[Federal Register Volume 62, Number 195 (Wednesday, October 8, 1997)]
[Notices]
[Pages 52604-52611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26565]


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OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE


Report on Trade Expansion Priorities Pursuant to Executive Order 
12901 (``Super 301'')

AGENCY: Office of United States Trade Representative.

ACTION: Notice.

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SUMMARY: Notice if hereby given that the United States Trade 
Representative (USTR) has submitted the report on United States trade 
expansion priorities published herein to the Committee on Finance of 
the United States Senate and the Committee on Ways and Means of the 
United States House of Representatives pursuant to the provisions 
(commonly referred to as ``Super 301'') set forth in Executive Order 
12901 of March 3, 1994, as extended by Executive Order No. 12973 of 
September 27, 1995.

DATE: The report was submitted on October 1, 1997.

FOR FURTHER INFORMATION CONTACT:
Irving Williamson, Chairman, Section 301 Committee, Office of the U.S. 
Trade Representative, 600 17th Street, N.W., Washington, DC 20508, 
(202) 395-3432.

SUPPLEMENTARY INFORMATION: The text of the USTR report is as follows.

Identification of Trade Expansion Priorities Pursuant to Executive 
Order 12901

October 1, 1997.
    This report is submitted pursuant to Executive Order No. 12901 of 
March 3, 1994, as extended by Executive Order No. 12973 of September 
27, 1995, regarding the ``Super 301'' annual review. Under the 
Executive Order the United States Trade Representative (USTR) is 
required, by September 30, 1997, to ``review United States trade 
expansion priorities and identify priority foreign country practices, 
the elimination of which is likely to have the most significant 
potential to increase United States exports, either directly or through 
the establishment of a beneficial precedent.''
    Keeping America growing and creating good high-wage jobs by tearing 
down foreign barriers to American goods and services continues to be 
President Clinton's top trade expansion priority. For this reason the 
President has asked Congress to renew fast track procedures to 
negotiate tough new trade agreements that break down trade barriers and 
unfair trade restrictions in key areas, such as in agriculture, 
information technology, telecommunications, automobiles, medical 
equipment, environmental technology and services, and the creative 
power of our entertainment and software industries. Fast track would 
enable the United States to complete the built-in agenda of the World 
Trade Organization (WTO) by concluding major trade negotiations that 
were deferred at the end of the Uruguay Round and by participating in 
negotiations mandated by the Uruguay Round agreements in areas ranging 
from rules to origin to services. Fast track would enable the United 
States to pursue market-opening initiatives in sectors where the United 
States either leads the world or is a powerful competitor, and where 
extraordinary potential for growth exists. Fast track is also essential 
if the United States is to negotiate more comprehensive market access 
agreements with individual countries, as well as on a regional basis.
    The Clinton Administration intends to concentrate on the fastest 
growing markets in the world in Latin America and Asia. These markets 
are growing three times faster than our own. Without fast track, our 
competitors will continue to negotiate trade agreements that benefit 
their products at the expense of our own. Fast track is necessary, not 
only to promote our own economic well-being, but to enable us to 
continue to play a leadership role in advancing the cause of freedom 
and prosperity in the world.
    The Administration is addressing the most significant foreign trade 
barriers through an ongoing strategy of vigorous monitoring and 
enforcement of trade agreements, strategic application of U.S. trade 
laws, active use of the dispute settlement provisions of our trade 
agreements, and continued engagement in multilateral, sectoral, 
regional and bilateral negotiations. Through this strategy the 
Administration has used the trade law tools and dispute settlement 
mechanisms at its disposal on more than 70 occasions so far to enforce 
U.S. rights. As a result of the 1997 review of priorities, the 
Administration has identified one priority foreign country practice and 
will proceed under WTO dispute settlement procedures in four cases.

Priority Foreign Country Practice

    <bullet> Korea--barriers to auto imports. Specific Korean practices 
of concern include an array of cumulative tariff and tax disincentives 
that disproportionately affect imports; onerous and costly auto 
standards and certification procedures; auto financing restrictions; 
and a climate of bias against imported vehicles that Korean officials 
have not effectively addressed. While some of these barriers were 
addressed in the 1995 bilateral agreement, implementation of that 
agreement has been disappointing, especially as new practices have been 
introduced that undermine the 1995 agreement. Meanwhile, Korean auto 
manufacturers are expanding domestic capacity, which is forecast to 
rise from 2.8 to over 5 million units by the year 2000.
    Although some progress was made during recent bilateral 
negotiations to improve market access in Korea for foreign automobiles, 
Korea was not prepared to undertake the reforms which are necessary for 
real opening of its autos market. In light of the foregoing, the USTR 
has decided to identify Korea's barriers to imported automobiles as a 
priority foreign country practice under the Executive Order and will 
initiate a section 301 investigation of Korea's practices. The United 
States continues to hope that it can reach an agreement with Korea that 
will effectively address U.S. concerns.

Strategic Enforcement

    Enforcing our trade agreements and our trade laws is among the 
Administration's top trade expansion priorities. A critical part of our 
job is what happens after an agreement is signed. The Administration's 
trade policy recognizes that the best way to build confidence in trade 
agreements is to enforce them. Vigorous enforcement is critical to 
ensuring good agreements.
    The Administration has assigned top priority to monitoring 
implementation of its trade agreements, especially the WTO agreements 
and NAFTA to ensure that signatories live up to their commitments and 
comply with the rules. In the course of these monitoring efforts, the 
Office of the United States Trade Representative, in cooperation with 
the Departments of Commerce and Agriculture, has focused in particular 
on foreign practices that could pose serious problems to the 
international trading

[[Page 52605]]

system if they proliferate in many markets. Therefore, the 
Administration has adopted a strategic enforcement plan--aimed not only 
at challenging existing barriers but also at preventing the future 
adoption of similar barriers around the world.
    The Administration will continue to make vigorous use of the 
dispute settlement provisions in trade agreements to ensure compliance 
with the terms of those agreements. Since the inception of the WTO the 
United States has invoked the WTO dispute settlement procedures far 
more than any other member. The new WTO dispute settlement procedures 
have already yielded positive results--both in terms of reduced 
barriers and increased export opportunities.
    Efforts to enforce the WTO agreements include not only dispute 
settlement, but also making use of the various oversight committees of 
the WTO that ensure implementation of WTO agreements, especially those 
agreements that address the mechanics of getting goods to the 
marketplace; rules on technical barriers to trade (standards, 
certification, testing requirements); sanitary and phytosanitary 
measures; import licensing requirements; customs valuation procedures; 
rules of origin; and preshipment inspection procedures.
New Cases to be Launched
    As a result of this year's review of its trade expansion 
priorities, and its monitoring of compliance with U.S. trade 
agreements, the Administration will take the following actions to 
enforce U.S. rights under those agreements, with heavy emphasis on 
challenging foreign government actions that appear to circumvent the 
WTO rules on export subsidies.
    <bullet> Japan--Market Access Barriers to Fruit. USTR will initiate 
a section 301 investigation and in that context, request the 
establishment of a WTO panel to challenge the Japanese government 
requirement of separate efficacy testing of certain quarantine 
treatments for each variety of imported fruit, even where the same 
treatment has been accepted by Japan as effective for another variety. 
Although the fruit of immediate export concern is apples, Japan's 
requirement operates as a significant import barrier to nectarines, 
cherries, and other fruits that are of export interest to the United 
States. The United States and Japan have already completed 
consultations on this matter pursuant to WTO dispute settlement 
procedures, so the United States will proceed directly to request a 
panel.
    <bullet> Canada--Export Subsidies and Import quotas on Dairy 
Products. USTR will invoke WTO dispute settlement procedures in the 
context of a section 301 investigation to challenge practices that 
subsidize exports of dairy products from Canada, and Canadian 
implementation of its import quotas on milk. The U.S. dairy industry 
has petitioned USTR to initiate this investigation on the grounds that 
both of these practices are inconsistent with Canada's WTO obligations 
and adversely affect U.S. exports.
    <bullet> EU--Circumvention of Export Subsidy Commitments on Dairy 
Products. USTR also will invoke WTO dispute settlement procedures in 
the context of a section 301 investigation to challenge practices by 
the European Union (EU) that circumvent the EU's commitments under the 
WTO to limit subsidized exports of processed cheese and adversely 
affect U.S. exports to third markets. The EU is counting these exports 
against its limits on powdered milk and butterfat to avoid the limits 
on subsidies of cheese. USTR will also closely monitor EU compliance 
with its WTO agricultural subsidy commitments on all other agricultural 
products.
    <bullet> Australia--Export Subsides on Automotive Leather. 
Following bilateral and multilateral consultations, Australia agreed to 
eliminate export subsidies for leather used in automobiles. However, 
Australia's subsequent package of assistance for its industry 
(comprised of a sizable loan and grant), has raised similar concerns 
regarding consistency with WTO subsidies rules. While some progress has 
been made in recent months, these concerns have not yet been adequately 
addressed. Thus USTR will invoke WTO dispute settlement procedures, but 
remains hopeful that a solution satisfactory to both countries can be 
reached during consultations.
Recent Enforcement Actions
    During the past year, USTR has invoked WTO dispute settlement 
procedures to challenge a wide variety of foreign government practices, 
covered by the broad range of agreements administered by the WTO, 
seeking to enforce the rules on tariffs, agriculture, services, 
intellectual property rights, antidumping measures, and sanitary and 
phytosanitary measures. Those complaints include challenges of:
    <bullet> Argentina's import duties on footwear, textiles, and 
apparel that exceed the maximum to which Argentina is committed under 
WTO tariff rules:
    <bullet> licensing requirements in Belgium that discriminate 
against U.S. suppliers of commercial telephone directory services;
    <bullet> Brazilian government measures that give certain benefits 
to manufacturers of motor vehicles and parts, conditioned on compliance 
with average domestic content requirements, trade-balancing and local 
content requirements with regard to inputs;
    <bullet> the failure of Denmark to provide adequate measures to 
enforce intellectual property rights;
    <bullet> reclassification by the European Union, the United 
Kingdom, and Ireland of certain computers and computer-related 
equipment to different tariff categories with higher tariff rates;
    <bullet> import restrictions on more than 2700 agricultural, 
textile and industrial products imposed by India for which India can no 
longer claim a justification for balance-of-payments reasons;
    <bullet> Indonesia's programs granting preferential tax and tariff 
benefits to producers of automobiles based on the percentage of local 
(Indonesian) content of the finished automobile;
    <bullet> Ireland's failure to expeditiously bring its copyright 
laws into compliance with the WTO agreement on intellectual property 
rights;
    <bullet> Japan's barriers to market access for photographic film 
and paper, and barriers to distribution and retail services in Japan;
    <bullet> Korea's taxes on Western-style distilled spirits that are 
higher than those assessed on the traditional Korean-style spirit soju;
    <bullet> an antidumping action by Mexico of high-fructose corn 
syrup imports from the United States that does not conform to WTO 
procedures;
    <bullet> a licensing system in the Philippines that discriminates 
against U.S. exports of pork and poultry; and
    <bullet> the failure of Sweden to provide adequate measures to 
enforce intellectual property rights.
    In addition to using dispute settlement procedures strategically, 
the Administration has continued to use the leverage of U.S. trade laws 
to obtain market access for U.S. goods and services and to encourage 
other countries to ensure adequate protection of intellectual property 
rights:
    <bullet> Japan--port practices. Restrictive practices in Japanese 
ports have caused serious difficulties for U.S. shipping companies for 
many years. After initial consultations with Japan failed to resolve 
these problems, on September 4, 1997, the Federal Maritime Commission 
imposed sanctions of $100,000 per voyage on container vessels owned or 
operated by Japanese companies entering the United States. 
Consultations to remove the restrictive practices which impede open and

[[Page 52606]]

efficient business operations of our carriers continue.
    <bullet> Argentina--patent protection. On January 15, 1997, the 
Administration decided to withdraw 50 percent of Argentina's tariff 
benefits under the Generalized System of Preferences as a result of its 
continued delay in providing adequate patent legislation, particularly 
for pharmaceutical products.
    <bullet> Bulgaria--intellectual property protection. The ``Special 
301'' provisions of U.S. trade law have been used to obtain progress in 
improving the legislative framework for protecting intellectual 
property rights and enforcing those rights in Bulgaria. Just prior to 
the April 1997 Special 301 announcement, Bulgaria adopted amendments to 
expand the scope of protection for computer software.
    <bullet> Korea--telecommunications. In 1996, Korea was identified 
as a Priority Foreign Country under the Telecommunications Trade Act of 
1988. Year-long negotiations bore fruit in July 1997, with commitments 
by Korea to ensure that U.S. telecommunications equipment suppliers 
would be treated fairly in areas including procurement, certification, 
type approval, protection of intellectual property and technology 
transfer.
    <bullet> Mexico--telecommunications. In the 1996 review under the 
Telecommunications Trade Act of 1988, USTR cited Mexico for not 
fulfilling its NAFTA obligation to accept other parties' laboratory or 
test facility test data relating to product safety in certifying 
telecommunications equipment for safe use. An agreement reached in 
April 1997 established procedures to resolve this issue, which will 
further facilitate the export of U.S. telecommunications products to 
Mexico.
    <bullet> Honduras--piracy. In response to the failure of Honduras 
to address effectively the unauthorized broadcasting of pirated U.S. 
videos and the rebroadcasting of U.S. satellite-carried programming, 
the Administration is taking steps to withdraw some of the tariff 
benefits accorded Honduras under the Generalized System of Preference 
and Caribbean Basin Initiative programs.

Bilateral Market Access Issues

    Through bilateral negotiations as well as through enforcement 
actions, the Administration continues to monitor progress made toward 
increasing market access for U.S. exports of goods and services to key 
markets.

Japan

    A top priority of the Administration has been to increase access to 
the Japanese market. The Administration has negotiated 31 market-
opening agreements with Japan since 1993. The most recent of these was 
concluded on September 30, 1997, when agreement was reached to extend 
and improve the bilateral agreement on procurement by Nippon Telegraph 
and Telephone Company, commonly referred to as the NTT agreement. This 
agreement will provide U.S. telecommunications suppliers with improved 
access to NTT's $13 billion market.
    Bilateral agreements, combined with enforcement of U.S. trade laws, 
use of the WTO dispute settlement process, and regional and 
multilateral initiatives, have helped to increase significantly U.S. 
exports to Japan. U.S. exports to Japan increased 41 percent from 1993 
to 1996.
    Nevertheless, the Administration is increasingly concerned that 
Japan's progress in opening its market has slowed. Market access 
problems persist and U.S. companies in a wide range of sectors continue 
to face serious impediments that hinder their ability to compete in the 
Japanese market. These barriers include a closed distribution system, 
nontransparent regulations, discriminatory procurement policies, and 
restrictive business practices.
    Meanwhile, the Japanese economy is weaker than expected and Japan's 
current account surplus is increasing, reaching 2.6 percent of GDP in 
the second quarter of this year. Prime Minister Hashimoto has publicly 
articulated the objective of ``promoting strong, domestic demand-led 
growth in Japan and avoiding a significant increase in the external 
surplus.'' It is essential that Japan take seriously its 
responsibilities to generate domestic demand-led growth and open its 
markets to competitive goods and services from the United States and 
other countries.
    Our objectives correspond closely with key elements of the Japanese 
Government's economic agenda. Resolution of such issues as reform of 
Japan's port practices, significant opening of Japan's civil aviation 
market, and improved market access for U.S. autos and auto parts are 
early tests of the Japanese Government's commitment to deregulation and 
market opening. The deregulatory measures implemented by the Government 
of Japan in the sectors included in the Enhanced Dereguation Initiative 
agreed to by President Clinton and Prime Minister Hashimoto at the G-8 
Summit last June--including telecommunications, housing, 
pharmaceuticals/medical technology, and financial services--will also 
serve as early indications of the seriousness of Japan's commitment to 
deregulation.
    <bullet> Japan--Market Access for Autos and Auto Parts. The United 
States and Japan concluded an agreement in 1995 on the full range of 
market access barriers facing sales of autos and auto parts in Japan 
and to Japanese companies outside Japan. Noteworthy progress was made 
during the first year of the agreement, with sales of North American-
made big Three vehicles up 34 percent last year and sales of U.S.--made 
auto parts up 20 percent in 1996. However, during the first six months 
of 1997, sales of North American-made Big Three vehicles have declined 
17 percent over 1996 levels. Moreover, although U.S. auto parts exports 
increased 14 percent during the first six months of 1997, foreign 
access to this market remains limited. In light of these trends, 
increased focus on implementation is necessary. Of particular 
importance is improved access of U.S. and other competitive foreign 
firms to Japan's automotive distribution system, including to new and 
existing dealerships. With respect to auto parts, continued progress 
will depend on further meaningful deregulation of the replacement 
market. The United States and Japan will meet in early October 1997 to 
access progress based on the quantitative and qualitative indicators in 
the agreement and to discuss concrete actions for improving market 
access in this important sector.
    <bullet> Japan--Market Access for Flat Glass. Implementation of the 
1995 U.S.-Japan Flat Glass Agreement proceeded well in the first year, 
but early progress has not been sustained. While a major objective of 
the agreement was to provide foreign companies access to distributors 
controlled by the three major Japanese glass companies, the increase in 
volume of foreign glass within the Japanese glass distribution system 
continues to be very limited, and major Japanese distributors are not 
carrying foreign glass in any meaningful quantities. There also has 
been virtually no increase in the overall use of insulated glass and a 
decline in the use of safety glass, even though the Agreement provided 
that Japan was to promote actively the use of both types of glass. 
Among the promotion measures Japan agreed to undertake was the issuance 
of new standards to promote the use of insulated glass in residential 
and commerical construction. The United States and Japan will hold 
consultations in late October to discuss

[[Page 52607]]

our market access concerns. The United States will continue to press 
Japan to take actions to ensure that genuine market access is achieved 
under the agreement.
    <bullet> Japan--Market Access for Paper and Paper Products. Despite 
continued U.S. efforts in the part year, structural barriers continue 
to impede U.S. industry's access to Japan's paper market. In the first 
six months of 1997, Japan's paper and paperboard imports fell by more 
than 20 percent and import penetration declined further to 4.3 percent. 
The United States seeks agreement with Japan on a joint work program 
designed to provide substantially increased market access for foreign 
paper and paperboard products. Such a program would lead to a reduction 
in structural barriers and exclusionary business practices and will 
result in meaningful access to distribution channels and end users.

China

    The Administration is actively pursuing a broad range of market 
opening initiatives with China. Through active leadership in 
multilateral WTO accession talks and pursuit of a full bilateral 
agenda, we are seeking the elimination of China's multiple and 
overlapping barriers to U.S. exports of industrial goods, agricultural 
products and U.S. services. Despite China's actions to liberalize its 
economy, many aspects of its economic and legal regime are inconsistent 
with international norms. While our large and growing trade deficit 
with China is the result of many factors, China's trade and economic 
policies are a significant contributor to that deficit. Opening China's 
market and brining China's policies into conformity with international 
norms are the Administration's key objectives in the trade area and the 
best means to address the trade deficit.
    Given the size and potential of China's market and the nature of 
China's trade regime, negotiating the terms of China's membership in 
the WTO will continue to be a major focus of U.S. efforts to open 
China's markets. The WTO accession negotiations represent an important 
opportunity to work with our trading partners and with the Chinese 
government to develop an accession package that opens markets and 
commits China to create an environment conducive to international 
trade, requiring compliance with WTO rules and internationally accepted 
trade norms of transparency, predictability and the rule of law.
    The United States supports China's accession to the WTO on the 
basis of commercially meaningful commitments that provide market access 
for U.S. goods, agriculture and services. China has, in the context of 
the Asia Pacific Economic Cooperation Forum (APEC), taken some recent 
steps towards liberalizing its trade regime. Effective October 1, 1997, 
China will cut its average tariffs to 17 percent as a step towards 
meeting its APEC commitment of a 15 percent average tariff by the year 
2000. This is a welcome step, but more is needed in the context of WTO 
accession. The Administration is, for example, committed to eliminating 
quotas, licensing requirements and other barriers affecting U.S. 
exports and investment in the WTO Accession.
    The united States is pursuing a program of vigorously monitoring 
compliance with existing agreements and addressing new market access 
barriers. During the Clinton Administration, we have reached important 
agreements on intellectual property rights (IPR) protection, textiles 
and market access. Concluding these agreements, however, was only a 
first step. We have continually worked with China to ensure that 
implementation problems are addressed.
    <bullet> China--IPR Enforcement. We have seen progress through 
closure of 58 pirate compact disc production lines and the 
establishment of an infrastructure for enforcement of IPRs. Continuing 
problems exist regarding computer software piracy and trademark 
counterfeiting, however, since Chinese authorities often fail to impose 
penalties sufficient to deter illegal activities. U.S. negotiators are 
continuing to work with Chinese authorities to improve compliance with 
our IPR agreements.
    <bullet> China--Sanitary and Phytosanitary Measures. Progress has 
been achieved in opening China's market to U.S. agriculture for 
products such as live cattle, bovine embryos, cherries and applies from 
Washington, and most recently grapes from California. Serious problems 
still remain. We have, for example, serious objections to China's 
unjustified sanitary and phytosanitary (SPS) restrictions. China bans 
imports of U.S. oranges, lemons, grapefruit, plums and Pacific 
Northwest (PNW) wheat based on SPS concerns. The United States believes 
that China's concerns lack a scientific basis and are unjustified. The 
United States exports these products globally. U.S. negotiators are now 
working to reach agreement with China's experts on the conditions for 
importation of U.S. citrus, PNW wheat and plums.
    <bullet> China--Meat Imports. While China has begun a one-year 
experiment to allow U.S. meat imports for general consumption, China 
has only certified a handful of U.S. beef, pork and poultry processing 
plants. Given the continued application of high tariffs, however, 
certification of plants has yet to result in increased market access 
for our meat exports. These are products in which the United States is 
highly competitive and enjoys a large global trade.
    <bullet> China--Financial Information Providers. We are nearing an 
interim solution of a longstanding problem concerning registration of 
foreign financial information providers like Dow Jones and Reuters. 
China's plan to authorize China's main financial data provider and 
competitor to U.S. companies, Xinhua, to regulate foreign economic 
information providers was challenged by the United States from its 
inception. This interim solution will permit U.S. firms to continue 
their operations in China while the United States seek more 
comprehensive commitments from China on market access and national 
treatment for financial service providers and online data processing in 
the negotiations on China's accession to the WTO.
    <bullet> China--Insurance Providers. Foreign insurers' access to 
the Chinese market is severely restricted. U.S. insurers must first 
establish a representative office for two years before applying for a 
license. If China grants the company a license, numerous non-prudential 
restrictions apply on doing business, including restrictions on the 
form of investment, scope of business lines, and geographic location. 
We are seeking elimination of these non-prudential restrictions.

Korea

    The Administration is focused on eliminating barriers to entry and 
distribution of U.S. products in Korea--The United States' fifth 
largest export market overall, and fourth largest market of 
agricultural and food products. This year, the Administration made 
solid progress toward opening the Korean market through the use of U.S. 
trade laws and WTO dispute settlement procedures, negotiation and 
enforcement of bilateral trade agreements, and close coordination with 
other countries on U.S. trade initiatives regarding Korea, particularly 
in the OECD and the WTO. Specifically, the United States negotiated a 
bilateral settlement addressing restrictive Korean telecommunications 
practices; reached agreement on an IPR action plan; and used WTO 
procedures to improve Korean market access for U.S. food and 
agricultural products.
    The Administration is committed to continuing its varied and

[[Page 52608]]

comprehensive efforts to tackle commercial barriers in what U.S. 
industry still describes as one of the toughest markets in the world 
for doing business. Korea must begin to take actions and accept the 
responsibilities commensurate with its new international position as a 
developed nation. Our priority will be on achieving systemic changes to 
trade-restricting procedures and rules in Korea, including those 
affecting market access for automotive products, cosmetics, and food 
and agricultural goods.
    <bullet> Korea--Impediments to Entry and Distribution of Cosmetics. 
The Korean government uses measures that restrict the entry and 
distribution of cosmetics including: restrictions on sales promotions 
(premiums), including changes to the valuation methodology; delegation 
of authority to a Korean industry association to screen advertising and 
information brochures prior to use; mandatory provision of proprietary 
information on imports to Korean competitors; redundant testing; 
unreasonable prior-approval requirements on cosmetic tester labels; and 
burdensome import authorization and tracking requirements. After 
bilateral talks with U.S. officials, Korea stated its intention to 
change some of these measures, but the Korean government still has not 
fully addressed U.S. concerns, including those relating to 
implementation of relevant provisions in international agreements. The 
Administration will continue to pursue unimpeded trade in cosmetics 
with Korea over the coming year and will review the situation again in 
January 1998.
    <bullet> Korea--Import Clearance Procedures. After WTO dispute 
settlement consultations with Korea on its long, burdensome, and non-
science-based import clearance procedures, the Korean government made 
changes, including expediting clearance for fresh fruits and 
vegetables; instituting a new sampling, testing, and inspection regime; 
eliminating some phytosanitary requirements; and starting the process 
of updating Korean Food Additives Code standards.
    However, Korean port inspectors have failed to implement changes to 
which the Korean government has committed, including the elimination of 
requirements for proprietary information (on manufacturing process and 
ingredient listing by percentage) and for sorting of produce. Also, 
some of the changes Korean officials are implementing do not adequately 
address U.S. concerns. The United States will raise this issue at the 
October meeting of the WTO SPS Committee and has proposed consultations 
on the Korean Food Additives Code. The United States will take further 
action under WTO dispute settlement procedures if its concerns are not 
addressed fully.
    <bullet> Korea--Steel Subsidies. The United States is concerned 
that the Korean government may have provided large subsidies for the 
establishment and expansion of Hanbo Iron and Steel, and directed the 
banking industry to continue to extend credits beyond what is 
financially prudent. U.S. industry is concerned that such measures may 
be subsidies that are creating unfair competition through price 
undercutting and displaced U.S. exports to Korea and to third country 
markets. We have sought further information from the Korea government, 
both bilaterally and in the WTO Subsidies Committee, and will examine 
Korea's practices in light of its WTO obligations.

Problems Requiring Special Attention

    As traditional barriers to market access have been reduced at the 
border, the increase in the application of government measures under 
the guise of technical requirements has increased. These are problems 
that are being given special attention by the Administration, and that 
may warrant enforcement action in the future if they are not resolved 
satisfactorily.

Sanitary and Phytosanitary Measures

    Numerous U.S. agricultural exports have been denied import approval 
or have faced costly import quarantine requirements due to sanitary and 
phytosanitary (SPS) barriers to trade that lack a scientific basis and 
appear to discriminate arbitrarily or unjustifiably against U.S. 
agricultural exports. The Administration has implemented an aggressive 
agenda to address unjustified SPS barriers, including high-level 
technical talks with our trading partners, raising these issues in the 
WTO SPS Committee to apply multilateral pressure, and resorting to WTO 
dispute settlement procedures where necessary.
    As a result of intense efforts in the past year, the Administration 
has resolved technical issues bilaterally to permit exports of tomatoes 
to Japan, table grapes to China, lemons, table grapes, kiwis, oranges 
and grapefruit to Chile, sweet cherries to Mexico, rough rice to 
Honduras, live swine to Argentina and Peru, and live cattle to Peru.
    The Administration will continue to press our trading partners to 
remove unjustified SPS barriers facing U.S. agricultural exports, 
including:
    <bullet> EU-Specified Risk Material (SRM) Ban and Cosmetics 
Directive. Two recent directives approved by the European Commission 
prohibiting the sale in the EU of cosmetic products containing tallow 
and its derivatives, and governing the production of certain materials, 
due to concerns regarding the transmission of Bovine Spongiform 
Encephalopathy (BSE), raise concerns with respect to the EU's WTO 
obligations. The directives fail to recognize that BSE is not known to 
occur in the United States and that the United States maintains an 
aggressive surveillance program for BSE that exceeds international 
standards. The EU has failed to provide a scientific basis for these 
requirements, and both directives are expected to have severe negative 
effects on U.S. exports of pharmaceutical, cosmetic and tallow 
products; and the potential impact on the international availability of 
essential pharmaceutical products also raises serious public health 
concerns.
    <bullet> France--Pet Food Imports. In September 1996, France 
adopted new requirements for pet food production, restricting the use 
of certain animal products or proteins and prohibiting the use of 
certain material. The regulation requires that manufacturers exclude 
materials from the rendering process that are commonly considered safe 
by renderers and this has effectively stopped all U.S. pet food exports 
to France. France has not demonstrated the scientific principle 
underlying the restriction of non-mammalian material as a protective 
measure against any risk factor. This issue was raised by the United 
States at the July 1997 meeting of the WTO SPS Committee.
    <bullet> Australia--Pest Risk Analyses. For a number of years, and 
in a variety of fora, the United States has requested entry into 
Australia's market for stone fruit, shelled almonds, Florida citrus 
fruit and California grapes. The United States has submitted several 
pest lists to enable Australia to complete its WTO-required risk 
assessments. To date, Australia has provided no scientific basis for 
its prohibitions on U.S. exports of these products, nor has it provided 
pest risk analyses.
    The delays experienced on these issues have seriously hampered the 
approval process for U.S. exports of these commodities.

 Technical Barriers to Trade

    Technical barriers to trade are of particular concern in our 
important relationship with the EU. In successive meetings of the WTO 
Committee on Standards, and other WTO bodies, the United States and 
other nations have

[[Page 52609]]

flagged concerns that standards, certification, and testing 
requirements in the EU can sometimes pose serious technical barriers to 
trade. The U.S.-EU trade and investment relationship is the largest and 
most complex in the world. Sophisticated business interactions across 
the Atlantic are affected to a significant degree by standards, 
technical regulations and conformity assessment procedures. While the 
recent U.S.-EU mutual recognition agreement on conformity assessment, 
covering six industrial sectors, should help reduce standards-related 
barriers, U.S. companies continue to be concerned about certain aspects 
of EU standards-related practices that could inhibit U.S. exports.
    <bullet> EU -Design Restrictive Standards. U.S. firms continue to 
encounter difficulty in obtaining market access for certain products in 
Europe due to design-restrictive standards that may have no bearing on 
the safety and performance of the product. While U.S. companies with 
U.S. Government assistance may achieve some success in addressing 
problems in individual national markets, market access becomes even 
more difficult if a European regional standards body decides to develop 
a European-wide standard. The initiation of work on a regional standard 
results in a standstill on related work in individual member States and 
thus can delay or, if unnecessarily restrictive standards are finally 
adopted, prevent improved access to EU markets. The United States 
continues to raise its concerns, both bilaterally and in the WTO, with 
the standards making process in the EU and design-restrictive standards 
and has in particular sought to address the problems encountered by a 
U.S. manufacturer of gas connectors.
    <bullet> EU Ecolabeling Directive. The EU Ecolabeling Directive 
sets forth a scheme whereby EU Member States will grant voluntary 
environmental labels based on criteria approved by the European 
Commission for products in specific sectors. The United States affirms 
its support for the concept of ecolabeling and has previously expressed 
appreciation for the EU's attempts to address problems raised by the 
United States regarding its ecolabeling program. However, while 
improvements in the transparency of procedures and opportunity for 
foreign participation in the EU's ecolabeling program have been 
reported, concern remains that the EU ecolabeling program favors 
European industry, thus leading to trade concerns.
    <bullet> EU Units of Measurement Directive. The EU plans to 
implement a directive requiring that after December 31, 1999, the only 
indications of measurement that can be used on product labels will be 
metric units. Currently, labels may include other units (e.g., inches, 
pounds) in addition to metric units. Such a step is unnecessary and 
burdensome, and will affect many U.S. companies, particularly in those 
industries where packaging and labeling are key aspects of placing a 
product on the market (e.g., food products, consumer goods and 
cosmetics).

Other Bilateral Issues

    <bullet> Argentina--Footwear Import Restrictions. After the United 
States initiated WTO panel proceedings to determine whether Argentine 
import duties on textiles, apparel and footwear are within Argentina's 
maximum permissible rate, Argentina revoked its challenged duties on 
footwear and replaced them with similar duties in the guise of an 
emergency import relief measure. On September 1, 1997, Argentina 
notified the WTO that this so-called safeguard measure would be 
extended for three years. The United States is reviewing this action in 
light of Argentina's obligations under the WTO agreement on safeguard 
measures.
    <bullet> Brazil--Import Financing Measures. On March 25, 1997, 
Brazil imposed new import financing rules that are adversely affecting 
a wide range of U.S. exports to Brazil. The measure, which requires 
importers to purchase foreign exchange to pay for imports upon 
importation or 180 days in advance rather than when payment is due 
under their contract, effectively increases the cost of many imports by 
eliminating or reducing supplier credits of less than one year. The 
United States is consulting with Brazil bilaterally and is reviewing 
the matter in light of Brazil's WTO obligations.
    <bullet> Taiwan--Market Access for Pharmaceuticals. U.S. 
pharmaceutical companies are increasingly concerned about 
discriminatory aspects of Taiwan's reference pricing system for 
pharmaceuticals. This system, as applied by Taiwan's Bureau of National 
Health Insurance, appears to be inconsistent with national treatment 
principles. Taiwan authorities have agreed to consultations on this 
problem in the near future.

Multilateral Priorities

    Within the next three years the United States will participate in a 
number of major WTO negotiations in areas where we are a top global 
competitor. As a result of the Uruguay Round, the United States has a 
broad agenda in the WTO to pursue further negotiations and strengthen 
existing agreements. Among others, WTO negotiations are scheduled to 
open further the $600 billion global agriculture market beginning in 
1999; to further open the $1.2 trillion global services market; and to 
review the Agreement on Trade-Related Intellectual Property Rights 
(TRIPs) which protects a variety of U.S. intellectual property right 
holders, including U.S. copyright holders whose foreign sales and 
exports exceed $53 billion a year. Also included is the two-pronged 
agenda to negotiate improvements to the current reciprocal Agreement on 
Government Procurement and to conclude an agreement obligating all WTO 
members to maintain transparent procurement practices, thereby enabling 
U.S. companies to compete in the trillion-dollar global government 
procurement market. We will also review the WTO Dispute Settlement 
Understanding that has already enabled us to open many new markets in 
the last two years. As illustrated by most of the comments received 
from the public by USTR in preparing this report, high tariffs--
especially in the agricultural sector--continue to block U.S. exports 
to a number of markets. Fast track procedures are essential if we are 
going to capitalize on the additional market opportunities presented by 
the WTO negotiations.
    Our most immediate goal is to obtain significantly improved 
commitments from our trading partners that will allow us to conclude 
successfully the WTO financial services negotiations by the end of this 
year. These negotiations represent an important opportunity to reach a 
successful agreement that opens new opportunities for U.S. financial 
services providers in the key emerging markets around the world and 
furthers the integration of national financial systems needed for a 
more interconnected global economy in the 21st century.
    Adding New Markets to the Rules-based Trading System. The United 
States continues to place high priority on ensuring that its trading 
partners accept the rule of law as it applies to trade--ensuring that 
their trade and economic policies are consistent with international 
trade practices and norms, such as those of the WTO. A principal means 
of ensuring that new entrants into the international trading system 
accept the rule of law is through the negotiation of the terms and 
conditions of an applicant's WTO membership. New members must be 
prepared to implement WTO obligations and to grant commercially 
meaningful market access commitments and concessions, on both goods and 
services, as well as

[[Page 52610]]

make specific commitments to limit agricultural subsidies. There are 
presently 29 applicants negotiating to become members of the WTO, 
including China, Russia, Taiwan, Ukraine, and Saudi Arabia.

Sectoral Priorities

    The Administration will continue to ensure that U.S. industries 
that are competitive global leaders enjoy export success commensurate 
with their competitive position. In the last year we have taken major 
steps forward in advancing this goal with the Information Technology 
Agreement (ITA) and the Agreement on Basic Telecommunications. The ITA 
will reduce tariffs to zero in a $500 million global market in which 
the United States is the world's largest single exporter. The Agreement 
on Basic Telecommunications ensures that U.S. companies can compete 
against and invest in all existing carriers around the world. U.S. 
companies will now have access to markets accounting for over 95 
percent of global telecommunications revenue and will be in the best 
position to take advantage of a $600 billion industry that is expected 
to double or even triple in the next 10 years. The agreement provides 
U.S. companies market access for local, long-distance and international 
service and the ability to establish or hold a significant stake in 
telecommunications companies around the world. Sixty-five countries 
adopted procompetitive regulatory principles based on landmark U.S. 
legislation, the 1996 Telecommunications Act.
    We are seeking to build on our success to pursue market-opening 
sectoral agreements in areas where the United States can capitalize 
further on its global competitive advantage if market access barriers 
are reduced, including in areas such as trade in chemicals, 
environmental technology and services, medical equipment and services, 
oilseeds and oilseed products, and wood and paper products. Fast track 
procedures are essential to ensure that the United States can continue 
to play the critical role in negotiations that reduce such barriers.

Regional Priorities

    The Asia Pacific region contains the fastest growing economies in 
the world. Reaching the goal of open markets with the members of the 
Asia Pacific Economic Cooperation Forum (APEC) would increase U.S. 
global exports of goods alone by 13 percent or $80 billion a year. As a 
step toward that goal, market opening agreements in key sectors would 
provide important new opportunities for U.S. exporters.
    Latin America and the Caribbean are the fastest growing markets for 
U.S. merchandise exports. During the first six months of 1997, our 
exports to the region grew more than twice as fast as our exports to 
the rest of the world. At the recent meeting of the Trade Ministers of 
the nations participating in the Free Trade Area of the Americas (FTAA) 
in Belo Horizante, Brazil, the Ministers agreed that FTAA negotiations 
should be launched at the Second Summit of the Americas in April 1998. 
The negotiations will address the full range of issues from tariff 
reductions to agriculture to structural issues such as intellectual 
property rights protection and government procurement. We remain fully 
committed to negotiating a comprehensive free trade agreement with 
Chile.
    In addition, we are continuing intensive discussion with our 
partners in Western Europe to complete commercially significant 
sectoral market-enhancing commitments in the context of the 
Transatlantic agenda. The United States and the EU are participating in 
a joint study of high priority sectors where we can progressively 
eliminate or reduce barriers. In June 1997 the United States and the EU 
concluded negotiations on a mutual recognition agreement that 
facilities U.S. exports to the EU in sectors such as telecommunications 
equipment, pharmaceuticals, and medical devices, by allowing U.S. 
manufacturers to have conformity assessment procedures, such as testing 
and inspection, conducted in the United States. This agreement will 
reduce costs for both manufacturers and regulators alike, and will help 
harmonize standards in certain sectors.
    Finally, through President Clinton's ``Partnership for Economic 
Growth and Opportunity in Africa'' initiative, we seek to strengthen 
the process of economic and political reform and encourage the further 
opening of African markets and the maintenance of open markets through 
the assumption of increased WTO obligations. Increased African 
participation in the international trading system should benefit 
American and African exporters alike and lay the foundation for 
eventual free trade agreements between African countries and the United 
States.

Appendix--Successfully Enforcing WTO Agreements

    Early victories. The United States has won the first five cases 
that it has taken through the WTO dispute settlement panel process.
    <bullet> Japan-liquor taxes. The United States--joined by the EU 
and Canada--successfully challenged a discriminatory Japanese tax 
scheme that placed high taxes on whisky, vodka, and other Western-style 
spirits, while applying low taxes to a traditional Japanese spirit 
(shochu). This was an important victory for the U.S. distilled spirits 
industry, whose exports to Japan have reached $100 million per year 
even in spite of the heavy Japanese taxes. Japan has already enacted 
legislation that is a major step toward eliminating the problem. The 
excise taxes on whisky and other brown spirits are being dramatically 
reduced, starting in October 1997, and the excise tax on shochu will be 
increased. The result will be a drastic tax cut for our brown spirits 
exports.
    <bullet> Canada-restrictions on magazines. The United States 
successfully challenged a recently enacted Canadian law that placed a 
high tax on American magazines containing advertisements directed at a 
Canadian audience. This tax, which was the latest in a series of 
Canadian government measures designed to protect the Canadian magazine 
industry from U.S. competition, was specifically calculated to put the 
Canadian edition of Sports Illustrated, published by the Canadian 
subsidiary of Time Warner, Inc., out of business. By ruling in favor of 
the United States, this case makes clear that WTO rules prevent 
governments from using ``culture'' as a pretense for discriminating 
against imports.
    <bullet> EU--banana imports. The United States joined Ecuador, 
Guatemala, Honduras, and Mexico in challenging an EU import program 
that gave French and British companies a big share of the banana 
distribution services business in Europe that U.S. companies had built 
up over the years. Ruling against the EU, the WTO panel and Appellate 
Body found that the EU banana import rules violated both the General 
Agreement on Trade in Services and the General Agreement on Trade in 
Goods by depriving U.S. banana distribution services companies and 
Latin American banana producers of a fair share of the EU market.
    <bullet> EU--hormone ban. Both the United States and Canada 
challenged Europe's ban on the use of six hormones to promote the 
growth of cattle, and a WTO panel agreed that the EU has no scientific 
basis for blocking the sale of American beef in Europe. This is a sign 
that the WTO dispute settlement system can handle complex and difficult 
disputes where a WTO member attempts to justify trade barriers by 
thinly disguising them as health measures. The panel affirmed the need 
for food safety measures to be based on

[[Page 52611]]

science, as they are in the United States. In addition to potentially 
affecting over $100 million in U.S. beef exports annually, this ruling 
sets an important precedent that will act to protect other U.S. 
exporters from unscientific and unjustified trade barriers in the 
future.
    <bullet> India--patent law. The United States recently obtained a 
panel ruling against India for failing to provide procedures for filing 
patent applications for pharmaceuticals and agricultural chemicals, as 
required by the WTO agreement on intellectual property protection. 
Besides serving notice that the United States expects all WTO members, 
including developing countries, to carry out their WTO obligations 
concerning intellectual property rights, this case also demonstrates 
that the WTO dispute settlement mechanism can play an important role in 
protecting American rights and interests in this field.
    Significant settlements. The WTO agreements and the new dispute 
settlement rules are already paying dividends by helping us increase 
jobs and exports. The new dispute settlement rules often make it 
possible for us to enforce WTO agreements without ever having to reach 
a panel decision. The fact that the WTO can and will authorize us to 
retaliate pays off in earlier settlements opening markets for more of 
our exports. We have already used the WTO procedures to obtain 
favorable settlements in some important cases:
    <bullet> Korea--shelf-life requirements. Consultations under WTO 
procedures resulted in a commitment by Korea to phase out its shelf-
life restrictions on food products--which removed a major barrier to US 
exports of beef, pork, poultry and frozen products.
    <bullet> EU--grains imports. By demonstrating our resolve to refer 
the matter to a panel, we succeeded in pushing the EU to implement a 
settlement agreement on grains that benefits U.S. exports of rice and 
malting barley.
    <bullet> Japan--sound recordings. In only a matter of months after 
we held WTO consultations, the Government of Japan amended its law to 
provide U.S. sound recordings with retroactive protection, as required 
by the WTO agreement on intellectual property rights.
    <bullet> Portugal--patent law. After the United States requested 
WTO consultations, Portugal agreed to revise its patent law to provide 
a 20-year term to old, as well as new, patents, as required by the WTO 
agreement on intellectual property rights.
    <bullet> Pakistan--patent law. After the United States requested 
the establishment of a WTO panel to enforce the WTO intellectual 
property rights agreement, Pakistan implemented the requirements of 
that agreement to provide procedures for filing patent applications and 
preserving exclusive marketing rights to protect pharmaceuticals and 
agricultural chemicals.
    <bullet> Turkey--film tax. The United States has used the WTO 
dispute settlement process to convince the Government of Turkey to 
eliminate discriminatory tax treatment currently given to box office 
receipts from exhibition of foreign films. Turkey has agreed to change 
its practice.
    <bullet> Hungary--agricultural export subsidies. The United States, 
joined by Argentina, Australia, Canada, New Zealand, Thailand, and 
Japan, used the WTO dispute settlement procedures to address Hungary's 
lack of compliance with its commitments on agricultural export 
subsidies. The result was a settlement agreement in which Hungary will 
have to cut its current export subsidy levels by more than 65%.
Irving A. Williamson,
Chairman, Section 301 Committee.
[FR Doc. 97-26565 Filed 10-7-97; 8:45 am]
BILLING CODE 3190-01-M