parts in Japan, and (3) case studies of the 

experiences of Japanese, U.S., and European auto firms 

in entering Japan's market. 247That month Toyota 

became the first major Japanese manufacturer to 

publish a compliance manual (implementation 

procedures) under new guidelines issued by the Japan 

Fair Trade Commission (JFTC) covering reciprocal, 

exclusionary, discriminatory, price restrictive, or 

cartelized practices. 248 

At the Tokyo Motor Show in October, Under 

Secretary of Commerce J. Michael Farren told 

representatives of the Government of Japan that the 

United States was looking for improvements in the 

trade imbalance. Leading U.S. manufacturers renewed 

their calls for a fixed ceiling on Japan's overall share of 

the U.S. auto market, including production from 

Japanese transplants unless the bilateral trade 

imbalance in this sector could be lowered. 249Then, in 

November, Secretary of State James Baker asked 

Prime Minister Miyazawa to address the issue of the 

trade imbalance in automobiles and parts. Shortly 

thereafter, Japan's five largest auto producers 

announced that they would increase their purchases of 

U.S.-made auto parts to $17.2 billion by JFY 1994. 

Japanese firms claimed that the share of domestically 

made parts (parts made both by traditional U.S. 

suppliers and by Japanese suppliers in the United 

States) in vehicles produced in the United States would 

rise from 50 to 70 percent. 25° Toyota, Nissan, and 

Mitsubishi also announced plans to allow their dealers 

to handle brands of automobiles other than their own. 

The President arrived in Tokyo on January 8, 1992, 

with the chief executive officers of the Big Three for a 

summit meeting with Prime Minister Miyazawa. 

Following 2 days of intense working-level meetings in 

Tokyo in conjunction with the summit, Japan 

announced that it would increase its purchases of U.S. 

auto parts from a level of $9 billion during JFY 1990 

to $19 billion by JFY 1994. About $15 billion of the 

total $19 billion procurement would result from 

105 
procurement of U.S. parts by Japanese auto firms in the 

United States, assuming a 50-percent increase in 

production by Japanese transplants in the United 

States 251 This target could be met through purchases 

from Japanese-owned parts suppliers in the United 

States. Japanese imports of U.S.-made parts and 

vehicles would be expected to increase from $2 to 

$4 billion.252 

Immediately following the announcement of the 

import-promotion measures, the "voluntary 

commitments" by Japanese auto producers were 

criticized by the U.S. auto industry executives 

themselves, Government officials, and analysts. 

Critics charged that if fulfillment of previous "action 

plans" was any indication, the new promises by Japan 

were unlikely to result in substantial improvement in 

the bilateral trade deficit. The import program was 

also seen as unlikely to address other fundamental 

factors that contribute to the U.S. trade deficit and 

affect U.S. auto industry competitiveness such as the 

U.S. budget deficit, relatively low savings rates, U.S. 

corporate emphasis on short-term profits, and lower 

levels of spending on research and development. 

Within a short time, disagreement between the two 

countries emerged over whether the Japanese auto 

companies' import goals were considered by the 

Japanese to be "targets" and not "commitments," as the 

U.S. auto industry believed. 253 

Agriculture 

Japan is the largest single market for U.S. 

agricultural exports. During 1991 U.S. exports of 

agricultural products to Japan totaled $7.7 billion. The 

leading U.S. exports of agricultural products to Japan 

during 1991 included corn, soybeans, beef, cotton, and 

wheat. Japan has reduced tariffs, eliminated quotas, 

and lowered producer support prices for many items in 

recent years. However, the Government continues to 

maintain direct or indirect controls over the import and 

distribution of corn, barley, wheat, rice, dairy starches, 

and many other products '54 

Other agricultural topics that were a focus of 

bilateral discussion in 1991 were Japan's high tariffs on 

sugar confectionery, fruit juice, various dairy products, 

corn grits, potato flakes, bakery products, and 

numerous other items. 255The United States continued 

to push for reform of Japanese policies toward feed 

grains, pork, dairy products, and apples. The United 

States also sought improved access for tomato paste 

and puree, embryos, pulses, peanuts, bumped rice, and 

corn for industrial use.256 

Rice 

During 1991 Japan's virtual ban on imported rice 

once again came under scrutiny during the Uruguay 

Round negotiations. Only a negligible amount (15,000 

tons) of imported rice is permitted, for use in liquor 

processing or for mixing with other ingredients for 

pilaf, rice flour mixes, and crackers.257The potential 

market for U.S. exports of rice to Japan has been 

estimated at $656 million. The U.S. Rice Millers' 

Association has previously challenged Japan's policies 

toward rice through the filing of two section 301 

petitions, in 1986 and 1988. The petitions were 

subsequently rejected on the grounds that the Uruguay 

Round was the appropriate forum for seeking 

access.258 

Although some members of Japan's Liberal 

Democratic Party (LDP) leadership reportedly 

accepted a partial opening of Japan's rice market to 

imports in principle 259 Japan's Government agencies 

remained divided in their views on lifting Japan's rice 

ban. They also maintained differing views on 

accepting the tariffication proposal put forth in the 

Uruguay Round negotiations, under which existing 

quantitative restrictions would be translated into tariffs. 

The Ministry of Foreign Affairs supported 

liberalization; the Ministry of Agriculture, Forestry, 

and Fisheries opposed it. 26° During 1991 the leaders of 

two Japanese organizations, representing primarily big 

businesses (Keidanren and the Japan Chamber of 

Commerce and Industry), announced their support for 

the partial opening of Japan's rice market, but both 

opposed the U.S. tariffication proposal. 

On March 13 bilateral tensions over rice escalated 

when, acting on a legal complaint filed by a Japanese 

rice farmers' organization, the Ministry of Agriculture 

demanded the removal of samples of uncooked U.S. 

rice that were on display at the Tokyo Trade Fair. The 

Japanese rice farmers claimed that the samples were a 

violation of Japan's Food Control Law, which bans rice 

imports for commercial purposes. U.S. Embassy 

officials intervened in the dispute and refused to 

remove the rice until after the trade fair closed, saying 

that the rice was being displayed for informational 

purposes. 

In April 1991 at a summit meeting with then Prime 

Minister Kaifu in Newport Beach, California, and 

again at another meeting in July at Kennebunkport, 

Maine, President Bush encouraged Japan to open its 

rice market to contribute to the successful conclusion 

of the Uruguay Round. Prime Minister Kaifu restated 

his Government's official position that the issue must 

be resolved within the context of a comprehensive 

Uruguay Round agreement. The Government of Japan 

had indicated in the past that it would make 

concessions only if the United States and the European 

Community were willing to make significant cuts in 

export subsidies. In early November 1991 Japan was 

reportedly willing to offer a one-time-only opening of 

about 3 percent of the market but continued to reject 

the U.S. tariffication proposal during negotiations in 

the GATT.261During a visit to Tokyo in 

mid-November, USTR Carla Hills indicated that a 

partial opening of Japan's rice market would be 

unacceptable, and that it was necessary for rice to be 

included in any GATT tariffication settlement. 262Late 

in November the OECD released a report indicating 

that Japanese support for agricultural liberalization was 

106 
essential for the successful outcome of the Uruguay 

Round.263Nonetheless, Japan reportedly hoped to 

receive some type of exemption for the tariffication 

proposal for rice. The December Dunkel draft, 

however, did not contain any such exemption. (For a 

discussion of the Dunkel draft language on agriculture, 

see chapter 1, "Uruguay Round Negotiations in 1991" 

section.) In late December Prime Minister Miyazawa 

restated Japan's opposition to removing its ban on rice. 

Beef 

On April 1, 1991, Japan lifted its import quotas on 

beef and raised the tariff rate on imported beef from 25 

to 70 percent in accordance with its commitments 

under the 1988 U.S.-Japan Beef and Citrus 

Agreement.265The role of the Livestock Industry 

Promotion Council (LIPC) in handling import-quota 

allocations was eliminated, and the surcharges to quota 

holders were removed. However, the LIPC continued 

to maintain a role in domestic price stabilization and in 

promoting domestic livestock. 66 

Prior to lifting the import quota, Japanese beef 

producers began buying ranches and feedlots in the 

United States and Australia. Japanese supermarkets 

also began importing their own brands of beef from the 

United States and Australia. U.S. beef producers 

hoped to capitalize on the trade concessions and 

projected increased beef consumption in Japan. One 

factor favoring Japanese beef producers, however, was 

the Japanese consumer preference for wagyu or Kobe 

beef, a marbled beef containing two to three times 

more fat than U.S. prime beef. 

Following the elimination of the quota on imported 

beef, U.S. beef imports in Japan rose by 9.6 percent 

during the month of April. Prices initially fell because 

of high inventories of beef in Japanese warehouses and 

lower beef consumption.267For example, the price of 

frozen U.S. tenderloin fell from $9.23 per pound to 

$6.59 per pound by July. The number of licensed 

importers increased from 37 companies to 80 

companies, and Japanese importers complained of 

lower profit margins 268By the end of the year, 

however, prices for imported beef remained generally 

higher because of the 70-percent import tariff. U.S. 

beef exporters reportedly continue to face difficulties 

in competing with established Japanese beef traders 

and in getting access to distribution networks. 269 

Citrus 

On April 1, 1991, Japan removed its quotas on 

imports of oranges in accordance with provisions of 

the 1988 agreement on beef and citrus. 2 i° However, 

the United States continued to request that Japan lower 

its high seasonal tariffs on fresh oranges (40 percent in 

season and 20 percent out of season). U.S. exports of 

orange juice, from Florida in particular, increased from 

$4.7 million in 1987 to $27.3 million in 1991. 271 

Supercomputers and Computers 

The U.S. Government continued to monitor 

implementation of a June 1990 agreement that 

established procedures for government procurement of 

supercomputers in Japan.272The new procedures were 

intended to ensure that the procurement process for 

supercomputers by Japanese Government entities 

would be transparent and nondiscriminatory. By the 

end of 1991 three of eight public-sector awards for 

foreign supercomputers had been given to U.S. firms. 

Japan's market for Government procurement of 

computers was estimated at $9 billion in 1990. 273U.S. 

companies reportedly accounted for only 6 percent of 

Japan's mainframe computer market for the public 

sector (0.4 percent at the national level) but accounted 

for 41 percent of private-sector purchases of the same 

equipment.274On January 26, during bilateral talks, 

the United States cited several factors that contribute to 

low levels of Japanese Government procurement of 

foreign computers: 275nontransparent specification 

formulation process, absence of bid-protest procedures, 

high levels of single-source tendering, and other 

procedural problems. On April 26 public-sector 

computer procurement in Japan was included on the 

so-called watch list prepared by USTR and included in 

its report to Congress on implementation of the 

government procurement provisions of title VII of the 

Omnibus Trade and Competitiveness Act of 1988.276 

 The report indicated that the United States was 

pursuing talks with Japan on allegations of sole-source 

procurement and prepublication disclosure of bid 

information to Japanese producers in public-sector 

computer procurement. 

U.S. negotiators held two more rounds of 

negotiations with the Japanese on March 23 and July 

26, 1991, each time addressing procedural problems 

related to government procurement practices. Two 

more sets of negotiations were held in December 

1991.277 

Semiconductors 

On February 14, 1991, the United States and Japan 

began negotiations on a new bilateral semiconductor 

agreement to replace the existing 5-year agreement, 

which was set to expire on July 31, 1991. The 1986 

agreement was intended to end dumping of Japanese 

semiconductors in the United States and third-country 

markets and to increase foreign market access in 

Japan.278The U.S. share of Japan's semiconductor 

market had, however, remained below the 20-percent 

market share expected by the United States under the 

1986 agreement. By the end of 1990 some leading 

U.S. manufacturers and users had urged the 

administration to negotiate a new agreement. The 

foreign share of Japan's semiconductor market was 

14.4 percent during the fourth quarter of 1991, 

according to U.S. Department of Commerce 

calculations.279 

After seven rounds of negotiations, the United 

States and Japan reached a consensus on June 4, 1991, 

107 
regarding the terms of a new semiconductor 

arrangement, which was finalized in an exchange of 

letters on June 11, 1991. The new agreement became 

effective in August 1991 for a period of 5 years (until 

July 31, 1996). At the end of 3 years, the United States 

and Japan are to review the agreement and decide 

whether to terminate it before it expires 2 80 

The major issues that emerged during the 

negotiations leading to the 1991 pact were how to 

incorporate the market-access objectives of the existing 

agreement, how to revise the pricing provisions of the 

agreement, and what to do about the $165 million in 

retaliatory tariffs still being imposed by the United 

States on imports of certain Japanese electronics 

products.281 

With regard to market access, the 1991 agreement 

states that the Government of Japan "recognizes that 

the U.S. semiconductor industry expects that the 

foreign market share will grow to more than 20 percent 

of the Japanese market by the end of 1992 and 

considers that this can be realized. The Government of 

Japan welcomes the realization of this expectation. 

The two Governments agree that the above statements 

constitute neither a guarantee, a ceiling nor a floor on 

the foreign market share."282Indications of potential 

future controversies regarding the issue arose 

immediately after the agreement was signed. Some 

analysts and industry officials praised the agreement 

for stating the 20-percent numerical goal publicly and 

held it up as a model for other agreements. Japanese 

officials, however, stated that they viewed the 

20-percent figure as only an indication of expectations, 

not a guarantee of market share. 

In return for Japan's promised efforts to increase 

foreign semiconductor purchases through the 

promotion of long-term relationships between Japanese 

purchasers and foreign producers, the United States 

agreed to a new mechanism for tracking prices of 

semiconductors. A fast-track antidumping mechanism 

that had been proposed by a consortium of 

semiconductor manufacturers and users was adopted. 

Japanese semiconductor producers will continue to 

maintain cost and pricing data but will not be required 

to report them to the U.S. Department of Commerce 

unless a dumping complaint is filed. The United States 

agreed to terminate the remaining $165 million in 

retaliatory tariffs against imports of laptop computers, 

power tools, and other electronics goods from Japan 

effective on August 1, 1991.283 

U.S. and Japanese methods for calculating foreign 

market share in Japan have differed since the original 

agreement was signed. The U.S. method excludes 

shipments by IBM Japan and other captive sales 284of 

U.S. firms to their Japanese subsidiaries, as well as 

semiconductors made by Japanese producers for sale 

under foreign producers' names in Japan (branded 

products). Japanese calculations have included these 

sales. Under the new agreement the two countries 

agreed to include both categories of semiconductors in 

calculating market share. Quarterly reviews are held 

with representatives of both Governments and 

industries to report the official market share. However, 

the U.S. Government recognizes only the U.S. method 

as the proper way of calculating market share. 

Reaction to the new agreement was mixed. 

Representatives from the U.S. semiconductor and 

electronic equipment industries—the Semiconductor 

Industry Association (SIA) and the Electronics 

Industry Association (EIA)—praised the agreement 

and Japanese company efforts to promote 

"designing-in" of foreign semiconductors in Japanese 

products. The two groups announced a number of joint 

activities, such as the formation of a steering 

committee to monitor implementation of the agreement 

and promotional activities to encourage "design-ins." 

These activities are important in attempting to expand 

U.S. sales to some of Japan's largest semiconductor 

purchasers in the consumer and automotive electronics 

sectors. Managed-trade proponents inside and outside 

the U.S. Government criticized the pact as too vague in 

its market-share commitments; supporters of free trade 

and Japanese semiconductor producers were uneasy 

about the agreement's market-share goal provisions. 

In a letter dated December 30, 1991, the SIA urged 

President Bush to convey to Prime Minister Miyazawa 

during the upcoming summit in January 1992 the need 

to comply with the conditions of the semiconductor 

agreement. SIA was particularly concerned that the 

"foreign share of Japan's market has again 

stagnated."285 

Telecommunications 

Since the MOSS talks in 1985 the United States 

and Japan have reached numerous agreements 

regarding U.S. access to Japan's telecommunications 

equipment and services market. The agreements have 

covered digital service units, network channel 

terminating equipment, and international value-added 

network services (IVANs). 

During 1991 the United States reached two 

additional agreements to clarify an August 1990 

agreement on IVANs 2 86On March 29, 1991, in 

announcing its review of telecommunications trade 

agreements under section 1377 of the Omnibus Trade 

and Competitiveness of 1988, USTR said that it was 

"concerned primarily with Japan's implementation of 

the 1990 agreement on IVANs dealing with 'joint 

use.'"287The United States was concerned about 

regulations issued in January that would have subjected 

all users to paperwork and reporting requirements that 

it saw as excessive. The new regulations were 

supposed to ensure that users were not reselling IVAN 

services illegally. Although USTR did not find Japan 

to be in violation of the 1990 IVAN agreement, the 

agency said that it would "review the situation in 30 

days" and believed that U.S. concerns could be 

resolved through technical talks in the meantime. 

On April 27 Japan's Ministry of Posts and 

Telecommunications agreed in principle to change 

some of its regulations regarding implementation of the 

108 
1990 IVAN agreement. As a result under the new 

agreement the amount of information that IVAN users 

would have to provide the Government of Japan would 

be reduced; "joint users" were defined to satisfy 

Japanese concerns about reselling of IVAN services; 

and a means was reached to settle disputes between 

foreign users and Kokusai Denshin Denwa (KDD), 

Japan's major international phone carrier. The new 

reporting requirements went into effect in June 1991. 

On June 25 an agreement was reached on procedures 

for investigating allegations of piracy of leased 

international circuits. 285 

Nippon Telegraph and Telephone 

Nippon Telegraph and Telephone (NTT), which is 

the only company permitted to offer nationwide 

cellular telephone services in Japan, announced in 

1991 that it would divest itself of its mobile 

communications business and set up a subsidiary that 

would be wholly owned by NTT for 5 years. NTT 

indicated that purchases of mobile telephones, pagers, 

and other equipment would not be subject to the 

procedures of the 1980 NTT Procurement Agreement, 

under which NTT agreed to open and competitive 

procurement procedures. 289The United States 

reportedly believed that such action could adversely 

affect sales of mobile communications equipment by 

Motorola. In the administration's report to Congress 

on April 26 regarding implementation of the 

government procurement provisions of title VII of the 

Omnibus Trade and Competitiveness Act, "the 

scheduled removal of its [Japan's] mobile 

telecommunications procurement from the NTT 

Agreement" was cited as being of concern to the 

United States.290 

In September 1991 an advisory panel 

recommended to the Government of Japan that 

foreigners be allowed to purchase up to 20 percent 

equity in NTT or KDD. (Foreigners are prohibited 

from buying NTT stock unless the stock resides with a 

Japanese agent.)291 

Forest Products 

During 1991 the United States and Japan continued 

to hold followup meetings on the 1990 U.S.-Japan 

Wood Products Agreement, which includes provisions 

for tariff cuts, reclassification of certain wood 

products, and the elimination of some nontariff 

measures.292During 1991 three meetings were held 

between committee members and representatives of the 

Governments of the United States and Canada to 

discuss various aspects of the agreement and to 

monitor progress on implementation. 

A subcommittee of the Building Experts 

Committee (BEC) met in Tokyo from March 25 to 26 

to discuss Japanese research on structural and 

fire-safety systems for wooden construction and 

proposed changes in Japanese building codes. At the 

conclusion of the meeting, all sides agreed that 

implementation of the U.S.-Japan Wood Products 

Agreement was on track. 293A second meeting was 

held in Tokyo on June 19, 1991, by the Japan 

Agricultural Standard (JAS) Technical Committee. 

During this meeting the Japanese Ministry of 

Agriculture, Forestry, and Fisheries announced several 

modifications to existing standards as._ part of its efforts 

to boost imports of wood products? 94Also discussed 

were JAS standards for softwood plywood, 

machine-stress-rated lumber, and glue-laminated 

beams and other products. 

A third meeting was conducted in Tokyo on 

December 6, 1991. The U.S. delegation asserted that 

proposed changes in Japanese building codes contained 

prescriptive elements, contrary to the U.S.-Japan Wood 

Products Agreement. The United States was 

reportedly concerned that the proposed changes would 

place requirements on wood-frame construction that 

are not required for other types of construction and 

emphasized the need to treat wood-frame construction 

the same as concrete and steel construction in building 

standards law. The Japanese responded that the 

building codes in question would be revised by March 

1992, and prescriptive elements relaxed or replaced 

with performance elements. 295 

Major Projects 

In May 1988 the United States and Japan signed an 

agreement that allowed U.S. firms to compete on 17 

major public, private, and third-sector projects in 

Japan, worth $23 billion over 10 years. The original 

major projects agreement included three different 

tracks of procedures or measures for bidding on 

projects.296On June 1, 1991, the United States and 

Japan concluded a further agreement 297that will allow 

U.S. firms to bid on an additional 23 Japanese 

construction projects worth $26.7 billion?" 

Seventeen of the new projects, worth approximately 

$6.4 billion, had been approved for construction; 

another six would be open to U.S. participation if and 

when they are approved. The agreement came within 

hours of a May 31 deadline that had been set by USTR 

for avoiding sanctions. USTR had previously 

announced, on April 26, that it would bar Japanese 

contractors or subcontractors from Federal or Federally 

funded building and public-works procurement by 

certain government agencies "until Japan makes 

significant improvements in its procurement 

policies."299 

The United States pressured Japan during 1991 to 

expand the 1988 Major Projects Agreement to include 

all construction projects, to add a new track of 

procedures to cover projects with a design component, 

and to take efforts to eliminate bid rigging in 

connection with awarding construction contracts. In 

response to U.S. demands, five of the projects are 

so-called "third-sector projects," which are managed 

by private-sector organizations but funded wholly or 

partially by the Government. Under the new 

agreement, the Government of Japan promised to take 

109 
further steps to prevent bid rigging and to develop 

guidelines for improving the bidding process and 

access to information about future projects. A new 

procurement track for design-and-build contracts was 

added to the 1988 agreement. This track covers 

procurement of a combination of design and consulting 

services with the supply, manufacturing, or installation 

of goods. In addition, an independent Procurement 

Review Board was established to handle complaints by 

potential suppliers relating to contract awards. 

Although the agreement was welcomed by U.S. 

negotiators, the U.S. business community and some 

members of Congress were less optimistic about the 

prospects for an increase in U.S. participation in 

Japan's market. U.S. firms have won approximately 

$324 million in contracts under the May 1988 

agreement." According to some analysts, the reasons 

for the relatively lackluster performance of U.S. firms 

in Japan's construction market include inexperience in 

the market, difficulties in obtaining Japanese partners, 

and financial problems in the U.S. market. U.S. 

companies continued to contend with the exclusionary 

effects of dango (a mutual consultation system 

involving rotation of winning bids to participants) and 

bid rigging. Even though the 1988 and 1991 

agreements were intended to familiarize U.S. firms 

with Japan's bidding system, the imbalance between 

U.S. and Japanese participation in each other's 

construction markets persisted. 

Machine Tools 

The 5-year voluntary restraint agreement (VRA) 

on Japanese exports of machine tools 1to the United 

States was set to expire on December 31, 1991. 3°2 

 Since the enactment of the VRA in 1987, Japanese 

machine-tool makers increased their production in the 

United States and now account for more than 70 

percent of foreign transplants for machine tools. 3°3 

 Under the current VRA Japanese exports of machining 

centers, computer-controlled lathes, and other 

computer-controlled equipment are limited to market 

shares of from 19.25 percent to 57.47 percent. 

However, Japanese exports of machine tools declined 

in 1991 to a level below the VRA ceiling, partially as a 

result of the U.S. recession. 3°4 

As early as March 1991 representatives of the U.S. 

machine-tool industry began pressuring the 

administration to extend the VRAs. In September the 

National Machine Tool Builders AssociationAssociation for Manufacturing Technology 305and 

nearly 100 members of Congress urged the President to 

extend the VRAs for 3 to 5 years on national security 

grounds.306On December 5, 1991, at a meeting of the 

National Security Council, the U.S. Department of 

Defense reportedly agreed with the U.S. Department of 

Commerce and the U.S. Department of the Treasury in 

favoring an extension of the VRA on grounds of 

national security. 307On December 27 President Bush 

"directed that the USTR negotiate a limited extension 

of the VRAs with Japan and Taiwan." Although 

quotas on non-computer-controlled lathes, 

non-computer-controlled punching and shearing 

machine tools, and non-computer-controlled milling 

machine tools were allowed to expire on December 31, 

the quotas on machining centers, computer-controlled 

lathes, computer-controlled punching and shearing 

machine tools, and computer-controlled milling 

machine tools would be phased out over a 2-year 

period beginning in January 1992.308To allow 

sufficient time for negotiations on the phaseout 

schedule, President Bush requested Japan and Taiwan 

to extend the existing VRAs for an additional 30 days. 

In making the announcement, the President noted that 

although it was important to maintain a domestic 

machine-tool industry for national security purposes, 

"the main responsibility for achieving international 

competitiveness rests with the industry itself." 309 

Paper 

Japan is the world's second-largest consumer and 

producer of paper and paperboard. 31 ° According to 

U.S. industry estimates, however, imports accounted 

for only 3.7 percent of Japan's $27 billion paper and 

paperboard market in 1991. The U.S. share totaled 

only 1.7 percent. Accordingly, the United States held 

three rounds of talks with Japan during 1991 to 

increase foreign access to Japan's market for _printing 

and writing paper and paperboard products. 3 " U.S. 

paper manufacturers have experienced difficulties in 

marketing higher-value-added paper in Japan. 

According to the JFTC, distribution channels for paper 

are reportedly characterized by close, long-term 

relationships, including financial ties, among a few 

manufacturers, intermediaries, and customers.312 

In October hearings before the Senate Finance 

Committee, the American Paper Institute offered 

several suggestions for improving access to Japan's 

paper market, including establishing a mechanism for 

monitoring the progress of Japanese imports of paper 

products, getting commitments from Japan to enforce 

the antimonopoly law, and initiating an investigation of 

distribution and other business practices in Japan's 

paper sector. During U.S.-Japanese trade committee 

meetings in December, the issue of market access for 

paper was again discussed, setting the stage for an 

announcement in conjunction with President Bush's 

visit to Tokyo in early January.313 

Structural Impediments Initiative 

The United States and Japan continued to hold 

followup meetings (January and May) to review 

implementation of the Structural Impediments 

Initiative during 1991. 314In May 1991 the first annual 

report was published, describing progress made by 

both countries in implementing their SII commitments. 

In its statement the Japanese delegation cited 

progress on the six issues of interest to the United 

States: savings and investment patterns, land policy, 

distribution system, exclusionary business practices, 

110 
keiretsu relationships, and pricing mechanisms. This 

progress included shortening the approval process for 

large-store openings to 18 months (and introducing 

legislation that would shorten the process further to 12 

months); increasing spending on public works by 6 

percent and adopting a 430-trillion-yen investment 

program for JFYs 1991-2000; issuing antimonopoly 

guidelines; increasing the J'FTC's budget and 

investigations staff; raising the surcharges on illegal 

cartel activities to between 1 and 6 percent of the sales 

involved in the violation (compared with 0.5 and 2 

percent previously); raising fines for bid rigging; and 

conducting price surveys in conjunction with the U.S. 

Government.315Despite these and other efforts the 

U.S. delegation indicated that Japan had not gone far 

enough in strengthening its antimonopoly law so as to 

"effectively deter collusive anticompetitive practices 

that exclude foreign competition in the Japanese 

market and result in higher costs to consumers." The 

U.S. delegation also maintained that penalties for 

criminal violations were not high enough,316 and they 

continued to push for increases in administrative fines, 

more vigorous antitrust enforcement, and 

improvements in the system of private rights of action 

throughout the year. 

In its report the U.S. delegation cited U.S. progress 

in eliminating impediments through (1) the Omnibus 

Budget Reconciliation Act of 1990, which aims at 

reducing the deficit by $400 billion over 5 years; (2) 

various measures aimed at increasing Federal 

revenues; (3) proposals for "family" savings accounts; 

(4) proposed legislation to allow U.S. firms to enter 

into joint production agreements without being held in 

violation of U.S. antitrust laws; (5) initiatives to 

support research and development; and (6) 

export-promotion activities.317 

Mexico 

Merchandise Trade With the 

United States 

In 1991, for the first time in a decade, the United 

States registered a surplus in merchandise trade with 

Mexico. By reaching $62.7 billion, representing a 

10-percent increase over 1990, two-way trade 

established a new record (table 14). Mexico 

maintained its usual place as both the third-largest 

single-country market for U.S. exports and 

Table 14 

U.S. merchandise trade with Mexico, by SITC Nos. (Revision 3), 1989-91 

(Thousands of dollars) 

SITC 

section 

no. Description 1989 1990 1991 

U.S. exports 

0 Food and live animals 1,990,452 1,917,947 2,085,619 

1 Beverages and tobacco 19,434 23,440 44,384 

2 Crude materials, inedible, except fuels 1,492,799 1,395,064 1,625,918 

3 Mineral fuels, lubricants and related materials 712,280 826,113 865,401 

4 Animal and vegetable oils, fats and waxes 143,026 120,562 142,615 

5 Chemicals and related products, n.e.s. 2,195,143 2,298,156 2,624,076 

6 Manufactured goods classified chiefly by material 2,961,214 3,488,357 4,419,172 

7 Machinery and transport equipment 10,812,782 12,938,173 15,059,415 

8 Miscellaneous manufactured articles 2,469,490 2,894,371 3,693,571 

9 Commodities & transact not class elsewhere in SITC 1,320,637 1,565,413 1,719,047 

Total all commodities 24,117,255 27,467,595 32,279,218 

U.S. imports 

0 Food and live animals 2,379,604 2,565,454 2,503,296 

1 Beverages and tobacco 256,628 259,762 246,484 

2 Crude materials, inedible, except fuels 597,161 769,406 685,441 

3 Mineral fuels, lubricants and related materials 4,200,483 5,191,617 4,623,646 

4 Animal and vegetable oils, fats and waxes 13,961 8,649 16,956 

5 Chemicals and related products, n.e.s. 570,256 646,598 699,532 

6 Manufactured goods classified chiefly by material 2,632,168 2,463,605 2,229,692 

7 Machinery and transport equipment 11,786,584 13,235,230 14,492,027 

8 Miscellaneous manufactured articles 2,738,135 3,033,724 3,559,289 

9 Commodities & transact not class elsewhere in SITC 1,381,591 1,331,918 1,388,770 

Total all commodities 26,556,570 29,505,962 30,445,131 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

111 
U.S. Exports 

(billion collars and percent) 

....... ... 

Fuel/raw 

materials 

$5.3/17.4% 

All other 

goods 

$1.4/4.6% 

U.S. Imports 

(billion dollars and percent) 

Food 

$2.8/9.1% 

third-largest source of U.S. imports. However, despite 

ranking right behind Canada and Japan as a U.S. 

trading partner, Mexico still accounted for only 8.1 

percent of overall U.S. exports and 6.3 percent of total 

U.S. imports. By contrast Mexico depended on the 

United States for 70 percent of its exports and 67 

percent of its imports. 318 

In 1982, when Mexico's debt crisis became 

manifest, the U.S. trade balance with Mexico shifted 

from a pattern of U.S. surpluses to a U.S. deficit. The 

debt crisis triggered the imposition of rigorous controls 

in Mexico designed to generate the sizable trade 

surpluses needed to finance debt servicing. In 1983 the 

United States had a large trade deficit ($7.9 billion) 

with Mexico. It shrank thereafter, as Mexico gradually 

relaxed its controls. The U.S.- deficit began to shrink 

faster and faster from 1988 onward, when the 

liberalization of Mexican imports that was started in 

earnest in 1986 began to be truly felt. By 1991 the 

U.S.-Mexican trade balance had returned to its typical 

precrisis pattern, with a U.S. surplus of $1.8 billion 

(table 14). 

Manufactures predominate in U.S.-Mexican trade, 

accounting for nearly 80 percent of U.S. exports and 69 

percent of U.S. imports in 1991 (figure 7). Two-way 

trade in manufactures can be characterized as being 

largely "intra-industry," because a considerable part of 

this trade in both directions takes place in the same 

large product categories or comes from production 

sharing, that is, production processes on both sides of 

the border between U.S. and Mexican plants. 319In 

1991 bilateral trade in machinery and transportation 

items continued to be largely balanced. This major 

product category constituted 46.7 percent of total U.S. 

exports to Mexico and 47.6 percent of total U.S. 

imports from that country (table 14). Miscellaneous 

manufactured articles, another group with balanced 

trade, was responsible for more than 10 percent of U.S. 

trade flows in both directions. 

The three SITC product categories that contributed 

most to the positive U.S. balance with Mexico were 

chemicals (8.1 percent of U.S. exports but only 2.3 

percent of U.S. imports); manufactured articles 

classified chiefly by materia1 320 (13.7 percent of U.S. 

exports but only 7.3 percent of U.S. imports); and 

crude materials (5.0 percent of U.S. exports but only 

2.3 percent of imports). By contrast the United States 

had its typical deficit in trade of mineral fuels, which 

accounted for 15.2 percent of U.S. imports from 

Mexico but only 2.7 percent of U.S. exports to that 

country. The United States also had a deficit in food 

trade with Mexico, due largely to considerable U.S. 

Figure 7 

U.S. trade with Mexico by product sector, 1991 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Note.—Because of rounding, figures may not add up to 100 percent. 

112 
imports of Mexican fruit and vegetables. Food and 

live animals was responsible for 8.2 percent of U.S. 

imports but only 6.5 percent of U.S. exports. 

For the 5th year in a row, Mexico was among the 

top-performing markets for U.S. exports. Mexicans 

spend more per capita on U.S goods than Europeans 

do, and almost as much as the Japanese, in spite of 

their lower per capita income 321 As table 14 shows, 

1991 U.S. exports to Mexico continued to rise rapidly, 

amounting to $32.3 billion. This amount was up by 

17.5 percent from 1990, representing a faster 

expansion than the 13.9-percent expansion of 1990 but 

slower than the 41.4-percent and 21.5-percent surges of 

1988 and 1989. The steep upward trend can in great 

part be attributed to Mexico's radical economic and 

trade-liberalization reforms. These efforts helped to 

ensure that pent-up demand--the result of protectionist 

practices in prior years--could finally be met, and it 

was met largely from the United States. The vigor of 

the Mexican economy and the relative strength of the 

peso (deliberately maintained by the Government's 

exchange-rate policy) were additional factors that 

boosted U.S. exports. 

U.S. exports in 1991 increased in all major SITC 

product categories. Exports of virtually all the leading 

items were up over 1990 (table A-11). Auto parts 

continued to be top items, with several of them 

registering significant export gains. Mexico has 

consistently been the second-biggest U.S. export 

market after Canada and the fastest growing market for 

U.S. auto parts in the past decade. U.S. sales of these 

and a number of other items in the leading machinery 

and transportation items category--especially 

electronics--were sustained, in part, by U.S.-Mexican 

production sharing.322U.S. items with notable export 

gains in 1991 included refined oil products, soybeans, 

and grain sorghum. Mexico is the third-largest export 

market for U.S. agricultural products--mostly cereals 

and soybeans--after Japan and the former Soviet 

Union. 

In 1991 U.S. imports from Mexico amounted to 

$30.4 billion, up by 3.2 percent. This trade flow 

contained two components deserving special note: (1) 

imports resulting from U.S.-Mexican production 

sharing, part of which enter duty free under HTS 

9802.00.60 and 9802.00.80 (formerly TSUS items 

806.00 and 807.00)323and (2) Mexican. products 

enjoying duty-free treatment under the U.S. 

Generalized System of Preferences (GSP). 

U.S. imports of Mexican machinery and 

transportation equipment--the largest SITC category of 

such imports--continued to grow in 1991. Imports of 

the miscellaneous manufactures and chemicals group 

also increased. Automotive products and 

telecommunications equipment were the leading items 

(table A-12). The Mexican automobile industry 

consists mainly of U.S. or other foreign subsidiaries, 

such as those of the big three U.S. automakers, and 

Volkswagen and Nissan. 

Large shares of U.S. machinery and transportation 

equipment imports from Mexico, especially of auto 

parts, telecommunications equipment, and office 

machinery, are generated by production sharing. 

Imports from shared production enter the United States 

under HTS 9802.00.60 and 9802.00.80 (henceforth 

under HTS 9802) after further processing or assembly 

in Mexico from inputs produced in and imported from 

the United States. The United States levies duty only 

on the value added in Mexico; the U.S. content reenters 

duty free. The U.S. content in imports from production 

sharing is higher from Mexico than from any source. 

In 1990 U.S. content accounted for 50 percent of 

import value from Mexico under HTS 9802.324The 

comparable figures from Canada were 40 percent and, 

from the rest of the world, 13 percent 325 

The plants involved on the Mexican side in 

production sharing are generally "maquiladoras," 

in-bond production facilities established since 1965 

under Mexico's Border Industrialization Program. The 

term "maquiladora" is frequently associated with the 

labor-intensive subsidiary of a foreign company 

(usually U.S.) that receives from . its parent the 

machinery, equipment, and raw materials needed for 

processing or assembling components manufactured 

outside Mexico. Because maquiladoras generally 

export their products, their imports are considered 

temporary and are therefore not subject to Mexican 

import duties. Maquiladoras rank as Mexico's 

second-largest industry, after petroleum production. 

In the 1980s U.S. imports under HTS 9802 rapidly 

increased as a share of overall imports from Mexico, 

accounting in 1991 for 47.1 percent of the total (table 

15). In addition to machinery and equipment items, 

significant portions of imported Mexican apparel and 

miscellaneous manufactures are made from U.S. 

materials and supplied by production-sharing units in 

Mexico. 

Mineral fuels, the second-leading SITC import 

category (table 14), used to dominate U.S. imports 

from Mexico before the Mexican Government 

embarked on a comprehensive and highly successful 

economic diversification program. In 1982 petroleum 

still accounted for more than half of overall U.S. 

imports from Mexico. Although petroleum continued 

in 1991 to be the number one U.S. item from Mexico, 

the share of mineral fuels as a group dropped to 15.2 

percent of total imports in 1991. Oil imports were 

lower in 1991 than in 1990, because 1990 was a year 

of high world prices and extraordinary demand, 

triggered by the Persian Gulf crisis. U.S. imports of 

Mexican food and live animals also dropped in 1991, 

albeit minimally, mostly due to falling imports of live 

bovine animals and tomatoes from their atypically high 

level in 1990. 326Imports of coffee remained virtually 

unchanged (table A-12). Mexico is the second-largest 

foreign supplier of agricultural products to the U.S. 

market after Canada. 

113 
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114 
In 1991 a record 12.6 percent of U.S. imports from 

Mexico entered duty free under the U.S. GSP program, 

for which Mexico is eligible as a developing country 

(table 15). In 1991 President Bush granted GSP 

benefits for an additional 29 Mexican product 

categories by waiving a, "competitive-needs" 

requirement that denies duty-free treatment when one 

country supplies more than half of U.S. imports of an 

item. (For an explanation of this concept, see chapter 

5, "Generalized System of Preferences" section.) The 

waiver was a positive response to new intellectual 

property legislation passed by Mexico during the year. 

Major imports from Mexico receiving GSP treatment 

include auto parts; furniture; household electrical 

appliances; float glass; and toys, games, and sporting 

goods. The share of products benefiting from GSP has 

increased through the years as a share of overall U.S. 

imports from Mexico (table 15). 

Major Policy Developments 

Affecting Trade 

While focusing in 1991 on the momentous decision 

of entering into FTA negotiations with the United 

States, and then on the actual NAFTA negotiations, the 

Mexican Government also has continued its unilateral 

trade-liberalization program. (For a detailed discussion 

of the NAFTA negotiations, see chapter 1.) During the 

year the Government abandoned its exchange-rate 

controls and made major progress in privatizing its 

state-owned sector. Mexico attracted significant 

foreign investment in 1991 on the strength of its good 

economic performance, the prospects of a NAFTA, and 

by passing its long-awaited new patent law and 

copyright regulations. In December the Mexican 

Congress approved a major land-reform package 

designed to increase agricultural productivity and to 

attract foreign investment into. Mexican farming. 

Mexico also took steps during the year toward forging 

closer economic relations with countries other than the 

United States and Canada, such as Chile, other Latin 

American countries, and the nations of the EC. 

Foreign-Exchange Policy 

When extending Mexico's Economic Growth and 

Stabilization Pact (PECE) for the fifth time in 

November 1991, the Mexican Government also 

announced the repeal of the peso's controlled exchange 

rate, which had been used for most major international 

transactions. This action amounted to abandoning the 

official exchange controls that had been in effect in the 

country since 1982. Mexico now has a managed 

floating exchange-rate system. The Government 

allows the rate at which large foreign-exchange 

transactions are executed (the "brokerage rate") to 

fluctuate within a band that is the spread between the 

rates at which banks will buy and sell U.S. dollars. 

Although it no longer imposes direct controls, the 

Government "manages" the width of this spread. For 

example, in November 1991 the Bank of Mexico froze 

the dollar/peso exchange rate at 3,051 pesos for the 

purposes of buying dollars but, for the purposes of 

selling dollars, it allowed the peso's nominal daily 

devaluation to continue. However, the Government 

slowed its daily devaluation rate to half its previous 

level to accelerate the currency's appreciation in real 

terms.327Because inflation in Mexico has been 

consistently higher than in the United States and the 

daily devaluation of the peso has not compensated for 

the difference, in real terms the peso appreciated 

against the dollar by 9.9 percent in 1990 and another 

9.3 percent in 1991. 328 

The Government began the gradual slowing of the 

peso's devaluation rate in May 1990. 329Currently, the 

peso's exchange rate is close to the Government's 

declared objective of attaining a "fixed" peso/dollar 

parity, which was abandoned in the mid-1970s. 330 

 Successive lowering of the daily devaluation rate 

indicates that the Salinas government's policy is 

seeking to keep the purchasing power of the peso 

relatively high as a way to control inflation. In 1991 

the strength of the peso was also held up by massive 

inflows of foreign investment dollars. 

The strength of the peso encouraged imports by 

making them cheaper. However, the strong domestic 

currency also made peso-denominated Mexican 

exports more expensive, with the predictable result of a 

deteriorating Mexican balance of trade. 

Privatization 

In 1991 Mexico proceeded with streamlining its 

state-owned and state-controlled (parastatal) sector as 

part of the ongoing shift to a market economy. During 

the year the process concentrated on reprivatizing 

Mexico's banking system, which was nationalized in 

1982. A special disinvestiture committee has been in 

existence since September 1990, to oversee the sale of 

Mexico's existing 18 commercial banks. 331 

Throughout 1991 the program proceeded quickly. 

In February rules pertaining to the privatization process 

were published, and by the end of the year the 

Government had sold the first 9 of the country's 18 

commercial banks to the private sector. The sales 

included the Banco Nacional de Mexico 

(BANAMEX), Mexico's oldest and most profitable 

bank, and also one of Latin America's three largest 

banks. The sale of BANAMEX in September 1991 to 

ACCIVAL, a rich domestic interest group, fetched a 

price of $3.2 billion. According to estimates, the 

Government's combined revenues from the sale of 

Mexico's entire banking system, which is expected to 

be accomplished by late summer 1992, will amount to 

some $11 billion. 332 

Also in 1991 the Government completed the 

privatization of Telefonos de Mexico (TELMEX), 

another major entity in Mexican commercial life. The 

first stage of TELMEX's privatization took place in 

December 1990, when the Government sold its 

controlling interest in this monopoly to a consortium 

115 
that was led by the GRUPO CARSO and included 

Southwestern Bell of the United States and France 

Telecom.333This transaction left the Mexican 

Government with a 26-percent equity stake in 

TELMEX. In May and June 1991 the Government 

reduced its equity stake to 8.4 percent through stock 

offerings to a variety of foreign and domestic 

purchasers, including TELMEX employees. The 

Government's combined revenues from both stages of 

privatizing TELMEX were estimated to exceed 

$4.0 billion.334 

Most of the Mexican Government's holdings in 

three large steel companies--Altos Hornos de Mexico 

(AFIMSA), SIBALSA, and Siderirgica Lazaro 

Cardenas-Las Truchas (SICARTSA)--were also sold in 

1991. The purchasers were three large domestic 

investment groups, including one with foreign 

partners. 335 

In addition, Mexico took the first steps during the 

year to privatize its transportation system. The 

Government granted concessions to private 

entrepreneurs to build and operate more than 1,500 

miles of new highways, linking major manufacturing 

centers with large cities and with the U.S. border. The 

Government also announced that it would further 

expand private ownership and operations of trains. 

Private companies will be allowed to buy rail cars and 

operate them, relying on Mexico's state-owned railroad 

only for engine services. The Government also began 

the privatization of Mexico's port systems by (1) 

granting concessions to private companies to own and 

operate warehouses, docks, and loading facilities, and 

(2) long-term leasing of facilities. 

The key para.statal enterprises scheduled for sale in 

1992 include the remaining commercial banks, 

FERTIMEX (the fertilizer monopoly,) ASEMEX (an 

insurance company), and the state-owned television 

station. 

Revenues from the sale of state-owned enterprises 

and the concomitant elimination of large subsidies 

required to keep many of these entities in operation 

considerably strengthened Mexico's public finances. 

During 1991 the Government used part of these sales 

revenues to retire internal debt, reducing it from 23.4 

percent of GDP at the end of 1990 to 17.2 percent at 

the end of 1991. Subsidies to parastatals have 

decreased from 2.9 percent of the GDP in 1982 to less 

than 1.5 percent in 1991. 336 

In 1991 the Mexican Government continued with 

liquidations, mergers, and other forms of 

disincorporating the para.statal sector, in addition to its 

impressive progress in selling entities to private 

interests. As of February 1992 the number of 

parastatal enterprises has dropped to 234 from 1,155 in 

1982. By the time the entire disinvestiture process is 

completed, the Government expects to own fewer than 

200 entities. The most notable ones that will remain 

state-owned are PEMEX (the petroleum monopoly), 

the Federal Electricity Commission, the railroads, and 

the postal service. In addition, companies that provide 

social services but are not profitable will remain in the 

public sector. The Government's objective is to 

withdraw entirely from most industrial areas and 

thereby eliminate economically and socially 

unjustifiable expenditures and subsidies, thus 

strengthening public finances. 

Foreign Investment 

In 1991 foreign investment in Mexico increased 

dramatically. During the first three quarters of the year 

direct investment from abroad of $3.6 billion was 

recorded in Mexico's balance of payments, up from 

$2.6 billion in all of 1990. 337This total included 

repatriation of domestic "flight capital," which was 

intense during the year. The surge in foreign 

investment reflected growing confidence in the 

Mexican economy due, in part, to the prospects of a 

NAFTA. It also continued to show the effect of a May 

1989 decree338that significantly eased the rigid 

barriers to foreigners in Mexico's 1973 Law on 

Foreign Investment (LFI). 339 

The May 1989 decree allowed foreigners to invest 

in economic activities from which they were 

previously excluded, notably including telecommunications, selected secondary petrochemicals, banking, 

and insurance, although subject to specified equity 

restrictions 340 This measure and subsequent 

regulations also significantly broadened the range of 

economic activities open to 100-percent foreign 

ownership under specified conditions. 341In 1991 the 

most important legal change favoring foreign 

investment was the promulgation of the Law for 

Promotion and Protection of Industrial Property in 

June. As of June 1991 accumulated direct foreign 

investment in Mexico amounted to some $32.6 billion, 

of which 59.2 percent was invested in manufacturing 

and 32.1 percent in services. 342 

Foreign portfolio investment surged even faster 

than foreign direct investment, from $2 billion in all of 

1990 to $6.3 billion in the first three quarters of 

1991.343Notably, as recently as 1988 there was still a 

net outflow of capital from Mexico. Foreign portfolio 

investment was fostered by, among other things, 

changes in Mexican regulations that facilitated the 

purchase by foreigners of Mexican debt and equity 

instruments, and an increase in the international issues 

of Mexican sec uri ties. 344 

The measures easing barriers to foreign 

investment, and the inflow of funds they triggered, 

reflected the total reversal of Mexico's earlier, 

notoriously hostile policy toward foreign investment. 

A desire to attract foreign capital and know-how, in 

addition to the hope of capturing foreign markets, was 

a major reason for the Mexican Government's keen 

interest in the NAFTA. 

Nonetheless, 46 segments of the Mexican economy 

still remain off limits to foreigners. The Constitution 

of 1917 and the LFI, which has not been removed from 

the books, reserve these segments either to the state or 

to Mexican nationals. Areas of economic activity 

116 
reserved to the state include (1) extraction of petroleum 

and natural gas, (2) production of basic petrochemicals, 

(3) mining of radioactive materials, (4) power and 

nuclear energy generation, (5) railroads, and (6) 

minting of coins. Activities reserved to Mexican 

nationals include (1) radio and television; (2) automotive, air, and maritime transport; (3) forestry; (4) 

distribution of gas; (5) customs brokers; (6) administration of ports; (7) credit unions; and (8) 

public-notary services. 345Equity restrictions to 

foreign owners apply in an additional 95 activities. 

Altogether 141 segments of the economy are 

considered "classified"--that is, with some limitations 

on foreign investment. 3' 

Trade Accords With Third 

Countries 

In 1991 Mexico took steps toward forging closer 

trade relations not only with Canada and the United 

States, but with other nations. The most significant of 

these moves was the FTA that Mexico and Chile 

signed in September, which became the second major 

trade accord in the Americas since the 1989 

U.S.-Canada FTA. 

The Mexico-Chile agreement abolished all 

nontariff barriers between the two countries, including 

import licenses. The accord was to take effect 

immediately, with a common tariff of 10 percent for 95 

percent of the trade. Beginning in 1991 it provided for 

a staged reduction of tariffs to zero by 1996, with some 

extensions for "sensitive items." For items such as 

Mexican oil, Chilean sugar, cooking oil, wheat, and 

flour, tariff reductions have yet to be negotiated. 347 

The accord also included a dispute-resolution 

mechanism and a general 50-percent national-content 

requirement for goods shipped to the FTA partner. 

Lower national-content requirements, however, apply 

to certain traded items, such as Mexican automobiles 

(32 percent), because Chile is interested in importing 

Mexican automobiles (which frequently contain 

significant third-country components). The particular 

reason is reportedly Chile's special interest in cars 

assembled in Mexico by Nissan. 348 

In April 1991 Mexico and the EC signed a 

framework agreement that identified a wide range of 

economic areas for cooperation. 349In August Mexico 

also began discussions about closer trade ties with 

Colombia, Brazil, and some countries in South 

America and outside the Americas 350 

U.S.-Mexican Bilateral Trade 

Issues 

U.S.-Mexican economic relations were dominated 

in 1991 by the NAFTA negotiations, which formally 

began in June. The mutual approval of the idea first of 

an FTA, which was then broadened into a trilateral 

NAFTA, was the crowning event in the steady 

improvement of U.S.-Mexican relations. As Mexican 

President Carlos Salinas de Gortari stated in his annual 

Informe (state-of-the-union address to Congress) on 

November 1, 1991, "North of our border, there can be 

no doubt that we have entered a new stage in our 

relations with Canada and the United States." (For a 

detailed discussion of the NAFTA negotiations, see 

chapter 1.) 

The forging of closer bilateral U.S.-Mexican 

economic ties was greatly assisted by Mexico's 

accession to the GATT in 1986. In November 1987 the 

two countries concluded the Framework of Principles 

and Procedures for Consultation Regarding Trade and 

Investment Relations, a document that established a 

consultative mechanism for discussing concerns in 

mutual trade and investment issues. In October 1989 

the United States and Mexico concluded the 

Understanding Regarding Trade and Investment 

Facilitation Talks (TIFTs). The TIFTs forced the 

parties to conduct continuous negotiations on specific 

sectors and nonsectoral issues, and provided a 

framework for comprehensive trade and investment 

negotiations. 

The NAFTA negotiating structure accommodated 

most issues that needed to be addressed bilaterally. 

Nonetheless, the United States and Mexico maintained 

their consultative mechanism for resolving bilateral 

issues and used the earlier work begun under the aegis 

of the TIFTs as a basis for NAFTA negotiations in 

certain areas. Also, in November 1991 a 

Memorandum of Understanding between the United 

States and Mexico established mutual recognition of 

each country's commercial driver's licenses, and 

provided for mutually enhancing truck and bus safety, 

effective April 1, 1992. 

Intellectual Property Rights 

For many years Mexico's weak intellectual 

property rights (IPR) protection provoked sharp 

protests from adversely affected U.S. interests, 

principally pharmaceutical manufacturers, software 

producers, and the recording and movie industries. 

Mexico addressed some of these U.S. concerns for the 

first time in December 1986, when amending the 

Mexican patent and trademark law of 1976. 351 

 However, the United States considered the protections 

inadequate even following the amendment. 

In May 1989 the U.S. Government placed Mexico, 

along with seven other countries, on a priority watch 

list under the Special 301 provision of the Omnibus 

Trade and Competitiveness Act of 1988 for its failure 

to provide adequate IPR protection. 352In January 

1990 the U.S. Government removed Mexico from the 

watch list in response to the Mexican Government's 

promise that legislation to provide effective 1PR 

protections would be passed shortly by the Mexican 

Congress.353 

In 1991 Mexico made major progress in extending 

protection for TR. On June 26 President Salinas 

117 
signed the Law for the Promotion and Protection of 

Industrial Property, a new patent and trademark 

legislation that replaced the 1976 Law of Inventions 

and Marks and the 1982 Law on Transfer of 

Technology.354In August amendments to Mexico's 

existing Federal Copyright Law of 1963 became 

effective.355 

The new measures followed the mainstream of 

international IPR legislation and were in line with 

Mexico's overall strategy of opening the economy to 

foreign investment and trade. It is believed by some 

that Mexican protections of intellectual property are 

now stronger than elsewhere in the Third World and, in 

some respects, even than in Canada. 

Highlights of the new industrial property law 

included extension of patent protection from 14 to 20 

years. The law extended product patent protection to 

chemical, pharmaceutical, and metal alloy products, as 

well as to some biotechnological inventions. Under the 

new law inventions patented in other Patent 

Cooperation Treaty countries would also qualify for 

protection in Mexico for the remaining term of a 

patent. In addition, the law significantly strengthened 

the processes through which foreign patentholders 

might seek prosecution of violators. 

Trademarks may now be registered for a period of 

10 years, with renewable 10-year terms. The law also 

provided for the establishment of a Mexican Institute 

of Industrial Property, designated to perform patent 

licensing and trademark registration within the 

Ministry of Commerce and Industrial Development. 

Additional provisions covered protection of industrial 

designs, trade secrets, and other matters. 

The amendments to the Copyright Law extended 

explicit protection for computer programs and sound 

recordings in Mexico for the first time. Mexico now 

protects computer software for 50 years. The 

amendments also significantly enhanced sanctions and 

penalties for infringement. Penalties are now indexed 

to inflation, replacing a system of fixed fines that were 

rendered ineffective deterrents by inflation. 356 

When, in the summer of 1991, Mexico delivered 

on its promise of new IPR laws, the U.S. private sector 

responded favorably. Officials of both countries 

reportedly considered Mexico's IPR among the less 

difficult issues to be negotiated in the NAFTA. 

Nonetheless, for all the progress made in Mexican IPR 

protections, skepticism still existed in some quarters 

about ambiguous language in certain parts of the new 

measures and the insufficiency of penalties. 357Most 

of all, many doubted that the new legislation would be 

adequately enforced. 

U.S. Embargo of Mexican Mina 

The question of a U.S. embargo banning imports of 

yellowfm tuna or products derived from yellowfin tuna 

from Mexico (and other countries) for ecological 

reasons had not been resolved by the end of 1991. 358 

 The U.S. embargo in question was prompted by the 

Earth Island Institute, a California nonprofit 

corporation seeking to enforce an amendment of the 

Marine Mammal Protection Act (MMPA) that was 

intended to save dolphins from being killed in tuna 

nets. This measure forbids tuna imports from any 

nation whose vessels have an incidental 

marine-mammal taking rate higher than that of U.S. 

vessels.359 

In response to the court-ordered U.S. embargo that 

took effect on February 22, 1991, the Mexican 

Government brought a complaint before the GATT. In 

August 1991 a GATT dispute panel completed its 

report. The GATT panel found the U.S. import ban 

was not justified on the basis of articles III and XX. 

The panel suggested that countries should advance 

environmental improvements by seeking amendments 

to pertinent GATT rules or waivers from certain GATT 

obligations, not by imposing unilateral trade sanctions 

against perceived environmental offenders. 

Both the U.S. and Mexican administrations were 

anxious, however, to end the dispute at a time when 

they were trying to forge a comprehensive free-trade 

agreement. Therefore, at the September 9 annual 

meeting of the U.S.-Mexico Binational Commission, 

the two countries reached a compromise that led them 

both to request the GATT to hold off any further 

consideration of its preliminary ruling in Mexico's 

favor. On September 24 Mexico announced a program 

designed to make its tuna harvesting less dangerous to 

dolphins and other marine mammals and promised that 

it would also draft legislation authorizing penalties for 

violations of mammal-protection measures. For its 

part the United States maintained the embargo but 

indicated that the MMPA might be modified to make it 

more flexible in a fashion that would meet both U.S. 

environmental objectives and also be acceptable to 

Mexico. Such legislative modification was to make the 

embargo unnecessary and to allow Mexico to withdraw 

its complaint before the GATT. 36° (For additional 

discussion of this issue, see chapter 1, "Trade and the 

Environment" section.) 

Import Licensing 

In 1991 Mexico eliminated import-licensing 

requirements for apples, peaches, and nectarines. 

These actions followed the removal of licensing 

requirements for automobiles, buses, red meat, 

sorghum, computers, oilseeds, oilseed flours, and 

animal and vegetable fat products in 1990. 

As a cornerstone of its import-liberalization policy, 

and in accordance with GATT accession obligations, 

Mexico in 1985 began to dismantle its previously 

universal regime of import-licensing requirements. 

Manufactured products in particular benefited from 

liberalization. By the end of 1991, however, some 200 

Mexican product categories still remained subject to 

import-licensing requirements. These products 

included a significant number of agricultural imports 

from the United States, such as corn, wheat, barley, dry 

beans, table grapes, poultry, bacon, and most dairy 

118 
products.361Although import licensing was required 

for less than 6 percent of Mexican tariff categories and 

applied to only 8 percent of Mexico's overall imports 

from the United States, 362it affected approximately 

one-third of their imports of U.S. farm products. 363In 

addition, due to continued revisions and lack of 

transparency in Mexico's sanitary and phytosanitary 

regulations, exporters of many U.S. farm products 

encountered inconsistent treatment in obtaining access. 

Import Bans: Swine and Fruit 

In early December 1991 Mexico announced that as 

of December 15 it would prohibit imports of live swine 

for slaughter or breeding purposes from the United 

States and Canada. Mexican officials contended that 

the ban was necessary to protect Mexican swine from 

Swine Infertility and Respiratory Syndrome (SIRS), 

also known as mystery swine disease. Representatives 

of U.S. breeders contended that the ban was a nontariff 

barrier designed to protect Mexican producers, and that 

it was a threat to NAFTA negotiations. 364The Animal 

& Plant Health Inspection Service (APHIS) of the U.S. 

Department of Agriculture supported the U.S. swine 

breeders' argument on the grounds that there was 

virtually no risk of introducing SIRS-infected animals 

into a foreign country, given the extremely small 

number of infected herds in the United States. 365 

 Although Mexico is a relatively small market for U.S. 

swine, the episode engendered special concern because 

(1) the future potential of the trade in swine, as well as 

trade in other animals, might be affected and (2) the 

episode coincided with NAFTA negotiations. Also in 

December Mexico banned imports of U.S.-grown 

apples, peaches, nectarines, pears, and quinces, 

because of concern about the spread of the oriental 

fruit moth. 

On December 13 U.S. and Mexican officials met in 

San Antonio, Texas, to address Mexico's concerns and 

to facilitate resumption of swine and fruit shipments 

from the United States. A working group under the 

jurisdiction of both Governments' Departments of 

Agriculture sought to resolve the problems caused by 

these developments. 366 

Textile Product Labeling 

A bilateral conflict that developed in 1990 over 

Mexico's labeling regulations on textile product 

imports was resolved in 1991. The dispute involved an 

announcement by the Mexican Government in October 

1990 that introduced new labeling requirements for 

textile and apparel products. The requirements 

specified that labels identify both exporter and 

importer, that they use Spanish in care instructions, and 

that they employ metric units of measurement. U.S. 

exporters criticized the new regulations as too 

burdensome, claiming that the revised requirements 

were blocking their products' entry at the Mexican 

border and causing them substantial loss of sales. 367 

 The U.S. Government complained that the new rules 

should have been announced in advance, in accordance 

with Mexico's obligations under the GATT Standards 

Code. 

In March 1991 the Mexican Government issued a 

notice suspending the implementation of portions of 

the controversial regulations. 368The labeling dispute 

was resolved when Mexico and the United States 

concluded the Understanding Regarding Mexico's 

Labeling Decree for Textile and Apparel Products, 

which went into effect on July 1, 1991. The Mexican 

Government eased therein some of its earlier 

requirements by (1) compromising with the use of 

more than one label in conveying information, (2) 

accepting internationally used care symbols without 

text or dual language labeling where text was being 

used (provided one language is Spanish), and (3) 

suspending indefinitely the requirement of 

measurements in metric units. 

The Government of Mexico also extended the 

deadline for domestic manufacturers and importers to 

abide by the new labeling regulations until October 1, 

1991. 

U.S. Investment in Mexico 

Conditions underlying bilateral investment flows 

constitute an important part of U.S.-Mexican economic 

relations. The United States is by far the largest 

foreign investor in Mexico, accounting for about 63 

percent of the country's accumulated total direct 

investments as of December 1991. It is notable, 

however, that this large share of U.S. investments in 

Mexico represents only 4.5 percent of all U.S. 

investment abroad. 369 

As noted previously, 141 "classified" economic 

activities in Mexico are still closed to foreign investors 

or apply some restrictions to them. These activities 

include a number of areas of substantial interest to U.S. 

investors, such as petroleum, secondary 

petrochemicals, mining, transportation equipment, auto 

parts, and most financial services. In the remaining 

"unclassified activities,"370U.S. investment does not 

face any equity restrictions and receives automatic 

approval from Mexican authorities, as long as these 

investments are $100 million or less and meet five 

other criteria. 37 I 

The limits imposed on foreign investors in the area 

of Mexican banking were in sharp evidence in the 1991 

bank privatization process. In contrast to the sale of 

TELMEX, in which private purchasers included 

Southwestern Bell of the United States and other 

foreign interests, there was no foreign participation in 

the privatization of BANAMEX. 3/2Under existing 

rules foreign investors are restricted to a maximum 

30-percent share in the banking sector. As a result U.S. 

and other foreign banks--with the notable exception of 

a Spanish bank--have shown little interest in the 

reprivatization of Mexican banks. 

119 
Manufactured 

goods 

$10.6/69.5% 

Fuel/raw 

materials 

$3.2/21.2% 

All other 

goods 

$0.3/1.9% 

Food 

$1.1/7.3% 

Manufactured 

goods 

$20.9/97.4% 

Food 

$0.18/1.1% 

All other 

goods 

$0.17/1.0% 

FueVraw 

materials 

$0.09/0.5% 

Republic of Korea 

Merchandise Trade With the 

United States 

The U.S. bilateral trade deficit with Korea in 1991 

was $1.7 billion, a figure significantly lower than those 

of previous years. (In 1987-88 the bilateral deficit 

exceeded $9 billion.) Total trade between the two 

countries exceeded $32 billion. U.S.-Korean trade was 

dominated by manufactured goods (SITC categories 5, 

6, 7, and 8), which accounted for 97 percent of U.S. 

imports from Korea and 70 percent of U.S. exports to 

Korea (figure 8 and table 16). The remainder of U.S. 

exports to Korea consisted of fuel and raw materials 

(21 percent), food (7.3 percent), and other 

nonmanufactured goods (1.9 percent). 

Total U.S. exports to Korea reached $15.2 billion 

in 1991, up by 8 percent over 1990 and the 7th year 

running that U.S. exports to Korea rose. The leading 

exports to Korea were bovine hides and skins 

($529 million), digital monolithic integrated circuits 

($466 million), cotton ($356 million), oil 

($446 million), airplanes and parts ($1.0 billion), and 

helicopters ($392 million). (Leading items exported to 

Korea during 1989-91 are listed in table A-13.) 

U.S. imports from Korea fell for the 4th 

consecutive year in 1991; they dropped by 8 percent, to 

Figure 8 

U.S. trade with Korea by product sector, 1991 

$16.9 billion. The leading imports were footwear 

($1.5 billion), digital monolithic integrated circuits 

($1.5 billion), passenger motor vehicles ($1.0 billion), 

articles of apparel of leather or composite leather 

($705 million), and ADP machines ($623 million). 

(Leading items imported from Korea during 1989-91 

are listed in table A-14.) 

Major Policy Developments 

Affecting Trade 

Seventh 5-Year Plan 

In late 1991 Korea adopted a 5-year economic plan 

for the period 1992-96. By the end of the period 

annual per capita gross national product (GNP) is 

projected to be $10,900, or 73 percent above the 

estimated 1991 level of $6,300. Annual economic 

growth is projected to be 7.5 percent, lower than the 

average annual rate of 10 percent over the past 5 years. 

The lower growth target is an attempt by Korean 

planners to solve economic problems they associate 

with high rates of growth, such as a shortage of skilled 

manufacturing workers, wages that grow at faster rates 

than productivity, inflation, increasing consumption of 

imports, a current account deficit, and decreased 

growth in exports and savings.373 

U.S. Exports 

(billion dollars and percent) 

U.S. Imports 

(billion dollars and percent) 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Note.—Because of rounding, figures may not add up to 100 percent. 

120 
Table 16 

U.S. merchandise trade with Korea, by SITC Nos. (Revision 3), 1989-91 

(Thousands of dollars) 

SITC 

section 

no. Description 1989 1990 1991 

U.S. exports 

0 Food and live animals 1,217,330 1,194,519 946,960 

1 Beverages and tobacco 119,830 118,513 124,320 

2 Crude materials, inedible, except fuels 2,872,417 2,939,527 2,558,595 

3 Mineral fuels, lubricants and related materials 344,282 719,503 670,952 

4 Animal and vegetable oils, fats and waxes 43,138 51,817 44,769 

5 Chemicals and related products, n.e.s. 1,641,681 1,689,909 1,657,998 

6 Manufactured goods classified chiefly by material 1,043,655 978,844 1,275,991 

7 Machinery and transport equipment 5,016,988 5,156,907 6,523,301 

8 Miscellaneous manufactured articles 784,727 1,052,163 1,116,161 

9 Commodities & transact not class elsewhere in SITC 123,694 172,182 292,050 

Total all commodities 13,207,742 14,073,883 15,211,098 

U.S. imports 

0 Food and live animals 188,325 176,012 177,140 

1 Beverages and tobacco 9,149 5,452 4,942 

2 Crude materials, inedible, except fuels 51,417 47,834 58,562 

3 Mineral fuels, lubricants and related materials 24,988 9,572 31,460 

4 Animal and vegetable oils, fats and waxes 1,385 947 1,254 

5 Chemicals and related products, n.e.s. 184,881 251,971 240,866 

6 Manufactured goods classified chiefly by material 2,027,936 2,101,079 2,018,764 

7 Machinery and transport equipment 8,760,823 7,446,226 7,194,489 

8 Miscellaneous manufactured articles 8,180,151 8,153,540 6,963,738 

9 Commodities & transact not class elsewhere in SITC 137,670 144,326 171,167 

Total all commodities 19,566,725 18,336,960 16,862,383 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

The Korean plan features three main policy goals. 

First, Korea will attempt to restructure its economy and 

strengthen its industrial competitiveness. This goal is 

to be reached through implementing advanced worker 

training, developing new industrial technologies, and 

reducing competition-limiting economic concentration. 

Second, Korea intends to achieve greater socioeconomic equity and balanced development through 

remedying housing problems, expanding social 

security, and simplifying land-use regulations. Finally, 

Korea hopes to internationalize its economy further by 

restructuring agricultural and fishery industries, joining 

the Organization for Economic Cooperation and 

Develo2ment, and promoting cooperation with North 

Korea ."4 

Anti-Import Campaigns 

On several occasions since April 1990 campaigns 

designed to deter consumption of imports or luxury 

items have been launched in Korea. 375The 

Government of Korea consistently denied taking a role 

in such campaigns and maintained that blatantly 

anti-import campaigns are grass-roots efforts designed 

to reduce both conspicuous consumption and Korea's 

external deficit. U.S. officials responded skeptically to 

the Government's claims. 

In late August 1991 the Government of Korea 

announced a number of austerity measures designed to 

stabilize the Korean economy. Government officials 

were quick to state that these measures were designed 

not to reduce imports, but to appeal to what they 

describe as the Korean virtue of frugality. 376Other 

Government sources noted that "some of the newly 

rich have seemed to demonstrate contempt for [the] 

hard work and thrifty ways of others and their behavior 

has become a serious political problem." 377 

In explaining the frugality measures Korean 

officials pointed with a degree of alarm at economic 

conditions of recent years that many economists say 

mean that Korea's economy is overheated. 378They 

noted, for example, that compared with the 1980s, 

Korea's rates of growth in gross domestic product are 

markedly lower, consumption is higher, inflation has 

approximately doubled, and the current account is in 

deficit after several years of surplus. Early statistics 

showed that nominal GNP growth was 8.6 percent in 

1991, consumption rose by 9.0 percent, inflation 

registered 9.5 percent, and the current-account deficit 

was a record $9.5 billion. The Government of Korea 

121 
also stated that since 1987, manufacturing wages have 

been rising faster than productivity. 379 

In reaction to these developments the Government 

of Korea has taken steps to encourage consumers to 

exercise restraint in consumption. This "movement to 

end excessive consumption," as it has been called in 

the Korean media, is reminiscent of the 1990 

"anti-import campaign" in which Korean consumers, 

importers, and retailers were urged by the Government 

to exercise self-restraint regarding purchases of 

imports. Korean officials have stated that the campaign 

is directed at reducing domestic consumption, 

particularly consumption deemed to be "excessive." 38° 

Some of the measures taken by the Korean 

Government included restricting housing and 

large-scale construction projects, restraining 

Government spending, and considering tax increases 

on services such as restaurants. Other reported 

developments included a reluctance of the Government 

to criticize private efforts to discourage imports, 

investigations by the Bank of Korea into "excessive" 

credit-card purchases made abroad by Korean citizens, 

and media reports that individuals who travel 

frequently or spend "too much" on "luxury goods" 

might face tax audits. 381 

According to Korea's Office of Customs 

Administration (OCA), imports of 16 "luxury 

consumer imports" fell by 22 percent during the first 7 

months of 1991. Approximately 60 percent of these 

items were imported by Korea's 50 largest importing 

companies. The large concerns have been blamed for 

the "flood" of luxury imports. 382The five leading 

items identified as luxury goods by the OCA are 

granite, marble, automobiles, refrigerators, and 

washing machines.383In response to the 1991 

campaign, USTR Carla A. Hills said that Korea's 

definition of "luxury goods" was too wide and added 

that she was "trying to convince our Korean friends 

that trade liberalization is not only occasionally good 

and necessary but is always a good policy." During her 

November trip to Seoul, she expressed concern that 

"the current 'frugality campaign' could be simply a 

euphemism for protectionism." 384In an address 

before the National Assembly during a January 1992 

visit to Seoul, President Bush characterized the 

"frugality campaign" as a manifestation of "pressures 

for protectionism."385 

U.S.-Korean Bilateral Trade 

Issues 

Barriers to U.S. Exports 

Korea's tariffs have been a topic of bilateral 

discussion for several years. In 1989 Korea 

implemented its second 5-year tariff-reduction plan.386 

This plan, originally designed to run from 1989 to 

1993,387is scheduled to reduce the average tariff rate 

to 7.9 percent. Although Korea's tariff level has fallen 

significantly in recent years, U.S. exporters have 

reported difficulties obtaining entry into Korea for 

certain categories of imports. High duties remain on 

many high-value agricultural products of export 

interest to the United States. For example, 50-percent 

tariffs are levied on most fresh fruits and fruit juices, 

kiwifruit, peaches, and grape juice. High tariffs are 

also levied against distilled spirits (which are also 

subject to what the United States describes as an 

"excessive and discriminatory tax"), soybean oil, 

paper, cottonseed oil (although oilseeds imported for 

crushing enter duty free), jams and jellies, canned 

soups, and avocados. Raisins and almonds face 

35-percent tariffs. 388Even for products whose tariffs 

have been reduced, U.S. exporters have sometimes 

complained that they still face other import restrictions. 

Korea is one of the major U.S. markets for bulk 

commodity exports--feed grains, cotton, wheat, 

soybeans, and hides and skins in particular. In 

addition, although exports to Korea of 

high-value-added agricultural products are growing, 

their levels are limited because of nontariff measures 

maintained by Korea 389 

All imports into Korea must have an import license 

issued by a Foreign Exchange Bank. The majority of 

imports (more than 95 percent) are granted automatic 

approval for entry; however, Korea maintains import 

quotas or bans on the remaining items. Products in the 

latter category are largely agricultural and fishery 

products. In July 1991 Korea finished implementing a 

3-year agreement to grant automatic import-license 

approval for 237 agricultural products. Under the 

terms of an agreement reached with the GATT Balance 

of Payments Committee in late 1989, Korea planned to 

"eliminate all existing agricultural import restrictions 

or otherwise conform with GATT requirements by July 

1, 1997."39° 

In addition to quantitative restrictions, Korea also 

applies food safety and phytosanitary restrictions on 

imports. The United States has disputed the validity of 

some of Korea's food safety measures, arguing that the 

measures are unscientific 391or based on nonexistent 

health threats. 

Korea's import ban on rice is one of the most 

contentious topics of bilateral dispute between the 

United States and Korea. Negotiating pressure on 

Korea to remove the rice ban was focused, in 1991, on 

the Uruguay Round of GATT negotiations. The United 

States tried to encourage Korea to end its import ban 

on rice and replace the ban with a tariff. The United 

States argued that any tariff, even a tariff of several 

hundred percent, would be preferable to the import 

ban, as long as that tariff is subject to reduction over 

time. The Korean Government maintained that rice 

should be excluded from liberalization for reasons of 

food security. It also argued that rice imports would 

create serious political and economic difficulties by 

122 
severely harming the livelihood of Korea's 8 million 

rice farmers. 

Exchange Rates 

The question of whether Korea uses capital 

controls to manipulate its currency and thereby obtain 

an unfair trade advantage has been a bilateral concern 

for several years. 392The Government of Korea has 

planned to shift gradually to a floating exchange-rate 

regime by 1996. In September the Government 

announced that the daily fluctuation band for the 

won-dollar exchange rate would widen from 0.4 

percent to 0.6 percent. In a December 1991 report to 

Congress regarding economic conditions in U.S. 

trading partners, the Department of State concluded 

that "the role of market forces in the exchange market 

remains restricted by the existence of pervasive 

controls on capital and exchange flows both into and 

out of Korea." 

Telecommunications 

In 1989 Korea was named as a priority country 

under section 1374(a) of the 1988 Omnibus Trade and 

Competitiveness Act (OTCA), for allegedly engaging 

in unfair trade practices regarding U.S. 

telecommunications goods and services. 394The 

OTCA provides for an initial 1-year negotiating period, 

which may be extended for two additional 1-year 

periods. "Appropriate Presidential action" is required 

if a negotiated agreement cannot be reached. 

Negotiations continued during 1989, and on two 

occasions--in February of 1990 and 1991--the deadline 

for the negotiations was extended for a year. 395 

During the negotiations the United States sought 

liberalization of Korea's trade policies (i.e., standards, 

government procurement, and tariffs issues) regarding 

telecommunications goods and services. In particular 

the United States was concerned about Korea's alleged 

restrictions on the sale of value-added 

telecommunications services by foreign vendors and 

standards, tariffs, and government-procurement 

policies regarding telecommunications goods. 396In 

February 1991 Korea stated that it would liberalize 

international value-added network services (IVANs) by 

July 1, 1991. Korea agreed to liberalize access for 

other telecommunications services as well 3 97Also in 

February 1991 a record of understanding on 

telecommunications committed the Government of 

Korea to a framework for future negotiations. 398At 

that time the President stated that "substantial progress 

has been made in telecommunications trade talks" and 

extended the time period for bilateral discussions. 399 

Protection of Intellectual Property 

Rights 

In May 1989 Korea was placed on the priority 

watch list under the Special 301 provision over lack of 

protection for intellectual property rights. In particular 

the United States expressed concern about inadequate 

enforcement of IPR laws, problems with the patent 

law, and lack of protection for semiconductor mask 

works. Improved enforcement of IPR laws was largely 

responsible for Korea's being moved from the priority 

watch list to the watch list on November 1, 1989. 

Actions Korea took to prevent such a designation 

included (1) creating a task force to improve 

coordination among its ministries on 1PR protection, 

(2) designating special enforcement teams of police 

and prosecutors, (3) instituting vigorous search and 

seizure efforts, and (4) prosecuting violators. In April 

1990 Korea was retained on the watch list. 

In 1991, according to USTR, Korean efforts to 

enforce IPR laws continued to improve. Korea stated 

that it investigated 2,722 cases of IPR infringement in 

1990, compared with 1,857 cases in 1989. 4c° The 

United States remained concerned, however, that 

penalties were not sufficient to prevent violations. The 

U.S. motion picture industry, for example, estimates 

losses of $30 million annually in Korea because of 

insufficient enforcement of IPR laws. 4° 1 

In December 1991 the Korean National Assembly 

enacted a law designed to protect trade secrets. 

Legislation to protect semiconductor mask works was 

submitted to the National Assembly earlier in the 

year.402Other U.S. Government concerns were video 

and textbook piracy and counterfeiting, inconsistent 

determination of a "well-known" trademark, absence 

of bioequivalency testing for drugs registered prior to 

1989, and inadequate patent protection 403 

Taiwan 

Merchandise Trade With the 

United States 

The U.S. trade deficit with Taiwan declined to 

$10.2 billion in 1991, a figure 11 percent lower than 

the 1990 deficit, and the lowest since 1985. Rising 

U.S. exports to Taiwan (up 14 percent in 1991) and 

slow growth in U.S. imports from Taiwan (less than 2 

percent) both contributed to the improved deficit 

position (table 17). 

As in recent years manufactured goods (SITC 

categories 5, 6, 7, and 8) continued to account for the 

vast majority of two-way trade between the United 

States and Taiwan in 1991. Nearly 73 percent of U.S. 

exports to and 97 percent of U.S. imports from Taiwan 

were manufactured goods (figure 9). Fuel and raw 

materials made up more than 14 percent of U.S. 

exports to Taiwan; food accounted for another 10 

percent. 

123 
Manufactured 

Manufactured goods 

goods $22.3/97.1% 

$9.2/72.6% 

Food 

$0.3/1.3% 

All other 

goods 

Fuel/raw $0.3/1.2% 

materials 

$1.8/14.4% Fuel/raw 

materials 

Food $0.09/0.4% 

$1.3/10.3% 

U.S. Imports 

(billion dollars and percent) 

All other 

goods 

$0.3/2.6% 

U.S. Exports 

(billion dollars and percent) 

Table 17 

U.S. merchandise trade with Taiwan, by SITC Nos. (Revision 3), 1989-91 

(Thousands of dollars) 

SITC 

section 

no. Description 1989 1990 1991 

U.S. exports 

0 Food and live animals 1,008,179 1,002,667 1,148,075 

1 Beverages and tobacco 172,890 . 166,530 163,992 

2 Crude materials, inedible, except fuels 1,361,493 1,263,611 1,396,601 

3 Mineral fuels, lubricants and related materials 515,895 491,209 440,709 

4 Animal and vegetable oils, fats and waxes 13,998 5,338 4,252 

5 Chemicals and related products, n.e.s. 1,750,791 1,529,415 1,839,888 

6 Manufactured goods classified chiefly by material 753,551 821,177 1,053,593 

7 Machinery and transport equipment 4,450,997 4,818,055 5,482,287 

8 Miscellaneous manufactured articles 760,904 793,870 859,115 

9 Commodities & transact not class elsewhere in SITC 185,999 250,085 329,562 

Total all commodities 10,974,696 11,141,956 12,718,074 

U.S. imports 

0 Food and live animals 343,800 309,222 296,515 

1 Beverages and tobacco 2,988 3,996 4,489 

2 Crude materials, inedible, except fuels 81,015 87,341 94,011 

3 Mineral fuels, lubricants and related materials 265 102 67 

4 Animal and vegetable oils, fats and waxes 1,207 1,678 1,315 

5 Chemicals and related products, n.e.s. 346,945 348,785 394,278 

6 Manufactured goods classified chiefly by material 3,286,449 3,122,376 3,130,832 

7 Machinery and transport equipment 9,186,267 9,037,344 9,404,296 

8 Miscellaneous manufactured articles 10,746,993 9,404,559 9,337,661 

9 Commodities & transact not class elsewhere in SITC 207,357 250,712 278,103 

Total all commodities 24,203,285 22,566,115 22,941,568 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Figure 9 

U.S. trade with Taiwan by product sector, 1991 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Note.-Because of rounding, figures may not add up to 100 percent. 

124 
The leading U.S. export items to Taiwan in 1991 

were airplanes and parts ($954 million), corn 

($634 million), digital monolithic integrated circuits 

($556 million), passenger vehicles ($537 million), and 

soybeans ($467 million). (Leading items exported to 

Taiwan from 1989 to 1991 are listed in table A-15.) 

The leading Taiwan items imported by the United 

States in 1991 were ADP machines and parts 

($2.3 billion), digital processing units with storage 

($675 million), digital monolithic electronic integrated 

circuits ($421 million), footwear ($375 million), bicycles ($365 million), wooden furniture 

($356 million), and sweaters ($338 million). (Leading 

items imported from Taiwan from 1989 to 1991 are 

listed in table A-16.) 

Major Policy Developments 

Affecting Trade 

GATT Application 

In 1991 Taiwan's trading partners continued to 

discuss its bid to join the General Agreement on Tariffs 

and Trade.4°4Several GATT members expressed 

support for the effort. In January 1991 French Foreign 

Minister Roger Fauroux noted that Taiwan had become 

a major economic power and maintained that "its 

joining the GATT will contribute to the world 

organization."405A matter of months later, in July, 

President Bush expressed his interest in seeing Taiwan 

become a GATT member, adding that the United States 

would "begin to work actively with other contracting 

parties to resolve in a favorable manner the issues 

relating to Taiwan's GATT accession." 406 

Taiwan is applying for GATT membership at a 

time when the People's Republic of China (China) is 

trying to rejoin the organization. 407One of the 

original contracting parties to the GATT was the 

"Republic of China." It withdrew from the GATT in 

1950, after the Communist takeover on the mainland, 

which caused the Republic of China representatives to 

flee to Taiwan. Taiwan was a GATT observer from 

February 1965 until the Chinese representation in the 

United Nations switched from Taiwan to China in 

October 1971.408Taiwan is not seeking membership 

under accession procedures used by independent 

countries but rather as the Taiwan, Penghu, Kinmen, 

and Matsu Customs Territory. 409In August a Chinese 

official said that Taiwan's membership "can only be 

considered" after China rejoins the GATT, and only 

with the agreement of the Chinese Government. 410By 

year's end no working party to consider Taiwan's 

application had been formed. 11 

Six-Year Economic Development 

Plan 

In late 1990 Taiwan announced a 6-year economic 

development plan to cover the period 1991-96. 412 

 Major elements of the plan included economic targets 

for and structural adjustments to Taiwan's economy. 

The plan calls for an annual GNP growth rate of 7 

percent, a rise in GNP per capita to nearly $14,000 per 

year, a reduction in the trade surplus, inflation of 3.5 

percent or lower, and unemployment of 2.5 percent. 

Structural changes envisioned by the plan include 

expenditures of more than $300 billion on public 

works and industrial projects. Such projects will 

include diversification of energy consumption, 

introduction of major antipollution projects, and 

infrastructure projects such as a high-speed railway, a 

north-south superhighway, construction of 120,000 

public housing units, construction of 5 water 

reservoirs, and conversion of 28,600 hectares of 

reserved agricultural land to industrial or other 

nonagricultural use. Financial liberalization is also 

part of the plan 413 

During 1991, the first year the plan was in effect, 

the U.S. Government sought to alert U.S. businesses to 

the potential export or investment opportunities 

presented by Taiwan's spending plans. 14The 

President's Export Council identified Taiwan as a top 

market for U.S. exporters and organized a trade 

mission to Taiwan designed to increase awareness of 

business opportunities created by the plan and to assist 

U.S. firms interested in exporting to Taiwan. 415 

U.S.-Taiwan Bilateral Trade 

Issues 

Machine Tools 

On December 31, 1991, voluntary restraint 

agreements on imports of machine tools from Taiwan 

were to expire. The VRAs, established for reasons of 

national security, had been in place since January 1, 1987.416 

On December 27, 1991, the President directed that 

limited extensions to the VRAs covering some of the 

products be negotiated, and that restrictions on other 

products expire as scheduled. Import restrictions on 

machining centers, computer-controlled lathes, 

computer-controlled punching and shearing machine 

tools, and computer-controlled milling machine tools 

were to be "removed progressively" over 2 years 

beginning January 1992. Import restrictions on 

non-computer-controlled lathes, non-computercontrolled punching and shearing machine tools, and 

non-computer-controlled milling machine tools expired 

on December 31, 1991. 417 

When the President announced the VRA phaseout 

he also introduced a seven-point plan to assist efforts 

by the domestic machine-tool industry to regain 

125 
international competitiveness. The program called for 

involving various Government agencies in 

export-promotion efforts; reviewing export-control 

regulations; monitoring industry performance; 

improving training, management, and application of 

new technologies; examining research and 

development efforts that could be applied to machine 

tool production; continuing efforts to promote sales of 

U.S. machine tools to Japanese users in the United 

States; and also continuing joint efforts by the 

Departments of Commerce and Defense to assist 

revitalization of the industry. 418 

Protection of Intellectual Property 

Rights 

Protection of intellectual property rights in Taiwan 

has been a concern of the United States for several 

years. Since the so-called Special 301 law was first 

used in 1989, Taiwan has been named under its various 

provisions every year. 419 In May 1989 USTR placed 

Taiwan, among others, on a priority watch list. 42° 

Several measures that Taiwan took in 1989 to improve 

enforcement of IPR protection led USTR to determine 

that Taiwan had shown a "strong commitment" to 

protecting and enforcing IPRs. USTR accordingly 

transferred Taiwan from the priority watch list to the 

watch list, where Taiwan remained through 1991. 421 

The types of IPR violations that reportedly occur in 

Taiwan include piracy of copyrighted software, 

compact discs, videotapes, and cable television; 

trademark counterfeiting; and lack of patent protection 

for micro-organisms, foodstuffs, and new plant and 

animal varieties.4n 

Negotiations held with Taiwan throughout 1991 

focused on securing better enforcement of patent, 

copyright, and trademark laws. The United States' 

major concerns were inconsistent enforcement of IPR 

laws, long delays in prosecuting cases, and penalties 

insufficient to deter future infringements. Taiwan took 

several steps to improve protection of IPRs in 1991. It 

designated 1991 as "the year of IP rights," and 

considered revised versions of laws protecting patents, 

copyrights, and trademarks 423 However, in April 

1992 Taiwan was named a priority foreign country 

under Special 301 . 424 

Driftnet Fishing 

In an effort to limit and monitor the driftnet fishing 

activities of U.S. trading partners, the United States has 

negotiated scientific monitoring and enforcement 

agreements with a number of nations that use driftnets, 

including Taiwan and Korea. The agreement requires 

vessels using driftnets to carry satellite transmitters, 

which allow the United States to determine whether 

the vessels are operating outside the area permitted by 

the agreement. In 1991 at least 21 ships from Taiwan 

and 17 from Korea were detected operating outside the 

legal area in the North Pacific. In August, pursuant to 

the Fisherman's Protective Act of 1967 (also known as 

the Pelly amendment), Secretary of Commerce Robert 

A. Mosbacher certified that Taiwan and Korea were 

conducting driftnet fishing inconsistent with the 

bilateral agreements. 425 

The certification by Secretary Mosbacher 

authorized import restrictions on fish and fish products 

from Taiwan and Korea. In response to the 

certification Taiwan announced its intention to punish 

vessels that had violated driftnet fishing rules and 

announced its plans to stop using driftnets in 1992. 426 

 Korea recalled to port and levied penalties against 

vessels that used driftnets and violated the driftnet 

rules. In light of these effortS to phase out driftnet 

fishing, the President decided to defer sanctions against 

either Taiwan or Korea. 427 

Distilled Spirits 

On December 3, 1990, representatives of certain 

U.S. distillers filed a section 301 petition alleging that 

Taiwan maintained barriers to U.S. distilled spirits. 428 

 The barriers, petitioners alleged, restricted the 

importation, distribution, and sale of U.S. distilled 

spirits.429On January 7, 1991, Taiwan announced that 

it would allow importation of distilled spirits from the 

United States and the EC. The distillers withdrew their 

petition on January 11, 1991, in response to Taiwan's 

market-opening measures. 

Under the market-opening plan announced by 

Taiwan, import bans on various products will be 

phased out by 1993. The plan outlined import 

tariffs43° and regulations on advertisements, labeling, 

bulk imports, and sales promotions for distilled 

spirits.43 I USTR announced its intention to monitor 

implementation of the plans.432 

Tariffs 

Taiwan's Trade Action Plan (TAP) of February 

1989 was designed to counteract the bilateral trade 

imbalance with the United States and to improve 

foreign access to Taiwan's market. 433The plan 

included a 3-year schedule of tariff reductions for 

Taiwan. This schedule was to lower Taiwan's average 

nominal tariff rate to 10.3 percent in 1989, 92 percent 

in 1990, and 8.1 percent in 1991. Taiwan lowered its 

average nominal tariff rate to 9.7 percent in 1989 but 

did not adjust tariffs in 1990. A comprehensive 

tariff-reduction bill was submitted to the Legislative 

Yuan in November 1990 but was not passed until 

December 1991. The bill cut Taiwan's average 

nominal and effective tariff rates to 8.92 percent and 

4.0 percent respectively. These levels were, however, 

higher than the TAP target of an average nominal tariff 

rate of 8.1 percent and an effective rate of 3.9 percent 

for 1991.434 

Tariffs on certain items of export interest to the 

United States remain higher than Taiwan's average 

nominal tariff rate. The average nominal tariff rate for ' 

agricultural products, for example, was 23.2 percent in 

126 
1991. About one-third of agricultural products are 

subject to tariffs of 40 to 50 percent. 435The United 

States has asked Taiwan to reduce the high tariffs on 

numerous occasions. Tariffs of 35 percent or higher 

exist on fresh fruits including apples, citrus, peaches, 

kiwifruit, avocados, fruit juices, various canned fruits, 

raisins, dried fruit, soups, and processed popcorn. 

Manufactured goods that face high tariffs include 

plywood (up to 20 percent), hot-rolled iron and steel 

products (10 to 17.5 percent), and small passenger cars 

(42.5 percent.)436 

Insurance 

In 1992 Taiwan expanded slightly the ability of 

foreign firms to gain access to its tightly controlled 

insurance market. When U.S. insurance companies 

were first allowed to operate in Taiwan, in 1986, the 

Taiwan authorities established a quota system that 

permitted only two life and two nonlife U.S. insurance 

companies to enter the market each year. In August 

1990 the annual quota was raised to 3 life and 3 nonlife 

insurance companies, and other restrictions were eased. 

Taiwan enacted a law in 1991 designed to allow 

foreign insurance firms to establish subsidiaries and 

joint ventures. The new law, which became effective 

in January 1992, allows creation of domestic insurance 

companies and provides for the entry of all foreign 

insurance companies, including mutual insurance 

companies.437 

Import Licensing 

Taiwan uses import licensing to enforce entry 

restrictions on certain products. An import ban is 

employed on 242 categories of products, including 

agricultural items such as animal offals.438In 1991 

65.6 percent of the items on Taiwan's import schedule 

were exempt from such permits. Another 2,174 items 

require pro forma licenses from commercial banks, and 

691 items require permits from the Board of Foreign 

Trade. Of these 691 items 56 are agricultural products 

that require additional approval from agricultural 

agencies. Some of these products, including rice, 

peanuts, small red beans, dried garlic, wheat flour, 

fresh potatoes, sugar, certain poultry and pork 

products, catfish, and certain cuts of pork, are subject 

to de facto bans. In 1991 bans were put in place on 

imports of breeding swine, swine embryos, swine 

semen, and dairy cattle vaccinated against brucellosis 

disease.439 

Brazil 

Merchandise Trade With the 

United States 

The United States remained Brazil's largest single 

trading partner in 1991. Brazil's exports to the United 

States, hurt by reduced U.S. demand and Brazil's 

overvalued currency, continued a 3-year decline to 

$6.7 billion in 1991, in contrast with a peak of 

$9.1 billion in 1988. Machinery and transport 

equipment was the largest category of Brazilian 

exports ($1.6 billion), although exports in this category 

have declined since 1988 (table 18).44° More 

generally, manufactured goods dominated U.S. trade 

with Brazil in 1991 (figure 10). Footwear was the 

single largest Brazilian export in 1991 ($942 million, 

down slightly from 1990). Other important Brazilian 

exports to the United States in 1991 included coffee 

($396 million), frozen orange juice ($240 million), and 

noncrude petroleum oils ($234 million). (Leading 

products imported from Brazil during 1989-91 are 

listed in table A-18). 

U.S. exports to Brazil again expanded in 1991, 

rising from $4.9 billion in 1990 to more than 

$5.9 billion in 1991. Machinery and transport 

equipment was by far the largest category ($3.3 billion) 

and accounted for more than one-half of the value of 

all U.S. exports to Brazil (table 18). Sales of U.S. 

aircraft, which increased from $346 million in 1990 to 

$1.1 billion in 1991, were a key factor in the rise. 

(Other leading U.S. products exported to Brazil during 

1989-91 are listed in table A-17). 

Major Policy Developments 

Affecting Trade 

Historically, Brazil has maintained one of the most 

protectionist foreign trade regimes in the world. The 

country's many barriers to trade have included high 

import tariffs; prohibitions on imports of certain items; 

import quotas; prohibitions on imports of products that 

are functionally equivalent to products already 

produced or capable of being produced in Brazil (under 

the so-called Law of Similars); restrictions on foreign 

investment and foreign ownership; lack of intellectual 

property protection; and export subsidies. In addition, 

Brazil has used restrictive import-licensing policies to 

deny market access to foreign investors and 

manufacturers in sectors such as petroleum, 

semiconductors, and data processing. For computer 

equipment and software (so-called informatics), 

market-reserve restrictions were codified in Brazil's 

1984 Informatics Law 441and were expanded to reserve 

the production of all items incorporating digital 

components for Brazilian-owned companies. The 

Collor administration has pledged not to extend the 

Informatics Law past its scheduled October 1992 

expiration date." 2 

127 
Manufactured 

Manufactured goods 

goods $4.5/67.2% 

$4.8/81.1% 

Fuel/raw 

materials 

$0.7/12.4% 

All other 

goods 

$0.2/1.7% 

Food All other 

$0.2/3.8% goods 

$0.2/3.2% 

U.S. Exports 

(billion dollars and percent) 

,Food 

V3/19.9% 

Fuel/raw 

materials 

$0.6/9.7% 

U.S. Imports 

(billion dollars and percent) 

Table 18 

U.S. merchandise trade with Brazil, by SITC Nos. (Revision 3), 1989-91 

(Thousands of dollars) 

SITC 

section 

no. Description 1989 1990 1991 

U.S. exports 

0 Food and live animals 86,928 135,433 207,409 

1 Beverages and tobacco 2,117 5,250 6,934 

2 Crude materials, inedible, except fuels 227,055 193,987 259,650 

3 Mineral fuels, lubricants and related materials 311,091 301,146 476,934 

4 Animal and vegetable oils, fats and waxes 27,976 10,257 12,796 

5 Chemicals and related products, n.e.s. 773,714 896,782 949,270 

6 Manufactured goods classified chiefly by material 228,036 237,557 231,413 

7 Machinery and transport equipment 2,491,014 2,601,660 3,294,346 

8 Miscellaneous manufactured articles 331,651 348,375 345,360 

9 Commodities & transact not class elsewhere in SITC 156,527 146,014 161,023 

Total all commodities 4,636,110 4,876;461 5,945,134 

U.S. imports 

0 Food and live animals 1,365,933 1,472,881 1,172,887 

1 Beverages and tobacco 105,710 105,939 144,278 

2 Crude materials, inedible, except fuels 484,057 471,651 399,781 

3 Mineral fuels, lubricants and related materials 705,984 507,317 253,626 

4 Animal and vegetable oils, fats and waxes 36,537 34,395 26,791 

5 Chemicals and related products, n.e.s. 310,089 306,039 270,914 

6 Manufactured goods classified chiefly by material 1,568,475 1,413,327 1,410,457 

7 Machinery and transport equipment 2,324,564 1,993,122 1,591,169 

8 Miscellaneous manufactured articles 1,490,447 1,381,855 1,271,859 

9 Commodities & transact not class elsewhere in SITC 91,968 75,585 218,771 

Total all commodities 8,483,765 7,762,112 6,760,533 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Figure 10 

U.S. trade with Brazil by product sector, 1991 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Note.-Because of rounding, figures may not add up to 100 percent. 

128 
In the past Brazil justified its nontariff import 

barriers by invoking GATT article XVIIIb, which 

allows certain restrictive practices on 

balance-of-payments grounds. In June 1991, however, 

the Collor government disinvoked the article XVIIIb 

justification for restricting imports as an indication of 

its commitment to trade liberalization. 

The Collor administration has introduced several 

trade-liberalizing measures since assuming office to 

encourage greater competitiveness and to attract 

foreign investment and technology. Measures 

introduced in 1990 included a new round of phased 

tariff reductions;443abolition of the list of prohibited 

imports; repeal of the Law of Similars for most 

products except those covered by the 1984 Informatics 

Law; and action to draft new legislation to provide 

intellectual property protection. as The Collor 

administration expanded on these policies and 

articulated new ones in 1991. In February, for 

example, the Brazilian Government issued a new tariff 

schedule calling for accelerated tariff reductions. This 

new schedule envisioned lowering the average tariff to 

21.1 percent ad valorem in 1992, 17.1 percent in 1993, 

and 14.2 percent in 1994 from levels of 32.0 percent in 

1990 and 25.3 percent in 1991." 5Late in the year the 

Brazilian Government decided to implement a second 

phase of tariff reductions, which became effective in 

January 1992. As a result of these changes, the 

average tariff level was to be reduced to 17.1 percent 

by October 1, 1992, and to 14.2 percent on July 1, 

1993.446 

On October 23, 1991, President Collor signed 

legislation to phase out the use of import licenses as a 

barrier to imports entering Brazil by October 29, 1992. 

However, licenses would continue to be used for 

statistical and exchange-control purposes and would be 

issued automatically within 5 days. 447The removal of 

restrictive import licensing also would apply to digital 

technology and the software sector after the scheduled 

October 1992 expiration of the Brazilian Informatics 

Law. These actions stand to significantly increase the 

access of U.S. exporters and investors into Brazil's 

digital technology and computer software markets after 

October 1992. 

On March 26, 1991, the Brazilian Government 

signed the Treaty of Asuncion, which provides for the 

establishment of a common market comprising 

Argentina, Brazil, Paraguay, and Uruguay. The goal of 

this regional common market, known as the Southern 

Common Market (MERCOSUR),448was to eliminate 

most barriers to trade among the four countries by 

December 1994, except for a list of exempt products 

each country will maintain. The MERCOSUR 

agreement also included plans to establish a 

dispute-resolution mechanism, as well as a code of 

sanctions for treaty infractions before full 

implementation 449 

In addition to the progress made in reducing trade 

barriers, the Collor administration took several 

important steps in 1991 toward privatizing the 

numerous Government-owned Brazilian enterprises. 

Over the years these enterprises accumulated 

significant operating losses due to their inefficient 

operations. In March 1990 the Collor administration 

targeted over 20 large enterprises for sale to the private 

sector:45o However, the privatization program got 

bogged down in accounting problems and political 

disputes throughout 1990 and most of 1991. There 

was extensive debate on what instruments of payment 

were to be acceptable. 451Stringent controls about the 

audit process of each Government-owned company 

earmarked for sale required more time than originally 

expected. Political disputes sprang from strong 

nationalist sentiment in some quarters against sales to 

foreign investors as well as from political parties and 

trade unions strongly opposed to privatization. 452 

The first auction of a major Government-owned 

company occurred in October 1991 when Usinas 

Siderurgicas de Minas Gerais (USIMINAS) was put up 

for sale. The largest buyers of USIMINAS were a 

Brazilian iron producer (whose primary stockholder is 

the Brazilian Government) and the pension fund of the 

Banco do Brazil, Brazil's largest and Federally owned 

bank. Three more companies were auctioned before 

the end of 1991: another steel mill, a railway car 

manufacturer, and an aircraft engine parts 

manufacturer.453 

U.S.-Brazilian Bilateral Trade 

Issues 

Pharmaceuticals 

Pharmaceutical products have not been patentable 

in Brazil since 1945. In 1987 a bilateral dispute about 

pharmaceuticals led the United States to initiate an 

investigation under section 301 of the Trade Act of 

1974.4'4The next year the United States began taking 

retaliatory trade action, which consisted of tariff 

increases valued at $40 million on certain paper 

products, nonbenzenoid drus, and consumer 

electronics items from Brazi1. 433USTR terminated 

this investigation in June 1990 and lifted the trade 

sanctions against imports from Brazil as a result of 

President Collor's statement of intent to revise Brazil's 

intellectual property legislation. 456The Collor 

administration drafted new legislation in May 1991 to 

provide protection for intellectual property. The draft 

includes (1) full and immediate patent protection for 

pharmaceutical and for biotechnological products and 

processes; (2) 20-year protection for all patents, with a 

possible extension of 5 years for companies that 

manufacture locally; (3) recognition of trade secrets; 

and (4) greater protection for well-known trademarks. 

The Brazilian Congress did not act on the proposed 

legislation during 1991. 457Moreover, the United 

States has informed the Government of Brazil that the 

proposed legislation contains flaws. 458 

129 
Other Issues 

In May 1989 Brazil was placed on the priority 

watch list under the Special 301 provision of the 

Omnibus Trade and Competitiveness Act of 1988. 

Cited were serious deficiencies in Brazilian patent law, 

including the failure to provide process or product 

patent protection for chemicals, foodstuffs, and 

pharmaceuticals; losses from piracy in the video and 

computer software areas; and market-access 

restrictions on computer software. 459As part of the 

1991 review of the Special 301 provision, USTR 

indicated that Brazil would be retained on the priority 

watch list. USTR noted that although U.S. losses from 

Brazilian piracy in the video and computer software 

products continued, the Brazilian Government had 

achieved some progress in reducing market-access 

restrictions on computer software. USTR further noted 

that the Brazilian Government was considering 

legislation to reduce market-access restrictions for 

computer software products, and that new legislation 

providing for process or product patent protection for 

chemicals, foodstuffs, and pharmaceuticals was 

scheduled to be introduced in the Brazilian 

ParliamenL46° 

130 
ENDNOTU 

1Data for Germany included no trade from East 

Germany in 1989, 3 months of trade from East 

Germany in 1990, and full year trade from East 

Germany in 1991. 

2For a more detailed analysis of recent U.S.-EC 

trade, see U.S. International Trade Commission 

(USITC), The Effects of Greater Economic Integration 

Within the European Community on the United 

States: Third Followup Report (investigation No. 

332-267), USITC publication 2368, Mar. 199, 

pp. 1-19 to 1-20. 

3EC Commission, Report of the Commission to 

the Council and the European Parliament on the 

Implementation of Measures for Completing the 

Internal Market, SEC (91) 2491, Dec. 19, 1991, p. 3; 

U.S. Department of State Telegram, Mar. 18, 1992, 

Brussels, message reference No. 03831. 

4EC Commission, Report of the Commission to 

the Council and the European Parliament on the 

Implementation of Measures for Completing the 

Internal Market, SEC (91) 2491, Dec. 19, 1991. For 

a detailed analysis of member-state implementation, 

see USITC, The Effects of Greater Economic 

Integration Within the European Community on the 

United States: Fourth Followup Report (investigation 

No. 332-267), USITC publication 2501, Apr. 1992, 

ch. 3. 

5Office of the United States Trade 

Representative (USTR), 1991 Trade Policy Agenda 

and 1990 Annual Report, 1991, p. 9. 

6For an analysis of these directives, see USITC, 

Effects of EC Integration: Fourth Followup, USITC 

publication 2501, Apr. 1992, pp. 5-57 to 5-60. 

' USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 49. For a discussion of this 

provision, see USITC, The Effects of Greater 

Economic Integration Within the European 

Community on the United States: Secvnd Followup 

Report (investigation No. 332-267), USITC publication 

2318, Sept. 1990, pp. 5-6. 

Presidential Determination No. 92-22, of Apr. 

22, 1992, 57 F.R. 81, 15217 (1992). Special 301 

provisions are outlined in the Trade Act of 1988, 

amending the Trade Act of 1974. 19 U.S.C. $2411 

(1988). See also USTR, "Hills Announces 

Implementation of Special 301 and Title VII,' press 

release, Apr. 26, 1992. 

9USITC, Effects of EC Integration: Fourth 

Followup, USITC publication 2501, Apr. 1992. 

10For more information, see U.S. International 

Trade Commission, Effects of Greater EC Integration: 

Fourth Followup, USITC publication 2501, Apr. 1992, 

11USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 48. 

12U.S. Chamber of Commerce International 

Division, EC 1992: A Practical Guide for American 

Business, 3d update, 1991. 

13Denmark rejected the treaty in a referendum 

taken June 2, 1992. 

14For a more detailed discussion of economic 

and monetary union, see USITC, Effects of EC 

Integration: Fourth Followup Report, USITC 

publication 2501, Apr. 1992, ch. 4. 

15 "Official Text of the European Union Treaty 

Signed in Maastricht on February 7, 1992, by the 

European Community Heads of State and 

Government," European Report, supplement, No. 

1746 (Feb. 22, 1992). 

16For additional information, see USITC, Effects 

of EC Integration: Fourth Followup, USITC publication 

2501, Apr. 1992, ch. 4; "Maastricht Treaty Means 

Single Currency by 1999," Common Market Reporter, 

Dec. 12, 1991, p. 2; and U.S. Department of State 

Telegram, Dec. 1991, The. Hague, message reference 

No. 09360. 

17The Western European Union was a defense 

pact that served as a link between NATO and the 

EC.. 

16For additional background, see U.S. 

Department of State Telegram, Dec. 1991, The 

Hague, message reference No. 09385. 

19"Official Text of the European Union Treaty." 

2° Ibid. 

21"EC Sets Deadline for Single Currency; Britain 

Wins Opt-Out on Labor Measures," 1992: The 

External Impact of European . Unification, Dec. 16, 

1991, p. 12. 

22 U.S Department of State Telegram, "Italian 

Views on Maastricht," Dec. 1991, Milan, message 

reference No. 03011. • 

23U.S. Department of State Telegram, "German 

Reactions to Maastricht: Overall," Dec. 1991, Bonn, 

message reference No. 34838. 

24U.S. Department of State Telegram, "UK: 

Commons Debates Major's Maastricht," Dec. 1991, 

London, message reference No. 22971. 

25EFTA member states are Norway, Finland, 

Sweden, Switzerland, Austria, Iceland, and 

Liechtenstein. 

26Bruce Barnard, "The European Economic 

Area," Europe, Dec. 1991, p. 17. 

27International Monetary Fund, Direction of Trade 

Statistics Yearbook, 1991. 

28"The European Economic Area: Towards a 

Single Market of 19 Countries," European Report, 

supplement, No. 1715 (Oct. 26, 1991), pp. 1-7. 

29 "EEC/EFTA: Make or Break as Ministers Meet 

With Crucial EEA Questions Unsolved," European 

Report, No. 1685 (June 15, 1991), External 

Relations, p. 9. For more information, see USITC, 

"EEA Progress Stalls Again," International Economic 

Review, Sept. 1991, pp. 9, 10. 

33"EEC/EFTA: Impasse on EEA Again," 

European Report, No. 1730 (Dec. 17, 1991), External 

Relations, p. 3. Onril 11, 1992, the ECJ 

approved a revised EEA. The key changes included 

the elimination of the EEA court and the creation of 

an EFTA court that would have jurisdiction only 

131 
within EFTA. For a discussion see Bureau of 

National Affairs, Inc. (BNA), "European Court of 

Justice Ruling Clears Way for European Economic 

Area," International Trade Reporter, Apr. 15, 1992, p. 

668. 

31For more information on this type of 

agreement, refer to "Second Generation of 

Association Agreements Strengthens Ties Between 

the European Community and Eastern European 

Countries," International Economic Review, USITC, 

May 1991, p. 10. 

32"EC Clinches New Free Trade Accords With 

Czechoslovakia, Hungary, Poland," 1992: The 

External Impact of European Unification, Dec. 2, 

1991, pp. 1, 12. 

33"EEC Enlargement: Frans Andriessen Under 

Heavy Fire," European Report, No. 1672 (Apr. 26, 

1991), External Relations, p. 8. 

34In February 1992 Finland applied for 

membership. 

35Commission of the European Communities, 

Communication of the Commission to the Council 

and the European Parliament: The Development and 

Future of the Common Agricultural Policy, July 22, 

1991, p. 3. 

36 General Report on the Activities of the 

European Communities, report No. 25, Feb. 1991, p. 

397; and Bulletin of European Communities, report 

No. 12, 1991, p. 125. 

37EC Office of Press and Public Affairs, "EC 

Commission Submits Major Detailed Proposals on 

the Development and Future of the Common 

Agricultural Policy," European Community News,'July 

10, 1991. 

38"Farm Council: Ministers Disappointed With 

First Talks on CAP Reform," European Report, No. 

1622 (Jan. 21, 1991), Internal Market, p. 9. 

39For background information see BNA, "EC 

Farm Ministers Critical of Proposed Agriculture 

Changes, See Need for Reform," International Trade 

Reporter, July 17, 1991, p. 1063. 

40 "CAP Reform: Uproar Breaks Out in Farming 

Circles," European Report, No. 1693 (July 13, 1991), 

Internal Market, pp. 4-6. 

41 Bulletin of European Communities, "From 

Single Act to Maastricht and Beyond, the Means to 

Match Our Ambitions," supp. 1, 1992, p. 36. 

42"Farm Council: CAP Reform Proposals 

Receive Mixed Response," European Report, No. 

1694 (July 17, 1991), Internal Market, pp. 9-11. 

43"Farm Council: Ministers Strive to Reach 

Consensus on Oilseeds and CAP Reform," European 

Report, No. 1714 (Oct. 23, 1991), Internal Market, p. 

8. 

44 "CAP Reform: Rejection in Europe but Praise 

From Americans," European Report, No. 1694 (July 

17, 1992), Business Brief, p. 2. 

45European Parliament Committee on 

Agriculture, Fisheries and Rural Development, 

Internal Paper reprinted in Inside U.S. Trade Special 

Report, Oct. 4, 1991, p. S-3. 

46The 1991 annual average exchange rate of the 

ECU in U.S. dollars was ECU 1 = $1.2407. 

47"Farm Prices: Commissions's 1991/92 

Proposals Aim to Curb Spending," European Report, 

No. 1657 (Feb. 27, 1991), Internal Market, p. 5. 

46"Farm Prices: Cuts Too Soon and Too Deep, 

Say Farm Ministers," European Report, No. 1658 

(Mar. 5, 1991), Internal Market, p. 6. 

49"Farm Prices: MacSharry Tells ESC Members 

Urgent Action Is Needed to Curb Farm Spending," 

European Report, No. 1668 (Apr. 12, 1991), Internal 

Market, p. 7. 

50"COPA: EEC Farm Group Rejects 

Commission's Farm Price Package," European 

Report, No. 1657 (Mar. 1, 1991), Business Brief, 

p. 11. 

51For additional detail, see BNA, "MacSharry 

Readies Plans for CAP Reform as Details of EC 

Plan Are Released," International Trade Reporter, 

May 29, 1991, p. 820. 

52"Farm Prices: Council Decision Paves the 

Way to CAP Reform," European Report, No. 1680 

(May 28, 1991), Internal Market, p. 3. 

53EC-Office of Press and Public Affairs, 

"1991/92 Agriculture Price Package Adopted," 

European Community News, May 29, 1991, and 

"Farm Prices: Council . Decision Paves the Way to 

CAP Reform," European Report, No. 1680 (May 28, 

1991), Internal Market, p. 3. 

64 "Farm Council: Farm Ministers Freeze EEC 

Cereal Prices for 1991/92," European Report, No. 

1686 (June 19, 1991), Internal Market, p. 2. 

55USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 48. 

56"White House Fact Sheet on the Commercial 

Space Iraunch Policy," Weekly Compilation of 

Presidential Documents, Sept. 5, 1990. 

57The oilseeds in dispute are soybeans, 

rapeseed, sunflowerseed, and related animal-feed 

proteins. Of the three oilseeds, soybeans account 

for about 98 percent of the dollar value. Soybeans 

are the United States' largest agricultural export to 

the EC and the eighth-largest export to the EC 

overall. U.S. 1991 soybean exports to the EC 

totaled nearly $1.5 billion. 

58For a discussion of the U.S. position, the EC 

position, the panel views, and the conclusion, see 

"Sidebar US/EC: Payments and Subsidies Paid to 

Processors and Producers of Oilseeds and Related 

Animal-Feed Proteins," GATT Focus, No. 68, Feb. 

1990, p. 3. 

59For a discussion of events that led to the 

establishment of the GATT dispute-settlement panel, 

see USITC, International Economic Review, June 

1991, pp. 8-9, and USITC, OTAP, 1988, USITC 

publication 2208, July 1989, p. 88. 

6° U.S. House of Representatives, letter to the 

President of the United States, Apr. 29, 1991. 

61For additional information see William 

Dullforce, "Brussels to Comply With GATT Ruling on 

Oilseeds Subsidies," Financial Times, May 30, 1991, 

p. 4. 

132 
62 "Sidebar US/EC: Payments and Subsidies 

Paid," p. 3. 

63 Ibid. and American Soybean Association, letter 

to Secretary of Agriculture Madigan, Aug. 13, 1991, 

reprinted in Inside U.S. Trade, Aug. 16, 1991, p. 5. 

64 For more information see USITC, "U.S.-EC 

Dispute Over EC Oilseeds Subsidies Lingers On," 

International Economic Review, USITC, June 1991, 

pp. 8-9. 

65 U.S. Department of State Telegram, "History of 

GATT Binding on Non-Grain Feeds," Dec. 1991, 

Washington, DC, message reference No. 409371. 

66 Because EC grain, protected by variable 

levies, is more expensive than nongrain feed 

substitutes like oilseeds, imports of substitutes are 

encouraged. The EC complains that increased 

imports of these substitutes make disposing of grain 

surpluses more expensive and also encourage 

excess animal production. The EC wants to make 

substitutes more expensive to encourage use of 

domestic grain. The United States strongly opposes 

this action. U.S. Department of Agriculture (USDA), 

Economic Research Service (ERS), "Agricultural 

Trade Negotiations Approach Their Conclusion," 

Western Europe Agriculture and Trade Report 

Situation and Outlook Series, Nov. 1990, pp. 80-82. 

67 USDA, telephone conversations with USITC 

staff, Washington, DC, Mar. 2 and 16, 1992. For 

additional information, see Dean R. Kleckner, letter to 

Secretary Ed Madigan, Mar. 18, 1991, reprinted in 

Inside Washington Publications, Inside U.S. Trade, 

Mar. 22, 1991, p. 12. 

68 Frans Andriessen and Ray MacSharry, letter to 

Ambassador Carla Hills and Secretary Ed Madigan, 

Mar. 7, 1991, reprinted in Inside U.S. Trade, Mar. 22, 

1991, p. 13. 

ee Senators David Pryor and John C. Danforth, 

letter to President Bush, April 1991, reprinted in 

Inside U.S. Trade, Apr. 19, 1991, p. 17. 

70 For additional detail, see BNA, "EC Officials 

Surprised by U.S. Threat of Retaliation Over 

Oilseeds Subsidies," International Trade Reporter, 

Apr. 24, 1991, p. 623. 

71 "EEC/GATT: European Commission Agrees to 

Comply With Oilseed Ruling," European Report, No. 

1681 (May 30, 1991), External Relations, p. 7. 

72 "Oilseeds: First Steps Toward CAP Reform 

Undertaken," European Report, No. 1699 (Aug. 3, 

1991), Internal Market, p. 1. Refer to this document 

for details on calculation of aid, payment of aid, 

maximum guaranteed quantities and areas, the 

quality policy, and provisions for Spain and Portugal. 

73 USDA, Foreign Agricultural Service (FAS), 

Highlights of the EC Oilseeds Reform, Dec. 4, 1991, 

pp. 1-2. 

74 Ibid. 

76 "Oilseeds: First Steps Toward CAP Reform 

Undertaken," European Report, No. 1699 (Aug. 3, 

1991), Internal Market, p. 1. 

76 Ambassador Carla Hills and Secretary Ed 

Madigan, letter to Frans Andriessen and Ray 

MacSharry, Sept. 9, 1991, reprinted in Inside U.S. 

Trade, Sept. 13, 1991, p. 10. 

77 "Farm Council: Slim Chance of Prompt 

Agreement on Oilseeds," European Report, No. 1707 

(Sept. 28, 1991), Internal Market, p. 12. 

78 "Oilseeds: Farm Ministers Approve 

Transitional Reform," European Report, No. 1715 

(Oct. 26, 1991), External Relations, p. 2. 

79 "GATT U.S. Rejects EEC Oilseed Reform 

Plan and Insists on October 31 Deadline," European 

Report, No. 1711 (Oct. 12, 1991), External Relations, 

pp. 1-2. 

80 The European Parliament approved the reform 

December 9, 1991. It became law on December 12, 

1991, and will apply to oilseeds harvested beginning 

in 1992 and marketed through the 1992/93 and 

subsequent seasons. For the legal text, see Council 

Regulation No. 3766/91 on Establishing a Support 

System for Producers of Soya Beans, Rape Seed 

and Colza Seed and Sunflower Seed, Official Journal 

of the European Communities, No. L 356 (Dec. 24, 

1991), pp. 17-20. 

81 "Oilseeds: Farm Ministers Approve 

Transitional Reform," European Report, No. 1715 

(Oct. 26, 1991), Internal Market, p. 2. 

82 USDA, telephone conversation with USITC 

staff, Washington, DC, Mar. 16, 1992. 

83 For additional information, see "U.S. Likely to 

Protest EC Refusal to Cut Oilseeds Subsidies, 

Evaluate Options," Inside U.S. Trade, Mar. 22, 1991, 

p. 12. 

84 For additional information, see "Council 

Approves New System for Oilseeds Subsidies, U.S. 

Ponders Response," Inside U.S. Trade, Oct. 25, 

1991, p. 16. 

85 For additional information, see "EC Official 

Likely to Reject U.S. Request for Review of Oilseed 

Subsidies," Inside U.S. Trade, Oct. 4, 1992, p. 19. 

86 USTR, telephone conversation with USITC 

staff, Washington, DC, Feb. 21, 1991. On March 16, 

1992, the panel ruled that the EC's oilseed reform 

program also violates GATT rules. On May 1, 1992, 

USTR announced that it intended to impose duties 

on $1 billion of EC products imported into the United 

States in retaliation for the failure of the EC to 

comply with the GATT ruling. On June 9, the USTR 

released a list of products targeted for retaliation 

should the EC not reform its oilseeds subsidies. The 

United States and the EC are currently negotiating 

compensation. 

87 This dispute is separate from one in which the 

EC imposed a ban on meat treated with 

growth-promoting hormones. The United States has 

lost nearly $100 million annually since that ban took 

effect for the United States on January 1, 1989. 

88 U.S. Senate, Committee on Agriculture, 

Nutrition, and Forestry, Subcommittee on Agricultural 

Research and General Legislation, John Hardin, 

Statement Before the Subcommittee, 102d Cong., 2d 

sess., Apr. 9, 1992, p. 3. 

86 "EEC/US: Talks on Meat Plant Dispute Stall," 

European Report, No. 1663 (Mar 23, 1991), External 

Relations, p. 6, and "EEC: Council Set to Adopt 

Regulation on Meat Marketing Rules," European 

133 
Report, No. 1699 (Aug. 3, 1991), Internal Market, 

p. 4. 

9° 56 F.R. 1663 and USTR, "Hills Initiates 

Investigation of European Community Meat Rules," 

press release, Jan. 10, 1991. 

91USTR docket No. 301-83. National Pork 

Producers Council and American Meat Institute, 

Petition for Relief Under Section 301 of the Trade 

Act of 1974, as Amended, Before the Office of the 

United States Trade Representative, Nov. 28, 1990, 

p. 2. 

92Ibid., p. 15. 

93 U.S. House of Representatives, letter to 

Ambassador Carla Hills, Jan. 8, 1991, and U.S. 

Senate, letter to Ambassador Carla Hills, Jan. 7, 

1991, both reprinted in Inside U.S. Trade, Jan. 11, 

1991, p. 5. 

94Frans Andriessen and Ray MacSharry, letter to 

Ambassador Carla Hills and Secretary Edward 

Madigan, May 7, 1991. 

95Ibid. 

96"EEC/US: Community Gives a Little but Not 

Enough on Meat Plant Dispute," European Report, 

No. 1685 (June 15, 1991), External Relations, p. 3. 

97USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 50. 

" This is because section 301 required the 

USTR to request a GATT dispute-settlement panel if 

this dispute was not resolved within 150 days of the 

beginning of the investigation. At the time the 

section 301 case was initiated, USTR extended the 

consultation by an additional 90 days. 

99GATT, GATT Focus, No. 83, Aug. 1991, p. 9. 

However, under new GATT rules the EC would have 

to agree to the establishment of the panel within the 

next two GATT Council meetings. 

100Urging the administration to fight back, a bill 

was introduced in the Senate on September 20, 

1991, that would empower the President to prohibit 

importation of EC meat. As of March 1992 the bill 

had not been reported out of committee. 

101USTR, telephone conversation with USITC 

staff, Washington, DC, Mar. 30, 1992. 

102The case has not been brought before the 

GATT. The United States and EC are currently 

negotiating a settlement. For more information, see 

U.S. Department of State Telegram, "US-EC 

Discussions on Third Country Meat Directive," July 

25, 1992, message reference No. 239246. 

103"EEC/US: EEC Bans Imports of Horsemeat 

Following Human Cases of Trichinosis," European 

Report, No. 1665 (Apr. 3, 1991), External Relations, 

p. 1. 

104 

European Report, No. 1674 (May 4, 1991), External 

Relations, p. 7. 

105USITC staff estimate based on official 

statistics of the U.S. Department of Commerce. 

106 In 1967 the eC agreed to a zero-bound duty 

on imports of corn gluten feed, officially classified as 

residue of the manufacture of starch from maize. 

"Memorandum of Understanding Reflecting Results of 

Article XXIII:1 Consultations on European Community 

Restriction Affecting Imports of Corn Gluten Feed," 

Oct. 16, 1991, par. B. 

107USITC staff estimate based on figures 

compiled by the U.S. Department of Commerce. 

108 "EEC/US: Political Spotlight on Corn Gluten 

Feed Dispute," European Report, No. 1683 (June 8, 

1991), External Relations, p. 9. 

1 °9"EEC/US: Corn Gluten Feed Shipments 

Refused at Dutch Port," European Report, No. 1678 

(May 21, 1991), External Relations, pp. 3-4. 

110 "Memorandum of Understanding Reflecting 

Results of Article XXIII:1 Consultations on European 

Community Restriction Affecting Imports of Corn 

Gluten Feed," Oct. 16, 1991, par. B. 

111 "EEC/US: EEC Millers Demand Action on 

Corn Gluten Feed Dispute," European Report, No. 

1696 (July 24, 1991), External Relations, p. 6. 

112U.S. Department of State Telegram, "HMG 

Reactions to U.S. Corn Gluten Feed Demarche," 

June 1991, London, message reference No. 10420. 

113U.S. Department of State, "Corn Gluten Feed 

Imports-Belgian Perspective," June 1991, Brussels, 

message reference No. 07989. 

114 "EEC/US: Corn Gluten Feed Dispute Boils 

Down to Name Calling," European Report, No. 1680 

(May 28, 1991), External Relations, p. 6. 

115"EEC/US: Corn Gluten Feed Dispute Causes 

Outrage in France," European Report, No. 1697 (July 

27, 1991), External Relations, p. 7. 

116"Corn Gluten Feed Demarche," Estate Cable 

27-4510, Dept. of State, Aug. 20, 1991, and Jack 

Kintzle letters to Yvonne Van Rooy and Edward 

Madigan, Aug. 21, 1991, reprinted in Inside U.S. 

Trade, Aug. 23, 1991, p. 2-3. 

117U.S. Department of State Telegram, "French 

Response to Corn Gluten Feed Demarche," June 

1991, Paris, message reference No. 16852. 

118 "EEC/US: Corn Gluten Feed Dispute 

Continues," European Report, No. 1695 (July 20, 

1991), External Relations, p. 4. 

119 "Memorandum of Understanding Reflecting 

Results of Article XXIII:1 Consultations on European 

Community Restriction Affecting Imports of Corn 

Gluten Feed," Oct. 16, 1991, par. D. 

120 "EEC/US: Corn Gluten Feed Dispute Causes 

Outrage in France," European Report, No. 1697 (July 

27, 1991), External Relations, p. 7. 

121 "Agricultural Trade Negotiations Approach 

Their Conclusion," Western Europe Agriculture and 

Trade Report Situation and Outlook Series, USDA, 

ERS, Nov. 1990, pp. 80-82. 

122 "Memorandum of Understanding Reflecting 

Results of Article XXIII:1 Consultations on European 

Community Restriction Affecting Imports of Corn 

Gluten Feed," Oct. 16, 1991, par. E. 

123Commission Regulation (EEC) No. 3492/91 

on Amending Regulation (EEC) No. 2658/87 on the 

Tariff and Statistical Nomenclature and on the 

Common Customs Tariff, OJ No. L 328 (Nov. 29, 

1991), pp. 80-81. 

EEC/US: EEC Lifts Ban on US Horsemeat," 

134 
124For more background, see USITC, OTAP, 

1987, USITC publication 2095, July 1988, p. 4-7. 

125U.S. Department of State Telegram, "1991 

Trade Act Report: Spain," Nov. 1991, Madrid, 

message reference No. 12898. 

126A side letter to the agreement, referred to by 

Andriessen, guarantees at least 80 percent of this 

quota to the United States according to "U.S. Leans 

Toward Rejecting EC Offer on Extending Trade Pact," 

Inside U.S. Trade, Oct. 25, 1991, p. 11. 

127Frans Andriessen, letter to Ambassador Carla 

Hills, Nov. 5, 1991, reprinted in Inside U.S. Trade, 

Nov. 8, 1991, p. 20. 

128For additional information, see "U.S. Leans 

Toward Rejecting EC Offer on Extending Trade Pact," 

Inside U.S. Trade, Oct. 25, 1991, p. 11. 

129 Frans Andriessen, letter to Ambassador Carla 

Hills, Nov. 5, 1991, reprinted in Inside U.S. Trade, 

Nov. 8, 1991. 

130For additional information, see "U.S. Leans 

Toward Rejecting EC Offer on Extending Trade Pact," 

Inside U.S. Trade, Oct. 25, 1991, p. 11. 

131Frans Andriessen letter to Carla Hills, Oct. 

13, 1991, reprinted in Inside U.S. Trade, Oct. 25, 

1991, p. 12. 

132"EEC/US: MEPs Outraged by Lack of 

Consultation on Maize Pact," European Report, No. 

1716 (Oct. 30, 1991), External Relations, p. 4. 

133For additional information, see "U.S. Leans 

Toward Rejecting EC Offer on Extending Trade Pact," 

Inside U.S. Trade, Oct. 25, 1991, pp. 11-12. 

134Carla Hills letter to Frans Andriessen, Oct. 

30, 1991, USTR. 

135For additional information see "EC Goes Back 

on Deal Struck With U.S. Over Review of Oilseeds 

Subsidies," Inside U.S. Trade, Nov. 15, 1991, p. 4. 

136For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 101, 

and USITC, OTAP, 1989, USITC publication 2317, 

Sept. 1990, pp. 94-95. 

137"BST: Commission Puts Off the Day of 

Reckoning," European Report, No. 1729 (Dec. 14, 

1991), Internal Market, p. 5. 

138"BST: European Interest Groups Urge 

EEC-Wide Ban," European Report, No. 1728 (Dec. 

11, 1991), Business Brief, p. 4. 

139"BST: Commission Puts Off the Day of 

Reckoning," European Report, No. 1729 (Dec. 14, 

1991), Internal Market, pp. 5-6. 

140"BST: European Interest Groups Urge 

EEC-Wide Ban,' European Report, No. 1728 (Dec. 

11, 1991), Business Brief, p. 4. 

141 "In Brief: FEDESA Objects to Longer BST 

Moratorium," European Report, No. 1730 (Dec. 17, 

1991), Business Brief, p. 5. 

142USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 50. 

143U.S. Food and Drug Administration, telephone 

conversation with USITC staff, Washington, DC, Mar. 

31, 1992. 

144For further background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, 

pp. 102-103. 

145See, for example, "Airbus and Boeing: The 

Jumbo War," The Economist, June 15, 1991, p. 66, 

which cites Jean Pierson, managing director of 

Airbus, as setting the subsidy level at 70 to 90 

percent, and Nancy Dunne, "U.S. Moves One Step 

Closer to Taking Airbus Dispute to GATT," Financial 

Times, June 6, 1991, p. 5, which cites USTR as 

estimating the level to be 75 percent. 

146When the cost of borrowing funds in the 

private market is included, the estimate of total 

subsidy rises to $25.9 billion. These figures are 

considered to be underestimates because Airbus 

does not disclose financial information. Gellman 

Research Associates, Inc., An Economic and 

Financial Review of Airbus Industrie, prepared for the 

U.S. Department of Commerce, International Trade 

Administration, Sept. 4, 1990, p. 2-2. 

147"Airbus: Member States Give Mandate for 

Negotiations to Phase Out Subsidies," European 

Report, No. 1649, Jan. 30, 1991, External Relations, 

p. 4. 

148For additional information, see "GATT to Rule 

Against German Aid to Airbus," Wall Street Journal, 

Jan. 16, 1992, p. A10. 

146U.S. Library of Congress, Congressional 

Research Service (CRS), Airbus Industrie: An 

Economic and Trade Perspective, report No. 91-166 

E, Feb. 20, 1992, p. CRS-40. 

150 On April 28, 1992, the EC announced at the 

Subsidies Committee that the German Government 

had suspended operation of the scheme. However, 

the EC continues to block adoption of the panel 

report. GATT, GATT Focus, No. 90, May-June 1992, 

P. 8. 

151CRS, Airbus Industrie, p. CRS-36. 

152"GATT/Airbus: EEC Proposes Reform of Civil 

Aircraft Code," European Report, No. 1663 (Mar. 23, 

1991), External Relations, p. 7. 

153For additional information, see "EC Spells Out 

Intent to Seek Airbus Arbitration Under GATT Aircraft 

Code," Inside U.S. Trade, Sept. 27, 1991, p. 5. 

154For additional information, see "U.S., EC Set 

Aside Procedural Tiff, Meet on Airbus Dispute," 

Inside U.S. Trade, Aug. 2, 1991, p. 11. 

155Under GATT complaint procedures, the United 

States and the EC had 60 days, starting from June 

6, to resolve their differences through negotiation. If 

negotiations fail the United States may request the 

Subsidies Committee to act as a mediator in a 

conciliation phase, and 30 days after this request it 

may request a dispute-settlement panel. 

156 "Dispute Over Airbus," GATT Focus, Sept. 

1991, p. 1. 

157The United States eventually set March 31, 

1992, as a deadline for achieving a negotiated 

agreement that would prevent it from calling for a 

GAIT panel to intervene. On April 1 the United 

States and the EC reached a tentative agreement, 

which was signed July 17. The agreement prohibits 

all future production supports, limits indirect subsidies 

to 3 percent of the value of annual industry revenue 

135 
in each signatory and 4 percent of the value of each 

firm's annual sales, establishes strict terms for the 

repayment of development subsidies received, and 

sets up transparency requirements to ensure that the 

agreement is effectively implemented. The 

agreement covers civil aircraft with over 100 seats. 

USTR, "U.S. and EC Sign Trade Agreement on 

Commercial Aircraft," press release No. 92-44, July 

17, 1992. 

158USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 51. 

159 When interest rates are included in the 

calculations to cover the cost of borrowing, the level 

of support rises to between $33.5 and $41.5 billion. 

The report notes that these figures are conservative 

estimates as it is difficult to identify indirect support. 

"U.S. Government Support to U.S. Commercial 

Aircraft Industry During the Past 15 Years Exceeds 

$33 Billion," European Community News, Dec. 4, 

1991, p. 1. 

160 Ibid., p. 2-3. 

161For additional information, see "U.S. to 

Assess EC Willingness, Ability to Negotiate on Airbus 

Subsidies," Inside U.S. Trade, Nov. 15, 1991, p. 2. 

162Two different-sized engines are included here, 

and as a result, two separate tariff lines are taken 

into account. 

163U.S. Department of State Telegram, Ottawa, 

message reference No. 01540, Mar. 9, 1992. 

164For a detailed discussion of the U.S.-Mexican 

developments in 1990, see USITC, OTAP, 1990, 

USITC publication 2403, July 1991, p. 134. 

165The expansion of the FTA negotiations to 

include Canada resulted from a September 1990 

Canadian expression of its desire to participate in the 

free-trade talks. The trade Ministers of the three 

countries then began to explore the feasibility of 

trilateral negotiations. Canada's role in the 

U.S.-Mexican FTA negotiations and the effects of 

Canadian participation are discussed in USITC, The 

Likely Impact on the United States of a Free Trade 

Agreement With Mexico (investigation No. 332-297), 

USITC publication 2353, Feb. 1991. 

166The United States—Mexico's leading trade 

partner—accounted for over 70 percent of Mexico's 

exports and imports in 1989. Canada was Mexico's 

fifth-ranking trade partner in terms of both exports 

and imports, accounting for 1.9 percent of each. 

Reported in USITC, The Likely Impact on the United 

States of a Free Trade Agreement With Mexico 

(investigation No. 332-297), USITC publication 2353, 

Feb. 1991, pp. 1-2 to 1-4. 

167For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, pp. 

108-109. 

168Harvey Enchin, "Canada Unprepared for EC 

Unity," Globe and Mail (Toronto), Feb. 19, 1992, p. 

Bl. 

168Canada's lack of preparation to meet the 

challenges of increased competition was highlighted 

in two high-profile publications—ls Canada Ready for 

Europe 19922 a study by the Royal Bank of Canada 

(as reported in Enchin, Toronto Globe and Mail) and 

Michael Porter, The Competitive Advantage of 

Nations (London: MacMillan, 1990). 

170 The Canadian Constitution of 1982 was 

drawn up with, the approval of all of the Canadian 

Provinces except Quebec. To secure Quebec's 

acceptance of the Constitution, Prime Minister 

Mulroney and the 10 Provincial premiers drafted the 

Meech Lake Constitutional Accord in 1987. The 

accord would have amended the Constitution to 

designate Quebec a "distinct society" within Canada, 

entitling it to special consideration in protecting its 

French linguistic and cultural heritage. Parliament 

and eight of the Provinces approved the accord; the 

deadline for full ratification by all 10 Provinces was 

June 23, 1990. Only Manitoba and Newfoundland 

withheld approval of the accord. In an attempt to 

break the impasse, proposals were made to reopen 

the accord to amendments that, among other things, 

proffered special recognition to women's and native 

people's rights. Quebec refused to consider any 

deviations from the terms of the original accord, 

maintaining that it would consider changes only after 

Meech Lake was fully ratified. For more detailed 

discussion of the issues involved, see Jeffrey 

Simpson, "The Two Canadas," Foreign Policy, No. 81 

(winter 1990-91), pp. 71-86; also Ben Tonra, 

Canada's Identity Crisis: A Background Review, 

Washington: Center for Strategic and International 

Studies, CSIS Policy Papers on the Americas, vol. 2, 

report No. 1, Feb. 5, 1991. For more detailed 

information on the Meech Lake Accord, see USITC, 

OTAP, 1990, USITC publication 2403, July 1991, 

pp. 104-105. 

171In response to the failure, Prime Minister 

Brian Mulroney established a forum, headed by Keith 

Spicer, which collected "intimate consultations" from 

members of the public. Quebec also established 

various committees like the Allaire committee and the 

Belanger-Campeau commission that are pushing for 

a minimum of decentralization of power to a 

maximum of total separation. For a discussion, see 

The Economist, Sept. 21, 1991, p. 37. 

172The reform package introduced by Prime 

Minister Mulroney included, among other things, the 

following economic measures: (1) the removal of 

.interprovincial trade barriers, (2) strengthening the 

Bank of Canada's mandate to fight inflation but also 

amending the Bank of Canada Act so that the 

Provinces would have a voice in selecting bank 

directors, (3) closer cooperation between Ottawa and 

the Provinces on budget and fiscal matters, (4) a 

constitutional amendment that would allow Parliament 

to make laws for the efficient functioning of the 

economic union, (5) strengthening of the 

constitution's "common market" clause to extend not 

only to the movement of goods, but also to the full 

mobility of capital, services, and people. For an 

analysis, see U.S. Department of State Telegram, 

Sept. 26, 1991, Ottawa, message reference No. 

06374. 

173Quebec is seeking increased political, cultural, 

and language rights and would like greater Provincial 

power over economic decisionmaking. In June 1991 

Quebec's legislature voted to set October 26, 1992, 

as the last day for a referendum on sovereignty, with 

the provision that Quebec should "acquire the status 

of a foreign state one year to the day" if the vote 

chose breakage from Canada. 

136 
174The Canadian Government's position was 

elucidated in a November 1991 speech given by 

Prime Minister Mulroney in Quebec. As Mulroney 

put it— 

They say Canada is unacceptable, but Canadian 

currency is acceptable. Canada is unacceptable, but 

the benefits of the Canadian economic union are 

acceptable. Canada is unacceptable, but Canadian 

citizenship is acceptable. These dream merchants 

have to learn once and for all that Canada is not a 

buffet where you can pick the choicest morsels, then 

walk out the door. 

In the same speech Mulroney stated, "you can't 

be part-time Canadian." Office of the Prime Minister, 

"Notes for an Address by Prime Minister Brian 

Mulroney," Forestville, Quebec, Nov. 13, 1991. 

175Strategico Inc., Free Trade: Year Three, Put 

to the Test, Dec. 1991, p. 14. This was taken from 

the study "Putting Humpty Dumpty Together Again: 

Free Trade, the Breakup Scenario," ch. in Broken 

Links: Trade Relations After a Quebec Secession, ed. 

by John McCallum, C.D. Howe Institute. 

176 Ibid. 

177Ibid. 

178Ibid. 

179Quebec Ministere du Commerce exterieur et 

du Developpement technologique, The 

Canada-United States Free Trade Agreement: A 

Quebec Viewpoint, 1988. 

180 Quebec Ministere des Affaires internationales, 

The Uruguay Round of Multilateral Trade 

Negotiations, A Quebec Perspective, 1st quarter, 

1990, p. 1. 

181Ibid. 

182R. Kent Weaver, ed., The Collapse of 

Canada? (Washington: Brookings, 1992), p. 175. 

See also Ross Howard, "U.S. President Praises a 

'United Canada' During Brief Ottawa Visit," Globe 

and Mail (Toronto), Mar. 14, 1991. 

183The most notable subsidy program presently 

in use by Quebec is the practice of supplying 

cut-rate electric power to certain industries through 

Hydro-Quebec--a state-owned hydroelectric power 

company. Some analysts believe that supplying 

differential energy prices to domestic customers 

would likely constitute a violation of the U.S.-Canada 

FTA and would probably be a point of contention 

between Quebec and the United States in the 

negotiation of a new bilateral ETA agreement. 

Jeffrey Simpson, "Something for Quebeckers to 

Ponder as Their Powerhouse Goes on Show," Globe 

and Mail (Toronto), Dec. 5, 1991. 

194 K. Banting, "If Quebec Separates: 

Restructuring North America," in Weaver, ed., The 

Collapse of Canada?, p. 177. See also T.J. 

Courchene, In Praise of Renewed Federalism, 

(Toronto: C.D. Howe Institute, 1991). 

185USTR, press release No. 91-52, Nov. 14, 

1991. 

186 Additional duties were also imposed on 

imports of softwood lumber from Canada, after a 

finding by the U.S. Department of Commerce that the 

wood was subsidized. See below. 

187 Opinions on the efficacy of the FTA cover a 

very broad spectrum. A study by the Institute for 

Policy Analysis, a Canadian think tank, concluded 

that the agreement has reduced barriers to trade and 

investment between Canada and the United States, 

with most gains coming in industry-specific areas as 

a result of increased business investment. U.S. 

Department of State Telegram, Ottawa, message 

reference No. 07684, Nov. 21,, 1991. 

A Gallup poll, released in November 1991, 

showed a majority of Canadians (54 percent) in 

opposition to the FTA. U.S. Department of State 

Telegram, Ottawa, message reference No. 07272, 

Nov. 5, 1991. 

The Canadian Centre for Policy Alternatives 

issued a report in January 1992 that claimed over 

461,000 Canadian jobs had been lost in the 3 years 

that the FTA had been in operation. Bruce 

Campbell, Canada Under Siege, as reported in 

Virginia Galt, Globe and Mail (Toronto), Jan. 30, 

1992, p. A5. 

188 USITC cases involving softwood lumber date 

back to 1982. See USITC, OTAP, 1982, USITC 

publication 1414, 1983, pp. 153-5. 

189In Canada most natural and scarce resources 

are owned by the Provinces, including timber rights. 

190For a discussion of the issues in the 1986 

case, see. USITC, OTAP, 1986, USITC publication 

1995, July 1987, pp. 4-17 to 4-20. 

191Canadian/U.S. lumber disputes have flared up 

intermittently for more than 30 years. There were 

disputes during 1961-62 and 1981-83, as well as the 

1986 and 1991-92 cases being discussed. 

192Embassy of Canada, Diplomatic Note, No. 

105, press release, Sept. 3, 1991, and "Reasons for 

Termination," Canada-United States Softwood Lumber 

Memorandum of Understanding, Sept. 1991, p. 1. 

193Ibid. 

194Ibid. 

195Ibid., p. 2. 

196Ibid. 

197Ibid, pp. 2-3. 

198Ibid., p. 3. 

199 Ibid. 

200U.S. Department of Commerce, "Self-Initiation 

of Countervailing Dauty Investigation: Certain 

Softwood Lumber Products from Canada," 56 F.R. 

56055, Oct. 31, 1991. This was only the second 

time the Department of Commerce self-initiated a 

countervailing-duty investigation. 

201 USTR, United States Announces Action on 

Canadian Lumber Imports, press release No. 91-44, 

Oct. 4, 1991, p. 2. 

202 56 F.R. 50738. 

203 The USITC vote consisted of the 3 to 0 ruling 

along with three abstentions. 

204Canadian respondents of various Provincial 

governments, lumber companies and labor unions 

asked the U.S. Commerce Department to designate 

137 
their case as "extraordinarily complicated." Such a 

designation would allow for a more detailed and 

longer investigation and would give Canada 2 more 

months to present its arguments. 

205 See "Beer in North America: Trouble Is 

Brewing," International Economic Review, USITC, 

July 1991. 

2°6 USTR docket No. 301-80. 

20755 F.R. 27731. The U.S. industry complained 

that Canada had not implemented the 

recommendations of the 1988 GATT panel and that 

new discriminatory practices had been introduced in 

some Provinces. The 1988 GATT dispute-settlement 

panel report was the result of a successful EC 

complaint against Canadian Provincial liquor board 

restrictions on wine. The panel found that certain 

Provincial practices were inconsistent with certain 

articles of the GATT 

208 The report was adopted by the GATT Council 

on Feb. 18, 1992. GATT Focus, No. 88, Mar. 1992, 

p. 7. A timetable for Canada to come up with a plan 

to address the GATT panel's findings was put into 

place. By March 1992 an "action plan" for the 

pricing practices was due; July 1992 is the deadline 

by which other practices are to be addressed. 

209The Canadian response to the GATT report 

was announced in March 1992. It was a 3-year plan 

that would eliminate discrimination against U.S. beer 

by the end of March 1995. It also called for the 

elimination of interprovincial barriers to Canadian 

beer by July 1992. (Interprovincial barriers are a 

major problem in Canada, particularly in the brewing 

industry. For example, Moosehead beer, brewed in 

New Brunswick and very popular in the States, is not 

available in Ontario or a number of other Provinces.) 

The United States termed the Canadian action plan 

"inadequate," noting that internal Canadian barriers 

could be eliminated within 3 months, whereas 

cross-border discrimination against U.S. beer would 

take 3 years to be addressed. One Canadian 

response is that foreign companies should not be 

afforded quicker access than domestic suppliers. 

The counterpoint to this argument, which allows for 

continued protection, maintains that Canadian 

brewers cannot be expected to loosen up their 

market to foreign brewers when they are so tightly 

bound at home (i.e., vis a vis other Provinces.) 

Following intense negotiations in April 1992, 

"agreement in principle" was reached. The 

compromise shortened the time frame within which 

certain Canadian Provincial liquor board distribution 

and pricing practices are to be dismantled. 

Imposition of an "environmental tax" by Ontario, 

however, prompted retaliation by the United States. 

The controversy continued well into 1992. 

210 The determination of dumping by Revenue 

Canada and of injury by the CITT are currently being 

reviewed at the request of U.S. producers by 

binational panels under the FTA. Panel decisions 

are due in August 1992. 

211Federal Government measures include the 

U.S. Omnibus Budget Reconciliation Act of 1990, 

section 11201, which among other things, Canada 

maintained, increased the excise tax on beer but 

provided for reduced rates for certain smaller U.S. 

producers. State Government measures include 

discriminatory taxes on imported beer and wine and 

lower tax rates on locally produced beverages. 

GATT, GATT Focus, No. 81, May-June 1991, p. 13. 

212As an example of State practices, the 

Canadians cited tax exemptions provided for in-State 

brewers in eight States and preferential treatment 

afforded beer with less than 4 percent alcohol 

content in some States. Most Canadian beers 

contain 5 percent and are thus not eligible for the 

preferential tax treatment. 

213The GATT panel report in February 1992 

supported the Canadian claim of the unfairness of 

certain U.S. Federal and State regulations and taxes. 

214The affirmative decision was made by three 

Commissioners. Two others found in the negative, 

and a sixth Commissioner did not participate. 

USITC, Fresh, Chilled, or Frozen Pork From Canada 

(investigation No. 701-TA-298 (final)), USITC 

publication 2218, Sept. 1989. 

216"Status Report of Cases," U.S.-Canada 

Free-Trade Agreement, Binational Secretariat, U.S. 

Section, Jan. 30, 1991. 

The ITA Determination on Remand was ordered 

to be reviewed by the binational panel on January 3, 

1991. In a March 1991 decision, the panel affirmed 

in part the ITA remand determination and again 

remanded the case to ITA for further reconsideration 

of two Provincial support programs. 

216This was the Commission's first remand 

proceeding under the U.S.-Canada FTA. 

217Between the time of the Commission's 

original injury determination and the remand, two 

Commissioners, who took opposing views in the 

original determination, left the ITC. The new 

decision was 2 to 1 in favor of threat of injury, as 

opposed to 3 to 2 in favor of threat originally. See 

USITC, Fresh, Chilled or Frozen Pork From Canada 

(investigation No. 701-TA-298 (final)), USITC 

publication 2330, Oct. 1990. 

218This was the first instance of a case being 

remanded for a second time under the bilateral trade 

pact. 

219 "Memorandum Opinion and Order Regarding 

ITC's Determination on Remand," Jan. 22, 1991, p. 

37. 

22° USITC, Fresh, Chilled, or Frozen Pork From 

Canada: Views on Second Remand in Investigation 

No. 701-TA-298 (final), USITC publication 2362, Feb. 

1991, pp. 3-4. 

221Ibid., p. 27. 

222The CFTA provides for an appeal of a panel 

decision if, inter alia, "the panel seriously departed 

from a fundamental rule of procedure, or the panel 

manifestly exceeded its powers, authority, or 

jurisdiction set forth in this article," and those actions 

"materially affected the panel's decision and threatens 

the integrity of the binational panel process." 

U.S.-Canada Free-Trade Agreement, ch. 19, art. 

1904.13. 

223The United States has imposed countervailing 

duties on live hogs since 1985. The level of the 

countervailing duty is periodically reviewed to 

determine its accuracy in light of existing foreign 

138 
subsidy programs. The October increase was based 

on a review of the Canadian Federal tripartite 

subsidy program between April 1, 1989, and March 

30, 1990. 

224 In May 1992 a binational panel remanded in 

part the Commerce countervailing-duty detemination. 

For additional information, see USITC, Monthly 

ImporV8usiness Review, July 1992. 

225 The GATT consultation concerned the 

ITA-Commerce determination and not the USITC 

findings. 

226 The GATT panel report stated "The U.S. may 

impose a countervailing duty on pork only if a 

subsidy has been determined to have been bestowed 

on the production of pork; the mere fact that trade in 

pork is affected by the subsidies granted to 

production of swine is not sufficient." However, the 

panel also made clear that it had not made a finding 

that the countervailing duty should not have been 

levied at all. The panel noted that its mandate led it 

to rule merely that the subsidy determination in the 

case was not in conformity with the GATT article in 

question, article VI: 3. 

227 "Global Partnership Plan of Action (Part II), 

released Jan. 9, 1992 in Japan, LEGISLATE, Report 

for the 102nd Congress. Japan's fiscal year begins 

on April 1 and ends on March 31. 

229 At the end of the year this legislation and 

others, such as the Trade Agreements Compliance 

and Technology Preservation Act, had not been 

acted on by the full Congress. 

229 Estimated by USITC staff based on official 

statistics of the U.S. Department of Commerce. 

239 During 1986-91 U.S. imports of Japanese 

automobiles actually fell, primarily because Japan 

shifted more of its production to the United States 

during that period. 

231 Includes automobiles, trucks, and buses. 

232 Ward's Automotive Yearbook, 53rd edition, 

1991, p. 79. 

233 For additional information, see "U.S. 

Carmakers Partly to Blame," Seattle 

Post-Intelligencer, Jan. 10, 1992, p. Al2. 

234 Office of the United States Trade 

Representative (USTR), 1991 National Trade 

Estimate Report on Foreign Trade Barriers, Mar. 

1991, p. 135. 

235 See, for example, OTAP, 1988, USITC 

publication 2208, July 1989, p. 112. 

236 American Chamber of Commerce in Japan, 

"United States-Japan Trade White Paper," 1990, 

pp. 111.5 and 111.6. 

237 Keiretsu: The Effects of Corporate 

Inter-Relationships on Japanese OEM Sourcing, 

Motor & Equipment Manufacturers Association, 1990, 

P. 1 . 

238 A September 1991 study by the U.S. 

Department of Commerce showed that 

Japanese-owned auto facilities in the United States 

had increased their imports of parts from Japan from 

next to zero in 1980 to $2 billion during 1988. 

Donald H. Dalton, U.S. Department of Commerce, 

Foreign Direct Investment in the United States, 

August 1991, p. 59. 

239 Motor & Equipment Manufacturers 

Association, Keiretsu: The Effects of Corporate 

Inter-Relationships on Japanese OEM Sourcing, 

1990, p. 2. 

249 As evidence of their efforts to improve their 

purchasing records, according to Japanese 

producers, there are over 1,000 supply relationships 

between U.S. parts and equipment suppliers and 

Japanese auto producers, including 400 design-in 

relationships. U.S. Department of State Telegram, 

Nov. 25, 1991, Tokyo, message reference No. 21125. 

241 On May 31, 1991, a petition was filed with 

the USITC and the Department of Commerce 

alleging that minivans were being sold at less than 

fair value in the United States. In its preliminary 

decision, on July 10, 1991, the USITC found 

reasonable indication of actual or potential material 

injury to the U.S. industry from minivans sold at least 

than fair value. On December 20, 1991, in a 

preliminary ruling, the U.S. Department of Commerce 

ruled that Japanese auto producers were selling 

minivans in the United States at less than fair value. 

The dumping margins were found to be 6.4 percent 

for Mazda, 0.95 percent for Toyota and 4.23 percent 

for other Japanese producers. 

242 Sean P. McAlinden and others, The 

U.S.-Japan Bilateral 1994 Trade Deficit, 

Transportation Research Institute, University of 

Michigan, Apr. 1991, 80 pp. 

243 The APAC is a private-sector group 

established under the 1988 Omnibus Trade and 

Competitiveness Act to increase sales of U.S. 

original equipment and aftermarket parts to Japanese 

auto producers in Japan and the United States. For 

background information, see "Auto Parts Issue Heats 

Up Again," Japan Economic Institute Report, Aug. 9, 

1991, p. 9. 

244 Ibid. 

245 The DOC/MITI Automotive Parts Price 

Survey, ITA, U.S. Department of Commerce, June 

27, 1991. 

246 On March 2, 1992, the Customs Service 

ruled that Civic hatchbacks shipped from Honda's 

plant in Ontario between January 1989 and March 

1990 did not meet 50-percent North American 

content levels and therefore did not qualify for 

duty-free entry to the United States. Customs found 

that Honda automobiles contained only 46 percent 

North American content. For further information on 

the Customs decision, see private letter rulings from 

November 1991 through May 8, 1992, U.S. 

Department of the Treasury, U.S. Customs Service. 

No public documents, including press releases, were 

issued by Customs. 

247 At the end of 1991 the United States and 

Japan continued to discuss issues relating to the 

methodology for the studies. For additional 

information see "U.S., Japan Set Parameters for Auto 

Study," Washington Trade Daily, Sept. 26, 1991, p. 3. 

249 During the SII talks, the United States had 

encouraged the JFTC to take steps towards stricter 

enforcement of its antimonopoly law. 

249 On January 11 MITI had announced that the 

voluntary restraint agreement on exports of 

139 
automobiles from Japan would remain at 2.3 million 

units until March 31, 1992. 

250 Ibid. Estimates on the domestic content of 

Japanese autos are inconclusive and U.S. auto 

analysts dispute the Japanese claim of a current 

level of 50 percent domestic content. 

251 The White House, "Fact Sheet on U.S.-Japan 

Achievements on Auto and Auto Parts," press 

release, Tokyo, Japan, Jan. 9, 1992. 

252 Japan also announced measures intended to 

increase imports of mainframe computers, paper 

products, and flat glass. The Japan Fair Trade 

Commission will study these industries from the 

perspective of competition policy. Ibid. 

253 For background information, see "U.S. and 

Tokyo Scramble to Clear Up Confusion on Language 

of Trade Pact," Wall Street Journal, Jan. 22, 1992. 

254 U.S. Department of Agriculture (USDA), 

"Trade Policies and Market Opportunities for U.S. 

Farm Products, 1990," 1991. 

255 USDA, Foreign Agricultural Service (FAS). 

256 USDA, "Market Opportunities for U.S. Farm 

Products," 1990, sec. 1132 report, and FAS, 

interview by USITC staff, May 5, 1992. 

257 For background information on the Japanese 

rice controversy,. see USITC OTAP, 1991, USITC 

publication 2404, July 1991, pp. 123-124. 

258 The Food Agency under the Ministry of 

Agriculture, Forestry, and Fisheries (MAFF) is 

responsible for the production, pricing, and 

distribution of rice in Japan. Through administrative 

guidance and the Food Agency's rice purchases from 

farmers, domestic rice producers receive substantial 

subsidies. Despite reductions in producer support 

prices since 1986, retail prices in Japan remain 

higher than anywhere else in the world. For 

background information on the section 301 petitions, 

see USITC OTAP, 1988, USITC publication 2208, 

July 1989, p. 107. 

259 For additional information, see "Japan 

Rethinks Lifting of Rice Ban," Financial Times, Feb. 

11, 1992, p. 4. The LDP has traditionally been 

heavily dependent on agricultural votes and financing 

in an electoral system where rural voters are 

represented in disproportionately large numbers. 

260 Ibid. 

261 For background information, see "Japan 

Resists U.S. Pressure for New Rice Tariff Regime," 

Financial Times, Nov. 19, 1991, p. 9. 

262 For background information, see "Hills Urges 

Japan to Open Rice Market and Help Push Talks on 

Global Trade, Wall Street Journal, Nov. 18, 1991, 

p.A11. 

263 For background information, see OECD 

Economic Surveys, 1990-91 series, Japan, November 

1991. 

264 "U.S.-Japan Economic Relations in 1991: A 

Look Back," Japan Economic Institute Report, Feb. 

14, 1992, app. A, p. 19. 

265 For background on the agreement, see 

USITC, OTAP, 1988, USITC publication 2208, July 

1989, pp. 106-107. 

266 USDA, Trade Policies and Market 

Opportunities for U.S. Farm Products, 1990, Aug. 

1991. 

267 For additional information, see "Japan Beef 

Demand Lifts Imports," Journal of Commerce, May 

29, 1991, p. A7. 

268 For additional discussion, see "Japan's Beef 

Imports Exceed Its Appetite," Washington Times, July 

9. 1991, p. C10. 

269 For additional information, see "Japan's 

Market Tough on U.S. Beef," Journal of Commerce, 

June 7, 1991, p. Al. 

278 For background information on the 

agreement, see USITC OTAP, 1990, USITC 

publication 2403, July -1991, p. 121. 

271 Statistics provided to USITC by USDA 

Foreign Agricultural Service. Quotas on orange juice 

were lifted on Apr. 1, 1992. 

272 For information on the 1990 supercomputer 

agreement, see USITC OTAP, 1990, USITC 

Publication 2403, July 1991, pp. 119-120. 

273 This figure includes $6 billion for computer 

hardware, peripherals, and packOged software and 

$3 billion for computer services, systems integration, 

and software development. The White House, "Fact 

Sheet on the U.S.-Japan Computer Agreement," Jan. 

22, 1992. 

274 During U.S.-Japan trade committee meetings 

held in 1990, the United States indicated for the first 

time that it would like to hold discussions on 

increasing access to Japan's public sector market for 

foreign computers. 

275 "Government Computer Procurement," Japan 

Economic Institute Report, May 17, 1991, p. 13, and 

"U.S.-Japan Economic Relations in 1992: A Look 

Back," Japan Economic Institute Report, Feb. 14, 

1992, app. A, p. 2. 

276 USTR, Title VII Report, Apr. 26, 1991. 

277 On January 22, 1992, the United States and 

Japan, through -an exchange of letters, finalized an 

agreement (initialed on January 10) under which the 

Government of Japan "will base its procurement on 

the principles of non-discrimination, transparency, and 

fair and open competition." The agreement was to 

take effect on April 1, 1992, for measures relating to 

computer products and October 1 and April 1, 1993, 

for computer services. The "Measures" agreed to 

will be "based on the principles of non-discrimination, 

transparency, and fair and open competition in the 

procurement -of computer products and services.. . 

with the aim of expanding Japan's procurement of 

competitive foreign computer products and services." 

The agreement provides commitments to ensuring 

equal access of foreign suppliers to pre-bid 

information, to reducing sole-source tendering, to 

improving transparency in evaluating bids and 

awarding contracts on the basis of both price and 

performance, and to establishing a bid protest 

system. The - United States proposed that the first 

followup consultations on the agreement be held on 

July 1992. This was the first bilateral government 

140 
procurement agreement to cover services. Ryohei 

Murata, Ambassador of Japan, letter to USTR Carla 

A. Hills, Jan. 22, 1992; USTR, "Measures Related to 

Japanese Public Sector Procurement of Computer 

Products and Services," fact sheet, Jan. 22, 1992; 

and The White House, Office of the Press Secretary, 

"ii.S.-Japan Computer Agreement," fact sheet, Jan. 

22, 1992. 

278 Formally known as the U.S.-Japan 

Semiconductor Arrangement, the previous accord 

was the outgrowth of a petition by the semiconductor 

industry association under section 301 of the Trade 

Act of 1974, docket No. 301-48. Pursuant to the 

agreement, the 301 investigation was suspended 

(51 F.R.27811). Notification instituting an 

investigation under the statute was printed in 50 F.R. 

28866. 

279 U.S. Department of Commerce, International 

Trade Administration, and USTR, "Statement of U.S. 

Trade Representative on Foreign Share of Japanese 

Semiconductor Market," Mar. 30, 1992. 

290 "Arrangement Between the Government of 

Japan and the Government of the United States of 

America Concerning Trade in Semiconductor 

Products," June 11, 1991, p. 8. 

281 52 F.R. 13412. 

282 "Arrangement Between the Government of 

Japan and the Government of the United States of 

America Concerning Trade in Semiconductor 

Products," June 11, 1991, p. 4. 

283 The duties were suspended by Presidential 

Proclamation 5631. For additional information see 

USTR, "United States, Japan Conclude 

Semiconductor Agreement," press release,.June 4, 

1991. 

284 Semiconductors manufactured by companies 

for their own use and not sold on the open market. 

285 Andrew A. Procassini, Semiconductor Industry 

Association, letter to President George Bush, Dec. 

30, 1991. 

286 For background information on the August 

1990 telecommunications agreement, see USITC, 

OTAP, 1990, USITC publication 2403, July 1991, 

pp. 124-125. 

287 Joint use refers to "groups of unrelated 

companies that seek to communicate over a private 

telephone line leased from the public network." 

USTR, "USTR Hills Releases 1991 Inventory of 

Foreign Trade Barriers, Announces Results of Japan 

Telecommunications Agreement Review," Mar. 29, 

199'1. 

288 Letter from Mitsuo Igarashi, Japan's Ministry 

of Posts and Telecommunications, to Ambassador S. 

Linn Williams and Under Secretary of Commerce J. 

Michael Farren; letter from S. Linn Williams J. 

Michael Farren to Mitsuo Igarashi, June 25, 1991. 

289 Letters from Ministry of Posts and 

Telecommunications and USTR, June 25, 1991. 

290 USTR, "Title VII," fact sheet, April 26, 1991. 

291 "NTT, KDD Ownership," Japan Economic 

Institute Report, Sept. 27, 1991, p. 13. 

292 For background information on the Wood 

Products Agreement, see USITC, OTAP, 1990, 

USITC publication 2403, July 1991, pp. 120 and 121. 

293 U.S. Department of Commerce, informal 

communication with USITC staff, Feb. 18, 1992. 

294 "Ministry to Revise Forest Product Standards," 

Foreign Broadcast Information Service, East Asia 

Daily, Apr. 3, 1991, p. 18. 

295 U.S. Department of Commerce, USDA, 

informal communication with USITC staff, Feb. 29, 

1992. 

296 For further information on the agreement, see 

USITC, OTAP, 1988, USITC publication 2208, July 

1989, pp. 107-108. 

297 A formal exchange of letters occurred on July 

31, 1991. 

298 56 F.R. 37934. 

299 See USTR press release, Apr. 26, 1991, and 

USTR docket No. 301-69A. Notice of the proposed 

action was published in the Federal Register on May 

1 (56 F.R. 20057). USTR had determined on 

November 21, 1989, under section 1305 of the 

Omnibus Trade and Competitiveness Act of 1988 

that Japanese construction procurement practices 

were "unreasonable and burden or restrict U.S. 

trade." However, retaliation was postponed until 

1991 because USTR hoped that progress could be 

achieved through further negotiations. See 

54 F.R. 49150. 

300 "U.S. Access to the Japanese Construction 

Market Still Limited," International Economic Review, 

USITC, Nov. 1990, pp. 7-8. 

301 The VRA with Japan was initialed in 1986, 

and implementation began on January 1, 1987. The 

VRAs with Japan cover machining centers, 

numerically controlled lathes, noncomputerized NC 

punching and shearing machines, and three other 

products. A VRA was also negotiated on machine 

tool exports from Taiwan in 1986. This VRA was set 

to expire at the end of 1991. 

302 For background information on the machine 

tool VRAs, see USITC, Report, 1986, USITC 

publication 1995, July 1987, p. 4-27. 

303 For background information, see "U.S. 

Toolmakers' Fight for Exports Centres on Japan," 

Financial Times, Sept. 7, 1990, p. 1. 

304 Association for Manufacturing Technology, 

telephone interview, July 15, 1992. 

305 After Jan. 1, 1992, this organization was 

known only as the Association for Manufacturing 

Technology (AMT). 

306 For background information, see Nancy 

Dunne, "U.S. Machine-Tool Makers Seek to Keep 

Import Curb," Financial Times, Sept. 17, 1991. 

307 "U.S.-Japan Economic Relations in 1991: A 

Look Back," Japan Economic Institute Report, Feb. 

14, 1992, p. 18. 

308 "Statement by Press Secretary Fitzwater on 

Extension of the Voluntary Restraint Agreements With 

Japan and Taiwan," Weekly Compilation of 

Presidential Documents, Dec. 27, 1991, 

pp. 1895-1896. 

141 
309On Apr. 27, 1992, the White House 

announced that the United States and Japan had 

agreed to phase out the VRAs by the end of 1993 

and that negotiations with Taiwan were continuing. 

313On December 31, 1991, the U.S. ban on 

imports of products produced by Toshiba Machine 

Co. and Kongsberg Trading Co. expired. The U.S. 

Government had implemented trade sanctions on 

December 28, 1988, after Toshiba Machine Co., a 

subsidiary of Toshiba Corp. was found to have 

violated COCOM export rules in illegally shipping 

advanced milling machines to the Soviet Union. For 

background information on this topic, see USITC, 

OTAP, 1987, publication No. 2095, July 1988, 

pp. 4-25 to 4-26. 

311In 1986 the Japan Fair Trade Commission 

cited concerns about the low levels of foreign 

penetration in Japan's paper market. 

312The Fair Trade Commission of Japan, 

"Competition Policy Measures for Improved Market 

Access," May 29, 1986. 

313On April 5, 1992, through an exchange of 

letters, the two countries agreed to "Measures to 

Increase Market Access in Japan for Foreign 

Products." The objective of this accord was to 

increase market access in Japan for foreign paper 

products. 

314For background information on SII, see 

USITC, OTAP, 1990, USITC publication 2403, July 

1991, pp. 118-119. 

315For further information regarding progress on 

SII, see "First Annual Report of the U.S.-Japan 

Working Group on the Structural Impediments 

Initiative (SII)," Tokyo, Japan, May 22, 1991. 

316"U.S/Japan Structural Impediments Initiative, 

Comments of the U.S. delegation on the First Annual 

Report by the Japanese Delegation," Tokyo, Japan, 

May 22, 1991. 

317"Report by the U.S. Delegation, First Annual 

Report of the U.S.-Japan Working Group on the 

Structural Impediments Initiative," Tokyo, Japan May 

22, 1991 and see for example "New Trade Pact Has 

Aided Japan More Than U.S.," Los Angeles Times, 

May 20, 1991, p. Dl. 

316Bank of Mexico data. 

319For an explanation of production sharing, see 

the analysis of U.S. imports. 

329 An important portion of this category is trade 

in steel and textile products. 

321 U.S. Department of Commerce, Office of 

Mexico, memorandum of Feb. 20, 1992. 

322On the concept of production sharing and 

Mexico's maquiladora industry see discussion of U.S. 

imports later in this section. 

323HTS item 9802.00.60 applies to nonprecious 

metal articles (1) made or processed in the United 

States, (2) exported for more processing abroad, and 

then (3) returned to the United States for further 

processing. HTS item 9802.00.80 applies to articles 

that are assembled abroad, in whole or in part of 

U.S.-made components, and then imported into the 

United States. 

324USITC, Production Sharing: U.S. Imports 

Under Harmonized Tariff Schedule Subheadings 

9802.00.60 and 9802.00.80, 1987-1990, USITC 

publication 2469, Dec. 1991, tables B-5 and B-18. 

325Ibid. 

326For more backgrdund on food imports, see 

USITC, OTAP, 1990, USITC publication 2403, July 

1991, p. 132. 

327Bank of Mexico, Economic Indicators Report, 

Jan. 1992. 

328Ibid. 

329For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p.132. 

330 For additional information, see U.S. 

Department of State, Mexico: Economic Trends 

Report, sec. I. 

331USITC, OTAP, 1990, USITC publication 2403, 

July, 1991, p. 132. 

332Department of State, Mexico: Economic 

Trends Report, op. cit. sec. K. 

333For additional information, see USITC, OTAP, 

1990, USITC publication 2403, p.133. 

334U.S. Department of State, Mexico: Economic 

Trends Report, sec. K. 

335 U.S.-Mexico Free Trade Reporter, Dec. 2, 

1991, p. 8. 

336Bank of Mexico data. 

337Bank of Mexico, Economic Indicators Report, 

Jan. 1992. 

336"Regulations of the Law to Promote Mexican 

Investment and Regulate Foreign Investment," 

published in the Diario Oficial de la Federacion on 

May 16, 1989. 

339For additional information on foreign 

investment laws and regulations in Mexico, see 

USITC, Review of Trade and Investment 

Liberalization Measures by Mexico and Prospects for 

Future United States-Mexican Relations (investigation 

No. 332-282), USITC publication 2275, Apr. 1990, 

p. 5-1, and USITC, OTAP, 1989, USITC publication 

2317, Sept. 1990, p. 115. 

340 Due to restrictions the participation of foreign 

investors in the privatization of Mexico's banking 

sector in 1991 has been minimal. 

341USITC, Review of Trade and Investment 

Liberalization Measures, USITC publication 2275, 

p. 5-4. 

342Bank of Mexico, Annual Report, 1991. 

343 Ibid. 

344Bank of Mexico, Economic Indicators Report, 

Jan. 1992. 

345Ibid. 

346USTR, 1992 National Trade Estimate Report 

on Foreign Trade Barriers, p. 181. 

347 For background information, see "Mexico and 

Chile to Sign Free Trade Agreement", Financial 

Times, Aug. 2, 1991. 

349Carlos Singer, director of ProChile, quoted in 

Charles W. Thurston, "Another Trade Zone Formed 

142 
as Chile, Mexico Implement Pact," Journal of 

Commerce, Dec. 31, 1991, pp. 1-2. 

349 U.S. Department of State Telegram, Apr. 

1991, Mexico City, message reference No. 12356. 

350 U.S. Department of State, Mexico Economic 

Trends Report, sec. N. 

361 For a detailed description of Mexico's prior 

IPR system see USITC, Review of Trade and 

Investment Liberalization Measures, Phase I, USITC 

publication 2275, pp. 6-1 through 6-17. 

362 For more background, see USITC, OTAP, 

1989, USITC publication 2317, Sept. 1990, p. 113. 

353 For further information, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 136. 

354 The decree that implements the new law was 

published in the Diario Oficial de Ia Federacion on 

June 27, 1991. 

366 The new amendments were published in the 

Diario Oficial de la Federacion on July 17. 

356 U.S. Department of Commerce, Intellectual 

Property Rights (IPR) in Mexico, Aug. 23, 1991. 

367 USTR, 1992 National Trade Estimate Report 

on Foreign Trade Barriers, Mar. 1992, p. 179. 

368 For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 136. 

369 Dolphins, which are air-breathing, generally 

swim above tuna, and some fishing fleets end up 

dropping their purse seine nets on the dolphins to 

catch the tuna. Dolphins caught in the net are often 

maimed or killed. 

360 This matter is under consideration by the U.S. 

industry and Government, but no bill has been 

introduced at the time of this writing. 

361 For additional information on Mexican import 

licensing, see USITC, Review of Trade and 

Investment Liberalization Measures, Phase 1, USITC 

publication 2275, pp. 4-5. See also U.S. Department 

of State Telegram, Jan. 1992, message reference No. 

02807, and U.S. Department of State, 1992 Trade 

Act Report, p. 3. 

362 Ibid. 

363 USTR, 1992 National Trade Estimate Report, 

p. 177. 

3" USITC, Monthly Import Business Review, 

Feb. 1992, p. 2. 

365 Pork Report, Feb. 1992, p. 6. 

366 On January 14, 1992, the United States and 

Mexico agreed to end Mexico's ban on U.S. live 

swine under specified conditions pertaining to the 

transportation and certification of the animals. At the 

same time Mexico also lifted its December ban on 

certain U.S. fruits, although certification procedures 

were still under consideration for fruit. 

367 For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 135. 

368 Published on March 19, 1991, in the Diario 

Oficial de Ia Federacion. 

369 U.S. Department of State, Mexico Economic 

Trends Report, sec. L. 

370 Ibid. 

371 For more detail on these criteria, see U.S. 

Department of State, Mexico Economic Trends 

Report, sec. L. 

372 Ibid. 

373 For additional information, see John T. 

Bennett, "Korea Adopts Seventh Five-Year Plan," 

Korea's Economy, 1992, vol. 8, No. 1, Korea 

Economic Institute of America, pp. 1-7. 

374 Government of Korea, Economic Planning 

Board, "Outline of the Seventh Five-Year Economic 

and Social Development Plan," Economic Bulletin, 

Sept. 1991, pp. 3-4. 

375 For background regarding the anti-import 

campaign in 1990, see USITC, OTAP, 1990, USITC 

publication 2403, July 1991, pp. 143-146. 

376 Sang Mok Suh, "Korea: A Growing 

Economy." Korea's Economy 1992, vol. 8, No. 1, 

Korea Economic Institute of America, pp. 28-29. See 

also Government of Korea, Economic Planning 

Board, "Korea's National Campaign for a 

Consumption Ethic," Economic Bulletin, Nov. 1991. 

377 Sang Mok Suh, "Korea: A Growing 

Economy," pp. 28-29. 

378 "The Korean Economy in 1991," Korea 

Economic Update, vol. 3, No. 1 (spring 1992), p. 1. 

379 Sang Mok Suh, "Korea: A Growing 

Economy," pp. 28-29. 

380 Government of Korea, Economic Planning 

Board, "Korea's National Campaign for a 

Consumption Ethic," pp. 9-12. 

381 U.S. Department of State, Country Reports on 

Economic Policy and Trade Practices, Mar. 1992, 

p. 117. 

382 U.S. Department of State, "Customs Report to 

the National Assembly on Imports of 'Luxurious 

Consumer Goods.'" Seoul, Oct. 23, 1991, message 

reference No. 11306. 

383The other items identified as luxury goods are 

golf equipment, carpets, video game machines, color 

televisions, electronic organs, ski equipment, jet ski, 

fur apparel, motor boats, yachts, and beds. Seoul 

11306, Oct. 23, 1991. 

384"The Benefits of Open Markets," remarks by 

Ambassador Carla A. Hills, USTR, before the 

American Chamber of Commerce, Seoul, South 

Korea, Nov. 14, 1991. 

385 "The U.S. and Korea: Entering a New World." 

U.S. Department of State Dispatch, Jan. 13, 1992, 

p. 24. 

386 The first 5-year tariff-reduction plan (1984-88) 

reduced Korea's average tariff rate from 23.7 percent 

to 18.1 percent. For details, see USTR, 1989 

National Trade Estimate Report on Foreign Trade 

Barriers, p. 115. 

387 In 1990 the Ministry of Finance proposed a 

1-year delay in implementation of the plan, to make 

up for unanticipated revenue shortfalls. The National 

Assembly approved the revision, and the second 

5-year tariff-reduction plan is scheduled to last until 

January 1, 1994. For more information, see USTR, 

Foreign Trade Barriers, 1992, p. 157. 

143 
388USTR, Foreign Trade Barriers, 1992, 

pp. 157-158. 

389Ibid., p. 158. 

390 Government of Korea, Economic Planning 

Board, Economic Bulletin, July 1991, p. 16. 

391USTR, Foreign Trade Barriers, 1992, p. 158. 

392See, for example, USITC, OTAP, 1990, 

USITC publication 2403, July 1991, pp. 147-148. 

393 U.S. Department of State, Country Reports on 

Economic Policy and Trade Practices, Mar. 1992, 

p. 114. 

394Pub. L. 100-418, title I, sec. 1372-1374, Aug. 

23, 1988. This act directs the administration to 

eliminate discriminatory practices by foreign 

governments toward the U.S. telecommunications 

industry. USTR was required to conduct an 

investigation within 5 months of Aug. 23, 1988, 

identifying priority countries. Priority countries are 

defined in part as those whose acts, policies, and 

practices deny mutually advantageous market 

opportunities to telecommunications products and 

services of U.S. firms. USTR's findings are updated 

in its semiannual report to Congress submitted under 

sec. 309(3) of the Trade Act of 1974. 

395Ibid. 

396For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 147, and 

USTR, Foreign Trade Barriers, 1990, p. 135. 

397USTR, "Telecommunications Talks With EC 

and Korea to Continue," Feb. 22, 1991. 

398USTR, 1991 Annual Report of the President 

of the United States on the Trade Agreements 

Program, p. 41. 

3" "Letter to Congressional Leaders on 

Telecommunications Trade Talks With the European 

Community and Korea," reprinted in Weekly 

Compilation of Presidential Documents, Mar. 8, 1991, 

p. 268. 

An agreement designed to provide U.S. access 

to Korea's telecommunications market was reached 

on February 21, 1992. Korea agreed to liberalize 

value added services, streamline registration, 

eliminate investment restrictions in enhanced services 

by 1994, improve access to the standards-setting 

process, open up government procurement practices, 

and cut key tariffs by 40 percent. Korea also agreed 

to liberalize safeguard measures regarding the 

telecommunications monopoly, Korea Telecom. 

USTR Carla A. Hills said that the agreement would 

"give U.S. firms a fair shot at the fastest growing 

sectors of a market now estimated to be worth $5 

billion annually." USTR, "Hills Announces 

Telecommunications Agreement With Korea, Other 

Trade Act Decisions on Government Procurement 

and Telecommunications," Feb. 21, 1992; USTR, 

"Fact Sheet: Negotiations With the European 

Community and the Republic of Korea Under Section 

1374 of the 1988 Trade Act," Feb. 1992, p. 1.; and 

USTR, Foreign Trade Barriers, 1992, p. 166. 

4" Government of Korea, Economic Planning 

Board, Economic Bulletin, July 1991, p. 29. 

401 USTR, Foreign Trade Barriers, 1992, p. 163. 

402Ibid. 

403For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 148, and 

USTR, Foreign Trade Barriers, 1992, pp. 163-164. 

404 Taiwan applied for GATT membership on 

January 1, 1990. For background see USITC, OTAP, 

1990, USITC publication 2403, July 1991, 

pp. 140-141. 

405"French Minister Announces Paris Backing 

ROC GATT Bid," Free China Journal, Jan. 14, 1991, 

p. 1 

406President George Bush letter to Senator 

Baucus regarding MFN for China, July 19, 1991, 

reprinted in Inside U.S. Trade, July 26, 1991, pp. S-2 

to S-3. 

407 China reapplied for GATT membership in 

1986. Talks regarding its readmission have been 

stalled since the Chinese Government's crackdown 

on the prodemocracy movement in 1989. 

408Foreign Broadcast Information Service, China 

Daily Report, Oct. 28, 1991, p. 41. 

409The provisions for accession as a "separate 

customs territory" are contained in GATT article 

XXXIII. In 1991 Macao acceded to the GATT under 

the terms of article XXXIII. For further information, 

see USITC, OTAP, 1990, USITC publication 2403, 

July 1991, p. 50. 

410Foreign Broadcast Information Service, China 

Daily Report, Oct. 28, 1991, p. 41. 

411U.S. Department of State, "Taiwan Economic 

Trends Report," Mar. 3, 1992, Taipei, message 

reference No. 01452. 

412For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 140. 

413For more details on the economic 

development plan, see U.S. Department of State 

Telegram, Nov. 14, 1990, Taipei, message reference 

No. 7570, and FBIS, Daily Report: China, "Six-Year 

Plan Seeks to Attract Foreign Investment," May 30, 

1991, pp. 106-109. 

414"Taiwan: Billions of Dollars in Major 

Infrastructure Opportunities." Business America, July 

29 and Aug. 12, 1991, pp. 2-13. 

415The mission took place in February 1992. 

"President's Export Council Leads Trade Mission to 

Taiwan to Focus on Six-Year, $303 Billion 

Development Plan." Business America, Mar. 23, 

1992, pp. 25-27. 

416For more background, see USITC, OTAP, 

1986, USITC publication 1995, July 1987, p. 4-41. 

417"Statement by Press Secretary. Fitzwater on 

Extension of the Voluntary Restraint Agreements With 

Japan and Taiwan," Weekly Compilation of 

Presidential Documents, Dec. 27, 1991, 

pp. 1895-1896. 

418 Ibid. 

419According to USTR, "the objective of Special 

301 is to enhance the Administration's ability to 

negotiate improvements in foreign intellectual property 

regimes through bilateral and/or multilateral 

initiatives." The law requires USTR to identify "those 

foreign countries that deny adequate and effective 

144 
protection of intellectual property rights, or deny fair 

and equitable market access for U.S. persons relying 

on intellectual property protection, and to determine 

which of those countries are priority foriegn 

countries." Trading partners not named as "priority 

foreign countries" but whose environment for 

protection of IPRs is of concern to the United States 

may be placed on a "priority watch list" or a "watch 

list." Trading partners designated as a "priority 

foreign country" are subject to a 6-month section 301 

investigation and face possible retaliation. For more 

details, see USTR, "Fact Sheet: 'Special 301' on 

Intellectual Property." Apr. 26, 1991. For a 

discussion of Special 301, see USITC, OTAP, 1989, 

USITC publication 2317, Sept. 1990, pp. 6-7. 

420 Ibid., pp. 6-7 and 117. 

421 USTR, Foreign Trade Barriers 1992, p. 234. 

422 USTR, Foreign Trade Barriers, 1992, 

pp. 234-236, and U.S. Department of State, Country 

Reports on Economic Policy and Trade Practices, 

Mar. 1992, pp. 170-172. 

423 Ibid. 

424 The major reasons USTR cited for naming 

Taiwan as a priority foreign country include a lack of 

progress in enacting and implementing improvements 

in IPR laws and serious enforcement difficulties. 

Designation as a "priority foreign country" made it the 

target of an accelerated unfair trade practices 

investigation initiated by USTR. Such investigation 

must be concluded within 6 months. In early June 

the United States and Taiwan reached agreement 

terminating the case. 

425 Secretary of Commerce Robert A. Mosbacher, 

letter to the President, Aug. 13, 1991. For additional 

information, see Weekly Compilation of Presidential 

Documents, Oct. 18, 1991, pp. 1462-1463, and 

International Trade Reporter, "Taiwan, Korea Found 

Violating Pact, Clearing Way for Possible Sanctions," 

Aug. 21, 1991, p. 1239. 

426 "Message to Congress Deferring Sanctions 

Under the Pelagic Driftnet Agreement," reprinted in 

Weekly Compilation of Presidential Documents, 

Oct. 18, 1991, p. 1463. 

427 Driftnets are floating gillnets used on the high 

seas. They extend from 1.5 miles to 30 or more 

miles in length and kill all marine life in their path. 

Concern over the use of driftnets centers on the 

incidental capture of whales, dolphins, birds, salmon 

en route to spawning grounds, and other marine 

animals. In 1990, according to the National Marine 

Fisheries Service, 10 percent of Japan's driftnet fleet 

killed 1,758 whales and dolphins, 253,288 tuna, 

81,956 blue sharks, 30,464 sea birds and more than 

3 million other "nontarget" fish, including salmon 

tagged from Columbia River basin hatcheries. United 

Nations resolution 44/225, effective June 30, 1992, 

calls for a temporary end to all driftnet fishing on the 

high seas from that date. The resolution, however, 

has been criticized by environmental groups for 

having too many loopholes that will permit continued 

driftnetting. On September 18, 1991, the United 

States banned imports of fish caught with driftnets in 

the South Pacific. The ban was implemented 

immediately for fish caught on the high seas in that 

region and pertains to fish caught anywhere on the 

high seas after July 1 1992. The impetus for the 

new rules grew out of the Dolphin Protection 

Consumer Information Act of 1990. Under the new 

regulations, nations using driftnets that export 

seafood to the United States must certify that the 

products were not caught in driftnets. 

428 The petition was filed by the Distilled Spirits 

Council of the United States, and the American 

Beverage Alcohol Association. USTR, "U.S. Distilled 

Spirits Industry Withdraws Taiwan Petition." Jan. 11, 

1992, p. 1 

429 USTR, "Section 302 Petitions—No 

Investigation Initiated," Jan. 17, 1991, p. 6. 

43° Tariffs were defined as follows: Irish and 

Scotch whiskeys, $20.41 (550 NTD) per liter effective 

Apr. 1, 1991; other whiskeys, $7.35 (198 NTD) per 

liter effective Apr. 1, 1991; cognac and armagnac, 

$46.38 (1,250 NTD) per liter with Taiwan Tobacco 

and Wine Monopoly Bureau (TTWMB) accepting 

applications for import effective Jan. 1, 1993; other 

brandies, $20.41 (550 NTD) per liter, with TTWMB 

accepting applications for import effective Jan. 1, 

1993; rum, gin, vodka and other distilled spirits 

(excluding kaoliang, rice distilled spirits, other 

processed spirits and spirits processed with Chinese 

medicine) $8.35 (225 NTD) per liter, TTWMB 

accepting applications for import effective Sept. 1, 

1992; and distilled spirits preparations, $1.67 

(45 NTD) for alcohol content under 7 percent, $4.42 

(119 NTD) for alcohol content above 7 percent but 

below 20 percent, and $8.35 (225 NTD) for alcohol 

content above 20 percent, with applications for import 

effective beginning Sept. 1, 1992. U.S. Department 

of State Telegrams, Mar. 4, 1991, Taipei, message 

reference No. 1546, and Jan. 16, 1991, message 

reference No. 420. NTD converted to U.S. dollars 

using average 1990 exchange rate of 26.95 

NTD/US$. 

431 U.S. Department of State Telegram, Jan. 7, 

1991, Taipei, message reference No. 1546, and Free 

China Journal, Jan. 10, 1991, p. 7. 

432 USTR, 1990 Trade Policy Agenda and 1989 

Annual Report of the President of the United States 

on the Trade Agreements Program, 1990, p. 55. 

433 For a discussion of the Trade Action Plan of 

February 1989, see USITC, OTAP, 1989, USITC 

publication 2317, Sept. 1990, p. 118. 

434 USTR, Foreign Trade Barriers, 1992, p. 231. 

435 U.S. Department of State, Country Reports on 

Economic Policy and Trade Practices, Mar. 1992, 

p. 166. 

436 USTR, Foreign Trade Barriers, 1992, 

pp. 231-232, and U.S. Department of State, Country 

Reports on Economic Policy and Trade Practices, 

Mar. 1992, p. 166. 

437 For more details, see USTR, Foreign Trade 

Barriers, 1992, pp. 236-237, and U.S. Department of 

State, Country Reports on Economic Policy and 

Trade Practices, Mar. 1992, pp. 167-168. 

438 The import ban also applies to weapons and 

drugs. 

439 USTR, Foreign Trade Barriers, 1992, 

pp. 231-232, and U.S. Department of State, Country 

Reports on Economic Policy and Trade Practices, 

Mar. 1992, pp. 167-168. 

145 
449 For data prior to 1988, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, table 18, 

p. 152. 

441 Decree Law 7232 of Oct. 29, 1984. 

442 For more background, see USITC, OTAP, 

1990, USITC publication 2403, July 1991, p. 154. 

443 The previous Brazilian administration of 

President Jose Sarney had lowered the maximum 

tariff from 105 percent to 85 percent. Decree-Law 

2433 of May 19, 1988. 

444 For more background on the measures 

undertaken by Brazilian President Collor during 1990, 

see USITC, OTAP, 1990, USITC publication 2403, 

July 1991, pp. 151-155. 

445 U.S. Department of State Telegram, Jan. 10, 

1992, Washington, DC, message reference No. 

008338. 

446 USTR, Foreign Trade Barriers, 1992, p. 19. 

447 U.S. Department of State Telegram, Nov. 20, 

1991, Brasilia, message reference No. 12412. 

448 MERCOSUR is the Spanish acronym, and 

MERCUSUL is the Portuguese acronym. 

449 U.S. Department of State Telegrams, Nov. 18, 

1991, Sao Paulo, message reference No. 03768 and 

Nov, 14, 1991, Sao Paulo, message reference No. 

03761. 

459 Legislation to enact the administration's 

privatization program was promulgated in April 1990 

as Brazilian law No. 8031. Gazeta Mercantil Weekly, 

Apr. 23, 1990, p. 3. 

451 One of the debated subjects was whether to 

sell Government-owned enterprises for cruzeiros 

(Brazilian currency), U.S. dollars, or debt instruments. 

See also "Privatization a Bit Slow Out of Gate," 

Journal of Commerce, Sept. 30, 1991, p. 10A. 

452 "Privatization Program Overcomes Skepticism: 

Interview With Eduardo Monado, President of the 

National Bank of Economic and Social Development," 

Modern Brasil, Nov. 1991, p. 6, and The Economist 

Intelligence Unit, Brazil Country Report, No. 3, 1991, 

p. 14. 

453 The Economist Intelligence Unit, Brazil 

Country Report 1991-92, pp. 14-15. 

454 The investigation was launched on Aug. 23, 

1987, in response to a petition filed by the 

Pharmaceutical Manufacturers Association on June 

11, 1987. USTR docket No. 301-61. 52 F.R. 28223. 

455 See 53 F.R. 41551 for more background. 

Also see USITC, OTAP, 1990, USITC publication 

2403, July 1991, p. 169. 

456 55 F.R. 27324. 

457 U.S. Department of State, Jan. 10, 1992, 

Washington, DC, message reference No. 008338. 

458 USTR, Foreign Barriers to Trade, 1992, p. 21. 

459 World Intellectual Property Report, special 

edition, May 1991. 

460 USTR, "Fact Sheet: 'Special 301' on 

Intellectual Property," Apr. 26, 1991. 

146 
CHAPTER 5 

Administration of U.S. Trade Laws 

and Regulations 

This chapter reviews activities related to the 

administration of U.S. trade laws during 1990. It is 

subdivided into sections on (1) import-relief laws (the 

escape-clause, market-disruption, and adjustmentassistance provisions of the Trade Act of 1974); (2) 

unfair trade laws; and (3) certain other trade 

provisions. These other provisions include section 22 

of the Agricultural Adjustment Act (interference with 

programs of the U.S. Department of Agriculture), 

section 232 of the Trade Expansion Act of 1962 

(impairment of national security), the Caribbean Basin 

Recovery Act (CBERA), the U.S. Generalized System 

of Preferences (GSP), and the Andean Trade 

Preference Act (ATPA). 

Import Relief Laws 

Safeguard Actions 

Section 201 of the Trade Act of 1974 1is the 

so-called U.S. "escape clause" law. It is based on 

article XIX of the General Agreement on Tariffs and 

Trade (GATT), which permits a country to "escape" 

from its obligations under the agreement with respect 

to a particular article of merchandise when certain 

conditions exist. The U.S. International Trade 

Commission conducts investigations under section 201 

upon receipt of a petition from an entity such as a trade 

association, firm, certified or recognized union, or 

other group of workers that is representative of an 

industry; upon request from the President or the United 

States Trade Representative (USTR); upon resolution 

of the House Committee on Ways and Means or the 

Senate Committee on Finance; or upon its own motion. 

The Commission did not conduct any new or followup 

investigations under section 201 in 1991. 

Market Disruption 

Under section 406 of the Trade Act of 1974, 2the 

Commission conducts investigations to determine 

whether imports of an article produced in a 

"Communist country" are causing market disruption 

with respect to an article produced by a U.S. industry. 

"Market disruption" is defined to exist whenever 

imports of an article like or directly competitive with 

an article produced by a domestic industry are 

increasing so rapidly, either absolutely or relatively, 

that they are a significant cause of material injury or 

threat of material injury to the domestic industry. The 

Commission did not conduct any investigations under 

section 406 in 1991. 

Adjustment Assistance 

Title II of the Trade Act of 1974, the Trade 

Adjustment Assistance (TAA) program, authorizes the 

President to extend economic assistance to workers, 

firms, and industries displaced as a result of national 

policies to liberalize trade barriers. Initially authorized 

through the Trade Expansion Act of 1962, the program 

is scheduled to expire September 30, 1993. The 

program and certain eligibility standards were 

modified by the Deficit Reduction Act of 1984 and by 

the Omnibus Budget Reconciliation Acts of 1981 and 

1985.3Additional modifications, primarily in 

job-training assistance and in coverage of certain 

workers in the oil and gas industries, were made 

through provisions of the Omnibus Trade and 

Competitiveness Act (OTCA) of 1988. 4 

The TAA system of readjustment allowances to 

individual workers is administered by the U.S. 

Department of Labor through its Office of 

Employment and Training Administration (ETA) in the 

form of (1) monetary benefits for direct trade 

readjustment allowances and (2) service benefits that 

include allocations for job search, relocation, and 

training. Industrywide technical consultation provided 

through Commerce-sponsored programs is designed to 

restore the economic viability of U.S. industries 

adversely affected by international import 

competition. 5 

Assistance to Workers 

The Department of Labor instituted 1,509 

investigations in fiscal year 1991 on the basis of 

petitions filed for trade adjustment assistance. This 

figure represents a small increase from the 1,455 

petitions instituted in fiscal 1990. The results of 

investigations completed or terminated in fiscal 1991, 

147 
including those in process from the previous fiscal 

year, are shown in the following tabulation: 6 

Item 

Number of 

investigations 

or petitions 

Estimated 

number of 

workers 

Completed certifications 546 52,194 

Partial certifications 3 663 

Petitions denied 851 91,889 

Petitions terminated 

or withdrawn 41 802 

Total 1,441 145,548 

The number of completed and partial certifications 

in fiscal 1991 decreased to 549 from 588 in fiscal 

1990. Despite lower rates of eligibility stemming in 

part from the more stringent criteria contained in the 

Deficit Reduction Act of 1984 and subsequent omnibus 

budget acts, preliminary figures for fiscal year 1991 

indicate that Labor expenditures for direct Trade 

Readjustment Allowances to certified workers 

increased by a significant proportion to $115.7 million, 

approximately $23.1 million more than the estimated 

$92.6 million expenditure in fiscal 1990. Department 

officials indicated the increase reflects the 

implementation of special provisions of the OTCA of 

1988, which allowed workers in the oil and gas 

industry a one-time, 90-day opportunity to apply for 

retroactive trade readjustment allowances. 7 

In addition, Labor provided training, job search, 

and relocation services valued at a preliminary estimate 

of $64.9 million in fiscal 1991 for worker activities in 

the areas shown in the following tabulation: 

Estimated 

number of 

Item participantsl 

Training 20,100 

Job search 500 

Relocation allowances 750 

Total 21,350 

I Preliminary figures. 

Preliminary data for fiscal 1991 indicate that an 

estimated 21,350 workers used available service 

benefits, representing an increase of 7.3 percent from 

the 19,900 workers receiving such services in the 

previous fiscal year. The increase is in part a result of 

the OTCA of 1988, which made the receipt of 

income-support payments contingent on worker 

participation in ETA-sponsored training programs. 8 

Assistance to Firms and Industries 

Through its Trade Adjustment Division (TAD), the 

U.S. Department of Commerce certified 155 firms as 

eligible to apply for trade adjustment assistance during 

fiscal year 1991. 9This figure represents a 9.4-percent 

decrease from the 171 firms certified in the previous 

fiscal year. The TAD administers its programs through 

a nationwide network of 12 Trade Adjustment 

Assistance Centers (TAACs). Technical services are 

provided to certified firms through consultants under 

direct contract with Commerce's Economic 

Development Administration (EDA). Funding for the 

TAACs during fiscal 1991 totaled $12.3 million for 

provision of technical services to 792 firms adversely 

affected by international import competition. 

In addition to the technical assistance component 

of the TAD program, Commerce funded four industry 

development projects valued at $543,000.10 The 

industries receiving such funding represented 

fabricators of engines and automotive equipment and 

producers of semiconductors and electrical systems. 

Technical assistance projects initially funded in 

previous years continued in effect throughout fiscal 

year 1991 for industries that process steel and produce 

electronics. 

Laws Against Unfair Trade 

Practices 

As a result of antidumping investigations 

conducted in 1991 by the Commission and Commerce, 

19 new antidumping orders were issued. Commerce 

issued two countervailing-duty orders in 1991; in the 

case of one of the orders, no Commission injury 

determination was required." During 1991, the 

Commission completed 13 investigations under section 

337 of the Tariff Act of 1930 involving allegations of 

patent, trademark, or copyright infringement or other 

unfair methods of competition. In three of those 

investigations, the Commission issued exclusion orders 

prohibiting the importation of merchandise, and cease 

and desist orders enjoining further violation of section 

337. 

In 1991, two section 301 investigations were 

instituted as a result of petitions filed by private 

parties, and two investigations were self-initiated by 

USTR. In addition, two new investigations under the 

"super 301" provision contained in the OTCA 1988 

were initiated in 1991. Bilateral settlements were 

reached in several pending section 301 cases. 

Antidumping Investigations 

The present antidumping law is contained in title 

VII of the Tariff Act of 1930 (19 U.S.C. 1673 et seq.), 

which was added by the Trade Agreements Act of 

1979. (The 1979 provisions superseded the 

Antidumping Act of 1921.) The antidumping law 

provides relief in the form of special additional duties 

that are intended to offset margins of dumping. 

Antidumping duties are imposed when (1) the 

administering authority (under present law, Commerce) 

has determined that imports are being, or are likely to 

be, sold at less than fair value (LTFV) in the United 

States, and (2) the Commission has determined that a 

United States industry is materially injured or 

threatened with material injury, or that the 

establishment of an industry in the United States is 

materially retarded, by reason of such imports. 

148 
In general, imports are considered to be sold at 

LTFV when the United States selling price is less than 

the foreign market value, which is usually the 

home-market price or, in certain cases, the price in a 

third-country market or a "constructed" value. The 

antidumping duty equals the difference between the 

U.S. price and the foreign market value. Most 

investigations are conducted on the basis of a petition 

filed with Commerce and the Commission by or on 

behalf of a U.S. industry. 

Commerce and the Commission each conduct 

preliminary and final antidumping investigations as the 

basis of their separate determinations. 12In 1991 the 

Commission completed 53 preliminary and 32 final 

antidumping injury investigations. 13Antidumping 

orders were imposed as a result of 19 of these 

investigations on a total of 13 products being imported 

from 9 countries. Details of antidumping actions and 

orders, including suspension agreements 14in effect in 

1991, are presented in tables A-19 and A-20. The 

following tabulation summarizes 

investigations in 1991: 

antidumping 

Antidumping Duty 

Investigations 

Numberl 

1989 1990 1991 

Petitions filed 13 19 24 

Preliminary Commission 

determinations: 

Ne9ative 5 6 22 

Affirmative (includes 

partial affirmatives) 20 27 31 

Terminated 0 1 2 

Final Commerce 

determinations: 

Negative 2 0 0 

Affirmative 36 16 28 

Terminated 0 .0 1 

Suspended 0 0 0 

Final Commission 

determinations: 

Ne9ative 15 2 13 

Affirmative (includes 

partial affirmatives) 23 14 19 

Terminated 0 1 0 

1When a petition alleges dumping (or subsidies) 

with respect to more than one product and/or by more 

than one country, separate investigations generally are 

instituted for imports of each product from each country. 

For this reason, the numbers of investigations instituted 

and determinations made generally exceed the number 

of petitions filed. Moreover, an investigation based on a 

petition filed in one calendar year may not be 

completed until the next year. The above numbers do 

not include determinations made following 

court-ordered remands. 

Countervailing-Duty 

Investigations 

The United States countervailing-duty law is set 

forth in section 303 and title VII of the Tariff Act of 

1930. It provides for the levying of special additional 

duties to offset foreign subsidies on products imported 

into the United States. 15In general, procedures for 

such investigations are similar to those of antidumping 

investigations. Petitions are filed with Commerce (the 

administering authority) and the Commission. Before 

a countervailing-duty order can be issued, Commerce 

must find a countervailable subsidy, and, in most cases, 

the Commission must make an affirmative 

determination of material injury, threat of material 

injury, or material retardation by reason of the 

subsidized imports. 

Investigations are conducted under section 701 of 

the Tariff Act if the subject article is imported from a 

country that has signed the GATT Code on Subsidies 

and Countervailing Duties 16or has otherwise been 

designated a "country under the Agreement." 17 

 Investigations with respect to imports from other 

countries are conducted under section 303 of the Tariff 

Act. Such imports are subject to an injury 

investigation by the Commission only if (1) they 

normally enter free of duty, and (2) international 

obligations of the United States require an injury 

investigation. 18For imports not falling under this 

category or under section 701, a countervailing-duty 

order may be issued under section 303 on the basis of 

an affirmative subsidy determination by Commerce 

alone. 

One new countervailing-duty order—on Atlantic 

salmon from Norway—was imposed in 1991 as a 

result of an investigation involving both Commerce 

and the Commission. A countervailing-duty order on 

steel wire rope from Thailand was imposed in 1991 

following investigation by Commerce alone. In 1991 

the Commission completed 7 preliminary and 3 final 

injury investigations.I 9Details of countervailing-duty 

actions and outstanding orders, including suspension 

agreements20in effect in 1991, are presented in tables 

A-21 and A-22. The following tabulation is a 

summary of countervailing-duty investigations in 

1991: 

149 
Countervailing Duty 

Investigations 

Numberl 

. 1989 1990 1991 

Petitions filed 7 5 8 

Preliminary Commission 

determinations: 

Negative 0 2 1 

Affirmative (includes 

partial affirmatives) 3 3 6 

Terminated 0 0 1 

Final Commerce 

determinations: 

Negative 2 2 2 

Affirmative 8 2 4 

Terminated 1 0 1 

Suspended 0 0 0 

Final Commission 

determinations: 

Negative 4 0 2 

Affirmative (includes 

partial affirmatives) 5 0 1 

Terminated 0 0 0 

1The numbers of investigations instituted and 

determinations made generally exceed the number of 

petitions filed. The number of petitions filed does not 

include an investigation self-initiated by Commerce in 

1991. The above numbers do not include 

determinations made following court-ordered remands. 

Reviews of Outstanding 

Antidumping and 

Countervailing-Duty Orders 

" Section 751 of the Tariff Act of 1930, as amended 

(19 U.S.C. 1675), requires Commerce (the 

administering authority), if requested, to conduct 

annual reviews of outstanding antidumping and 

countervailing-duty orders to determine the amount of 

any net subsidy or dumping margin, and to review 

suspension agreements to determine compliance. 

Section 751 also authorizes Commerce and the 

Commission, as appropriate, to review certain 

outstanding determinations and agreements after 

receiving information or a petition that shows changed 

circumstances. The party seeking revocation or 

modification of an antidumping or countervailing-duty 

order or suspension agreement has the burden of 

persuading the Commission that circumstances have 

changed sufficiently to warrant review and revocation. 

Based on either of the reviews above, Commerce may 

revoke a countervailing-duty or antidumping order in 

whole or in part, or terminate, or resume a suspended 

investigation. 

The Commission did not complete any 

investigations under section 751 in 1991. As a result 

of reviews conducted under section 751 in 1991, 

Commerce revoked one countervailing-duty order (on 

litharge—a fused lead monoxide—from Mexico) and 

one antidumping order (on trichloro-isocyanuric acid 

from Japan). In addition, after determining that the 

orders or findings were no longer of interest to 

interested parties, Commerce revoked two antidumping 

orders/findings (on clear sheet glass from Italy and 

animal glue from Sweden) and one countervailing-duty 

order/finding (on cement from Mexico). Commerce 

revoked one antidumping order (on construction 

castings from India) and two countervailing-duty 

orders (on pork and oil country tubular goods from 

Canada) as a result of negative determinations issued 

by Commerce or the Commission following review by 

a U.S. court or by a "binational panel" established 

under the U.S.-Canada Free-Trade Agreement. Also in 

1991, Commerce terminated three investigations that 

had previously been suspended. They concerned float 

glass from Mexico, leather wearing apparel from 

Uruguay, and certain dynamic random access 

memories from Japan. 

Section 337 Investigations 

Section 337 of the Tariff Act of 1930, as amended 

(19 U.S.C. 1337), authorizes the Commission, on the 

basis of a complaint or on its own initiative, to conduct 

investigations with respect to certain practices in 

import trade. Section 337 declares unlawful the 

importation, sale for importation, or sale after 

importation of articles that infringe a valid and 

enforceable U.S. patent, registered trademark, 

registered copyright, or registered semiconductor 

"mask" work, for which a domestic industry exists or 

is in the process of being established. Also unlawful 

under section 337 are other unfair methods of 

competition or unfair acts21in the importation of 

articles into the United States or in the sale of imported 

articles, the threat or effect of which is to destroy or 

substantially injure a domestic industry, to prevent the 

establishment of an industry, or to restrain or 

monopolize trade and commerce in the United States. 

If the Commission determines that a violation 

exists, it can issue an order excluding the subject 

imports from entry into the United States, or can order 

the violating parties to cease and desist from engaging 

in the unlawful practices. 22The President may 

disapprove a Commission order within 60 days of its 

issuance for "policy reasons." 

The Commission is required to complete section 

337 investigations within 12 months of publishing 

notice of investigation in the Federal Register, but may 

take up to 18 months to complete investigations it 

designates "more complicated." When a complainant 

requests temporary exclusion or cease and desist orders 

or both, the Commission must decide whether to issue 

that relief within 90 days (or 150 days in an 

investigation it designated "more complicated") from 

the date of publication of the notice of investigation. 

In 1991, as in previous years, most complaints filed 

with the Commission under section 337 alleged 

infringement of a U.S. patent by imported 

merchandise. The Commission completed a total of 13 

investigations under section 337 in 1991, including 

remands, advisory opinion proceedings, and 

enforcement proceedings, compared with 25 in 1990. 

These investigations pertained to products in a number 

of industries, such as semiconductors, medical 

equipment, industrial machinery and materials, and 

various consumer products including soft drinks, 

plastic trays for carrying or displaying food, air impact 

150 
wrenches, toy vehicles, vacuum cleaners, and 

automotive fuel caps. In three investigations, 

exclusion orders and cease and desist orders were 

issued. Several investigations were terminated by the 

Commission without determining whether section 337 

had been violated. Generally, these terminations were 

based on settlement agreements or consent orders. At 

the close of 1991, there were 10 section 337 

investigations, including an advisory opinion 

proceeding and an ancillary candor proceeding, 

pending before the Commission. Commission 

activities involving section 337 actions in 1991 are 

presented in table A-23. 

As of December 31, 1991, a total of 50 outstanding 

exclusion orders based on violations of section 337 

were in effect. Thirty-one of these orders involved 

patent violations. Table A-24 also lists the 

investigations that preceded the issuance of the orders. 

Enforcement of Trade 

Agreements and Response to 

Unfair Foreign Practices 23 

Chapter 1 of title III of the Trade Act of 1974, as 

amended24(sections 301 through 310), gives USTR, 25 

 subject to any direction by the President, the authority 

and means to enforce U.S. rights under trade 

agreements, or to respond to unjustifiable, 

unreasonable, or discriminatory acts by a foreign 

country or instrumentality that burden or restrict U.S. 

commerce. 26If USTR finds that the foreign practice is 

"unjustifiable" and that it burdens or restricts U.S. 

commerce, or finds that U.S. rights under a trade 

agreement are being violated, USTR must take all 

appropriate and feasible action to enforce such rights 

or to obtain the elimination of such act, policy, or 

practice. For "unreasonable" or "discriminatory" acts, 

USTR has discretion over whether to take action. 27An 

interagency committee headed by USTR conducts the 

investigations, including hearings if requested. Section 

301 investigations are usually initiated on the basis of 

petitions by interested parties alleging violations of 

section 301, but an investigation may also be initiated 

by USTR under section 302 of the Trade Act even if a 

petition is not filed. If the foreign entity does not agree 

to change its practices, USTR is empowered to 

(1) deny it the benefits of trade-agreement concessions, 

(2) impose duties, fees, or other import restrictions on 

products and services, when appropriate, and (3) enter 

into an agreement with the subject country to eliminate 

the practice or to provide compensatory benefits for the 

United States. USTR monitors compliance of foreign 

countries with the steps they have agreed to take under 

these provisions and may modify or terminate action 

under section 301 in certain circumstances. 

In 1991 six new section 301 investigations were 

initiated by USTR. Two of the new investigations 

responded to petitions filed by private parties. Of 

these, one petition was filed by the National Pork 

Producers Council and the American Meat Institute 

alleging that the European Commuity (EC) Third 

Country Meat Directive denies the rights of the United 

States under the GATT and is otherwise unreasonable 

and burdens or restricts U.S. commerce. 28The other 

petition, filed by the Pharmaceutical Manufacturers 

Association, alleges that the Government of Thailand 

does not provide adequate and effective patent 

protection for pharmaceutical products, thereby 

denying market access opportunities to those who rely 

on patents. 

Among the four investigations self-initiated by 

USTR, two were initiated pursuant to the "special 301" 

provision of section 182(a) of the Trade Act of 1974, 

as amended (Trade Act). "Special 301" requires USTR 

to identify countries that deny adequate and effective 

protection of intellectual property rights or that deny 

fair and equitable market access to U.S. persons 

relying on intellectual property protection. USTR 

identified India and China as "priority foreign 

countries" and initiated section 301 investigations to 

determine whether the act, policy, or practice that was 

the basis of the identification is actionable under 

section 301 of the Trade Act. The other two 

investigations initiated by USTR relate to acts, 

policies, and practices of foreign governments that are 

allegedly unreasonable and burden or restrict U.S. 

commerce. These two concern Canada, with respect to 

the treatment of softwood lumber imports, and China, 

with respect to certain regulatory and technical barriers 

to trade. Further developments occurred in 11 of the 

investigations initiated prior to 1990. Therefore, 17 

section 301 investigations were active during 1991. 

One petition was withdrawn in 1991 before an 

investigation was initiated. On December 3, 1990, the 

Kentucky Distillers' Association, the Distilled Spirits 

Council of the United States, and the American 

Beverage Alcohol Association filed a petition alleging 

that Taiwan imposes a variety of trade barriers that 

severely restrict trade in distilled spirits. However, the 

petition was withdrawn on January 11, 1991 (before 

USTR initiated an action thereunder), in response to 

Taiwan's announcement of plans to open its market to 

distilled spirits from foreign countries. 

Investigations Initiated in 1991 

China: market access29 

On October 4, 1991, USTR self-initiated an 

investigation under section 302 of the Trade Act to 

determine whether specific market access barriers in 

China are unreasonable or discriminatory and burden 

or restrict U.S. commerce. On October 10, 1991, 

USTR invited public comments on the matters being 

investigated30and requested consultations with the 

Chinese Government. As of December 1991, USTR 

was soliciting information from interested persons and 

engaging in negotiations with the Chinese Government 

on the matters in the investigation. 

Canada: softwood lumber31 

On October 4, 1991, USTR self-initiated an 

investigation under section 302(b)(1)(A) of the Trade 

151 
Act with respect to certain acts, policies, and practices 

of the Government of Canada affecting exports to the 

United States of softwood lumber. USTR determined 

pursuant to section 304 of the Trade Act that following 

Canada's termination of a 1986 Memorandum of 

Understanding (MOU) on softwood lumber, certain 

Canadian Government acts, policies, and practices are 

unreasonable and burden or restrict U.S. commerce, 

and that expeditious action in this matter was required. 

USTR announced that Commerce would self-initiate a 

countervailing-duty investigation on softwood lumber 

imports.32As an interim measure, USTR also 

announced that the U.S. Government would suspend 

liquidation of Customs entries of certain imported 

Canadian softwood lumber products, pending 

completion of the investigation. To preserve the status 

quo in the U.S. lumber industry, the U.S. Government 

through the Treasury Department also required a bond 

to be posted corresponding to the charges under the 

terminated MOU, where certain Provinces and 

territories of Canada would be subject to duties of up 

to 15 percent ad valorem. 33(For additional discussion, 

see chapter 4, "Canada" section.) 

China: intellectual property 34 

On April 26, 1991, USTR identified China as a 

"priority foreign country" under section 182(a) of the 

Trade Act of 1974.35In identifying China as a priority 

country, USTR noted deficiencies in China's 

intellectual property acts, policies, and practices 

including1. Deficiencies in its patent law, in particular, the 

failure to provide product patent protection 

for chemicals, including pharmaceuticals and 

agrichemicals; 

2. Lack of copyright protection for U.S. works 

not first published in China; 

3. Deficient levels of protection under the 

copyright law and regulations that came into 

effect on June 1, 1991; and 

4. Inadequate protection of trade secrets. 

USTR also noted the absence of effective enforcement 

of intellectual property rights in China, including rights 

in trademarks. 

.On April 26, 1991, USTR initiated an investigation 

of these acts, policies, and practices of China pursuant 

to section 302(b)(2)(A) of the Trade Act to determine 

whether action could be taken under section 301 of the 

Trade Act. 

On May 1, 1991, USTR invited public comments 

on the matters being investigated. 36USTR engaged in 

consultations with the Chinese Government concerning 

the issues under investigation." On December 2, 

1991, USTR requested public comment .on a proposed 

determination that certain acts, policies, and practices 

of China with respect to its protection and enforcement 

of intellectual property rights are unreasonable and 

constitute a burden or restriction on U.S. commerce. 38 

 USTR also sought public comment on appropriate 

action in response to these acts, policies, and 

practices. 39 

India: intellectual property's° 

On April 26, 1991, USTR also identified India as a 

"priority foreign country" under section 182 of the 

Trade Act. USTR noted deficiencies in India's 

intellectual property acts, policies, and practices, 

including1. Numerous deficiencies in its patent law, in 

particular the failure to provide product patent 

protection for a wide range of products 

including pharmaceuticals and products 

resulting from chemical processes, an 

inadequate term of protection, and overly 

broad compulsory licensing provisions; and 

2. Copyright compulsory licensing provisions 

that are overly broad. 

USTR also noted the absence of effective enforcement 

of intellectual property rights in India, including 

copyrights, which has led to a high level of piracy in 

that country. 

On April 26, 1991, USTR initiated an investigation 

of these acts, policies, and practices of India pursuant 

to section 302(b)(2)(A) of the Trade Act to determine 

whether action could be taken under section 301 of the 

Trade Act. 

On May 1, 1991, USTR invited public comments 

on the matters being investigated 4 1The agency held 

extensive consultations with the Government of India, 

both bilaterally and in the Uruguay Round, concerning 

the issues under investigation. 42After these 

consultations, the Indian Government agreed to 

enhance copyright and trademark protections and 

improve access to India's motion picture and video 

market.43 

Thailand: patent protection for 

pharmaceuticals 44 

On January 30, 1991, the Pharmaceutical 

Manufacturers' Association (PMA) filed a petition 

under section 302(a) of the Trade Act, alleging that the 

Royal Thai Government denies adequate and effective 

patent protection for pharmaceutical products. On 

March 15, 1991, USTR initiated an investigation, 

requested public comment on the allegations in the 

petition45 , and requested consultations with the Thai 

Government. Consultations were held on June 19, 

1991.46 

EC: meat inspection 47 

On November 28, 1990, the National Pork 

Producers Council and the American Meat Institute 

152 
filed a petition under section 302 of the Trade Act 

alleging that the EC Third Country Meat Directive 

(which sets requirements for meat slaughter and 

packing plants only for meat shipped across national 

borders) constitutes a foreign practice that denies U.S. 

rights under the GATT and is otherwise unreasonable 

and burdens or restricts U.S. commerce. 

Following inconclusive consultations with the EC 

in December 1990, USTR initiated an investigation on 

January 10, 1991, under section 302(a) of the Trade 

Act and invoked the provisions of section 303(a)(2)(A) 

to delay GATT consultations for up to 90 days. 48On 

July 11, 1991, the United States requested that a GATT 

dispute-settlement panel be convened to examine the 

EC practice. (For additional discussion, see chapter 4, 

"European Community" section.) 

Other Investigations Active in 1991 

Thailand: copyright enforcement 49 

On November 15, 1990, the International 

Intellectual Property Alliance (IIPA), the Motion 

Picture Export Association of America (MPEAA), and 

the Recording Industry Association of America 

(RIAA) filed a petition under section 302(a) of the 

Trade Act of 1974, alleging that the Government of 

Thailand inadequately enforces its copyright laws, 

thereby denying market-access opportunities to those 

who rely on copyrights. 

On December 21, 1990, USTR initiated an 

investigation under section 302(b) of the Trade Act 

with respect to the Thai Government's acts, policies, 

and practices relating to the enforcement of 

copyrights5° and requested consultations with the 

Royal Thai Government. Several rounds of 

consultation were held, and public comment was 

received. On December 21, 1991, USTR determined 

that acts, policies, and practices of the Government of 

Thailand concerning the enforcement of copyrights in 

that country are unreasonable and burden or restrict 

U.S. commerce. However, because the Thai 

Government is taking steps to amend its copyright 

laws, improve enforcement procedures, and combat 

copyright piracy, USTR decided to terminate the 

investigation and to monitor Thai Government 

implementation measures. 

Canada: import restrictions on beer 51 

On May 15, 1990, G. Heileman Brewing Co., Inc. 

filed a petition alleging that Canada's import 

restrictions on beer-including listing requirements, 

discriminatory markups, and restrictions on 

distribution-are inconsistent with the GATT and the 

U.S.-Canada Free-Trade Agreement. On June 29, 

1990, USTR initiated an investigation and requested 

consultations with Canada under article XXIII:1 of the 

GATT.52 

On September 14, 1990, the Stroh Brewing Co. 

filed a petition complaining about the distribution and 

pricing practices of the Province of Ontario with 

respect to imported beer. On October 17, 1990, USTR 

decided to investigate the allegations contained in the 

Stroh petition in the context of this investigation. 

On October 16, 1991, a GATT panel reported that 

the Canadian practices were inconsistent with the 

GATT and recommended that they be removed. The 

panel report was first presented for adoption at a 

meeting of the GATT contracting parties held from 

December 12 to 13, 1991. On December 29, 1991, 

USTR determined, pursuant to section 304 of the Trade 

Act, that the acts, policies, or practices of Canada 

violate the provisions of the GATT and that 

substantially increased duties-high enough to offset 

fully the impairment of U.S. rights under the 

GATT-would be levied on beer and malt beverages 

from Canada. (For additional discussion, see chapter 

4, "Canada" section.) 

Followup on Investigations 

Terminated Before 1991 

EC: enlargement (monitoring) 53 

A previous investigation involving the accession of 

Spain and Portugal into the EC was terminated in 

1987, following an agreement that provided certain 

compensation to the United States through the end of 

1990.54On November 15, 1990, USTR initiated an 

investigation under section 302(b) of the Trade Act 

with respect to denial of benefits by the EC under this 

trade agreement. 

On December 5, 1990, USTR published notice that 

it had notified the GATT contracting parties that the 

U.S. intended to suspend certain tariff concessions. 55 

 A settlement agreement was reached with the EC on 

December 20, 1990, which extended the rights 

accorded to the United States under the 1987 

agreement through the end of 1991. The United States 

and the EC expressed their intention to resume 

reviewing the situation by June 1991 to achieve a final 

understanding by September 30, 1991. Consequently, 

USTR terminated the investigation on December 21, 

1990.56 

USTR monitored EC compliance with this trade 

agreement throughout 1991, and consultations were 

held during the summer and fall of that year. In 

November 1991, the EC agreed to a second 1-year 

extension, through December 31, 1992, thereby 

eliminating the need for any action in the near future. 

(For additional discussion, see chapter 4, "European 

Community" section.) 

Norway: toll equipments? 

On July 11, 1989, a petition was filed on behalf of 

Amtech Corp. alleging, among other things, that 

153 
practices by the Government of Norway deny U.S. 

rights under the GATT Government Procurement 

Code, adversely affecting U.S. trade in the sale of 

highway toll electronic identification systems. 

USTR initiated an investigation on August 2, 

1989,58and requested consultations with Norway 

under the GATT Government Procurement Code. In 

an exchange of letters between the United States and 

Norway on April 26, 1990, Norway agreed to take 

actions to offset the negative impact of Norway's 

discriminatory practices. On this basis, the United 

States withdrew its complaint from the Committee on 

Government Procurement, and USTR terminated the 

section 302 investigation on April 26, 1990.59 

 However, in monitoring Norway's implementation of 

these steps, USTR discovered that Norway was 

excluding U.S. suppliers from the procurement of an 

electronic toll collection system for the city of 

Trondheim. Therefore, on April 26, 1991, pursuant to 

title VII of the 1988 OTCA, the Bush administration 

identified Norway as a country that appeared to be in 

violation of its code obligations. In accordance with 

section 305(e) of the Trade Agreements Act of 1979, as 

amended, and article VII:4 of the Government 

Procurement Code, USTR requested consultations with 

Norway. Those consultations were held on May 24, 

1991. On June 20, 1991, the United States requested 

conciliation by the code committee, in accordance with 

article VII:6 of the Government Procurement Code, 

and the establishment of a dispute-settlement panel as 

provided by article VII:7. A panel was established on 

September 23, 1991. 

EC: canned fruit subsidies 6° 

On May 8, 1989, USTR self-initiated an 

investigation regarding compliance by the EC with a 

trade agreement 61in which the EC agreed to limit 

processing subsidies on canned fruit. Consultations 

with the EC concerning this matter resulted in a 

resolution that included three elements: (1) the EC 

lowered its 1989-90 subsidy rates for canned peaches 

and pears; (2) U.S. and EC officials clarified their 

interpretation of a 1985 bilateral agreement to forestall 

future disputes; and (3) the EC Commission modified 

its regulations to limit canned peach and pear subsidies 

in future years. 

Because the EC subsidies to canned peaches and 

pears exceeded the agreed-upon levels during 1991, the 

United States consulted with the EC in an effort to 

resolve the matter. The United States continued to 

monitor EC compliance with the agreement and to 

scrutinize EC subsidies calculated for the next year. 

Japan: construction-related services 62 

On November 21, 1988, USTR self-initiated an 

investigation pursuant to section 1305 of the OCTA of 

1988 concerning acts, policies, and practices of the 

Government of Japan that are barriers to U.S. persons 

offering architectural, engineering, construction, and 

consulting services in Japan." 

On November 21, 1989, USTR determined that 

these acts, policies, and practices are unreasonable and 

burden or restrict U.S. commerce." However, USTR 

determined that no responsive action was appropriate 

at that time, in light of certain commitments by Japan. 

USTR indicated that it would monitor Japan's 

implementation of these commitments and seek an 

agreement with Japan in bilateral negotiations. 

Because no agreement had been reached as of April 

1991, USTR proposed prohibiting Japanese contractors 

and subcontractors from entering into services or 

contracts with certain Federal agencies for the 

construction, alteration, or repair of any public 

buildings or public works in the United States.°) 

On June 1, 1991, an agreement was concluded and 

a formal exchange of letters was signed on July 31, 

1991." Therefore, no action was taken pursuant to 

section 301. USTR continues to monitor Japan's 

implementation of the agreement. (For additional 

discussion, see chapter 4, "Japan" section.) 

EC: oilseeds 67 

On December 16, 1987, the American Soybean 

Association (ASA) filed a petition complaining that the 

EC policies and practices relating to oilseeds and 

oilseed substitutes nullify and impair benefits accruing 

to the United States under GATT and, specifically, 

were inconsistent with a zero tariff binding agreed to 

by the EC. ASA alleged that the practices also are 

unjustifiable, unreasonable, and burden or restrict U.S. 

commerce. 

On January 5, 1988, USTR initiated an 

investigation and requested consultations with the 

EC." A GATT panel, convened under GATT article 

XXIII:2, ruled in favor of the United States in a report 

that was circulated to GATT contracting parties on 

December 14, 1989. On January 25, 1990, the panel 

report was adopted by the GATT Council. The EC 

representative confirmed the EC intention to take 

measures to comply with the panel's conclusions by 

the 1991 marketing year. 

On January 31, 1990, consistent with the panel's 

conclusions, USTR determined that rights of the 

United States under a trade agreement were being 

denied by the EC production and processing subsidies 

on oilseeds and animal feed proteins, and that EC 

production subsidies denied benefits to the United 

States. USTR also found that the EC had agreed to 

take satisfactory measures to grant the rights of the 

United States under a trade agreement. Accordingly, 

USTR decided to terminate the investigation and to 

monitor the EC implementation of its commitment 

within the framework of the Uruguay Round." 

Subsequently, the EC adopted a proposal to convert to 

a system of direct producer payments in the 1992 crop 

year, which the United States claims is not in 

conformity with the 1990 GATT panel report. Thus, 

the United States challenged this EC proposal before 

154 
the same GATT panel for failure to eliminate the tariff 

concession impairment7° (For additional discussion, 

see chapter 4, "European Community" section.) 

Brazil: pharmaceuticals 71 

The Pharmaceutical Manufacturers Association 

filed a petition under section 301 of the Trade Act of 

1974 on June 11, 1987, citing Brazil's lack of patent 

protection for pharmaceutical products and processes. 

On July 23, 1987, USTR initiated an investigation and 

requested consultations with Brazi1. 72After 

determining that Brazil's policy was unreasonable and 

restricted U.S. commerce, the President, on October 

20, 1988, used section 301 authority to proclaim tariff 

increases to 100 percent ad valorem on certain paper 

products, certain drugs, and consumer electronics items 

from Brazi1. 73 

On June 26, 1990, the President of Brazil 

announced that he would seek legislation to provide 

product and process patent protection for 

pharmaceuticals. The Brazilian administration 

indicated its intention to ensure the presentation of a 

bill to the Brazilian National Congress for this purpose 

by March 20, 1991, to seek its approval, and to 

implement its provisions immediately after it comes 

into force. 

Consequently, on June 27, 1990, USTR terminated 

the application of the increased duties with respect to 

articles entered or withdrawn from warehouses for 

consumption on or after July 2, 1990 74In early May 

1991, USTR reported that although the Brazilian 

Government had submitted patent protection 

legislation to the Brazilian Congress, the legislation 

still contained certain deficiencies. USTR is 

monitoring closely the Government of Brazil's efforts 

to enact appropriate legislation. (For additional 

discussion, see chapter 4, "Brazil" section.) 

Canada: salmon and herring 75 

On April 1, 1986, Icicle Seafoods and nine other 

seafood processors filed a petition alleging that the 

Canadian prohibition on exports of unprocessed 

herring and salmon violates GATT article XI, covering 

quantitative restrictions, and provides Canadian 

processors with an unfair cost advantage that burdens 

U.S. exports in third-country markets. 

On May 16, 1986, USTR initiated an 

investigation./6In November 1987 a GATT 

dispute-settlement panel ruled in favor of the United 

States; the panel report was adopted by the GATT 

Council in February 1988. 

USTR determined on March 28, 1989, that 

Canada's export prohibition denied a right to which the 

United States was entitled under the GATT. On April 

25, 1989, Canada replaced its discriminatory export 

prohibitions with landing requirements. On October 

13, 1989, a free-trade agreement dispute-settlement 

panel issued a report finding that the landing 

requirements violated U.S.-Canada Free-Trade 

Agreement article 407, which prohibits 

GATT-inconsistent export restrictions. 

In mid-February 1990, the United States and 

Canada reached agreement on an interim settlement of 

the dispute. The settlement permitted U.S. buyers to 

purchase 20 percent of British Columbia roe herring 

and salmon directly from British Columbia fishing 

grounds during the 1990 fishing season. The 

percentage will increase to 25 percent during 1991-93. 

Under the arrangement, roe herring shipped to the 

United States from Canada must be processed to the 

same extent required under Canadian law before 

re-export to third countries. 

Canada and the United States are scheduled to 

review the operation of this arrangement in 1993. The 

investigation was terminated on June 1, 1990. 77USTR 

continued to monitor compliance with the arrangement 

throughout 1991. USTR reported that Canada had 

issued all regulations necessary to implement the 

arrangement and otherwise had carried out its 

obligations under the arrangement. 

EC: enlargement 78 

By Proclamation 5601 of January 21, 1987, the 

President determined, pursuant to section 301(a), (b), 

and (d)(1), that duties should be increased to 200 

percent ad valorem on a most-favored-nation (MFN) 

basis for certain specified articles imported from the 

EC. The action was taken in response to import 

restrictions affecting soybeans and feed grains in 

Portugal and corn and sorghum in Spain introduced on 

March 1, 1986, as a result of the accession of Portugal 

and Spain to the EC. 

In a Federal Register notice dated January 30, 

1987, USTR noted that the United States and the EC 

had reached an agreement on January 29, 1987. An 

exchange of letters occurred on January 30, 1987. 

Under the agreement, the EC agreed to provide 

adequate compensation to the United States at least 

through December 31, 19907 9by extending certain 

tariff commitments, reducing certain tariffs, taking 

steps to ensure that Spain imported certain quantities of 

feed grains from non-EC countries, and eliminating 

restrictions on imports of non-EC grain into Portugal. 

In return, the United States suspended the increased 

duties of Proclamation 5601 on all the articles 

specified in the annex to that proclamation and 

increased the level of the import quotas imposed on 

certain EC products. 

On March 7, 1991, the EC confirmed that as of 

January 1, 1991, it had removed its restrictions on 

Portuguese imports of oilseeds and oilseed products. 

USTR terminated the quantitative restrictions on 

certain articles that had been imposed to mirror 

Portugal's restrictions (restrictions on certain 

chocolate; candy; apple or pear juices; ale, porter, 

stout, and beer), effective July 8, 1991. (For additional 

155 
discussion, see chapter 4, "European Community" 

section.) 

Japan: semiconductors 8° 

On June 14, 1985, the Semiconductor Industry 

Association filed a petition alleging that the Japanese 

Government had created a protective structure that 

acted as a major barrier to the sale of foreign 

semiconductors in Japan. 81 

On July 11, 1985, USTR initiated an investigation. 

Thereafter, the United States began consultations and 

technical discussions with Japan that led to an 

agreement under which Japan agreed to increase access 

for U.S. firms to the Japanese semiconductor market, 

and to help prevent dumping of semiconductors in the 

United States and third-country markets. Pursuant to 

this agreement, the President suspended the 

investigation.82The United States and Japan signed 

the final agreement on September 2, 1986. 

However, in response to the failure of Japan to 

fulfill its obligations under the agreement, 53the 

President subsequently proclaimed increased duties on 

imports of certain articles of Japan (i.e., certain 

televisions, power hand tools, and automatic data 

processing machines). 84Later, Japan came in 

conformity with some of its obligations under the 

agreement; therefore, the United States suspended 

certain of the increased duties. 85 

The 1986 U.S.-Japan Semiconductor Arrangement 

was scheduled to expire on July 31, 1991. In response 

to recommendations from the major producers of U.S. 

semiconductors, a new arrangement was concluded on 

June 11, 1991. As a result of Japan's progress in 

implementing its obligations under the 1986 

arrangement, and because the market access objectives 

are expected to be fully realized within the framework 

of the 1991 arrangement, USTR suspended the 

increased duties on the remainder of the targeted 

Japanese products under Proclamation 5631. The duty 

suspension became effective upon the date of the entry 

into force of the 1991 arrangement (August 1, 1991). 

Throughout 1991, USTR continued to assess 

compliance with the arrangement and the level of U.S. 

participation in the Japanese market. (For additional 

discussion, see chapter 4, "Japan" section.) 

Other Import 

Administration Laws 

Agricultural Adjustment Act 

Section 22 of the Agricultural Adjustment Act (7 

U.S.C. 624) authorizes the President to take action to 

prevent imports from undermining the integrity of U.S. 

Department of Agriculture (USDA) programs that are 

designed to stabilize domestic agricultural commodity 

prices.86The President acts on the basis of a formal 

investigation and report by the U.S. International Trade 

Commission. Following review of the Commission's 

findings and recommendations, the President may 

impose quantitative restrictions or fees on imports, not 

to exceed 50 percent of the value of the imported 

product, to protect relevant USDA programs. If the 

President determines that an emergency situation 

exists, he may take action without receiving the 

Commission's report. Such emergency action 

continues in effect until terminated or made permanent 

by the President. 

On July 9, 1991, the President temporarily 

increased the United States' 1.7-million-pound 

quantitative restriction on peanuts to allow, on an 

emergency basis, entry of an additional 100 million 

pounds of peanut products during the annual quota 

period ending July 31, 1991. 87This action followed an 

investigation by the Commission under section 22(d) to 

determine whether the existing import quota on 

specified peanut products should be expanded to 

compensate for domestic shortages induced by 

drought. The Commission's investigation, initiated on 

its own motion, was instituted on December 3, 1990. 

Findings and recommendations were forwarded to the 

President on March 22, 

Section 22 quantitative import restrictions 

continued in effect throughout 1991 on cotton products 

of certain specified staple lengths; cotton waste; 

peanuts; specified dairy products; and certain products 

containing added sugar, such as sweetened cocoa, 

imported pancake flours, and iced-tea mixes. Import 

fees remained in place on refined sugar. 89 

Meat Import Act of 1979 

The U.S. Meat Import Act of 1979 90requires the 

President to impose quotas on imports of bovine 

meat—primarily fresh, chilled, or frozen beef 91—if the 

projected aggregated quantity of the subject meats for 

the calendar year, as estimated by the USDA, is 

expected to exceed a specified "trigger" level 9 2The 

trigger level, equivalent to 110 percent of the 

applicable quota for meat imports in a given year, is 

calculated on the basis of a formula outlined in the law. 

Meat imports subject to the law are reviewed 

quarterly by the Secretary of Agriculture for 

conformance to trigger levels, at which time an 

estimate is made of total imports for the year. If the 

annual unrestrained meat import level is projected to 

exceed the trigger level, attempts are made to negotiate 

voluntary restraint agreements (VRAs) with major 

suppliers. To date, VRAs have eliminated the need for 

unilateral Presidential action. 

On December 31, 1990, the USDA announced that 

the quota level for meat imports in 1991 was 1,198.6 

million pounds, which translated into a 

1,318.5-million-pound trigger level. The USDA also 

estimated that 1,220 million pounds of meat would be 

imported during 1991, approximately 98.5 million 

pounds below the trigger level. 93As a result, the 

1991 88 

156 
United States imposed no quota limitations in 1991. 

Actual imports of meat subject to the act totaled 

1,330.6 million pounds in 1991, as shown in the 

following tabulation: 

Country 

Quantity 

(million pounds) 

Australia 743.3 

New Zealand 443.3 

Costa Rica 46.1 

Dominican Republic 35.3 

Guatemala 29.1 

Honduras 25.7 

Sweden 5.9 

Mexico 1.3 

Finland .3 

European Community .3 

Total 1,330.6 

Because of heavy shipments in the first two 

quarters of the year, Australia and New Zealand agreed 

on September 9 to limit voluntarily exports of quota 

meat to 743 million pounds and 445 million pounds, 

respectively, for calendar year 1991. 94On the basis of 

these agreements, the USDA issued a fourth-quarter 

estimate at 1,318.4 million pounds—only 0.1 million 

pounds short of the 1,318.5-million-pound trigger 

level. USDA representatives indicated, however, that 

the actual 1991 import figure of 1,330.6 million 

pounds exceeded trigger levels because of 

unexpectedly strong shipments from Central American 

countries in the final months of the year. 

On December 31, 1991, the USDA released its 

initial estimate of 1992 meat imports in the absence of 

restraint. Meat imports subject to the law were 

projected to total 1,274 million pounds-37.2 million 

pounds below the 1992 trigger level of 1,311.2 million 

pounds, which would mandate quantitative 

restrictions.95 

National Security Import 

Restrictions 

Section 232 of the Trade Expansion Act of 1962 96 

 authorizes the President, on the basis of a formal 

investigation and report by the Secretary of Commerce, 

to make adjustments to the importation of articles that 

threaten to impair the national security of the United 

States. Among the most important criteria considered 

by Commerce are- 

• Requirements of the defense and essential 

civilian sectors; 

• Maximum domestic production capacity; 

• Quantity, quality, and availability of imports; 

• Impact of foreign competition on the 

economic welfare of the essential domestic 

industry; and 

• Other factors relevant to the unique 

circumstances of the specific case. 

The President has 90 days to decide on appropriate 

action after receipt of the Secretary's findings. 

The section 232 authority to adjust imports has 

been used sparingly in the past. It has most notably 

been employed in connection with the imposition of 

quotas, fees, or economic sanctions on imports of 

petroleum products. 

The most recent investigation conducted under this 

section leading to import restrictions was a 1986 case 

that focused on imports of machine tools. The 

President, rather than acting unilaterally under 

authority of section 232, directed Commerce and 

USTR to negotiate VRAs with leading machine-tool 

exporting countries. Agreements were subsequently 

negotiated with Japan and Taiwan. 98The agreements 

to date have eliminated the need for Presidential action 

under section 232. On December 27, 1991, President 

Bush directed that a limited extension of the machine 

tool VRAs be negotiated with Japan and Taiwan. 

Import restrictions on non-computer-controlled 

machine tools were lifted at the end of 1991. Import 

restrictions on computer-controlled tools were to be 

removed progressively and lifted altogether by 

December 199399 

In 1991, Commerce received a petition from the 

American Gear Manufacturers Association requesting 

an investigation to determine the impact of gear 

imports on national security. 100Commerce accepted 

the petition on October 31, 1991.101 

Generalized System of 

Preferences 102 

The Generalized System of Preferences (GSP) is a 

temporary preferential tariff scheme offered by 

industrialized countries to promote the economic 

growth and development of nonindustrialized countries 

through expanded trade. The U.S. GSP program offers 

nonreciprocal duty-free entry into the customs territory 

of the United States for designated articles 103shipped 

directly from designated beneficiaries. Preferential 

GSP tariffs apply to approximately 4,300 products 

from more than 130 designated countries and 

territories. Legislative authority for the GSP was 

provided in title V of the Trade Act of 1974 (Public 

Law 93-618), and was originally granted for a period 

of 10 years beginning January 3, 1975. 1 °4The scheme 

became fully operational on January 1, 1976 

(Executive Order 11888), making the United States the 

19th member of the Organization for Economic 

Cooperation and Development (OECD) to implement 

such a program. Title V of the Trade and Tariff Act of 

1984 (Public Law 98-573) renewed the U.S. GSP and 

extended the program until July 4, 1993. 1 °5 

157 
preference programs such as the Caribbean Basin 

Economic Recovery Act (CBERA) or the U.S.-Israel 

Free-Trade Agreement. GSP duty-free imports in 1991 

accounted for 14.2 percent of total imports from the 

beneficiary countries and 2.8 percent of U.S. imports 

from the world (table 19). 

Table 20 lists the 10 leading U.S. GSP 

beneficiaries in 1991 and the value of U.S. imports 

from each country. These 10 countries collectively 

accounted for more than 84 percent of all duty-free 

GSP imports. The four leading beneficiaries—Mexico, 

Malaysia, Thailand, and Brazil—together accounted 

for more than one-half of all duty-free U.S. GSP 

imports. Mexico ranked as the single largest 

beneficiary in 1991 and accounted for 28.6 percent, or 

$3.8 billion, of duty-free GSP imports. Nevertheless, 

GSP duty-free imports from Mexico made up only 

12.6 percent of all U.S. imports from Mexico—a fact 

explained by the dominance of petroleum (which is not 

GSP eligible) in U.S. imports from that country. 

Table A-27 lists the major categories of U.S. 

imports under the GSP program during 1991, along 

with their leading suppliers. Machinery and 

mechanical appliances, electrical equipment, and parts 

formed the largest single category of imports and 

accounted for nearly one-third of the value of GSP 

imports in 1991. Malaysia was the leading supplier of 

these imports. Mexico was the leading supplier of the 

next five leading categories: miscellaneous manufactures ($1.7 billion); base metals and articles of base 

metal ($1.2 billion); prepared foodstuffs, beverages, 

and tobacco ($1.0 billion); plastics and rubber ($770 

million); and chemicals ($775 million). 

Table A-26 provides a more detailed list of 1991 

GSP imports. Telephone sets ($292 million) were the 

leading GSP duty-free import, continuing a trend that 

the Commission noted in 1991 was "significantly 

higher" than imports in prior years. 14 I Raw cane sugar 

($272 million) fell from first place in 1990 to second 

place in 1991 as a result of major U.S. quota 

reductions. 

Tables A-26 and A-27 list GSP imports aggregated 

by sections of the Harmonized Tariff Schedule (FITS), 

and table A-28 lists GSP imports aggregated by 

two-digit divisions of the Standard Industrial 

Classification (SIC) system. Each table shows the 

percentage of duty-free imports, the leading GSP 

source, and the value of the competitive-need 

exclusions for each category. 

Table 19 

U.S. Imports for consumption .' from GSP beneficiaries and the world, 1991 

Item 

All GSP 

beneficiaries World 

Value (1,000 dollars) 

Total 96,010,817 481,348,788 

GSP eligible products 29,315,147 181,051,414 

Duty-free under GSP 13,662,883 13,662,883 

GSP program exclusion 7,386,400 7,386,400 

Other 8,265,864 160,002,131 

Noneligible product imports 66,695,670 300,297,374 

Ratio of (percent) 

GSP eligible to total imports 30.5 37.6 

GSP duty-free to GSP-eligible imports 46.6 7.5 

GSP exclusions to GSP-eligible imports 25.2 4.1 

Other imports to GSP-elibible imports 28.2 88.4 

GSP duty-free to total imports 14.2 2.8 

I Customs value basis. 

Source: Compiled from official statistics of the U.S. Department of Commerce, as adjusted by the USITC. 

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Caribbean Basin Economic 

Recovery Act 142 

wearing apparel are being reduced under the program 

by a maximum of 20 percent to be phased in over the 

next 5 years. 146 

The Caribbean Basin Economic Recovery Act 

(CBERA) is the trade component of the U.S. 

Caribbean Basin Initiative (CBI). The CBI was 

launched in 1983 to expand foreign and domestic 

investment in nontraditional sectors of the Caribbean 

Basin countries as a means to help them diversify their 

economies and expand their exports. The CBERA, 

which provides duty-free entry into the United States 

for eligible products from designated Caribbean Basin 

countries, became operative on January 1, 1984 (Public 

Law 98-67, title II), and was significantly expanded in 

1990 (Public Law 101-382, title H). As a result of the 

1990 legislation, the CBERA has no statutory 

expiration date. 

There were 24 designated eligible beneficiaries 

("CBERA countries") during calendar year 1991: 

Antigua and Barbuda, Aruba, the Bahamas, Barbados, 

Belize, the British Virgin Islands, Costa Rica, 

Dominica, the Dominican Republic, El Salvador, 

Grenada, Guatemala, Guyana, Haiti, Honduras, 

Jamaica, Montserrat, the Netherlands Antilles, 

Nicaragua, Panama, St. Kitts-Nevis, St. Lucia, St. 

Vincent and the Grenadines, and Trinidad and Tobago. 

Although President Bush declared an embargo on 

nonhumanitarian exports to and most imports from 

Haiti following an October 1991 military coup in that 

country, Haiti did not lose its CBERA designation. 143 

Anguilla, Cayman Islands, Suriname, and Turks and 

Caicos Islands are potentially eligible for CBERA 

benefits, but they have neither requested designation 

nor been so designated by the United States. 

To be eligible for duty-free entry under the 

CBERA, articles must meet one of three criteria. They 

must be of CBERA-country origin (i.e., either wholly 

produced and manufactured in a CBERA country or 

have at least 35 percent of direct processing costs and 

materials produced in a CBERA country or countries, 

including Puerto Rico and the U.S. Virgin Islands); be 

produced in Puerto Rico and advanced in value or 

improved in condition in a CBERA country; or be 

assembled in a CBERA country from U.S. 

components. In addition, eligible articles must be 

exported directly to the customs territory of the United 

States. 144 

Specifically excluded from duty-free or 

reduced-duty entry under the CBERA are most textiles 

and apparel, canned tuna, petroleum and petroleum 

products, certain footwear, watches and watch parts 

with components from Communist countries, and sugar 

from Communist countries in the Caribbean Basin and 

in Central America. 145Beginning in 1992, duties on 

handbags, luggage, flat goods, work gloves, and leather 

In addition to receiving broader CBERA 

privileges, the countries of Costa Rica, Dominican 

Republic, Guatemala, Haiti, Jamaica, and Trinidad and 

Tobago also benefited from the special Guaranteed 

Access Levels (GAL) program during 1991. The GAL 

program, established in 1986, sets liberal quotas for 

textile and apparel items assembled in eligible CBERA 

countries from fabric formed and cut to pattern in the 

United States. GALs are separate from quotas 

applicable to products that were not assembled solely 

from U.S.-made and U.S.-cut fabric. GAL items are 

treated under HTS statistical reporting number 

9802.00.8010 and duties are levied only on the value 

added in the CBERA countries, not on the exported 

and re-imported U.S. content. 

In 1991, total U.S. imports (dutiable and duty-free) 

from CBERA countries reached $8.2 billion, or 1.7 

percent of all U.S. imports. U.S. exports to CBERA 

countries reached $9.9 billion, or 2.5 percent of all 

U.S. exports. The 1991 U.S. trade surplus with the 

CBERA countries was $1.6 billion, a figure that is 

slightly lower than that of the prior year because of the 

slow growth in U.S. exports to the region. 

Approximately 65 percent of U.S. imports from 

CBERA countries in 1991, valued at $5.4 billion, 

entered duty-free under various U.S. programs. Items 

that entered duty-free under the CBERA accounted for 

13.4 percent of imports from beneficiaries. These 

imports were valued at $1.1 billion in 1991, a slight 

increase from $1.0 billion in 1990 (table 21). Leading 

items entering Insert table 21 duty-free under the 

CBERA in 1991 were cane sugar ($116.6 million), 

frozen beef ($80.3 million), and footwear ($70.5 

million). (See table 22.) 

More than one-fifth of imports from beneficiaries, 

valued at $1.9 billion, were duty-free under the MFN 

general (column 1-general) duty rates. MFN 

accounted for the largest share of duty-free imports 

from CBERA beneficiaries. Almost 5 percent of 

imports, valued at $410 million, entered duty-free 

under GSP (table 21). 

Somewhat less than one-fifth of imports from 

beneficiaries, valued at $1.4 billion, entered under 

special duty provisions of HTS subheadings 

9802.00.60 (imported products containing certain 

metal of U.S. origin) and 9802.00.80 (imported 

assembled products containing U.S. components). 147 

 Included in this amount are imports of textile and 

apparel items subject to GAL agreements (HTS 

number 9802.00.8010), which increased sharply to 

$411 million in 1991 from $318 million in 1990 (table 

21). 

162 
Table 21 

U.S. Imports for consumption from countries designated under CBERA, 1by duty treatment, 

1989-91 

Item 1989 1990 1991 

Value (1,000 dollars, customs value) 

Total imports 6,637,440 7,525,208 8,229,366 

Dutiable value2 2,101,839 2,573,813 2,869,880 

HTS 9802.00.60 and 9802.00.80 504,882 520,107 691,052 

HTS 9802.00.80.10 106,055 112,770 146,307 

HTS 9802.00.80.50 398,241 406,235 544,695 

Other 1,596,957 2,053,706 2,178,828 

Duty-free value3 4,535,601 4,951,395 5,359,486 

MFN4 1,854,400 1,968,007 1,912,824 

CBERA5 905,762 1,020,717 1,120,697 

GSP5 415,859 472,303 410,439 

HIS 9802.00.60 and 9802.00.80 1,089,694 1,153,325 1,418,075 

HTS 9802.00.80.10 286,437 318,106 410,905 

HIS 9802.00.80.50 785,766 815,542 1,007,115 

Other duty free 269,886 337,042 497,451 

Percent of total 

Total imports 100.0 100.0 100.0 

Dutiable value2 31.7 34.2 34.9 

HTS 9802.00.60 and 9802.00.80 7.6 6.9 8.4 

HTS 9802.00.80.10 1.6 1.5 1.8 

HIS 9802.00.80.50 6.0 5.4 6.6 

Other 24.1 27.3 26.5 

Duty-free value3 68.3 65.8 65.1 

MFN4 27.9 26.2 23.2 

CBERA5 13.6 13.6 13.4 

GSP5 6.3 6.3 4.9 

HTS 9802.60 and 9802.00.80 16.4 15.3 17.2 

HTS 9802.00.80.10 4.3 4.2 5.0 

HTS 9802.00.80.50 11.8 10.8 12.2 

Other duty free 4.1 4.5 6.0 

I Panama is included as a beneficiary country in figures for 1988, and again in 1990-91. 

2 Reported dutiable value has been reduced by the duty-free value of imports entering under HTS subheading 

9802.00.60 and 9802.00.80 and increased by the value of ineligible items that were reported as entering under the 

CBERA and GSP programs. 

3 The total duty-free value is calculated as total imports less dutiable value. 

4 Figures for MFN duty-free imports represent the value of imports which have a col. 1-general duty rate of zero. 

5 Values for CBERA and GSP duty-free imports have been reduced by the value of MFN duty-free imports and 

ineligible items that were misreported as entering under the programs. 

Note.-Because of rounding, figures may not add to totals given. 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Andean Trade Preference Act 148 

A new U.S. trade preference scheme that was 

formally enacted in 1991, the ATPA was established to 

provide duty-free entry into the United States for 

certain products from designated countries in the 

Andean mountain region of South America. The U.S. 

Congress approved the ATPA on November 27, 1991 

(H.R. 1724, originally H.R. 661), and legislation to 

enact the ATPA was signed by President Bush on 

December 4, 1991 (Public Law 102-82). 149In 

February 1992, the United States requested a waiver 

from article I of the GATT, which requires that MFN 

tariffs be applied to all GATT members, to provide 

ATPA tariff preferences.I 5° Bolivia, Colombia, 

Ecuador, and Peru are the only countries cited as 

eligible ATPA beneficiaries. 151 At this writing, 

however, they were awaiting formal designation as 

beneficiaries by the President. The ATPA will become 

fully operational once such designations are made. 

The ATPA has two principal objectives. One is to 

increase market access in the United States for 

legitimate Andean products. This increased market 

access is part of U.S. policy efforts to discourage the 

production of illicit coca, the raw material of cocaine, 

which is grown and processed in large quantities in the 

Andean region. The other objective is to promote the 

"transition into a comprehensive free-trade zone for the 

Americas." 152 

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165 
The ATPA was modeled on the CBERA. Like the 

CBERA, the ATPA excludes from duty-free entry 

textiles, footwear, canned tuna, and petroleum. 

However, the ATPA also excludes rum because of U.S. 

concern over potential damage to the rum industries in 

Puerto Rico and the U.S. Virgin Islands. 153The ATPA 

also provides duty-free entry only for a period of 10 

years (the CBERA has no statutory expiration date). 

The ATPA does not offer the Andean countries GALs 

for textile products, which are available for CBERA 

countries. 

Total U.S. imports from the four eligible ATPA 

countries totaled $5.0 billion in 1991, down slightly 

from $5.5 billion in 1990. Bananas ranked as the 

largest nonoil import ($1.3 billion), followed by coffee 

($474 million), shellfish ($219 million), and cut 

flowers ($371 million). 154 The U.S. Department of 

Commerce estimates that based on current trade 

patterns, approximately 5 percent of the U.S. imports 

from Bolivia, Colombia, Ecuador, and Peru that are not 

already eligible for duty-free entry under GSP will 

benefit from duty-free status under the ATPA.I 55 

166 
ENDNOTES 

119 U.S.C. 2251 et seq. 

219 U.S.C. 2436 

3The Omnibus Budget and Deficit Reduction 

Acts made changes in the law designed to tighten 

the criterion used to determine eligibility. The 

principal change affecting petitions filed retroactive to 

October 25, 1982, stipulated that increased imports 

must be determined to be a cause no less important 

than any other cause of worker separations, as 

opposed to simply an important cause. 

4See Public Law 100-418, sec. 1421-1430. The 

OTCA of 1988 also provided for the imposition of an 

import fee, the proceeds of which are to be used to 

fund adjustment programs. The President is directed 

to negotiate an agreement to permit the fee under 

GATT Given the lack of an agreement, the fee 

would go into effect 2 years from date of passage of 

the act, unless the President certifies that it is not in 

the national economic interest. With a joint 

resolution the Congress could impose the fee, the 

President's certification notwithstanding. The 

President on August 23, 1990, notified the Congress 

that negotiations in the GATT had not gained the 

acceptance by any foreign trading parties for an 

import fee and that unilateral imposition of a fee 

would not be in the U.S. national economic interest. 

No House or Senate resolutions were introduced in 

calendar year 1991 to disapprove the executive 

action. 

5Certified firms are eligible to apply for technical 

services necessary to implement programs of 

economic recovery. Technical services include legal 

consultation designed to assist firms in assessing the 

appropriateness of pursuing remedies available 

through various trade statutes, and in-depth technical 

consultation in engineering, marketing, production 

methods, and financial management. 

6Derived from official statistics of the U.S. 

Department of Labor, Employment and Training 

Administration (ETA), Office of Trade Adjustment 

Assistance Management Information System. 

7Section 1421 of the OTCA of 1988 provided 

that employees of independent firms engaged in the 

exploration and drilling of oil and natural gas, which 

were separated after September 30, 1985, had 90 

days in which to file petitions requesting monetary 

benefits for trade readjustment allowances covering 

the period. Petitions were accepted from August 23 

through November 18, 1988. 

8See Public Law 100-418, sec. 1421 through 

1430. 

9Derived from official statistics of the U.S. 

Department of Commerce, Economic Development 

Administration. 

10 Ibid. 

11See discussion of section 303 of the Tariff Act 

of 1930, below. 

12 Upon the filing of a petition, the Commission 

has 45 days to make a preliminary determination of 

whether there is a reasonable indication of material 

injury or threat of material injury to an industry or 

material retardation of the establishment of an 

industry. If this determination is affirmative. 

Commerce continues its investigation and makes 

preliminary and final determinations concerning 

whether the imported article is being, or is likely to 

be, sold at LTFV. 

If Commerce makes an affirmative final 

determination, the Commission makes a final injury 

determination. If Commerce's final determination is 

negative, the proceedings end and the Commission 

does not make a final injury determination. 

13This figure does not count court-remanded 

cases on which new votes were taken, or 

investigations terminated before a determination was 

reached. 

14An antidumping investigation may be 

suspended through an agreement prior to a final 

determination by the U.S. Department of Commerce. 

An investigation may be suspended if exporters 

accounting for substantially all of the imports of the 

merchandise under investigation agree either to 

eliminate the dumping or to cease exports of the 

merchandise to the United States within 6 months. 

In extraordinary circumstances, an investigation may 

be suspended if exporters agree to revise prices to 

completely eliminate the injurious effect of the 

imports. A suspended investigation is reinstituted 

should LTFV sales recur. See 19 U.S.C. 1673c. 

15A subsidy is defined as a bounty or grant 

bestowed directly or indirectly by any country, 

dependency, colony, province, or other political 

subdivision on the manufacture, production, or export 

of products. See 19 U.S.C. 1303(a)(1), 1677(5), and 

1677-1(a). 

16 Agreement on Interpretation and Application of 

Articles VI, XVI, and XXIII of the General Agreement 

on Tariffs and Trade. 

17See 19 U.S.C. 1671. 

18Section 303(a)(2) provides that "[i]n the case 

of any imported article or merchandise which is free 

of duty, duties may be imposed under this section 

only if there are affirmative [injury] determinations by 

the Commission . . . except that such a 

determination shall not be required unless a 

determination of injury is required by the international 

obligations of the United States." 19 U.S.C. 

1303(a)(2). 

19This figure does not count court-remanded 

cases on which new votes were taken, or 

investigations terminated prior to a determination 

being reached. 

20A CVD investigation may be suspended 

through an agreement prior to a final determination' 

by Commerce if (1) the subsidizing country, or 

exporters accounting for substantially all of the 

imports of the merchandise under investigation, agree 

to eliminate the subsidy, to completely offset the net 

subsidy, or to cease exports of the merchandise to 

the United States within six months; or (2) 

extraordinary circumstances are present and the 

government or exporters described above agree to 

167 
completely eliminate the injurious effect of the 

imports of the merchandise under investigation. A 

suspended investigation is reinstituted if subsidization 

recurs. See 19 U.S.C. 1671c. 

21 Examples of "other unfair acts are common 

law trademark or copyright infringement, false 

advertising, false designation of origin, and trade 

secret misappropriation. Unfair practices that involve 

the importation of dumped or subsidized merchandise 

must be pursued under antidumping and CVD 

provisions and not under section 337. 

22 Sec. 337 proceedings at the Commission are 

conducted before an administrative law judge in 

accordance with the Administrative Procedure Act, 5 

U.S.C. 551 et seq. The administrative law judge 

conducts an evidentiary hearing and makes an initial 

determination, which is transmitted to the 

Commission. The Commission may adopt the 

determination by deciding not to review it, or it may 

choose to review it. If the Commission finds a 

violation, it must determine the appropriate remedy, 

the amount of any bond to be collected while its 

determination is under review by the President, and 

whether certain public-interest considerations 

preclude the issuance of any remedy. 

23 Significant portions of this section were taken 

from two reports published by the Office of the 

United States Trade Representative (USTR): 

"Section 301 Table of Cases," Feb. 20, 1992, and the 

"Report to Congress on Section 301 Developments 

Required by Section 309(a)(3) of the Trade Act of 

1974," Jan.-June and July-Dec. 1991. Additional 

information was taken from USTR, 1992 National 

Trade Estimate Report on Foreign Trade Barriers, 

(1992) and USITC, Operation of the Trade 

Agreements Program, (OTAP), 42nd Report, 1990, 

USITC publication 2403, July 1991. 

24 19 U.S.C. 2411, et seq. 

25 Prior to the enactment of the OTCA of 1988, 

authority to act under section 301 resided with the 

President, while USTR was effectively responsible for 

administration of the investigations cases. The new 

trade laW placed section 301 authority directly in the 

hands of USTR. 

26 Within this context, "commerce" includes 

services associated with international trade, 

regardless of whether such services are related to 

specific products, and foreign direct investment by 

U.S. persons with implications for international trade. 

27 The statute provides a number of procedures 

and time limits for action by USTR. USTR has 45 

days from receipt of a petition to determine whether 

or not to initiate an investigation. In all 

investigations, consultations are requested with the 

foreign country or instrumentality involved. If a case 

involves issues arising under a trade agreement, the 

United States employs the dispute settlement 

provisions of the agreement. The time period for a 

determination by USTR concerning the practice in 

question, and any action to be taken, varies 

according to the type of practice alleged. 

28 USTR docket No. 301-83. An investigation 

involving the same directive had been initiated prior 

to the enactment of the 1988 amendments to sec. 

301 but had been suspended (USTR docket No. 

301-60). 

29 USTR docket No. 301-88. 

39 See 56 F.R. 51943. 

31 USTR docket No. 301-87. 

32 This countervailing duty investigation was 

self-initiated by Commerce on October 31, 1991. 

33 Canada has raised issues in dispute resolution 

proceedings before the GATT concerning the U.S. 

action. Consultations were held on October 16, 1991 

on these issues and conciliation proceedings were 

held on November 15, 1991 before the GATT 

Committee on Subsidies and Countervailing 

Measures. On December 2, 1991, Canada 

requested the establishment of a dispute-settlement 

panel, which was convened on December 16, 1991. 

34 USTR docket No. 301-86. 

35 Section 182(a) of the Trade Act of 1974 

requires USTR to identify countries that deny 

adequate and effective protection of intellectual 

property rights or which deny fair and equitable 

market access to U.S. persons that rely on 

intellectual property protection. 19 U.S.C. 2242, et 

seq. 

36 See 56 F.R. 24878. 

37 On November 26, 1991, USTR determined 

that the case required additional time due to complex 

and complicated issues (56 F.R. 61447). 

38 See 56 F.R. 61278. 

39 On January 17, 1992, the United States 

reached an agreement with the Chinese Government 

in which China agreed to make significant 

improvements in its protection of patents, copyrights, 

and trade secrets and also to enforce intellectual 

property rights. Based on these commitments, USTR 

revoked China's identification as a "priority foreign 

country" under section 182 of the Trade Act and 

terminated the section 301 investigation. See 57 

F.R. 3084. 

413 USTR docket No. 301-85. 

41 See 56 F.R. 24877. 

42 On November 26, 1991, USTR determined 

that the case required additional time due to complex 

and complicated issues (56 F.R. 61447). 

Consultations with the Government of India continued 

after this extension to the end of 1991. 

43 On February 26, 1992, USTR determined that 

India's denial of adequate and effective patent 

protection continues to be unreasonable and burdens 

or restricts U.S. commerce. Although USTR 

terminated the investigation, it left open the possibility 

of trade action and instructed an interagency group 

to develop options. 

44 USTR docket No. 301-84. 

45 See 56 F.R. 11815. 

46 On March 13, 1992, USTR determined that the 

Government of Thailand's acts, policies, and 

practices related to the protection of patents are 

unreasonable and burden or restrict U.S. commerce. 

USTR further determined that action is appropriate 

under section 301 but that a delay of implementation 

168 
of such action is desirable. In this regard, USTR 

directed Section 301 Committee to recommend 

specific options that can be taken if the matter is not 

resolved satisfactorily. 

47 USTR docket No. 301-83. This action relates 

to the section 302 investigation under USTR docket 

No. 301-60, which was initiated by USTR on July 22, 

1987. See 52 F.R. 28223. Consultations under 

GATT in this investigation never took place because 

the EC took steps to provide access for a number of 

U.S. meat packers and USTR suspended its section 

302 investigation thereafter. Beginning October 31, 

1990, the EC removed the eligibility of U.S. packers 

to ship pork to the EC, precipitating the filing of the 

recent petition by the National Pork Producers 

Council and the American Meat Institute. 

" See 56 F.R. 1663. 

49 USTR docket No. 301-82. 

50 See 56 F.R. 292. 

51 USTR docket No. 301-80. 

52 See 55 F.R. 27731. 

USTR docket No. 301-81. 

54 For a discussion of this case, see the EC: 

Enlargement case, USTR docket No. 301-54, 

discussed below, and OTAP, 1989, USITC publication 

2317, Sept. 1990, p. 140. 

55 See 55 F.R. 50269. 

56See 55 F.R. 53376. 

57 USTR docket No. 301-79. 

58 See 54 F.R. 36089. 

" See 55 F.R. 19692. 

USTR docket No. 301-71. 

61 This trade agreement resulted from an 

investigation initiated by USTR on December 10, 

1981 (USTR docket 301-26), pursuant to a petition 

filed by the California Cling Peach Advisory Board, et 

al. The investigation involved alleged violations by 

the EC of GATT article XVI in granting production 

subsidies on EC member states' canned peaches, 

pears, and raisins that displaced scales of non-EC 

products within the EC and impaired tariff bindings 

on those products. 

62USTR docket No. 301-60. 

6353 F.R. 47897. 

64 54 F.R. 49150. 

6556 F.R. 20057. 

" 56 F.R. 37934. 

67 USTR docket No. 301-63. 

" See 53 F.R. 984. 

69 See 55 F.R. 4294. 

70 See USTR, 1992 National Trade Estimate 

Report on Foreign Trade Barriers. On March 16, 

1992, the panel issued its "follow-up" report. 

71 USTR docket No. 301-61. 

72 See 52 F.R. 28223. 

73 See 53 F.R. 41551. 

74 See 55 F.R. 27324. 

USTR docket No. 301-55. 

76 See 51 F.R. 19648. 

77 See 55 F.R. 23322. 

78 USTR docket No. 301-54. 

79 See USTR docket No. 301-81. 

80 USTR docket No. 301-48. 

81 50 F.R. 28866. 

82 51 F.R. 27811. 

83 52 F.R. 13419. 

84 52 F.R. 13412. 

85 52 F.R. 22693 and 52 F.R. 43146. 

86 The authority of section 22 supersedes any 

inconsistent provisions of international agreements 

entered into by the United States. The use of 

section 22 quotas is considered to be inconsistent 

with articles II and XI of the GATT. Article II 

prohibits unequitable treatment of trading partners; 

article XI forbids the use of quantitative import 

restrictions. The United States sought and received 

from the GATT contracting parties a waiver of its 

GATT obligations pursuant to provisions of articles II 

and XI in 1955. 

87 For details, see Presidential Proclamation No. 

6313, July 9, 1991. 

88 A detailed description of the Commission's 

findings and recommendations is contained in USITC, 

Peanuts (investigation 22-52), USITC publication 

2369, Mar. 1991. 

89 Outstanding section 22 actions in which no 

executive resolution occurred in 1991 included sugar 

(investigation No. 22-49), sugar-containing articles 

(investigation No. 22-48), and ice cream 

(investigation No. 22-50). The Commission's 

respective reports to the President are dated 

September and October 1985 and August 1989. 

9° The U.S. Meat Import Act of 1979 (Pub. Law 

88-482) became law on January 1, 1980, and 

amends the original statute, the Meat Import Act of 

1964. 

91 The law, which also encompasses imports of 

certain veal, mutton, and goat meat, does not apply 

to imports of pork, Iamb, fish, or poultry meat. 

92 U.S. imports from Canada became exempt 

from the law on Jan. 1, 1989, with the 

implementation of the U.S.-Canada Free-Trade 

Agreement (Pub. Law 100-499). 

93 See 56 F.R. 510 (Jan. 7, 1991). 

94 See 56 F.R. 193 (Oct. 4, 1991). Shipments 

from Australia were particularly heavy during the 

early part of the year due to an unusually high 

slaughter rate induced by drought. 

95 See 57 F.R. 553 (Jan. 7, 1992). 

96 Section 232 of the Trade Expansion Act of 

1962 (19 U.S.C. 1862) became law on October 11, 

1962, and replaces the predecessor statute section 8 

of the Trade Agreements Extension Act of 1958. 

97 Libyan policies and actions supported through 

revenues from the exportation of oil to the United 

169 
States were initially declared to be adverse to U.S. 

national security in March 1982. Economic sanctions 

based on Presidential proclamations of previous 

years continued in effect throughout 1991 on U.S. 

imports of crude and refined petroleum products 

originating in Libya. 

98Japan and Taiwan agreed in 1986 to limit for 

a 5-year period, through December 1991, exports of 

machine tools to the United States. Negotiations 

with West Germany and Switzerland failed to 

produce similar agreements, prompting notification by 

the United States that it was prepared to take 

unilateral action should imports from these countries 

exceed prescribed levels. No action to limit machine 

tool imports from West Germany or Switzerland has 

been taken by the U.S. Government to date. For 

further details, see USITC, OTAP, 1986, USITC 

publication 1995, July 1987, pp. 4-11, 4-27, and 4-41. 

99For further details, see Statement by Press 

Secretary Fitzwater, Dec. 27, 1991, on the Machine 

Tool Revitalization Program. 

100See 56 F.R. 56626 Nov. 6, 1991. 

101The USITC analyzes the gear industry in 

USITC, Competitive Position of the U.S. Gear 

Industry in U.S. and Global Markets (investigation 

No. 332-275), USITC publication 2278. 

102 Information in this section on the current 

operation of the U.S. GSP program is based a U.S. 

Department of State "Standard Seminar Presentation" 

on the GSP program presented in U.S. Department 

of State Telegram, Nov. 22, 1991, Washington, DC, 

message reference No. 384619. 

103 To be eligible, the article must be produced in 

one or more beneficiary countries, and the sum of 

(a) the cost or the value of materials produced, plus 

(b) the direct cost of processing performed in such 

country (or countries) is not less than 35 percent of 

the appraised value of the article when it enters the 

U.S. customs territory. Trade Act of 1974, sec. 

503(b)(1), title V, as amended. 

104Relatively minor amendments to the statute 

were made under section 1802 of the Tax Reform 

Act of 1976 (Pub. Law 94-455) and section 1111 of 

the Trade Agreements Act of 1979 (Pub. Law 96-39). 

186Trade Act of 1974, sec. 505, as amended. 

106 The President must notify Congress of his 

intention to make such designations and provide the 

considerations entering into the decision. Trade Act 

of 1974, title V, sec. 502(a), as amended. 

187These countries are Australia, Austria, 

Canada, European Economic Community members, 

Finland, Iceland, Japan, Monaco, New Zealand, 

Norway, Republic of South Africa, Sweden, 

Switzerland, and Union of Soviet Socialist Republics. 

Trade Act of 1974, title V, sec. 502(b), as amended. 

188Trade Act of 1974, title V, sec. 502(b), as 

amended. 

"9Ibid. 

11 ° "Gist: Generalized System of Preferences," 

U.S. Department of State dispatch, Sept. 2, 1991, p. 

661, and U.S. Department of State Telegram, Nov. 

22, 1991, Washington, DC, message reference No. 

384619. 

111Trade Act of 1974, title V, sec. 

amended. 

112Trade Act of 1974, title V, sec. 

amended. 

113Trade Act of 1974, title V, sec. 

amended. 

114Trade Act of 1974, title V, sec. 

amended. 

116 Trade Act of 1974, title V, sec. 504(c)(6)(A), 

as amended. Least-developed beneficiaries are 

Bangladesh, Benin, Bhutan, Botswana, Burkina Faso, 

Burundi, Cape Verde, Chad, Comoros, Djibouti, 

Equatorial Guinea, the Gambia, Guinea, 

Guinea-Bissau, Haiti, Kiribati, Lesotho, Malawi, 

Maldives, Mali, Mauritania, Mozambique, Nepal, 

Niger, Rwanda, Sao Tome and Principe, Sierra 

Leone, Somalia, Sudan, Tanzania, Togo, Tuvalu, 

Uganda, Vanuatu, Western Samoa, and Yemen Arab 

Republic (Sanaa). Harmonized Tariff Schedule, 

general note 3(c)(ii)(B) . 

116Trade Act of 1974, title V, sec. 504(c)(2)(B), 

as amended. Taiwan, the Republic of Korea, Hong 

Kong, and Singapore were graduated from the U.S. 

GSP program on this basis effective Jan. 2, 1989. 

For further details, see USITC, OTAP, 1988, USITC 

publication 2208, July 1989, p. 154. 

117Automatic graduation is phased in over 2 

years. and (2), Trade Act of 1974, title V, sec. 

504(f)(1), as amended. Bahrain, Bermuda, Brunei, 

and Nauru have been graduated based on thii 

policy. Bahrain subsequently was reinstated. For 

additional details, see USITC, OTAP, 1988, USITC 

publication 2208, July 1989, p. 154, and USITC, 

OTAP, 1990, USITC publication 2403, July 1991, 

p. 178. 

118Trade Act of 1974, sec. 504(c), as amended. 

119Becomes effective not later than July 1 of the 

next calendar year. Trade Act of 1974, title V, sec. 

504(c)(1), as amended. A country's GSP treatment 

may be reinstated if imports of the excluded article in 

a subsequent year fall below the competitive need 

ceilings in effect during the preceding calendar year. 

Trade Act of 1974, title V, sec. 504(c)(5), as 

amended. 

120 Trade Act of 1974, title V, sec. 504(c)(2)(A) 

and (B), as amended. 

121Trade Act of 1974, title V, sec. 504(c)(2)(A) 

and (B), as amended. 

122Trade Act of 1974, title V, sec. 504(c)(3)(A)(i) 

and (ii), as amended. 

123Trade Act of 1974, title V, sec. 504(d)(2), as 

amended. 

124For a more detailed discussion, see USITC, 

OTAP, 1990, USITC publication 2403, July 1991, p. 

179. 

126USTR, "Generalized System of Preferences, 

Notice of Review of Petition and Public Hearing," 55 

F.R. 43196 (Nov. 19, 1990). 

12656 F.R. 20484 (May 3, 1991). 

127 USIA, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 84. 

12856 F.R. 42080 (Aug. 26, 1991). 

502(c), as 

503(a), as 

503(c)(1), as 

504(a)(1), as 

170 
129USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 60. 

130 56 F.R., 37758 (Aug. 8, 1991). 

13157 F.R. 67 (Jan. 2, 1991). 

13256 F.R. 42080 (Aug. 26, 1991). 

133Presidential Proclamation 6282, Apr. 25, 

1991, published in 56 F.R. 19525 (Apr. 29, 1991). 

134Presidential Proclamation 6388, Dec. 4, 1991, 

published in 56 F.R. 63863 (Dec. 6, 1991). 

135Presidential Proclamation 6402, Feb. 5, 1991, 

published in 57 F.R. 4833 (Feb. 7, 1992). 

136Presidential Proclamation 6389, Dec. 5, 1991, 

published in 56 F.R. 64467 (Dec. 9, 1991). 

137USTR, 1992 Trade Policy Agenda and 1991 

Annual Report, 1992, p. 84. 

138 56 F.R. 65750 (Dec. 18, 1991). 

139Romania was suspended in 1987 after a 

determination that the Romanian Government did not 

provide basic internationally recognized workers' 

rights. For details of this action, see USITC, OTAP, 

1987, USITC publication 2095, July 1988, p. 5-14. 

14056 F.R. 42083 (Aug. 26, 1991). 

141USITC, OTAP, 1990, USITC publication 2403, 

July 1991, p. 180. 

142For a more detailed description of the 

benefits under the CBERA, and on the modifications 

made to the program in 1990, see USITC, Annual 

Report on the Impact of the Caribbean Basin 

Economic Recovery Act on U.S. Industries and 

Consumers: Sixth report, 1990, USITC publication 

2432, Sept. 1991, and USITC, OTAP, 1990, USITC 

publication 2403, July 1991, p. 172. 

143Executive Order 12779 of Oct. 28, 1991 

Prohibiting Certain Transactions With Respect to 

Haiti, 56 F.R. 55975 (Oct. 30, 1991). 

144CBERA, sec. 213, as amended. 

145CBERA, sec. 213(b), 231, as amended. 

146CBERA, sec. 213(h)(1), as amended. 

147These subheadings provide special tariff 

treatment to certain U.S.-origin goods processed or 

assembled in other countries and returned to the 

United States. Duties on products under the 

subheadings are assessed only on the value added 

to the goods as a result of foreign processing or 

assembly, not on the value of the exported and 

re-imported U.S. content. For further information, 

see USITC, Production Sharing: U.S. Imports Under 

Harmonized Tariff Schedule Subheadings 9802.00.60 

and 9802.00.80, 1986-1989, USITC publication 

2349, Jan. 1991. 

148 For more background on the ATPA, see 

USITC, OTAP, 1990, 1990, USITC publication 2403, 

July 1991, p. 40. 

149 Congressional Record, H11402, Nov. 26, 

1991 and U.S. Department of State Telegram, Jan. 7, 

1992, Washington, DC, message reference No. 

004246. 

150 U.S. Department of State Telegrams, Jan. 7, 

1992, Washington, DC, message reference No. 

004246, and Feb. 11, 1992, Geneva, message 

reference No. 01176. 

151Venezuela, although technically an "Andean" 

country, was not included as an eligible beneficiary of 

the ATPA because (1) its per capita GDP is 

significantly higher than that of the other Andean 

countries, (2) petroleum (excluded from duty-free 

entry under the ATPA) is Venezuela's leading export, 

and (3) the United States is concerned that 

Venezuelan industrial exports under the ATPA would 

compete with sensitive sectors of the U.S. economy. 

U.S. Department of State Telegram, Jan. 25, 1992, 

Washington, DC, message reference No. 023987. 

152"Remarks Following Discussions With 

President Rodrigo Borja Cevallos of Ecuador," 

Presidential Documents, July 23, 1990, p. 1140. 

103Sec. 204 (b) (8) of the Andean Trade 

Preference Act. For additional information, see Trade 

Reports International Group, "Ways and Means Acts 

on Host of Trade Bills," Washington Trade Daily, Nov. 

20, 1991, p. 2. 

154U.S. Department of Commerce data, 

reproduced in Washington Report on Latin America 

and the Caribbean, Jan. 28, 1992, p. 42. 

155Latin America/Caribbean Business 

Development Center, International Trade 

Administration, U.S. Department of Commerce, 

"Andean Trade Preference Act Passes," LA/C 

Business Bulletin, Dec. 1991, p. 2. 

171 

APPENDIX 

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201 
Table A-20 

Antidumping orders and findings in effect as of Dec. 31, 1991 

Effective date of 

Country and commodity original action' 

Argentina: 

Silicon metal Sept. 26, 1991 

Rectangular pipes and tubes May 26, 1989 

Carbon steel wire rod Nov. 23, 1984 

Barbed wire Nov. 13, 1983 

Australia: Canned Bartlett pears Mar. 23, 1973 

Austria: Railway track equipment Feb. 17, 1978 

Belgium: 

Phosphoric acid Aug. 20, 1987 

Sugar June 13, 1979 

Brazil: 

Silicon metal July 31, 1991 

Nitrocellulose July 10, 1990 

Disk wheels May 28, 1987 

Orange juice May 5, 1987 

Brass sheet and strip Jan. 12, 1987 

Butt-weld pipe fittings Dec. 11, 1986 

Pipe fittings May 21, 1986 

Construction castings May 9, 1986 

Canada: 

Steel rail Sept. 15, 1989 

Color picture tubes Jan. 7, 1988 

Fresh cut flowers Mar. 18, 1987 

Brass sheet and strip Jan. 12, 1987 

Oil country tubular goods June 16, 1986 

Construction castings Mar. 5, 1986 

Raspberries June 24, 1985 

Sugar and syrups Apr. 9, 1980 

Paving equipment Sept. 7, 1977 

Racing plate Feb. 27, 1974 

Elemental sulphur Dec. 17, 1973 

Pig iron July 24, 1971 

Steel jacks Sept. 13, 1966 

Steel bars and shapes Sept. 25, 1964 

Steel reinforcing bars Apr. 21, 1964 

Chile: 

Standard carnations Mar. 20, 1987 

Sodium nitrate Mar. 25, 1983 

Colombia: Fresh cut flowers Mar. 18, 1987 

Dominican Republic: Portland cement May 4, 1963 

Ecuador: Fresh cut flowers Mar. 18, 1987 

Finland: Rayon staple fiber Mar. 21, 1979 

France: 

Ball bearings May 15, 1989 

Cylindrical roller bearings May 15, 1989 

Spherical Plain Bearings May 15, 1989 

Brass sheet and strip Mar. 6, 1987 

Nitrocellulose Aug. 10, 1983 

Sorbitol Apr. 9, 1982 

Anhydrous sodium metasilicate Jan. 7, 1981 

Sugar June 13, 1979 

Large power transformers June 14, 1972 

Germany: 

Sodium thiosulfate Feb. 19, 1991 

Nitrocellulose July 10, 1990 

Industrial belts (except synchronous and V-belts) June 14, 1989 

Ball bearings May 15, 1989 

Cylindrical roller bearings May 15, 1989 

Spherical plain bearings May 15, 1989 

Crankshafts Sept. 23, 1987 

Urea July 14, 1987 

Brass sheet and strip Mar. 6, 1977 

See footnote at end of table 

202 
Table A-20--Continued 

Antidumping orders and findings in effect as of Dec. 31, 1991 

Effective date of 

Country and commodity original actionl 

Germany-Continued 

Barium carbonate June 25, 1981 

Sugar June 13, 1979 

Animal glue Dec. 22, 1977 

Drycleaning machinery Nov. 2, 1972 

Greece: Electrolytic manganese dioxide April 17, 1989 

Hong Kong: 

Manmade-fiber sweaters Sept. 24, 1990 

Photo albums Dec. 16, 1985 

Hungary: Tapered roller bearings June 19, 1987 

India: Pipes and tubes May 12, 1986 

Iran: Pistachio nuts July 17, 1986 

Israel: 

Phosphoric acid Aug. 19, 1987 

Oil country tubular goods Mar. 6, 1987 

Italy: 

Synchronous industrial belts and V-belts June 14, 1989 

Ball bearings May 15, 1989 

Cylindrical roller bearings May 15, 1989 

Granular polytetrafluoroethylene resin Aug. 30, 1988 

Tapered roller bearings Aug. 14, 1987 

Brass sheet and strip Mar. 6, 1987 

Brass fire protection equipment Mar. 1, 1985 

Woodwind pads Sept. 21, 1984 

Spun acrylic yarn Apr. 8, 1980 

Pressure sensitive tape Oct. 21, 1977 

Large power transformers June 14, 1972 

Japan: 

Active matrix LCD flat-panel displays Sept. 4, 1991 

Electroluminescent flat-panel displays Sept. 4, 1991 

Personal word processors Aug. 28, 1991 

PET film June 5, 1991 

Cement May 10, 1991 

Benzyl paraben Feb. 13, 1991 

Laser light-scattering instruments Nov. 19, 1990 

Nitrocellulose July 10, 1990 

Mechanical transfer presses Feb. 16, 1990 

Drafting Machines Dec. 29, 1989 

Small business telephone systems Dec. 11, 1989 

Industrial belts June 14, 1989 

Ball bearings May 15, 1989 

Cylindrical roller bearings May 15, 1989 

Spherical plain bearings May 15, 1989 

Electrolytic manganese dioxide April 17, 1989 

Microdisks April 3, 1989 

Granular polytetrafluoroethylene resin Aug. 28, 1988 

Brass sheet and strip Aug. 12, 1988 

Nitrile rubber June 16, 1988 

Forklift trucks June 7, 1988 

Stainless steel butt-weld pipe fittings March 25, 1988 

Color picture tubes Jan. 7, 1988 

Filament fabric Sept. 23, 1987 

Cast-iron pipe fittings July 6, 1987 

Butt-weld pipe fittings Feb. 10, 1987 

64K dynamic random access memory chips June 16, 1986 

Cellular mobile telephones Dec. 19, 1985 

Neoprene laminate July 19, 1985 

Calcium hypochlorite Apr. 18, 1985 

Titanium sponge Nov. 30, 1984 

Cyanuric acid Apr. 27, 1984 

Dichloroisocyanurates Apr. 27, 1984 

Pagers Aug. 16, 1983 

See footnote at end of table 

203 
Table A-20-Continued 

Antidumping orders and findings in effect as of Dec. 31, 1991 

Effective date of 

Country and commodity original actionl 

Japan-Continued: 

High powered amplifiers July 20, 1982 

Large electric motors Dec. 24, 1980 

Portable electric typewriters May 9, 1980 

Spun acrylic yarn Apr. 8, 1980 

Steel wire strand Dec. 8, 1978 

Impression fabric May 25, 1978 

Melamine Feb. 2, 1977 

Acrylic sheet Aug. 30, 1976 

Tapered roller bearings 4 inches and under Aug. 17, 1976 

Steel wire rope Oct. 15, 1973 

Synthetic methionine July 23, 1973 

Roller chain Apr. 12, 1973 

Bicycle speedometers Nov. 22, 1972 

Cadmium Aug. 4, 1972 

Large power transformers June 14, 1972 

Fishnetting June 9, 1972 

Polychloroprene rubber Dec. 9, 1971 

Ferrite cores Mar. 13, 1971 

Television receiving sets Mar. 10, 1971 

Tuners Dec. 12, 1970 

Kenya: Standard carnations Apr. 23, 1987 

Korea: 

PET film June 5, 1991 

Manmade-fiber sweaters Sept. 24, 1990 

Nitrocellulose July 10, 1990 

Small business telephone systems Feb. 7, 1990 

Color picture tubes Jan. 7, 1988 

Stainless steel cookware Jan. 20, 1987 

Brass sheet and strip Jan. 12, 1987 

Pipe fittings May 23, 1986 

Photo albums Dec. 16, 1985 

Television receiving sets Apr. 30, 1984 

Mexico: 

Cement Aug. 30, 1990 

Fresh cut flowers Apr. 23, 1987 

Cookware Dec. 2, 1986 

Netherlands: 

Brass sheet and strip Aug. 12, 1988 

New Zealand: Brazing copper wire and rod Dec. 4, 1985 

Norway: Atlantic salmon Apr. 12, 1991 

People's Republic of China: 

Ceiling fans Dec. 9, 1991 

Oscillating fans Dec. 9, 1991 

Tungsten ore concentrates Nov. 21, 1991 

Lug nuts Sept. 20, 1991 

Sparklers June 18, 1991 

Silicon metal June 10, 1991 

Sodium thiosuffate Feb. 19, 1991 

Hammers/sledges Feb. 19, 1991 

Picks/mattocks Feb. 19, 1991 

Axes/adzes Feb. 19, 1991 

Nitrocellulose July 10, 1990 

Tapered roller bearings June 15, 1987 

Cookware Dec. 2, 1986 

Candles Aug. 28, 1986 

Construction castings May 9, 1986 

Paint brushes Feb. 14, 1986 

Barium chloride Oct. 17, 1984 

Chloropicrin Mar. 22, 1984 

Potassium permanganate Jan. 31, 1984 

See footnote at end of table 

204 
Table A-20-Continued 

Antidumping orders and findings In effect as of Dec. 31, 1991 

Effective date of 

Country and commodity original actionl 

Peoples' Republic of China-Continued: 

Shop towels Oct. 4, 1983 

Printcloth Sept. 16, 1983 

Romania: 

Ball bearings May 15, 1989 

Urea July 14, 1987 

Tapered roller bearings June 19, 1987 

Singapore: 

V-belts June 14, 1989 

Ball bearings May 15, 1989 

Color picture tubes Jan. 7, 1988 

Rectangular pipes and tubes Nov. 13, 1987 

South Africa: Brazing copper wire rod Jan. 29, 1986 

Spain: Potassium permanganate Jan. 17, 1984 

Sweden: 

Ball bearings May 15, 1989 

Cylindrical roller bearings May 15, 1989 

Seamless stainless steel hollow products Dec. 13, 1987 

Brass sheet and strip Mar. 6, 1987 

Staples Dec. 20, 1983 

Staplers Dec. 20, 1983 

Stainless steel plate June 8, 1973 

Taiwan: 

Lug nuts Sept. 20, 1991 

Manmade-fiber sweaters Sept. 24, 1990 

Small business telephone systems Dec. 11, 1989 

Rectangular tubing Mar. 27, 1989 

Stainless steel cookware Jan. 20, 1987 

Butt-weld pipe fittings Dec. 17, 1986 

Cookware Dec. 2, 1986 

Oil country tubular goods June 18, 1986 

Pipe fittings May 23, 1986 

Circular pipes and tubes May 7, 1984 

Television receiving sets Apr. 30, 1984 

Fireplace mesh panels . June 7, 1982 

Carbon steel plate June 13, 1979 

Clear sheet glass Aug. 21, 1971 

Thailand: 

Ball bearings May 15, 1989 

Pipe fittings Aug. 20, 1987 

Circular welded pipes and tubes Mar. 11, 1986 

Turkey: 

Aspirin Aug. 25, 1987 

Pipes and tubes May 15, 1986 

United Kingdom: 

Sodium thiosulf ate Feb. 19, 1991 

Nitrocellulose July 10, 1990 

Ball bearings May 15, 1989 

Cylindrical roller bearings May 15, 1989 

Crankshafts Sept. 21, 1987 

USSR: 

Urea July 14, 1987 

Titanium sponge Aug. 28, 1968 

Venezuela: 

Aluminum sulfate Dec. 15, 1989 

Electrical conductor redraw rods Aug. 22, 1988 

Yugoslavia: 

Nitrocellulose Oct. 16, 1990 

Tapered roller bearings Aug. 14, 1987 

See footnote at end of table 

205 
Table A-20—Continued 

Antidumping orders and findings in effect as of Dec. 31, 1991 

Effective date of 

Country and commodity original actionl 

Revocations in 1991: 

India: Construction castings May 9, 1986 

Italy: Clear sheet glass Dec. 9, 1971 

Japan: Trichloroisocyanuric acid Apr. 27, 1984 

Japan: Swimming pools Sept. 2, 1977 

Netherlands: Animal glue Dec. 22, 1977 

Sweden: Animal glue Dec. 22, 1977 

Yugoslavia: Animal glue Dec. 22, 1977 

Suspension agreements in effect: 

Canada: Potassium chloride Jan. 19, 1988 

Hungary: Truck trailer axles Jan. 4, 1982 

Japan: 

Erasable programmable read-only memory chips Aug. 1, 1986 

Small motors Nov. 6, 1980 

1 The US. Department of Commerce conducts a periodic review of outstanding antidumping duty orders and 

suspension agreements, upon request, to determine if the amount of the net margin of underselling has changed. If a 

change has occurred, the imposed antidumping duties are adjusted accordingly. The results of the periodic review 

must be published together with a formal notice of any antidumping duty to be assessed, estimated duty to be 

deposited, or investigation to be resumed 

Source: US. Department of Commerce, International Trade Administration 

206 
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208 
Table A-22 

Countervailing-duty orders and findings in effect as of Dec. 31, 1991 

Effective date of 

Country and commodity original actionl 

Argentina: 

Leather Oct. 2, 1990 

Welded carbon steel pipe and tube products Sept. 27, 1988 

Textiles and apparel Mar. 12, 1985 

Oil country tubular goods Nov. 22, 1984 

Cold-rolled steel sheet Apr. 26, 1984 

Wool Apr. 4, 1983 

Leather wearing apparel Mar. 18, 1983 

Footwear Jan. 17, 1979 

Woolen garments Nov. 16, 1978 

Brazil: 

Brass sheet and strip Jan. 8, 1987 

Castings May 15, 1986 

Agricultural tillage tools Oct. 22, 1985 

Pig iron Apr. 4, 1980 

Cotton yarn Mar. 15, 1977 

Certain castor oil products Mar. 16, 1976 

Canada: 

Steel rail Sept. 22, 1989 

Standard carnations Mar. 12, 1987 

Live swine Aug. 15, 1985 

Chile: Standard carnations Mar. 19, 1987 

Ecuador: Fresh cut flowers Jan. 13, 1987 

European Community: 2 Sugar July 31, 1978 

France: Brass sheet and strip Mar. 6, 1987 

India: Certain iron-metal castings Oct. 6, 1980 

Iran: 

Roasted pistachios Oct. 7, 1986 

Nonroasted pistachios Mar. 11, 1986 

Israel: 

Industrial phosphoric acid Aug. 19, 1987 

Oil country tubular goods Mar. 6, 1987 

Fresh cut roses Sept. 4, 1980 

Korea: Stainless steel cookware Jan. 20, 1987 

Malaysia: Carbon steel wire rod Apr. 22, 1988 

Mexico: 

Porcelain cookware Dec. 12, 1986 

Textile mill products Mar. 18, 1985 

Portland hydraulic cement and cement clinker Sept. 21, 1983 

Leather wearing apparel Apr. 10, 1981 

Netherlands: Standard chrysanthemums Mar. 12, 1987 

New Zealand: 

Steel wire nails Oct. 5, 1987 

Steel wire Sept. 2, 1986 

Carbon steel wire rod Mar. 7, 1986 

Lamb meat Sept. 17, 1985 

Copper rod and wire Aug. 5, 1985 

Norway: Atlantic salmon Apr. 12, 1991 

Pakistan: Cotton shop towels Mar. 9, 1984 

Peru: 

Pompom chrysanthemums Apr. 23, 1987 

Rebars Nov. 27, 1985 

Cotton sheeting and sateen Feb. 1, 1983 

Cotton yarn Feb. 1, 1983 

Saudi Arabia: Carbon steel wire rod Feb. 3, 1986 

Singapore: Antifriction bearings May 3, 1989 

South Africa: Ferrochrome Mar. 11, 1981 

Spain: Stainless steel wire rod Jan. 3, 1983 

Sweden: 

Certain carbon steel Oct. 11, 1985 

Viscose rayon staple fiber May 15, 1979 

Taiwan: Stainless steel cookware Jan. 20, 1987 

See footnotes at end of table 

209 
Table A-22-Continued 

Countervailing-duty orders and findings in effect as of Dec. 31, 1991 

Effective date of 

Country and commodity original action' 

Thailand: 

Butt-weld pipe fittings Jan. 18, 1990 

Ball bearings May 3, 1989 

Pipe fittings Feb. 10, 1989 

Steel wire nails Oct. 2, 1987 

Rice Apr. 10, 1986 

Pipes and tubes Aug. 14, 1985 

Certain apparel Mar. 12, 1985 

Turkey: 

Acetylsalicylic acid (aspirin) Aug. 26, 1987 

Pipe and tube Mar. 7, 1986 

Uruguay: Leather wearing apparel July 17, 1982 

Venezuela: 

Aluminum sulfate Dec. 19, 1989 

Electrical conductor redraw rods Aug. 22, 1988 

Zimbabwe: Wire rod Aug. 15, 1986 

Revocations in 1991: 

Brazil: Scissors and shears Feb. 11, 1977 

Canada: 

Pork products Sept. 22, 1989 

Oil country tubular goods Jun. 16, 1986 

Groundfish May 15, 1986 

Mexico: 

Auto glass Jan. 14, 1985 

Portland hydraulic cement and clinker Sept. 21, 1983 

Litharge, red lead, and lead stabilizers Dec. 6, 1982 

Ceramic tile May 10, 1982 

Suspension agreements in effect: 

Argentina: Carbon steel wire rod Sept. 27, 1982 

Brazil: 

Forged crankshafts July 28, 1987 

Orange juice Mar. 2, 1983 

Canada: Red raspberries Jan. 9, 1986 

Colombia: 

Miniature carnations Jan. 13, 1987 

Cut flowers Jan. 12, 1983 

Costa Rica: Fresh cut flowers Jan. 3, 1987 

Peru: Shop towels Sept. 12, 1984 

Singapore: Compressors Nov. 7, 1983 

Thailand: Textiles Mar. 12, 1985 

1The US. Department of Commerce conducts a periodic review of outstanding countervailing duty orders and 

suspension agreements, upon request, to determine if the amount of the net subsidy has changed. If a change has 

occurred, the imposed countervailing duties are adjusted accordingly 

2 Includes Belgium, Denmark, France, Ireland, Italy, the United Kingdom, Germany, Luxembourg, the 

Netherlands, and Greece 

Source: US. D --•-"ritant of Commerce, International Trade Administration 

210 
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222 
INDEX 

Agricultural Adjustment Act: 

activities in 1991, 156 

Airbus Industrie: 

disputes with EC, 45-46, 92-94 

Alcoholic beverages: 

GATT' panel on, 36-37, 38; Taiwan announces 

opening of market to distilled spirits, 126. 

See also beer. 

Andean Trade Preference Act (ATPA): 

enacted in 1991, 163-166 

Animal hormones (BST): 

and EC, 92 

Antidumping law: 

description of, 148-149 

Apples and pears: 

GATT followup, 37 

Apparel: 

See textiles. 

Argentina: 

signs BIT with U.S., 72 

Arrangement Regarding International Trade in 

Textiles (Multifiber Arrangement). 

See GATT Arrangement Regarding International 

Trade in Textiles. 

Baltic countries: 

See Latvia, Lithuania, Estonia. 

Beef: 

Arrangement Regarding Bovine Meat, 44; Japan 

lifts import quotas on, 107. See also Meat Import 

Act, Third Country Meat Directive. 

Beer: 

Canada/U.S. disputes, 36-37, 38, 99-100, 153 

Bilateral Investment Treaty Program (BIT): 

overview of activities in 1991, 71-72 

Brazil: 

dispute over nonrubber footwear, 38; economic 

overview, xix; intellectual property/patents, 130; 

merchandise trade with the United States, 127; and 

pharmaceuticals, 129, 155; Treaty of Asuncion 

(formation of MERCOSUR), 129 

BST: 

See animal hormones. 

Bulgaria: 

granted GSP in 1991, 159 

Canada: 

constitutional developments (Quebec), 96-97; 

disputes over beer, 36-37, 38, 99-100, 153; 

dispute over pork, 100-101; dispute over herring 

and salmon, 19, 155; dispute over softwood 

lumber, 98-99, 151-152; economic overview, xvii; 

interprovincial trade barriers, 96; merchandise 

trade with the United States, 94-95; and NAFTA 

negotiations, 1-8, 95-96; operation of 

U.S.-Canada Free-Trade Agreement, 98 

Canned fruit: 

and EC, 154 

Caribbean Basin Economic Recovery Act 

(CBERA): 

activities in 1991, 162 

Center for Cooperation with European 

Economies in Transition (CCEET): 

See OECD, Partners in Transition program. 

China: 

attempts to rejoin GATT, 125; and intellectual 

property, 152; and market access,. 151 

Citrus: 

Japan removes import quotas on oranges, 107 

Cigarettes: 

dispute with Thailand, 19 

Cocoa: 

International Cocoa Agreement, 62 

Coffee: 

International Coffee Agreement, 62-63 

Commodity Credit Corporation: 

grain sales to Soviet Union, 74 

Commonwealth of Independent States (CIS): 

See Soviet Union. 

223 
Computers: 

and Japan, 107 

Construction-related services (major projects): 

and Japan, 109-110, 154 

Corn gluten feed: 

dispute with EC, 90-91 

Countervailing-duty law: 

description of, 149 

Customs Cooperation Council (CCC): 

activities in 1991, 58-59 

Czech and Slovak Federal Republic: 

and OECD Partners in Transition Program; 

granted GSP benefits, 159; signs BIT with U.S., 72 

Dairy products: 

GATT International Dairy Arrangement, 43-44 

Distilled spirits: 

See alcoholic beverages. 

Eastern Europe: 

Bulgaria granted GSP benefits, 159; Czech and 

Slovak Federal Republic granted GSP benefits, 

159; economic overview, xix; OECD Partners 

in Transition program, 57; Trade Enhancement 

Initiative, 159; Yugoslavia GSP benefits suspended, 

159 

El Salvador: 

accedes to GATT, 39 

Electronic toll collection equipment: 

and Norway, 54, 153-154 

Enlargement (of European Community): 

91-92, 153, 155 

Enterprise for the Americas Initiative (EAI): 

activities in 1991, 67 

Environment: 

Basel Convention on the Transboundary Movement 

of Hazardous Wastes and Their Disposal, 17-18; 

Convention on International Trade in Endangered 

Species of Wild Fauna and Flora (CITES), 17; 

Driftnet Monitoring, Assessment, and Control Act 

of 1987, 17; GATT panels addressing environmental issues, 18-21; GATT Group on Environmental Measures and International Trade, 21; and 

GATT Standards Code, 20; and GATT Subsidies 

Code, 20-21; herring and salmon dispute 

(Canada/U.S.), 19, 155; impact of environmental 

policy on trade, 14-15; impact of trade policy on 

environment, 14; Integrated Border Environmental 

Plan (U.S./Mexico), 23; International Pollution 

Deterrence Act (Boren bill), 17; International 

Tropical Timber Agreement, 17; International 

Whaling Convention, 17; Marine Mammal 

Protection Act, 17, 19-20, 38; Montreal Protocol on 

Substances that Deplete the Ozone Layer, 17-18; and 

North American Free-Trade Agreement, 22-23; and 

OECD, 22; Pelly amendment, 16-17, 126; 

petroleum taxes dispute, 19; South Pacific Drift 

Net Convention, 17; Stockholm Declaration on 

Human Environment, 16; tuna/dolphin dispute 

(Mexico-U.S.), 19-20, 38, 118; tuna dispute 

(Canada/U.S.), 19; trade and the, 13-23; UN 

Conference on Environment and 

Development (Rio Conference/Earth Summit), 

16; UN Environment Programme, 16; World 

Commission on Environment and Development 

(Brundtland Commission), 16 

Estonia: 

receives GSP benefits, 159 

European Community (EC): 

annual agricultural price package, 86-87; 

Broadcast Directive, 83-84; and BST (animal 

hormone), 92; and canned fruit, 154; Common 

Agricultural Policy (CAP) reform, 86-87; 

disputes over Airbus, 45-46, 92-94; dispute over 

corn gluten, 90-91; dispute over meat imports 

(Third Country Meat Directive), 37, 89-90, 152-152; 

dispute over oilseeds, 37, 88-89,154-155; 

enlargement dispute, 91-92, 153, 155; and 

horsemeat, 90; Maastrict summit, 84-85; 

merchandise trade with the United States in 1991, 

81-82; negotiations with EFTA for European 

Economic Area, 85; 1992 program, 83-84 

European Economic Area: 

See European Community and European 

Free-Trade Association. 

European Free-Trade Association (EFTA): 

negotiations for European Economic Area 

with EC, 85 

Footwear: 

See nonrubber footwear. 

Forest products: 

U.S.-Japan Wood Products Agreement, 109. See 

also tropical timber and softwood lumber. 

GATT Agreement on Import Licensing 

Procedures: 

activities in 1991, 42-43 

GATT Agreement on Technical Barriers to Trade. 

See Standards Code. 

224 
GATT Agreement on Trade in Civil Aircraft: 

activities in 1991, 45-46; disputes with EC over 

Airbus Industrie, 45-46; concern over Canadian 

procurement of flight simulators, 46 

GATT Antidumping Code: 

activities in 1991, 41-42 

GATT Arrangement Regarding Bovine Meat: 

activities in 1991, 44 

GATT Arrangement Regarding International 

Trade in Textiles: 

activities in 1991, 36, 68-71 

GATT Committee on Balance-of-Payment 

Restrictions: 

activities in 1991, 35 

GATT Committee on Tariff Concessions: 

activities in 1991, 35 

GATT Committee on Trade and Development: 

activities in 1991, 35 

GATT Council of Representatives: 

activities in 1991, 35 

GATT Customs Valuation Code: 

activities in 1991, 42 

GAIT Government Procurement Code: 

activities in 1991,44-45; and case with Norway 

(electronic toll collection equipment), 45; and case 

with EC (sonar mapping equipment), 45; Korean 

accession request, 45 

GAIT Group on Environmental Measures and 

International Trade: 

activities in 1991, 13 

GATT International Dairy Arrangement: 

activities in 1991, 43-44 

GATT Ministerial: 

activities in 1991, 33-35 

GAIT Standards Code: 

activities in 1991, 43; and environment, 20 

GATT Subsidies and Countervailing Duties Code: 

activities in 1991, 40-41; and environment, 20-21 

GATT Uruguay Round: 

agriculture, 9-10; antidumping, 12; dispute 

settlement, 12-13; Draft Agreement of Sanitary and 

Phytosanitary Measures, 10; Dunkel draft text 

highlights, 9-13; Dunkel draft text introduced, 8; 

fmal negotiating group texts prepared, 8; 

government procurement, 12; Group of Negotiations 

on Goods, 8; Group of Negotiations on Services, 

9; intellectual property rights, 13; market access, 

9-10, 13; Multilateral Trade Organization proposed, 

13; rulemaking, 11-13; textiles, 10; services, 10-11; 

subsidies, 12; trade-related investment measures, 

11-12 

GATT Working Group on the Export of 

Domestically Prohibited Goods and 

Other Hazardous Substances: 

activities in 1991, 36 

Gears: 

and national security, investigation requested, 157 

Generalized System of Preferences (GSP): 

administration of, 158; competitive-need 

provision, 158; country eligibility, 158; extension 

of GSP benefits to Central and Eastern Europe, 159; 

product eligibility, 158; products imported 

under,159-161; results of annual review, 159; Trade 

Enhancement Initiative, 159 

Germany: 

and Airbus disputes, 45-46, 92-93; economic 

overview, xvii 

Grain: 

U.S: Soviet Long-Term Grain Agreement, 74 

(See also wheat.) 

Guatemala: 

accedes to GATT, 39 

Horsemeat: 

and EC, 90 

Ice cream and yogurt: 

GATT followup, 37 

Import relief laws: 

description of section 201, 147; description of 

section 406, 147; adjustment assistance, 147-148 

India: 

and intellectual property, 152 

Intellectual property: 

and China, 152; and India, 152; and Korea, 123; and 

Taiwan, 126; and Thailand (copyright enforcement), 

153; and Thailand (patent protection for 

pharmaceuticals), 152 

International Cocoa Agreement: 

activities in 1991, 62 

International Coffee Agreement: 

activities in 1991, 62-63 

International Jute Agreement: 

activities in 1991, 65 

225 
International Natural Rubber Agreement: 

activities in 1991, 64-65 

International Sugar Agreement: 

activities in 1991, 63-64 

International Tropical Timber Agreement: 

activities in 1991, 66-67; and environment, 17, 

66-67 

International Wheat Agreement: 

activities in 1991, 65-66 

Israel: 

See U.S.-Israel Free-Trade Area Agreement. 

Japan: 

autos and parts, 104-106; beef import quotas 

lifted, 107; Bush visit to Tokyo, 104; citrus, 107; 

computers, 107; construction-related services (major 

projects), 109-110, 154; economic overview, xviii; 

import-promotion programs, 103; merchandise trade 

with the United States, 101-103; MOSS talks, 104, 

105; Nippon Telegraph and Telephone (NTT), 109; 

paper, 110; rice, 106-107; Semiconductor 

Agreement, 107-108, 156; Structural Impediments 

Initiative (SID, 110-111; telecommunications, 

108-109; VRAs on machine tools, 110, 125-126, 

157; Wood Products Agreement, 109 

Jute: 

International Jute Agreement, 65 

Korea: 

See Republic of Korea. 

Latvia: 

receives GSP benefits, 159 

Lithuania: 

receives GSP benefits, 159 

Macao: 

accedes to GATT, 39 

Machine tools: 

dispute with Israel, 72-73; VRAs on machine tools 

from Japan and Taiwan, 110, 125-126, 157 

Major projects: 

See construction-related services. 

Meat Import Act: 

activities in 1991, 156-157 

Meat imports: 

Australia and New Zealand agree to restrict, 157; 

dispute with EC over Third Country Meat Directive 

37, 89-90, 152-153 

Mexico: 

dispute over tuna, 19-20, 38, 118; economic 

overview, xvii; foreign-exchange policy, 115; 

foreign investment, 116-117, 119; free-trade 

agreement with Chile, 117; and GSP, 115; import 

bans on fruit and swine, 119; intellectual property 

rights, 117-118; merchandise trade with the U.S., 

111-115; and NAFTA negotiations, 1-8, 117; 

privatization efforts, 115-116; removal of 

import-licensing requirements, 118-119; textile 

product labeling, 119 

Multifiber Arrangement (MFA): 

See GATT Arrangement Regarding International 

Trade in Textiles. 

National security import restrictions: 

activities in 1991, 157 

Natural rubber: 

International Natural Rubber Agreement, 64-65 

Nonrubber footwear: 

dispute with Brazil, 38 

North American Free-Trade Agreement (NAFTA): 

agriculture, 6; automobiles, 3-4; Canadian perspective, 1-8, 95-96; chronology, 1-2; dispute 

settlement, 6; environmental concerns associated 

with, 7, 22-23; financial services, 4; foreign 

investment, 4; government procurement, 5; 

intellectual property, 6; labor issues associated 

with, 7; Mexican perspective, 1-8, 115; petroleum, 6; rules of origin, 3; safeguards, 5; standards, 

5; tariff and nontariff measures, 2; telecommunications services, 4; transportation services, 4 

Norway: 

and electronic toll equipment, 54, 153-154 

Oilseeds: 

dispute with EC, 37, 88-89, 154-155 

Oranges: 

See citrus. 

Organization for Economic Cooperation and 

Development (OECD): 

and agricultural policy reform, 56; annual 

ministerial meeting, 55-56; and Central and 

Eastern Europe (Partners in Transition 

program), 57; Development Assistance 

Committee, 57; and environmental issues 

(Environment Commmittee), 22, 56-57; Export 

Credits Arrangement, 57, 58; and investment, 

57-58 

Paper: 

See Japan. 

226 
Partners in Transition program: 

See Organization for Economic Cooperation and 

Development. 

Peanuts: 

1991 quota expanded, 156 

Pharmaceuticals: 

and Brazil, 129, 155; and Thailand, 152 

Pork: 

dispute with Canada, 38, 100-101 

Portugal: 

See enlargement. 

Republic of Korea: 

adopts five-year economic plan, 120-121; 

anti-import campaigns, 121-122; economic 

overview, xviii; exchange-rate policy, 123; and 

intellectual property rights, 123; merchandise trade 

with the United States, 120; requests accession to 

GATT Agreement on Government Procurement, 13; 

telecommunications, 123 

Rice: 

Japanese ban on imports, 106-107; Korean ban on 

imports, 122-123 

Rio Conference: 

See environment. 

Rubber: 

See natural rubber. 

Salmon and herring: 

dispute with Canada, 19, 155 

Section 201: 

description of, 147 (no cases in 1991) 

Section 301: 

cases in 1991, 151-156; description of, 151 

Section 303: 

cases in 1991, 149-150; description of, 149 

Section 337: 

cases in 1991, 150-151; description of, 150 

Section 406: 

description of, 147 (no cases in 1991) 

Section 751: 

description of, 150 (no cases in 1991) 

Semiconductors: 

Semiconductor Agreement, 107-108, 156 

Softwood lumber: 

dispute with Canada, 98-99, 151-152 

Sonar mapping equipment: 

case with EC, 45 

Southern Common Market (MERCOSUR): 

agreement to establish, 129 

Soviet Union: 

economic overview, xix; U.S.-Soviet Union 

Long-Term Grain Agreement, activities in 1991, 74 

Spain: 

See enlargement. 

Sri Lanka: 

signs BIT with U.S., 72 

Steel: 

Steel import program, 67-68; voluntary restraint 

agreements, 67-68 

Sugar: 

International Sugar Agreement, 63-64 

Supercomputers: 

and Japan, 107 

Taiwan: 

announces plans to open market in distilled spirits, 

126; announces six-year economic development 

plan, 125; attempts to join GATT, 40, 125; driftnet 

fishing, 126; economic overview, xix; import 

licensing, 127; and intellectual property rights, 126; 

merchandise trade with the United States, 123-125; 

revises policy on insurance market, 127; tariff 

reductions, 126-127; VRAs on machine tools, 110, 

125-126, 157 

Telecommunications: 

and EC, 83; and Japan, 108-109; and Korea, 123 

Textiles (see also GATT Arrangement Regarding 

International Trade in Textiles): 

labeling of Mexican textiles, 119 

Thailand: dispute over cigarettes, 19; and copyright 

enforcement, 153; and pharmaceuticals, 152 

Third Country Meat Directive: 

See European Community and meat imports. 

Tobacco (see also cigarettes): 

dispute with Thailand, 19 

Toll equipment: 

and Norway, 54, 153-154 

227 
Trade Adjustment Assistance program 

(Title II of 1974 Trade Act): 

assistance to workers in 1991, 147-148; assistance 

to firms and industries in 1991, 148; description 

of, 147 

Trade Enhancement Initiative: 

introduced, 159 

Tuna: 

dispute with Canada, 19; dispute with Mexico, 

19-20, 38, 118 

Unfair trade laws: 

See antidumping law, countervailing-duty law, 

section 301, section 337. 

United Kingdom: 

economic overview, xviii 

United Nations Conference on Trade and 

Development (UNCTAD): 

activities in 1991, 59-67; and GSP, 59-60; 

International Cocoa Agreement, 62; International 

Coffee Agreement, 62-63; International Jute 

Agreement, 65; International Natural Rubber 

Agreement, 64-65; International Sugar 

Agreement, 63-64; International Tropical Timber 

Agreement, 17, 66-67; International Wheat 

Agreement, 65-66; and restrictive business 

practices, 60-61; and shipping, 61; and trade 

finance, 60 

United States: 

economic overview, xvi-xvii 

Uruguay Round: 

See GATT Uruguay Round. 

U.S.-Canada Free-Trade Agreement: 

as basis for NAFTA, 1-8; GATT working party 

report on, 39; operation in 1991, 98-101 

U.S.-Israel Free-Trade Area Agreement: 

annual review, 73-74; dispute over machine 

tools, 72-73; and occupied territories, 73 

U.S.-Soviet Union Long-Term Grain Agreement: 

operation in 1991, 74 

Wheat: 

International Wheat Agreement, 65-66 

Yugoslavia: 

suspended from GSP benefits, 159 

228