H. R. 3448—157
(1) Subsection (f) of section 672 (relating to special rule
where grantor is foreign person) is amended to read as follows:
‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNERSHIP.—
‘‘(1) IN GENERAL.—Notwithstanding any other provision of
this subpart, this subpart shall apply only to the extent such
application results in an amount (if any) being currently taken
into account (directly or through 1 or more entities) under
this chapter in computing the income of a citizen or resident
of the United States or a domestic corporation.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN REVOCABLE AND IRREVOCABLE TRUSTS.—
Paragraph (1) shall not apply to any portion of a
trust if—
‘‘(i) the power to revest absolutely in the grantor
title to the trust property to which such portion is
attributable is exercisable solely by the grantor without
the approval or consent of any other person or with
the consent of a related or subordinate party who
is subservient to the grantor, or
‘‘(ii) the only amounts distributable from such por-
tion (whether income or corpus) during the lifetime
of the grantor are amounts distributable to the grantor
or the spouse of the grantor.
‘‘(B) COMPENSATORY TRUSTS.—Except as provided in
regulations, paragraph (1) shall not apply to any portion
of a trust distributions from which are taxable as com-
pensation for services rendered.
‘‘(3) SPECIAL RULES.—Except as otherwise provided in regu-
lations prescribed by the Secretary—
‘‘(A) a controlled foreign corporation (as defined in sec-
tion 957) shall be treated as a domestic corporation for
purposes of paragraph (1), and
‘‘(B) paragraph (1) shall not apply for purposes of apply-
ing section 1296.
‘‘(4) RECHARACTERIZATION
OF
PURPORTED
GIFTS.—In the
case of any transfer directly or indirectly from a partnership
or foreign corporation which the transferee treats as a
gift or bequest, the Secretary may recharacterize such transfer
in such circumstances as the Secretary determines to be appro-
priate to prevent the avoidance of the purposes of this sub-
section.
‘‘(5) 
SPECIAL
RULE
WHERE
GRANTOR
IS
FOREIGN
PERSON.—If—
‘‘(A) but for this subsection, a foreign person would
be treated as the owner of any portion of a trust, and
‘‘(B) such trust has a beneficiary who is a United
States person,
such beneficiary shall be treated as the grantor of such portion
to the extent such beneficiary has made (directly or indirectly)
transfers of property (other than in a sale for full and adequate
consideration) to such foreign person. For purposes of the
preceding sentence, any gift shall not be taken into account
to the extent such gift would be excluded from taxable gifts
under section 2503(b).
‘‘(6) REGULATIONS.—The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
H. R. 3448—158
the purposes of this subsection, including regulations providing
that paragraph (1) shall not apply in appropriate cases.’’.
(2) The last sentence of subsection (c) of section 672 is
amended by inserting ‘‘subsection (f) and’’ before ‘‘sections 674’’.
(b) CREDIT FOR CERTAIN TAXES.—
(1) Paragraph (2) of section 665(d) is amended by adding
at the end the following new sentence: ‘‘Under rules or regula-
tions prescribed by the Secretary, in the case of any foreign
trust of which the settlor or another person would be treated
as owner of any portion of the trust under subpart E but
for section 672(f), the term ‘taxes imposed on the trust’ includes
the allocable amount of any income, war profits, and excess
profits taxes imposed by any foreign country or possession
of the United States on the settlor or such other person in
respect of trust income.’’.
(2) Paragraph (5) of section 901(b) is amended by adding
at the end the following new sentence: ‘‘Under rules or regula-
tions prescribed by the Secretary, in the case of any foreign
trust of which the settlor or another person would be treated
as owner of any portion of the trust under subpart E but
for section 672(f), the allocable amount of any income, war
profits, and excess profits taxes imposed by any foreign country
or possession of the United States on the settlor or such other
person in respect of trust income.’’.
(c) DISTRIBUTIONS
BY CERTAIN FOREIGN TRUSTS THROUGH
NOMINEES.—
(1) Section 643 is amended by adding at the end the follow-
ing new subsection:
‘‘(h) DISTRIBUTIONS
BY CERTAIN FOREIGN TRUSTS THROUGH
NOMINEES.—For purposes of this part, any amount paid to a United
States person which is derived directly or indirectly from a foreign
trust of which the payor is not the grantor shall be deemed in
the year of payment to have been directly paid by the foreign
trust to such United States person.’’.
(2) Section 665 is amended by striking subsection (c).
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as provided by paragraph (2),
the amendments made by this section shall take effect
on the date of the enactment of this Act.
(2) EXCEPTION
FOR
CERTAIN
TRUSTS.—The amendments
made by this section shall not apply to any trust—
(A) which is treated as owned by the grantor under
section 676 or 677 (other than subsection (a)(3) thereof)
of the Internal Revenue Code of 1986, and
(B) which is in existence on September 19, 1995.
The preceding sentence shall not apply to the portion of any
such trust attributable to any transfer to such trust after
September 19, 1995.
(e) TRANSITIONAL RULE.—If—
(1) by reason of the amendments made by this section,
any person other than a United States person ceases to be
treated as the owner of a portion of a domestic trust, and
(2) before January 1, 1997, such trust becomes a foreign
trust, or the assets of such trust are transferred to a foreign
trust,
H. R. 3448—159
no tax shall be imposed by section 1491 of the Internal Revenue
Code of 1986 by reason of such trust becoming a foreign trust
or the assets of such trust being transferred to a foreign trust.
SEC. 1905. INFORMATION REPORTING REGARDING FOREIGN GIFTS.
(a) IN GENERAL.—Subpart A of part III of subchapter A of
chapter 61 is amended by inserting after section 6039E the following
new section:
‘‘SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM FOREIGN
PERSONS.
‘‘(a) IN GENERAL.—If the value of the aggregate foreign gifts
received by a United States person (other than an organization
described in section 501(c) and exempt from tax under section
501(a)) during any taxable year exceeds $10,000, such United States
person shall furnish (at such time and in such manner as the
Secretary shall prescribe) such information as the Secretary may
prescribe regarding each foreign gift received during such year.
‘‘(b) FOREIGN GIFT.—For purposes of this section, the term
‘foreign gift’ means any amount received from a person other than
a United States person which the recipient treats as a gift or
bequest. Such term shall not include any qualified transfer (within
the meaning of section 2503(e)(2)) or any distribution properly
disclosed in a return under section 6048(c).
‘‘(c) PENALTY FOR FAILURE TO FILE INFORMATION.—
‘‘(1) IN GENERAL.—If a United States person fails to furnish
the information required by subsection (a) with respect to
any foreign gift within the time prescribed therefor (including
extensions)—
‘‘(A) the tax consequences of the receipt of such gift
shall be determined by the Secretary, and
‘‘(B) such United States person shall pay (upon notice
and demand by the Secretary and in the same manner
as tax) an amount equal to 5 percent of the amount of
such foreign gift for each month for which the failure
continues (not to exceed 25 percent of such amount in
the aggregate).
‘‘(2) REASONABLE CAUSE EXCEPTION.—Paragraph (1) shall
not apply to any failure to report a foreign gift if the United
States person shows that the failure is due to reasonable cause
and not due to willful neglect.
‘‘(d) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable
year beginning after December 31, 1996, the $10,000 amount under
subsection (a) shall be increased by an amount equal to the product
of such amount and the cost-of-living adjustment for such taxable
year under section 1(f)(3), except that subparagraph (B) thereof
shall be applied by substituting ‘1995’ for ‘1992’.
‘‘(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes
of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for such sub-
part is amended by inserting after the item relating to section
6039E the following new item:
‘‘Sec. 6039F. Notice of large gifts received from foreign persons.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts received after the date of the enactment
of this Act in taxable years ending after such date.
H. R. 3448—160
SEC. 1906. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS
WHICH ARE NOT GRANTOR TRUSTS.
(a) MODIFICATION OF INTEREST CHARGE ON ACCUMULATION DIS-
TRIBUTIONS.—Subsection (a) of section 668 (relating to interest
charge on accumulation distributions from foreign trusts) is
amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of the tax determined under
section 667(a)—
‘‘(1) INTEREST DETERMINED USING UNDERPAYMENT RATES.—
The interest charge determined under this section with respect
to any distribution is the amount of interest which would
be determined on the partial tax computed under section 667(b)
for the period described in paragraph (2) using the rates and
the method under section 6621 applicable to underpayments
of tax.
‘‘(2) PERIOD.—For purposes of paragraph (1), the period
described in this paragraph is the period which begins on
the date which is the applicable number of years before the
date of the distribution and which ends on the date of the
distribution.
‘‘(3) APPLICABLE NUMBER OF YEARS.—For purposes of para-
graph (2)—
‘‘(A) IN
GENERAL.—The applicable number of years
with respect to a distribution is the number determined
by dividing—
‘‘(i) the sum of the products described in subpara-
graph (B) with respect to each undistributed income
year, by
‘‘(ii) the aggregate undistributed net income.
The quotient determined under the preceding sentence
shall be rounded under procedures prescribed by the Sec-
retary.
‘‘(B) PRODUCT
DESCRIBED.—For purposes of sub-
paragraph (A), the product described in this subparagraph
with respect to any undistributed income year is the prod-
uct of—
‘‘(i) the undistributed net income for such year,
and
‘‘(ii) the sum of the number of taxable years
between such year and the taxable year of the distribu-
tion (counting in each case the undistributed income
year but not counting the taxable year of the distribu-
tion).
‘‘(4) UNDISTRIBUTED INCOME YEAR.—For purposes of this
subsection, the term ‘undistributed income year’ means any
prior taxable year of the trust for which there is undistributed
net income, other than a taxable year during all of which
the beneficiary receiving the distribution was not a citizen
or resident of the United States.
‘‘(5) DETERMINATION OF UNDISTRIBUTED NET INCOME.—Not-
withstanding section 666, for purposes of this subsection, an
accumulation distribution from the trust shall be treated as
reducing proportionately the undistributed net income for
undistributed income years.
‘‘(6) PERIODS BEFORE 1996.—Interest for the portion of the
period described in paragraph (2) which occurs before January
1, 1996, shall be determined—
H. R. 3448—161
‘‘(A) by using an interest rate of 6 percent, and
‘‘(B) without compounding until January 1, 1996.’’.
(b) ABUSIVE TRANSACTIONS.—Section 643(a) is amended by
inserting after paragraph (6) the following new paragraph:
‘‘(7) ABUSIVE TRANSACTIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to carry
out the purposes of this part, including regulations to prevent
avoidance of such purposes.’’.
(c) TREATMENT OF LOANS FROM TRUSTS.—
(1) IN
GENERAL.—Section 643 (relating to definitions
applicable to subparts A, B, C, and D) is amended by adding
at the end the following new subsection:
‘‘(i) LOANS FROM FOREIGN TRUSTS.—For purposes of subparts
B, C, and D—
‘‘(1) GENERAL RULE.—Except as provided in regulations,
if a foreign trust makes a loan of cash or marketable securities
directly or indirectly to—
‘‘(A) any grantor or beneficiary of such trust who is
a United States person, or
‘‘(B) any United States person not described in
subparagraph (A) who is related to such grantor or bene-
ficiary,
the amount of such loan shall be treated as a distribution
by such trust to such grantor or beneficiary (as the case may
be).
‘‘(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this
subsection—
‘‘(A) CASH.—The term ‘cash’ includes foreign currencies
and cash equivalents.
‘‘(B) RELATED PERSON.—
‘‘(i) IN GENERAL.—A person is related to another
person if the relationship between such persons would
result in a disallowance of losses under section 267
or 707(b). In applying section 267 for purposes of the
preceding sentence, section 267(c)(4) shall be applied
as if the family of an individual includes the spouses
of the members of the family.
‘‘(ii) ALLOCATION.—If any person described in para-
graph (1)(B) is related to more than one person, the
grantor or beneficiary to whom the treatment under
this subsection applies shall be determined under regu-
lations prescribed by the Secretary.
‘‘(C) EXCLUSION OF TAX-EXEMPTS.—The term ‘United
States person’ does not include any entity exempt from
tax under this chapter.
‘‘(D) TRUST NOT TREATED AS SIMPLE TRUST.—Any trust
which is treated under this subsection as making a distribu-
tion shall be treated as not described in section 651.
‘‘(3) SUBSEQUENT
TRANSACTIONS
REGARDING
LOAN
PRIN-
CIPAL.—If any loan is taken into account under paragraph
(1), any subsequent transaction between the trust and the
original borrower regarding the principal of the loan (by way
of complete or partial repayment, satisfaction, cancellation, dis-
charge, or otherwise) shall be disregarded for purposes of this
title.’’.
H. R. 3448—162
(2) TECHNICAL
AMENDMENT.—Paragraph (8) of section
7872(f) is amended by inserting ‘‘, 643(i),’’ before ‘‘or 1274’’
each place it appears.
(d) EFFECTIVE DATES.—
(1) INTEREST
CHARGE.—The amendment made by sub-
section (a) shall apply to distributions after the date of the
enactment of this Act.
(2) ABUSIVE TRANSACTIONS.—The amendment made by sub-
section (b) shall take effect on the date of the enactment of
this Act.
(3) LOANS FROM TRUSTS.—The amendment made by sub-
section (c) shall apply to loans of cash or marketable securities
made after September 19, 1995.
SEC. 1907. RESIDENCE OF TRUSTS, ETC.
(a) TREATMENT AS UNITED STATES PERSON.—
(1) IN
GENERAL.—Paragraph (30) of section 7701(a) is
amended by striking ‘‘and’’ at the end of subparagraph (C)
and by striking subparagraph (D) and by inserting the following
new subparagraphs:
‘‘(D) any estate (other than a foreign estate, within
the meaning of paragraph (31)), and
‘‘(E) any trust if—
‘‘(i) a court within the United States is able to
exercise primary supervision over the administration
of the trust, and
‘‘(ii) one or more United States fiduciaries have
the authority to control all substantial decisions of
the trust.’’.
(2) CONFORMING AMENDMENT.—Paragraph (31) of section
7701(a) is amended to read as follows:
‘‘(31) FOREIGN ESTATE OR TRUST.—
‘‘(A) FOREIGN ESTATE.—The term ‘foreign estate’ means
an estate the income of which, from sources without the
United States which is not effectively connected with the
conduct of a trade or business within the United States,
is not includible in gross income under subtitle A.
‘‘(B) FOREIGN TRUST.—The term ‘foreign trust’ means
any trust other than a trust described in subparagraph
(E) of paragraph (30).’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply—
(A) to taxable years beginning after December 31,
1996, or
(B) at the election of the trustee of a trust, to taxable
years ending after the date of the enactment of this Act.
Such an election, once made, shall be irrevocable.
(b) DOMESTIC TRUSTS WHICH BECOME FOREIGN TRUSTS.—
(1) IN GENERAL.—Section 1491 (relating to imposition of
tax on transfers to avoid income tax) is amended by adding
at the end the following new flush sentence:
‘‘If a trust which is not a foreign trust becomes a foreign trust,
such trust shall be treated for purposes of this section as having
transferred, immediately before becoming a foreign trust, all of
its assets to a foreign trust.’’.
H. R. 3448—163
(2) EFFECTIVE
DATE.—The amendment made by this
subsection shall take effect on the date of the enactment of
this Act.
Subtitle J—Generalized System of
Preferences
SEC. 1951. SHORT TITLE.
This subtitle may be cited as the ‘‘GSP Renewal Act of 1996’’.
SEC. 1952. GENERALIZED SYSTEM OF PREFERENCES.
(a) IN GENERAL.—Title V of the Trade Act of 1974 is amended
to read as follows:
‘‘TITLE V—GENERALIZED SYSTEM OF
PREFERENCES
‘‘SEC. 501. AUTHORITY TO EXTEND PREFERENCES.
‘‘The President may provide duty-free treatment for any eligible
article from any beneficiary developing country in accordance with
the provisions of this title. In taking any such action, the President
shall have due regard for—
‘‘(1) the effect such action will have on furthering the
economic development of developing countries through the
expansion of their exports;
‘‘(2) the extent to which other major developed countries
are undertaking a comparable effort to assist developing coun-
tries by granting generalized preferences with respect to
imports of products of such countries;
‘‘(3) the anticipated impact of such action on United States
producers of like or directly competitive products; and
‘‘(4) the extent of the beneficiary developing country’s
competitiveness with respect to eligible articles.
‘‘SEC. 502. DESIGNATION OF BENEFICIARY DEVELOPING COUNTRIES.
‘‘(a) AUTHORITY TO DESIGNATE COUNTRIES.—
‘‘(1) BENEFICIARY DEVELOPING COUNTRIES.—The President
is authorized to designate countries as beneficiary developing
countries for purposes of this title.
‘‘(2) LEAST-DEVELOPED
BENEFICIARY
DEVELOPING
COUN-
TRIES.—The President is authorized to designate any bene-
ficiary developing country as a least-developed beneficiary
developing country for purposes of this title, based on the
considerations in section 501 and subsection (c) of this section.
‘‘(b) COUNTRIES INELIGIBLE FOR DESIGNATION.—
‘‘(1) SPECIFIC COUNTRIES.—The following countries may not
be designated as beneficiary developing countries for purposes
of this title:
‘‘(A) Australia.
‘‘(B) Canada.
‘‘(C) European Union member states.
‘‘(D) Iceland.
‘‘(E) Japan.
‘‘(F) Monaco.
‘‘(G) New Zealand.
H. R. 3448—164
‘‘(H) Norway.
‘‘(I) Switzerland.
‘‘(2) OTHER BASES FOR INELIGIBILITY.—The President shall
not designate any country a beneficiary developing country
under this title if any of the following applies:
‘‘(A) Such country is a Communist country, unless—
‘‘(i) the products of such country receive non-
discriminatory treatment,
‘‘(ii) such country is a WTO Member (as such term
is defined in section 2(10) of the Uruguay Round Agree-
ments Act) (19 U.S.C. 3501(10)) and a member of the
International Monetary Fund, and
‘‘(iii) such country is not dominated or controlled
by international communism.
‘‘(B) Such country is a party to an arrangement of
countries and participates in any action pursuant to such
arrangement, the effect of which is—
‘‘(i) to withhold supplies of vital commodity
resources from international trade or to raise the price
of such commodities to an unreasonable level, and
‘‘(ii) to cause serious disruption of the world
economy.
‘‘(C) Such country affords preferential treatment to
the products of a developed country, other than the United
States, which has, or is likely to have, a significant adverse
effect on United States commerce.
‘‘(D)(i) Such country—
‘‘(I) has nationalized, expropriated, or otherwise
seized ownership or control of property, including
patents, trademarks, or copyrights, owned by a United
States citizen or by a corporation, partnership, or
association which is 50 percent or more beneficially
owned by United States citizens,
‘‘(II) has taken steps to repudiate or nullify an
existing contract or agreement with a United States
citizen or a corporation, partnership, or association
which is 50 percent or more beneficially owned by
United States citizens, the effect of which is to nation-
alize, expropriate, or otherwise seize ownership or
control of property, including patents, trademarks, or
copyrights, so owned, or
‘‘(III) has imposed or enforced taxes or other
exactions, restrictive maintenance or operational condi-
tions, or other measures with respect to property,
including patents, trademarks, or copyrights, so owned,
the effect of which is to nationalize, expropriate, or
otherwise seize ownership or control of such property,
unless clause (ii) applies.
‘‘(ii) This clause applies if the President determines
that—
‘‘(I) prompt, adequate, and effective compensation
has been or is being made to the citizen, corporation,
partnership, or association referred to in clause (i),
‘‘(II) good faith negotiations to provide prompt,
adequate, and effective compensation under the
applicable provisions of international law are in
progress, or the country described in clause (i) is other-
H. R. 3448—165
wise taking steps to discharge its obligations under
international law with respect to such citizen, corpora-
tion, partnership, or association, or
‘‘(III) a dispute involving such citizen, corporation,
partnership, or association over compensation for such
a seizure has been submitted to arbitration under the
provisions of the Convention for the Settlement of
Investment Disputes, or in another mutually agreed
upon forum,
and the President promptly furnishes a copy of such deter-
mination to the Senate and House of Representatives.
‘‘(E) Such country fails to act in good faith in recogniz-
ing as binding or in enforcing arbitral awards in favor
of United States citizens or a corporation, partnership,
or association which is 50 percent or more beneficially
owned by United States citizens, which have been
made by arbitrators appointed for each case or by perma-
nent arbitral bodies to which the parties involved have
submitted their dispute.
‘‘(F) Such country aids or abets, by granting sanctuary
from prosecution to, any individual or group which has
committed an act of international terrorism.
‘‘(G) Such country has not taken or is not taking steps
to afford internationally recognized worker rights to
workers in the country (including any designated zone in
that country).
Subparagraphs (D), (E), (F), and (G) shall not prevent the
designation of any country as a beneficiary developing country
under this title if the President determines that such designa-
tion will be in the national economic interest of the United
States and reports such determination to the Congress with
the reasons therefor.
‘‘(c) FACTORS AFFECTING COUNTRY DESIGNATION.—In determin-
ing whether to designate any country as a beneficiary developing
country under this title, the President shall take into account—
‘‘(1) an expression by such country of its desire to be so
designated;
‘‘(2) the level of economic development of such country,
including its per capita gross national product, the living stand-
ards of its inhabitants, and any other economic factors which
the President deems appropriate;
‘‘(3) whether or not other major developed countries are
extending generalized preferential tariff treatment to such
country;
‘‘(4) the extent to which such country has assured the
United States that it will provide equitable and reasonable
access to the markets and basic commodity resources of such
country and the extent to which such country has assured
the United States that it will refrain from engaging in
unreasonable export practices;
‘‘(5) the extent to which such country is providing adequate
and effective protection of intellectual property rights;
‘‘(6) the extent to which such country has taken
action to—
‘‘(A) reduce trade distorting investment practices and
policies (including export performance requirements); and
H. R. 3448—166
‘‘(B) reduce or eliminate barriers to trade in services;
and
‘‘(7) whether or not such country has taken or is taking
steps to afford to workers in that country (including any des-
ignated zone in that country) internationally recognized worker
rights.
‘‘(d) WITHDRAWAL, SUSPENSION, OR LIMITATION
OF COUNTRY
DESIGNATION.—
‘‘(1) IN GENERAL.—The President may withdraw, suspend,
or limit the application of the duty-free treatment accorded
under this title with respect to any country. In taking any
action under this subsection, the President shall consider the
factors set forth in section 501 and subsection (c) of this section.
‘‘(2) CHANGED CIRCUMSTANCES.—The President shall, after
complying with the requirements of subsection (f)(2), withdraw
or suspend the designation of any country as a beneficiary
developing country if, after such designation, the President
determines that as the result of changed circumstances such
country would be barred from designation as a beneficiary
developing country under subsection (b)(2). Such country shall
cease to be a beneficiary developing country on the day on
which the President issues an Executive order or Presidential
proclamation revoking the designation of such country under
this title.
‘‘(3) ADVICE TO CONGRESS.—The President shall, as nec-
essary, advise the Congress on the application of section 501
and subsection (c) of this section, and the actions the President
has taken to withdraw, to suspend, or to limit the application
of duty-free treatment with respect to any country which has
failed to adequately take the actions described in subsection
(c).
‘‘(e) MANDATORY GRADUATION
OF BENEFICIARY DEVELOPING
COUNTRIES.—If the President determines that a beneficiary develop-
ing country has become a ‘high income’ country, as defined by
the official statistics of the International Bank for Reconstruction
and Development, then the President shall terminate the designa-
tion of such country as a beneficiary developing country for purposes
of this title, effective on January 1 of the second year following
the year in which such determination is made.
‘‘(f) CONGRESSIONAL NOTIFICATION.—
‘‘(1) NOTIFICATION OF DESIGNATION.—
‘‘(A) IN GENERAL.—Before the President designates any
country as a beneficiary developing country under this
title, the President shall notify the Congress of the Presi-
dent’s intention to make such designation, together with
the considerations entering into such decision.
‘‘(B) DESIGNATION
AS
LEAST-DEVELOPED
BENEFICIARY
DEVELOPING COUNTRY.—At least 60 days before the Presi-
dent designates any country as a least-developed bene-
ficiary developing country, the President shall notify the
Congress of the President’s intention to make such designa-
tion.
‘‘(2) NOTIFICATION OF TERMINATION.—If the President has
designated any country as a beneficiary developing country
under this title, the President shall not terminate such designa-
tion unless, at least 60 days before such termination, the Presi-
dent has notified the Congress and has notified such country
H. R. 3448—167
of the President’s intention to terminate such designation,
together with the considerations entering into such decision.
‘‘SEC. 503. DESIGNATION OF ELIGIBLE ARTICLES.
‘‘(a) ELIGIBLE ARTICLES.—
‘‘(1) DESIGNATION.—
‘‘(A) IN GENERAL.—Except as provided in subsection
(b), the President is authorized to designate articles as
eligible articles from all beneficiary developing countries
for purposes of this title by Executive order or Presidential
proclamation after receiving the advice of the International
Trade Commission in accordance with subsection (e).
‘‘(B) LEAST-DEVELOPED BENEFICIARY DEVELOPING COUN-
TRIES.—Except for articles described in subparagraphs (A),
(B), and (E) of subsection (b)(1) and articles described in
paragraphs (2) and (3) of subsection (b), the President
may, in carrying out section 502(d)(1) and subsection (c)(1)
of this section, designate articles as eligible articles only
for countries designated as least-developed beneficiary
developing countries under section 502(a)(2) if, after receiv-
ing the advice of the International Trade Commission in
accordance with subsection (e) of this section, the President
determines that such articles are not import-sensitive in
the context of imports from least-developed beneficiary
developing countries.
‘‘(C) THREE-YEAR RULE.—If, after receiving the advice
of the International Trade Commission under subsection
(e), an article has been formally considered for designation
as an eligible article under this title and denied such
designation, such article may not be reconsidered for
such designation for a period of 3 years after such denial.
‘‘(2) RULE OF ORIGIN.—
‘‘(A) GENERAL RULE.—The duty-free treatment provided
under this title shall apply to any eligible article which
is the growth, product, or manufacture of a beneficiary
developing country if—
‘‘(i) that article is imported directly from a bene-
ficiary developing country into the customs territory
of the United States; and
‘‘(ii) the sum of—
‘‘(I) the cost or value of the materials produced
in the beneficiary developing country or any two
or more such countries that are members of the
same association of countries and are treated as
one country under section 507(2), plus
‘‘(II) the direct costs of processing operations
performed in such beneficiary developing country
or such member countries, is not less than 35
percent of the appraised value of such article at
the time it is entered.
‘‘(B) EXCLUSIONS.—An article shall not be treated as
the growth, product, or manufacture of a beneficiary devel-
oping country by virtue of having merely undergone—
‘‘(i) simple combining or packaging operations, or
‘‘(ii) mere dilution with water or mere dilution
with another substance that does not materially alter
the characteristics of the article.
H. R. 3448—168
‘‘(3) REGULATIONS.—The Secretary of the Treasury, after
consulting with the United States Trade Representative, shall
prescribe such regulations as may be necessary to carry out
paragraph (2), including, but not limited to, regulations provid-
ing that, in order to be eligible for duty-free treatment under
this title, an article—
‘‘(A) must be wholly the growth, product, or manufac-
ture of a beneficiary developing country, or
‘‘(B) must be a new or different article of commerce
which has been grown, produced, or manufactured in the
beneficiary developing country.
‘‘(b) ARTICLES THAT MAY NOT BE DESIGNATED AS ELIGIBLE
ARTICLES.—
‘‘(1) IMPORT SENSITIVE ARTICLES.—The President may not
designate any article as an eligible article under subsection
(a) if such article is within one of the following categories
of import-sensitive articles:
‘‘(A) Textile and apparel articles which were not eligible
articles for purposes of this title on January 1, 1994, as
this title was in effect on such date.
‘‘(B) Watches, except those watches entered after June
30, 1989, that the President specifically determines, after
public notice and comment, will not cause material injury
to watch or watch band, strap, or bracelet manufacturing
and assembly operations in the United States or the United
States insular possessions.
‘‘(C) Import-sensitive electronic articles.
‘‘(D) Import-sensitive steel articles.
‘‘(E) Footwear, handbags, luggage, flat goods, work
gloves, and leather wearing apparel which were not eligible
articles for purposes of this title on January 1, 1995, as
this title was in effect on such date.
‘‘(F) Import-sensitive semimanufactured and manufac-
tured glass products.
‘‘(G) Any other articles which the President determines
to be import-sensitive in the context of the Generalized
System of Preferences.
‘‘(2) ARTICLES AGAINST WHICH OTHER ACTIONS TAKEN.—An
article shall not be an eligible article for purposes of this
title for any period during which such article is the subject
of any action proclaimed pursuant to section 203 of this Act
(19 U.S.C. 2253) or section 232 or 351 of the Trade Expansion
Act of 1962 (19 U.S.C. 1862, 1981).
‘‘(3) AGRICULTURAL PRODUCTS.—No quantity of an agricul-
tural product subject to a tariff-rate quota that exceeds the
in-quota quantity shall be eligible for duty-free treatment under
this title.
‘‘(c) WITHDRAWAL, SUSPENSION, OR LIMITATION OF DUTY-FREE
TREATMENT; COMPETITIVE NEED LIMITATION.—
‘‘(1) IN GENERAL.—The President may withdraw, suspend,
or limit the application of the duty-free treatment accorded
under this title with respect to any article, except that no
rate of duty may be established with respect to any article
pursuant to this subsection other than the rate which would
apply but for this title. In taking any action under this sub-
section, the President shall consider the factors set forth in
sections 501 and 502(c).
H. R. 3448—169
‘‘(2) COMPETITIVE NEED LIMITATION.—
‘‘(A) BASIS
FOR
WITHDRAWAL
OF
DUTY-FREE
TREAT-
MENT.—
‘‘(i) IN
GENERAL.—Except as provided in clause
(ii) and subject to subsection (d), whenever the Presi-
dent determines that a beneficiary developing country
has exported (directly or indirectly) to the United
States during any calendar year beginning after
December 31, 1995—
‘‘(I) a quantity of an eligible article having
an appraised value in excess of the applicable
amount for the calendar year, or
‘‘(II) a quantity of an eligible article equal
to or exceeding 50 percent of the appraised value
of the total imports of that article into the United
States during any calendar year,
the President shall, not later than July 1 of the next
calendar year, terminate the duty-free treatment for
that article from that beneficiary developing country.
‘‘(ii) 
ANNUAL
ADJUSTMENT
OF
APPLICABLE
AMOUNT.—For purposes of applying clause (i), the
applicable amount is—
‘‘(I) for 1996, $75,000,000, and
‘‘(II) for each calendar year thereafter, an
amount equal to the applicable amount in effect
for the preceding calendar year plus $5,000,000.
‘‘(B) COUNTRY DEFINED.—For purposes of this para-
graph, the term ‘country’ does not include an association
of countries which is treated as one country under section
507(2), but does include a country which is a member
of any such association.
‘‘(C) REDESIGNATIONS.—A country which is no longer
treated as a beneficiary developing country with respect
to an eligible article by reason of subparagraph (A) may,
subject to the considerations set forth in sections 501 and
502, be redesignated a beneficiary developing country with
respect to such article if imports of such article from such
country did not exceed the limitations in subparagraph
(A) during the preceding calendar year.
‘‘(D) LEAST-DEVELOPED BENEFICIARY DEVELOPING COUN-
TRIES.—Subparagraph (A) shall not apply to any least-
developed beneficiary developing country.
‘‘(E) ARTICLES NOT PRODUCED IN THE UNITED STATES
EXCLUDED.—Subparagraph (A)(i)(II) shall not apply with
respect to any eligible article if a like or directly competitive
article was not produced in the United States on January
1, 1995.
‘‘(F) DE MINIMIS WAIVERS.—
‘‘(i) IN
GENERAL.—The President may disregard
subparagraph (A)(i)(II) with respect to any eligible
article from any beneficiary developing country if the
aggregate appraised value of the imports of such article
into the United States during the preceding calendar
year does not exceed the applicable amount for such
preceding calendar year.
‘‘(ii) APPLICABLE AMOUNT.—For purposes of apply-
ing clause (i), the applicable amount is—
H. R. 3448—170
‘‘(I) for calendar year 1996, $13,000,000, and
‘‘(II) for each calendar year thereafter, an
amount equal to the applicable amount in effect
for the preceding calendar year plus $500,000.
‘‘(d) WAIVER OF COMPETITIVE NEED LIMITATION.—
‘‘(1) IN GENERAL.—The President may waive the application
of subsection (c)(2) with respect to any eligible article of any
beneficiary developing country if, before July 1 of the calendar
year beginning after the calendar year for which a determina-
tion described in subsection (c)(2)(A) was made with respect
to such eligible article, the President—
‘‘(A) receives the advice of the International Trade
Commission under section 332 of the Tariff Act of 1930
on whether any industry in the United States is likely
to be adversely affected by such waiver,
‘‘(B) determines, based on the considerations described
in sections 501 and 502(c) and the advice described in
subparagraph (A), that such waiver is in the national eco-
nomic interest of the United States, and
‘‘(C) publishes the determination described in subpara-
graph (B) in the Federal Register.
‘‘(2) CONSIDERATIONS BY THE PRESIDENT.—In making any
determination under paragraph (1), the President shall give
great weight to—
‘‘(A) the extent to which the beneficiary developing
country has assured the United States that such country
will provide equitable and reasonable access to the markets
and basic commodity resources of such country, and
‘‘(B) the extent to which such country provides ade-
quate and effective protection of intellectual property
rights.
‘‘(3) OTHER BASES FOR WAIVER.—The President may waive
the application of subsection (c)(2) if, before July 1 of the
calendar year beginning after the calendar year for which a
determination described in subsection (c)(2) was made with
respect to a beneficiary developing country, the President deter-
mines that—
‘‘(A) there has been a historical preferential trade rela-
tionship between the United States and such country,
‘‘(B) there is a treaty or trade agreement in force
covering economic relations between such country and the
United States, and
‘‘(C) such country does not discriminate against, or
impose unjustifiable or unreasonable barriers to, United
States commerce,
and the President publishes that determination in the Federal
Register.
‘‘(4) LIMITATIONS ON WAIVERS.—
‘‘(A) IN GENERAL.—The President may not exercise the
waiver authority under this subsection with respect to a
quantity of an eligible article entered during any calendar
year beginning after 1995, the aggregate appraised value
of which equals or exceeds 30 percent of the aggregate
appraised value of all articles that entered duty-free under
this title during the preceding calendar year.
‘‘(B) OTHER WAIVER LIMITS.—The President may not
exercise the waiver authority provided under this sub-