[JPRT 106-45]
[From the U.S. Government Publishing Office]




106th Congress                                                  S. Prt.
 2d Session              JOINT COMMITTEE PRINT                  106-45
_______________________________________________________________________

                                     

 
        COUNTRY REPORTS ON ECONOMIC POLICY AND TRADE PRACTICES

                               __________

                              R E P O R T

                            SUBMITTED TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                          COMMITTEE ON FINANCE

                                 OF THE

                              U.S. SENATE

                                AND THE

                              COMMITTEE ON

                        INTERNATIONAL RELATIONS

                      COMMITTEE ON WAYS AND MEANS

                                 OF THE

                     U.S. HOUSE OF REPRESENTATIVES

                                 BY THE

                          DEPARTMENT OF STATE

       IN ACCORDANCE WITH SECTION 2202 OF THE OMNIBUS TRADE AND 
                      COMPETITIVENESS ACT OF 1988

                                     






                      U.S. GOVERNMENT PRINTING OFFICE
63-133                        WASHINGTON : 2000




                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
CRAIG THOMAS, Wyoming                JOHN F. KERRY, Massachusetts
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri              PAUL D. WELLSTONE, Minnesota
BILL FRIST, Tennessee                BARBARA BOXER, California
SAM BROWNBACK, Kansas                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director
        
                              ----------                              


                          COMMITTEE ON FINANCE

                WILLIAM V. ROTH, Jr., Delaware, Chairman

CHARLES E. GRASSLEY, Iowa            DANIEL PATRICK MOYNIHAN, New York
ORRIN G. HATCH, Utah                 MAX BAUCUS, Montana
FRANK H. MURKOWSKI, Alaska           JOHN D. ROCKEFELLER IV, West 
DON NICKLES, Oklahoma                Virginia
PHIL GRAMM, Texas                    JOHN BREAUX, Louisiana
TRENT LOTT, Mississippi              KENT CONRAD, North Dakota
JAMES M. JEFFORDS, Vermont           BOB GRAHAM, Florida
CONNIE MACK, Florida                 RICHARD H. BRYAN, Nevada
FRED THOMPSON, Tennessee             J. ROBERT KERREY, Nebraska
PAUL COVERDELL, Georgia              CHARLES S. ROBB, Virginia

           Franklin G. Polk, Staff Director and Chief Counsel

        David Podoff, Minority Staff Director and Chief Counsel

                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                  Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
Carolina                             ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado

                    Richard J. Garon, Chief of Staff

          Kathleen Bertelsen Moazed, Democratic Chief of Staff

     Hillel Weinberg, Senior Professional Staff Member and Counsel

                   Kimberly Roberts, Staff Associate

                              ----------                              


                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 (iii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

Foreword.........................................................   vii

Letter of Transmittal............................................    ix

Introduction.....................................................    xi

Text of Section 2202 of the Omnibus Trade and Competitiveness Act 
  of 1988........................................................  xiii

Notes on Preparation of the Reports..............................    xv

Some Frequently Used Acronyms....................................  xvii

                            COUNTRY REPORTS*

Africa:

    Ghana........................................................     1
    Nigeria......................................................     6
    South Africa.................................................    12

East Asia and the Pacific:

    Australia....................................................    17
    China, People's Republic of..................................    21
    Hong Kong*...................................................    28
    Indonesia....................................................    32
    Japan........................................................    38
    Korea, Republic of...........................................    44
    Malaysia.....................................................    50
    Philippines..................................................    57
    Singapore....................................................    63
    Taiwan*......................................................    69
    Thailand.....................................................    75

Europe:

    The European Union...........................................    81
    Austria......................................................    89
    Belgium......................................................    94
    Bulgaria.....................................................    99
    Czech Republic...............................................   105
    Denmark......................................................   110
    Finland......................................................   116
    France.......................................................   121
    Germany......................................................   125
    Greece.......................................................   129
    Hungary......................................................   135
    Ireland......................................................   139
    Italy........................................................   146
    The Netherlands..............................................   151
    Norway.......................................................   156
    Poland.......................................................   160
    Portugal.....................................................   165
    Romania......................................................   169
    Russia.......................................................   173
    Spain........................................................   180

                                  (v)

    Sweden.......................................................   186
    Switzerland..................................................   190
    Turkey.......................................................   193
    Ukraine......................................................   198
    United Kingdom...............................................   204

The Americas:

    Argentina....................................................   209
    Bahamas......................................................   214
    Bolivia......................................................   219
    Brazil.......................................................   224
    Canada.......................................................   230
    Chile........................................................   235
    Colombia.....................................................   241
    Costa Rica...................................................   248
    Dominican Republic...........................................   254
    Ecuador......................................................   260
    El Salvador..................................................   265
    Guatemala....................................................   270
    Haiti........................................................   274
    Honduras.....................................................   279
    Jamaica......................................................   285
    Mexico.......................................................   292
    Nicaragua....................................................   300
    Panama.......................................................   304
    Paraguay.....................................................   309
    Peru.........................................................   314
    Trinidad and Tobago..........................................   319
    Uruguay......................................................   324
    Venezuela....................................................   328

Near East and North Africa:

    Algeria......................................................   337
    Bahrain......................................................   341
    Egypt........................................................   345
    Israel.......................................................   352
    Jordan.......................................................   358
    Kuwait.......................................................   363
    Morocco......................................................   368
    Oman.........................................................   372
    Saudi Arabia.................................................   378
    Tunisia......................................................   383
    United Arab Emirates.........................................   388

South Asia:

    Bangladesh...................................................   395
    India........................................................   401
    Pakistan.....................................................   406

                               __________
*Reports also cover the following areas: Hong Kong and Taiwan.




                                FOREWORD

                              ----------                              

    The reports on individual country economic policy and trade 
practices contained herein were prepared by the Department of 
State in accordance with section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988 (P.L. 100-418).
    Modeled on the State Department's annual reports on country 
human rights practices, the reports are intended to provide a 
single, comparative analysis of the economic policies and trade 
practices of countries with which the United States has 
significant economic or trade relationships. Because of the 
increasing importance of, and interest in, trade and economic 
issues, these reports are prepared to assist Members in 
considering legislation in the areas of trade and economic 
policy.

                                               Jesse Helms,
                          Chairman, Committee on Foreign Relations.

                                      William V. Roth, Jr.,
                                    Chairman, Committee on Finance.

                                        Benjamin A. Gilman,
                    Chairman, Committee on International Relations.

                                               Bill Archer,
                             Chairman, Committee on Ways and Means.

                                 (vii)

                                     




                         LETTER OF TRANSMITTAL

                              ----------                              

                                  U.S. Department of State,
                                     Washington, DC, March 6, 2000.
Hon. Jesse Helms,
Chairman, Committee on Foreign Relations.

Hon. William V. Roth, Jr.,
Chairman, Committee on Finance.

Hon. Albert Gore, Jr.,
President, U.S. Senate.

Hon. Dennis Hastert,
Speaker, House of Representatives.

Hon. Benjamin A. Gilman,
Chairman, Committee on International Relations.

Hon. Bill Archer,
Chairman, Committee on Ways and Means.

    Dear Sirs: Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988 requires the Department of State to 
provide to the appropriate Committees of Congress a detailed 
report regarding the economic policy and trade practices of 
countries with which the U.S. has significant economic or trade 
relationships. In this regard, I am pleased to provide the 
enclosed report.

            Sincerely,
                                            Barbara Larkin,
                          Assistant Secretary, Legislative Affairs.
Enclosure.

                                  (ix)

                                     


                              INTRODUCTION

                              ----------                              


         Country Reports on Economic Policy and Trade Practices

    The Department of State is submitting to the Congress its 
Country Reports on Economic Policy and Trade Practices in 
compliance with Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988. As the legislation requires, we 
have prepared detailed reports on the economic policy and trade 
practices of countries with which the United States has 
significant economic or trade relationships. This is the 
Department of State's 11th annual report. It now includes 
reports on 76 countries, customs territories and customs 
unions.
    Each report contains nine sections.

   Key Economic Indicators: Each report begins with a 
        table showing data for key economic indicators in the 
        national income, monetary, and trade accounts.
   General Policy Framework: This first narrative 
        section gives an overview of macroeconomic trends.
   Exchange Rate Policies: The second section describes 
        exchange rate policies and their impact on the price 
        competitiveness of U.S. exports.
   Structural Policies: The third section examines 
        structural policies, highlighting changes that may 
        affect U.S. exports to that country.
   Debt Management Policies: The fourth section 
        describes debt management policies and their 
        implications for trade with the U.S.
   Significant Barriers to U.S. Exports and Investment: 
        The fifth section examines significant barriers, formal 
        and informal, to U.S. exports and investment.
   Export Subsidies Policies: The sixth section focuses 
        on government actions, policies, and practices that 
        support exports from that country, including exports by 
        small businesses.
   Protection of U.S. Intellectual Property: The 
        seventh section discusses the country's laws and 
        practices with respect to protection of intellectual 
        property rights.
   Worker Rights: The final section has three parts.

        --The first (subsections a through e) outlines the 
        country's laws and practices with respect to 
        internationally recognized worker rights.
        --The second (subsection f) highlights conditions of 
        worker rights in goods-producing sectors where U.S. 
        capital is invested.

                                  (xi)

        --Finally, a table cites the extent of such investment 
        by sector where information is available.

    The country reports are based on information supplied by 
U.S. Embassies, which is analyzed and reviewed by the 
Department of State in consultation with other U.S. Government 
agencies. The reports are intended to serve as general guides 
to economic conditions in specific countries. We have worked to 
standardize the reports, but there are unavoidable differences 
reflecting large variations in data availability. In some 
cases, access to reliable data is limited, particularly in 
countries making transitions to market economies. Nonetheless, 
each report incorporates the best information currently 
available.
                                       Ryan Samuel,
                        Acting Assistant Secretary of State
                                 for Economic and Business Affairs.


 TEXT OF SECTION 2202 OF THE OMNIBUS TRADE AND COMPETITIVENESS ACT OF 
                                  1988

                              ----------                              

    ``The Secretary of State shall, not later than January 31 
of each year, prepare and transmit to the Committee on 
[International Relations]* and the Committee on Ways and Means 
of the House of Representatives, to the Committee on Foreign 
Relations and the Committee on Finance of the Senate, and to 
other appropriate committees of the Congress, a detailed report 
regarding the economic policy and trade practices of each 
country with which the United States has an economic or trade 
relationship. The Secretary may direct the appropriate officers 
of the Department of State who are serving overseas, in 
consultation with appropriate officers or employees of other 
departments and agencies of the United States, including the 
Department of Agriculture and the Department of Commerce, to 
coordinate the preparation of such information in a country as 
is necessary to prepare the report under this section. The 
report shall identify and describe, with respect to each 
country:

    1. The macroeconomic policies of the country and their 
impact on the overall growth in demand for United States 
exports;
    2. The impact of macroeconomic and other policies on the 
exchange rate of the country and the resulting impact on price 
competitiveness of United States exports;
    3. Any change in structural policies [including tax 
incentives, regulation governing financial institutions, 
production standards, and patterns of industrial ownership] 
that may affect the country's growth rate and its demand for 
United States exports;
    4. The management of the country's external debt and its 
implications for trade with the United States;
    5. Acts, policies, and practices that constitute 
significant trade barriers to United States exports or foreign 
direct investment in that country by United States persons, as 
identified under section 181(a)(1) of the Trade Act of 1974 (19 
U.S.C. 2241(a)(1));
    6. Acts, policies, and practices that provide direct or 
indirect government support for exports from that country, 
including exports by small businesses;
    7. The extent to which the country's laws and enforcement 
of those laws afford adequate protection to United States 
intellectual property, including patents, trademarks, 
copyrights, and mask works; and



    *In 1995, the Committee on Foreign Affairs changed its name to the 
Committee on International Relations.

                                 (xiii)

                                     

    8. The country's laws, enforcement of those laws, and 
practices with respect to internationally recognized worker 
rights (as defined in section 502(a)(4) of the Trade Act of 
1974), the conditions of worker rights in any sector which 
produces goods in which United States capital is invested, and 
the extent of such investment.''


                  NOTES ON PREPARATION OF THE REPORTS

                              ----------                              

    Subsections ``a.'' through ``e.'' of the Worker Rights 
section (section 8) are abridged versions of section 6 in the 
Country Reports on Human Rights Practices for 1999, submitted 
to the Committees on International Relations of the House of 
Representatives and on Foreign Relations of the U.S. Senate in 
January 1999. For a comprehensive and authoritative discussion 
of worker rights in each country, please refer to that report.
    Subsection ``f.'' highlights conditions of worker rights in 
goods-producing sectors where U.S. capital is invested. A table 
cites the extent of such investment by sector where information 
is available. The Bureau of Economic Analysis of the U.S. 
Department of Commerce has supplied information on the U.S. 
direct investment position at the end of 1997 for all countries 
for which foreign direct investment has been reported to it. 
Readers should note that ``U.S. Direct Position Abroad'' is 
defined as ``the net book value of U.S. parent companies' 
equity in, and net outstanding loans to, their foreign 
affiliates'' (foreign business enterprises owned 10 percent or 
more by U.S. persons or companies). Where a figure is negative, 
the U.S. parent owes money to the affiliate. The table does not 
necessarily indicate total assets held in each country. In some 
instances, the narrative refers to investments for which 
figures may not appear in the table.

                                  (xv)

                                     


                     SOME FREQUENTLY USED ACRONYMS

                              ----------                              

ADB--Asian Development Bank
BIS--Bank for International Settlements
CACM--Central American Common Market
CARICOM--Caribbean Common Market
CAP--Common Agricultural Policy (of the EU)
CCC--Commodity Credit Corporation (Department of Agriculture)
EBRD--European Bank for Reconstruction and Development
EFTA--European Free Trade Association
EMS--European Monetary System (of the EU)
ERM--Exchange Rate Mechanism (of the EU)
ESAF--Enhanced Structural Adjustment Facility
EU--European Union
EXIMBANK--U.S. Export-Import Bank
FOREX--foreign exchange
FY--fiscal year
GATS--General Agreement on Trade in Services
GATT--General Agreement on Tariffs and Trade
GDP--gross domestic product
GNP--gross national product
GSP--Generalized System of Preferences
IBRD--International Bank for Reconstruction and Development 
            (World Bank)
IFIs--international financial institutions (IMF, World Bank and 
            regional development banks)
ILO--International Labor Organization (of the United Nations)
IMF--International Monetary Fund
IDB--Inter-American Development Bank
IPR--intellectual property rights
LIBOR--London Interbank Offer Rate
MFN--most favored nation
NAFTA--North American Free Trade Agreement
NGOs--non-government organizations
NIS--Newly Independent States (of the former Soviet Union)
OECD--Organization for Economic Cooperation and Development
OPIC--U.S. Overseas Private Investment Corporation
PTT--Post, Telegraph and Telephone
SAP--Structural Adjustment Program (of the IMF/World Bank)
SDR--Special Drawing Rights (of the IMF)
STF--Structural Transformation Facility
TRIPs--WTO Agreement on Trade-Related Aspects of Intellectual 
            Property Rights

                                 (xvii)

UR--Uruguay Round of trade negotiations in the GATT
USD--U.S. Dollar
VAT--value-added tax
WIPO--World Intellectual Property Organization
WTO--World Trade Organization
                                 AFRICA

                              ----------                              


                                 GHANA

                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     6,884     7,630       N/A
  Real GDP Growth (pct) \3\...............       4.2       4.6       4.5
  GDP by Sector:
    Agriculture...........................     2,574     3,090       N/A
    Manufacturing.........................       640       656       N/A
    Services..............................     1,976     2,220       N/A
    Government............................       730       832       N/A
  Per Capita GDP (US$)....................       385       415       N/A
  Labor Force (000's).....................     8,240     8,480     8,734
  Unemployment Rate (pct).................        22        20        20

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      40.8      17.6       3.9
  Consumer Price Inflation (end-of-period)      20.8      15.7      12.6
  Exchange Rate (Cedis/US$ annual average)     2,250     2,346     3,100
   Interbank (mid-rate)...................

Balance of Payments and Trade:
  Total Exports FOB \4\...................     1,491     1,830     1,880
    Exports to U.S. \4\...................       154       144       140
  Total Imports CIF \4\...................     2,128     2,213     2,253
    Imports from U.S. \4\.................       314       223       253
  Trade Balance \4\.......................      -637      -383      -373
    Balance with U.S......................      -160       -79      -113
  External Public Debt....................     5,651     5,922     5,750
  Fiscal Deficit/GDP (pct)................       2.6       2.3       N/A
  Current Account Deficit/GDP (pct).......       8.5       3.5       N/A
  Debt Service Payments/GDP (pct).........       8.6       8.4       N/A
  Gold and Foreign Exchange Reserves......       508       508       364
  Aid from U.S............................        52        58        60
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on most recent data available.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Data not available.

1. General Policy Framework
    Ghana operates in a free market environment under a popularly 
elected civilian government. In December, 1996, Ghana had its second 
experience in multiparty elections since the inauguration of the 4th 
Republic in January, 1993. President Jerry John Rawlings was reelected 
for a second four-year term which will expire in December of 2000.
    Rawlings headed a ``provisional'' regime from the end of 1981 until 
January, 1993, when democratic government under a written constitution 
was restored. Unlike the first parliament, the present has an 
opposition presence with 67 seats out of 200. An independent judiciary 
acts as the final arbiter of Ghanaian laws. The next presidential and 
parliamentary elections are scheduled for the year 2000.
    Since 1983 Ghana has pursued an economic reform agenda aimed 
generally at reducing government involvement in the economy and 
encouraging private sector development. Inflationary pressures as a 
result of government expenditure overruns prior to 1992 and 1996 
presidential and parliamentary elections have been contained to some 
extent. However, fiscal performance by government in the third quarter 
of 1999 is the basis for concern since government has resorted to heavy 
domestic borrowing to make up for shortfalls from mainly non-tax 
revenue, leading to rising domestic interest rates.
    The Bank of Ghana is currently pursuing a tight monetary policy in 
an attempt to absorb excess liquidity in order to sustain the downward 
trend in inflation. Inflation, measured at about 71 percent at the end 
of 1995, has consistently declined to 9.4 percent at the end of May, 
1999, the lowest for 20 years before rising to 12.6 percent in October 
of 1999. Following the steady fall in inflation, the Central Bank 
cautiously made reductions in the bank rate or rediscount rate from 45 
percent in 1995, to 27 percent in April, 1999. Lending rates, which 
fell accordingly, have started rising as the Bank intensifies its open 
market operation to keep money supply within target. Increases in 
domestic prices of petroleum products to make up for corresponding 
increases in world crude oil prices, and the rapid depreciation of the 
local currency against major foreign currencies, are exerting intense 
inflationary pressures.
    The government's economic program has focused on the development of 
Ghana's private sector, which historically has been weak. Privatization 
of state-owned enterprises continues, with about two-thirds of 300 
enterprises sold to private owners. Despite the energy crisis in 1998, 
Ghana achieved real economic growth of 4.6 percent as against 4.2 
percent recorded in 1997. Growth in 1999 is expected to be lower than 
the government projection of 5.5 percent due to the effect of terms of 
trade shocks in 1999 arising from a decline in world prices of cocoa 
and gold and increases in oil prices. Agriculture (which still accounts 
for about 41 percent of GDP and employs about 60 percent of the work 
force) and manufacturing have recorded much slower growth. Other 
reforms adopted under the government's structural adjustment program 
include the elimination of exchange rate controls and the lifting of 
virtually all restrictions on imports. The establishment of an 
Interbank Foreign Exchange Market has greatly expanded access to 
foreign exchange. The elimination of virtually all local production 
subsidies is further indication of the government's intention to move 
toward a market orientation for the economy.
2. Exchange Rate Policy
    The foreign exchange value of the Ghanaian cedi is established 
independently through the use of Interbank Market and Foreign Exchange 
bureaus, and currency conversion is easily obtained. The foreign 
exchange auction procedure was abandoned in 1992. Ghana fully accedes 
to Article IV of the IMF convention on free current account 
convertibility and transfer. Through the Bank of Ghana's intervention, 
the cedi depreciated by about 13 percent in 1998 as compared to an 
annual average of about 25 percent during 1993 to 1997. Depletion of 
the Bank's foreign exchange reserves in 1999, mainly as a result of 
higher oil import bills and shortfall in external program assistance, 
has resulted in a sharp depreciation of the cedi and a shortage of 
major foreign exchange. In general, the exchange rate regime in Ghana 
does not have any particular impact on the competitiveness of U.S. 
exports. This may change, however, if the euro continues its fall in 
relation to the dollar.
3. Structural Policies
    Ghana progressively reduced import quotas and surcharges as part of 
its structural adjustment program. Tariff structures are being adjusted 
in harmony with the ECOWAS Trade Liberalization Program. With the 
elimination of import licensing in 1989, importers are now merely 
required to sign a declaration that they will comply with Ghanaian tax 
and other laws. Imported goods currently enjoy generally unfettered 
access to the Ghanaian market.
    The government professes strong support for the principle of free 
trade. However, it is also committed to the development of competitive 
domestic industries with exporting capabilities. The government is 
expected to continue to support domestic private enterprise with 
various financial incentives. Ghanaian manufacturers seek stronger 
protective measures and complain that Ghana's tariff structure places 
local producers at a competitive disadvantage relative to imports from 
countries enjoying greater production and marketing economies of scale. 
High local production costs frequently boost the price of locally 
manufactured items above the landed cost of goods imported from Asia 
and elsewhere. Reductions in tariffs have increased competition for 
local producers and manufacturers while reducing the cost of imported 
raw materials.
    The government successfully reintroduced value-added tax (VAT) in 
December, 1998, at a ten-percent rate. Government has proposed an 
increase to 12.5 percent to make up for anticipated revenue shortfalls 
in 2000. Additionally, government is expected to broaden the tax base 
and enhance compliance. All these, although significant, are not enough 
to reduce net domestic borrowings in order to ease pressure on 
inflation and domestic interest rates. In 1998, government's domestic 
interest payments were about 30 percent of its domestic revenue, more 
than the local budget for both health and education.
    Despite successful structural reform in other parts of the economy, 
one disappointment in Ghana's recent efforts has been that of its 
divestiture program. The Divestiture Implementation Committee (DIC) 
published an action plan in April 1999 detailing an agenda for the 
divestiture of several major enterprises and outlined specific annual 
targets for receipts. Since then, the actual implementation has 
included only two divestitures, that of the State Transport factory and 
that of GHACEM, a cement factory, totaling US$31.5 million.
4. Debt Management Policies
    Ghana's total outstanding external debt, including obligations to 
the IMF, totaled approximately USD 5.7 billion at the end of the second 
quarter of 1999. Outstanding obligations to the IMF under medium-term 
facilities stood at USD 305 million at the end of the same period. At 
that time, outstanding long-term debt was about USD 5 billion (about 88 
percent of total debt), of which USD 1.5 billion and USD 3.5 billion 
were owed to bilateral and multilateral institutions, respectively. The 
size of external debt as a proportion of GDP continues to decrease from 
its 1994 level of 97 percent to 79 percent of GDP in 1998. Ghana's debt 
service ratio in 1998 was 31 percent. In 1991 Ghana cleared all 
external debt arrears. Ghana is a heavily indebted poor country (HIPC) 
but has not asked to be the beneficiary of debt relief or rescheduling 
in recent times. To better manage its debt portfolio, since August, 
1997, government has applied a moratorium on public and public 
guaranteed non-concessional borrowings.
    Persistent balance of payments deficits have resulted in a 
continuing increase in foreign indebtedness. Swings in commodity 
prices, especially gold and cocoa, have a dramatic impact on Ghana's 
export revenues. In 1999, Ghana suffered from external shocks not only 
from the falling prices of these commodities but also the increase in 
the world price of crude oil. These are estimated to cumulatively 
affect the balance of payments by about 370 million dollars in 1999. 
This deficit is reflected in reduction in imports, lower GDP, and 
exchange rate adjustments. The government is expected to sustain its 
present level of external program assistance and increase receipts from 
the divestiture of state-owned enterprises to moderate the volatility 
of the cedi.
5. Significant Barriers to U.S. Exports
    Import licenses: Ghana eliminated its import licensing system in 
1989 but retains a ban on the importation of a narrow range of products 
that do not affect U.S. exports. Ghana is a member of the WTO.
    Services Barriers: The Ghanaian investment code prohibits foreign 
participation in the following sectors: small-scale wholesale and 
retail sales, taxi and car rental services with fleets of fewer than 
ten vehicles, lotteries, and barber and beauty shops. Current insurance 
law requires at least 40 percent Ghanaian ownership of insurance firms 
in Ghana.
    Standards, Testing, Labeling, and Certification: Ghana has 
promulgated its own standards for food and drugs. The Ghana Standards 
Board, the national testing authority, subscribes to accepted 
international practices for the testing of imports for purity and 
efficacy. Under Ghanaian law, imports must bear markings identifying in 
English the type of product being imported, the country of origin, the 
ingredients or components, and the expiration date, if any. Non-
complying goods are subject to government seizure. Several highly 
publicized seizures of goods (pharmaceuticals and food items) with 
expired shelf-life dates are occasionally carried out. The thrust of 
this law is to regulate imported food and drugs; however, by its terms 
the law applies to non-consumable imports as well. Locally manufactured 
goods are subject to comparable testing, labeling, and certification 
requirements. Four pre-shipment inspection firms contracted by 
government also perform testing and price verification for some 
selected imports that are above USD 5,000.
    Investment Barriers: The investment code guarantees repatriation of 
dividends, loan repayments, licensing fees and repatriation of capital. 
It also provides guarantees against expropriation or forced sale and 
sets forth dispute arbitration processes. Foreign investors are not 
subject to differential treatment on taxes, access to foreign exchange 
and credit, or importation of goods and equipment. Separate legislation 
covers investments in mining and petroleum and applies equally to 
foreign and Ghanaian investors. The investment code no longer requires 
project approval from the Ghana Investment Promotion Center (GIPC). The 
U.S. Embassy reports growing problems related to government violations 
of private sector landowning rights and property rights.
    Government Procurement Practices: Government purchases of equipment 
and supplies are usually handled by the Ghana Supply Commission (the 
official purchasing agency) through international bidding and, at 
times, through direct negotiations. Former government import monopolies 
have been abolished. However, parastatal entities continue to import 
some commodities. The parastatals no longer receive government 
subsidies to finance imports.
6. Export Subsidies Policies
    The Government of Ghana does not directly subsidize exports. 
Exporters are entitled to a 100 percent refund for duty paid on 
imported inputs used in the processing of exported goods. Bonded 
warehouses have been established which allow importers to avoid duties 
on imported inputs used to produce merchandise for export. Firms 
involved in exports enjoy some fiscal incentives such as tax holidays 
and preferential tax/duty treatment on imported capital equipment. 
Firms under the export processing zones all benefit from the same 
incentives.
7. Protection of U.S. Intellectual Property
    After independence in 1957, Ghana instituted separate legislation 
for copyright (1961) and trademark (1965) protection based on British 
law. Subsequently, the government passed modified copyright and patent 
legislation in 1985 and 1992, respectively. Prior to 1992 the patent 
laws of the United Kingdom applied in Ghana. Ghana is a member of the 
Universal Copyright Convention, the World Intellectual Property 
Organization, and the English-Speaking African Regional Intellectual 
Property Organization, and is also a signatory to the WTO Agreement on 
TRIPs. IPR holders have access to local courts for redress of 
grievances. Few infringement cases have been filed in Ghana in recent 
years. Ghana has not been identified as a priority country in 
connection with either the ``Special 301'' Watch List or Priority Watch 
List.
    Patents (Product and Process): Patent registration in Ghana 
presents no serious problems for foreign rights holders. Registration 
fees vary according to the nature of the patent, but local and foreign 
applicants pay the same rate.
    Trademarks: Ghana has not yet become a popular location for 
imitation designer apparel and watches. In cases where trademarks have 
been misappropriated, the price and quality disparity would be apparent 
to all but the most unsuspecting buyer.
    Copyrights: Enforcement of foreign copyrights may be pursued in the 
Ghanaian courts, but few such cases have actually been filed in recent 
years. The bootlegging of computer software is an example of copyright 
infringement taking place locally. There is no data available to 
quantify the commercial impact of this practice. Pirating of videotapes 
is another local practice that affects U.S. exports, but the evidence 
suggests that this is not being done on a large scale. There is no 
evidence of a significant export market for Ghanaian-pirated books, 
cassettes, or videotapes.
    In summary, infringement of intellectual property rights has not 
had a significant impact on U.S. exports to Ghana. Pirated computer 
software may become a more significant problem in the future, however, 
as computer use grows.
8. Worker Rights
    a. The Right of Association: Trade unions are governed by the 
Industrial Relations Act (IRA) of 1958, as amended in 1965 and 1972. 
Organized labor is represented by the Trades Union Congress (TUC), 
which was established in 1958. The IRA confers power on government to 
refuse to register a trade union, but the current government or the 
previous military regime has not exercised this right. No union leaders 
have been detained in recent years, nor has the right of workers to 
freely associate otherwise been circumscribed.
    b. The Right to Organize and Bargain Collectively: The IRA provides 
a framework for collective bargaining and protection against anti-union 
discrimination. Law prohibits civil servants from joining or organizing 
a trade union. However, in December, 1992, the government enacted 
legislation which allows each branch of the civil service to establish 
a negotiating committee to engage in collective bargaining for wages 
and benefits in the same fashion as trade unions in the private sector. 
While the right to strike is recognized in law and in practice, the 
government has on occasion taken strong action to end strikes, 
especially in cases involving vital government interests or public 
order. The IRA provides a mechanism for conciliation and arbitration 
before unions can resort to industrial actions or strikes. Over the 
past four years there have been several industrial actions involving 
salary increase demands, conditions of service, and severance awards. 
1999 saw a number of short-lived ``wild cat'' strikes by doctors and 
industrial workers.
    c. Prohibition of Forced or Compulsory Labor: Ghanaian law 
prohibits forced labor and it is not known to be practiced. The 
International Labor Organization (ILO) continues to urge the government 
to revise legislation that permits imprisonment with an obligation to 
perform labor for offenses that are not countenanced under ILO 
Convention 105, ratified by Ghana in 1958.
    d. Minimum Age of Employment of Children: Labor legislation in 
Ghana sets a minimum employment age of 15 and prohibits night work and 
certain types of hazardous labor for those under 18. The violation of 
child labor laws is common and young children of school age can often 
be found during the day performing menial tasks in the agricultural 
sector or in the markets. Observance of minimum age laws is eroded by 
local custom and economic circumstances that compel children to become 
wage earners at an early age. Inspectors from the Ministry of Labor and 
Social Welfare are responsible for enforcement of child labor laws. 
Employers who violate laws prohibiting heavy labor and night work by 
children are occasionally prosecuted.
    e. Acceptable Conditions of Work: In 1991 a Tripartite Commission 
composed of representatives from government, organized labor, and 
employers established minimum standards for wages and working 
conditions. The daily minimum wage combines wages with customary 
benefits such as a transportation allowance. The current daily minimum 
wage is Cedis 2,900, about 85 cents at the present rate of exchange. 
This sum does not permit a single wage earner to support a family and 
frequently results in multiple wage earners and other family-based 
commercial activity. A much-vaunted, government-commissioned study on 
reform of the civil service (including a serious revision of grades and 
salary levels) was implemented in June, 1999. By law the maximum 
workweek is 45 hours, but collective bargaining has established a 40-
hour week for most unionized workers.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Ghana 
is concentrated in the primary and fabricated metals sectors (gold 
mining and aluminum smelting), food and related products (tuna canning 
and beverage bottling), petroleum marketing, and telecommunications. 
Labor conditions in these sectors do not differ significantly from the 
norm, save that wage scales in the metals and mining sectors are 
substantially higher than elsewhere in the Ghanaian economy. U.S. firms 
have a good record of compliance with Ghanaian labor laws.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  -1
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                NIGERIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment:
  Nominal GDP \2\.........................      50.1      52.0       N/A
  Real GDP Growth (pct) \3\...............       3.2       2.4       N/A
  GDP by Sector (pct):
    Agriculture...........................      31.5      32.3       N/A
    Manufacturing.........................       6.3       6.1       N/A
    Services..............................       9.7       9.6       N/A
  Per Capita GDP (US$)....................       250       250       240
  Labor Force (millions)..................      43.0      40.0       N/A
  Unemployment Rate (pct).................       2.6       3.9       N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      15.0      15.6       N/A
  Consumer Price Inflation................       8.5      10.0       8.0
  Exchange Rate (Naira/US$ annual average)
    Official..............................        22        82        95
    Parallel..............................        55        85       101

Balance of Payments and Trade:
  Total Exports FOB \4\...................      15.2       9.0       N/A
    Exports to U.S. \5\...................       6.3       4.2       N/A
  Total Imports FOB.......................      10.3       9.9       N/A
    Imports from U.S. \5\.................       0.8       0.8       N/A
  Trade Balance...........................       4.9      -2.0       N/A
    Trade Balance with U.S. \5\...........       5.5       3.4       N/A
  Current Account Deficit/GDP (pct).......       1.2      -3.5       N/A
  External Public Debt....................      27.1      28.7       N/A
  Debt Service Payments/GDP (pct).........       1.8       1.4       N/A
  Fiscal Deficit/GDP (pct)................       0.2       4.7       N/A
  Gold and Foreign Exchange Reserves......       7.6       7.1       N/A
  Aid from U.S. (US$ millions)............       N/A       N/A       N/A
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures, except exchange rates, are all estimates based on
  available monthly data in November.
\2\ GDP at factor cost. Conversion to U.S. dollars done with official
  exchange rate of 82 naira to the dollar for 1998/99.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through November 1999.

1. General Policy Framework
    Nigeria is Africa's most populous nation and the United States' 
fifth largest oil supplier. It offers investors a low-cost labor pool, 
abundant natural resources, and one of the largest domestic markets in 
sub-Saharan Africa. On the other hand, inadequate infrastructure, 
corruption, and inconsistent regulations mean that considerable time, 
money and managerial effort are needed for a firm to begin operation 
and earn profits in Nigeria. Nigeria's basic infrastructure is 
extensive but inadequate for a population of over 100 million. Roads 
and bridges are crumbling, telephone service is erratic, and there are 
recurring shortages of water and electricity. Social unrest in some 
areas, widespread unemployment, a stagnant economy depressed by over-
reliance on oil, the lack of effective due process, and serious fraud 
and violent crime problems complicate business in Nigeria.
    After a period of moderate fiscal austerity in the late 1980s, the 
Nigerian government ran budget deficits of up to 12 percent of GDP 
beginning in 1990. The deficit decreased to seven percent in 1994 and, 
by postponing government spending (including for debt service), in 1995 
shrank to negligible proportions. In 1996, the budget had a surplus of 
1.6 percent of GDP. For the majority of 1997, the budget ran a reported 
surplus. The deficit reduction and ensuing surplus came about primarily 
through austerity--e.g., foregoing government projects and 
infrastructure maintenance--as well as stronger-than-expected oil 
revenue. Recommendations by international financial institutions 
include reducing large government fuel price subsidies (the official 
price of gasoline is currently about 20 cents per liter), shelving a 
number of government projects which are of doubtful economic value, and 
reducing leakage from government income due to corruption.
    In previous years, monetary policy had been driven by the need to 
accommodate the government's budget deficit and a desire to reduce the 
inflationary impact of the budget deficit on the economy. Deficits at 
the federal level had been financed primarily by borrowing from the 
Central Bank of Nigeria (CBN), which held 85.1 percent of the 
government's domestic debt at the end of 1997. Since the Central Bank 
monetizes much of the deficit, budgetary shortfalls have a direct 
impact on the money supply and on price levels, which had risen rapidly 
for several years but have since slowed. In 1996, the government also 
began releasing money from an extra-budgetary account called the 
Petroleum Trust Fund (PTF) for infrastructure and other projects. 
President Obasanjo has scrapped the fund and constituted a winding up 
committee to look into the activities of the PTF.
    In 1999, Nigeria has continued the policy of ``guided 
deregulation'' and privatization instituted in the 1995 budget. The 
former head of state, General Sani Abacha, had abandoned the 1986 
structural adjustment program reforms and instituted tight government 
control over key economic variables. In response to the economic 
downturn caused by those measures, Abacha's 1995 budget abandoned the 
tightly regulated economic policies enacted in 1994. Under the new 
policy, the Nigerian government reopened the Autonomous Foreign 
Exchange Market (AFEM), loosened controls on foreign investment and 
reduced tariffs and bans on some imports. The 1999 budget continued the 
trend of fiscal austerity and the slow deregulation of the economy. On 
the demise of General Abacha, General Abdulsalami Abubakar, also 
reiterated the government's intention to privatize major parastatals, 
including telecommunications and electricity (NITEL and NEPA 
respectively.) The 1998 budget promised privatization with 40 percent 
equity for the government, 20 percent equity for Nigerian citizens, and 
unrestricted sale of the remaining 40 percent. Invitations to invest 
were to be made to specific investors with relevant expertise. The 1998 
budget also targeted the reorganization of the electricity generating 
parastatal (NEPA.) In 1999, the government repealed and amended eleven 
decrees that inhibited competition or conferred monopoly powers on 
public enterprises in the petroleum, telecommunications, power and 
mineral sectors. However, the promised privatization exercise has not 
occurred and its present prospects are unclear. The Obasanjo government 
has declared its conditional support for eventual privatization and 
promised a transparent privatization program after evaluating and 
rehabilitating the parastatals' assets.
    In November 1999, the Obasanjo government released a Year 2000 
budget of 500 billion Naira (USD 5 billion). The budget was predicated 
on an oil price of $18 per barrel as against the $16.5 used in the 1999 
budget. The education sector got the highest allocation of 40.3 billion 
Naira. Next in allocation is the Defense Ministry with an allocation of 
34.1 billion Naira. Nigeria's external debt servicing is retained at 
$1.5 billion and external debt stood at $28.54 billion as at September 
30, 1999. External debt arrears currently stand at $18.86 billion, 
while the debt service commitment for the year 2000 is expected to be 
$1.98 billion.
2. Exchange Rate Policy
    In 1999, the autonomous foreign exchange market (AFEM) was fully 
deregulated. Dual exchange rates were scrapped and only AFEM rate 
prevails. Companies can now hold domiciliary accounts in private banks, 
with unfettered use of the funds. Foreign investors may bring capital 
into the country without Finance Ministry approval, and may service 
foreign loans and remit dividends. Bureau de change offices are 
functioning and transactions in the bureau de change offices have been 
increased to $10,000 per transaction. In addition, oil companies are 
allowed to sell foreign exchange directly to interested banks and 
private organizations. The Central Bank has continued to intervene at 
the weekly AFEM.
3. Structural Policies
    As stated in the December 1986 circular ``Industrial Policy of 
Nigeria,'' the Nigerian government maintains a system of incentives to 
foster the development of particular industries, to encourage firms to 
locate in economically disadvantaged areas, to promote research and 
development in Nigeria, and to favor the use of domestic labor and raw 
materials. The Industrial Development (Income Tax Relief) Act of 1971 
provides incentives to ``pioneer'' industries deemed beneficial to 
Nigeria's economic development. Companies given ``pioneer'' status may 
enjoy a non-renewable tax holiday of five years, or seven years if the 
pioneer industry is located in an economically disadvantaged area.
    In 1995, Nigeria promulgated the Nigerian Investment Promotion 
Commission Decree to replace the Enterprises Promotion Act. This decree 
liberalized the foreign investment regime, allowing 100 percent foreign 
ownership of firms outside the petroleum sector. Investment in the 
petroleum sector is still limited to the existing joint venture 
agreement or production-sharing contracts with the Nigerian government, 
though there has been discussion of the Nigerian government selling off 
some small parts of its joint venture equity. A foreign enterprise may 
now buy shares of any Nigerian firm except those on the ``negative 
list'': production of firearms, ammunition and narcotics, military and 
paramilitary apparel. The Investment Promotion Decree provides for the 
creation of an Investment Promotion Commission that will register 
companies for foreigners after incorporation under the Companies and 
Allied Matters Decree of 1990. The decree also abolishes the expatriate 
quota system (except in the oil sector) and prohibits any 
nationalization or expropriation of a foreign enterprise by the 
Nigerian government except for such cases determined to be in the 
national interest.
    Nigeria has partially implemented the 1995 money laundering decree, 
which introduced bank reporting procedures designed to inhibit this 
practice. There is also a decree against advance-fee fraud (called 419 
fraud after the relevant section of the Nigerian criminal code.) 
However, as of 1999, there has been only limited success in reducing 
financial fraud despite improving law enforcement actions against fraud 
perpetrators. The broad scope of business fraud has brought 
international notoriety to Nigeria and constitutes a serious 
disincentive to exporters.
4. Debt Management Policies
    Nigeria's foreign debt ballooned from $13 billion in 1981 to $24 
billion in 1986, when sharply lower oil revenues and continued high 
import levels escalated balance of payments deficits. Debt service 
obligations including payment of arrears, are projected to be over $8 
billion annually for the next several years. However, according to the 
1998 Central Bank of Nigeria's Annual Report, Nigeria's total external 
debt stock at the end of 1998 amounted to $28.774 billion, compared 
with $27.09 in 1997. The exact debt figure with multilateral financial 
institutions is still in dispute. The 1999 budget allowed only $2 
billion for foreign debt payments, thus ensuring continued build-up of 
arrears.
    In January 1992, in an effort to reduce its external debt, the 
Nigerian government concluded an agreement with the London club that 
gave commercial banks a menu of options from which to choose in 
reducing Nigeria's commercial debt. The menu included debt buy backs 
(currently at 45 cents to the dollar), new money bonds, and 
collateralized par bonds. As a result of the agreement, Nigeria was 
able to reduce its external debt by $3.9 billion since 1992, but the 
accumulation of arrears on other debt (especially Paris Club debt), 
which currently represent 70 percent of total debt stock, has kept 
external debt levels high.
    From 1986 to early 1992, on the basis of a comprehensive structural 
adjustment program, Nigeria reached three standby agreements with the 
IMF. The last one lapsed in 1992. Discussions with the IMF since then 
have shown some progress, as evidenced by the 1996 decapping of 
interest rates and removal of the mandatory sectoral credit allocations 
for banks. In 1999 Nigeria and the IMF resolved most issues standing in 
the way of a new standby arrangement. Nigeria's inadequate servicing of 
Paris Club debt remains a principal obstacle.
    Nigeria's most recent rescheduling agreement with the Paris Club 
expired at the same time as its standby agreement with the IMF, and 
debt repayment obligations on Paris Club debt have continued to grow. 
(Nigeria has kept up to date on its multilateral and London Club debt.) 
In 1992 Nigeria made payments of $2.7 billion against interest and 
principal payment obligations of $5 billion. However, faced with 
similar obligations in the following years, external debt service 
payments were only budgeted at $1.6 billion for 1993, $1.8 billion for 
1994, and $2 billion yearly from 1995 to 1998. In 1997, actual debt 
service payments were $503.5 million (or 25.2 percent) lower than the 
$2 billion budgeted. Although discussions with the IMF and World Bank 
continued on a medium term economic program, and Nigeria is making some 
progress at meeting their criteria, no new rescheduling agreement will 
be reached until an IMF program is in place.
5. Significant Barriers to U.S. Exports
    Nigeria abolished all export licensing requirements and cut its 
list of banned imports in 1986. However, as of November 1999, the 
importation of approximately 13 items is still banned. These bans were 
initially implemented to restore Nigeria's agricultural sector and to 
conserve foreign exchange. Although widespread smuggling compromises 
the bans, reduced availability of grains has raised prices for both 
banned commodities and locally produced substitutes. The government 
discontinued fertilizer subsidies for farmers in 1997, but reintroduced 
them in 1999. Widespread fertilizer shortages persist.
    In 1995, Nigeria announced a new tariff structure for the next five 
years. Revisions aimed to narrow the range of custom duties, increase 
rate coverage in line with WTO provisions, and decrease import 
prohibitions. In the 1999 budget, Nigeria's 1998 revised higher tariffs 
were reduced, but excise duties eliminated in 1998 were restored for 
certain goods. Excise duties of 40 percent were restored for 
cigarettes, cigars, tobacco, and spirits. Other commodity duty rates 
are: rice, 50 percent; day-old chicks and parent stock, 5 percent; 
sparkling wines, wine coolers, and champagne, 100 percent; fruits and 
fruit juices, reduced from 75 to 55 percent; jute, 10 percent; cotton, 
60 percent; fertilizers, 5 percent; textile fabrics 65 percent; and 
garments, 75 percent. For 1999, the 25 percent import duty rebate that 
was granted importers in late 1997 was abolished. Poultry and eggs, 
beer and stout, barley and malt, and mineral and similar waters, 
removed from the prohibited import list in 1998, never qualified for 
the rebate. However, duty rates for live, chilled or frozen poultry and 
eggs were slashed from 150 to 55 percent to reduce smuggling for these 
products and the consequent loss of significant duty revenue.
    Other import restrictions apply to aircraft and ocean-going 
vessels. A government authorized inspection agent must inspect all 
imported aircraft and ocean-going vessels. In addition, performance 
bonds and offshore guarantees must be arranged before either down 
payments or the Ministry of Finance authorizes subsequent payments.
    In 1996, to reduce congestion and corruption in Nigerian ports and 
following a reported shortfall in customs receipts, the Nigerian 
government changed the procedures by which goods enter or leave the 
country. All unaccompanied imports and exports regardless of value 
require pre-shipment inspection (PSI). Imports must be accompanied by 
an import duty report (IDR). The Nigerian government will confiscate 
goods arriving without an IDR. The PSI was abandoned temporarily in 
early 1999 in favor of destination inspection, but the new scheme was 
fraught with problems and was soon shelved for the PSI again. In 
addition, all goods are assessed a one-percent surcharge to cover the 
cost of inspection. The Obasanjo Administration has made some progress 
on its pledge to practice open and competitive contracting. Anti-
corruption is an energetic and central plank of the new government's 
policy. Foreign companies incorporated in Nigeria receive national 
treatment. Currently, tenders are published in newspapers for 
prospective contractors. Approximately five percent of all government 
procurement contracts are awarded to U.S. companies.
6. Export Subsidy Policies
    In 1976, the government established the Nigerian Export Promotion 
Council (NEPC) to promote non-oil exports from Nigeria. The Council 
administers incentive programs, including a duty drawback program, the 
export development fund, tax relief and capital assets depreciation 
allowances, and a foreign currency retention program. The duty drawback 
or manufacturing in-bond program is designed to allow the duty free 
importation of raw materials to produce goods for export, contingent on 
the issuance of a bank guarantee. The performance bond is discharged 
upon evidence of exportation and repatriation of foreign exchange. 
Though meant to promote industry and exportation, these schemes have 
been burdened by inefficient administration, confusion, and corruption, 
causing great difficulty and, in some cases, losses to those 
manufacturers and exporters who opted to use them.
    The NEPC also administers the export expansion grant program, a 
fund that provides grants to exporters of manufactured and semi-
manufactured products. Grants are awarded on the basis of the value of 
goods exported, and the only requirement for participation is that the 
export proceeds be repatriated to Nigeria. Though the grant amounts are 
small, ranging from two to five percent of total export value, they may 
constitute subsidies as defined by the WTO and raise questions about 
compliance with WTO obligations. In the 1999 budget, the government 
announced that the incentive schemes will be replaced by a non-cash 
incentive scheme termed ``negotiable duty credit certificate'' (NDCS), 
under which exporters' claims are credited against future imports. This 
measure will save the government from making annual budgetary 
allocations to the scheme and is in conformity with the WTO.
7. Protection of U.S. Intellectual Property
    Nigeria is a signatory to the Universal Copyright Convention and 
the Berne Convention. In 1993, Nigeria became a member of the World 
Intellectual Property Organization (WIPO), thereby becoming party to 
most of the major international agreements on intellectual property 
rights. Cases involving infringement of non-Nigerian copyrights have 
been successfully prosecuted in Nigeria, but enforcement of existing 
laws remains weak, particularly in the patent and trademark areas. 
Recently, Nigeria's active participation in international conventions 
has yielded positive results. Law enforcement agents occasionally carry 
out raids on suspected sites for production and sale of pirated tapes, 
videos, computer software and books. Piracy is widespread, but 
prosecution under the copyright law is slow. However, since the TRIPS 
(Trade Related Intellectual Property Rights) agreement was signed under 
the Uruguay round in 1993, the Nigerian Copyright Council has 
intensified efforts to combat piracy by organizing workshops for law 
enforcement agents on copyright issues.
    The Patents and Design Decree of 1970 governs the registration of 
patents, and the Standards Organization of Nigeria is responsible for 
issuing patents, trademarks, and copyrights. Once conferred, a patent 
conveys an exclusive right to make, import, sell, or use the products 
or apply the process. The Trademarks Act of 1965 governs the 
registration of trademarks. A trademark conveys the exclusive right to 
use the registered mark for a particular good or class of goods.
    The Copyright Decree of 1988, based on WIPO standards and U.S. 
copyright law, criminalizes counterfeiting, exporting, importing, 
reproducing, exhibiting, performing, or selling any work without the 
permission of the copyright owner. Progress on enforcing the 1988 law 
is slow. The expense and time necessary to pursue a copyright 
infringement case discourage prosecution of such cases.
    Few companies have sought trademark or patent protection in Nigeria 
because it is generally perceived as ineffective. Losses from piracy 
are substantial, although the exact cost is difficult to estimate. Most 
recordings sold in Nigeria are pirated, and the video industry is based 
on the sale and rental of pirated tapes. Satellite signal piracy is 
also common. Violation of patents on pharmaceuticals is a problem.
8. Worker Rights
    a. The Right of Association: Nigerian workers may join unions with 
the exception of members of the armed forces, police force, or 
government employees of the following departments and services: 
customs, immigration, prisons, currency printing and minting, central 
bank and telecommunications. A worker engaged in an essential service 
is required under penalty of law to provide his employer 15 days' 
advance notice of his intention to cease work. Essential service 
workers include federal and state civilian employees in the armed 
services, and public employees engaged in banking, telecommunications, 
postal services, transportation and ports, public health, fire 
prevention, and the utilities sector. Employees working in an export 
processing zone may not join a union for a period of ten years from the 
start-up of the enterprise.
    Under the law, a worker under a collective bargaining agreement may 
not participate in a strike unless his representative has complied with 
the requirements of the Trade Disputes Act, which include provisions 
for mandatory mediation and for referring the labor dispute to the 
government. The Act allows the government in its discretion to refer 
the matter to a labor conciliator, arbitration panel, board of inquiry, 
or the National Industrial Court. The Act also forbids any employer 
from granting a general wage increase to its workers without prior 
government approval. In practice, however, the Act does not appear to 
be effectively enforced as strikes, including in the public sector, are 
widespread, and private sector wage increases are not submitted to the 
government for prior approval.
    Nigeria has signed and ratified the International Labor 
Organization's (ILO) convention on freedom of association, but Nigerian 
law authorizes only a single central labor body, the Nigeria Labor 
Congress (NLC). Nigerian labor law controls the admission of a union to 
the NLC, and requires any union to be formally registered before 
commencing operations. Registration is authorized only where the 
Registrar of Trade Unions determines that it is expedient in that no 
other existing union is sufficiently representative of the interests of 
those workers seeking to be registered.
    b. The Right to Organize and Bargain Collectively: Nigerian labor 
laws permit the right to organize and bargain collectively. Collective 
bargaining is common in many sectors of the economy. Nigerian law 
protects workers from retaliation by employers (i.e. lockouts) for 
labor activity through an independent arm of the judiciary, the 
Nigerian Industrial Court. Trade unionists have complained, however, 
that the judicial system's slow handling of labor cases constitutes a 
denial of redress. The government retains broad authority over labor 
matters, and often intervenes in disputes it feels challenge its key 
political or economic objectives. However, the era of government 
appointed ``sole administrators'' of unions is now over, and the labor 
movement is increasingly active and vocal on issues seen to attest the 
plight of the common worker, such as deregulation, privatization, and 
the government's failure to advance its poverty alleviation program.
    c. Prohibition of Forced or Compulsory Labor: Section 34 of the 
1999 Constitution, and the 1974 Labor Decree, prohibit forced labor. 
Nigeria has also ratified the ILO convention prohibiting forced labor. 
However, there are occasional reports of instances of forced labor, 
typically involving domestic servants. The government has limited 
resources to detect and prevent violations of the forced labor 
prohibition.
    d. Minimum Age for Employment of Children: Nigeria's 1974 labor 
decree prohibits employment of children under 15 years of age in 
commerce and industry and restricts other child labor to home-based 
agricultural or domestic work. The law further stipulates that no 
person under the age of 16 may be employed for more than eight hours 
per day. The decree allows the apprenticeship of youths under specific 
conditions. Primary education is compulsory in Nigeria, though rarely 
enforced. Actual enrollment is declining due to the continuing 
deterioration of public schools. Increasing poverty and the need to 
supplement meager family incomes have forced also many children into 
the employment market, which is unable to absorb their labor due to 
high levels of unemployment. The use children as beggars, hawkers, or 
elsewhere in the informal sector is widespread in urban areas.
    e. Acceptable Conditions of Work: Nigeria's 1974 labor decree 
established a 40-hour workweek, prescribed 2 to 4 weeks of annual 
leave, set a minimum wage, and stipulated that workers are to be paid 
extra for hours worked over the legal limit. The decree states that 
workers who work on Sundays and legal holidays must be paid a full 
day's pay in addition to their normal wages. There is no law 
prohibiting excessive compulsory overtime. In 1998, the federal 
government raised for all federal employees the minimum monthly wage 
(salary and allowances) to N5, 280.00 (USD 60) from N450 (USD 5.00). 
The government later reversed the decision and reduced the minimum wage 
to N3,500.00 (USD 35) for federal workers and N3000.00 (USD 30) for 
state workers. However, many states are unable, or unwilling to pay the 
new minimum wage. Widespread reports of empty state treasuries 
inherited by the new civilian government threaten their ability to pay 
the new salary. Despite this, the Obasanjo government is considering 
plans to further increase the minimum wage. The 1974 decree contains 
general health and safety provisions. Employers must compensate injured 
workers and dependent survivors of those killed in industrial accidents 
but enforcement of these laws by the ministry of labor is largely 
ineffective.
    f. Rights in Sectors with U.S. Investment: Worker rights in 
petroleum, chemicals and related products, primary and fabricated 
metals, machinery, electric and electronic equipment, transportation 
equipment, and other manufacturing sectors are not significantly 
different from those in other major sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,696
Total Manufacturing............  ..............  56
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  20              ...............................................................
  Primary & Fabricated Metals..  -1              ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  1
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  4
TOTAL ALL INDUSTRIES...........  ..............  1,925
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              SOUTH AFRICA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998     1999 (est)
------------------------------------------------------------------------
Income, Production and Employment:
 \1\
  Nominal GDP (at nominal prices)...       147.9       134.5       146.0
  Real GDP Growth (pct).............         2.5         0.5         0.9
  GDP by Sector:
    Agriculture.....................         5.2         4.3         4.6
    Mining and Quarrying............         8.9         7.7         8.3
    Manufacturing...................        27.5        23.0        25.1
    Wholesale/Retail Trade..........        18.5        15.7        17.1
    Financial Services..............        20.6        18.5        20.1
    Government......................        17.6        15.0        16.3
  Per Capita GDP (US$)..............       2,987                     N/A
  Labor Force (millions)............         9.8    10 (est)         N/A
  Unemployment Rate (pct)...........        22.9  23.0 (est)         N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        18.7        13.6          10
  Consumer Price Index..............         8.6         6.9         5.5
  Exchange Rate (Rand/US$ annual
 average) \1\
  Unified...........................         4.6         5.5         6.2

Balance of Payments and Trade:
  Total Exports FOB \2\.............        25.6        24.6        23.4
    Exports to U.S. \3\.............         2.5         3.0         3.0
  Total Imports CIF \2\.............        28.9        27.4        23.1
    Imports from U.S. \3\...........         3.0         3.6         2.4
  Trade Balance \2\.................        -3.3        -2.5         0.3
    Trade Balance with U.S. \3\.....        -0.5        -0.6         0.6
  External Public Debt \4\..........         3.3         2.7         N/A
  Fiscal Deficit/GDP (pct)..........         4.2         5.5         N/A
  Current Account Deficit/GDP (pct).         1.5        -1.6        -0.5
  Debt Service Payments/GDP (pct)...         6.1         6.7         N/A
  Gold and Foreign Exchange Reserves         3.7         7.6         6.5
  Aid from U.S. (US$ millions) \5\..       110.5        71.3        53.4
  Aid from Other Countries \6\......         N/A         N/A         N/A
------------------------------------------------------------------------
\1\ The following exchange rates were used in the calculations: $1:R4.61
  for 1997, $1:R5.80 for 1998, and an estimated $1:R6.15.
\2\ All South African trade statistics include export and import data
  for the five members of the Southern African Customs Union (Botswana,
  Lesotho, Namibia, South Africa, and Swaziland) up to December 1997.
\3\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.
\4\ From IMF Yearbook, September 1999.
\5\ The figures represent aid from USAID only.
\6\ SA has received substantial aid from all over the world. However,
  there is no comprehensive audit of the total aid given to SA to date.

1. General Policy Framework
    South Africa is a middle-income developing country with well-
developed financial, legal, communications, energy, and transport 
sectors, a stock exchange which ranks among the 20 largest in the 
world, and a modern infrastructure supporting an efficient distribution 
of goods to major urban centers throughout the region. More than five 
years since the historic election of President Nelson Mandela in the 
country's first multi-racial elections, South Africa remains the 
largest economy in Africa, and is very important to U.S. trade and 
investment.
    Decades of apartheid-era policies resulted in the inefficient use 
of human resources, under-investment in human capital, labor 
rigidities, large budgetary outlays for duplicative layers of 
government and facilities, extensive governmental interference in the 
economy, and a lack of foreign investment and imported goods resulting 
from international sanctions. In the lead up to the 1994 elections, the 
South African economy started enjoying a period of recovery after more 
than four years of negative real GDP growth from 1988-1992. The economy 
has posted real GDP growth rates of 2.5 percent in 1994, 3.1 percent in 
1995, 4.2 percent in 1996 and 2.5 percent in 1997. The 1998 growth rate 
however came in at 0.5 percent largely due to the financial turmoil 
which hit almost all emerging markets. Some recovery is expected in 
1999 with many predicting a real GDP growth rate of 0.9 percent.
    South Africa faces daunting developmental problems resulting from 
apartheid-era policies. The government's objectives today are growth, 
jobs, black economic empowerment, promotion of small, medium, and micro 
enterprises, and the extension of telecommunications, transportation, 
and other infrastructure links to under-served rural and urban areas .
    The government demonstrated its commitment to open markets, 
privatization, and a favorable investment climate with the release of 
its macroeconomic strategy, GEAR, in June 1996. This strategy includes 
expansion of infrastructure, restructuring of state assets, 
conservative fiscal and monetary targets and continued reduction of 
tariffs to promote greater competition and industrial revitalization. 
These efforts, together with South Africa's implementation of its World 
Trade Organization (WTO) obligations, show that South Africa is moving 
steadily towards free market principles.
    Over the last decade, quantitative credit controls and 
administrative control of deposit and lending rates have largely 
disappeared. The South African Reserve Bank (SARB) now operates in much 
the same way as western central banks, influencing interest rates and 
controlling liquidity through its rates on funds provided to private 
sector banks, and to a lesser degree through the placement of 
government paper. In the past five years, restrictive monetary policy, 
through the maintenance of relatively high central bank lending rates, 
has curbed domestic spending on imports and reduced inflation to its 
lowest rates in twenty years.
    The government primarily finances its debt through the issuance of 
government bonds. To a lesser extent, the government has opted to 
finance some short-term debt obligations through the sale of foreign 
exchange and gold reserves. As a corollary to its restrictive financial 
policies, the government has not opted to finance deficit spending 
through loans from commercial banks.
2. Exchange Rate Policy
    Under South African exchange regulations, the SARB has substantial 
control over foreign currency. Exchange controls are administered by 
the SARB's Exchange Control Department and through commercial banks 
that have been authorized to deal in foreign exchange. All 
international commercial transactions must be accounted for through 
these ``authorized foreign exchange dealers.'' In addition, the SARB is 
a marketing agent for gold, which accounts for roughly 18 percent of 
export earnings. This provides the SARB wide latitude for determining 
short-term exchange rates. Monetary authorities normally allow the rand 
to adjust in an attempt to stabilize external accounts.
    While the SARB recognized that the low level of hard currency 
reserves necessitated continued inflow of long-term capital, the 
government of national unity eliminated the previous dual exchange rate 
and established a unified exchange rate on March 20, 1995. Nonetheless, 
South Africa still maintains several capital controls to prevent large 
capital outflows. The government is more likely to approve foreign 
exchange purchases for investment abroad if the foreign partner of the 
South African party conducts an asset swap, whereby an equivalent 
amount of foreign exchange is invested in South Africa by the foreign 
partner. Although domestic as well as foreign business concerns have 
lobbied hard for the lifting of the asset swap requirement, it is 
unlikely that the government will do so until foreign reserve levels 
approach the three-month coverage level. While foreign reserves are 
currently at about $6.5 billion, the SARB maintains a large Net Open 
Forward Position of $15.6 billion as of the end of September 1999.
3. Structural Policies
    Prices are generally market-determined with the exception of some 
petroleum products, electricity, transport services and certain 
agricultural goods. Purchases by government agencies and major private 
buyers are by competitive tender for projects or supply contracts. 
Bidders must pre-qualify, with some preferences allowed for local 
content.
    The main sources of government revenue in South Africa are income 
taxes and the Value-Added Tax (VAT). The VAT rate is 14 percent.
    The government has undertaken some measures in the past two years 
to ease the tax burden on foreign and domestic investors. It has 
steadily reduced the corporate primary income tax rate from 40 percent 
in 1994 to 30 percent in 1999. In addition, the Secondary Tax on 
Corporate Dividends was halved to 12.5 percent in March 1996.
4. Debt Management Policies
    At the end of 1998, the SARB reported that total foreign (public 
and private) debt amounted to approximately $38.8 billion. The ratio of 
total foreign debt to GDP has remained steady at around 26 to 30 
percent over the past three years, while interest payments as a 
percentage of total export earnings have remained at levels ranging 
from 7.3 percent in 1995 to 8.4 percent in 1998.
    South Africa is a member of the World Bank and International 
Monetary Fund (IMF) and continues Article IV consultations with the 
latter on a regular basis. In December 1993, after 27 years of economic 
isolation, South Africa obtained an $850 million IMF facility, which 
replenished South Africa's strained foreign exchange reserves and 
normalized its international financial relations. South Africa is also 
obtaining a modest World Bank loan, and is in discussions regarding 
other small grants or loans as well as greater use of World Bank 
advisory and training assistance to help with its ambitious development 
objectives.
5. Aid
    There is no comprehensive audit of the total aid given to SA to 
date. Besides the aid of $53.4 from USAID noted in the front table, the 
U.S. also provides military aid estimated at $1.65 million for FY 1998/
99.
6. Significant Barriers to U.S. Exports
    Under the terms of the Import and Export Control Act of 1963, South 
Africa's Minister of Trade and Industry may act in the national 
interest to prohibit, ration, or otherwise regulate imports. In recent 
years, the list of restricted goods requiring import permits has been 
reduced, but still includes such goods as certain foodstuffs, clothing, 
fabrics, wood and paper products, refined petroleum products and 
chemicals.
    The government remains committed to the simplification and eventual 
reduction of tariffs within the WTO framework, and maintains active 
discussions with that body and its major trading partners.
    The government is attempting to centralize and standardize the 
buying procedures of national, provincial, local, and state-owned 
corporate entities. Purchases are by competitive tender for project, 
supply and other contracts. As part of the government's policy to 
encourage local industry, a price preference schedule, based on the 
percent of local content in relation to the tendered price is employed 
to compare tenders. To claim preference for local content, tenders must 
enclose with their bid a certificate showing classification of supplies 
offered in terms of local content.
    An additional preference may be claimed if a product bears the mark 
of the South African Bureau of Standards. On tenders of less than R2 
million ($350,000), the government awards preference points to 
enterprises and companies operating in South Africa that demonstrate 
significant ownership or employment of previously disadvantaged 
individuals.
    Since late 1996, the Industrial Participation Program (IPP) has 
mandated a countertrade/offset package for all state and parastatal 
purchases of goods, services, and lease contracts in excess of $10 
million. Under the program, all bidders on government and parastatal 
contracts who exceed the imported content threshold must also submit an 
industrial participation package worth 30 percent of the imported 
content value. The bidder then has 7 years to discharge the industrial 
participation obligation. Non-performance of the contract is subject to 
a penalty of 5 percent of the outstanding industrial participation 
obligation.
7. Export Subsidies Policies
    The Export Marketing Assistance Scheme (EMA) offers financial 
assistance for the development of new export markets, through financing 
for trade missions and market research. The new Export Finance 
Guarantee Scheme for small exporters promotes small and medium 
exporters through credit guarantees with participating financial 
organizations. Provisions of the Income Tax Act also permit accelerated 
write-offs of certain buildings and machinery associated with 
beneficiation processes carried on for export, and deductions for the 
use of an export agent outside South Africa.
8. Protection of U.S. Intellectual Property
    Patents may be registered under the Patents Act of 1978 and are 
granted for 20 years. Trademarks can be registered under the Trademarks 
Act of 1973, and are granted for ten years with a possible renewal of 
an additional ten years. New designs may be registered under the 
Designs Act of 1967, which grants copyrights for five years. Literary, 
musical and artistic works, cinematographic films and sound recordings 
are eligible for copyrights under the Copyright Act of 1978. This act 
is based on the provisions of the Berne Convention as modified in Paris 
in 1971 and was amended in 1992 to include computer software. The 
government passed two IPR-related bills in parliament at the end of 
1997: the Counterfeit Goods Bill and the Intellectual Property Laws 
Amendment Bill, bringing South Africa's laws largely into conformity 
with its international trade obligations under the Trade Related 
Intellectual Property Agreement of the WTO. The Patents, Trademarks, 
Designs, and Copyrights Registrar of the Department of Trade and 
Industry administers these acts.
    South Africa is a member of the Paris Union and acceded to the 
Stockholm Text of the Paris Convention for the Protection of Industrial 
Property. South Africa is also a member of the World Intellectual 
Property Organization.
    Although South Africa's intellectual property laws and practices 
are generally in conformity with those of the industrialized nations, 
firms do experience some problems. The trademarks of a number of U.S. 
companies were misappropriated under the former government, when local 
firms took advantage of inadequate protection for famous marks. In 
April 1995, the U.S. Trade Representative placed South Africa on the 
``Special 301'' Watch List in an attempt to resolve these cases. South 
Africa was removed from the list in 1996 due to progress on several 
fronts. In May 1998, however, South Africa was placed back on the Watch 
List, in part because of a lack of adequate protection of undisclosed 
data and a law, passed in December 1997, which appeared to empower the 
Minister of Health to abrogate patent rights for pharmaceuticals. After 
extensive consultations, the US and South African governments reached 
an understanding on this Act in September 1999. USTR removed South 
Africa from the Watch List in December 1999.
    Software piracy occurs frequently in South Africa. The Business 
Software Alliance (BSA) estimates that as much as 50 percent of South 
Africa's business software is pirated, resulting in a loss of over 
$74.9 million to computer companies. Piracy in the video and sound 
industry is also an issue of concern, with a sound piracy rate of 40 
percent and a video piracy rate of 16 percent. Total annual losses due 
to audiovisual piracy in South Africa during 1998 are estimated to be 
$24.0 million.
9. Worker Rights
    a. The Right of Association: Freedom of association is guaranteed 
by the constitution and given statutory effect by the Labor Relations 
Act (LRA). All workers in the private sector and most in the public are 
entitled to join a union. Moreover, no employee can be fired or 
prejudiced because of membership in or advocacy of a trade union. 
Unions in South Africa have an approximate membership of 3.4 million or 
35 percent of the economically active population. The right to strike 
is guaranteed in the constitution, and is given statutory effect by the 
LRA. The International Labor Organization (ILO) readmitted South Africa 
in 1994. There is no government restriction against union affiliation 
with regional or international labor organizations.
    b. The Right to Organize and Bargain Collectively: South African 
law defines and protects the rights to organize and bargain 
collectively. The government does not interfere with union organizing 
and generally has not interfered in the collective bargaining process. 
The new LRA statutorily entrenches ``organizational rights,'' such as 
trade union access to work sites, deductions for trade union 
subscriptions, and leave for trade union officials.
    c. Prohibition of Forced or Compulsory Labor: Forced labor is 
illegal under the constitution, and is not practiced.
    d.Minimum Age for Employment of Children: Employment of minors 
under age 15 is prohibited by South African law. The LRA, however, 
grants the Minister of Welfare discretionary powers to permit 
employment of children under carefully described conditions in certain 
types of work, such as in the agricultural sector. Child labor is also 
used in the informal economy.
    e. Acceptable Conditions of Work: There is no legally mandated 
national minimum wage in South Africa. Instead, the LRA provides a 
mechanism for negotiations between labor and management to set minimum 
wage standards industry by industry. In those sectors of the economy 
not sufficiently organized to engage in the collective bargaining 
processes which establish minimum wages, the Basic Conditions of 
Employment Act, which went into effect in December 1998, gives the 
Minister of Labor authority to set wages, including for the first time 
wages for farm or domestic workers. Occupational health and safety 
issues remain a top priority of trade unions, especially in the mining 
and heavy manufacturing industries which are still considered hazardous 
by international standards.
    f. Worker Rights in Sectors with U.S. Investment: The worker rights 
conditions described above do not differ from those found in sectors 
with U.S. capital investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  864
  Food & Kindred Products......  139             ...............................................................
  Chemicals & Allied Products..  193             ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       37              ...............................................................
   Equipment.
  Electric & Electronic          112             ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  293             ...............................................................
Wholesale Trade................  ..............  145
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  247
Services.......................  ..............  162
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  2,363
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                       EAST ASIA AND THE PACIFIC

                              ----------                              


                               AUSTRALIA

                         Key Economic Indicators
        [Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
                                              1997      1998    \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\.........................     405.2     364.0     390.7
  Real GDP Growth (pct)...................       5.2       4.6       3.0
  GDP by Sector: \4\
    Agriculture...........................      12.0      10.5      10.7
    Manufacturing.........................      96.3      85.0      88.9
    Services..............................     274.7     247.8     269.2
    Government............................      16.7      14.2      14.6
  Per Capita GDP (US$)....................    22,500    19,700    20,500
  Labor Force (000's).....................     9,220     9,345     9,461
  Unemployment Rate (pct).................       8.5       8.0       7.3

Money and Prices (annual percentage
 growth):
  Money Supply (M3).......................       6.3       7.6       8.8
  Consumer Price Inflation................      -0.2       1.6       2.5
  Exchange Rate (Aust$/US$ annual average)
    Official..............................       N/A       N/A       N/A
    Parallel..............................      1.36      1.59      1.56

Balance of Payments and Trade:
  Total Exports FOB.......................      62.5      55.9      60.4
    Exports to U.S........................       4.6       5.3       7.0
  Total Imports CIF.......................      61.5      60.9      64.3
    Imports from U.S......................      13.4      13.6      14.8
  Trade Balance...........................       1.0      -4.9      -3.8
    Balance with U.S......................      -8.7      -8.3      -7.7
  External Public Debt....................      44.2      33.7      25.7
  Fiscal Deficit/GDP (pct)................      -0.2      -0.5      -0.8
  Current Account Deficit/GDP (pct).......       3.1       4.8       5.5
  Debt Service Payments/GDP...............       2.2       1.8       1.8
  Gold and Foreign Exchange Reserves......      17.2      15.5      15.9
  Aid from U.S............................         0         0         0
  Aid from Other Countries................         0         0         0
------------------------------------------------------------------------
\1\ Exchange rate fluctuations must be considered when analyzing data.
  Percentage changes calculated in Australian Dollars.
\2\ 1999 figures are estimates based on available monthly data in
  November.
\3\ Income measure of GDP.
\4\ Production measure of GDP. ``Manufacturing'' includes manufacturing,
  mining, utilities, and construction.

1. General Policy Framework
    Australia's developed market economy is dominated by its services 
sector (65 percent of GDP), yet it is the agricultural and mining 
sectors (7 percent of GDP combined) that account for the bulk (58 
percent) of Australia's goods and services exports. Australia's 
comparative advantage in primary products is a reflection of the 
natural wealth of the Australian continent and its small domestic 
market: 19 million people occupy a continent the size of the contiguous 
United States. The relative size of the manufacturing sector has been 
declining for several decades, and now accounts for just under 12 
percent of GDP.
    The Asian economic downturn has yet to have a significant impact on 
economic growth, despite forcing many exporters to target alternative 
markets. With inflation well under control (Australia recorded annual 
price deflation for the first time in 35 years in 1997), the task for 
economic policy makers is to lower the unemployment rate, which remains 
stubbornly mired in the 8.0 percent range.
    The Liberal/National coalition government continued its program of 
fiscal consolidation in its budget for the 1999-2000 fiscal year, 
announcing a budget surplus of $3 billion.
2. Exchange Rate Policies
    Australian Dollar exchange rates are determined by international 
currency markets. There is no official policy to defend any particular 
exchange rate level, although the Reserve Bank of Australia (RBA) does 
operate in currency markets. The RBA is active in what it describes as 
``smoothing and testing'' foreign exchange rates, in order to provide a 
generally stable environment for fundamental economic adjustment 
policies.
    Australia does not have any major foreign exchange controls beyond 
requiring RBA approval if more than A$5,000 in cash is to be taken out 
of Australia at any one time, or A$50,000 in any form in one year. The 
purpose of this regulation is to prevent tax evasion and money 
laundering; authorization is usually automatic.
3. Structural Policies
    The government is continuing a program of economic reform, begun in 
the 1980s, that includes the reduction of import protection and 
microeconomic reform. Initially broad in scope, the program now focuses 
on industry-by-industry changes and reform of the labor market. The 
government is also continuing with the privatization of public assets. 
Federal Government ownership in telecommunications carrier Telstra has 
been reduced (via two public floats) to 51%.
    The General Tariff Reduction Program, begun in March 1991, has 
reached its conclusion, with most existing tariffs now at 5 percent. 
However, the passenger motor vehicles and textiles, clothing and 
footwear industries are still protected by high tariffs (17.5 and 17-28 
percent respectively). These tariffs are scheduled to decline to 15 and 
25 percent respectively by 2000 (where they will remain, pending 
further review, until 2005).
    The Liberal/National coalition government recently passed 
legislation altering the structure of Australia's income and sales tax 
system, and currently has before parliament legislation reforming the 
business taxation system.
4. Debt Management Policies
    Australia's net foreign debt has averaged between 30 and 45 percent 
of GDP for the past decade, and in mid-1998 totaled $145 billion (39 
percent of GDP). Australia's net external public debt is $28 billion, 
or 7 percent of GDP. The public sector accounts for 19 percent of 
Australia's external debt; the remainder is the responsibility of the 
private sector. The Federal Government is using its privatization 
receipts and budget surpluses to further reduce its debt obligations. 
The net debt-service ratio (the ratio of net income payable to export 
earnings) has remained at or below 10 pct since 1997, down from 21 
percent in 1990.
5. Significant Barriers to U.S. Exports
    Australia is a signatory to the WTO, but is not a member of the 
plurilateral WTO Agreement on Government Procurement.
    Services Barriers: The Australian services market is generally 
open, and many U.S. financial services, legal and travel firms are 
established there. The banking sector was liberalized in 1992, allowing 
foreign banks to be licensed as either branches or subsidiaries. 
Broadcast licensing rules were also liberalized in 1992, allowing up to 
20 percent of the time used for paid advertisements to be filled with 
foreign-sourced material (far greater than the percentage of non-
Australian messages actually broadcast).
    Local content regulations also require that 55 percent of a 
commercial television station's weekly broadcasts between the hours of 
6:00 a.m. and midnight must be dedicated to Australian-produced 
programs (The U.S. regrets that this requirement was recently increased 
from 50 percent). Regulations governing Australia's pay-TV industry 
require that channels carrying drama must devote 10 pct of program 
expenditure to new Australian-produced content (though they are not 
required to actually screen the programs produced).
    Standards: Australia became a signatory to the GATT Technical 
Barriers to Trade Agreement in 1992. However, Australia still maintains 
restrictive standards requirements and design rules for automobile 
parts, electronic and medical equipment, and some machine parts and 
equipment. Currently, all Australian standards are being rewritten to 
harmonize them where possible to international standards, with the 
objective of fulfilling all obligations of the GATT Technical Barriers 
to Trade Agreement.
    Labeling: Federal law requires that the country of origin be 
clearly indicated on the front label of some types of products sold in 
Australia. Various other federal and state labeling requirements are 
being reconsidered in light of compliance with GATT obligations, 
utility and effect on trade. The Federal and State Health Ministries, 
working with the Government of New Zealand, are currently reviewing 
proposals to label products containing genetically modified organisms 
and have agreed to consider issues of consumer information, health, 
implementation costs of a labeling regime, and potential impact on 
Australian exports.
    Commodity Boards: Several national and state commodity boards 
control the marketing and export of certain Australian agricultural 
products. Activities for these marketing authorities are financed by 
the producers, but some boards enjoy export monopoly powers conferred 
by the federal or state government. While some of the boards' domestic 
activities have been deregulated, the export of wheat and rice remains 
under the exclusive control of commodity boards. The government has 
indicated that the Australian wheat board (which strictly regulates 
wheat marketing abroad) may have its export monopoly reviewed during 
2000, though the terms of the review have yet to be announced. The 
export of barley from certain states likewise remains strictly 
regulated.
    Sanitary and Phytosanitary Restrictions: Australia's geographic 
isolation has allowed it to remain relatively free of exotic diseases. 
Australia imposes extremely stringent animal and plant quarantine 
restrictions. The WTO SPS agreement requires, among other things, that 
Australia's restrictions undergo a risk assessment to ensure that any 
restrictions are science-based, rather than disguised non-tariff 
barriers. Concerns remain with Australia's restrictions on chicken 
(fresh, cooked and frozen), pork, California table grapes, Florida 
citrus, stone fruit, apples, Pacific North-West cherries, timber and 
corn.
    Investment: The government requires notification of (but normally 
raises no objections to) investment proposals by foreign interests 
above certain notification thresholds, including: acquisitions of 
substantial interests in existing Australian businesses with assets of 
A$5 million or more (A$3 million for rural properties); new businesses 
involving an investment of A$10 million or more; portfolio investments 
in the media sector of 5 percent or more; all non-portfolio investments 
irrespective of size; takeovers of Australian companies valued at 
either A$20 million or more, or for more than 50 percent of the target 
company's total assets; and direct investment of foreign governments 
irrespective of size. Investment proposals for entities involving more 
than A$50 million in total assets are approved unless found contrary to 
the national interest. Special regulations apply to investments in the 
banking sector, the media sector, urban real estate and civil aviation.
    Divestment cannot be forced without due process of law. There is no 
record of forced divestment outside that stemming from investments or 
mergers that tend to create market dominance, contravene laws on equity 
participation, or result from unfulfilled contractual obligations.
    Government Procurement: Since 1991, foreign information technology 
companies with annual sales to the Australian Government of A$10-40 
million (US$6-24 million) have been required to enter into Fixed Term 
Arrangements (FTAs), and those with sales greater than A$40 million 
into Partnerships for Development (PFDs). Under an FTA, a foreign 
company commits to undertake local industrial development activities 
worth 15 percent of its projected amount of government sales over a 
four year period. Under a PFD, a foreign firm agrees to invest 5 
percent of its annual local turnover on research and development in 
Australia; export goods and services worth 50 percent of imports (for 
hardware companies) or 20 percent of turnover (for software companies); 
and achieve 70 percent local content across all exports within the 
seven year life of the PFD.
    Recent changes to Australian Government procurement policies have 
seen a significant decentralization of purchasing procedures, with the 
introduction of Endorsed Supplier Arrangements (ESA). Companies wishing 
to supply information technology (IT) products and major office 
machines to the Australian government must gain endorsement under the 
ESA. The industry development component of the new ESA requires 
evidence of product development, investment in capital equipment, 
skills development and service support, and sourcing services and 
product components, parts and/or input locally. In addition, applicants 
must demonstrate performance in either exports, research and 
development, development of strategic relationships with Australian or 
New Zealand suppliers/customers, or participation in a recognized 
industry development program.
    The Australian Government maintains its commitment to source at 
least 10 percent of its purchases from Australian small to medium size 
enterprises. The government will continue to require tenderers to 
include industry development objectives in tender documents, with model 
guidelines to be developed in consultation with industry.
    Motor Vehicles: The import of used vehicles manufactured after 1973 
for personal use is banned, except where the car was purchased and used 
overseas by the buyer for a minimum of three months. Commercial 
importers must apply for a ``compliance plate'' costing A$20,000 for 
each make of car imported. Left hand drive cars must be converted to 
right hand drive (only by licensed garages) before they may be driven 
in Australia.
6. Export Subsidies Policies
    Australia is a member of the WTO Agreement on Subsidies and 
Countervailing Measures.
    The coalition government has severely curtailed assistance schemes 
to Australian industry as part of its fiscal consolidation program. 
Under the Export Market Development Grants Scheme, the government gives 
grants to qualifying firms of up to A$200,000 to assist in offsetting 
marketing costs incurred when establishing new export markets. There 
are also schemes available for drawbacks of tariffs and sales and 
excise taxes paid on the imported components of exported products. Such 
schemes are available in the passenger motor vehicle and the textiles, 
clothing and footwear industries. Grants schemes and tariff concessions 
have also been subject to expenditure reductions. The Research and 
Development Tax Concession (available to firms undertaking eligible 
R&D) was reduced from 150 percent to 125 percent. The only remaining 
bounty (production subsidy) assists shipbuilders, and is due to expire 
on December 31, 2000.
    The Pharmaceutical Industry Investment Program is designed to 
compensate manufacturers of pharmaceutical products for the effects of 
the federal government's intervention (through the national health 
system) in the market for consumer pharmaceuticals. Under the scheme, 
approved producers receive higher prices for selected products in 
return for commitments to undertake domestic drug research and 
development.
7. Protection of U.S. Intellectual Property
    Australia is a member of the World Intellectual Property 
Organization (WIPO), and most multilateral IPR agreements, including: 
the Paris Convention for the Protection of Industrial Property; the 
Berne Convention for the Protection of Literary and Artistic Works; the 
Universal Copyright Convention; the Geneva Phonogram Convention; the 
Rome Convention for the Protection of Performers, Producers of 
Phonograms, and Broadcasting Organizations; and the Patent Cooperation 
Treaty. Australia has yet to take action on the new WIPO Copyright 
treaties. USTR has placed Australia on the ``Special 301'' Watch List 
because of limitations in its protection of test data and parallel 
imports, among other concerns.
    Patents: Patents are available for inventions in all fields of 
technology (except for human beings and biological processes relating 
to artificial human reproduction). They are protected by the Patents 
Act (1990), which offers coverage for 20 years subject to renewal. 
Trade secrets are protected by common law, such as by contract. Design 
features can be protected from imitation by registration under the 
Designs Act for up to 16 years (upon application).
    Test Data: In 1999, the government passed legislation providing 
five years of protection of test data for the evaluation of a new 
active constituent for agricultural and veterinary chemical product. No 
protection is provided for data submitted in regard to new uses and 
formulations.
    Trademarks and Copyrights: Australia provides TRIPs compatible 
protection for both registered and unregistered well known trademarks 
under the Trademark Act of 1995. The term of registration is ten years. 
Copyrights are protected under the Copyright Act of 1968 for a term of 
the life of the author plus 50 years. Computer programs can receive 
copyright protection. The Australian Copyright Act provides protection 
regarding public performances in hotels and clubs. In recent years, the 
government has passed legislation removing parallel import protection 
for sound recordings and for goods whose protection was based on the 
copyright of packaging and labeling, and allowing the decompilation of 
computer software.
    New Technologies: Infringement of new technologies does not appear 
to be a significant problem.
8. Worker Rights
    a. The Right of Association: Workers in Australia fully enjoy and 
practice the rights to associate, to organize and to bargain 
collectively. In general, industrial disputes are resolved either 
through direct employer-union negotiations or under the auspices of the 
various state and federal industrial relations commissions. Australia 
has ratified most major international labor organization conventions 
regarding worker rights.
    b. The Right to Organize and Bargain Collectively: Approximately 32 
percent of the Australian workforce belongs to unions. The industrial 
relations system operates through independent federal and state 
tribunals; unions are currently fully integrated into that process. 
Legislation reducing the powers of unions to represent employees and of 
the Industrial Relations Commission to arbitrate settlements was passed 
by Federal Parliament in November 1996. Further changes in industrial 
relations are under consideration in draft legislation currently before 
Parliament.
    c. Prohibition of Forced or Compulsory Labor: Compulsory and forced 
labor are prohibited by conventions which Australia has ratified, and 
are not practiced in Australia.
    d. Minimum Age for Employment of Children: The minimum age for the 
employment of children varies in Australia according to industry 
apprenticeship programs, but the enforced requirement in every state 
that children attend school until age 15 or 16 maintains an effective 
floor on the age at which children may be employed full time.
    e. Acceptable Conditions of Work: There is no legislatively-
determined minimum wage. An administratively-determined minimum wage 
exists, but is now largely outmoded, although some minimum wage clauses 
still remain in several federal awards and some state awards. Instead, 
various minimum wages in individual industries are specified in 
industry ``awards'' approved by state or federal tribunals. Workers in 
Australian industries generally enjoy hours, conditions, wages and 
health and safety standards that are among the best and highest in the 
world.
    f. Rights in Sectors with U.S. Investment: Most of Australia's 
industrial sectors enjoy some U.S. investment. Worker rights in all 
sectors are essentially identical in law and practice and do not 
differentiate between domestic and foreign ownership.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,344
Total Manufacturing............  ..............  6,387
  Food & Kindred Products......  662             ...............................................................
  Chemicals & Allied Products..  2,749           ...............................................................
  Primary & Fabricated Metals..  359             ...............................................................
  Industrial Machinery and       586             ...............................................................
   Equipment.
  Electric & Electronic          173             ...............................................................
   Equipment.
  Transportation Equipment.....  581             ...............................................................
  Other Manufacturing..........  1,278           ...............................................................
Wholesale Trade................  ..............  2,057
Banking........................  ..............  2,595
Finance/Insurance/Real Estate..  ..............  8,347
Services.......................  ..............  2,198
Other Industries...............  ..............  7,748
TOTAL ALL INDUSTRIES...........  ..............  33,676

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                       PEOPLE'S REPUBLIC OF CHINA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................     903.1     960.8   1,016.8
  Real GDP Growth (pct) \2\...............       8.8       7.8       6.9
  GDP by Sector: \3\
    Agriculture...........................     168.7     172.7     176.1
    Manufacturing.........................     444.1     472.8     510.7
    Services..............................     267.9     291.0     304.3
    Government............................      22.3      24.3      25.7
  Per Capita GDP (US$)....................     734.2     772.0     797.0
  Labor Force (millions)..................     697.0     705.0     713.0
  Unemployment Rate (pct) \4\.............       3.1       3.1       3.1

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................      19.6      14.8      15.3
  Consumer Price Inflation................       2.8      -0.8      -1.4
  Exchange Rate (RMB/US$ annual average)..       8.3       8.3       8.3

Balance of Payments and Trade:
  Total Exports FOB \5\...................     182.7     183.7     198.4
    Exports to U.S........................      62.5      71.2      81.9
  Total Imports CIF \5\...................     142.4     140.2     156.0
    Imports from U.S. FAS.................      12.8      14.3      15.0
  Trade Balance...........................      40.3      43.5      42.4
    Balance with U.S......................      49.7      56.9      66.9
  External Public Debt....................     131.0     146.0     149.0
  Fiscal Deficit/GDP (pct)................       1.5       3.5       3.2
  Current Account Surplus/GDP (pct).......       4.5       3.1       0.0
  Debt Service Payments/Exports (pct).....       7.3      10.9       9.0
  Payments/GDP (pct)......................       1.5       2.4       2.4
  Gold and Foreign Exchange Reserves......     139.9     145.0     152.0
  Aid from United States..................         0         0         0
  Aid from All Other Sources..............       0.4       0.6       0.6
------------------------------------------------------------------------
\1\ Estimated from third quarter and end October 1999 data.
\2\ Official growth rate published by State Statistical Bureau based on
  constant renminbi (RMB) prices using 1978 weights. All other income
  and production figures are converted into dollars at the exchange
  rate. Economic experts continue to debate the accuracy of these
  figures, with some arguing that real growth may be half or less the
  official rate.
\3\ Production and net exports are calculated using different accounting
  methods and do not tally to total GDP. Agriculture includes forestry
  and fishing; manufacturing includes mining.
\4\ ``Official'' urban unemployment rate; agricultural laborers are
  assumed to be totally employed in China's official labor data. Many
  economists believe the real rate is much higher.
\5\ U.S. Department of Commerce (U.S.-China bilateral trade data for
  U.S. trade; PRC Customs (Chinese global trade data and 1999
  estimates.)

Sources: State Statistical Bureau Yearbook, People's Bank of China
  quarterly Statistical Bulletin, U.S. Department of Commerce Trade
  Data, Embassy estimates.

1. General Policy Framework
    China's official GDP growth rate was 7.4 percent for the first 
three quarters of 1999, continuing the gradual slowdown from the 
double-digit economic growth of the early 1990s. Consumer spending 
languished despite a special two-year infrastructure spending program 
and a separate social welfare and civil service spending increase in 
mid-1999. State-Owned Enterprise (SOE) reform may have slowed, 
particularly in terms of shifting employment from the over-invested 
state-owned manufacturing sector to the underdeveloped services sector. 
Price deflation has persisted in 1999, with the retail price index down 
2.6 percent in October from a year earlier (up from a low of -3.5 
percent in the second quarter of 1999.) New bank lending grew more 
slowly in 1999, perhaps reflecting increased prudence on the part of 
the dominant state-owned banks, whose poor financial condition was a 
major concern.
    Export growth was the one bright spot in the overall economic 
picture. Exports grew 2.1 percent in the third quarter after 
consecutive declines through the end of June. China has maintained 
competitiveness in many of its major export products, although there 
are signs of weakness in textiles and steel. Chinese imports increased 
by 15.8 percent in the first three quarters, as China implemented an 
anti-smuggling campaign announced in late 1998 and official statistics 
captured former gray market imports. Real import levels are widely 
believed to have remained stable, and may have actually declined in 
some sectors. Inflows of foreign direct investment slumped by about ten 
percent, year on year, through the end of July. New commitments dropped 
even more substantially, by 20.5 percent through the end of July.
    Since late 1998, the Chinese government has employed a deficit-
financed fiscal stimulus program to encourage the expansion of the 
domestic economy. The stimulus program financed efforts to broaden the 
social safety net for retired and laid off workers, salary and pension 
increases for government workers, and infrastructure expenditures. In 
addition, the government experimented with policies to curb falling 
prices, stimulate household consumption, and promote exports and 
investment. While the program has had limited impact on economic 
expansion so far, the National People's Congress agreed in August of 
1999 to have the central government issue an additional RMB 60 billion 
in treasury bonds to underwrite more projects.
    As part of its effort to increase the profit making capability of 
state-owned enterprises, the Chinese government has experimented with 
administrative measures to counter falling prices for SOE products. The 
Government announced in mid-1999 that it would prosecute enterprises 
selling at below cost and limit approvals to build additional capacity 
in a range of over-saturated industries. Firms in industries in which 
competition has led to excessive price cuts have also been encouraged 
to limit production. An anti-smuggling campaign, begun in the fall of 
1998, has shut down black and gray market competition for domestically-
produced products such as televisions and home entertainment systems.
    China is committed to reforming its financial system in order to 
allocate the large amount of savings in the economy more efficiently. 
The failure of the Guangdong Trust and Investment Corporation (GITIC) 
in late 1998 prompted the Chinese government to rein in the operations 
of more than 200 other trust and investment companies and toughen the 
supervision of domestic banks, securities, insurance, and other 
financial institutions. The huge stock of non-performing loans to SOE's 
has complicated attempts to commercialize the state-owned banks. New 
lending to non-agricultural SOE's was about $72 billion in 1998, or 64 
percent of total lending. This percentage seemed to drop in 1999, a 
sign that banks were trying to find other customers. China's four large 
state banks also set up asset management companies in 1999, to 
liquidate or restructure older, non-performing loans.
    Increased access to China's financial markets for foreign 
institutions has grown slowly. China now has 165 foreign bank branches 
and sub-branches, including 20 U.S. bank branches. These offices are 
concentrated in coastal areas and large inland cities such as Beijing 
and Chengdu. Chinese authorities have expanded the number of provinces 
in which foreign banks are allowed to conduct local currency (Renminbi) 
business but severely circumscribe the activities in which foreign 
banks may engage. Foreign securities firms have also been barred from 
underwriting or trading domestic stocks or bonds. A few insurance firms 
have been granted experimental licenses.
2. Exchange Rate Policies
    Foreign-invested Enterprises (FIEs) and authorized Chinese firms 
have generally enjoyed liberal access to foreign exchange for trade-
related and approved investment-related transactions. FIEs may set up 
foreign currency deposits for trade and remittances. Since late 1997, 
Chinese firms earning more than 10 million dollars a year in foreign 
currency have been allowed to retain in foreign currency up to 15 
percent of their receipts. However, the Asia-wide economic slowdown and 
the growing evidence of unauthorized capital outflows prompted the 
government to tighten documentation requirements in mid-1998. U.S. 
firms reported that the extra delays caused by these measures had ended 
for the most part by mid-1999. China introduced currency convertibility 
for current account (trade) transactions in December 1996 (in accord 
with the IMF charter's Article VIII provisions). Capital account 
liberalization has been postponed indefinitely.
    The current exchange rate is described as a ``managed float'' by 
the authorities; it has behaved more like a pegged rate for the past 
three years. Since 1996, the renminbi has traded consistently at about 
RMB 8.3 per U.S. dollar. China uses the RMB/dollar exchange rate as the 
basic rate and sets cross rates against other currencies by referring 
to international markets. The central bank sets interest rates on all 
deposits and loans. Local interest rates in 1999 were now considerably 
lower than in the United States. As a result, ``black market'' trading 
is a small albeit regular feature of the Chinese system. Forward rates 
are available in the small, off-shore market.
3. Structural Policies
    In 1994, China issued a ``Framework Industrial Policy for the 
1990s.'' The framework included plans to issue policies for the key 
automotive, telecommunications, transportation, machinery, electronics, 
high technology, and construction sectors. Of these, only the 
automotive industrial policy has been published to date. Evidence 
suggests that the government may develop policies for the other 
industries that combine local content and other performance 
requirements and tax and investment incentives. In addition, 
regulations promulgated in July, 1995 established guidelines for 
buyer's and seller's credit programs operated by the Export and Import 
Bank of China (China EXIM). China EXIM announced in early 1999 that it 
would expand its program to finance the export of mechanical and 
electrical products, particularly to Africa and South East Asia.
    China announced in August of 1999 that it was considering new 
measures to attract additional foreign direct investment. The State 
Council is currently reviewing new investment stimulus measures that 
would provide tax breaks for high-technology industries, incentives to 
invest in China's central and western regions, and streamlined 
oversight of foreign investor operations. Frequent changes to and poor 
publication of investment guidelines contribute to a lack of 
transparency and uneven implementation. In the promotion of foreign 
investment, the Chinese government puts major emphasis on the so-called 
``pillar industries,'' i.e., capital-intensive and technology-intensive 
manufacturing industries. Foreign investment is restricted or 
prohibited in some areas including agricultural, forestry, 
telecommunications, and news media.
    The Chinese government, as part of its comprehensive reform of the 
economy, is gradually phasing out price controls. It nevertheless 
continues to influence prices of certain sensitive goods such as grain. 
To curb surplus production in 1999, grain and cotton prices were 
allowed to fall by as much as 20 percent, bringing domestic prices much 
closer to international levels. China maintains discriminatory pricing 
practices with respect to some services and inputs offered to foreign 
investors in China. On the other hand, foreign investors benefit from 
investment incentives, such as tax holidays and grace periods, which 
allow them to reduce substantially their tax burden.
    China provides to domestic and foreign investors a comprehensive 
program of tax incentives and concessions based primarily on such 
considerations as total investment, output, export potential, economic 
management and development, technology development, and general 
conduciveness to China's economic goals. Both foreign and domestic 
enterprises pay either value-added tax (VAT) or business tax depending 
on the nature of the their business and the type of products involved. 
The VAT of 17 percent applies to enterprises engaged in import-export, 
production, distribution or retailing activities. Under current 
regulations, different types of VAT refund methods apply to different 
enterprises. In an attempt to stimulate exports, the State Tax 
Administration increased VAT rebates several times in 1999, up to a 
full 17 percent for certain kinds of processed goods.
4. Debt Management Policies
    In mid-1999, China's external debt stood at $149 billion, or 78 
percent of exports, according to official Chinese data. In the context 
of China's export performance, investment inflows, and high foreign 
exchange reserve levels (projected at $153 billion by the end of 1999), 
the debt burden should remain in acceptable limits, absent external 
shocks that could force a devaluation. Still, the debt service ratio 
(principal and interest payments as a percentage of foreign exchange 
receipts) jumped four percentage points in 1998 to 11 percent.
    China's local bond market is in its infancy, with virtually no 
secondary market. This prevents the central bank from effectively 
regulating the money supply through indirect means. Interest rates on 
government bonds are fixed at about one percentage point above the 
comparable bank deposit rates, which are also fixed. As the government 
has increased its deficit, the percentage of the budget devoted to debt 
servicing has increased to about 28 percent of total expenditures.
5. Aid
    The United States has provided occasional disaster-relief 
assistance to China to help flood relief and other humanitarian efforts 
in recent years. In 1999, the U.S. Government donated $500,000 to the 
International Federation of the Red Cross to assist in flood relief 
efforts in the Yangtze River Valley. In addition, the United States 
operates a modest Peace-Corps-affiliated English-language training 
program in southwestern China's Sichuan and Guizhou provinces. China is 
a major recipient of assistance from other countries and multilateral 
donors. China's largest bilateral aid donor is Japan. Multilateral 
assistance includes but is not limited to programs operated by the 
World Bank; the World Food Program; United Nations Development Program 
and other United Nations-affiliated agencies and programs; and the 
Asian Development Bank. Non-governmental organizations have also 
expanded their presence in recent years, thanks in part to the 
promulgation of a new law in 1998 giving them official status.
6. Significant Barriers to U.S. Exports
    China concluded a bilateral market access agreement with the United 
States on November 15, 1999, but is not yet a member of the WTO. Once 
it becomes a member, it must fulfill its commitments to reduce current 
substantial barriers to the entry into China of U.S. goods and 
services. Meanwhile, China continued in 1999 its own unilateral reform 
efforts--a round of tariff cuts, reductions in the number of products 
subject to import quotas, a huge increase in the number and type of 
firms granted trading rights, an improved system of distribution 
rights, and an increase in the number of cities in which foreign bank 
branches are allowed to conduct Renminbi banking business. These 
measures improved access for U.S. goods and services, but 
liberalization of China's import regime still lags far behind that for 
exports.
    Despite considerable progress in the 1990s, non-tariff barriers to 
trade and trade-distorting measures persist. Non-tariff barriers (NTBs) 
include quotas, tariff rate quotas, import licensing, import 
substitution and local content policies, and unnecessarily restrictive 
certification and quarantine standards. Extra-legal trade barriers, 
such as export performance requirements, still distort trade. Foreign 
Invested Enterprises (FIEs) continue to report being forced to accept 
export performance requirements in investment contracts; they say that 
failure to meet these requirements can result in loss of licenses for 
foreign exchange or contract termination. Similarly, some firms report 
being forced to accept contracts mandating increased ``local content;'' 
government agencies strongly encourage firms under their control to 
``buy Chinese.''
    China's Customs General Administration announced an anti-smuggling 
campaign in the fall of 1998. The campaign has reduced trade through 
black and gray market channels and resulted in an increase in imports 
through legitimate channels. It has not, however, addressed the tariff 
and non-tariff barriers that created an environment conducive to 
smuggling in the first place. Further, in an effort to control illegal 
foreign exchange transactions and prevent capital flight, the Ministry 
of Finance announced regulations in late 1998 that place strict 
controls on foreign exchange transactions by foreign-invested firms.
    New regulatory initiatives announced in 1999 may also create 
significant barriers to the entry of U.S. goods and services into the 
Chinese market. Examples of these include:
    The Chinese government banned the import of nine generic medicines, 
including several varieties of antibiotics, pain relievers, and Vitamin 
C, in mid 1999 in an effort to control falling prices in the domestic 
market. In addition, in late 1998, it implemented price caps on 
pharmaceuticals, claiming it was doing so to contain health care costs. 
The regulations may drive some multinationals and bulk pharmaceutical 
exporters out of the $12-billion Chinese pharmaceutical market and push 
others into the red. The price caps are calculated on each drug's 
production costs, ignoring research spending and other shared 
overheads.
    For manufactured goods, China requires quality licenses before 
granting import approval, with testing based on standards and 
specifications often unknown or unavailable to foreigners and not 
applied equally to domestic products. For example, in mid-1999, the 
Ministry of Health imposed strict testing standards on imports of 
cosmetic products containing sunscreens, skin lighteners or hair 
restorers. Industry sources say the testing requirements create an 
effective import barrier as they are both obscure and expensive to 
carry out.
    Regulations published by the State Statistical Bureau (SSB) in 
July, 1999, require all foreign companies conducting market surveys in 
China to go through an annual registration process. Furthermore, the 
regulations stipulate that all survey activities undertaken by foreign 
institutions, or domestic agencies employed by foreigners, must first 
be approved by provincial statistical bureaus or the SSB. Finished 
survey results must also be cleared with the approving agency. The 
regulations are alarming not only because they will be expensive and 
time consuming to comply with but also because they have the potential 
to limit the freedom of legitimate firms to conduct market research. In 
addition, the potential for compromise of confidential business 
information is substantial.
    Regulations implemented in June 1999 further restrict the 
importation of certain commodities related to the processing trade. 
These measures are designed to shift the direction of China's 
processing trade towards products with higher technological content and 
higher value added potential. The regulations prohibit the import of 
used garments, certain kinds of used publications, toxic industrial 
waste, junk cars, used automobiles or components, seeds, seedlings, 
fertilizers, feed, additives, or antibiotics used in the cultivation or 
breeding of any export commodity. The regulations also restrict imports 
of plastic raw materials, raw materials for chemical fibers, cotton, 
cotton yarn, cotton cloth, and some steel products.
7. Export Subsidies
    China abolished direct subsidies for exports on January 1, 1991. 
Nonetheless, many of China's manufactured exports receive indirect 
subsidies through guaranteed provision of energy, raw materials or 
labor supplies. Exports of agricultural products, particularly corn and 
cotton, currently benefit from direct export subsidies. China has 
agreed to stop such subsidies once it becomes a member of the WTO, 
however. Other indirect subsidies are also available, for example bank 
loans that need not be repaid.
8. Protection of U.S. Intellectual Property
    China is a member of the World Intellectual Property Organization 
(WIPO) and is a signatory to the Paris Convention for the Protection of 
Intellectual Property, the Berne Convention for the Protection of 
Literary and Artistic Works, the Universal Copyright Convention, and 
the Patent Cooperation Treaty. China has also acceded to the Madrid 
Protocol.
    Since the signing of a U.S.-China agreement on the protection of 
intellectual property rights in February 1995, and the agreement in 
June 1996 on procedures for ensuring implementation of the bilateral, 
China has made progress in implementing IPR regulations, education, and 
enforcement. China was taken off all ``Special 301'' lists in 1996. 
However, China's practices continue to be watched under Section 306 of 
the Trade Act, which allows the United States to monitor China's 
compliance with its obligations.
    Although China has revised its laws to provide criminal penalties 
for IPR violations, the United States remains concerned that penalties 
imposed by Chinese courts do not act as a deterrent. Some U.S. 
companies estimate losses from Chinese counterfeiting equal 15 to 20 
percent of total sales in China. One U.S. consumer products company 
estimates that it loses $150 million annually due to counterfeiting. 
The destructive effect of counterfeiting has discouraged additional 
direct foreign investment and threatened the long-term viability of 
some U.S. business operations in China. The inferior quality of 
counterfeit products also creates serious health and safety risks for 
consumers.
    China's State Council, the highest executive organ of the 
government, issued a decree in 1999 admonishing Chinese government 
agencies to purchase only legal computer software. Nevertheless, end-
user piracy of computer software continues to cost U.S. companies 
millions of dollars each year. Regulations on the use of copyright 
agents by foreign companies have not yet been finalized; this 
effectively prevents foreign companies from using agents to register 
copyrights. A shortage of agents authorized to accept trademark 
applications from foreign companies makes it difficult for foreigners 
to register trademarks. The lack of clear procedures to protect 
unregistered well-known trademarks makes it extremely difficult to 
oppose or cancel well-known marks registered by an unauthorized party.
9. Worker Rights
    a. The Right of Association: China's constitution provides for 
``freedom of association,'' but in practice this provision does not 
entitle workers to organize freely. The Trade Union Law states that 
workers who wish to form a union at any level must receive approval 
from a higher-level trade organization. Approved trade unions are 
legally required to join the All-China Federation of Trade Unions 
(ACFTU), a national umbrella organization controlled by the Communist 
Party. Independent trade unions are illegal. Since China's signing of 
the International Covenant on Economic, Social, and Cultural Rights in 
1997, several labor activists have petitioned the Government to 
establish free trade unions, as allowed under the covenant. The 
Government has not yet ratified the Covenant nor approved any of these 
petitions to date.
    b. The Right to Organize and Bargain Collectively: The 1995 
National Labor Law permits collective bargaining for workers in all 
types of enterprises. The law also provides for workers and employers 
to sign individual as well as collective contracts. Collective 
contracts are to be worked out between ACFTU or worker representatives 
and management and specify such matters as working conditions, wage 
distribution, and hours of work. Individual contracts are then to be 
drawn up in line with the terms of the collective contract. According 
to the ACFTU, 72 million workers in over 310,000 enterprises held 
contracts that were negotiated in this fashion as of June, 1999.
    c. Prohibition of Forced or Compulsory Labor: Forced labor in penal 
institutions is a problem. The Chinese government employs judicial 
procedures to sentence criminals to prisons and reform-though-labor 
facilities. The Government also maintains a network of reeducation-
through-labor camps, to which persons are sentenced, without judicial 
review, through administrative procedures. Inmates of reeducation-
through-labor camps generally are required to work. Most reports 
conclude that work conditions in the penal system's light manufacturing 
facilities are similar to those in ordinary factories, but conditions 
on farms and in mines can be harsh.
    d. Minimum Age of Employment of Children: China's National Labor 
Law forbids employers to hire workers under 16 years of age and 
stipulates administrative review, fines, and revocation of licenses for 
businesses that hire minors. Good public awareness, a surplus of legal 
adult workers, nearly universal primary schooling, and more effective 
law enforcement reduce opportunities and incentives to hire child 
workers. The ILO and UNICEF maintain that there is not a significant 
child labor problem in the formal sector. Some Chinese academics, 
however, believe that child labor problems might exist in remote 
agricultural and mining areas, where labor law enforcement is sometimes 
difficult.
    e. Acceptable Conditions of Work: The Labor Law codifies many of 
the general principles of labor reform, setting out provisions on labor 
contracts, working hours, wages, skill development and training, 
dispute resolution, legal responsibility, supervision, and inspection. 
The law does not set a national minimum wage, but allows local 
governments to determine their own minimum wage standards. China has a 
40-hour workweek, excluding overtime, and a mandatory 24-hour rest 
period per week. The Chinese government claims to have implemented in 
over 600 cities a system that ensures disbursement of unemployment 
benefits to laid-off workers and basic living stipends for the poorest 
urban residents. In September 1999, the Government raised both 
unemployment benefits and basic living stipends by thirty percent, 
despite reports that some cities had had trouble providing these 
entitlements even before the hike.
    Every Chinese work unit must designate a health and safety officer, 
and the ILO has established a training program for these officers. 
China's Trade Union Law recognizes the right of unions to ``suggest 
that staff and workers withdraw from sites of danger'' and to 
participate in accident investigations. According to statistics 
released in 1999 by the Ministry of Labor and Social Security, 
industrial accidents declined 16 percent in 1998 to 15,372. Deaths 
stemming from such accidents likewise declined 16 percent to 14,660. 
The improvement in industrial safety was largely the result of a 
national campaign to shut down illegal mines, which have perennially 
accounted for more than half of all industrial accidents.
    f. Rights in Sectors with U.S. Investment: Worker rights practices 
in sectors with U.S. investment do not appear to vary substantially 
from those in other sectors of the economy. Unlike their Chinese 
counterparts, however, a number of U.S.-invested businesses have 
voluntarily adopted codes of conduct that provide for independent 
inspections of working conditions in their facilities.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  911
Total Manufacturing............  ..............  3,729
  Food & Kindred Products......  122             ...............................................................
  Chemicals & Allied Products..  325             ...............................................................
  Primary & Fabricated Metals..  167             ...............................................................
  Industrial Machinery and       463             ...............................................................
   Equipment.
  Electric & Electronic          1,472           ...............................................................
   Equipment.
  Transportation Equipment.....  175             ...............................................................
  Other Manufacturing..........  1,005           ...............................................................
Wholesale Trade................  ..............  372
Banking........................  ..............  127
Finance/Insurance/Real Estate..  ..............  771
Services.......................  ..............  31
Other Industries...............  ..............  407
TOTAL ALL INDUSTRIES...........  ..............  6,348

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               HONG KONG


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     171.7     162.6     160.1
  Real GDP Growth (pct)...................       5.3      -5.1       0.5
  GDP by Sector:
    Agriculture...........................       0.2       N/A       N/A
    Manufacturing.........................      10.3       N/A       N/A
    Services..............................     134.8       N/A       N/A
    Government............................      14.6      15.1       N/A
  Per Capita GDP (US$)....................    26,129    24,310    23,095
  Labor Force (000's).....................     3,216     3,359     3,393
  Unemployment Rate (pct).................       2.2       4.7       6.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \3\...................       8.4      11.8       5.7
  Consumer Price Inflation (pct)..........       5.7       2.5      -3.5
  Exchange Rate(HK$/US$)
    Official..............................      7.74      7.75      7.75

Balance of Payments and Trade:
  Total Exports FOB \4\...................     188.1     172.8     167.6
    Exports to U.S. \5\...................      10.3      10.5      11.0
  Total Imports CIF.......................     210.9     214.1     176.3
    Imports from U.S. \5\.................      15.1      12.9      12.6
  Trade Balance...........................     -22.8     -10.4      -8.7
    Balance with U.S. \5\.................      -4.8      -2.4      -1.6
  External Public Debt....................         0         0         0
  Fiscal Balance/GDP (pct) \6\............       0.8       1.8       2.9
  Current Account Balance/GDP (pct).......      -3.4       0.5       2.0
  Debt Service Payments/GDP (pct).........         0         0         0
  Gold and Foreign Exchange Reserves
    (end of period) \7\...................      92.8      89.6      90.5
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ Estimates based on monthly data through August 1999.
\2\ Expenditure-based GDP estimates.
\3\ Money supply of Hong Kong Dollars and foreign currencies.
\4\ Of which domestic exports (as opposed to re-exports) constituted
  14.5 percent (1997), 14.0 percent (1998) and 13.0 percent (1999
  estimate based on data through August).
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through August 1999. Hong Kong merchandise trade includes
  substantial re-exports (mainly from China) to the United States, which
  are not included in these figures.
\6\ As of Q2 1999.
\7\ As of September 1999; the Land Fund was included in the foreign
  exchange reserves effective July 1, 1997.

Source: Census and Statistics Department.

1. General Policy Framework
    Since becoming a Special Administrative Region of the People's 
Republic of China on July 1, 1997, Hong Kong has continued to manage 
its own financial and economic affairs, its own currency, and its 
independent role in international economic organizations and 
agreements.
    The Hong Kong Government generally pursues policies of 
noninterference in commercial decisions, low and predictable taxation, 
government spending increases within the bounds of real economic 
growth, competition subject to transparent laws (albeit without 
antitrust legislation) and consistent application of the rule of law. 
With few exceptions, the government allows market forces to set wages 
and prices, and does not restrict foreign capital flows or investment. 
It does not impose export performance or local content requirements, 
and allows free repatriation of profits. Hong Kong is a duty-free port, 
with few barriers to trade in goods and services.
    Until 1998, the government regularly ran budget surpluses and thus 
has amassed large fiscal reserves. The corporate profit tax is 16 
percent and personal income is taxed at a maximum of 15 percent. 
Property is taxed; interest, royalties, dividends, capital gains and 
sales are not.
    Because monetary policy is tied to maintaining the nominal exchange 
rate linked to the U.S. Dollar, Hong Kong's monetary aggregates have 
effectively been demand-determined. The Hong Kong Monetary Authority, 
responding to market pressures, occasionally adjusts liquidity through 
interest rate changes and intervention in the foreign exchange and 
money markets.
    Financial contagion spreading throughout Asia caused major 
downturns in Hong Kong in 1997 and 1998. The government made modest 
accommodations in its 1998 budget and halted government property sales 
from mid-1998 to mid-1999 to arrest a steady decline in property prices 
(which had sparked fears for the banking sector). In August 1998, the 
government made a ``one-time'' intervention in the stock, futures, and 
currency markets (spending about $15 billion) to defend itself from 
market manipulators. In October 1999, the government began to divest 
itself of the shares it acquired in this intervention through sales to 
the public. By late 1999, the Hong Kong economy had begun a modest 
recovery, but unemployment remained high and Hong Kong's services-
dependent market lagged behind some of its neighbors in shaking off the 
regional crisis.
2. Exchange Rate Policies
    The Hong Kong Dollar is linked to the U.S. Dollar at an exchange 
rate of HK$7.8 = US$1.00. The link was established in 1983 to encourage 
stability and investor confidence in the run-up to Hong Kong's 
reversion to Chinese sovereignty in 1997. PRC officials have supported 
Hong Kong's policy of maintaining the link.
    There are no foreign exchange controls of any sort. Under the 
linked exchange rate, the overall exchange value of the Hong Kong 
Dollar is influenced predominantly by the movement of the U.S. Dollar 
against other major currencies. The price competitiveness of Hong Kong 
exports is therefore affected the value of the U.S. Dollar in relation 
to third country currencies.
3. Structural Policies
    The government does not have pricing policies, except in a few 
sectors such as telecommunications which remain partially regulated. 
Even in those areas, the government continues to pursue sector-by-
sector liberalization. Hong Kong's personal and corporate tax rates 
remain low and it does not impose import or export taxes. Since 1996, 
Hong Kong has deregulated most interest rates, removing the rate cap 
for deposits of seven days or more. In July 1999, the Hong Kong 
Monetary Authority announced that remaining interest rate caps would be 
removed in two stages: the interest rate restrictions on time deposits 
with a maturity of less than 7 days in July 2000 and interest rate cap 
on savings and current accounts in July 2001. Consumption taxes on 
tobacco, alcoholic beverages, and some fuels probably restrict demand 
for some U.S. exports. Hong Kong generally adheres to international 
product standards.
    Hong Kong's lack of antitrust laws has allowed monopolies or 
cartels--some of which are government-regulated--to dominate certain 
sectors of the economy. These monopolies/cartels can use their market 
position to block effective competition indiscriminately but do not 
discriminate against U.S. goods or services in particular.
4. Debt Management Policies
    The Hong Kong Government has minuscule public debt. Repeated budget 
surpluses have meant the government has not had to borrow. To promote 
the development of Hong Kong's debt market, the government launched an 
exchange fund bills program with the issuance of 91-day bills in 1990. 
Since then, maturities have gradually been extended. Five-year notes 
were issued in October 1993, followed by 7-year notes in late 1995 and 
10-year notes in 1996. In March 1997, the Hong Kong Mortgage 
Corporation was set up to promote the development of the secondary 
mortgage market. The Corporation is 100 percent owned by the government 
through the Exchange Fund. The Corporation purchases residential 
mortgage loans for its retained portfolio in the first phase, followed 
by packaging mortgages into mortgage-backed securities for sale in the 
second phase.
    Hong Kong does not receive bilateral or multilateral assistance.
5. Significant Barriers to U.S. Exports
    Hong Kong is a member of the World Trade Organization, but does not 
belong to the WTO's plurilateral agreement on civil aircraft. As noted 
above, Hong Kong is a duty-free port with no quotas or dumping laws, 
and few barriers to the import of U.S. goods.
    Hong Kong requires import licenses for textiles, rice, meats, 
plants, and livestock. The stated rationale for most license 
requirements is to ensure that health standards are met. The 
requirements do not have a major impact on U.S. exports.
    There are several barriers to entry in the services sector:

     In 1998, the Hong Kong Government announced it would open 
the international voice telecommunications sector to full competition. 
The Government decided in May 1999 not to issue any additional licenses 
for the local fixed network market, now contested by four companies, 
until the end of 2002. Hong Kong is currently adjudicating license 
applications for local fixed wireless and external fixed network 
services (undersea cable and satellite-based). Hong Kong has eliminated 
a regulation that required foreign broadcasters to use the Hong Kong 
Telecom satellite uplink and has also promised comprehensive 
liberalization of the broadcasting regime.
     Our bilateral civil aviation agreement does not permit 
code sharing or allow U.S. carriers new fifth freedom passenger rights 
to carry passengers beyond Hong Kong. These factors limit expansion of 
U.S. passenger carriers in the Hong Kong market.
     Foreign law firms are barred from hiring local lawyers to 
advise clients on Hong Kong law, even though Hong Kong firms can hire 
foreign lawyers to advise clients on foreign law. Foreign law firms can 
become ``local law firms'' and hire Hong Kong attorneys, but they must 
do so on a 1:1 ratio with foreign lawyers.
     Foreign banks established after 1978 are permitted to 
maintain only three branches (automated teller machines meet the 
definition of a branch). The Hong Kong Monetary Authority has promised 
to consider further relaxation of this limit in the first quarter of 
2001. Foreign banks, however, can acquire local banks that have 
unlimited branching rights.
6. Export Subsidies Policies
    The Hong Kong Government neither protects nor directly subsidizes 
manufacturers who export. It does not offer exporters preferential 
financing, special tax or duty exemptions on imported inputs, resource 
discounts, or discounted exchange rates.
    The Trade Development Council, a quasi-governmental statutory 
organization, engages in export promotion activities and promotes Hong 
Kong as a hub for trade services. The Hong Kong Export Credit and 
Insurance Corporation sells insurance protection to exporters.
7. Protection of U.S. Intellectual Property
    Hong Kong is a member of the WTO. In addition, the Berne Convention 
for the Protection of Literary and Artistic Works, the Paris Convention 
on Industrial Property, and the Universal Copyright Convention (Geneva, 
Paris) apply to Hong Kong by virtue of China's membership. Hong Kong 
passed a new Copyright Law in June 1997. Enforcement of copyright and 
trademarks has improved measurably in recent months, but eliminating 
optical disc piracy will require sustained effort.
    Copyrights: Sale of pirated discs at retail shopping arcades is 
less widespread than it used to be but remains a problem. The United 
States has urged the government at senior levels to crack down on this 
retail trade, and on the distributors and wholesalers behind them. Hong 
Kong has responded by doubling Customs' enforcement manpower and 
conducting more aggressive raids at the retail level. Recent raids have 
closed down some of the most notorious retail arcades and dispersed 
this illicit trade. Hong Kong Customs intelligence operations and raids 
on underground production facilities have forced pirate retailers to 
rely more on smuggled products. Nevertheless, pirated goods remain 
available throughout the territory. The judiciary has begun to increase 
sentences and fines for copyright piracy and recently handed down Hong 
Kong's first conviction for unauthorized dealer hard-disk loading. 
Computer end-user piracy remains a significant problem for the business 
software industry. In 1999 the government introduced legislation to 
reclassify piracy under Hong Kong's Organized and Serious Crimes 
Ordinance, which would facilitate interrogations and allow the seizure 
of assets. As of November, approval by the Legislative Council is still 
pending.
    Trademarks: Sale of counterfeit items, particularly handbags and 
apparel, is widespread in Hong Kong's outdoor markets. Customs 
officials have conducted numerous raids, but these actions have had 
little impact on the overall availability of counterfeit goods.
    New Technologies: U.S. industry reports that Hong Kong-based web 
sites are being used to sell and transmit pirate software and music. 
The Government asserts that Hong Kong's 1997 Copyright Ordinance 
established civil liability for internet service providers to who host 
such pirate web sites, but concedes that this theory has yet to be 
tested in court.
    The International Intellectual Property Alliance estimated total 
losses due to piracy against American copyright holders at $243.5 
million in 1998--slightly less than half of which was entertainment 
software. The Business Software Alliance reported in early 1999 that 
software piracy in Hong Kong had dropped from 67 to 59 percent.
8. Workers Rights
    a. The Right of Association:  Local law provides for right of 
association and the right of workers to establish and join 
organizations of their own choosing. Trade unions must be registered 
under the Trade Unions Ordinance. The basic precondition for 
registration is a minimum of seven persons who serve in the same 
occupation. The government does not discourage or impede the formation 
of unions.
    Workers who allege antiunion discrimination have the right to have 
their cases heard by the Labor Relations Tribunal. Violation of 
antiunion discrimination provisions is a criminal offense. Although 
there is no legislative prohibition of strikes, in practice, most 
workers must sign employment contracts that state that walking off the 
job is a breach of contract and can lead to summary dismissal.
    b. The Right to Organize and Bargain Collectively: In June 1997, 
the Legislative Council passed three laws that greatly expanded the 
collective bargaining powers of Hong Kong workers, protected them from 
summary dismissal for union activity, and permitted union activity on 
company premises and time. However, the Provisional Legislature 
repealed these ordinances, removing workers' new statutory protection 
against summary dismissal for union activity. New legislation passed in 
October 1997 permits the cross-industry affiliation of labor union 
federations and confederations, and allows free association with 
overseas trade unions (although notification of the Labor Department 
within one month of affiliation is required), but removes the legal 
stipulation of trade unions' right to engage employers in collective 
bargaining and bans the use of union funds for political purposes. 
Collective bargaining is not widely practiced.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor is 
prohibited under the Bill of Rights Ordinance. While this legislation 
does not specifically prohibit forced or bonded labor by children, 
there are no reports of such practices in Hong Kong.
    d. Minimum Age for Employment of Children: The ``Employment of 
Children'' Regulations prohibit employment of children under age 15 in 
any industrial establishment. Children ages 13 and 14 may be employed 
in certain non-industrial establishments, subject to conditions aimed 
at ensuring a minimum of 9 years of education and protecting their 
safety, health, and welfare. In 1998, there were ten convictions for 
violations of the Employment of Children Regulations.
    e. Acceptable Conditions of Work: Aside from a small number of 
trades and industries in which a uniform wage structure exists, wage 
levels are customarily fixed by individual agreement between employer 
and employee and are determined by supply and demand. Some employers 
provide workers with various kinds of allowances, free medical 
treatment and free subsidized transport. There is no statutory minimum 
wage except for foreign domestic workers (US$ 500 per month). To comply 
with the Sex Discrimination Ordinance, provisions in the Women and 
Young Persons (Industry) Regulations that had prohibited women from 
joining dangerous industrial trades and limited their working hours 
were dropped. Work hours for people aged 15 to 17 in the manufacturing 
sector remain limited to 8 per day and 48 per week between 6 a.m. and 
11 p.m. Overtime is prohibited for all persons under the age of 18 in 
industrial establishments. Employment in dangerous trades is prohibited 
for youths, except 16 and 17 year old males.
    The Labor Inspectorate conducts workplace inspections to enforce 
compliance with these and health and safety regulations. Worker safety 
and health has improved, but serious problems remain, particularly in 
the construction industry. In 1998, a total of 63,526 occupational 
accidents (43,034 of which are classified as industrial accidents) were 
reported, of which 68 were fatal. Employers are required under the 
Employee's Compensation Ordinance to report any injuries sustained by 
their employees in work-related accidents.
    f. Rights in Sectors with U.S. Investment: U.S. direct investment 
in manufacturing is concentrated in the electronics and electrical 
products industries. Aside from hazards common to such operations, 
working conditions do not differ materially from those in other sectors 
of the economy. Relative labor market tightness and high job turnover 
have spurred continuing improvements in working conditions as employers 
compete for available workers.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  600
Total Manufacturing............  ..............  3,122
  Food & Kindred Products......  4               ...............................................................
  Chemicals & Allied Products..  348             ...............................................................
  Primary & Fabricated Metals..  282             ...............................................................
  Industrial Machinery and       167             ...............................................................
   Equipment.
  Electric & Electronic          1,230           ...............................................................
   Equipment.
  Transportation Equipment.....  29              ...............................................................
  Other Manufacturing..........  1,062           ...............................................................
Wholesale Trade................  ..............  5,054
Banking........................  ..............  1,637
Finance/Insurance/Real Estate..  ..............  5,007
Services.......................  ..............  1,009
Other Industries...............  ..............  4,373
TOTAL ALL INDUSTRIES...........  ..............  20,802

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               INDONESIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment: \1\
  Nominal GDP.............................       216        94        67
  Real GDP Growth (pct)...................       7.6     -13.2   -4.04.0
  GDP by Sector:
    Agriculture...........................      34.5      18.4      15.0
    Manufacturing.........................      54.9      23.4      16.7
    Services..............................      67.5      35.7      26.4
    Government............................      11.5       4.1      3.16
  Per Capita GDP (US$)....................     1,116       465   \2\ 550
  Labor Force (millions)..................      87.0      92.6      96.6
  Unemployment Rate (pct).................       4.6        10        10

Money and Prices (annual percentage
 growth):
  Money Supply (M2) (pct).................      23.2      62.3  \3\ 10.2
  Consumer Price Inflation (pct)..........       8.0      75.0  \4\ 0.02
  Exchange Rate (Rupiah/US$ annual             2,909    10,014      7948
   average)...............................

Balance of Payments and Trade: \1\
  Total Exports FOB.......................      56.2      50.4      21.7
    Exports to U.S........................       9.2       9.3       5.3
  Total Imports CIF.......................      41.7      27.3      11.5
    Imports from U.S......................       4.5       2.3       1.1
  Trade Balance...........................      14.5      23.1      10.2
    Balance with U.S......................       4.7       7.0       4.2
  External Public Debt....................      56.4      71.4      70.7
  Debt Service Payments/GDP (pct).........       3.8       7.6   \5\ 6.7
  Current Account Balance/GDP(pct) \6\....      -0.9       3.9       2.7
  Fiscal Deficit/GDP (pct) \6\............       1.1       2.2       5.0
  Gold and Foreign Exchange Reserves (end       17.4      23.5      26.7
   of period).............................
  Aid from U.S. (millions of US$).........        71       135   \6\ 139
  Aid from All Other Sources..............       5.2       5.2   \7\ 7.8
------------------------------------------------------------------------
\1\ 1999 GDP and export/import figures are for January-June. (Average Rp/
  US$ exchange rates were 8,775 for 1Q CY-1999 and 7,921 for 2Q CY-
  1999.)
\2\ 1999 per capita GDP figure is rough estimate. Increase in 1999 over
  1998 due to strengthening of Rp/$ exchange rate.
\3\ 1999 figure is for January-August.
\4\ 1999 figure is for January-September.
\5\ 1999 figure as of March 31 (includes debts of state-owned
  enterprises).
\6\ Fiscal year.
\7\ 1999 figure is amount pledged.

Sources: Government of Indonesia, U.S. Department of Commerce (for trade
  with U.S.), IMF (exchange rates), U.S. Agency for International
  Development (for bilateral assistance).

1. General Policy Framework
    Much of the cautious optimism toward Indonesia in the second half 
of 1999 stems from the political successes Indonesia achieved since 
former President Soeharto resigned in May 1998. In that time, Indonesia 
has lifted press restrictions, held a peaceful, free and fair multi-
party general election in June 1999 and installed a democratically 
elected president in October 1999. The new President, K.H. Aburrahman 
Wahid, although a dark horse candidate, is broadly acceptable to all 
political groupings. The subsequent selection as Vice President of 
Megawati Soekarnoputri, leader of the party which came in first in the 
June polls, heralded the selection of a multi-party ``national unity'' 
cabinet.
    Indonesia still faces daunting economic problems. Foreign capital 
fled in the early months of the financial crisis and is returning only 
slowly. The business sector is struggling to service existing foreign 
debts at the weaker exchange rate. The banking sector remains moribund; 
banks are making few new loans and debtors are servicing even fewer old 
ones. In mid-1999, the Indonesian Bank Restructuring Agency (IBRA), 
whose credibility with both the domestic and international business 
community is crucial to Indonesia's economic recovery, was caught up in 
a campaign finance and corruption scandal involving Bank Bali. The 
scandal involved the diversion of funds from a $120 million interbank 
loan repayment to Bank Bali from a now-closed government bank whose 
assets and liabilities had been transferred to IBRA.
    The IMF and its stabilization program have been the overriding 
economic fact of life in Indonesia since November 1997. The IMF 
suspended payments to Indonesia in September 1999 until the Bank Bali 
affair was resolved. The election of a new president and the belated 
release of an independent audit of the Bank Bali affair in November led 
the IMF to begin negotiations on a new three-year program. The target 
is to sign a new letter of intent by mid-January.
    Despite the continued financial turmoil, there remain deep 
underlying strengths in the Indonesian economy. Indonesia is the 
world's fourth largest country and the anchor of Southeast Asia 
politically and economically. Although shaken and still cautious, the 
emerging middle class is slowly resuming consumer spending and 
represents a huge and growing potential market. The country has a 
strategic location, a large labor force earning relatively low wages 
and abundant natural resources. Once largely dependent on petroleum, 
natural gas, and commodities such as coffee, tea, rubber, timber, and 
palm oil and shrimp, Indonesia again found those sectors to be a solid 
economic foundation when the crisis hit. Regions such as Sumatra and 
Sulawesi that have strong, agricultural commodity-based economies 
survived the crisis with only minor disruptions. In 1998, Indonesian 
agricultural exports rose some 17 percent in U.S. dollar terms, as 
farmers rushed to take advantage of the windfall brought about by the 
weak rupiah, and fell only slightly in the first half of 1999. 
Industrial exports in 1998 fell just over 1 percent. Indonesian exports 
to the U.S. have remained steady throughout the crisis at around $9.3 
billion a year. Total imports fell by 35 percent in 1998 over 1997. 
Imports from the U.S. fell by almost half from 1997 to 1998 and by 
another 15 percent in the first half of 1999.
    The Indonesian Government has historically maintained a 
``balanced'' budget: expenditures were covered by the sum of domestic 
revenues and foreign aid and borrowing, without resort to domestic 
borrowing. Often the government ended the year with a slight surplus. 
This remains the government's long term goal. The new government says 
it expects the gap between domestic revenues and expenditures to remain 
for several years although some of the budgetary pressure has been 
relieved by the rise in oil prices in the latter half of 1999. The 
budgetary gap in the 1999/2000 fiscal year, which will need to be 
covered by foreign assistance, is expected to be in the range of 4 to 5 
percent.
    In parallel with its fiscal policy, the Indonesian Government 
earned a reputation for prudent monetary policy in recent years that 
helped keep consumer price inflation in the single digits. However, the 
massive depreciation of the rupiah that began in mid-1997 and huge 
liquidity injections into the banking system contributed to significant 
inflation. Indonesian monetary authorities dampened inflationary 
pressure and reduced pressure on the exchange rate by controlling the 
growth of the money supply.
    The government has made steady progress in trade and investment 
deregulation. Periodic ``deregulation packages'' of liberalization 
measures lowered investment barriers and instituted a program of 
comprehensive tariff reduction by staged cuts. The goal is to reduce 
all tariffs in the 1 to 20 percent range to 5 percent or less by 2000, 
and to reduce all tariffs in the 20 percent and higher range to 10 
percent or less by 2003. Although the deregulation packages made 
comparatively less progress in reducing non-tariff barriers, the 
government's collaboration with the International Monetary Fund (IMF) 
since November 1997 prompted much bolder measures, ending most import 
monopolies and gradually opening Indonesia's closed distribution 
system. The program also includes a commitment to eliminate all non-
tariff barriers over the program period.
2. Exchange Rate Policies
    In August 1997, the government eliminated the rupiah intervention 
band in favor of a floating exchange rate policy.
3. Structural Policies
    In October 1997, deteriorating conditions led Indonesia to request 
support from the International Monetary Fund (IMF). The government 
signed its first Letter of Intent with the IMF on October 31, 1997. The 
letter called for a three-year economic stabilization and recovery 
program, supported by loans from the IMF ($10 billion), the World Bank, 
the Asian Development Bank, and bilateral donors. Apart from financial 
support, the international community also offered detailed technical 
assistance to the government. Foreign governments and private 
organizations also contributed food and other humanitarian assistance.
    Indonesia's agreement with the IMF has been revised repeatedly in 
response to deteriorating macroeconomic conditions and political 
changes. The result is a complex, multi-faceted program to address 
macroeconomic imbalances, financial weaknesses, real sector 
inefficiencies, and the loss of private sector confidence. In November 
1999, the IMF resumed negotiations with the government with the aim of 
drafting a new letter of intent to take account of changing 
circumstances and the new government's priorities.
4. Debt Management Policies
    Indonesia's foreign debt totaled about $145 billion as of September 
1999, with about $72 billion owed by the public sector and $73 billion 
by the private sector. In 1998, Indonesia signed a Memorandum of 
Understanding with its official creditors to reschedule public sector 
debt principal contracted before July 1, 1997 and falling due between 
August 1998 and the end of March 2000.
    In 1999, the government introduced a monitoring system to collect 
information on all foreign exchange transactions, including foreign 
borrowing. Borrowing in connection with state-owned enterprises has 
been regulated since 1991. The government continued to assert that it 
would not impose capital controls.
5. Significant Barriers to U.S. Exports
    Indonesia had previously maintained a complex and non-transparent 
import licensing system that was a significant impediment to trade. 
Since the advent of the economic crisis in 1997, the government has 
removed numerous licensing requirements and committed in its IMF 
agreement to phase out all quantitative import restrictions (other than 
those justified for health, safety, and environmental reasons) and 
other non-tariff barriers that protect domestic production.
    Services Barriers: Despite some loosening of restrictions, services 
trade entry barriers remain in many sectors. Commercial presence is 
required to offer insurance in Indonesia and foreign firms must form 
joint ventures with local companies. As of July 1998, foreign 
participation in telecommunications services is no longer limited. PT 
Telkom is the state-owned monopoly provider of fixed line services. 
Telkom has exclusive rights to provide nationwide fixed line 
telecommunications until 2011 and to provide domestic long distance 
services until 2006. The government has allowed five foreign 
telecommunications companies to partner with local firms and operate 
joint ventures to build, maintain, and operate local fixed-line 
networks in cooperation with PT Telkom.
    Foreign accounting firms must operate through technical assistance 
arrangements with local firms, but Indonesian citizenship is no longer 
a requirement for licensing as an accountant. Foreign agents and 
auditors may act only as consultants and may not sign audit reports. 
Foreign law firms are not allowed to establish practices in Indonesia. 
Attorneys are admitted to the bar only if they have graduated from an 
Indonesian legal faculty or an institution recognized as the 
equivalent. Foreign companies incorporated in Indonesia may issue 
stocks and bonds through the capital market.
    Investment Barriers: The government is committed to reducing 
burdensome bureaucratic procedures and substantive requirements for 
foreign investors. In 1994, the government dropped initial foreign 
equity requirements and sharply reduced divestiture requirements. 
Indonesian law provides for both 100 percent direct foreign investment 
projects and joint ventures with a minimum Indonesian equity of five 
percent. In mid-1998, the government opened several previously 
restricted sectors to foreign investment, reducing the number of 
sectors restricted for foreign direct investment to 25, 16 of which are 
completely closed to investment while the remaining nine allow minority 
foreign equity participation. The restricted sectors include taxi and 
bus transportation, local shipping, cinema operation, private 
broadcasting and newspapers, medical services, and some trade services. 
The government also removed foreign ownership limitations on banks and 
on firms publicly traded on Indonesian stock markets. The government 
hinted throughout much of 1999 that it would reduce the negative list 
even further but, as of November 1999, it had not yet done so.
    The Capital Investment Coordinating Board (BKPM) must approve most 
foreign investment proposals. Investments in the oil and gas, mining, 
forestry, and financial services sectors are covered by specific laws 
and regulations and handled by the relevant technical ministries.
    Government Procurement Practices: In 1994, the government enacted a 
procurement law to regulate government procurement practices and 
strengthen the procurement oversight process. Most large government 
contracts are financed by bilateral or multilateral donors who specify 
procurement procedures. For large projects funded by the government, 
international competitive bidding practices are to be followed. The 
government seeks concessional financing which includes a 3.5 percent 
interest rate, a 25-year repayment period and seven-year grace period. 
Some projects do proceed on less concessional terms. Foreign firms 
bidding on certain government-sponsored construction or procurement 
projects may be asked to purchase and export the equivalent in selected 
Indonesian products. Government departments and institutes and state 
and regional government corporations are expected to utilize domestic 
goods and services to the maximum extent feasible, but this is not 
mandatory for foreign aid-financed goods and services procurement. 
State-owned enterprises that have offered shares to the public through 
the stock exchange are exempted from government procurement 
regulations.
6. Export Subsidies Policies
    Indonesia joined the GATT Subsidies Code and eliminated export 
loan-interest subsidies as of April 1, 1990. As part of its drive to 
increase non-oil and gas exports, the government permits restitution of 
VAT paid by a producing exporter on purchases of materials for use in 
manufacturing export products. Exemption from or drawbacks of import 
duties are available for goods incorporated into exports. Free trade 
zones and industrial estates are combined in several bonded areas. In 
the past two years, the government has gradually increased the share of 
production that firms located in bonded zones are able to sell 
domestically, up to 100 percent in 1998.
7. Protection of U.S. Intellectual Property
    Indonesia is a member of the World Intellectual Property 
Organization (WIPO) and in 1997 became full party to the Paris 
Convention for the Protection of Intellectual Property, the Berne 
Convention for the Protection of Literary and Artistic Works, the 
Patent Cooperation Treaty, and the Trademark Law Treaty. Indonesia was 
the first country in the world to ratify the WIPO Copyright Treaty, but 
has not ratified the companion WIPO Performances and Phonograms Treaty. 
In April 1999, the U.S. Trade Representative renewed Indonesia's place 
on the ``Special 301'' Priority Watch List, where it has been since 
1996.
    Indonesia has serious and continuing deficiencies in its 
intellectual property regime: rampant piracy (software, books, and 
video), trademark piracy and an inconsistent enforcement and 
ineffective legal system. New patent, trademark, and copyright laws 
were enacted in May 1997. In order to bring Indonesia's laws into 
compliance with the TRIPS Agreement by the mandated deadline of January 
1, 2000, Indonesia has drafted (but not enacted as of November 1999) 
new laws on protection of trade secrets, industrial design and 
integrated circuits. It has also proposed amendments to its laws on 
trademark and copyright. Those laws are designed to address the 
remaining inadequacies of Indonesia's IPR legal regime, but inadequate 
enforcement and a non-transparent judicial system unfamiliar with 
intellectual property law still pose daunting problems for U.S. 
companies. The government often responds to U.S. companies with 
specific complaints about pirated goods and trademark abuse, but the 
court system can be frustrating and unpredictable, and effective 
punishment of pirates of intellectual property has been rare.
    Indonesia's 1997 Patent Law addressed several areas of concern to 
U.S. companies, including compulsory licensing provisions, a relatively 
short term of protection, and a provision that allowed importation of 
50 pharmaceutical products by non-patent holders.
8. Worker Rights
    a. The Right of Association: Private sector workers, including 
those in export processing zones, are by law free to form worker 
organizations without prior authorization. In May 1998 and in September 
1999 the government issued new regulations on registration of workers' 
organizations. The effect of the new regulation was to eliminate 
numerical and other requirements that were previously a barrier to 
union registration. The government ratified International Labor 
Organization (ILO) Convention 87 on Freedom of Association in June 
1998. Since the regulation went into effect, at least 20 new or 
previously unrecognized unions have formed and notified the Department 
of Manpower of their intention to register workplace and branch units. 
The government may dissolve a union if it believes the union is acting 
against the national ideology, Pancasila, although it has never 
actually done so, and there are no laws or regulations specifying 
procedures for union dissolution.
    The government is considering other legislative and regulatory 
changes in regard to trade unions, industrial dispute resolution, and 
labor affairs generally. To allow time for new laws and regulations, 
the parliament amended a 1997 Basic Law on Manpower Affairs by 
postponing its implementation until the year 2000.
    Civil servants are no longer required to belong to KORPRI, a 
nonunion association whose central development council is chaired by 
the Minister of Home Affairs. State enterprise employees, defined to 
include those working in enterprises in which the state has a 5-percent 
holding or greater, usually were KORPRI members in the past, but a 
small number of state enterprises have units of the Federation of All-
Indonesian Trade Unions (SPSI). New unions are now seeking to organize 
employees in some state-owned enterprises. Teachers must belong to the 
teachers' association (PGRI). All organized workers except civil 
servants have the legal right to strike. While state enterprise 
employees and teachers rarely exercise this right, private sector 
strikes are frequent.
    b. The Right to Organize and Bargain Collectively: Registered 
unions can legally engage in collective bargaining and can collect dues 
from members through a checkoff system. In companies without unions, 
the government discourages workers from utilizing outside assistance, 
preferring that workers seek its assistance. By regulation, 
negotiations must be concluded within 30 days or be submitted to the 
Department of Manpower for mediation and conciliation or arbitration. 
Agreements are for two years and can be extended for one year. 
According to NGOs involved in labor issues, the provisions of these 
agreements rarely go beyond the legal minimum standards established by 
the government, and the agreements are often merely presented to worker 
representatives for signing rather than being negotiated.
    Although government regulations prohibit employers from 
discriminating or harassing employees because of union membership, 
there are credible reports from union officials of employer retribution 
against union organizers, including firing, which is not effectively 
prevented or remedied in practice. Administrative tribunals adjudicate 
charges of antiunion discrimination. However, because many union 
members believe the tribunals generally side with employers, many 
workers reject or avoid the procedure and present their grievances 
directly to the national human rights commission, parliament and other 
agencies. Administrative decisions in favor of dismissed workers tend 
to be monetary awards; workers are rarely reinstated. The provisions of 
the law make it difficult to fire workers, but the law is often ignored 
in practice.
    The armed forces, which include the police, continue to involve 
themselves in labor issues, despite the Minister of Manpower's 
revocation in 1994 of a 1986 regulation allowing the military to 
intervene in strikes and other labor actions. A 1990 decree that gives 
the Agency for Coordination of National Stability (BAKORSTANAS) 
authority to intervene in strikes in the interest of political and 
social stability remains in effect.
    c. Prohibition of Forced or Compulsory Labor: The law forbids 
forced labor, and the government generally enforces it. However, 
according to credible sources, there are several thousand children 
working on fishing platforms off the East Coast of North Sumatra in 
conditions of bonded labor. Most are recruited from farming 
communities, and once they arrive at the work site, are not permitted 
to leave for at least three months and until a replacement worker can 
be found. Children receive average monthly wages that are well below 
the minimum wage. They live in isolation on the sea, working 12 to 20 
hours per day in often dangerous conditions, sleeping in the workspace 
with no access to sanitary facilities. There are reports of physical, 
verbal and sexual abuse of the children. In 1999 the government 
ratified ILO Conventions 105 (Forced Labor) and began removing children 
from the fishing platforms.
    d. Minimum Age for Employment of Children: Child labor exists in 
both industrial and rural areas, and in both the formal and informal 
sectors. According to a 1995 report of the Indonesian Central Bureau of 
Statistics, four percent of Indonesian children between the ages of 10 
and 14 work full-time, and another four percent work in addition to 
going to school. Many observers believe that number to be significantly 
understated, because documents verifying age are easily falsified, and 
because children under 10 were not included. Indonesia was one of the 
first countries to be selected for participation in the ILO's 
International Program on the Elimination of Child Labor (IPEC). 
Although the ILO has sponsored training of labor inspectors on child 
labor matters under the IPEC program, enforcement remains lax. In April 
1999 the government ratified ILO Convention, which establishes a 
minimum working age of 15.
    e. Acceptable Conditions of Work: Indonesia does not have a 
national minimum wage. Rather, area wage councils working under the 
supervision of the national wage council establish minimum wages for 
regions and basic needs figures for each province--a monetary amount 
considered sufficient to enable a single worker to meet the basic needs 
of nutrition, clothing, and shelter. In Jakarta, the minimum wage is 
about $33 (Rp. 231,000) per month (at an exchange rate of Rp 7000 to 
the dollar). That is 70 percent of the government-determined basic 
needs figure. There are no reliable statistics on the number of 
employers paying at least the minimum wage. Independent observers' 
estimates range between 30 and 60 percent.
    Labor law and ministerial regulations provide workers with a 
variety of other benefits, such as social security, and workers in more 
modern facilities often receive health benefits, free meals, and 
transportation. The law establishes 7-hour workdays and 40-hour 
workweeks, with one 30-minute rest period for each 4 hours of work. The 
law also requires one day of rest weekly. The daily overtime rate is 1-
1/2 times the normal hourly rate for the first hour, and twice the 
hourly rate for additional overtime. Observance of laws regulating 
benefits and labor standards varies from sector to sector and by 
region. Employer violations of legal requirements are fairly common and 
often result in strikes and employee protests. The Ministry of Manpower 
continues publicly to urge employers to comply with the law. However, 
in general, government enforcement and supervision of labor standards 
is weak.
    Both law and regulations provide for minimum standards of 
industrial health and safety. In the largely western-operated oil 
sector, safety and health programs function reasonably well. However, 
in the country's 100,000 larger registered companies in the non-oil 
sector, the quality of occupational health and safety programs varies 
greatly. The enforcement of health and safety standards is severely 
hampered by the limited number of qualified Department of Manpower 
inspectors as well as by the low level of employee appreciation for 
sound health and safety practices. Allegations of corruption on the 
part of inspectors are common. Workers are obligated to report 
hazardous working conditions. Employers are forbidden by law from 
retaliating against those who do, but the law is not effectively 
enforced.
    f. Rights in Sectors with U.S. Investment: Working conditions in 
firms with U.S. ownership are widely recognized as better than the norm 
for Indonesia. Application of legislation and practice governing worker 
rights is largely dependent upon whether a particular business or 
investment is characterized as private or public. U.S. investment in 
Indonesia is concentrated in the petroleum and related industries, 
primary and fabricated metals (mining), and pharmaceutical sectors.
    Foreign participation in the petroleum sector is largely in the 
form of production sharing contracts between the foreign companies and 
the state oil and gas company, Pertamina, which retains control over 
all activities. All employees of foreign companies under this 
arrangement are considered state employees and thus all legislation and 
practice regarding state employees generally applies to them. Employees 
of foreign companies operating in the petroleum sector are organized in 
KORPRI. Employees of these state enterprises enjoy most of the 
protection of Indonesia labor laws but, with some exceptions, they do 
not have the right to strike, join labor organizations, or negotiate 
collective agreements. Some companies operating under other contractual 
arrangements, such as contracts of work and, in the case of the mining 
sector, coal contracts of work, do have unions and collective 
bargaining agreements.
    Regulations pertaining to child labor and child welfare are 
applicable to employers in all sectors. Employment of children and 
concerns regarding child welfare are not considered major problem areas 
in the petroleum and fabricated metals sectors. Legislation regarding 
minimum wages, hours of work, overtime, fringe benefits, health and 
safety applies to all sectors. The best industrial and safety record in 
Indonesia is found in the oil and gas sector.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,610
Total Manufacturing............  ..............  197
  Food & Kindred Products......  16              ...............................................................
  Chemicals & Allied Products..  131             ...............................................................
  Primary & Fabricated Metals..  8               ...............................................................
  Industrial Machinery and       -17             ...............................................................
   Equipment.
  Electric & Electronic          35              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  186
Finance/Insurance/Real Estate..  ..............  171
Services.......................  ..............  53
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  6,932
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 JAPAN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................   4,192.7   3,783.0  \1\ 4205
                                                                      .0
  Real GDP Growth (pct)...................       1.4      -2.8   \1\ 0.5
  GDP by Sector:
    Agriculture...........................       N/A       N/A       N/A
    Manufacturing.........................       N/A       N/A       N/A
    Services..............................       N/A       N/A       N/A
    Government............................       N/A       N/A       N/A
  Per Capita Income (US$).................    33,249    29,929  \2\ 33,0
                                                                      00
  Labor Force (millions)..................      67.9      68.0  \3\ 67.8
  Unemployment Rate (pct).................       3.4       4.1   \4\ 4.7

Money and Prices (annual percentage
 growth):
  Money Supply (M2+CD)....................       3.1       4.0   \4\ 3.8
  Consumer Price Inflation................       1.8       0.6  \3\ -0.1
  Exchange Rate (Yen/US$).................     121.0     130.9  \5\ 117.
                                                                      03

Balance of Payments and Trade:
  Total Exports FOB.......................     409.2     374.4  \6\ 394.
                                                                       1
    Exports to U.S. FOB...................     121.3     122.0  \6\ 107.
                                                                       7
  Total Imports CIF.......................     307.8     251.7  \6\ 266.
                                                                       7
    Imports from U.S. CIF.................      65.7      57.9  \6\ 47.1
  Trade Balance...........................     101.5     122.7  \6\ 127.
                                                                       4
    Trade Balance with U.S................      55.6      64.1  \6\ 60.6
  Current Account Surplus/GDP (pct).......       2.3       3.2       N/A
  External Public Debt....................         0         0         0
  Debt Service Payments/GDP (pct).........         0         0         0
  Fiscal Deficit/GDP (pct)................      -3.4      -6.0       N/A
  Gold and Foreign Exchange Reserves......     220.8     215.9  \7\ 272.
                                                                       8
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ January-June, seasonally adjusted, annualized; growth relative to
  Jan-June 1998.
\2\ Embassy estimate.
\3\ January-September, non-seasonally adjusted average.
\4\ January-September, seasonally-adjusted average.
\5\ January to September average.
\6\ January-September, non-seasonally adjusted, annualized.
\7\ As of end-September 1999.

Sources: Ministry of Finance; exports FOB, imports CIF customs basis;
  Economic Planning Agency; Bank of Japan, OECD Economic Outlook.

1. General Policy Framework
    Japan's economy, the world's second largest at roughly 4.2 trillion 
dollars, is experiencing a significant recession. Most observers are 
predicting only meager growth this year, following a nearly 3 percent 
contraction in 1998.
    Overall economic growth in Japan in the 1990s has been lackluster, 
despite occasional strong growth. (Until 1992-3, Japan had never 
experienced two consecutive years of less than 3 percent real growth in 
the postwar period.) A surge in asset prices to unsustainable levels 
and high rates of capital investment in the late 1980s gave way by 1991 
to sharply slower growth, the need for corporate restructuring and 
balance sheet adjustment by businesses. A substantially weakened Asian 
demand for Japanese exports and domestic banking system concerns, also 
continue to weigh heavily on the economy.
    In recent years, the Japanese Government has used public spending 
to offset weak or negative private demand growth. Several fiscal 
stimulus packages beginning in August 1992 have boosted public 
investment spending substantially, while temporary tax cuts have 
supported public demand.
    Japan posted a global trade surplus of $123 billion in 1998, with a 
$51.5 billion bilateral surplus with the United States. Both of these 
numbers are expected to rise significantly in 1999. Through the first 
nine months of 1999, import volume was also higher compared with the 
same period in 1998.
    In order to ease credit conditions to support the economy, the Bank 
of Japan lowered the official discount rate nine times between mid-1991 
and September 1995, from 6.0 percent per year to 0.5 percent where it 
has remained. The Bank of Japan also instituted some temporary programs 
to make credit more available to corporations. Recently the overnight 
call rate has been left at zero.
2. Exchange Rate Policy
    The yen has been volatile against the dollar in 1998-99. The 
average exchange rate through the first nine months of 1999 was 117 yen 
per dollar, versus 130 yen per dollar in 1998. A new Foreign Exchange 
Law in April 1998 significantly decontrolled most remaining barriers to 
cross-border capital transactions.
3. Structural Policies
    Pricing Policy: Japan has a market economy, with prices generally 
set in accordance with supply and demand. However, with very high gross 
retail margins (needed to cover high fixed and personnel costs) and a 
complex distribution system, Japan's retail prices exhibit a greater 
downward stickiness than in other large market economies. Moreover, 
some sectors such as construction are susceptible to cartel-like 
pricing arrangements, and in many key sectors heavily regulated by the 
government (i.e., transport and warehousing), it can still exert some 
limited temporary authority over pricing.
    Tax Policy: Total tax revenues as a share of GDP in Japan are 
comparable to the United States and the UK, and on the low end of OECD 
countries. Japan had a relatively high corporate tax rate, but recent 
legislation has reduced the (combined central and local government) 
effective corporate tax rate from 47 percent to 40.9 percent, bringing 
it in line with other OECD countries. The maximum marginal rate for 
personal income taxes was also reduced from 65 percent to 50 percent. 
There is a general consumption tax (actually a broad value-added tax) 
of 5 percent, although small retail outlets are exempted.
    Regulatory and Deregulation Policy: Japan's economy is highly 
regulated. Although the government and business community recognize 
that deregulation is needed to spur growth, opposition to change 
remains strong among vested-interest groups, and the economy remains 
burdened by numerous national and local government regulations, which 
have the effect of impeding market access by foreign firms. Official 
regulations also reinforce traditional Japanese business practices that 
restrict competition, help block new entrants (domestic or foreign) and 
raise costs. Examples of regulations that act as impediments include: 
exceedingly high telecommunications interconnection rates, prolonged 
approval processes for medical devices and pharmaceuticals, and severe 
restrictions on foreign lawyers.
    In June 1997, the President and the Japanese Prime Minister agreed 
on an Enhanced Initiative on Deregulation and Competition Policy under 
the U.S.-Japan Framework Agreement. During its third year, the 
Initiative is focusing on achieving concrete deregulation in key 
sectoral and structural areas in Japan, such as telecommunications, 
housing, energy, financial services, medical devices and 
pharmaceuticals, distribution, competition policy, and transparency in 
government rule-making.
4. Debt Management Policies
    Japan is the world's largest net creditor. The Bank of Japan's 
foreign exchange reserves exceed $250 billion. It is an active 
participant together with the United States in international 
discussions of developing-country indebtedness issues in a variety of 
fora.
5. Significant Barriers to U.S. Exports
    Japan is the United States' third largest export market, after 
Canada and Mexico. The United States is the largest market for Japanese 
exports. However, in many sectors U.S. exporters continue to enjoy 
incomplete access to the Japanese market. While Japan has reduced its 
formal tariff rates on most imports to relatively low levels, it has 
maintained non-tariff barriers, such as non-transparency, 
discriminatory standards, and exclusionary business practices, and 
tolerates a business environment that protects established companies 
and restricts the free flow of competitive foreign goods into the 
Japanese market.
    Transportation: In January 1998, the U.S. and Japan concluded a new 
agreement to significantly liberalize the trans-Pacific civil aviation 
market. This eliminated restrictions and resolved a dispute over the 
rights of longtime carriers to fly through Japan to other international 
destinations. It opened doors for carriers that recently entered the 
U.S.-Japan market, nearly tripling their access to Japan. The agreement 
also allowed code sharing (strategic alliances) between carriers for 
the first time, thereby greatly increasing their operational 
flexibility. While U.S. carriers have been generally happy with the 
results of the 1998 agreement, there is growing concern over the 
adequacy of facilities and a scarcity of slots at Japanese airports.
    American ocean going ships serving Japanese ports have long 
encountered a restrictive, inefficient and discriminatory system of 
port transportation services. After the Federal Maritime Commission 
(FMC) ruled in early 1997 that Japan maintained unfair shipping 
practices and proposed fines against Japanese ocean freight operators, 
the Japanese Government pledged to grant foreign carriers port 
transport licenses, and, at the same time, to reform the prior 
consultation system which allocates work on the waterfront and requires 
carriers to obtain approval for any change in their operations. The FMC 
imposed fines in September 1997 after Japan failed to carry out the 
reforms. Shortly afterwards, however, the government committed itself 
to actions that would have provided a solid foundation for reform of 
Japanese port practices. However, a final report on deregulation issued 
by the Japanese government in mid-1999 was discouraging for its lack of 
aggressive proposals for deregulating ports.
    Agricultural and Wood Products: Some progress has been achieved 
through continued U.S. pressure on Japan to liberalize its markets for 
imported agricultural and wood products. However, tariffs on most 
processed food products remain relatively high, and other barriers to a 
liberalized market remain. For example, Japan continues to restrict, 
for phytosanitary reasons, the entry of numerous fruits and vegetables, 
such as pears and potatoes. In accordance with its WTO obligations, 
Japan opened its rice market to imports under a Tariff Rate Quota. 
However, the U.S. continues to press Japan to introduce this rice to 
consumers, rather than earmarking it for stockpiles or food aid to 
third countries. Tariffs for wood products are being reduced under 
Japan's Uruguay Round commitments, but they continue to pose barriers 
to market access. Moreover, a number of unresolved market access issues 
are being discussed in the U.S.-Japan deregulation dialogue, such as 
recognition of foreign testing organizations, approval of Japan 
Industrial Standards (JIS) grademark equivalency for U.S. manufacturers 
of nails, and food waste disposals.
    Telecommunications and Broadcasting: Japan is a signatory of the 
WTO Basic Telecommunications Agreement of 1997, which promotes market 
access, investment and pro-competitive regulation in the 
telecommunications industry. In recent years, Japan has adopted a 
series of significant measures to foster a more pro-competitive regime 
in the telecommunications sector. However, access to telecommunications 
and broadcasting market in Japan remains constrained by both regulatory 
and anti-competitive practices. New entrants face much higher costs and 
longer waiting periods for connecting to the local dominant carrier's 
network than in other advanced countries, deterring competition. In 
addition, new carriers' difficulty in gaining access to facilities and 
land to build their networks, government restrictions on combining 
owned and leased facilities in creating a network, and the lack of 
access to discrete portions of the local dominant carriers' network at 
reasonable costs have slowed and raised the costs of new carriers' 
entrance. Finally, discriminatory and anti-competitive discount pricing 
plans by the dominant carriers have put new entrants at a serious 
disadvantage in developing Internet services. The U.S. Government has 
been applying pressure on Japanese regulators to take steps to address 
these issues under the U.S.-Japan Enhanced Initiative.
    Foreign telecommunications equipment suppliers continue to have 
difficulty selling to the Japanese public sector, having an extremely 
low share of this market. In addition, problems remain in selling to 
NTT (Nippon Telegraph and Telephone) companies, which collectively are 
the largest purchaser of telecommunications equipment in Japan. Foreign 
investment restrictions remain on NTT and on Direct-To-Home (DTH) 
satellite broadcasting companies.
    Standards, Testing, Labeling and Certification: Standards, testing, 
labeling and certification problems hamper market access in Japan. In 
some cases, advances in technology, products or processing make 
Japanese standards outdated and restrictive. Domestic industry often 
supports standards that are unique and restrict competition, although 
in some areas external pressure has brought about the simplification or 
harmonization of standards to comply with international practices. 
Fresh agricultural products continue to be subject to extensive 
restrictions, including phytosanitary restraints, required overseas 
production-site inspections, fumigation requirements for non-quarantine 
pests, and tariff rate or minimum access restrictions.
    Japan requires repeated testing of established quarantine 
treatments each time a new variety of an already approved agricultural 
commodity is approved for importation into Japan. For example, Japan 
has approved red and golden delicious apples for importation, but 
required that the quarantine treatment be retested for other almost 
identical varieties. The U.S. challenged this redundant testing 
requirement in the WTO, arguing that it has no scientific basis and 
serves as a significant trade barrier. Completion of the testing for 
each variety takes at least two years and is costly to the U.S. 
Government and U.S. producers. In October 1998, a WTO dispute 
settlement panel found that Japan's varietal testing requirement for 
agricultural products violated its WTO obligations. Japan has agreed to 
implement the terms of the WTO decision by the end of 1999.
    Foreign Direct Investment (FDI): FDI in Japan has remained 
extremely small in scale relative to the size of the economy. In Japan 
fiscal year 1998, Japan's annual inward FDI totaled 10.5 billion (up 
from $6 billion the previous year) but still only 0.27 percent of its 
GDP. (Comparatively, preliminary estimates for the United States FDI in 
1998 was $188 billion). Although in Japan, inward foreign investment is 
on the rise, Japan continues to host the smallest amount of FDI as a 
proportion of total output of any major OECD nation. The low level of 
FDI reflects the high cost-structure of doing business (for example, 
registration, licenses, land prices and rents), the legacy of former 
investment restrictions, and a continuing environment of structural 
impediments to greater foreign investment. The challenges facing 
foreign investors seeking to establish or enhance a presence in Japan 
include: laws and regulations that directly or indirectly restrict the 
establishment of business facilities, close ties between government and 
industry, informal exclusive buyer-supplier networks and alliances, 
high taxation, and a difficult regulatory environment for foreign or 
domestic acquisitions of existing Japanese firms.
    Recently, the Japanese Government has implemented potentially 
useful measures for increasing FDI, including easing restrictions on 
foreign capital entry. Additional steps include the implementation by 
Japanese enterprises of consolidated accounting by March 31, 2000. This 
step will greatly enhance financial transparency and facilitate mergers 
and acquisition and other investments. The government in October 1999 
introduced legislation modeled on the U.S. Chapter 11 bankruptcy 
procedures. The legislation should facilitate corporate restructuring 
and buy-outs by foreign and domestic investors.
    In October 1998, the U.S. Government proposed to the Japanese 
Government 18 new reforms in the areas of mergers and acquisitions, 
land, and labor policy to improve Japan's environment for foreign 
direct investment. In May 1999, both governments submitted a Joint 
report to the President and Prime Minister on the status of Japan's 
investment climate and measures under consideration. The bilateral 
Investment Working Group held talks in Tokyo in October 1999 that 
covered a range of investment issues. The group intends to continue 
consultations and the exchange of information as stipulated in the 
Joint report.
    Government Procurement Practices: Japan is a party to the 1996 WTO 
Government Procurement Agreement. While government procurement in Japan 
at the national, regional and local levels generally conform to the 
letter of the WTO agreement, there are reports that at some procuring 
entities, established domestic competitors continue to enjoy 
preferential access to tender information. In some sectors, unfair low 
pricing remains a problem, preventing companies from winning contracts 
based on open and transparent bidding procedures. Moreover, some 
entities continue to draw up tender specifications in a way that favors 
a preferred vendor, using design-based specifications rather than more 
neutral performance-based specifications.
    Customs Procedures: The Japanese Customs Authority has made 
progress in automating its clearing procedures, and efforts are 
underway to integrate the procedures of other government agencies over 
the next several years. However, U.S. exporters still face relatively 
slow and burdensome processing.
6. Export Subsidies Policies
    Japan's official development assistance for Asian countries in 1998 
rose 71 percent from the previous year as the government focused on 
helping its neighbors recover from the region-wide economic crisis. 
Japan remained the world's top aid donor in 1998 for the eighth 
consecutive year, disbursing a total of $10.77 billion, up 14.2 percent 
from 1997. Although Japan had been moving towards untying its aid, 
during the past 2 years this trend has reversed. Both its Environmental 
Aid loans and its Special Yen loans are tied to the purchase of 
Japanese products. Not only does this limit U.S. firm's ability to 
participate in these projects; it also denies recipient countries the 
opportunity to use this aid as efficiently as possible. This trend 
towards retying has been actively opposed by the U.S. Government. In 
addition, the USG continues to address U.S. industry concerns that 
feasibility studies funded by Japanese grant aid, and tied to the use 
of Japanese firms, results in technical specification that unduly favor 
Japanese firms.
7. Protection of U.S. Intellectual Property Rights
    Japan is a party to the Berne and Universal Copyright Conventions, 
the Paris Convention on Industrial Property, the Patent Cooperation 
Treaty, and the WTO Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPs). Japan is on the ``Special 301'' Watch List 
because of continuing U.S. concerns about the operation of Japan's 
patent system and the protection of trade secrets and computer 
software.
    While Japan's IPR regime affords national treatment to U.S. 
entities, the U.S. has long been concerned by the long processing time 
for patent examination. Although Japan has reduced patent pendency from 
36 to 28 months, this is still longer than in other industrialized 
countries. Lengthy patent pendency, coupled with a practice of opening 
all patent applications to public inspection 18 months after filing, 
exposes applications to lengthy public scrutiny with the potential of 
limiting legal protection.
    Many Japanese companies use the patent filing system as a tool of 
corporate strategy, making many applications to cover slight variations 
in technology. However, a February 1998 decision by Japan's Supreme 
Court to permit an infringement finding under the ``the doctrine of 
equivalence'' may reduce this practice and is a positive step toward 
broadening Japanese courts' generally narrow interpretation of patent 
rights. The rights of U.S. subscribers in Japan can be circumscribed by 
filings of applications for similar inventions or processes. Some small 
revisions to Japan's patent and trademark law aimed at improving 
protection right holders will take effect early in 2000.
    Japan's protection of trade secrets is inadequate. Because Japan's 
Constitution prohibits closed trials, the owner of a trade secret 
seeking redress for misappropriation of the secret is put in the 
difficult position of not being able to protect a trade secret without 
disclosing it publicly. While a recent amendment to Japan's Civil 
Procedures Act excludes Japanese court records containing trade secrets 
from public access, this legislation does not adequately address the 
problem. Court proceedings of trade secrets remain open to the public 
and neither the parties nor their attorneys have confidentiality 
obligations.
    Japan's Trademark Law was revised in 1997 to speed the granting of 
trademark rights, strengthen protection to well-known trademarks, 
address problems related to unused trademarks, simplify registration 
procedures, and increase infringement penalties. The effect of the 
revisions, however, is not yet clear. Historically, trademark 
registration in Japan has been slow, requiring approximately 36 months. 
Since trademarks must be registered in Japan to ensure enforcement, 
delays make it difficult for foreign parties to enforce their marks. In 
addition, concerns have been raised by U.S. firms regarding Japan's re-
exportation of suspected counterfeit merchandise to be re-exported 
which is inconsistent with article 59 of the Trade-Related Aspects of 
Intellectual Property Rights (TRIPs) agreement.
    End-user software piracy remains a major concern of U.S. and some 
Japanese software developers. An amendment to Japan's Civil Procedures 
Law to award punitive damages rather than actual damages would help 
increase the deterrent against software piracy.
8. Worker Rights
    a. The Right of Association: Japan's Constitution and domestic 
labor law provide for the right of workers to freely associate in 
unions. Approximately 23 percent of Japan's labor force is unionized. 
The Japanese Trade Union Confederation (RENGO), which represents 7.8 
million workers, is the largest labor organization. Both public and 
private sector workers may join a union, although members of the armed 
forces, police and firefighters may neither form unions nor strike. The 
right to strike, although implicit in the constitution, is seldom 
exercised. The law prohibits retribution against strikers and is 
effectively enforced.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides unions with the right to organize, bargain and act 
collectively. These rights are freely exercised, and collective 
bargaining is practiced widely, particularly during the annual ``Spring 
Wage Offensive'' of nationwide negotiations.
    c. Prohibition of Forced or Compulsory Labor: Article 18 of the 
Japanese Constitution states that ``No person shall be held in bondage 
of any kind. Involuntary servitude, except as punishment for crime, is 
prohibited.'' This provision applies both to adults and children, and 
there are no known cases of forced or bonded labor.
    d. Minimum Age for Employment of Children: By law, children under 
the age of 15 may not be employed and those under age 18 may not work 
in dangerous or harmful jobs. Child labor is virtually non-existent in 
Japan, as societal values and the rigorous enforcement of the Labor 
Standards Law protect children from exploitation in the workplace.
    e. Acceptable Conditions of Work: Minimum wages are set on both a 
sectoral and regional (prefectural) level. Minimum wages ranged from 
$50 per day in Tokyo to $42 in Okinawa. The Labor Standards Law 
provides for a 40-hour work week in most industries and mandates 
premium pay for hours worked beyond 40 hours in a week or eight hours 
in a day. However, labor unions criticize the Japanese Government for 
failing to enforce working hour regulations in smaller firms. The 
government effectively administers laws and regulations affecting 
workplace safety and health.
    f. Worker Rights in Sectors with U.S. Investment: Labor 
regulations, working conditions and worker rights in sectors where U.S. 
capital is invested do not vary from those in other sectors of the 
economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,496
Total Manufacturing............  ..............  14,224
  Food & Kindred Products......  528             ...............................................................
  Chemicals & Allied Products..  2,608           ...............................................................
  Primary & Fabricated Metals..  365             ...............................................................
  Industrial Machinery and       3,588           ...............................................................
   Equipment.
  Electric & Electronic          2,043           ...............................................................
   Equipment.
  Transportation Equipment.....  1,724           ...............................................................
  Other Manufacturing..........  3,368           ...............................................................
Wholesale Trade................  ..............  4,948
Banking........................  ..............  539
Finance/Insurance/Real Estate..  ..............  12,318
Services.......................  ..............  1,415
Other Industries...............  ..............  212
TOTAL ALL INDUSTRIES...........  ..............  38,153

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                           REPUBLIC OF KOREA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (nominal/factor cost)............    476,600    321,300    408,800
  Real GDP Growth (pct) \2\............        5.0       -5.8        7.0
  GDP by Sector:
    Agriculture/Fisheries..............     25,505     15,768     18,750
    Manufacturing......................    137,702     98,521    138,300
    Electricity/Gas/Water..............     10,098      7,519      9,380
    Construction.......................     55,510     32,560     35,800
    Financial Services.................     91,146     62,886     81,500
    Government/Health/Education........     36,436     25,864     22,000
    Other..............................    120,203     78,182    103,070
  Government Expenditure (pct/GDP).....       22.1       23.4       22.5
  Per Capita GDP (US$).................     10,307      6,823      8,735
  Labor Force (000's)..................     21,500     21,800     22,000
  Unemployment Rate (pct)..............        2.5        7.4        4.5

Money and Prices (annual percentage
 rate):
  Money Supply (M2)....................       19.2       24.0       25.0
  Corporate Bonds \3\..................       13.4       15.1        8.5
  Personal Savings Rate................       22.8       25.1       25.5
  Retail Inflation.....................        4.5        7.5        2.0
  Wholesale Inflation..................        3.9       12.2        1.0
  Consumer Price Index (1995 base).....      109.6      117.8      120.2
  Average Exchange Rate (Won/US$)......      951.1      1,399      1,200

Balance of Payments and Trade:
  Total Exports FOB \4\................    136,164    132,313    137,000
    Exports to U.S. \4\................     21,625     22,805     24,000
  Total Imports CIF \4\................   -144,616    -93,282   -115,000
    Imports from U.S. \4\..............    -30,122    -20,403    -25,000
  External Debt \5\....................    159,200    148,700    138,000
  Debt Service Payments................    -18,000    -29,800    -24,000
  Gold and FOREX Reserves..............     20,406     52,041     65,000
------------------------------------------------------------------------
\1\ 1999 figures are estimates based on available monthly data as of
  October.
\2\ Growth based on won, the local currency.
\3\ Figures are average annual interest rates.
\4\ Merchandise trade, measured on customs clearance basis; Korean
  government data.
\5\ Gross debt; includes non-guaranteed private debt.

1. General Policy Framework
    South Korea demonstrated its resilience and its capacity for change 
by bouncing back strongly in 1999 from the 1997-98 economic crisis, the 
worst in the country's history. After experiencing a 5.8 percent 
contraction in 1998, 7 to 8 percent GDP growth is forecast in 1999. Per 
capita GNP in dollar terms will be $8,735 in 1999, up from 1998's 
$6,823 but still lower than $10,307 in 1997.
    The crisis called into question the viability of a growth model 
that relied heavily on a protected domestic market and the deep 
involvement of the government in determining the allocation of capital. 
The crisis also set the scene for the presidential election victory in 
December 1997 of opposition figure and economic reform advocate Kim Dae 
Jung.
    By mid-1998, largely due to the $58 billion IMF program that Korea 
entered into in December 1997 and President Kim's commitment to 
vigorous financial and corporate sector reform, stability was restored 
to the Korean economy. However, problems remain with respect to 
implementation of reform and restructuring measures in these two 
sectors. Although the Korean government has made progress in inducing 
the conglomerates (``chaebols'') to reduce their unsustainable debt/
equity ratios, to improve corporate governance and enhance 
transparency, and to restructure their operations, the chaebol have 
only partially implemented Republic of Korea (ROK) government-mandated 
changes in these areas. In general, Korean business preference for 
market share instead of profitability and an unrealistically low Korean 
bankruptcy rate encouraged over-capacity and corporate inefficiency, 
but discouraged investment in small-to-medium enterprises (SME's). The 
SME sector remains underdeveloped in Korea.
    In 1999 the chronic de facto bankruptcy of Daewoo, the second-
largest Korean conglomerate, and continued weakness in the financial 
sector, especially the over-leveraged investment trust companies 
(ITC's), showed the weakness of the past patterns of misallocation of 
investment resources, excessive debt, and lack of effective oversight. 
The Daewoo crisis became front-page news around the world in July 1999, 
as that massive firm with far-flung global interests and investments 
came near default on more than $50 billion in debt. That month, 
creditors rolled over 12 trillion won in debt that was coming due over 
the following 10 days. Meanwhile, the $200-billion-plus ITC industry 
faced a loss of investor confidence due to its exposure to Daewoo and 
the lack of adequate prudential supervision. The Korean government's 
handling of the twin Daewoo and ITC crises will be a litmus test of its 
resolve to see through meaningful and sustainable corporate reform and 
restructuring, as well as the key to reducing systemic risk in the 
economy.
    Korea produces and exports advanced electronic components, 
automobiles, steel, and a wide variety of mid-level, medium-quality 
consumer electronics and other goods. As labor activism in the 1980's 
drove up wages faster than productivity growth, Korea lost its low-wage 
labor advantage to China and Southeast Asian countries. At the same 
time, Korea faced tough competition from Japan in cutting-edge, high-
tech products.
    Aided by recovery in other Asian markets and a strong current 
account surplus, Korea's usable foreign currency reserves in 1999 grew 
to over $60 billion, while the Korean won stabilized at about 1,200/
dollar as of November 1999. (The won stood at 900/dollar in 1996 but by 
late 1997 had dropped as low as 1,960/dollar). Korea became a member of 
the OECD in December 1996. Inflation dropped to about two percent in 
1999.
    Facility investment is expected to grow 34 percent in 1999, after 
suffering a 38 percent fall in 1998. In 1999, the unemployment rate is 
expected to drop to around 4.5 percent with less than one million 
unemployed people, a fall from seven percent in 1998 when there were 
over 1.4 million jobless. Real income grew eight percent during the 
first seven months of 1999 after a nine percent fall in 1998. Private 
consumption grew 8.2 percent in 1999. (Expenditures on domestic 
consumption accounted for 62 percent of total GDP.)
    The United States is Korea's leading trade partner in 1999, taking 
20 percent of Korea's exports and providing 21.7 percent of Korea's 
imports for the first nine months of 1999. Korea is the eighth largest 
overall trade partner of the United States (the sixth biggest market 
for U.S. exports and the eighth biggest for U.S. imports) up from ninth 
in 1998. U.S. Commerce Department statistics show that, through 
September 1999, U.S. exports to Korea increased 52.2 percent to $16.9 
billion, and U.S. imports from Korea rose 25.8 percent to $22.2 
billion. In 1998 U.S. exports to Korea fell 34 percent while U.S. 
imports from Korea rose 3.4 percent.
    The public sector's role in the economy is relatively small, with 
taxes and expenditures amounting to 24 percent of GDP in 1999. The 
government plans to increase nominal budget spending five percent in 
2000 (the lowest budget growth since 1992) for economic stimulus, to 
improve and expand transportation infrastructure, and to improve the 
social safety net for the unemployed. The 2000 fiscal deficit is 
expected to be about 3.5 percent of GDP, somewhat less than four 
percent in 1999. About 12 percent of 2000 spending will be financed by 
government bond sales. In 1998 the government increased the money 
supply about 20 percent to fight potential deflation due to the 
recession and falling asset values. In consultation with the IMF, the 
government allowed the overnight call rate, which is the main policy 
interest rate of the Bank of Korea, to fall from a peak of 35 percent 
in December 1997 to single digits in 1999. In September 1999, however, 
corporate bond rates rose sharply above 10 percent when Daewoo's 
financial default destabilized the bond market and investors rushed to 
withdraw money from financially weak investment trust companies. 
However, the ROK reversed the rise in long-term rates in October with 
its bond market stabilization fund. The primary monetary target of the 
Bank of Korea is M3, which, in accordance with Korea's IMF program, is 
expected to increase by about 11 percent in 1999.
2. Exchange Rate Policy
    Since the introduction of the IMF program in December 1997, foreign 
exchange and capital controls have been relaxed or abolished. In 
conjunction with IMF program requirements that the exchange rate be 
allowed to float (with intervention limited to smoothing operations 
only.) In December 1997 the exchange rate peg was widened from +/- 2.25 
percent to +/- 10 percent, and then abandoned completely.
3. Structural Policies
    The Korean economic model has been notable for the high degree of 
concentration of capital and industrial output in a small number of 
conglomerates known as ``chaebol.'' While this model produced a long 
record of high economic growth, the 1997 financial crisis exposed its 
weaknesses, which include excessively risky debt levels, industrial 
over-capacity, and economically unsustainable investment. President Kim 
Dae Jung has pushed for major economic reform and restructuring to 
overcome these shortcomings. The government passed laws requiring 
greater corporate transparency, strengthened prudential requirements 
for banks and other financial institutions, fostered the development of 
small and medium-sized industries, and encouraged increased foreign 
investment in Korea. The chaebol have also been pressed to restructure 
and rationalize their operations, including by reducing their debt/
equity levels to 200 percent and through somewhat controversial ``big 
deals'' (i.e. asset/affiliate swaps.) The effective and radical 
restructuring of Korea's second-largest chaebol Daewoo should help 
accelerate the pace of corporate reform. These reforms are moving 
Korea's economy towards a more market-based system, but some important 
changes, especially in the financial and corporate sectors, will take 
time.
4. Debt Management Policies
    Korea's total foreign debt (largely private sector) totaled $144 
billion at the end of July 1999, declining from $158 billion at the end 
of 1997. Through repayment and rescheduling, Korea's short-term debt as 
a percentage of total debt has been reduced from 64 percent at the end 
of 1998 to only 24 percent at the end of July 1999. In addition, the 
ROK developed an external debt reporting system to enhance debt 
management and monitoring. Through September 1999, Korea registered a 
current account surplus of $19.2 billion, substantially smaller than 
the $32 billion surplus recorded during the comparable period a year 
before. The estimated surplus for 1999 is $20 billion, compared to 
about $40 billion in 1998.
5. Significant Barriers to U.S. Exports
    During the last decade Korea has gradually liberalized its markets 
for both goods and services and improved its investment climate for 
U.S. and other foreign firms. Through bilateral and multilateral 
efforts, many protective tariffs were lowered or phased out. Non-
transparent policies and regulations, which directly or indirectly 
inhibited market access for imports, have been revised and reduced. The 
ROK has distanced itself from explicit policies that encouraged anti-
import sentiment among Korean consumers, and is slowly addressing 
residual anti-import biases among both Korean consumers and 
bureaucrats. Rather than tolerating some foreign investment as 
necessary, the ROK has introduced a new foreign investment regime and 
is actively working to attract foreign investment. Korea and the United 
States initiated negotiations in June 1998 to conclude a bilateral 
investment treaty. Total commitments of foreign direct investment in 
1999 is expected to exceed $15 billion, more than double the level in 
1997. Nevertheless, these improvements have not benefited all exporters 
to Korea and barriers to exports from the United States and other 
countries continue to plague key sectors, especially agriculture, 
pharmaceuticals and automobiles.
    In general, Korea's tariffs are modest; Korea's average tariff rate 
is 7.9 percent. However, Korea still maintains a system of high tariffs 
(30 to 100 percent), quotas and tariff rate quotas (TRQ), mostly for 
sensitive agricultural and fishery products of interest to U.S. 
suppliers, which effectively restrict imports. In addition, Korea's 
administration of quotas/TRQs for some products, such as rice and 
oranges, limits legitimate market access. Korea also uses adjustment 
tariffs to respond to import surges; however, the number of these 
tariffs is slowly being reduced. The majority of the remaining 29 
adjustment tariffs apply to agricultural products. The government 
eliminated its import diversification program, which barred certain 
imports from Japan, in June 1999, and has committed to phase out its 
eight GATT balance of payments restrictions by year-end 2000.
    Nontariff barriers, which often result from non-transparent 
regulatory practices, continue to inhibit imports to Korea across a 
range of sectors. A lack of regulatory transparency and consistency can 
affect licensing, inspections, type approval, marking/labeling 
requirements and other standards. To add transparency and due process 
to its regulatory system, Korea enacted the Administrative Procedures 
Act in 1996, but public notice of new regulations, as well as comment 
and transition periods are not always adequate. The regulatory system 
has not offered adequate recourse to those adversely affected by 
creation of new regulations. Since President Kim initiated a 
comprehensive regulatory review in 1998, more than 5,000 regulations/
guidelines have been eliminated or targeted for elimination; review of 
the more than 6,000 remaining regulations is ongoing.
    Products regulated for health and safety reasons (such as 
pharmaceuticals, medical devices, and cosmetics) typically require 
additional testing or certification from the relevant ministries before 
they can be sold in Korea, resulting in considerable delays and 
increasing costs. The foreign pharmaceutical industry faces 
discriminatory barriers associated with clinical registration and 
reimbursement pricing issues, although a new reimbursement pricing 
system is expected to be implemented in late 1999. Registration 
requirements for such products as chemicals, processed food, medical 
devices and cosmetics hamper entry into the market as well. Korea has 
initiated efforts to streamline its complex and burdensome import 
clearance procedures, targeting some 54 laws for revision. It has 
committed to bring its Food Code, Food Additive Code and labeling 
requirements into conformity with international standards. Import 
clearance, however, still takes longer than in other Asian countries.
    Despite potential conflict of interest problems, the government has 
delegated authority to some Korean trade associations to carry out 
functions normally administered by the government. Such delegation of 
responsibility may include processing import approval documentation 
prior to customs clearance (allowing local trade associations to obtain 
business confidential information on incoming shipments), advertisement 
pre-approvals (providing early warning on the introduction of new 
products and on competitors' marketing efforts), and a decision-making 
seat on various committees (usually not available to foreign firms). 
The Korea Fair Trade Commission increased its efforts in 1999 to reduce 
the quasi-legal, trade restrictive powers of a number of associations.
    The United States and Korea signed a Memorandum of Understanding 
(MOU) in October 1998, in which Korea agreed to take measures to 
further open its automobile market and improve market access for U.S. 
automobiles. Per the MOU, Korea has lowered some taxes which had a 
discriminatory impact on imported cars, bound its auto tariffs at 8 
percent, improved consumer financing of autos by expanding the auto 
mortgage system and shortening the repossession process, and 
streamlined standards and certification. The ROK has also taken steps 
to reduce anti-import attitudes, which have an especially strong impact 
on foreign automobiles, including by agreeing to co-sponsor an ``Import 
Motor Show'' in May 2000. Despite these efforts, imports of U.S. and 
other foreign cars will barely exceed 2000 units in 1999.
    The government requires theaters to show local movies for a minimum 
of 146 days each year, with some flexibility so that this total can be 
reduced to 106 days. U.S. industry states that these constraints on 
foreign movies and programs are more restrictive than in most other 
countries. The Korean government, however, considers this a cultural 
rather than a trade issue.
    Korea acceded to the WTO Government Procurement Agreement (GPA) on 
January 1, 1997 and is co-sponsoring the Transparency in Government 
Procurement initiative in the WTO. U.S. firms, however, continue to 
raise some concerns about Korean procurement practices, including 
discrimination against U.S. firms participating in procurements for 
Korea's new international airport conducted by the Korea Airport 
Construction Authority. The U.S. government is currently pursuing WTO 
dispute settlement resolution on this issue with Korea.
    Korea will expand its Uruguay Round minimum import quota for beef 
to 225,000 metric tons by the year 2000 and expand the proportion of 
the quota imported through the ``simultaneous buy/sell system.'' Korea 
has committed to remove all remaining nontariff barriers to beef 
imports, including state trading, by January 2001. However, due to a 
sharp drop in consumption, Korea has been unable to meet its WTO 
minimum import commitment in recent years. In February 1999, the United 
States initiated WTO dispute settlement consultations with Korea to 
eliminate import barriers and distribution restrictions on foreign 
beef.
    In response to the 1997 financial crisis, the government has 
implemented broad-based reforms of its financial system. These reforms 
include substantial liberalization of capital markets, including the 
abolition of restrictions on foreign ownership of domestic shares and 
bonds, and restrictions on the use of deferred payments to finance 
imports. Foreign banks can now establish subsidiaries in Korea and 
foreign financial firms can participate in mergers and acquisitions of 
domestic Korean financial institutions. Korea, however, requires 
foreign branches to be separately capitalized, and other regulations 
such as prudential lending limits are based on local branch capital as 
opposed to its total capital, while a domestic bank's capital base is 
assessed as the entire bank's capital. Foreign banks are also 
disadvantaged in access to local currency funding. The government has 
also loosened controls over access to currency, such as swap lines used 
by banks as a source of local currency, but the government retains 
controls and has not committed to maintaining these new lines once the 
crisis is over. The new Foreign Exchange Transaction Law that was 
implemented in April 1999 significantly liberalized formerly heavily 
regulated capital transactions.
    Korea's new Foreign Investment Promotion Act, which became 
effective in 1998, streamlined foreign investment application 
procedures and eased barriers to foreign direct investment across a 
range of sectors. Korea now has a much more favorable investment 
climate for foreign firms, and in the longer run this should foster 
broader market access and more imports. Investment restrictions now 
remain on only 21 industrial sectors, of which seven are entirely 
closed. Mergers, including hostile mergers, are allowed, and most 
restrictions on foreign ownership of local shares have been lifted. 
Foreigners are now allowed to purchase real estate and property. Tax 
incentives, especially for the high technology sector, have been 
increased. Restrictions on access to offshore funding (including 
offshore borrowing, intra-company transfers and inter-company loans), 
however, continue to be burdensome. Foreign equity participation 
limits, licensing requirements and other regulatory restrictions can 
limit foreign direct investment in sectors nominally open to 
foreigners. Foreign firms also face additional investment restrictions 
in many professional services sectors.
6. Export Subsidies Policies
    In the past, Korea aggressively promoted exports through a variety 
of policy tools, including export subsidies, directed credit and 
targeted industrial policy. However, in the WTO, Korea has committed to 
phasing out those programs not permitted under the WTO Agreement on 
Subsidies and Countervailing Measures. Under the IMF stabilization 
package, Korea eliminated four WTO prohibited subsidies. The real 
benefit of the few remaining subsidized lines of export credit is 
insignificant in a macroeconomic sense. The relative size of direct 
grants is small and declining with regard to both the government budget 
and growing private investment. The use of tax exemptions, the main 
vehicle for export promotion, appears to be declining as well. The 
government does expend large amounts of money in research and 
development in key industrial sectors targeted for development, such as 
telecommunications.
7. Protection of U.S. Intellectual Property
    Korea is a participant in the WTO's Agreement on Trade Related 
Aspects of Intellectual Property (TRIPs). It is also a signatory to the 
World Intellectual Property Organization (WIPO), the Universal 
Copyright Convention, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms, the Geneva Phonograms 
Convention, the Paris Convention for the Protection of Industrial 
Property, and the Patent Cooperation Treaty. Korea joined the Berne 
Convention in August 1996.
    Korean laws protecting IPR are generally adequate in legal terms, 
but problems remain with respect to enforcement. Korea's ``Special 
301'' status was downgraded from ``Priority Watch List'' to ``Watch 
List'' in April 1997. Korea maintained its ``Watch List'' status in the 
U.S. government's 1999 review. Areas of continuing IPR concern include: 
counterfeit consumer products, software piracy, and pharmaceutical 
patent protection enforcement.
    Korean patent law is fairly comprehensive, offering protection to 
most products and technologies. A new patent court came into effect 
March 1, 1998. However, approved patents of foreign patent holders are 
still vulnerable to infringement. Korean law provides for compulsory 
licensing of patents when the invention is deemed necessary for the 
national defense, for the public interest, or for the protection of a 
dependent patent.
    The government's protection of trademarks has improved since 1991. 
A revised Trademark Law became effective March 1, 1998. The Design Act 
was also revised on March 1, 1998, enhancing protection of industrial 
designs. The granting of a trademark under Korean law is based on a 
``first-to-file'' basis. While preemptive and predatory filings are on 
the decline, ``sleeper'' preemptive registrations still surface on 
occasion. A new provision now allows the Korean Industrial Property 
Office (KIPO) to reject suspected predatory applications based on a 
``bad faith'' clause. There has been less success in stemming the 
export of Korean counterfeit products globally.
    Korea's Copyright Law protects author's rights, but local 
prosecutors take no action unless the copyright holder files a formal 
complaint. In 1999, Korea amended its Computer Program Protection Act 
and is preparing revised copyright legislation so as to better meet its 
TRIPs obligations, especially with respect to copyright and trademark 
protection for transactions conducted on the internet. Korea, however, 
is not in full compliance with provisions of the TRIPs Agreement which 
stipulate that preexisting works and sound recordings must enjoy a full 
term of protection (i.e., life of the author plus 50 years for works; 
50 years for sound recordings). Korea now only provides protection back 
to 1957. The Korean government in 1999 has devoted increased resources 
and staff to IPR enforcement activities and President Kim himself has 
directed cabinet agencies to step-up government efforts to protect 
intellectual property. However, IPR violations, especially of computer 
software, including in the government sector remain a problem.
8. Worker Rights
    a. The Right of Association: With the exception of public sector 
employees and teachers, Korean workers enjoy the right of free 
association. White-collar workers in the government sector cannot join 
unions, but blue-collar employees in the postal service, railways, and 
telecommunications sectors, and the national medical center have formed 
labor organizations. Starting this year, government employees were 
allowed to form workplace consultative councils. In July, legislation 
went into effect allowing teachers to form unions. Unions may be formed 
with as few as two members and without a vote of the full prospective 
membership.
    Until recently the Trade Union Law specified that only one union 
was permitted at a workplace, but labor law changes in 1997 authorize 
the formation of competing labor organizations beginning in the year 
2002. Workers in government agencies and defense industries do not have 
the right to strike. Unions in enterprises determined to be of 
``essential public interest,'' including utilities, public health, and 
telecommunications, may be ordered to submit to government-ordered 
arbitration in lieu of striking. In fact, work stoppages occur even in 
these sensitive sectors. The Labor Dispute Adjustment Act requires 
unions to notify the Labor Ministry of their intention to strike, and 
normally mandates a 10-day ``cooling-off period'' before a work 
stoppage may legally begin.
    b. The Right to Organize and Bargain Collectively: The Korean 
constitution and the Trade Union Law provide for the right of workers 
to bargain collectively and undertake collective action, but does not 
grant government employees, school teachers or workers in defense 
industries the right to strike. Collective bargaining is practiced 
extensively in virtually all sectors of the Korean economy. The central 
and local labor commissions form a semi-autonomous agency that 
adjudicates disputes in accordance with the Labor Dispute Adjustment 
Law. This law empowers workers to file complaints of unfair labor 
practices against employers who interfere with union organizing or 
practice discrimination against unionists. In 1998 the government 
established the Tripartite Commission, with representatives from labor, 
management, and the government to deal with labor issues related to the 
economic downturn. The work of the Commission both made it legal for 
companies to lay off workers due to economic hardship and authorized 
temporary manpower agencies. Labor-management antagonism, however, 
remains an issue, and some major employers remain strongly antiunion.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
provides that no person shall be punished, placed under preventive 
restrictions, or subjected to involuntary labor, except as provided by 
law and through lawful procedures. Forced or compulsory labor is not 
condoned by the government and rarely occurs.
    d. Minimum Age for Employment of Children: The government prohibits 
forced and bonded child labor and enforces this prohibition 
effectively. The Labor Standards Law prohibits the employment of 
persons under the age of 15 without a special employment certificate 
from the Labor Ministry. Because education is compulsory through middle 
school (about age 14), few special employment certificates are issued 
for full-time employment. Some children are allowed to do part-time 
jobs such as selling newspapers. In order to obtain employment, 
children under 18 must have written approval from their parents or 
guardians. Employers may require minors to work only a limited number 
of overtime hours and are prohibited from employing them at night 
without special permission from the Labor Ministry.
    e. Acceptable Conditions of Work: The government implemented a 
minimum wage in 1988 that is adjusted annually. The minimum wage in 
1998 was set at $1.28/hour (won 1,525/hour). Companies with fewer than 
10 employees are exempt from this law. The maximum regular workweek is 
44 hours, with provision for overtime to be compensated at a higher 
wage, but such rules are sometimes ignored, especially by small-
companies. The law also provides for a maximum 56-hour workweek and a 
24-hour rest period each week. Labor laws were revised in 1997 to 
establish a flexible hours system that allows employers to ask laborers 
to work up to 48 hours during certain weeks without paying overtime so 
long as average weekly hours do not exceed 44. The government's health 
and safety standards are not always effectively enforced, but the 
accident rate continues to decline. The number of work-related deaths 
remains high by international standards.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Korea 
is concentrated in petroleum, chemicals and related products, 
transportation equipment, processed food, manufacturing and services. 
Workers in these industrial sectors enjoy the same legal rights of 
association and collective bargaining as workers in other industries.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  2,940
  Food & Kindred Products......  380             ...............................................................
  Chemicals & Allied Products..  530             ...............................................................
  Primary & Fabricated Metals..  22              ...............................................................
  Industrial Machinery and       288             ...............................................................
   Equipment.
  Electric & Electronic          558             ...............................................................
   Equipment.
  Transportation Equipment.....  128             ...............................................................
  Other Manufacturing..........  1,034           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  2,251
Finance/Insurance/Real Estate..  ..............  38
Services.......................  ..............  446
Other Industries...............  ..............  -38
TOTAL ALL INDUSTRIES...........  ..............  7,365
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                MALAYSIA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................   101,236    72,569  \2\ 78,9
                                                                      28
  Real GDP Growth (pct)...................       7.5      -7.5   \3\ 4.3
  GDP by Sector (1978 prices):
    Agriculture...........................     6,106     4,377     4,723
    Manufacturing.........................    20,981    12,984    14,587
    Mining And Petroleum..................     5,144     3,755     3,827
    Construction..........................     3,389     1,871     1,860
    Services..............................    31,729    22,466    23,697
    Government Services...................     4,641     3,506     3,616
  Per Capita GDP (US$)....................     4,564     3,272     3,475
  Labor Force (000's).....................     9,038     8,880     9,010

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)(pct)...........      22.7       1.5  \4\ 12.4
  Consumer Inflation (pct)................       2.7       5.3       3.0
  Exchange Rate (RM/US$ annual average)...      2.81      3.92      3.80

Balance of Payments and Trade:
  Total Exports FOB.......................    77,478    71,925    79,189
    Exports to U.S........................    18,017    19,001  \5\ 9,81
                                                                       6
  Total Imports FOB.......................    73,822    54,321    59,682
    Imports from U.S......................    10,828     8,952  \5\ 4,27
                                                                       0
  Trade Balance...........................     3,656    17,604    19,507
    Balance with U.S......................     7,189    10,049     5,546
  External Public Debt....................    23,280    17,387    19,078
  Fiscal Surplus/GDP (pct)................       2.3      -1.9      -4.9
  Current Account Surplus/GDP (pct).......      -5.6      12.9  \6\ 14.0
  Debt Service Payments/GDP (pct).........       5.0       6.9       N/A
  Gold and Foreign Exchange Reserves......    21,700    26,196  \7\ 30,2
                                                                      00
  Aid from U.S............................       0.6       0.9       1.0
  Aid from All Other Countries............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Malaysian Government estimates.
\2\ Converted at annual average exchange rates.
\3\ Calculated in ringgit to avoid exchange rate changes.
\4\ July data for 1999.
\5\ U.S. Commerce Department data, January-June for 1999.
\6\ Deficit for 1997.
\7\ End-October data for 1999.

1. General Policy Framework
    After nearly a decade of strong economic growth averaging 8.7 
percent annually, Malaysia was hard hit by the regional financial and 
economic crisis of 1997-98. After contracting 7.5 percent in 1998, the 
economy returned to positive growth in the second quarter of 1999. 
Analysts predict 5-6 percent growth in 1999 and continued strong growth 
in 2000. Growing consumer and investor confidence is reflected in 
increased auto sales, consumer credit mortgage approvals, and a three-
fold increase in the Kuala Lumpur Stock Exchange Composite Index from 
its record low of 262.7 in September 1998 to trading levels in the 720-
750 range in November 1999. Malaysia's economic recovery has been 
export led, based in part on growing electronics exports to the United 
States, Malaysia's principal trade and investment partner, and the 
region and also the result of increased government spending.
    Foreign direct and portfolio investment has not returned to pre-
crisis levels. Investor concerns are focused on excessive commercial 
property investment, high levels of domestic corporate debt, the lack 
of transparent policies regarding support for troubled firms, and 
continued trade and investment restrictions. To deal with a growing 
number of non-performing loans (NPLs) during the financial crisis, in 
1998 the government established an asset management corporation, 
Danaharta, and a special purpose vehicle, Danamodal, to inject funds 
into banks in need of recapitalization. The government also created the 
Corporate Debt Restructuring Committee (CDRC) to provide a framework 
for creditors and debtors voluntarily to resolve liquidity problems of 
viable businesses and serve as an alternative to bankruptcy. Danaharta 
has removed about one-third of the NPLs from the banking system. CDRC 
has completed the first stages of the debt workout process for a 
substantial number of firms and reportedly hopes to complete its 
activities by the end of 2000.
    The government plays a strong pro-active role in the economy as 
investor, economic planner, approver of investment projects, approver 
of public and private procurement decisions, author and implementor of 
policies and programs to bolster the economic status of the Malay and 
indigenous communities (commonly referred to as bumiputras), and 
decisionmaker over privatization contracts. The government holds equity 
stakes (generally minority shares) in a wide range of domestic 
companies, usually large players in key sectors, and can exert 
considerable influence over their operations. The economic downturn, 
however, slowed the push to privatization and increased emphasis on 
government support for sensitive industries, such as automobiles and 
steel. The government has said it will consider granting assistance to 
troubled corporations on the basis of three criteria: national 
interest, strategic interest, and equity considerations under bumiputra 
policies.
    Tariffs are the main instrument used to regulate the importation of 
goods in Malaysia. However, 17 percent of Malaysia's tariff lines 
(principally in the construction equipment, forestry, logging, 
agricultural mineral, and motor vehicle sectors) are also subject to 
non-automatic import licensing designed to protect import-sensitive or 
strategic industries. Although the average applied MFN tariff rate of 
Malaysia has declined to approximately 8.1 percent, duties for tariff 
lines where there is significant local production are often higher. For 
example, 15.8 percent of product tariff lines in Malaysia's tariff 
schedule have rates over 24 percent, 25.9 percent of tariff lines have 
rates over 15 percent, and many lines have rates well over 100 percent.
    The level of tariff protection is generally lower on raw materials 
and increases for those goods with value-added content or which undergo 
further processing. The government urges Malaysians to purchase 
domestic products, instead of imports, whenever possible. In addition 
to import duties, a sales tax of 10 percent is levied on most imported 
goods. Like import duties, however, this sales tax is not applied to 
raw material and machinery used in export production. Malaysia has been 
an active participant in multilateral and regional trade fora such as 
the World Trade Organization (WTO) and APEC (which it chaired in 1998).
    Fiscal Policy: The government is pursuing an expansive fiscal 
policy in order to stimulate economic growth. The government expects to 
run a budget deficit in 2000 of approximately 4.4 percent of GNP, 
slightly less than the 1999 deficit. The Malaysian government finances 
domestically the bulk of the deficit.
    Monetary Policy: The central bank has been progressively loosening 
monetary policy to lead the economy out of recession. Statutory reserve 
requirements have been reduced steadily from 13.5 percent as of year-
end 1997 to 4 percent in September 1998. The central bank also lowered 
the liquid asset requirements for commercial banks, reduced an 
administrative margin used to calculate the base lending rate, and cut 
its 3 month intervention rate from 8 percent to 5.5 percent. A 
significant drop in interest rates has accompanied the loosening of 
monetary policy. The base lending rate dropped from 8.04 percent in 
early November 1998 to 6.8 percent in November 1999.
2. Exchange Rate Policy
    In September and October 1999, the Malaysian government relaxed 
capital control measures on foreign portfolio investment instituted on 
September 1, 1998, as part of a broad effort to stabilize the currency 
while stimulating the economy. On September 2, 1998, the government 
fixed the exchange rate of the Ringgit to the U.S. Dollar at RM 3.8/
US$1 and instituted selective capital controls, including a 
controversial tax on repatriated principal and profits. At present 
foreign portfolio investment is subject to a flat 10 percent exit tax 
on repatriated profits.
3. Structural Policies
    Pricing Policies: Most prices are market-determined but controls 
are maintained on some key goods, such as vegetable oil, fuel, public 
utilities, cement, motor vehicles, rice, flour, sugar, tobacco, and 
chicken. (Note: no restrictions are placed on wheat imports.)
    Tax Policies: Tax policy is geared toward raising government 
revenue and discouraging consumption of ``luxury'' items. Income taxes, 
both corporate and individual, comprise 40 percent of government 
revenue with indirect taxes, export and import duties, excise taxes, 
sales taxes, service taxes and other taxes accounting for another 31 
percent. The remainder comes largely from dividends generated by state-
owned enterprises and petroleum taxes.
    The Year 2000 budget features personal tax reductions, generous 
benefits for civil servants and tax incentives to encourage financial 
institution mergers. The Government will also lower or abolish duties 
on 179 categories of food products (fresh, dried, and processed). 
Beginning in 2000, the tax assessment system will base tax collection 
on current year income rather than previous year income. High-
technology and information-technology companies which establish in the 
Multimedia Super Corridor (a government-established zone designed to 
concentrate and stimulate development of high-technology multimedia 
industries) are granted attractive tax incentives.
    Standards: Malaysia has extensive standards and labeling 
requirements, but these appear to be largely implemented in an 
objective, nondiscriminatory fashion. Food product labels must provide 
ingredients, expiry dates and, if imported, the name of the importer. 
Electrical equipment must be approved by the Ministry of International 
Trade and Industry, telecommunications equipment must be ``type 
approved'' by the Communications and Multimedia Commission. 
Telecommunications and aviation equipment must be approved by the 
Department of Civil Aviation. Pharmaceuticals must be registered with 
the Ministry of Health. In addition, the Standards and Industrial 
Research Institute of Malaysia provides quality and other standards 
approvals.
4. Debt Management Policies
    Malaysia's medium and long-term foreign debt (both public and 
private sector) amounted to $34.7 billion at the end of 1998, about 44 
percent of GDP. Malaysia's debt service ratio declined from a peak of 
18.9 percent of gross export earnings in 1986 to 6.9 percent in 1998.
5. Aid
    U.S. government assistance to Malaysia in FY-1999 falls into three 
broad categories: the Trade Development Agency (TDA), the International 
Military Education Training (IMET) program ($700,000), and the U.S.-
Asia Environment Program (US-AEP.) Although statistics are not 
available for assistance provided from other governments, since 1998 
the Japanese government has extended financial assistance to help 
Malaysia recover from the economic crisis: Japanese Government Office 
of Developmental Assistance (ODA) Yen Loan Projects approximately $1.05 
billion, Japanese EX-IM Bank approximately $700 million, EX-IM Bank 
guaranteed Commercial bank loans approximately $700 million, Japanese 
government guaranteed commercial bank loans approximately $560 million, 
and a short-term financing facility up to $2.5 billion.
6. Significant Barriers to U.S. Exports
    Import Restrictions on Motor Vehicles: Malaysia maintains several 
measures to protect the local automobile industry, including high 
tariffs and an import quota and licensing system on imported motor 
vehicles and motor vehicle parts. Malaysia also maintains local content 
requirements of 45 to 60 percent for passenger and commercial vehicles, 
and 60 percent for motorcycles. The government maintains that local 
content restrictions will be phased out by the year 2000 in accordance 
with its WTO commitments (see investment barriers.) However, Malaysia 
has requested an extension of its commitments under the ASEAN Free 
Trade Area (AFTA) to reduce tariffs in the auto sector by the year 
2000. These restrictions have hampered the ability of U.S. firms to 
penetrate the Malaysian market. Customs tariffs and excise duties (up 
to 50 percent) for motorcycles are also significant barriers for U.S. 
companies. Malaysia is also considering new emissions standards for 
motorcycles, which could restrict market opportunities for imports.

        Products                                            Tariff (pct)
Automobiles (CB)........................................         140-300
Automobiles (CKD).......................................              80
Vans (CBU)..............................................          42-140
Van (CKD)...............................................              40
4WD/Multipurpose (CBU)..................................          60-200
4WD/Multipurpose (CKD)..................................              40
Motorcycle (CBU)........................................          80-120
Motorcycle (CKD)........................................              30

    Restrictions on Construction Equipment: In October 1996, Malaysia 
raised duties on construction equipment from 5 to 20 percent. In 
addition, the initial capital allowance for imported heavy equipment 
will be reduced from 20 to 10 percent in the first year, and the annual 
allowance will be reduced from between 12 percent and 20 percent to 10 
percent. In October 1997, the government imposed a restrictive 
licensing regime on imports of heavy construction equipment and raised 
import duties for the second year in a row, as detailed below. In April 
1999, another licensing requirement was established for certain iron 
and steel products.

        Products                                            Tariff (pct)
Heavy Machinery & Equipment.............................               5
Multi-Purpose Vehicles..................................              50
Special Purpose Vehicles................................              50
Construction Materials..................................           10-30

    Duties on High Value Food Products: Duties for processed and high 
value products, such as canned fruit, snack foods, and many other 
processed foods, range between 20 and 30 percent. The applied tariff on 
soy protein concentrate is 20 percent.
    Duties on Alcoholic Beverages and Tobacco Products: High tariffs 
(increased 10/23) on tobacco products ($10.5-48/kg) and alcoholic 
beverages (e.g., vermouth in retail-sized containers is subject to a 
specific tariff of $31.5/dal) hamper U.S. exports.
    Plastic Resins: U.S. exports of some plastic resins are hampered by 
20 percent tariffs.
    Tariff-Rate Quota for Chicken Parts: Although the government 
applies a zero import duty on chicken parts, imports are regulated 
through licensing and sanitary controls, and import levels remain well 
below the minimum access commitments established during the Uruguay 
Round.
    Float Glass Tariff Differentials: Malaysia levies high duties (65 
sen/kilogram or 50-100 percent ad valorem equivalent) on rectangular-
shaped float glass. Nearly all float glass that moves in world trade is 
rectangular. To qualify for the lower ad valorem MFN tariff rate of 30 
percent levied on non-rectangular float glass, exporters often must 
resort to time-consuming, wasteful procedures such as cutting off one 
or more corners or cutting one edge in a slanted fashion. This is an 
inefficient and expensive process that requires distributors to recut 
each piece of glass into a rectangular shape once it has cleared 
customs.
    Rice Import Policy: The sole authorized importer of rice is a 
government corporation with the responsibility of ensuring purchase of 
the domestic crop and wide power to regulate imports.
    Film and Paper Product Tariff: Malaysia applies a 25 percent tariff 
on imported instant print film that is estimated to cause an annual 
trade loss of $10 to $25 million for U.S. industry. In August 1994, the 
government raised tariffs on several categories of imported kraft 
linerboard (used in making corrugated cardboard boxes) to between 20 
and 30 percent depending on the category. These tariff increases are to 
be phased out after five years and are subject to review every two 
years. Malaysia did not change the tariff levels after the 1996 review.
    Direct Selling Companies: In May 1999, the Malaysian Government 
announced new requirements for the licensing and operation of direct 
selling companies. These requirements include a) no more than 30 
percent of the locally incorporated company can be foreign owned, b) 
local content of products should be no less than 80 percent, c) no new 
products would be approved for sale that did not meet local content 
requirements, and d) all price increases would be approved by the 
Ministry of Domestic Trade and Consumer Affairs. These guidelines also 
spell out the conditions under which companies may receive one, two and 
three year licenses. The Ministry indicated that the local content 
targets are not mandatory, except for adherence to Malaysia's national 
equity policy.
    Government Procurement: Malaysian Government policy calls for 
procurement to be used to support national objectives such as 
encouraging greater participation of ethnic Malays (bumiputras) in the 
economy, transfer of technology to local industries, reducing the 
outflow of foreign exchange, creating opportunities for local companies 
in the services sector, and enhancing Malaysia's export capabilities. 
As a result, foreign companies do not have the same opportunity as some 
local companies to compete for contracts and in most cases foreign 
companies are required to take on a local partner before their bid will 
be considered. Some U.S. companies have voiced concerns about the 
transparency of decisions and decision-making processes. Malaysia is 
not a party to the plurilateral WTO Government Procurement Agreement.
    Investment Barriers: Malaysia encourages direct foreign investment 
particularly in export-oriented manufacturing and high-tech industries, 
but retains considerable discretionary authority over individual 
investments. Especially in the case of investments aimed at the 
domestic market, it has used this authority to restrict foreign equity 
(normally to 30 percent) and to require foreign firms to enter into 
joint ventures with local partners. To alleviate the effects of the 
economic downturn, Malaysia announced relaxation (until December 31, 
2000) of foreign-ownership and export requirements in the manufacturing 
sector for companies producing goods that do not compete with local 
producers. Most foreign firms face restrictions in the number of 
expatriate workers they are allowed to employ.
    Trade-Related Investment Measures: Malaysia has notified the WTO of 
certain measures that are inconsistent with its obligations under the 
WTO agreement on Trade-Related Investment Measures (TRIMS). The 
measures deal with local requirements in the automotive sector. New 
projects or companies granted ``pioneer status'' are eligible to 
receive a 70 percent income tax exemption. Proper notification allows 
developing-county WTO members to maintain such measures for a five-year 
transitional period after entry into force of the WTO. Malaysia 
therefore must eliminate these measures before January 1, 2000. The 
United States is working in the WTO committee on TRIMS to ensure that 
WTO members meet these obligations.
    Services Barriers: Under the WTO basic telecommunications 
agreement, Malaysia made commitments on most basic telecommunications 
services and partially adopted the reference paper on regulatory 
commitments. Malaysia guaranteed market access and national treatment 
for these services only through acquisition of up to 30 percent of the 
shares of existing licensed public telecommunications operators, and 
limits market access commitments to facilities-based providers. At 
least two U.S. firms have investments in basic and enhanced services 
sectors.
    Professional Services: Foreign professional services providers are 
generally not allowed to practice in Malaysia. Foreign law firms may 
not operate in Malaysia except as minority partners with local law 
firms, and their stake in any partnership is limited to 30 percent. 
Foreign lawyers may not practice Malaysian law or operate as foreign 
legal consultants. They cannot affiliate with local firms or use their 
international firm's name.
    Under Malaysia's registration system for architects and engineers, 
foreign architects and engineers may seek only temporary registration. 
Foreign architectural firms are eligible only for special projects as 
agreed between Malaysia and an interested foreign government. Unlike 
engineers, Malaysian architectural firms may not have foreign 
architectural firms as registered partners. Foreign architecture firms 
may only operate as affiliates of Malaysian companies. Foreign 
engineering companies must establish joint ventures with Malaysian 
firms and receive ``temporary licensing,'' which is granted only on a 
project-by-project basis and is subject to an economic needs test and 
other criteria imposed by the licensing board. Foreign accounting firms 
can provide accounting or taxation services in Malaysia only through a 
locally registered partnership with Malaysian accountants or firms, and 
aggregate foreign interests are not to exceed 30 percent. A licensed 
auditor in Malaysia must authenticate auditing and taxation services. 
Residency is required for registration.
    Banking: No new licenses are being granted to either local or 
foreign banks; foreign banks must operate as locally controlled 
subsidiaries. Foreign-controlled companies are required to obtain 60 
percent of their local credit from Malaysian banks. Insurance branches 
of foreign insurance companies were required to be locally incorporated 
by June 30, 1998; however, the government has granted extensions to 
that requirement. Foreign shareholding exceeding 49 percent is not 
permitted unless the Malaysian Government approves higher shareholding 
levels. As part of Malaysia's WTO financial services offer, the 
government committed itself to allow existing foreign shareholders of 
locally incorporated insurance companies to increase their shareholding 
to 51 percent once the WTO Financial Services Agreement goes into 
effect in 1999. New entry by foreign insurance companies is limited to 
equity participation in locally incorporated insurance companies and 
aggregate foreign shareholding in such companies shall not exceed 30 
percent.
    Securities: Foreigners may hold up to 49 percent of the equity in a 
stockbroking firm. Currently there are 11 stockbroking firms that have 
foreign ownership and 20 representative offices of foreign brokerage 
firms. Fund management companies may be 100 percent foreign-owned if 
they provide services only to foreign investors, but they are limited 
to 70 percent foreign-ownership if they provide services to both 
foreign and local investors.
    Advertising: Foreign film footage is restricted to 20 percent per 
commercial, and only Malaysian actors may be used. The government has 
an informal and vague guideline that commercials cannot ``promote a 
foreign lifestyle.'' Advertising of alcohol products is severely 
restricted.
    Television and Radio Broadcasting: The government maintains 
broadcast quotas on both radio and television programming. Sixty 
percent of television programming is required to originate from local 
production companies owned by ethnic Malays. This share is scheduled to 
increase to 80 percent by the year 2000. Sixty percent of radio 
programming must be of local origin. The Ministry of Information 
announced in January 1998 that it would study the use of the 
Broadcasting Act of 1988 as the means of imposing further conditions on 
TV stations to provide additional airtime to local programming.
    Other Barriers: U.S. companies have indicated that they would 
welcome improvements in the transparency of government decision-making 
and procedures, and limits on anti-competitive practices. A 
considerable proportion of government projects and procurement are 
awarded without transparent competitive bidding. The government has 
declared that it is committed to fighting corruption and maintains an 
Anti-Corruption Agency (a part of the office of the Prime Minister) to 
promote that objective. The agency has the independent power to conduct 
investigations and is able to prosecute cases with the approval of the 
Attorney General.
7. Export Subsidies Policies
    Malaysia offers several export allowances. Under the export credit-
refinancing scheme operated by the central bank, commercial banks and 
other lenders provide financing to exporters at a preferential interest 
rate for both post-shipment and pre-shipment credit. Malaysia also 
provides tax incentives to exporters, including double deduction of 
expenses for overseas advertising and travel, supply of free samples 
abroad, promotion of exports, maintaining sales offices overseas, and 
research on export markets. To spur exports, 70 percent of the 
increased export earnings by international trading companies has been 
exempted from taxes.
8. Protection of U.S. Intellectual Property
    Malaysia is a member of the World Intellectual Property 
Organization (WIPO), the Berne Convention, and the Paris Convention. 
Malaysia provides copyright protection to all works published in Berne 
Convention member countries regardless of when the works were first 
published in Malaysia. Malaysia is also a member of the WTO and 
scheduled to meet its obligations under Trade Related Intellectual 
Property Agreement (TRIPS) on January 1, 2000.
    As the number of manufacturing licenses for CDs has increased, so 
have piracy rates for music and video discs. Malaysia's production 
capacity for CDs far exceeds local demand plus legitimate exports, and 
pirate products believed to have originated in Malaysia have been 
identified throughout the Asia-Pacific region, North America, South 
America, and Europe. The Malaysian Government is aware of the problem 
and has expressed its determination to move against illegal operations. 
In the April 1999 ``Special 301'' report, USTR decided to delay a 
decision on including Malaysia on the Watch List until an out-of-cycle 
review could be conducted to assess Malaysia's progress toward 
substantially reducing pirated optical media production and export.
    In March 1998, the government opened an intellectual property 
training center to develop and offer programs for government officials, 
agencies, attorneys, and the judiciary. In April 1999, the government 
created an interagency task force to develop and implement a regulatory 
regime for optical media production. Since April, the government has 
drafted comprehensive optical media legislation, which was scheduled to 
be submitted to Parliament during its fall session. The November 11 
dissolution of Parliament by the Prime Minister in anticipation of 
elections on November 29 has delayed consideration of the optical disc 
legislation and most TRIPS-related amendments to existing legislation 
until the first parliament session of the new government, most likely 
in Spring 2000.
    Suppressing CD-based digital piracy is consistent with the 
government's objective to establish the Multimedia Super Corridor as 
the preeminent locus of high-technology manufacturing and innovation in 
Asia. Police and legal authorities are generally responsive to requests 
from U.S. firms for investigation and prosecution of copyright 
infringement cases. However, despite over 6,000 raids and inspections 
since April 1999, no one has been criminally prosecuted for piracy. 
Notwithstanding these efforts of the government, illegal production of 
optical disks remains a significant problem in Malaysia, and its 
effects have been observed throughout the region.
    Trademark infringement and patent protection have not been serious 
problem areas in Malaysia for U.S. companies in recent years.
9. Worker Rights
    a. The Right of Association: By law most workers have the right to 
engage in trade union activity, and approximately 10 percent of the 
work force are members of trade unions. Exceptions include certain 
categories of workers labeled ``confidential'' and ``managerial and 
executives,'' as well as police and defense officials. The government 
discourages Malaysia's many foreign workers from joining unions and, in 
practical terms, foreigners are not able to engage in trade union 
activity. Government policy places a de facto ban on the formation of 
national unions in the electronics sector, but allows enterprise-level 
unions,
    b. The Right to Organize and Bargain Collectively: Workers have the 
legal right to organize and bargain collectively, and collective 
bargaining is widespread in those sectors where labor is organized. 
However, severe restrictions on the right to strike weaken collective 
bargaining rights. The law requires that the parties to a labor dispute 
submit to a system of compulsory adjudication. Thus, though 
theoretically legal, strikes are extremely rare.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor, and the government enforces this 
prohibition. There is no evidence that forced or compulsory labor 
occurs in Malaysia except for rare cases that, when discovered, are 
prosecuted vigorously by the government.
    d. Minimum Age for the Employment of Children: Malaysian law 
prohibits the employment of children younger than the age of 14. The 
law permits some exceptions, such as light work in a family enterprise, 
work in public entertainment, work performed for the government in a 
school or training institutions, or work as an approved apprentice. In 
no case may children work more than six hours per day, more than six 
days per week, or at night. Child labor occurs, but there is no 
reliable recent estimate of the number of child workers. Most child 
laborers work in the urban informal sector and the agricultural sector.
    e. Acceptable Conditions of Work: There is not minimum wage, but 
prevailing wages generally provide a decent living. Malaysian law 
stipulates working hours, mandatory rest periods, overtime rates, 
holidays, and other labor standards. The government enforces these 
standards. Working conditions on plantations are worse than in other 
areas of the economy. An occupational safety law provides some 
protections.
    f. Rights in Sectors with U.S. Investment: U.S. companies invest 
widely in many sectors of the Malaysian economy. Worker rights in 
sectors in which there is U.S. investment generally do not differ from 
those in other sectors. U.S. companies invest heavily in the 
electronics sector, in which workers' right to organize is limited to 
enterprise-level unions.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,027
Total Manufacturing............  ..............  4,199
  Food & Kindred Products......  3               ...............................................................
  Chemicals & Allied Products..  306             ...............................................................
  Primary & Fabricated Metals..  5               ...............................................................
  Industrial Machinery and       743             ...............................................................
   Equipment.
  Electric & Electronic          2,669           ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  473             ...............................................................
Wholesale Trade................  ..............  166
Banking........................  ..............  393
Finance/Insurance/Real Estate..  ..............  352
Services.......................  ..............  84
Other Industries...............  ..............  -27
TOTAL ALL INDUSTRIES...........  ..............  6,193
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              PHILIPPINES


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................       82.2       65.1       74.6
  Real GDP Growth (pct) \2\............        5.2       -0.5        3.0
  Nominal GDP by Sector:
    Agriculture........................       15.4       11.0       13.1
    Manufacturing......................       18.3       14.3       16.0
    Services...........................       40.4       33.7       39.0
    Government \3\.....................       10.0        8.4        9.5
  Per Capita GDP (US$).................      1,145        886        990
  Labor Force (000's)..................     30,355     31,056     31,800
  Unemployment Rate (pct)..............        8.7       10.0        9.5

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \4\.........       20.5        8.0       12.0
  Consumer Price Inflation (pct).......        5.9        9.7        7.2
  Exchange Rate (Peso/US$ annual             29.47      40.89      39.50
   average) Interbank Rate.............

Balance of Payments and Trade:
  Total Exports FOB \6\................       25.2       29.5       33.8
    Exports to U.S. \7\................       10.4       11.9       12.0
  Total Imports FOB \6\................       36.4       29.5       31.3
    Imports from U.S. \7\..............        7.4        6.7        7.2
  Trade Balance \6\....................      -11.1      -0.03        2.5
    Balance with U.S. \7\..............        3.0        5.2        4.8
  Current Acct. Surplus or Deficit/GDP        -5.3        2.0        6.0
   (pct)...............................
  External Public Sector Debt..........       27.0       30.3       32.0
  Foreign Debt Service Payments/GDP            6.8        7.8        8.8
   (pct)...............................
  Nat'l Gov. Fiscal Surplus or Deficit/        0.1       -1.9       -3.0
   GDP (pct)...........................
  Gold and Foreign Exchange Reserves...        8.8       10.8       15.5
  Aid from U.S. (US$ millions) \8\.....       46.0       49.0   \9\ 35.0
  Aid from Other Bilateral Sources (US$    1,588.0    1,465.0  \9\ 1,179
   millions) \8\.......................                               .0
------------------------------------------------------------------------
\1\ 1999 figures are full-year estimates based on data available as of
  October.
\2\ Percentage changes based on local currency.
\3\ Government construction and services gross value added.
\4\ Growth rate of year-end M2 levels.
\5\ 1994 base year starting 1997; 1988 base year for prior years.
\6\ Merchandise trade.
\7\ Source: U.S. Department of Commerce; exports FAS, imports customs
  basis; 1999 figures are estimates based on data available through
  August 1999.
\8\ Inflows per Philippine government balance of payments data,
  excluding inflows from the U.S. Veterans Administration (USVA).
\9\ Actual January-July 1999 figures.

Sources: National Economic and Development Authority, Bangko Sentral ng
  Pilipinas, Department of Finance.

1. General Policy Framework
    The Philippines has a population of 75 million, growing at 2.3 
percent yearly. Agriculture absorbs 40 percent of employment but 
contributes only 20 percent of GDP. Electronics, garments, and auto 
parts are the leading merchandise exports, but rely heavily on imported 
inputs. Overseas workers remittances, estimated at $5-6 billion yearly, 
are a major source of foreign exchange. The domestic savings rate is 
relatively low, compared to the rest of Asia, estimated at 20 percent 
of GNP in 1998.
    Public finances has been a long-standing problem. After four 
consecutive fiscal surpluses (1994-97), the government is again running 
a large budget deficit, in part as a response to the Asian financial 
crisis. But revenues perennially suffer from weak tax administration 
and collection, and efforts to contain expenditures are hampered by the 
large share (over 70%) of ``non-discretionary'' expenditures such as 
payroll costs, interest payments and mandated transfers to local 
government units. Fiscal difficulties complicate government efforts to 
manage domestic interest rates, leading the government to rely more 
heavily on foreign borrowings.
    The Aquino and Ramos administrations made significant progress in 
setting the stage for a higher and more sustainable growth path through 
economic liberalization and deregulation. President Joseph Estrada is 
trying to continue and expand the program pursued by his predecessors, 
but nationalist and vested interests pose obstacles to further reform.
2. Exchange Rate Policy
    Current account transactions are fully convertible. There are no 
barriers to full and immediate capital repatriation and profit 
remittances, foreign debt servicing, and the payment of royalties, 
lease payments and similar fees. Foreign exchange rates generally 
evolve freely in the interbank market, although the Bangko Sentral ng 
Pilipinas (BSP--Central Bank) imposes limits on banks' foreign exchange 
positions. The depreciation of the peso during the Asian financial 
crisis (from Peso 26/dollar in June 1997 to Peso 40/dollar at present) 
has hurt the competitiveness of some U.S. exports.
3. Structural Policies
    Prices are generally determined by market forces, although basic 
public services (such as transport, water and electricity) are 
regulated by the government. Government regulation of prices of 
``socially sensitive'' petroleum products (i.e., liquefied petroleum 
gas, regular gasoline, and kerosene) ended in July 1998 with the full 
deregulation of the oil industry, but the government's National Food 
Authority remains a major factor in the market for rice and other 
agricultural products.
    While progress in investment liberalization has been substantial, 
important barriers to foreign entry remain. Two ``negative lists'' 
outline where investment is restricted. Divestment requirements exist 
for firms seeking certain investment incentives. A number of other laws 
specify, or have the effect of imposing, local sourcing requirements.
    Almost all products, including imports, are subject to a 10 percent 
value added tax. Certain products--whether domestically manufactured or 
imported--are subject to excise tax. The Philippines' Tariff Reform 
Program is gradually lowering applied duty rates on nearly all items, 
toward a goal of tariff rates of zero to five percent by 2004 for all 
items except sensitive agricultural products.
4. Debt Management Policies
    Foreign debt (estimated at $48.1 billion as of June 1999) has been 
growing, but debt servicing is not a significant problem. The ratio of 
debt service payments to exports of goods and services was 13.2 percent 
during period Jan-July 1999, compared to 40 percent in the early 1980s. 
Medium and long-term loans comprise over 85 percent of external 
liabilities. Concessional credits from multilateral and official 
bilateral lenders account for about half of the country's external 
debt.
    The Philippines had four debt rescheduling rounds with official 
bilateral (Paris Club) creditors and did not exercise a fifth Paris 
Club debt rescheduling agreement. While the Philippines ``graduated'' 
from over three decades of International Monetary Fund (IMF) 
supervision in March 1998, a two-year IMF standby arrangement was 
agreed at the same time. The Government has indicated it may extend the 
arrangement. The Philippines has also succeeded in retiring or 
exchanging some of its earlier debt for instruments carrying longer 
maturities and more favorable terms, the latest being a $1 billion 
Brady bond exchange program concluded in October 1999.
    The Central Bank requires prior approval of private sector debt 
guaranteed by the public sector or covered by forex guarantees issued 
by local banks; loans extended by foreign currency deposit units funded 
or collateralized by offshore loans and deposits; loans with maturities 
of over one year obtained by private banks and financial institutions 
for relending; and public sector foreign loans.
5. Significant Barriers to U.S. Exports
    Tariffs: Imported items that are not locally produced generally 
face low tariffs, while imports that compete with locally-produced 
goods face high tariffs, generally up to 30 percent. Imports of 
finished automotive vehicles (completely built-up units) face a 40 
percent tariff (scheduled to fall to 30 percent in 2000). The non-trade 
weighted average nominal tariff rate was 9.98 percent in 1999 and is 
scheduled to decline to 8.09 percent in the year 2000. Customs accounts 
for over 20 percent of government revenues. In January 1999, President 
Estrada signed E.O. 63 raising applied MFN tariff rates on a range of 
products including yarns, threads, fabric, apparel, and kraft liner 
paper. Rates on these items are scheduled to return to 1997 levels in 
2000. Significant trade barriers hamper market access in agriculture. 
The Philippines maintains high tariff rates on sensitive agricultural 
products, including grains, livestock and meat products, sugar, certain 
vegetables, and coffee. Examples include feed grains, particularly corn 
(at an in-quota rate of 35 percent, and a 65 percent out-of-quota 
rate), sorghum (15 percent) and potatoes (in-quota rate of 45 percent, 
60 percent out-of-quota). A number of particularly sensitive 
agricultural commodities are subject to tariff-rate quotas (TRQs), 
including live animals, fresh and chilled beef, pork, poultry meat, 
goat meat, potatoes, coffee, corn, and sugar. Rice is subject to a 
quantitative restriction.
    Import Licenses: The National Food Authority (NFA), a government 
entity, is the sole importer of rice and continues to be involved in 
imports of corn. Fisheries Administrative Order (FAO) 195, series of 
1999, issued by the Department of Agriculture, requires a license to 
import fresh, chilled, and frozen fish when intended for sale in local 
retail markets. Certain other items are subject to other import 
regulations, including firearms and ammunition, used clothing, sodium 
cyanide, chlorofluorocarbon (CFC) and other ozone-depleting substances, 
penicillin and derivatives, coal and derivatives, color reproduction 
machines, chemicals for the manufacture of explosives, pesticides, used 
motor vehicles, and used tires. In addition, as noted above, certain 
agricultural commodities are subject to minimum access volume tariff-
rate quotas.
    Excise Taxes: U.S. producers of automobiles and distilled spirits 
have raised concerns about certain discriminatory aspects of the 
Philippines' excise tax system. Excise taxes on distilled spirits 
impose a lower tax on products made from materials that are 
indigenously available (e.g., coconut, palm, sugar cane). The excise 
tax treatment of automotive vehicles is based on engine displacement, 
rather than vehicle value.
    Services Barriers: Banking--May 1994 banking legislation permitted 
10 new foreign banks to open branches in the Philippines. Foreign 
equity is limited to 60 percent ownership of either a new local 
subsidiary or an existing domestic bank. Regulations require that 
majority Filipino-owned domestic banks control at least 70 percent of 
total banking system assets.
    Securities--Membership in the Philippine stock exchange is open to 
foreign-controlled stock brokerage firms that are incorporated under 
Philippine laws. Foreign ownership in securities underwriting companies 
is limited to 60 percent. Companies not established under Philippine 
law are not allowed to underwrite securities for the Philippine market, 
but may underwrite Philippine issues for foreign markets.
    Insurance--Although foreign entry has been liberalized, 
capitalization requirements vary according to the extent of foreign 
equity. Only the Philippines' Government Service Insurance System can 
provide coverage for government-funded projects and BOT-funded 
projects. Regulations require all insurance/professional reinsurance 
companies operating in the country to cede to the industry-owned 
National Reinsurance Corporation of the Philippines at least 10 percent 
of outward reinsurance placements.
    Professional Services--The Philippine Constitution reserves the 
practice of licensed professions to Philippine citizens. This includes, 
inter alia, law, engineering, medicine, accountancy, architecture, and 
customs brokerage.
    Telecommunications--The Philippine Constitution limits foreign 
ownership in public utilities to 40 percent. Telecommunication firms 
are considered public utilities.
    Shipping--Foreign-flagged vessels are prohibited from the carriage 
of domestic trade.
    Express Delivery Services--Foreign air express couriers and 
airfreight forwarding firms must either contract with a wholly 
Philippine-owned business to provide delivery services, or establish a 
domestic company, at least 60 percent of which should be Philippine-
owned.
    Standards, Testing, Labeling, and Certification: Imports of 
products covered by mandatory Philippine national standards must be 
cleared by the Bureau of Product Standards (BPS). Labeling requirements 
apply to a variety of products, including pharmaceuticals, food, 
textiles and certain industrial goods. The Generics Act of 1988, 
mandates that the generic name of a particular pharmaceutical product 
appear above its brand name on all packaging.
    Investment Barriers: The Foreign Investment Act of 1991 contains 
two ``negative lists'' that outline areas where foreign investment is 
restricted. ``List A'' restricts foreign investment in certain sectors 
because of constitutional or legal constraints. No foreign investment 
is permitted in mass media (including cable television), retail trade, 
processing of corn and rice, small-scale mining and private security 
agencies. Varying foreign ownership limitations cover, among others, 
advertising (30 percent), recruitment (25 percent), financing (60 
percent), securities underwriting (60 percent), public utilities (40 
percent), education (40 percent), and the exploration and development 
of natural resources (40 percent). Land ownership is reserved to 
Philippine citizens and corporations that are at least 60 percent owned 
by Philippine citizens. ``List B'' limits foreign ownership (generally 
to 40 percent) for reasons of public health, and safety and morals. 
This list also restricts foreign ownership to no more than 40 percent 
in non-export firms capitalized at less than $200,000.
    Export Performance Requirements: Investment incentive regulations 
impose a higher export performance requirement for foreign-owned 
enterprises (70 percent of production should be exported) than for 
Philippine-controlled companies (50 percent). With the exception of 
foreign-controlled firms that export 100 percent of their production, 
foreign firms that seek incentives from the Board of Investments (BOI) 
must commit to divest to 40 percent ownership within 30 years or such 
longer period as the BOI may allow. The Philippines has requested an 
extension of the January 1, 2000, deadline to eliminate WTO-
inconsistent local-content and foreign exchange requirements under its 
motor vehicle development program.
    Local Sourcing Requirements: Outside of the investment incentives 
regime, investors in certain industries are subject to specific laws 
which require local sourcing. Executive Order (E.O.) 776 requires that 
pharmaceutical firms purchase semi-synthetic antibiotics from a 
specific local company, unless they can demonstrate that the landed 
cost of imported semi-synthetic antibiotics is at least 20 percent less 
than that produced by the local firm. E.O. 259 bans imports of soap and 
detergents containing less than 60 percent coconut-based surface active 
agents of Philippine origin, implicitly requiring local sourcing by 
soap and detergent manufacturers. Letter of Instruction (LOI) 1387, 
issued in 1984, requires mining firms to offer their copper 
concentrates to Philippine Associated Smelting and Refining Corp. 
(PASAR)--a government-controlled firm until its recent privatization.
    Government Procurement Practices: Contracts for government 
procurement are awarded by competitive bidding. Preferential treatment 
of local suppliers is practiced in government purchases of 
pharmaceuticals, rice, corn, and iron/steel materials for use in 
government projects, and in locally-funded government consulting 
requirements. The Philippines is not a signatory of the WTO Government 
Procurement Agreement.
    Customs Procedures: The government has contracted a private firm, 
Societe Generale de Surveillance, to perform certain customs functions. 
Officials have not stated whether the contract will be renewed beyond 
December 31, 1999. Most imports valued at over $500 are permitted entry 
only when accompanied by a `Clean Report of Findings'' issued by SGS. 
Refrigerated products are exempt. Certain goods require preshipment 
inspection in the country of export. The preshipment inspection 
requirement extends to exports to certain operations in free-trade 
zones. Customs valuation for determining dutiable value of imports is 
based on ``export value,'' which has resulted in unwarranted uplifts in 
the assessed dutiable value of many U.S. exports. The government says 
it will implement the ``transaction value'' method of customs valuation 
by January 1, 2000, in line with WTO obligations.
6. Export Subsidies Policies
    Firms engaged in activities under the government's ``Investment 
Priorities Plan'' may register with the Board of Investments (BOI) for 
fiscal incentives, including three to six year income tax holidays and 
a tax deduction equivalent to 50 percent of the wages of direct-hire 
workers for the first five years from registration. BOI-registered 
firms that locate in less-developed areas may be eligible to claim a 
tax deduction of up to 100 percent of outlays for infrastructure works 
and 100 percent of incremental labor expenses also for the first five 
years from registration. Export-oriented firms located in government-
designated export zones and industrial estates registered with the 
Philippine Economic Zone Authority enjoy basically the same incentives 
as BOI-registered firms. Firms which earn at least 50 percent of their 
revenues from exports may register for certain tax credits under the 
``Export Development Act'' (EDA), including a tax credit for imported 
inputs and raw materials not readily available locally (through 
December 31, 1999).
7. Protection of U.S. Intellectual Property
    The Philippines is a party to the Berne and Paris Conventions, the 
WTO Agreement on Trade Related Aspects of Intellectual Property 
(TRIPs), and is a member of the World Intellectual Property 
Organization. The Philippines remains on the ``Special 301'' Watch 
List.
    While substantial progress has been made in recent years, 
significant problems remain in ensuring consistent, effective 
protection of intellectual property rights (IPR). A new IP law (R.A. 
8293), which took effect January 1, 1998, improves the legal framework 
for IPR protection. It provides enhanced copyright and trademark 
protection; creates a new Intellectual Property Office with original 
jurisdiction to resolve IPR infringement complaints; increases 
penalties for infringement and counterfeiting; and relaxes provisions 
requiring the registration of licensing agreements. Deficiencies in 
R.A. 8293 remain a concern. These include the lack of authority for 
courts to order the seizure of pirated material as a provisional 
measure without notice to the infringer; ambiguous provisions on the 
rights of copyright owners over broadcast, rebroadcast, cable 
retransmission, or satellite retransmission of their works; and 
burdensome requirements concerning licensing contracts. Legislation is 
pending to provide IPR protection for plant varieties and layout-
designs of integrated circuits, in line with WTO obligations.
    Enforcement: Enforcement agencies generally will not proactively 
target infringement unless the copyright owner brings it to their 
attention and works with them on surveillance and enforcement actions. 
Joint efforts between the private sector and the National Bureau of 
Investigation and Philippine Customs have resulted in a series of 
successful enforcement actions. While certain courts have been 
designated to hear IPR cases, little has been done to streamline 
judicial proceedings in this area, as these courts have not received 
additional resources and continue to handle a heavy non-IPR workload. 
In addition, IPR cases are not considered ``major crimes,'' and take a 
lower precedence in court proceedings. Because of the prospect that 
court action will be lengthy, many cases are settled out of court.
    Patents: R.A. 8293 mandates a first-to-file system, increases the 
term of patents from 17 to 20 years from date of filing, provides for 
the patentability of micro-organisms and non-biological and 
microbiological processes, and gives patent holders the right of 
exclusive importation of their inventions.
    Trademarks, Service Marks and Trade Names: R.A. 8293 no longer 
requires prior use of trademarks in the Philippines as a requirement 
for filing a trademark application. Also eliminated was the requirement 
that well-known marks be in actual use in Philippine commerce or 
registered with the government. Trademark infringement remains a 
serious problem in the Philippines.
    Copyrights: R.A. 8293 expands IPR protection by clarifying 
protection of computer software as a literary work (although it 
includes a fair-use provision on decompilation of software), 
establishing exclusive rental rights, and providing terms of protection 
for sound recordings, audiovisual works, and newspapers and periodicals 
that are compatible with the WTO TRIPS Agreement. Software, music and 
film piracy remain widespread. The Business Software Alliance estimates 
the 78 percent of business software in use in 1998 was unlicensed; the 
piracy rate for entertainment software is 90 percent. The Motion 
Picture Association of America estimates that two-thirds of motion 
pictures on video or optical discs in 1998 were illegal copies. The 
illegal retransmission of satellite programming by cable operators is a 
growing problem.
    The U.S. intellectual property industry estimates 1998 potential 
trade losses due to piracy of software at $57 million; of motion 
pictures, $18 million; of sound recordings, $4 million; of books, $39 
million.
8. Worker Rights
    a. The Right of Association: All workers (including public 
employees) have a right to form and join trade unions, a right which is 
exercised without government interference. Trade unions are independent 
of the government and generally free of political party control. Unions 
have the right to form or join federations or other labor groupings. 
Subject to certain procedural restrictions, strikes in the private 
sector are legal. Unions are required to provide strike notice, respect 
mandatory cooling-off periods, and obtain majority member approval 
before calling a strike.
    b. The Right to Organize and Bargain Collectively: The Philippine 
Constitution guarantees the right to organize and bargain collectively. 
The Labor Code protects and promotes this right for employees in the 
private sector and in government-owned or controlled corporations. A 
similar but more limited right is afforded to employees in most areas 
of government service. Dismissal of a union official or worker trying 
to organize a union is considered an unfair labor practice. Labor law 
and practice are uniform throughout the country, although there have 
been complaints about some local attempts to maintain ``union free/
strike free'' policies in several of the export processing zones. In 
the garment industry, the widespread use of short-term, contract 
workers is an obstacle to workers forming unions or obtaining medical 
and retirement benefits.
    c. Prohibition of Forced or Compulsory Labor: The Philippine 
Constitution prohibits forced labor and the government effectively 
enforces this prohibition.
    d. Minimum Age for Employment of Children: Philippine law prohibits 
the employment of children below age 15, with some exceptions involving 
situations under the direct and sole responsibility of parents or 
guardians, or in the cinema, theater, radio and television in cases 
where a child's employment is essential. The Labor Code allows 
employment for those between the ages of 15 and 18 for such hours and 
periods of the day as are determined by the Secretary of Labor, but 
forbids employment of persons under 18 years in hazardous work. 
Government and international organization estimates indicate that some 
three million children under age 18 are employed in the informal sector 
of the urban economy, certain fishing practices, port work or as unpaid 
family workers in rural areas.
    e. Acceptable Conditions of Work: A comprehensive set of 
occupational safety and health standards exists in law. Statistics on 
actual work-related accidents and illnesses are incomplete, as 
incidents (especially in regard to agriculture) are underreported.
    f. Rights in Sectors with U.S. Investment: U.S. investors in the 
Philippines generally apply U.S. standards of worker safety and health, 
in order to meet the requirements of their home-based insurance 
carriers. Some U.S. firms have resisted efforts by their employees to 
form unions, with local government support.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  283
Total Manufacturing............  ..............  1,634
  Food & Kindred Products......  440             ...............................................................
  Chemicals & Allied Products..  477             ...............................................................
  Primary & Fabricated Metals..  33              ...............................................................
  Industrial Machinery and       16              ...............................................................
   Equipment.
  Electric & Electronic          483             ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  184             ...............................................................
Wholesale Trade................  ..............  172
Banking........................  ..............  288
Finance/Insurance/Real Estate..  ..............  627
Services.......................  ..............  187
Other Industries...............  ..............  2
TOTAL ALL INDUSTRIES...........  ..............  3,192

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               SINGAPORE


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................    96,250.7    84,627.5    88,246.4
  Real GDP Growth (pct) \2\.........         8.9         0.3         5.0
  GDP by Sector: \2\
    Agriculture \3\.................       181.1       137.9       176.5
    Manufacturing...................    21,968.2    19,499.3    20,296.7
    Services........................    65,531.6    56,931.3    60,007.5
    Government expenditure..........     9,050.7     8,431.0     8,824.6
  Per Capita GDP (US$)..............    25,758.2    21,892.5    22,056.7
  Labor Force (000's)...............     1,876.0     1,931.8     1,989.8
  Unemployment Rate (pct)...........         1.8         3.2         3.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        10.3        30.2        36.8
  Consumer Price Inflation (pct)....         2.0       --0.3         0.5
  Exchange Rate (SGD/US$ annual             1.48        1.67        1.69
   average).........................

Balance of Payments and Trade:
  Total Exports FOB.................   125,414.2   110,037.7   109,279.2
    Exports to U.S. CIF \4\.........    20,368.1    18,654.3    18,206.6
  Total Imports CIF.................   132,841.2   101,714.4   106,038.7
    Imports from U.S. FAS \4\.......    17,727.4    15,673.5    15,955.6
  Trade Balance.....................    -7,427.0     8,323.4     3,240.4
    Trade Balance with U.S. \4\.....     2,640.7     2,980.8     2,251.0
  External Public Debt..............           0           0           0
  Fiscal Surplus/GDP (pct)..........         4.2        -0.3        -3.5
  Current Account Surplus/GDP (pct).        15.7        20.9        24.3
  Debt Service Payments/GDP (pct)...           0           0           0
  Gold and Foreign Exchange Reserves    71,391.7    75,028.2    78,704.5
  Aid from U.S......................           0           0           0
  Aid from Other Sources............           0           0           0

------------------------------------------------------------------------
Note: All percentage changes are calculated based on the local currency.

\1\ 1999 figures are projections based on most recent data available.
\2\ Singapore introduced a methodology to include offshore stockbroking,
  investment advisory and insurance services in the output of the
  financial services industry, resulting in changes to the GDP and
  growth figures computed in previous years. GDP data has also been re-
  grouped into eleven industries from the eight previously.
\3\ Includes the agriculture, fishing and quarrying industries.
\4\ Trade data was taken from the U.S. Department of Commerce instead of
  Singaporean government sources.

1. General Policy Framework
    A city-state with a population of 3.9 million (of which 700,000 or 
18 percent are foreigners, mainly migrant workers and professionals) 
astride one of the world's major shipping lanes, Singapore has long 
pursued economic policies that promote open trade and investment. These 
policies have allowed Singapore to overcome its land, labor and 
resource constraints, and develop into one of the world's most 
successful open trading and investment regimes with an average annual 
GDP growth rate of 7 percent in the last decade. Although Singapore's 
growth rate decelerated to 0.3 percent in 1998 due to the Asian 
economic crisis, it still had the world's fifth highest per capita GNP 
in purchasing power parity terms, according to the World Bank in its 
1999 World Development Report. Singapore also actively promotes trade 
liberalization in the region through APEC and ASEAN; the APEC 
Secretariat is located in Singapore. It is a founding member of the 
World Trade Organization (WTO), and hosted the first WTO Ministerial in 
December of 1996.
    Internally, Singapore has a free-market, pro-growth and competitive 
business environment characterized by a transparent and corruption-free 
regulatory framework. At the same time, it has a sizable public sector 
in the form of government-linked companies (GLCs) that account for some 
60 percent of GDP. The GLCs generally operate as commercial entities, 
and frequently include private local and foreign equity. Many GLCs are 
also publicly listed companies. Manufacturing is the single largest 
sector in the economy, accounting for 22 percent of total GDP. Foreign 
multinational electronics and chemicals companies dominate this sector, 
producing primarily for export to the region and the developed markets, 
notably the U.S. and Europe. Foreign companies accounted for 67 percent 
of the USD 4.7 billion of new manufacturing investment in 1998. 
Electronics output accounts for 43 percent of total industrial output 
and chemicals (including oil refining) for 22 percent. Besides engaging 
in high value-added manufacturing activities, multinational companies 
also take advantage of Singapore's modern and pro-business 
infrastructure and productive workforce to establish headquarters and 
manage their regional operations from the city-state.
    Wholesale and retail trade is the second largest sector in the 
economy, accounting for 14 percent of GDP, reflecting Singapore's key 
role as the gateway for goods and people into and out of the region. 
Trade is 2.5 times GDP, with transshipments accounting for 42 percent 
of total merchandise exports. Visitor arrivals to Singapore in 1998, 
which suffered a 13.3 percent drop due to the recent crisis, still 
amounted to 6.2 million, almost twice its indigenous population. 
Financial services, which accounts for 13 percent of GDP, is the third 
largest economic sector. According to the Bank of International 
Settlements, Singapore is the world's fourth largest center for foreign 
exchange activities (after London, New York and Tokyo). Its Asian 
Dollar Market is also the world's eighth largest offshore lending 
center. The government is actively promoting its financial sector, 
particularly asset management, and bond and capital market activities 
to augment Singapore's role as an international financial center.
    The government pursues conservative fiscal policies designed to 
encourage high levels of savings and investment. The government also 
invests heavily in the country's social and physical infrastructure, 
including education and transportation, and provides subsidies for 
public housing and sometimes for the purchase of shares in GLCs when 
they are initially listed on the stock exchange. For most of the years 
since the 1970's, the government has had a budget surplus. However, due 
to counter-cyclical measures implemented amid the Asian economic 
crisis, the government's budget went into a deficit of USD 243 million 
(about 0.3 percent of GDP) in fiscal year 1998. The deficit is forecast 
to widen to about USD 3 billion in FY99 (about 3.5 percent of GDP) with 
further pump priming of the economy.
    The Central Provident Fund (CPF) is a compulsory savings program 
that requires 20 percent of an individual's salary be placed in a tax-
exempt account, with employers contributing another 10 percent. The CPF 
is the basis for the extraordinarily high gross national saving rate of 
over 60 percent of GDP. Employers' contribution amounted originally to 
20 percent of an employee's salary prior to the recent crisis, but was 
halved to 10 percent since the beginning of 1999 as part of a broad 
business cost-reduction package implemented by the government. However, 
a partial restoration of employers' contribution is expected by mid-
2000 to ease the build-up of wage pressures emanating from a faster and 
stronger-than-expected domestic and regional economic recovery. 
Individual CPF accounts may be used, in part, to finance housing 
purchases and investment in stocks and other instruments approved under 
the CPF investment scheme.
    The Monetary Authority of Singapore (MAS), the country's central 
bank, engages in limited money-market operations to influence interest 
rates and ensure adequate liquidity in the banking system. The MAS' key 
objective is to maintain price stability, which it achieves largely 
through an exchange rate policy. (Note: Inflation has averaged 2 
percent annually over the last 10 years, except for 1998 when deflation 
of 0.3 percent set in due to the economic recession). There are 
virtually no controls on capital movements, thus limiting the scope for 
an independent monetary policy to either stimulate or restrain economic 
activity. The average prime lending rate among the leading banks is 
currently at 5.8 percent, after peaking at about 7.8 percent in the 
first half of 1998 amid the Asian financial crisis.
    Singapore's sound economic policies and an open and favorable 
trading and investment climate have attracted about 1,300 U.S. 
companies to Singapore, with cumulative investments of USD 19.8 billion 
in 1998. The United States is Singapore's largest trading partner, 
accounting for 19.2 percent of Singapore's total trade in 1998. Based 
on U.S. Department of Commerce data, U.S. exports to Singapore amounted 
to USD 15.7 billion in 1998, while Singapore's exports to the United 
States totaled USD 18.4 billion.
2. Exchange Rate Policy
    Singapore has no exchange rate controls. Exchange rates are 
determined freely by daily cross rates in the international foreign 
exchange markets. At the same time, the MAS uses currency swaps and 
direct open market operations to keep the Singapore Dollar within a 
desired range relative to a basket of currencies of the country's major 
trading partners. It seeks to maintain a strong currency to check 
inflation, given Singapore's extreme exposure to international trade. 
The government also imposes certain restrictions to limit the 
internationalization of the Singapore Dollar, including a requirement 
for banks to consult the MAS before extending credit in excess of SGD 5 
million (about USD 3 million) to non-residents. It has recently opened 
up its Singapore Dollar debt market to foreign companies and financial 
institutions, however, on condition that the funds are converted to 
foreign exchange prior to use abroad.
    The Singapore Dollar appreciated nearly 55 percent against the U.S. 
Dollar from 1986 to 1996. It has since depreciated, along with but to a 
lesser extent than other regional currencies, as a result of the Asian 
economic crisis. The Singapore Dollar depreciated by as much as 20 
percent between July 1997 and August 1998 when it sank to its lowest 
rate of 1.78 to the U.S. Dollar. This has had a major impact on U.S. 
exports to Singapore, which fell by 11.6 percent 1998, and are expected 
to show flat growth in 1999. The Singapore Dollar has since rebounded 
with the region's recovery, and is forecast to post an average rate of 
about 1.7 for 1999.
3. Structural Policies
    Singapore's prudent economic policies have allowed for steady 
economic growth and the development of a reliable market, to the 
benefit of U.S. exporters. Singapore was the tenth largest export 
market for the U.S. in 1998, slipping from the eighth and ninth 
positions which it occupied in 1996 and 1997, respectively. Product 
prices are generally determined by market forces. The government 
conducts its bids by open tender and encourages price competition 
throughout the economy.
    The government has gradually reduced corporate income tax levels 
from 40 percent in 1986 to the current 26 percent. It aims to bring the 
corporate tax rate down further to 25 percent. Foreign firms are taxed 
at the same rate as local firms. There is no tax on capital gains 
except on residential properties that are sold within three years of 
purchase. This was implemented in 1996, together with measures to 
impose higher stamp duties and restrict bank credit for property 
purchases, in order to curb excessive speculative activities in the 
real estate market.
    The government implemented a three percent value-added Goods and 
Services Tax (GST) in 1994 but reduced corporate (by one percentage 
point) and personal (by three percentage points) taxes. It also began 
providing rebates of up to SGD 700 on individual income tax in 1994 to 
lighten the GST burden on the citizenry. With these changes, it is 
estimated that 65 percent of income earners end up not having to pay 
personal income taxes, thus increasing the disposable incomes available 
to the average consumer. Singapore's personal income tax rates 
presently range from 2 percent for the lowest income bracket to 28 
percent for those earning annual incomes exceeding SGD 400,000 (about 
USD 240,000).
    Many of Singapore's public policy measures are tailored to attract 
foreign investments and ensure an environment conducive to their 
efficient business operation and profitability. Investment policies are 
open and transparent. Although the government seeks to develop more 
high-tech industries, it does not impose production standards, require 
purchases from local sources, or specify a percentage of output for 
export.
    In view of the city-state's relatively high land and labor costs, 
the government has been aggressively implementing relevant manpower 
development, industrial restructuring and infrastructure enhancing 
measures to upgrade Singapore into a competitive knowledge-based 
economy. The plan is to attract multinational companies and service 
providers to establish high value-added manufacturing and service 
operations in the electronics, chemicals, life sciences, engineering, 
education, healthcare, logistics, and communications and media 
industries. It has also embarked on financial liberalization and 
reforms to develop the retail banking market and, more pertinently, 
widen Singapore's international scope to include asset management and 
bond market activities. To catalyze Singapore's advancement into a 
knowledge-based economy and an international financial center, the 
government is pursuing a policy to attract foreign professionals and 
qualified individuals to work and live here.
4. Debt Management Policies
    Singapore's external public debt was a negligible USD 3.1 million 
at the end of 1994 and this was retired completely in 1995. This was 
one of the key factors that enabled the country to weather the currency 
crisis that engulfed the region in the second half of 1997 and 1998. 
Singapore's annual budget surpluses (prior to 1998) and mandatory 
savings have also allowed the government wide latitude in devising off-
budget measures to increase funds to support infrastructure, education, 
and other programs during the current economic slowdown. Singapore does 
not receive financial assistance from foreign governments.
5. Significant Barriers to U.S. Exports
    Singapore has one of the world's most liberal and open trade 
regimes. Approximately 96 percent of imports are not dutiable. Tariffs 
are primarily levied on cigarettes and alcohol to restrict their 
consumption. Excise taxes are levied on petroleum products and motor 
vehicles primarily to restrict motor vehicle use. There are no 
intentional non-tariff barriers to foreign goods. Import licenses are 
not required; customs procedures are minimal and highly efficient; the 
standards code is reasonable; and the government actively encourages 
foreign investment. All major government procurements are by 
international tender. The government formally acceded to the WTO 
Government Procurement Agreement in September 1997.
    To achieve its goal of becoming an international financial center, 
the government has begun removing previous foreign access restrictions 
in its financial services sector as well. In October 1999, the Monetary 
Authority of Singapore (MAS) issued a ``qualifying full bank'' (QFB) 
license to four Singapore-based foreign banks which allows each of them 
to establish ten locations (branches and off-premise ATM's), to freely 
re-locate existing branches, and to share ATM's among themselves. At 
the same time, the MAS issued eight additional restricted bank licenses 
to bring the total up to 20. These measures significantly expand the 
capability of foreign banks to engage in local retail banking. Foreign 
banks currently hold 23 of the 35 full (local retail) banking licenses. 
Apart from the QFB licensed banks, other foreign full license banks are 
still not allowed additional branches or ATM machines, while local 
banks are allowed to expand freely. Meanwhile, the MAS continues to 
encourage the growth of the offshore banking industry in Singapore. It 
recently designated eight new ``qualifying offshore banks'' (QOB) which 
will have their Singapore Dollar lending limit raised to SGD 1 billion, 
while raising the limit for all other offshore banks from SGD 100 to 
SGD 300 million. QOB banks will also be allowed to accept Singapore 
Dollar funds from non-bank customers through swap transactions.
    There are still restrictions on the extent to which foreign stock 
brokerage firms can trade in the equity securities markets for 
Singapore resident clients. Current Stock Exchange of Singapore (SES) 
regulations restrict foreign equity ownership of SES member companies 
to 49 percent, with the exception of two joint ventures approved prior 
to 1990 and the special category of ``international members'' which are 
permitted to do only wholesale trading for resident clients. The MAS 
recently announced, however, that both the stock and futures exchanges 
are to be demutualized and merged by 1 December 1999, and that the 
combined exchange itself is eventually to be publicly listed. No new 
licenses for direct (general) insurers are being issued, although 
reinsurance and captive insurance licenses are freely available. 
Foreign companies hold about three-quarters of the 59 direct insurance 
licenses.
    The telecommunications sector has been steadily liberalized since 
1989, although the government still imposes limits on the number of 
telephone service providers in Singapore. Restrictions on the sale of 
telecommunication consumer goods and the provision of value-added 
network services (VANS) have been lifted, although the government 
prohibits the importation of satellite receivers. Singapore Telecom 
(SINGTEL) has been privatized and its regulatory functions assumed by 
the Telecommunications Authority of Singapore (TAS). Private investors 
now own up to 20 percent of shares in SINGTEL. In April 1996, Mobile 
One (a Singapore-foreign joint venture) became the second cellular 
phone service provider in Singapore, thus ending SINGTEL's monopoly in 
the mobile telephone services market. Three new paging service 
providers also entered the market at the same time. In April 1998, TAS 
announced that it has issued a license to a new joint venture basic 
telephone service provider (``Starhub'') to begin operation in 2000, 
and will consider additional ones for 2002. At the same time, it issued 
a third cellular phone service license to a foreign joint venture 
company.
6. Export Subsidies Policies
    Singapore does not directly subsidize exports although it does 
actively promote them. The government offers significant incentives to 
attract foreign investment, almost all of which are in export-oriented 
industries. It also offers tax incentives to exporters and reimburses 
firms for certain costs incurred in trade promotion, but it does not 
employ multiple exchange rates, preferential financing schemes, import 
cost-reduction measures or other trade-distorting policy tools.
7. Protection of U.S. Intellectual Property
    Singapore has been on the USTR's ``Special 301'' Watch List since 
1997, primarily due to concerns that its intellectual property (IP) 
rights regime was not fully consistent with the WTO's trade-related 
intellectual property (TRIPS) provisions, and that police enforcement 
against retail IP piracy has been inadequate. Other outstanding issues 
included the lack of rental rights for sound recordings and software, 
inadequate protection against the sale of bootleg copies of musical 
performances, the limited scope of copyright protection for 
cinematography works and overly broad exemptions from copyright 
protection.
    Over the past two years, however, the government has taken 
significant measures to improve IP rights protection in Singapore. It 
is a member of the World Intellectual Property Organization (WIPO), and 
has ratified the WTO's Uruguay Round Accord, including TRIPs 
provisions. It has enacted a series of laws and amendments to existing 
provisions with the aim of rendering its IP regime fully TRIPs 
consistent and improving its overall IP protection regime. These 
included numerous amendments to its Copyright Law (1998), the Medicines 
Act (1998), a new Trade Marks Bill (1998), and a new Geographical 
Indications Act and Layout Designs of Integrated Circuits Act (1999). 
More recently, the government expanded the Copyright Act to cover 
digital and internet piracy as well. In December 1998, Singapore became 
a member of the Berne Convention so that works created by Singapore 
citizens and residents now enjoy copyright protection in over 100 
member countries, and vice versa. Singapore is also a signatory to 
three other international copyright agreements--the Paris Convention, 
the Patent Co-operation Treaty, and the Budapest Treaty. Singapore is 
not a member, however, of the Universal Copyright Convention.
    In the area of enforcement, the government's new licensing 
requirements for optical disc (OD) manufacturing and import controls on 
OD manufacturing equipment came into force in October 1998. These 
measures are generally believed to have effectively eliminated the 
production of pirated optical discs in Singapore. At the same time, the 
government has increased the number and scope of police-initiated raids 
against IP pirates at the retail level. According to Singapore's Trade 
Development Board, the authorities conducted a total of 682 raids in 
1998, which resulted in the seizure of over two million IP-infringing 
articles, a significant rise over the previous year. Through the first 
nine months of 1999, authorities launched over 1,800 raids, seized more 
than 1.1 million IP-infringing articles, and arrested about 330 
suspected IP pirates. In December 1998, the government launched a long-
term campaign aimed at educating primary and secondary students as well 
as the general public on the IP issue, underscoring the message that 
buying pirated goods is wrong, undercuts profits for manufacturers, and 
will eventually lead to fewer choices for consumers.
    In October 1999, a number of U.S. publishers, in cooperation with 
European and local publishers, formed the Copyright Licensing and 
Administration Society of Singapore (CLASS). CLASS will utilize a 
provision of the Copyright Act to compel local universities and other 
educational institutions to pay royalty fees in exchange for the right 
to duplicate copyrighted printed works for use in course materials.
    Despite government efforts that have brought IP piracy rates down 
to among the lowest in Asia, IP owner associations here continue to 
press for greater IPR protection. They cite the continued availability 
of pirated film, music and software OD's for sale in a number of 
downtown shopping malls and at stalls scattered among suburban housing 
estates. The IP associations note that nearly all of the pirated OD's 
have been smuggled into Singapore from neighboring countries, and urge 
greater border enforcement. Meanwhile, they remain frustrated by the 
current ``self help'' IP enforcement system that they argue places an 
unfair burden on them and makes initiating raids and prosecuting 
pirates cumbersome and expensive. IP associations have recommended that 
the government create an independent IPR enforcement police force and 
called for the mandatory use of Source Identification (SID) codes. They 
have also pointed out inadequacies in the August 1999 amendments 
extending Copyright Protection to the internet and certain digital 
works. They note that internet service providers are not held liable 
for allowing sites to sell pirated goods, and that the present law 
allows up to 10 percent of the bytes of a digital work to be legally 
copied.
    According to the International Intellectual Property Alliance 
(IIPA), total losses from local IP piracy were estimated at about USD 
140 million in 1998, up from USD 125 million in 1997. For business 
application software, IIPA estimated 1998 losses at nearly USD 50 
million with a 54 percent level of piracy, as compared to USD 46 
million in losses and a 56 percent piracy rate in 1997. For computer 
entertainment software, it estimated USD 65 million in losses and a 73 
percent piracy rate in 1998, up from USD 58 million and a 68 percent 
piracy level in 1997. IIPA calculated that the motion picture industry 
lost USD 8 million due to a 25 percent piracy level in 1998, up from 
USD 3 million lost to 1997's 15 percent level of piracy. The music 
industry was reported to have suffered losses of USD 16 million and a 
19 percent piracy rate in 1998. This was an improvement over losses of 
over USD 17 million and a 30 percent piracy level in 1997. The American 
Association of Publishers estimated that publishers lost USD 2 million 
to piracy of printed works in 1998, compared to USD 1 million lost in 
1997.
8. Worker Rights
    a. The Right of Association: Article 14 of Singapore's Constitution 
gives all citizens the right to form associations, including trade 
unions. Parliament may, however, based on security, public order, or 
morality grounds impose restrictions. The right of association is 
delimited by the Societies Act, and labor and education laws and 
regulations. In practice, communist labor unions are not permitted. 
Singapore's labor force numbered 1.9 million in 1998, of which 272,769 
or 14 percent of the labor force were organized into 80 trade unions.
    b. The Right to Organize and Bargain Collectively: Over ninety 
percent of union members in 71 of the 80 trade unions are affiliated 
with an umbrella organization, the National Trades Union Congress 
(NTUC), which has a symbiotic relationship with the government. The 
NTUC's leadership is made up mainly of Members of Parliament belonging 
to the ruling People's Action Party (PAP). The Secretary-General of the 
NTUC is also an elected Minister without Portfolio in the Prime 
Minister's office.
    The Trades Union Act authorizes the formation of unions with broad 
rights. Collective bargaining is a normal part of labor-management 
relations in Singapore, particularly in the manufacturing sector. 
Collective bargaining agreements are renewed every two to three years, 
although wage increases are negotiated annually.
    c. Prohibition of Forced or Compulsory Labor: Singapore law 
prohibits forced or compulsory labor. Under sections of Singapore's 
Destitute Persons Act, however, any indigent person may be required to 
reside in a welfare home and engage in suitable work.
    d. Minimum Age for Employment of Children: The government enforces 
the Employment Act, which prohibits the employment of children under 12 
years and restricts children under 16 from certain categories of work.
    e. Acceptable Conditions of Work: The Singapore labor market, which 
has a low average annual unemployment rate of about 2 percent, offers 
relatively high wage rates and working conditions consistent with 
international standards. (Note: The average unemployment rate increased 
slightly to 3.2 percent during the economic downturn in 1998.) However, 
Singapore has no minimum wage or unemployment benefits. The government 
enforces comprehensive occupational safety and health laws. Enforcement 
procedures, coupled with the promotion of educational and training 
programs, have reduced the frequency of industrial accidents (measured 
by the number of industrial accidents per million hours worked) to 2.5 
in 1998, from 4.2 a decade ago. The average severity of occupational 
accidents (defined as the number of industrial workdays lost per 
million hours worked) has, however, remained at 416, little changed 
from the rate of 418 recorded in 1989.
    f. Rights in Sectors with U.S. Investment: U.S. firms have 
substantial investments in several industries, notably petroleum, 
chemicals and related products, electronic and electronics equipment, 
transportation equipment, and other manufacturing areas. Labor 
conditions in these sectors are the same as in other sectors of the 
economy. Many employers resort to hiring foreign workers to ease 
shortages in unskilled and highly-skilled jobs. Since 1997, the 
government has been committed to a policy of attracting foreign skilled 
individuals and professionals to work in Singapore to supplement its 
own limited talent pool and catalyze the city-state's advancement into 
a knowledge-based economy and an international financial center. There 
are presently about 530,000 foreigners working in Singapore (27 percent 
of the workforce), of which about 80,000 are in the skilled category 
while the rest are the lower-skilled workers employed mostly as 
construction workers or domestic helpers.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,920
Total Manufacturing............  ..............  8,438
  Food & Kindred Products......  13              ...............................................................
  Chemicals & Allied Products..  255             ...............................................................
  Primary & Fabricated Metals..  153             ...............................................................
  Industrial Machinery and       2,747           ...............................................................
   Equipmentd.
  Electric & Electronic          4,763           ...............................................................
   Equipment.
  Transportation Equipment.....  106             ...............................................................
  Other Manufacturing..........  401             ...............................................................
Wholesale Trade................  ..............  3,245
Banking........................  ..............  727
Finance/Insurance/Real Estate..  ..............  3,769
Services.......................  ..............  681
Other Industries...............  ..............  3
TOTAL ALL INDUSTRIES...........  ..............  19,783

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 TAIWAN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (at current prices).................     283.3     260.6     282.9
  Real GDP Growth (percent)...............       6.8       4.7       5.3
  GDP by Sector:
    Agriculture...........................       7.7       7.1       7.6
    Manufacturing.........................      78.4      70.6      74.9
    Services..............................     155.8     146.0     166.0
    Government............................      29.5      26.8      29.8
  Per Capita GDP (US$)....................    13,130    11,967    12,866
  Labor Force (000's).....................     9,432     9,546     9,690
  Unemployment Rate (percent).............       2.7       2.7       2.9

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       8.0       8.6       9.5
  Consumer Price Inflation................       0.9       1.7       0.9
  Exchange Rate (NT$/US$) \2\
    Official..............................     28.95     33.44     32.24

Balance of Payments and Trade: \3\
  Total Exports FOB \4\...................     122.1     110.6     119.5
    Exports to U.S. CV \5\................      32.6      33.1      34.9
  Total Imports CIF \4\...................     114.4     104.7     112.1
    Imports from U.S. FAS \5\.............      20.4      18.2      18.8
  Trade Balance \4\.......................       7.7       5.9       7.4
    Trade Balance with U.S. \5\...........      12.2      14.9      16.1
  External Public Debt....................       0.1       .05      0.02
  Fiscal Deficit/GDP (pct)................       3.9       3.3       5.3
  Current Account Surplus/GDP (pct).......       2.5       1.3       2.1
  Debt Service Payments/GDP (pct).........       0.8       1.1       0.7
  Gold and Foreign Exchange Reserves......      88.2      95.1     110.0
  Aid from U.S. \6\.......................         0         0         0
  Aid from Other Countries................         0         0         0
------------------------------------------------------------------------
\1\ 1999 figures are estimated based on data from the Directorate
  General of Budget, Accounting and Statistics, or extrapolated from
  data available as of September 1999.
\2\ Average of figures at the end of each month.
\3\ Merchandise trade.
\4\ Taiwan Ministry of Finance (MOF) figures for merchandise trade.
\5\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through August. Taiwan MOF figures for merchandise exports
  (FOB) to and imports (CIF) from the U.S. were (US$ billions): (1996)
  26.9/20.0, (1997) 29.5/23.2, (1998) 30.0/19.3.
\6\ Aid disbursements stopped in 1965.

1. General Policy Framework
    Taiwan's economy is bouncing back after being hit last year with an 
earthquake, a cross strait scare, and a near financial crisis. Despite 
these setbacks, the island's growth in 1999 ended up a strong 5.4 
percent, well ahead of 1998's 4.8 percent. Taiwan's industrial growth 
is now concentrated in capital and technology intensive industries such 
as petrochemicals, computers, semiconductors, and electronic 
components, as well as consumer goods industries. Services account for 
56 percent of GDP in 1998. Merchandise exports accounted for 42 percent 
of GDP in 1998.
    Taiwan's resilience stems from the strength of its external 
finances, the nimbleness of its many small-scale entrepreneurs, and the 
dynamism of its information technology industry. Taiwan is poised to 
expand its role as catalyst for cross-strait economic integration and 
as a global supplier of hardware for the information age.
    The Asian financial crisis did lead to falling official savings and 
growing public expenditure have caused domestic public debt to increase 
steadily. The Taiwan authorities now rely largely on domestic bonds and 
bank loans to finance major expenditures. Taiwan has adopted austerity 
measures to control the government budget deficit in recent years. As a 
result, outstanding public debt declined from 21 percent of GNP in 1997 
to 17 percent in 1999. However, debt is on the rise again as the 
government spends heavily on earthquake reconstruction efforts. The 
central level fiscal deficit through the fiscal year ending in June had 
fallen to 1.4 percent of GDP. However, the deficit is expected to be 
sharply higher by year-end 1999 and into 2000, again due to earthquake-
related emergency spending. Defense spending still accounts for the 
largest share of public expenditures (about one quarter), but is 
falling in relative terms. The greatest pressure on the budget now 
comes from growing demands for improved infrastructure and social 
welfare spending, including a national health insurance plan initiated 
in early 1995.
    Taiwan wishes to accede to the World Trade Organization (WTO) in 
the near future. As part of the accession process, Taiwan and the 
United States signed a landmark bilateral WTO agreement in February 
1998. The agreement includes both immediate market access and phased-in 
commitments, and will provide substantially increased access for U.S. 
goods, services, and agricultural exports to Taiwan. Taiwan is also an 
active member of the Asia Pacific Economic Cooperation (APEC) forum.
2. Exchange Rate Policies
    Taiwan has a floating exchange rate system in which banks set rates 
independently. The Taiwan authorities, however, control the largest 
banks authorized to deal in foreign exchange. The Central Bank of China 
(CBC) intervenes in the foreign exchange market when it feels that 
speculation or ``drastic fluctuations'' in the exchange rate may impair 
normal market adjustments. The CBC uses direct foreign exchange trading 
by its surrogate banks and public policy statements as its main tools 
to influence exchange rates. The CBC still limits the use of derivative 
products denominated in New Taiwan Dollars (NTD).
    Trade-related funds flow freely into and out of Taiwan. Most 
restrictions on capital account flows have been removed since late 
1995. Laws restricting repatriation of principal and earnings from 
direct investment have been lifted. Despite significant easing of 
previous restrictions on foreign portfolio investment, some limits 
remain in place.
3. Structural Policies
    Fifteen state-owned enterprises have been either totally or 
partially privatized in the past three years, including nine in 1999. 
State-owned enterprises account for 9.5 percent of GDP, a proportion 
that shrinks annually. Taiwan's Fair Trade Commission (FTC) acts to 
thwart noncompetitive pricing by state-run monopolies. FTC exemptions 
granted five years ago to several state-run monopolies were not renewed 
in 1997, making such firms subject to anti-monopoly laws.
    Taiwan has been lowering tariffs significantly in recent years as 
part of its effort to accede to the WTO. In 1998, Taiwan began 
implementing tariff cuts on 1,130 items, many of specific interest to 
U.S. industry. Also in 1998, authorities enacted tariff cuts on 245 
high-tech products under the Information Technology Agreement. Tariff 
reductions on 15 agricultural products, negotiated during the U.S.-
Taiwan bilateral WTO accession negotiations, took effect temporarily in 
July 1998, and were extended in July, 1999. In February 1999, Taiwan 
waived tariffs on 15 aircraft components as part of plans to accede to 
the WTO Agreement on Trade in Civil Aircraft. An additional 777 items 
are slated for tariff cuts pending legislative approval. Taiwan's 
current average nominal tariff rate is 8.2 percent; the trade-weighted 
rate is 3.1 percent, both down slightly from 1998.
    High tariffs and pricing structures on some goods--in particular on 
some agricultural products--nevertheless hamper U.S. exports. However, 
under the bilateral WTO agreement reached in February 1998, Taiwan 
began to provide quotas for the importation of previously banned pork, 
poultry, and variety meat products, and agreed to phase in tariff cuts 
on numerous food products upon accession. The Taiwan Tobacco and Wine 
Monopoly Bureau (TTWMB) has a monopoly on domestic production of 
cigarettes and alcoholic beverages. As part of its bilateral WTO 
commitments to the United States, however, Taiwan has pledged to 
convert an existing monopoly tax on these products to a simpler tax and 
tariff-based system, and also to open these markets following the 
passage and implementation of new legislation now pending in the 
Legislative Yuan.
4. Debt Management Policies
    Unofficial estimates put Taiwan's outstanding long and short-term 
external debt at $22 billion as of early, 1999, equivalent to seven 
percent of GDP. Official figures show Taiwan's long term outstanding 
external public debt totaled $33 million as of June 1999, compared to 
gold and foreign exchange reserves of about $110 billion. Taiwan's debt 
service payments in 1998 totaled $2.1 billion, only 1.5 percent of 
exports of goods and services.
    Foreign loans committed by Taiwan authorities exceed $3.6 billion. 
Taiwan offered low-interest loans to the Philippines, Eastern Europe, 
Vietnam, South Africa, and Latin America, mostly to build industrial 
zones and to foster development of small and medium enterprises. Some 
of the loans were provided to several Southeast Asian nations to 
address financial crises. Taiwan also contributes to the Asian 
Development Bank (ADB), one of the two multilateral development banks 
in which it has membership. Taiwan is also a member of the Central 
American Bank for Economic Integration (CABEI). The ADB, CABEI, the 
European Bank for Reconstruction and Development (EBRD) and a number of 
other international organizations have all floated bonds in Taiwan.
5. Significant Barriers to U.S. Exports
    Accession to the WTO by Taiwan will open markets for many U.S. 
goods and services. Of some 10,200 official import product categories, 
nearly 86 percent are completely exempt from any controls. 991 
categories are still ``regulated'' and require approval from relevant 
authorities based on the qualifications of the importer, the origin of 
the good, or other factors. Another 279 require import permits from the 
Board of Foreign Trade or pro forma notarization by banks. Imports of 
270 categories are ``restricted,'' including ammunition and some 
agricultural products. These items can only be imported under special 
circumstances, and are thus effectively banned.
    Financial: Taiwan continues to steadily liberalize its financial 
sector. Taiwan enacted a Futures Exchange Law in March 1997; a futures 
market was established in July 1998. The Securities and Exchange Law 
was amended in May 1997 to remove restrictions on employment of 
foreigners by securities firms, effective upon Taiwan's accession to 
the WTO. In early 1999, the limit on foreign ownership in listed 
companies was raised from 30 percent to 50 percent. For qualified 
foreign institutional investors, restrictions on capital flows have 
been removed, although they are still subject to limits on portfolio 
investment. Foreign individual investors are subject to some limits on 
their portfolio investment and restrictions on their capital flows.
    Banking: In June 1997, the annual limit on a company's non-trade 
outward (or inward) remittances was raised from $20 million to $50 
million. Inward/outward remittances unrelated to trade by individuals 
are subject to an annual limit of $5 million. There are no limits on 
trade-related remittances. NTD-related derivative contracts may not 
exceed one-third of a bank's foreign exchange position. To stabilize 
the foreign exchange market in the wake of regional financial turmoil, 
the CBC closed the non-deliverable forward (NDF) market to domestic 
corporations in May 1998; the NDF market remains open to foreign 
companies.
    Legal: Foreign lawyers may not operate legal practices in Taiwan 
but may set up consulting firms or work with local law firms. Qualified 
foreign attorneys may, as consultants to Taiwan law firms, provide 
legal advice to their employers only. Legislation was passed in May 
1998 to permit the eventual establishment of foreign legal 
partnerships. However, last minute changes to the law failed to achieve 
this purpose. However, Taiwan authorities subsequently agreed to delay 
implementation of the law and to make other commitments which will 
permit foreign attorneys to establish partnerships either upon 
accession to the WTO, or upon implementation of the new law, whichever 
comes first.
    Insurance: In May 1997, the financial authorities announced that, 
in principle, insurance companies would be allowed to set some premium 
rates and policy clauses without prior approval from regulators. 
Insurance companies are still required to report such rates and 
clauses. In July 1995, Taiwan removed a prohibition against mutual 
insurance companies. As of late 1999, however, authorities had not 
issued implementing regulations.
    Transportation: The United States and Taiwan have had an Open Skies 
Agreement in effect since February of 1997. An amendment to the Highway 
Law allowing branches of U.S. ocean and air freight carriers to truck 
containers and cargo in Taiwan went into effect on November 1, 1997.
    Telecommunications: Taiwan will open its fixed line market to 
competition in early 2000, when it is expected to issue 2-4 new fixed 
line licenses to private consortia. However, the published criteria for 
the license tender--including $1.2 billion in up-front paid-in capital, 
a minimum one million line final build-out, and a 150,000 line build-
out prior to service roll-out--are considered onerous entry barriers by 
some foreign companies. Under the bilateral WTO agreement signed in 
February 1998 Chunghwa Telecom, a state-owned corporation, began to 
lower excessively high interconnection fees previously imposed on 
private mobile service providers. This phased process is ongoing, but 
Chunghwa continues to engage in pricing practices which appear designed 
to unfairly subsidize its mobile operations with its fixed line 
services, in which it continues to enjoy monopoly status. Taiwan 
regulators have only recently begun to address such unfair trading 
practices. In October, Taiwan's legislature passed a revised Telecom 
Law. It will raise the current 20 percent limit on foreign ownership of 
a telecom firm to 60 percent through a combination of direct and 
indirect ownership. The timing of the law's implementation, however, 
remains uncertain.
    Pharmaceuticals and Medical Devices: Taiwan's single payer 
socialized health care system discriminates against imported drugs by 
setting prices for leading brand-name products at artificially low 
levels, while providing artificially high reimbursement prices for 
locally-made generics. The process by which Taiwan registers and prices 
new drugs is also time-consuming and cumbersome. Taiwan authorities are 
gradually phasing out a burdensome requirement for clinical trials as 
part of the registration process for new drugs. High value-added 
imported medical devices are likewise put at a competitive disadvantage 
by Taiwan's reimbursement system, which fails to account for 
significant quality differences between different brands of medical 
devices.
    Movies and Cable TV: Taiwan eased import restrictions on foreign 
film prints from 38 to 58 per title in late 1997. The number of 
theaters in any municipality allowed to show the same foreign film 
simultaneously also increased from 11 to 18. Effective August 1997, 
multi-screen theaters are allowed to show a film on up to three screens 
simultaneously, up from the previous limit of one. Taiwan has pledged 
to abolish these restrictions upon accession to the WTO. In the cable 
TV market, concerns remain that the island's two dominant Multi-System 
Operators (MSOs) occasionally collude to inhibit fair competition. 
Control by the two MSOs of upstream program distribution, for example, 
has made it difficult for U.S. providers of popular channels to 
negotiate reasonable fees for their programs.
    Standards, Testing, Labeling, and Certification: Taiwan has agreed 
to bring its laws and practices into conformity with the WTO Agreement 
on Technical Barriers to Trade as part of its WTO accession. However, 
Taiwan is not yet in conformity with WTO norms. U.S. agricultural 
exports are often negatively affected because prior notification of 
changes to standards, labeling requirements, etc, are not provided with 
adequate lead-time, or because changes to standards and other import 
requirements are not provided in a WTO language. In addition, concerns 
exist that U.S. fresh produce and meat imports do not, in all cases, 
receive national treatment. Industrial products such as air 
conditioning and refrigeration equipment, electric hand tools, and 
synthetic rubber gloves must undergo redundant and unnecessary testing 
requirements, which include destructive testing of samples. Imported 
autos face stringent noise emissions and fuel efficiency testing 
requirements. In March 1999 the U.S. and Taiwan signed a mutual 
recognition agreement (MRA) designed to eliminate duplicate testing of 
information technology equipment. According to the terms of the MRA, 
certain Taiwan exports to the U.S. previously tested for 
electromagnetic conformity in labs recognized by Taiwan authorities 
will no longer require duplicate inspections in an U.S. lab. Reciprocal 
treatment will likewise be accorded similar U.S. products imported into 
Taiwan. Relevant U.S. agencies and their Taiwan counterparts are 
jointly implementing operating procedures according to the principles 
of the MRA, including nominating certified labs for mutual 
accreditation.
    Investment Barriers: Taiwan continues to relax investment 
restrictions in a host of areas, but foreign investment remains 
prohibited in key industries such as agriculture, basic wire line 
telecommunications, broadcasting, and liquor and cigarette production. 
Wire line telecommunications will be gradually liberalized beginning in 
1999, and will be completely liberalized by July 2001 under Taiwan's 
WTO commitments. Liquor and cigarette production will be fully 
liberalized by 2004.
    Limits on foreign equity participation in a number of industries 
have been progressively relaxed in recent years. For example, 
permissible participation in shipping companies was raised from 50 to 
100 percent. A 33 percent limit on holdings in air cargo forwarders and 
air cargo ground handling was raised to 50 percent in 1998, but remains 
unchanged for airlines. However, an amendment to the Civil Aviation Law 
that would raise the holding limit to 50 percent is now pending 
legislative approval. In August 1997, Taiwan raised the cap on foreign 
investment in independent power projects from 30 percent to 49 percent. 
Local content requirements in the automobile and motorcycle industries 
will be lifted as part of Taiwan's WTO accession.
    Procurement Practices: Taiwan has committed to adhere to the WTO 
Agreement on Government Procurement as part of its WTO accession. To 
prepare for this commitment, a new Government Procurement Law (GPL) 
become effective in mid-1999, marking an important first step towards 
open, fair competition in Taiwan's multi-billion dollar market for 
public procurement projects. However, some initial procurements after 
the implementation of the GPL still have one-sided terms and conditions 
which may strongly discourage foreign bidders, including inefficient 
allocations of risks to the supplier.
6. Export Subsidies Policies
    Taiwan provides an array of direct and indirect subsidy programs to 
farmers, ranging from financial assistance to guaranteed purchase 
prices higher than world prices. It also provides incentives to 
industrial firms in export processing zones and to firms in designated 
``emerging industries.'' Some of these programs may have the effect of 
subsidizing exports. Taiwan is currently in the process of notifying 
the WTO of these programs, and as part of its WTO accession, it may be 
required to amend or abolish any subsidy programs deemed inconsistent 
with WTO principles.
7. Protection of U.S. Intellectual Property
    Taiwan is not a party to any major multilateral IPR conventions. In 
line with WTO accession efforts, Taiwan has passed laws to protect 
integrated circuit layouts, personal data, and trade secrets. Taiwan 
currently protects copyrights dating from 1965. Revised Copyright, 
Patent, and Trademark Laws were passed in 1997. However, only the 
Trademark Law and certain provisions of the Copyright Law have been 
implemented. The new Copyright Law, which will be fully implemented 
only upon WTO accession, will extend retroactive copyright protection 
to 50 years. Taiwan implemented these changes to bring its IPR legal 
structure into conformity with the WTO TRIPs agreement.
    In its April 1999 decision to keep Taiwan on the ``Special 301'' 
Watch List, the United States cited continuing concerns about Taiwan's 
IPR enforcement generally, and specifically urged Taiwan authorities to 
tighten controls on optical media production. In 1998, U.S. Customs 
seized $8.6 million of counterfeit goods from Taiwan, making Taiwan the 
second largest source of counterfeit goods (after the PRC). Taiwan has 
taken steps to address these concerns. In January of 1999, Taiwan 
established an Intellectual Property Office to improve coordination of 
IPR protection efforts. In February, Taiwan's Executive Yuan issued a 
new directive requiring only the use of legal software by Taiwan 
authorities. Beginning on July 1, 1999, all optical media products 
produced in Taiwan, including CD's, VCD's, CD-ROM's and DVD's, were 
required to bear source identification (SID) codes. At the same time, 
Bureau of Standards, Metrology and Inspection inspectors were 
authorized to perform random factory visits to ensure compliance. Also 
on July 1, the Taiwan Semiconductor Industry Association began 
implementation of a voluntary computer chip-marking program.
8. Worker Rights
    a. The Right of Association: Although the right to organize was 
reaffirmed by Taiwan's Judicial Yuan in 1995 as a constitutional right, 
the Labor Union Law (LUL) forbids civil servants, teachers, and defense 
industry workers from organizing trade unions and forbids workers from 
forming competing trade unions and confederations. However, as 
democratization has continued, workers have established independent 
labor unions, either legally or illegally. These independent unions 
increasingly are challenging the leadership of the Chinese Federation 
of Labor, which is closely tied to the ruling Kuomingtang party, and is 
the only island-wide labor union permitted. In February of 1999, a 
national teacher's association was established. In July, workers unions 
of 18 state-owned enterprises formed an alliance to protect their 
rights during privatization. As of June of 1999, 2.9 million workers, 
or 30.5 percent of Taiwan's labor force, belonged to 3,766 labor 
unions.
    b. The Right to Organize and Bargain Collectively: Except for civil 
servants, teachers, and defense industry workers, the LUL, the Law 
Governing the Handling of Labor Disputes, and the Collective Agreement 
Law offer workers the right to organize and bargain collectively. 
However, the law contains restrictions to curb workers' exercise of 
these rights. The LUL, for example, stipulates that workers shall not 
strike to demand an increase in wages exceeding standard wages. 
Collective bargaining agreements exist only in large-scale enterprises. 
As of June 1999, there were 298 such collective agreements.
    c. Prohibition of Forced or Compulsory Labor: The Labor Standards 
Law prohibits forced or compulsory labor. The maximum jail sentence for 
violation of the law is five years. Except for cases involving 
prostitution, there have only been allegations of possible forced or 
compulsory labor relating to PRC crewmembers on Taiwan fishing boats.
    d. Minimum Age for Employment of Children: The Labor Standards Law 
stipulates age 15, after completion of the 9-year compulsory education 
required by law, as the minimum age for employment. County and city 
labor bureaus enforce minimum age laws. Child labor is rare in Taiwan.
    e. Acceptable Conditions of Work: The Labor Standards Law (LSL) 
mandates basic labor standards. Pursuant to a 1996 amendment, the LSL 
was extended to cover all salaried employees (except teachers, civil 
servants, doctors, lawyers and some other specialized professions) as 
of the end of 1998. The law now covers over 5.5 million of Taiwan's 6.7 
million salaried workers. The Council of Labor Affairs (CLA) has kept 
the basic wage at the same level (NT$15,840 per month or about $500) 
since 1997. However, the average monthly wage in Taiwan's manufacturing 
sector was NT$40,130 (or about $1,300) during the first six months of 
1999. The LSL limits the workweek to 48 hours (8 hours per day, 6 days 
per week) and requires 1 day off every 7 days. In December of 1996, the 
LSL was amended to allow employers to adjust working hours, with 
approval by workers. The amendment allows private firms to have five-
day workweeks twice every month, similar to the system implemented for 
civil servants in early 1998. Currently, about one third of private 
enterprises have adopted an alternating 5-day workweek system. In 
addition to wages, employers typically provide workers with additional 
payments and benefits, including a portion of national health insurance 
and labor insurance premiums, the distribution of labor welfare funds, 
meals, and transportation allowances.
    f. Rights in Sectors with U.S. Investments: U.S. firms and joint 
ventures generally abide by Taiwan's labor law regulations. In terms of 
wages and other benefits, worker rights do not vary significantly by 
industrial sector.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  49
Total Manufacturing............  ..............  3,258
  Food & Kindred Products......  99              ...............................................................
  Chemicals & Allied Products..  1,372           ...............................................................
  Primary & Fabricated Metals..  45              ...............................................................
  Industrial Machinery and       280             ...............................................................
   Equipment.
  Electric & Electronic          1,191           ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  368
Banking........................  ..............  614
Finance/Insurance/Real Estate..  ..............  337
Services.......................  ..............  163
Other Industries...............  ..............  148
TOTAL ALL INDUSTRIES...........  ..............  4,937
----------------------------------------------------------------------------------------------------------------
\1\ Data suppressed to avoid disclosure of individual company data.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                THAILAND


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment: \2\
  Nominal GDP..........................    150,593    112,758    121,979
  Real GDP Growth (pct) \3\............       -1.8      -10.0        3.5
  GDP by Sector
    Agriculture........................     14,814     13,239  \2\ 11,49
                                                                       6
    Manufacturing......................     44,638     34,660  \2\ 39,12
                                                                       3
    Services...........................     22,990     18,197  \2\ 21,17
                                                                       7
    Government \4\.....................     15,021     12,200  \2\ 14,19
                                                                       3
  Per Capita GDP (US$).................      2,421      1,765      1,965
  Labor Force (000's)..................     32,840     32,800     33,490
  Unemployment Rate....................        1.9        4.0        4.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth..................       16.4        9.5        6.4
  Consumer Price Inflation.............        5.6        8.1        0.5
  Exchange Rate
    Official...........................      31.37      41.37  \5\ 37.71

Balance of Payments and Trade:
  Total Exports FOB \6\................     56,721     52,873     54,988
    Exports to U.S. \6\................     11,341     12,167  \7\ 12,06
                                                                       5
  Total Imports CIF \6\................     61,348     40,641     45,761
    Imports from U.S. \6\..............      8,714      5,963  \7\ 6,352
  Trade Balance \6\....................     -4,626     12,232      9,227
    Balance with U.S. \6\..............      2,627      6,204  \7\ 5,713
  External Public Debt.................     24,323     31,494     35,500
  Fiscal Balance/GDP (pct).............       -2.7       -5.5   \8\ -7.2
  Current Account/GDP (pct)............       -2.0       12.8        9.0
  Debt Service Payments/GDP (pct)......        0.8        1.2        N/A
  Gold and Foreign Exchange Reserves...     26,968     26,536     34,000
  Aid from U.S. \9\....................        3.6        5.5        N/A
  Aid from All Other Sources...........      109.2      105.8        N/A
------------------------------------------------------------------------
\1\ Royal Thai Government projections unless otherwise indicated.
\2\ Estimate based on six-month data.
\3\ Percentage changes calculated in local currency.
\4\ Government expenditure on GDP; for illustrative purposes.
\5\ Estimate based on ten-month data.
\6\ Merchandise trade, balance of payments concept.
\7\ Estimate based on eight-month data.
\8\ Includes imputed interest of financial sector restructuring.
\9\ Fiscal year total (October-September).

Sources: Royal Thai Government and U.S. Department of Commerce.

1. General Policy Framework
    The government of current Thai Prime Minister Chuan Leekpai has 
been working to stabilize and reinvigorate the Thai economy since it 
took office in November 1997. The East Asian economic crisis began in 
Thailand when a failed effort to defend the baht (the Thai currency) 
depleted Thailand's foreign exchange reserves and forced the Bank of 
Thailand to float the currency in July 1997. Over the next six months 
the baht lost half of its value, and the crisis spread from the 
financial sector to the real sector. The Thai economy, one of the 
world's fastest growing up through 1995, tumbled, and real GDP suffered 
contractions of 1.8 percent and 10 percent in 1997 and 1998 
respectively. The financial contagion spread from Thailand to other 
countries in the region, particularly Korea and Indonesia, impairing 
Thailand's ability to export its way out of the crisis.
    The failed defense of the baht led the government to seek 
assistance from the IMF, which in August 1997 put together a package 
worth $17.2 billion to provide balance of payments support and begin 
restructuring the Thai economy and financial sector. Under the guidance 
of Finance Minister Tarrin NimmanhaeMinda, the government has focused 
considerable effort on restructuring the financial sector. Insolvent 
institutions, including two-thirds of the country's finance companies, 
were closed or placed in receivership, and new provisioning 
requirements were instituted. The crisis and subsequent restructuring 
have opened the way for increased foreign participation in the 
financial sector. Foreign banks now own controlling interests in four 
Thai commercial banks, and two more banks are scheduled to be sold by 
the end of 1999. Thailand has also passed legislation to reform and 
streamline the bankruptcy and foreclosure system (including 
establishing a new bankruptcy court), and auctioned off assets of the 
closed finance companies to the private sector. Reform legislation 
still in draft includes a new financial institutions law, a new central 
bank law, amendments to the Currency Act, and bills to set up a deposit 
insurance scheme and a credit bureau. Throughout, Thailand has favored 
a market-oriented private sector-led approach to restructuring the 
financial sector.
    While the government's efforts stabilized the economy and laid the 
macro-economic foundation for a return to growth by late 1998, the real 
economy did not respond, and the focus turned to stimulating 
consumption. With the support of the IMF, the government ran fiscal 
deficits (after years of balanced or surplus budgets) of 3 percent of 
GDP in FY 1998 and 6 percent of GDP in FY 1999. An additional stimulus 
program of 2.8 percent of GDP announced in March 1999 provided funds to 
create jobs for 485,000, expand government purchases of goods and 
services by $1 billion, and decrease the tax burden on middle class 
income earners and the costs of energy for industrial users. In August 
1999 the government announced a further stimulus package of 2.2 percent 
of GDP to promote private investment. A new Alien Business Law and new 
investment promotion incentives should also increase Thailand's 
attractiveness to foreign investors. The economy has responded to these 
stimulus programs with consumption, exports and imports, and production 
all recording moderate increases for the first nine months of the year 
in comparison to 1998 totals. Private investment remains below 1998 
activity, but the declines here are slowing. The government is 
financing the deficit through domestic bond sales and foreign debt and 
grant assistance.
    Current Thai monetary policy aims at maintaining adequate system 
liquidity and keeping interest rates low in an effort to promote debt 
restructuring and new lending. The government uses a standard array of 
monetary policy tools but focuses on open market operations, 
particularly the repurchase market. Foreign exchange flows have a 
moderate effect on exchange rate stability. Current government policy 
does not target a specific level for the baht. However, the government 
will act to smooth volatility in the exchange rate.
2. Exchange Rate Policy
    From 1984 to 1997 the baht was pegged to a basket of currencies of 
Thailand's major trading partners, with the dollar representing the 
largest share. The exchange rate averaged 25 baht to the dollar during 
that period. Following the depletion of Thailand's foreign exchange 
reserves in an unsuccessful attempt to defend the peg, the currency was 
allowed to float in July 1997. It began to depreciate immediately and 
fell to below 50 per dollar in January 1998. As reform measures and IMF 
support took hold, the baht stabilized and has traded in the 36 to 41 
baht per dollar range since March 1998.
    The Thai government began liberalizing the exchange control regime 
in 1990 and accepted IMF Article VIII obligations. Commercial banks 
received permission to process larger foreign exchange transactions, 
and ceilings on money transfers were increased. Since 1991 Thai banks 
have offered foreign currency accounts for residents, although they are 
limited to $500,000 for individuals and $5 million for corporations 
(without conditions).
    After the baht was floated on July 2, 1997 the government tightened 
conditions on foreign exchange, requiring customers to show evidence of 
foreign currency obligations (within three months from date of deposit) 
to open foreign currency accounts. Thailand also required exporters to 
repatriate and deposit foreign exchange earnings more expeditiously. 
More recently, the government has restricted the supply of baht to non-
resident parties (unless there is an underlying transaction requiring 
the currency) to cut down on offshore speculation.
3. Structural Policies
    The Thai taxation system has undergone significant revision since 
1992 when a value added tax (VAT) system was introduced to replace a 
multi-tiered business tax system. The VAT rate was raised from 7 to 10 
percent in 1997 but lowered temporarily back to 7 percent in March 1999 
to stimulate private consumption. Exemptions in place for low revenue 
businesses were expanded in March 1999. Exporters are ``zero rated'' 
under the VAT system but must file returns and apply for rebates. 
Parliament is considering tax credits in lieu of the rebate. The 
corporate tax rate is currently 30 percent of net profits for all 
firms.
    Thailand and the United States signed a tax treaty in November 
1996, and the treaty entered into force in early 1998. The treaty 
eliminates double taxation and gives U.S. firms tax treatment 
equivalent to that enjoyed by Thailand's other tax treaty partners.
    Heightened awareness in Thailand about ``genetically modified 
organisms'' (GMO) issues and concern about increasing barriers to GMO 
products in Thailand's European markets have led to a reexamination of 
Thai government policy towards imports, production, sales, and exports 
of GMO crops, commodities, and processed foods. Current policy allows 
imports into Thailand of GMO seeds and plants only for research 
purposes, but there are no restrictions on imports of GMO commodities 
or products and no compulsory labeling requirements. The result is a 
relatively small impact on U.S. exports of GMO products. Although the 
debate continues, particularly on labeling, we do not expect major 
changes in this policy over the next year.
4. Debt Management Policies
    Thailand's financial crisis resulted in part from significant 
increases in private sector external debt, but these levels have 
declined markedly since the onset of the crisis, falling from $75 
billion at the end of June 1997 to $47 billion at the end of June 1999. 
Thailand entered the crisis with low levels of public debt, but public 
sector external debt has risen significantly as the government 
stabilized and sought to stimulate the economy. At the end of 1997, 
total public sector external debt (including that of the Bank of 
Thailand) stood at $24 billion. By the end of June 1999, the figure had 
risen to $34 billion. Public sector debt is predominantly long-term and 
divided among direct borrowings and loans to state-owned enterprises 
guaranteed by the government, with the latter predominating.
    Mounting public sector debt is a concern in Thailand, and the 
government is attempting to diversify its sources of funding by 
developing a domestic bond market. By the end of June 1999, total 
public sector debt, including the non-guaranteed debt of state-owned 
enterprises, had climbed to 41 percent of Thailand's GDP. The public 
debt service ratio (payments as a percent of the exports of goods and 
services) stood at the end of June 1999 at 3.5 percent, down slightly 
from the first quarter, but up a full percentage point from the 
comparable 1996 figure. By way of contrast, the debt service ratio for 
private sector debt at the end of June stood at 15.5 percent.
    Thailand has consistently met the targets and performance criteria 
elaborated in the $17.2 billion program agreed with the IMF in 1997. 
The program will run through May 2000, although Thailand recently 
announced that it does not intend to take disbursement of the final 
$2.7 billion of the package.
5. Significant Barriers to U.S. Exports
    Moving to meet its WTO and ASEAN tariff reduction commitments, 
Thailand instituted reductions in January 1995, and tariffs were 
reduced on another 4,000 items at the beginning of 1997. However, the 
decision to accelerate ASEAN's Free Trade Area (AFTA) preferred tariff 
schedules, taken in Manila in October 1998, has not yet translated into 
significant liberalization within APEC. Also, the need for revenue in 
the aftermath of the financial crisis led to the imposition of higher 
duties, surcharges, and excise taxes on ``sin'' items and a range of 
luxury imports, including U.S. wine and beer exports.
    At the beginning of 1997, the total number of tariff rate 
categories was reduced from 39 to six, with the following spread: zero 
percent on such goods as medical equipment and fertilizer, one percent 
on raw materials, electronics components, and vehicles for 
international transport, five percent on primary and capital goods, 10 
percent on intermediate goods, 20 percent for finished products, and 30 
percent on goods needing ``special protection.'' This last category 
includes agricultural products, autos and auto parts, alcoholic 
beverages, and a few other ``sensitive'' items. Import tariff quotas 
are applied to 23 categories of agricultural products. Further 
reductions on a range of capital goods and raw materials were announced 
in August of 1999 as an investment incentive measure and a spur to 
domestic industries. Tariff exemptions for some items deemed critical 
to Thai industrial recovery were also announced.
    Thailand is in the process of changing its import licensing 
procedures to comply with its WTO obligations. Import licenses are 
still required for 26 categories of items, down from 42 categories in 
1995-1996. Licenses are required for many raw materials, petroleum, 
industrial, textile, and agricultural items. Import licenses can be 
used to protect unproductive local industries and to encourage greater 
domestic production. Some items that do not require licenses must 
nevertheless comply with applicable regulations of concerned agencies, 
are subject to extra fees, or must have certificates of origin.
    The Thai Food and Drug Administration issues licenses for food and 
pharmaceutical imports. This process can be a barrier due to the cost, 
the length of the process, and occasional demands for proprietary 
information. Licenses cost about $600 and must be renewed every three 
years. Pharmaceutical import licenses cost about $480 and must be 
renewed every year. There are also fees for laboratory analysis. Costs 
of between $40 to $120 per item are usual for sample food products 
imported in bulk. Sealed, packaged foods can cost about $200 per item. 
Pharmaceuticals must be registered for a fee of about $80, and 
inspected and analyzed for another fee of about $80 per item. The 
process can take more than three months to complete.
    The government is gradually easing import duties in line with WTO 
commitments, which may improve market access for some American 
products. Rice will continue to be protected, but within WTO schedules. 
Corn and fresh potatoes are subject to a Tariff Rate Quota (TRQ) that 
limits import levels. The restricted entry period for U.S. corn under 
the TRQ, generally February to June, usually ensures that it is not 
competitive in the Thai market.
    Even though rates are slated to decline between 35 and 50 percent 
under WTO rules, duties on many high-value fresh and processed foods 
remain high. For most U.S. high-value fresh and value-added processed 
foods, entry into Thailand is still expensive. There are no longer 
specific duties on most imported agricultural and food products, except 
wine and spirits, which continue to have very high rates.
    Arbitrary customs valuation procedures sometimes constitute a 
serious barrier to U.S. goods. The Customs Department has used the 
highest previously declared invoice value as a benchmark for assessing 
subsequent shipments from the same country. That allows Customs to 
disregard the invoice value of a shipment in favor of the benchmark 
amount. This practice has had a particularly damaging effect upon trade 
in agricultural products, which often have seasonally fluctuating 
values. However, the government is instituting a program of customs 
reform that, if adopted successfully, will remedy some of the problems 
at the ports of entry. These reforms include adoption of the World 
Customs Organization harmonized code and the use of an Electronic Data 
Interchange (EDI) system. The pilot program for EDI became operational 
early in 1998, but thus far affects only export procedures and only in 
the airport, not in the seaports. There have been some significant 
improvements in advance of the full installation of EDI. Expedited 
procedures for express carriers were instituted during 1998, and 
customs procedures in the port areas are reported by private industry 
to be faster and smoother during 1998-1999.
    Customs duties are sometimes arbitrary in other ways. For example, 
import duties on unfinished materials are higher than those on finished 
goods in some categories, such as automobiles. This is a burden to 
American firms that manufacture or assemble in Thailand.
    Restrictions on the activities of foreign banks have eased since 
1994, as have limits on foreign ownership of Thai banks. However, 
foreign banks' deposits in Thailand still comprise only 4.1 percent of 
total bank deposits, and foreign banks are still disadvantaged in a 
number of ways. Foreign banks are limited to three branches (of which 
two must be outside of Bangkok and adjacent provinces) and there are 
limits on expatriate management personnel, although foreign bankers 
here say that requests for additional personnel are customarily 
approved.
    To facilitate recapitalization of the financial sector, the 
government has raised limits on foreign ownership of domestic banks. In 
June 1997 the Minister of Finance was empowered to raise the old 25 
percent ceiling on foreign ownership of domestic banks, and the Bank of 
Thailand announced in November 1997 that foreign ownership would be 
allowed to exceed 49 percent for a period of 10 years. (Foreign 
investors will not be forced to divest shares after 10 years, but will 
not be able to purchase additional shares.) The government has also 
issued additional foreign bank and Bangkok International Banking 
Facility licenses and authorized foreign bank participation in domestic 
ATM networks. During the third quarter of 1999 foreign banks purchased 
75 percent shares of two domestic banks intervened by the Thai 
Government. The Government hopes to sell similar stakes in two more 
intervened banks by the end of 1999.
    Foreign ownership of finance companies and securities companies had 
been limited to 25 percent, but these limits were also raised in the 
aftermath of the financial crisis. As of May 1998, foreigners may hold 
majority stakes in Thai securities houses, although there are minimum 
investment requirements.
    The provision of telecommunications services is a government 
monopoly in Thailand. Private participation is currently limited to 
concessions in both wireless and fixed line sectors. In November 1997, 
the government approved a telecommunications master plan that that 
provides an outline of a liberalization program. The government plans 
to corporatize its two telecom operators, the Telephone Organization of 
Thailand and the Communications Authority of Thailand, in preparation 
for seeking strategic partners in the next few years. Full market 
liberalization will not take place until 2006, as mandated by the WTO.
6. Export Subsidies Policies
    Thailand ratified the Uruguay Round agreements in December 1994. 
Thailand maintains several programs that benefit exports of 
manufactured products or processed agricultural products and which may 
constitute export subsidies. These include subsidized credit on some 
government-to-government sales of Thai rice (agreed on a case-by-case 
basis), preferential financing for exporters in the form of packing 
credits, tax certificates for rebates of packing credits, and rebates 
of taxes and import duties for products intended for re-export. The 
Thai EX-IM bank currently offers an 11 (plus 1.5) percent rate on 
export credits, about one point below the prime rate offered by the 
large commercial banks.
7. Protection of U.S. Intellectual Property
    Improved protection for U.S. copyright, patent, and trademark 
holders has been an important bilateral trade issue for several years. 
After passage of a revised Copyright Law in 1994 the U.S. moved 
Thailand from Priority Watch List to Watch List status. During 1998 the 
Thai Parliament passed amendments to the Patent Act, abolishing the 
Pharmaceutical Review Board. Trademark application procedures were 
streamlined by administrative means.
    A specialized intellectual property department in the Ministry of 
Commerce has cooperated with U.S. industry associations to coordinate 
both legal reforms and enforcement efforts, including raids. In 1997, 
the parliament established a separate intellectual property court that 
has resulted in a more efficient judicial procedures and higher fines. 
The court began operation in December 1997. In mid-1998, the government 
produced a letter of intent containing the bilaterally agreed text of 
an IPR action plan for the remainder of the year. The plan was 
ambitious, and covered most aspects of IPR. Many components of the plan 
were implemented during 1998 as the Thai Government showed itself 
prepared to install more efficient administrative structures and 
procedures for dealing with piracy. Enforcement has always been the 
biggest problem. During the first months of 1999 enforcement efforts in 
Thailand improved dramatically with several successful raids on pirate 
optical media supply and distribution systems. The momentum has been 
kept up through the second half of the year. Rights-holders report that 
police cooperation is better and the frequency of raids is up across 
the board. As requested by the USG and rights holders, these have 
included some raids against producers.
    Piracy remains a serious problem, however, and it is growing rather 
than shrinking as pirates from elsewhere in the region have come to set 
up shop in Thailand. The U.S. pharmaceutical, film, and software 
industries estimate lost sales at over $200 million annually. Few 
persons have served time in jail for copyright infringement. 
Irregularities in police and public prosecutor procedures have resulted 
in the substitution of insignificant defendants for major ones and the 
disappearance of vital evidence from police inventories. Although fewer 
raids are compromised by leaks from police sources than during 1997-98, 
this is still a problem. Some trademark pirates running ``plush'' item 
factories in outlying provinces have thwarted raids with threats of 
violence against officials and investigators.
8. Worker Rights
    a. The Right of Association: The Labor Relations Act of 1975 gives 
workers in the private sector most internationally recognized labor 
rights, including the freedom to associate. They may form and join 
unions and make policy without hindrance from the government and 
without reprisal or discrimination for union activity. Unions in 
Thailand may have relationships with unions in other countries, and 
with international labor organizations. In 1991, following a military 
coup, the Thai Government revoked a number of these rights for state 
enterprise workers. The Thai Parliament approved a new State Enterprise 
Labor Relations (SELRA) bill on October 8, 1998. That bill was 
subsequently rejected by the Constitutional Court on a technicality. In 
August 1999, after the bill was re-introduced, the House and Senate 
could not agree on several key union rights provisions. The House then 
invoked constitutional provisions that will allow it to pass SELRA 
unilaterally after a six-month waiting period. The Ministry of Labor 
expects the bill to pass by February 2000.
    b. The right to Organize and Bargain Collectively: Thai workers 
have the right to bargain collectively over wages, working conditions, 
and benefits. About 900 private sector unions are registered in 
Thailand. Civil servants cannot form unions. State enterprise 
employees, essential workers (transportation, education, and health 
care personnel), and civil servants may not strike. However, they may 
be members of employee associations. Collective bargaining is unusual 
in Thailand, and industry-wide collective bargaining is all but 
unknown. However, representatives of public sector associations and 
private sector unions do sit on various government committees dealing 
with labor matters, and are influential in setting national labor 
policies, such as the minimum wage.
    c. Prohibition of Forced or Compulsory Labor: The Thai Constitution 
prohibits forced or compulsory labor except in cases of national 
emergency, war, or martial law. However, Thailand remains the target of 
ILO actions under Convention 29 (forced labor) because child 
prostitution persists despite recent government moves to step up 
enforcement of laws prohibiting it, and to cooperate with ILO programs.
    d. Minimum Age for Employment of Children: The new 1998 Labor 
Protection Act went into effect on August 20, 1998. The act raises the 
minimum age for employment in Thailand from thirteen to fifteen. 
Persons between the ages of 15 to 18 are restricted to light work in 
non-hazardous jobs, and must have the permission of the Department of 
Labor in order to work. Nighttime and holiday employment of non-adults 
is prohibited. The new national education bill passed in August 1999 
gives the children the right to free primary education through grade 
12. However, compulsory education is only enforced through grade nine.
    e. Acceptable Conditions of Work: Working conditions vary widely in 
Thailand. Large factories generally meet international health and 
safety standards, though there have been serious lapses involving loss 
of life. The government has increased the number of inspectors and 
raised fines for violators, but enforcement is still not rigorous. The 
usual workday in industry is eight hours. Wages in profitable export 
industries often exceed the legal minimum. However, in the large 
informal industrial sector wage, health, and safety standards are low 
and regulations are often ignored. Most industries have a legally 
mandated 48-hour maximum workweek. The major exceptions are commercial 
establishments, where the maximum is 54 hours. Transportation workers 
are restricted to 48 hours per week.
    f. Rights in Sectors with U.S. Investment: Labor rights are 
generally respected in industrial sectors with heavy investment from 
U.S. companies. Most U.S. firms in Thailand work with internal workers' 
representatives or unions, and relations are constructive. U.S. 
companies strictly adhere to Thai labor laws and did not experience 
serious labor disruptions in the last year.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,579
Total Manufacturing............  ..............  1,633
  Food & Kindred Products......  109             ...............................................................
  Chemicals & Allied Products..  334             ...............................................................
  Primary & Fabricated Metals..  70              ...............................................................
  Industrial Machinery and       648             ...............................................................
   Equipment.
  Electric & Electronic          243             ...............................................................
   Equipment.
  Transportation Equipment.....  24              ...............................................................
  Other Manufacturing..........  205             ...............................................................
Wholesale Trade................  ..............  1,508
Banking........................  ..............  486
Finance/Insurance/Real Estate..  ..............  351
Services.......................  ..............  42
Other Industries...............  ..............  122
TOTAL ALL INDUSTRIES...........  ..............  5,721
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 EUROPE

                              ----------                              


                           THE EUROPEAN UNION


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................    8095.6    8393.9    8182.5
  Real GDP Growth (pct)...................       2.7       2.9       2.1
  GDP by Sector:
    Agriculture...........................       N/A       N/A       N/A
    Manufacturing.........................       N/A       N/A       N/A
    Services..............................       N/A       N/A       N/A
    Government............................       N/A       N/A       N/A
  Per Capita GDP (Thousands of US$).......      21.6      22.3      21.8
  Labor Force (Millions)..................     166.9     167.7       N/A
  Unemployment Rate (pct).................      10.7      10.0       9.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2/M3).............       5.0       N/A       N/A
  Consumer Price Inflation................       2.1       1.5       1.3
  Exchange Rate (USD/ECU annual average)..      1.13      1.12      1.05

Balance of Payments and Trade:
  Total Exports FOB.......................     820.2     816.1       N/A
    Exports to U.S........................     160.8     179.1       N/A
  Total Imports CIF.......................     765.2     793.5       N/A
    Imports from U.S......................     156.9     168.7       N/A
  Trade Balance...........................      55.0      22.6       N/A
    Balance with U.S......................       3.9      10.4       N/A
  External Public Debt (pct of GDP).......      71.7      69.7      68.6
  Fiscal Deficit/GDP (pct)................       2.3       1.5       1.5
  Current Balance/GDP (pct)...............       1.5       1.2       0.9
  Debt Service Payments/GDP (pct).........       N/A       N/A       N/A
  Gross Official Reserves.................     518.5       N/A       N/A
  Aid from U.S............................       N/A       N/A       N/A
  Aid from Other Sources..................       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Estimates.

1. General Policy Framework
    The European Union (EU), the largest U.S. trade and investment 
partner, is a supranational organization comprised of fifteen European 
countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, 
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, 
and the United Kingdom. It is unique in that its member states have 
ceded to it increasing authority over their domestic and external 
policies, especially with the 1987 Single European Act and the 1993 
``Maastricht'' and 1999 ``Amsterdam'' amendments to the 1958 Treaty of 
Rome. Individual member state policies, however, may still present 
problems for U.S. trade, in addition to EU-wide actions.
    The EU's authority is clearest in trade-related matters. As a long-
standing customs union, the EU represents the collective external trade 
interests of its member states in the World Trade Organization (WTO). 
Internally, the free movement of goods, services, capital and people 
within the EU is guaranteed by the Single Market program, an effort to 
harmonize member state laws in order to eliminate non-tariff barriers 
to these flows. Externally, with respect to services investment, 
intellectual property rights and food safety issues among others, 
competency for policy and negotiations is balanced between member 
states, the European Commission and the European Parliament. However, 
the European Commission enforces treaty provisions against anti-
competitive practices throughout the EU. The EU is also gaining greater 
competence over investment from third countries.
    The Maastricht Treaty provides for the creation of an Economic and 
Monetary Union (EMU) among the EU member states which went into effect 
on January 1, 1999 with the launch of a single currency, the euro. The 
11 participating countries (Denmark, Greece, Sweden and the United 
Kingdom are not included) now have a single monetary policy conducted 
by the European System of Central Banks (ESCB), including the 
Frankfurt-based European Central Bank (ECB). Member states were 
generally successful in achieving the ``convergence criteria'' for EMU: 
maximum deficits of three percent of GDP, maximum gross national debt 
of 60 percent of GDP, inflation and interest rate levels no more than 
one and a half percentage points above the average of the three lowest 
rates among the member states, and two years of relative exchange rate 
stability. Since the euro's launch they have adhered to their Stability 
and Growth Pact's limit on excessive budget deficits (3 percent of GDP) 
by seeking to achieve balanced budgets by 2002.
    The Union's budget, consisting mainly of member state contributions 
because the EU has no independent taxing authority, is limited to 1.27 
percent of the combined GDP of the 15 member states. Expenditures of 
roughly $100 billion are divided generally among agricultural support 
(40 percent), ``structural'' policies to promote growth in poorer 
regions (40 percent), other internal policies (five percent), external 
assistance (five percent) and administrative and miscellaneous (five 
percent).
2. Exchange Rate Policy
    The third and final stage of EMU began on January 1, 1999 when 11 
member states irrevocably fixed their exchange rates to the euro. 
Financial transactions are now available in euros through commercial 
banking institutions. Euro notes and coins will be introduced on 
January 1, 2002, fully replacing national currencies by July 1, 2002. 
During the transition period, there will be dual circulation between 
the euro and the respective national currencies.
    The ESCB is responsible for setting monetary policy in the euro 
area, while national central banks will continue to conduct money 
market operations and foreign exchange intervention under its 
direction. Per requirement of the treaty, the ECB policy is focused on 
maintaining price stability. The euro follows a floating exchange rate 
regime against other currencies, with the exception of the currencies 
of Denmark and Greece which participate in the new Exchange Rate 
Mechanism (ERM-2) limiting their fluctuation against the euro to +/- 
2.25 percent and +/- 15 percent respectively. EMU has provisions to 
create additional exchange rate arrangements, if the member states 
desire to do so. However, there are no current plans to seek such 
arrangements.
3. Structural Policies
    Single Market: The legislative program removing barriers to the 
free movement of goods, services, capital and people is largely 
complete, although there are delays in member state implementation of 
Community rules and national differences in the interpretation of those 
rules. The net effect of the Single Market program has been freer 
movement, fewer member state regulations for products and service 
providers to meet, and real consolidation of markets. Nonetheless, some 
aspects of the program have created problems for U.S. exporters (as 
discussed below). Furthermore, disparate enforcement, inconsistent 
application and insufficient monitoring of Single Market measures 
within the EU place U.S. exporters at a disadvantage. EU efforts to 
remedy these problems are notable in some areas, but resources remain 
severely limited.
    Tax Policy: Tax policy remains the prerogative of the member 
states, which must approve by unanimity any EU legislation in this 
domain. EU legislation to date has been aimed at eliminating tax-
induced distortions of competition within the Union. Legislation 
focuses on harmonizing value-added and excise taxes, eliminating double 
taxation of corporate profits, interest, and dividends and facilitating 
cross-border mergers and asset transfers. The EU countries have stated 
their commitment to move further toward coordination of their tax 
policies, in addition to agreeing to a Code of Conduct to curb 
``harmful'' business taxation.
4. Debt Management Policies
    The EU raises funds in international capital markets, but does so 
largely for cash management purposes and thus does not have any 
significant international debt. The European Investment Bank, 
reportedly the world's largest multilateral development bank, also 
raises funds in international markets. The bank has an extremely 
favorable balance sheet and retains the highest credit rating. Finally, 
the EU has used its borrowing power to on-lend to key developing 
countries, especially in Central Europe and the newly independent 
states of the former Soviet Union. It has consistently taken a hard 
line on efforts to reschedule their debt.
5. Significant Barriers to U.S. Exports
            Import Policies
    Import, Sale and Distribution of Bananas: The U.S. has been engaged 
for many years in efforts to resolve a long-standing dispute with the 
EU over its banana import regime. The WTO found that the EU's current 
regime remains WTO-inconsistent. The U.S. currently has WTO-approved 
retaliation in place worth 191.4 million dollars per year. The U.S. has 
tabled a number of constructive ideas on revised regimes that would be 
WTO-consistent. The European Commission is currently developing 
proposals for member state consideration. U.S. retaliation will remain 
in place until the EU implements a WTO-consistent banana import regime.
    Restrictions Affecting U.S. Wine Exports to the EU: Current EU 
regulations require imported wines to be produced only by specifically 
authorized oenological practices. Since the mid-1980's, U.S. wines have 
entered the EU market under a series of ``derogations'' granting EU 
regulatory exemptions. Access to the EU wine market is further impeded 
by a complicated wine-import certificate documentation process. The 
United States is negotiating an agreement with the EU to ensure the EU 
market remains open to U.S. wine. The U.S. does not believe EU 
legislation on ``traditional expressions'' (terms such as vintage or 
tawny) is WTO TRIPs consistent and therefore does not believe this area 
is appropriate for bilateral negotiation.
            Services Barriers
    EU Broadcast Directive: The EU's 1989 Broadcast Directive (revised 
in 1997) provides that a majority of entertainment broadcast 
transmission time be reserved for European-origin programs ``where 
practicable'' and ``by appropriate means.'' Certain measures of the 
directive appear to violate WTO rules. The U.S. has reserved its right 
to take further action under dispute settlement procedures and will 
continue to monitor closely the implementation of these measures.
    Computer Reservation Services: U.S. Computer Reservation Services 
(CRS) companies have had difficulties in the EU market because some 
member state markets tend to be dominated by the CRS owned by that 
member state's flag air carrier. Most disputes have been resolved to 
the satisfaction of U.S. CRS vendors via U.S. government intervention 
or recourse to national administrative and court systems. In 1996 the 
U.S. Department of Justice forwarded a Positive Comity referral to the 
European Commission (DG Competition) requesting an investigation into 
anticompetitive activities in Europe that may have disadvantaged a U.S. 
CRS firm. The Commission's investigation resulted in a European CRS 
firm being charged with activities that infringed competition rules. As 
of November 1999 a final Commission ruling has not been made.
    Airport Ground-Handling: In October 1996, the EU issued a directive 
to liberalize the market to provide ground-handling services at EU 
airports above a certain size by January 1, 1998. U.S. airline 
companies and ground-handling service providers welcome this 
development. Yet they are concerned with an exemption that allows EU 
airports to continue having a monopoly service provider until January 
1, 2002, and to limit the number of firms which can provide certain 
services on the airport tarmac (ramp, fuel, baggage and mail/freight 
handling). These potential barriers are partially offset by more 
liberal bilateral air service agreements, which the United States 
concluded with individual member states.
    Postal Services: U.S. express package services are concerned with 
market access restriction and unequal competition caused by state-owned 
postal monopolies. Proposals to liberalize postal services and to 
constrain the advantages enjoyed by the monopolies have not made 
sufficient progress to redress these problems.
            Standards, Testing, Labeling and Certification
    Despite the Single Market program, the free movement of goods 
within the EU is still impeded by widely disparate member state 
standards, testing and certification procedures for some products. The 
``new approach,'' which streamlines technical harmonization and the 
development of standards for certain product groups using essential 
health and safety requirements, reflects the trend towards 
harmonization of laws, regulations, standards, testing, and quality and 
certification procedures in the EU. U.S. firms cannot directly 
participate in the European standardization process, but European 
standards bodies can be sympathetic to U.S. concerns when approached.
    The Transatlantic Business Dialogue's (TABD) adopted goal of 
``approved once, accepted everywhere in the transatlantic marketplace'' 
demonstrates the importance of standardization in U.S.-EU trade 
relations. The anticipation that EU standardization legislation will 
eventually cover 50 percent of U.S. exports to Europe demonstrates its 
significance. Although some progress has been made, U.S. exporters are 
still concerned with legislative delays, inconsistent member state 
interpretation and application of legislation, the ill-defined scope of 
directives and unclear marking and excessive labeling requirements. 
These problems can complicate and impede U.S. exports to the EU.
    Mutual Recognition Agreements: In addition to implementing a 
harmonized approach to testing and certification, the EU is also 
providing for the mutual recognition of member state designated 
national laboratories to test and certify ``regulated'' products. For 
the testing and certification of non-regulated products, the EU 
encourages mutual recognition agreements between private sector 
parties. U.S. exporters face problems when only ``notified bodies'' in 
Europe are empowered to grant final product approvals of regulated 
products. There are some U.S. laboratories, under subcontract to 
notified bodies, that can test regulated products. Yet these 
laboratories must still send test reports to their European affiliates 
for final product approval. Since this process can cause delays and 
additional costs for U.S. exporters, sufficient access for U.S. 
exporters cannot be provided in this fashion.
    On May 18, 1998, the United States and the EU signed a package of 
Mutual Recognition Agreements (MRAs), allowing for conformity 
assessments to be performed in the United States to EU standards and 
vice versa. Both governments are committed to advancing joint efforts 
to promote mutual recognition, equivalency and harmonization of 
standards. The MRA entered into force on December 1, 1998 and is now 
being implemented. Under the Transatlantic Economic Partnership (TEP) 
established at the May 1998 U.S.-EU Summit, the U.S. set in motion a 
process to undertake negotiation of additional MRAs covering other 
sectors.
    Biotechnology Product Approvals and Labeling: A majority of EU 
member states have called for a ``moratorium'' on approvals for 
products of biotechnology for the foreseeable future. Calls for 
segregation, traceability and labeling have not been well defined. The 
result has been an uncertain and ambiguous regulatory environment that 
neither instills consumer confidence nor provides clear criteria with 
which industry could comply. No biotechnology products have been 
approved since 1998. The Commission is currently conducting an internal 
review of the EU approach to biotechnology and food safety and expects 
to circulate a recommendation paper in early 2000.
    Hormone-Treated Beef: The WTO has ruled consistently against the 
EU's ban on hormone-treated beef, most recently in early 1998. The EU 
did not come into compliance by May 13, 1998, as required, citing a 
need to perform additional risk assessments (which the WTO did not say 
were needed). Therefore, the U.S. has imposed WTO-approved retaliation 
worth 116.8 million dollars per year, pending EU compliance. A large 
body of scientific evidence indicates these products are safe as used. 
The EU does not expect its studies to be complete before mid-2000 at 
the earliest. The U.S. remains open to exploring meaningful 
compensation pending EU compliance.
    Veterinary Equivalency: The U.S./EU Veterinary Equivalency 
Agreement (VEA) was signed on July 20, 1999 and implemented on August 
1. The agreement provides a regulatory framework for recognition of 
equivalent sanitary measures of both parties of virtually all animals 
and animal products. However, recent statements by Commission officials 
have indicated that the EU is not prepared to recognize U.S. systems as 
equivalent in the near term. A joint management committee meeting of 
the VEA is planned for March 2000, when we hope to have ironed out many 
of the implementation issues.
    Aflatoxin Limits: In July 1998, the EU adopted a regulation 
harmonizing maximum levels of aflatoxin in peanuts, tree nuts and dried 
fruits, cereals and milk, effective January 1, 1999. At the same time, 
a directive specifying sampling methods to be used after December 31, 
2000 was adopted. The United States considers the maximum limits 
unjustifiably low in relation to consumer exposure and risk. The 
sampling procedure will increase handling costs with no appreciable 
reduction of aflatoxin contamination in consumer protection.
    Specified Risk Materials Ban: In response to growing concern over 
the transmission of ``mad cow disease'' or Bovine Spongiform 
Encephalopathy (BSE), the EU, in July 1997, passed a Specified Risk 
Material (SRM) regulation restricting the use and processing of certain 
animal products and by-products. Since tallow, tallow derivatives and 
gelatin are widely used in food manufacturing, pharmaceutical, cosmetic 
and industrial products, this regulation threatened to significantly 
restrict U.S. access to EU markets despite the fact that the United 
States is considered to have a negligible BSE-risk. Implementation of 
the ban continues to be delayed; a new proposal addressing the overall, 
long term problem of TSEs (transmissible spongiform encephalopathies) 
is expected to be presented in November 1999.
    Hushkits or New Engine Modified and Recertificated Aircraft: In 
1997, pressure on EU airport authorities to reduce noise levels 
resulted in a Commission effort to develop an EU-wide noise standard. 
When it became clear that it would be politically impossible to agree 
on such a standard, the Commission and the EU member states developed 
an alternative proposal. That proposal effectively passes the costs on 
to U.S. and other non-EU air carriers and to U.S. manufacturers of 
noise reduction technology (hushkits) and new engines for older U.S. 
aircraft. The Commission has provided no scientific analysis 
demonstrating that the regulation would reduce noise. The regulation 
was approved by the European Parliament in 1999 but, following U.S. 
protests, its implementation has been delayed until May 2000. The 
prospect of implementation has harmed the market for hushkitted and re-
engined aircraft and negatively affected fleet values of some U.S. air 
carriers.
    New Aircraft Certification: The United States continues to be 
concerned by the possibility that European aircraft certification 
standards are being applied so as to impede delivery of qualified 
aircraft into Europe. Processes and procedures currently employed by 
the European Joint Aviation Authorities (JAA) appear cumbersome and 
arbitrary, and in any event cannot be uniformly enforced. For example, 
France continues to insist on an exception to the JAA's decision on 
certification of Boeing's new model 737 aircraft that limits the seat 
density of aircraft sold to carriers in France. The JAA decision itself 
took an inordinately long time, during which additional conditions were 
imposed progressively on the U.S. firm. The United States desires a 
transparent, equitable process for aircraft certification that is 
applied consistently on both sides of the Atlantic according to the 
relevant bilateral airworthiness agreements.
    Metric Labeling: In order to harmonize measurement systems 
throughout the EU, the EU adopted a directive in 1980, which mandates 
metric-only labeling on most goods entering the EU from January 1, 
2000. Both EU and U.S. exporters have complained about the costs of 
complying with conflicting EU metric-only and U.S. mandatory dual 
labeling requirements. In response to strong industry and USG 
opposition, the EU approved a 10-year deferral of its metric-only 
directive in December 1999.
    Voluntary Ecolabeling Scheme: In 1992, the EU adopted an EU-wide 
ecolabeling scheme. This is a voluntary scheme that allows 
manufacturers to obtain an ecolabel for a product when its production 
and life cycle meets the established criteria for the product category. 
Despite ongoing dialogues between the EU, U.S. government and U.S. 
interest groups, commitments to enhance transparency and scientific 
analysis from previous technical bilateral talks have not been upheld. 
To address this problem, a formal EU-U.S. technical working group was 
proposed in October 1998. The United States, due to concern that the EU 
ecolabeling scheme may become a de facto trade barrier, will continue 
to monitor closely the development of the ecolabeling scheme.
    Packaging Labeling Requirements: In 1996, the Commission proposed a 
directive establishing marking requirements, indicating recyclability 
and/or reusability, for packaging. Due to the differences that exist 
between EU marking requirements and those used by the United States and 
the International Standards Organization (ISO), the United States is 
concerned with the additional costs and complications both U.S. and EU 
firms will face, in the absence of concomitant environmental benefits. 
The United States is also concerned with Article 4 of the proposed 
directive, which would prohibit the application of other marks to 
indicate recyclable or reusable packaging. This may require some 
companies to create new molds solely for use in the European market. 
Discussions underway in the ISO may resolve potential problems, 
especially since the Commission has indicated a willingness to review 
the proposed directive in light of an eventual ISO agreement.
    Waste Management: European Commission environment officials are 
working on draft proposals for directives on batteries and on waste 
from electrical and electronic equipment. The United States supports 
the objectives of the drafts to reduce waste and the environmental 
impact of discarded products. However, the proposals' approach to 
banning certain materials (such as lead, mercury and cadmium) appears 
to lack adequate scientific and economic justification and may serve as 
unnecessary barriers to trade. Imposing sole responsibility on the 
manufacturer for the collection and recycling of used products also is 
unnecessarily burdensome. The draft directives are likely to be voted 
on by the Commission in early 2000. If adopted, the proposals would 
then move to the Council and European Parliament. U.S. and Commission 
waste experts have begun an informal dialogue to discuss these and 
other waste issues. The United States government will continue to 
monitor closely these proposals.
    Acceleration of the Phase-Out of HCFCs: The European Commission 
adopted a proposal in July 1998 to amend EU Regulation 3093/94 on 
substances that deplete the ozone layer. The United States government 
actively opposed early drafts, which included phase-outs of some 
hydrochlorofluorocarbons (HCFCs) by 2000 or 2001, and would have 
disadvantaged U.S. producers while not necessarily benefiting the 
environment. The final Commission draft included a January 1, 2003 
phase-out date for HCFCs used in refrigerator foam--in line with U.S. 
law--thereby protecting the export to the EU of U.S. refrigeration 
equipment. The Council agreed to the 2003 date in adopting its Common 
Position in late December 1998, but the Parliament sought to accelerate 
the date to 2002. In December 1999, Parliament rejected this amendment, 
so the 20003 phase-out date for HCFCs used by the air conditioning 
industry, while similarly manufactured heat pump systems received a 
2004 deadline. The U.S. government will continue to monitor this issue.
            Investment Barriers
    The European Union and its fifteen member states provide one of the 
most open climates for U.S. direct investment in the world, with well-
established traditions concerning the rule of law and private property 
rights, transparent regulatory systems, freedom of capital movements 
and the like. Traditionally, member state governments have been 
responsible for policies governing non-EU investment. However, in the 
1993 Maastricht Treaty, partial competence was shifted to the EU. 
Member state policies existing on December 31, 1993 remain effective, 
but can be superseded by EU law. In general, the EU supports the idea 
of national treatment for foreign investors, arguing that any company 
established under the laws of one member state must, as a ``Community 
company,'' receive national treatment in all member states regardless 
of ultimate ownership. However, some restrictions on U.S. investment do 
exist under EU law.
    Ownership Restrictions: The benefits of EU law in the aviation and 
maritime areas are reserved to firms majority-owned by EU nationals.
    Reciprocity Provisions: The ``reciprocal'' national treatment 
clause found in EU banking, insurance and investment services 
directives allows the EU to deny a third-country financial services 
firm the right to establish a new business in the EU if it determines 
that the investor's home country denies national treatment to EU firms. 
This notion of reciprocity may have been taken further in the 
Hydrocarbons Directive which requires ``mirror-image'' reciprocal 
treatment where an investor is denied a license if its home country 
does not permit EU investors to engage in activities under 
circumstances ``comparable'' to those in the EU. It should be noted 
that, thus far, these reciprocity provisions have not affected U.S. 
firms. In fact, the EU reiterated to the WTO in April 1998 that neither 
the Commission nor the EU member states would invoke the reciprocity 
clause in the EU banking directive with other WTO members in the light 
of the specific most-favored-nation commitments made during the WTO 
financial services negotiations.
    Access to Government Grant Programs: The EU does not preclude U.S. 
firms established in Europe from access to EU-funded research and 
development grant programs, although in practice, association with a 
``European'' firm is helpful in winning grant awards.
    Anti-Corruption: In an attempt to coordinate disparate member state 
legislation on anti-corruption, the Commission, in 1997, adopted a 
discussion document suggesting guidelines for the development of a 
coherent EU-level anti-corruption policy. However, there has been 
little follow-up to the recommendations, and EU member state 
legislation on corruption is presently far from homogeneous. A number 
of EU member states have yet to ratify the OECD convention on anti-
bribery.
            Government Procurement
    Discrimination in the Utilities Sector: The Utilities Directive, 
which took effect in January 1993, is an effort to open government 
procurement within the EU. It covers purchases in the water, 
transportation, energy and telecommunications sectors. The directive 
benefits U.S. firms by requiring open and objective bidding procedures, 
but still discriminates against non-EU bids unless provided for in an 
international or bilateral agreement. This discriminatory provision was 
waived for the heavy electrical sector in a 1993 Memorandum of 
Understanding (MOU) signed between the EU and the United States. A year 
later, in a new agreement, the idea of non-discriminatory treatment was 
extended to over $100 billion of goods procurement on each side. Much 
of the 1994 agreement is implemented through the 1996 WTO Government 
Procurement Agreement.
    Telecommunications Market Access: Consistent with the WTO Agreement 
on Basic Telecommunications Services and EU legislation requiring 
liberalization, there is a general trend toward increased competition 
and openness in the European telecommunications services market. Access 
of U.S. firms, however, varies considerably from member state to member 
state due to uneven implementation of commitments. While not specific 
to U.S. firms, high interconnection tariffs in many member states 
present a serious barrier. The ability of telecommunications regulatory 
bodies to exercise authority quickly and effectively varies among 
member states. This has, in some instances, hampered competition. The 
European Commission has proposed streamlining the European regulatory 
structure and increasing dialogue among regulators and the Commission 
to enhance, inter alia, regulatory efficiency.
    Procurement policies and practices are becoming more competitive, 
but discrimination against non-EU bids for public procurement in the 
telecommunications sector remains. In the long run, as privatization in 
the sector increases, this barrier will lessen in importance, but 
access still may be impeded by standards, standard-setting procedures, 
testing, certification and interconnection policies. In this regard, 
the U.S. has serious concerns about market access for third generation 
(3G) wireless telecommunications. Member states appear to be 
formulating licensing rules and procedures that favor a single European 
standard. The U.S. has urged the European Commission and member states 
to modify their rules, as needed, to ensure market access for providers 
of products based on all internationally accepted 3G standards.
            Other Barriers
    Data Privacy: The EU Data Protection Directive entered into force 
in October 1998. It sought to harmonize the treatment of personal data 
within the EU to increase protection and facilitate the flow of 
information within Europe. The Directive only allows the transfer of 
data to third countries if they are deemed to provide ``adequate 
protection.'' The U.S. is discussing a Safe Harbor Initiative with the 
EU, which would create an interface for our different approaches to 
data privacy and ensure that data flows are not interrupted.
6. Export Subsidies Policies
    Agricultural Product Subsidies: The EU grants direct export 
subsidies (restitutions) on a wide range of agricultural products. 
Payments are nominally based on the difference between the EU internal 
price and the world price, usually calculated as the lowest offered 
price by competing exporters. In addition, the complexities of EU law, 
along with the availability of preferential loans and structural funds, 
may further support EU agricultural exports. Under the Uruguay Round 
agreement, the EU is required to reduce direct export subsidies by 21 
percent in volume and 36 percent in value over six years. Whether or 
not the EU is abiding by its commitments remains an issue of 
contention.
    Canned Fruit: The U.S. cling peach industry has complained that the 
EU provides excessive support to their canned fruit industry and that 
the EU has failed to observe the 1985 U.S.-EU Canned Fruit Agreement. 
This allows EU fruit processors to unfairly undercut the domestic and 
export prices for EU trading partners. The U.S. Government has 
consulted with the EU on this issue several times. Currently, EU data 
on subsidy levels to its canned fruit processors is being reviewed, but 
effects of EU subsidies on global prices appear significant.
    Shipbuilding Subsidies: Responding to pressure from the 
shipbuilding industry, the United States, in 1994, successfully 
brokered an OECD agreement to eliminate subsidies that were distorting 
the world ship market. Following the non-ratification of the agreement 
by the U.S. Senate, the EU adopted its own shipbuilding directive in 
May 1998. This directive contains the EU's own timeline for phasing out 
subsidies, primarily aimed at leveling the playing field within the EU.
    Government Support for Airbus: Since the inception of the European 
Airbus consortium in 1967, its partner governments (France, Germany, 
Spain and the United Kingdom) have provided massive support to their 
national company partners in the consortium to aid the development, 
production and marketing of large civil aircraft. Since that date, the 
Airbus partner governments either have committed, or are in an advanced 
stage of consideration of providing, additional funds for derivative 
models of current Airbus aircraft. The United States is concerned that 
the launch of new Airbus programs and the restructuring of the Airbus 
consortium may be used to justify additional government subsidies. The 
United States also continues to be concerned that the European Union 
and its member states may attempt to influence commercial aircraft 
competitions in favor of Airbus aircraft in a manner inconsistent with 
its obligations. The United States will continue to monitor EU 
involvement in future competitions and its compliance with aircraft 
trade agreements.
7. Protection of U.S. Intellectual Property
    The EU and its member states support strong protection for 
intellectual property rights (IPR). EU member states are participants 
of all the relevant WIPO conventions. Along with the EU, they regularly 
join with the United States to encourage other countries to adopt and 
enforce high IPR standards, including those in the TRIPs Agreement. 
However, the United States has challenged several member states on 
their failure to fully implement the TRIPs Agreement.
    Designs: The EU agreed to compromise language on industrial designs 
and models legislation. In general, the directive harmonizes national 
rules on design protection, but does not provide for registration and 
protection of spare components of complex products (such as visible car 
spare parts). A regulation currently under review would designate the 
Office for Harmonization in the Internal Market (OHIM, also known as 
the Community Trademark Office) in Alicante, Spain as the EU registrar 
for designs.
    Patents: Patent filing and maintenance fees in the EU and its 
member states are expensive relative to other countries. Fees 
associated with the filing, issuance and maintenance of a patent over 
its life far exceed those in the U.S. In an effort to introduce more 
reasonable costs, the European Patent Office (EPO) reduced fees for 
filing by 20 percent in 1997.
    European Community Patent: Draft legislation to establish a 
European Community Patent to harmonize patent issuance in EU member 
states, and supplement patents issued by the EPO (with a wider 
membership than the EU) is slated for late 1999. However, a stumbling 
block to this effort is disagreement among member states on which 
official EU languages will be used in patent applications.
    Trademarks: Registration of trademarks with the European Community 
trademark office (official name: Office for Harmonization in the 
Internal Market--OHIM) began in 1996. OHIM, located in Alicante, Spain 
issues a single Community trademark with is valid in all 15 EU member 
states.
    Madrid Protocol: The World Intellectual Property Organization's 
(WIPO) Madrid Protocol provides for an international trademark 
registration system permitting trademark owners to register in member 
countries by filing a standardized application. The U.S. has not 
acceded because it objects to voting provisions in the protocol that 
would allow the EU a vote upon accession in addition to the votes of 
its member states. The U.S. has proposed a voting arrangement to the EU 
that would establish voting procedures to address U.S. concerns. The EU 
has not yet responded to the U.S. proposal.
    Trademark Exhaustion: The trademark exhaustion principle limits a 
trademark owner's ability to resort to remedies against importers/
distributors of trademarked goods outside channels authorized by the 
trademark owner. The current EU regime supports the principle of 
``Community exhaustion,'' which allows resale of trademarked goods 
within the fifteen member states once the trademark owner licenses 
their sale in any EU country.
    In 1998 a European Court of Justice ruling upheld the legality of 
Community trademark exhaustion within the EU. The European Commission 
has defended the principle by maintaining that Community exhaustion 
heightens competition within the internal market. However, member state 
opinion remains divided and at the insistence of the U.K. and Sweden, 
the Commission began a study into the economic impact of Community 
exhaustion in the member states. European discount chains prefer, and 
have actively lobbied for, a system of ``international exhaustion,'' 
which limits the trademark owner's right to control distribution of 
goods once he/she licenses them for sale anywhere in the world.
    Copyrights: U.S. corporate opinion is divided on proposed 
legislation to harmonize copyright law in EU member states and comply 
with WIPO treaties. The EU proposed directive is the subject of active 
lobbying by U.S. business interests. The U.S. has encouraged the EU to 
take all stakeholders into account and develop legislation compatible 
with the U.S. Digital Millennium Copyright Act.
8. Worker Rights
    Labor legislation still remains largely the domain of individual 
member states. Recent decisions taken at the Luxembourg, Cardiff, and 
Cologne EU Summit Meetings of the EU have, however, significantly 
increased cooperation on employment issues. Specifically, the 
Luxembourg Process created a system of goals on employment and annual 
reviews of each country's progress toward meeting them. The Cardiff 
Process sought to liberalize further the movements of goods, services, 
and capital as a means of increasing employment in EU countries. And 
the Cologne Process, in the European Employment Strategy signed at the 
Summit, brought the EU's coordination in employment and macroeconomic 
policies closer together.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  24,953
Total Manufacturing............  ..............  146,007
  Food & Kindred Products......  14,155          ...............................................................
  Chemicals & Allied Products..  49,798          ...............................................................
  Primary & Fabricated Metals..  9,308           ...............................................................
  Industrial Machinery and       19,100          ...............................................................
   Equipment.
  Electric & Electronic          11,841          ...............................................................
   Equipment.
  Transportation Equipment.....  14,555          ...............................................................
  Other Manufacturing..........  27,250          ...............................................................
Wholesale Trade................  ..............  32,324
Banking........................  ..............  20,190
Finance/Insurance/Real Estate..  ..............  154,733
Services.......................  ..............  31,699
Other Industries...............  ..............  23,751
TOTAL ALL INDUSTRIES...........  ..............  433,658
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                AUSTRIA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                        1997        1998       \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\..................   206,739.5   210,897.7  \3\ 210,334
                                                                      .4
  Real GDP Growth (pct)............         2.5         3.3          2.2
  GDP by Sector:
    Agriculture....................     4,662.5     4,584.3          N/A
    Manufacturing..................    44,568.1    45,648.9          N/A
    Services.......................   116,647.5   118,315.2          N/A
    Government.....................    13,188.3    13,247.7          N/A
  Per Capita GDP (US$).............      25,607      26,046   \3\ 25,964
  Labor Force (1,000's)............       3,657       3,684        3,702
  Unemployment Rate (pct) \4\......         4.4         4.7          4.4

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).........         1.0        16.5          N/A
  Consumer Price Inflation.........         1.3         0.9          0.6
  Exchange Rate (AS/US$ annual            12.20       12.38        12.86
   average) \5\....................

Balance of Payments and Trade:
  Total Exports FOB................    58,607.9    62,579.8     63,140.0
    Exports to U.S.................     2,148.4     2,533.5      2,430.0
  Total imports CIF................    64,774.7    68,023.3     69,230.0
    Imports from U.S...............     3,467.9     3,283.0      3,110.0
  Trade Balance....................    -6,166.8    -5,443.5     -6,090.0
    Balance with U.S...............    -1,319.5      -749.5        680.0
  External Public Debt.............    24,991.8    31,777.1     31,950.0
  Fiscal Deficit/GDP (pct).........         1.8         2.2          2.0
  Current Account Deficit/GDP (pct)         2.5         2.2          2.2
  Debt Service Payments/GDP (pct)           2.2         2.4          1.5
   \6\.............................
  Gold and Foreign Exchange
 Reserves
    (Year-End).....................    21,600.0    24,115.1          N/A
  Aid from U.S.....................           0           0            0
  Aid from All Other Sources.......           0           0            0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on latest available data and
  economic forecasts in October 1999.
\2\ GDP at market prices, converted at average annual exchange rate.
\3\ The apparent decline in 1999 figures is a result of exchange rate
  fluctuations between the Austrian Shilling (AS) and the US dollar. In
  local AS currency, figures show an increase in 1999.
\4\ Unemployment rate according to EU method.
\5\ There is only an official rate, no parallel rates.
\6\ Debt service payments on external public debt.

Sources: Austrian Institute for Economic Research (WIFO), Austrian
  Central Statistical Office, Austrian Federal Finance Ministry, and
  Austrian National Bank.

1. General Policy Framework
    Based on per capita GDP, Austria (tied with Belgium) is the third 
richest EU country. Austria has a skilled labor force and a record of 
excellent industrial relations. Its economy is dominated by services, 
accounting for two thirds of employment followed by the manufacturing 
sectors. Small and medium-sized companies are predominant. By 1997, the 
government completed a 10-year privatization program. Most of the 
formerly state-owned industries are now in private hands. Further 
privatizations are underway, including in the banking, 
telecommunications and energy sectors.
    Exports of Austrian goods and services account for almost 44 
percent of GDP. Austria's major export market is the EU, accounting for 
64 percent of Austrian exports (36 percent to Germany, 8 percent to 
Italy). However, given Austria's traditional expertise in Central and 
Eastern European (CEE) markets, exports to that region have soared 
since 1989, accounting for 17 percent of Austrian exports by 1998. 
Numerous multinationals have established their regional headquarters in 
Austria as a ``launching pad'' to the CEE markets. In 1998, Hungary was 
equal to Switzerland as Austria's third largest export market.
    The government sets economic policy in consultation with the so-
called ``Social Partnership,'' consisting of the representative bodies 
of business, farmers, and labor. Designed to minimize social unrest, 
this consensual approach has come under criticism for slowing the pace 
of economic reforms, particularly in inflexible labor and product 
markets. With an increasing number of decisions being made on the EU 
level, the influence of the social partner institutions seems to have 
declined in past years.
    In order to meet the Maastricht criteria for Economic and Monetary 
Union (EMU), in 1996-97, the government introduced an austerity 
program, under which it reduced its federal budget deficit from 5.1 
percent (1995) to 2.5 percent of GDP (1998) and the total public 
deficit, which is decisive for the EMU, to 2.2 percent of GDP (1998). 
The tax increases included in the austerity program brought the share 
of total taxes in GDP to an all-time high of 44.9 percent (1997), since 
then it has declined slightly. The 1999 federal budget was designed to 
secure the consolidation begun in 1996. The total public sector deficit 
is forecast to fall to 2.0 percent in 1999. Social expenditures 
currently amount for almost 29 percent of GDP.
    Another focus of economic policy is employment creation. Austria 
has been one of the foremost supporters of the EU-wide national 
employment plans. Its plan places strong emphasis on training and 
education, removal of bureaucratic hurdles, more labor flexibility and 
a more favorable climate for business start-ups. While some of these 
plans have been implemented, the government failed to address the 
planned reduction of wage and non-wage costs as part of the 2000-2001 
tax reform due to a deadlock of the governing parties and the diverging 
interests of social partners, i.e., business and labor representatives.
2. Exchange Rate Policies
    As one of the eleven EU member states participating in EMU, Austria 
on January 1, 1999 surrendered its sovereign power to formulate 
monetary policy to the European Central Bank (ECB). The government 
successfully met all EMU convergence criteria due to austerity measures 
implemented in 1996-97, and is pursuing a policy of further reducing 
the fiscal deficit and the public debt. The ECB's focus on maintaining 
price stability in formulating exchange rate and monetary policies is 
viewed by the Austrian National Bank (ANB) as a continuation of the 
``hard schilling'' policy the ANB pursued since 1981. By pegging the 
Austrian schilling (AS) to the German mark (DM), the government has 
successfully kept inflation under control and promoted stable economic 
growth. On December 31, 1998, the exchange rate for the Euro was 
irrevocably fixed at Austrian schillings 13.7603.
    In 1998, the Austrian schilling lost little ground against the 
dollar. However, in 1999, the dollar continued to rise steadily against 
the schilling parallel to its rise against the common Euro currency.
3. Structural Policies
    Austria's accession to the EU forced the government to accelerate 
structural reforms and to liberalize its economy. Most nontariff 
barriers to merchandise trade have been removed and cross-border 
capital movements have been fully liberalized.
    While the government continues to be a major player in the economy, 
the scope of government involvement--a traditional feature of the 
Austrian economy--has been significantly reduced in recent years. The 
amount of total government spending (federal, provincial and local 
governments as well as social security institutions, but not including 
government holdings) as percentage of GDP declined to 54.2 percent in 
1998 from 57.4 percent in 1995 (Note: the figure for the government 
contribution to GDP, as shown in the table, reflects only narrow public 
administration functions and does not include social and other 
expenditures). The government no longer has majority ownership in 
formerly state-controlled companies such as OMV (oil and gas), VOEST 
(steel, plant engineering) or ELIN (electrical machinery and 
equipment). Subsidy programs have also been scaled back to conform to 
EU regulations.
    After the passage of a more liberal business code in 1997, plans 
for making Austria more attractive for investors were implemented. 
While procedures for investors to obtain necessary permits and other 
approvals have been streamlined and the time for approvals cut 
considerably, plans for implementing ``one-stop-shopping'' for all 
necessary permits have not yet been realized. Delays have been caused 
by jurisdictional disputes among three federal ministries as well as 
differences in opinion between the federal government and business 
interest representatives. Approval for larger projects could still be 
bothersome and lengthy. Other measures implemented to improve the 
business climate and stimulate entrepreneurial activity include the 
reorganization of the Austrian stock market (the Vienna Stock Exchange 
was fully privatized and linked to the German Stock Exchange in 
Frankfurt), a new takeover act, the standardization of international 
accounting standards (IAS) or generally accepted accounting principles 
(US-GAAP), increased work time flexibility, and initial measures that 
have slightly increased wage and labor cost flexibility.
    As a result of EU liberalization directives, the government has 
also moved ahead with liberalization legislation in the telecom and 
energy sectors. The opening of the market for conventional telephones 
on January 1, 1998, represented the final phase of Austria's telecom 
liberalization. The Austrian telecom services sector now exhibits a 
high degree of liberalization, though high interconnection fees still 
serve as an impediment to market access. For decades, telecom was a 
monopoly in Austria, with the state-owned Post and Telecom Austria 
Company (PTA) being the only national supplier of networks and telecom 
services. The government also moved ahead with the liberalization of 
the highly centralized and virtually closed electricity market. A 
relevant Austrian law was adopted in 1998, providing for a progressive 
opening of the market by the year 2003. Preparations are also under way 
to liberalize the natural gas market.
    The outgoing government (general elections took place on October 3, 
1999) decided on the implementation of the tax reform it had promised 
for 2000. The tax reform for 2000 ended up in marginal tax rate 
adjustments and some ``redistribution.'' The reform will, thus, 
stimulate economic growth in Austria in 2000, but it failed to meet the 
declared goal of a clear reduction of wage and non-wage costs. 
Moreover, the reform is likely to result in a higher overall government 
budget deficit in 2000, which may go up to as high as 2.5 percent of 
GDP, reversing the downward trend since 1995, over which time the 
overall government budget deficit declined steadily from 5.1 percent in 
1995 to an estimated 2.0 percent in 1999.
4. Debt Management Policies
    Austria's external debt management has had no significant impact on 
U.S. trade. At the end of 1998, the Austrian federal government's 
external debt amounted to $31.8 billion (25 percent of the government's 
overall debt) and consisted of 95 percent bonds and 5 percent credits 
and loans. Debt service on the federal government's external debt 
amounted to $5.0 billion in 1998, or 2.4 percent of GDP and 5.4 percent 
of total exports of goods and services. The total public sector 
external debt in 1998 was not significantly higher than the federal 
government's external debt. Total gross public debt was 63.1 percent of 
GDP at the end of 1998, just beyond the 60 percent ceiling set under 
the Maastricht convergence criteria. Republic of Austria bonds are 
rated AAA by recognized international credit rating agencies.
5. Barriers to U.S. Exports
    The U.S. is Austria's largest non-European trading partner with 4.8 
percent of Austria's total 1998 imports coming from the U.S. The U.S. 
was Austria's fourth largest supplier worldwide after Germany, Italy, 
and France. The Austrian government thus has a clear interest in 
maintaining close and smooth trade ties. However, there are a number of 
obstacles hindering further increases of U.S. exports to Austria:
    Pharmaceuticals: Access of U.S. pharmaceutical products to the 
Austrian market has been restricted by the Austrian social insurance 
holding organization (Hauptverband der Sozialversicherungstrager). The 
non-transparent procedures by which the Hauptverband approves drugs for 
reimbursement under Austrian health insurance regulations allegedly 
perpetuates a closed market favoring established, domestic suppliers. 
Pharmaceuticals not approved by the Hauptverband have higher out-of-
pocket costs for Austrian patients and therefore suffer a competitive 
disadvantage vis-a-vis approved products.
    Government Procurement: Austria is a party to the WTO Government 
Procurement Agreement; Austria's Federal Procurement Law was amended in 
January 1997 to bring its procurement legislation in line with EU-
guidelines, particularly on services. However, U.S. firms have 
experienced a strong pro-EU bias in awarding government tenders. In 
defense contracts, offset agreements are common practice. This pro-
European bias also appears to play a role in privatization decisions, 
although in some cases the bias is even more narrowly defined with 
politicians calling for ``Austrian solutions.''
    Beef Hormones: The EU ban on beef imports from cattle treated with 
hormones severely restricts U.S. exports of beef to Austria. Despite a 
WTO decision that the ban is inconsistent with the rules of 
international trade, the EU has not lifted the ban. While decisions on 
this policy must be made by all members of the EU, Austrian politicians 
have ruled out a lifting of the ban in the foreseeable future.
    Poultry: The EU has not approved any U.S. poultry plants, ruling 
out the possibility of importing U.S. poultry, or products containing 
poultry.
    GMOs: As the EU has not approved all genetically modified plants 
available in the U.S., imports of these plants or products containing 
these plants are not permitted. Austria has gone even further than its 
EU partners: Novartis corn and Monsanto BT corn, approved by the 
European Commission, are not permitted in Austria. The ban of these 
corn types is contrary to EU regulations.
    Other Financial Services: Providers of financial services, such as 
accountants, tax consultants, and property consultants, must submit 
specific proof of their qualifications, such as university education or 
number of years of practice. Other service activities also require a 
business license, for which one of the preconditions is legal 
residence. Under the WTO General Agreement on Trade in Services, 
Austrian officials insist that Austria's commitments on trade in 
professional services extend only to intra-corporate transfers. U.S. 
service companies often form joint ventures with Austrian firms to 
circumvent these restrictions.
    Foreign Direct Investment: A 1997 U.S. Investor Confidence Survey 
compiled by the American Chamber of Commerce cites high labor, 
telecommunications and energy costs, the complex Austrian legal 
situation, and difficulties in obtaining work permits for key personnel 
as major obstacles. A 1998 follow-up survey noted improvements in the 
regulatory process and faster permit processing. The reform of the 
Residence Law and the Foreign Workers Employment Law enacted in mid-
1997 exempts skilled U.S. labor (e.g. managers and their dependents) 
from an increasingly restrictive quota system for residence permits. 
Electricity and telecommunications costs, also noted in the survey as 
an impediment to business in Austria, have been significantly reduced 
through EU-wide liberalization.
6. Export Subsidies Policies
    The government provides export promotion loans and guarantees 
within the framework of the OECD export credit arrangement and the WTO 
Agreement on Subsidies and Countervailing Measures. The Austrian 
Kontrollbank (AKB), Austria's export financing agency, offers export 
financing programs for small and medium-sized companies with annual 
export sales of up to $8.2 million. Following Austria's accession to 
the EU, the AKB stopped providing economic risk guarantees for short 
term financing of exports to OECD countries. A 1995 amendment to 
Austria's Export Guarantees Act enables the AKB to guarantee untied 
credits. In 1996, the AKB made its export guarantee system more 
transparent by publishing conditions and eligible country lists.
7. Protection of U.S. Intellectual Property
    Austria is a party to the World Intellectual Property Organization 
and several international intellectual property conventions, including 
the European Patent Convention, the Patent Cooperation Treaty, the 
Madrid Trademark Agreement, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms for the Purpose of Patent 
Procedure, the Universal Copyright Convention, the Brussels Convention 
Relating to the Distribution of Program-carrying Signals transmitted by 
Satellite, and the Geneva Treaty on the International Registration of 
Audiovisual Works. In compliance with the World Trade Organization 
Treaty on Intellectual Property (WTO TRIPS) agreement obligations, 
Austria extended patent terms; patents on inventions are now valid up 
to 20 years after application.
    Austrian copyright law grants the author the exclusive right to 
publish, distribute, copy, adapt, translate, and broadcast his work. 
Infringement proceedings, however, can be time consuming and 
complicated. Austria's copyright law is in conformity with the EU 
directives on intellectual property rights.
    However, under Austrian copyright law ``tourist establishments'' 
(hotels, inns, bed and breakfast establishments, etc.) may show 
cinematographic works or other audiovisual works, including videos, to 
their guests. While the license fee to the copyright owners is 
mandatory, Austrian law does not require prior authorization by the 
copyright holder. The U.S. holds this provision to be inconsistent with 
Austria's obligations under the Berne Convention and TRIPS. Following 
bilateral U.S.-Austrian talks in 1997, the Austrian Arbitration 
Commission determined the rates to be paid for such public showings. 
Austria considers this step sufficient compensation for the interests 
of the copyright holders and in compliance with both the Berne 
Convention and the Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPS). The U.S. has expressed reservations to this 
position.
    Austrian copyright law also requires that a license fee be paid on 
imports of home video cassettes and broadcasting transmissions. Of 
these fees, 51 percent are paid into a fund dedicated to social and 
cultural projects. In the U.S.'s view, the copyright owners should 
receive the revenues generated from these fees and any deductions for 
cultural purposes should be held to a minimum.
    Austria is not mentioned in the 1999 ``Special 301'' Watch List or 
Priority Watch List and is not identified as a Priority Foreign 
Country.
8. Worker Rights
    a. The Right of Association: Workers in Austria have the 
constitutional right to associate freely and the de facto right to 
strike. Guarantees in the Austrian Constitution governing freedom of 
association cover the rights of workers to join unions and engage in 
union activities. Labor participates in the ``social partnership,'' in 
which the leaders of Austria's labor, business, and agricultural 
institutions jointly develop draft legislation on social and economic 
issues, thereby influencing the country's overall economic policy.
    b. The Right to Organize and Bargain Collectively: Austrian unions 
enjoy the right to organize and bargain collectively. Some 50 percent 
of Austria's 3.2 million-strong labor force is unionized. The Austrian 
Trade Union Federation (OGB) is exclusively responsible for collective 
bargaining. All workers except civil servants are required to be 
members of the Austrian Chamber of Labor. Leaders of the OGB and the 
Chamber of Labor are democratically elected. Workers are legally 
entitled to elect one-third of the board of major companies.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law.
    d. Minimum Age for Employment of Children: The minimum legal 
working age is 15. The law is enforced by the Ministry for Social 
Affairs.
    e. Acceptable Conditions of Work: There is no legally mandated 
minimum wage in Austria. Instead, minimum wage scales are set in annual 
collective bargaining agreements between employers and employee 
organizations. Workers whose incomes fall below the poverty line are 
eligible for social welfare benefits. Over half of the workforce works 
a maximum of either 38 or 38.5 hours per week, a result of collective 
bargaining agreements. The Labor Inspectorate ensures the effective 
protection of workers by requiring companies to meet Austria's 
extensive occupational health and safety standards.
    f. Rights in Sectors With U.S. Investment: Labor laws tend to be 
consistently enforced in all sectors, including the automotive sector, 
in which the majority of U.S. capital is invested.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  152
Total Manufacturing............  ..............  1,062
  Food & Kindred Products......  30              ...............................................................
  Chemicals & Allied Products..  45              ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       114             ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  295             ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  515
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  200
Other Industries...............  ..............  -38
TOTAL ALL INDUSTRIES...........  ..............  3,838
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                BELGIUM


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (at current prices) 2/............     246.4      252.3      249.1
  Real GDP Growth (pct) 3/..............       3.2        2.9        2.2
  GDP by Sector (pct):
    Agriculture.........................       1.2        N/A        N/A
    Construction........................       6.2        N/A        N/A
    Energy..............................       4.4        N/A        N/A
    Industry............................      17.8        N/A        N/A
    Services............................      52.6        N/A        N/A
    Nontradable Services................      17.7        N/A        N/A
  Real Per Capita GDP (US$) \4\.........    24,204     24,732     24,373
  Labor Force (000's)...................     4,320      4,330      4,341
  Unemployment Rate (pct)...............       9.3        8.6        8.0

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..............       6.5        5.5        N/A
  Consumer Price Inflation..............       1.6        1.0        1.0
  Exchange Rate (BF/US$)................     35.78      36.31      37.95

Balance of Payments and Trade:
  Total Exports FOB \5\.................     175.3      184.0      187.3
    Exports to U.S. \6\.................       7.7        7.1        7.0
  Total Imports CIF \5\.................     162.5      170.2      172.8
    Imports from U.S. \6\...............      10.8       11.2       12.3
  Trade Balance \5\.....................      12.8       13.8       14.5
    Balance with U.S. \6\...............      -3.1       -4.1       -5.3
  Current Account/GDP (pct).............       5.1        5.3        5.7
  External Public Debt..................      25.1       28.3        N/A
  Debt Service Payments/GDP.............       N/A        N/A        N/A
  Fiscal Deficit/GDP (pct)..............      -1.8       -1.0       -1.1
  Gold and Foreign Exchange Reserves....     19.12      17.66        N/A
  Aid from U.S..........................         0          0          0
  Aid for All Other Sources.............         0          0          0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on monthly data available in
  November 1999.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency
\4\ At 1985 prices.
\5\ Merchandise trade. Government of Belgium data.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.

1. General Policy Framework
            Major Trends and Outlook
    Belgium possesses a highly developed market economy, the tenth 
largest among the OECD industrialized democracies. The service sector 
generates more than 70 percent of GDP, industry 25 percent and 
agriculture two percent. Belgium ranked as the eleventh-largest trading 
country in the world in 1998, with exports and imports each equivalent 
to about 70 percent of GDP. Eighty percent of Belgium's trade is with 
other European Union (EU) members. Seven percent is with the United 
States. Belgium imports many basic or intermediate goods, adds value, 
and then exports final products. The country derives trade advantages 
from its central geographic location, and a highly skilled, 
multilingual and industrious workforce. Over the past 30 years, Belgium 
has enjoyed the second-highest average annual growth in productivity 
among OECD countries (after Japan).
    Throughout the late 1970s and the 1980s, Belgium ran chronic budget 
deficits, leading to a rapid accumulation of public sector debt. By 
1994, debt was equal to 137 percent of GDP; since then, however, the 
country has made substantial progress in reducing the debt and 
balancing its budget. Belgium has largely financed its budget deficits 
from domestic savings. Foreign debt represents less than 10 percent of 
the total and Belgium is a net creditor on its external account.
    Belgium's macroeconomic policy since 1992 has aimed at reducing the 
deficit below 3.0 percent of GDP and reversing the growth of the debt/
GDP ratio in order to meet the criteria for participation in Economic 
and Monetary Union (EMU) set out in the EU's Maastricht Treaty. On May 
1, 1998, Belgium became a first-tier member of the European Monetary 
Union. The government's 2000 budget, presented in October 1999, 
projects a 1.1 percent deficit and continues the debt reduction 
policies with the aim of achieving a debt/GDP ratio of 112 percent by 
the end of the year.
    Economic growth in 1998 was 2.9 percent. A comparable rate was 
expected in 1999 until an incident involving dioxin-contaminated animal 
feed seriously disrupted production and exports of a wide range of 
agricultural and food products. Since then, real economic growth is 
projected at around 2.2 percent of GDP. At 1 percent, inflation seems 
to be under firm control, and no inflationary pressures are apparent, 
since weak commodity prices keep imported inflation low. Belgium's 
current account surplus of 5.3 percent of GDP is one of the highest 
among OECD countries.
    Belgium's unemployment situation improved slowly last year. 
Standardized EU data put Belgium's unemployment rate at 8.5 percent in 
June 1999, 1 percent below the EU's average. However, strong regional 
differences in unemployment rates persist, with rates in Wallonia and 
Brussels being two to three times higher than in Flanders. A further 
reduction in unemployment will probably be difficult to achieve since 
many businesses have sought to neutralize high labor costs through 
capital-intensive investments and hence increased productivity. 
Although wage growth has been very modest since 1994, wage levels 
remain among the highest in Europe.
    In 1993, Belgium completed its process of regionalization and 
became a federal state consisting of three regions: Brussels, Flanders 
and Wallonia. Each region was given substantial economic powers, 
including trade promotion, investment, industrial development, research 
and environmental regulation.
            Principal Growth Sectors
    Sectoral growth in the Belgian economy reflects macroeconomic 
trends. Industry sectors that are oriented towards foreign markets, in 
particular those in the semi-finished goods sector such as iron and 
steel, non-ferrous metals and chemicals are very sensitive to foreign 
business cycle developments. Business investment is expected to 
increase by 7 percent in 1999. The capital goods sector in particular 
is benefiting from strong investment demand in Belgium. Stronger demand 
for consumer products has helped the textiles, wood and food sectors. 
Apart from developments specific to the business cycle, there are also 
divergent developments impacting other sectors. For example, the paper 
and cardboard sector continue to be hit by the ongoing trend towards 
the use of less packaging.
            Government Role in the Economy
    On May 1, 1998, Belgium became a first-tier member of the European 
Monetary Union. Belgium will gradually shift from the use of the BF to 
the use of the euro as its currency by January 1, 2002. On January 1, 
1999, the definitive exchange rate between the euro and the BF was 
established at BF 40.33.
    Since 1993, the Belgian government has privatized BF 280 billion 
worth of public sector entities; in 1998, the federal government raised 
approximately BF 45 billion in 1998 against BF 35 billion in 1997. 
Further privatization of the last two enterprises with a strong public 
sector stake, Sabena and Belgacom, will probably occur under the new 
coalition government.
            Balance of Payments Situation
    Belgium's current account surplus widened in 1998: at 5.3 percent 
of GDP, it was well above the EU average of 1.5 percent of GDP, and the 
sixth largest in the OECD area. The increase in the surplus largely 
reflected a stronger trade balance: exports picked up in response to 
more buoyant economic conditions in EU countries, and to a significant 
improvement in cost-price competitiveness. The impact of the East Asian 
crisis was limited, given that Belgium's exports to these countries--
including Japan--represent only 5 percent of total exports. In 1998, 
largely as a result of a decline in energy prices, the terms of trade 
improved somewhat. As a consequence, the growing impact of the crisis 
in emerging market economies on the volume of Belgium's exports did not 
greatly affect the trade surplus.
            Infrastructure Situation
    Belgium has an excellent transportation network of ports, railroads 
and highways, including Europe's second-largest port, Antwerp. Major 
U.S. cargo carriers have created at Brussels-Zaventem airport one of 
the first European hub-and-spoke operations.
    The Belgian government set up a task force to sensitize the public 
and private sectors to vulnerabilities of computers and electronic 
systems to year 2000 disruptions.
2. Exchange Rate Policy
    On May 1, 1998, Belgium became a first-tier member of the European 
Monetary Union. Belgium will gradually shift from the use of the BF to 
the use of the euro as its currency by January 1, 2002. On January 1, 
1999, the definitive exchange rate between the euro and the BF was 
established at BF 40.33.
3. Structural Policies
    Belgium is a very open economy, as witnessed by its high levels of 
exports and imports relative to GDP. Belgium generally discourages 
protectionism. The federal and some regional governments actively 
encourage foreign investment on a national treatment basis.
    Tax policies: Belgium's tax structure was substantially revised in 
1989. The top percent in marginal rate on wage and salary income is 55 
percent. Corporations (including foreign-owned corporations) pay a 
standard income tax rate of 39 percent. Small companies pay a rate 
ranging from 29 to 37 percent. Branches and foreign offices pay income 
tax at a rate of 43 percent, or at a lower rate in accordance with the 
provisions contained in a double taxation treaty. Under the present 
bilateral treaty between Belgium and the United States, that rate is 39 
percent.
    Despite the reforms of the past years, the Belgian tax system is 
still characterized by relatively high rates and a fairly narrow base 
resulting from numerous exemptions. While indirect taxes as a share of 
total government revenues are lower than the EU average, personal 
income taxation and social security contributions are particularly 
heavy. Total taxes as a percent of GDP are the third highest among OECD 
countries. Moreover, pharmaceutical manufacturers are saddled with a 
unique turnover tax of 6 percent. Taxes on income from capital are by 
comparison quite low; since October 1995, the tax rate on interest 
income is 15 percent, and the tax rate on dividends is 25 percent for 
residents. There is no tax on capital gains.
    Belgium has instituted special corporate tax regimes for 
coordination centers, distribution centers and business service centers 
(including call centers) in recent years in order to attract foreign 
investment. These tax regimes provide for a ``cost-plus'' definition of 
income for intragroup activities and have proven very attractive to 
U.S. firms, but are now being targeted by the European Commission as 
constituting unfair competition with other EU member states.
    Regulatory policies: The only areas where price controls are 
effectively in place are energy, household leases and pharmaceuticals. 
Only in pharmaceuticals does this regime have a serious impact on U.S. 
business in Belgium. American pharmaceutical companies present in 
Belgium have repeatedly expressed their serious concerns about delays 
in product approvals and pricing, as well as social security 
reimbursement.
4. Debt Management Policies
    Belgium is a member of the G-10 group of leading financial nations, 
and participates actively in the IMF, the World Bank, the EBRD and the 
Paris Club. Belgium is also a significant donor of development 
assistance. It closely follows development and debt issues, 
particularly in Central Africa and some other African nations.
    Belgium is a net external creditor, thanks to the household 
sector's foreign assets, which exceed the external debts of the public 
and corporate sectors. Only about 10 percent of the Belgian 
government's overall debt is owed to foreign creditors. Moody's top Aa1 
rating for the country's bond issues in foreign currency reflects 
Belgium's integrated position in the EU, its significant improvements 
in fiscal and external balances over the past few years, its economic 
union with the financial powerhouse Luxembourg, and the reduction of 
its foreign currency debt. The Belgian government has no problems 
obtaining new loans on the local credit market.
5. Significant Barriers to U.S. Exports
    From the inception of the EU's single market, Belgium has 
implemented most, but not all, trade and investment rules necessary to 
harmonize with the rules of the other EU member countries. Thus, the 
potential for U.S. exporters to take advantage of the vastly expanded 
EU market through investments or sales in Belgium has grown 
significantly. However, some barriers to services and commodity trade 
still exist:
    Telecommunications: Although Belgium fully liberalized its 
telecommunications services in accordance with the EU directive on 
January 1, 1998, some barriers to entry still persist. New entrants to 
the Belgian market complain that current legislation is not 
transparent, that the interconnect charges they pay to Belgacom (the 
former monopolist--51 percent government-owned) remain high and that 
BIPT, the Belgian telecoms regulator, is not truly independent. Further 
privatization of Belgacom, expected in 2000, may enhance the 
increasingly competitive environment and lend more independence to the 
regulator.
    Ecotaxes: The Belgian government has adopted a series of ecotaxes 
in order to redirect consumer buying patterns towards materials seen as 
environmentally less damaging. These taxes may raise costs for some 
U.S. exporters, since U.S. companies selling into the Belgian market 
must adapt worldwide products to various EU member states' 
environmental standards.
    Retail service sector: Some U.S. retailers, including Toys 'R' Us 
and McDonalds, have experienced considerable difficulties in obtaining 
permits for outlets in Belgium. Current zoning legislation is designed 
to protect small shopkeepers, and its application is not transparent. 
Belgian retailers suffer from the same restrictions, but their existing 
sites give them strong market share and power in local markets.
    Pharmaceutical pricing: As indicated in para 3, pharmaceutical 
products are under strict price controls in Belgium. Furthermore, since 
1993, procedures to approve new life-saving medicines for reimbursement 
by the national health care system have slowed down steadily, to an 
average of 410 days, according to the local manufacturers group of 
pharmaceutical companies. The EU's legal maximum for issuance of such 
approvals remains 180 days. A 6 percent turnover tax is charged on all 
sales of pharmaceutical products. There is a price freeze on 
reimbursable products and a required price reduction on drugs on the 
market for 15 years.
    Public procurement: In January 1996, the Belgian government 
implemented a new law on government procurement to bring Belgian 
legislation into conformity with EU directives. The revision has 
incorporated some of the onerous provisions of EU legislation, while 
improving certain aspects of government procurement at the various 
governmental levels in Belgium. Belgian public procurement still 
manifests instances of poor public notification and procedural 
enforcement, requirements for offsets in military procurement and 
nontransparency in all stages of the procurement process.
    Broadcasting and motion pictures: Belgium voted against the EU 
broadcasting directive (which requires a high percentage of European 
programs ``where practical'') because its provisions were not, in the 
country's view, strong enough to protect the fledgling film industry in 
Flanders. The Flemish (Dutch-speaking) region and the Francophone 
community of Belgium have local content broadcasting requirements for 
private television stations operating in those areas. The EU has taken 
the Walloon and Flemish communities to the European Court of Justice 
concerning these requirements. TNT has experienced considerable 
problems in arranging distribution of its signal on Belgian cable, 
while NBC and Viacom, which have a majority interest in the British-
based TV 4 channel, face similar problems with broadcasting authorities 
in Flanders.
6. Export Subsidies Policies
    There are no direct export subsidies offered by the Belgian 
government to industrial and commercial entities in the country, but 
the government (both at the federal and the regional level) does 
conduct an active program of trade promotion, including subsidies for 
participation in foreign trade fairs and the compilation of market 
research reports. All of these programs are offered to both domestic 
and foreign-owned exporters. Also, the United States has raised with 
the Belgian government and the EU Commission concerns over subsidies 
via an exchange rate program to Belgian firms producing components for 
Airbus.
7. Protection of U.S. Intellectual Property
    Belgium is party to the major intellectual property agreements, 
including the Paris, Berne and Universal Copyright Conventions, and the 
Patent Cooperation Treaty. Nevertheless, according to industry sources, 
an estimated 20 percent of Belgium's video cassette and compact disc 
markets are composed of pirated products, causing a $200 million loss 
to the producers. For software, the share of pirated copies has dropped 
from 48 to 39 percent in one year, still representing a loss of $570 
million to the industry.
    Copyright: On June 30, 1994, the Belgian Senate gave its final 
approval to the revised Belgian copyright law. National treatment 
standards were introduced in the blank tape levy provisions of the new 
law. Problems regarding first fixation and non-assignability were also 
solved. The final law states that authors will receive national 
treatment, and allows for sufficient maneuverability in neighboring 
rights. However, if Belgian right holders benefit from less generous 
protection in a foreign country, the principle of reciprocity applies 
to the citizens of that country. This is the case for the U.S., which 
does not grant protection of neighboring rights to Belgian artists and 
performers, nor to Belgian producers of records and movies. As a 
consequence, U.S. citizens in Belgium are subject to the same 
restrictions.
    Patents: A Belgian patent can be obtained for a maximum period of 
twenty years and is issued only after the performance of a novelty 
examination.
    Trademarks: The Benelux Convention on Trademarks established a 
joint process for the registration of trademarks for Belgium, 
Luxembourg and the Netherlands. Product trademarks are available from 
the Benelux Trademark Office in The Hague. This trademark protection is 
valid for ten years, renewable for successive ten-year periods. The 
Benelux Office of Designs and Models will grant registration of 
industrial designs for 50 years of protection. International deposit of 
industrial designs under the auspices of the World Intellectual 
Property Organization (WIPO) is also available.
8. Worker Rights
    a. The Right of Association: Under the Belgian constitution, 
workers have the right to associate freely. This includes freedom to 
organize and join unions of their own choosing. The government does not 
hamper such activities and Belgian workers in fact fully and freely 
exercise their right of association. About 63 percent of Belgian 
workers are members of labor unions. This number includes employed, 
unemployed and workers on early pension. Unions are independent of the 
government, but have important links with major political parties. 
Unions have the right to strike and strikes by civil servants and 
workers in ``essential'' services are tolerated. Teachers, nurses, 
railway workers, air controllers, ground handling and Sabena personnel 
have conducted strikes in recent years without government intimidation. 
Despite government protests over wildcat strikes by air traffic 
controllers, no strikers were prosecuted. Also, Belgian unions are free 
to form or join federations or confederations and are free to affiliate 
with international labor bodies.
    b. The Right to organize and Bargain Collectively: The right to 
organize and bargain collectively is recognized, protected and 
exercised freely. Every other year, the Belgian business federation and 
unions negotiate a nationwide collective bargaining agreement covering 
2.4 million private-sector workers, which establishes the framework for 
negotiations at plants and branches. Public sector workers also 
negotiate collective bargaining agreements. Collective bargaining 
agreements apply equally to union and non-union members, and over 90 
percent of Belgian workers are covered by collective bargaining 
agreements. Under legislation in force, wage increases are limited to a 
nominal 5.9 percent for the 1999-2000 period. The law prohibits 
discrimination against organizers and members of unions, and protects 
against termination of contracts of members of workers' councils, 
members of health and safety committees, and shop stewards. Effective 
mechanisms such as the labor courts exist for adjudicating disputes 
between labor and management. There are no export processing zones.
    c. Prohibition of Forced and Compulsory Labor: Forced or compulsory 
labor is illegal and does not occur. Domestic workers and all other 
workers have the same rights as non-domestic workers. The government 
enforces laws against those who seek to employ undocumented foreign 
workers.
    d. Minimum Age for Employment of Children: The minimum age for 
employment of children is 15, but schooling is compulsory until the age 
of 18. Youth between the ages of 15 and 18 may participate in part-time 
work/part-time study programs and may work full-time during school 
vacations. The labor courts effectively monitor compliance with 
national laws and standards. There are no industries where any 
significant child labor exists.
    e. Acceptable Conditions of Work: The current monthly national 
minimum wage rate for workers over 21 is BF44,209 ($1,142); 18-year-
olds can be paid 82 percent of the minimum, 19-year-olds 88 percent and 
20-year-olds 94 percent. The Ministry of Labor effectively enforces 
laws regarding minimum wages, overtime and worker safety. By law, the 
standard workweek cannot exceed 40 hours and must include at least one 
24-hour rest period. Comprehensive provisions for worker safety are 
mandated by law. Collective bargaining agreements can supplement these 
laws.
    f. Rights in Sectors with U.S. Investment: U.S. capital is invested 
in many sectors in Belgium. Worker rights in these sectors do not 
differ from those in other areas.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  156
Total Manufacturing............  ..............  8,969
  Food & Kindred Products......  1,012           ...............................................................
  Chemicals & Allied Products..  5,390           ...............................................................
  Metals, Primary & Fabricated.  189             ...............................................................
  Machinery, except Electrical.  472             ...............................................................
  Electric & Electronic          361             ...............................................................
   Equipment.
  Transportation Equipment.....  538             ...............................................................
  Other Manufacturing..........  1,007           ...............................................................
Wholesale Trade................  ..............  2,716
Banking........................  ..............  321
Finance/Insurance/Real Estate..  ..............  5,262
Services.......................  ..............  1,684
Other Industries...............  ..............  -188
TOTAL ALL INDUSTRIES...........  ..............  18,920
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis


                                 ______
                                 

                                BULGARIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      10.2      12.3      12.2
  Real GDP Growth (pct)...................      -6.9       3.5       1.5
  GDP by Sector:
    Agriculture...........................       2.4       2.3       N/A
    Manufacturing.........................       2.6       3.1       N/A
    Services..............................       4.1       5.5       N/A
  Per Capita GDP (US$)....................     1,224     1,484     1,494
  Labor Force (000's).....................     3,735     3,573     3,570
  Unemployment Rate (pct) \2\.............      14.0      12.2      14.7

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................     362.1      10.1       N/A
  Consumer Price Inflation................     578.6       1.0       3.6
  Exchange Rate (Leva/US$ annual average)
 \3\
    Official..............................     1,682     1,760       1.8
    Parallel..............................     1,750       N/A       N/A

Balance of Payments and Trade:
  Total Exports FOB.......................      4.94      4.29      3.72
    Exports to U.S. (US$ millions) \4\....       172       219       N/A
  Total Imports CIF.......................      4.93       5.0      4.74
    Imports from U.S. (US$ millions) \4\..       104       115       N/A
  Trade Balance \5\.......................      0.01     -0.71     -1.02
    Balance with U.S. (US$ millions) \4\..        68       104       N/A
  Current Account Balance/GDP (pct).......       4.3      -3.1      -5.6
  External Public Debt....................       9.8      10.2      10.3
  Debt Service Payments/GDP (pct).........       8.8       9.7       6.6
  Fiscal Deficit/GDP (pct)................       3.0     (\1\)       1.6
  Foreign Exchange Reserves and Gold......       2.6       2.9       3.3
  Aid from U.S. (US$ millions) \6\........      34.1      45.0      70.4
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are GOB estimates based on 6 to 9 months of data. GDP
  as measured in U.S. dollars declined between 1998 and 1999 due to
  changes in the exchange rate. Sectoral GDP data is unavailable, but
  gross value added by sector is provided for 1997 and 1998.
\2\ Annual average.
\3\ In July 1999, the currency was redenominated replacing 1000 old leva
  with one new lev.
\4\ For January to August 1999, exports (free along ship basis) to the
  U.S. were $129 million; imports (customs basis) from the U.S. amounted
  to $72 million. Source: U.S. Department of Commerce.
\5\ 1997 trade flows are recorded at the time of border crossing while
  1998 and 1999 trade flows are recorded at the date of customs
  clearance.
\6\ Both USAID and DOD provided assistance. For FY99, total DOD
  assistance totaled $13.35 million ($9.2 million in FY98).

1. General Policy Framework
    Since April 1997, Bulgaria has been led by a reform-minded 
government, the Union of Democratic Forces (UDF). The UDF has enjoyed a 
solid majority in Parliament, which has facilitated implementation of a 
far-reaching program of economic reform. Following a severe economic 
crisis in 1996 and early 1997, the Bulgarian government and the 
International Monetary Fund (IMF) devised a stabilization program 
centered on a currency board arrangement.
    The program quickly succeeded in stabilizing the economy. The 
triple digit inflation of 1996 and early 1997 gave way to a consumer 
price increase of only 1 percent for all of 1998. Official reserves 
rebounded from $400 million in January 1997 to $2.6 billion at the end 
of 1998. Moody's Investors Service upgraded Bulgaria's credit rating to 
B2. However, unemployment has stayed high, despite a growing private 
sector. The government ran a budget surplus of 1 percent in 1998, but 
the budget is projected to shift into deficit in 1999.
    Following declines in GDP in both 1996 and 1997, the economy as a 
whole grew by 3.5 percent in 1998. However, GDP growth began to slow 
down in the second half of 1998, influenced by weak external markets 
for traditional industrial exports and lags in restructuring state-
owned industry. With two-way trade in goods and services accounting for 
over 90 percent of GDP, Bulgaria is very sensitive to changes in the 
world economy and global prices. Over half of Bulgaria's trade is 
directed toward Western and Central Europe. The Kosovo crisis has cost 
Bulgaria about $90 million in direct economic losses, principally 
through disruptions to transport on the Danube River and overland 
through Yugoslavia.
    Bulgaria's currency board arrangement (CBA) provides that the 
Bulgarian National Bank (BNB) must hold sufficient foreign currency 
reserves to cover all domestic currency (leva) in circulation, 
including the leva reserves of the banking system. BNB can only 
refinance commercial banks in the event of systemic risk to the banking 
system.
    Bulgaria's association agreement with the European Union (EU) took 
effect January 1, 1994, and Bulgaria hopes to begin EU accession 
negotiations in 2000. A bilateral investment treaty with the United 
States took effect in July 1994.
2. Exchange Rate Policy
    Bulgaria redenominated the currency on July 5, 1999, replacing 1000 
old leva (BGL) with one new lev (BGN). Until January 1, 1999, the CBA 
fixed the exchange rate at 1000 old leva to one German mark. Since 
then, the lev has been pegged to the euro at the rate of 1,955.83 old 
leva (now 1.95583 new leva) per euro. The Bulgarian National Bank (BNB) 
sets an indicative daily U.S. dollar rate (based on the dollar/euro 
exchange rate) for statistical and customs purposes, but commercial 
banks and others licensed to trade on the interbank market are free to 
set their own rates.
    Only some of the commercial banks are licensed to conduct currency 
operations abroad. Companies may freely buy foreign exchange for 
imports from the interbank market. Companies are required to 
repatriate, but no longer to surrender, earned foreign exchange to the 
central bank. Bulgarian citizens and foreign persons may also open 
foreign currency accounts with commercial banks. Foreign investors may 
repatriate 100 percent of profits and other earnings; however, profits 
and dividends derived from privatization transactions in which Brady 
bonds were used for half the purchase price may not be repatriated for 
four years. Capital gains transfers appear to be protected under the 
revised Foreign Investment Law; free and prompt transfers of capital 
gains are guaranteed in the Bilateral Investment Treaty. A permit is 
required for hard currency payments to foreign persons for direct and 
indirect investments and free transfers unconnected with import of 
goods or services.
    Bulgaria will liberalize its foreign currency laws effective 
January 1, 2000. After that date, Bulgarian and foreign citizens may 
take up to BGN 5,000 ($2,700) or an equivalent amount of foreign 
currency out of the country without declaration. Regulations allow 
foreign currency up to BGN 20,000 ($11,110) to be exported upon written 
declaration. Transfers exceeding BGN 20,000 must have the prior 
approval of the BNB.
3. Structural Policies
    The government has implemented legal reforms designed to strengthen 
the country's business climate. Bulgaria has adopted legislation on 
foreign investment and secured lending, and is also making significant 
strides in regulation of the banking sector and the securities market. 
However, many businesspersons contend that unnecessary licensing, 
administrative inefficiency and corruption continue to hinder private 
business development.
    In 1998, Bulgaria reached agreement with the IMF on a three-year 
program of far-reaching structural reforms, particularly the 
privatization of state-owned enterprises (SOEs). In June 1999, the 
government satisfied its commitment to privatize or commence 
liquidation of a group of 41 of the largest loss-making SOEs, including 
the national airline. It also sold the Neftochim refinery to a Russian 
oil company and is due to sell a majority stake in the 
telecommunications monopoly, the Bulgarian Telecommunications Company, 
to a Greek/Dutch consortium. As of September 1999, the GOB had sold 
approximately 70 percent of state assets destined for privatization.
    Bulgaria taxes value added, profits and income, and maintains 
excise and customs duties. In 1999, the GOB reduced the Value Added Tax 
by 2 percentage points to 20 percent and the profits tax for large 
businesses by 3 percentage points to 27 percent. The draft 2000 budget, 
approved by the Council of Ministers, envisions a further 2 percentage 
point reduction in the profits tax for large businesses and voluntary 
VAT registration for businesses with turnover from BGN 50,000 (USD 
28,000) to BGN 75,000 (USD 42,000).
4. Debt Management Policies
    Bulgaria's democratically-elected governments inherited an external 
debt burden of over $10 billion from the Communist era. In 1994, 
Bulgaria concluded agreements rescheduling official (``Paris Club'') 
debt for 1993 and 1994, and $8.1 billion of its commercial (``London 
Club'') debt. As of July 1999, gross external debt amounted to $9.6 
billion, but the Bulgarian government projects that debt will increase 
to $10.3 billion by the end of 1999 (84 percent of GDP). Debt service 
in 1999 will total approximately 7 percent of GDP and 22 percent of 
exports, but will rise after 2000.
    Under the three-year Extended Fund Facility (EFF) concluded in 
1998, the IMF is providing credits of about $864 million. As of 
November 1999, about $360 million was released in five equal tranches 
of $72 million. Another 7 tranches will be made available quarterly 
through May 2001, subject to IMF reviews of Bulgarian adherence to the 
program. The government has sought additional external financing from 
the World Bank, the European Union, and other donors. The World Bank 
disbursed a Financial and Enterprise Sector Adjustment Loan (FESAL) of 
$100 million in 1998 and disbursed a second FESAL of similar value in 
December with Bulgaria. In September 1999, the World Bank approved an 
Agricultural Structural Adjustment Loan worth $75 million for Bulgaria.
5. Significant Barriers to U.S. Exports
    Bulgaria acceded to the World Trade Organization in December 1996. 
Bulgaria also acceded to the WTO Plurilateral Agreement on Civil 
Aircraft and committed to sign the Agreement on Government Procurement. 
Bulgaria ``graduated'' from Jackson-Vanik requirements and was accorded 
unconditional MFN treatment by the United States in October 1996.
    Bulgaria's association agreement with the European Union phases out 
industrial tariffs between Bulgaria and the EU while U.S. exporters 
still face duties. This has created a competitive disadvantage for some 
U.S. exporters, such as soda ash exporters. The association agreement 
improved reciprocal market access to certain farm products. In July 
1998, Bulgaria joined the Central European Free Trade Area (CEFTA). 
Over the following three years, tariffs on 80 percent of industrial 
goods traded between CEFTA countries will be eliminated. A free trade 
agreement with Turkey took effect in January 1999. A free trade 
agreement with Macedonia will enter into force in January 2000.
    In January 1999, average Bulgarian import tariffs were reduced 
significantly and a five percent import surcharge was eliminated ahead 
of schedule. However, tariffs in areas of concern to U.S. exporters--
including poultry legs and other agricultural goods and distilled 
spirits--are still relatively high. Overall, tariffs on industrial 
products range from about five to 40 percent and from about five to 70 
percent for agricultural goods. In December 1998, Parliament revoked 
exemption from value-added tax (VAT) and customs duties for capital 
contributions in kind valued at over $100,000. In the past, some 
investors have reported that high import tariffs on products needed for 
the operation of their establishments in Bulgaria served as a 
significant barrier to investment.
    The U.S. Embassy has no complaints on record that the import 
license regime has negatively affected U.S. exports. Licenses are 
required for a specific, limited list of goods including radioactive 
elements, rare and precious metals and stones, certain pharmaceutical 
products and pesticides. Armaments and military-production technology 
and components also require import licenses and can only be imported by 
companies licensed by the government to trade in such goods. Trade in 
dual-use items is also controlled.
    Customs regulations and policies are sometimes reported to be 
cumbersome, arbitrary and inconsistent. Problems cited by U.S. 
companies include excessive documentation requirements, slow processing 
of shipments and corruption. Bulgaria uses the single customs 
administrative document used by European Community members. A one 
percent customs clearance fee was abolished in January 1998.
    The Committee on Standardization & Metrology is the competent 
authority for testing and certification of all products except 
pharmaceuticals, food and telecommunications equipment. The testing and 
certification process requires at least one month. The Committee on 
Standardization shares responsibilities for food products with the 
Ministries of Agriculture and Health. The responsible authority for 
pharmaceuticals is the National Institute for Pharmaceutical Products 
in the Ministry of Health, which establishes standards and performs 
testing and certification and is also responsible for drug 
registration. Approval for any equipment interconnected to Bulgaria's 
telecommunications network must be obtained from the State 
Telecommunications Commission. The 1999 Law on Protection of Consumers 
and Rules of Trade regulates labeling and marking requirements. Labels 
must contain the following information in Bulgarian: quality, quantity, 
ingredients, certification authorization number (if any), and manner of 
storage, transport, use or maintenance.
    All imports of goods of plant or animal origin are subject to 
phytosanitary and veterinary control, and relevant certificates should 
accompany such goods. Under a November 1999 ordinance governing 
official Bulgarian veterinary treatment of imported animals, meat, and 
animal products, Bulgaria will accept imported meat and poultry 
products only from plants approved for export by competent authorities 
in the country of origin.
    As in other countries aspiring to membership in the European Union, 
Bulgaria's 1998 Radio and Television Law requires a ``predominant 
portion'' of certain programming to be drawn from European-produced 
works and sets quotas for Bulgarian works within that portion. However, 
this requirement will only be applied to the extent ``practicable.'' 
Foreign broadcasters transmitting into Bulgaria must have a local 
representative, and broadcasters are prohibited from entering into 
barter agreements with television program suppliers.
    Foreign persons cannot own land in Bulgaria because of a 
constitutional prohibition, but foreign-owned companies registered in 
Bulgaria are considered to be Bulgarian persons. Foreign persons may 
acquire ownership of buildings and limited property rights, and may 
lease land. Local companies where foreign partners have controlling 
interests must obtain prior approval (licenses) to engage in certain 
activities: production and export of arms/ammunition; banking and 
insurance; exploration, development and exploitation of natural 
resources; and acquisition of property in certain geographic areas.
    There are no specific local content or export-performance 
requirements nor specific restrictions on hiring of expatriate 
personnel, but residence permits are often difficult to obtain. In its 
Bilateral Investment Treaty with the United States, Bulgaria committed 
itself to international arbitration in the event of expropriation, 
investment, or compensation disputes.
    Foreign investors complain that tax evasion by private domestic 
firms combined with the failure of the authorities to enforce 
collection from large, often financially-precarious, state-owned 
enterprises places the foreign investor at a real disadvantage.
    In June 1999, Parliament adopted a new law on procurement replacing 
the 1997 Law on Assignment of Government and Municipal Contracts. This 
legislation defines terms and conditions for public orders and aims for 
increased transparency and efficiency in public procurement. However, 
bidders still complain that tendering processes are frequently unclear 
and/or subject to irregularities, fueling speculation on corruption in 
government tenders. U.S. investors have also found that in general 
neither remaining state enterprises nor private firms are accustomed to 
competitive bidding procedures to supply goods and services to these 
investors within Bulgaria. However, tenders organized under projects 
financed by international donors have tended to be open and 
transparent.
6. Export Subsidies Policies
    The government currently applies no export subsidies. However, a 
1995 law gave the State Fund for Agriculture the authority to stimulate 
the export of agricultural and food products through export subsidies 
or guarantees.
7. Protection of U.S. Intellectual Property
    Bulgarian intellectual property rights (IPR) legislation is 
generally adequate, with modern patent and copyright laws and criminal 
penalties for copyright infringement. In September 1999, Parliament 
passed a series of laws on trademarks and geographical indications, 
industrial designs and integrated circuits. A Law for the Protection of 
New Types of Plants and Animal Breeds was adopted in September 1996. 
Parliament is expected to approve additional legislation in the near 
future extending copyright protection to 70 years, and introducing a 
new neighboring right for film producers, provisional measures to 
preserve evidence of IPR infringement and special border measures. The 
Bulgarian government has also proposed amendments strengthening 
protection for pharmaceutical tests. U.S. companies have cited illegal 
use of trademarks as a barrier to the Bulgarian market.
    Until recently, Bulgaria was the largest source of compact-disk and 
CD-ROM piracy in Europe and was one of the world's leading exporters of 
pirated goods. For this reason, Bulgaria was placed on the U.S. Trade 
Representative's ``Special 301'' Priority Watch List in January 1998. 
In 1998, enforcement improved considerably with the introduction of a 
CD-production licensing system subject to 24-hour plant surveillance. 
CD manufacturers must also submit a copy of an agreement with the 
copyright holder before starting production. In recognition of the 
significant progress made by the Bulgarian government in this area, the 
U.S. Trade Representative removed Bulgaria from all Watch Lists in 
April 1999.
    Bulgaria is a member of the World Intellectual Property 
Organization (WIPO) and a signatory to the following agreements: the 
Paris Convention for the Protection of Intellectual Property; the Rome 
Convention for the Protection of Performers, Producers of Phonograms 
and Broadcast Organizations; the Geneva Phonograms Convention; the 
Madrid Agreement for the Repression of False or Deceptive Indications 
of Source of Goods; the Madrid Agreement on the International 
Classification and Registration of Trademarks; the Patent Cooperation 
Treaty; the Universal Copyright Convention; the Berne Convention for 
the Protection of Literary and Artistic Works; the Lisbon Agreement for 
the Protection of Appellations of Origin and their International 
Registration; the Budapest Treaty on the International Recognition of 
the Deposit of Microorganisms for the Purpose of Patent Protection; the 
Nairobi Treaty on the Protection of the Olympic Symbol; and the 
International Convention for the Protection of New Varieties of Plants. 
On acceding to the WTO, Bulgaria agreed to implement the Agreement on 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) without a 
transitional period.
8. Worker Rights
    a. The Right of Association: The 1991 Constitution provides for the 
right of all workers to form or join trade unions of their choice. This 
right has apparently been freely exercised. Estimates of the unionized 
share of the work force range from 30 to 50 percent. There are two 
large trade union confederations, the Confederation of Independent 
Trade Unions of Bulgaria and Podkrepa, which between them represent the 
overwhelming majority of unionized workers. The 1992 Labor Code 
recognizes the right to strike when other means of conflict resolution 
have been exhausted, but ``political strikes'' are forbidden. Workers 
in essential services (primarily military and police) are also subject 
to a blanket prohibition from striking. However, Podkrepa has 
complained that a 1998 law denying workers the right to appeal 
government decisions on the legality of strikes is unconstitutional and 
violates an ILO convention. The Labor Code's prohibitions against 
antiunion discrimination include a 6-month period of protection against 
dismissal as a form of retribution. There are no restrictions on 
affiliation or contact with international labor organizations, and 
unions actively exercise this right.
    b. The Right to Organize and Bargain Collectively: The Labor Code 
institutes collective bargaining on the national and local levels. The 
legal prohibition against striking by key public sector employees 
weakens their bargaining position; however, these groups have been able 
to influence negotiations by staging protests and engaging in other 
pressure activities without going on strike. Labor unions have 
complained that while the legal structure for collective bargaining was 
adequate, many employers failed to bargain in good faith or to adhere 
to concluded agreements. Labor observers viewed the government's 
enforcement of labor contracts as inadequate. The backlog of cases in 
the legal system delayed redress of workers' grievances. The same 
obligation of collective bargaining and adherence to labor standards 
prevails in the export processing zones.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor. Many observers argue that the 
practice of shunting minority and conscientious-objector military 
draftees into construction battalions that often carry out commercial 
construction and maintenance projects is a form of compulsory labor. 
Bulgaria has announced plans to phase out its military construction 
battalions under its ongoing Plan 2004 reform and reorganization, but 
it is unclear when this will take place. In the meantime, Bulgaria 
recently established a conscientious objector program that provides for 
alternative civilian national service.
    d. Minimum Age of Employment of Children: The Labor Code sets the 
minimum age for employment at 16, and 18 for dangerous work. The 
Ministry of Labor and Social Welfare (MLSW) is responsible for 
enforcing these provisions. Child labor laws are enforced well in the 
formal sector, but some observers believe that children are 
increasingly exploited in certain industries and by organized crime. 
Observers estimate that between 50,000 and 100,000 children under 16 
are illegally employed in Bulgaria. Underage employment in the informal 
and agricultural sectors is believed to be increasing as collective 
farms are broken up and the private sector continues to grow.
    e. Acceptable Conditions of Work: The national monthly minimum wage 
equates to approximately US$40. Delayed payment of wages continues to 
be a problem with certain employers in Bulgaria. The constitution 
stipulates the right to social security and welfare aid assistance for 
the temporarily unemployed, although in practice such assistance is 
often late. The Labor Code provides for a standard workweek of 40 hours 
with at least one 24-hour rest period per week. The MLSW is responsible 
for enforcing both the minimum wage and the standard workweek. 
Enforcement has been generally effective in the state sector (although 
there are reports that state-run enterprises fall into arrears on 
salary payments to their employees if the firms incur losses), but is 
weaker in the emerging private sector. The MLSW is responsible for 
enforcing the national labor safety program, with standards established 
by the Labor Code. The constitution states that employees are entitled 
to healthy and non-hazardous working conditions. Under the Labor Code, 
employees have the right to remove themselves from work situations that 
present a serious or immediate danger to life or health without 
jeopardizing their continued employment. In practice, refusal to work 
in such situations would result in loss of employment for many workers. 
A 1999 law mandated that employers establish joint employer/labor 
committees to monitor health and safety issues.
    f. Rights in Sectors with U.S. Investment: Conditions do not 
significantly differ in the few sectors with a U.S. presence.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1
Total Manufacturing............  ..............  20
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  21
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis


                                 ______
                                 

                             CZECH REPUBLIC


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (US$ billion) \2\...........      53.0      56.4      54.0
  Real GDP Growth (pct)...................       0.3      -2.3      -0.5
  GDP by Sector (pct): \2\
    Agriculture...........................       4.6       5.1       5.3
    Manufacturing.........................      26.6      31.4      31.2
    Services..............................      51.4      51.9      52.1
    Government \3\........................      31.8      31.2      31.9
  Per Capita GDP (US$) \2\................     5,144     5,483     5,196
  Labor Force (000's).....................     5,000     5,170     5,203
  Unemployment (pct)......................       5.2       7.5      10.0

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      10.1       5.2       7.8
  Consumer Price Inflation................       8.5      10.7       2.2
  Exchange Rate (CKR/US$)
    Official..............................     31.71     32.27     34.40

Balance of Payments and Trade: \4\
  Total Exports FOB (USD bill)............      22.8      26.3      27.4
    Exports to U.S........................       586       441       650
  Total imports CIF (USD bill)............      27.2      28.8      29.2
    Imports from U.S......................     1,029       786     1,180
  Trade Balance (USD bill)................      -4.4      -2.5      -1.8
    Balance with U.S......................      -442      -345      -530
  Current Account Deficit/GDP (pct).......      -6.1      -1.9      -1.5
  External Debt \5\.......................       1.6      24.3      24.3
  Debt Service Payments/GDP (pct).........      10.0      10.0       7.5
  Fiscal Deficit (Central)/GDP (pct)......       0.9       1.6       2.1
  Gold and Foreign Exchange Reserves......      15.0      15.9      13.2
  Aid from U.S. \6\.......................       6.0       N/A       N/A
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Unless stated otherwise, 1999 figures are based on the latest
  estimates of the Czech Statistical Office (CSO) dated October 4, 1999,
  of the Ministry of Finance and/or unofficial estimates from the Czech
  National Bank.
\2\ GDP at factor cost, percentage changes calculated in local currency.
\3\ Central government spending as pct of GDP.
\4\ Czech imports do not include re-exports of U.S. goods through other
  countries.
\5\ In absolute numbers, the figure for external debt does not change,
  the growth reflects shifts in DEM vs. US$ exchange rates.
\6\ U.S. assistance was phased out by September 30, 1997.

1. General Policy Framework
    The Czech Republic is a small and generally open economy. Having 
largely created a free and competitive market, it is currently 
struggling with problems stemming from unfinished structural reforms 
mainly in the field of bank privatization, industrial restructuring, 
legal reform and improvements of financial markets transparency. 
Unfinished structural reforms lie at the heart of the Czech Republic's 
current severe recession, which led to an economic contraction of 2.3 
percent in 1998.
    Till 1998, the Czech Republic pursued balanced budgets, incurring 
only small deficits on the way. Budget deficits incurred have 
traditionally been financed through the issuance of government bonds. 
Economic recession, failure to collect taxes satisfactorily and the 
Social Democratic government's pledge to support a wide range of social 
welfare and investment programs led to the 1999 planned budget deficit 
of approximately 1.6 percent of then estimated GDP. The government now 
anticipates the final deficit will be larger and the 2000 budget, 
currently under discussion, will also be in deficit.
    In 1998 the Czech government approved a package of incentives to 
attract investments. The incentives are offered to foreign and domestic 
firms that make a $10 million manufacturing investment through a newly 
registered company. The package includes tax breaks of up to 10 years 
offered in two five-year periods; duty-free imports of high-tech 
equipment and a 90-day deferral of value-added tax payments (VAT); 
potential for creation of special customs zones; job creation benefits; 
training grants; opportunities to obtain low-cost land; and the 
possibility of additional incentives for secondary investments and 
production expansion.
    Czech National Bank is by law responsible for monetary policy. The 
primary instrument used by the bank to influence monetary policy is the 
two-week repo rate. Following sharp and growing current account 
imbalances in the spring of 1997, the central bank implemented a series 
of austerity measures designed to dampen inflation and reduce external 
imbalances. Monetary policy during most of 1998 remained restrictive, 
with maintenance of relatively high interest rates designed to reduce 
inflation and dampen domestic demand and high compulsory bank reserves 
to lower the amount of money in the economy. In 1999, with the current 
account well on the way to recovery and the relatively still strong 
exchange rate of the crown, the central bank, ahead of its inflation 
target for a second year in row, cut interest rates several times.
    The Czech Republic enjoyed a strong inflow of foreign direct 
investment ($1.3 billion) and portfolio investments ($3.9 billion) to 
June 30, 1999. Though much needed for the economy and recognized as 
such by the government, the central bank has expressed concern that the 
strong inflows are pushing up the exchange rate and hurting overall 
economic competitiveness. They are currently exploring measures to 
neutralize the impact of these flows.
2. Exchange Rate Policy
    The Czech crown is fully convertible for most business 
transactions. The Foreign Exchange Act provides a legislative framework 
for full current account convertibility, including all trade 
transactions and most investment transactions, pending government 
action on implementing regulations. As of January 1999 all capital 
account restrictions were removed except for the ability of Czechs to 
open bank accounts abroad without a permit by the central bank, and the 
purchase of real estate in the Czech Republic by foreigners. The permit 
requirement will lapse in 2000, and foreign company branches will be 
able to acquire real estate as of 2002, in accordance with the Czech 
Republic's commitments in the Organization for Economic Cooperation and 
Development (OECD).
    The Czech crown, floating freely since the spring of 1997, has 
remained relatively steady, withstanding 1998's Russian financial 
turmoil. Having appreciated in value due to high interest rate 
differentials between the Czech Republic and its major trading 
partners, it has remained strong even after the central bank reduced 
the interest rates significantly in 1998 and 1999, as currency traders 
bet on EU convergence.
3. Structural Policies
    The government sees full membership in the European Union (EU) as 
one of its highest foreign policy priorities. Relations between the 
Czech Republic and the EU are currently governed by an EU association 
agreement signed in 1991. The start of detailed accession negotiations 
began in November 1998. Most observers do not anticipate that full EU 
membership will be achieved prior to 2003. As part of the EU accession 
process, many of the Czech Republic's regulatory policies and practices 
are slowly evolving toward EU norms. Through membership in OECD, the 
Czech Republic agreed to meet, with relatively few exceptions, OECD 
standards for equal treatment of foreign and domestic investors and 
restrictions on special investment incentives. The United States has 
succeeded in using the OECD membership process to encourage the Czech 
Republic to make several improvements to the business climate for U.S. 
firms.
    Czech tax codes are generally in line with European Union tax 
policies. In 1998, the government reduced taxes on corporate profits to 
35 percent from 38 percent. The tax rate for the highest tax bracket 
for personal income tax stands at 40 percent. Employer and employees 
social insurance contributions are respectively 35 percent and 12.5 
percent. The government permits tax write-offs of bad debts, although 
with less generous treatment of pre-1995 debts. Firms are allowed to 
write-off the first year's share of a bad debt without filing suit 
against the debtor, though subsequent write-offs must document 
unsuccessful efforts to collect past due amounts. U.S. firms have 
complained that Czech tax legislation effectively penalizes use of 
holding company structures by leveling both corporate tax and dividends 
withholding tax on profit flows between group companies, thus creating 
double taxation on such profits. Czech law does not permit intra-group 
use of losses (i.e., offsetting losses in one group entity against 
profits in another), and imposes corporate tax on dividends received 
from foreign holding without allowing use of a foreign tax credit for 
the underlying tax suffered in the subsidiary's home jurisdiction.
    Stricter bankruptcy provisions, an important part of the 
government's structural reforms came into effect in April 1998, but the 
focus is still on liquidation rather than reorganization. Most 
observers believe the slow and uneven courts, and close links between 
banks and firms, limit the effectiveness of the measure. Members of 
Parliament and others have called for a bankruptcy law closer to the 
U.S. Chapter Eleven provision to encourage resuscitation of troubled 
firms. There is a three to four year backlog in the bankruptcy courts 
and a small secondary market for the liquidation of seized assets. 
Recognizing that the lack of economic restructuring caused by 
inadequate bankruptcy laws hampers potential economic growth, the 
government is preparing another large amendment of the bankruptcy law 
for 2000.
4. Debt Management Policies
    The Czech Republic maintains a moderate foreign debt and has 
received investment grade ratings from the major international credit 
agencies. In 1998 gross foreign debt measured $24.3 billion and is not 
expected to change much in 1999. To June 30, 1999 gross foreign debt 
measured $22.4 billion, most of the amount being the debt of companies 
($11.3 billion) and commercial banks ($9.8 billion). Debt service as a 
percentage of GDP and debt service to exports stand at 7.5 percent and 
13.5 percent, respectively. The Czech Republic repaid its entire debt 
with the International Monetary Fund (IMF) ahead of schedule. Under the 
Paris Club, the Czech Republic, as member of OECD, rescheduled its 
official credits to Russia.
5. Aid
    The Czech Republic graduated from U.S. AID assistance on September 
30, 1997. In 1998, however, U.S. AID offered the country its program of 
Partners for Financial Stability and in 1999 two projects were 
launched. The Czech Republic continues to receive assistance from the 
European Union's PHARE program and individual EU member states to 
assist its transformation during the accession period for EU 
membership. According to the European Commission Delegation in Prague, 
since 1990 the Czech Republic has received 580 million ECU in PHARE 
assistance.
6. Significant Barriers to U.S. Exports
    The Czech Republic is committed to a free market and maintains a 
generally open economy with few barriers to trade and investment. It is 
a member of the World Trade Organization (WTO), and has adopted a WTO 
tariff code with a trade-weighted average tariff of 4.8 percent. This 
is being reduced gradually to 3.5 percent in accordance with Czech 
commitments in the Uruguay Round of trade negotiations. The Czech 
Republic is not a signatory to the General Agreement on Tariffs and 
Trade (GATT) civil aircraft code, but is a member of the WTO's 
Information Technology Agreement.
    The Czech Republic's EU association agreement established 
preferential tariffs for non-agricultural, EU-origin products to the 
Czech markets, while maintaining higher most-favored-nation rates for 
U.S. and other non-EU products. The preferential tariffs for EU goods 
are declining on an annual basis and by 2001 most EU industrial 
products will enjoy duty-free status. Since 1992, when the trade-
related provisions of the EU association agreement first came into 
force, a number of U.S. companies within many industry sectors have 
complained that tariff preferences given the EU under the agreement 
have diminished their business prospects and ability to compete against 
EU-origin products.
    Trade in agricultural/food products is generally free of major 
trade barriers although technical barriers continue to hamper imports 
of certain products. In anticipation of EU membership, the Czech 
Republic is rewriting much of its legislation related to standards and 
trade in agricultural/food products. During this transition phase, it 
is not always clear which rules apply, a situation which has led to 
some delays in approval. The harmonization of standards with the EU 
should ease the paperwork burden for those exporters already exporting 
to the EU. However, the alignment of Czech food legislation with the EU 
also means that certain products currently prohibited in the EU will 
also be prohibited in the Czech Republic in the future.
    The government is in the process of drafting legislation in line 
with EU directives to regulate Genetically Modified Organisms (GMOs). A 
final bill is expected in 2000. The Czech Republic continues to approve 
new GMO varieties for field testing.
    U.S. exporters of beef, poultry, pork and horse meat are not yet 
able to ship to the Czech Republic due to problems with export 
certification. USDA's Food Safety Inspection Service (FSIS) is 
currently reviewing certification documents proposed by the Czech State 
veterinary Administration.
    American business people often cite a convoluted, or in some cases 
corrupt, bureaucratic system, both at national and local levels, which 
can act as an impediment to market access. Often considerable time is 
spent by a potential investor to finalize a deal, or enforce the terms 
of a contract. European companies have sought on occasion to use the 
Czech Republic's interest in EU membership to gain advantage in 
commercial competition.
    The government is required by law to hold tenders for major 
procurement. The law, introduced in 1994, proved unsatisfactory. 
Several revisions aimed at making the law simpler and transparent 
failed. Recognizing that no amendment will help, the Czech Republic is 
currently working on a brand new procurement law to enter force in 
2001. Fully harmonized with EU legislation, it will remove also the 
current ten percent price advantage for domestic firms. The Czech 
Republic is not a member of the WTO Government Procurement Agreement.
    The Czech Ministry of Industry and Trade issues import licenses to 
those seeking to import selected goods into the Czech Republic. While 
most products and services are exempt from licensing, oil, natural gas, 
pyrotechnical products, sporting guns and ammunition require an import 
license.
    Legally, foreign and domestic investors are treated identically and 
both are subject to the same tax codes and other laws. The government 
does not screen foreign investment projects other than for a few 
sensitive industries, e.g., in the defense sector. The government 
evaluates all investment offers for the few state enterprises still 
undergoing privatization. As part of OECD membership, the Czech 
Republic committed not to discriminate against foreign investors in 
privatization sales, with only a few excepted sectors. The government 
has overcome political resistance to foreign investment in certain 
sensitive sectors, such as petrochemical, telecommunications and 
breweries. The ban on foreign ownership of real estate remains another 
important exception, although foreign-owned Czech firms may purchase 
real estate freely.
    U.S. investors interested in starting joint ventures with or 
acquiring Czech firms have experienced problems with unclear ownership 
and lack of information on company finances. Investors have complained 
about the difficulty of protecting their rights through legal means 
such as a secured interest. In particular, investors have been 
frustrated by the lack of effective recourse to the court system. The 
slow pace of court procedures is often compounded by judges' limited 
understanding of complex commercial cases. Also the Czech Republic 
imposes a Czech language requirement for trade licenses for most forms 
of business. This requirement can be fulfilled by a Czech partner, but 
this can be burdensome and involves additional risks.
    The opaque nature of the stock market puts U.S. investors and 
financial services providers at a competitive disadvantage. While stock 
market reforms were enacted in 1996 to help protect small shareholders 
and increase transparency of transactions, enforcement has been uneven. 
A Czech Securities Commission opened in 1998 with a mission of 
improving the regulatory framework of the capital market, increasing 
capital market transparency, and restoring investor confidence. To the 
date, the Commission issued some 2,300 authorized rulings, and in the 
re-licensing process revoked 663 licenses. It has, however, been 
hampered by budgetary constraints and a lack of rule-making authority.
    U.S. firms also complain about the lack of consistency in the 
application of customs norms. These problems are primarily due to the 
newness of recent regulatory changes and rapid expansion of customs 
personnel. Training efforts are underway to correct the situation and 
address these concerns.
7. Export Subsidies Policy
    The Czech Export Bank provides export guarantees and credits to 
Czech exporters. The bank follows OECD consensus on export credits. 
Additionally, the government maintains a fund through which it 
purchases domestic agricultural surpluses for resale on international 
markets. For some commodities, pricing is established at a level that 
includes a subsidy to local producers.
8. Protection of U.S. Intellectual Property
    The Czech Republic is a member of the Berne and Universal Copyright 
Conventions and the Paris Convention on Industrial Property. Czech laws 
for the protection of intellectual property rights (IPR) are generally 
good, but enforcement has lagged. Existing legislation guarantees 
protection of all forms of property rights, including patents, 
copyrights, trademarks and semiconductor chip layout design. The Czechs 
continue to harmonize with the Trade Related Aspects of Intellectual 
Property Rights (TRIPS) agreement and parliamentary approval is 
expected on an amendment providing 70 years of copyright protection for 
literary works, up from the present 50 years. It is likely that the 
Czech Republic will not meet the January 2000 deadline to implement all 
of its TRIPs-related obligations, but legislation is pending in 
Parliament which should address most or all of its commitments in this 
area.
    As a result of enforcement weaknesses and delays in indictments and 
prosecutions, the U.S. Government placed the Czech Republic on the 
Watch List during the 1999 ``Special 301'' cycle. The Embassy continues 
to work with U.S. industry and Czech government officials to improve 
enforcement of IPR norms. There are also two legislative amendments, 
which will expand tools of enforcement of IPR. One, approved to enter 
force as of December 1, 1999, boosts the powers of the customs service 
to seize counterfeit goods, and the other, albeit still in drafting 
stages, would allow the Czech Commercial Inspection (CCI) to act 
directly in IPR cases. At present, the CCI can only act in conjunction 
with the police.
9. Worker Rights
    a. The Right of Association: The law provides workers with the 
right to form and join unions of their own choice without prior 
authorization, and the government respects this right in practice. Most 
workers are members of unions affiliated with the Czech-Moravian 
Chamber of Trade Unions (CMKOS), a democratically oriented, republic-
wide umbrella organization for branch unions. The unions are not 
affiliated with political parties and exercise independence. Workers 
have the right to strike, except for those whose role in public order 
or public safety is deemed crucial. By law, strikes may take place only 
after mediation efforts fail. Unions are free to form or join 
federations and confederations and affiliate with and participate in 
international bodies. Union membership is on the decline.
    b. The Right to Organize and Bargain Collectively: The law provides 
for collective bargaining, which is generally carried out by unions and 
employers on a company basis. The scope for collective bargaining is 
more limited in the government sector, where wages depend on the 
budget.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, including that performed by children, and 
it is not practiced.
    d. Minimum Age for Employment of Children: The Labor Code 
stipulates a minimum working age of 15 years, although children who 
have completed courses at special schools (schools for the mentally 
disabled and socially maladjusted) may work at age 14. These 
prohibitions are enforced in practice.
    e. Acceptable Conditions of Work: The government sets minimum wage 
standards. The minimum wage is 3,600 Czech Crowns per month 
(approximately $100), although the monthly average is 12,766 Czech 
Crowns (approximately $365) per month. Average net wages are 2.1 times 
as high as official sustenance costs. The minimum wage provides a 
sparse standard of living for an individual worker or family, although 
allowances are available to families with children. The law mandates a 
standard workweek of 42 1/2 hours. It also requires paid rest of at 
least 30 minutes during the standard 8 to 8 1/2-hour workday, as well 
as annual leave from three or four weeks up to eight weeks depending on 
the profession. Overtime ordered by the employer may not exceed 150 
hours per year or 8 hours per week as a standard practice. Industrial 
accident rates are not unusually high. Workers have the right to refuse 
work endangering their life or health without risk of loss of 
employment.
    f. Rights in Sectors with U.S. Investment: All of the above 
observations on worker rights apply to firms with foreign investment. 
Rights in these sectors do not differ from those in other sectors of 
the economy. Conditions in sectors with U.S. investment do not differ 
from those outlined above.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  170
  Food & Kindred Products......  10              ...............................................................
  Chemicals & Allied Products..  58              ...............................................................
  Primary & Fabricated Metals..  6               ...............................................................
  Industrial Machinery and       30              ...............................................................
   Equipment.
  Electric & Electronic          -31             ...............................................................
   Equipment.
  Transportation Equipment.....  23              ...............................................................
  Other Manufacturing..........  74              ...............................................................
Wholesale Trade................  ..............  68
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  60
Services.......................  ..............  30
Other Industries...............  ..............  38
TOTAL ALL INDUSTRIES...........  ..............  543
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                DENMARK


                         Key Economic Indicators
         [Millions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................    145,280    148,400    148,800
  Real GDP Growth (pct) \2\ \3\........        3.1        2.7        1.3
  GDP by Sector: \2\
    Agriculture........................      4,871      4,146      4,300
    Manufacturing......................     25,174     26,028     25,500
    Services...........................     66,899     69,808     69,500
    Government.........................     33,434     34,385     34,700
  Per Capita GDP (US$) \2\.............     27,493     27,995     28,000
  Labor Force (000's)..................      2,849      2,867      2,864
  Unemployment Rate (pct)..............        7.7        6.4        5.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (pct)............        5.2        3.0        5.0
  Consumer Price Inflation (pct).......        2.2        1.8        2.5
  Exchange Rate (DKK/US$ annual
 average)
    Official...........................       6.61       6.70       7.00

Balance of Payments and Trade:
  Total Exports FOB \4\................     48,590     48,179     47,000
    Exports to U.S. \4\................      2,260      2,283      2,400
  Total Imports CIF \4\................     44,405     46,092     44,000
    Imports from U.S. \4\..............      2,134      2,185      2,000
  Trade Balance \4\....................      4,185      2,087      3,000
    Balance with U.S. \4\..............        126         98        400
  External Public Debt.................     40,544     42,000     40,000
  Fiscal Deficit/GDP (pct) \5\.........       -0.1       -0.9       -2.9
  Current Account Surplus/GDP (pct) \5\        0.5       -1.4        0.0
  Debt Service Payments/GDP (pct) \5\..        2.0        2.1        1.9
  Gold and Foreign Exchange Reserves...     19,620     15,139     24,000
  Aid From U.S.........................        N/A        N/A        N/A
  Aid From Other Sources...............        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available data as of
  November.
\2\ GDP measured as ``Gross Value Added by Industry.''
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade (excluding European Union agricultural export
  subsidies).
\5\ Gross Domestic Product.

1. General Policy Framework
    Denmark is a small, highly industrialized ``value-added'' country 
with a long tradition of extensive foreign trade, free capital 
movement, and political stability. It also has an efficient and well-
educated labor force, and a modern infrastructure effectively linking 
Denmark with the rest of Europe. Denmark's natural resources are 
concentrated in oil and gas fields in the North Sea which have, 
together with renewable energy, made Denmark a net exporter of energy.
    The Danish economy remains strong, with a public budget surplus 
and, in the first half of 1999, a small surplus on the balance of 
payments. However, its extensive foreign trade makes the economy 
vulnerable to foreign ``shocks,'' including the 1998 Asian and Russian 
financial crises which particularly impacted on Danish agricultural 
exports. As a result, the Danish current account turned negative in 
1998. As economic growth declined in 1999 with a consequent reduction 
in imports, the balance of payments again shifted to a small surplus. 
The government pursues a carefully monitored economic policy including 
a fiscal policy of small public expenditure increases and a tight 
monetary and exchange rate policy.
    Developments during the first half of 1999 in some key economic 
indicators--reduced private consumption and the surplus, albeit small, 
on the current account--suggest that the Government's austerity 
measures introduced in the summer of 1998 are now working. The 1998 
measures, particularly aimed at curbing private consumption and 
restoring a balance of payments surplus, include reduction of tax 
credits for debt interest payments in order to discourage new loan 
taking. The measures, over the longer run, also aim at increasing the 
incentive to work for low income earners by reducing taxation in the 
middle bracket of the progressive income tax system. The Government 
projects that the surplus in the public budget in 1999 will increase to 
almost three percent of GDP, mostly as a result of increased revenues 
and reduced expenditures due to increased employment and reduced 
unemployment. Focus is now on the inflation rate which, although stable 
at about 2.5 percent, has shifted from being one of the lowest in the 
European Union (EU) to one of the highest rates. Furthermore, it is 
entirely fueled domestically with wage inflation running above four 
percent.
    Denmark welcomes foreign investment, and is home to roughly 250 
subsidiaries of U.S. companies. Denmark also welcomes foreign firms 
focused on doing business in the former East Bloc countries. In that 
respect, Denmark has a number of preferential joint venture investment 
and investment guarantee programs and also makes available Danish and 
EU grants for improving the environment in those countries. The 
American Chamber of Commerce in Denmark was established in 1999 and a 
number of leading Danish and American firms are members of the Danish-
American Business Forum, which aims at promoting direct investment and 
exchanges of know-how.
    Denmark has opted out of the European Monetary Union's (EMU) third 
phase (establishment of a joint EU currency and relinquishment of 
jurisdiction over monetary policy), although Denmark's economic 
performance is well within the established convergence criteria for EMU 
membership.
2. Exchange Rate Policy
    Denmark is a member of the European Monetary System (EMS) and its 
Exchange Rate Mechanism (ERM). Since the early 1980s until 1999, the 
government linked the krone closely to the German mark through the ERM 
and since January 1, 1999 (through the ERM2) to the common EU currency, 
the Euro. In September 1999, the trade-weighted value of the krone was 
3.5 percent lower than in September 1998, due mostly to the krone's 
depreciation against the yen and the dollar. Since September 1998, the 
krone has depreciated some eight percent against the dollar (from DKK 
6.49 to DKK 7.08 to $1.00). The increase in the dollar rate is likely 
one of several factors behind the 9.5 percent drop in U.S. exports to 
Denmark (as measured by the Danish Bureau of Statistics) in the first 
eight months of 1999.
3. Structural Policies
    Danish price policies are based on market forces. Entities with the 
ability to fix prices because of their market dominance are regulated 
by the Government's Competition Agency. Denmark during 1997 changed its 
competition legislation from the former ``control'' principle to the 
internationally recognized ``prohibition'' principle.
    The highest marginal individual income tax rate, including the 
gross labor market contribution ``tax,'' is about 65 percent, and 
applies to all taxpayers with earnings exceeding some $37,200 (1999). 
Foreign executives and researchers working in Denmark on a contract may 
for a period of up to five years benefit from more lenient income 
taxation (a flat 33 percent tax on gross income). Danish employers are 
almost alone in the EU in paying virtually no non-wage compensation. 
Most sick leave and unemployment insurance costs are paid by the 
government. Employees pay their contribution to unemployment insurance 
out of their wages, while a major part of unemployment benefits is 
financed from general revenues.
    The Danish Value Added Tax (VAT), at 25 percent, is the highest in 
the EU. As VAT revenues constitute more than one-quarter of total 
central government revenues, a reduction would have severe budgetary 
consequences. The government therefore has no plans to reduce the VAT, 
and hopes that EU VAT rate harmonization will raise the VAT rates of 
other EU countries. Environmental taxes are increasingly being imposed 
on industry (with some roll-back for anti-pollution efforts) and on 
consumers. The corporate tax rate is 32 percent. Favorable depreciation 
rules and other deductions exist.
4. Debt Management Policies
    Denmark ran a balance of payments surplus from 1990 through 1997. 
Consequently, foreign debt gradually fell from over 40 percent of GDP 
in 1990 to 25 percent in 1997. With a deficit of about $2 billion on 
the balance of payments in 1998 and a similar amount in appreciation of 
the value of krone-denominated bonds held abroad, the foreign debt's 
share of GDP increased to 26 percent in 1998. Net interest payments on 
the foreign debt in 1998 cost Denmark some six percent of its export 
earnings. Standard and Poor's and Moody's Investors Service rate 
Denmark AA+ and Aa1, respectively.
    Denmark's public sector is a net external debtor, while the private 
sector is largely in balance. At the end of 1998, the public sector 
foreign debt, including foreign exchange reserves and krone-denominated 
bonds held by foreigners, totaled some $42 billion and the private 
sector foreign debt totaled about $4 billion.
    During 1998, central government debt denominated in foreign 
currencies dropped about 15 percent to $13 billion. Of the total debt, 
77 percent was denominated in German marks, 10 percent in European ECU, 
eight percent in French francs, and 1.5 percent in dollars. The Danish 
central government debt has an average term of two years.
    Denmark's central government deficits are not monetized and the 
Danish monetary policy is aimed at maintaining a fixed krone in 
relation to the Euro. Monetary policy is pursued through the Central 
Bank (Nationalbanken) which sets the day-to-day interest rate on 
financial sector entities' current account deposits in the Central Bank 
and/or offer 14-day transactions where the entities either borrow in 
the Central Bank against collateral in securities or buy Government 
deposit certificates. Under normal circumstances, there are no 
limitations on the liquidity. Responding to the European Central Bank's 
raising of interest rates in early November 1999, the Danish Central 
Bank raised the official discount rate and the current account rate by 
0.25 percent to 3.0 percent. At the same time, the Central Bank's 
lending rate and the rate on deposit certificates was raised by 0.45 
percent to 3.3 percent.
5. Significant Barriers to U.S. Exports
    Denmark imposes few restrictions on import of goods and services or 
on investment. Denmark generally adheres to GATT/WTO codes and EU 
legislation that impact on trade and investment. U.S. industrial 
product exporters face no special Danish import restrictions or 
licensing requirements. Agricultural goods must compete with domestic 
production, protected under the EU's Common Agricultural Policy.
    Denmark provides national and, in most cases, non-discriminatory 
treatment to all foreign investment. Ownership restrictions apply only 
in a few sectors: hydrocarbon exploration (which usually requires 
limited government participation, but not on a ``carried-interest'' 
basis); arms production (non-Danes may hold a maximum of 40 percent of 
equity and 20 percent of voting rights); aircraft (non-EU citizens or 
airlines may not directly own or exercise control over aircraft 
registered in Denmark); and ships registered in the Danish 
International Ships Register (a Danish legal entity or physical person 
must own a significant share--about 20 percent--and exercise 
significant control over the ship or the ship must be on bareboat 
charter to a Danish firm).
    Danish law provides a reciprocity test for foreign direct 
investment in the financial sector, but that has not been an obstacle 
to U.S. investment. Two U.S. banks--Republic National Bank of New York 
and the State Street Bank Trust Company--have representative offices in 
Denmark. A number of other U.S. financial entities operate in Denmark 
through subsidiaries in other European countries, including Citicorp 
(through its UK subsidiary), GE Capital Equipment Finance (through 
Sweden), and Ford Credit Europe (through the UK).
    The government liberalized Danish telecommunications services in 
1997; however, the network--the raw copper--remained controlled by the 
former Government-owned Tele Danmark A/S. The large U.S. company 
Ameritech took over a controlling interest (42 percent) of Tele Danmark 
A/S in October 1997 in the largest foreign investment ever in Denmark, 
worth about four billion dollars. Access for other telecom operators to 
the raw copper opened in 1999. A number of foreign operators, including 
Sweden's Telia and France's Mobilix, are making strong inroads into the 
Danish market, which increases competition. Sonofon, a private cellular 
mobile telephone network with U.S. Bell South participation, competes 
with Tele Danmark A/S in that area.
    Danish government procurement practices meet the requirements of 
the GATT/WTO Public Procurement Code and EU public procurement 
legislation. Denmark has implemented all EU government procurement 
directives. A 1993 administrative note advised the Danish central and 
local governments of the EU/U.S. agreement on reciprocal access to 
certain public procurement.
    In compliance with EU rules, the government and its entities apply 
environmental and energy criteria on an equal basis with other terms--
price, quality and delivery--in procurement of goods and services. This 
may eventually restrict U.S. companies' ability to compete in the 
Danish public procurement market. For example, the EU ``Ecolabel'' and 
EU ``Ecoaudit'' requirements may be difficult for some U.S. companies 
to meet. Offsets are used by the Danish Government only in connection 
with military purchases not covered by the GATT/WTO code and EU 
legislation. Denmark has no ``Buy Danish'' laws.
    There is no record of any U.S. firm complaining about Danish 
customs procedures. Denmark has an effective, modern and swift customs 
administration.
    U.S. firms resident in Denmark generally receive national treatment 
regarding access to Danish R&D programs. In some programs, however, 
Denmark requires cooperation with a Danish company. There is no record 
of any complaints by U.S. companies in this area.
6. Export Subsidies Policies
    EU agricultural export subsidies to Denmark totaled $371 million 
(some 15 percent of the value of Danish agricultural exports to non-EU 
countries) in 1998. Danish government support for agricultural export 
promotion programs is insignificant. Denmark has no direct subsidies 
for its non-agricultural exports except for shipbuilding. Denmark 
welcomed the 1994 OECD agreement to phase out shipbuilding subsidies 
internationally and would like this agreement, or eventually an updated 
one, to be ratified by the United States.
    The Government does not directly subsidize exports by small and 
medium size companies. Denmark does, however, have programs that 
indirectly assist export promotion, and establishment of export 
networks for small and medium sized companies, research and 
development, and regional development aimed at increasing exports. 
Denmark has one of the EU's lowest rates of state aid to industry (less 
than two percent of GDP). Danish subsidization of its shipbuilding 
industry is within the ceiling set in the EU Shipbuilding Directive 
(nine percent of the contract value) and accounts for about one-third 
of total Danish state aid to industry. The shipbuilding subsidies have 
not prevented the closure of many of Denmark's shipbuilders in the face 
of increased low-priced production in South Korea and elsewhere.
    Denmark also has a well-functioning export credit and insurance 
system. In its foreign development assistance, Denmark requires that 50 
percent of all bilateral assistance be used for Danish-produced goods 
and services. These programs apply equally to foreign firms that 
produce in and export from Denmark.
7. Protection of U.S. Intellectual Property
    Denmark is a party to and enforces a large number of international 
conventions and treaties concerning protection of intellectual property 
rights, including the WTO Agreement on Trade-Related Aspects of 
Intellectual Property Rights (the TRIPS Agreement).
    Patents: Denmark is a member of the World Intellectual Property 
Organization, and adheres to the Paris Convention for the Protection of 
Industrial Property, the Patent Cooperation Treaty, the Strasbourg 
Convention and the Budapest Convention. Denmark has ratified the 
European Patent Convention and the EU Patent Convention.
    Trademarks: Denmark is a party to the 1957 Nice Arrangement and to 
this arrangement's 1967 revision. Denmark has implemented the EU 
trademark directive aimed at harmonizing EU member countries' 
legislation. Denmark strongly supports efforts to establish an EU-wide 
trademark system. Following a European Court decision in 1998 that 
``regional trademark consumption'' applies within the EU, Denmark is 
stopping use of the ``global consumption principle.'' Denmark has 
enacted legislation implementing EU regulations for the protection of 
the topography of semiconductor products, which also extends protection 
to legal U.S. persons.
    Copyrights: Denmark is a party to the 1886 Berne Convention and its 
subsequent revisions, the 1952 Universal Copyright Convention and its 
1971 revision, the 1961 International Convention for the Protection of 
Performers, and the 1971 Convention for the Producers of Phonograms. 
There is little piracy in Denmark of CDs or audio or video cassettes. 
However, computer software piracy is more widespread and estimated at 
over $100 million annually.
    Piracy of other intellectual property, including books, appears 
limited. There is no evidence of Danish import or export of pirated 
products.
    New Technologies: There are no reports of possible infringement of 
new technologies.
    Impact on U.S. Trade with Denmark: Denmark is named on the 
``Special 301'' Watch List because of its failure to meet its TRIPS 
obligations to provide unannounced searches and provisional relief as 
required by TRIPS Article 50. The issue is the subject of bilateral 
consultations, and the Danish government has created a committee to 
determine which legislative changes are needed to meet its TRIPS 
obligations. The United States is also concerned about Denmark's 
failure to protect, as required by article 39.3 of the TRIPS Agreement, 
confidential test data submitted to the Danish Environmental Protection 
Agency for approval of certain chemical products.
    Finally, U.S. authors do not receive royalties from Denmark for 
photocopying of their works used in Danish schools and universities, 
because the Danish collecting agency COPYDAN will not accept the 
validity of ``en bloc'' powers of attorney issued by U.S. publisher and 
author organizations. This issue is being pursued with the Danish 
Government.
8. Worker Rights
    a. Right of Association: Workers in Denmark have the right to 
associate freely, and all (except those in essential services and civil 
servants) have the right to strike. Approximately 80 percent of Danish 
wage earners belong to unions. Trade unions operate free of government 
interference. They are an essential factor in political life and 
represent their members effectively. During 1998, 3.2 million workdays 
were lost due to labor conflicts in connection with the spring 1998 
labor contract negotiations (see below) compared with 101,700 in 1997. 
Greenland and the Faroe Islands have the same respect for worker 
rights, including full freedom of association, as Denmark.
    b. Right to Organize and Bargain Collectively: Workers and 
employers acknowledge each others' right to organize. Collective 
bargaining is widespread. Danish law prohibits antiunion discrimination 
by employers against union members, and there are mechanisms to resolve 
disputes. Salaries, benefits, and working conditions are agreed in 
biennial or triennial negotiations between the various employers' 
associations and their union counterparts. If negotiations fail, a 
National Conciliation Board mediates, and its proposal is voted on by 
both management and labor. If the proposal is turned down, the 
government may force a legislated solution (usually based upon the 
mediator's proposal). In 1998, for example, failure to reach agreement 
resulted in a conflict in the industry sector, which lasted 11 days 
before the government intervened with legislation. Again in 1999, in 
connection with public sector contract negotiations, the Government had 
to intervene to avoid a strike by nurses. In case of a disagreement 
during the life of a contract, the issue may be referred to the Labor 
Court. Decisions of that court are binding. Labor contracts that result 
from collective bargaining are, as a general rule, also used as 
guidelines in the non-union sector.
    Labor relations in the non-EU parts of Denmark--Greenland and the 
Faroe Islands--are generally conducted in the same manner as in 
Denmark.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited and does not exist in Denmark.
    d. Minimum Age for Employment of Children: The minimum age for 
full-time employment is 15 years. Denmark has implemented EU Council 
Directive 94/33/EU, which tightened Danish employment rules for those 
under 18 years of age, and set a minimum of 13 years of age for any 
type of work. The law is enforced by the Danish Working Environment 
Service (DWES), an autonomous arm of the Ministry of Labor. Danish 
export industries do not use child labor.
    e. Acceptable Conditions of Work: There is no legally mandated work 
week or national minimum wage. The work week set by labor contracts is 
37 hours. The lowest wage in any national labor agreement is equal to 
about $11 per hour. Danish law provides for five weeks of paid vacation 
each year. However, both private and public sector contract agreements 
since 1998 provide for 2 to 3 extra holidays plus up to 3 extra days 
off each year for wage earners with children. Danish law also 
prescribes conditions of work, including safety and health; duties of 
employers, supervisors, and employees; work performance; rest periods 
and days off; medical examinations; and maternity leave. The DWES 
ensures compliance with work place legislation. Danish law provides for 
government-funded parental and educational leave programs.
    Similar conditions, except for leave programs, are found in 
Greenland and the Faroe Islands, but in these areas the workweek is 40 
hours. Unemployment benefits in Greenland are either contained in labor 
contract agreements or come from the general social security system. A 
general unemployment insurance system in the Faroe Islands has been in 
force since 1992. Sick pay and maternity pay, as in Denmark, fall under 
the social security system.
    f. Rights in Sectors with U.S. Investment: Worker rights in those 
goods-producing sectors in which U.S. capital is invested do not differ 
from the conditions in other sectors.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  286
Total Manufacturing............  ..............  638
  Food & Kindred Products......  160             ...............................................................
  Chemicals & Allied Products..  60              ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       5               ...............................................................
   Equipment.
  Electric & Electronic          216             ...............................................................
   Equipment.
  Transportation Equipment.....  -8              ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\2\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Servic.........................  ..............  34
Other Industries...............  ..............  54
TOTAL ALL INDUSTRIES...........  ..............  2,628
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                FINLAND


                         Key Economic Indicators
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997       1998       1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (at factor cost) \9\.....      105.6      111.8  \1\ 110.2
  Real GDP Growth (pct)................        5.6        5.6    \1\ 3.8
  GDP by Sector:
    Agriculture, Forestry & Logging....        4.4        4.2    \1\ 4.2
    Manufacturing, Construction, Mining       32.1       35.2   \1\ 35.2
     & Quarrying.......................
    Electricity, Gas & Water Supply....        2.6        2.6    \1\ 2.4
    Services...........................       69.3       72.8   \1\ 71.7
    Imputed Bank Service Charges.......       -2.8       -3.0   \1\ -3.3
  Per Capita GDP (US$) \9\.............     23,671     25,084  \1\ 24,73
                                                                       4
  Labor Force (000's)..................      2,484      2,507  \1\ 2,548
  Unemployment Rate (pct)..............       12.7       11.4   \1\ 10.3

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............        1.0        4.4    \2\ 5.7
  Consumer Price Inflation.............        1.2        1.4    \1\ 1.0
  Exchange Rate (FIM/US$ annual               5.19       5.30        5.6
   average)............................

Balance of Payments and Trade:
  Total Exports FOB....................       40.7       43.3   \3\ 25.7
    Exports to U.S.....................        2.8        3.2    \3\ 1.7
  Total Imports CIF....................       30.7       32.5   \3\ 19.8
    Imports from U.S...................        2.3        2.7    \3\ 1.6
  Trade Balance........................       10.0       10.8    \3\ 5.9
    Balance with U.S...................        0.5        0.5    \3\ 0.1
  External Public Debt \4\.............      -29.8      -21.3  \5\ -25.8
  Fiscal Deficit-Surplus/GDP (pct) \6\.       -1.2        0.9    \1\ 3.1
  Current Account Surplus/GDP (pct)....        5.6        5.9    \1\ 4.9
  Debt Service Payments/GDP (pct) \7\..        5.4        4.9    \1\ 4.6
  Gold and Foreign Exchange Reserves...        9.9        9.7    \8\ 9.2
  Aid from U.S.........................        N/A        N/A        N/A
  Aid from All Other Sources...........        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ Estimate, Ministry of Finance.
\2\ Bank of Finland, April 1999-April 1998.
\3\ January-August 1999, Board of Customs.
\4\ Net international investment position exc. shares and other equity
  items.
\5\ Bank of Finland, August 1999.
\6\ Public sector's budget deficit (EMU).
\7\ General government interest expenditures.
\8\ September 1999, Bank of Finland.
\9\ Declines in Nominal and Per Capita GDP (despite positive growth
  rates) are due to the depreciating value of the Finnish Markka.

1. General Policy Framework
    At the beginning of the 1990's, the Finnish economy encountered a 
severe recession, after a period of rapid growth in the 1980's. GDP 
growth came to a standstill in 1990 and the following year declined by 
7 percent. Industrial output and exports bottomed out in 1991, and 
total industrial output did not start to grow again until 1993. 
Unemployment has decreased significantly since 1994, but remains above 
the European Union (EU) average. EU membership, which took place on 
January 1, 1995, helped spur structural change in key economic sectors.
    The overall economic outlook in Finland is favorable. Inflation has 
been moderate, and employment has grown robustly. In 1999, the volume 
of total output is anticipated to grow by 3.8 percent year-on-year. In 
1998 GDP growth amounted to 5.6 percent, the same as in 1997. 
Unemployment rate estimated to drop to 10.3 percent from 1998's 11.4 
percent. The national government's budget is expected to be balanced 
this year, and the surplus in overall government finances (including 
revenues from state owned corporations) will grow to 3 percent of GDP
    The current account surplus reached 40.3 billion FIM in 1998, which 
is 5.9 percent of GDP. In 1999 the surplus is expected to contract to 
34.9 billion FIM, but should rise again in year 2000. As a percentage 
of GDP the current account surplus is forecast to fall from last year's 
record level but remain in the range of 5 percent both in 1999 and 
2000.
    The current account surplus has been export driven during the 
1990s. But in 1999, the surplus is expected to dip slightly as the 
terms of trade deteriorate by 3 percent. In 2000, the terms of trade 
are projected to fall by another one percent, but accelerated growth in 
the volume of exports will bring the trade surplus back on a growth 
track.
    Private consumption was up 4.5 percent in 1998 and is forecasted to 
grow by 3.8 percent in 1999, 3.4 percent in 2000, and 3.2 percent in 
2001. Consumer confidence remains high overall.
    Finland's net foreign debt was FIM 476.5 billion at the end of 
1998. Owing to a rise in share prices and an increase in foreign owned 
equity, net debt excluding shares and other equity items (the interest 
bearing net debt) declined in the course of 1998 and stood at 142.3 
billion (20.7 percent of GDP) at the end of 1998.
    With central government finances on the mend, general government 
finances have also considerably improved; local government finances are 
close to balance. The surplus in overall public finances is forecast to 
reach about 3 percent of GDP in 1999. With the net asset position 
improving and domestic product growing, the overall government debt 
ratio (ratio of EMU debt to GDP) is predicted to fall from 49.7 percent 
in 1998 to 46.6 percent by the end of 1999.
    In 1998 Finland's tax ratio (gross wage-earner taxation, including 
compulsory employment pension contributions, relative to GDP) was down 
to 46.2 percent from 46.3 percent in 1997. A marginal rise is expected 
in 1999 (46.7 percent) and in 2000 (46.8 percent).
    Finnish economic policy is determined to a large extent by 
consultation and coordination within the EU. EU membership, for 
example, has resulted in new competition legislation that could help to 
reduce the cartelized nature of many Finnish industries. Legislation 
that took effect at the beginning of 1993 liberalizing foreign 
investment restrictions has helped spur a sharp increase in foreign 
portfolio investment and hence has contributed to the 
internationalization of large Finnish companies. The increase in stock 
market activity is also due to lower domestic interest rates. Direct 
foreign investment, however remains modest due to high production 
costs. Finland is hoping to capitalize on its location and expertise to 
serve as a gateway for foreign investors in the former Soviet Union and 
the Baltic States. This effort had scored some successes as foreign 
firms established production and warehousing facilities in eastern 
Finland, close to the major Russian markets. The recent Russian 
financial crisis has caused a significant slowdown in gateway activity.
    EU membership and Finland's budget constraints have brought about 
some reform in Finland's highly protected agricultural sector. Finland 
is slowly transitioning to the EU agricultural regime. The compromise 
outcome of Agenda 2000 negotiated by the European Ministers of 
Agriculture in March 1999, contained some favorable elements with 
respect to Finland. Of special importance was drying aid for grains and 
oilseeds, and aid for grass silage. The delay of the price cut of milk 
reform until 2003, makes the situation easier now, although there might 
be problems later on if the compensation does not cover losses caused 
by the price cuts.
2. Exchange Rate Policy
    From June 1991 to September 1992 the Finnmark was pegged to the 
European Currency Unit, the ECU. The fluctuation margins and the 
midpoint were set so as to correspond to the fluctuation margins and 
midpoint of the old currency index. In September 1992, the Bank of 
Finland decided to abandon the limits of the fluctuation range and 
allow the Finnmark to float. Finland joined the Exchange Rate Mechanism 
(ERM) of the European Monetary System in October 1996, at the central 
rate of 1 ECU = FIM 5.80661. As a participant in the ERM, Finland takes 
part in the mutual intervention arrangements coordinated between the 
various central banks, which contribute to economic policy goals by 
stabilizing the exchange rate.
    The European Commission reported on 25 March 1998, that 11 EU 
member countries, one of them Finland, were ready for the economic and 
monetary union (EMU) and met the conditions to adopt the single 
currency (Euro).
    The bank notes and coins of the single currency will be put into 
circulation in 2002. As of January 1, 1999, Finland joined the third 
stage of the EMU. This third and final stage of EMU commenced with the 
irrevocable locking of the exchange rates of the eleven currencies 
participating in the Euro area and with the conduct of a single 
monetary policy under the responsibility of the ECB. The Finnmark was 
pegged to the Euro at 5.9457.
3. Structural Policies
    Finland replaced its turnover tax with a Value-Added Tax (VAT) in 
June 1994. While the change has had little effect on overall revenues, 
several sectors not previously taxed or taxed at a lower rate, 
including corporate and consumer services and construction, are now 
subject to the new VAT. The government has kept the basic VAT rate at 
the same level as the old turnover tax (22 percent). Legislation on VAT 
was harmonized with the European Union. Foodstuffs will still be taxed 
at a 17 percent rate. Services, including health care, education, 
insurance, newspaper & periodical subscriptions, and rentals are not 
subject to VAT.
    Agricultural and forestry products continue to be subject to 
different forms of non-VAT taxation. A uniform tax rate of 28 percent 
on capital gains took effect in 1996, which includes dividends, rental 
income, insurance, savings, forestry income, and corporate profits. The 
sole exception was bank interest, where the tax rate was increased from 
20 to 25 percent at the beginning of 1994. The Government's budget 
proposal for 2000 includes raising the corporate and capital income tax 
rate from current 28 per cent to 29 per cent.
    In March 1997, European Union commitments required the 
establishment of a tax border between the autonomously governed, but 
territorially Finnish, Aland Islands (Ahvenanmaa) and the rest of 
Finland. As a result, the trade of goods and services between the rest 
of Finland and Aland is now treated as if it were trade with a non-EU 
area. The trade effect of this treatment is minimal since the Aland 
Islands are part of the EFTA tariff area.
    The current Comprehensive Incomes Policy Agreement expires at the 
end of January 2000. A new round of wage negotiations is being carried 
out. Unlike in the past, the new wage negotiations are been carried out 
on a union by union basis as opposed to collective bargaining with all 
unions together. There won't be any collective bargaining agreements, 
but instead agreements on union levels. All main labor market 
organizations are committed to the target of low inflation, and the 
government intends to reward a moderate collective wage agreement with 
tax cuts.
    The sharp decline in interest rates and liberalization of foreign 
investment has resulted in a strong revival of the Finnish stock market 
and greater corporate use of equity markets. It has also substantially 
increased the percentage of foreign ownership of many of Finland's 
leading companies, and is the preferred vehicle for privatization or 
partial privatization of companies with significant state ownership. 
The previous Center-Conservative government initiated a program aimed 
at privatizing as much of the state-owned companies as the Finnish 
Parliament would permit and the market could absorb. The present 
government agrees that state ownership at its present level is no 
longer necessary in manufacturing, energy production and 
telecommunications-operations. The basic strategy has been to reduce 
the government's stake through the issuance of stock, rather than by 
selling off companies to individual investors and to treat each company 
as an individual case. In its program the government is committed to 
using privatization proceeds primarily to reduce government debt and to 
research and development activities.
    Recent examples include Sonera (former Telecom Finland) and HPY 
(Helsinki Telephone Company) and the selling of Enso to Stora. In 
virtually every case, however, the Finnish government has retained 
significant minority stakes in privatized companies.
    As a result of the recession of the early 1990s, industrial 
subsidies have increased by about 80 percent of GDP in real terms. The 
government has begun, however, to reduce subsidies in line with the 
need for greater fiscal discipline and Maastricht Treaty criteria for 
monetary union. General horizontal subsidies form the bulk of aid in 
Finland, including assistance for research and development, 
environmental protection, energy and investment. All companies 
registered in Finland have access to government assistance under 
special development programs. Foreign-owned companies are eligible for 
government incentives on an equal footing with Finnish owned companies. 
Government incentive programs are mainly aimed at investment in areas 
deemed to be in need of development. The support consists of cash 
grants, loans, tax benefits, investments in equity, guarantees and 
employee training.
4. Debt Management Policies
    Under the government's EMU convergence program, the gross 
government debt is projected to drop from 49.7 percent last year to 
43.2 percent of GDP by the end of 1999. Finnish corporations, formerly 
heavy users of foreign capital, are now reducing foreign obligations.
    In August 1999, Moody's announced that it keeps its rating on 
Finnish long-term government bonds at their best rating--AAA. Standard 
& Poor's rating was upgraded in September 1999 to AA+, which is the 
second best. In November 1999, Fitch IBCA confirmed the rating of 
Finnish long-term government bonds to AAA.
    Finland is an active participant in the Paris Club, the London Club 
and the Group of 24, providing assistance to East and Central Europe 
and the former Soviet Union. It has been a member of the IMF since 
1948. Finland's development cooperation programs channel assistance via 
international organizations and bilaterally to a number of African, 
Asian, and Latin American countries. In response to budgetary 
constraints and changing priorities, Finland has reduced foreign 
assistance from 0.78 percent of GDP in 1991 to 0.32 percent of GDP in 
1998. The Finnish Government intends to raise foreign assistance to 0.4 
percent of GDP by year 2000.
5. Significant Barriers to U.S. Exports
    Finland became a member of the EU in 1995, and, as a result, has 
had to adopt the EU's tariff schedules. The agricultural sector remains 
the most heavily protected area of the Finnish economy, with the bulk 
of official subsidies in this sector. The amount of these subsidies is 
determined by the difference between intervention and world prices for 
agricultural products. Since joining the EU, the difference between 
these two prices has decreased for most agricultural items, resulting 
in lower, albeit still significant, subsidy levels.
    In mid-1996 the Finnish government's inter-ministerial licensing 
authority began to oppose within the EU U.S. company applications for 
commercialization of genetically modified organisms (GMOs) such as 
insect resistant corn. The Environmental Ministry appears to favor 
mandatory consumer-oriented labeling of GMOs. Other ministries are more 
supportive of GMO commercialization. The government continues to take a 
case-by-case approach to GMO-related issues.
    The Finnish service sector is undergoing considerable 
liberalization in connection with EU membership. Legislation 
implementing EU insurance directives have gone into effect. Finland has 
exceptions in insurance covering medical and drug malpractice and 
nuclear power supply. Restrictions placed on statutory labor pension 
funds, which are administered by insurance companies, will in effect 
require that companies establish an office in Finland. In most cases 
such restrictions will cover workers' compensation as well. Auto 
insurance companies will not be required to establish a representative 
office, but will have to have a claims representative in Finland.
    1995 was the first year of fully open competition in the 
telecommunications sector in Finland. The Telecommunication Act of 
August 1996 allows both network operators and service operators to use 
competitor telecommunication networks in exchange for reasonable 
compensation. The Telecommunication Act was replaced by the 
Telecommunications Market Act of 1997, which improved the opportunities 
of telecommunication operators to profitably lease each other's 
telecommunications connections. Entry to the sector was also made 
easier, by eliminating a licensing requirement to construct a fixed 
telephone network. Only mobile telephone networks are still subject to 
license.
    Finland was the first country to grant licenses for third 
generation mobile phone networks. In March 1999, four 
telecommunications companies were granted a license to construct a 3G 
mobile network in Finland. The decision did not include a final 
position on the technology to be used, since the ITU's international 
standardization decision (IMT-2000) had not yet been taken. The 3G 
mobile operations will be launched by January 1, 2002 at the latest.
    In the next few years, the telecommunications and information 
technology sectors will continue to grow rapidly. Finland's 
telecommunications environment is one of the most advanced in Europe 
and the growth of international business in telecommunications is of 
significant importance to the Finnish economy.
    The government requires that the Finnish broadcasting company 
devote a ``sufficient'' amount of broadcasting time to domestic 
production, although in practical terms this has not resulted in 
discrimination against foreign produced programs. Finland has adopted 
EU broadcasting directives, which recommend a 51 percent European 
programming target ``where practicable'' for non-news and sports 
programming. Finland does not intend to impose specific quotas and has 
voiced its opposition to such measures in the EU.
    With the end of the Restriction Act in January 1993, Finland 
removed most restrictions on foreign ownership of property in Finland. 
Only minor restrictions remain, such as requirements to obtain 
permission of the local government in order to purchase a vacation home 
in Finland. But even restrictions such as this will be abolished by 
January 2000, bringing Finland fully in line with EU norms.
    Foreigners residing outside of the EEA who wish to carry on trade 
as a private entrepreneur or as a partner in a Finnish limited or 
general partnership must get a trade permit from the Ministry of Trade 
and Industry (MTI) before starting a business in Finland. Additionally, 
at least one-half of the founders of a limited company must reside in 
the EEA unless the MTI grants an exemption.
    Normally Finland requires that a labor market test be conducted 
before allowing a foreigner to work in Finland. The purpose of the test 
is to determine whether or not a Finn could undertake the same work. 
However, foreign intra-corporate transferees who are business 
executives or managers are not subject to the labor market test. This 
standard does not apply to company specialists, who must prove that 
they possess knowledge at an advanced level of expertise or are 
otherwise privy to proprietary company business information.
    Finland is a signatory to the WTO Government Procurement Agreement 
and has a good record in enforcing its requirements. In excluded 
sectors, particularly defense, counter trade is actively practiced. 
Finland is purchasing fighter aircraft and associated equipment valued 
at $3.35 billion from U.S. suppliers. One hundred percent offsets are 
required, as a condition of sale, by the year 2005. As of December 
1998, $2.9 billion (or 88 per cent of the total) worth of offsets have 
been made.
    Finland has in most cases completed the process of harmonizing its 
technical standards to EU norms. It has streamlined customs procedures 
and harmonized its practices with those of the EU.
6. Export Subsidies Policies
    The only significant Finnish direct export subsidies are for 
agricultural products, such as grain, meat, butter, cheese and eggs as 
well as for some processed agricultural products.
    Finland has advocated worldwide elimination of shipbuilding 
subsidies through the OECD Shipbuilding Agreement. The EU has decided 
that payment of shipyard subsidies will end at the end of year 2000.
7. Protection of U.S. Intellectual Property
    The Finnish legal system protects property rights, including 
intellectual property, and Finland adheres to numerous international 
agreements and organizations concerning intellectual property. In 1996, 
Finland joined the European Patent Convention (EPC).
    Finland is a member of WIPO, and participates primarily via its 
membership in the EU. The idea of protection of intellectual property 
is well developed. For example, the incidence of software piracy is 
lower than in the U.S., and by some measures (e.g. BSA) is the lowest 
in the world.
    The Finnish Copyright Act, which traditionally also grants 
protection to authors, performing artists, record producers, 
broadcasting organizations and catalog producers, is being amended to 
comply with EU directives. As part of this harmonization, the period of 
copyright protection was extended from 50 years to 70 years. Protection 
for data base producers (currently a part of catalog producer rights) 
will be defined consistent with EU practice. The Finnish Copyright Act 
provides for sanctions ranging from fines to imprisonment for up to two 
years. Search and seizure are authorized in the case of criminal 
piracy, as is the forfeiture of financial gains. The Copyright Act has 
covered computer software since 1991.
    Information on copying and copyright infringement is provided by 
several copyright holder interest organizations such as the Copyright 
Information and Anti-Piracy Center. The Business Software Alliance 
(BSA), a worldwide software anti-piracy organization, began operations 
in Finland in January 1994. According to a BSA survey, the rate of 
software piracy in Finland dropped to 32 percent in 1998, from 53 
percent in 1994.
8. Worker Rights
    a. The Right of Association: The constitution provides for the 
rights of trade unions to organize, to assemble peacefully, and to 
strike, and the government respects these provisions. Over 80 percent 
of the work force are organized. This applies to employers as well. All 
unions are independent of the government and political parties. The law 
grants public sector employees the right to strike, with some 
exceptions for provision of essential services. In the first half of 
1999, there were 28 strikes, of which only one, was not a wildcat 
strike. Trade unions freely affiliate with international bodies.
    b. The Right to Organize and Bargain Collectively: The law provides 
for the right to organize and bargain collectively. Collective 
bargaining agreements are usually based on incomes policy agreements 
between employee and employer central organizations and the government. 
The law protects workers against antiunion discrimination. Complaint 
resolution is governed by collective bargaining agreements as well as 
labor law, both of which are adequately enforced. There are no export 
processing zones.
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced or compulsory labor, and this prohibition is honored 
in practice.
    d. Minimum Age for Employment of Children: Youths under 16 years of 
age cannot work more than 6 hours a day or at night, and education is 
compulsory for children from 7 to 16 years of age. The Labor Ministry 
enforces child labor regulations. There are virtually no complaints of 
exploitation of children in the work force. In 1998, a proposal to 
tighten the law even further has been made. According to a bill 
introduced to parliament, comprehensive school student (7-15 years) 
should not be allowed to hold employment during two thirds of the their 
holidays, but only during one half. This change is prompted by an EU 
directive to this effect.
    e. Acceptable Conditions of Work: There is no legislated minimum 
wage, but the law requires all employers, including non-unionized ones, 
to meet the minimum wages agreed to in collective bargaining agreements 
in the respective industrial sector. These minimum wages generally 
provide a decent standard of living for workers and their families. The 
legal workweek consists of 5 days not exceeding 40 hours. Employees 
working in shifts or during the weekend are entitled to a 24-hour rest 
period during the week. The law is effectively enforced as a minimum, 
and many workers enjoy even stronger benefits through effectively 
enforced collective bargaining agreements. The government sets 
occupational health and safety standards, and the Labor Ministry 
effectively enforces them. Workers can refuse dangerous work 
situations, without risk of penalty.
    f. Rights in Sectors with U.S. Investment: There is no difference 
in the application of worker rights between sectors with U.S. 
investment and those without.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  104
Total Manufacturing............  ..............  1,004
  Food & Kindred Products......  11              ...............................................................
  Chemicals & Allied Products..  308             ...............................................................
  Primary & Fabricated Metals..  14              ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  48              ...............................................................
Wholesale Trade................  ..............  302
Banking........................  ..............  20
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  67
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  1,700
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 FRANCE


                       Key Economic Indicators \1\
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997      1998    1999 (est)
------------------------------------------------------------------------

Income, Production and Employment:
  Nominal GDP...........................     1,409     1,449      1,449
  Real GDP Growth.......................       2.0       3.4        2.7
  GDP by Sector (previous year prices):      1,264     1,283        N/A
   \2\..................................
    Agriculture.........................        42        43        N/A
    Manufacturing.......................       271       277        N/A
    Services............................       635       647        N/A
    Government and Non-Profit Services..       257       258        N/A
  Per Capita GDP (US$)..................    24,043    24,873     24,770
  Labor Force (thousands)...............    25,642    25,915     25,995
  Unemployment Rate (average)...........      12.5      11.8       11.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3) \3\..........       1.7       1.2        5.8
  Consumer Price Inflation (average)....       1.2       0.7        0.6
  Exchange Rate (FF/US$ annual average).       5.8       5.9        6.1

Balance of Payments and Trade:
  Total Exports FOB \4\.................       290       304        293
    Exports to U.S.\4\..................        19        22         21
  Total Imports CIF \4\.................       271       288        282
    Imports from U.S.\4\................        23        25         24
  Trade Balance CIF/FOB.................        19        16         11
    Balance with U.S.\4\................        -4        -3         -2
  External Public Debt..................       N/A       N/A        N/A
  Fiscal Deficit/GDP (pct)..............       3.0       2.9        2.3
  Current Account \5\...................        39        40         35
  Current Account Surplus/GDP (pct).....       2.8       2.8        2.4
  Debt Service Payments (pct of GDP)....       N/A       N/A        N/A
  Gold and Foreign Exchange Reserves \6\        57        69         71
  Aid from U.S..........................       N/A       N/A        N/A
  Aid from All Other Sources............       N/A       N/A        N/A
------------------------------------------------------------------------
N/A = non available/non applicable.
\1\ Embassy estimates based on published French government data unless
  otherwise indicated.
\2\ GDP excludes value added tax and other taxes.
\3\ 1999 figure reflects M3 as of August.
\4\ 1999 estimate based on eight months.
\5\ 1999 estimate based on eight months.
\6\ 1999 figure reflects reserves as of October.

1. General Policy Framework
    France is the fourth largest industrial economy in the world, with 
annual gross domestic product about one-fifth that of the United 
States. France is the fourth largest importer and exporter in the 
global market, and is a world leader in high technology, defense, 
agricultural products, and services. France is the eighth largest 
trading partner of the United States and the third largest in Europe 
(after Germany and the United Kingdom). According to U.S. Department of 
Commerce data, U.S. merchandise exports to France increased by 11.0 
percent to $17.7 billion in 1998, while merchandise imports from France 
grew 16.3 percent to $24.0 billion, again according to Commerce 
Department data. This resulted in a U.S. merchandise trade deficit with 
France of about $6 billion. French trade data shown in the table above 
account differently for re-exports and transshipments via neighboring 
European countries. They thus tell a different story: France believes 
that it had a trade deficit of about $3 billion with the U.S. in 1998. 
Trade in services is expanding rapidly. In 1998, it added about $2 
billion more to the total volume of trade between the U.S. and France. 
The U.S. and France are the world's top two exporters in several 
important sectors: defense products, agricultural goods, and services.
    The annual real GDP growth rate in 1999 should be about 2.7 
percent, following 3.4 percent in 1998 and 2.0 percent in 1997. The 
main reason for a slowdown in late 1998 and early 1999 was the impact 
of the Asian and Russian financial crises. Resilient domestic 
consumption and investment have, however, limited this impact. Growth 
in the second half of 1999 is strengthening significantly. Most 
economists expect annual growth in 2000 to return to the 3.0 percent 
level. Growth has also permitted a reduction in the unemployment rate 
(from a high of 12.6 percent in June 1997 to 11.1 percent by September 
1999) and a continued reduction in the general government budget 
deficit as a share of GDP to 2.3 percent in 1999.
    Considerable progress has been made over the past decade on 
structural reforms. However, additional efforts will be necessary for 
France to achieve its full economic potential. Prime areas for reforms 
identified by international organizations include continued tax and 
government spending reduction, increasing the flexibility of labor 
markets, and further deregulation of goods and services sectors.
    With exports and imports of goods and services each accounting for 
about 25 percent of GDP, France's open external sector is a vital part 
of its economy. The government has encouraged the development of new 
markets for French products and investors, particularly in Asia and 
Latin America. It especially seeks to promote exports by small and 
medium-sized firms. Foreign investment, both inward and outward, also 
plays a very important role in the French economy, helping generate 
employment and growth. With about 20 percent of the total, U.S. 
investment accounts for the largest share of foreign direct investment 
in France. Restrictions on non-EU investors apply only in sensitive 
sectors, such as telecommunications, agriculture, defense, and 
aviation, and are generally applied on a reciprocal basis.
    France offers a variety of financial incentives to foreign 
investors and its investment promotion agency, DATAR, provides 
extensive assistance to potential investors in France.
2. Exchange Rate Policies
    France adopted the euro currency as of January 1, 1999. 
Responsibility for exchange rate policy is shared between national 
finance ministries and the European Central Bank.
3. Structural Policies
    Over the past decade, the government has made efforts to reduce its 
role in economic life through fiscal reform, privatization, and the 
implementation of European Union liberalization and deregulation 
directives. Yet the government remains deeply involved in the 
functioning of the economy through national and local budgets, 
remaining state holdings of major corporations, and extensive 
regulation of labor, goods, and services markets. This can sometimes 
result in a lack of transparency in the making of decisions that affect 
U.S. and other firms. While U.S. and foreign companies often cite 
concerns about relatively high tax rates on business--particularly 
payroll and social security taxes--state action does not discriminate 
against foreign firms or investments. There are very few, generally 
clearly defined exceptions, such as those notified to the OECD under 
its investment codes.
4. Debt Management Policies
    The budget deficit is financed through the sale of government bonds 
at weekly and monthly auctions. A member of the group of leading 
financial nations, France participates actively in the International 
Monetary Fund, the World Bank, and the Paris Club. France is a leading 
donor nation and is actively involved in development issues, 
particularly with its former colonies in North and Sub-Saharan Africa. 
France has also been a leading proponent of debt reduction and relief 
for the highly indebted poor countries.
5. Significant Barriers to U.S. Exports
    In general, European Union agreements and practices determine 
France's trade policies. These policies include preferential trade 
agreements with many countries.
    Although in most cases France follows import regulations as 
prescribed by the Common Agricultural Policy and various EU directives, 
there are a number of agricultural products for which France implements 
unilateral restrictions (irrespective of EU policy) that affect U.S. 
exports. For instance, French decrees and regulations currently 
prohibit the import of the following agricultural products: poultry, 
meat and egg products from countries (including the United States) that 
use certain feed compounds; products made with enriched flour; and 
exotic meats (e.g., ostrich, emu and alligator); and live crawfish 
unless authorized by special derogation. Current regulations 
discriminate against imports of bovine semen and embryos (from the 
United States) by strictly controlling their marketing in France.
    France established a new national policy toward Genetically 
Modified Organisms (GMOs) in 1998 that has restricted imports and 
production of certain types of GMO products.
    France's implementation of the EU broadcast directive limits U.S. 
and other non-EU audiovisual exports. France strictly applies quotas 
mandating local content. Continuation and growth of a strong French A/V 
sector is a government priority.
    Government efforts to balance the national social security health 
care budget continue to target (via price/volume agreements, reduced 
reimbursement rates, taxes, and slow approvals) products brought to the 
market by research-based pharmaceutical firms and health equipment 
firms. The U.S. health equipment and research-based pharmaceutical 
industries continue to press the French Government for more 
transparency in government regulation.
6. Export Subsidies Policy
    France is a party to the OECD guidelines on the arrangement for 
export credits, which includes provisions regarding the concessionality 
of foreign aid. The French Government has increased its export 
promotion efforts, particularly to the emerging markets in East Asia 
and Latin America. These efforts include providing information and 
other services to potential exporters, particularly small and medium-
sized enterprises.
    Support of the agricultural sector is a key government priority. 
Government support of agricultural production comes mainly from the 
budget of the European Union under the Common Agricultural Policy. 
There are virtually no direct French government subsidies to 
agricultural production. France strongly supports continued EU export 
subsidies The government offers indirect assistance to French farmers 
in many forms, such as easy credit terms, start-up funds, and 
retirement funds.
7. Protection of U.S. Intellectual Property
    As a major innovator, France has a strong stake in defending 
intellectual property rights worldwide. Under the French intellectual 
property rights regime, industrial property is protected by patents and 
trademarks, while literary/artistic property and software are protected 
by the French civil law system of ``authors rights'' and ``neighboring 
rights.'' France is a party to the Berne Convention on copyrights, the 
Paris Convention on industrial property, the Universal Copyright 
Convention, the Patent Cooperation Treaty, and the Madrid Convention on 
trademarks. U.S. nationals are entitled to receive the same protection 
of industrial property rights in France as French nationals. In 
addition, U.S. nationals have a ``priority period'' after filing an 
application for a U.S. patent during which to file a corresponding 
application in France.
8. Worker Rights
    a. The Right of Association: The French Constitution guarantees the 
right of workers to form unions. Although union membership has declined 
to less than ten percent of the workforce, the institutional role of 
organized labor in France is far greater than its numerical strength. 
The government regularly consults labor leaders on economic and social 
issues, and joint works councils play an important role even in 
industries that are only marginally unionized.
    b. The Right to Organize and Bargain Collectively: The principle of 
free collective bargaining was established after World War II, and 
subsequent amendments to labor laws encourage collective bargaining at 
national, regional, local and plant levels.
    c. Prohibition of Forced or Compulsory Labor: French law prohibits 
antiunion discrimination and forced or compulsory labor.
    d. Minimum Age for Employment of Children: With a few minor 
exceptions for those enrolled in apprenticeship programs or working in 
the entertainment industry, children under the age of 16 may not be 
employed in France.
    e. Acceptable Conditions of Work: The current minimum wage is FF 
40.72 per hour (about $6.67). Legislation lowering the legal work week 
from 39 to 35 hours was passed in 1998. A second law on overtime and 
other details should be adopted by Parliament before the end of 1999. 
The reduced work week takes legal effect starting in 2000. In general 
terms, French labor legislation and practice (including occupational 
safety and health standards) are fully comparable to those in other 
industrialized market economies. France has three small export 
processing zones, where regular French labor law and wage scales apply.
    f. Rights in Sectors with U.S. Investment: Labor law and practice 
are uniform throughout all industries, including those sectors and 
industries with significant U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum                        ..............  1,162
Total Manufacturing............  ..............  18,974
  Food & Kindred Products......  3,615           ...............................................................
  Chemicals & Allied Products..  4,227           ...............................................................
  Primary & Fabricated Metals..  4,034           ...............................................................
  Industrial Machinery and       2,358           ...............................................................
   Equipment.
  Electric & Electronic          974             ...............................................................
   Equipment.
  Transportation Equipment.....  676             ...............................................................
  Other Manufacturing..........  3,089           ...............................................................
Wholesale Trade................  ..............  2,587
Banking........................  ..............  2,388
Finance/Insurance/Real Estate..  ..............  7,778
Services.......................  ..............  4,570
Other Industries...............  ..............  1,729
TOTAL ALL INDUSTRIES...........  ..............  39,188
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                GERMANY


                         Key Economic Indicators
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                            1997     \1\ 1998     1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................      2,095      2,109      2,128
  GDP Growth (pct) \3\.................        1.8        2.3        1.4
  GDP by Sector (pct):
    Agriculture........................        1.3        1.2        N/A
    Manufacturing......................       25.0       25.4        N/A
    Services...........................       73.7       73.4        N/A
  Per Capita GDP (US$).................     25,549     25,675     25,920
  Labor Force (000's)..................     40,116     40,278     40,220
  Unemployment Rate (pct)..............       11.4       11.2       10.7

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \5\.........        1.1        9.3        7.0
  Consumer Price Inflation.............        1.9        1.0        0.6
  Exchange Rate (DM/US$ annual average)       1.73       1.76       1.82

Balance of Payments and Trade:
  Total Exports FOB \4\................      513.7      544.7      615.9
    Exports to U.S. \4\ \5\............       44.3       50.4       25.7
  Total Imports CIF \4\................      446.3      463.4      591.3
    Imports from U.S. \4\ \5\..........       33.8   38.219.4
  Trade Balance \4\....................       67.4   81,324.6
    Balance with U.S. \4\ \5\..........       10.5       12.2        6.3
  Current Account Balance/GDP (pct)....       -0.2       -0.2       -0.1
  Public Debt..........................      1,267      1,284      1,284
  Fiscal Deficit/GDP (pct).............       -1.7       -1.5       -1.4
  Debt Service Payments/GDP (pct)......        3.7        3.7        N/A
  Gold and Foreign Exchange Reserves...       73.4       76.1        N/A
  Aid from U.S.........................        N/A        N/A        N/A
  Aid from All Other Sources...........        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 1998 Figures are all estimates based on available monthly data in
  October and consensus forecasts.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in national currency.
\4\ Merchandise trade.
\5\ 1999 figures for trade with U.S. show first half only.
\6\ For 1999, growth in Euro-11 money supply in August 1999 over August
  1998.

1. General Policy Framework
    Germany's economy is the world's third largest, with total output 
equivalent to just over $2 trillion in 1999 (in nominal terms). Real 
GDP growth, which reached 2.2 percent in 1998, dropped to 1.4 percent 
in the first three quarters of 1999. Most German public and private 
forecasters estimate growth of around 2.5 percent for 2000, with the 
acceleration primarily export-led. Germany is highly integrated into 
the global economy: just as the slowdown in German growth in late 1998 
and early 1999 resulted mainly from adverse international economic 
conditions, so the expectation of higher growth is based on the recent 
recovery in global conditions. Inflation is extremely low, partly as a 
result of deregulation in the electricity and telecommunications 
sectors.
    The German ``social market'' economy is organized on market 
principles and affords its citizenry a secure social safety net 
characterized by generous unemployment, health, educational and basic 
welfare benefits. At the same time, economic growth in recent years has 
been below potential, and unemployment rates have been very high, with 
about 4 million people unemployed nationwide. Growth is now faster in 
western Germany than in the east, slowing--at least temporarily--
progress toward economic convergence between the two regions, a key 
national objective. Unemployment is also about twice as high in eastern 
Germany as in the west.
    Increased government outlays associated with German unification 
have put pressure on fiscal policy during the 1990s. The country's 
generous social welfare system was extended as a whole to eastern 
Germany, and the government further committed itself to raise eastern 
German production potential via public investment and generous 
subsidies to attract private investment. However, overall unit labor 
costs in eastern Germany are still quite high, as productivity growth 
has lagged behind wage increases. This process led to the higher 
unemployment in the east and resulted in a sharp increase in federal 
unemployment compensation costs. As a result, western Germany continues 
to transfer substantial sums to eastern Germany (more than DM 140 
billion annually, or roughly four percent of German GDP). These 
transfers accounted for the dramatic ballooning of public sector 
deficits and borrowing since 1990, and contributed to the need for the 
current government's belt-tightening measures.
    Top policy priorities of the coalition government elected in 
September 1998 are to lower unemployment and reduce the fiscal deficit. 
The government has organized an Alliance for Jobs also involving labor 
union and employer representatives, with the aim of fostering wage 
restraint, job security and training programs. Deficit reduction 
efforts have focused on federal spending restraint. The government also 
intends to introduce tax reforms over a period of four years, aimed at 
reducing corporate income tax rates and closing loopholes, extending 
relief to families, and raising energy taxes for environmental reasons. 
So far the government has been more successful at reducing the budget 
deficit than at tackling unemployment. The labor minister recently 
admitted that significant job creation might not occur until late 2000.
2. Exchange Rate Policies
    On January 1, 1999, the euro was introduced in Germany and the 
Deutsche Mark was fixed at 1.95 to the euro. The euro has become a 
transactional currency until the introduction of notes and coins on 
January 1, 2002. The DM will be phased out beginning January 1, 2002, 
with the euro remaining sole currency as of March 1, 2002. Over the 
next two years, the DM will be phased out and the euro will become the 
exclusive currency in Germany. All monetary and exchange policies are 
now handled by the European Central Bank.
3. Structural Policies
    Since the end of the Second World War, German economic policy has 
been based on a ``social-market'' model which is characterized by a 
substantially higher level of direct government participation in the 
production and services sector than in the United States. In addition, 
an extensive regulatory framework, which covers most facets of retail 
trade, service licensing and employment conditions, has worked to limit 
market entry by not only foreign firms, but also German entrepreneurs.
    Although the continuation of the ``social market'' model remains 
the goal of all mainstream political parties, changes resulting from 
the integration of the German economy with those of its European Union 
partners, the shock of German unification, pressure from globalization 
on traditional manufacturing industries, and record-high unemployment 
have forced a rethinking of the German post-war economic consensus. A 
number of structural impediments to the growth and diversification of 
the German economy have been identified. These can be broadly grouped 
as follows:

        (1) a rigid labor market;
        (2) a regulatory system that discourages new entrants; and
        (3) high marginal tax rates and high social charges.

    While many Germans value these structural features for their 
presumed benefits in terms of social security and relative equality, 
the public debate has focused on their suitability to desired economic 
growth and employment levels and Germany's competitiveness as a 
location for business and investment. The government, as noted, intends 
to pursue modest tax reform but has not undertaken structural reform of 
the labor market.
    In recent years, the government has carried out a reorganization of 
the German Federal Railroad and completed transforming most operating 
entities of the German Federal Post into stock companies. An initial 
public offering for the DeutschePost (DP) is expected in mid-2000 in 
conjunction with the liberalization of the telecommunications sector, 
the government-owned Deutsche Telekom has been substantially privatized 
(34 percent of shares have been made public) in several tranches. The 
German Government has largely fulfilled its commitment to open the 
telecommunications network monopoly to competition as of January 1, 
1998, the date when its new Regulatory Authority for Telecommunications 
and Post began operation. However, the USTR continues to monitor 
Germany's compliance with the Basic Telecommunications Agreement, after 
a U.S. firm filed a complaint in February 1999 under section 1377 of 
the Omnibus Trade and Competitions Act of 1988. The federal government 
also has sold its remaining stake in the national airline, Lufthansa.
    Despite the progress in recent years, lack of competition remains a 
problem in many regulated sectors and drives up business costs in 
Germany. Services which continue to be subject to excessive regulation 
and market access restrictions include communications, utilities, 
banking and insurance. The government intends to review existing 
legislation that limits price competition between firms, as well as 
laws that reduce competition in the insurance and transport sectors. 
The Regulatory Authority for Telecommunications and Post has issued new 
regulations to encourage competition in the telecom sector. Paralleling 
German Government efforts to deregulate the economy, the European 
Commission is expected to continue to pressure member states to reduce 
barriers to trade in services within the Community. U.S. firms, 
especially those with operations located in several European Union 
member states, should benefit from such market integration efforts over 
the long term.
4. Debt Management Policies
    As a condition of its participation in the European Monetary Union, 
the government was required to reduce its accumulated public debt and 
lower its debt/GDP ratio. Germany is also subject to a constitutional 
limitation to hold its new net borrowing, at or below the amount 
invested in public sector infrastructure. Current policies seek to 
achieve a balanced budget by 2003.
    Germany has recorded persistent current account deficits since 1991 
due to a drop in the country's traditionally strong trade surplus, 
related in part, to strong consumer demand in eastern German demand. 
These deficits have been small, however, in relation to GDP. The strong 
deterioration of the services balance in recent years, caused 
principally by German tourism expenditures abroad, has contributed to 
the current account deficits. Nonetheless, Germany continues to 
maintain a surplus in the merchandise trade balance.
5. Significant Barriers to U.S. Exports
    Germany is the United States' fifth-largest export market and its 
fifth-largest source of imports. During the first seven months of 1999, 
U.S. exports to Germany totaled $17.68 billion (FOB basis), while U.S. 
imports from Germany reached $25.6 billion (FOB basis). Other than EU-
imposed restrictions, there are few formal barriers to U.S. trade and 
investment in Germany. Ingrained consumer behavior and strong domestic 
players prevailing in German product and services markets often make 
gaining market share a difficult challenge, especially for new-to-
market companies.
    Import Licenses: Germany has abolished almost all national import 
quotas. The country enforces, however, import license requirements 
placed on some products by the European Union, such as the tariff quota 
on Latin American bananas imposed by the EU's banana import regime. As 
a result of this discriminatory marketing arrangement, U.S. fruit 
trading companies have lost market share in Germany. The World Trade 
Organization's dispute resolution panel and the WTO Appeals body, have 
found the EU banana regime to violate both the General Agreement on 
Trade in Services and the General Agreement on Trade in Goods, 
requiring EU members (including Germany) to reform this trading regime, 
which it has yet to do.
    Services Barriers: Foreign access to Germany's insurance market is 
still limited to some degree. All telecommunications services have been 
fully open to competition since January 1998, when the EU's 
telecommunications market liberalization came into effect; great 
dynamism and intense competition characterize the long-distance, but 
not local, market. Liberalization has opened up opportunities for U.S. 
telecommunications service providers. Germany has no foreign ownership 
restrictions on telecommunications services. An EU data privacy 
directive came into force on October 25, 1998. The directive prohibits 
businesses from exporting ``personal information'' unless the receiving 
country has in place privacy protections that the EU deems adequate. 
The U.S. and the EU are engaged in ongoing discussions to establish 
``safe harbor'' principles as a way to allow the continued free flow of 
data.
    Standards, Testing, Labeling, and Certification: Germany's 
regulations and bureaucratic procedures are complex and can prove to be 
a hurdle for U.S. exporters unfamiliar with the local environment. 
Overly complex government regulations offer--intentionally or not--
local producers a degree of protection. EU health and safety standards, 
for example, when overzealously applied, can restrict market access for 
many U.S. products (e.g., genetically modified organisms and hormone-
treated beef). The European Union's attempts to harmonize the various 
product safety requirements of its member states have further 
complicated the issue. Existing high German standards will likely form 
the basis in a number of cases for eventual EU standards.
    Government Procurement: In May 1998, the government passed the 
Public Procurement Reform Act. It establishes examining bodies that 
have the responsibility to review the awarding of public contracts and 
to investigate complaints pertaining to the procurement process. Since 
the law went into force January 1, 1999 it has been successfully 
applied to one case in September 1999.
    Investment Barriers: Under the terms of the 1956 Treaty, U.S. 
investors are afforded national treatment. The government and industry 
actively encourage foreign investment in Germany. Foreign companies 
with investment complaints in Germany generally list the same 
investment problems as domestic firms: high tax rates, expensive labor 
costs, and burdensome regulatory requirements.
    Customs Procedures: Administrative procedures at German ports of 
entry do not constitute a problem for U.S. suppliers.
6. Export Subsidies Policies
    Germany does not directly subsidize exports outside the European 
Union's framework for export subsidies for agricultural goods. 
Governmental or quasi-governmental entities do provide export 
financing, but Germany subscribes to the OECD guidelines that restrict 
the terms and conditions of export finance.
    U.S. companies allege that several German parastatal entities or 
former monopolies have cross-subsidized portions of their business to 
unfairly invest and expand their operations overseas. Several German 
enterprises including Deutsche Post and Deutsche Telekom have been 
accused of cross subsidization in order to gain market entry and 
increase market share, thereby disturbing a competitive market interest 
to U.S. companies. The European Commission agreed to accept a complaint 
by one U.S. parcel delivery company for charging DP with abuse of a 
dominant market position.
7. Protection of U.S. Intellectual Property
    Intellectual property is generally well protected in Germany. 
Germany is a member of the World Intellectual Property Organization; a 
party to the Berne Convention for the Protection of Artistic and 
Literary Works, the Paris Convention for the Protection of Industrial 
Property, the Universal Copyright Convention, the Geneva Phonograms 
Convention, the Patent Cooperation Treaty, the Brussels Satellite 
Convention, and the Treaty of Rome on Neighboring Rights. U.S. citizens 
and firms are entitled to national treatment in Germany, with certain 
exceptions. Despite Germany's implementation of its commitment under 
the intellectual property rights portions (TRIPS) of the Uruguay Round, 
some U.S. firms have raised concerns about the level of software piracy 
in Germany. Germany's 1993 implementation of the EU's Software 
Copyright Directive, as well as an educational campaign by the software 
industry have helped improve Germany's performance in this area.
8. Worker Rights
    a. The Right of Association: Article IX of the German Constitution 
guarantees full freedom of association. Workers' rights to strike and 
employers' rights to lockout are also legally protected.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides for the right to organize and bargain collectively, and this 
right is widely exercised. Due to a well-developed system of autonomous 
contract negotiations, mediation is uncommon. Basic wages and working 
conditions are negotiated at the industry level and then are adapted, 
through local collective bargaining, to particular enterprises. 
Nonetheless, some firms in Eastern Germany have refused to join 
employer associations, or have withdrawn from them, and then bargained 
independently with workers. In other cases, associations are turning a 
``blind eye'' to firm-level negotiations. Likewise, some large firms in 
the west withdrew at least part of their workforce from the 
jurisdiction of the employers association, complaining of rigidities in 
the centralized negotiating system. They have not, however, refused to 
bargain as individual enterprises. The law mandates a system of work 
councils and worker membership on supervisory boards, and thus workers 
participate in the management of the enterprises in which they work. 
The law thoroughly protects workers against antiunion discrimination.
    c. Prohibition of Forced or Compulsory Labor: The German 
Constitution guarantees every German the right to choose his own 
occupation and prohibits forced labor, although some prisoners are 
required to work.
    d. Minimum Age for Employment of Children: German legislation in 
general bars child labor under age 15. There are exemptions for 
children employed in family farms, delivering newspapers or magazines, 
or involved in theater or sporting events.
    e. Acceptable Conditions of Work: There is no legislated or 
administratively determined minimum wage. Wages and salaries are set 
either by collective bargaining agreements between unions and employer 
federations, or by individual contracts. Covering about 90 percent of 
all wage and salary earners, these agreements set minimum pay rates and 
are legally enforceable. These minimums provide an adequate standard of 
living for workers and their families.
    f. Rights in Sectors with U.S. Investment: The enforcement of 
German labor and social legislation is strict, and applies to all firms 
and activities, including those in which U.S. capital is invested. 
Employers are required to contribute to the various mandatory social 
insurance programs and belong to and support chambers of industry and 
commerce which organize the dual (school/work) system of vocational 
education.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,860
Total Manufacturing............  ..............  22,259
  Food & Kindred Products......  922             ...............................................................
  Chemicals & Allied Products..  3,894           ...............................................................
  Primary & Fabricated Metals..  1,848           ...............................................................
  Industrial Machinery and       3,887           ...............................................................
   Equipment.
  Electric & Electronic          565             ...............................................................
   Equipment.
  Transportation Equipment.....  7,106           ...............................................................
  Other Manufacturing..........  4,038           ...............................................................
Wholesale Trade................  ..............  2,759
Banking........................  ..............  1,510
Finance/Insurance/Real Estate..  ..............  11,022
Services.......................  ..............  1,905
Other Industries...............  ..............  537
TOTAL ALL INDUSTRIES...........  ..............  42,853
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 GREECE


                         Key Economic Indicators
         [Millions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................   105,600.0   105,825.0   109,700.0
  Real GDP growth (pct) \3\.........         3.0         3.7         3.5
  GDP by Sector:
    Agriculture.....................     8,960.0     8,800.0     8,740.0
    Manufacturing...................    25,130.0    25,400.0    26,300.0
    Services........................    71,510.0    71,625.0    74,660.0
    Of which:
      Government....................    10,130.0     9,625.0     9,465.0
  Per Capita GDP (US$)..............    11,334.6    11,305.2    11,335.0
  Labor Force (000's)...............     4,262.0     4,445.7     4,481.3
  Unemployment Rate (pct)...........         9.6        10.8        10.4

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3 Dec)......         9.6         8.9         4.0
  Consumer Price Inflation..........         5.5         4.8         2.5
  Exchange Rate (DRS/US$ annual
 average)
    Official........................       273.1       295.5       305.0
    Parallel........................         N/A         N/A         N/A

Balance of Payments and Trade:
  Total Exports FOB \4\A............    10,934.0    10,758.0    10,000.0
  Total Exports FOB \4\B............     5,373.3     5,556.0     8,000.0
    Exports to U.S. \4\C............       453.0       467.1   \5\ 350.0
  Total Imports CIF \4\A............    25,560.0    28,587.0    28,000.0
  Total Imports CIF \4\B............    23,644.1    23,246.9    26,000.0
    Imports from U.S. \4\C..........       954.0     1,355.1   \5\ 640.5
  Trade Balance \4\A................   -14,626.0   -17,829.0   -18,000.0
  Trade Balance \4\B................   -18,271.0   -17,681.0    18,000.0
    Balance with U.S................       496.0       888.0         N/A
  External Public Debt..............    29,167.1    32,000.0    33,000.0
  Fiscal Deficit/GDP (General                4.0         1.6         1.2
   Government) (pct)................
  Current Account Deficit/GDP (pct).         4.9         4.0         2.5
  Debt Service (Public Sector)               6.2         6.3         6.0
   Payments/GDP (pct)...............
  Gold and Foreign Exchange Reserves    13,337.0    18,191.2    20,000.0
  Aid from U.S......................         N/A         N/A         N/A
  Aid from All Other Sources........         N/A         N/A         N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  November.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\A Merchandise Trade; National Statistical Service of Greece; Customs
  Data.
\4\B Trade; Bank of Greece data; on a settlement basis for 1997 and
  1998. The Bank of Greece data, especially those on exports,
  underestimate true trade figures since exporters are no longer obliged
  to deposit their export receipts in Greece. The Bank of Greece is
  preparing a new set of accounts to be in line with other EU central
  banks. The 1999 estimates are based on the January-April 1999 data
  following the new system (resident/non-resident basis).
\4\C U.S. Department of Commerce. U.S. exports and general imports,
  customs value.
\5\ January-July 1999 data.

1. General Policy Framework
    Greece has been a member of the European Union (EU) since 1981. Its 
economy is segmented into the state sector (estimated at 45 percent of 
GDP) and the private sector (55 percent of GDP). It has a population of 
10.6 million and a workforce of about 4 million. Some of Greece's 
economic activity remains unrecorded. (Estimates of how much of the 
economy remains unrecorded vary, due, at least in part, to deficient 
data collection). The moderate level of development of Greece's basic 
infrastructure--road, rail, telecommunications--reflects its middle-
income status. Per capita GDP is $11,335, the lowest in the EU. 
However, with GDP growth well above the EU average, this gap is slowly 
closing.
    Services make up the largest and fastest growing sector of the 
Greek economy, accounting for about 68 percent of GDP (including 
government services). Tourism, shipping, trade, banking, 
transportation, communications, and construction are the largest 
service sub-sectors. Greece is an import-dependent country, importing 
substantially more than it exports. In 1998, imports were $28.6 billion 
while exports were only $10.75 billion. A relatively small industrial 
base and lack of adequate investment in the past have restricted the 
export potential of the country. As a general trade profile, Greece 
exports primarily light manufactured and agricultural products, and 
imports more sophisticated manufactured goods. Tourism receipts, 
emigrant remittances, shipping receipts, and transfers from the EU form 
the core of Greece's invisible earnings. Substantial funds from the EU 
(about $20 billion) have been allocated for major infrastructure 
projects (road and rail networks, ports, airports, telecommunications 
etc.) over the period 1994-99. Greece will get another EU structural 
funds package of about $22 billion for the period 2000-2006. Greece 
will undertake a number of infrastructure projects to host the 2004 
Summer Olympic games, although some were already underway.
    The government is in its sixth year of an austerity program 
designed to meet the Maastricht Treaty's convergence criteria for the 
European Monetary Union (EMU). Greece failed to meet the criteria in 
1997 to enter EMU in 1999; it aims to join the EMU on January 1, 2001, 
based on 1999 economic performance. The results of the convergence 
program on the economy have been generally positive. The drop of 
inflation to 2 percent on an annualized basis in September raised hopes 
that they would meet the criteria to join the EMU (presently around 2 
percent.) Investment and consumer confidence remains strong and the 
growth of GDP in 1999 is projected to be 3.5 percent, slightly lower 
than 1998 growth (3.7 percent). Unemployment, which stood at 10.8 
percent in1998, is projected to drop to 10.4 percent in 1999. By the 
end of 1998, as a result of a fiscal policy focused on expanding 
revenue collection, the government budget deficit to GDP ratio had 
fallen to 1.6 percent. However, real progress in reducing public 
expenditures has been limited due to continued opposition to structural 
reforms by labor unions, professional associations, politicians, and 
the media.
    Greece's huge general government debt (104 percent of GDP or 126.8 
billion U.S. dollars in 1999) stems to a great extent from government 
acquisition of failing enterprises and a bloated public sector. 
Greece's social security program has also been a major drain on public 
spending. Deficits are financed primarily through issuance of 
government securities.
    Monetary policy is implemented by the Bank of Greece (the Central 
Bank). The Bank uses the discount and other interest rates in its 
transactions with commercial banks as tools to control the money 
supply. The government continues to retain privileged access to credit 
via the still low-taxed status accorded to government debt obligations 
(which includes the right of Greek residents to purchase government 
debt obligations without having to declare their source of income to 
the tax authorities). Treasury bills and state bonds are issued by the 
Ministry of Finance but they are expected to comply with the monetary 
targets set by the Bank of Greece.
2. Exchange Rate Policy
    Greece's foreign exchange market is in line with EU rules on free 
movement of capital. On March 16, 1998, the Greek currency was included 
in the European Union's Exchange Rate Mechanism (ERM). This was 
preceded by a drachma devaluation of 12.3 percent on March 14. The 
drachma participates in the ERM-2 as of January 1, 1999. The drachma's 
central parity to the euro (which also sets the entry level into EMU on 
January 1, 2001) was set at 353.109 drachmas per euro.
3. Structural Policies
    Greece's structural policies are largely dictated by the need to 
comply with the provisions of the EU Single Market and the Maastricht 
Treaty on Economic and Monetary Union. The 1994-99 Convergence Program, 
designed to enable Greece to comply with the Maastricht Treaty 
criteria, set targets that should encourage significant structural 
reforms, including privatizations. Progress in this area, however, has 
been limited. The Convergence Program itself has been revised twice. 
The Greek Government has a plan stretching until the end of 2000 to 
privatize or sell minority stakes in public sector enterprises and 
organizations including Hellenic Petroleum (23 percent currently traded 
in the market), the Hellenic Duty Free shops, the Public Power 
Corporation, the Athens Water Company, the Athens Stock Exchange and 
the port operations in Piraeus and Thessaloniki. Restructuring the 
operations of the public sector (i.e., elimination of unnecessary 
activities/entities, changes in the labor and social insurance regimes) 
are also at the top of the Greek Government's agenda.
    Pricing Policies. The only remaining price controls are on 
pharmaceuticals. The government can also set maximum prices for fuel 
and private school tuition fees, and has done so several times in the 
last two years.
    About one quarter of the goods and services included in the 
Consumer Price Index (CPI) are produced by state-controlled companies. 
As a result, the government retains considerable indirect control over 
pricing. While this distorts resource allocations in the domestic 
economy, it does not directly inhibit U.S. imports (with the exception 
of pharmaceuticals).
    Tax Policies: Businesses complain about frequent changes in tax 
policies (there is a new tax law practically every year). More tax 
reforms were introduced in October 1999:

  --objective tax criteria for small businesses and self-employed are 
        abolished;

  --tax rates on small businesses were reduced from 35 to 30 percent;

  --indirect taxes on imported cars and fuel were reduced.

4. Debt Management Policies
    Greece's ``General Government Debt'' (the Maastricht Treaty 
definition) was 126.8 billion dollars, or 104.0 percent of GDP (market 
prices) in 1999. Foreign exchange reserves fluctuated in the first four 
months of 1999 between 21.6 and 22.1 billion dollars or about 9 months 
of imports.
    Servicing of external debt (public sector) in 1998 (interest and 
amortization) equaled 70 percent of exports and 6.3 percent of GDP. 
About 65 percent of the external debt is denominated in currencies 
other than the dollar. Foreign debt does not affect Greece's ability to 
import U.S. goods and services.
    Greece has regularly serviced its debts and has generally good 
relations with commercial banks and international financial 
institutions. Greece is not a recipient of World Bank loans or 
International Monetary Fund programs. In 1985, and again in 1991, 
Greece received a balance of payments loan from the EU.
5. Significant Barriers to U.S. Exports
    Greece, which is a WTO member, has both EU-mandated and Greek 
Government-initiated trade barriers.
    Law: Greece maintains nationality-based restrictions on a number of 
professional and business services, including legal advice. These 
restrictions have been lifted in the recent years for EU citizens. U.S. 
companies can generally circumvent these barriers by employing EU 
citizens.
    Accounting/Auditing: The transitional period for de-monopolization 
of the Greek audit industry officially ended on July 1, 1997. Numerous 
attempts to reserve a portion of the market for the former state audit 
monopoly during the transition period (1994-97) were blocked by the 
European Commission and peer review in the OECD. However, in November 
1997, the Greek Government issued a presidential decree that reduced 
the competitiveness of the multinational auditing firms. The decree 
established minimum fees for audits, and imposed restrictions on 
utilization of different types of personnel in audits. It also 
prohibited audit firms from doing multiple tasks for a client, thus 
raising the cost of audit work. The government has defended these 
regulations as necessary to ensure the quality and objectivity of 
audits. In practical effect, the decree constitutes a step back from 
deregulation of the industry.
    Aviation: The Greek flag air carrier, Olympic Airways, used to have 
a monopoly in providing ground handling services to other airlines. As 
of January 1, 1998, all major airports in the EU had to offer at least 
two ground handling options. However, in practice Olympic remains the 
only ground handling option for foreign airlines other than self-
handling.
    Motion Pictures: Greek film production is subsidized by a 12 
percent admissions tax on all motion pictures. Enforcement of Greek 
laws protecting audio-visual intellectual property rights has improved 
in 1998-99, but rights for software, music, and books remains 
problematic.
    Agricultural Products: Greek testing methods for Karnal bunt 
disease in U.S. wheat have served as a de facto ban on imports and 
transshipment of wheat for the last three years due to a high incidence 
of false positive results. The Ministry of Agriculture has recently 
agreed to procedures that will allow a resumption of transshipments 
through Greek ports to neighboring countries.
    Generally, Greece has not been responsive to applications for 
introduction of bioengineered (genetically modified) seeds for field 
tests despite support for such tests by Greek farmers.
    Investment Barriers: Both local content and export performance are 
elements which are seriously taken into consideration by Greek 
authorities in evaluating applications for tax and investment 
incentives. However, they are not legally mandatory prerequisites for 
approving investments.
    Greece, which currently restricts foreign and domestic private 
investment in public utilities (with the exception of cellular 
telephony and energy from renewable sources, e.g. wind and solar), has 
deregulation plans for telecommunications and energy. Greece has been 
granted a derogation until January 1, 2001 to open its voice telephony 
and the respective networks to other EU competitors. In the energy 
field, the Greek energy market will be gradually deregulated, starting 
in February 2001.
    U.S. and other non-EU investors receive less advantageous treatment 
than domestic or other EU investors in the banking, mining, maritime, 
and air transport sectors, and in broadcasting (these sectors were 
opened to EU citizens due to EU single market rules). There are also 
restrictions for non-EU investors on land purchases in border regions 
and certain islands (on national security grounds).
    Greek laws and regulations concerning government procurement 
nominally guarantee nondiscriminatory treatment for foreign suppliers. 
Officially, Greece also adheres to EU procurement policy, and Greece 
has adhered to the GATT Government Procurement Code since 1992. 
Nevertheless, many of the following problems still exist: occasional 
sole-sourcing (explained as extensions of previous contracts); loosely 
written specifications which are subject to varying interpretations; 
and allegiance of tender evaluators to technologies offered by 
longtime, traditional suppliers. Firms from other EU member states have 
had a better track record than U.S. firms in winning Greek Government 
tenders. It has been noted that U.S. companies submitting joint 
proposals with European companies are more likely to succeed in winning 
a contract. The real impact of Greece's ``buy national'' policy is felt 
in the government's offset policy (mostly for purchases of defense 
items) where local content, joint ventures, and other technology 
transfers are required.
    In December 1996, the Greek Parliament passed legislation (Law 
2446, article 16) which allows public utilities in the energy, water, 
transport, and telecommunications sectors to sign ``term agreements'' 
with local industry for procurement. ``Term agreements'' are contracts 
in which Greek suppliers are given significant preference. The official 
explanation for these agreements is the need to support the national 
manufacturing base. This was made possible as a result of Greece's 
receipt of an extension until January 1, 1998, to implement the EU's 
Utilities Directive 93/38. Before expiration of the extension, in 
November-December 1997, numerous contracts potentially worth of 
billions of dollars were signed by Greek public utilities with Greek 
suppliers. Some of these term agreements have no less than 3-5 years 
duration, thus effectively excluding foreign suppliers from vital 
sectors of government procurement for several years. The European 
Commission has been examining the hurried manner in which these 
contracts were approved.
6. Export Subsidies Policies
    The government does not use national subsidies to support exports. 
However, some agricultural products (most notably cotton, olive oil, 
tobacco, cereals, canned peaches, and certain other fruits and 
vegetables) receive production subsidies from the EU which enhance 
their export competitiveness.
7. Protection of U.S. Intellectual Property
    Greek laws extend protection of intellectual property rights to 
both foreign and Greek nationals. Greece is a party to the Paris 
Convention for the Protection of Industrial Property, the European 
Patent Organization, the World Intellectual Property Organization, the 
Washington Patent Cooperation Treaty, and the Berne Copyright 
Convention. As a member of the EU, Greece has harmonized its 
legislation with EU rules and regulations. The WTO TRIPS agreement was 
incorporated into Greek legislation as of February 28, 1995 (Law 2290/
95).
    Greece has been on the ``Special 301 Priority Watch List'' since 
1994. Just prior to an out-of-cycle review in December 1996, the Greek 
Government submitted an ``Action Plan'' laying out the steps it would 
take to reduce audio-visual piracy. While some of these steps were 
taken, the government lagged behind severely in licensing television 
stations in accordance with the provisions of the 1995 media law; the 
process, which only got underway after extremely long delays, was less 
than half-way through in mid-1999. As a result of slow movement in many 
areas of concern to U.S. companies, the U.S. Government launched a WTO 
TRIPS non-enforcement challenge and consultations under WTO auspices 
were started in June 1998.
    To fulfill in part its obligations under Part III of the TRIPS 
Agreement, Greece passed legislation on October 13, 1998 (Law 2444/98, 
commonly known a the Digital TV Law of 1998), Article 17 of which 
provides an additional enforcement remedy for copyright holders whose 
works were infringed by television stations that infringe intellectual 
property rights. Over the past year, acting on complaints by U.S. right 
holders, the Government of Greece has taken action under Article 17 to 
close down several television stations that were shown to have 
broadcast illegally U.S. copyrighted works.
    The United States, Greece and the European Communities observe that 
estimated levels of television piracy in Greece have fallen 
significantly since the initiation of these consultations, and that the 
first criminal convictions for television piracy have also been issued 
in Greece during this time. The United States, Greece and the European 
Communities also note that Greece's Ministry of Justice has formally 
instructed public prosecutors to ensure the timely prosecution of 
intellectual property cases and to avoid postponements of court 
hearings to ensure that such cases are not subject to unwarranted 
delays in the courts. Consultations under WTO auspices are continuing.
    Three other significant intellectual property protection problems 
are lack of effective protection of copyrighted software, no protection 
of trademarked products in the apparel sector and no laws protecting 
the use of U.S. copyrighted Internet domain names. Although Greek 
trademark legislation is fully harmonized with that of the EU, claims 
by U.S. companies of counterfeiting appear to be on the increase. In 
addition, a growing problem is the legality in Greece of using an 
already copyrighted domain name, if it is succeeded by ``. gr.'' In a 
recent court case, however, the Greek judge ruled in favor of a U.S. 
company who claimed that a Greek company was intentionally using the 
U.S. Internet domain name to misrepresent itself as a Greek subsidiary 
of the U.S. company.
    Intellectual property appears to be adequately protected in the 
field of patents. Patents are available for all areas of technology. 
Compulsory licensing is not used. Law protects patents and trade 
secrets for a period of twenty years. There is a potential problem 
concerning the protection of test data relating to non-patented 
products. Violations of trade secrets and semiconductor chip layout 
design are not problems in Greece.
8. Worker Rights
    The Greek economy is characterized by significant labor-market 
rigidities. Greek labor law prohibits laying off more than two percent 
per month of total personnel employed by a firm. This restricts the 
flexibility of firms and the mobility of Greek labor and contributes to 
unemployment. A law, which came into force in November 1999, obliges 
public and private firms employing more than 50 persons to hire up to 8 
percent of their staff from among the disabled, veterans descendants 
and families with more than four children.
    a. The Right of Association: Approximately 30 percent of Greek 
workers are organized in unions, most of which tend to be highly 
politicized. While unions show support for certain political parties, 
particularly on issues of direct concern to them, they are not 
controlled by political parties or the government in their day-to-day 
operations. The courts have the power to declare strikes illegal, 
although such decisions are seldom enforced.
    Employers are not permitted to lock out workers, or to replace 
striking workers (public sector employees under civil mobilization may 
be replaced on a temporary basis).
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively was guaranteed in legislation passed 
in 1955 and amended in February 1990 to provide for mediation and 
reconciliation services prior to compulsory arbitration. Antiunion 
discrimination is prohibited, and complaints of discrimination against 
union members or organizers may be referred to the Labor Inspectorate 
or to the courts. However, litigation is lengthy and expensive, and 
penalties are seldom severe. There are no restrictions on collective 
bargaining for private workers. Social security benefits are legislated 
by Parliament and are not won through bargaining. Civil servants 
negotiate their demands with the Ministry for Public Administration.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is strictly prohibited by the Greek Constitution and is not 
practiced. However, the government may declare ``civil mobilization'' 
of workers in case of danger to national security or to social and 
economic life of the country.
    d. Minimum Age of Employment of Children: The minimum age for work 
in industry is 15, with higher limits for certain activities.
    e. Acceptable Conditions of Work: Minimum standards of occupational 
health and safety are provided for by legislation, which the General 
Confederation of Greek Workers (GSEE) characterizes as satisfactory. In 
1998, GSEE complaints regarding inadequate enforcement of legislation 
were met when the Ministry of Labor established a new central 
authority, the Labor Inspectors Agency. The agency is accountable to 
the Minister of Labor and has extended powers which include the power 
to close a factory that does not comply with minimum standards of 
health and safety.
    Legislation providing for the legalization of illegal immigrants 
came into force in January 1998. About 350,000 illegal immigrants were 
registered and will be entitled to one to three-year renewable work and 
residence permit. Those issued a permit will have the same labor and 
social security rights as Greek workers. Non-registered immigrants will 
be liable to summary deportation if arrested.
    f. Rights in Sectors with U.S. Investment: Although labor/
management relations and overall working conditions within foreign 
business enterprises may be among the most progressive in Greece, 
worker rights do not vary according to the nationality of the company 
or the sector of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  75
Total Manufacturing              ..............  91
  Food & Kindred Products......  -9              ...............................................................
  Chemicals & Allied Products..  45              ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          9               ...............................................................
   Equipment.
  Transportation Equipment.....  3               ...............................................................
  Other Manufacturing..........  41              ...............................................................
Wholesale Trade................  ..............  92
Banking........................  ..............  166
Finance/Insurance/Real Estate..  ..............  126
Services.......................  ..............  59
Other Industries...............  ..............  50
TOTAL ALL INDUSTRIES...........  ..............  660
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                HUNGARY


                       Key Economic Indicators \1\
         [Billions of U.S. Dollars unless otherwise indicated)]
------------------------------------------------------------------------
                                              1997      1998      1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      44.7      47.0  \2\ 448.
                                                                       8
  Real GDP Growth (pct)...................       4.6       5.1       3.8
  GDP by Sector: \3\
    Agriculture...........................       3.1      98.5       N/A
    Manufacturing.........................       9.4     111.2       N/A
    Construction..........................       2.0     112.1       N/A
    Services..............................      23.1     105.2       N/A
    Government............................       6.6       N/A       N/A
  Per Capita GDP (US$)....................     4,415     4,694     4,851
  Labor Force (000's).....................     6,253     6,368     6,200
  Unemployment Rate (pct).................      10.4       9.1       9.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth.....................      23.2      18.1  \4\ 17.7
  Average Consumer Price Inflation........      18.4      14.3      10.5
  Official Exchange Rate (HUF/$ annual         186.8     214.5       237
   average)...............................

Balance of Payments and Trade:
  Total Exports FOB.......................      19.1        23        23
    Exports to U.S. (US$ millions)........     1,079     1,567  \5\ 1,59
                                                                       5
  Total Imports CIF.......................      21.1      25,7        26
    Imports from U.S. (US$ millions)......       485       482   \5\ 524
  Trade Balance...........................      -2.6      -2.7        -3
    Balance with U.S. (US$ millions)......      -543    -1,085  \5\ -1,0
                                                                      71
  Current Account Deficit/GDP (pct).......       2.2       4.8       4.9
  Net External Public Debt................       4.6       4,4   \6\ 3.8
  Debt Service Payments/GDP (pct).........      13.8      10.3        11
  Fiscal Deficit/GDP (pct)................       4.6       4.5       5.1
  Gold and Foreign Exchange Reserves......       8.2       9.3  \7\ 10.2
  Aid from U.S. (US$ millions)............      15.0       9.9       4.0
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Source: Central Statistical Office and National Bank data available
  through October 1999, except where otherwise noted.
\2\ Apparent inconsistency with the growth figures is due to the ongoing
  Hungarian forint devaluation against the U.S. dollar.
\3\ GDP by sectors is higher than total GDP due to double counting.
\4\ July-on-July M1 growth (no M2 data available since 1998).
\5\ Source: U.S. Department of Commerce; 1998 projected from January-
  August data. Note that U.S.-source and Hungarian-source bilateral
  trade figures differ markedly, due largely to country-of-origin
  distinctions in exports whose final assembly occurs in Hungary.
\6\ August 1999.
\7\ October 1999.

1. General Policy Framework
    Hungary has been transformed into a middle-income country with a 
market economy and a well-elaborated but still developing Western-
oriented legal and regulatory framework. The first post-communist 
government (1990-94) began significant economic reform, but was unable 
to privatize many state enterprises and implement systemic fiscal 
reforms, which led to large imbalances in Hungary's fiscal and external 
accounts. A successor government (1994-98) achieved economic 
stabilization through an IMF-coordinated austerity program adopted in 
March 1995, and accelerated privatization and economic reform. In 1999, 
Hungary posted solid increases in industrial output, exports, and 
overall output, while continuing to reduce inflation. Continued 
economic restructuring under the current government (elected in May 
1998) is expected to allow for sustainable growth in the medium term. 
Substantial regional disparities exist in Hungary, though they will 
likely narrow in the future.
    A revised privatization program enacted in 1995 gave new momentum 
to sales of government enterprises and assets, largely to Western 
companies. Privatization contributed to a rapid transformation of the 
energy, telecommunication, and banking sectors. Currently, over 80 
percent of the country's GDP is derived from the private sector, and 
Hungary has lowered government expenditures as a percentage of GDP. 
Other significant reforms include means testing of social-welfare 
payments (partially reversed by the current government) and partial 
privatization of the pension system (implemented in January 1998). The 
unfinished reform agenda includes rationalizing health care and local 
government financing.
    Privatization revenues have reduced Hungary's foreign debt burden 
substantially. The government has an unblemished debt payments record 
and its foreign-currency obligations have been rated investment grade 
by all major rating agencies since late 1996. Foreign currency reserves 
stood at $9.8 billion through July 1999, enough for five months of 
imports.
    In part reflecting concerns about the Russian financial crisis, the 
government has pledged to continue reducing fiscal deficits and 
inflationary wage increases. The consolidated budget deficit in 1999 
will equal about 5 percent of GDP, down from 8.2 percent in 1994. 
Hungary finances its state deficit primarily through foreign and 
domestic bond issues. The government projects a $2.3 to 2.5 billion 
current account deficit for 1999, almost unchanged from $2.3 billion in 
1998. Foreign direct investment will exceed the current account 
deficit, preventing an increase in net external debt. Following a 
cumulative decline of 17 percent from 1995 to 1996, net real wages 
continued to increase by 5.6 percent in 1998 and an estimated 2.7 
percent in 1999, matched by large productivity gains over this period.
    Hungary is a leader in attracting foreign direct investment, with 
an estimated $21 billion in cumulative inflows since 1989. The U.S. is 
a leading investor in Hungary with over $8 billion in cumulative FDI 
since 1989. Although in the process of being scaled down, tax 
incentives and related credits are available for foreign investments, 
especially in underdeveloped regions. Hungarian law currently permits 
the establishment of companies in customs-free zones, which are also 
exempt from indirect taxation tied to the turnover of goods.
    A signatory to the Uruguay Round Agreement and a founding member of 
the World Trade Organization, Hungary joined the Organization for 
Economic Cooperation and Development (OECD) in May 1996 and, as a part 
of that process, is further liberalizing capital account transactions. 
Hungary has harmonized many laws and regulations with European Union 
standards and has oriented economic policy towards earliest possible 
accession.
2. Exchange Rate Policy
    The revised Foreign Exchange Law, effective January 1, 1996, made 
the Hungarian forint essentially convertible for current account 
transactions. Foreigners and Hungarians can maintain both hard currency 
and forint accounts. The forint exchange rate is managed within a +/- 
2.25 percent band (``crawling peg'') against a currency basket composed 
of the euro (70 percent) and the dollar (30 percent). As of January 1, 
2000, the forint will cease to be pegged against a basket of currencies 
and will be pegged 100 percent to the euro. In November 1999, the rate 
of devaluation was 0.4 percent a month against the currency basket. 
Also in November of 1999, the Hungarian Finance Ministry indicated the 
devaluation of the forint could end in 2001 or 2002. Improved 
macroeconomic performance has helped slow average annual inflation from 
28.3 percent in 1995 to a projected 10 percent for 1999.
    The Hungarian National Bank (MNB) carries out monetary policy 
through open market operations focusing on an interest rate policy 
consistent with price stability and within the constraints of the 
foreign exchange regime. Commercial banks can conclude foreign exchange 
swap transactions with the MNB.
3. Structural Policies
    The market freely sets prices for most products and services. User 
prices for pharmaceuticals, public transport, and utilities continue to 
be partially set by the state. The government offers a wholesale floor 
price for many agricultural products. Public opposition and regulatory 
intervention have prevented utility prices from reaching market levels, 
causing energy companies to receive less than the cost-plus-eight 
percent return stipulated in privatization contracts.
    Starting in 1997, successive governments have reduced income tax 
rates and employer social contributions in an effort to cut inflation, 
spur job growth, and shrink the gray economy. Corporate tax remains low 
at 18 percent. Currently, a ten-year corporate tax holiday applies to 
investments of at least HUF 10 billion (about $41,000 as of November 
1999) or HUF 3 billion in less developed regions, and a five-year 50 
percent tax holiday applies to investments of at least HUF 1 billion. 
Other incentive programs exist; consult the Country Commercial Guide. 
Many municipalities offer local incentives.
    Major structural budget reform has been implemented and further 
legislation is expected in this area. In January 1998, a new ``three 
pillar'' pension system was introduced in which private funds initially 
augment and gradually supplant more of the current state-funded, pay-
as-you-go public system. The government is likely to focus on reforming 
health care and local government financing, in order to reduce further 
state expenditures.
4. Debt Management
    Hungary is a moderately indebted country (though high by per capita 
standards), with gross foreign debt expected to be $24.9 billion at the 
end of 1999. In addition, net foreign debt is projected to be $12 
billion at the end of 1999, down from $14 billion in 1996. Net public 
domestic debt was $5.0 billion at the end of October 1998, slightly 
over half the level at the end of 1996. Hungarian governments have 
consistently met external debt service payments. A standby credit 
arrangement with the International Monetary Fund ended in February 1998 
by mutual agreement. Hungary has prepaid all past borrowings from the 
IMF, and received an investment grade rating on sovereign long-term 
foreign currency debt from leading U.S. credit rating agencies in late 
1996. Hungary is expected to have reserves of $9.5 to $10 billion by 
the end of 1999.
5. Significant Barriers to U.S. Exports
    On July 1, 1997, Hungary joined the Pan European Free Trade Zone 
and Cumulation System. Combined with tariff reductions stipulated in 
Hungary's 1993 EU Association Agreement, industrial imports from EU 
members and associated states face declining tariffs (to be eliminated 
in 2001), while U.S.-origin goods will face Hungary's MFN tariff rates 
until Hungary's adoption of the common external tariff upon accession 
to the EU. The increasing differential between tariffs on EU industrial 
goods and on U.S. industrial goods has disadvantaged many U.S. 
exporters. Duty must be paid on imports from outside the Pan-European 
Zone, which may then be exported duty-free to other countries within 
the Pan European Zone. Duty paid on inputs processed and then exported 
within the zone is no longer refunded, a problem the Hungarian 
Government has addressed on a case-by-case basis for U.S. firms 
exporting from Hungary to European markets.
    Although 95 percent of imports (in value terms) no longer require 
prior government approval, quota constraints apply to some 20 product 
groups, mainly cars, textiles, and precious metals (but quotas did not 
restrict imports in most of these areas). Under WTO rules, Hungary will 
phase out quotas on textiles and apparel by 2004. As a result of the 
WTO Agricultural Agreement, quotas on agricultural products and 
processed foods have been progressive replaced by tariff-rate quotas. 
In 1997, Hungary eliminated an import surcharge imposed as part of the 
March 1995 austerity package.
    Importers must file a customs document (VAM 91 form) with a product 
declaration and code number, obtained from the Central Statistical 
Office. Upon importation, the importer must present Commercial Quality 
Control Institute (KERMI) certified documentation to clear customs. 
This permit may be replaced by other national certification and testing 
agency documents, such as those of the National Institute for Drugs. 
Hungary participates in the International Organization for 
Standardization (ISC) and the International Electro-Technical 
Commission (IEC).
    Foreign investment is allowed in every sector open to private 
investment. Foreign ownership is restricted to varying degrees in civil 
aviation, defense, and broadcasting. Only Hungarian citizens may own 
farmland.
    Under the November 1995 Law on Government Procurement, public 
tenders must be invited for purchases of goods with a value over HUF 10 
million ($41,000 as of November 1999), construction projects worth HUF 
20 million and designs and services worth over HUF 5 million. Bids 
containing more than 50 percent Hungarian content receive a 10 percent 
price preference. This process does not apply to military purchases 
affecting national security, or to gas, oil, and electricity contracts. 
Hungary is not a party to the WTO Government Procurement Code, and some 
U.S. firms have taken legal action against non-transparency and 
procedural irregularities in government tenders.
6. Export Subsidies Policies
    The Export-Import Bank and Export Credit Guarantee Agency, both 
founded in 1994, provide credit and/or credit insurance for less than 
ten percent of total exports. There are no direct export subsidies on 
industrial products, but some agricultural products receive export 
subsidies from the state. After 1993, agricultural export subsidies 
exceeded Hungary's Uruguay Round commitments in the range and value of 
products subsidized; in October 1997, the WTO approved an agreement in 
which Hungary committed to phase out excess subsidies and not to expand 
exports of subsidized products to new markets. Hungary is sticking to 
the terms of that agreement in phasing out subsidies, despite continued 
political pressure from domestic constituencies.
7. Protection of U.S. Intellectual Property
    In 1993, the United States and Hungary signed a comprehensive 
Bilateral Intellectual Property Rights Treaty. Hungary also belongs to 
the World Intellectual Property Organization; Paris Convention on 
Industrial Property; Hague Agreement on Industrial Designs; Nice 
Agreement on Classification and Registration of Trademarks; Madrid 
Agreement Concerning Registration and Classification of Trademarks; 
Patent Cooperation Treaty; and Berne and Universal Copyright 
Conventions. In 1998, Hungary ratified the new WIPO Copyright Treaty 
and Performances and Phonograms Treaty.
    Legal implementation of intellectual property rights in Hungary is 
generally good, but insufficient resources, court delays, and light 
penalties hamper enforcement. The Government of Hungary enacted a new 
Copyright Law in 1999, which came into effect on September 1, 1999. 
This replaced the 1969 Copyright Law and introduced modern copyright 
legislation. The 1995 Media Law makes broadcast transmission licenses 
conditional on respect for international copyrights. In 1997, 
legislation strengthened access to legal injunctions in infringement 
cases.
8. Worker Rights
    a. The Right of Association: The 1992 Labor Code, as amended in 
1999, recognizes the right of unions to organize and bargain 
collectively and permits trade union pluralism. Workers have the right 
to associate freely, choose representatives, publish journals, and 
openly promote members' interests and views. With the exception of 
military personnel and the police, they also have the right to strike.
    b. The Right to Organize and Bargain Collectively: Labor laws 
permit collective bargaining at the enterprise and industry levels. The 
Economic Council (formerly the Interest Reconciliation Council), a 
forum of representatives from employers, employees, and the government, 
sets the minimum and recommended wage levels in the public sector. 
Trade unions and management negotiate private wage levels. Special 
labor courts enforce labor laws. Affected parties may appeal labor 
court decisions in civil court. The 1992 legislation prohibits 
employers from discriminating against unions and their organizers.
    c. Prohibition of Forced or Compulsory Labor: The government 
enforces the legal prohibition of compulsory labor.
    d. Minimum Age for Employment of Children: The Labor Code forbids 
work by minors under the age of 14, and regulates labor conditions for 
minors age 14 to 16 (e.g., in apprenticeship programs).
    e. Acceptable Conditions of Work: The Labor Code specifies 
conditions of employment, including: working time, termination 
procedures, severance pay, maternity leave, trade union consultation 
rights in management decisions, annual and sick leave entitlement, and 
conflict resolution procedures.
    f. Rights in Sectors with U.S. Investment: Conditions in specific 
goods-producing sectors in which U.S. capital is invested do not differ 
from those in other sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  3
Total Manufacturing............  ..............  537
  Food & Kindred Products......  52              ...............................................................
  Chemicals & Allied Products..  238             ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       8               ...............................................................
   Equipment.
  Electric & Electronic          32              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  122             ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  17
Services.......................  ..............  -34
Other Industries...............  ..............  715
TOTAL ALL INDUSTRIES...........  ..............  1,353
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                IRELAND


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................     78,771     85,050     90,536
  Real GDP Growth (pct) \2\............       10.7        8.9        8.2
  GDP By Sector: \3\
    Agriculture........................      4,338      3,990        N/A
    Industry...........................     26,624     29,590        N/A
    Services...........................     35,677     38,368        N/A
    Government.........................      3,099      3,123        N/A
  Per Capita GDP (US$).................     21,519     22,956     24,177
  Labor Force (000's)..................      1,538      1,622      1,688
  Unemployment Rate (pct) \4\..........       10.3        7.8        5.7

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3e) \5\........       19.1       18.1       21.0
  Consumer Price Inflation.............        1.5        2.4        1.8
  Exchange Rate (IP/US$)
    Official...........................       0.66       0.70       0.74
    Parallel...........................        N/A        N/A        N/A

Balance of Payments and Trade:
  Total Exports FOB \6\................     53,711     64,032     71,584
    Exports to U.S.....................      6,045      8,743     10,500
  Total Imports CIF \6\................     39,341     44,468     47,300
    Imports from U.S...................      5,893      7,167      7,600
  Trade Balance........................     14,370     19,564     24,284
    Balance with U.S...................        152      1,576      2,900
  External Public Debt \7\.............     18,886     15,559     13,000
  Fiscal Deficit/GDP (Pct) \8\.........        1.1        2.3        3.2
  Current Account Balance/GDP (pct)....        2.5        0.9       -0.2
  Debt Service Payments/GDP (pct)......        5.3        4.3        3.8
  Gold and Foreign Exchange Reserves...      7,047      9,220      9,000
  Aid from U.S.\9\.....................          5          5          5
  Aid from Other Sources \10\..........      1,497      1,574      1,530
------------------------------------------------------------------------
\1\ U.S. Embassy forecasts.
\2\ GDP at constant market prices (local currency).
\3\ GDP at factor cost.
\4\ ILO definition.
\5\ Broad money. Irish monetary aggregates were redefined as part of
  entry into EMU from January 1, 1999.
\6\ Merchandise trade.
\7\ Foreign currency denominated debt plus non-resident holdings of
  Irish Pound denominated debt; end year.
\8\ General government.
\9\ Each year the United States contributes 19.6 million dollars to the
  International Fund to Ireland (IFI). A quarter of this amount is
  estimated to be spent in the Republic of Ireland's border counties.
\10\ These figures include transfers from the EU's European social fund,
  regional development fund, cohesion fund and special programme for
  Northern Ireland and the border counties of the Republic of Ireland.

Sources: Central Bank Of Ireland (CBI); Central Statistics Office (CSO);
  Irish Trade Board (ITB); National Treasury Management Agency (NTMA).

1. General Policy Framework
    In 1999, Ireland will have the fastest growing economy in the 
industrialized world for the sixth consecutive year. Most commentators 
trace the origins of Ireland's ``Celtic Tiger'' economy to the economic 
policy mix put in place in the late 1980s and maintained by successive 
governments since then. This included:

          (1) Tight control of public spending in order to reduce 
        government borrowing and taxation on corporate and personal 
        incomes;
          (2) A de facto incomes policy, operated through national wage 
        agreements agreed by the government, employers and trade 
        unions, in order to limit wage growth and boost employment 
        creation;
          (3) The ten percent corporate tax rate for international 
        manufacturing and service companies;
          (4) High levels of investment in education, training and 
        physical infrastructure, much of it funded by generous 
        transfers from the European Union; and
          (5) Reform of the tax and welfare system to improve work 
        incentives. In contrast to the economic policies of the 1970s 
        and early 1980s, the policy mix in the last decade has centered 
        on supply-side reforms to the economy, aimed at improving the 
        attractiveness of Ireland as a location for overseas investment 
        and increasing competitiveness of Irish-made goods in the 
        international marketplace.

    This policy mix produced impressive economic results in the 1990s. 
Real Irish GDP growth has averaged almost nine percent since 1994, and 
real Irish incomes have increased by over two-thirds since the 
beginning of the decade. In 1998, per capita output overtook both the 
EU and the OECD average. Unemployment fell below six percent in 1999, 
down from 16 percent in 1993. Traditional migration patterns have been 
reversed, as thousands of former Irish emigres, and other nationals, 
arrive in Ireland to take up employment. Fast growth has been 
accompanied by increasing openness to the world economy. In 1998, total 
imports and exports were equivalent to over 157 percent of GDP, making 
Ireland one of the most trade-dependent economies in the world. Thanks 
in large part to the special 10 percent tax rate for manufacturing 
activities, industry accounts for almost 40 percent of total economic 
activity, compared with an average of 20 percent in the European Union 
(EU). Correspondingly, the share of services in Irish output is small 
by the standards of other industrialized countries. This unusual 
economic structure in also reflected in Ireland's trade relationship 
with the rest of the world. Reflecting the heavy presence of Irish-
based U.S. and other multinational manufacturing firms (mostly in the 
high-tech sector), Ireland now enjoys a huge surplus in merchandise 
trade (equivalent to 27 percent in GDP in 1998), which is mirrored by 
large deficits in services trade.
    At the end of the 1990s, Ireland's policy makers face a much-
changed economic landscape. Now that Ireland's traditional economic 
ailments--unemployment and emigration--have largely been solved, policy 
makers are now faced with the challenges brought about by five years of 
exceptional economic growth. Of greatest concern is how to sustain 
rapid economic growth in the face of shortages of skilled and unskilled 
labor, worsening transport congestion and chronic housing shortages. 
Irish policy makers fear that ``excessive'' economic growth in the 
short-term could result in a hard landing for the Irish economy down 
the road. In a society wedded to the concept of ``social cohesion,'' 
sharing the benefits of rapid economic growth with those social groups 
and regions that have so far been left behind by the ``Celtic tiger'' 
economy has become another top priority.
    Secondly, the economic policy tools available to Irish policy 
makers to pursue national economic and social goals has been severely 
limited by Irish participation in European economic and monetary (EMU) 
from the beginning of 1999. With both monetary and exchange rate policy 
now out of the control of national authorities, the government now 
depends on more effective use of fiscal, structural and incomes 
policies to bring the Irish economy onto a more sustainable growth 
path. Since 1987, Irish governments have exchanged cuts in income tax 
for pay restraint by trade unions, thereby boosting competitiveness and 
employment. In late 1999, the government, trade unions and industry 
will attempt to negotiate a new national wage agreement to replace 
``partnership 2000,'' which expires next year. As the economy moves 
rapidly towards full employment, pay ``flexibility'' rather than pay 
restraint has become the new goal of income policy. The government also 
believes further income tax cuts for low- and medium-income earners 
will increase labor supply, thereby more than offsetting the 
stimulative effects of looser fiscal policy. This highly unorthodox 
approach to economic policy has been endorsed by the OECD, but not by 
the IMF, who have called on Irish authorities to tighten fiscal policy 
to combat overheating. In the highly open Irish economy, however, 
fiscal policy is of limited use as a tool of demand management.
    Since the beginning of 1999, monetary policy in Ireland, as in the 
other ten EU states that adopted the single European currency, has been 
formulated by the European central bank (ECB) in Frankfurt. The Irish 
central bank continues to exist as a constituent member of the European 
System of Central Banks (ESCB) and is responsible for implementing a 
common European monetary policy in Ireland (i.e. providing and 
withdrawing liquidity from the Irish inter-bank market at an interest 
rate set by the ECB.) The governor of the Irish central bank (currently 
Maurice O'Connell) has, ex officio, one vote in the ECB's 17-member 
monetary policy committee, although each national central bank governor 
is expected to disregard the individual performances of their own 
national economies in formulating a common monetary policy for the Euro 
area.
    The 1992 treaty on European Union identifies price stability as the 
primary objective of monetary policy under EMU. Price stability is 
defined by the ECB as a year-on-year increase in the harmonized index 
of consumer prices for the Euro area in the range of zero to two 
percent. In making its assessment of future consumer price movements, 
the ECB will take account of trends in money supply, private sector 
credit, and a range of intermediate price indicators. The primary 
instrument of monetary policy is refinancing operations by the ECB and 
the national central banks (purchases and repurchases of government 
securities at a discount rate announced weekly.) Ireland accounts for 
just over one percent of total economic activity in the Euro zone, and 
less than two percent of the broad money stock. Fast economic and 
monetary growth in Ireland alone, therefore, has little impact on 
monetary policy formulation at the European level, highlighting the 
difficulties that Ireland, and other small Euro nations, may have with 
a ``one-size-fits-all'' single European monetary policy.
2. Exchange Rate Policies
    At the beginning of 1999, the Irish pound ceased to exist as 
Ireland's national currency, and the new single European currency, the 
Euro, became the official unit of exchange. Although Irish currency 
will continue to circulate until the introduction of Euro notes and 
coins in 2002, it will be no more than a ``denomination'' of the Euro, 
with an irrevocably fixed exchange rate to the Euro and the nine other 
participating currencies. The conversion rate between the Irish pound 
and the Euro was Euro 1.2697:ip 1.
    The Euro and the pound are freely convertible for both capital and 
current account transactions. Under 1992 treaty on European Union, the 
European central bank has operational responsibility for the exchange 
rate of the Euro and conducts foreign exchange market transactions in 
relation to the currency on a day-to-day basis. However, the treaty 
provides that the council of ministers may formulate ``general 
orientations'' for exchange rate policy in relation to the Euro, 
without prejudice to the ECB's primary objective to maintain price 
stability. These general orientations will only be agreed in 
exceptional circumstances. Unlike any other Euro participant, Ireland's 
two largest trading partners, the UK and the United States, are outside 
the Euro zone. Ireland's loss of control over its exchange rate with UK 
sterling and the dollar makes Irish exports more vulnerable to swings 
in the external value of the Euro than any other Euro country, and 
places pressure on Irish exporters to increase the flexibility of their 
cost base, particularly labor costs. The Irish pound averaged US$ 1:ip 
0.70 in 1998, and is likely to average in the region of US$ 1:ip 0.74 
in 1999.
3. Structural Policies
    In Ireland, as in other EU states, a considerable degree of 
structural reform of capital, labor and product markets has been 
undertaken in recent years through various ``processes'' coordinated by 
the European commission. Irish authorities recognize that fostering 
greater competition in product and labor markets will be necessary for 
Ireland to sustain a rapid rate of economic growth in a supply-
constrained economy over the coming years. Policy makers also recognize 
that flexible and well-functioning markets will be necessary to buffer 
the Irish economy from unexpected asymmetric shocks in the context of 
EMU without losses of output and employment. Ireland's high degree of 
openness to trade means that product markets in Ireland are highly 
competitive. EU liberalization in energy and telecommunications markets 
has opened up Irish sectors traditionally dominated by state-owned 
enterprises to private sector competition. Regulation of Irish labor 
markets is light compared with continental European economies. Labor 
market reform efforts have concentrated on removing distortions in the 
tax and welfare system in order to improve work incentives for the 
unemployed and other non-labor force participants. There is little 
doubt that effective structural reform of the Irish economy over the 
last decade has increased the ability of the Irish economy to sustain 
fast rates of economic growth without spurring inflation. Fast Irish 
economic growth has in turn fueled Irish demand for U.S. imports. Other 
important structural economic policies over the last decade include:

          (a) The development of a social consensus on economic policy 
        through national wage agreements negotiated by the government, 
        employers and trade unions. The latest agreement, partnership 
        2000, took effect at the beginning of 1997 and trades off 
        continued moderation by trade unions in wage demands against 
        substantial cuts in personal taxation;
          (b) The availability of a special ten percent rate of 
        corporate taxation and generous grants to attract foreign 
        investment;
          (c) A commitment to the single European market and to Irish 
        participation in EMU;
          (d) High levels of investment in education and training--of 
        all OECD countries only the Japanese workforce has a higher 
        proportion of trained engineers and scientists;
          (e) And improvements in physical infrastructure--structural 
        investment between 1993 and 1999 are expected to total around 
        16 billion dollars (almost 4,500 dollars per head). Generous EU 
        transfers have funded much of this.

    The success of the above policies in attracting foreign investors 
and raising incomes has also boosted U.S. exports to Ireland. Over 500 
U.S. firms are now located in Ireland. These companies import a large 
proportion of their capital equipment and operating inputs from parent 
companies and other suppliers in the United States. Accordingly, the 
largest component of U.S. exports to Ireland is office machinery and 
equipment, followed by electrical machinery and organic chemicals. 
Furthermore, as U.S. firms in Ireland become increasingly integrated 
with the local economy, sales by U.S. parent companies to local Irish 
enterprises are believed to have increased dramatically in recent 
years, although the data on this remains sketchy. The combination of 
the above two effects has helped increase U.S. exports to Ireland by a 
factor of six between 1983 to 1998. As a result, the United States has 
become Ireland's second largest trading partner, behind only the UK.
4. Debt Management Policies
    The National Treasury Management Agency (NTMA) is the state agency 
responsible for the management of the government debt. At the end of 
1998, Ireland's general government debt amounted to 45.9 billion 
dollars (using average 1998 exchange rates), equivalent to 52 percent 
of GDP. This is down from 102% of GDP in 1989, reflecting strong fiscal 
rectitude in the 1990s and the fast pace of economic growth over this 
period. The bulk of the national debt was accumulated in the 1970's and 
early 1980's, partly as a result of high oil prices, but more generally 
as a result of expanding social welfare programs and public-sector 
employment. Foreign currency debt at the end of 1998 made up 
approximately 25 percent of the total. This is down from just over 40 
percent at the end of 1993, reflecting the government's strong 
financial position and Ireland's substantial balance of payments 
surplus, and a deliberate policy to reduce foreign currency debt as 
much as possible.
    Most new government borrowing, generally used to roll-over maturing 
debt, is financed through the issuance of Irish pound securities, 
although a substantial proportion of these are purchased by non-
resident investors. The total debt servicing cost in 1998 was 3.7 
billion dollars, equivalent to 4.3 percent of GDP. Lower interest 
rates, falling nominal debt levels and fast Irish income growth have 
reduced debt servicing costs as a proportion of total government 
revenue significantly in recent years, providing scope for reform of 
the personal taxation system, thus increasing consumer demand for U.S. 
exports of goods and services. In May 1999 the NTMA completed a re-
denomination of Euro 16 billion ($16.5 billion) worth of Irish 
government bonds into four giant issues, whose maturity ranges from 
three to 17 years. The re-denomination replaced high-coupon government 
debt with a relatively low nominal value, issued over the last decade, 
with low coupon debt with a high nominal value and which carries 
conditions closer to European norms. The move gives Ireland, the second 
smallest borrower in the Euro zone, the largest single Euro bond issue, 
with Euro 5.5 billion ($5.7 billion) in its 2010 treasury stock. Irish 
authorities hopes that the re-denomination will, over time, increase 
the liquidity of the Irish debt market and make holding Irish debt more 
attractive to foreign investors, thus lowering yields.
5. Aid
    In 1998, the United States contributed 19.6 million dollars to the 
international fund for Ireland (IFI), of which around five million is 
estimated to have been spent in the border constituencies of the 
republic of Ireland, with the balance being spent in the UK province of 
northern Ireland. The IFI funds business/community development programs 
intended to build cross-border (north-south) trade and economic ties
6. Significant Barriers to U.S. Exports
    The United States is Ireland's second largest source of imports, 
behind only the UK. Total exports from the United States into Ireland 
in 1998 were valued at US$ 7.2 billion (16.1 percent of total Irish 
imports), up from just over US$ 3 billion in 1990. Irish exports to the 
United States have, however, increased at an even faster rate over the 
same period. Total Irish exports to the United States in 1998 were 
valued at US$ 8.7 billion (13.7 percent of total Irish exports.) 
Accordingly, the trade balance between the two countries in 1998 
favored Ireland by almost US$ 1.6 billion. Before 1997, the trade 
balance between the two countries favored the United States for several 
decades. The changed U.S.-Irish trade relationship in recent years in 
large part reflects high levels of direct investment by U.S. companies 
in Ireland in recent years, many of which use Ireland as a base for 
exporting not only into European markets, but also back into the United 
States.
    As a member of the EU, Ireland administers tariff and non-tariff 
barriers in accordance with applicable EU policies. With regard to 
trade in services, Ireland maintains some barriers in the aviation 
industry: airlines serving Ireland may provide their own ground 
handling services, but are prohibited from providing similar services 
to other airlines. The bilateral U.S.-Ireland aviation agreement also 
places some restrictions on aviation services between the United States 
and Ireland. Under the agreement, any carrier providing North Atlantic 
services to Dublin airport, must also provide service to Shannon 
airport on Ireland's west coast, which makes additional Dublin service 
unprofitable for some U.S. airlines at this time.
    Ireland has consistently complied with the provisions of the 1989 
EU ``television without frontiers'' broadcasting directive. This 
requires that EU member states reserve a majority of television 
transmission time for European works. Irish television industry sources 
are skeptical, however, whether Irish compliance with the directive has 
impacted negatively on U.S. programming exports to Ireland over this 
period.
    The market for telecommunications services in Ireland was fully 
liberalized in December 1998--more than one year ahead of the timetable 
agreed with the European commission in 1996. Until then, Eircom, the 
former state-owned telecommunications company, was the monopoly 
provider of voice telephony services to the general public, although 
the market for leased lines, mobile telephony and other data 
transmission services was progressively liberalized earlier in the 
1990s. Regulatory confusion and legal battles over interconnection 
rates between Eircom and new market entrants have, however, hampered 
the development of effective competition in this sector, and may prove 
a barrier to U.S. service providers.
    As a member of the EU, Ireland applies a community-wide product 
certification process and community-wide product standards. With only 
minor exceptions, there are no requirements for marking imported goods. 
Packaged goods must carry labels that conform to Irish labeling 
requirements. The information on the labels must include details on 
ingredients, net weight, ``best before'' date and general usage 
instructions. Unlike many other EU countries, Irish labeling 
requirements also require that the name and EU address of the 
manufacturer, distributor or packer appear on the label. This has often 
caused difficulties for U.S. exporters, although the financial cost has 
probably been small.
    Although some liberalization has taken place in recent years, 
Ireland still maintains some of the strictest animal and plant health 
import restrictions in the EU. These together with EU import duties, 
effectively exclude many meat-based foods, fresh vegetables and other 
agricultural exports from the United States. Restrictions also apply to 
foods containing genetically modified organisms, bananas from outside 
the Caribbean area, cosmetics containing specified risk materials, and 
some wines, although as with other goods, these policies are determined 
at EU level.
    Ireland has been a member of the world trade organization (WTO) 
since it came into effect on January 1, 1995. The WTO agreement was 
ratified by the Irish parliament in November 1994. As member of the EU, 
however, Ireland participates in a large number of EU regional trade 
agreements, which may distort trade away from countries with whom 
Ireland trades purely on a MFN, non-preferential WTO basis.
7. Export Subsidies Policies
    The government generally does not provide direct or indirect 
support for local exports. However, companies located in designated 
industrial zones, namely the Shannon Duty Free Processing Zone (SDFPZ) 
and Ringaskiddy port, receive exemption from taxes and duties on 
imported inputs used in the manufacture of goods destined for non-EU 
countries. Furthermore, Ireland applies a special 10 percent rate of 
corporation tax (the standard rate is 28 percent) to companies 
producing internationally-traded manufactures and services and to 
companies operating out of the SDFPZ and the international financial 
services center in Dublin. Under pressure from the European commission, 
which viewed the tax as a subsidy to industry, the Irish government is 
committed to eliminating the special 10 percent rate of tax by 
harmonizing the special and standard rates of tax at 12.5 percent by 
2003, thereby abolishing the differential treatment.
    Other activities that qualify for the special ten percent rate of 
corporate of taxation include design and planning services rendered in 
Ireland in connection with specified engineering works outside the 
European Union. This applied mainly to services provided by engineers, 
architects and quantity surveyors. Profits from the provision of 
identical services in connection with works inside the EU are taxed at 
the standard 28 percent rate.
    Since January 1992, the government has provided export credit 
insurance for political risk and medium-term commercial risk in 
accordance with OECD guidelines. As a participant in the EU's common 
agricultural policy, the Irish department of agriculture and food 
administers cap export refund and other subsidy programs on behalf of 
the EU commission.
8. Protection of U.S. Intellectual Property
    Ireland is a member of the world intellectual property organization 
and a party to the international convention for the protection of 
intellectual property. The Irish government is currently in the process 
of enacting new copyright legislation to bring Ireland's laws into line 
with its obligations under the WTO TRIPs agreement. Examples of 
existing TRIPs inconsistencies in current Irish law, which the 
government is committed to addressing, include absence of a rental 
right for sound recordings, no ``anti-bootlegging'' provision, and low 
criminal penalties which fail to deter piracy, all of which have 
contributed to high levels of piracy in Ireland (industry sources 
estimate that up to 57 percent of PC software used in Ireland is 
pirated.) To address several of the most glaring discrepancies between 
Irish law and Dublin's obligations under TRIPs, a ``break-out'' 
copyright bill was enacted in June 1998, which strengthens the 
presumption of copyright ownership and increases penalties for 
copyright violation. The Irish Seanad (upper house) passed more 
comprehensive copyright legislation in October 1999, and the Irish 
government has pledged to complete passage in the Dail (lower house) 
before the end of the year. When enacted, the legislation will give 
Ireland one of the most comprehensive IPR legal regimes in Europe. In 
light of government commitments to enact new copyright legislation, 
USTR suspended WTO dispute settlement proceedings against Ireland, 
though Ireland remains on the USTR's section 301 ``watchlist'' pending 
enactment of this IPR reform legislation.
    The comprehensive copyright bill currently before parliament also 
addresses non-TRIPs conforming provisions of Irish patent law. 
Ireland's patent law, as it currently stands, fails to meet TRIPs 
obligations in at least two respects:

          (1) The compulsory licensing provisions of the 1992 patent 
        law are inconsistent with the ``working'' requirement 
        prohibition of TRIPs articles 27.1 and the general compulsory 
        licensing provisions of article 31; and
          (2) Applications processed after December 20, 1991 do not 
        conform to the non-discrimination requirement of TRIPs article 
        27.1.

    --Trademarks: in accordance with EU council directive 89/104/
European economic community (the harmonization of trademark laws), and 
EU council regulation number 40/94 (community trademark and the 
registration of trademarks in services industries), new legislation was 
required to replace the trademarks act of 1963. The trademarks act of 
1996 was signed into law in July of that year. There appear to be no 
problems with the new law.
9. Worker Rights
    a. The Right of Association: The right to join a union is 
guaranteed by law, as is the right to refrain from joining. The 
industrial relations act of 1990 prohibits retribution against strikers 
and union leaders. Embassy calculates that approximately 45 percent of 
workers in the private sector are trade union members. Police and 
military personnel are prohibited from joining unions or striking, but 
they may form associations to represent them in matters of pay, working 
conditions, and general welfare. The right to strike is freely 
exercised in both the public and private sectors. The Irish Congress of 
Trade Unions (ICTU), which represents unions in both the republic and 
Northern Ireland, has 64 member-unions with 699,190 members.
    b. The Right to Organize and Bargain Collectively: Labor unions 
have full freedom to organize and to engage in free collective 
bargaining. Legislation prohibits anti-union discrimination. In recent 
years, most terms and conditions of employment in Ireland have been 
determined through collective bargaining in the context of a national 
economic pact. Under the current three-year agreement, partnership 
2000, which expires in 2000, trade unions traded off moderation in wage 
demands for cuts in personal taxation by the government. The Irish 
Business and Employers Confederation (IBEC) generally represent 
employer interests in labor matters.
    The labor relations commission, established by the industrial 
relations act of 1990, provides advice and conciliation services in 
industrial disputes. The commission may refer unresolved disputes to 
the labor court. The labor court, consisting of an employer 
representative, a trade union representative, and an independent 
chairman, may investigate labor disputes, recommend the terms of 
settlement, engage in conciliation and arbitration, and set up joint 
committees to regulate conditions of employment and minimum rates of 
pay for workers in a given trade or industry.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law and does not exist in Ireland.
    d. Minimum Age for Employment of Children: New legislation 
introduced in 1997 prohibits the full-time employment of children under 
the age of 16, although employers may hire 14 or 15 year olds for light 
work on school holidays, or on a part-time basis during the school 
year. The law also limits the number of hours which children under age 
18 may work. These provisions are enforced effectively by the Irish 
department of enterprise, trade and employment.
    e. Acceptable Conditions of Work: After persistent lobbying by 
trade unions, in April 1998, the Irish government announced proposals 
for the introduction of a national hourly minimum wage of IP 4.40 
(around US$ 6.70) beginning in April 2000. Although minimum wages 
already exist in certain low-paid industries, such as textiles and 
cleaning, these only apply to a relatively small proportion of the 
workforce. The full minimum wage will not apply to trainees or workers 
under 18 years of age.
    The standard workweek is 39 hours. In May 1997, a European 
commission directive on working time was transposed into Irish law, 
through the ``organization of working time act, 1997.'' The act sets a 
maximum of 48 working hours per week, requires that workers be given 
breaks after they work certain periods of time, sets limits to shift 
work, and mandates four weeks annual holidays for all employees by 
1999.
    f. Rights in Sectors With U.S. Investment: Worker rights described 
above are applicable in all sectors of the economy, including those 
with significant U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  8,090
  Food & Kindred Products......  669             ...............................................................
  Chemicals & Allied Products..  3,184           ...............................................................
  Primary & Fabricated Metals..  177             ...............................................................
  Industrial Machinery and       185             ...............................................................
   Equipment.
  Electric & Electronic          1,529           ...............................................................
   Equipment.
  Transportation Equipment.....  15              ...............................................................
  Other Manufacturing..........  2,332           ...............................................................
Wholesale Trade................  ..............  332
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  6,638
Services.......................  ..............  305
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  15,936
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 ITALY


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP \2\.........................    1,123.1    1,138.1    1,148.6
  Real GDP Growth (pct) \3\............        1.5        1.3        0.9
  GDP (at current prices)..............    1,159.5    1,184.8    1,177.1
  GDP by Sector:
    Agriculture........................       30.6       30.4        N/A
    Manufacturing......................      291.3      294.3        N/A
    Construction.......................       53.4       53.2        N/A
    Services...........................      682.2      674.7        N/A
  Per Capita GDP (US$).................     20,839     20,834     20,699
  Labor Force (millions)...............       23.0       23.1       23.1
  Unemployment Rate (pct)..............       11.7       11.8       11.6

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \4\................        9.0        5.6        5.2
  Consumer Price Inflation.............        2.0        2.0        1.6
  Exchange Rate
    (Lira/US$ annual average of market        1703       1737       1800
     rate).............................

Balance of Payments and Trade:
  Total Exports FOB \4\................      238.2      242.3      148.6
    Exports to U.S.\4\.................       18.9       20.8        N/A
  Total Imports CIF \5\................      208.1      215.5      136.6
    Imports from U.S.\5\...............       10.2       10.9        N/A
  Trade Balance \5\....................       30.3       26.8       12.0
    Balance with U.S.\5\...............        8.5        9.9        7.6
  External Public Debt.................       80.0       78.6       77.8
  Fiscal Deficit/GDP...................        2.7        2.6        2.2
  Current Account Surplus/GDP (pct)....        3.2        1.9        1.5
  Debt Service Payments/GDP (pct) \6\..       10.7       10.7        6.6
  Gold and Foreign Exchange Reserves...       76.0       53.6       43.4
------------------------------------------------------------------------
\1\ 1999 estimates based on data available through October.
\2\ 1995 prices; GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ 1999 data is the growth rate of the Italian components of M2 in the
  Euro area through August.
\5\ Merchandise trade. 1999 data through August
\6\ Represents total debt servicing costs; less than six percent of
  total debt is foreign debt.

1. General Policy Framework
    Italy has the world's sixth largest economy, having grown into an 
industrial power in the last 50 years. Italy maintains an open economy, 
and is a member of major multilateral economic organizations such as 
the Group of Seven (G-7) industrialized countries, the Organization for 
Economic Cooperation and Development, the World Trade Organization, the 
International Monetary Fund, and the European Union.
    Italy is one of the 11 founding members of the European Economic 
and Monetary Union (EMU). Beginning in January 1999, EMU member 
countries adopted the euro as their currency and the new European 
Central Bank as their monetary authority. National currencies are being 
phased out and only euros will be used beginning in 2002. Public 
opinion polls consistently rank Italy as one of the most ``pro-euro'' 
countries in Europe.
    Italy has a private sector characterized primarily by a large 
number of small and medium-sized firms and a few multinational 
companies with well-known names such as Fiat and Pirelli. Economic 
dynamism is concentrated in northern Italy, resulting in an income 
divergence between north and south that remains one of Italy's most 
difficult and enduring economic/social problems.
    Government has traditionally played a dominant role in the economy 
through regulation and through ownership of large industrial and 
financial companies. Privatizations and regulatory reform since 1994 
have reduced that presence somewhat. However, government retains a 
potentially blocking ``golden share'' in all the industrial companies 
privatized thus far; government and the Bank of Italy continue to shape 
merger and acquisition activity involving Italian financial and non-
financial firms considered ``key'' to the economy and/or employment; 
and business surveys continue to cite a heavy bureaucratic burden as 
one of the main impediments to investing or doing business in Italy.
    For years, government spending has been inflated by generous social 
welfare programs, inefficiency and projects designed to achieve 
political objectives. The result has been large public sector deficits 
financed by debt. Beginning in the early 90's, Italy started to address 
a number of macroeconomic problems in order to qualify for first-round 
EMU membership. The public sector deficit fell slightly from 2.7 
percent in 1997 to 2.6 percent of GDP in 1998, and is expected to be 
close to 2.2 percent at end-1999--aided until late 1999 by declining 
interest rates which lowered the GOI's debt servicing cost. The level 
of public debt, second highest among the EMU countries as a share of 
GDP, also started to decline but remains over 100 percent of GDP. The 
GOI plans to reduce the debt level gradually to the EMU target level of 
60 percent of GDP.
    Up to December 31, 1998, price stability was the primary objective 
of monetary policy; the Bank of Italy carried out a restrictive 
monetary policy in an effort to defeat Italy's long-term inflation 
problem. Now all these powers have been transferred to the European 
Central Bank, with the Bank of Italy retaining banking supervision 
responsibilities. Consumer inflation increased only 2.0 percent in 1998 
and a 1.6 percent average is expected for 1999, and producer price 
inflation is negligible, despite a recent upturn mostly related to the 
increase of prices of utilities and oil and raw materials.
/2. Exchange Rate Policy
    On January 1, 1999, Italy relinquished control over exchange rate 
policy to the European Central Bank.
3. Structural Policies
    Italy has not implemented any structural policies over the last two 
years that directly impede U.S. exports. Certain characteristics of the 
Italian economy impede growth and reduce import demand. These include 
rigid labor markets, underdeveloped financial markets, and a continued 
heavy state role in the production sector. There has been some progress 
at addressing these structural issues. Privatization is reducing the 
government's role in the economy. The 1993 ``Single Banking Law'' 
removed a number of anachronistic restrictions on banking activity. 
Italy's implementation of EU financial service and capital market 
directives has injected further competition into the sector.
    U.S. financial service firms are no longer subject to an 
incorporation requirement to operate in the Italian market, although 
they must receive permission to operate from the government's 
securities regulatory body.
    U.S. financial service firms and banks are active in Italy, in 
particular in the wholesale banking and bond markets. In general, U.S. 
and foreign firms can invest freely in Italy, subject to restrictions 
in sectors determined to be of national interest, or in cases which 
create anti-trust concerns.
4. Debt Management Policy
    Although the domestic public debt level is high, Italy has not had 
problems with external debt or balance of payments since the mid 
1970's. Public debt is financed primarily through domestic capital 
markets, with securities ranging from three months to thirty years. 
Italy's official external debt is relatively low, constituting roughly 
5.9 percent of total debt. Italy maintains relatively steady foreign 
debt targets, and uses issuance of foreign-denominated debt essentially 
as a source of diversification, rather than need.
5. Significant Barriers to U.S. Exports
    Import Licensing: With the exception of a small group of largely 
agricultural items, practically all goods originating in the U.S. and 
most other countries can be imported without import licenses and free 
of quantitative restrictions. There are, however, monitoring measures 
applied to imports of certain sensitive products. The most important of 
these measures is the automatic import license for textiles. This 
license is granted to Italian importers when they provide the requisite 
forms.
    Services Barriers: Italy is one of the world's largest markets for 
all forms of telephony and the largest and fastest-growing European 
market for mobile telephony. In recent years, the Italian Government 
has undertaken a liberalization of this sector, including privatization 
of the former parastatal monopoly Telecom Italia (formerly STET); 
creation of an independent communications authority; and allowing both 
fixed-line and mobile competitors to challenge the former monopoly 
(which Olivetti acquired in a hostile takeover in 1999). Following the 
EU's January 1, 1998 deadline for full liberalization of its telecoms 
sector, Italy issued more than 40 fixed-line licenses, including to new 
entrants (with U.S. participation). Omnitel Pronto Italia, which is 
partly U.S.-owned, began offering cellular service in December 1995.
    In 1998, Italy established an independent regulatory authority for 
all communications, including telecoms and broadcasting. Concerns 
remain regarding upcoming licensing and frequency allocation for 
``third generation'' mobile carriers, regulatory due process, 
transparency and even-handedness in general. But the Italian market is 
much more open to services exports in this sector than it was prior to 
implementation of the EU telecoms directive.
    In 1998, the Italian Parliament passed government-sponsored 
legislation including a provision to make Italy's national TV broadcast 
quota stricter than the EU's 1989 ``Broadcast Without Frontiers'' 
Directive. The Italian law exceeds the EU Directive by making 51 
percent European content mandatory during prime time, and by excluding 
talk shows from the programming that may be counted towards fulfilling 
the quota. Also in 1998, the government issued a regulation requiring 
all multiplex movie theaters of more than 1300 seats to reserve 15-20 
percent of their seats, distributed over no fewer than three screens, 
to showing EU films on a ``stable'' basis. In 1999, the government 
introduced ``antitrust'' legislation to limit concentration in 
ownership of movie theaters and in film distribution--including more 
lenient treatment for distributors that provide a majority of ``made in 
EU'' films to theaters.
    Firms incorporated in EU countries may offer investment services in 
Italy without establishing a presence. U.S. and other firms that are 
from non-EU countries may operate based on authorization from CONSOB, 
the securities oversight body. CONSOB may deny such authorization to 
firms from countries that discriminate against Italian firms.
    Foreign companies are increasingly active in the Italian insurance 
market, opening branches or buying shares in Italian firms. Government 
authorization is required to offer life and property insurance; this 
authorization is usually based on reciprocal treatment for Italian 
insurers. Foreign insurance firms must prove that they have been active 
in life and property insurance for not less than 10 years and must 
appoint a general agent domiciled in Italy.
    There are some limits regarding foreign private ownership in banks. 
For instance, according to the Banking Law a foreign institution 
wanting to increase its stake in a bank above five percent needs 
authorization by the Bank of Italy.
    Some professional categories (e.g. engineers, architects, lawyers, 
accountants) face restrictions that limit their ability to practice in 
Italy without either possessing EU/Italian nationality, having received 
an Italian university degree, or having been authorized to practice by 
government institutions.
    Standards: As a member of the EU, Italy applies the product 
standards and certification approval process developed by the European 
Community. Italy is required by the Treaty of Rome to incorporate 
approved EU directives into its national laws. However, there has 
frequently been a long lag in implementing these directives at the 
national level, although Italy has been improving its performance in 
this regard. In addition, in some sectors such as pollution control, 
the uniformity in application of standards may vary according to 
region, further complicating the certification process. Italy has been 
slow in accepting test data from foreign sources, but is expected to 
adopt EU standards in this area.
    Most standards, labeling requirements, testing and certification 
for food products have been harmonized within the European Union. 
However, where EU standards do not exist, Italy can set its own 
national requirements and some of these have been known to hamper 
imports of game meat, processed meat products, frozen foods, alcoholic 
beverages, and snack foods/confectionery products. Import regulations 
for products containing meat and/or blood products, particularly animal 
and pet food, have become more stringent in response to concerns over 
transmission of Bovine Spongiform Encephalopathy (BSE). U.S. exporters 
of ``health'' and/or organic foods, weight loss/diet foods, baby foods 
and vitamins should work closely with an Italian importer, since 
Italy's labeling laws regarding health claims can be particularly 
stringent. In the case of food additives, coloring and modified 
starches, Italy's laws are considered to be close to current U.S. laws, 
albeit sometimes more restrictive.
    U.S. exporters should be aware that any food or agricultural 
product transshipped through Italian territory must meet Italian 
requirements, even if the product is transported in a sealed and bonded 
container and is not expected to enter Italian commerce.
    Rulings by individual local customs authorities can be arbitrary or 
incorrect, resulting in denial or delays of entry of U.S. exports into 
the country. Considerable progress has been made in correcting these 
deficiencies, but problems do arise on a case-by-case basis.
    Investment Barriers: While official Italian policy is to encourage 
foreign investment, industrial projects require a multitude of 
approvals and permits, and foreign investments often receive close 
scrutiny. These lengthy procedures can present extensive difficulties 
for the uninitiated foreign investor. There are several industry 
sectors which are either closely regulated or prohibited outright to 
foreign investors, including domestic air transport and aircraft 
manufacturing.
    Italian anti-trust law gives the government the right to review 
mergers and acquisitions over a certain threshold value. The government 
has the authority to block mergers involving foreign firms for 
``reasons essential to the national economy'' or if the home government 
of the foreign firm does not have a similar anti-trust law or applies 
discriminatory measures against Italian firms. A similar provision 
requires government approval for foreign entities' purchases of five or 
more percent of an Italian credit institution's equity.
    Government Procurement: In Italy, fragmented, often non-transparent 
government procurement practices and previous problems with corruption 
have created obstacles to U.S. firms' participation in Italian 
government procurement. Italy has made some progress in making the laws 
and regulations on government procurement more transparent, by updating 
its government procurement code to implement EU directives. The 
pressure to reduce government expenditures while increasing efficiency 
is resulting in increased use of competitive procurement procedures and 
somewhat greater emphasis on best value rather than automatic reliance 
on traditional suppliers.
6. Export Subsidies Policies
    Italy subscribes to EU directives and Organization for Economic 
Cooperation and Development (OECD) and World Trade Organization (WTO) 
agreements on export subsidies. Through the EU, it is a member of the 
General Agreement on Tariffs and Trade (GATT) agreements on agriculture 
and subsidies, and as a WTO member, is subject to WTO rules. Italy also 
provides extensive export refunds under the Common Agricultural Policy 
(CAP), as well as a number of export promotion programs. Grants range 
from funding of travel for trade fair participation to funding of 
export consortia and market penetration programs. Many programs are 
aimed at small-to-medium size firms. Italy provides some direct 
assistance to industry and business firms, in accordance with EU rules 
on support to depressed areas, to improve their international 
competitiveness. This assistance includes export insurance through the 
state export credit insurance body, as well as interest rate subsidies 
under the OECD consensus agreement.
    The Italian peach processing sector receives subsidies to 
compensate it for having to pay the EU minimum grower price for its raw 
product. It is recognized that this grower price is above the world 
market price for peaches and a U.S.-EU agreement is in place to monitor 
the level of subsidies paid. However, there is concern that the 
processors may receive extra benefits from loopholes in the system.
    The Italian wheat processing sector (pasta) in the past received 
indirect subsidies to build plants and infrastructure. While these 
plants are still operating, there are no known programs similar to the 
initial subsidies operating at present.
7. Protection of U.S. Intellectual Property
    Italy is a member of the World Intellectual Property Organization, 
and a party to the Berne and Universal Copyright Conventions, the Paris 
Industrial Property and Brussels Satellite conventions, the Patent 
Cooperation Treaty, and the Madrid Agreement on International 
Registration of Trademarks.
    In 1998, the U.S. Trade Representative placed Italy on the 
Intellectual Property Rights (IPR) ``Priority Watch List'' under the 
``Special 301'' provision of the United States Trade Act of 1988, due 
to the aforementioned national TV broadcast quotas in excess of the EU 
norm, and to a lengthy delay in passage of national legislation to 
address ongoing serious deficiencies in protection of copyright for 
sound recordings, computer software and film videos. In October 1996, 
the government introduced anti-piracy legislation in parliament that 
would impose administrative penalties and increase criminal sanctions. 
As of the end of 1999, the bill was still awaiting final parliamentary 
approval. The U.S. will continue to closely monitor developments in 
this area.
    New Technologies: In the spring of 1997, the Italian Minister of 
Health signed a decree banning the cultivation of Ciba Geigy's BT Corn 
in Italy, despite the fact that no BT seed varieties are currently 
included in Italy's National Seed Register. This decision was taken on 
the advice of Italy's Interministerial Biotechnology Commission, 
ostensibly based on its opinion that there was a lack of a proper 
monitoring program regarding BT corn's effect on the ecosystem. After 
the Biotech Commission reversed its decision, and following EC pressure 
to remove the ban, the Minister of Health signed the legislation 
removing the ban in late September.
    Italy adopted the EU patent law on biotech inventions in July 1999, 
but only after an intense debate.
8. Worker Rights
    a. The Right of Association: The law provides for the right to 
establish trade unions, join unions, and carry out union activities in 
any workplace employing more than 15 employees. Trade unions are free 
of government controls and no longer have formal ties with political 
parties. Workers are protected from discrimination based on union 
membership or activity. The right to strike is embodied in the 
Constitution, and is frequently exercised. Hiring workers to replace 
strikers is prohibited. A 1990 law restricts strikes affecting 
essential public services such as transport, sanitation, and health.
    The law prohibits discrimination by employers against union members 
and organizers. It requires employers who have more than 15 employees 
and are found guilty of anti-union discrimination to reinstate the 
workers affected. In firms with fewer than 15 workers, an employer must 
state the grounds for firing a union employee in writing. If a judge 
deems these grounds spurious, he can order the employer to reinstate or 
compensate the worker.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides for the right of workers to organize and bargain collectively 
and these rights are respected in practice. In practice (though not by 
law), national collective bargaining agreements apply to all workers 
regardless of union affiliation. There are no export processing zones.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, and it does not occur.
    d. Minimum Age for Employment of Children: The law forbids 
employment of children under 15 years of age (with some exceptions). 
There are also specific restrictions on employment in hazardous or 
unhealthy occupations of males under age 18 and females under age 21. 
Enforcement of the minimum age laws is effective only outside the 
extensive ``underground'' economy, which is mainly in southern Italy.
    e. Acceptable Conditions of Work: Minimum wages are set not by law 
but rather by national collective bargaining agreements. These specify 
minimum standards to which individual employment contracts must 
conform. In case of disputes, the courts may step in to determine fair 
wages on the basis of practice in comparable activities or agreements.
    A 1997 law reduced the work week from 48 hours to 40. The regular 
work week should not exceed six days, and the regular work day eight 
hours, with some exceptions. Most collective agreements provide for a 
36- to 38-hour workweek. Overtime may not exceed two hours a day or an 
average of 12 hours per week.
    The law sets basic health and safety standards and guidelines for 
compensation for on-the-job injuries. European Union directives on 
health and safety have also been incorporated into domestic law. Labor 
inspectors are from local health units or from the Ministry of Labor. 
They are few, given the scope of their responsibilities. Courts impose 
fines and sometimes prison terms for violation of health and safety 
laws. Workers have the right to remove themselves from dangerous work 
situations without jeopardy to their continued employment. Women are 
usually forbidden to work at night.
    f. Rights in Sectors with U.S. Investment: Conditions do not differ 
from those in other sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  8,559
  Food & Kindred Products......  406             ...............................................................
  Chemicals & Allied Products..  2,267           ...............................................................
  Primary & Fabricated Metals..  137             ...............................................................
  Industrial Machinery and       2,201           ...............................................................
   Equipment.
  Electric & Electronic          928             ...............................................................
   Equipment.
  Transportation Equipment.....  715             ...............................................................
  Other Manufacturing..........  1,905           ...............................................................
Wholesale Trade................  ..............  2,725
Banking........................  ..............  334
Finance/Insurance/Real Estate..  ..............  774
Services.......................  ..............  1,082
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  14,638
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                            THE NETHERLANDS


                       Key Economic Indicators \1\
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\.........................     337.6     349.7     347.1
  Real GDP Growth (pct) \4\...............       3.8       3.0      2.75
  GDP by Sector:
    Agriculture...........................      11.8      11.0      11.0
    Manufacturing.........................      59.9      60.9      60.5
    Services..............................     199.8     211.5     209.9
    Government............................      40.5      41.6      41.2
  Per Capita GDP (US$)....................    21,781    22,417    22,108
  Labor Force (000's).....................     7,105     7,206     7,311
  Unemployment Rate (percent).............       6.2       4.8       4.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       7.2       9.9       9.0
  Consumer Price Inflation................       2.2       2.0       2.0
  Exchange Rate (guilders/US$ annual
 average)
    Official..............................      1.95      1.98      2.05

Balance of Payments and Trade:
  Total Exports FOB \5\...................     166.0     197.6     196.7
    Exports to U.S.\6\....................       7.3       7.6       8.0
  Total Imports CIF \5\...................     151.8     184.0     185.6
    Imports from U.S.\6\..................      19.8      19.0      20.0
  Trade Balance \5\.......................      14.2      13.6      11.1
    Balance with U.S.\6\..................     -12.5     -12.4     -12.0
  Current Account Surplus/GDP (pct).......       7.0       6.0      5.25
  External Public Debt \6\................         0         0         0
  Debt Service Payments/GDP (pct) \7\.....       6.7       9.4      12.3
  Fiscal Deficit/GDP (pct)................      -1.2      -0.8      -0.6
  Gold and Foreign Exchange Reserves......      31.6      26.7      29.9
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ All figures have been converted at the average guilder exchange rate
  for each year.
\2\ 1999 figures are official forecasts or estimates based on available
  monthly data in October.
\3\ GDP at factor costs.
\4\ Percentage changes calculated in local currency.
\5\ Merchandise trade. Government of the Netherlands data.
\6\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through October 1999.
\7\ All public debt is domestic and denominated in guilders. Debt
  service payments refers to domestic public debt.

Sources: Central Bureau of Statistics (CBS), Netherlands Central Bank
  (NB), Central Planning Bureau (CPB).

1. General Policy Framework
    The Netherlands is a prosperous and open economy, and depends 
heavily on foreign trade. It is noted for stable industrial relations; 
a large current account surplus from trade and overseas investments; 
net exports of natural gas; and a unique position as a European 
transportation hub with excellent ports, and air, road, rail, and 
inland waterway transport.
    Dutch trade and investment policy is among the most open in the 
world. The government has successfully reduced its role in the economy 
during the 1990s, and structural and regulatory reforms have been an 
integral part of a major reorientation of Dutch economic policy since 
the early 1980s. Although telecommunication services have been fully 
liberalized since January 1 1998, deregulation and privatization of the 
Dutch electricity and gas market will have to wait until 2003. The 
government continues to dominate the energy sector, and will play an 
important role in public transport and aviation for some time.
    Dutch economic policy is geared chiefly towards environmentally 
sustainable economic growth and development by way of economic 
restructuring, energy conservation, environmental protection, regional 
development, and other national goals. Economic policy is guided by a 
national environmental action plan.
    General elections in May of 1998 resulted in a clear vote of 
confidence for the ruling three-party coalition, which returned to 
office for another four-year term. Policy intentions of the new 
coalition government are articulated in the 1998 coalition accord, with 
reductions in the tax burden and the fiscal deficit, as well as further 
labor and product market reforms as chief priorities. The government 
coalition accord is based on a ``conservative'' 2.25 percent average 
annual GDP growth scenario between 1999 and 2002. Average GDP growth so 
far has been well in excess of 3 percent.
    Only mildly affected by the crisis in emerging markets and 
subsequent slowdown in the euro area, the Dutch economy remains strong, 
combining sustained GDP growth with falling unemployment and moderate 
inflation. The success of the Dutch economy can be attributed to a 
combination of a rigorous and stable macro-economic policy with wide-
ranging structural and regulatory reforms. After a period of 
exceptional strong (near 4 percent) growth in 1998, the OECD expects 
real GDP growth in the Netherlands to weaken to 3 percent in 1999 and 
just below 3 percent in 2000. The European Union seems more optimistic 
and projects economic growth in 1999 and 2000 to exceed 3 percent. 
Expectations are that private consumption may loose some of its 
buoyancy and investment will remain sluggish. The deceleration in 
domestic demand is likely to be offset to some extent by a stronger 
foreign balance as export market growth picks up. The unemployment rate 
is forecast to fall to around 3.25 percent in 1999 and in 2000, a level 
last seen in the early 1970s. Reflecting continuing pressure on 
resource utilization, inflationary pressure remains. Consumer price 
inflation in 1999 and 2000 is forecast to edge up to exceed 2 percent. 
The OECD sees risks and uncertainties mainly concern domestic 
developments. Wide-ranging structural and regulatory reforms make it 
difficult to assess the degree of tightness of the labor market and of 
the pressure on resource utilization.
    The Netherlands was one of the first EU member states to qualify 
for Economic and Monetary Union (EMU). Fiscal policy aims to strike a 
balance between further reducing public spending, and lowering taxes, 
and social security contributions. The fiscal deficit is expected to 
narrow to narrow to 0.6 percent of GDP in 1999. This is well below the 
three percent of GDP criterion in the EMU's Growth and Stability Pact. 
A balanced budget is well within reach in 2000. The stock of public 
debt will fall from a high of 69.9 percent in 1997 to 64.3 percent in 
1999. Both fiscal deficit and public debt are forecast to converge 
below or closer to EMU deficit and debt criteria.
    Government bonds largely fund the deficit. Since January 1, 1994 
Dutch Treasury Certificates (DTC) have also covered financing. DTCs 
replace a standing credit facility for short-term deficit financing 
with the central bank which, under the Maastricht Treaty, was abolished 
in 1994.
2. Exchange Rate Policies
    Since the European Central Bank (ECB) assumed monetary 
responsibility on January 1, 1999, monetary conditions are no longer 
under the exclusive control of the Dutch authorities but are determined 
by the Eurosystem (the European Central Bank and the 11 national 
Central Banks in the euro area), and are attuned to the euro area as a 
whole. Conversion of the currencies of the euro area on December 31 
1998, fixed the exchange rate of the euro vis-a-vis the guilder at 
2.20371 guilders to the euro. There are no multiple exchange rate 
mechanisms.
3. Structural Policies
    Tax Policies: Partly with an eye to further EU integration, the 
Dutch recently took the first step towards a fundamental reform of the 
tax system. The new tax regime for the 21st century entails a shift 
from direct to indirect taxes, a broadening of the tax base and a 
reduction of the tax rate on labor. When implemented in 2001, wage and 
individual income taxes will be lowered, while excise duties, ``green'' 
taxes and VAT rates will be raised. The highest marginal tax rate on 
wage and salary income will be reduced from 60 percent to 50 percent, 
while the top VAT rate will rise from 17.5 percent to 19 percent. The 
Dutch corporate income tax rate is among the lowest in the European 
Union. Effective January 1, 1998 the standard corporate tax rate paid 
by corporations (including foreign-owned corporations) has been reduced 
from 36 percent to 35 percent on all taxable profits. Since January 1, 
1997 the Dutch have been offering multinationals a more friendly tax 
regime on their group finance activities, effectively reducing tax on 
internal banking activities from 35 percent (the standard corporate tax 
rate) to 7 percent.
    Regulatory Policies: Limited, targeted, transparent investment 
incentives are used to facilitate economic restructuring and to promote 
economic growth throughout the country. Measures blend tax incentives 
and subsidies and are available to foreign and domestic firms alike. 
There are also subsidies to stimulate R&D and to encourage development 
and use of new technology by small and medium sized firms.
    Complying with EU competition legislation, new Dutch competition 
legislation became effective on January 1, 1998. The new Competition 
Law includes a provision for the supervision of company mergers by the 
Netherlands Competition Authority (NMA). The law is expected to boost 
competition, improve transparency, and provide greater de facto access 
to a number of sectors for foreign companies.
4. Debt Management Policies
    With a current account surplus of well over five percent of GDP and 
no external debt, the Netherlands is a major creditor nation. The Dutch 
have run a surplus on current account since the early 1980s. During 
that period, gross public sector debt (EMU criterion) grew sharply, to 
81.2 percent of GDP by 1993. Since the late 1980s, the Dutch fiscal 
balance has drastically improved. Most observers now predict a 
significant decline of the debt to GDP ratio towards the EMU 60 percent 
criterion over the next three years. Debt servicing and rollover has 
fallen to slightly over nine percent of GDP, with interest payments 
alone at four percent of GDP. All government debt is domestic and 
denominated in guilders. There are no difficulties in tapping the 
domestic capital market for loans, and public financing requirements 
are generally met before the end of each fiscal year. The Netherlands 
is a major foreign assistance donor nation with a bilateral and 
multilateral development assistance budget of 1.1 percent of GDP equal 
to $4.8 billion in 1999. Official Development Aid (ODA) amounts to 0.8 
percent of GDP or $3.4 billion. The Netherlands belongs to, and 
strongly supports, the IMF, the World Bank, EBRD, and other 
international financial institutions.
5. Significant Barriers to U.S. Exports
    The Dutch pride themselves on their open market economy, 
nondiscriminatory treatment of foreign investment, and a strong 
tradition of free trade. Foreign investors receive full national 
treatment, and the Netherlands adheres to the OECD investment codes and 
the International Convention for the Settlement of Investment Disputes. 
There are no significant Dutch barriers to U.S. exports, and U.S. firms 
register relatively few trade complaints. The few trade barriers that 
do exist result from common EU policies. The following are areas of 
potential concern for U.S. exporters:
    Agricultural Trade Barriers: These result from the Common 
Agricultural Policy (CAP) and common external tariffs, which severely 
limit imports of U.S. agricultural products, e.g., canned fruits (high 
tariffs), frozen whole turkeys and parts (high tariffs). Bilateral 
import barriers, although usually connected with EU-wide regulations, 
do arise in customs duties, grading, inspection and quarantine, e.g., 
fresh beef (hormones) and poultry (phytosanitary). EU rules and 
procedures sometimes hinder commodity and product entry. Although only 
a few cases have been reported to date, an increasing pattern of 
delayed or rejected shipments of agricultural commodities, food and 
beverages appears to have developed. Current EU-wide regulations, and 
the lack of timely approval processes for agricultural products, 
including Genetically Modified Organisms (GMOs), hinder U.S. exports. 
Some of these rejections or delays in clearance cause major financial 
and logistical problems to Dutch importers and U.S. exporters for 
particular products, thus dampening trade prospects and flows.
    Offsets for Defense Contracts: All foreign contractors must provide 
at least 100 percent offset/compensation for defense procurement over 
five million Dutch Guilders (about $2.5 million). The seller must 
arrange for the purchase of Dutch goods or permit the Netherlands to 
domestically produce components or subsystems of the systems it is 
buying. A penalty system for noncompliance with offset obligations is 
under consideration. The United States has discussed this issue with 
the government of the Netherlands.
    Broadcasting and Media Legislation: The Dutch fully comply with the 
EU Broadcast Directive, but this has not in any way impeded the 
transmission of non-European programs. U.S. television shows and films 
are popular and readily available. Commercial broadcasters may apply 
for temporary exemptions of the quota requirement on an ad hoc basis.
    Cartels: Although the export sector of the Dutch economy is open 
and free, cartels have long been a component of the domestic sector of 
the economy. A new Cartel Law which took effect in 1996 bans cartels 
unless its proponents can conclusively demonstrate a public interest. 
Since 1998, the United States received no complaints by U.S. firms of 
having been disadvantaged by cartels in the Netherlands.
    Public Procurement: Dutch public procurement practices comply with 
the requirements of the GATT/WTO Agreement on Public Procurement and 
with EU public procurement legislation. The Netherlands has fully 
implemented the EU's Supplies Directive 93/36/EEC, Works Directive 93/
37/EEC, and the Utilities Directive 93/38/EEC. Implementation of EU and 
GATT public procurement obligations have contributed to greater 
transparency of the Dutch public procurement environment at the central 
and local government levels. Independent studies show that transparency 
and enforcement in this area can be deficient, especially at the local 
level, and procurement may be contingent on offset or local content 
requirements. As part of its plan to encourage electronic transactions, 
the government has declared its intention to begin posting all national 
and local government procurement tenders on websites in the near 
future. The EU Utilities Directive may force more public notification 
and end the effective duopoly in Dutch power generation and 
distribution, and the monopoly in production and distribution of 
natural gas.
6. Export Subsidies Policies
    Under the Export Matching Facility, the government provides 
interest subsidies for Dutch export contracts competing with government 
subsidized export transactions in third countries. These subsidies 
bridge the interest cost gap between Dutch export contracts and foreign 
contracts which have benefited from interest subsidies. The government 
provides up to 10 million guilders (about $5.5 million) of interest 
subsidies per export contract, up to a maximum of 35 percent per export 
transaction. An export transaction must have at least 60 percent Dutch 
content to be eligible. For defense, aircraft and construction 
transactions, the minimum Dutch content is one-third.
    There is a local content requirement of 70 percent for exporters 
seeking to insure their export transactions through the Netherlands 
Export Insurance Company.
    The Dutch provide some subsidies for shipping. In conformity with 
the OECD understanding on subsidies, the government grants interest 
rate subsidies (maximum two percent) to Dutch shipbuilders up to 80 
percent of a vessel's cost with a maximum repayment period of 8.5 
Years. This subsidy is only available when ``matched'' by similar 
offers by non-EU shipyards. Despite termination of the EU shipbuilding 
subsidies regime in 1996, the shipbuilding subsidies budget earmarked 
70 million guilders ($35 million) annually in 1999 and 2000. As long as 
the 1994 OECD agreement to phase out shipbuilding subsidies 
internationally has not been ratified by all parties, the Dutch will 
continue to support their shipbuilding industry adhering to EU 
shipbuilding regulations.
7. Protection of U.S. Intellectual Property
    The Netherlands has a generally good record on IPR protection. It 
belongs to the World Intellectual Property Organization (WIPO), is a 
signatory of the Paris Convention on Industrial Property and the Berne 
Copyright Convention, and conforms to accepted international practice 
for protection of technology and trademarks. Patents for foreign 
investors are granted retroactively to the date of original filing in 
the home country, provided the application is made through a Dutch 
patent lawyer within one year of the original filing date. Patents are 
valid for 20 years. Legal procedures exist for compulsory licensing if 
the patent is determined to be inadequately used after a period of 
three years, but these procedures have rarely been invoked. Since the 
Netherlands and the United States are both parties to the Patent 
Cooperation Treaty (PCT) of 1970, patent rights in the Netherlands may 
be obtained if PCT application is used.
    The Netherlands is a signatory of the European Patent Convention, 
which provides for a centralized Europe-wide patent protection system. 
This convention has simplified the process for obtaining patent 
protection in the member states. Infringement proceedings remain within 
the jurisdiction of the national courts, which could result in 
divergent interpretations detrimental to U.S. investors and exporters. 
The limited scope of resources devoted to enforcement of anti-piracy 
laws is of concern to U.S. producers of software, audio and video 
tapes, and textbooks. Legislation was enacted in early 1994 to 
explicitly include computer software as intellectual property under the 
copyright statutes, and the government is working with industry on 
enforcement.
8. Worker Rights
    a. The Right of Association: The right of Dutch workers to 
associate freely is well established. One quarter of the employed labor 
force belongs to unions, but union-negotiated collective bargaining 
agreements are usually extended to cover about three-quarters of the 
workforce. Membership in labor unions is open to all workers including 
military, police, and civil service employees. Unions are entirely free 
of government and political party control and participate in political 
life. They also maintain relations with recognized international bodies 
and form domestic federations. The Dutch unions are active in promoting 
worker rights internationally. All union members, except most civil 
servants, have the legal right to strike. Civil servants have other 
means of protection and redress. There is no retribution against 
striking workers. In the European Union, the Netherlands has one of 
lowest percentages of days lost due to labor strikes. In 1998, some 33 
labor days per 1000 workers were lost due to industrial disputes 
compared with 15 days in 1997.
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively is recognized and well established. 
There are no union shop requirements. Discrimination against workers 
because of union membership is illegal and does not exist. Dutch 
society has developed a social partnership among the government, 
employers' organizations, and trade unions. This tripartite ``Social 
Partnership'' involves all three participants in negotiating guidelines 
for collective bargaining agreements which, once reached in a sector, 
are extended by law to cover the entire sector. Such generally binding 
agreements (AVVs) cover most Dutch workers.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor, including that by children, is prohibited by the Constitution 
and does not exist.
    d. Minimum Age for Employment of Children: Child labor laws exist 
and are enforced. The minimum age for employment of young people is 16. 
Even at that age, youths may work full time only if they have completed 
the mandatory 10 years of schooling and only after obtaining a work 
permit (except for newspaper delivery). Those still in school at age 16 
may not work more than eight hours per week. Laws prohibit youths under 
the age of 18 from working at night, overtime, or in areas which could 
be dangerous to their physical or mental development.
    e. Acceptable Conditions of Work: Dutch law and practice adequately 
protect the safety and health of workers. Although a forty hours 
workweek is established by law, the average workweek for adults working 
full time currently stands at 37.5 hours. The high level of part-time 
work has lowered the estimated actual workweek to 35.8 hours. 
Collective bargaining negotiations are heading towards an eventual 36 
hours workweek for full-time employees. The gross minimum wage in mid-
1999 amounted to about 2,376 guilders (US$ 1,188) per month. The 
legally mandated minimum wage is subject to semiannual cost of living 
adjustment. Working conditions are set by law, and regulations are 
actively monitored.
    f. Rights in Sectors with U.S. Investments: The worker rights 
described above hold equally for sectors in which U.S. capital is 
invested.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,826
Total Manufacturing............  ..............  16,242
  Food & Kindred Products......  1,078           ...............................................................
  Chemicals & Allied Products..  10,212          ...............................................................
  Primary & Fabricated Metals..  224             ...............................................................
  Industrial Machinery and       993             ...............................................................
   Equipment.
  Electric & Electronic          1,860           ...............................................................
   Equipment.
  Transportation Equipment.....  348             ...............................................................
  Other Manufacturing..........  1,526           ...............................................................
Wholesale Trade................  ..............  9,446
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  42,836
Services.......................  ..............  6,985
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  79,386
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 NORWAY


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................     153,380     146,636     150,645
  Real GDP Growth (pct) \2\.........         4.3         2.1         0.9
  Real Mainland GDP Growth (pct)....         4.4         3.3         0.5
  Nominal GDP by sector:
    Agriculture.....................       3,089       3,161       3,200
    Oil and Gas Production..........      23,491      15,463      18,500
    Manufacturing...................      16,932      17,422      17,500
    Services........................      86,470      86,646      86,945
    Government......................      23,398      23,944      24,500
  Per capita GDP....................      34,237      32,586      33,255
  Labor force (000's)...............       2,285       2,330       2,340
  Unemployment Rate (percent).......         4.1         3.2         3.3

Money and Prices (annual percentage
 growth):
  Money supply (M2).................         4.6         5.6         5.4
  Consumer Price Inflation..........         2.6         2.3         2.2
  Exchange rate (NOK/US$ annual             7.10        7.55        7.75
   average).........................

Balance of payments and trade:
  Total Exports FOB.................      48,228      40,649      43,700
    Exports to U.S.\3\..............       3,735       2,874       3,200
  Total Imports CIF.................      35,526      39,656      36,500
    Imports from U.S.\3\............       1,720       1,709       1,500
  Trade Balance.....................      12,702         993       7,200
    Balance with U.S................       2,015       1,165       1,700
  External Public Debt..............       3,085         900       2,000
  Debt Service Payments.............       3,446       2,185          90
  Fiscal Surplus/GDP (pct)..........         5.6         2.9         6.2
  Current Account Surplus/ GDP (pct)         5.2       (1.5)         3.0
  Foreign Exchange Reserves \4\.....      24,136      18,813      20,400
  Aid from U.S......................           0           0           0
  Aid From Other Countries..........           0           0           0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on monthly data in November.
\2\ Growth figures are based on the basis of the local currency.
\3\ U.S. Department of Commerce trade statistics.
\4\ Includes gold; but excludes assets in the state petroleum fund.

Source: Government of Norway data.

1. General Policy Framework
    Exploitation of Norway's major non-renewable energy resources--
crude oil and natural gas--will continue to drive the country's 
economic growth for at least the next three decades. Offshore, Norway's 
remaining oil reserves (discovered plus undiscovered) will last for 
another 30 years at current extraction rates, while the equivalent 
figure for natural gas is 131 years. Energy-intensive industries such 
as metal processing and fertilizer production will remain prominent on 
the mainland due to the availability of abundant hydropower.
    Some constraints continue to limit Norway's economic flexibility 
and ability to maintain international competitiveness. Labor 
availability remains limited by Norway's small population of 4.5 
million and a restrictive immigration policy. Norway is also a high-
cost country with a centralized collective wage bargaining process and 
government-provided generous social welfare benefits. Norway's small 
agricultural sector survives largely through subsidies and protection 
from international competition.
    State intervention in the economy remains significant. The 
government owns just over 50 percent of domestic businesses, including 
majority stakes in the two largest oil and industry conglomerates and 
the country's biggest commercial bank. While new legislation governing 
investment was implemented in 1995 to meet European Economic Area 
(``EEA'') and WTO obligations, screening of foreign investment and 
restrictions on foreign ownership remains.
    The government's dependence on petroleum revenue has increased 
substantially since the early 1970's, generating an estimated 15 
percent of total government 1999 revenue. Since 1995, Norway has been a 
net foreign creditor and has posted budget surpluses. The surpluses are 
invested in a petroleum fund for future use.
    No general tax incentives exist to promote investment. Tax credits 
and government grants are offered, however, to encourage investment in 
northern Norway; and tax incentives are granted to encourage the use of 
environmentally friendly products such as the electric car think. 
Several specialized state banks provide subsidized loans to sectors 
including agriculture and fishing. Transportation allowances and 
subsidized power are also available to industry. Norway and the EU have 
preferential access to each other's markets, except for the 
agricultural and fisheries sectors, through the EEA agreement which 
entered force in January 1994. Although in a 1994 national referendum 
Norwegians rejected a proposal to join the EU, Norway routinely 
implements most EU directives as required by the EEA.
    The government controls the growth of the money supply through 
reserve requirements imposed on banks, open market operations, and 
variations in the central bank overnight
    Lending rate. The central bank's flexibility in using the money 
supply as an independent policy instrument is limited by the 
government's priority to maintain a stable rate of exchange.
2. Exchange Rate Policy
    The Norwegian krone was un-pegged from the ecu in December 1992. 
The government's stated policy since 1994 has been to maintain a stable 
krone vis-a-vis European currencies. The central bank uses interest 
rate policy and open market operations to keep currency stable in a 
managed float that follows a range of values defined in the exchange 
rate regulation. With the introduction of the euro January 1, 1999, 
Norway currently keeps the krone stable vis-a-vis the euro-zone 
currency (euro).
    Quantitative restrictions on credit flows from private financial 
institutions were abolished in the late 1980's. Norway dismantled most 
remaining foreign exchange controls in 1990. U.S. companies operating 
within Norway have not reported any problems to the embassy in 
remitting payments.
3. Structural Policies
    The government's top economic priorities include maintaining high 
employment, generous welfare benefits, and rural development. These 
economic priorities are part of Norway's regional policy of 
discouraging internal migration to urban centers in the south and east 
and of maintaining the population in the north and other sparsely 
populated regions. Thus, parts of the mainland economy--particularly 
agriculture and rural industries--remain protected and cost-inefficient 
from a global viewpoint with Norway's agricultural sector remaining the 
most heavily subsidized in the OECD. While some progress has been made 
in reducing subsidies manufacturing industry, support remains 
significant in areas including food processing and shipbuilding.
    A revised legal framework for the functioning of the financial 
system was adopted in 1988, strengthening competitive forces in the 
market and bringing capital adequacy ratios more in line with those 
abroad. Further liberalization in the financial services sector 
occurred when Norway joined the EEA and accepted the EU's banking 
directives. The Norwegian banking industry has returned to 
profitability following reforms prompted by the banking crises in the 
early 1990's.
    Norway has taken some steps to deregulate the non-bank service 
sector. Although large parts of the transportation markets (including 
railways) remain subject to restrictive regulations, including 
statutory barriers to entry, the government telecommunications services 
to competition in 1998.
4. Debt Management Policies
    The state's exposure in international debt markets remains very 
limited because of Norway's prudent budgetary and foreign debt 
policies. The government's gross external debt situation significantly 
improved in 1990's, declining from about US$10 billion in 1993 to about 
US$900 million at the end of 1998. Norway's status changed from a net 
debtor to a net creditor country in 1995 largely because of the 
contributions from the oil and gas sector.
5. Aid
    There are no aid flows between Norway and the U.S.
6. Significant Barriers to U.S. Exports
    Norway is a member of the World Trade Organization and supports the 
principles of free trade but significant barriers to trade remain in 
place. The government maintains high agricultural tariffs that are 
administratively adjusted when internal market prices fall outside 
certain price limits. These unpredictable administrative tariff 
adjustments disrupt advance purchase orders and severely limit 
agricultural imports into Norway from the U.S. and other distant 
markets.
    State ownership in Norwegian industry continues to complicate 
competition in a number of sectors including telecommunications, 
financial services, oil and gas, and alcohol and pharmaceutical 
distribution. Despite some ongoing reforms, Norway still maintains 
regulatory practices, certification procedures and standards that limit 
market access for U.S. materials and equipment in a variety of sectors, 
including telecommunications and oil and gas materials and equipment. 
U.S. companies, particularly in the oil and gas sector, operate 
profitably in Norway.
    While there has been substantial banking reform, competition in 
this sector still remains distorted due to government ownership of the 
largest commercial bank, and the existence of specialized state banks 
that offer subsidized loans in certain sectors and geographic 
locations.
    Restrictions also remain in the distribution of alcohol, which 
historically has been handled through state monopolies, and in the way 
pharmaceutical drugs are marketed. Norway is obligated to terminate 
these monopolies under the EEA accord but implementation is slow. The 
European Free Trade Association (EFTA) surveillance agency (ESA--the 
organization responsible for insuring EEA compliance) has been 
monitoring Norway's progress in these areas.
7. Export Subsidy Policies
    As a general rule the government of Norway does not subsidize 
exports, although some heavily subsidized goods, such as dairy 
products, may be exported. The government indirectly subsidizes 
chemical and metal exports by subsidizing the electricity costs of 
manufacturers. In addition, the government provides funds to Norwegian 
companies for export promotion purposes. Norway is reducing its 
agricultural subsidies in stages over six years in accordance with its 
WTO obligations. Norway has also ratified the OECD shipbuilding subsidy 
agreement and has indicated it will eliminate shipbuilding subsidies as 
soon as the agreement is ratified by other major shipbuilding countries 
including the United States and Japan.
8. Protection of U.S. Intellectual Property
    Norway is a signatory of the main intellectual property accords, 
including the Berne copyright and universal copyright conventions, the 
Paris convention for the protection of industrial property, and the 
patent cooperation treaty. Any adverse impact of Norwegian IPR 
practices on U.S. trade is negligible.
    Norwegian officials believe that counterfeiting and piracy are the 
most important aspects of intellectual property rights protection. They 
complain about the unauthorized reproduction of furniture and appliance 
designs and the sale of the resultant goods in other countries, with no 
compensation to the Norwegian innovator.
    Product patents for pharmaceuticals became available in Norway in 
January 1992. Previously, only process patent protection was provided 
to pharmaceuticals.
9. Worker Rights
    a. Right of Association: Workers have the right to associate freely 
and to strike. The government can invoke compulsory arbitration under 
certain circumstances with the approval of parliament.
    b. The Right to Organize and Bargain Collectively: All workers, 
including government employees and the military, have the right to 
organize and to bargain collectively. Labor legislation and practice is 
uniform throughout Norway.
    c. Prohibition of Forced or Compulsory Labor: The GON prohibits 
forced and compulsory labor by law.
    d. Minimum Age for Employment of Children: Children are not 
permitted to work full time before age 18. However, children 13 to 18 
years may be employed part-time in light work that will not adversely 
affect their development.
    e. Acceptable Conditions of Work: Ordinary working hours do not 
exceed 37.5 hours per week, and four weeks plus one day of paid leave 
are granted per year (31 days for those over 60). There is no minimum 
wage in Norway, but wages normally fall within a national wage scale 
negotiated by labor, employers, and the government. The workers' 
protection and working environment act of 1977 assures all workers safe 
and physically acceptable working conditions.
    f. Rights in Sectors With U.S. Investment: Norway has a tradition 
of protecting worker rights in all industries, and sectors where there 
is heavy U.S. investment are no exception.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,045
Total Manufacturing............  ..............  831
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  17              ...............................................................
  Primary & Fabricated Metals..  3               ...............................................................
  Industrial Machinery and       168             ...............................................................
   Equipment.
  Electric & Electronic          7               ...............................................................
   Equipment.
  Transportation Equipment.....  15              ...............................................................
  Other Manufacturing..........  (1)             ...............................................................
Wholesale Trade................  ..............  303
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  1,881
Services.......................  ..............  290
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  7,609
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 POLAND


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................     135,600     146,031     158,780
  Real GDP Growth (pct).............         6.8         4.8         4.0
  GDP by Sector (pct):
    Agriculture.....................         4.8         4.2         N/A
    Manufacturing...................        20.2        24.4         N/A
    Services........................         N/A         N/A         N/A
    Government......................         N/A         N/A         N/A
  Per Capita GDP (US$)..............       3,507       3,800       4,090
  Labor Force (000's)...............      17,052      17,162         N/A
  Unemployment Rate (pct)...........        10.3        10.4        11.8

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        29.0        25.2         N/A
  Consumer Price Inflation..........        13.2         9.5         8.5
  Exchange Rate (PZL/US$ annual
 average)
    Official........................        3.28        3.49        3.90

Balance of Payments and Trade:
  Total Exports FOB (US$ billions)          27.2        30.1        28.0
   \2\..............................
    Exports to U.S. (US$ billions)           0.7         0.8         0.5
     \3\............................
  Total Imports CIF (US$ billions)..        38.5        43.8        42.1
    Imports from U.S. (US$ billions)         1.2         0.9         0.5
     \3\............................
  Trade Balance (US$ billions)......       -11.3       -13.7       -14.1
    Balance with U.S. (US$ billions)       -0.52        -0.1         0.0
     \3\............................
  External Public Debt (US$                 38.5        43.0         N/A
   billions)........................
  Fiscal Deficit/GDP (pct)..........         2.8         2.7         2.8
  Current Account Surplus/Deficit/          -3.0        -4.3        -6.8
   GDP (pct) \4\....................
  Debt Service Payments/GDP (pct)            3.5         3.2         3.4
   \5\..............................
  Gold and Foreign Exchange Reserves
    (US$ billions) \6\..............        20.7        27.4        27.3
  Aid from U.S. (US$ millions) \7\..        52.7        62.7        26.3
  Aid from Other Sources (US$                N/A         N/A         N/A
   millions)........................
------------------------------------------------------------------------
\1\ 1999 figures are Polish Government estimates as of October 1999,
  unless otherwise noted.
\2\ Polish Government trade figures, without transshipments via third
  countries.
\3\ U.S. Department of Commerce and U.S. Census Bureau; exports FAS,
  imports customs basis.
\4\ Including estimated unrecorded trade.
\5\ Debt service includes paid interest and principal.
\6\ Data available through August 1999.
\7\ U.S. Government estimate; includes economic and military assistance
  (USAID and FMF.)

1. General Policy Framework
    In the past decade, Poland has transformed its economy with mostly 
sound financial policies and commitment to structural reforms (the 
government adopted into law reforms on regional government, health 
care, pension system, and education in 1998-1999 alone), making it one 
of the most successful and open transition economies. After four 
consecutive years of growth at about 6 percent or 7 percent per year, 
the Polish economy, affected by the Asian and Russian crises, slowed in 
1998. By the end of 1999, the Polish economy is expected to see 3.5 
percent to 4 percent growth, with 5.2 percent projected for 2000. The 
private sector is thriving as a result of privatization and 
liberalization, although Poland's large agriculture sector remains 
handicapped by surplus labor, inefficient small farms, and lack of 
investment. The (shrinking) shadow ``gray economy'' was estimated to 
generate around 17 percent of GDP in 1999.
    Government Priorities: A member of the WTO, OECD, and NATO, Poland 
now considers membership in the European Union (EU) one of its highest 
priorities with a self-imposed accession date of January 1, 2003. The 
process is exacting a political toll (lack of effective support from 
the opposition and declining public support) and affects most economic 
policies, from the budget to reforms. By late 1999, Poland had 
provisionally closed eight of the 30 chapters. In addition, Poland has 
agreed to liberalization of its trade and investment regimes through 
international (WTO, OECD), regional (Central European Free Trade 
Agreement or ``CEFTA''), and various bilateral agreements, including 
one concluded in 1999 with Turkey. Poland also seeks to improve 
bilateral economic relations with Russia, Ukraine and Belarus.
    Fiscal Policy: The government seeks to reduce the central 
government budget deficit to 1.9 percent of GDP in 2000, and to 
eliminate it altogether by 2003. Financing comes principally from 
privatization revenues and the domestic non-banking private sector 
(e.g., insurance companies and pension funds). The constitution 
prohibits the National Bank of Poland (NBP) from financing the budget 
deficit. Reforms, generous social programs (disability, unemployment 
and welfare), and debt service obligations constitute the heaviest 
burdens on the budget. The 1998 Act on Public Finances, a framework for 
fiscal consolidation to manage public finances, clarifies the 
responsibilities of the various budgetary players, sets measures to 
improve transparency in public finances, establishes rules for local 
governments, and prepares for EU accession. It also establishes 
procedures to be followed if total public debt, including state 
guarantees, exceeds certain limits.
    Monetary Policy: The independent Monetary Policy Council (MPC) sets 
monetary policy, implemented by the NBP, using an inflation target. The 
MPC's goal for 2000 is to reduce inflation to between 5.4 and 6.8 
percent. In the medium-term, the goal is to curb inflation to 4.0 
percent or less by 2003. Tight fiscal policy reduced inflation from 600 
percent in 1990 to below 10 percent in 1999. As inflation slowed in 
1998, the MPC started to cut its intervention rates. However, a 
resurgence of inflation in late 1999, coupled with fears that rising 
household credit and growing off-budget spending could fuel inflation 
in 2000, led the MPC to sharply tighten monetary policy in November, 
raising key interest rates by 3.5 points. After a long period of 
appreciation, the Polish zloty fell from 3.5 to 4.0 against the dollar 
in early 1999, making U.S. exports to Poland less competitive.
2. Exchange Rate Policies
    Since 1991, the NBP has managed the exchange rate by a crawling peg 
mechanism against a basket of reserve currencies (45 percent U.S. 
dollars, 35 percent German marks, and the rest in pounds sterling and 
French and Swiss francs). As of 1999, the basket is composed of 55 
percent euros and 45 percent dollars. The MPC now depreciates the 
central parity rate for the zloty by 0.3 percent per month, but allows 
the currency to float within a 15 percent band around that rate. The 
NBP plans to float the zloty in 2000 to let it find its equilibrium 
level before applying for participation in European Exchange Rate 
Mechanism (ERM2) and then EMU.
    Poland achieved current account convertibility in 1995, eliminated 
the requirement for Polish firms to convert their foreign currency 
earnings into zlotys in 1996, removed most limits on capital account 
outflows by Polish citizens in 1997, and enforced a new foreign 
exchange law in January 1999. Restrictions were removed on foreign 
exchange transactions for resident portfolio investments, investment in 
OECD issued securities, and operations in negotiable securities, 
including collective investment securities, with some exceptions, such 
as transactions in debt instruments with a maturity of less than one 
year and derivatives. The law authorizes further liberalization 
measures, but also contains safeguards to allow the government to 
temporarily re-establish restrictions under certain circumstances, such 
as extraordinary risk to the stability and integrity of the financial 
system. By January 2000, Poland's remaining restrictions on capital 
movements, other than foreign direct investment flow and short-term 
capital flow, should be limited to real estate investment abroad and in 
Poland. The current foreign direct investment restrictions are foreign 
acquisitions of certain categories of real estate, indirect ownership 
of Polish insurance companies, air and shipping transport, 
broadcasting, certain telecommunication services, and gaming.
3. Structural Policies
    Prices: Most price subsidies and controls disappeared during 
Poland's 1990 economic shock therapy, although those on public 
transportation and some pharmaceuticals continue. The government hopes 
to eventually eliminate all controls, providing interim support for 
coal and some agricultural products, and allowing new regulatory bodies 
to play a central role in setting prices in the energy and 
telecommunications sectors.
    Taxes: A government tax reform package debated in late 1999 aimed 
to cut income tax rates, eliminate exemptions, and bring the VAT into 
line with EU rules. After weeks of intense debate parliament approved 
the reform proposals; the president, however, refused to sign into law 
the revisions to personal income taxes. The corporate income tax will 
be reduced to 30 percent in 2000 from the 1999 level of 34 percent; 
personal income tax rates of 19, 30 and 40 percent will remain in 
effect in 2000. Under pressure from the EU, Poland will likely amend 
the rules on its special economic zones that provide foreign investors 
with tax breaks, resulting in the closure of some zones and no access 
for new entrants to others.
    Regulatory Policies: Primary concerns are current product 
certification standards and the continuing lack of an independent 
regulatory commission for telecommunications.
4. Debt Management Policies
    Poland's foreign debt situation improved with rescheduled 
agreements with the Paris Club (1991) and the London Club (1994), 
reducing Poland's debt by nearly half. By end-1999, Poland's total 
official foreign debt was $32 billion, including $23 billion to the 
Paris Club, $5 billion in Brady bonds (London Club), $2.3 billion to 
other institutions (IMF, World Bank, EBRD and BIS), and $0.8 billion in 
Rebounds and Yankee bonds. Since 1995, Poland has held investment grade 
ratings from various agencies, boosted by a return to international 
capital markets with a $250 million Eurobond flotation. In October 
1999, Poland received a Moody's rating of Baaa1 and a Standard and 
Poor's rating of BBB. Debt servicing remains relatively low both in 
relation to government expenditure (12 percent) and GDP (3 percent to 4 
percent). Foreign debt servicing represents a sustainable proportion of 
exports of goods and services; as of late 1999, the private sector has 
an estimated $11 to $12 billion in foreign debt. Having prepaid all 
outstanding IMF drawings in 1995, Poland's total state debt (foreign 
and domestic) shrank to 44 percent of GDP by the end of 1998.
5. Aid
    The U.S. gave Poland $26.3 million in aid in 1999, $20 million of 
which was SEED Act funds to help Poland's transition to a free market 
democracy. The remaining $6.3 million was military and other aid. 2000 
will be the last year for SEED Act assistance to Poland; military aid 
will continue.
6. Significant Barriers to U.S. Exports
    Tariffs: In 1999, Poland entered a new stage of free trade in 
industrial products with the EU, EFTA and CEFTA countries. Currently, 
73 percent of all industrial imports from these countries are duty 
free, 23 percent fall under MFN tariffs, and about 3 percent are 
subject to the GSP system. The exceptions are tariffs on cars (to be 
eliminated in 2002), steel products, gasoline and fuel, and heating 
oils. As a result of required Uruguay Round implementations, Poland 
reduced tariffs in 1999 on many agricultural products, but 
simultaneously increased tariffs on others, e.g., pork and malt. While 
Poland's EU association agreement established preferential tariffs for 
non-agricultural, EU-origin imports into the Polish market, Poland has 
maintained its higher MFN tariffs for U.S. and other non-EU products. 
All U.S. exporters within a broad range of industry sectors have 
complained that the differentials have diminished their business 
prospects and ability to compete against EU-origin products which enter 
Poland duty-free. The U.S. and Polish governments are currently 
discussing possible resolutions to this issue. In late 1999 the Polish 
Government announced plans to raise agricultural tariffs from current 
applied levels to Poland's WTO bound levels, which in many cases are 
much higher.
    Import Licenses: Licenses are required for strategic goods on 
Wassenaar dual use and munitions lists, as well as for beer, wine, 
fuel, tobacco, dairy products, meat, poultry, semen, and embryos. The 
plant quarantine inspection service issues a mandatory phytosanitary 
import permit for the import of live plants, fresh fruits and 
vegetables into Poland. U.S. grain and oilseed exports to Poland have 
been hampered by Polish regulations requiring zero tolerance for 
several common weed seeds. Certificates from the Veterinary Department 
in the Ministry of Agriculture are also required for meat, dairy and 
live animal products. Poland intends to implement regulations on 
biotechnology and genetically modified organisms, following EU norms. 
Import licenses for dairy cattle genetics already have limited U.S. 
access to the Polish market.
    Services Barriers: Poland has made progress, but many barriers 
remain, especially in audio-visuals, legal services, financial 
services, and telecommunications. In November 1997, the government 
enacted a rigid 50 percent European production quota for all television 
broadcasters, raising concerns about certain liberalization commitments 
undertaken by Poland upon joining the OECD. However, legislation 
introduced into Parliament in late 1999 would require broadcasters to 
meet the 50 percent quota only where practical, bring Polish 
regulations into line with EU directives. In January 1998, new laws on 
banking and the central bank came into force. As a condition of its 
accession to the OECD, Poland agreed to allow firms from OECD countries 
to open branches and representative offices in the insurance and 
banking sector starting in 1999, as well as subsidiaries of foreign 
banks. The government began privatizing the state telecommunications 
monopoly in October 1998, and agreed to open domestic long-distance 
service to competition in 1999 and international services in 2003. 
Local telephone service licenses are being awarded, but interconnection 
remains the domain of the state monopoly.
    Standards, Testing, Labeling, and Certification: One Polish 
regulation which may adversely affect U.S. exports is a requirement for 
some 1,400 products sold in Poland to obtain a safety ``B'' certificate 
from a Polish test center. Enforcement of this regulation has been 
postponed each year since 1995, and following an August 1999 amendment, 
products fall into two groups: those requiring a B certificate, and 
those for which producer conformity declaration is sufficient. Under 
the ``B'' rule, the EU ``CE'' mark and ISO 9000 can accelerate the 
certification process. Poland wants a mutual recognition agreement with 
the EU, but this would require enacting a new law on product liability. 
In the past, U.S. companies complained about the complexity and 
slowness of the testing process, as well as vague information on fees 
and procedures, but recently these complaints have been fewer. 
Phytosanitary standards on weed seeds have had a major adverse impact 
on the ability of U.S. farmers to export certain grains to Poland.
    Investment Barriers: Polish law permits 100 percent foreign 
ownership of most corporations, although some obstacles remain for 
foreign investment in certain ``strategic sectors'' such as mining, 
steel, defense, transport, energy, and telecommunications, and certain 
controls remain on other foreign investment. Broadcasting legislation 
still restricts foreign ownership to 33 percent (although proposed 
legislation would increase this to 49 percent for terrestrial 
broadcasting and 100 percent for satellite) and foreign stakes in air 
and maritime transport, fisheries, and long-distance telecommunications 
are confined to 49 percent. No foreign investment is currently allowed 
in international telecommunications or gambling. The government is 
working on privatization of telecommunications, steel mills, and 
energy, as well as a restructuring plan for the defense industry that 
calls for significant foreign investment. As a result of OECD 
accession, foreigners in Poland may purchase up to 4000 square meters 
of urban land or up to one hectare of agricultural land without a 
permit. Larger purchases, or the purchase of a controlling stake in a 
Polish company owning real estate, require approval from the Ministry 
of Interior and the consent (not always automatic) of both the Defense 
and Agriculture Ministries.
    Government Procurement Practices: Poland's government procurement 
law is modeled on the UN procurement code and is based on competition, 
transparency, and public announcement, but does not cover most 
purchases by state-owned enterprises. Single source exceptions to the 
stated preference for unlimited tender are allowed only for reasons of 
state security or national emergency. The domestic performance section 
in the law requires 50 percent domestic content and gives domestic 
bidders a 20 percent price preference. Companies with foreign 
participation organized under the Joint Ventures Act of 1991 may 
qualify for ``domestic'' status. There is also a protest/appeals 
process for tenders thought to be unfairly awarded. As of September 
1997, Poland has the status of an observer to the WTO's Government 
Procurement Agreement (GPA).
    Customs Procedures: Since signing the GATT customs valuation code 
in 1989, Poland has a harmonized tariff system. The customs duty code 
has different rates for the same commodities, depending on the point of 
export. Poland's Association Agreement with the EU, the CEFTA 
agreement, FTAs with Israel, Croatia, Latvia, Estonia and Lithuania 
(and Turkey, for implementation in January 2000), as well as GSP for 
developing countries, grant firms from these areas certain tariff 
preferences over U.S. competitors. Some U.S. companies have criticized 
Polish customs' performance, citing long delays, indifference, 
corruption, incompetent officials, and inconsistent application of 
customs rules. A new customs law took effect January 1998, but some 
problems remain, including the amount of paperwork required and the 
lack of electronic clearance procedures.
7. Export Subsidies Policies
    With its 1995 accession to the WTO, Poland ratified the Uruguay 
Round Subsidies Code and eliminated earlier practices of tax incentives 
for exporters, but it still offers drawback levies on raw materials 
from EU and CEFTA countries which are processed and re-exported as 
finished products within 30 days. Some politically powerful state-owned 
enterprises continue to receive direct or indirect production subsidies 
to lower export prices. Poland's past policy of rolling over unused WTO 
sugar subsidy allowances to be used in combination with a given year's 
allowances appears to be no longer relevant. Polish industry and 
exporters criticize the government for too little export promotion 
support. The one existing export insurance scheme has very limited 
resources, and rarely guarantees contracts to high-risk countries such 
as Russia, placing Polish firms at a disadvantage to most western 
counterparts.
8. Protection of U.S. Intellectual Property
    Poland has made major strides in improving protection of 
intellectual property rights. The U.S.-Polish Bilateral Business and 
Economic Treaty contains provisions for the protection of U.S. 
intellectual property. It came into force in 1994, once Poland passed a 
new Copyright Law that offers strong criminal and civil enforcement 
provisions and covers literary, musical, graphical, software, audio-
visual works, and industrial patterns. Amendments to the Copyright Law, 
designed to bring it fully into compliance with Poland's obligations 
under TRIPS, were pending in Parliament in late 1999. The amendments 
would provide full protection of all pre-existing works and sound 
recordings. Likewise, Parliament was set to consider new legislation on 
patents and trademarks which would bring Poland's industrial property 
protection up to TRIPS standards. Poland needs to provide for civil ex 
parte searches as required by its TRIPS obligations.
    Despite this legal foundation, Poland continues to suffer from high 
rates of piracy. Most of the pirated material available--particularly 
CDs and CD-ROMs--is imported from factories in the former Soviet Union. 
Industry associations estimate 1998 levels of piracy in Poland to be: 
40 percent in sound recordings, 25 percent in motion pictures, and 60 
percent in software. While enforcement has improved in recent years, 
the cumbersome judicial system remains an impediment. Criminal 
penalties will increase and procedures for prosecution will be somewhat 
simplified when the pending legislation takes effect in 2000. Poland is 
currently on the ``Special 301 Watch List'' due to inadequacies in laws 
currently on the books and ineffective enforcement.
9. Worker Rights
    Poland's 1996 Labor Code sets out the rights and duties of 
employers and employees in modern, free-market terms.
    a. The Right of Association: Polish law guarantees all civilian 
workers, including military employees, police and border guards, the 
right to establish and join trade unions of their own choosing, and the 
right to join labor organizations and to affiliate with international 
labor confederations. The number of unions has remained steady over the 
past several years, although membership appears to be declining.
    b. The Right to Organize and Bargain Collectively: The laws on 
trade unions and resolution of collective disputes generally create a 
favorable environment to conduct trade union activity, although 
numerous cases have been reported of employer discrimination against 
workers seeking to organize or join unions in the growing private 
sector.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor does 
not exist, except for prisoners convicted of criminal offenses.
    d. Child Labor Practices: Polish law strictly prescribes conditions 
in which children may work and sets the minimum age at 15. Forced and 
bonded child labor is effectively prohibited. The State Labor 
Inspectorate reported increasing numbers of working children and 
violations by employers who underpay or pay late.
    e. Acceptable Conditions of Work: Unions agree that the problem is 
not in the law, which provides minimum wage and minimum health and 
safety standards, but in insufficient enforcement by too few labor 
inspectors.
    f. Rights in Sectors With U.S. Investment: Firms with U.S. 
investment generally meet and can exceed the five worker rights 
conditions compared to Polish firms. In the last several years, there 
have been only a few cases where Polish unions have charged such 
companies with violating Polish labor law, and cases have been largely 
resolved. Existing unions usually continue to operate in Polish 
enterprises that are bought by American companies, but there tend to be 
no unions where U.S. firms build new facilities.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  797
  Food & Kindred Products......  150             ...............................................................
  Chemicals & Allied Products..  106             ...............................................................
  Primary & Fabricated Metals..  35              ...............................................................
  Industrial Machinery and       4               ...............................................................
   Equipment.
  Electric & Electronic          1               ...............................................................
   Equipment.
  Transportation Equipment.....  -15             ...............................................................
  Other Manufacturing..........  517             ...............................................................
Wholesale Trade................  ..............  247
Banking........................  ..............  423
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  85
Other Industries...............  ..............  104
TOTAL ALL INDUSTRIES...........  ..............  1,698
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                PORTUGAL


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     101.9     106.8     108.6
  Real GDP Growth (pct) \3\...............       3.4       3.9       3.0
  GDP by Sector:
    Agriculture...........................       3.8       3.5       3.6
    Industry..............................      33.4      34.7      35.3
    Services..............................      59.8      64.8      65.9
  Per Capita GDP (US$)....................    10,864    10,718    10,879
  Labor Force (000's) \4\.................      4635      4992      5057
  Unemployment Rate (pct).................       6.5       4.6       4.5

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       6.6       6.8       5.9
  Consumer Price Inflation................       2.2       2.8       2.4
  Exchange Rate (PTE/US$ annual average)..       175       180       188

Balance of Payments and Trade:
  Total Exports FOB \5\...................      24.8      26.0      23.6
    Exports to U.S.\5\....................       1.1       1.2       1.2
  Total Imports CIF \5\...................      34.9      38.3      36.2
    Imports from U.S.\5\..................       1.1      1.05       1.0
  Trade Balance...........................     -10.0     -12.3     -12.7
    Balance with U.S......................       0.0      0.15       0.2
  External Public Debt....................      14.4      13.6       N/A
  Fiscal Deficit/GDP (pct)................       2.7       1.9       1.7
  Current Account Deficit/GDP (pct).......       3.6       5.3       6.6
  Debt Service Payments/GDP (pct).........       N/A       N/A       N/A
  Gold and Foreign Exchange Reserves......      20.3      21.6      13.1
  Aid from the U.S........................         0         0         0
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1998 figures are estimates based on available monthly data in
  October.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Reflects a change in the series beginning in 1998.
\5\ Portuguese National Institute of Statistics.

1. General Policy Framework
    Prior to the 1974 Portuguese revolution, Portugal was one of the 
poorest and most isolated countries in Western Europe. In the twenty-
five years since, however, the country has undergone fundamental 
economic and social changes that have resulted in substantial 
convergence with its wealthier European neighbors. Joining the European 
Union in 1986 was a primary factor in this progress. The country has 
not only enjoyed growing trade ties with the rest of Europe, but has 
been one of the continent's primary beneficiaries of EU structural 
adjustment funds. The last twenty-five years have witnessed not only 
economic growth, but also significant structural changes. An economy 
that was once rooted in agriculture and fishing has developed into one 
driven by manufacturing and, increasingly, by the service sector.
    Over the more recent past, the country has experienced a broad-
based economic expansion since 1993 and is forecast to grow at rates 
higher than the EU average for the next several years. Much of the 
growth since 1993 can be linked with the country's successful efforts 
to join European monetary union (EMU), which was formally established 
at the beginning of 1999. To qualify for EMU, Portugal took steps to 
reduce its fiscal deficit and implement structural reforms. As a 
result, the country has benefited from currency stability, a falling 
inflation rate and falling interest rates. The falling interest rates, 
in turn, have reduced the government's interest expenditures and made 
it easier to meet its fiscal targets. The broader economy has been 
stimulated by a boom in consumer spending brought on by lower interest 
rates and greater availability of credit.
    Although the economy is generally healthy, there is some concern 
among economists that the current expansion shows signs of overheating. 
One manifestation of the growth in consumption has been a rise in 
household debt--from less than 20 percent of disposable income in 1990, 
to almost 65 percent of disposable income by the end of 1998. Other 
manifestations include an inflation rate that is persistently higher 
than the Euro-zone average, a growing current account deficit, and a 
sharp rise in real estate prices. With monetary union, Portugal no 
longer has the ability to craft a monetary response to the situation. 
However, the government has not yet employed fiscal restraint. When the 
effects of falling interest payments are taken into account, the 
government's current expenditures are still growing at a higher rate 
than are government revenues. These concerns will be one of the issues 
facing the newly re-elected government.
2. Exchange Rate Policy
    On January 1, 1999, Portugal and 10 other European countries 
entered monetary union; the escudo exchange rate is fixed at 200.482 
Portuguese escudos being equal to one Euro. Future exchange rate policy 
for the Euro-zone countries will be governed by the European Central 
Bank.
3. Structural Policies
    Portugal has generally been successful in liberalizing its economy. 
The country has used a large proportion of the 20 billion-dollar EU-
backed regional development financing for new infrastructure projects. 
These projects have included new highways, urban renewal for the site 
of Lisbon-based EXPO 98, rail modernization, subways, dams and water 
treatment facilities.
    Portugal has also pursued an aggressive privatization plan for 
state-owned companies. In 1988, state-owned enterprises accounted for 
19.4 percent of GDP and 6.4 percent of total employment. By 1997, these 
had fallen to 5.8 percent and 2.2 percent, respectively, and the 
country has continued with an aggressive schedule of privatization. By 
the end of 1998, total privatization receipts had reached $21.5 
billion. Former state-controlled companies now account for the bulk of 
the market capitalization of the Lisbon stock exchange and several of 
them have taken steps to expand their investments overseas. Notably, 
EDP (electricity) and Portugal Telecom (telecommunications) have made 
major investments in their respective sectors in Brazil.
4. Debt Management Policies
    Following the removal of capital controls in 1992, lower interest 
rates abroad led to a shift towards a greater reliance on the use of 
foreign public debt, which rose to 15.0 percent of GDP by 1998. That 
debt, however, has yielded benefits in the form of longer debt 
maturities and lower costs for domestic debt. As a result, interest 
expenditure on public debt fell from 6.2 percent of GDP in 1994 to an 
estimated 2.8 percent of GDP in 1999.
5. Significant Barriers to U.S. Exports
    The EU Customs Code was fully adopted in Portugal as of January 1, 
1993. Special tariffs exist for tobacco, alcoholic beverages, petroleum 
and automotive vehicles. Portugal is a member of the World Trade 
Organization.
    Because Portugal is a member of the EU, the majority of imported 
products enjoy liberal import procedures. However, import licenses are 
required for agricultural products, military/civilian dual use items, 
some textile products and industrial products from certain countries 
(not including the United States). Imported products must be marked 
according to EU directives and Portuguese labels and instructions must 
be used for products sold to the public.
    Portugal welcomes foreign investment and foreign investors need 
only to register their investments, post facto, with the Foreign Trade, 
Tourism, and Investment Promotion Agency. However, Portugal limits the 
percentage of non-EU ownership in civil aviation, television 
operations, and telecommunications. In addition, the creation of new 
credit institutions or finance companies, acquisition of a controlling 
interest in such financial firms, and establishment of subsidiaries 
require authorization by the Bank of Portugal (for EU firms) or by the 
Ministry of Finance (for non-EU firms).
    With respect to the privatization of state-owned firms, Portuguese 
law currently allows the Council of Ministers to specify restrictions 
on foreign participation on a case-by-case basis. Portuguese 
authorities tend, as a matter of policy, to favor national groups over 
foreign investors in order to ``enhance the critical mass of Portuguese 
companies in the economy.''
    Portuguese law does not discriminate against foreign firms in 
bidding on EU-funded projects. Nevertheless, as a practical matter, 
foreign firms bidding on EU-funded projects have found that having an 
EU or Portuguese partner enhances their prospects. For certain high-
profile direct imports; i.e., aircraft, the Portuguese Government has 
shown a political preference for EU products (Airbus).
    Companies employing more than five workers must limit foreign 
workers to 10 percent of the workforce, but exceptions can be granted 
for workers with special expertise. EU and Brazilian workers are not 
covered by this restriction.
    Portugal maintains no current controls on capital flows. The Bank 
of Portugal, however, retains the right to impose temporary 
restrictions in exceptional circumstances and the import or export of 
gold or large amounts of currency must be declared to customs.
6. Export Subsidies Program
    Portugal's export subsidies programs appear to be limited to 
political risk coverage for exports to high-risk markets and credit 
subsidies for Portuguese firms expanding their international 
operations.
7. Protection of U.S. Intellectual Property
    Portugal is a member of the International Union for the Protection 
of Industrial Property (WIPO) and a party to the Madrid Agreement on 
International Registration of Trademarks and Prevention of the Use of 
False Origins. Portugal's current Trademark Law entered into force on 
June 1, 1995. However, existing Portuguese legislation fails to comply 
with a number of specific provisions of the WTO TRIPS Agreement. The 
Portuguese government is aware of these deficiencies and has been 
engaged in a lengthy review and revision process, but no revisions have 
been approved to date. Portugal adopted national legislation in 1996 to 
extend patent protection to be consistent with the 20-year term 
specified in TRIPS and is considering legislation to protect test data.
    Some problems related to intellectual property protection remain. 
Software piracy has decreased over the last two years but rates in 
Portugal remain among the highest in Europe. Furthermore, Portugal's 
perceived weak protection for test data has restricted the introduction 
of new drugs into the country. Outside these sectors, however, 
Portuguese intellectual property practices do not have a significant 
impact on trade with the U.S.
8. Worker Rights
    a. The Right of Association: Workers in both the private and public 
sectors have the right to associate freely and to establish committees 
in the workplace to defend their interests. The Constitution provides 
for the right to establish unions by profession or industry. Trade 
union associations have the right to participate in the preparation of 
labor legislation. Strikes are constitutionally permitted for any 
reason; including political causes; they are common and are generally 
resolved through direct negotiations. The authorities respect all 
provisions of the law on labor rights.
    Two principal labor federations exist. There are no restrictions on 
the formation of additional labor federations. Unions function without 
hindrance by the government and are affiliated closely with the 
political parties.
    b. The Right to Organize and Bargain Collectively: Unions are free 
to organize without interference by the government or by employers. 
Collective bargaining is provided for in the Constitution and is 
practiced extensively in the public and private sectors.
    Collective bargaining disputes are usually resolved through 
negotiation. However, should a long strike occur in an essential sector 
such as health, energy or transportation, the government may order the 
workers back to work for a specific period. The government has rarely 
invoked this power, in part because most strikes are limited to 1 to 3 
days. The law requires a ``minimum level of service'' to be provided 
during strikes in essential sectors, but this requirement has been 
applied infrequently. When it has, minimum levels of service have been 
established by agreement between the government and the striking 
unions, although unions have complained, including to the International 
Labor Organization, that the minimum levels have been set too high. 
When collective bargaining fails, the government may appoint a mediator 
at the request of either management or labor.
    The law prohibits antiunion discrimination, and the authorities 
enforce this prohibition in practice. The General Directorate of Labor 
promptly examines complaints.
    There are no export processing zones.
    c. Prohibition of Forced or Compulsory Labor: Forced labor, 
including by children, is prohibited and does not occur.
    d. Minimum Age for Employment of Children: The minimum working age 
is 16 years. There are instances of child labor, but the overall 
incidence is low and is concentrated geographically and sectorally.
    The Government has worked actively to eliminate child labor and 
created a multi-agency body, the National Commission to Combat Child 
Labor (CNCTI) in 1996, to coordinate those efforts. The Commission is 
joined in its efforts by two non-governmental organizations, the 
National Confederation of Action on Child Labor (CNASTI) and the 
Institute of Support for Children (IAC). With the assistance of 
regional commissions, CNCTI works through local intervention teams on 
public awareness measures to prevent child labor and, on a case-by-case 
basis with school dropouts and with minors found to be working.
    The key enforcement mechanisms of labor laws in Portugal fall to 
labor inspectors and the number of cases has fallen significantly over 
the past several years. Inspectors have been hampered, however, in 
investigating case of children working at home or on their parents' 
farm, by legal restrictions on inspections of private homes. These 
areas may comprise the largest remaining incidence of child labor in 
Portugal.
    In a first of its kind study, conducted in conjunction with the ILO 
in October 1998, the Portuguese Government polled 26,500 families, with 
separate questionnaires for parents and children, to try to measure the 
incidence of child labor in Portugal. According to this survey, as many 
as 20-40,000 Portuguese children, under the age of 16, may be engaged 
in some form of labor. The majority of these cases, however, consist of 
daily chores on family farms that do not prevent school attendance. The 
study estimates, however, that as many as 11,000 children may be 
working for non-family employers, a figure which represents 0.2 percent 
of the labor force. Additional such studies are planned.
    e. Acceptable Conditions of Work: Minimum wage legislation covers 
full-time workers as well as rural workers and domestic employees ages 
18 years and over. For 1999, the monthly minimum wage was raised to 
61,300 escudos/month (approximately $331 at current exchange rates) and 
generally is enforced. Along with widespread rent controls, basic food 
and utility subsidies, and phased implementation of an assured minimum 
income, the minimum wage affords a basic standard of living for a 
worker and family.
    Employees generally receive 14 months pay for 11 months work: the 
extra 3 months pay are for a Christmas bonus, a vacation subsidy, and 
22 days of annual leave. The maximum legal workday is 8 hours and the 
maximum workweek 40 hours. There is a maximum of 2 hours of paid 
overtime per day and 200 hours of overtime per year. The Ministry of 
Employment and Social Security monitors compliance through its regional 
inspectors.
    Employers are legally responsible for accidents at work and are 
required to carry accident insurance. An existing body of legislation 
regulates health and safety, but labor unions continue to argue for 
stiffer laws. The General Directorate of Hygiene and Labor Security 
develops safety standards in harmony with European Union standards, and 
the General Labor Inspectorate is responsible for their enforcement, 
but the Inspectorate lacks sufficient funds and inspectors to combat 
the problem of work accidents effectively. A relatively large 
proportion of accidents occurs in the construction industry. Poor 
environmental controls in textile production also cause considerable 
concern.
    While the ability of workers to remove themselves from situations 
where these hazards exist is limited, it is difficult to fire workers 
for any reason. Workers injured on the job rarely initiate lawsuits.
    f. Worker Rights in Sectors With U.S. Investment: Legally, worker 
rights apply equally to all sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  335
  Food & Kindred Products......  113             ...............................................................
  Chemicals & Allied Products..  114             ...............................................................
  Primary & Fabricated Metals..  -5              ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  37              ...............................................................
  Other Manufacturing..........  9               ...............................................................
Wholesale Trade................  ..............  397
Banking........................  ..............  239
Finance/Insurance/Real Estate..  ..............  261
Services.......................  ..............  98
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  1,474
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                ROMANIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (Billion Current Lei)    250,480.2   338,670.0   487,370.0
   \2\..............................
  Real Lei GDP Growth (pct) \3\.....        -6.6        -7.3        -4.5
    GDP by Sector (Million US$):....    34,944.7    38,157.4    29,900.0
    Agriculture.....................     6,324.9     6,067.0     5,900.0
    Manufacturing...................    12,405.3    12,057.7    11,515.7
    Services........................    16,214.5    20,032.7    12,484.3
  Per Capita GDP (US$)..............     1,549.9     1,695.6     1,328.8
  Labor Force (Millions)............         9.0         8.9         8.7
  Unemployment Rate (pct)...........         8.9        10.3        11.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........       104.8        48.9        29.7
  Consumer Price Inflation..........       151.4        40.6        47.0
  Exchange Rate (Lei/US$ annual
 average)
    Official........................     7,167.9     8,872.6    16,300.0
    Parallel........................       7,200       9,020      16,315

Balance of Payments and Trade:
  Total Exports FOB \4\.............       8,431       8,302       7,654
    Exports to U.S.\4\..............       192.5       319.7       272.7
  Total Imports CIF \4\.............    11,279.7    11,821.0     9.813.3
    Imports from U.S.\4\............       461.0       499.0       433.1
  Trade Balance FOB/CIF \4\.........    -2,848.6    -3,519.0    -2,159.3
    Balance with U.S................      -268.5      -179.3      -140.4
  External Public Debt..............     6,853.7     6,954.7     5,833.8
  Fiscal Deficit/GDP (pct)..........         3.6         3.1         3.7
  Current Account Deficit/GDP (pct).         6.1         7.9         4.9
  Debt Service Payments/GDP (pct)...         5.3         5.9         7.4
  Gold and Foreign Exchange Reserves     3,397.5     2,586.8     2,330.4
  Aid from U.S......................        25.0        38.0        56.0
  Aid from All Other Sources........       198.7       204.0       172.8
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  October.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.

1. General Policy Framework
    In 1999, Romania continued to implement market based economic 
reforms at a slow pace and to privatize state-owned enterprises. A 
lower current account deficit, moderately tight fiscal policy, modest 
progress in bank restructuring and privatization and, albeit with 
considerable difficulty, full servicing of the country's foreign debt 
represented the most significant macro-economic achievements in 1999.
    The official economy continued to contract, however, with GDP 
expected to fall around five percent in 1999. At the same time, the 
informal economy represents about 40 to 50 percent of the formal 
economy. The current account deficit narrowed and external public debt 
decreased. Improved tax collection and tight public spending caused the 
consolidated budget deficit to drop to 4.2 percent of GDP, in line with 
the target set by the IMF. Public direct and guaranteed external debt 
service is projected to be $1.5 billion in 2000, down from $2.2 billion 
in 1999, while gross external financing requirements will be $1.9 
billion. Despite higher foreign exchange reserves and new agreements in 
progress with the IMF and IBRD, there is still concern that Romania 
will be unable to finance these debts, as signaled by the continued low 
ratings by Moody's, Standard and Poor's and Fitch-IBCA.
    Romania is committed to becoming a member of the European Union 
(EU), which is by far its largest trading partner and which invited 
Romania to open accession negotiations. Trade with the EU accounts for 
64 percent of Romania's merchandise imports and exports. Trade with the 
United States accounts for only 3.8 percent of Romania's exports and 
4.4 percent of its imports, a proportion which has been consistent for 
the past few years. In 1999, U.S. exports to Romania are projected to 
drop by 13.0 percent, yet market share may remain constant.
2. Exchange Rate Policy
    The foreign exchange market was liberalized in February 1997. The 
leu is fully convertible for current account transactions and foreign 
investment. The leu depreciated substantially in the first quarter of 
1999, but then stabilized in real terms for the remainder of the year. 
The central bank is committed to full convertibility in the capital 
account, but the necessary conditions for this are not yet in place and 
may take a few years.
3. Structural Policies
    Economic reform has resulted in the passage of a wide variety of 
legislation affecting virtually every sector: commerce, privatization, 
intellectual property, banking, labor, foreign investment, environment, 
and taxation. While new legislation is necessary to create a basis for 
a market economy, rapid regulatory change has slowed the pace of trade 
and investment. Implementation has also been a problem.
    Romania continues to make significant progress in its agricultural 
reform program. (Note: Agriculture accounts for about one-fifth of GDP, 
and about 35 percent of formal and informal employment is dependent on 
it.) Prices are determined by market forces, and there are no export 
quotas. Over the past two years tariffs have been reduced by 66 
percent. Modest progress has been made in the agricultural sector 
privatization, and further privatization is on track within ASAL 
program agreed with the World Bank.
    However, deep-seated problems remain in the agricultural sector. 
Among them:

  --the continued pervasive state presence, including price controls, 
        state management of a large proportion of arable land, state 
        ownership of input supply, storage, marketing, and agro-
        processing enterprises;
  --incomplete land reform which has left many fragmented holdings, for 
        which property rights are still not well-defined;
  --under-developed rural cooperatives and financial services, few 
        private input suppliers, and no extension services;
  --agricultural coupons for Diesel oil that arrive too late to be 
        helpful for agricultural production and also jeopardize annual 
        budget discipline.

    The pace of reform in heavy industry has been very slow. The state 
has retained ownership of 67 percent of the industrial sector. While 
the government remains committed to privatizing or liquidating most of 
these firms, implementation has proved difficult. Meanwhile, industrial 
subsidies are still largely concentrated in loss-making industries such 
as mining, instead of in potential growth sectors, such as food 
processing.
4. Debt Management Policies
    At the end of July 1999, Romania's medium and long-term external 
debt dropped to $7.8 billion, from $9.1 billion at the end of 1998. The 
National Bank's foreign exchange reserves amounted to $1.47 billion, in 
addition to $989.8 million in gold, and the commercial banks' reserves 
reached $2.0 billion in July 1999. However, the National Bank's 
reserves are down 10 percent since end-1998, due to the high foreign 
debt servicing required in 1999: one third of Romania's total public 
external debt, which was $3.06 billion. Romania has claims against 
foreign countries amounting to $3 billion.
    Debt service payments were a major challenge for Romania during the 
first half of 1999. However, the GOR succeeded in avoiding default, and 
increased foreign exchange reserves beginning in July, though reserve 
levels remained below end-1998 levels, while cutting the current 
account deficit by more than 50 percent. After long negotiations and 
months of delay, the government concluded with the IMF a new standby 
loan, the first tranche ($73 million) of which was released in August. 
However, at year's end the Romanian government had not yet satisfied 
the IMF condition in the FY 2000 budget to allow a second tranche to be 
released.
    The World Bank concluded at the same time a $300 million PSAL 
agreement with Romania. The government received half of the loan in 
August, and the World Bank is considering releasing the second tranche 
as soon as the IMF board takes a decision. Under the PSAL agreement 
with the World Bank, the GOR has pledged to reform the banking sector, 
close loss-making firms and improve the business environment. The IMF 
has sent a technical team in early December 1999 to review progress in 
implementing the two accords and tie them up with the appropriate 
budget policies needed for the fiscal year 2000, an election year when 
foreign debt servicing (including private sector) will amount to $2.4 
billion.
5. Significant Barriers to U.S. Exports
    Traditionally defined trade and investment barriers are not a 
significant problem in Romania, as there are no laws which directly 
prejudice foreign trade or business operations. Tariff preferences 
resulting from Romania's Association Agreement with the EU have 
disadvantaged US exports in several sectors, including agriculture, 
telephonic equipment, computers, and beverages. For example, the duty 
on tires is 30.5 percent from the US, and 18.4 percent from the EU and 
falling.
    Bureaucratic red tape and uncertainties in the legal framework make 
doing business in Romania difficult. There is little experience with 
Western methods of negotiating contracts and, once concluded, 
enforcement is not uniform. In addition, delays in reconciling 
conflicting property claims, arising from seizures during the World War 
II and Communist eras, have resulted in a situation in which purchasers 
are potentially subject to legal challenge by former owners and title 
insurance is not available. The absence of clear legal recourse to 
recover claims against debtors is a further complication for foreign 
investors. Romania's customs regime imposes minimum reference prices, 
which is inconsistent with its WTO obligations. This has hindered U.S. 
poultry exports to Romania.
    The cost of doing business in Romania is high, particularly for 
office rentals, transportation and telecommunication services. Lack of 
an efficient, modern payment system further delays transactions in 
Romania. Capital requirements for foreign investors are not onerous, 
but local capital remains very expensive. Also, taxes on both profits 
and operations are steep. Investors complain of inconsistency in 
Romania's policy on tax incentives for foreign companies. Previously 
foreign companies qualified for some tax exemptions, based on the size 
of their investment. Given significant fiscal constraints and under IMF 
pressure, the GOR rescinded this in 1999, except for the case of the 
French car maker, Renault, which purchased the national Romanian car 
manufacturing company, Dacia Pitesti.
    There are few formal barriers to investment in Romania. The Foreign 
Investment Law allows for full foreign ownership of investment projects 
(including land, for as long as the investment is in place.) There are 
no legal restrictions on the repatriation of profits and equity 
capital. The continually changing legal regime for investment and 
privatization, however, forms a significant barrier to investment. 
Government approval of joint ventures requires extensive documentation. 
U.S. investment in Romania totaled $314.1 million by July 1999, putting 
the U.S. in fourth place among foreign investors.
    Romania is a member of the World Trade Organization, but not a 
signatory to the agreement on government procurement.
6. Export Subsidies Policies
    The Romanian Government does not provide export subsidies but does 
attempt to make exporting attractive to Romanian companies. For 
example, the government provides refunds of import duties for goods 
that are then processed for export. The Romanian Export-Import Bank 
engages in trade promotion activities on behalf of Romanian exporters, 
and has lately become more of an analysis bank.
    There are no general licensing requirements for exports from 
Romania, but the government does prohibit or control the export of 
certain strategic goods and technologies. There are also export 
controls on imported or domestically produced goods of proliferation 
concern.
7. Protection of U.S. Intellectual Property Rights
    Romania has enacted significant legislation in intellectual 
property protection. Patent, copyright and trademark laws are in place. 
In the past year, Romania has adopted pipeline protection for 
pharmaceuticals. Enforcement is limited and ineffective.
    Pirated copies of audio and video cassettes, CDs, and software are 
readily available. In a few cases, pirated films were broadcast on 
local cable television channels. There are no known exports of pirated 
products from Romania.
    Romania is a member of the Bern Convention, the World Intellectual 
Property Organization, the Paris Intellectual Property Convention, the 
Patents Cooperation Treaty, the Madrid Convention, and the Hague 
Convention on Industrial Design, Drawings and Models. As a country in 
transition, Romania will implement the WTO agreement on intellectual 
property on January 1, 2000. Industrial property law amendments needed 
for full compliance with TRIPS have already been drafted, but not 
enacted, yet. The TRIPS-consistent Copyright and Neighboring Rights Law 
is very inefficiently implemented, mainly due to the lack of 
coordination among the government enforcement agencies, police, 
prosecutors and judges, as well as due to each of these organizations' 
lack of focus. The Business Software Association estimates that 
currently, pirated products account for about 80 percent of the 
Romanian market, down from 95 percent prior to the law's coming into 
force. In order to help solve this problem, the government drafted a 
bill regulating the customs right to check on imports from the 
intellectual property point of view, a draft that is still in the 
Parliament for action.
8. Worker Rights
    a. The Right of Association: All workers (except public employees) 
have the right to associate freely and to form and join labor unions 
without prior authorization. Labor unions are free from government or 
political party control but may engage in political activity. Labor 
unions may join federations and affiliate with international bodies, 
and representatives of foreign and international organizations may 
freely visit and advise Romanian trade unions.
    b. The Right to Organize and Bargain Collectively: Workers have the 
right to bargain collectively. Basic wage scales for employees of 
state-owned enterprises are established through collective bargaining 
with the state. There are no legal limitations on the right to strike, 
except in sectors the government considers critical to the public 
interest (e.g. defense, health care, transportation).
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced or compulsory labor. The Ministry of Labor and Social 
Protection effectively enforces this prohibition.
    d. Minimum Age for Employment of Children: The minimum age for 
employment is 16. Children over 14 may work with the consent of their 
parents, but only ``according to their physical development, aptitude, 
and knowledge.'' Working children under 16 have the right to continue 
their education, and employers are required to assist in this regard.
    e. Acceptable Conditions of Work: Minimum wage rates are generally 
observed and enforced. The Labor Code provides for a standard work week 
of 40 hours with overtime for work in excess of 40 hours, and paid 
vacation of 18 to 24 days annually. Employers are required to pay 
additional benefits and allowances to workers engaged in dangerous 
occupations. The Ministry of Labor and Social Protection has 
established safety standards for most industries, but enforcement is 
inadequate and employers generally ignore the Ministry's 
recommendations. Labor organizations continue to press for healthier, 
safer working conditions. On average, women experience a higher rate of 
unemployment than men and earn lower wages despite educational 
equality.
    f. Rights in Sectors with U.S. Investment: Conditions do not appear 
to differ in goods producing sectors in which U.S. capital is invested.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  -12
Total Manufacturing............  ..............  43
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  14              ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       1               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  1               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  11
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  128
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis


                                 ______
                                 

                                 RUSSIA


                         Key Economic Indicators
            [Billions of U.S. Dollars unless otherwise noted]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................      2,522      2,685      4,600
  Real GDP Growth (pct)................        0.6       -4.6        1.5
  Per Capita Personal Income (US$).....        922        610    \4\ 466
  Labor Force (000's)..................     72,000     72,000     73,700
  Unemployment Rate (pct)..............       11.2       13.3       12.4

Money and Prices (annual percent
 growth):
  Money Supply Growth (M2).............       30.6        3.2   \4\ 48.8
  Consumer Price Index (percent                 11       84.3       45.0
   increase)...........................
  Exchange Rate (Ruble/US$ annual            5.785      9.705     24.429
   average)............................

Balance of Payments and Trade:
  Total Exports (FOB)..................       85.0       71.3   \5\ 31.1
    Exports to U.S.....................        4.5        5.7    \6\ 3.8
  Total Imports (CIF)..................       52.9       43.5   \5\ 14.5
    Imports from U.S...................        4.1        3.6    \6\ 0.9
  Trade Balance........................       32.1       27.8   \5\ 16.6
    Balance with U.S...................        0.4        2.1    \6\ 2.9
  Current Account......................        3.5        2.4       12.6
  External Public Debt.................      123.5        147      159.7
  Debt Service Payments/GDP (pct)......        1.4        3.7    \4\ 5.9
  Fiscal Deficit/GDP (pct).............        6.7        3.2    \5\ 3.8
  Gold and Foreign Exchange............       17.8       12.1   \3\ 11.8
  Aid from U.S. (US$ millions) \7\.....        492      639.4    1,937.1
  Aid from All Other Sources...........        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 1999 data has been provided for the last available period (9/99)
  unless otherwise noted. The Russian Ruble was re-denominated on
  January 1, 1998 by dropping three zeros off the value of the currency.
  All data in ruble terms have been adjusted to ``new rubles'' for
  comparability.
\2\ Billions of Russian Rubles.
\3\ Data for January-October 1999.
\4\ Data for January-August 1999.
\5\ Data for the period January-June 1999.
\6\ U.S. Commerce Department data for the period January-August 1999.
\7\ USG Assistance (by fiscal year) including food assistance, not
  including donated humanitarian commodities shipped by USG. Military
  assistance included $389.4 million in Department of Defense funds,
  largely for strategic weapons destruction programs, plus IMET and FMF
  programs, from which only $228,000 was spent in FY99.

Sources: Russian Statistics Committee (Goskomstat), Russian State
  Customs Committee, International Monetary Fund, Department of State S/
  NIS/C and embassy estimates.

1. General Policy Framework
    The Russian economy rebounded somewhat in 1999 from the economic 
and financial crisis of 1998, based on higher oil prices and import 
substitution resulting from the devaluation of the ruble. However, in 
the absence of substantial progress toward the reforms necessary to 
underpin a vigorous market economy and attract domestic and foreign 
investment, the Russian economy remains fragile and vulnerable to 
external and internal shocks. Industrial production in October was up 
10.3 percent from the depressed levels of October 1998. The IMF is 
forecasting year on year inflation at end-December of 45 percent, 
compared to more than 80 percent in 1998. Unemployment has eased and 
the demand for cash transactions continued to rise as barter deals 
declined.
    Despite estimates for real GDP growth in 1999 ranging from 0 to 3 
percent, the economic boost from devaluation of the ruble and increased 
revenues from oil exports is unlikely to be repeated in the coming 
year. In the near term, sustainable growth in Russia will depend 
importantly on domestic demand, consumption and investment, all of 
which are running well below last year's levels. The lack of 
significant progress on structural reforms and the difficult investment 
climate contribute to continued net capital outflow. Surveys suggest 
that a main constraint to production is the absence of working capital, 
but the banking sector has not stabilized from its collapse in 1998 and 
is not in a position to effectively intermediate savings to productive 
investments on a large scale.
    Fiscal policy for the first half of the year was moderately 
disciplined, with an overall deficit of 3.8 percent compared with a 
budget target of 2.5 percent for the year. Following low cash 
collections in the beginning of the year, revenue collections increased 
substantially, topping 13.2 percent of GDP during the first half of the 
year, compared with 10.5 percent over the same period in 1998. The GOR 
expects revenues of R55l billion for the year, about 16 percent over 
budget. Monetary policy was moderately tight. Base money increased 22 
percent during the first half of the year, in part due to indirect 
central bank financing of the federal deficit, specifically assisting 
in servicing the GOR's external debt. The ruble remained relatively 
stable between March and August in a more tightly controlled foreign 
exchange environment than before. In these conditions, the Central Bank 
has sought to avoid exchange rate volatility through selective 
interventions to smooth the trend. The Central Bank's reserves have not 
significantly increased, partially due to external debt payments, 
changes in accounting and unauthorized capital exports.
    The cost of Russia's 1998 financial collapse was significant. GDP 
measured in USD terms declined from around USD 422 billion in 1997 to 
USD 132 billion at the end of 1998, about the level of GDP in 1993. 
While nominal ruble revenues have increased this year to date, they are 
still about half those of last year, as measured in USD terms. 
Similarly in the banking sector, assets in USD fell by 50 percent to 
around USD 5O billion. As with other emerging markets that have 
suffered sharp setbacks, rebuilding will take time.
    Government economic policy has been largely static this year. While 
the three successive post-August-1998 governments have not adopted 
policies that would have exacerbated an already fragile situation, none 
have adopted aggressive policies to address fundamental challenges 
faced by the country. With upcoming parliamentary elections in December 
and presidential elections in June, the consensus of observers is that 
major movement on reforms or major policy changes are unlikely until 
the new Duma and new President are in place.
2. Exchange Rate Policy
    The objective of the Central Bank of Russia's (CBR) exchange rate 
policy is to ensure the stability and predictability of the ruble 
exchange rate and prevent abrupt fluctuations, in the context of a 
floating exchange rate regime. After slipping at the beginning of the 
year, the nominal ruble/dollar rate held steady at around 24.5 from May 
through August, then drifted down to about 26.8 in December. High ruble 
liquidity, as reflected by the approximately R70 billion in banks' 
correspondent accounts at the CBR, supported the decline late in the 
year. From September through mid-November, the ruble has depreciated 
approximately 4.5 percent in nominal terms.
    The ruble's tentative stability can be explained in part by new 
market conditions. The CBR has tightened foreign exchange controls by 
imposing restrictions on foreign exchange for import contracts, 
requiring 75 percent of repatriated export proceeds to be sold on 
authorized exchanges, not allowing banks to trade on their own 
accounts, limiting the conversion of funds in S-accounts from the GKO 
restructuring, and banning the conversion of ruble funds from 
nonresident banks' correspondent accounts. The latter was repealed, but 
replaced by requiring banks to deposit amounts equivalent to those it 
holds in S-accounts of non-residents. These exchange controls are only 
marginally effective at controlling capital flight, which reportedly 
increased to nearly $3.0 billion per month in late 1999, but they 
presumably have helped CBR to manage exchange rate volatility.
3. Structural Policies
    The economic crisis of 1998 overshadowed structural issues for the 
most part throughout 1999. The share of GDP produced by private 
companies reached 74 percent by the end of 1999 according to official 
figures. The share of barter in the economy appears to be declining, 
although it still accounts for roughly half of all transactions 
according to most estimates. External barter trade sharply declined in 
1999 as well. Government arrears dropped dramatically as payment of 
pensions and salaries in nominal terms became cheaper in light of the 
drastic ruble devaluation after August 1998. Even though personal 
incomes dropped precipitously over the last year, industrial production 
has increased as a result oil import substitution. Without investment, 
however, the up-tick in production is not expected to be sustainable, 
and little has been done to improve the investment climate. Indeed, 
several cases involving foreign investment suggest that many issues 
remain to be addressed.
    Repeated changes in government have exacerbated the problems of 
inadequate structural policies by obscuring economic policy overall. 
With three Prime Ministers in the first 8 months of 1999, articulation, 
much less implementation of a coherent structural policy has proven 
elusive. In addition, the end of the current legislative period carried 
forward the effective policy stalemate in the economic sphere that has 
plagued the reform process. The election of a new State Duma in 
December 1999 will produce a new opportunity for legislative 
initiatives. However, economic policy is effectively on hold for now, 
and may well remain so until after the presidential election in July 
2000.
    Meanwhile, privatization continues, with sales of shares of the 
government's stakes in oil and gas companies. At the same time, a 
debate about the benefits of past privatizations has become an element 
in the Duma election campaign with a number of leading politicians 
suggesting that de-privatization of some enterprises could be 
considered. The privatization of the Lomonosov porcelain factory, 
partly owned by U.S. investors, was reversed by a St. Petersburg court. 
Court appeals continue. Prime Minister Putin has opposed wholesale 
reversal of privatization but has suggested that mistakes made in the 
privatization process should be identified and corrected within the 
framework of existing legislation.
    The government has worked to prevent passage of legislative 
initiatives that would inhibit foreign investment, for example in the 
insurance sector, but with mixed results. One potentially important 
achievement has been the adoption of an ambitious action plan for 
reducing the regulatory burden on small business, along with tax 
reduction. Overall however, there has been little progress in the 
structural policy area over the last year, a development that can only 
delay Russia's recovery from its financial crisis.
4. Debt Management Policies
    Following the August 1998 financial crisis, the Government of 
Russia has sought to restructure much of its internal debt and the 
Soviet-era poition of its external debt. The Russian government has 
reached a Framework Agreement with its Paris Club official creditors in 
July 1999, but final bilateral agreements are not expected until early 
in 2000. The Government of Russia is actively negotiating with its 
London Club commercial creditors on an agreement to restructure and/or 
reduce its commercial debt inherited from the Soviet government.
    In March, the Russian government announced its GKO (Russian T-bill) 
restructuring proposal, which offered foreign GKO holders a choice 
between receiving a basket of securities or having their investments 
placed in a frozen account. Funds received in the restructuring, 
including from the securities, must be held in investors' S-accounts. 
The Central Bank of Russia prohibits conversion of S-account rubles 
into foreign currency, although it held six foreign exchange auctions 
for S-account holders, of USD 50 million each, all of which were 
heavily oversubscribed. Investors also may invest restricted S-account 
rubles in certain securities. In November, the Government of Russia 
announced it would permit S-account holders to make direct investments 
in projects approved by the government, and is reopening its offer to 
restructure GKO's to those investors who did not take advantage of the 
first offer. On December 15, the Government of Russia allowed a one-
time change in S-account ownership. As of November 15, there were 
approximately USD 350-400 million, and another USD 2 billion in OFZ 
bonds, in restricted S-accounts.
    The Government of Russia is continuing with its IMF program, 
although a second tranche release in 1999 has been delayed. The World 
Bank's Structural Adjustment Loan (SAL) is on hold due to lack of 
progress on structural reform legislation.
5. Significant Barriers to U.S. Exports
    At the end of 1999, the most significant impediments to U.S. 
exports were not statutory but were instead results of the difficult 
economic situation in Russia. The devaluation in August 1998 and the 
reduced purchasing power of Russians played the greatest role, as 
Russia's overall imports slumped by over 50 percent. U.S. exports to 
Russia have decreased by an even larger margin in 1999, although one-
time sales of aircraft in 1998 exaggerated the overall decline 
somewhat. Many exporters remain cautious about entering the Russian 
market due to reduced availability of trade finance, and bad experience 
with payment/clearance problems in the past. These problems have become 
less common in 1999, perhaps partially due to the lower volume of 
trade.
    Since 1995, Russian tariffs have generally ranged from five to 
thirty percent, with a trade-weighted average in the 13-15 percent 
range. In addition, excise and Value-Added Tax (VAT) is applied to 
selected imports. The VAT, which is applied on the import price plus 
tariff, is currently 20 percent with the exception of some food 
products. Throughout 1999, some revision of tariffs occurred, with in 
some cases tariffs dropping for inputs needed by Russian producers in 
the electronics and furniture businesses. On the other hand, there have 
been sharp hikes in tariffs for sugar and for pharmaceuticals, 
including high seasonal tariffs on raw and processed sugar. In 
particular, compound duties with minimum levels of tariffs enacted in 
1998 on poultry had the effect of increasing percentage duties after 
the fall in poultry prices in 1998-99. The Ministry of Trade, supported 
by the State Customs Committee, has proposed reducing some of Russia's 
higher tariffs, recognizing that very high tariffs only lead to 
evasion. However, the government has been reluctant to approve an 
across-the-board reduction in tariffs given acute revenue concerns, as 
customs duties account for a larger percentage of state revenues than 
in most other countries.
    Other Russian tariffs that have stood out as particular hindrances 
to U.S. exports to Russia include those on autos (where combined 
tariffs and engine displacement-weighted excise duties can raise prices 
of larger U.S.-made passenger cars and sport utility vehicles by over 
70 percent); some semiconductor products; and aircraft and certain 
aircraft components (for which tariffs are set at 30 percent). The 
Russian government continues to make waivers on aircraft import tariffs 
for purchases by Russian airlines contingent on those airlines' 
purchases of Russian-made aircraft.
    Throughout 1999, Russia introduced a number of export duties (for 
exports to non-CIS countries) as a revenue measure. Initially, these 
duties were imposed on oil and gas, but have since been expanded to 
include many export commodities, including fertilizers, paper and 
cardboard, some ferrous and non-ferrous metals, and agricultural 
products, including oilseeds raw hides, and hardwoods, all ranging from 
5 to 30 percent.
    Import licenses are required for importation of various goods, 
including ethyl alcohol and vodka, color TVs, sugar, combat and 
sporting weapons, self-defense articles, explosives, military and 
ciphering equipment, encryption software and related equipment, 
radioactive materials and waste including uranium, strong poisons and 
narcotics, and precious metals, alloys and stones. In 1999, new import 
license requirements were added for raw and processed sugar. Most 
import licenses are issued by the Russian Ministry of Trade or its 
regional branches, and controlled by the State Customs Committee. 
Import licenses for sporting weapons and self-defense articles are 
issued by the Ministry of Internal Affairs.
    Throughout 1999, the government has continued tight controls on 
alcohol production, including import restrictions, export duties, and 
increased excise taxes. Many of these controls are in order to increase 
budget revenues.
    In spring 1998, Russia passed the Law on Protective Trade Measures, 
which provides the government authority to undertake antidumping, 
countervailing duty and safeguard investigations, under certain 
conditions. Although Russian companies have filed several petitions for 
protection in 1999 under this new law, no petition has yet been 
approved, due to substantive or procedural insufficiencies of the 
petitions.
    The June 1993 Customs Code standardized Russian customs procedures 
generally in accordance with international norms. However, customs 
regulations change frequently, (often without sufficient notice), are 
subject to arbitrary application, and can be quite burdensome. In 
addition, Russia's use of minimum customs values is not consistent with 
international norms. In November 1999, the State Customs Committee 
imposed a restriction that forced U.S. poultry importers to ship 
directly through Russian ports, rather than through warehouses in the 
Baltic States, as had been their practice. On the positive side, 
Russian customs is implementing the ``ClearPac'' program in the Russian 
Far East that facilitates customs clearance from the U.S., and is 
considering extending this program to other regions.
    U.S. companies continue to report that Russian procedures for 
certifying imported products and equipment are non-transparent, 
expensive and beset by redundancies. Russian regulatory bodies also 
generally refuse to accept foreign testing centers' data or 
certificates. U.S. firms active in Russia have complained of limited 
opportunity to comment on proposed changes in standards or 
certification requirements before the changes are implemented, although 
the Russian standards and certifications bodies have begun to work 
closely with the American Chamber of Commerce in Russia to provide 
additional information. Occasional jurisdictional overlap and disputes 
between different government regulatory bodies compound certification 
problems.
    A January 1998 revision to State Tax Service Instruction #34, now 
being enforced, makes it more difficult for expatriate employees of 
U.S. entities to benefit from the U.S.-Russia bilateral treaty on 
avoidance of double-taxation. A wide range of U.S. companies selling 
goods and services in Russia, who formerly could receive advance 
exemptions from withholding taxes for salaries, are now required to 
apply for a refund of tax withheld.
    Although little of Russia's legislation in the services sector is 
overtly protectionist, the domestic banking, securities and insurance 
industries have secured concessions in the form of Presidential 
Decrees, and a draft law before the parliament will soon codify 
restrictions and bans on foreign investment in many services sectors. 
Foreign participation in banking, for example, is limited to 12 percent 
of total paid-in banking capital. As of mid 1998 foreign banks' 
capitalization only accounted for around 4 percent of the total. 
However, as foreign banks recapitalized following the financial crisis 
and Russian banks' capital shrank, the share of foreign banks' grew to 
12.8 percent as of September 1. The Central Bank of Russia has 
indicated it will seek a higher quota so as not to impede foreign bank 
entry. Foreign investment is also limited in other sectors, such as 
electricity generation. In October 1999, a new law took effect, which 
implicitly allows majority-foreign-owned insurance companies to operate 
in Russia for the first time, but restricts their share of total market 
capitalization and prohibits them from selling life insurance or 
obligatory types of insurance. The law contains a ``grandfather 
clause'' exempting the four foreign companies currently licensed in 
Russia from these restrictions. In practice, foreign companies are 
often disadvantaged vis-a-vis their Russian counterparts in obtaining 
contracts, approvals, licenses, registration, and certification, and in 
paying taxes and fees.
    Despite the passage of a new law regulating foreign investment in 
June 1999, Russian foreign investment regulations and notification 
requirements can be confusing and contradictory. The Law on Foreign 
Investments provides that a single agency (still undesignated) will 
register foreign investments, and that all branches of foreign firms 
must be registered. The law does codify the principle of national 
treatment for foreign investors, including the right to purchase 
securities, transfer property rights, protect rights in Russian courts, 
repatriate funds abroad after payment of duties, and to receive 
compensation for nationalizations or illegal acts of Russian government 
bodies. However, the law goes on to state that Federal law may provide 
for a number of exceptions, including those necessary for ``the 
protection of the constitution, public morals and health, and the 
rights and lawful interest of other persons and the defense of the 
state.'' The potentially large number of exceptions thus gives 
considerable discretion to the Russian government. The law also 
provides a ``grandfather clause'' that protects existing ``priority'' 
foreign investment projects with a foreign participation over 25 
percent be protected from unfavorable changes in the tax regime or new 
limitations On the foreign investment. The definition of ``priority'' 
projects is not fully clear, but it appears that projects with a 
foreign charter capital of over $4.1 million and with a total 
investment of over $41 million will qualify. In addition, foreigners 
encounter significant restrictions on ownership of real estate in some 
cities and regions in Russia, although the situation has improved over 
the past few years.
    The government maintains a monopoly on the sale of precious and 
several rare-earth metals, conducts centralized sales of diamonds, and 
conducts centralized purchases for export of military technology. 
Throughout 1999, the government has sharply restricted exports of 
platinum group metals, based on new legislation. An August 1997 series 
of Presidential Decrees on military exports remain in effect. These 
decrees established tighter control over military exports by the state 
enterprise Rosvooruzheniye, enabled two additional state firms to sell 
military goods and technology, and opened the door to future direct 
sales by arms manufacturers, if licensed and approved by the Ministry 
of Foreign Economic Relations.
    Most of these issues are the subject of discussion, as Russia 
continues to negotiate its accession to the World Trade Organization 
(WTO). By the end of 1999, the government had completed ten working 
party meetings. It tabled its initial market access offer for services 
in October 1999 and has conducted negotiations on its goods market 
access offer throughout the year. The Russian Ministry of Trade has 
stated it plans to revise its goods market access offer early in 2000. 
Russia is not yet a signatory of the WTO Government Procurement or 
Civil Aircraft codes.
6. Export Subsidies Policies
    The government has not instituted export subsidies, although a 1996 
executive decree allows for provision of soft credits for exporters and 
government guarantees for foreign loans. The government does provide 
some subsidies for the production of coal, but coal exports are 
minimal. Soft credits are at times provided to small enterprises for 
specific projects.
7. Protection of U.S. Intellectual Property
    Russia is in the process of accession to the World Trade 
Organization (WTO), and as a new member, it will be required to meet 
obligations under the WTO's Agreement on Trade-Related Aspects of 
Intellectual Property Rights (TRIPs) immediately upon accession. Russia 
belongs to the World Intellectual Property Organization (WIPO), and has 
acceded to the obligations of the former Soviet Union under the Paris 
Convention for the Protection of Industrial Property (patent, trademark 
and related industrial property), and the Madrid Agreement Concerning 
the International Registration of Marks, and the Patent Cooperation 
Treaty. Russia has also become a signatory to the Berne Convention for 
the Protection of Literary and Artistic Works (copyright) as well as 
the Geneva Phonograms Convention. In 1999, the U.S. Trade 
Representative retained Russia on the ``Special 301'' Priority Watch 
List for a third year due to a number of concerns over weak enforcement 
of intellectual property laws and regulations and lack of retroactive 
copyright protection for U.S. works in Russia.
    In 1992-93 Russia enacted laws strengthening the protection of 
patents, trademarks and appellations of origins, and copyright of 
semiconductors, computer programs, literary, artistic and scientific 
works, and audio/visual recordings. Legal enforcement of intellectual 
property rights (IPR) improved somewhat with a series of raids on 
manufacturing facilities, and on wholesale and retail outlets of 
pirated goods. A new Criminal Code took effect January 1, 1997, which 
contains considerably stronger penalties for IPR infringements. 
However, there are still disappointingly few cases in which these 
penalties have been applied. Widespread sales of pirated U.S. video 
cassettes, recordings, books, computer software, clothes, toys, foods 
and beverages continue. The formal abolition of the Russian Patent and 
Trademark Agency this year and the assumption of its responsibilities 
by the Justice Ministry have raised some concerns, but the practical 
effect of this change remains to be seen.
    Russia's Patent Law includes a grace period, procedures for 
deferred examination, protection for chemical and pharmaceutical 
products, and national treatment for foreign patent holders. Inventions 
are protected for 20 years, industrial designs for ten years, and 
utility models for five years. The Law on Trademarks and Appellation of 
Origins introduces for the first time in Russia protection of 
appellation of origins. The Law on Copyright and Associated Rights, 
enacted in August 1993, protects all forms of artistic creation, 
including audio/visual recordings and computer programs as literary 
works for the lifetime of the author plus 50 years. The September 1992 
Law on Topography of Integrated Microcircuits, which also protects 
computer programs, protects semiconductor topographies for 10 years 
from the date of registration.
    Under the U.S.-Russian Bilateral Investment Treaty (signed in 1992 
but waiting ratification by the Russian Parliament), Russia undertook 
to protect investors' intellectual property rights. The 1990 U.S. 
Russia bilateral trade agreement stipulates protection of the normal 
range of literary, scientific and artistic works through legislation 
and enforcement. Bilateral consultations on IPR were held in March 
1999.
8. Worker Rights
    a. The Right of Association: The law provides workers with the 
right to form and join trade unions, but practical limitations on the 
exercise of this right arise from governmental policy and the dominant 
position of the formerly governmental Federation of Independent Trade 
Unions of Russia (FNPR). As the successor organization to the 
governmental trade unions of the Soviet period and claiming to 
represent 80 per cent of all workers, the FNPR occupies a privileged 
position that inhibits the formation of new unions. In some cases, FNPR 
local unions have worked with management to destroy new unions. Recent 
court decisions have limited the right of association by mandating that 
unions include management as members. Justice Ministry officials have 
used new re-registration requirements to deny legal status to 
independent unions.
    b. The Right to Organize and Bargain Collectively: Although the law 
recognizes collective bargaining, and requires employers to negotiate 
with unions, in practice employers often refuse to negotiate and 
agreements are not implemented. Court rulings have established the 
principle that non-payment of wages--by far the predominant grievance--
is an individual dispute and cannot be addressed collectively by 
unions. As a result, a collective action based on non-payment of wages 
would not be recognized as a strike, and individuals would not be 
protected by the Labor Law's guarantees against being fired for 
participation. The right to strike is difficult to exercise. Most 
strikes are technically illegal, and courts have the right to order the 
confiscation of union property to settle damages and losses to an 
employer, resulting from an illegal strike. Reprisals for strikes are 
common, although strictly prohibited by law.
    c. Prohibition of Forced or Compulsory Labor. The Labor Code 
prohibits forced or compulsory labor by adults and children. There are 
documented cases of soldiers being sent by their superior officers to 
perform work for private citizens or organizations. Such labor may 
violate military regulations and, if performed by conscripts, would be 
an apparent violation of ILO convention 29 on forced labor.
    d. Minimum Age for Employment of Children. The Labor Code prohibits 
regular employment for children under the age of 16 and also regulates 
the working conditions of children under the age of 18, including 
banning dangerous, nighttime and overtime work.
    Children may, under certain specific conditions, work in 
apprenticeship or internship programs' at the ages of 14 and 15. 
Accepted social prohibitions against the employment of children and the 
availability of adult workers at low wage rates combine to prevent 
widespread abuse of child labor legislation. The government prohibits 
forced and bonded labor by children, and there have been no reports 
that it occurred.
    e. Acceptable Conditions of Work: The Labor Code provides for a 
standard workweek of 40 hours, with at least one 24-hour rest period. 
The law requires premium pay for overtime work or work on holidays. 
Workers have complained of being required to work well beyond the 
normal week, that is, 10 to 12-hour days, and of forced transfers. As 
of June 30, workers were owed roughly 2.5 billion US dollars, for 
periods generally between 3 to 9 months. Although this is less than the 
$12.5 billion arrears owed in August 1998, workers have lost 
significant purchasing power since the devaluation. Workers' freedom to 
move in search of new employment is virtually eliminated by the system 
of residency permits. The law establishes minimal conditions of 
workplace safety and worker health, but these standards are not 
effectively enforced.
    f. Rights in Sectors with U.S. Investment: Observance of worker 
rights in sectors with significant U.S. investment (petroleum, 
telecommunications, food, aerospace, construction machinery, and 
pharmaceuticals) did not significantly differ from observance in other 
sectors. There are no export processing zones. Worker rights in the 
special economic zones/free trade zones are fully covered by the Labor 
Code.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  513
Total Manufacturing............  ..............  269
  Food & Kindred Products......  243             ...............................................................
  Chemicals & Allied Products..  11              ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       2               ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  1               ...............................................................
Wholesale Trade................  ..............  --76
Banking........................  ..............  -346
Finance/Insurance/Real Estate..  ..............  653
Services.......................  ..............  -102
Other Industries...............  ..............  190
TOTAL ALL INDUSTRIES...........  ..............  1,101
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 SPAIN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP (1995 Prices) \2\..............     528.6     538.6  \3\ 531.
                                                                       6
  Real GDP Growth (pct) \4\...............       3.8       4.0       3.6
  GDP (At Current Prices).................     558.5     582.1     589.0
  GDP by Sector:
    Agriculture...........................      23.7      23.2      23.3
    Industry..............................     118.1     122.2     121.7
    Construction..........................      38.1      40.5      41.1
    Services..............................     331.3     344.3     347.5
    Government............................      47.5      51.9      55.4
  Per Capita GDP (US$)....................    14,068    14,626    14,762
  Labor Force (000's).....................    16,121    16,265    16,500
  Unemployment Rate (pct).................      20.8      18.8      16.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       9.1       6.0       7.0
  Consumer Price Inflation................       2.0       1.8       2.5
  Exchange Rate (PTA/US$ annual average)..     146.4     149.4     155.0

Balance of Payments and Trade:
  Total Exports FOB \5\...................     105.2     109.4     120.0
    Exports to U.S.\5\....................       4.6       4.6       4.6
  Total Imports CIF \5\...................     123.5     133.1     150.0
    Imports from U.S.\5\..................       7.8       7.8       8.0
  Trade Balance \5\.......................     -18.3     -23.7      -3.0
    Balance With U.S.\5\..................      -3.2      -3.2      -3.4
  Fiscal Deficit/GDP (pct)................       3.0       1.8       1.6
  Public Debt.............................      67.5      65.6      66.4
  Debt Service Payments (Paid)............       N/A       N/A       N/A
  Gold and Foreign Exchange Reserves......      72.5      60.7      34.0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  July.
\2\ GDP at factor cost.
\3\ Devaluation.
\4\ Percentage changes calculated in local currency.
\5\ Merchandise trade. Spanish National Institute of Statistics.

Note: Estimates for 1999 show lower figures in U.S. Dollars than
  previous years due to a rise in the U.S. Dollar/Spanish Peseta
  exchange rate.

1. General Policy Framework
    Spain's economy is expected to grow by 3.7 percent in 1999. This 
growth is expected to continue in 2000. Growth continues to be broadly 
based and is supported by the services sector, agriculture, 
construction, consumer demand, and capital goods investment.
    Throughout the 90s much of Spain's economic policy had focused on 
meeting Maastricht targets so that Spain could become one of the 
founding members of the EURO. These policies have continued in the 
guise of the Stability Pact, which, if anything, has a bias toward even 
stricter fiscal policy than the preceding agreement. Together these 
policies have provided continuing benefits in the form of lower 
interest rates, which in turn have promoted investment, construction, 
and consumer demand. This increased economic activity has provided 
increased income and higher tax receipts, which have allowed Spain to 
handily meet government deficit/GDP targets. Government fiscal 
restraint, higher tax receipts, and lower interest on government debt 
(courtesy of lower EURO interest rates) should allow the government's 
deficit/GDP ratio to fall below 2 percent in 1999. The government's 
overall debt/GDP ratio should fall to 68 percent in 1999, moving toward 
the 60 percent goal.
    Economic growth has decreased unemployment to the lowest levels in 
a over a decade. Although high compared to EU averages, Spain's current 
unemployment rate of 15.6 percent and increasing evidence of sectoral 
labor shortages points to a strongly growing economy. Employment growth 
has been underwritten by changes in 1996 and 1997 that provided 
flexibility in hiring practices that lessen somewhat the high costs of 
permanent new hires. Despite the labor market's rigidities, Spain 
creates more jobs than any other EU country.
2. Exchange Rate Policy
    The Spanish peseta/EURO rate was fixed on January 1, 1999 at 
166.386 pesetas to the EURO. Average dollar/EURO rate to date in 1999 
has been 1.076 or 154.808 pesetas to the dollar. The rate at the time 
this is being drafted is 1 EURO equals USD 1.0177.
3. Structural Policies
    Spain has eliminated tariff barriers for imports from other EU 
countries and applies common EU external tariffs to imports from non-EU 
countries. Similarly Spain is also bound to the mutual recognition 
agreements in its application of certain non-tariff regulations applied 
to certain goods from the United States.
    In 1989, as part of the investment sector reforms necessary to 
comply with EU membership, Spain made stock market rules and operations 
more transparent and provided for the licensing of investment banking 
services. The reform also eased conditions for obtaining a broker's 
license. A 1992 Investment Law removed many administrative requirements 
for foreign investments. EU resident companies (i.e. companies deemed 
European under article 58 of the Treaty of Rome) are free from almost 
all restrictions. Non-EU resident investors must obtain Spanish 
Government authorization to invest in broadcasting, gaming, air 
transport, or defense. Restrictions on broadcasting and in transport 
are facing increasing pressure as the government looks to privatizing 
its national airline (perhaps in 1999), and completes the privatization 
of its telephone company.
    Faced with the loss of the Spanish feed grain market as a result of 
Spain's membership in the EU, the United States negotiated an 
enlargement agreement with the EU in 1987 which established a 2.3 
million ton annual quota for Spanish imports of corn, specified non-
grain feed ingredients and sorghum from non-EU countries. The Uruguay 
Round agreement having the effect of extending this agreement 
indefinitely. The United States remains interested in maintaining 
access to the Spanish feed grain market and will continue to press the 
EU on this issue.
    As an EU member state, Spain must also abide by EU procedures for 
approving the commercialization of products generated with the aid of 
biotechnology. The EU's lengthy and non-transparent process for 
approving agricultural products produced through modern genetic 
engineering methods has negatively impacted U.S. corn exports to Spain. 
Due to the EU's failure to approve some U.S. corn varieties, U.S. corn 
exports to Spain have virtually been eliminated, costing U.S. exporters 
about $150 million per year. Unless the EU takes steps to streamline 
its biotechnology product approval process, U.S. exporters will 
continue to be unable to ship U.S. corn to Spain.
    Under its EU accession agreement, Spain was forced to transform its 
structure of formal and informal import restrictions for industrial 
products into a formal system of import licenses and quotas. While 
Spain does not enforce any quotas on U.S.-origin manufactured products, 
it still requires import documents for some goods, which are described 
below. Neither of the following documents constitutes a trade barrier 
for U.S.-origin goods:

  --Import Authorization (autorizacion administrativa de importacion) 
        is used to control imports which are subject to quotas. 
        Although there are no quotas against U.S. goods, this document 
        may still be required if part of the shipment contains products 
        or goods produced or manufactured in a third country. In 
        essence, for U.S.-origin goods, the document is used for 
        statistical purposes only or for national security reasons;
  --Prior Notice of Imports (notificacion previa de importacion) is 
        used for merchandise that circulates in the EU customs union 
        area, but is documented for statistical purposes only. The 
        importer must obtain the document and present it to the general 
        register.

    Importers apply for import licenses at the Spanish general register 
of Spain's secretariat of commerce or any of its regional offices. The 
license application must be accompanied by a commercial invoice that 
includes freight and insurance, the C.I.F. price, net and gross weight, 
and invoices number. License application has a minimum charge. Customs 
accepts commercial invoices by fax. The license, once granted, is 
normally valid for six months but may be extended if adequate 
justification is provided.
    Goods that are shipped to a Spanish customs area without proper 
import licenses or declarations are usually subject to considerable 
delay and may run up substantial demurrage charges. U.S. exporters 
should ensure, prior to making shipments, that the necessary licenses 
have been obtained by the importing party. Also, U.S. exporters should 
have their importer confirm with Spanish customs whether any product 
approvals or other special certificates will be required for the 
shipment to pass customs.
    The government has signed and ratified the Marrakech Agreement 
which concluded the Uruguay Round of multilateral trade negotiations 
and established the World Trade Organization.
4. Debt Management Policy
    Thirty percent of Spanish medium and long-term debt is held by non-
residents. Approximately twenty one percent of Spanish Government debt 
is short-term (less than one year) and seventy nine percent is long-
term (i.e. maturities greater than five years).
    At the end of September 1999, international reserves at the Bank of 
Spain totaled 35.9 billion euros or 38.6 billion dollars.
5. Significant Barriers to U.S. Exports
    Import Restrictions: Under the EU's Common Agricultural Policy 
(CAP), Spanish farm incomes are protected by direct payments and 
guaranteed farm prices that are higher than world prices. One of the 
mechanisms for maintaining this internal support are high external 
tariffs that effectively keep lower priced imports from entering the 
domestic market to compete with domestic production. However, the 
Uruguay Round agreement has required that all import duties on 
agricultural products be reduced by an average of 20 percent during the 
five year period from 1995 to 2000.
    In addition to these mechanisms, the EU employs a variety of strict 
animal and plant health standards which act as barriers to trade. These 
regulations end up severely restricting or prohibiting Spanish imports 
of certain plant and livestock products. One of the most glaring 
examples of these policies is the EU ban on imports of hormone treated 
beef, imposed in 1989 with the stated objective of protecting consumer 
health. Despite a growing and widespread use of illegal hormones in 
Spanish beef production, the EU continues to ban U.S. beef originating 
from feedlots where growth promoters have been used safely and under 
strict regulation for many years. Despite a WTO ruling requiring the EU 
to remove the ban, the EU ban on imports of hormone treated beef 
remains in effect.
    One important aspect of Spain's EU membership is how EU-wide 
phytosanitary regulations, and regulations that govern food 
ingredients, labeling and packaging impact the Spanish market for 
imports of U.S. agricultural products. The majority of these 
regulations took effect on January 1, 1993 when EU ``single market'' 
legislation was fully implemented in Spain. Agricultural and food 
product imports into Spain are subject to the same regulations as in 
other EU countries.
    While many restrictions that had been in operation in Spain before 
the transition have now been lifted, for certain products the new 
regulations impose additional import requirements. For example, Spain 
requires any foodstuff that has been treated with ionizing radiation to 
carry an advisory label. In addition, a lot marking is required for any 
packaged food items. Spain, in adhering to EU-wide standards, continues 
to impose strict requirements on product labeling, composition, and 
ingredients. Like the rest of the EU, Spain prohibits imports which do 
not meet a variety of unusually strict product standards. Food 
producers must conform to these standards, and importers of these 
products must register with government health authorities prior to 
importation.
    Telecommunications: Spain liberalized its telecommunications market 
beginning December 1, 1998. Prior to this date, the government phased 
in competition in basic telephony through licenses granted to 
privatized second operator Retevision and to third operator Lince/Uni2 
(France Telecom), in addition to incumbent operator Telefonica. Cable 
operators were allowed to provide basic telephony beginning January 1, 
1998, but only by using their own networks; that is, they could provide 
basic telephony by interconnecting with the Telefonica or Retevision 
networks. This, in combination with several other mitigating factors, 
such as bureaucratic obstacles at the municipal level, the arrival of 
digital satellite television, and problems with new entrants forging 
interconnection agreements that are unbundled, transparent, timely and 
cost-oriented, has resulted in a slow start for the establishment of 
the cable sector in Spain.
    Digital television, especially via satellite, has emerged as a 
promising industry in the Spanish market. There are two digital 
television platforms, Via Digital and Canal Satellite Digital, which 
currently offer digital television programming. Onda Digital 
(Retevision) has announced plans next year to offer a competing digital 
TV package provided over a terrestrial network. Spain's mobile 
telephony market has also experienced a very rapid growth in 
subscribers. The government will offer six licenses for third 
generation wireless telephony in early 2000. New opportunities are 
emerging in advanced telecommunications services, including the 
internet and high-speed data transmission. Finally, the government has 
established the Telecommunications Market Commission (CMT) as an 
independent regulatory authority to oversee all activity in this 
sector.
    Government Procurement: Spain's Uruguay Round government 
procurement obligations took effect on January 1, 1996. Under the 
bilateral U.S.-EU government procurement agreement, Spain's obligations 
took effect also on January 1, 1996, except those for services which 
took effect on January 1, 1997. Offset requirements are common in 
defense contracts and some large non-defense related and public sector 
purchases (e.g. commercial aircraft and satellites).
    Television Broadcasting Content Requirements: On May 13, 1999, the 
Spanish parliament adopted new legislation that incorporates the 
revised EU Television without Frontiers Directive and revises the 1994 
Spanish law on television broadcasting. The new law explicitly requires 
television operators to reserve 51 percent of their annual broadcast 
time to European audiovisual works. It also obliges television channels 
to devote 5 percent of their annual earnings to finance European 
feature length films and films for European television.
    Motion Picture Dubbing Licenses and Screen Quotas: In January 1997, 
the government adopted implementing regulations for the 1994 Cinema 
Law, which reserved a portion of the theatrical market for EU-produced 
films. Thanks to successful industry-government negotiations, the new 
regulations eased the impact of the 1994 law on non-EU producers and 
distributors in regard to screen quotas and dubbing licenses. The 
screen quotas finally adopted required exhibitors to show one day of 
EU-produced film for every three days of non-EU-produced film instead 
of the original ratio of one to two. The three-tiered system 
established for dubbing licenses under the 1994 law ended in June 1999. 
New draft film legislation is slated to be sent to the Parliament in 
early 2000. It is expected to provide for increased freedom to export 
and import films and the gradual liberalization of screen quotas.
    Despite remaining protectionist elements, Spain's theatrical film 
system has been modified sufficiently in recent years so that it is no 
longer a major source of trade friction as it had been earlier. 
However, in 1998, the Catalan regional government adopted a decree 
under its new law on language policy, which calls for both dubbing and 
screen quotas in order to increase the number of films being shown in 
the Catalan language. Due to strong industry opposition and the start 
of negotiations with film distributors and exhibitors to resolve their 
differences, the Catalan government decided to suspend implementation 
of this law until July 2000.
    Product Standards and Certification Requirements: Product 
certification requirements have been liberalized considerably since 
Spain's entry into the EU. After several years in which 
telecommunications equipment faced difficulties, Spain adapted its 
national regulations in this area to conform to EU directives. For 
example, now all telecom equipment must carry the CE mark, which 
certifies that it complies with all applicable EU directives. This 
process may take three to four months after all tests have been 
performed and necessary documents are submitted. However, recognition 
from other EU countries and an early presentation of all documentation 
can speed up the process considerably. There is still some uncertainty 
as to whether the earlier exemption from homologation and certification 
requirements for equipment imported for military use is still valid.
    In general there has been improved transparency of process. For 
example, the CE registration for medical equipment from any of the EU 
member states is considered valid here. Thus, the product registration 
procedure is shortened (to about six months) and no longer must be 
initiated by a Spanish distributor. Pharmaceuticals and drugs still 
must go through an approval and registration process with the Ministry 
of Health requiring several years unless previously registered in an EU 
member state or with the London-based EU pharmaceutical agency, in 
which case the process is shortened to a few months. Vitamins are 
covered under this procedure; however, import of other nutritional 
supplements is prohibited, and they are dispensed only at pharmacies. 
Spanish authorities have been cooperative in resolving specific trade 
problems relating to standards and certifications brought to their 
attention. The United States has been negotiating with the EU for 
mutual recognition of product standards and acceptance of testing 
laboratory results.
6. Export Subsidies Policies
    Spain aggressively uses ``tied aid'' credits to promote exports, 
especially in Latin America, the Maghreb, and more recently, China. 
Such credits reportedly are consistent with the OECD arrangement on 
officially supported export credits.
    As a member of the EU, Spain benefits from EU export subsidies 
which are applied to many agricultural products when exported to 
destinations outside the Union. Total EU subsidies of Spanish 
agricultural exports amounted to about $197 million in 1998. Spanish 
exports of grains, olive oil, other oils, tobacco, wine, sugar, dairy 
products, beef, and fruits and vegetables benefited most from these 
subsidies in 1998.
7. Protection of U.S. Intellectual Property
    Spain adopted new patent, copyright, and trademark laws, as agreed 
at the time of its EU accession in 1986. It enacted a new Patent Law in 
March of 1986, a new Copyright Law in November 1987, and a new 
Trademark Law in November of 1988. All approximate or exceed EU levels 
of intellectual property protection. Spain is a party to the Paris, 
Berne, and Universal Copyright Conventions and the Madrid Accord on 
Trademarks. Government officials have said that their laws reflect 
genuine concern for the protection of intellectual property.
    In October 1992, Spain enacted a modernized Patent Law which 
increases the protection afforded patent holders. At that time, Spain's 
pharmaceutical process patent protection regime expired and product 
protection took effect. However, given the long (10 to 12 year) 
research and development period required to introduce a new medicine 
into the market, industry sources point out that the effect of the new 
law will not be felt until after the turn of the century. U.S. 
pharmaceutical manufacturers in Spain complain that this limits 
effective patent protection to approximately eight years and would like 
to see the patent term lengthened. Of at least equal concern to the 
U.S. industry is the issue of parallel imports, i.e. lower-priced 
products manufactured in Spain that are diverted to northern European 
markets where they are sold at higher prices. U.S. companies have 
suffered significant losses as a result. While the pharmaceutical 
sector would like the government to intervene, it looks to the EU 
commission and the advent of the euro to resolve this single market 
problem.
    The Copyright Law is designed to redress historically weak 
protection accorded movies, videocassettes, sound recordings and 
software. It includes computer software as intellectual property, 
unlike the prior law. In December 1993, legislation was enacted which 
transposed the EU software directive. It includes provisions that allow 
for unannounced searches in civil lawsuits and searches to take place 
under these provisions.
    According to industry sources, Spain has a relatively high level of 
computer software piracy despite estimated decline in the last years. 
Industry estimates for 1998 show a drop to 59 percent from 67 percent 
in 1996, but no measurable improvement over 1997. Despite the Spanish 
government increased enforcement activities, the slow pace of civil and 
criminal court proceedings continued to dilute their impact. As a 
result, concerned groups have focused increasingly on enforcement, with 
industry and government cooperating on a series of problems aimed at 
educating the judiciary, police, and customs officials to be more 
rigorous in their pursuit of the problem.
    Motion picture (i.e. video) and audiocassette piracy also remains a 
problem. However, thanks to the government, prohibition on running 
cable across public thoroughfares and strict enforcement of the 
Copyright Law that stipulates that no motion picture can be shown 
without authorization of the copyright holder, the incidence of 
community video piracy has declined.
    Spain's Trademark Law incorporates by reference the enforcement 
procedures of the Patent Law, defines trademark infringements as unfair 
competition and creates civil and criminal penalties for violations. 
The government has drafted a new Trademark Law which will incorporate 
TRIPs, the EU Community Trademark Directive, and the Trademark Law 
Treaty, and which will most likely be adopted in 2000. But first, the 
Spanish Supreme Court rendered a verdict on July 8, 1999, on case 
presented by Catalan and Basque governments against the existing 
trademark law, Ley 32/1998. The text of the law and its verdict is 
available at the Internet address: www.oepm.es under AVISOS Y NOTICIAS 
and LEGISLACION sections; Copy of sentence by fax). National 
authorities seem committed to serious enforcement efforts and there 
continue to be numerous civil and criminal actions to curb the problem 
of trademark infringement. To combat this problem in the textile and 
leather goods sector, the government began to promote the creation and 
sale of devices to protect trademark goods and to train police and 
customs officials to cope more effectively. Despite these efforts, 
industry estimates rank Spain as the country with the second highest 
incidence of trademark fraud in the clothing sector in Europe.
    In September 1999, in a trademark case in which a well-known U.S. 
apparel manufacturer complained about infringement of its brand name, 
the Spanish Supreme Court handed down a decision denying it the right 
to continue marketing its products under its trademark name in Spain.
8. Worker Rights
    a. The Right of Association: All workers except military personnel, 
judges, magistrates and prosecutors are entitled to form or join unions 
of their own choosing without previous authorization. Self-employed, 
unemployed and retired persons may join but may not form unions of 
their own. There are no limitations on the right of association for 
workers in special economic zones. Under the constitution, trade unions 
are free to choose their own representatives, determine their own 
policies, represent their members' interests, and strike. They are not 
restricted or harassed by the government and maintain ties with 
recognized international organizations.
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively was established by the workers 
statute of 1980. Trade union and collective bargaining rights were 
extended to all workers in the public sector, except the military 
services, in 1986. Public sector collective bargaining in 1989 was 
broadened to include salaries and employment levels. Collective 
bargaining is widespread in both the private and public sectors. Sixty 
percent of the working population is covered by collective bargaining 
agreements although only a minority are actually union members. Labor 
regulations in free trade zones and export processing zones are the 
same as in the rest of the country. There are no restrictions on the 
right to organize or on collective bargaining in such areas.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is outlawed and is not practiced. Legislation is effectively 
enforced.
    d. Minimum Age for Employment of Children: The legal minimum age 
for employment as established by the workers statute is 16. The 
Ministry of Labor and Social Security is primarily responsible for 
enforcement. The minimum age is effectively enforced in major 
industries and in the service sector. It is more difficult to control 
on small farms and in family-owned businesses. Legislation prohibiting 
child labor is effectively enforced in the special economic zones. The 
workers statute also prohibits the employment of persons under 18 years 
of age at night, for overtime work, or for work in sectors considered 
hazardous by the Ministry of Labor and Social Security and the unions.
    e. Acceptable Conditions of Work: Workers in general have 
substantial, well defined rights. A 40 hour workweek is established by 
law. Spanish workers enjoy 14 paid holidays a year (12 assigned by 
central government +2 by autonomous authorities) and a month's paid 
vacation. The employee receives his annual salary in 14 payments--one 
paycheck each month and an ``extra'' check in June and in December. The 
minimum wage is revised every year in accordance with the consumer 
price index. Government mechanisms exist for enforcing working 
conditions and occupational health and safety conditions, but 
bureaucratic procedures are cumbersome.
    f. Rights in Sectors with U.S. Investment: Conditions in sectors 
with U.S. investment do not differ from those in other sectors of the 
economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  199
Total Manufacturing............  ..............  7,435
  Food & Kindred Products......  1,756           ...............................................................
  Chemicals & Allied Products..  1,211           ...............................................................
  Primary & Fabricated Metals..  933             ...............................................................
  Industrial Machinery and       90              ...............................................................
   Equipment.
  Electric & Electronic          863             ...............................................................
   Equipment.
  Transportation Equipment.....  1,453           ...............................................................
  Other Manufacturing..........  1,128           ...............................................................
Wholesale Trade................  ..............  1,470
Banking........................  ..............  2,124
Finance/Insurance/Real Estate..  ..............  694
Services.......................  ..............  475
Other Industries...............  ..............  411
TOTAL ALL INDUSTRIES...........  ..............  12,807
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 SWEDEN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................      236.2      235.6      232.4
  Real GDP Growth (pct) \3\............        1.8        2.9        3.6
  GDP by Sector:
    Agriculture........................        1.5        1.5        1.5
    Manufacturing......................       47.5       47.0       47.0
    Services...........................       98.4       97.5       98.0
    Government.........................       45.0       44.5       44.0
  Per Capita GDP (US$) \2\.............     26,701     26,606     26,229
  Labor Force (000's)..................      4,264      4,255      4,391
  Unemployment Rate (pct)..............        8.0        6.6        5.6

Money and Prices (annual percentage
 growth):
  Money Supply (M3) \4\................        1.3        2.1        7.5
  Consumer Price Inflation.............        0.9       -0.6        0.5
  Exchange Rate (SEK/US$)..............       7.63       7.95       8.30

Balance of Payments and Trade:
  Total Exports FOB \5\................       82.6       84.6       84.0
    Exports to U.S.\6\.................        6.8        7.3        7.2
  Total Imports CIF \5\................       65.4       68.2       67.2
    Imports from U.S.\6\...............        3.9        4.0        3.9
  Trade Balance \5\....................       17.2       16.4       16.8
    Balance with U.S.\6\...............        2.9        3.3        3.3
  External Public Debt \7\.............       50.5       46.7       35.9
  Fiscal Balance/GDP (pct).............       -1.8        2.3        1.7
  Current Account Surplus/GDP (pct)....        2.8        2.3        1.4
  Foreign Debt Service Payments/GDP           1.89       3.00       5.70
   (pct)...............................
  Gold and Foreign Exchange Reserves...       11.8       14.3       18.4
  Aid from U.S.........................          0          0          0
  Aid from All Other Sources...........          0          0          0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  October 1999.
\2\ Decrease due to exchange rate fluctuations.
\3\ Percentage changes calculated in local currency.
\4\ Source: The Central Bank. M3 is the measurement used in Sweden, very
  close to a potential Swedish M2 figure.
\5\ Merchandise trade.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through October.
\7\ Source: Swedish National Debt Office.

1. General Policy Framework
    Sweden is an advanced, industrialized country with a high standard 
of living, extensive social services, a modern distribution system, 
excellent transport and communications links with the world, and a 
skilled and educated work force. Sweden exports a third of its Gross 
Domestic Product (GDP) and is a strong supporter of liberal trading 
practices. Sweden became a member of the European Union (EU) on January 
1, 1995, by which point it had already harmonized much of its 
legislation and regulation with the EU's as a member of the European 
Economic Area.
    Sweden uses both monetary and fiscal policy to achieve economic 
goals. Active labor market practices also are particularly important. 
The Central Bank is by law independent in pursuit of its avowed goal of 
price stability. Fiscal policy decisions in the late 1980's to lower 
tax rates while maintaining extensive social welfare programs swelled 
the government budget deficit and public debt, most of which is 
financed domestically. Since the beginning of 1995, however, Sweden has 
made impressive strides with its economic convergence program, having 
restored macroeconomic stability and created the conditions for 
moderate, low-inflation economic growth. The government intends to run 
budget surpluses for the foreseeable future in order to assure that the 
public pension system and other aspects of the welfare state are 
adequately funded in the face of expected demographic changes.
    During 1995 and 1996, Sweden pulled out of its worst and longest 
recession since the 1930s. (GDP declined by six percent from 1991 to 
1993). Unemployment started to come down in 1998, from average figures 
as high as 12 to 14 percent in the mid-1990s, now down to around 8 to 9 
percent. (Swedes quote two unemployment figures, open and ``hidden.'' 
``Hidden'' unemployment, those in government training and work 
programs, accounts for 3-3.5 percentage points of total unemployment.) 
In 1992 the Swedish Krona came under pressure and was floated late that 
year; Swedish interest rates soared but have come down rapidly starting 
in 1996, and are now around half a percentage point above German rates.
    Sweden's export sector is strong, resulting in large trade balance 
surpluses and solid current account surpluses since 1994. Domestic 
demand started to pick up in 1997 and has contributed to the growth 
since that year. It is now driving Sweden's strong growth (the growth 
figure for 1999 will be at least 3.6 percent), even though the export 
sector has recovered better than expected from the effects of the Asia 
crisis. Structural changes in recent years have prepared the way for 
future economic growth. The social democratic government at the end of 
the 1980's and the conservative coalition government at the beginning 
of the 1990's deregulated the credit market; removed foreign exchange 
controls; reformed taxes; lifted foreign investment barriers; and began 
to privatize government-owned corporations.
2. Exchange Rate Policies
    From 1977 to 1991, the krona was pegged to a trade weighted basket 
of foreign currencies in which the dollar was double weighted. From 
mid-1991, the krona was pegged to the ECU. Sweden floated the currency 
in November 1992 after briefly defending the krona during the 
turbulence in European financial markets. Although Sweden is an EU 
member, it has chosen not to join the European Monetary Union and does 
not currently participate in the European Exchange Rate Mechanism.
    Sweden dismantled a battery of foreign exchange controls in the 
latter half of the 1980's. No capital or exchange controls remain. (The 
central bank does track transfers for statistical purposes.)
3. Structural Policies
    Sweden's tax burden was 53 percent of GDP for 1999. Central 
government expenditure during the recent severe recession was nearly 75 
percent of GDP, and in 1999 it will come down to 57.5 percent. The 
maximum marginal income tax rate on individuals is 59 percent. 
Effective corporate taxes are comparatively low at 28 percent, though 
social security contributions add about 40 percent to employers' gross 
wage bills. The value-added tax is two-tiered, with a general rate of 
25 percent and a lower rate of 12 percent for food, domestic 
transportation, and many tourist-related services.
    Trade in industrial products between Sweden, other EU countries, 
and EFTA countries is not subject to customs duty, nor are a 
significant proportion of Sweden's imports from developing countries. 
When Sweden joined the EU, its import duties were among the lowest in 
the world, averaging less than five percent ad valorem on finished 
goods and around three percent on semi-manufactures. Duties were raised 
slightly on average to meet the common EU tariff structure. Most raw 
materials are imported duty free. There is very little regulation of 
exports other than military exports and some dual use products that 
have potential military or non-proliferation application.
    Sweden began abolishing a complicated system of agricultural price 
regulation in 1991. Sweden's EU membership and consequent adherence to 
the EU's common agricultural policy has brought some re-regulation of 
agriculture.
4. Debt Management Policies
    Central government borrowing guidelines require that most of the 
national debt be in Swedish crowns; that the borrowing be predictable 
in the short term and flexible in the medium term; that the government 
(that is, the Cabinet) direct the extent of the borrowing; and that the 
government report yearly to the parliament.
    Sweden's Central Bank and National Debt Office have borrowed 
heavily in foreign currencies since the fall of 1992, increasing the 
central government's foreign debt five-fold to about a third of the 
public debt. Management of the increased debt level so far poses no 
problems to the country, but interest payments on the large national 
debt grew rapidly in the early 1990's. Total debt is declining rapidly 
from early decade highs as a result of budgetary surpluses and strong 
economic growth. Gross government debt is projected to drop below 60 
percent of GDP next year.
5. Significant Barriers to U.S. Exports
    Sweden is open to imports and foreign investment and campaigns 
vigorously for free trade in the World Trade Organization (WTO) and 
other fora. Import licenses are not required except for items such as 
military material, hazardous substances, certain agricultural 
commodities, fiberboard, ferro alloys, some semi-manufactures of iron 
and steel. Sweden enjoys licensing benefits under section 5(k) of the 
U.S. Export Administration Act. Sweden makes wide use of EU and 
international standards, labeling, and customs documents in order to 
facilitate exports.
    Sweden has harmonized laws and regulations consistent with the EU. 
Sweden is now open to virtually all foreign investment and allows 100 
percent foreign ownership of businesses and commercial real estate, 
except in air and maritime transportation and the manufacture of 
military materiel. Foreigners may buy and sell any corporate share 
listed on the Stockholm Stock Exchange. Corporate shares may have 
different voting strengths.
    Sweden does not offer special tax or other inducements to attract 
foreign capital. Foreign-owned companies enjoy the same access as 
Swedish-owned enterprises to the country's credit market and government 
incentives to business such as regional development or worker training 
grants.
    Public procurement regulations have been harmonized with EU 
directives and apply to central and local government purchases. Sweden 
is required to publish all government procurement opportunities in the 
European Community Official Journal. Sweden participates in all 
relevant WTO codes concerned with government procurement, standards, 
etc. There are no official counter-trade requirements.
6. Export Subsidies Policies
    The government provides basic export promotion support through the 
Swedish Trade Council, which it and industry fund jointly. The 
government and industry also fund jointly the Swedish Export Credit 
Corporation, which grants medium and long-term credits to finance 
exports of capital goods and large-scale service projects.
    Sweden's agricultural support policies have been adjusted to the 
EU's common agricultural policy, including intervention buying, 
production quotas, and increased export subsidies.
    There are no tax or duty exemptions on imported inputs, no resource 
discounts to producers, and no preferential exchange rate schemes. 
Sweden is a signatory to the GATT subsidies code.
7. Protection of U.S. Intellectual Property
    In most cases, Swedish law strongly protects intellectual property 
rights having to do with patents, trademarks, copyrights, and new 
technologies. The laws are generally adequate and clear. However, 
enforcement is not as strong as it should be, especially in the area of 
copyright protection for software. The police and prosecutors need 
additional resources, some specialized training to help with acquiring 
and preserving evidence, and clear signals from the top of the 
government that copyright protection is a real priority, especially 
within Swedish public sector organizations. In addition, Swedish law 
poses a problem for copyright owners by permitting government 
ministries and parliament to provide to the public copies of works that 
may be unpublished and protected by copyright law.
    The courts are efficient and honest. Sweden supports efforts to 
strengthen international protection of intellectual property rights, 
often sharing U.S. positions on these questions. Sweden is a member of 
the World Intellectual Property Organization and is a party to the 
Berne Copyright and Universal Copyright Conventions and to the Paris 
Convention for the Protection of Industrial Property, as well as to the 
Patent Cooperation Treaty. As an EU member, Sweden has undertaken to 
adhere to a series of other multilateral conventions dealing with 
intellectual property rights.
8. Worker Rights
    a. The Right of Association: Laws protect the freedom of workers to 
associate and to strike, as well as the freedom of employers to 
organize and to conduct lock-outs. These laws are fully respected. Some 
83 percent of Sweden's work force belongs to trade unions. Unions 
operate independently of the government and political parties, though 
the largest federation of unions has always been linked with the 
largest political party, the Social Democrats.
    b. The Right to Organize and Bargain Collectively: Labor and 
management, each represented by a national organization by sector, 
negotiate framework agreements every two to three years. More detailed 
company agreements are reached locally. The law provides both workers 
and employers effective mechanisms, both informal and judicial, for 
resolving complaints.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, and the authorities effectively enforce 
this ban.
    d. Minimum Age for Employment of Children: Compulsory nine-year 
education ends at age 16, and the law permits full-time employment at 
that age under supervision of local authorities. Employees under age 18 
may work only during daytime and under supervision. Union 
representatives, police, and public prosecutors effectively enforce 
this restriction.
    e. Acceptable Conditions of Work: Sweden has no national minimum 
wage law. Wages are set by collective bargaining contracts, which non-
union establishments usually observe. The standard legal work week is 
40 hours or less. Both overtime and rest periods are regulated. All 
employees are guaranteed by law a minimum of five weeks a year of paid 
vacation; many labor contracts provide more. Government occupational 
health and safety rules are very high and are monitored by trained 
union stewards, safety ombudsmen, and, occasionally, government 
inspectors.
    f. Rights in Sectors with U.S. Investment: The five worker-right 
conditions addressed above pertain in all firms, Swedish or foreign, 
throughout all sectors of the Swedish economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  79
Total Manufacturing............  ..............  3,359
  Food & Kindred Products......  18              ...............................................................
  Chemicals & Allied Products..  1,496           ...............................................................
  Primary & Fabricated Metals..  6               ...............................................................
  Industrial Machinery and       316             ...............................................................
   Equipment.
  Electric & Electronic          52              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  224
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  782
Services.......................  ..............  1,009
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  6,053
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              SWITZERLAND


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................      256.3      262.1      261.4
  Real GDP Growth (pct)................        1.7        2.1        1.9
  GDP by Sector:
    Agriculture........................        N/A        N/A        N/A
    Manufacturing......................        N/A        N/A        N/A
    Services...........................        N/A        N/A        N/A
    Government \2\.....................       38.7         39       39.1
  Per Capita GDP (US$).................     37,415     37,059     39,244
  Labor Force (000's) \3\..............      2,601      2,621      2,610
  Unemployment Rate (pct)..............        5.2        3.9        2.7

Money and Prices (annual percentage
 growth):
  Money Supply (M3)....................        5.1        1.2        1.3
  Consumer Price Inflation (pct).......        0.5        0.0        0.6
  Exchange Rate (SFr/US$)..............       1.45       1.45       1.48

Balance of Payments and Trade:
  Total Exports \4\....................       72.5       75.2       82.0
    Exports to U.S.....................        7.1        7.6        8.6
  Total Imports \4\....................       71.1       73.7       79.3
    Imports from U.S...................          5        4.8        5.5
  Trade Balance \4\....................        1.4        1.5        N/A
    Balance with U.S...................          2          3        3.6
  External Public Debt \5\.............       66.9       75.6        N/A
    Fiscal Deficit/GDP (pct)...........        2.4        0.3        N/A
  Current Account Surplus/GDP (pct)....        6.5        5.9        7.8
  Debt Service Payments/GDP (pct)......        1.3        1.3        1.3
  Gold and Foreign Exchange Reserves          44.9       44.6       43.3
   \6\.................................
  Aid from U.S.........................          0          0          0
  Aid from All Other Sources...........          0          0          0
------------------------------------------------------------------------
\1\ All 1999 figures are estimates.
\2\ Including Social Welfare Expenditures.
\3\ Full-time equivalent employment.
\4\ Merchandise trade excluding gold and other precious metals, jewels,
  artworks, antiques; Source: Swiss Customs Administration; 1999 figures
  are estimates based on figures available through August.
\5\ Federal government only (i.e. excluding cantons and communities).
\6\ s of August 1999.

1. General Policy Framework
    Switzerland has a highly developed, internationally oriented, and 
open market. The economy is characterized by a sophisticated 
manufacturing sector, a highly skilled workforce, a large services 
sector and a high savings rate. Per capita GDP is virtually the highest 
in Europe while unemployment is practically the lowest.
    When Swiss voters decided in December, 1992, to reject the European 
Economic Area (EEA) Treaty, Switzerland found itself in the awkward 
position of being located in the heart of Europe, without being part of 
the EEA or a member of the EU. With some two-thirds of its exports 
going to Europe, the government is promoting efforts to maintain 
Switzerland's competitiveness in Europe while seeking to diversify its 
export markets. The Swiss parliament recently approved the bilateral 
agreements concluded with the EU Commission in December of 1998, which 
cover seven different sectors. However, before the agreements can take 
effect they will have to pass a public referendum in Switzerland and be 
ratified by all 15 EU member states.
    After strong economic growth during the eighties, the Swiss economy 
was Western Europe's weakest between 1990-1996, with growth averaging 
around 0.0 percent per year (unemployment, however, did not rise above 
5.5 percent). As a result of the economic stagnation, the country ran 
up large, unprecedented (for Switzerland) deficits causing a 
corresponding accumulation of public debt. A public initiative which 
passed in 1998, essentially requires the federal budget to be balanced 
and the government will thus have to reduce the deficit to less than 
one billion Swiss Francs by 2001 through strictly controlling 
expenditures. Modest economic recovery began in 1997 and annual GDP 
growth is expected to be 1.9 percent in 1999 and around 2.0 percent in 
2000.
    While no systematic use is made of fiscal policy to stimulate the 
economy, parliament voted in 1997 to spend $379 million over the next 
few years on an investment program to help the Swiss economy pull out 
recession. Most of the funds are being spent in the construction sector 
to renovate public infrastructure.
    The Swiss National Bank (SNB) is independent from the Finance 
Ministry. The primary objective of the SNB's policy is price stability. 
Monetary policy is conducted through open market operations. The 
discount rate is used by the SNB only as a signal to the public.
2. Exchange Rate Policies
    The Swiss Franc is not pegged to any foreign currency. The SNB 
carefully watches for signs of upward pressure on the Franc (the 
overvalued Franc was partly to blame for the economic stagnation of the 
early/mid 1990's). The SNB has shown its willingness to follow an 
accommodating money supply policy, even to exceed money supply growth 
targets when necessary, to hold the value of the franc down.
3. Structural Policies
    Few structural policies have a significant effect on U. S. exports. 
Two exceptions are telecommunications and agriculture. In 1998, a new 
law took effect that is bringing liberalization and privatization to 
the Swiss telecommunications sector, opening the market to investment 
and competition from U.S. and other firms. Since then, one U.S. firm 
(and its Swiss partner) has won one of the three licenses to provide 
cellular phone service. The same firm will also be building a large 
land network with fiber optic cabling.
    Agriculture is heavily regulated and supported by the federal 
government. Legislation which took effect January 1, 1999, is reducing 
direct government intervention in the market to set prices, but the 
high level of direct support for Swiss agricultural production will 
continue. The goal of the new legislation is to reduce government 
regulation of the market while maintaining agricultural production at 
current levels through import protection and direct payments linked to 
environmental protection.
    In early 1996, a new Cartel Law came into effect, introducing the 
presumption that horizontal agreements setting prices, production 
volume, or territorial distribution diminish effective competition and 
are therefore unlawful. For years, Switzerland has had a heavily 
cartelized domestic economy. Over time, the effect of this law should 
be to improve competition in the domestic economy.
    As part of its Uruguay Round commitments, Switzerland enacted 
legislation in 1996 providing for nondiscrimination and national 
treatment in public procurement at the federal level. A separate law 
makes less extensive guarantees at the cantonal and community levels.
4. Debt Management Policies
    As a net international creditor, debt management policies are not 
relevant to Switzerland.
5. Aid
    Switzerland receives no aid.
6. Significant Barriers to U.S. Exports
    Import Licenses: Import licenses for many agricultural products are 
subject to tariff-rate quotas and tied to an obligation for importers 
to take a certain percentage of domestic production. Tariffs remain 
quite high for most agricultural products that are also produced in 
Switzerland.
    Services Barriers: The Swiss services sector features no 
significant barriers to U.S. exports. Foreign insurers wishing to do 
business in Switzerland are required to establish a subsidiary or a 
branch here. Foreign insurers may offer only those types of insurance 
for which they are licensed in their home countries. Until recently, 
the most serious barriers to U.S. exports existed in the area of 
telecommunications. However, with the privatization and liberalization 
which became effective in this sector in 1998, this market has been 
greatly opened to foreign competitors.
    Standards, Testing, Labeling, and Certification: Swiss approval and 
labeling requirements for genetically modified food products and 
ingredients are among the strictest in the world. Swiss authorities are 
currently reviewing their requirement that all food and feed products 
containing genetically modified ingredients be labeled. They have 
proposed modifying the requirements to require labeling only if the 
content is above a set percentage. Separately, a new law will take 
effect in January, 2000, which stipulates that fresh meat and eggs from 
abroad that are produced in a manner not permitted in Switzerland must 
be clearly labeled as such. Methods not allowed in Switzerland include 
the use of hormones, antibiotics and other anti-microbial substances in 
the raising of beef and pork as well as the production of eggs from 
chickens kept in certain types of battery cages. Embassy Bern will be 
monitoring developments in this matter for indications of any adverse 
influence on U.S. agriculture sales in Switzerland.
    Government Procurement Practices: On the federal level, Switzerland 
is a signatory of the WTO Government Procurement Agreement and fully 
complies with WTO rules concerning public procurement. On the cantonal 
and local levels, a law passed by the parliament in 1995 provides for 
nondiscriminatory access to public procurement. The United States and 
Switzerland reached agreement in 1996 to expand the scope of public 
procurement access on a bilateral basis.
    With the exception of certain restrictions on agricultural items, 
the Swiss market is essentially open for the import of U.S. goods.
7. Export Subsidies Policies
    Switzerland's only subsidized exports are in the agricultural 
sector, where exports of dairy products (primarily cheese) and 
processed food products (chocolate products, grain-based bakery 
products, etc.) benefit from state subsidies. Switzerland is gradually 
reducing the export subsidies as required under World Trade 
Organization (WTO) rules. The government has negotiated, but not yet 
ratified, an agreement with the European Union that neither country 
will subsidize dairy product exports to the other.
8. Protection of U.S. Intellectual Property
    Switzerland has one of the best regimes in the world for the 
protection of intellectual property and protection is afforded equally 
to foreign and domestic rights holders. Switzerland is a member of all 
major international intellectual property rights conventions and was an 
active supporter of a strong IPR text on the GATT Uruguay Round 
negotiations. Enforcement is generally very good. Switzerland is a 
member of both the European Patent Convention and the Patent 
Cooperation Treaty (PCT). A new Copyright Law in 1993 improved a regime 
that was already quite good. The law explicitly recognizes computer 
software as a literary work and establishes a remuneration scheme for 
private copying of audio and video works which distributes proceeds on 
the basis of national treatment.
    Since May of 1998, Switzerland has been in compliance with its 
obligation under TRIPS to protect company test data required by 
national authorities in order to obtain approval to market 
pharmaceuticals. The new regulation enacted by the Swiss Intercantonal 
Office for the Control of Medicines mandates a 10-year protection 
period for such data. Prior to this regulation taking effect, the lack 
of protection in this area negatively impacted one U.S. company. 
However, it is now very unlikely that any further problems will arise 
for U.S. firms.
    According to industry sources, software piracy continues to be a 
problem. This appears to be largely due to illegal copying by 
individuals and some small and medium-sized establishments. It is 
highly unlikely that there are any exports. Industry sources estimate 
lost sales due to software piracy at $80 million in 1998. Trade losses 
and denied opportunities for sales and investment in all other IPR 
sectors are minor in comparison.
    Switzerland is not on the U.S. ``Special 301 Watch List'' or 
``Priority Watch List.'' Neither is it identified as a ``Priority 
Foreign Country.''
9. Worker Rights
    a. The Right of Association: All workers, including foreign 
workers, have freedom to associate freely, to join unions of their 
choice, and to select their own representatives.
    b. The Right to Organize and Bargain Collectively: Swiss law gives 
workers the right to organize and bargain collectively and protects 
them from acts of antiunion discrimination. The right to strike is 
legally recognized, but a unique informal agreement between unions and 
employers has meant fewer than 10 strikes per year since 1975. There 
were no significant strikes thus far during 1999.
    c. Prohibition of Forced or Compulsory Labor: There is no forced or 
compulsory labor, although there is no legal prohibition of it.
    d. Minimum Age for Employment of Children: The minimum age for 
employment of children is 15 years. Children over 13 may be employed in 
light duties for not more than 9 hours a week during the school year 
and 15 hours otherwise. Employment between ages 15 and 20 is strictly 
regulated.
    e. Acceptable Conditions of Work: There is no national minimum 
wage. Industrial wages are negotiated during the collective bargaining 
process. Such wage agreements are also widely observed by non-union 
establishments. The Labor Act establishes a maximum 45-hour workweek 
for blue and white collar workers in industry, services, and retail 
trades, and a 50-hour workweek for all other workers. The law 
prescribes a rest period during the workweek. Overtime is limited by 
law to 260 hours annually for these working 45 hours per week and to 
220 hours annually for those working 50 hours per week.
    The Labor Act and the Federal Code of Obligations contain extensive 
regulations to protect worker health and safety. The regulations are 
rigorously enforced by the Federal Office of Industry, Trades, and 
Labor. There were no allegations of worker rights abuses from domestic 
or foreign sources.
    f. Rights in Sectors with U.S. Investments: Except for special 
situations (e.g. employment in dangerous activities regulated for 
occupational, health and safety or environmental reasons), legislation 
concerning workers rights does not distinguish among workers by sector, 
by nationality, by employer, or in any other manner which would result 
in different treatment of workers employed by U.S. firms from those 
employed by Swiss or other foreign firms.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  15
Total Manufacturing............  ..............  5,508
  Food & Kindred Products......  47              ...............................................................
  Chemicals & Allied Products..  2,859           ...............................................................
  Primary & Fabricated Metals..  217             ...............................................................
  Industrial Machinery &         576             ...............................................................
   Equipment.
  Electric and Electronic        609             ...............................................................
   Equipment.
  Transportation Equipment.....  403             ...............................................................
  Other Manufacturing..........  797             ...............................................................
Wholesale Trade................  ..............  7,831
Banking........................  ..............  3,695
Finance/Insurance/Real Estate..  ..............  18,446
Services.......................  ..............  1,651
Other Industries...............  ..............  469
TOTAL ALL INDUSTRIES...........  ..............  37,616
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 TURKEY


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998       1999
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP.............................      190.4      198.7   \1\ 78.0
Real GDP Growth (pct)                          7.5        2.8       -5.0
  GDP by Sector:
    Agriculture........................       27.6       34.4        6.6
    Manufacturing......................       41.1       39.0       16.6
    Services...........................       91.0       93.5       52.1
    Government.........................       17.1       18.4       10.6
  Per Capita GDP (US$).................      3,105      3,224
  Labor Force (000's)..................     22,359     23,415  \2\ 23,77
                                                                       9
  Unemployment Rate (pct)..............        6.9        6.2    \2\ 7.3

Money and Prices (annual percent
 growth):
  Money Supply Growth (nominal M2).....         96      106.2  \3\ 105.3
  Consumer Price Inflation.............       99.1       69.7   \4\ 64.6
  Exchange Rate (TL/US$ annual average)    151,239    259,815  \4\ 517,7
                                                                      50

Balance of Payments and Trade (Suitcase
 Trade Included):
  Total Exports FOB....................       32.6       31.2   \5\ 14.6
    Exports to U.S.....................        2.1        2.5    \6\ 1.6
  Total Imports CIF....................       48.0       45.6       21.8
    Imports from U.S...................        3.5        3.5    \6\ 2.2
  Trade Balance........................      -15.4      -14.4       -7.2
    Balance with U.S...................      -2.33      -1.84       -0.5
  External Public Debt.................       91.1      102.0    \1\ 105
  Fiscal Deficit/GDP (pct).............       -7.8       -7.4         12
  Current Account Balance/GDP (pct)....      -1.37       0.94       -0.5
  Debt Service Payments/GDP (pct)......        6.5        8.1        8.5
  Gold and Foreign Exchange Reserves          27.2       31.6     \3\ 35
   \8\.................................
  Aid from U.S.........................       0.31       .006        .02
  Aid from Other Sources...............        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ Estimate as of November 1999--all GDP figures for previous years are
  as of June.
\2\ 96, 97 and 98 figures are as of October; 99 figure is as of April.
\3\ As of October 1999.
\4\ As of November 8, 1999.
\5\ As of July 1999--all 99 trade figures are as of July.
\6\ As of August 99.
\7\ Includes reserves held by central bank and commercial banks.

Source: Turkish State Institute of Statistics, Turkish Treasury
  Undersecretariat, Central Bank of Turkey.

1. General Policy Framework
    From the establishment of the Republic in 1923 until 1981, Turkey 
was an insulated, state-directed economy. In 1981 the country embarked 
on a new course. The government abandoned protectionist policies and 
opened the economy to foreign trade and investment. The state slowly 
began to give up much of its role in directing the economy and to 
abolish many outdated restrictions on private business. These reforms 
unleashed the country's private sector and have brought impressive 
benefits. Since 1981, Turkey's average 5.2 percent real GNP growth rate 
has been the highest of any OECD country. Turkey's efforts reached a 
new stage in January 1996 in terms of market opening, with the 
inauguration of a customs union with the European Union. Turkey has 
harmonized nearly all of its trade and industrial policies with those 
of the EU and has begun to reap benefits from the customs union, 
particularly in terms of improved economic efficiency, which, in turn, 
has had a positive impact on overall U.S. exports to and investments in 
Turkey. The long-term consequences of the customs union should be very 
favorable, particularly in terms of trade creation and investment.
    Despite the impressive reforms introduced since 1981, Turkey 
continues to suffer from an inefficient public sector and weak 
political leadership. These factors, combined with a high domestic debt 
interest burden and the private sector's ingrained high inflation 
expectations, constrain higher growth rates. Consumer price index 
inflation has averaged about 78 percent since 1988, but dropped to 65 
percent in 1999. In 1994, government attempts to manipulate interest 
rates triggered a financial crisis and forced the government to 
introduce a tough austerity program. The sharp 1994 recession was 
Turkey's worst since World War II. The economy bounced back strongly, 
however, growing by over 8 percent from 1995 through 1997. Strong 
export growth sparked a surge in imports of raw materials and 
intermediate and capital goods through mid-1998, as did the elimination 
of import duties and surcharges for most EU goods, which accompanied 
the introduction of the customs union on January 1, 1996.
    After declining in 1994 and 1995, the budget deficit and public 
sector borrowing requirement both rose significantly from 1996 through 
1999, reflecting continued populist economic measures introduced by 
successive Turkish governments. The Yilmaz government, in power from 
July 1997 to November 1998, undertook significant (if gradualist) 
disinflationary reforms and permitted the central bank to continue its 
disciplined monetary and exchange rate policies, thus increasing market 
confidence. The Ecevit government in place since June 1999, has passed 
important structural reforms in banking and social security and passed 
constitutional amendments granting foreign concession holders access to 
international arbitration and providing the legal underpinning for 
privatization of state-owned companies.
    Turkey and the IMF concluded a Staff Monitored Program (SMP) in 
mid-1998. The government met or exceeded its year-end SMP targets, 
including achieving a 54.7 percent year-end WPI inflation rate, its 
lowest since 1991. Further progress in implementing structural reforms 
will lead to an IMF stand-by at the end of 1999. The government has set 
an ambitious year-end 2000 WPI inflation target of 20 percent as well 
as a $5 billion target for privatization revenues. The Asian and 
Russian financial crises did not seriously affect Turkey's economy. Any 
slowdown in the EU or U.S. economies (which take a 65 percent share of 
Turkey's exports) will restrict Turkey's ability to attract foreign 
capital or to expand its exports at the desired rate.
    Building on significant liberalization of the economy in the mid-
1980s, Turkey's private sector has become less dependent on the 
government. As a result, it has grown at an even faster pace than the 
overall economy, while it also expanded its share of Turkey's GDP. 
Turkey's most successful companies are foreign oriented and very 
competitive. Since 1992, total bilateral trade volumes have expanded by 
45 percent, totaling $6.2 billion at the end of 1998. U.S. exports have 
grown by over 36 percent, while Turkish exports have more than doubled 
in value. The U.S. retains a substantial trade surplus with Turkey. 
Investment levels remain flat, though significant opportunities remain 
in the energy and telecommunications sectors for further investments, 
should the government pass implementing legislation for access to 
international arbitration and for energy and telecom sector regulation.
2. Exchange Rate Policy
    The Turkish Lira (TL) is fully convertible and the central bank 
follows a crawling peg exchange rate policy aimed at the WPI target of 
20 percent by the end of 2000. The system was adopted on January 1, 
2000, with a pre-announced rate of crawl over the course of the year. 
The central bank has also committed to various monetary targets to 
support this new exchange rate mechanism.
    Overvaluation of the TL from 1989-93 was a significant factor in 
the 1994 financial crisis. As a result, the TL depreciated against the 
dollar in real terms in 1994. Since then, the central bank has 
maintained a stable real exchange rate measured against a trade-
weighted dollar/Euro basket.
3. Structural Policies
    Turkey has made substantial progress in implementing certain 
structural reforms and liberalizing its trade, investment, and foreign 
exchange regimes. The resulting rapid economic growth and high rate of 
private business creation during the 1980s and 1990s has generated 
tremendous demand for imported goods, particularly capital and 
intermediate goods and raw materials, which together account for over 
85 percent of total imports.
    Successive governments' failure to complete the structural reform 
measures needed to transform Turkey's economy into a liberal, market-
directed economy has limited private sector growth and prevented the 
economy from functioning at full efficiency. State-owned enterprises 
still account for some 35 percent of manufacturing value added. 
Although some of these firms are profitable, transfers to state firms 
constitute a substantial drain on the budget. Government control of key 
retail prices (especially in the energy and utilities sectors) also 
contributes to market distortion, as prices are sometimes manipulated 
to meet political objectives (held in check before elections, 
accelerating after). The government actively supports the agricultural 
sector through both subsidized inputs and crop support payments of up 
to twice world price levels.
    Turkey and the European Union entered into a customs union on 
January 1, 1996. Nearly all industrial goods from EU and EFTA countries 
now enter Turkey duty-free. Turkey has adopted the EU's common external 
tariff for third countries, which has resulted in significantly lower 
tariffs for U.S. products. The government also has abolished various 
import surcharges. As part of the customs union agreement, Turkey has 
revised its trade, competition, and incentive policies to meet EU 
standards. While these EU-related reforms in general help U.S. 
exporters, agricultural goods continue to face prohibitive tariffs.
4. Debt Management Policies
    As of June 1999, Turkey's gross outstanding external debt was $100 
billion, 76.5 percent of which is government debt. Debt service 
payments in 1999 will amount to an estimated 8.5 percent of GNP (and 36 
percent of current account receipts). Turkey has had no difficulty 
servicing its foreign debt in recent years.
    In 1999 Turkey has issued almost $4 billion in sovereign debt, 
above its $3 billion official target. At the same time, Turkey's 
domestic debt stock has increased significantly owing to continuing 
high real interest rates.
5. Aid
    In 1998, the United States ended its Economic Support Fund and 
Foreign Military Financing (market-rate loans) support for Turkey. In 
1999, the United States provided Turkey $2 million in assistance under 
a USAID-funded family planning program, $1.4 million in International 
Military Education and Training funding, and $500,000 in counter-
narcotics assistance. Turkey receives significant grant and loan aid 
from the European Union, but much of this is on hold as the result of 
political disputes with Greece.
6. Significant Barriers to U.S. Exports
    The introduction of Turkey's customs union with the EU in 1996 
resulted in reduced import duties for U.S. industrial exports. The 
weighted rate of protection for non-EU/EFTA industrial products dropped 
from 11 percent to 6 percent. By comparison, the rate of protection for 
industrial exports from EU and EFTA countries in 1995 had been 6 
percent; nearly all these goods now enter Turkey duty-free. There have 
been few complaints from U.S. exporters that the realignment of duty 
rates under the customs union has disrupted their trade with Turkey. A 
significant number of U.S. companies have reported that the customs 
union has benefited them by reducing tariffs on goods they already 
exported to Turkey from European subsidiaries. The customs union does 
not cover agricultural trade or services e.g. 200,000 tons of wheat and 
19,000 tons of rice are allowed duty free entry from the EU. U.S. 
exporters have voiced increasing frustration over barriers to 
agricultural trade, most notably a ban on the import of livestock. 
However, the import ban on livestock and meat was partially lifted for 
breeder cattle in 1999, although none had been imported by late 1999.
    Import Licenses: While import licenses generally are not required 
for industrial products, products which need after-sales service (e.g. 
photocopiers, ADP equipment, diesel generators) and agricultural 
commodities require licenses. In addition, the government requires 
laboratory tests and certification that quality standards are met for 
importation of human and veterinary drugs and foodstuffs. While 
licenses are generally issued in one to two weeks, occasional delays 
can cause problems for U.S. exporters.
    Government Procurement Practices: Turkey is not a signatory of the 
WTO Government Procurement Agreement. It nominally follows competitive 
bidding procedures for tenders. U.S. companies sometimes become 
frustrated over lengthy and often complicated bidding and negotiating 
processes. Some tenders, especially large projects involving co-
production, are frequently opened, closed, revised, and opened again. 
There are often numerous requests for ``best offers;'' in some cases, 
years have passed without the selection of a contractor.
    The entry into force of a Bilateral Tax Treaty between the U.S. and 
Turkey in 1998 eliminated the application of a 15 percent withholding 
tax on U.S. bidders for Turkish government contracts.
    Investment Barriers: The U.S.-Turkish Bilateral Investment Treaty 
(BIT) entered into force in May 1990. Turkey has an open investment 
regime. There is a screening process for foreign investments, which the 
government applies on an MFN basis; once approved, firms with foreign 
capital are treated as local companies. Although Turkey has a BIT with 
the United States, and despite its membership in international dispute 
settlement bodies, Turkish courts have not recognized investors' rights 
to third party arbitration under any contract defined as a concession. 
This has been particularly problematic in the energy, 
telecommunications and transportation sectors. Passage of 
constitutional amendments granting access to international arbitration 
to foreign investors should correct this problem; however, the 
implementing legislation needed to enforce these new amendments must 
still be enacted.
7. Export Subsidies Policies
    Turkey employs a number of incentives to promote exports, although 
programs have been scaled back in recent years to comply with EU 
directives and GATT/WTO standards. Barley, wheat, tobacco and sugar 
exports are subsidized heavily. The Turkish Eximbank provides exporters 
with credits, guarantees, and insurance programs. Certain tax credits 
also are available to exporters.
8. Protection of U.S. Intellectual Property
    In 1995, as part of Turkey's harmonization with the EU in advance 
of a customs union, the Turkish Parliament approved new patent, 
trademark and copyright laws. Turkey also acceded to a number of 
multilateral intellectual property rights (IPR) conventions. Although 
the new laws provide an improved legal framework for protecting IPR, 
they require further amendments to be consistent with the standards 
contained in the WTO Agreement on Trade Related Aspects of Intellectual 
Property Rights (TRIPS). The government has declared that intends to 
have a TRIPS-compatible IPR regime in place by the end of the year and 
has volunteered for a WTO TRIPS review in the second half of 2000. 
Draft amendments to the Copyright Law awaited parliamentary approval at 
the end of 1999.
    Turkey has been on the ``Special 301'' Priority Watch List since 
1992. In the 1997 ``Special 301'' review, USTR provided Turkey with a 
set of benchmarks necessary in order to improve its status in the 301 
process. In April 1998, the U.S. announced that it would not consider 
requests to augment Turkey's benefits under the U.S. generalized system 
of preferences until further progress is made on the benchmarks. Out of 
the six benchmarks, Turkey has made significant progress on four and is 
in the process of addressing the problems identified in the fifth and 
sixth benchmarks.
    Taxes on the showing of foreign and domestic films were equalized 
in 1998. The Prime Minister issued a circular in 1998 directing all 
government agencies to legalize the software used in their offices. A 
public anti-piracy campaign was begun in 1998 and the government has 
made efforts to educate businesses, consumers, judges and prosecutors 
regarding the implications of its laws. Turkey extended patent 
protection to pharmaceutical products in January 1999 in accordance 
with Turkey's Customs Union commitments to the EU. Turkey currently is 
in the process of amending its copyright legislation. In August 1999, 
fines were increased by 800 percent and indexed to inflation. Turkish 
police and prosecutors are working closely with trademark, patent and 
copyright holders to conduct raids against pirates within Turkey. 
Although many seizures have been made (including by Turkish Customs 
officials at ports of entry), and several cases have been brought to 
conclusion successfully, U.S. industry remains concerned that fines and 
penalties levied by the courts are insufficient to serve as a 
significant deterrent.
9. Worker Rights
    a. The Right of Association: All workers except police and military 
personnel have the right to associate freely and to form representative 
unions. Most workers also have the right to strike, but the 
constitution does not permit strikes among workers employed in the 
public utilities, petroleum, sanitation, education and national defense 
sectors, or by workers responsible for protection of life and property. 
Turkish law requires collective bargaining before a strike. Solidarity, 
wildcat, and general strikes are illegal. The law on free trade zones 
forbids strikes for 10 years following the establishment of a free 
trade zone, although union organizing and collective bargaining are 
permitted. The high arbitration board settles disputes in all areas 
where strikes are forbidden.
    b. The Right to Organize and Bargain Collectively: Apart from the 
categories of public employees noted above, Turkish workers have the 
right to organize and bargain collectively. The law requires that in 
order to become a bargaining agent, a union must represent not only 
``50 percent plus one'' of the employees at a given work site, but also 
10 percent of all workers in that particular branch of industry 
nationwide. After the Ministry of Labor certifies the union as the 
bargaining agent, the employer must enter good faith negotiations with 
it.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor, and it is not practiced.
    d. Minimum Age for Employment of Children: The constitution and 
labor laws forbid employment of children younger than age 15, with the 
exception that those 13 and 14 years of age may engage in light, part-
time work if enrolled in school or vocational training. The 
constitution also prohibits children from engaging in physically 
demanding jobs such as underground mining and from working at night. 
The Ministry of Labor enforces these laws effectively only in the 
organized industrial sector.
    In practice, many children work because families need the 
supplementary income. An informal system provides work for young boys 
at low wages, for example, in auto repair shops. Girls are rarely seen 
working in public, but many are kept out of school to work in 
handicrafts, especially in rural areas. The bulk of child labor occurs 
in rural areas and is often associated with traditional family economic 
activity, such as farming or animal husbandry. It is common for entire 
families to work together to bring in the crop during the harvest. The 
government has recognized the growing problem of child labor and has 
been working with the ILO to discover its dimension and to determine 
solutions. With the passage in 1997 of the eight-year compulsory 
education program the number of child workers was reduced 
significantly. Children enter school at age 6 or 7 and are required to 
attend until age 14 or 15.
    e. Acceptable Conditions of Work: The Ministry of Labor is legally 
obliged, through a tripartite government-union-industry board, to 
adjust the minimum wage at least every two years and does so regularly. 
Labor law provides for a nominal 45 hour work week and limits the 
overtime that an employer may request. Most workers in Turkey receive 
nonwage benefits such as transportation and meal allowances, and some 
also receive housing or subsidized vacations. In recent years, fringe 
benefits have accounted for as much as two-thirds of total remuneration 
in the industrial sector. Occupational safety and health regulations 
and procedures are mandated by law, but limited resources and lack of 
safety awareness often result in inadequate enforcement.
    f. Rights in Sectors with U.S. Investment: Conditions do not differ 
in sectors with U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  97
Total Manufacturing............  ..............  604
  Food & Kindred Products......  208             ...............................................................
  Chemicals & Allied Products..  53              ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          -9              ...............................................................
   Equipment.
  Transportation Equipment.....  99              ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  224
Finance/Insurance/Real Estate..  ..............  15
Services.......................  ..............  46
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  1,069
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                UKRAINE


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................     44.00     40.76     31.37
  Real GDP Growth (pct) \2\...............      -3.2      -1.7      -0.7
  GDP by Sector:
    Agriculture...........................      5.21      4.48      5.51
    Manufacturing.........................     14.46     11.80     12.15
    Services..............................      20.1      16.7      16.9
    Government............................       N/A       N/A       N/A
  Per Capita GDP (US$)....................       863       850       629
  Labor Force (millions)..................      22.6      22.3       N/A
  Unemployment Rate (pct).................       3.1       3.2      5.95

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      39.3      33.2      27.8
  Consumer Price Inflation................      10.3      29.0        16
  Exchange Rate (Hryvnia/US$ annual              1.9       2.7       N/A
   average)...............................
    Official..............................      1.85      2.50       4.1

Balance of Payments and Trade:
  Total Exports, FOB \3\..................      15.4      16.4      14.8
    Exports to U.S. (US$ millions) \4\....       414       634       N/A
  Total Imports, CIF \3\..................      19.6        17      13.9
    Imports from U.S. (US$ millions) \4\..       404       887       N/A
  Trade Balance \3\.......................      -4.2      -0.6       0.9
    Balance with U.S. (US$ millions) \4\..        10       253       N/A
  External Public Debt/GDP (pct)..........      23.8      29.0        40
  Fiscal Deficit/GDP (pct)................       5.6       2.5       1.5
  Current Account Deficit/GDP (pct).......      -2.6      -2.8     -3.03
  Debt Service Payments/GDP (pct).........       3.3       N/A       5.4
  Gold and Foreign Exchange Reserves......       2.4       1.2       1.2
  Aid from U.S. (US$ millions) \5\........       369       225       195
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data
  through September 1999, or are 1999 forecast. Source: Government of
  Ukraine. Depreciation of local currency in relation to dollar accounts
  for significant portion of annual drop in nominal dollar amounts.
\2\ Percentage changes calculated in local currency, adjusted for
  inflation.
\3\ Merchandise trade.
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.
\5\ Figures are actual FY expenditures. Cumulative budgeted assistance
  (credits and grants) for FY 92-97 totals approximately $2.46 billion.

1. General Policy Framework
    Since achieving independence in August 1991, Ukraine has followed a 
course of democratic development and gradual economic reform. After a 
period of hyperinflation, it curbed inflation and successfully 
introduced a new currency, the ``hryvnia,'' in 1996. A tremendous 
amount of work still lies ahead in the area of economic development and 
the creation of an economic environment conducive to foreign investment 
and governed by market forces. Ukraine's economic inheritance from the 
Soviet Union of a large defense sector and energy-intensive heavy 
industry has made the transition to a market economy particularly 
difficult. Ukraine's principal resources and economic strengths include 
rich agricultural land, significant coal and more modest gas and oil 
reserves, a strong scientific establishment, and an educated, skilled 
workforce. Ukraine is an important emerging market at the crossroads of 
Eastern Europe, Russia, Central Asia, and the Middle East, and holds 
great potential for becoming an important new market for U.S. trade and 
investment. A significant number of both large multinationals and 
smaller foreign investors are present, although private investment 
(including U.S. investment) is greatly hampered by overregulation, lack 
of transparency, high business taxes, and inconsistent application of 
local law.
    Ukraine still has much progress to make in the areas of large-scale 
privatization, tax reform, and contract enforcement. The government has 
generally been successful in efforts to achieve macroeconomic 
stability. After initially being hard hit by the August 1998 Russian 
financial crisis, Ukraine weathered the effects of this crisis 
relatively well during 1999. Economic growth in the formal sector 
showed signs of a modest recovery after nearly a decade of decline. 
Inflation remained relatively low, at slightly more than 10 percent 
during the first nine months of 1999. September 1998 saw the first 
disbursements to Ukraine from the International Monetary Fund (IMF) 
Extended Fund Facility (EFF). The three-year, $2.2 billion EFF program 
stipulated that the Ukrainian government take steps towards tax reform, 
a lower budget deficit, and further progress in privatization, 
deregulation, and other measures to encourage private investment. 
Several times during 1999 Ukraine fell out of compliance with IMF 
conditionalities, causing the IMF temporarily to hold up EFF 
disbursements. In most instances, Ukraine took steps to bring itself 
back in line with EFF requirements, and disbursements were resumed. 
However, Ukraine fell off track again with the IMF in September, 1999 
due to a failure to follow through on communal tariff increases, and as 
of late 1999, they had not yet secured IMF funding. Ukrainian foreign 
currency reserves increased during the period January-November 1999, 
reaching approximately $1.2 billion.
    Nevertheless, the Ukrainian government's financial problems 
continued. Following the Asian and Russian financial crises, Ukraine's 
previously easy access to private foreign financing diminished. 
Deterioration of the important Russian market for Ukrainian goods 
caused a significant drop in exports. The situation of the private 
banking sector, rife with non-performing loans and lacking good lending 
opportunities, remained precarious. Despite some progress in 
deregulation in 1999, Ukraine still awaited a much-needed surge in new 
investment. Domestic and foreign investors remained discouraged by a 
confusing and burdensome array of tax, customs and certification 
requirements, corruption, and the absence of an effective system of 
commercial law.
    The exchange rate relative to the U.S. dollar had remained steady 
within a narrow band in 1996 and 1997, but between August 1 and 
September 30, 1998, the hryvnia depreciated approximately 40 percent 
against the dollar before stabilizing. The hryvnia depreciated by 
approximately 35 percent during the first ten months of 1999.
    Ukraine's budget deficit has largely been the result of excessive 
spending on social programs and subsidies to both noncompetitive 
industries and private consumers, coupled with inadequate revenue 
collection. Financing was achieved through a combination of issuance of 
T-Bills to domestic and foreign borrowers, borrowing from the National 
Bank of Ukraine (NBU), assistance from international financial 
institutions (IFIs), and accumulation of wage and pension arrears. With 
the onset of the Russian financial crisis in August 1998, however, the 
market for government debt has largely dried up, and the government has 
had to rely increasingly upon credits from international financial 
institutions (IFIs), especially the IMF and World Bank. Ukraine has 
followed a relatively strict monetary policy for the past several years 
as part of its effort to control inflation and maintain the value of 
the hryvnia. During 1999, it continued efforts to reduce liquidity 
through raising bank reserve requirements, although it at the same time 
it relaxed somewhat its control of foreign exchange operations. 
Domestic arrears for wages and pensions has also been an important 
source of funds to finance the deficit.
2. Exchange Rate Policy
    In February 1999, the NBU established a new official currency 
exchange band range of 3.4 to 4.6 hryvnia per dollar. Although the NBU 
lifted most currency transaction restrictions during March through June 
(including a ban on advance payment on import contracts) and opened an 
interbank market for foreign exchange, some restrictions remain. 
Enterprises are still obliged to sell 50 percent of their hard currency 
earnings. The NBU also limited deviation of the cash market exchange 
rates from the official rate to 10 percent.
    Such restrictions have produced hardships for U.S. firms doing 
business with Ukraine. U.S. exporters were reluctant to ship goods 
without prior payment, while U.S. businesses operating in Ukraine (many 
of which are highly dependent on imports) have had difficulties in 
obtaining materials necessary for their operations. The NBU has stated 
it may give up the currency band in 2000.
3. Structural Policies
    There are no pricing requirements for consumer goods in Ukraine. 
Stiff import tariffs and VAT taxes, along with the small number of 
suppliers of Western products in Ukraine, tend to keep prices of 
imported goods high.
    Ukraine's burdensome and nontransparent tax structure remains a 
major hindrance to foreign investment and business development. 
Personal income and social security taxes remain high. Combined payroll 
taxes were reduced by Presidential Decree from 48.5 percent to 37.5 
percent effective January 1, 1999. Tax filing and collection procedures 
do not correspond to practices in Western countries. Import duties and 
excise taxes are often changed with little advance notice, giving 
foreign investors little time to adjust to new requirements.
    The regulatory environment is chaotic and Ukraine's product 
certification system is one of the most serious obstacles to trade, 
investment, and ongoing business. Although new licensing legislation is 
being drafted, procedures for obtaining various licenses remain complex 
and unpredictable, significantly raising the cost of doing business in 
Ukraine, and encouraging corruption and the development of the shadow 
economy.
4. Debt Management Policies
    Ukraine's foreign debt stood at $12.4 billion in July 1999, around 
40 percent of GDP. The largest amount is owed to Russia and 
Turkmenistan, primarily for past trade credits for deliveries of gas, 
which have been rescheduled into long-term state credits. Ukraine owed 
about $5.07 billion to international financial institutions and 
bilateral export credit agencies. External debt service as a percent of 
GDP was expected to be 5.4 percent in 1999. This figure for 2000 is 
expected to reach ten percent because of large foreign debts that will 
become due during that year.
    In September 1998 the IMF approved a three-year, $2.2 billion 
Extended Fund Facility (EFF) intended to overcome balance of payments 
difficulties stemming from macroeconomic imbalances and structural 
problems. Monthly disbursements under the EFF are conditioned on 
Ukraine pursuing more aggressive economic reform, and maintaining 
foreign reserve levels and a low budget deficit. As noted above, in 
1999 Ukraine has periodically fallen out of compliance with IMF 
conditionalities but then taken steps to bring itself back in accord, 
allowing the resumption of EFF disbursements. In August, the government 
rescheduled part of an approximately $160 million dollar sovereign debt 
due to foreign investors.
5. Aid
    Ukraine is one of the leading recipients of U.S. assistance. The FY 
99 Foreign Assistance Act set aside $195 million for Ukraine, focused 
on economic reform and privatization, business development, energy and 
environment (including nuclear safety/Chernobyl), democracy and local 
government, legal reform, and health and social development. In 
addition, around $100 million in other U.S. funding went for exchange 
programs, Peace Corps, transport of humanitarian supplies, and the 
Nunn-Lugar Cooperative Threat Reduction Program.
    U.S. assistance also reaches Ukraine indirectly through 
international financial institutions. As stated above, in September 
1998, the International Monetary Fund approved a three year, $2.2 
billion Extended Fund Facility designed to promote fiscal reform, 
financial stabilization, and the accelerated development of a market 
economy. Disbursements under the EFF amounted to $630 million during 
January-November 1999. Major World Bank loans have promoted 
agricultural reform, privatization, modernization of the financial 
sector, and reform in the energy sector. The only major World Bank 
disbursement expected in the near term is for financial sector reform, 
although there is the possibility of large new programs in 2000 for 
administrative reform and restructuring of privatized enterprises. The 
European Bank for Reconstruction and Development is expanding its role 
in financing small business development (in conjunction with USAID), 
and is considering a major role in the nuclear sector, including in 
improvement of safety at Chernobyl and the possible completion of new 
nuclear reactors.
6. Significant Barriers to U.S. Exports
    The daunting menu of a VAT (20 percent), import duties (ranging 
from 5 to 200 percent) and excise taxes (10 to 300 percent) present a 
major obstacle to trade with Ukraine. A limited number of goods, 
including raw materials, component parts, equipment, machinery, and 
energy supplies imported by commercial enterprises for ``production 
purposes and their own needs'' are exempted from VAT. Many agricultural 
enterprises are also exempt from the VAT. While investors' statutory 
funds are exempt from VAT, fixed capital investments, including plant 
equipment are often subject to VAT tax. This, coupled with inconsistent 
application of the law by customs and tax authorities, leads to 
investor uncertainty.
    Import duties differ and largely depend upon whether a similar item 
to that being imported is produced in Ukraine; if so, the rate may be 
higher. Goods subject to excise taxes include alcohol, tobacco, cars, 
tires, jewelry, certain electronics, and other luxury items. Excise 
duty rates are expressed as a percentage of the declared customs value, 
plus customs duties and customs fees paid for importing products. This 
often results in duties and fees amounting to over 100 percent of the 
declared value of the item.
    The significant progress made in the last few years on economic 
stabilization and the reduction in inflation have improved conditions 
for U.S. companies in Ukraine. However, foreign firms need to develop 
cautious and long-term strategies that take into full account the 
problematic commercial environment. The weak banking system, poor 
communications network, difficult tax and regulatory climate, 
prevalence of economic crime and corruption, non-transparent tender 
procedures, limited opportunities to participate in privatization, and 
lack of a well-functioning legal system, impede U.S. exports to and 
investment in Ukraine.
    Ukraine's domestic production standards and certification 
requirements apply equally to domestically produced and imported 
products. Product testing and certification generally relate to 
technical, safety and environmental standards, as well as efficacy 
standards with regard to pharmaceutical and veterinary products. Such 
testing often requires official inspection of the company's production 
facility at the company's expense. Testing is often done in sub-
standard facilities and on a unit-by-unit basis rather than ``type'' 
testing. In cases where Ukrainian standards are not established, 
country of origin standards may prevail.
    Duties on goods imported for resale are subject to varying ad 
valorem rates. Imported goods are not considered legal imports until 
they have been processed though the port of entry and cleared by 
Ukrainian customs officials. Import licenses are required for very few 
goods, primarily medicines, pesticides, and some industrial chemical 
products.
7. Export Subsidies Policies
    As part of its effort to cut the budget deficit, the government has 
significantly reduced the amount of subsidies it provides to state 
owned industry over the last several years. Nonetheless, subsidies 
remain an important part of Ukraine's economy, particularly in the coal 
and agriculture sectors. These subsidies, however, appear not to be 
specifically designed to provide direct or indirect support for 
exports, but rather to maintain full employment and production during 
the transition to a market-based economy. The government does not 
target export subsidies specifically to small business. (Ukrainian 
exporters, however, now enjoy a number of tax benefits, such as the VAT 
applied at a zero rate.) Ukraine's subsidy policy may change in the 
context of its negotiations to join the World Trade Organization (WTO). 
The country's sixth WTO Working Party meeting was held in the summer of 
1998. Ukraine has tabled WTO market access offers for both goods and 
services, though its accession process is proceeding slowly.
8. Protection of U.S. Intellectual Property
    Since gaining its independence, Ukraine has made significant 
progress in enacting legislation and adopting international conventions 
to protect intellectual property rights, though much still needs to be 
done to reach the level required by TRIPs. Ukraine is a member of the 
Universal Copyright Convention, the Convention establishing the World 
Intellectual Property Organization--WIPO, the Paris Convention, the 
Madrid Agreement, the Patent Cooperation Treaty, the International 
Convention for the Protection of New Varieties of Plants, the Berne 
Convention, the Trademark Law Treaty, and the Budapest Treaty. 
Nonetheless, in 1998 Ukraine was placed on the ``Special 301'' Watch 
List because copyright piracy is extensive and enforcement is minimal, 
causing substantial losses to U.S. industry. On May 1, 1999 Ukraine was 
moved to the Priority Watch List. Ukraine has taken some steps to 
improve its Intellectual Property Rights (IPR) regime, in accordance 
with its two-year plan to make its IPR legislation TRIPS-compliant, 
including ratification by Parliament in June 1999 of the Geneva 
Phonogram Convention. The President now must deposit the ratification 
with the World Intellectual Property Organization (WIPO) for it to take 
effect. Numerous pieces of additional legislation are pending.
    Ukrainian legislation has inadequate criminal penalties for 
copyright piracy and none for infringement. Enforcement is negligible 
or non-existent. Courts do not provide a reliable means to address 
copyright infringement. Piracy has become an even more serious problem 
as pirate factories displaced from Bulgaria have found a home in 
Ukraine. This was one of the contributing factors in the decision to 
move Ukraine to the Priority Watch List. To address this problem, 
Ukraine announced that it was creating an anti-piracy committee with 
authority to conduct unannounced searches and to confiscate pirated 
goods, but thus far it has made little progress. The government openly 
acknowledges its problems with piracy and actively seeks help from the 
U.S. in combating it.
    Ukraine is in the process of acceding to the WTO. The U.S. 
Government has taken the strong position that Ukraine's IPR regime must 
be TRIPs-compliant at the time of accession, with no transition period. 
Ukraine has established a working group with the U.S., which has met 
twice, the last time in April 1998.
9. Worker Rights
    a. The Right of Association: The constitution provides for the 
right to join trade unions to defend ``professional, social and 
economic interests.'' Under the constitution, all trade unions have 
equal status, and no government permission is required to establish a 
trade union. The 1992 Law on Citizens' Organizations (which includes 
trade unions) stipulates noninterference by public authorities in the 
activities of these organizations, which have the right to establish 
and join federations on a voluntary basis. In principle, all workers 
and civil servants (including members of the armed forces) are free to 
form unions. In practice, the government discourages certain categories 
of workers, for example, nuclear power plant employees, from doing so. 
A new trade union law designed to replace Soviet-era legislation was 
signed by the President in September 1999. The successor to the Soviet 
trade unions, known as the Federation of Trade Unions (FPU), has begun 
to work independently of the government and has been vocal in 
advocating workers' right to strike. Independent unions now provide an 
alternative to the official unions in many sectors of the economy. The 
constitution provides for the right to strike ``to defend one's 
economic and social interests.'' The constitution also states that 
strikes must not jeopardize national security, public health, or the 
rights and liberties of others.
    b. The Right to Organize and Bargain Collectively: The Law on 
Enterprises states that joint worker-management commissions should 
resolve issues concerning wages, working conditions, and the rights and 
duties of management at the enterprise level. Overlapping spheres of 
responsibility frequently impede the collective bargaining process. The 
government, in agreement with trade unions, establishes wages in each 
industrial sector and invites all unions to participate in the 
negotiations. The Law on Labor Disputes Resolution that came into force 
in March 1998 provides for establishment of an arbitration service and 
a National Mediation and Reconciliation Service to mediate in labor 
disputes. These services, however, have not yet been established. The 
manner in which the collective bargaining law is applied prejudices the 
bargaining process against the independent unions and favors the 
official unions. The collective bargaining law prohibits antiunion 
discrimination, but there have been cases in which such disputes have 
not been settled in a fair and equitable manner. Independent unions 
claim that the new trade union law is more restrictive than the old 
Soviet legislation because of difficulty in obtaining national status 
and registration, which confer the right to acquire space, property, 
maintain bank accounts and enter legally binding agreements. To acquire 
national status, a union must have representation in more than half of 
the regions of Kiev, or at one third of the enterprises in a 
regionally-based sector, or to have a majority of union members in the 
sector. These new requirements will make it difficult for miners and 
sailors to organize. Another contentious requirement is mandatory 
registration by the Justice Ministry. Independent unions are concerned 
that the Ministry could deny registration to unions seen as 
undesirable.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits compulsory labor, and it is not known to occur. The 
government does not specifically prohibit forced and bonded labor by 
children, although the constitution and the Labor Code prohibit forced 
labor generally, and such practices are not known to occur. Human 
rights groups described as compulsory labor the common use of army 
conscripts and youths in the alternative service for refurbishing and 
building private houses for army and government officials. Student 
groups have protested against a Presidential Decree obliging college 
and university graduates, whose studies have been paid for by the 
government, to work in the public sector at government-designated jobs 
for three years or to repay fully the cost of their education.
    d. Minimum Age for Employment of Children: The government does not 
specifically prohibit forced and bonded labor by children. The minimum 
employment age is 17 years. In certain non-hazardous industries, 
however, enterprises may negotiate with the government to hire 
employees between 14 and 17 years of age, with the consent of one 
parent.
    e. Acceptable Conditions of Work: The Labor Code provides for a 
maximum 40-hour workweek, a 24-hour day of rest per week, and at least 
24 days of paid vacation per year. The law contains occupational safety 
and health standards, but these are frequently ignored in practice. 
During the first half of 1999, 913 people were killed and over 18,000 
injured in accidents at work. In theory, workers have a legal right to 
remove themselves from dangerous work situations without jeopardizing 
continued employment. Independent trade unionists have reported, 
however, that asserting this right would result in retaliation or 
perhaps dismissal by management.
    f. Rights in Sectors with U.S. Investment: Enterprises with U.S. 
investment frequently offer higher salaries and are more observant of 
regulations than their domestic counterparts. Otherwise, conditions do 
not differ significantly in sectors with U.S. investment from those in 
the economy in general.

            Extent of U.S. Investment in Selected Industries--U.S. Direct Investment in Ukraine--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  0
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  5               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  -26
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  92
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                             UNITED KINGDOM


                         Key Economic Indicators
        [Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
                                            1997       1998     \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment
  Nominal GDP..........................    1,318.4    1,400.6    1,422.0
  Real GDP Growth (Pct)................        3.3        2.5        1.5
  GDP by Sector: \3\
    Agriculture........................       19.8       18.2        N/A
    Mining.............................       33.0       23.8        N/A
    Manufacturing......................      274.2      275.9        N/A
    Services...........................      821.4      902.2        N/A
    Government.........................       72.5       75.4        N/A
  Per Capita GDP (U.S. Dollars)........     22,289     23,483     23,950
  Labor Force (Millions)...............       28.8       28.9       29.0
  Unemployment Rate (Pct)..............        7.0        6.3        6.0

Money and Prices (Annual Percentage
 Growth)
  Money Supply Growth \4\..............        6.5        5.7        6.9
  Consumer Price Inflation.............        2.4        3.4        1.5
  Exchange Rate (USD/BPS--Annual              1.64       1.66       1.63
   Average)............................

Balance of Payments and Trade \5\
  Total Exports FOB....................      281.7      272.5  \6\ 149.9
    Exports to U.S.....................       34.4       36.4   \7\ 25.4
  Total Imports CIF....................      301.3      306.9  \6\ 176.6
    Imports from U.S...................       41.0       42.6   \7\ 27.5
  Trade Balance........................      -19.6      -34.4  \6\ -26.7
    Balance with U.S...................       -6.6       -6.2   \7\ -2.1
  Total Public Debt/GDP (Pct)..........       42.5       40.6       38.3
  External Public Debt/GDP (Pct).......       21.4       22.0   \7\ 17.4
  Fiscal Deficit/GDP (Pct).............       -1.8        0.2        0.8
  Current Account Deficit/GDP (Pct) \8\        0.8        0.0       -1.3
  Gold and Foreign Exchange Reserves...       38.4       35.3   \9\ 34.2
  Aid from U.S.........................          0          0          0
  Aid from All Other Sources...........          0          0          0
------------------------------------------------------------------------
\1\ Converted from British Pound Sterling (BPS) at the average exchange
  rate for each year.
\2\ All 1999 figures are forecasts, unless otherwise indicated.
\3\ ``Agriculture'' includes hunting, forestry and fishing. ``Services''
  includes hotels, catering, distribution, repairs, transport, storage,
  communication, business, finance, education, health and social work.
  ``Government'' reflects only public administration and defense.
\4\ Notes and coins in circulation in the United Kingdom plus banks'
  official deposits with the Banking Department.
\5\ Merchandise trade, converted at average exchange rate for the
  applicable year.
\6\ Through July 1999.
\7\ Through August 1999.
\8\ Current prices.
\9\ Through June 1999.

Sources: The Oxford Economic Forecasting and London Business School 1999
  Economic Outlook, the UK Office for National Statistics, and the Bank
  of England.

1. General Policy Framework
    The United Kingdom (UK) has the sixth largest economy in the 
industrialized world, with a nominal GDP of about $1.4 trillion in 
1999. The UK's 59.2 million inhabitants live in an area the size of New 
York and Pennsylvania. Per capita income was about $23,950 in 1999.
    In May 1997, the Labour Party won an overwhelming parliamentary 
majority, ending 17 years of Conservative Government. Prime Minister 
Tony Blair inherited an economy showing signs of overheating, after 
recovering from the 1990-92 recession. Real GDP grew 2.6 percent in 
1996 and 3.5 percent in 1997 (well above the UK's historical trend of 
around 2.5 percent). In 1998, tighter monetary and fiscal policy 
combined with a stronger pound and faltering global economy to put the 
brake on manufacturing exports, slowing GDP growth to 2.2 percent, and 
raising concerns that the economy could tip into recession in 1999. In 
October 1998, the Monetary Policy Committee (MPC) reacted strongly to 
the deteriorating domestic and international conditions by cutting 
interest rates. Between October 1998 and June 1999, the MPC cut the 
base rate seven times (from 7.5 percent to 5.0 percent).
    The MPC's aggressive action averted a serious slowdown in 1999, 
sparking a dramatic growth in both business and consumer confidence. 
Indeed, the downturn was far briefer and milder than had been 
anticipated. With growth bottoming out ahead of predictions in the last 
quarter of 1998 at an annual rate of 0.7 percent, the lowest rate since 
1992, the economy improved steadily throughout 1999. Real GDP was 
forecast to grow by at least 1.7 percent in 1999 and as much as 3.0 
percent in 2000.
    During 1999 there were signs of recovery even in the depressed 
manufacturing and export sectors, with strong advances in sales and 
orders. The assumption is that both have now adapted to a highly valued 
sterling by reducing their workforces, increasing productivity, and 
shaving profit margins to remain competitive. Robust household 
consumption and retail sales have particularly buoyed output. Rising 
consumer confidence has been sustained by overall job growth, which 
continued to advance throughout the slowdown. By August 1999, the 
unemployment rate had dropped to a 20-year low of 5.9 percent from a 
high of 10.5 percent in 1993.
    A deteriorating current account remains a concern. The trade 
imbalance has been a result of sluggish demand in Asia and Europe, 
exacerbated by the high pound. With the terms of trade moving against 
the UK, import growth for 1999 has been strong, more than counteracting 
growth in exports. The services balance is still positive but has shown 
little change since June 1999. The current account has moved from a 
small surplus in 1997 to break even in 1998 to an estimated deficit 
equal to about 1.3 percent of GDP in 1999. With more positive prospects 
for demand in Asia and Europe next year, the trade and current account 
balances should improve somewhat.
    Inflation remains under control. Underlying inflation, which had 
remained slightly above the MPC's 2.5 percent target rate until the 
third quarter of 1998, had fallen below target, to 2.1 percent, by 
September 1999. Fearing renewed wage and housing price inflation over 
the next two years with a return to robust growth, the MPC raised the 
base rate to 5.5 percent in November 1999. Underlying inflation 
averaged 2.8 percent in 1997, 2.7 percent in 1998, and was forecast at 
2.3 percent in 1999.
    Fiscal Policy: The Labour Government has pledged to adhere to a 
``Code for Fiscal Stability,'' balancing current government receipts 
and expenditures. The government's financial balance has moved from a 
deficit of eight percent of GDP in 1993 to a small surplus of 0.2 
percent of GDP in 1998. The surplus continues to grow, forecast at 0.8 
percent of GDP in 1999 and expected to reach one percent by 2002. The 
Blair Government has also committed to continuing to decrease the 
public debt, from 41 percent of GDP in 1998, to 37 percent by fiscal 
year 2001-02.
    Tax Policy: The Labour Government promised before the 1997 election 
not to raise the personal income tax rate, now between 20 and 40 
percent; the Value Added Tax, now 17.5 percent; or personal 
contributions to the UK's social security system. The basic income tax 
rate of 23 percent will be reduced to 22 percent in April 2000. The 
Labour Government also introduced a new 10 percent starting tax rate 
for the first 1,500 pounds of taxable income in April 1999. Labour also 
undertook a controversial measure to tax the windfall gains of 
privatized utilities. Expected to yield 5.2 billion pounds over three 
years, the government plans to use this tax to help finance its new 
Welfare-to-Work program. Corporate tax rates were cut as of April 1999 
to 30 percent, 20 percent, and 10 percent respectively for 
corporations, small companies, and new businesses with incomes under 
50,000 pounds per year. To promote enterprise, small and medium 
businesses may now write off 40 percent of their research and 
development costs for the first two years of operation. Other domestic 
tax revenue sources include excise taxes on alcohol, tobacco, retail 
motor fuels, and North Sea oil production. Some of these taxes were 
raised in 1999, and additional energy taxes are being discussed for 
environmental reasons.
    Monetary Policy: The government has emphasized its commitment to a 
low inflation policy. In one of its first official acts, the Blair 
Government established an inflation target of 2.5 percent and granted 
the Bank of England independence to set interest rates to achieve this 
target. The Bank must explain to the government if inflation varies 
from the target by more than one percentage point, in either direction.
    While the MPC's sole policy instrument is its ability to change the 
base rate at its monthly meetings, the Bank of England manages general 
monetary conditions through open market operations by buying and 
selling overnight funds and commercial paper. There are no explicit 
reserve requirements in the banking system.
2. Exchange Rate Policy
    Since the UK's withdrawal from the European Union's (EU) Exchange 
Rate Mechanism in January 1993, the pound has floated freely. The 
sterling appreciated significantly between the beginning of 1996 and 
early-to-mid-1998, with the trade-weighted exchange rate (1990=100) 
rising from a low of 83.5 to a high of 107.1 in April 1998. The Asian 
financial crisis and relatively high real UK interest rates contributed 
to the flight to sterling. Given worsening domestic economic 
projections, the pound began to soften once the MPC began to cut the 
UK's relatively high short-term interest rates in October 1998. The 
sterling index fell to 99.6 in January 1999, but had strengthened to 
104.7 by September 1999 as the UK economy began to recover. The pound 
is expected to continue to gain ground, against both the U.S. dollar 
and the Euro, well into 2000.
    The Labour government favors joining the new European common 
currency in principle but determined that doing so when the Euro was 
launched on January 1, 1999 would not be in the UK's interests. It is 
undertaking an active program to prepare the economy for the Euro, but 
has muted its commitment to making a decision on joining early in the 
next parliament, which must be elected no later than 2002. At present, 
the government is concentrating on convincing voters that the UK's 
economic future and global leadership role depend on its membership and 
strong participation in the EU. The decision to adopt the Euro will be 
based on five economic tests, the most important of which is cyclical 
convergence, and will be subject to a popular referendum. In addition, 
the willingness of continental governments to accept fundamental 
structural reform of their economies is also seen as essential to the 
success of the new currency and the UK's willingness to participate 
fully in Economic and Monetary Union.
3. Structural Policies
    The UK economy is characterized by free markets and open 
competition, which the government actively promotes within the EU and 
international fora. The UK's relatively low labor costs and labor 
market flexibility are often credited as major factors influencing the 
UK's success in attracting foreign investment. However, relatively low 
manufacturing labor productivity remains a concern.
    Market forces establish prices for virtually all goods and 
services. The government still sets prices for prescription drugs and 
services in those few sectors where it is still a direct provider, such 
as urban transportation. In addition, government regulatory bodies 
monitor prices charged by telecommunications firms and set price 
ceilings for electric, natural gas, and water utilities. The UK's 
participation in the EU's Common Agricultural Policy significantly 
affects the prices for raw and processed food items, but prices in 
wholesale and retail markets are not fixed for any of these items.
    The Labour Government inherited an economy that underwent 
significant structural reforms under the previous administration, which 
deregulated the financial services and transportation industries and 
sold the government's interests in the automotive, steel, coal mining, 
aircraft, and aviation sectors. Electric power, rail transport, and 
water supply utilities were also privatized. Subsidies were cut 
substantially and capital controls lifted. Employment legislation 
significantly increased labor market flexibility, democratized unions, 
and increased union accountability for the industrial acts of their 
members. The Labour Government modified this approach, including a new 
national minimum wage and union recognition rules, but kept significant 
parts of previous legislation intact, such as outlawing union shops and 
secondary boycotts.
4. Debt Management Policies
    The UK has no meaningful external public debt. London is one of the 
foremost international financial centers of the world, and British 
financial institutions are major intermediaries of credit flows to the 
developing countries. The government is an active participant in the 
Paris Club and other multilateral debt negotiations.
5. Significant Barriers to U.S. Exports
    Structural reforms and open market policies make it relatively easy 
for U.S. firms to enter UK markets. The UK does not maintain any 
barriers to U.S. exports other than those implemented as a result of EU 
policies. (See the report on the European Union for details.)
    The U.S.-UK Bilateral Aviation Agreement is highly restrictive, 
particularly in limiting the number and access of carriers serving 
London Heathrow Airport and the European destinations beyond UK 
airports to which U.S. airlines may fly. The U.S. believes the two 
sides should conclude an Open Skies Agreement, but the UK Government 
has continued to raise objections to this approach. Nonetheless, the UK 
government unilaterally provided open ``beyond rights'' to U.S. cargo 
carriers at Prestwick Airport, near Glasgow, Scotland in August 1999. 
The two sides are continuing to explore the possibility of liberalizing 
cargo and passenger services on a bilateral basis.
6. Export Subsidies Policies
    The government opposes export subsidies as a general principle, and 
UK trade-financing mechanisms do not significantly distort trade. The 
Export Credits Guarantee Department (ECGD), an institution similar to 
the Export-Import Bank of the United States, was partially privatized 
in 1991.
    The UK's development assistance program has certain ``tied aid'' 
characteristics. In 1996, the last year for which figures are 
available, some 14 percent of development assistance was tied. 
Agricultural and humanitarian assistance are not tied. In addition, 
various waivers of tied aid requirements are available to UK officials 
administering development assistance.
7. Protection of U.S. Intellectual Property
    UK intellectual property laws are strict, comprehensive, and 
rigorously enforced. The UK is a signatory to all relevant 
international conventions, including the convention establishing the 
World Intellectual Property Organization, the Paris Convention for the 
Protection of Industrial Property, the Berne Convention for the 
Protection of Literary and Artistic Works, the Patent Cooperation 
Treaty, the Geneva Phonograms Convention, and the Universal Copyright 
Convention.
    New copyright legislation simplified the British copyright process 
and permitted the UK to join the most recent text of the Berne 
Convention. The United Kingdom's positions in international fora are 
very similar to those of the United States.
8. Worker Rights
    a. The Right of Association: Unionization of the work force in the 
UK is prohibited only in the armed forces, public sector security 
services, and police force.
    b. The Right to Organize and Bargain Collectively: Nearly nine 
million workers, about one-third of the work force, are organized. 
Employers are barred from discriminating based on union membership. New 
legislation passed in July 1999 determines under what conditions an 
employer must bargain with a trade union. Employers are no longer 
allowed to pay workers who do not join a union higher wages than union 
members performing the same work.
    The 1990 Employment Act made unions responsible for members' 
industrial actions, including unofficial strikes, unless union 
officials repudiate the action in writing. Unofficial strikers can be 
legally dismissed, and voluntary work stoppage is considered a breach 
of contract. Unions do not have immunity from prosecution for secondary 
strikes or for actions with suspected political motivations. Actions 
against subsidiaries of companies engaged in bargaining disputes are 
banned if the subsidiary is not the employer of record. Unions 
encouraging such actions are subject to fines and seizure of their 
assets.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is unknown in the UK.
    d. Minimum Age for Employment of Children: Children under the age 
of 16 may work in an industrial enterprise only as part of an 
educational course. Local education authorities can limit employment of 
children under 16 if working will interfere with the child's education.
    e. Acceptable Conditions of Work: A new national minimum wage, 
established in 1998, took effect in April 1999. The initial minimum was 
set at 3.60 pounds per hour, based on the recommendations of a tri-
partite commission. Daily and weekly working hours are limited by law, 
according to an EU directive outlawing mandatory workweeks longer than 
48 hours. Implementing regulations are still being written.
    The Health and Safety at Work Act of 1974 banned hazardous working 
conditions. A Health and Safety Commission submits regulatory 
proposals, appoints investigatory committees, conducts research, and 
trains workers. The Health and Safety Executive enforces health and 
safety regulations and may initiate criminal proceedings. The system is 
efficient and fully involves worker representation.
    f. Rights in Sectors with U.S. Investment: U.S. firms operating in 
the UK are obliged to obey all worker rights legislation.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  15,603
Total Manufacturing............  ..............  46,436
  Food & Kindred Products......  4,371           ...............................................................
  Chemicals & Allied Products..  17,345          ...............................................................
  Primary & Fabricated Metals..  1,658           ...............................................................
  Industrial Machinery and       8,464           ...............................................................
   Equipment.
  Electric & Electronic          3,509           ...............................................................
   Equipment.
  Transportation Equipment.....  3,433           ...............................................................
  Other Manufacturing..........  7,655           ...............................................................
Wholesale Trade................  ..............  7,772
Banking........................  ..............  10,365
Finance/Insurance/Real Estate..  ..............  65,846
Services.......................  ..............  13,144
Other Industries...............  ..............  19,483
TOTAL ALL INDUSTRIES...........  ..............  178,648
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                              THE AMERICAS

                              ----------                              


                               ARGENTINA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998      1999
------------------------------------------------------------------------
Income, Production, and Employment:
  GDP (At Current Prices) \2\.............       293       298       285
  Real GDP Growth (pct)...................       8.1       3.9      -3.5
  GDP by Sector (pct):
    Agriculture...........................       7.3       7.2       7.2
    Manufacturing.........................      24.7      24.8      24.8
    Mining................................       3.0       2.9       2.9
    Services..............................        38      38.1      38.1
    Government............................      10.3      10.8      10.8
  Per Capita GDP (US$)....................     8,250     8,300     8,000
  Labor Force (Millions)..................      13.8      14.0      14.2
  Unemployment Rate (pct).................      14.9      12.9      14.5

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \3\...................      26.5       4.0      -3.0
  Consumer Price Inflation \3\............       0.3       0.7      -2.0
  Exchange Rate (Peso/US$)................       1.0       1.0       1.0

Balance of Payments and Trade:
  Total Exports FOB.......................      26.2      26.2      22.8
    Exports to U.S.\4\....................       2.2       2.3       2.5
  Total Imports CIF.......................      30.4      31.4      24.1
    Imports from U.S.\4\..................       5.8       5.9       4.7
  Trade Balance...........................      -4.0      -5.0      -1.3
    Balance with U.S.\4\..................      -3.6      -3.6      -2.2
  External Public Debt....................       101       112       118
  Fiscal Deficit/GDP (pct)................      -1.4      -1.2      -2.0
  Current Account Deficit/GDP (pct).......       4.1       4.9       4.4
  Debt Service Payments/GDP (pct).........       5.7       6.6       6.9
  Gold and Foreign Exchange Reserves......      20.0      25.0      24.0
------------------------------------------------------------------------
\1\ Figures for 1999 are embassy estimates.
\2\ The Argentine peso was tied to the U.S. Dollar at the rate of one to
  one in 1991. In 1999, the Argentine government changed its method of
  calculating GDP and revised its figures for 1997 and 1998 downward.
\3\ End of period.
\4\ Source: U.S. Department of Commerce and U.S. Census bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through October.

1. General Policy Framework
    President Carlos Menem's far-reaching reform program, which began 
in earnest in 1991, has revitalized Argentina's economy. Despite a 
sharp recession in 1995 due primarily to the Mexican peso crisis, real 
GDP growth averaged over 6 percent a year from 1991-1997. Inflation has 
remained very low for the last several years, and consumer prices in 
1999 are actually expected to decrease by two percent. A stable 
exchange rate and reductions in trade barriers resulted in a boom in 
imports from the United States, particularly during 1991-94. The global 
financial crisis in 1998 and Brazil's currency devaluation in early 
1999 dealt serious blows to the Argentine economy, however. The economy 
contracted from the second half of 1998 through late 1999. Some signs 
of recovery began to appear in the final quarter of 1999, and most 
experts expect a return to solid economic growth by the second half of 
2000. Argentina's trade deficit with the United States this year is 
projected to be about $3.5 billion. Argentina is expected to incur an 
overall trade deficit of $1 billion in 1999, reflecting the economic 
downturn.
    Argentina's banking sector has consolidated during the last several 
years. The number of financial institutions in Argentina dropped from 
over 200 in December 1994 to about 120 by October 1999. The country's 
financial sector is considered generally sound. Argentina's 
consolidated public sector budget is expected to run a deficit in 1999 
of about $5.8 billion--equal to approximately 2 percent of GDP. Tax 
evasion remains a major problem for the government. Economic growth and 
decreases in consumption reduced tax receipts in 1999.
    Buenos Aires Mayor Fernando de la Rua, running as the presidential 
candidate for an alliance of opposition parties, defeated the ruling 
Justicialist party candidate in national elections in October 1999. He 
has promised to maintain the main elements of the country's economic 
model, including the convertibility of the peso and the U.S. dollar, as 
well as relatively open markets for trade. Argentina remains one of the 
hemisphere's most promising emerging markets for U.S. trade and 
investment.
2. Exchange Rate Policy
    The Central Bank of Argentina controls the money supply through the 
buying and selling of dollars. Under the Convertibility Law of 1991, 
the exchange rate of the Argentine Peso is fixed to the dollar at the 
rate of one to one, controlled by a currency board. This rate is 
expected to remain unchanged in the medium term. Argentina has no 
exchange controls. Customers may freely buy and sell currency from 
banks and brokers at market prices.
3. Structural Policies
    The Menem administration's reform program has made significant 
progress in transforming Argentina from a closed, highly regulated 
economy to one based on market forces and international trade. The 
government's role in the economy has diminished markedly with the 
privatization of most state firms. Argentine authorities also 
eliminated price controls on almost all goods and services. The 
government abolished the import licensing system in 1989 and in 1990 
cut the average tariff from nearly 29 percent to less than 10 percent. 
However, MERCOSUR common external tariff rates are slightly higher, so 
that Argentina's average tariff is now closer to 14 percent. In August 
1996, Argentina raised the tariff on capital goods--which account for 
over 40 percent of U.S. exports to Argentina--from 10 to 14 percent to 
boost revenues.
    Argentina, Brazil, Paraguay, and Uruguay established the Southern 
Cone Common Market (MERCOSUR) in 1991, and on January 1, 1995, formed a 
partial customs union with a Common External Tariff (CET) covering 
approximately 85 percent of trade. The CET ranges from zero to 20 
percent. In 1998, MERCOSUR members hiked the CET by three points for 
most products. The increase is scheduled to expire in on December 31, 
1999. Initially, the government exempted some products from the CET, 
such as capital goods, information technology and telecommunications, 
to help support the modernization of the industrial infrastructure. 
However, in August 1996 tariffs on these items were increased to the 
MERCOSUR level. As a result, many non-MERCOSUR products entering 
Argentina now face higher tariffs. Chile signed a free trade agreement 
with MERCOSUR, effective October 1, 1996, but will not participate in 
the CET. Bolivia also entered into a similar pact on April 30, 1997. 
MERCOSUR is also discussing the prospect of a free trade agreement with 
the Andean community.
    Argentina signed the Uruguay Round agreements in April 1994, 
congress ratified the agreements at the end of 1994, and Argentina 
became a founding member of the WTO on January 1, 1995.
4. Debt Management Policies
    Argentina's public debt maturities are mostly concentrated in the 
longer term. External debt increased in 1998, rising to almost $110 
billion. Argentina is expected to make total debt service (principal 
and interest) payments of about $15 billion per year through 1999. 
Interest payments on public debt in 1999 will represent about three 
percent of GDP. The turmoil in international financial markets 
triggered by Russia's devaluation in August 1998 complicated Argentine 
access to foreign capital. In spite of difficult market conditions, 
however, the government was able to meet its term financing needs. 
Argentina remains vulnerable to external shocks, but agreements with 
the IMF and other international financial institutions have provided an 
added degree of confidence to financial markets.
5. Significant Barriers to U.S. Exports
    One of the key reforms of the Menem Administration has been to open 
the Argentine economy to international trade. Nevertheless, domestic 
political pressure, fears the impact of Brazil's currency devaluation 
and continued high unemployment in Argentina have led the government to 
take some ad hoc protectionist measures
    Barriers to U.S. Exports: On October 4, 1996, USTR self-initiated 
an investigation under section 301 of the Trade Act of 1974 into 
Argentina's application of specific duties on textiles, apparel, and 
footwear; three percent statistical tax on almost all imports; and 
burdensome labeling requirements. In February 1997, Argentina repealed 
the existing ``specific'' duties on footwear--only to immediately 
replace them with virtually identical safeguard duties. In September 
1997, Argentina extended the application of the safeguard duties on 
footwear until February, 2000. The United States requested formation of 
a WTO panel to review Argentina's footwear and textile regimes, as well 
as the three-percent statistical tax in early 1997. After a WTO panel 
found that the textile regime and statistical tax violate Argentina's 
WTO commitments, Argentina cut the statistical rate tax to 0.5 percent 
with appropriate caps, and set a 35 percent ad valorem cap on the 
textile duties. The panel had not decided on footwear, stating that it 
was unable to afford relief on measures no longer in effect. Believing 
that Argentina's application of the footwear safeguard raised serious 
questions regarding the WTO obligations of Argentina, the United States 
has raised the safeguard bilaterally at high levels on many occasions 
and has asserted third party rights in the EU panel on this matter. The 
appellate body decision in this case is due in December 1999. In 
November 1998, the Argentine government modified the safeguard through 
Resolution 1506. The resolution establishes a quantitative restriction 
in addition to the already-high safeguard duty, while imposing a TRQ of 
3.9 million pairs on imports of footwear falling under the original 
safeguard measure (all imports not originating in Mercosur.) This quota 
amount represents less that 50 percent of annual footwear imports from 
non-Mercosur countries over the last 3 years. Non-Mercosur footwear 
imports below the quota limit are subject to the original safeguard 
duty according to their HTS classification. Once the quota limit is 
filled for each HTS number, imports above the limit are assessed a duty 
rate that is double the current safeguard duty. In addition, the 
Resolution postpones any liberalization of the original safeguard duty 
until November 30, 1999, delaying two tariff reductions that were 
scheduled for December 1998 and August 1999. A scheduled May 1998 
liberalization had already been delayed in April 1998. On December 1, 
1999, the quota was marginally liberalized by a 10 percent increase.
    In the December 1998 Third Party Submission of the United States in 
the EC's WTO panel on the original footwear safeguard, USTR expressed 
the view that the modification of the safeguard appears to be in 
violation of article 7.4 of the WTO Agreement on Safeguards. USTR has 
requested a panel on this issue.
    Argentina protects its automobile assembly industry through a 
combination of quotas and heavy tariffs negotiated among MERCOSUR 
members. The government is currently negotiating with Brazil rules to 
govern trade in autos beginning in January 2000, when a new common 
MERCOSUR auto policy is scheduled to take effect.
    Standards: Argentina has traditionally recognized both U.S. and 
European standards. However, as the government and its MERCOSUR 
partners gradually establish a more structured and defined standards 
system, the standards requirements are becoming progressively more 
complex, particularly for medical products and electronics. In 1999, 
Argentina instituted new rules under which imported electronics would 
have to carry a local safety certification. Under the WTO agreement on 
technical barriers to trade, Argentina established an ``inquiry point'' 
to address standards-related inquiries. While this inquiry point exists 
formally at the Direccion General de Industria, it is not fully 
functional at present.
    Services Barriers: In January 1994, the authorities abolished the 
distinction between foreign and domestic banks. U.S. banks are well 
represented in Argentina and are some of the more dynamic players in 
the financial market. U.S. insurance companies are active in providing 
life, property and casualty, and workers compensation insurance. The 
privatization of pension funds has also attracted U.S. firms.
    Investment Barriers: There are very few barriers to foreign 
investment. Firms need not obtain permission to invest in Argentina. 
Foreign investors may wholly own a local company, and investment in 
shares on the local stock exchange requires no government approval. 
There are no restrictions on repatriation of funds.
    An U.S.-Argentina Bilateral Investment Treaty came into force on 
October 20, 1994. Under the treaty, U.S. investors enjoy national 
treatment in all sectors except shipbuilding, fishing and nuclear power 
generation. An amendment to the treaty removed mining, except uranium 
production, from the list of exceptions. The treaty allows arbitration 
of disputes by the International Center for the Settlement of 
Investment Disputes (ICSID) or any other arbitration institution 
mutually agreed by the parties. Several U.S. firms have invoked the 
treaty's provisions in several on-going disputes with Argentine 
national or provincial authorities.
    Government Procurement Practices: Argentina is not a signatory to 
the WTO Government Procurement Agreement, although ``Buy Argentine'' 
practices have been virtually abolished. Argentine sources will 
normally be chosen only when all other factors (price, quality, etc.) 
are equal.
    Customs Procedures: Customs procedures are cumbersome and time-
consuming, thus raising the cost for importers. Installation of an 
automated system in 1994 has eased the burden somewhat. The government 
is resorting more frequently to certificate-of-origin requirements and 
reference prices to counter under-invoicing and dumping, primarily from 
East Asia. In 1997, the government merged the customs and tax 
authorities to boost revenue collection and improve efficiency. It 
instituted a pre-shipment inspection system in November 1997 to verify 
the price, quality and quantity of imports. Six private firms are 
implementing the system.
6. Exports Subsidies Policies
    As a WTO member, Argentina adheres to WTO subsidies obligations. It 
also has a bilateral agreement with the United States to eliminate 
remaining subsidies provided to industrial exports and ports located in 
the Patagonia region. Nevertheless, the government retains minimal 
supports, such as reimbursement of indirect tax payments to exporters. 
The government also maintains an industrial specialization program that 
allows certain industries that boost their exports to report a 
comparable amount of imports at a reduced tariff. The program will end 
in the year 2000.
7. Protection of U.S. Intellectual Property
    Argentina belongs to the World Trade Organization (WTO) and the 
World Intellectual Property Organization (WIPO). Argentina is a 
signatory to the Paris Convention, Berne Convention, Rome Convention, 
Phonograms Convention, Nairobi Treaty, Film Register Treaty, and the 
Universal Copyright Convention. The U.S. Trade Representative has 
placed Argentina on the ``Special 301'' Priority Watch List. 
Argentina's lack of patent protection for pharmaceutical products has 
consistently been a contentious bilateral issue and in 1997 cost 
Argentina 50 percent of its benefits under the U.S. Generalized System 
of Preferences (GSP).
    Patents: After a three-year conflict between the Argentine 
Executive and Congress over the issue of patent protection for 
pharmaceutical products, the Executive issued a March 1996 decree that 
improves earlier Argentine patent legislation, but provides less 
protection than that originally proposed. This decree authorizes the 
National Institute for Intellectual Property (INPI) to provide 
pharmaceutical patent protection starting in November 2000. Legislation 
pending in the Argentine Congress, however, would delay implementation 
until 2005. (The TRIPS Agreement allows developing country members that 
did not offer patent protection before WTO accession for pharmaceutical 
and agrochemical products until January 1, 2005 to provide patent 
protection). The 1996 decree does not provide patent protection for 
products under development, and contains ambiguous language on parallel 
imports and compulsory licenses. For example, the decree bans parallel 
imports but allows the import of products that have been legally placed 
in commerce in a third country. Compulsory licenses can be awarded in 
cases of anti-competitive practices or for failure to work a patent. 
INPI has also failed in most cases to provide prompt and fair treatment 
to applications for exclusive marketing rights (EMRs) for 
pharmaceutical rights during Argentina's patent transition period. The 
U.S. government is currently engaged in WTO consultations over the 
failure to provide EMR to qualifying products and backsliding in the 
protection of agro-chemical data.
    The 1996 decree also fails to provide adequate protection for 
confidential data. While the government has yet to issue the 1996 law's 
implementing regulations, it is unlikely that they will address U.S. 
concerns about the law, which permits Argentine competitors to rely on 
data submitted for product registration in Argentina, the United 
States, and other countries.
    Copyrights: Argentina's Copyright Law, enacted in 1933, appears to 
be adequate by international standards. An executive decree extended 
the term of protection for motion pictures from 30 to 50 years after 
the death of the copyright holder. As in many countries, video and CD 
piracy is a serious problem. Efforts are underway to combat this, 
including arrests, seizure of pirated material, and introduction of 
security stickers for cassettes. In October 1998, the Argentine 
Congress enacted legislation make software piracy a criminal offense. 
The law closes an important gap in Argentina's protection of 
intellectual property rights. Enforcement efforts are improving.
    Trademarks: Trademark laws and regulations in Argentina are 
generally good. The key problem is a slow registration process, which 
the government has worked to improve.
    Trade Secrets: Although Argentina has no trade secret law as such, 
laws on contract, labor, and property have recognized and encompassed 
the concept. Penalties exist under these statutes for unauthorized 
revelation of trade secrets.
    Semiconductor Chip Layout Design: Argentina has no law dealing 
specifically with the protection of layout designs and semiconductors. 
Although existing legislation on patents or copyrights could cover this 
technology conceivably, this has not been verified in practice. 
Argentina has signed the WIPO treaty on integrated circuits.
8. Worker Rights
    a. The Right of Association: All Argentine workers except military 
personnel are free to form unions. Union membership is estimated at 30-
40 percent of the workforce. Unions are independent of the government 
and political parties, although most union leaders have ties with the 
Justicialist (Peronist) Party. Unions have the right to strike, and 
strikers are protected by law. Argentine unions are members of 
international labor associations and secretariats and participate 
actively in their programs.
    b. The Right to Organize and Bargain Collectively: Argentine law 
prohibits anti-union practices. There is a trend toward bargaining on a 
company level, rather than negotiating at the national level on a 
sectoral basis, but the adjustment has not been easy for either 
management or labor. Both the federal government and a few highly 
industrialized provinces are working to create mediation services to 
promote more effective collective bargaining and dispute resolution.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced labor, and there were no reports of such incidents 
during 1999.
    d. Minimum Age for Employment of Children: The law prohibits 
employment of children under 14, except in rare cases where the 
Ministry of Education may authorize a child to work as part of a family 
unit. Minors aged 14 to 18 may work in a limited number of job 
categories, but not more than six hours a day or 35 hours a week. The 
law is generally enforced, but there were credible reports in 1999 that 
child labor in the informal economy is increasing.
    e. Acceptable Conditions of Work: The national monthly minimum wage 
is $200, though prevailing wages for most unskilled and entry-level 
positions are somewhat higher. Federal labor law mandates acceptable 
working conditions in the areas of health, safety and hours. The 
maximum workday is eight hours, and the workweek is limited to 48 
hours. The government is also striving to modernize the system of 
workers compensation. Argentina has well-developed health and safety 
standards, but the government often lacks sufficient resources to 
enforce them.
    f. Rights in Sectors with U.S. Investment: Argentine law does not 
distinguish between worker rights in nationally owned enterprises and 
those in sectors with U.S. investment. The rights enjoyed by Argentine 
employees of U.S. owned firms in Argentina equal or surpass Argentine 
legal requirements.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,565
Total Manufacturing............  ..............  3,654
  Food & Kindred Products......  974             ...............................................................
  Chemicals & Allied Products..  1,130           ...............................................................
  Primary & Fabricated Metals..  349             ...............................................................
  Industrial Machinery and       50              ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  448             ...............................................................
  Other Manufacturing..........  702             ...............................................................
Wholesale Trade................  ..............  340
Banking........................  ..............  1,801
Finance/Insurance/Real Estate..  ..............  1,945
Services.......................  ..............  876
Other Industries...............  ..............  1,308
TOTAL ALL INDUSTRIES...........  ..............  11,489
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              THE BAHAMAS


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998       1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (Current Prices).................      4,000  \1\ 4,250  \1\ 4,515
  Real GDP Growth......................        3.0    \1\ 4.0    \1\ 4.8
  GDP by Sector (Percent of Total):
    Tourism............................         60         60         60
    Finance............................         12         15         15
    Manufacturing......................          3          3          3
    Agriculture/Fisheries..............          3          3          3
    Government.........................         12         12         12
    Other..............................         10          7          7
  Per Capita GDP (US$).................        N/A     14,267        N/A
  Labor Force (000's)..................        N/A    156,000        N/A
  Unemployment Rate (pct)..............        9.7        7.9    \1\ 7.8

Money and Prices (annual percent
 change):
  Money Supply (M2) (pct increase).....       10.7       15.3    \2\ 8.5
  Commercial Interest Rate (pct).......       6.75       6.75       6.00
  Personal Savings Rate................       3.35       3.28       2.97
  Retail Price Index...................        0.9        0.8        1.2
  Exchange (US$:B$)....................       1.00       1.00       1.00

Balance of Payments and Trade:
  Total Exports FOB....................        N/A        N/A        N/A
    Exports to U.S.\3\.................      153.4      143.9      128.8
  Total Imports CIF....................     1331.6     1371.4        N/A
    Imports from U.S.\3\...............      789.6      774.5  \3\ 499.5
  Trade Balance........................    -1227.8    -1373.1  \2\-572.8
    Balance with U.S.\3\...............     -644.1     -461.1     -370.7
  External Public Debt.................       90.7       89.5  \2\ 100.0
  Debt Repayment.......................       68.4       84.0       72.5
  Gold Reserves........................        N/A        N/A        N/A
  Foreign Exchange Reserves............      219.5  \2\ 323.0      476.0
  Aid from U.S.........................          0          0          0
  Aid from Other Countries.............        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ Finance Ministry projection.
\2\ As of August 1999.
\3\ U.S. Department of Commerce.

1. General Policy Framework
    The Bahamas is a politically stable, middle-income developing 
country. The economy is based primarily on tourism and financial 
services, which account for approximately 60 percent and 15 percent of 
GDP respectively. The agricultural and industrial sectors, while small, 
continue to be the focus of government efforts to produce new jobs and 
diversify the economy.
    Hurricane Floyd, the worst storm to hit The Bahamas this century in 
terms of financial costs, swept through a number of Bahamian islands on 
September 14 leaving a path of destruction. The government estimated 
that damages from Hurricane Floyd would cost more than $700 million. 
The damages to government utilities alone is over $80 million, 
restoration of roads, sea walls, bridges and docks will cost $30 
million, and repairs to government buildings will total another $3.5 
million. Losses in the tourism industry are calculated at $70 million, 
not including the loss of salaries for hundreds of workers in the 
Family Islands laid off as a result of damages to tourist facilities. 
The farming industry suffered losses totaling $33.3 million, and the 
fishing sector $10.5 million. In addition, insurance claims including 
those for second homes and tourist-related businesses is expected to 
reach $400 million.
    The United States remains The Bahamas' major trading partner. U.S. 
exports to The Bahamas went from $789.6 million in 1997 to $774.5 in 
1998 and account for approximately 65 percent of all imports. Although 
certain areas of economic activity are reserved for Bahamian citizens, 
the Bahamian government actively encourages foreign investment in 
unreserved areas and operates a free trade zone on Grand Bahama. 
Capital and profits are freely repatriated, and the Bahamian government 
does not tax personal and corporate income. Designation under the 
Caribbean Basin Initiative (CBI) trade program allows qualified 
Bahamian goods to enter the United States duty-free.
    The Bahamian government continues to follow the policy implemented 
in the 1995-1996 budget in which the annual amount of new borrowings 
would be no greater than the amount of debt redemption. The 1999-2000 
budget totaled $1.02 billion. Government outlays for education, health, 
social benefits and services, housing and other social services 
accounted for the majority of the Government's total expenditure. Debt 
service accounted for a substantial portion, $113.5 million or 12.6 
percent of the recurrent expenditure. Again, the budget emphasized the 
government's resolve to expand the delivery of priority services, while 
moving closer to eliminating the deficit on recurrent expenditure by 
2001. As a result, the government's focus remains on expenditure 
restraint, with anticipated revenue increases from economic growth and 
more efficient revenue collection rather than tax increases.
    Recurrent revenue for 1999-2000 is projected to increase to $914 
million, comprising $814.5 million in tax receipts and $81.1 million in 
non-tax income. A further $4.0 million is expected in capital revenue 
and $1.0 million in grants. The Budget also implements revenue 
enhancement measures, which take timely advantage of the buoyancy of 
the economy to raise additional revenue of over $30 million.
    Before Hurricane Floyd, the Bahamian government predicted a growth 
rate of 5 percent for fiscal year 1999/2000. Prime Minister Ingraham 
announced that although he expects revenues to decline as a result of 
the hurricane, he did not expect the overall growth rate to change.
    The 1999-2000 budget contained some new taxes including:

          A two-percent increase in the hotel occupancy tax; a large 
        increase in all immigration fees (for example work permit fees 
        for top corporate managers would rise from $7,500 to $10,000 
        per year;
          A two-percent increase in the stamp duty on real estate 
        valued at more than $250,000;
          A 10 percent increase in duty on imported cars valued at more 
        than $25,000 (raising the charge--including stamp tax--to 82 
        percent);
          An increase in excise tax on domestic beer production from $3 
        to $4 per gallon.

    These tax hikes will go a long way to offset increases in spending 
and bring down the country's nearly $2 billion debt (almost 60 percent 
of the GDP). But higher taxes in the new budget do not close the budget 
deficit. The projected $914 million in Government revenues falls short 
of the planned expenditures of nearly one billion dollars. The 
government levies no income tax relying instead on import duties and 
other transaction and consumption fees to finance the vast majority of 
government spending.
    In 1998, the Bahamian government eliminated customs duties for 
computer software, discs and computer tapes, farming pesticides, 
jewelry manufacturing items and various medical items, which also 
benefited from a reduction in stamp levies from 7 percent to 2 percent. 
In addition, the customs tariff was lowered on chicken, combination TV 
and radio appliances, combination TV and VCR appliances, and golf 
carts. The 1999-2000 budget cut tariff rates on imported video and 
audio tapes and discs from 65 to 15 percent. This move, which comes on 
the heels of a government decision to begin enforcement of its new 
Copyright Law, will help lower the cost of legitimate videos and 
encourage local video retailers to evolve away from pirated products. 
Since Hurricane Floyd in September, the government waived import duties 
on building materials and household supplies for persons who suffered 
damages from the storm.
    The government believes that the move toward hemispheric free trade 
by the year 2005 will involve restructuring its revenue sources. As 
part of its overall strategy to simplify and harmonize customs import 
duties, the government consolidated the current 123 separate import 
duty rates to 29 rates as of July 1, 1997. Rates will also be reduced 
or eliminated on a variety of imported goods, ranging from construction 
materials (nails, cement, sheet rock, plywood, etc.) to computers and 
computer parts, musical instruments and consumer electronic appliances. 
The government hopes to recover these lost revenues through increased 
collection enforcement, reduced administrative costs, increased 
business generation and enhanced local purchasing.
    Commercial banks lowered the prime lending rate from 6.75 to 6.00 
percent in September.
2. Exchange Rate Policy
    The Bahamian dollar is pegged to the U.S. dollar at an exchange 
rate of 1:1, and the Bahamian government is committed to maintaining 
parity.
3. Structural Policy
    Price controls exist on 13 breadbasket items, as well as on 
gasoline, utility rates, public transportation, automobiles, and 
automobile parts. The rate of inflation is estimated at 1.2 percent as 
of June 1999.
    The Bahamas is recognized internationally as a tax haven. The 
government does not impose personal or corporate income, inheritance or 
sales taxes. In addition, the government lowered taxes and reduced the 
stamp duty on various tourism related items including: liqueurs and 
spirits, jewelry and watches, perfumes, toilet water, table linens, 
non-leather designer handbags, and cigarettes. The government hoped 
these measures would have increased the country's competitive edge in 
the tourism sector. The intended results of these incentives have not 
yet been realized because the downtown area was not able to 
consistently attract enough tourists, especially cruise ship 
passengers. The Ministry of Tourism has recently implemented a 
``Bahamian Nights'' program in which stores and restaurants in the 
downtown area stay open late three nights a week and offer incentives 
to lure tourists downtown. These concessions should safeguard 
employment in retail trade catering to tourists and promote price 
competitiveness of goods in the Bahamian market.
    Certain goods may be imported conditionally on a temporary basis 
against a security bond or deposit that is refundable upon re-
exportation. These include: fine jewelry, goods for business meetings 
or conventions, traveling salesman samples, automobiles or motorcycles, 
photographic and cinematographic equipment, and equipment or tools for 
repair work.
    In 1993 the Bahamian government repealed the Immovable Property 
(Acquisition by Foreign Persons) Act, which required foreigners to 
obtain approval from the Foreign Investment Board before purchasing 
real property in the country, and replaced it with the Foreign Persons 
(Landholding) Act. Under the new law, approval is automatically granted 
for non-Bahamians to purchase residential property of less than five 
acres on any single island in The Bahamas, except where the property 
constitutes over fifty percent of the land area of a cay (small island) 
or involves ownership of an airport or marina. The government has now 
decided to discontinue sales of islands to foreigners to allay concerns 
by locals that too much Bahamian land is sold to foreigners. Prime 
Minister Ingraham announced in Parliament on June 16 that during his 
government's seven-year term, land sales to foreigners amounted to two 
billion dollars. Ingraham said that the treasury's accrued revenue on 
residential sales alone was US$ 43 million.
    Foreign persons are still eligible for a two-year real property tax 
exemption if they acquire undeveloped land in The Bahamas provided that 
substantial development occurs during the first two years of the 
purchase. The property tax structure for foreign property owners is as 
follows:

        $1-$3,000--the standard tax is $30.00.
        $3,001-$100,000--tax is 1 percent of the assessed value.
        Over $100,000--tax is 1\1/2\ percent of the assessed 
        value.

    This has stimulated the second home/vacation home market and 
revived the real estate sector. In addition, the government lowered the 
rate of stamp duty on real estate transactions in 1995. The stamp duty 
reduction ranges from two percent on transactions under $20,000 to 
eight percent on transactions over $100,000.
    The government also receives revenues from a $15 per person airport 
and harbor departure tax.
    Although The Bahamas encourages foreign investment, the government 
reserves certain businesses exclusively for Bahamians, including 
restaurants, most construction projects, most retail outlets, and small 
hotels. Other categories of businesses are eligible solely as joint 
ventures.
    The government has announced plans to privatize and deregulate The 
Bahamas Telecommunication Corporation (Batelco) in early 2000 and other 
public utilities sometime thereafter. It has published new legislation 
outlining the creation of a telecommunications regulatory authority for 
public comment and plans to formally introduce the legislation in 
Parliament on December 1.
    On April 30, 1998 Prime Minister Hubert Ingraham officially 
launched the new Bahamas Financial Services (BFS) Board, a joint 
private and public sector board dedicated to promoting The Bahamas as a 
financial services center. Since its inception, BFS has conducted 
promotional trips to the U.S. and Europe.
    A Security Industries Bill has passed the legislature and 
authorizes a new, privately operated stock market. The legislation 
envisions a two-tier exchange with one market for foreign investors and 
companies. The Securities Commission, the regulating body for the stock 
exchange, is currently in the process of locating experts to provide 
the technical expertise and support needed to open the stock exchange. 
Two consultant firms will be hired, one to create and assist the stock 
exchange and the other to assist the Securities Commission. Although 
the government planned to have the stock market running by the end of 
the year, Minister of Finance William Allen says that the stock market 
will not be operational until the necessary framework is in place.
    The Bahamas Investment Authority, a ``one-stop shop'' for foreign 
investment, was established in 1992, comprising the Bahamas 
Agricultural and Industrial Corporation and the Financial Services 
Secretariat. The Authority facilitates and coordinates local and 
international investment and provides overall guidance to the 
government on all aspects of investment policy.
    Other measures providing trade and investment incentives include:

          The International Business Companies Act--simplifying 
        procedures and reducing costs for incorporating companies.
          The Industries Encouragement Act--providing duty exemption on 
        machinery, equipment, and raw materials used for manufacturing.
          The Hotel Encouragement Act--granting refunds of duty on 
        materials, equipment, and furniture required in construction or 
        furnishing of hotels.
          The Agricultural Manufacturers Act--providing exemption for 
        farmers from duties on agricultural imports and machinery 
        necessary for food production.
          The Spirit and Beer Manufacturers Act--granting duty 
        exemptions for producers of beer or distilled spirits on 
        imported raw materials, machinery, tools, equipment, and 
        supplies used in production.
          The Tariff Act--granting one-time relief from duties on 
        imports of selected products deemed to be of national interest.
          The Hawksbill Creek Agreement of 1954 granted certain tax and 
        duty exemptions on business license fees, real property taxes, 
        and duties on building materials and supplies in the town of 
        Freeport on Grand Bahama Island. In July 1993, the government 
        enacted legislation extending most Hawksbill Creek tax and duty 
        exemptions through 2054, while withdrawing exemptions on real 
        property tax for foreign individuals and corporations. The 
        Prime Minister declared, however, that property tax exemptions 
        might still be granted to particular investors on a case-by-
        case basis.
          The Casino Taxation Act was amended in October 1995 to allow 
        for the establishment of small-scale casinos through the 
        reduction of the basic tax and winnings tax rates for casinos 
        of less than 10,000 square feet. The basic tax was reduced from 
        $200,000 to $50,000 for casinos with floor space of less than 
        5,000 square feet. The tax rises to $100,000 for casinos of 
        5,000-10,000 square feet. Unlike the winnings tax rate for 
        traditional casinos (25 percent of the first $20 million), 
        small casinos pay a progressive winnings tax rate of 10 percent 
        on the first $10 million of gross winnings, and 15 percent 
        thereafter.
4. Debt Management Policies
    From the end of 1992 to mid-1999, the total national debt has grown 
from $1.3 billion to $1.7 billion. The government's deficit financing 
plan included a net borrowing of $69.1 million, with debt amortization 
significantly lower by 72.8 percent at $34.4 million. Within this 
context, the direct charge on government is likely to rise 
correspondingly to an estimated $1.5 billion by end-June 2000, and the 
National Debt to settle moderately above $1.8 billion.
5. Significant Barriers to U.S. Exports
    The Bahamas is a $700 million plus market for U.S. companies. There 
are no significant non-duty barriers to the import of U.S. goods, 
although a substantial duty applies to most imports. Deviations from 
the average duty rate often reflect policies aimed at import 
substitution. Tariffs on items produced locally are at a rate designed 
to provide protection to local industries. The Ministry of Agriculture 
occasionally issues temporary bans on the import of certain 
agricultural products when it determines that a sufficient supply of 
locally grown items exits. The government's quality standards for 
imported goods are similar to those of the United States.
    The Ministry of Agriculture restricted banana imports in October 
1995, in trying to create a monopoly for locally grown bananas. The 
restrictions have been extended to include other varieties of produce 
for which the Ministry determines that demand can be met by local 
farmers (e.g. Christmas poinsettias, romaine lettuce, yellow squash, 
and zucchini). In June 1996, the Ministry announced a ban on the 
importation of fruits, vegetables, flowers, plants or other propagate 
materials from Caribbean countries unless the Department of Agriculture 
is assured that the country is free of the pink (or hibiscus) mealy 
bug. Shipments must be accompanied by a phytosanitary certificate 
issued by the Ministry of Agriculture in the country of origin. The 
Ministry continues to enforce its ban on imports of citrus plants and 
fruit from Florida, instated in 1995 because of reported outbreaks of 
canker disease. Imports of citrus plants are permitted from states 
other than Florida.
6. Export Subsidies Policies
    The Bahamian government does not provide direct subsidies to 
export-oriented industries although state-owned companies. The Export 
Manufacturing Industries Encouragement Act provides exemptions from 
duty for raw materials, machinery, and equipment to approved export 
manufacturers. The approved goods are not subject to any export tax.
7. Protection of U.S. Intellectual Property
    The Bahamas is a member of the World Intellectual Property 
Organization (WIPO) and a party to the Paris Convention on industrial 
property and the Berne Convention on copyright (older versions for some 
articles of the latter are used). It is also a member of the Universal 
Copyright Convention. Parliament has passed a new copyright law, which 
is intended to provide better protection to international holders of 
copyrights. However, the government has not yet brought this law into 
force.
    Copyrights: The majority of videos available for rent are the 
result of unauthorized copying of videotapes from promotional tapes 
provided by movie distributors, U.S. hotel ``pay-for-view'' movies and 
shows, or satellite transmissions. It is doubtful that pirated 
videotapes are exported. Since video retailers complained that it is 
too expensive to import original video tapes, the government reduced 
the import duty for imported video and audio tapes and discs to 
encourage them to evolve away from pirated products. In May, 1997 the 
government passed a bill to amend the Copyright Act to provide for 
payment of equitable royalties to copyright owners (particularly 
Bahamian musicians) for works broadcast on radio and television. In 
September 1997, a local radio station was ordered to pay copyright 
damages to The Performing Rights Society of London for failing to enter 
a defense in an action accusing the station of breach of copyright 
laws.
8. Workers Rights
    a. Right of Association: The constitution specifically grants labor 
unions the rights of free assembly and association. Unions operate 
without restriction or government control, and are guaranteed the right 
to strike and to maintain affiliations with international trade union 
organizations.
    b. Right to Organize and Bargain Collectively: Workers are free to 
organize, and collective bargaining is extensive for the estimated 25 
percent of the work force that are unionized. Collective bargaining is 
protected by law and the Ministry of Labor is responsible for mediating 
disputes. In addition, the government established the Industrial 
Tribunal in 1997 to handle labor disputes. The Industrial Relations Act 
requires employers to recognize trade unions.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by the Constitution and does not exist in practice.
    d. Minimum Age for Employment of Children: While there are no laws 
prohibiting the employment of children below a certain age, compulsory 
education for children up to the age of 16 years and high unemployment 
rates among adult workers effectively discourage child employment. 
Nevertheless, some children sell newspapers along major thoroughfares 
and work at grocery stores and gasoline stations, generally after 
school hours. Children are not employed to do industrial work in The 
Bahamas.
    e. Acceptable Conditions of Work: The Fair Labor Standards Act 
limits the regular workweek to 48 hours and provides for at least one 
24-hour rest period. The Act requires overtime payment (time and a 
half) for hours in excess of the standard. The Act permits the 
formation of a wages council to determine a minimum wage. To date no 
such council has been established. However, in 1996 the government 
instituted a minimum wage of $4.12 an hour for non-salaried public 
service employees. The Parliament is considering a new minimum labor 
standards act, which will cover employees in both the public and 
private sectors. This act contains new guarantees of employees rights 
to paid vacations, sick leave, redundancy payments and protection 
against unfair dismissal.
    The Ministry of Labor is responsible for enforcing labor laws and 
has a team of several inspectors who make on-site visits to enforce 
occupational health and safety standards and investigate employee 
concerns and complaints. The Ministry normally announces these 
inspections ahead of time. Employers generally cooperate with the 
inspections in implementing safety standards. A 1988 law provides for 
maternity leave and the right to re-employment after childbirth. 
Workers rights legislation applies equally to all sectors of the 
economy.
    f. Rights in Sectors with U.S. Investment: Authorities enforce 
labor laws and regulations uniformly for all sectors and throughout the 
economy, including within the export processing zones.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  58
Total Manufacturing............  ..............  81
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  (\1\)           ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       -3              ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  150
Banking........................  ..............  -1,585
Finance/Insurance/Real Estate..  ..............  1,401
Services.......................  ..............  131
Other Industries...............  ..............  50
TOTAL ALL INDUSTRIES...........  ..............  287
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                BOLIVIA


                         Key Economic Indicators
          [Millions of U.S. dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \6\ 1999
------------------------------------------------------------------------
Income, Production and Employment: \1\
  Nominal GDP.............................     7,647     8,213     8,550
  Real GDP Growth (pct)...................       4.2       4.7       2.0
  GDP by Sector (pct share):
    Agriculture...........................      14.1      14.0      13.6
    Manufacturing.........................      16.8      16.7      16.7
    Services..............................      33.2      33.0      29.8
    Government............................       8.9       8.9       8.0
  Per Capita GDP (US$)....................       969       989     1,036
  Labor Force (million)...................       2.4       2.5       2.6
  Unemployment Rate (pct) \2\.............       4.1       4.3       4.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \3\............      27.5      12.7      -8.0
  Consumer Price Inflation................       7.0       4.4       3.0
  Average Exchange Rate (Bs/US$)..........      5.26      5.51      5.89

Trade and Balance of Payments:
  Total Exports FOB.......................     1,166     1,104     1,020
    Exports to U.S. FOB \4\...............       264       293       N/A
  Total Imports CIF.......................     1,851     1,983     1,600
    Imports from U.S. CIF \4\.............       443       626       N/A
  Trade Balance...........................      -685      -879      -580
    Balance with U.S.\4\..................      -179      -333       N/A
  Current Account Deficit/GDP.............      -9.0      -9.9      -7.0
  External Public Debt....................     4,600     4,800     4,600
  Debt Service Payments/GDP (pct).........       4.1       4.2       3.6
  Fiscal Deficit/GDP (pct)................       3.3       4.2       4.0
  Gold and Foreign Exchange Reserves......     1,189     1,193     1,280
  Aid from U.S.\4\........................       120       112       114
  Aid from All Other Sources \5\..........       530       468       410
------------------------------------------------------------------------
\1\ UDAPE, National Institute of Statistics (INE), Central Bank of
  Bolivia and embassy projection.
\2\ For urban areas; data does not consider underemployment.
\3\ Include National Currency Deposits indexed to U.S Dollar and U.S
  Dollar Deposits
\4\ Sources: U.S. Census Bureau and embassy estimates.
\5\ Aid obligated.
\6\ 1999 figures are yearly projections based on eight or nine-month
  data.

1. General Policy Framework
    Seventeen years after its return to democracy, Bolivia continues to 
consolidate a series of structural reforms that further orient the 
economy to the demands of the market and encourage greater efficiency 
by exposing it to increasing international competition. Parallel 
reforms in the judicial system promise to create a more reliable rule 
of law in the coming years.
    The foundation of this new economic system was the 
``capitalization''/privatization of five large state-owned corporations 
and the establishment of a regulatory system to monitor the functioning 
key sectors. The capitalization program has succeeded in promoting 
steady rates of growth of private investment and savings, principally 
from the United States and in the hydrocarbons sector. This investment 
portends enhanced prospects for economic growth in the coming years. 
The government projects that the economy will grow by 2 percent in 
1999, with inflation in consumer prices dropping to about 2.5 percent.
    Macroeconomic indicators have improved steadily since the 
government undertook stabilization and structural reforms in the mid-
1980s. Commercial bank deposits have more than doubled since 1991, to 
over $4.4 billion (October 1999). Persistent trade deficits since 1991 
have been offset by large inflows of foreign assistance and private 
investment, allowing official foreign exchange reserves to grow to a 
record $1.1 billion (December 1998), decreasing slightly to $945 
million (August 1999). Net reserves are more than seven months of 
imports. Despite continuing improvements in tax collection, the budget 
deficit for the non-financial public sector increased to 3.3 percent in 
1997, and to 4.1 percent in 1998, largely as a result of pension 
reform. This figure is expected to remain level through 1999.
    The money supply (M1) has grown steadily since 1991, with M1 now 
averaging around 11 percent of GDP. Total liquidity represents 
approximately 43 percent of the GDP. M2 has decreased significantly 
since 1996 reaching negative levels during the first nine months of 
1999. The published figures for money in circulation are misleading, 
however, since there are billions of U.S. dollars in circulation side-
by-side with the local currency, the Boliviano. Dollars are a legal 
means of exchange, and contracts can be written in dollars. Banks offer 
dollar accounts and make loans in dollars. In fact, at the end of 
August 1999 nearly 94 percent of the $4.4 billion of deposits in the 
Bolivian financial system was denominated in dollars.
    Low rates of inflation at home and abroad have helped to lower 
interest rates. In October 1999 the average rate paid on dollar 
deposits was approximately 7.1 percent, and the average rate charged on 
dollar loans was 18.5 percent. Increased bank competition and new 
foreign investment in the sector will likely cut financial spreads, 
making credit still cheaper in the near-term. However, larger financial 
spreads during 1999 result from a very restricted monetary policy and 
international financial crises.
2. Exchange Rate Policy
    There are no restrictions on convertibility or remittances. The 
official exchange rate is set by a daily auction of dollars managed by 
the central bank. Through this mechanism the central bank has allowed 
the Boliviano to depreciate slowly to preserve its purchasing power 
parity. The rate in the parallel market closely tracks the official 
exchange rate. The official exchange rate fell with respect to the 
dollar by 4.8 percent in 1996, 3.3 percent in 1997, 4 percent in 1998, 
and by 5.8 percent through the end of October 1999.
3. Structural Policies
    A variety of laws have liberalized the economy significantly since 
the sea change seen in Bolivia's economic policies in the mid-1980s. In 
1990 the government simplified tariffs to 5 percent for capital goods 
and 10 percent for all other imports. The government charges a 13 
percent value-added tax and 3 percent transaction tax, whether imported 
or produced domestically. There are also excise taxes charged on some 
consumer products. No import permits are required, except for the 
import of arms and pharmaceutical products.
    The 1990 Investment Law guarantees inter alia the free remission of 
profits, the freedom to set prices and full convertibility of currency. 
It essentially guarantees national treatment for foreign investors and 
authorizes international arbitration. An Arbitration Law was enacted on 
March 11, 1997.
    The 1996 Hydrocarbons Law authorized YPFB (the petroleum 
parastatal) to enter into joint ventures with private firms and to 
contract companies to take over YPFB fields and operations, including 
refining and transportation. A subsequent law deregulated hydrocarbon 
prices, establishing international prices as their benchmarks. A recent 
Mining Law taxed profits and opened up border areas to foreign 
investors so long as Bolivian partners hold the mining concession. Most 
mining taxes can be credited against U.S. taxes.
    Subsequent to the enactment of a new Banking Law, the government 
enacted a new financial law in 1998--the Law of Property and Popular 
Credit--which changed the institutional set-up of the financial 
regulatory bodies. It also provided for improved prudential regulation 
for all types of financial institutions and promoted stability in the 
financial system while also inducing greater competition and 
efficiency.
4. Debt Management Policies
    The Bolivian Government owes about $4.2 billion to foreign 
creditors (end-August 1999). Two-thirds of this amount is owed to 
international financial institutions (principally the Inter-American 
Development Bank, the World Bank and the International Development 
Agency of the World Bank); almost one-third is owed to foreign 
governments, and less than 0.8 percent is owed to private banks. 
Bilateral debt payments have been rescheduled six times by the Paris 
Club, and several foreign governments have forgiven substantial amounts 
of the bilateral debt unilaterally. In 1998 Bolivia entered into the 
Highly Indebted Poor Country (HIPC) program, which will reduce this 
stock by approximately $460 million in present value terms over the 
life of the agreement. The Consultative Group in 1999 approved an 
additional $960 million in debt relief for Bolivia. Also, Bolivia is 
eligible for further debt relief under HIPC II.
5. Significant Barriers to U.S. Exports
    There are no significant barriers to U.S. exports to Bolivia. The 
Bolivian Export Law prohibited the import of products that might affect 
the preservation of wildlife, particularly nuclear waste. Bolivia 
became a member of the World Trade Organization (WTO) in September 
1995.
    The Investment Law essentially guarantees national treatment for 
foreign investors. The one real barrier to direct investment--a 
prohibition on foreigners holding mining concessions within 50 
kilometers of the border--is applied uniformly to all foreign 
investors. Bolivians with mining concessions near the border, however, 
may have foreign partners as long as the partners are not from the 
country adjacent to that portion of the border, except if authorized by 
law. In 1999 the Government of Bolivia enacted a law called LEY 
CORAZON, that establishes 11 telecommunications, energy and 
transportation corridors within 50 kilometers of the border within 
which foreign investors are allowed to develop projects. There are no 
limitations on foreign equity participation.
    The governments of the United States and Bolivia signed a Bilateral 
Investment Treaty during the Summit of the Americas in Santiago in 
April 1998. It will come into effect after the U.S. Senate ratifies it.
6. Export Subsidies Policies
    The government does not directly subsidize exports. The 1993 Export 
Law replaced a former drawback program with one in which the government 
grants rebates of all domestic taxes paid on the production of items 
later exported.
7. Protection of U.S. Intellectual Property
    Bolivia belongs to the World Trade Organization (WTO) and the World 
Intellectual Property Organization (WIPO). It is also a signatory to 
the Paris Convention, Berne Convention, Rome Convention, and the 
Nairobi Treaty. In 1999 the U.S. Trade Representative placed Bolivia on 
the ``Special 301'' Watch List.
    Weak enforcement of existing laws has done little to discourage 
piracy in Bolivia. However, there have been some recent positive 
developments: in 1997 the government created the National Intellectual 
Property Service that for the first time will unify the administration 
of patents, trademarks, copyrights, and other intellectual property. 
Earlier, the government enacted a Copyright Law (1992) that, with some 
key changes enacted this year in Bolivia's Code of Criminal Procedure 
(which will take effect in March 2001), should create the proper legal 
environment to promote IPR protection. The government has proposed a 
draft Intellectual Property Law that it claims will bring Bolivia's 
protection for IPR up to the standards specified in the WTO TRIPs 
Agreement. However, there is doubt whether the current draft law is 
fully TRIPs compliant. Creating awareness in the judiciary and among 
the public of the rights of IPR holders is another formidable challenge 
facing the National Intellectual Property Service. According to a 1998 
study by the Business Software Alliance and the Software and 
Information Industry Association, Bolivia has the highest rate of 
software piracy in Latin America with an estimated 87 percent of all 
software sold in the country of illegal origin.
8. Worker Rights
    a. The Right of Association: Workers may form and join 
organizations of their choosing. The Labor Code requires prior 
governmental authorization to establish a union, permits only one union 
per enterprise and allows the government to dissolve unions; the code, 
however, has not been strictly enforced in recent years. While the code 
denies civil servants the right to organize and bans strikes in public 
services, nearly all civilian government workers are unionized. Workers 
are not penalized for union activities.
    In theory, the Bolivian Labor Federation (COB) represents virtually 
the entire work force; in fact, approximately one-half of the workers 
in the formal economy--or about 15 percent of all workers--belong to 
labor unions. Some members of the informal economy also participate in 
labor organizations. Workers in the private sector frequently exercise 
the right to strike. Solidarity strikes are illegal, but the government 
does not prosecute those responsible, nor does it impose penalties.
    The COB's numerous strikes to protest the government's economic 
reforms are generally receiving decreased support. The COB 
demonstrations that habitually have disrupted public order in major 
cities--which decreased during 1997 and 1998--have resurfaced in the 
second half of 1999, probably due to the municipal elections in 
December. The leadership of the urban teachers' union--the most 
aggressive affiliate within the COB--has conducted several strikes 
lasting days in opposition to the government's ongoing efforts at 
educational reform. A teachers' strike in February 1999 shut down the 
public schools for almost the entire month.
    Unions are not free from influence by political parties. Most 
parties have labor committees that try to sway union activity, causing 
fierce political battles within unions. Most unions also have party 
activists as members.
    The Labor Code allows unions to join international labor 
organizations. The COB became an affiliate of the formerly Soviet-
dominated World Federation of Trade Unions (WFTU) in 1988.
    b. The Right to Organize and Bargain Collectively: Workers may 
organize and bargain collectively. Collective bargaining (voluntary 
direct negotiations between unions and employers without participation 
of the government) is limited.
    The COB contends that it still is the exclusive representative of 
all Bolivian workers. Consultations between government representatives 
and COB leaders are common but have little effect on wages or working 
conditions. Major structural reforms have further eroded the COB's 
legitimacy as the sole labor representative. Private employers may use 
public sector settlements as guidelines for their own adjustments and 
in fact often exceed them. These adjustments, however, usually result 
from unilateral management decisions or from talks between management 
and employee groups at the local shop level, without regard to the COB.
    The law prohibits discrimination against union members and 
organizers. Complaints go to the National Labor Court, which can take a 
year or more to rule. Union leaders say problems are often moot by the 
time the court rules. Labor law and practice in the seven special free 
trade zones are the same as in the rest of Bolivia.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor. Reported violations were the unregulated 
apprenticeship of children, agricultural servitude by indigenous 
workers and some individual cases of household workers effectively 
imprisoned by their employers.
    d. Minimum Age for Employment of Children: The Code prohibits 
employment of persons under 18 years of age in dangerous, unhealthy or 
immoral work. It permits apprenticeship for those 12 to 14 years of 
age; it is ambiguous, however, on conditions of employment for minors 
aged 14 to 17, a practice which has been criticized by the 
International Labor Organization. Urban children hawk goods, shine 
shoes and assist transport operators; rural children often work with 
parents from an early age. Children are not generally employed in 
factories or formal businesses; when so employed, however, they often 
work the same hours as adults. Responsibility for enforcing child labor 
provisions resides in the Labor Ministry, but they generally are not 
enforced.
    The past two governments attempted to revise the Labor Code but 
desisted in the face of COB opposition. The present government is 
obliged to legislate reforms to the Code--including greater labor 
flexibility--under the terms of the HIPC, but has yet to do so.
    e. Acceptable Conditions of Work: The law establishes a minimum 
wage of Bs 330 per month (approximately $56), bonuses and fringe 
benefits. The minimum wage does not provide a decent standard of 
living, and most workers earn more. Its economic importance resides in 
the fact that certain benefit calculations are pegged to it. The 
minimum wage does not cover members of the informal sector who 
constitute the majority of the urban workforce, nor does it cover 
farmers, some 30 percent of the working population.
    Only half the urban labor force enjoys an 8-hour workday and a 
workweek of 5 or 5\1/2\ days, because the maximum workweek of 
44 hours is not enforced. The Labor Ministry's Bureau of Occupational 
Safety has responsibility for protection of workers' health and safety, 
but relevant standards are poorly enforced; work conditions in the 
mining sector are particularly bad.
    f. Rights in Sectors with U.S. Investment: The majority of U.S. 
investment is in the sectors of hydrocarbons, power generation and 
mining. The rights of workers in these sectors are the same as in other 
sectors. Conditions and salaries for workers in the hydrocarbons sector 
are generally better than in other industries because of stronger labor 
unions in that industry.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  109
Total Manufacturing............  ..............  (\2\)
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\2\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  (\1\)
Other Industries...............  ..............  182
TOTAL ALL INDUSTRIES...........  ..............  328
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 BRAZIL


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................       802       775       560
  Real GDP Growth (pct) \3\...............       3.6      -0.1       0.0
  GDP By Sector (pct):
    Agriculture...........................      -0.2       0.0       N/A
    Industry..............................       3.7       5.5      0.05
    Services..............................       1.9       2.0      0.97
  Per Capita GDP (US$) \4\................     5,000     4,800     3,800
  Labor Force (millions)..................      75.6      77.1      78.6
  Unemployment Rate (pct).................       5.7       7.6       8.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................      21.4      24.4      23.0
  Consumer Price Index \5\................       4.3       2.5       8.0
  Exchange Rate (R/US$ annual average)
    Commercial............................      1.08      1.15      1.85

Balance of Payments and Trade:
  Total Exports FOB \6\...................      53.0      51.1      48.0
    Exports to U.S.\6\....................       9.4       9.8      10.8
  Total Imports FOB \6\...................      61.4      57.7      49.0
    Imports from U.S.\6\..................       14.      13.7      11.8
  Trade Balance \6\.......................      -8.4      -6.6      -1.0
    Balance with U.S.\6\..................      -4.9      -3.9      -1.0
  Fiscal Deficit/GDP (pct)
    Nominal...............................       6.1       8.0      11.0
    Primary (inflation adjusted)..........       0.9       0.0       3.4
  Current Account Deficit/GDP (pct).......      4.16      4.33       4.2
  External Public Debt \7\................      80.0      90.6      99.3
  Debt Service/GDP (pct)..................       1.3       1.5       2.4
  Gold and Foreign Exchange
  Reserves (int'l liquidity)..............      52.2      44.6      37.6
  Aid from U.S. (US$ millions) \8\........      12.9      10.9      13.9
  Aid from Other Countries................       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Estimates except where noted.
\2\ GDP at market prices.
\3\ Percentage changes calculated in local currency.
\4\ At current prices.
\5\ Source: INPC (National CPI).
\6\ Merchandise trade; Source: Ministry of Industry, Commerce and
  Tourism (MICT). Trade totals are preliminary for entire year. U.S.
  totals are extrapolated from January-September data.
\7\ Non-financial public sector (excludes Petrobras and CVRD); 1998
  figure is July balance.
\8\ USAID only.

1. General Policy Framework
    Brazil's economic stabilization program known as the Real Plan 
brought down inflation, dramatically reduced the role of the state in 
the economy, initiated market opening, and encouraged greater private 
sector investment to achieve sustainable long-term growth. Since the 
July 1994 introduction of a new currency, the Real, national consumer 
price inflation has dropped from a monthly average of 50 percent in the 
first half of 1994 to 2.5 percent in all of 1998. With the rapid 
devaluation of the currency in 1999, inflationary pressures 
strengthened and consumer prices rose 6 percent in the 12 months to 
September 1999. Under the Real Plan, Brazil relied heavily on tight 
monetary policy to maintain an overvalued currency while attracting 
sufficient foreign capital to finance its growing external imbalance. 
The strong currency and market-opening measures increased competition 
for domestic firms and encouraged industrial modernization.
    The Russian devaluation and default in August 1998 produced a 
crisis of confidence in emerging markets in general and Brazil in 
particular and set in motion events which culminated in Brazil's abrupt 
switch to a floating rate foreign exchange system in January 1999. The 
change was marked by initial reliance on extremely high real interest 
rates to stem capital outflow and help stabilize the currency. In the 
government's view, long term economic stabilization with improved real 
growth depends on fiscal stringency, use of monetary policy to fight 
inflation, and further progress on structural fiscal reforms. In 
particular, Brazil must continue to attain the fiscal and monetary 
targets set in consultation with the International Monetary Fund as the 
precondition for disbursement of a US$ 41.5 billion assistance package 
and to convince the markets that the country is on the right track. 
Brazil's privatization program has been the biggest in the world during 
the 90's and represented a major accomplishment for the first Cardoso 
administration. However, progress on other needed structural reforms 
remained slow and the country did not pass its first such reform 
measure, the constitutional amendment providing for changes in the 
civil service system, until February 1998. Brazil has made further 
progress on reform since then including approving part of a needed 
massive social security overhaul. However, much remains to be done.
    Greater availability of credit, higher real incomes due to price 
stabilization, and a May 1995 hike in the minimum wage freed pent-up 
consumer demand and ignited a consumption boom in 1994/95 that ended in 
mid-1997. Lower trade barriers, pent-up import demand, and a strong 
currency prompted an initial surge in imports, which grew almost 150 
percent from 1993 to 1997. Imports fell almost 7 percent in 1998 due to 
a growth slowdown and declined a further 17 percent in the first nine 
months of 1999 as the currency depreciated and domestic demand 
stagnated. In contrast, exports were up just over a third from 1994 to 
1997 before falling almost 4 percent in 1998. Despite the approximately 
40 percent depreciation of the Real against the dollar in 1999, a 
combination of factors inhibited export growth and overseas sales fell 
11 percent in the first three quarters of the year.
    Due to the impact of the global financial crisis and the tight 
monetary policy adopted in response to it, the economy shrank by 0.1 
percent in 1998 and growth will be flat in 1999. Concerned about a 
widening current account deficit, which reached 4.2 percent of GDP in 
1997 and 4.3 percent of GDP in 1998, the government began to adopt 
measures in 1997 aimed at discouraging imports and encouraging exports. 
These included imposing restrictions on short-term import finance and 
consumer credit, expanding the official export credit program, 
eliminating tariff exemptions for a long list of capital goods, 
adoption of a customs valuation table, increasing import documentation 
requirements, and tightening standards and enforcement. Even so, access 
to Brazilian markets in most sectors is generally good. Most sectors 
are characterized by competition and participation by foreign firms 
through imports, local production and joint ventures. The import 
finance restriction was effectively ended in March 1999 and completely 
rescinded in October.
    In December 1995 Brazil implemented a complex automotive products 
import regime. The regime expires in 1999 and will be replaced by an 
as-yet-undefined MERCOSUR regime in the year 2000.
    Brazil and its MERCOSUR partners, Argentina, Paraguay and Uruguay, 
implemented the MERCOSUR Common External Tariff (CET) on January 1, 
1995. The CET currently covers approximately 85 percent of 9,000 tariff 
items; the CET will cover most of the remaining 15 percent by 2001, and 
all will be covered by 2006. CET levels range between zero and 23 
percent. With the exception of tariffs on computers, some capital 
goods, and products included on Brazil's national list of exceptions to 
the CET (such as shoes, automobiles and consumer electronics), the 
maximum Brazilian tariff is now 23 percent; the most commonly applied 
tariff is 17 percent. MERCOSUR is now negotiating free trade agreements 
with its South American neighbors. Chile and Bolivia became associate 
members of Mercosur in October 1996, and negotiations with the Andean 
Community began in November 1996. On January 1, 1999, Argentina and 
Brazil took further steps towards a common market, by reducing tariffs 
on a list of 224 Argentine products and 32 Brazilian products to zero.
    The Brazilian Congress ratified the GATT Uruguay Round Agreements 
in December 1994 and Brazil became a founding member of the WTO.
2. Exchange Rate Policy
    Brazil effectively ended the former dual exchange rate market 
(commercial and tourist (or floating) with the switch to a floating 
rate foreign exchange regime in early 1999. There is also an informal 
parallel market but volumes are small. The Government has signaled its 
intention to move to a fully convertible currency, both for current and 
capital account transactions, as early as the first half of 2000.
    When introduced in July 1994, the real was pegged at parity with 
the U.S. Dollar but quickly appreciated. The Central Bank established a 
new system of trading bands in March 1995 and subsequently devalued 
very gradually, first within the bands and then by adjusting the bands 
upward. The bank formerly pursued a so-called ``crawling peg'' policy 
of nominal depreciation of the real against the dollar at a rate of 
about 7.5 percent per year. With a steady decline in international 
reserves following the Russian Crisis, the country was forced to 
devalue in January 1999 and switched to a floating rate system with 
Central Bank intervention only to contain volatility.
3. Structural Policies
    Although some administrative improvements have been made in recent 
years, the Brazilian legal and regulatory system is far from 
transparent. The government has historically exercised considerable 
control over private business through extensive and frequently changing 
regulations. As part of its efforts to keep inflation down, the 
government has in the past frozen public utility rates.
    Brazil accelerated the privatization program initiated in 1990 to 
reduce the size of the government and improve public sector fiscal 
balances and revenues peaked in 1997-98. Steel companies and most 
petrochemical companies owned by the government, the main exception 
being Petrobras, have already been privatized. The majority of voting 
shares in mining conglomerate Companhia Vale do Rio Doce (CVRD) was 
sold to the private sector in May 1997 and Telebras was split into 12 
firms and privatized in July 1998. Several electric utilities have been 
privatized and so-called ``Band B'' cellular telephone concessions 
covering the whole country were sold in 1997 and 1998. The Rio de 
Janeiro State bank, Banerj, was sold to the private sector and Sao 
Paulo state bank Banespa is scheduled to be sold in 2000. Until July 
1999, Brazil realized $71 billion in direct sales revenues and a 
further $17 billion in retirement of public sector debt. The power and 
telecom sectors have each accounted for a third of total privatization 
proceeds to date.
    Brazil's tax system is extremely complex, with a wide range of 
income, consumption, and payroll taxes levied at the federal, state and 
municipal levels. Because of difficulties in passing comprehensive tax 
reform through Congress, the government has focused on limited 
revisions by executive order. In late 1995, it passed revisions to the 
corporate and individual income tax regimes. In 1996, it exempted 
exports and capital purchases from the state-collected value added tax 
and announced a single tax on the gross receipts of small and medium 
enterprises. While the overall objective remains simplification, the 
government imposed an additional tax on financial transactions for a 
two-year period beginning in 1997 to finance the health system. The 
government has announced plans to transform the current system into one 
where a value-added tax, state and city sales taxes, and a selective 
excise tax would replace the current system of multiple taxation. The 
proposal is strongly advocated by Brazil's private sector and made 
progress in the Congress in 1999.
4. Debt Management Policies
    Brazil's total external debt by the end of 1998 was $235 billion, 
of which 38.5 percent was due to the public sector (excluding 
Petrobras) and the remainder to the private sector. Total external debt 
rose 17 percent in the year. External public sector debt rose 
absolutely but fell as a share of the total. Debt service represented 
2.0 percent of Brazil's Gross Domestic Product and 30.9 percent of 
merchandise exports. Brazil concluded a commercial debt rescheduling 
agreement (without an IMF standby program) in April 1994 after twelve 
years of negotiations and has fully complied with the commitments made 
in this agreement. Until the global financial crisis erupted in mid-
1998, the terms of Brazilian debt obligations had lengthened and 
spreads narrowed on both public and private sector external debts. In 
November 1998, Brazil negotiated a $41.5 billion assistance program 
with the IMF and renegotiated the agreement in March 1999 following the 
decision to float the currency. Perceptions of Brazil risk and thus 
availability of foreign funding depends on progress on the fiscal 
stabilization program announced by the government in October 1998 as 
well as on compliance with fiscal and monetary performance targets set 
in conjunction with the IMF. In July 1999, Brazil adopted a so-called 
inflation targeting policy framework that relies on monetary policy to 
achieve target ranges of inflation. As of November 1999, Brazil was in 
compliance with all IMF targets and will meet its inflation objective 
for this year. In December 1999, Brazil and the IMF concluded an 
agreement on revised targets for the year 2000.
5. Significant Barriers to U.S. Exports
    Import Licenses: The Secretariat of Foreign Trade implemented a 
computerized trade documentation system (SISCOMEX) in early 1997 to 
handle import licensing. Licenses for many products were to be issued 
automatically. However, an increasing number of products have been 
exempt from automatic licensing. In addition, Brazil has placed certain 
limitations and requirements on products subject to non-automatic 
licenses. Such measures have been characterized by Brazil as a 
``deepening'' of the existing import licensing regime and as part of a 
larger strategy to prevent under-invoicing. However, the reported use 
of minimum price lists raises questions about whether Brazil's regime 
is consistent with its obligations under the WTO Agreement on Customs 
Valuation. On Friday, December 17, 1999, the U.S. requested WTO dispute 
settlement consultations with Brazil over the reference price issue. 
Earlier, the United States acted as an interested third party in WTO 
dispute settlement negotiations on this issue brought by the European 
Union.
    Agricultural Barriers: While progress has been made in the area of 
fruit and vegetable regulations between the United States and Brazil, 
sanitary and phytosanitary (SPS) measures remain significant barriers 
in many cases as Brazil implements more and more regulations due to 
regional harmonization of such regulations. In November 1998, the U.S. 
and Brazil agreed on a protocol which allows the U.S. to comply with 
Brazilian phytosanitary requirements on Hard Red Winter (HRW) wheat, 
resolving a large portion of the largest bilateral phytosanitary issue 
with Brazil. However, the U.S. government continues to press for the 
entry of other kinds of U.S. wheat into Brazil.
    Brazil prohibits the entry of poultry and poultry products from the 
United States, alleging lack of reciprocity. Brazil had previously 
granted conditional approval for U.S. poultry exports, which was 
withdrawn when the United States could not grant Brazil an exception to 
the standard U.S. approval process. Following the lead of the European 
Union, Brazil prohibits the importation of beef treated with anabolics; 
however, beef imports from the United States have been allowed on a 
waiver basis since 1991. In October 1995, Brazil prohibited the 
importation of live sheep from the United States due to scrapie (a 
sheep disease).
    Services Barriers: Restrictive investment laws, lack of 
administrative transparency, legal and administrative restrictions on 
remittances, and arbitrary application of regulations and laws limit 
U.S. service exports to Brazil. In some areas, such as construction 
engineering, foreign companies are prevented from providing technical 
services in government procurement contracts unless Brazilian firms are 
unable to perform them. Restrictions exist on the use of foreign 
produced advertising materials.
    Many service trade possibilities, in particular services in the oil 
and mining industries, have been restricted by limitations on foreign 
capital under the 1988 Constitution. Unless approved under specific 
conditions, foreign financial institutions are restricted from entering 
Brazil or expanding pre-1988 operations. The Brazilian Congress 
approved five constitutional amendments in 1995 that eliminated the 
constitutional distinction between national and foreign capital; opened 
the state telecommunications, petroleum and natural gas distribution 
monopolies to private (including foreign) participation; and permitted 
foreign participation in coastal and inland shipping. However, the 
degree to which these sectors are actually opened will depend on 
implementing legislation. Legislation permitting the licensing of 
private cellular phone networks to compete with existing parastatal 
monopolies was passed in May 1996, but it requires majority (51 
percent) Brazilian ownership of eligible companies.
    Foreign legal, accounting, tax preparation, management consulting, 
architectural, engineering, and construction industries are hindered by 
various barriers. These include forced local partnerships, limits on 
foreign directorships and non-transparent registration procedures.
    The U.S. and Brazil signed in early October, 1999, a newly-revised 
bilateral Maritime Agreement, effectively ending a period of tension 
generated over misunderstandings relating to preferences afforded to 
selected classes of cargo. The new agreement must still be ratified by 
the Brazilian Congress.
    Foreign participation in the insurance industry has responded 
positively to market-opening measures adopted in 1996. However, 
problems remain with market reserves for Brazilian firms in areas such 
as import insurance and the requirement that state enterprises purchase 
insurance only from Brazilian-owned firms. In June 1996, the government 
legally ended the state's monopoly on reinsurance, but the monopoly has 
yet to end in practice and its persistence is keeping costs high for 
insurers, both domestic and foreign. The monopoly Brazil Reinsurance 
Institute is scheduled for privatization in 2000. U.S. and other 
foreign reinsurers have expressed concern with proposed regulations 
regarding the reinsurance market following the sale.
    Investment Barriers: Various prohibitions restrict foreign 
investment in internal transportation, public utilities, media, 
shipping, and other ``strategic industries.'' In other sectors, Brazil 
limits foreign equity participation, imposes local content requirements 
and links incentives to export performance. For example, there are 
equity limitations, local content requirements, and incentive-based 
export performance requirements in the computer and digital electronics 
sector. In the auto sector, local content and incentive-based export 
performance requirements were introduced in 1995, but should expire in 
December 1999. Brazil is currently engaged in negotiations with its 
MERCOSUR partners to develop a common MERCOSUR auto regime by that 
date.
    Brazil's Congress passed constitutional amendments permitting 
foreign majority participation in direct mining operations, but actual 
changes will not occur until the 1995 constitutional amendments are 
implemented through follow-up legislation. In August 1995, the 
government introduced a measure that permits foreign financial 
institutions to open new branches or to increase their ownership 
participation in Brazilian financial institutions. However, foreign 
ownership of land in rural areas and adjacent to national borders 
remains prohibited under law number 6634. A 1997 law allows for the 
state-owned oil company Petrobras, to take a minority stake in oil 
ventures, something previously prohibited. Despite investment 
restrictions, U.S. and other foreign firms have major investments in 
Brazil, with the U.S. investment stake more than doubling from 1994 to 
1998.
    Government Procurement: Brazil is not a signatory to the WTO 
Government Procurement Agreement. Federal, state and municipal 
governments, as well as related agencies and companies, follow a ``buy 
national'' policy and rules unfairly permit the government to provide 
foreign companies with production facilities in Brazil preferential 
treatment in government procurement decisions. However, Brazil permits 
foreign companies to compete in any procurement related to multilateral 
development bank loans and opens selected procurements to international 
tenders. Given the significant influence of the state-controlled 
sector, discriminatory procurement policies are a relatively 
substantial barrier to U.S. exports in Brazil's market, though the 
privatization of Telebras effectively removes the telecommunications 
sector from being subject to the procurement laws. To the extent that 
the privatization program in Brazil continues and non-discriminatory 
policies are adopted, U.S. firms will have greater opportunities in 
Brazil.
    Law Number 8666 of 1993, covering most government procurement 
(except informatics and telecommunications), requires nondiscriminatory 
treatment for all bidders, regardless of nationality or origin of 
product or service. However, the law's implementing regulations allow 
consideration of non-price factors, give preferences to 
telecommunications, computer, and digital electronics goods produced in 
Brazil, and condition eligibility for fiscal benefits on local content 
requirements. In March 1994, the government issued Decree 1070, which 
requires federal and parastatal entities to give preference to locally 
produced computer and telecommunications products and services based on 
a complicated and nontransparent price/technology matrix. Bidders that 
meet one or more of the criteria for preferential treatment are allowed 
a price differential of up to 12 percent over other bidders.
6. Export Subsidies Policies
    In general, the government does not provide direct subsidies to 
exporters, but does offer a variety of tax and tariff incentives to 
encourage export production and encourage the use of Brazilian inputs 
in exported products. Incentives include tax and tariff exemptions for 
equipment and materials imported for the production of goods for 
export, excise and sales tax exemptions on exported products, and 
excise tax rebates on materials used in the manufacture of export 
products. Exporters enjoy exemption from withholding tax for 
remittances overseas for loan payments and marketing, and from the 
financial operations tax for deposit receipts on export products. 
Excise and sales tax exemptions have now been extended to agricultural 
and semi-manufactured export products as well as to manufactured 
products. Exporters are also eligible for a rebate on social 
contribution taxes paid on locally acquired production inputs.
    An export credit program, known as PROEX, was established in 1991. 
PROEX is intended to equalize domestic and international interest rates 
for export financing. Revisions to the program were announced in 1998. 
In 1998, $1.4 billion was budgeted for PROEX with $903 million slated 
for equalization and $500 million for direct financing. However, only 
$616 million was actually spend last year on equalization, while $210 
million went to financing. Historically, PROEX never used more than 30 
percent of its allocated budget, but in 1998 utilized over 50 percent 
of its allocated resources for the first time.
7. Protection of U.S. Intellectual Property
    Brazil belongs to the World Trade Organization (WTO) and the World 
Intellectual Property Organization (WIPO). It is also a signatory to 
the Paris Convention, Berne Convention, Madrid Agreement, Rome 
Convention, Patent Cooperation Treaty, Strasbourg Agreement, Phonograms 
Convention, Nairobi Treaty, Film Register Treaty, and the Universal 
Copyright Convention. In 1999, the U.S. Trade Representative placed 
Brazil back on the ``Special 301'' Watch List primarily as a result of 
serious concerns regarding copyright enforcement. Although Brazil has 
made progress toward improved protection for intellectual property 
rights, it must take further significant steps to combat piracy.
    In the past three years, Brazil has passed revised copyright, 
software, patent, and trademark legislation. Brazil's new Industrial 
Property Law took effect in May 1997, bringing most respects of 
Brazil's patent and trademark regime up to the standards specified in 
the WTO TRIPs Agreement. However, the new law also includes compulsory 
licensing and local working provisions that appear to be TRIPs-
inconsistent.
    Patents: The new Industrial Property Law provides patent protection 
for chemical and pharmaceutical substances, chemical compounds, and 
processed food products not patentable under Brazil's 1971 law, and 
provides patent protection for genetically altered micro-organisms. The 
law also extends the term for product patents from 15 to 20 years, and 
provides ``pipeline'' protection for pharmaceutical products patented 
in other countries but not yet placed on the market. The large backlog 
of pipeline patents are being processed, although slowly. In April 
1997, a Plant Variety Law was passed that provides protection to 
producers of new varieties of seeds.
    Trade Secrets: The new Industrial Property Law specifically allows 
criminal prosecution for revealing trade secrets of patented items, 
with a penalty of imprisonment for three months to a year or a fine. 
The regulations as written are narrower than the TRIPs Agreement. 
However, the government argues that since it incorporated Article 39 of 
the Agreement into law when the Uruguay Round agreements were ratified, 
in effect it provides a level of protection consistent with the TRIPs 
Agreement.
    Trademarks: The new Industrial Property Law improves Brazil's 
trademark laws, providing better protection for internationally known 
trademarks. Trademark licensing agreements must be registered with the 
National Institute of Industrial Property to be enforceable. However, 
failure to register licensing agreements will no longer result in 
cancellation of trademark registration for non-use.
    Copyrights: In February 1998, in an effort to raise Brazil's 
copyright protection to the level of the TRIPs Agreement, President 
Cardoso signed a new copyright law that generally conforms to 
international standards. Enforcement, however, remains a problem.
    Semiconductor Chip Layout Design: In April 1996, a bill to protect 
layout designs of integrated circuits was introduced.
8. Worker Rights
    a. The Right of Association: Unions are free to organize in Brazil. 
Virtually all workers (except for the military, the military police and 
firemen) have the right to representation. The only significant 
limitation is unicidade (literally one per 
city''), which restricts representation for any professional category 
to one union in a given geographical area. Both the government and the 
major labor confederations have argued in favor of removing this 
restriction, so it may be removed within the next year. Otherwise, 
unions remain independent of the government and the political parties.
    b. The Right to Organize and Bargain Collectively: The Constitution 
provides for the right to organize, and virtually all enterprises of 
any size have unions. With government assistance, businesses and unions 
are working to expand and improve mechanisms of collective bargaining. 
For now, however, many issues normally resolved by collective 
bargaining come under the purview of Brazil's labor courts, which have 
the power to intervene in wage bargaining and impose settlements.
    c. Prohibition of Forced or Compulsory Labor: Although the 
Constitution prohibits forced labor, credible sources continue to 
report cases of forced labor in Brazil. The Catholic Church's Pastoral 
Land Commission (CPT) has documented cases of forced labor in some 
states, although the CPT reported that the total number of incidents 
has declined per year through 1998. Forced labor continues on farms 
producing charcoal for use in the iron and steel industries, and on 
sugar plantations. The federal government has created a task force, 
comprising five different ministries, to combat forced labor, and the 
Ministry of Labor has augmented the task force with mobile inspection 
teams. These have efforts have improved the situation considerably, 
though all concerned concede that forced labor continues to be a 
problem.
    d. Minimum Age for Employment of Children: The Brazilian 
Constitution prohibits work by children under the age of 14. Despite 
this prohibition, the Ministry of Labor estimates that nearly three 
million children in the age category 10 to 14 years work. Sectors that 
have child labor include charcoal production, sugar cultivation, citrus 
fruit plantations, hemp growing, and mining and logging, among others. 
A coalition of government agencies and NGOs have made effective efforts 
to limit child labor, notably through the implementation of 
``scholarships'' for families who keep their children in school. The 
problem, however, persists.
    e. Acceptable Conditions of Work: Brazil has a minimum wage of 
approximately 75 dollars (136 reais) a month. Many workers, 
particularly those outside the regulated economy and in the 
northeastern part of Brazil, reportedly earn less than the minimum 
wage. The 1988 Constitution limits the workweek to 44 hours and 
specifies a weekly rest period of 24 consecutive hours, preferably on 
Sundays. The Constitution expanded pay and fringe benefits and 
established new protections for agricultural and domestic workers, 
though not all provisions are enforced. All workers in the formal 
sector receive overtime pay for work beyond 44 hours and there are 
prohibitions against excessive use of overtime. Unsafe working 
conditions exist throughout Brazil, though Brazilian occupational 
health and safety standards are consistent with international norms. 
The Ministry of Labor, responsible for monitoring working conditions, 
has insufficient resources for adequate inspection and enforcement of 
these standards.
    f. Rights in Sectors with U.S. Investment: U.S. multinationals have 
invested in virtually all the productive sectors in Brazil. Nearly all 
of the Fortune 500 companies are represented in Brazil. In U.S.-linked 
enterprises, conditions usually do not differ significantly from the 
best Brazilian companies; at most U.S. multinationals, conditions are 
considerably better than the average.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,825
Total Manufacturing............  ..............  22,292
  Food & Kindred Products......  2,472           ...............................................................
  Chemicals & Allied Products..  5,524           ...............................................................
  Primary & Fabricated Metals..  1,324           ...............................................................
  Industrial Machinery and       1,463           ...............................................................
   Equipment.
  Electric & Electronic          2,097           ...............................................................
   Equipment.
  Transportation Equipment.....  3,390           ...............................................................
  Other Manufacturing..........  6,022           ...............................................................
Wholesale Trade................  ..............  508
Banking........................  ..............  1,667
Finance/Insurance/Real Estate..  ..............  4,728
Services.......................  ..............  1,664
Other Industries...............  ..............  5,118
TOTAL ALL INDUSTRIES...........  ..............  37,802
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 CANADA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment:
  Nominal GDP \2\.........................     631.3     604.0     617.6
  Real Growth Rate (pct)..................       4.0       3.1       3.4
  GDP by Sector (pct):
    Goods.................................        33        33        33
    Services..............................        67        67        67
    Agriculture...........................         2         2         2
    Government............................        20        20        19
  Per Capita GDP (US$)....................    20,765    19,673    20,495
  Total Labor Force (000's)...............    15,354    15,632    15,346
  Unemployment Rate (pct).................       9.2       8.3       7.8

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \3\............      -1.4       1.5       1.3
  Consumer Price Inflation................       1.6       0.9       1.7
  Exchange Rate: (C$/US$) \4\.............    1.3844    1.4831    1.4885

Balance of Payments and Trade:
  Global Merchandise Exports..............     217.7     217.3     231.1
    Exports to U.S........................     175.1     181.7     194.1
  Global Merchandise Imports..............     200.6     204.6     212.7
    Imports from U.S......................     152.7     157.5     163.8
  Global Merchandise Trade Balance........      17.1      12.7      18.4
    Balance with U.S......................      22.4      24.2      30.3
  Current Account Balance/GDP (pct).......       1.7       1.8       0.6
  Net Public Debt \5\.....................     418.7     388.9     421.2
  Debt Service/GDP (pct) \5\..............       4.9       4.6       4.5
  Federal Budget Deficit/GDP (pct)........       0.4       0.3       0.0
  Official Int'l Reserves \3\.............      18.0      23.4      26.8
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ 1999 data is embassy projection unless otherwise noted.
\2\ Exchange rate conversion causes nominal C$ growth to be reflected as
  negative US$ growth.
\3\ Actual as of October 31, 1999.
\4\ January to October 1999 average.
\5\ Canadian Government data.

1. General Policy Framework
    Canada has an affluent, high-tech industrial economy that resembles 
the United States in its per capita output, market-oriented economic 
system, and pattern of production. While production and services are 
predominantly privately owned and operated, the federal and provincial 
governments provide a broad regulatory framework and redistribute 
incomes among individuals and provinces. Federal government economic 
policies since the mid-1980s have emphasized the reduction of public 
sector intervention in the economy and the promotion of private sector 
initiative and competition. Nevertheless, government regulatory regimes 
affect foreign investment, most notably U.S. firms operating in 
telecommunications, broadcasting, publishing, energy, mining, and 
financial services.
    A consensus of forecasters has projected the Canadian economy to 
grow by 3.6 percent in 1999, easing to 3.0 percent in 2000. These 
projections place Canada in line with the United States to lead the 
OECD in economic output in both years. In 1999, Canada's important 
export sector continued to benefit from the strong U.S. economy and 
from Canada's undervalued currency. At the same time, relatively low 
interest rates, employment gains and fiscal stimulus from the 
government sector fueled consumer spending. In 2000, Canadian economic 
growth is forecast to slow in line with the U.S. economy. The impact of 
slower U.S. growth will be most evident in Canada's external trade, 
since almost 85 percent of Canada's exports go the United States. 
Nevertheless, the Canadian economy should benefit from the ``new era'' 
of federal budget surpluses and improved provincial finances, as well 
as the positive turnaround in the Asian economies and rising commodity 
prices.
    The close proximity and integrated manufacturing sectors of Canada 
and the United States has resulted in the largest bilateral merchandise 
trade relationship in the world. In 1998, total two-way trade in goods 
and services between the U.S. and Canada was US$368 billion, or, over 
US$1 billion each day. This was more than U.S. trade with the rest of 
the Western Hemisphere, and only US$107 billion less than U.S. goods 
and services trade with the entire 15-country European Union. The 
United States and Canada also share one of the world's largest 
bilateral direct investment relationships. In 1998, the stock of 
Canadian foreign direct investment in the U.S. was US$75 billion. At 
the same time, U.S. foreign direct investment in Canada was US$104 
billion.
    The United States and Canada share a 5,500-mile border. Both 
governments are committed to making this border a model of cooperation 
and efficiency. In 1995, President Clinton and Prime Minister Chretien 
announced the Shared Border Accord, a framework for better border 
management that seeks an appropriate balance between commercial 
facilitation and law enforcement. Since 1997, the U.S. Immigration and 
Naturalization Service has worked jointly with Citizenship and 
Immigration Canada on a border vision process regarding migration 
issues. On October 8, 1999, President Clinton and Prime Minister 
Chretien confirmed the following guiding principles for U.S.-Canada 
border cooperation: (1) to streamline, harmonize and collaborate on 
border policies and management; (2) to expand cooperation to increase 
efficiencies in customs, immigration, law enforcement and environmental 
protection at and beyond the border; and (3) to collaborate on common 
threats from outside Canada and the United States. The Canada-U.S. 
Partnership Forum (CUSP), established by Secretary of State Albright 
and Foreign Minister Axworthy, will work to facilitate implementation 
of these principles.
    The U.S.-Canada bilateral civil aviation market is the largest in 
the world. As a result of the 1995 U.S.-Canada air transport agreement, 
U.S. and Canadian airlines are free to decide routes, ticket prices, 
and flight frequencies without government interference. Over a three-
year period, the new agreement essentially removed all restrictions on 
U.S.-Canada transborder air services. By all accounts, the economic 
benefits of the new agreement have been enormous: total U.S.-Canada 
passenger traffic has increased by about 40 percent; fares have 
decreased significantly, and over 40 new city-pairs have service for 
the first time.
2. Exchange Rate Policy
    The Canadian Dollar is a fully convertible currency, and exchange 
rates are determined by supply and demand conditions in the exchange 
market. There are no exchange control requirements imposed on export 
receipts, capital receipts, or payments by residents or non-residents. 
The Bank of Canada, which is the country's central bank, operates in 
the exchange market on almost a daily basis to maintain orderly trading 
conditions.
3. Structural Policies
    The market establishes prices for most goods and services. The most 
important exceptions are government services, services provided by 
regulated public service monopolies, most medical services, and supply-
managed agricultural products (eggs, poultry and dairy products). The 
principal sources of federal tax revenue are corporate and personal 
income taxes and the goods and services tax (GST), a multi-stage seven 
percent value-added tax on consumption. The personal and corporate 
income tax burden, combining federal and provincial taxes and 
surcharges, is significantly higher than in the United States, although 
it varies by province.
4. Debt Management Policies
    The Canadian federal government (GOC) recorded its second 
consecutive budgetary surplus in FY1998-99 (April 1-March 31), the 
first back-to-back surpluses in 47 years. Currently, the GOC projects 
that even though it plans to begin multi-year tax cuts in FY2000-2001, 
it will still have a cumulative budget surplus of US$65.5 billion by 
the end of FY2005. In FY1998-99, Canada's net public debt was reduced 
to US$393.7 billion, or 64.4 percent of GDP, an improvement from a peak 
of 71.2 percent of GDP in FY1995-96. In the past few years, Canada can 
take pride in experiencing a larger decline in its debt-to-GDP ratio 
than any other country in the G-7. Nevertheless, Canada's debt burden 
is still well above the G-7 average, ranking second highest after 
Italy. This is why the federal government remains committed to ongoing 
debt reduction initiatives. Such efforts will also serve to reduce 
Canada's debt servicing requirements, which currently absorb 27 cents 
of every government revenue dollar.
5. Significant Barriers to U.S. Exports
    The U.S.-Canada trade relationship is governed by the 1989 U.S.-
Canada Free Trade Agreement (CFTA) and the 1994 North American Free 
Trade Agreement (NAFTA.) While many tariffs were eliminated by January 
1, 1994, non-tariff barriers at both the federal and provincial levels 
continue to impede access of U.S. goods and services to Canada or 
retard potential export growth. Canada maintains some restrictions on 
foreign investment and content in the so-called ``cultural industries'' 
and related sectors, including book and magazine publishing, 
broadcasting, and telecommunications. The United States objects to some 
of these restrictions and closely monitors new laws and regulations 
affecting these sectors.
    Canada applies various restrictions to imports of supply-managed 
products (dairy, eggs and poultry), as well as fresh fruit and 
vegetables, potatoes, and processed horticultural products. The United 
States continues to pursue these issues bilaterally. With regard to 
Canada's policies on milk, the United States maintains that Canada is 
providing export subsidies on dairy products without regard to its 
export subsidy reduction commitments in the agreement on agriculture 
(see also export subsidies policies section). The WTO appellate body 
upheld a February 5, 1999 ruling that Canada's dairy export pricing 
practices constitute a subsidy on milk used in products for export.
    In 1997, a WTO panel supported U.S. complaints against various 
Canadian measures that limited U.S. access to the Canadian publications 
market. In mid-1999, Canada replaced these measures with the Foreign 
Publishers Advertising Services Act, which would have made it a 
criminal offense, punishable by fines, for foreign-based publishers to 
supply advertising services directed at the Canadian market. Under an 
agreement negotiated with the U.S. government, smaller circulation 
foreign-based publishers are exempted from the Act, as are foreign-
controlled publications that contain 12 percent or less of advertising 
measured by revenue in a given issue, directed primarily at the 
Canadian market. Canada committed to increasing this percentage to 15 
percent on December 3, 2000 and to 18 percent on June 3, 2002.
    Canada is a signatory to the GATS Agreement on Basic 
Telecommunications Services. Recent regulatory changes have opened both 
long-distance and local telephone services to competition. Canada's WTO 
obligations require a monopoly by Teleglobe Inc. on overseas calling to 
end in 1999. In September 1998, Canada eliminated third country routing 
restrictions for international traffic routed to and from Canada 
through the United States. Canada's Telecommunications Act allows the 
federal regulator, the Canadian Radio-Television and Telecommunications 
Commission, to forbear from regulating competitive segments of the 
industry, and exempts resellers from regulation. Canada retains a 46.7 
percent limit on foreign ownership and a requirement for Canadian 
control of basic telecommunications facilities.
    Foreign access to the Canadian financial services sector has 
improved as a result of the NAFTA and the GATS. The WTO Agreement 
Implementation Act removed long-standing limitations on non-Canadian 
ownership of federally regulated financial institutions; lifted a 
market share limitation on foreign banks; and extended NAFTA thresholds 
for investment review and control to all WTO members. Banking falls 
exclusively under federal jurisdiction, while the regulation of 
securities companies falls under provincial control.
    The banking industry in Canada is governed by the federal Bank Act. 
The Bank Act and other financial services laws are mandated for review 
every five years. Amendments to the Bank Act in 1992 and 1997 removed 
some irritants of doing business in Canada for U.S. and other foreign 
banks. Foreign banks can now opt out of Canada Deposit Insurance, and 
as of February 1999, can set up branches. Two types of foreign bank 
branches are currently permitted: full-service and lending. Full-
service branches are authorized to take non-retail deposits of not less 
than C$150,000 (est. US$100,000), while lending branches are not 
allowed to take any deposits and can borrow only from other financial 
institutions. The purpose of lending branches is to provide new sources 
of funds to businesses and credit card users. Full-service branches and 
foreign bank subsidiaries are not allowed to own lending branches.
    In Canada's insurance market, companies can incorporate under 
provincial or federal law. Foreign ownership remains subject to 
investment review thresholds, and several provinces continue to subject 
foreign investments in existing, provincially incorporated companies to 
authorization. Insurance companies may supply their services either 
directly, through agents or through brokers. Life insurance companies 
are not generally allowed to offer other services (except for health, 
accident and sickness insurance), but may be affiliated with, and 
distribute the products of, a property and casualty insurer. As in 
banking, a commercial presence is required to offer insurance, 
reinsurance and retrocession services in Canada. However, insurance 
companies may branch from abroad on condition that they maintain 
trustees assets equivalent to their liabilities in Canada. Insurance 
companies can own deposit-taking financial institutions, investment 
dealers, mutual fund dealers and securities firms. In addition, 
insurance companies may engage directly in lending activities on an 
equal footing with deposit-taking institutions. The car insurance 
industry is a publicly owned monopoly in Quebec, British Columbia, 
Manitoba and Saskatchewan. All other provinces have regulated premiums.
    Provincial legislation and liquor board policies regulate Canadian 
importation and retail distribution of alcoholic beverages. U.S. 
exporters object to provincial minimum import price requirements, and 
cost-of-service and packaging size issues hinder the importation of 
U.S. wine.
    Canada currently prohibits foreign ownership of land border duty-
free stores and imposes certain business size requirements and one-
shop-per-site encumbrances that effectively limit market access. 
Prompted by citizen complaints, Canada initiated a review of 
requirements for land duty-free licenses in August 1998, and federal 
agencies currently are considering regulatory changes that may 
liberalize the industry and create investment opportunities for U.S. 
companies. The United States has encouraged the Government of Canada to 
give these proposed changes due consideration.
    Canadian customs regulations limit the temporary entry of 
specialized equipment needed to perform short-term service contracts. 
Certain types of equipment are granted duty-free or reduced-duty entry 
into Canada only if they are unavailable from Canadian sources. 
Although NAFTA has broadened the range of professional equipment 
permitted entry, it has not provided unrestricted access.
    The Canadian Special Import Measures Act (SIMA) governs the use of 
anti-dumping and countervailing duties. Canada operates a partially 
bifurcated trade remedies system under SIMA The Deputy Minister of 
National Revenue is responsible for initiating investigations and 
making preliminary and final determinations respecting dumping/
subsidizing and preliminary determinations of injury. The Canadian 
International Trade Tribunal (CITT) is responsible for making final 
injury determinations. When the SIMA investigation process has resulted 
in levies imposed on U.S. products, these duties become an impediment 
to U.S. trade opportunity.
    Transboundary environmental issues continue to be a major border 
concern to U.S. citizens from Maine to Alaska. Cooperation dates back 
to the 1909 Boundary Waters Treaty, and has grown to include 
collaboration on watersheds, flooding, air pollution and other common 
concerns. Efficient management of this agenda is complicated because of 
shared federal, state/provincial and local jurisdiction, and by the 
fact that it is carried out not only through bilateral agreements but 
by unique institutions such as the International Joint Commission (IJC) 
and the still-evolving NAFTA Commission on Environmental Cooperation.
6. Export Subsidies Policies
    Export credit guarantees to support bulk and processed agricultural 
product exports are available through the Canadian Wheat Board and the 
Export Development Corporation, both crown corporations. Due to lack of 
transparency, data on the value and/or volume of commodities exported 
with credit guarantee support, destination countries, and terms are 
very limited.
    Canada operates a two-tiered pricing system that enables dairies to 
acquire milk at a discount on the condition that the resulting products 
are exported or incorporated into certain further processed food 
products. By charging a higher price for milk and milk containing 
products for domestic consumption, the Canadian Dairy Commission is 
able to provide dairy product exporters with access to lower priced 
milk. The WTO appellate body upheld a February 5, 1999 ruling that 
these practices constitute an export subsidy.
7. Protection of U.S. Intellectual Property
    Canada belongs to the World Trade Organization (WTO) and the World 
Intellectual Property Organization (WIPO). Canada is a signatory to the 
Paris Convention, Bern Convention, Rome Convention, Patent Cooperation 
Treaty, Strasbourg Agreement, Budapest Treaty, and the Universal 
Copyright Treaty. On December 18, 1997, the Canadian Government 
committed itself to sign the WIPO Copyright Treaty and the WIPO 
Performances and Phonograms Treaty, which deal with copyright and 
protection for performers and phonogram producers.
    The most recent amendments to the Canadian Copyright Act were in 
1997 and included, inter alia, ``neighboring rights,'' which requires 
broadcasters to pay royalties to recording artists and record producers 
from countries that are signatories of the Rome Convention, (the United 
States is not). The 1997 legislation also establishes a levy on 
recordable, blank audio media, payable by manufacturers and importers 
of blank tapes to domestic artists and artists from countries with the 
same levy in place. The Government of Canada is in the process of 
determining how it will implement these amendments and we will continue 
to monitor their progress to ensure that implementation is consistent 
with national treatment provisions under the NAFTA. In 1998 and again 
in 1999, the U.S. Trade Representative maintained Canada on the 
``Special 301'' Watch List because it perceives Canada's reciprocity 
application of these two provisions as a violation of Canada's national 
treatment obligations under NAFTA. The GOC has broad authority to grant 
the benefits of the regime to other countries, although it has yet to 
announce a determination regarding the U.S.
    On April 30, 1999, USTR announced the initiation of WTO dispute 
settlement proceedings against Canada regarding its failure to grant a 
full 20-year patent term to certain patents as requirement by the TRIPs 
Agreement. Under the Agreement, Canada must provide a minimum patent 
term of 20 years from the date of filing. The TRIPs Agreement also 
requires that Canada extend such protection to all patents in existence 
on January 1, 1996. Canada provides a 20-year patent term only to those 
patents filed after October 1, 1989; earlier patents receive only 17 
years of protection from the date that the patent was granted. At the 
WTO Dispute Settlement Body meeting on July 26, Canada blocked the USG 
request on the formation of a dispute settlement panel. Canada was not 
able to block the USG's second panel request, which took place on 
September 22.
8. Worker Rights
    a. The Right of Association: Except for members of the armed 
forces, workers in both the public and private sectors have the right 
to associate freely. These rights, protected by both the federal labor 
code and provincial labor legislation, are freely exercised.
    b. The Right to Organize and Bargain Collectively: Workers in both 
the public and private sectors freely exercise their rights to organize 
and bargain collectively. Some essential public sector employees have 
limited collective bargaining rights that vary from province to 
province. Over 37 percent of Canada's non-agricultural workforce are 
unionized.
    c. Prohibition of Forced or Compulsory Labor: There is no forced or 
compulsory labor practiced in Canada.
    d. Minimum Age Employment of Children: Generally, workers must be 
17 years of age to work in an industry under federal jurisdiction. 
Provincial standards (covering more than 90 percent of the national 
workforce) vary, but generally require parental consent for workers 
under 16 and prohibit young workers in dangerous or nighttime work. In 
all jurisdictions, a person cannot be employed in a designated trade 
(become an apprentice) before the age of 16. The statutory school-
leaving age in all provinces is 16.
    e. Acceptable Conditions of Work: Federal and provincial labor 
codes establish labor standards governing maximum hours, minimum wages 
and safety standards. Those standards are respected in practice.
    f. Rights in Sectors with U.S. Investment: Worker rights are the 
same in all sectors, including those with U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  12,559
Total Manufacturing............  ..............  46,428
  Food & Kindred Products......  5,143           ...............................................................
  Chemicals & Allied Products..  8,295           ...............................................................
  Primary & Fabricated Metals..  3,231           ...............................................................
  Industrial Machinery and       3,046           ...............................................................
   Equipment.
  Electric & Electronic          2,174           ...............................................................
   Equipment.
  Transportation Equipment.....  11,179          ...............................................................
  Other Manufacturing..........  13,359          ...............................................................
Wholesale Trade................  ..............  7,265
Banking........................  ..............  1,203
Finance/Insurance/Real Estate..  ..............  22,057
Services.......................  ..............  4,598
Other Industries...............  ..............  9,799
TOTAL ALL INDUSTRIES...........  ..............  103,908
----------------------------------------------------------------------------------------------------------------
Source: Bureau of Economic Analysis, U.S. Department of Commerce.


                                 ______
                                 

                                 CHILE


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998      1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................      77.1      79.6      79.5
  Real GDP Growth (pct) \1\...............       7.1       3.3      -2.7
  GDP Growth by Sector (pct) \1\ \2\
    Fishing...............................       8.1       5.0      -1.3
    Agriculture...........................       2.1       1.4      -0.3
    Mining................................       8.1       3.0      13.3
    Manufacturing.........................       9.5       4.0      -3.2
    Construction..........................       8.2       3.0     -10.2
    Services..............................      35.5      18.0      -1.9
    Government............................       5.3       6.0       1.3
  Per Capita GDP (US$) \1\................     5,300     5,100     5,000
  Labor Force (000's) \1\.................     5,380     5,851     5,854
  Unemployment Rate (pct) \1\.............       5.3       6.0      11.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \2\...................      21.7      10.5       6.0
  Consumer Price Inflation (pct) \1\......       5.6       4.7       2.4
  Exchange Rate (Peso/US$) \1\............       419       465       543

Balance of Payments and Trade:
  Total Exports FOB \4\...................      16.9      14.9       8.5
    Exports to U.S.\5\....................       2.7       2.9       1.5
  Total Imports CIF \4\...................      18.2      17.4       7.2
    Imports from U.S.\5\..................       4.3       4.0       1.5
  Trade Balance \4\.......................      -1.3      -2.5       1.1
    Balance with U.S.\5\..................      -1.6      -1.1       0.0
  Current Account Deficit/GDP (pct).......       5.2       5.2       0.0
  Total External Debt \1\
    Private Debt..........................      21.6      26.0      28.3
    Public Debt...........................       5.1       5.7       5.9
  Debt Service Payments/Exports (pct) \1\.      20.1      24.9      36.0
  Fiscal Deficit/GDP (pct) \1\............       0.0       0.0       0.5
  Gold and Foreign Exchange
  Reserves (US$ billions) \1\.............      17.8      15.3      15.0
  Aid from U.S. (US$ millions) \5\........       0.3       0.3       0.3
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Central Bank of Chile, November 1999 Monthly Information Bulletin.
\2\ Central Bank of Chile, August 1999 Monthly Information Bulletin.
\3\ Includes electricity, gas, and water generation.
\4\ DIRECON.
\5\ U.S. Department of Commerce, International Trade Administration
  Statistics.

1. General Policy Framework
    Chile's economy suffered a sharp recession from November 1998 to 
late 1999, following a decade of over 7 percent average growth. A fall 
in exports (mainly due to the Asian economic crisis) coupled with a 
striking spike in short-term interest rates in the fourth quarter of 
1998, pushed Chile into 11 consecutive months of negative growth 
between November 1998 and October 1999. Unemployment rose to 11.5 
percent in August 1999, marking 16 months of rising unemployment, 
before falling to 11 percent in November. Exports of primary products 
such as copper remain strong; copper exports have risen an average of 
20 percent in value over 1998 figures despite lower prices that 
prevailed for much of 1999. Chile's credit rating remains investment 
grade, and direct foreign investment has increased to record levels 
despite the recession. Growth is projected at approximately 5 percent 
in 2000 as domestic demand slowly comes out of a slump and vibrant 
exports continue in the context of international economic recovery.
    The government of Eduardo Frei (1994 to March 2000) has continued 
Chile's policies of macroeconomic stability and export orientation. The 
calendar year 1999 budget will register Chile's first deficit in 10 
years, but the Finance Ministry insisted upon and won passage of a 2000 
budget that features 3.3 percent nominal growth, basically flat when 
considered in context of 3-4 percent predicted inflation. While the GOC 
has expressed concern over too-rapid, uncontrolled capital inflows 
prior to the 1998-99 economic crisis, it has continued to loosen 
capital restrictions. Following legislative changes in 1997, foreign 
banks have invested heavily in the Chilean market (particularly in 
1999). Foreign insurance and finance companies are also dominant in the 
health and pension industries, owning most of the market leaders. The 
Government of Chile has privatized some ports through concessionary 
contracts. Bid documents have been released for the privatization of 
water and waste water treatment facilities.
    In September of 1999, Chile's independent Central Bank dropped the 
exchange-rate band system that governed its exchange rate policy. This 
is a major change from previous policy, which sought to keep the peso/
dollar rate within pre-set parameters. The Central Bank maintains its 
policy of balancing growth and inflation via short-term interest rate 
policy and intervention in the currency markets, but has pledged to use 
those tools sparingly.
    The 1998-1999 contraction is showing definite signs of abating at 
the close of the year, but has left unemployment at 11 percent, nearly 
twice the average level seen in the 1990s. Domestic demand is still 
depressed, following a contraction of 8.5 percent in the third quarter 
of 1999 versus the third quarter of 1998. Chilean exports to Latin 
America remain sharply lower. 2000 is expected to bring renewed growth 
to the Chilean economy. Private and government economists generally 
agree that growth should reach approximately 5 percent annually, with 
steam picking up in the 3 rd and 4 th quarters. Commodity prices are 
expected to rise internationally, boosting the already strong 
performance of the copper and mining sector. Unemployment should 
gradually fall from its peak of 11.5 percent to the 8-9 percent range 
by mid-2000. Chile's current trade surplus should continue in the mid-
term, as domestic demand recovers from a sharp 13 percent decline and 
exports rebound. The small current account surplus will, in all 
likelihood, disappear, and Chile will revert to its traditional 
deficit; policy-makers are committed to seeing it remain at a much 
lower level than seen prior to the recession.
2. Exchange Rate Policies
    The Central Bank moved to a freely floating exchange-rate system 
from an exchange-rate band in September 1999. The peso promptly 
devalued by 5 percent within six weeks before stabilizing and 
recovering somewhat. The Central Bank's short-term interest rate is 
currently 5 percent, and the Central Bank and Treasury Ministry are 
committed to holding it there at least until growth solidifies in 2000.
    Over the last several years, the Central Bank has gradually reduced 
restrictions on foreign-exchange outflows. In 1995, it lifted the 
requirement that exporters remit some of their foreign currency 
earnings through the inter-bank market. A legal parallel market 
operates with rates almost identical to the inter-bank rate. The value 
of the peso versus the U.S. dollar has fallen almost 18 percent in 1999 
in real terms (473 pesos to the dollar in December 1998 to 547 in 
December 1999), given roughly equivalent rates of inflation.
3. Structural Policies
    Pricing policies: The government rarely sets specific prices. 
Exceptions are urban public transport and some public utilities and 
port charges. State enterprises generally purchase at the lowest 
possible price, regardless of the source of the material. U.S. exports 
enter Chile and compete freely with other imports and Chilean products. 
Chile's trade agreements with Mexico, Canada, Mercosur and Central 
America give exporters from those countries significant competitive 
advantages--virtually all Mexican and Canadian exports enter the 
Chilean market duty free. Import decisions are typically related to 
price competitiveness and product availability. (Certain agricultural 
products are an exception. See section 5.)
    Tax policies: An 18-percent value-added tax (VAT) applies to all 
sales transactions and accounts yielding over 40 percent of total tax 
revenue. There is a 10 percent tariff on virtually all imports 
originating in countries with which Chile does not have a free trade 
agreement, down from 11 percent in 1998. Tariffs are programmed to drop 
to 9 percent in 2000, and to keep falling by one percentage point per 
year through 2003, at which point tariffs will stabilize at 6 percent. 
Computers enter Chile duty-free as a result of the Information 
Technology Agreement. Personal income taxes are levied only on income 
over about $6,000 per year. The top marginal rate is 45 percent on 
annual income over about $75,000. Profits are taxed at flat rates of 15 
percent for retained earnings and 35 percent for distributed profits, 
with incentives for business donations to educational institutions. Tax 
evasion is not a serious problem.
    Regulatory policies: Regulation of the Chilean economy is limited. 
The most heavily regulated areas are utilities, the banking sector, 
securities markets, and pension funds. No government regulations 
explicitly limit the market for U.S. exports to Chile (although other 
government programs, like the price-band system for some agricultural 
commodities described below, displace U.S. exports). In recent years, 
the government has introduced rules permitting private investment in 
the construction and operation of public infrastructure projects such 
as toll roads. The ``privatization'' of Chilean state-owned ports, 
which consists of granting long-term concessions for the operation and 
management of ports, is proceeding as projected. The three most 
important state-owned ports have already granted concessions: Puerto 
Valparaiso, Puerto San Antonio, and Puerto San Vicente/Talcahuano. The 
Ports of Arica and Iquique are undergoing the bidding process. The due 
date to present technical offers is January 27, 2000, and concessions 
will be awarded by February 2000. These five ports account for 
approximately 30 percent of the total cargo transferred in Chilean 
ports and almost 80 percent of the cargo transferred at state-owned 
ports; much of Chilean exports is accounted for by copper and mineral 
exports that leave via private loading facilities. Bid documents have 
been released for the privatization of water and waste-treatment 
facilities.
4. Debt Management Policies
    Due to Chile's vigorous economic growth and careful debt management 
over the last decade, the magnitude of foreign debt no longer 
constitutes a major structural problem. As of November 1999 Chile's 
public and private foreign debt was $34.2 billion, or 43 percent of GDP 
(In 1985, the debt-to-GDP ratio was 125 percent.) Public-sector debt 
has remained low the past four years, reaching $5.9 billion in 1999, or 
7.4 percent of GDP, reflecting 10 years without fiscal deficits. In 
1995, the government and the Central Bank prepaid over $1.5 billion in 
debt to the International Monetary Fund (IMF).
5. Significant Barriers to U.S. Exports
    Chile has a relatively open economy and is a member of the WTO. 
However, many agricultural commodities are subject to strict 
phytosanitary requirements and restrictions. Beginning in January 2000, 
the uniform Chilean tariff rate will decline to 9 percent and will be 
reduced by one percentage point per year to reach a rate of six percent 
in 2003. The uniform rate applies to all goods except for used goods, 
which are subject to a 16.5 percent tariff. Chile has free-trade 
agreements that will lead to duty-free trade in most products by the 
early 2000's with Canada, Mexico, Venezuela, Colombia, Ecuador, Peru, 
Bolivia, the Mercosur bloc, and the Central American nations of El 
Salvador, Nicaragua, Honduras, Guatemala and Belize. Chile is also an 
active participant in negotiations for the Free Trade Area of the 
Americas (FTAA). Tariffs also are lower than 10 percent for certain 
products from member countries of the Latin American Integration 
Association (ALADI).
    The 18 percent VAT is applied to the CIF value of imported products 
plus the 10 percent import duty. Duties may be deferred for seven years 
for capital goods imports purchased as inputs for products to be 
exported. Duties may be waived on capital goods to be used solely for 
production of exports. (See section 6.) Automobiles are subject to an 
additional tax known as the luxury tax. Legislation was approved in 
August 1999 that increased the value of imported vehicles above which 
the luxury tax applies from approximately $10,000 to $15,000. 
Automobiles that have a CIF value over $15,000 pay an 85 percent tax on 
the value of the vehicle over $15,000. This tax discourages sales of 
larger and more expensive vehicles, including many U.S.-made 
automobiles. Despite these taxes, sales of U.S.-brand vehicles are 
rising.
    Another tax with the effect of discouraging U.S. exports is a 
prejudicial excise tax on distilled liquors that compete with 
domestically produced liquors. In late 1997, the legislature passed a 
law to gradually modify, but not eliminate, the discriminatory taxation 
faced by imported liquors. The European Union won a WTO panel appeal 
over Chile's discriminatory liquor taxation, and the Government of 
Chile must bring its law regarding taxation of distilled spirits into 
compliance with WTO disciplines. The U.S. was a third party observer to 
the panels.
    Import licenses: According to legislation governing the Central 
Bank since 1990, no legal restrictions are imposed on licensing. Import 
licenses are granted as a routine procedure for most products. Imports 
of used automobiles and most used car parts are prohibited.
    Investment barriers: Chile's foreign investment statute, Decree Law 
600, sets the standard of treatment of foreign investors to be the same 
as that of Chilean investors. Foreign investors using DL 600 sign a 
contract with the government's Foreign Investment Committee 
guaranteeing the terms and tax treatment of their investments. These 
terms include the rights to repatriate profits immediately and capital 
after one year, to exchange currency at the official inter-bank 
exchange rate, and to choose between either national tax treatment at 
35 percent or a guaranteed rate for the first ten years of an 
investment at 42 percent. Approval by the Foreign Investment Committee 
is generally routine, but the committee has rejected some 
``speculative'' investments. In late 1997, the government modified its 
DL 600 policy to restrict investment entering under the law's 
provisions to projects worth more than $1 million. In addition, 
projects of more than $15 million are now routinely vetted with the 
Central Bank to identify possible ``speculative'' flows. Associated 
external loan financing in excess of the value of direct foreign 
investment flows cannot enter under the provisions of DL 600 (i.e., to 
enter free of deposit provisions, foreign loan leveraging cannot exceed 
a ratio of 1:1).
    Investment not entering Chile through DL 600 can enter under 
Chapter 14 of the Central Bank Regulations. Under Chapter 14, investors 
can be required to deposit a certain percentage of the value of capital 
inflows in a non-interest-bearing Central Bank account (known as the 
``encaje'') for as long as two years; through mid-1998, the required 
deposit was 30 percent for one year. Responding to increasing risk 
premiums charged by creditors and a substantial decline in foreign 
financial capital flows as a result of the global financial crisis, the 
Central Bank reduced the requirement to zero in August 1998, but did 
not abolish the policy. The purpose of the policy had been to limit 
speculative flows and thus to help stabilize the value of the Chilean 
peso. When in effect, the encaje applies to inflows of foreign capital 
into stocks, bonds, bank deposits, as well as real estate, none of 
which in the view of local authorities increases the Chilean economy's 
productive capacity or improves technology. There is no tax treaty 
between Chile and the United States (although negotiations are 
underway), so profits of U.S. companies operating in Chile are liable 
to taxation by both governments. However, U.S. firms generally can 
claim credits on their U.S. taxes for taxes paid in Chile.
    Firms may invest without using DL 600 or registering with the 
foreign investment committee by bringing capital in through foreign 
exchange dealers or private banks under Chapter 14. Few firms have used 
this means of investment, as it subjects funds to the encaje and lacks 
the guarantees provided by the contract with the foreign investment 
committee.
    There are some deviations, both positive and negative, from the 
nondiscrimination standard. Foreign investors receive better than 
national treatment on taxation, as they have the option of fixing the 
tax rate they will pay at 42 percent for ten years or paying the 
prevailing domestic rate, which is at present lower. There are also 
examples of less than national treatment.
    D.L. 600 allows the Central Bank to restrict the access of foreign 
investors to domestic borrowing in an emergency in order to prevent 
distortion of local financial markets. The Central Bank has never 
exercised this power.
    Other examples of less than national treatment are certain sectoral 
restrictions on foreign investment. With few exceptions, fishing in the 
country's 200-mile Exclusive Economic Zone is reserved for Chilean-flag 
vessels with majority Chilean ownership. Such vessels also are the only 
ones allowed to transport by river or sea between two points in Chile 
(``cabotage'') cargo shipments of less than 900 tons or passengers. The 
automobile and light truck industry is the subject of trade-related 
investment measures.
    Oil and gas deposits are reserved for the state. Private investors 
are allowed concessions, however, and foreign and domestic nationals 
are accorded equal treatment.
    Services barriers: Full foreign ownership of radio and television 
stations is allowed, but the principal officers of the firm must be 
Chilean. A freeze in force since the early 1980s on the issuance of new 
bank licenses means that investors, foreign and domestic, have to 
acquire existing banks. The Government of Chile promulgated banking 
reform legislation in December 1997 that, inter alia, established 
objective criteria for issuing new bank licenses.
    Principal non-tariff barriers: The main trade remedies used by the 
Chilean government are surcharges, minimum customs values, 
countervailing duties, antidumping duties, and import price bands and 
safeguards. A significant nontariff barrier is the import price-band 
system for wheat, wheat flour, vegetable oils, and sugar. When import 
prices are below a set threshold, surtaxes are levied on top of the 
across-the-board 10-percent tariff to bring import prices up to an 
average of international prices over previous years. Because of low 
international wheat and sugar prices this year, the price-band system 
imposed import duties well above Chile's WTO bound rate of 31.5 
percent. As a consequence, the GOC announced the use of safeguards to 
legalize the lack of compliance with its WTO bound tariff rate. 
Domestic beverage manufacturers have complained bitterly about the high 
duty on sugar. Imports of U.S. wheat, while subject to import duties of 
nearly 40 percent will be at near record levels in 1999.
    Animal health and phytosanitary requirements: Chile has been slow 
to recognize pest-free areas in the United States, delaying the export 
approval for many U.S. fruits and vegetables to Chile. Chile has begun 
to publish its regulations and allow for a public comment period on 
proposed rules changes. Most import permits are issued on a case-by-
case basis, thereby lending to uncertainty and possible discriminatory 
treatment. Procedures and tolerances for testing imported chicken for 
the presence of salmonella present such a severe commercial risk that 
local importers are reluctant to import such products. Chile's unique 
beef grading and labeling requirements deter the trade from considering 
the importation of beef cuts from the United States.
    Government procurement practices: The government buys locally 
produced goods only when the conditions of sale (price, delivery times, 
etc.) are equal to or better than those for equivalent imports. In 
practice, given that many categories of products are not manufactured 
in Chile, purchasing decisions by most state-owned companies are made 
among competing imports. Requests for public and private bids are 
published in the local newspapers and will soon be published on the 
Internet.
6. Export Subsidies Policies
    Chile offers a few non-market incentives to exporters. For example, 
paperwork requirements are simplified for nontraditional exporters. The 
government also provides exporters with quicker returns of VAT paid on 
inputs than other producers receive. In 1997, Chilean subsidies became 
the focus of a countervailing duty investigation by the Department of 
Commerce of Chilean salmon exports to the United States; on June 22, 
1998, the countervailing duty determination was found to be negative.
    The most widely used indirect subsidy for exports is the simplified 
duty drawback system for nontraditional exports. This system refunds to 
exporters of certain products a percentage of the value of their 
exports, rather than refunding the actual duty paid on imported inputs 
to production (as is the case in Chile's standard drawback program). 
All Chilean exporters may also defer tariff payments on capital imports 
for a period of seven years. If the capital goods are used to produce 
exported products, deferred duties can be reduced by the ratio of 
export sales to total sales. If all production is exported, the 
exporter pays no tariff on capital imports.
    In 1998, the Chilean congress replaced earlier forestry-sector 
subsidy legislation with a new law that will be directed mainly toward 
assisting small farmers. Planting costs will be subsidized by as much 
as 90 percent for the first 15 hectares and 75 percent for the 
remainder in the case of small farmers. A maximum of $15 million 
dollars yearly will be destined for this purpose. Special land-tax 
exemptions will also be part of the program. Under the previous law, 
the combined subsidy costs incurred during 1997 totaled $7.7 million, 
down from $15.3 million in 1996.
7. Protection of U.S. Intellectual Property
    Chile's intellectual property regime is basically strong. However, 
deficiencies in the intellectual property regime have kept Chile on the 
USTR Special 301 watch list since 1989. Chile belongs to the World 
Intellectual Property Organization. In late 1999 the Chilean Government 
submitted draft legislation to the Congress to attempt to bring Chile 
into compliance with its WTO TRIPS commitments.
    Copyrights: Piracy of video and audio tapes has been subject to 
criminal penalties since 1985. Chilean authorities have taken 
enforcement measures against video, video game, audio, and computer 
software pirates in recent years, and piracy has declined in each of 
these areas. In the mid-1980s, the software piracy rate was believed to 
be around 90 percent; it is currently estimated at roughly 55 percent, 
believed to be the lowest rate in Latin America. The decline is in part 
the result of a campaign by the U.S. and international industry, with 
the cooperation of Chile's courts and government, to suppress the use 
of pirated software. Greater access to authorized dealers and service 
has also helped to reduce the rate of piracy. Industry sources say that 
penalties remain low relative to the potential earnings from piracy and 
that stiffer penalties would help to deter potential pirates. Copyright 
protection is generally the life of the author plus 50 years.
    Trademarks: Chilean law provides for the protection of registered 
trademarks and prioritizes trademark rights according to filing date. 
Local use of a trademark is not required for registration. As with the 
licensing of other intellectual property privileges, contracting 
parties may freely set payment rates for use of trademarks.
8. Worker Rights
    a. The Right of Association: Most workers have a right to join 
unions or to form unions without prior authorization, and around 12 
percent of the work force belongs to unions. Government employee 
associations benefited from legislation in 1995 that gave them many of 
the same rights as unions, although they may not legally strike. 
Reforms to the labor code in 1990 removed significant restrictions on 
the right to strike. Those reforms require that a labor inspector or 
notary be present when union members vote for a strike. In late 1999, 
the Government of Chile narrowly failed in pushing through Congress 
reforms to Chilean labor laws that encouraged greater collective 
bargaining.
    b. The Right to Organize and Bargain Collectively: The climate for 
collective bargaining has improved, though unions still face 
difficulties. Sector-wide collective bargaining would be permitted 
under legislation proposed by the Government of Chile and narrowly 
defeated in the Chilean Congress. The process for negotiating a formal 
labor contract is heavily regulated, a vestige of the statist labor 
policies of the 1960's. However, the law permits (and the Frei 
government has encouraged) informal union-management discussions to 
reach collective agreements outside the regulated bargaining process. 
These agreements have the same force as formal contracts.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited in the constitution and the labor code and is not 
practiced.
    d. Minimum Age for Employment of Children: Child labor is regulated 
by law. Children as young as 14 may be legally employed with permission 
of parents or guardians and in restricted types of labor. Some children 
are employed in the informal economy, which is more difficult to 
regulate. The Chilean government estimates that roughly 50,000 children 
between the ages of 6 and 14 work. Most of these children work in the 
countryside, and many of them work with their parents.
    e. Acceptable Conditions of Work: Minimum wages, hours of work, and 
occupational safety and health standards are regulated by law. The 
legal workweek is 48 hours. The minimum wage, currently around $190.00 
per month, is set by government, management, and union representatives 
or by the government if the three groups cannot reach agreement. Lower-
paid workers also receive a family subsidy. The minimum wage and wages 
as a whole have risen steadily over the last several years. As a 
result, poverty rates have declined dramatically in recent years from 
46 percent of the population in 1987 to 21.7 percent in 1998. Currently 
11 percent of salaried workers earn the minimum wage.
    f. Rights in Sectors with U.S. Investment: Labor rights in sectors 
with U.S. investment are the same as those specified above. U.S. 
companies are involved in virtually every sector of the Chilean economy 
and are subject to the same laws that apply to their counterparts from 
Chile and other countries. There are no special districts where 
different labor laws apply.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  18
Total Manufacturing............  ..............  845
  Food & Kindred Products......  162             ...............................................................
  Chemicals & Allied Products..  294             ...............................................................
  Primary & Fabricated Metals..  39              ...............................................................
  Industrial Machinery and       14              ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  204             ...............................................................
Wholesale Trade................  ..............  342
Banking........................  ..............  627
Finance/Insurance/Real Estate..  ..............  3,429
Services.......................  ..............  212
Other Industries...............  ..............  3,659
TOTAL ALL INDUSTRIES...........  ..............  9,132
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                COLOMBIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment: \2\
 \3\
  Nominal GDP..........................       96.2       89.7       87.9
  Real GDP Growth (pct)................        3.1        0.6       -3.5
  GDP by Sector:
    Agriculture........................       17.6       17.4       15.8
    Manufacturing......................       17.3       17.5       15.9
    Services (includes financial)......         30       29.5       26.7
    Commerce...........................       11.1       11.2       10.1
    Government \4\.....................         27       27.5       26.6
  Per Capita GDP (US$).................      2,440      2,243      2,219
  Labor Force (000's) \5\..............     16,908     17,212     17,521
  Unemployment Rate (pct)..............       13.3       15.9       20.0

Money and Prices (annual percentage
 growth): \6\
  Money Supply Growth (M2).............       24.6       20.5       18.0
  Consumer Price Inflation.............       17.7       16.7       11.0
  Exchange Rate (Peso/US$ annual
 average)
    Official...........................    1,141.1    1,425.9    1,750.0

Balance of Payments and Trade: \7\
  Total Exports FOB....................       11.6       10.8       10.9
    Exports to U.S.....................        4.2        4.0        4.6
  Total Imports CIF....................       15.3       14.6       11.1
    Imports from U.S...................        5.8        4.6        4.5
  Trade Balance........................       -3.7       -3.8       -0.2
    Balance with U.S...................       -1.6       -0.6        0.1
  Current Account Deficit/GDP (pct)....       -5.8       -5.9       -2.8
  External Public Debt.................       16.1       18.4       20.4
  Debt Service Payments/GDP (pct)......        3.5        3.7        2.6
  Fiscal Deficit/GDP (pct).............       -4.4       -4.5       -4.0
  Gold and Foreign Exchange Reserves...        9.9        8.7        8.4
  Development Aid from U.S. (US$               0.1        0.1        0.1
   millions) \8\.......................
  Aid from All Other Sources...........        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 1999 figures are estimates based on available monthly data in
  October.
\2\ Percentage changes calculated in local currency.
\3\ Sources for all figures in section except government spending are
  National Department of Statistics (DANE). For government spending:
  Ministry of Finance.
\4\ Approved national budget. Source: Ministry of Finance.
\5\ Economically active population for the whole country.
\6\ Source: Banco de la Republica (BDR).
\7\ Source: Ministry of Foreign Trade.
\8\ Aid reflects U.S. AID program only.

1. General Policy Framework
    Colombia is a free-market economy with major commercial and 
investment links to the United States. Transition from a highly 
regulated economic regime has been underway for a decade. The United 
States is Colombia's largest trading partner, receiving 37.2 percent of 
Colombia's exports and providing 32 percent of Colombia's imports in 
1998. More than 70 percent of Colombian exports to the United States 
are primary products such as food (mainly coffee, bananas, flowers, 
tuna, shrimp, and sugar), and fuel (petroleum and coal). The United 
States also holds the largest country share of foreign direct 
investment: $4.3 billion, or 28.1 percent of the estimated total direct 
foreign investment of $15.4 billion.
    In 1990, the administration of President Cesar Gaviria (1990-94) 
initiated economic liberalization, or ``apertura,'' and it has 
continued since then. Its start consisted of tariff reductions, 
financial deregulation, privatization of state-owned enterprises, and 
adoption of a more liberal foreign exchange regime. Almost all sectors 
became open to foreign investment although agricultural products 
remained protected. A price-band system to determine tariffs for 
agricultural products excluded them from the liberalization process. 
Import license requirements were eliminated for most products though 
some agricultural products still require licenses.
    Until 1997, Colombia had enjoyed a fairly stable economy. The first 
five years of liberalization were characterized by high economic growth 
rates of between four and five percent annually. Subsequently, the GDP 
growth rate fell until it was 0.6 percent in 1998, the lowest in the 
last fifty years. The National Planning Department (DNP) projects a 3.5 
percent contraction in real GDP for 1999. However, private analysts 
project a decline of as much as 5.0 percent, which would be the worst 
recession of the century. The Samper administration (1994-98) adopted 
social welfare policies which targeted Colombia's poor population. 
However, these reforms led to higher government spending which 
increased the fiscal deficit and public sector debt. Financing the 
larger deficits pushed interest rates higher, with contractionary 
effects on the private sector. The construction industry, one of the 
largest employment sectors in Colombia, was particularly hard-hit by 
the tight credit conditions. Unemployment increased dramatically as the 
economy slowed, reaching 15.9 percent by year-end of 1998. As of 
September 1999 unemployment stood at 20.1 percent.
    The government of Andres Pastrana, which came into power in 1998 
has attempted to strengthen Colombia's public finances and has sought 
an agreement with the International Monetary Fund (IMF). However, the 
fiscal deficit continued to widen this year, as the recession has 
weakened government revenues, rising to an estimated 6.2 percent of GDP 
from 3.9 percent in 1998. However, the fiscal deficit is scheduled to 
decline to 3.6 percent of GDP in 2000 under the IMF program, and to 2.5 
percent in 2001.
    Between 1990 and 1999 the government privatized a number of state-
owned banks, ports, railroads, and mining companies. It also sold 
concessions to private providers of telecommunications and broadcasting 
services that began using the government-owned spectra. The Pastrana 
administration (1998-2002) also has plans to privatize the remaining 
profitable public enterprises, including two electricity generating 
companies, ISA and ISAGEN, plus 14 electric distributors, and the 50 
percent government-owned share of the Carbocol mining company.
    Several tax reforms have been implemented over the last years. In 
December 1998, the Colombian Congress passed Law 488, which lowered the 
value-added tax (VAT) from 16 to 15 percent effective November 1, 1999, 
and increased the number of goods and services subject to the VAT. Law 
488 established a common tax regime for small taxpayers and increased 
the stamp tax paid on all written contracts from one to one-and-a-half 
percent.
    The Central Bank conducts monetary policy based on targeted growth 
rates of monetary aggregates which must be consistent with final 
inflation and economic growth expectations. The Central Bank intervenes 
in the money market to reduce the volatility of interest rates, and 
until September 1999 it had been actively intervening in the foreign 
exchange market to maintain the foreign exchange rate within a band 
system. In 1998, inflation was 16.7 percent, only 0.7 percent higher 
than the expected target but significantly lower than the 21.6 percent 
registered in 1996. As of September 1999, inflation reached its lowest 
level in decades, 9.8 percent. The official target for 1999 has been 
dropped to 12 percent.
2. Exchange Rate Policy
    The Colombian peso has floated freely against the dollar and other 
currencies since September 25, 1999, when the Central Bank abandoned 
the crawling band exchange regime. Under that system, the Bank 
intervened in the market by buying or selling dollars to keep the 
dollar's price in pesos within the band, which it was forced to adjust 
twice in the previous year (September 1998 and June 1999) in response 
to exchange market pressure. The exchange rate stabilized soon after 
abolition of the band and the peso actually recovered slightly. As of 
mid-December 1999, the peso had depreciated 20 percent from the 
beginning of the year. The peso's depreciation has reduced the price 
competitiveness of U.S. exports to Colombia, while boosting the 
competitiveness of Colombian exports to the United States. Currency 
depreciation together with import compression due to recession has 
brought a dramatic turnaround in Colombia's overall trade balance, as 
well as its bilateral balance with the United States. Through September 
1999, Colombia's overall trade balance has swung from a $2.7 billion 
deficit to a $1.1 billion surplus, while the U.S.-Colombia trade 
balance swung from a $292 million U.S. surplus to a $1.8 billion 
deficit.
3. Structural Policies
    As member of the Andean Community, Colombia has had a Common 
External Tariff (CET) in effect since 1995. The CET has different duty 
levels that vary from 0 to 20 percent for most non-agricultural 
products. A special Andean price-band system (based on domestic and 
international prices) is applied to calculate tariffs of agricultural 
imports. Tariff rates for agricultural products subject to the price-
band system vary between 78 and 246 percent. Fourteen basic 
agricultural commodities including wheat, sorghum, corn, rice, barley, 
milk, and chicken parts, and an additional 120 commodities considered 
substitute or related products are subject to tariffs calculated under 
the price-band system. The government also regulates prices of 
electricity, water, sewage, and telephone services, public 
transportation, rents, education tuition, and pharmaceuticals. 
Colombia's special import-export system for machinery and its free 
trade zones constitute export subsidies. Colombia's tax rebate 
certificate program (CERT) also contains a subsidy component which the 
Colombian government has stated it will replace with an equitable 
drawback system, although it has not yet done so.
    Rising fiscal deficits forced the authorities to adopt several tax 
reforms over the last year. Law 488, approved in December 1998, lowered 
the value-added tax (VAT) from 16 to 15 percent while it increased the 
number of goods and services subject to the VAT. Colombia also assesses 
a discriminatory VAT of 35 percent on whiskey aged for less than 12 
years, which is more characteristic of U.S. whiskey, versus a rate of 
20 percent for whiskey aged for 12 or more years, most of which comes 
from Europe. This tax regime on distilled spirits appears to violate 
Colombia's WTO obligation whereby a member cannot provide an advantage 
or favor to products of one WTO member without according the same 
advantage to ``like products'' of another member. A unified tax regime 
for small taxpayers was created to simplify the tax collection process. 
In December 1998 the government decreed an economic emergency under 
which it instituted a tax on all transactions in the financial system 
at a rate of 0.2 percent. The tax on financial transactions commonly 
known as the ``two per thousand'' tax was initially to remain in effect 
until December 31, 1999. However, on January 25, 1999 an earthquake 
devastated Colombia's coffee region. This tragedy frustrated the 
government's hope of meeting its lower spending targets and the tax was 
extended until 2001. The government is currently studying the 
possibility of making the tax permanent in its next tax reform proposal 
to Congress. The proposal will also include measures to regulate 
regional taxes. Other major taxation issues include the future of the 
35 percent income tax, a ``war tax'' on the export value of crude oil, 
gas, coal, and nickel (in effect until 2000), and a requirement that 
all corporations invest 0.6 percent of their liquid assets in the 
seven-year term ``peace bonds'' which are freely negotiable and bear a 
return equivalent to inflation plus 10 points.
    All foreign investment in petroleum exploration and development in 
Colombia must be carried out under a profit-sharing association 
contract between the investor and the state petroleum company, 
``Ecopetrol.'' U.S. oil companies have voiced interest in increasing 
exploration and development in Colombia if contract and tax 
requirements are made more flexible. The Pastrana administration has 
responded by making the terms of association contracts significantly 
more liberal.
    Under the current Andean Pact automotive policy, Colombia and 
Venezuela impose strict regional content requirements for the 
automotive assembly industry.
    After a period of lack of interest during the Samper administration 
in continuing liberalization, the Pastrana administration has taken a 
number of concrete steps to promote trade and investment. These have 
included the signing of an agreement in October 1998 with the U.S. 
Government establishing periodic Trade and Investment Council meetings 
with the Andean Community, efforts to improve oversight of the 
television sector and reduce cable and satellite signal piracy, and 
issuance of a Presidential Directive in early 1999 requiring all 
Colombian public entities to respect international copyrights. The 
administration also successfully pressed for an amendment repealing an 
article in the 1991 Constitution which allowed expropriation of foreign 
investment without compensation.
4. Debt Management Policies
    Colombia's history of continuous timely servicing of its 
international debt obligations and, at least until recently, modest 
external debt burden earned the country one of the few ``investment'' 
grade credit ratings from the major rating companies. However, in 1999, 
Standard & Poors, Moody's, and Duff & Phelps downgraded Colombia's 
debt, citing Colombia's faltering peace process, increased security 
concerns, and insufficient progress in fiscal consolidation. The rating 
downgrades had little impact on the secondary market prices of 
Colombian debt, as the move had largely been priced into the market 
already. Colombian debt had traded at significantly wider spreads than 
would be indicated by its ``investment grade'' rating for some time.
    The international financial institutions announced their intention 
in September 1999 to provide $6.9 billion to finance the Colombian 
government's fiscal adjustment and development programs through 2002: 
$2.7 billion from the International Monetary Fund, $1.7 billion from 
the Inter-American Development Bank, $1.4 billion from the World Bank, 
$600 million from the Andean Development Corporation, and $500 million 
from the Latin American Reserve Fund.
    In September 1998, the Central Bank reduced its imposed deposit 
requirement on foreign borrowing from 25 to 10 percent (the term of the 
deposit was also reduced from 12 to 6 months). In January 1999, the 
Central Bank completely removed the deposit requirement for import-
related borrowing while maintaining a 10 percent deposit requirement on 
export-related foreign borrowing operations.
5. Aid
    The U.S. Agency for International Development (USAID) office in 
Bogota coordinates the provision of resources for development programs 
in Colombia. Its Operating Year Budget (OYB) for 1999 was $18.3 million 
and the estimated OYB for 2000 is $11 million. The USAID/Colombia 
current program portfolio totals approximately $103 million.
    U.S. aid and assistance to the Colombian National Police and other 
counternarcotics programs is coordinated by the Narcotics Affairs 
Section (NAS) in Bogota. Total narcotics-related aid is programmed to 
amount approximately to $300 million in 1999.
    U.S. military training assistance to the Colombian Army, Air Force 
and Navy totals $1,590,000 for 1999.
6. Significant Barriers to U.S. Exports
    Import Licenses: Prior import licenses are still required for 
various commodities, narcotics-precursor chemicals, armaments and 
munitions, donations, and some imports by government entities. Though 
the government abolished most import licensing requirements in 1991, it 
has continued to use prior import licensing to restrict importation of 
certain agricultural products such as powdered milk (during Colombia's 
high milk production season) and chicken parts. In addition, the 
Ministry of Agriculture must approve import licenses for products 
which, if imported, would compete with domestic products. Some of these 
products, which include important U.S. exports to Colombia, are wheat, 
malting barley, corn, rice, sorghum, and wheat flour.
    Services Barriers: The provision of legal services is limited to 
law firms licensed under Colombian law. Foreign law firms can operate 
in Colombia only by forming a joint venture with a Colombian law firm 
and operating under the licenses of the Colombian lawyers in the firm. 
Insurance companies require a commercial presence in order to sell 
policies other than those for international travel or reinsurance. 
Colombia permits the establishment of 100 percent-owned subsidiaries, 
but not branch offices, of foreign insurance companies. Colombia denies 
market access to foreign maritime insurers. A commercial presence is 
required to provide information processing services. Colombian 
television broadcast laws (Law 182/95 and Law 375/96) impose several 
restrictions to foreign investment. For example, foreign investors must 
be actively engaged in television operation in their home country. 
Their investments are limited to 15 percent of the total capital of 
local television production companies and must involve an implicit 
transfer of technology. At least 50 percent of programmed advertising 
broadcast on television must have local content.
    Investment Barriers: Colombian law provides for equal treatment of 
foreign and national investors. One-hundred percent foreign ownership 
is permitted in most sectors of the Colombian economy. Exceptions 
include activities related to national security and the disposal of 
hazardous waste. All foreign investors (acting as individuals or 
investment funds) must receive prior approval from the Banking 
Superintendency to acquire an equity participation of five percent or 
more in a Colombian financial entity. As a measure against money 
laundering, Foreign Direct Investment (FDI) in real estate is 
prohibited except in connection with other investment activities. 
Colombian law requires that at least 80 percent of employees of 
companies in the mining and hydrocarbons sector be Colombian nationals. 
It also requires that foreign employees in financial institutions be 
limited to managers, legal representatives and technicians. Colombia 
limits foreign ownership of telecommunication companies to 70 percent. 
An economic needs test determines market access and national treatment 
for cellular, PCS, long distance, and international telecommunications 
services.
    All foreign investment must be registered with the Central Bank's 
foreign exchange office within three months in order to insure the 
right to repatriate profits and remittances. All foreign investors, 
like domestic investors, must obtain a license from the Superintendent 
of Companies and register with the local chamber of commerce.
    Standards, Testing, Labeling, and Certification: The Colombian 
Foreign Trade Institute (INCOMEX) requires specific technical standards 
for a variety of products. The particular specifications are 
established by the Colombian Institute of Technical Standards 
(ICONTEC), or under ISO-9000. Certificates of conformity must be 
obtained from the Superintendency of Industry and Commerce before 
importing products that are subject to technical standards.
    Government Procurement Practices: Law 80 of 1993 is Colombia's 
government procurement and contracting law. It affords equal treatment 
to foreign companies on a reciprocal basis and eliminates the 20 
percent surcharge previously added to foreign bids. In implementing Law 
80, the Colombian government established a requirement that foreign 
firms without an active local headquarters in Colombia certify that 
Colombian companies enjoy reciprocity in similar bids under their 
countries' procurement legislation. A local agent or legal 
representative is required for all government contracts. When foreign 
firms bid under equal conditions, the contract is usually awarded to 
the one that incorporates a greater number of domestic workers, 
involves more domestic content, or provides better conditions for 
transfer of new technology. Some U.S. companies have complained of 
corruption and lack of transparency in bidding and contracting 
processes. Colombia is not a party to the WTO agreement on government 
procurement.
    Customs Procedures: Imported merchandise inspection can be 
prearranged through preshipment inspection entry, and duties can be 
prepaid through commercial banks. For certain items, preshipment 
inspection is mandatory.
7. Export Subsidies Policies
    Colombia has sharply reduced its export subsidies, and its subsidy 
practices are generally compatible with WTO standards. At present, the 
government manages only two export subsidy programs. One, the CERT 
(Certificado de Reembolso Tributario), refunds a percentage of the Free 
on Board (FOB) value of an export. Under a 1990 bilateral agreement, 
the CERT does not apply to goods exported to the U.S. The other export 
subsidy, known as the ``Plan Vallejo,'' allows for duty exemptions on 
the import of capital goods and raw materials used to manufacture goods 
that are subsequently exported. Colombia's free-trade zones also 
constitute an export subsidy through the mechanism of tax exemptions on 
imported inputs. The U.S. and Colombian flower industries, with the 
approval of the U.S. Department of Commerce and Justice, finalized a 
settlement agreement to terminate the longstanding antidumping duty 
orders and to utilize resources spent on dumping duties and direct it 
towards promotion of flowers in the U.S. market. However, there are 
currently five antidumping reviews still under litigation. The sunset 
review of the antidumping orders on Colombian cut flowers will also be 
terminated as a result of this agreement.
8. Protection of U.S. Intellectual Property
    Despite improvements in 1999, Colombia remains on the ``Watch 
List'' under the ``Special 301'' provision of the 1988 Omnibus Trade 
Act because of concerns regarding effective protection of intellectual 
property rights. It has been on the ``Watch List'' every year since 
1991. Colombia has ratified, but not yet fully implemented, the 
provisions of the World Trade Organization (WTO) agreement on Trade 
Related Aspects of Intellectual Property (TRIPS). A major issue has 
been the Colombian Government's failure to license legitimate pay 
television operators and to pursue pirate operators. As of November 
1999, the Colombian Government completed licensing for 114 cable 
television operators. Colombia's Television Broadcast Law increased 
legal protection for all copyrighted programming by regulating 
satellite dishes, but enforcement has only recently begun through a 
licensing process that is scheduled to be completed by the end of 1999. 
Colombia has created a Special Investigative Unit within the Prosecutor 
General's Office dedicated to intellectual property rights issues. This 
unit began functioning in November 1999.
    Colombia, which is a WTO member, has ratified its Uruguay Round 
implementing legislation. It is a member of the World Intellectual 
Property Organization (WIPO) and has negotiated to join the Paris 
Convention for the Protection of Industrial Property, the Patent 
Cooperation Treaty and the Union for the Protection of New Plant 
Varieties. Colombia belongs to the Berne and Universal Copyright 
Conventions, the Buenos Aires and Washington Conventions, the Rome 
Convention on Copyrights, and the Geneva Convention for Phonograms. It 
is not a member of the Brussels Convention on Satellite Signals.
    Patent and Trademarks: Colombia is a member of the Inter-American 
Convention for Trademark and Commercial Protection. Colombia requires 
registration and use of a trademark in Colombia to exercise trademark 
protection. Trademark registration has a 10-year duration and may be 
renewed for successive 10-year periods. Although Colombian law 
provides, for example, 20-year protection for patents and reversal of 
burden of proof in cases of alleged patent infringement, it is 
deficient in the areas of compulsory licensing provisions, working 
requirements, biotechnology inventions, transitional (``pipeline'') 
protection, and protection from parallel imports. Enforcement of 
trademark legislation in Colombia is showing some progress, but 
contraband and counterfeiting are widespread. U.S. pharmaceutical firms 
continue to press for a range of legislative and administrative 
reforms. The Superintendency of Industry and Commerce acts as the local 
patent and trademark office in Colombia. This agency suffers greatly 
from a backlog of trademark and patent applications exceeding 25,000 as 
of June 1999.
    Copyrights: Colombia's 1993 Copyright Law increased penalties for 
copyright piracy. In April 1999, President Pastrana issued a directive 
to all government and educational institutions to respect copyrights 
and avoid the use or purchase of pirated printed works, software and 
audio/video material. The most recent available data from the 
International Intellectual Property Alliance (IIPA) suggests that while 
there is less counterfeit merchandise available in the Colombian 
market, U.S. industries continue to lose substantial revenue from 
piracy--$151 million in 1997. Enforcement problems consistently arise 
not only with inadequate police activity, but also in the judicial 
system, where there have been complaints about the lack of respect for 
preservation of evidence and frequent perjury. The IIPA estimates that 
videocassette piracy represents approximately 60 percent of the video 
market; sound recording piracy 60 percent of the market; and business 
software piracy 73 percent of the market. Satellite programmers 
estimate there are about 3.6 million Colombian households that receive 
satellite signals, of which only 200,000 are legally subscribed. The 
Colombian Government, as mentioned above, has already initiated a 
licensing process designed to make illegal operators responsible for 
paying copyright fees. The licensing process, if effective, should 
reduce the widespread piracy by legitimizing non-royalty paying service 
providers.
    New Technologies: Colombia has a modern copyright law which gives 
protection for computer software for 50 years and defines computer 
software as copyrightable subject matter but does not classify it as a 
literary work. Semiconductor design layouts are not protected under 
Colombian law.
9. Worker Rights
    a. The Right of Association: Colombian law recognizes the rights of 
workers to organize unions and to strike. The labor code provides for 
automatic recognition of unions that obtain at least 25 signatures from 
potential members and that comply with a simple registration process at 
the Labor Ministry. The law penalizes interference with freedom of 
association. It allows unions to freely determine internal rules, elect 
officials and manage activities, and forbids the dissolution of trade 
unions by administrative fiat. Unions are free to join international 
confederations without government restrictions.
    b. The Right to Organize and Bargain Collectively: The constitution 
protects the right of workers to organize and engage in collective 
bargaining. Workers in larger firms and public services have been the 
most successful in organizing, but these organized workers represent 
only a small portion of the economically active population. According 
to the Labor Ministry's Planning Bureau figures, approximately five 
percent (926,155 affiliates) of Colombia's total work force is 
organized into 5,544 unions. However, the most recent estimate for 1999 
by the Colombian Union School (ENS) accounts for 3,560 labor unions 
with 872,635 affiliates. Accurate estimates are difficult to obtain due 
to the high rate at which new unions are created and old ones 
disappear. High unemployment (19.8 percent as of September 1999), 
traditional anti-union attitudes, union disorganization and weak 
leadership limit workers' bargaining power in all sectors.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
forbids slavery and any form of forced or compulsory labor, and this 
prohibition is respected in practice.
    d. Minimum Age for Employment of Children: The constitution bans 
the employment of children under the age of 14 in most jobs, and the 
labor code prohibits the granting of work permits to youths under the 
age of 18. This provision is respected in large enterprises and in 
major cities. Nevertheless, Colombia's extensive and expanding informal 
economy remains effectively outside government control. Statistics 
vary: according to different studies (Labor Ministry and Los Andes 
University among the most reliable), there are between 1.5 and 2 
million working children between the ages of 12 and 17. According to 
ENS, the number of working children in that range of ages is 1.8 
million for 1999. These children work--often under substandard 
conditions--in agriculture or in the informal sector, as street 
vendors, in leather tanning, and in small family-operated mines. 
According to these studies, 80 percent of the working children work in 
the informal sector, and 90 percent of the working children perform 
risky or dangerous activities.
    e. Acceptable Conditions of Work: The government sets a uniform 
minimum wage for workers every January to serve as a benchmark for wage 
bargaining. The minimum wage for 1999 is approximately $135 (236,460 
pesos) per month. Because the minimum wage is based on the government's 
target inflation rate, which has been exceeded in recent years, the 
minimum wage has not kept up with inflation. By government estimates, 
the price of the low-income family shopping basket (``canasta 
familiar'') is 2.4 times the minimum wage. For medium-income families, 
the price of the shopping basket is 6.1 times the minimum wage. Seventy 
percent of the Colombian workers earn twice the minimum wage or less. 
The law provides for a standard 8-hour workday and 48-hour workweek, 
but does not specifically require a weekly rest period of at least 24 
hours. Legislation provides comprehensive protection for workers' 
occupational safety and health, but these standards are difficult to 
enforce, in part due to the small number of Labor Ministry inspectors.
    f. Rights in Sectors with U.S. Investment: U.S. foreign direct 
investment is concentrated principally in the petroleum, coal mining, 
chemicals and manufacturing industries. Worker rights conditions in 
those sectors tend to be superior to those prevailing elsewhere in the 
economy, owing to the large size and high degree of organization of the 
enterprises.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,159
Total Manufacturing............  ..............  1,094
  Food & Kindred Products......  301             ...............................................................
  Chemicals & Allied Products..  352             ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          25              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  307             ...............................................................
Wholesale Trade................  ..............  168
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  808
Services.......................  ..............  87
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  4,317
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               COSTA RICA


                       Key Economic Indicators \1\
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \5\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................     9,727.9    10,482.8    11,000.0
  Real GDP Growth (pct) \3\.........         3.8         6.2         8.2
  GDP by Sector (pct):
    Agriculture.....................        18.0        18.0        16.0
    Industry........................        21.5        21.5        23.0
    Services........................        53.1        53.3        54.0
    General Government..............         7.4         7.2         7.0
  Per Capita GDP (US$)..............     2,790.0     2,944.0       3,062
  Labor Force (000's)...............       1,330       1,400       1,480
  Unemployment Rate (pct)...........         5.7         5.6         5.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        21.0        15.0        17.0
  Consumer Price Index..............        12.0        12.4        10.0
  Exchange Rate (Colones/US$ annual
 average)
    Official........................        None        None        None
    Parallel........................      232.37      257.14      282.00

Balance of Payments and Trade:
  Total Exports FOB \4\.............     4,335.0     5,528.0     6,634.0
    Exports to U.S.\4\..............     1,266.0     2,674.0     3,200.0
  Total Imports CIF \4\.............     4,953.0     6,230.0     6,541.0
    Imports from U.S.\4\............     1,534.0     1,784.0     2,000.0
  Trade Balance \4\.................      -618.0      -702.0        93.0
    Balance with U.S.\4\............      -268.0       890.0     1,200.0
  External Public Debt..............     2,640.2     2,872.4     3,042.0
  Fiscal Deficit of Public Sector/           3.3         2.7         3.3
   GDP (pct)........................
  Current Account Deficit/GDP (pct).         2.2         4.4         3.0
  Foreign Debt Service Payments/GDP          6.1         5.0         4.9
   (pct)............................
  Gold and Foreign Exchange Reserves     1,141.3       991.3     1,200.0
  Aid from U.S......................         5.0        18.0        15.0
  Aid from All Other Sources........         N/A         N/A         N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  September.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ FY 1999 figures estimated.

1. General Policy Framework
    The Costa Rican economy is performing moderately well, continuing 
to recover from the 1996 contraction caused by anti-inflationary public 
sector spending reductions, increased taxation and credit tightening. 
The government forecasts GDP growth of 8.2 percent for 1999, not quite 
the impressive growth of 6.2 percent in 1998, the highest in Latin 
America, but still considerable considering the government's worsening 
fiscal picture. The Costa Rican economy is based on a free market 
system and relatively open trading regime. There are, however, several 
large public sector monopolies in electricity transmission and 
distribution, telecommunications, petroleum distillation and 
distribution and insurance.
    The Rodriguez Administration, inaugurated in May 1998, initially 
proposed selling some state monopolies. However, it has been unable to 
achieve a political consensus on the appropriate roles of the public 
and private sectors in fields such as telecommunications, energy and 
insurance. In place of privatization, concessions to build and manage 
public works are being pursued by the government. A consortium led by 
an U.S. firm recently won the concession to manage the San Jose 
international airport in 1999.
    The most serious problem facing the Costa Rican economy is the 
fiscal deficits of the central government and the combined public 
sector. The reduction of these deficits is a prerequisite for improving 
the overall fiscal health of the public sector. The fiscal deficit of 
the combined public sector was $282 million in 1998, equivalent to 2.7 
percent of GDP. It is expected by the Government of Costa Rica to reach 
$360 million, about 3.3 percent of GDP, by the end of 1999. The deficit 
is financed by issuing bonds, the service of which is not only 
impinging on government finances, but is also an important cause of 
high interest rates, low investment and continued double digit 
inflation. The internal (bond) debt service requires approximately a 
third of the Government's ordinary income.
    The government has discarded the alternatives of increasing tax 
revenue significantly, firing large numbers of public sector employees 
and selling state assets to foreign investors. A partial solution has 
been the refinancing of internal debt with lower-cost dollar-
denominated foreign debt. This is convenient for the current government 
and should help ease upward pressure on domestic interest rates. 
However, it increases the risk of balance of payments problems for 
future governments.
    Impressive growth in export revenues, due in large measure to 
exports by Intel Corporation, brought about a merchandise trade surplus 
during the first nine months of 1999. This was the first trade surplus 
in decades. New tourist facilities continue to be built, and tourist 
income continues to grow. Together, new exports and tourist income 
allow a reasonable expectation of continued moderate growth.
2. Exchange Rate Policy
    The current exchange rate policy, originally devised in 1993, is of 
the ``crawling peg'' variety employing small daily changes. The rate of 
devaluation, indirectly set by the Central Bank, is driven by the 
market and is adjusted by the Central Bank through its sale or purchase 
of foreign currency. Virtually all private business is transacted at 
the same rate. All foreign transactions by state institutions are 
channeled through the Central Bank at that rate. Commercial banks are 
free to negotiate foreign exchange prices, but must liquidate their 
foreign exchange positions daily with the Central Bank.
    The colon-to-US dollar exchange rate varied 10.7 percent during 
1998, a rate similar to the change in the aggregate price level. This 
maintained a foreign trade-neutral exchange rate. The Government has 
projected a devaluation of about 10.8 percent and a CPI increase of 10 
percent for 1999. Thus, the rate of exchange of the colon with respect 
to the US dollar should not have a significant impact on the 
importation of US goods and services.
    Freely traded dollars from tourism and capital investment continue 
to flow into Costa Rica. The free and sufficient supply of foreign 
currency allowed imports to continue to grow during 1998 and 1999.
3. Structural Policies
    The elimination of ``consumer protection'' regulations that 
controlled prices and prohibited price speculation in January 1995 
permitted an increase in the availability of imported goods. Antitrust 
legislation and rules protecting consumers against product 
misrepresentation and price fixing were enacted at the same time.
    Purchases by state institutions must follow detailed laws and 
regulations on public bidding. Local suppliers are not subsidized and 
enjoy no special advantages over foreign suppliers. U.S. companies 
often succeed in supplying pharmaceuticals, machinery, electrical and 
transportation equipment to public sector purchasers. There have been 
no recent tax modifications that affect the import of U.S. goods and 
services. Corruption was a major theme in the last political campaign, 
and several important cases are being tried in the courts.
4. Debt Management Policies
    Costa Rica's foreign official debt totaled $2.872 billion on 
December 31, 1998. This is an amount equivalent to 27.4 percent of GDP, 
and an increase of $232 million from year-end 1997. This is also a 
reversal in the previous decline in the size and importance of the 
foreign official debt with relation to GDP. Costa Rica placed dollar-
denominated bonds for $200 million in April 1998 and another $300 
million April 1999, taking advantage of relatively low interest rates 
available in the Eurodollar market. The government used the proceeds to 
retire equivalent amounts of its more expensive, colon-denominated 
debt, thus reducing the cost of servicing the public debt. The Ministry 
of Finance plans to place an additional $200 million every two years, 
or $1,200 million within the next 12 years. The savings to the 
government from using dollar-denominated bonds instead of the internal 
capital market are about five percentage points at present rates of 
interest.
    Costa Rica paid $430 million in foreign official debt service in 
1998, equivalent to 4.1 percent of GDP and 7.7 percent of merchandise 
exports. Costa Rica paid $268.3 million in debt service during the 
first semester of 1999, $189 million for amortization of principal, and 
$79.3 million in interest payments. The Central Bank projects that it 
will pay $595.5 million during calendar year 2000, including $393.1 
million of principal and $202.4 million in interest payments. The more 
pressing concern is the size of the large internally-financed public 
debt, which amounted to $3.026 billion at the end of 1998. The 
government spends a third of central government budget revenues on 
interest on outstanding bonds, an amount second only to salaries for 
public employees. This problem is compounded by the Central Bank's 
anti-inflationary monetary policy, which results in high interest rates 
and high debt service costs for the Ministry of Finance.
5. Aid
    U.S. Government agencies provided an estimated $18 million of 
assistance during fiscal year 1998, of which $13 million was for the 
Screworm Eradication Program. Total assistance from U.S. military 
programs was $3.2 million. Costa Rica abolished its military forces in 
1948, but the United States provides assistance to Costa Rica's 
civilian police.
6. Significant Barriers to U.S. Exports
    Costa Rica replaced all import licenses or permits with tariffs as 
a condition for joining the WTO in 1994. The Central Bank now monitors 
imports for statistical purposes only. The current tariff on most goods 
is 15 percent of the CIF price, with a few items such as poultry and 
automobiles taxed in excess of 40 percent. Solvents and chemical 
precursors used in the elaboration of illegal drugs are carefully 
regulated. Surgical and dental instruments and machinery can be sold 
only to licensed importers and health professionals. All food products, 
medicines, toxic substances, chemicals, insecticides, pesticides and 
agricultural inputs must be registered and certified by the Ministry of 
Health prior to sale.
    Foreign companies and persons may legally own equity in Costa Rican 
companies, including real estate. However, several activities are 
reserved to the state, including telecommunications, insurance, the 
transmission and distribution of electricity, hydrocarbon and 
radioactive mineral extraction and refining, and the operation of ports 
and airports. Representatives or distributors of foreign products must 
have resided in Costa Rica for at least ten years. Medical 
practitioners, lawyers, certified public accountants, engineers, 
architects, teachers and other professionals must be members of local 
guilds, which stipulate residency, examination and apprenticeship 
requirements that cannot be met by newcomers.
    Legislation approved in October 1995 allowed private banks to offer 
demand deposits. However, private banks must be incorporated locally; 
branches of foreign banks are not permitted. The three state-owned 
commercial banks still account for close to 90 percent of country's 
demand deposits.
    An electricity co-generation law enacted in 1996 allowed some 
private-sector participation in the production of electricity, but not 
in its transmission. This law has since been modified to permit the 
private construction and operation of plants under BOT (build-operate-
transfer) and BLT (build-lease-transfer) mechanisms, but the operator 
must have at least 35 percent Costa Rican equity. There are legislative 
proposals to open the electricity, telecommunications, and insurance 
sectors to foreign investment and competition, but it is difficult to 
predict when this legislation might be passed.
    Documentation and labeling of U.S. exports to Costa Rica must use 
the metric system and contain specific information in Spanish. Car 
bumpers are subject to strength requirements. Phytosanitary and 
zoosanitary restrictions and high tariffs on certain agricultural 
products significantly constrain imports of some products. The Ministry 
of Health must approve imports of pharmaceuticals, veterinary drugs and 
pesticides, and the same items must be legally available in the 
exporting country.
    Costa Rican laws encourage the development of tourism and 
nontraditional exports, and provides incentives for foreign investment. 
The law does not restrict foreign equity participation, with very few 
exceptions, as noted above. The Labor Code ordinarily limits the 
percentage of foreign workers that can work in an enterprise to 10 
percent of the total workforce. Foreigners may account for no more than 
15 percent of the total payroll. Permits for foreign participation in 
management are routinely granted. No requirements exist for foreign 
owners to work in their own companies. There are no restrictions on the 
repatriation of profits and capital.
    The government and other state institutions procure goods and 
services through open public bidding. However, the General Law on 
Financial Administration allows private tenders and direct contracting 
of goods and services in relatively small quantities or, in case of 
emergency, with the consent of the Controller General (General 
Accounting Office). Public bidding is complicated and highly regulated, 
with the result that foreign bidders are frequently disqualified for 
failure to comply exactly with the required procedures. Appeals of 
contract awards are common, lengthy and costly, sometimes leading to 
losses when market prices change and bid prices remain fixed. No 
special requirements apply to foreign suppliers, and U.S. companies 
regularly win public contracts. Competition is fierce among foreign 
suppliers, and frequently the winner must propose comprehensive 
packages that include performance guarantees and financing. Foreign 
suppliers must have a legal representative in Costa Rica in order to 
sell goods or services to public entities. A 1996 law simplified 
government procurement procedures, but the process is still complex.
    Customs procedures are often costly and complex, but they do not 
discriminate between Costa Ricans and foreign traders. Most large firms 
have customs specialists on the payroll, in addition to contracting the 
mandatory services of customs brokers. Customs brokers must be Costa 
Rican nationals. The government is automating and simplifying the 
customs system and has established a one-stop window to speed it up.
    The government expropriation policy has created problems for some 
U.S. investors. The government has expropriated large amounts of land 
for national parks and for ecological and indigenous reserves, but 
compensation is rarely, if ever, prompt. Some unpaid expropriation 
claims date back over 25 years. It is possible to obtain compensation 
through the court system, but the time, effort and costs involved can 
greatly diminish the net value of any settlement. Claimants also have 
recourse to international arbitration through the International Center 
for the Settlement of Investment Disputes (ICSID) as of 1993. 
Submission of the first expropriation case to ICSID continues in a case 
involving the government and a prominent group of U.S. investors. Local 
arbitration has been employed since 1991. Landowners in Costa Rica also 
run the risk of losing their property to squatters, who are often 
organized and sometimes violent. A U.S. citizen and long-term resident 
of Costa Rica was killed in November 1997 in a dispute over an ocean 
front land concession granted by a municipal government. Squatters 
enjoy certain rights under Costa Rican land tenure laws and can 
eventually receive title to the land they occupy if the occupation is 
left unchallenged by the landowners. Police protection of landowners in 
rural areas is often inadequate. The government has in some cases 
expropriated property taken over by squatters in order to resolve 
property conflicts, but it has not always compensated adequately those 
from whom the land was originally taken.
7. Export Subsidies Policies
    Nontraditional exports to destinations outside of Central America 
and Panama qualified for negotiable tax rebate certificates (CATS) 
under the Export Promotion Law of 1972. This program is being phased 
out and will be completely terminated by December 31, 1999. The Export 
Processing Law of 1981 permits companies in designated free trade zones 
to be exempted from paying duties on imported inputs that are 
incorporated into exported products. It also provides holidays on 
income and remittance taxes. The Active Processing Regime of 1997 
offers similar duty-free entry for imported inputs, but does not 
provide tax holidays.
8. The Protection of U.S. Intellectual Property
    Costa Rica belongs to the World Trade Organization (WTO) and the 
World Intellectual Property Organization (WIPO). Costa Rica is also a 
signatory to the Paris Convention, Berne Convention, Lisbon Agreement, 
Rome Convention, Phonograms Convention and the Universal Copyright 
Convention. The U.S. Trade Representative placed Costa Rica on the 
``Special 301'' Watch List in 1995, and each year since then, because 
of deficient patent legislation and widespread copyright and trademark 
piracy.
    Significant weaknesses exist in copyright and trademark enforcement 
and in the duration of patent protection. The government has submitted 
several bills to the Legislative Assembly in order to implement 
required modifications to ensure that the country is in compliance with 
its IPR obligations under the WTO TRIPS Agreement by the January 1, 
2000 deadline. It is not certain that all the issues will be resolved 
in time, but the bills appear to include all the required modifications 
and are currently under consideration.
    Patents: The new legislation is expected to resolve the following 
problems in the area of patents. Patents have been granted for non-
extendible, 12-year terms, less than the 20 years required by the TRIPS 
Agreement. Coverage has been for only one year for products deemed ``in 
the public interest,'' such as pharmaceuticals, chemicals and 
agrochemicals, and all beverage and food products. No patent protection 
has been available for plant or animal varieties, or for any biological 
or microbiological process or products, but the government is working 
on a legislative proposal that would protect such products within the 
framework of the Convention for the Protection of New Varieties of 
Plants (UPOV). Costa Rica also has had broad compulsory licensing 
requirements that force patent owners to license inventions that are 
not produced locally.
    Trademarks: Trademarks, service marks, trade names and slogans can 
be registered in Costa Rica. Registration is renewable for 10-year 
periods. However, there are enforcement problems similar to those 
encountered with copyrights, particularly in the area of designer 
clothing (e.g., jeans). There is also a problem in the registration of 
famous marks by speculators, who demand to be bought out when the 
legitimate trademark owner comes to Costa Rica. Litigation to establish 
trademark ownership can be expensive.
    Copyright: Costa Rica's copyright laws are generally adequate, and 
market access for legitimate copyrighted goods is not restricted by 
anything other than the unfair price advantage enjoyed by pirated 
goods. The Government issued regulations that provide better protection 
and mandate police participation in developing criminal cases against 
pirates on May 24, 1994. The main problem is enforcement, particularly 
against videocassette and business software pirates. The cable 
television industry now operates almost entirely under agreements with 
foreign producers. The major public universities recently contracted to 
use copyrighted software. However, some hotels continue to pirate 
satellite transmission signals. Pirated videocassettes, usually 
duplicated domestically, are widely available and constitute at least 
90 percent of the market. An authorized distributor of videocassettes 
has successfully begun enforcement efforts to regularize the 
videocassette market, and licensed products are becoming more widely 
available in rental outlets.
    Existing laws protect trade secrets, and Article 24 of the 
Constitution protects the confidentiality of communications. A new bill 
before the legislature updates existing law in accordance with TRIPS 
standards. The penal code stipulates prison sentences for divulging 
trade, employment, or other secrets, and doubles the punishment for 
public servants. Some existing laws also stipulate criminal and civil 
penalties for divulging trade secrets. The burden of proof is on the 
affected party.
9. Worker Rights
    a. The Right of Association: Costa Rican law specifies the right of 
workers to join labor unions of their choosing without prior 
authorization. Nevertheless, some barriers exist in practice. Unions 
operate independently of government control and may form federations 
and confederations and affiliate internationally. Many Costa Rican 
workers join solidarity associations, under which employers provide 
easy access to saving plans, loans, recreation centers, and other 
benefits in return for their agreement to employ non-confrontational 
methods to settle disputes. Both solidarity associations and labor 
unions coexist at some workplaces, primarily in the public sector.
    b. The Right to Organize and Bargain Collectively: The Constitution 
protects the right to organize. Reforms to the Labor Code enacted in 
1993 provide protection from dismissal for union organizers and members 
during union formation and require employers found guilty of 
discrimination to reinstate workers fired for union activities. Costa 
Rica has no restrictions on the right of private sector employees to 
strike or engage in collective bargaining. The constitutionality of 
public sector collective bargaining agreements was recent challenged in 
the Supreme Court, which will rule on this issue sometime in the year 
2000. The Constitutional Chamber of the Supreme Court ruled in 1998 
that public sector workers, except those performing essential services, 
have the right to strike.
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced or compulsory labor and requires employers to provide 
adequate wages to workers in accordance with minimum wage and salary 
standards. Laws prohibit forced and bonded labor by children. The 
government enforces this prohibition effectively.
    d. Minimum Age for Employment of Children: The Children's Code 
enacted in 1992 prohibits the employment of children under 15 years of 
age. The Ministry of Labor issued some waivers to this provision, with 
the goal of moving gradually toward the elimination of child labor. The 
Constitution provides special employment protection for women and 
youth. Children between 15 and 18 can work a maximum of seven hours 
daily and 42 hours weekly, while children between 12 and 15 can work a 
maximum of five hours daily and 30 hours weekly. The National 
Children's Institute, in cooperation with the Ministry of Labor, 
enforces these regulations in the formal sector, but child labor 
remains an integral part of the informal economy.
    e. Acceptable Conditions of Work: The Constitution provides for a 
minimum wage, and a national wage council sets minimum wage and salary 
levels for the private and public sectors every six months. Workers may 
work a maximum of eight hours during the day and six at night, up to 
weekly totals of 48 and 36 hours, respectively. Industrial, 
agricultural and commercial firms with ten or more workers must 
establish management-labor committees and allow government workplace 
inspections. Workplace enforcement is less effective outside the San 
Jose area.
    f. Rights in Sectors with U.S. Investment: Labor regulations apply 
throughout Costa Rica, including in the country's export processing 
zones. Companies in sectors with significant U.S. investment generally 
respect worker rights, especially at plants under U.S. ownership and 
management. Abuses occur more frequently at plants operated by 
investors based outside the United States.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  28
Total Manufacturing............  ..............  371
  Food & Kindred Products......  102             ...............................................................
  Chemicals & Allied Products..  137             ...............................................................
  Primary & Fabricated Metals..  20              ...............................................................
  Industrial Machinery and       -17             ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  (\2\)
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  2,126
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                           DOMINICAN REPUBLIC


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................      15.0      15.9      18.5
  Real GDP Growth (pct) \3\...............       8.2       7.3       7.6
  GDP by Sector:
    Agriculture...........................       1.9       2.1       2.1
    Manufacturing.........................       2.7       2.9       3.1
    Services..............................       4.7       5.2       6.8
    Government............................       1.0       1.1       1.4
  Per Capita GDP (US$)....................     1,882     1,942     2,219
  Labor Force (000's).....................     3,614     3,697       N/A
  Unemployment Rate (pct).................      15.7      14.3       N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................        24        16        17
  Consumer Price Inflation................       8.3       7.8       7.5
  Exchange Rate (DR Peso/US$ annual
 average)
    Official..............................     14.01     14.71     15.89
    Parallel..............................     14.27     15.27     16.15

Balance of Payments and Trade:
  Total Exports FOB \4\...................       4.8       5.0       5.1
    Exports to U.S.\4\....................       4.4       3.6       3.7
  Total Imports CIF \4\...................       6.6       7.6       7.7
    Imports from U.S.\4\..................       3.9       4.0       4.1
  Trade Balance (US$ millions) \4\........      -1.8      -2.6      -2.6
    Trade Balance with U.S.\4\............       0.5      -0.4      -0.4
  External Public Debt....................       3.5       3.5       N/A
  Fiscal Surplus/GDP (pct)................       1.6      -1.2       N/A
  Current Account Deficit/GDP (pct).......      -1.5      -2.4      -3.1
  Debt Service Payments/GDP (pct).........       1.5       2.3       2.5
  Gold and Foreign Exchange Reserves \4\..       0.5       0.7       0.8
  Aid from U.S. (US$ millions) \4\ \5\....      11.6      60.4      10.4
  Aid from All Other Sources \4\..........       N/A     141.0       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data
  through September.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Central Bank; exports FAS, imports customs basis; 1999 figures are
  estimates based on data available through September.
\5\ Military aid equaled US$ 880,000 in both 1998 and 1999.

Source: Economic Studies Department, Central Bank of the Dominican
  Republic, unless otherwise indicated.

1. General Policy Framework
    Despite extensive damage to infrastructure and agriculture caused 
by Hurricane Georges in September 1998, the economy of the Dominican 
Republic continued its excellent rate of growth in the first three 
quarters of 1999, with the central bank predicting GDP growth of at 
least seven percent for the fourth year in a row. The central bank also 
predicts that inflation will again be held to the single digit level.
    Because of the Dominican Republic's high propensity to import, 
changes in the exchange rate are politically significant. The need to 
keep the peso stable forces the central bank to maintain a high 
interest rate structure to retain short-term capital. Foreign exchange 
operations also play a role in meeting money supply targets since the 
central bank's purchase of pesos for dollars tends to reduce the money 
in circulation within the country.
    According to the central bank, the money supply grew 17 percent 
from September 1998 to September 1999. The central bank regulates the 
money supply by issuance of new money through the banking system and by 
the purchase or issuance of debt instruments of the central bank 
itself. Since there is no secondary market for government securities 
and no liquid security market, the tools available to the central bank 
are limited. The central bank can modify bank reserve requirements but 
rarely does so. Banks resort to the discount window of the central bank 
only rarely. The Superintendency of Banks has continued its work to 
improve banking regulation. Although the Dominican Republic has no 
deposit insurance, the central bank guaranteed deposits at Bancomercio, 
the country's third largest bank, when it failed in early 1996, and 
subsequently supervised its sale to another Dominican bank. There have 
been no significant bank failures since then.
    Gross foreign exchange reserves were approximately $830 million in 
September 1999. The reserve figures include some central bank assets, 
which are not actually available for use in payments. The government 
continued timely payments of foreign private bank debt and payments on 
renegotiated Paris Club debt.
    The government continues to compensate the central bank for foreign 
debt payments carried out on its behalf. In the past, the central bank 
obtained the dollars needed for debt service by monetary expansion and 
compensated for this expansion by issuing Certificados de 
Participacion, which are short-term debt instruments. While this helps 
absorb excess liquidity, interest payments on these certificates may 
also be covered by net money creation.
    Prior to Hurricane Georges, government cash flows were in surplus 
according to the central bank. Relief and reconstruction expenditures 
caused the government to run a minor deficit, despite contributions 
from the multilateral financial institutions. On an accrual basis, 
however, there is probably a significant deficit. The government has 
accumulated large arrears to domestic suppliers and contractors, 
although the Fernandez administration is moving slowly to repay some 
portion of this. For example, in September of 1999, the government 
agreed to pay off $125 million in debts of the State Sugar Council in 
connection with the privatization of that entity. The central 
government continues to provide subsidies to some state enterprises 
without regard to efficiency or production targets, but has moved 
decisively on privatization of electricity, sugar, flour, and airports. 
The exact size of this debt is unknown, but has been variously put at 
the peso equivalent of 150 to 600 million dollars. This domestic debt 
is owed to foreign firms now or previously operating in the Dominican 
Republic, as well as to purely local firms. Current government 
financial flows leave substantial doubt about the ability of the 
Dominican Government to pay this debt. The government has considered 
covering this debt by the issuance of bonds.
    The Dominican Republic has ratified the GATT 94 and participates in 
WTO meetings. The Dominican Government has yet to determine an 
equitable and transparent method of quota distribution to implement its 
rectification agreement for eight protected agricultural products. In 
addition, the Dominican Republic has a discretionary import permit 
requirement for some agricultural products, especially beef and pork.
2. Exchange Rate Policy
    The official exchange rate is set by the central bank. On July 2, 
1998, the peso was devalued nine percent from 14.02 pesos/dollar to 
15.33 pesos/dollar. It has continued to devalue slowly since then with 
the most recent official rate (November 1999) set at 15.93 pesos/
dollar. The unofficial rate has also devalued and is currently in the 
range of 15.90 pesos to the dollar. An October 1999 increase in the fee 
for purchasing foreign currency to 5% (up from 1.75%) has effectively 
further devalued the peso. Traditional exporters such as sugar, cocoa, 
and coffee producers, credit card companies, and airlines are still 
required by law to sell foreign exchange to the Central Bank at the 
official rate, but most businesses and individuals are free to carry 
out foreign exchange transactions through the commercial bank system. 
The market rate is influenced by Central Bank activities such as dollar 
sales and the use of its considerable regulatory discretion to 
``jawbone'' banks.
3. Structural Policies
    Most domestic prices are determined by market forces, although 
distortionary government policies sometimes limit the operation of 
these forces. High tariff and nontariff barriers also increase the cost 
of doing business in the Dominican Republic. Since tariff reform was 
enacted by presidential decree in 1990 and modified by law in 1993, no 
further reform has affected U.S. exporters. In December 1996, President 
Fernandez submitted a proposal to Congress to decrease all tariffs. 
This proposal was not acted upon. Following the negotiation of a free 
trade pact with Central America, however, the Fernandez administration 
submitted a new proposal to the Congress to decrease tariff levels to 
Central American levels (i.e. a top tariff of 20 percent). Action is 
still pending on this proposal.
    The 1990 tariff regime reduced and simplified the tariff schedule 
to six categories with seven tariff rates ranging from 3 to 35 percent. 
It also replaced some quantitative import restrictions with tariffs and 
transformed all tariffs to ad valorem rates. While it marked an 
improvement over the previous tariff regime, this reform still left the 
Dominican Republic with high trade barriers. Few imports actually enter 
at the maximum 35 percent tariff rate, however, since together with 
other taxes and fees, it acts as an effective barrier to trade. Since 
nearly 40 percent of government revenues come from duties, taxes and 
fees collected on imports, the government's flexibility in trade policy 
is limited.
    The government has continued to implement changes in its tax system 
aimed at increasing revenues. The concept of taxable income has been 
enlarged, marginal tax rates on individuals and companies reduced and 
capital gains are no longer considered exempted income. The government 
submitted proposals for changes in the tax system as part of a reform 
package in late 1998, but these have yet to be approved by Congress. In 
May 1992, a new labor code was promulgated with provisions that 
increased a variety of employee benefits. After an increase of 25 
percent in 1997, public sector minimum wages have not increased.
    Government policy prohibits new foreign investment in a number of 
areas including national defense production, forest exploitation and 
domestic air, surface and water transportation. Government regulations, 
such as the process required to obtain the permits to open new 
businesses, choke economic growth and innovation. The difficulties of 
protecting intellectual property rights have slowed the use of modern 
medicines. Investment in modern agricultural techniques is impeded by a 
chaotic land tenure system and the unwillingness of large landowners to 
modernize.
4. Debt Management Policies
    The total external debt of the government is now approximately $3.5 
billion. A significant portion of the official debt was rescheduled 
under the terms of Paris Club negotiations concluded in November 1991. 
In August 1994, the government successfully concluded debt settlement 
negotiations with its commercial bank creditors. The deal involved a 
combination of buy-back schemes and U.S. Treasury-backed rescheduling. 
Payment to foreign private and public creditors in the financial sector 
has generally been current since then, particularly since the agreement 
noted above with the CCC. A September 1999 Dominican request to defer 
Paris Club debt payments due in the first half of 2000 was denied. 
However, an IPP agreement was signed in late November 1999, which is a 
credible step towards resolving some of the major outstanding issues.
    Government payments to foreign non-financial institutions are 
notoriously slow. Some debts are ten years old. The Fernandez 
government continues to express its desire to resolve these debts, but 
progress has been limited.
5. Significant Barriers to U.S. Exports
    Trade Barriers: Tariffs on most products fall within the 5 to 35 
percent range. In addition, the government imposes a 5 to 80 percent 
selective consumption tax on ``non-essential'' imports such as home 
appliances, alcohol, perfumes, jewelry, and automobiles. The government 
recently adjusted the formula for determining the base on which to 
apply the selective consumption tax to imported liquor following 
complaints from importers that the old formula discriminated against 
them in violation of WTO commitments.
    The Dominican Republic requires a consular invoice and 
``legalization'' of documents, which must be performed by a Dominican 
Consulate in the U.S. Fees for this service vary by consulate but can 
be quite substantial. Some importers now pay the consular invoice fee 
in Santo Domingo directly to customs. Moreover, importers are 
frequently required to obtain licenses from the Dominican Customs 
Service.
    There are food and drug testing and certification requirements, but 
these are not burdensome.
    Customs Procedures: In the past, bringing goods through Dominican 
Customs was a slow and arduous process, but there is anecdotal evidence 
that this situation has improved. Customs Department interpretation of 
exonerated materials being brought into the country still provokes 
complaints, however, and businesspersons here sometimes spend 
considerable time and money to get items through customs.
    Arbitrary customs clearance procedures sometimes cause problems for 
business. The use of ``negotiated fee'' practices to gain faster 
customs clearance continues to put some U.S. firms at a competitive 
disadvantage in the Dominican market. Customs officials routinely 
reject invoice prices as a basis for computing duties and customs fees 
and use their own assumed value database. This applies to virtually all 
non-free trade zone imports.
    Government Procurement Practices: The Dominican Republic has a 
centralized Government Procurement Office, but the procurement 
activities of this office are basically limited to expendable supply 
items of the government's general office work. In practice, each public 
sector entity has its own procurement office, both for transactions in 
the domestic market and for imports. Provisions of the U.S. Foreign 
Corrupt Practices Act often put U.S. bidders on government contracts at 
a serious disadvantage in what are sometimes non-transparent bidding 
procedures.
    Prohibitions on Land Ownership: A long-standing requirement that 
foreigners wishing to purchase land first obtain permission from the 
presidency was lifted in early 1998.
    Investment Barriers: Legislation designed to improve the investment 
climate passed in November 1995. Its implementing regulations were 
issued by the Fernandez administration in September 1996. The 
legislation does not contain procedures for settling disputes arising 
from Dominican Government actions. The seizures of foreign investors' 
property by past governments which are still unresolved, refusal to 
honor customs exoneration commitments, and the government's slowness in 
resolving claims for payment reduce the attractiveness of the 
investment climate, notwithstanding passage of the 1995 legislation.
    Foreign investment must receive approval from the Foreign 
Investment Directorate of the central bank to qualify for repatriation 
of profits (the new law provides for repatriation of 100 percent of 
profits and capital and nearly automatic approval of investments). A 
new Fiscal and Monetary Code that would have permitted restrictions on 
capital flows was vetoed by President Fernandez in November 1999.
    The electricity sector is a weak link in the Dominican economy. 
Businesses operating in the DR cannot depend on the public electric 
utility (CDE) to be a reliable source of electricity. Legislation 
governing the privatization/capitalization of CDE as well as of other 
state enterprises was passed by the Congress in June 1997. CDE's 
distribution units and thermal generation facilities were capitalized 
in 1999, and are now under the control of private sector operators.
    Foreign employees may not exceed 20 percent of a firm's work force. 
This is not applicable when foreign employees perform managerial or 
administration functions only.
    Dominican expropriation standards (e.g., in the ``public 
interest'') do not appear to be consistent with international law 
standards; several investors have outstanding disputes concerning 
expropriated property. The Fernandez government continues to maintain 
that it wishes to resolve these issues although progress has been slow. 
The Dominican Republic does not recognize the general right of 
investors to binding international arbitration.
    All mineral resources belong to the state, which controls all 
rights to explore or exploit them. Private investment has been 
permitted in selected sites. Currently, foreign investors are exploring 
for gold, natural gas, nickel and copper. The process of choosing and 
contracting such areas has not always been transparent.
    Investors operating in the Dominican Republic's Free Trade Zones 
(FTZ's) experience far fewer problems in dealing with the government 
than do investors working outside the zones. For example, materials 
coming into or being shipped out of the zones are reported to move 
quickly, without the kinds of bureaucratic difficulties mentioned 
above.
6. Export Subsidies Policies
    The Dominican Republic has two sets of legislation for export 
promotion: the Free Trade Zone Law (Law no. 8-90, passed in 1990) and 
the Export Incentive Law (Law no. 69, passed in 1979). The Free Trade 
Zone Law provides 100 percent exemption on all taxes, duties, and 
charges affecting the productive and trade operations at free trade 
zones. These incentives are provided to specific beneficiaries for up 
to 20 years, depending on the location of the zone. This legislation is 
managed jointly by the Foreign Trade Zone National Council and the 
Dominican Customs Service.
    The Export Incentive Law provides for tax and duty free treatment 
of inputs from overseas that are to be processed and re-exported as 
final products. This legislation is managed by the Dominican Export 
Promotion Center and the Customs Service. In practice, use of the 
export incentive law to import raw materials for process and re-export 
is cumbersome and delays in clearing customs can take anywhere from 20-
60 days. This customs clearance process has made completion of 
production contracts with specific deadlines difficult. As a result, 
non-free trade zone exporters rarely take advantage of the Export 
Incentive Law. Most prefer to import raw materials using the normal 
customs procedures which, although more costly, are more rapid and 
predictable.
    There is no preferential financing for local exporters nor is there 
a government fund for export promotion.
7. Protection of U.S. Intellectual Property
    The Dominican Republic belongs to the World Trade Organization 
(WTO), and is a signatory to the Paris Convention, Berne Convention, 
Madrid Agreement, and the Rome Convention. In 1998, and again in 1999, 
the U.S. Trade Representative placed the Dominican Republic on the 
``Special 301'' Priority Watch List because it continues to have 
inadequate enforcement of its existing laws and a legal regime that 
does not meet international standards. Piracy of video and audio tapes, 
compact discs, and software is widespread. The government has, however, 
stepped up efforts to combat such piracy. While larger cable TV systems 
generally pay royalties to U.S. right holders, smaller ones continue to 
pirate satellite signals, and the government has not responded to 
requests from U.S. industry for more effective enforcement. Trademarks, 
particularly of apparel and athletic shoes, are commonly counterfeited 
and sold locally. The patent law still contains broad exceptions from 
patentability, and provides an inadequate term of protection.
    Patents: Patents are difficult to receive and enforce against a 
determined intellectual property thief. In a local pharmaceutical 
market worth approximately $110 million per year, 70 percent of the 
total is locally produced or packaged. A significant percentage of that 
total is believed to be pirated. Resolutions issued by the government 
at year-end 1996 and early 1997 further encourage the violation of 
pharmaceutical patents in the Dominican Republic. Last year, however, 
the Supreme Court upheld the rights of a foreign patent holder against 
a local laboratory. Draft patent legislation, pending in Congress, is 
inadequate, raising the prospect that the Dominican Republic will not 
be in compliance with its WTO obligations with regard to intellectual 
property by the January 1, 2000 deadline.
    Trademarks: Apparel and other trademarked products are 
counterfeited and sold in the local market. Although the Dominican 
Government is taking a more activist stance toward remedying 
shortcomings in this area, including seizure of pirated goods, 
protection remains problematic.
    Copyright: Despite copyright laws that are generally adequate and 
improved efforts at enforcement, piracy of copyrighted materials is 
still widespread. Video and audio recordings and software are being 
counterfeited despite the government's efforts to seize and destroy 
pirated goods. Some television and cable operators are re-broadcasting 
signals without compensating either the original broadcaster or the 
originator of the recording. The Motion Picture Association of America 
(MPAA) estimates that losses in the Dominican Republic due to theft of 
satellite-carried programming are one million dollars per year. The 
International Intellectual Property Alliance has filed a petition 
requesting a review of the Dominican Republic's GSP status due to 
continued copyright violations.
    Impact on U.S. Trade: Infringement of intellectual property rights 
is so widespread that quantifying its impact on U.S.-Dominican trade is 
virtually impossible. Legislation to enable the Dominican Republic to 
comply with the WTO Agreement on Trade Related Aspects of Intellectual 
Property Rights (TRIPS) is pending in the Congress.
8. Worker Rights
    a. The Right of Association: The Constitution provides for the 
freedom to organize labor unions and also for the right of workers to 
strike (and for private sector employers to lock out workers). All 
workers, except military and police, are free to organize, and workers 
in all sectors exercise this right. The government respects association 
rights and places no obstacles to union registration, affiliation or 
the ability to engage in legal strikes. Organized labor represents 
little more than 10 percent of the work force and is divided among 
three major confederations, four minor confederations and a number of 
independent unions.
    b. The Right to Organize and Bargain Collectively: Collective 
bargaining is lawful and may take place in firms in which a union has 
gained the support of an absolute majority of the workers. Only a 
minority of companies has collective bargaining pacts. The Labor Code 
stipulates that workers cannot be dismissed because of their trade 
union membership or activities.
    The Labor Code applies in the 40 established Free Trade Zones 
(FTZs). The FTZ companies, over sixty percent of which are U.S.-owned 
or associated, employ approximately 172,000 workers, mostly women. Some 
FTZ companies have allegedly discharged workers who attempt to organize 
unions, but these allegations have primarily been made against non-U.S. 
companies.
    c. Prohibition of Forced or Compulsory Labor: There were some 
reports of forced overtime in factories, mainly those owned by non-U.S. 
companies. Employers, particularly in the FTZs, sometimes locked the 
exit doors of factories after normal closing time so that workers could 
not leave. There have been reports of workers being fired for refusing 
to work overtime and both employers and workers state that new hires 
are not informed that overtime is optional.
    d. Minimum Age for Employment of Children: The Labor Code prohibits 
employment of youth under 14 years of age and places restrictions on 
the employment of youth under the age of 16. These restrictions include 
a limitation of no more than six hours of daily work, no employment in 
dangerous occupations or establishments serving alcohol and limitations 
on nighttime work. Dominican law requires six years of formal 
education.
    The high level of unemployment and lack of a social safety net 
create pressures on families to allow children to earn supplemental 
income. Tens of thousands of children work selling newspapers, shining 
shoes or cleaning cars, often during school hours. The government has 
proposed a fine for the parents of truant children.
    e. Acceptable Conditions of Work: The Constitution provides the 
government with legal authority to set minimum wage levels and the 
Labor Code assigns this task to a National Salary Committee. Congress 
may also enact minimum wage legislation. The Labor Code establishes a 
standard work period of eight hours per day and 44 hours per week. The 
Code also stipulates that all workers are entitled to 36 hours of 
uninterrupted rest each week. The Code grants workers a 35 percent 
differential for work over 44 hours up to 68 hours per week and double 
time for any hours above 68 hours per week.
    The Dominican Social Security Institute (IDSS) sets workplace 
safety and health conditions. The existing social security system does 
not apply to all workers and is underfunded.
    Workplace regulations and their enforcement in the FTZs do not 
differ from those in the country at large, although working conditions 
are sometimes better. Conditions for agricultural workers are in 
general much worse, especially in the sugar industry.
    f. Rights in Sectors with U.S. Investments: U.S.-based 
multinationals active in the FTZs represent one of the principal 
sources of U.S. investment in the Dominican Republic. Some companies in 
the FTZs adhere to significantly higher worker safety and health 
standards than do non-FTZ companies. In other categories of worker 
rights, conditions in sectors with U.S. investment do not differ 
significantly from conditions in sectors lacking U.S. investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  390
  Food & Kindred Products......  2               ...............................................................
  Chemicals & Allied Products..  22              ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  346             ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  58
Finance/Insurance/Real Estate..  ..............  (\2\)
Services.......................  ..............  20
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  535
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                ECUADOR


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      19.8      19.7      14.5
  Real GDP Growth (pct)...................       3.4       0.4     -10.0
  GDP by Sector:
    Agriculture, Fishing..................       4.1      -1.4       2.7
    Petroleum, Mining.....................       3.5      -3.3      -2.6
    Manufacturing.........................       3.5       0.4      -9.2
    Commerce, Hotels......................       3.3       0.9     -11.3
    Finance, Business Services............       1.9       3.5       1.1
    Government, Other Services............       1.3       1.2     -11.9
  Per Capita GDP (US$)....................     1,665     1,619     1,164
  Labor Force (estimate-000's)............     3,374     3,441     3,880
  Urban Unemployment (pct)................       9.3      11.5      16.9

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \2\...................      35.0      43.0       N/A
  Consumer Price Inflation................      30.7      45.0      50.4
  Exchange Rate (Sucres/US$ annual
 average)
    Central Bank..........................     4,000     5,442    11,165
    Market................................     4,070     5,445    11,182

Balance of Payments and Trade:
  Total Exports FOB \3\...................       5.3       4.2       2.8
    Exports to U.S.\3\....................       2.0       1.7       1.1
  Total Imports CIF \3\...................       2.2       5.2       1.7
    Imports from U.S.\3\..................       1.5       1.7       0.6
  Trade Balance \3\.......................       3.1      -1.0       1.1
    Balance with U.S.\3\..................       0.5       0.0       0.5
  External Public Debt....................      12.6      13.3      13.6
  Debt Service Payments/GDP (pct).........      27.7      22.4      21.0
  Current Account Deficit/GDP (pct).......      -3.8     -11.0       2.6
  Fiscal Balance/GDP (pct)................      -2.5      -5.9      -4.0
  Gold and Foreign Exchange Reserves......       2.1       1.7       1.3
  Aid from U.S. (FY-US$ millions).........      11.5      12.5      16.4
  Aid from Other Sources (US$ millions)...       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are estimates based on data available in November 1999.
\2\ 1999 figure is for August 1998-August 1999.
\3\ All 1999 figures are for the period January-August.

Source: Ecuadorian Government and Central Bank of Ecuador data.

1. General Policy Framework
    The Ecuadorian economy is based on petroleum production and exports 
of bananas, shrimp and other primary agricultural products. Industry is 
largely oriented to servicing the domestic market but is becoming more 
export-oriented. During the oil boom of the 1970s, the government 
borrowed heavily from abroad, subsidized consumers and producers, and 
expanded the state's role in economic production. These policies led to 
chronic macroeconomic instability in the 1980s. Continued borrowing and 
fiscal mismanagement in the 1990s have brought on Ecuador's worst 
economic crisis in 70 years.
    The 1992-1996 government of Sixto Duran-Ballen sought to stabilize 
the economy, modernize the state, and expand the role of the free 
market. By 1994, a sound macroeconomic program had resulted in a 
balanced budget and reduced inflation. Those accomplishments, however, 
were undermined by a series of shocks during 1995, including the 
outbreak of fighting on the border with Peru, a corruption scandal and 
political crisis involving the then-Vice President, and several months 
of electricity rationing. The problems resulted in skyrocketing 
interest rates, a growing number of past-due loans, and the failure of 
a major financial institution. GDP growth slowed during 1995, 
increasing by only 2.3 percent instead of a projected 4 percent. The 
uncertainty associated with the 1996 elections, the rise of the 
populist Abdala Bucaram to the presidency, poor treatment of foreign 
investors, and delays in the announcement of the new government's 
economic program helped prevent an economic recovery. Economic reform 
stalled under Bucaram's six-month government (August 1996-February 
1997) which was characterized by increased corruption and decreased 
investment.
    The interim government of Fabian Alarcon (February 1997-August 
1998) was faced with a number of economic challenges, including 
implementing the Duran-Ballen era reforms, falling oil prices, and 
coastal devastation from El Nino. Unfortunately, the Alarcon government 
was not up to the task, failing to privatize the state-owned telephone 
company, reduce the inflation rate to international levels, or improve 
the electricity generating sector. The current administration of Jamil 
Mahuad, which moved quickly to secure a peace treaty with Peru in the 
Fall of 1998, inherited growing economic problems and has been wracked 
by a chronic fiscal budget deficit, a collapsing banking system, a 
rapidly devaluing currency, severe inflation, and negative economic 
growth. The economy is expected to contract by about 10 percent in 
1999. As a consequence, imports will drop by almost 50 percent from 
1998 levels.
    The government estimates that the fiscal deficit for 1999 will 
reach between 4.0 and 4.5 percent of GDP. Significant revenue and 
expenditure measures will be needed to reduce the deficit to what the 
government and the International Monetary Fund (IMF) believe is a 
sustainable figure of 2.5 percent of GDP in the year 2000. Public 
sector expenditures accounted for 22.4 percent of GDP in 1998. Debt 
service is the largest area of government spending (accounting for 
about 41 percent of central government expenditures), followed by 
education, defense and agriculture. The government remains highly 
dependent on revenue from oil exports and customs charges.
    The central bank attempts to smooth out fluctuations in liquidity 
through weekly bond auctions and interventions in the secondary market, 
and has sometimes used bank reserve requirements as a monetary tool. 
During periods of capital inflows, the government has compensated for 
the inflationary effects of foreign exchange influx by increasing its 
sucre deposits at the central bank. Annual M2 percentage growth in 1998 
increased from 35 percent to 43 percent. The monetary emission rate 
from January to October 1999 was 130 percent, fueling a 140 percent 
devaluation of the sucre against the U.S. dollar during this time 
period.
    The Duran-Ballen policy of depreciating the currency at a rate 
slower than inflation helped reduce the annual increase in consumer 
prices from 60 percent in 1992 to 23 percent in 1995. However, the 
inflation rate rose to 30 percent in 1997, 43 percent in 1998, and will 
likely reach at least 55 percent in 1999. In 1999, the collapsing 
domestic financial system and a relative lack of U.S. dollars pushed 
nominal interbank interest rates as high as 180 percent before falling 
to about 55 percent in November.
2. Exchange Rate Policy
    The central bank abandoned its crawling peg exchange rate system in 
February of 1999. The sucre trades freely against the U.S. dollar and 
other currencies. U.S. dollars are readily available on the free 
market, trading around 18,000 sucres to one dollar by mid-November 
1999. The Sucre has devalued some 140 percent against the U.S. dollar 
between January and November 1999, and further depreciation is likely. 
By the end of October 1999, foreign exchange reserves amounted to about 
$1.3 billion, enough to cover imports for approximately six months.
3. Structural Policies
    Recent administrations have enjoyed only partial success in 
carrying out structural reforms designed to promote investment and 
economic growth. Limited progress has been made on budget reform, 
reduction of public employment levels, and elimination of some 
unnecessary and market-distorting regulations. With exceptions for 
pharmaceuticals, fuels, and some foodstuffs, prices are set by the free 
market. Relatively new laws have established a basis for the 
development of equity capital markets, modern regulation of financial 
institutions, and improvement in the security of agricultural land 
tenure for both peasants and agribusiness. In most cases, however, 
implementation has lagged behind legislation. The Mahuad government 
would like to make structural reforms, including revamping the tax 
system and privatizing state-owned enterprises, such as 
telecommunications and power generation, but has been hampered by 
Ecuador's deep economic crisis and opposition in Congress.
    The 1993 State Modernization Law allowed private sector 
participation in ``strategic sectors'' of the economy, including 
petroleum, electricity and telecommunications, but only on a 
concessional basis. The National Modernization Council (CONAM) has 
sought to promote privatization, and the state development banks have 
sold much of their equity shares in commercial enterprises to the 
private sector. In the past, the armed forces have expressed interest 
in selling some shares in military-owned companies to private sector 
partners, though Ecuador's recent economic problems may delay any such 
sales. Soon after entering office, the Mahuad administration put forth 
an ambitious plan to privatize much of the state-owned companies by the 
year 2000, but has fallen far behind schedule because of the economic 
crisis. Of key importance is the scheduled sale of the two state-owned 
telephone companies (Andinatel and Pacifictel), which was to have 
occurred in the third quarter of 1999. The Mahuad administration has 
asked foreign oil companies operating in Ecuador to build a second oil 
pipeline from the Amazon jungle to the Pacific Ocean. If the companies 
agree, construction could begin in the first half of 2000 and would 
last 18 months. Limited steps have been taken toward granting private 
concessions for public works, the civil registry, airports, ports, and 
postal and railroad services. The government will also need to address 
the need for major reform of public education and the social security 
system's insolvent pension program.
    Investment liberalization measures in 1991 and 1993 provided 
foreign investors with full national treatment and eliminated prior 
authorization requirements for investment in most industries, including 
finance and the media. Specific restrictions, most applicable to 
Ecuadorian as well as foreign investors, remain for petroleum, mining, 
electricity, telecommunications and fishing investments. A Bilateral 
Investment Treaty with the United States that provides for free 
transfers and a binding arbitration dispute settlement procedure 
entered into force in May 1997. A value-added tax (VAT) of 12 percent 
applies to sales of goods and services in the formal sector. An excise 
tax on certain ``luxury'' products continues to be applied to imports 
in a discriminatory manner. Under this tax system, Ecuadorean Customs 
also assesses an arbitrary 25 percent mark-up on the ex-customs value 
of alcoholic beverage imports including distilled spirits. This 
additional 25 percent mark-up is not applied to like domestic products. 
In 1998, Congress passed legislation imposing a one percent tax (since 
lowered to 0.8 percent) on financial transactions in the nation's 
banking system. Although the Hydrocarbons Law is relatively investor-
friendly, recent administrations have failed to respect many existing 
contracts with foreign investors in the oil sector.
4. Debt Management Policies
    As of mid-1999, Ecuador's external public debt was $13.6 billion, 
or about 95 percent of 1999 estimated GDP. While expressing a desire to 
honor the country's debt obligations, President Mahuad stated in August 
1999 that Ecuador could no longer afford to service its debt and that 
it would not meet a payment on its Discount Brady Bonds. Mahuad's 
action sent shock waves through international financial markets since 
no country had ever defaulted on its Brady Bonds. In late October, 
Ecuador also failed to meet its coupon payments on Eurobonds. As of 
November 1999, the Government of Ecuador was negotiating with 
bondholders over potential debt restructuring plans to reduce its debt-
servicing burden.
    Ecuador concluded bilateral rescheduling agreements with most of 
its official creditors, including the United States, under a 1994 Paris 
Club agreement but again ran substantial bilateral arrears in 1995-1999 
(totaling some $550 million) and has stated its intention to seek 
another Paris Club rescheduling. During 1996 Ecuador failed to meet the 
targets of the IMF-monitored program that replaced the 1994 standby 
arrangement, with which Ecuador had quickly fallen out of compliance. 
As of November 1999, Ecuador is seeking another IMF program in order to 
reschedule Paris Club debt and unlock conditioned loans from 
international financial institutions.
5. Significant Barriers to U.S. Exports
    Ecuadorian trade policy was substantially liberalized during the 
early 1990's, resulting in a reduction of tariffs, elimination of most 
non-tariff surcharges, and enactment of an in-bond processing industry 
(maquila) law. The Duran-Ballen administration continued the move 
towards open trade by concluding bilateral free trade agreements with 
its Andean Pact partners. After two years of negotiations with its 
major trading partners, Ecuador joined the World Trade Organization 
(WTO) in January 1996.
    Duties and fees for most imports into Ecuador fall in the 5 to 20 
percent range, though the government plans to impose additional 
surcharges through 2000. Ecuador agreed to an Andean Common External 
Tariff in February 1995. Special exemptions allow Ecuador to continue 
to charge higher rates for about half of the items on the common tariff 
schedule.
    Customs procedures can be difficult but are not normally used to 
discriminate against U.S. products. The Mahuad administration has 
expressed its desire to repair damage done to customs services that 
occurred under previous administrations by focusing on corruption and 
improving efficiency. The government has yet to implement its 
commitment not to use sanitary and phytosanitary restrictions to block 
the entry of certain imports of consumption products and agricultural 
goods from the United States, but has increased the number of 
Ecuadorian institutions that are authorized to issue sanitary and 
phytosanitary permits. Import bans on used clothing, used cars and used 
tires have yet to be eliminated, despite Ecuador's promise in its WTO 
accession protocol to do so by July 1996. Andean Pact price bands that 
result in high effective tariffs for a variety of agricultural products 
are to be phased out. The government no longer sets minimum prices for 
assessing customs duties on certain imports.
    All importers must obtain a prior import license from the central 
bank, obtainable through private banks. Licenses are usually made 
available for all goods. A discriminatory 1976 law that prevented U.S. 
and other foreign suppliers, but not domestic suppliers, from 
terminating existing exclusive distributorship arrangements without 
paying compensation was repealed in September 1997. However, the U.S. 
Government is concerned that the repealed law will continue to be 
applied in pending court cases or against U.S. companies that have 
existing contracts that were in force prior to the repeal. Foreigners 
may invest in most sectors, other than public services, without prior 
government approval. There are no controls or limits on transfers of 
profits or capital, and foreign exchange is readily available.
    Government procurement practices are not sufficiently transparent 
but do not usually discriminate against U.S. or other foreign 
suppliers. However, bidding for government contracts can be cumbersome 
and time-consuming. Bids for public contracts are often delayed or 
canceled. Many bidders object to the requirement for a bank-issued 
guarantee to ensure execution of the contract.
6. Export Subsidies Policies
    Ecuador does not have any explicit export subsidy programs.
7. Protection of U.S. Intellectual Property
    Ecuador belongs to the World Trade Organization (WTO) and the World 
Intellectual Property Organization (WIPO), and is a signatory to the 
Berne Convention, Rome Convention, and the Phonograms Convention. In 
1999, the U.S. Trade Representative moved Ecuador from the ``Special 
301'' Priority Watch List to the Watch List in recognition of 
significant improvements in Ecuador's protection of intellectual 
property rights (IPR).
    Ecuador's protection of intellectual property is based primarily on 
the 1998 Intellectual Property Law, which protect patents, trademarks, 
copyrights, and plant varieties. The law generally meets the standards 
specified in the WTO TRIPs Agreement. Although a November 1996 Andean 
Pact court decision overturned Ecuadorian regulations that provided 
transitional or ``pipeline'' protection for previously unpatentable 
products, the Alarcon government approved 12 ``pipeline'' patents in 
1998. Approximately 37 such patents held by U.S. firms still await 
final resolution under the Mahuad government. In 1999, the Andean 
Community imposed sanctions on Ecuador for its issuance of ``pipeline'' 
approvals on the grounds that Ecuador had violated the Community's own 
patent regime.
    In October 1993, Ecuador and the United States signed a bilateral 
Intellectual Property Rights Agreement (IPRA) that guarantees full 
protection for copyrights, trademarks, patents, satellite signals, 
computer software, integrated circuit layout designs, and trade 
secrets. Although the Ecuadorian Congress has not yet ratified the 
IPRA, in 1998 it enacted legislation that generally harmonizes local 
law with the agreement's provisions (with the notable exception of 
``pipeline'' patents). Despite the fact that Ecuador issued and 
notified an initial group of pipeline patent applications, consistent 
with its bilateral agreement with the United States, it has failed to 
issue any of the additional pending applications.
    Enforcement of intellectual property rights has improved 
significantly in Ecuador, but copyright infringement still occurs, and 
there is widespread local trade in pirated audio and video recordings, 
as well as computer software. However, companies can seek preliminary 
injunctive relief under the 1998 IPR law. Local registration of 
unauthorized copies of well-known trademarks has been a problem in the 
past, but monitoring and control of such registrations have improved. 
Some local pharmaceutical companies produce or import patented drugs 
without licenses and have sought to block improvements in patent 
protection. Ecuadorian flower growers persuaded a local judge to 
suspend the patent and trademark rights of U.S. and other foreign 
flower breeders, which could lead to U.S. action to ban imports of 
flowers grown in Ecuador. As of November 1999, the case is on appeal 
before the Constitutional Tribunal.
8. Worker Rights
    a. The Right of Association: Under the Ecuadorian Constitution and 
labor code, most workers in the parastatal sector and private companies 
enjoy the right to form trade unions. Public sector workers in non-
revenue earning entities, as well as security workers and military 
officials, are not permitted to form trade unions. Less than 12 percent 
of the labor force, mostly skilled workers in parastatal and medium-to-
large sized industries, is organized. Except for some public servants 
and workers in some parastatals, workers by law have the right to 
strike. Sit-down strikes are allowed, but there are restrictions on 
solidarity strikes. Ecuador does not have a high level of labor unrest. 
Most strike activity involves public sector employees.
    b. The Right to Organize and Bargain Collectively: Private 
employers with more than 30 workers belonging to a union are required 
to engage in collective bargaining when requested by the union. The 
labor code prohibits discrimination against unions and requires that 
employers provide space for union activities. The labor code provides 
for resolution of conflicts through a tripartite arbitration and 
conciliation board process. Employers are not permitted to dismiss 
permanent workers without the express permission of the Ministry of 
Labor. The in-bond (maquila) law permits the hiring of temporary 
workers in maquila industries, effectively limiting unionization in the 
sector. Employers consider the labor code to be unfavorable to their 
interests.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor is 
prohibited by both the constitution and the labor code, and is not 
practiced.
    d. Minimum Age for Employment of Children: Persons less than 14 
years old are prohibited by law from working, except in special 
circumstances such as apprenticeships. Those between the ages of 14 and 
18 are required to have the permission of their parents or guardian to 
work. In practice, many rural children begin working as farm laborers 
at about 10 years of age, while poor urban children under age 14 often 
work for their families in the informal sector.
    e. Acceptable Conditions of Work: The labor code provides for a 40-
hour workweek, two weeks of annual vacation, a minimum wage and other 
variable, employer-provided benefits such as uniforms and training 
opportunities. The minimum wage is set by the Ministry of Labor every 
six months and can be adjusted by Congress. Mandated bonuses bring 
total monthly compensation to about $137. The Ministry of Labor also 
sets specific minimum wages by job and industry so that the vast 
majority of organized workers in state industries and large private 
sector enterprises earn substantially more than the general minimum 
wage. The labor code also provides for general protection of workers' 
health and safety on the job, and occupational health and safety is not 
a major problem in the formal sector. However, there are no enforced 
safety rules in the agriculture sector and informal mining.
    f. Worker Rights in Sectors with U.S. Investment: The economic 
sectors with U.S. investment include petroleum, chemicals and related 
products, and food and related products. U.S. investors in these 
sectors are primarily large, multinational companies, which abide by 
the Ecuadorian Labor Code. In 1996 there were no strikes or serious 
labor problems in any U.S. subsidiary. U.S. companies are subject to 
the same rules and regulations on labor and employment practices 
governing basic worker rights as Ecuadorian companies.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  576
Total Manufacturing............  ..............  188
  Food & Kindred Products......  30              ...............................................................
  Chemicals & Allied Products..  70              ...............................................................
  Primary & Fabricated Metals..  1               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  24              ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  68
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  36
Services.......................  ..............  4
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  952
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              EL SALVADOR


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................    11,305.0    11,870.2    12,368.0
  Real GDP Growth (Pct).............         4.2         3.2         2.5
  GDP By Sector:
    Agriculture.....................     1,492.0     1,432.2     1,475.0
    Manufacturing...................     2,400.0     2,629.4     2,760.0
    Services........................     6,449.0     6,878.0     7,290.0
    Government......................       747.0       800.0       848.0
  Per Capita GDP (US$) \2\..........     1,897.0     1,968.0     2,025.0
  Labor Force (000's) \3\...........     2,260.0     2,305.0     2,350.0
  Unemployment Rate (Pct) \4\.......         7.6         8.0         8.0

Money and Prices (Annual Percentage
 Growth):
  Money Supply Growth (M2)..........        20.0        12.0         9.0
  Consumer Price Inflation..........         2.0         4.2         4.0
  Exchange Rate (Colon/US$).........        8.75        8.75        8.75

Balance Of Payments And Trade:
  Total Exports Fob \5\.............     2,425.0     2,446.0     2,400.0
    Exports To U.S.\5\..............     1,312.0     1,454.0     1,555.0
  Total Imports CIF \5\.............     3,740.0     3,959.0     4,150.0
    Imports From U.S.\5\............     1,975.0     2,028.0     2,150.0
  Trade Balance.....................    -1,325.0    -1,513.0    -1,750.0
    Balance With U.S................      -633.0      -554.0      -595.0
  External Public Debt..............     2,680.0     2,630.0     2,500.0
  Fiscal Deficit/GDP (Pct)..........         2.0         2.0         2.5
  Current Account Deficit/GDP (Pct).        -1.9        -0.7        -0.9
  Debt Service Payments/GDP (Pct)...         3.0         3.0         3.0
  Gold and Foreign Exchange
  Reserves..........................     1,462.0     1,765.0     1,840.0
  Aid From U.S......................        38.0        38.0        56.8
  Aid From All Other Sources \6\....        38.0        38.0        38.0
------------------------------------------------------------------------
\1\ 1999 figures are central bank estimates based on August data.
\2\ Per capita growth based on 1992 census data.
\3\ Economically active population, i.e. all those over age 15.
\4\ Figures do not include underemployment.
\5\ Including gross maquila.
\6\ Grants only; figures do not reflect NGO assistance and bilateral
  loan programs.

1. General Policy Framework
    In 1998, El Salvador's economy grew by 3.2 percent, compared to the 
4.2 percent growth posted in 1997. The damage caused by Hurricane Mitch 
to infrastructure and to agriculture production reduced 1998 growth by 
an estimated 0.5 percent. Growth weakened further in 1999 due to poor 
international prices for El Salvador's principal export commodities, 
weak exports to Central American neighbors recovering from Hurricane 
Mitch, and an investment slow-down caused by the March 1999 
presidential elections and delays in legislative approval of a national 
budget.
    Data from the second and third quarter of 1999 indicates the 
economy has started to recover from the evident slow-down observed 
during the first quarter of the year. Ministry of economy/central bank 
data shows that the GDP has gradually risen from 2.1 percent growth in 
the first quarter to 2.4 percent growth in the third quarter. Growth 
has been led by the commerce, energy, finance, and manufacturing 
sectors. During the January-September 1999 period, exports decreased by 
4 percent compared to 1998, while imports increased by 6 percent. Value 
added tax (vat) collections increased during the same period by 6 
percent. This modest recovery has taken place within the context of a 
relatively low inflation rate, which is expected to be 4.0 percent in 
1999, compared to 4.2 percent in 1998 and 2.0 percent in 1997. The 
official outlook for 2000 is for continued macro economic stability 
with 3.5 percent growth, 2.5 percent inflation and a fiscal deficit of 
2.4 percent of the GDP. Economic performance may strengthen more next 
year if international assistance for Mitch reconstruction projects 
arrives in a timely fashion, and if the U.S. congress approves expanded 
Caribbean Basin Initiative (CBI) benefits.
    The central bank tightened monetary policy in 1999. The money 
supply is expected to expand 9 percent in 1999 compared to 12 percent 
in 1998. Interest rates on loans for less than a year have remained at 
15 to 16 percent in 1999, compared to 18 percent two years ago. Medium 
and long-term interest rates also went down from 20 to 18 percent in 
the same period.
    In 1998, the government successfully privatized the state telephone 
company, the electricity distribution companies and pension funds. In 
1999 the government successfully auctioned the thermal power plants and 
plans to sell its remaining shares in the telephone company. The 1999 
US$2 billion central budget continues to shift spending from military 
to social investments, with about one third of the central budget 
dedicated to social development including health, education and public 
works. The 1999 budget is likely to result in a fiscal deficit no 
greater than 2.5 percent of GDP due to improved tax collection. The 
modest deficit has been financed with official domestic and external 
bonds. By law, the central bank is not allowed to finance government 
deficits. The 2000 budget is expansionary, and its spending is expected 
to increase by 6 percent over the 1999 budget.
    1998 brought a slight increase in both exports (1 percent) and 
imports (5.8 percent). As in previous years, family remittances and 
external aid have offset the large structural trade deficit in El 
Salvador. Remittances continue to be the second most important source 
of foreign exchange after exports and a major factor in El Salvador's 
macro economic stability. Remittances are increasing at an annual rate 
of 6.5 percent, and an estimated 1.35 billion dollars will enter the 
national economy during 1999.
2. Exchange Rate Policy
    The colon has been informally pegged at 8.75 per dollar since 1994. 
Large inflows of dollars from Salvadorans working in the United States 
offset a significant trade deficit. At the end of September 1999, net 
international reserves at the central bank were 1.8 billion dollars, 
one of the highest levels in history.
3. Structural Policies
    The United States is El Salvador's main trade partner. Imports from 
the U.S. have increased an average of 16 percent per year since 1993. 
Imports from the U.S., which constitute about 50 percent of all El 
Salvador's imports, are projected to reach $2.15 billion in 1999, up 
from $2.02 billion in 1998. Key to this trend is the multi-year program 
(whose last phase concluded in July 1999), to radically lower tariff 
barriers. Under this program, tariffs for most capital goods and raw 
materials have been reduced to zero or one percent, and tariffs on 
intermediate and final goods have been reduced to a maximum rate of 15 
percent.
    In September 1997, the government launched a new, simplified 
customs procedure system that reduces the former cumbersome 20-step 
import process to seven steps. A second stage of this customs 
modernization program, consisting of processing import/export papers 
via computer/satellite from the user's office, was implemented in 
November 1998, and a final stage to facilitate electronic payment of 
import duties was launched in February 1999. Close to 80 percent of all 
Salvadoran imports consist of capital and intermediate products. The 
government has an open procurement policy in practice, and U.S. 
companies compete actively for contracts.
    El Salvador has liberal legislation under which it has privatized 
the state owned telephone company (Antel), four electricity 
distributors and two thermal generating companies, and pension funds. 
All of these projects represent good opportunities for U.S. suppliers 
and investors.
    Prices, with the exception of bus fares and utilities, which are 
moving toward market prices, are unregulated. A commission to monitor 
the telecommunications and electric sectors (Siget) has been 
established.
    The 13 percent value-added tax (vat) is applied to all goods and 
services, domestic and imported, with a few limited exceptions for 
basics like dairy products, fresh fruits and vegetables, and medicines. 
In September 1999, the vat and income tax laws were reformed in order 
to expand the country's taxable base and increase government revenues. 
At the end of 1994, the government replaced a price band mechanism, 
introduced in 1990 to regulate the tariffs on basic grains. The 
government policy on basic grain tariffs is set by seasonal supply and 
demand conditions in the local market. Currently, yellow corn is 
imported duty free; white corn enters duty free from February 1 through 
July 31, and is subject to 15 percent ad-valorem rate from August 1 to 
January 31. Paddy (rough) rice pays 20 percent ad-valorem, and milled 
rice, 35 percent.
4. Debt Management Policies
    El Salvador has traditionally pursued a conservative debt policy. 
External debt stood at $2.630 billion at December 1998, a 2 percent 
below the previous year. The total external debt is expected to fall 
slightly to $2.5 billion by the end of 1999. Almost 70 percent of this 
debt has been contracted with international financing institutions, and 
30 percent with bilateral organizations and other sources. The debt 
service in 1999 amounted to $309 million or 2.5 percent of the GDP, and 
is considered moderate. El Salvador's prudent debt policies have been 
recognized by improved risk ratings on its official debt instruments by 
organizations such as Moody's and Standard and Poor's.
    El Salvador has succeeded in obtaining significant new credits from 
diverse international sources over the last three years. Some $300 
million has been contracted from international institutions and 
governments (Spain, Germany, Japan) for infrastructure works and social 
programs to be undertaken over the next few years. In August 1999, El 
Salvador successfully placed US$150 million in Euro-bonds. The debt 
profile is expected to increase over the next several years as the 
international donor community has pledged 1.26 billion dollars to 
finance El Salvador's reconstruction and modernization.
5. Aid
    Aid grants from the U.S. totaled $56.8 million in 1999. Bilateral 
military assistance (international military and educational training) 
from the U.S. totaled $500,000 in 1998 and $500,000 in 1999.
6. Significant Barriers to U.S. Exports
    There are no legal barriers to U.S. exports of manufactured goods 
or bulk, non-agricultural products to El Salvador. Most U.S. goods face 
tariffs from 0 to 15 percent. The range for category is 0 to 5 percent 
for capital goods, 5 to 10 percent for intermediate products, and up to 
15 percent for final goods. Higher tariffs are applied to automobiles, 
alcoholic beverages, textiles and some luxury items, but the Salvadoran 
government also plans to gradually reduce these tariffs in the near 
future.
    Generally, standards have not been a barrier for the importation of 
U.S. consumer-ready food products. Poultry is the notable exception; 
since 1992, the government has imposed a zero tolerance requirement for 
several common avian diseases such as salmonella, effectively blocking 
all imports of U.S. poultry. The Ministry of Agriculture (MAG) requires 
a salmonella-free certificate showing that the product has been 
approved by U.S. health authorities for public sale. Importers may also 
be required to deliver samples for laboratory testing, but this 
requirement has not been enforced. However, lately MAG is requesting 
plant inspections at origin to allow imports of various food products 
into the local market. The cost for this procedure has to be paid by 
the exporter or the local agent/distributor. A sanitary certificate 
must accompany all fresh food, agricultural commodities and live 
animals. Basic grains and dairy products also must have import 
licenses. Authorities have not enforced the Spanish language-labeling 
requirement.
    El Salvador is a member of the WTO and expects to implement a full 
range of its Uruguay round commitments on schedule. The government is 
an active participant in the Summit of the Americas/Free Trade of the 
Americas process. The country is a member of the Central American 
common market, and together with Guatemala and Honduras, is negotiating 
a free trade agreement with Mexico. A free trade agreement is being 
negotiated with Chile, and limited scope free trade agreement has been 
signed with the Dominican Republic.
    El Salvador officially promotes foreign investment in virtually all 
sectors of the economy. Foreign investment laws allow unlimited 
remittance of net profits, except for services where the law allows 50 
percent. No restrictions exist on establishing foreign banks or 
branches of foreign banks in El Salvador. Recently, the legislative 
assembly approved a new more open and modern investment promotion law, 
as well as a new banking law.
7. Export Subsidies Policies
    El Salvador does not employ direct export subsidies. It offers a 6 
percent rebate to exporters of non-traditional goods based on the fob 
value of the export, but some exporters have found it difficult to 
collect. Free trade zone operations are not eligible for the rebate but 
enjoy a 10-year exemption from income tax as well as duty-free import 
privileges.
8. Protection of U.S. Intellectual Property
    El Salvador belongs to the World Trade Organization (WTO) and the 
World Intellectual Property Organization (WIPO), and is a signatory to 
the Paris Convention, Bern Convention, Rome Convention, Phonograms 
Convention, and the Nairobi Treaty.
    In 1998 and 1999, the intellectual property office of the attorney 
general's office took strong enforcement measures against IPR violators 
in a number of areas including, videos and music cassettes, medicines, 
and clothing. Starting in 1999, officials began raids on software 
pirates.
    El Salvador's current law protecting intellectual property rights 
took effect in October 1994. This law, along with El Salvador's 
acceptance of TRIPS disciplines, addresses several weak areas. Patent 
terms were extended to 20 years, and the definition of patentability 
was broadened. Compulsory licensing applies only in cases of a national 
emergency. Computer software is protected, as are trade secrets.
    Trademarks are still regulated by the Central American Convention 
for the Protection of Industrial Property. It is an occasional practice 
to license a famous trademark and then seek to profit by selling it 
when the legitimate owner wants to do business in El Salvador. In 
November 1994, El Salvador signed an amended version of the convention, 
which, among other things, would address this issue. The revised 
convention will take effect upon ratification by three of the 
participating Central American governments. According to Salvadoran 
government officials, they are working on a draft for a separate 
semiconductor chip law.
    With international funding, the government is completing a 
comprehensive reorganization of its antiquated national registry 
office. The registration process has been simplified and computerized, 
and significant progress is being made in reducing backlogs and 
adjudicating disputes.
9. Worker Rights
    a. Right of Association: The constitution prohibits the government 
from engaging in antiunion actions against workers trying to organize 
and the 1994 labor code streamlined the process required to form a 
union in the private sector. Unions and strikes are legal only in the 
private sector. Employees of autonomous public agencies may form unions 
but not strike. Nevertheless, many workers including those in the 
public sector form employee associations that frequently carried out 
strikes that, while technically illegal, were treated as legitimate. 
Approximately 20 percent of the workforce are members of unions, public 
employees associations, or peasant organizations.
    b. The Right to Organize and Bargain Collectively: The constitution 
prohibits the government from using nationality, race, sex, creed, or 
political philosophy as a means to prevent workers or employees from 
organizing themselves into unions or associations. In practice, the 
government has generally respected this right. El Salvador has a small 
organized labor sector with approximately 150 active unions, public 
employee associations, and peasant organizations, representing over 
300,000 citizens, or 20 percent of the total work force. By law, only 
private sector workers have the right to organize unions and strike. 
Some employees of autonomous public agencies may form unions if they 
don't deal with essential services. Public employees may form employee 
associations, but are prohibited from striking. In fact, some of El 
Salvador's most powerful labor groups are public employees 
associations, which take on the same responsibility as unions--
including calling technically illegal strikes and collective 
bargaining. The government negotiates with these associations and 
generally treat strikes as legitimate, although the labor code mandates 
arbitration of public sector disputes. The constitution and the labor 
code provide for collective bargaining rights, but only to employees in 
the private sector and in autonomous government agencies. In fact, both 
private sector unions (by law) and public sector employee associations 
(in practice) use collective bargaining.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor, except in the case of calamity 
and other instances specified by law. This provision is followed in 
practice. Although not specifically prohibited, forced and bonded labor 
by children are covered by the general prohibition, and there were no 
reports of its use in the formal sector. However, there is strong 
evidence that minors are forced into prostitution.
    d. Minimum Age for Employment of Children: The constitution 
prohibits the employment of children under the age of fourteen. The 
labor code specifically prohibits forced and bonded labor in general, 
but does not specifically cover children. Minors fourteen or older may 
receive special labor ministry permission to work, but only where such 
employment is absolutely indispensable to the sustenance of the minor 
and his family. This is most often the case with children of peasant 
families who traditionally work during planting and harvesting seasons. 
Child labor is not usually found in the industrial sector. Those legal 
workers under the age of eighteen have special additional rules 
governing conditions of work.
    e. Acceptable Conditions of Work: The minimum wage was increased by 
10 percent in 1998. Effective April 1998, the minimum wage is $4.80 (42 
colones) per day, for commercial, industrial, and service employees. It 
had remained at $4.40 (38.50 colones) per day since 1995. For 
agricultural workers, it was raised to $2.47 from $2.26, plus a food 
allowance, per day. Minimum wage for workers at coffee mills was 
increased to $3.56 from $3.30 per day, and for sugar mill workers to 
$2.60 from $2.26 per day. The law limits the workday to 6 hours for 
youths between fourteen and eighteen years of age and 8 hours for 
adults, and it mandates premium pay for longer hours. The labor code 
sets a maximum normal workweek of 36 hours for youths and 44 hours for 
adults.
    f. Rights in Sectors with U.S. Investment: U.S. investment in El 
Salvador has increased in recent years, especially in the energy and 
financial sectors. The labor laws apply equally to all sectors, 
including the so-called ``maquilas'' or free trade zones (FTZ). During 
the last few years, most FTZ companies have accepted the provisions of 
voluntary codes of conduct from their parent corporations or U.S. 
purchasers. These codes include worker rights protection clauses. In 
April 1997, the Salvadoran Apparel Industry Association (ASIC) 
announced an industry wide code of conduct, currently being 
implemented, with worker rights protection. The great majority of 
workers in the FTZs receive much better salaries and working conditions 
than are offered elsewhere in the private sector. Nevertheless, there 
were credible reports of factories dismissing union organizers. In 
addition, accusations persist of some companies abusing their workers. 
This year, the labor ministry increased the number of inspectors and 
inspections, improved the professional training of the inspector corps, 
and made a better effort to follow up on such complaints.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  194
Total Manufacturing............  ..............  26
  Food & Kindred Products......  10              ...............................................................
  Chemicals & Allied Products..  12              ...............................................................
  Primary & Fabricated Metals..  13              ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          -15             ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  6               ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  18
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  8
Other Industries...............  ..............  169
Total All Industries...........  ..............  599
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               GUATEMALA


                       Key Economic Indicators \1\
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998      1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................    17,427    19,016    17,826
  Real GDP Growth (pct)...................       4.3       4.7       3.5
  GDP by Sector (pct):
    Agriculture...........................        24        24        23
    Manufacturing.........................        21        21        21
    Services..............................        47        47        47
    Government............................         8         8         8
  Per Capita GDP (US$) \2\................     1,603     1,793     1,635
  Labor Force (000's) \3\.................     3,320     3,416     4,208
  Unemployment Rate (pct) \4\.............       5.2       5.2       5.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      21.2      14.4      10.0
  Consumer Price Inflation \5\............       7.1       7.4       5.0
  Exchange Rate (Quetzal/US$ annual
 average)
    Financial Market Rate (1999 data is         6.10      6.40      7.50
     Unofficial Embassy estimate).........

Balance of Payments and Trade:
  Total Exports FOB \6\...................     2,391     2,562     2,262
    Exports to U.S........................       840       837       742
  Total Imports CIF \6\...................     3,852     4,651     4,409
    Imports from U.S......................     1,585     1,931     1,767
  Trade Balance \6\.......................    -1,461    -2,089    -2,147
    Balance with U.S.\6\..................      -745    -1,094    -1,025
  External Public Debt \7\................     2,200     2,368     2,600
  Fiscal Deficit/GDP (pct) \7\............       1.0       2.9       3.0
  Current Account Deficit/GDP (pct) \7\...       3.6       5.4       5.4
  Debt Service Payments/GDP (pct) \7\.....       2.4       3.0       2.4
  Gold and Foreign Exchange Reserves
    (Millions Net) \7\....................     1,100     1,400     1,100
  Aid from U.S............................        64        77
  Aid from Other Sources..................       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available data in October.
\2\ Depreciation of local currency results in apparent decline in GDP
  expressed in U.S. Dollars.
\3\ 1999 Labor Force Data from 1999 Survey of Family Income and
  Expenditures.
\4\ Does not reflect estimated 40 to 50 percent underemployment.
\5\ The official CPI is not regarded as an accurate measure of price
  movements.
\6\ Merchandise trade data from Guatemalan customs and central bank.
  Trade data does not include approximately $250 million in value added
  by the apparel assembly industry.
\7\ Data from the Guatemalan government's preliminary 2000 budget
  projection and Guatemala's Central Bank.

1. General Policy Framework
    Since assuming office in January 1996, the Arzu administration and 
the National Advancement Party (PAN), which has a majority in the 
legislature, have worked to implement a program of economic 
liberalization and to modernize the state. Signing of the final Peace 
Accord in December 1996, which ended Guatemala's 36-year armed internal 
conflict, removed a major obstacle to foreign investment. Among the 
government's remaining challenges, however, are the need to address the 
fiscal deficit, the elimination of bureaucratic inefficiency as well as 
private and government corruption, development of physical 
infrastructure and human capital, improvement in internal security and 
justice, and designing policies that promote sustained macroeconomic 
stability.
    Guatemala's economy, the largest in Central America, is generally 
open, though the lack of transparency and bureaucratic complexity often 
make it difficult for foreigners to compete on an equal footing. For 
the last three years, real GDP growth has averaged about 4.0 percent, 
and population growth about 2.9 percent annually. Insufficient 
investment in education, health care, telecommunications, and 
transportation constrain the more rapid development of Guatemala's 
economy. The telecommunications sector and key elements of the 
electricity industry have been privatized and the government has 
awarded concessions for operation of the railroad and the postal 
service. Concessions to expand and operate the country's two state-
owned sea ports and two international airports will be offered early in 
2000. In July 1995, Guatemala became a member of the WTO.
    Agriculture and commerce are the dominant economic activities, each 
contributing approximately 25 percent of GDP; manufacturing accounts 
for 15 percent of GDP. The agricultural sector accounts for two thirds 
of exports and about 40 percent of all employment, though there is much 
underemployment in all sectors. Activity in the agricultural sector is 
concentrated in production of the traditional products of coffee, 
sugar, and bananas. Non-traditional agricultural exports, e.g., 
specialty vegetables and fruits, berries, shrimp, and ornamental plants 
and flowers, account for an increasing share of export revenues. Other 
non-traditional industries that have experienced recent growth and have 
favorable prospects are apparel assembly for export and tourism. 
Remittances from abroad, which the Guatemalan Government estimates at 
between $450-500 million per year, are a significant source of foreign 
exchange.
    Though tax revenues have historically been less than 8 percent of 
GDP, the government is committed to increasing tax revenues to 12 
percent of GDP by the year 2002 to fund social and economic development 
projects related to the Peace Accords. Tax revenues in 1999 will 
nonetheless fall short of 10 percent of GDP. Beginning in 1994, the 
central bank (Bank of Guatemala) was prohibited from financing the 
government's budget deficit, forcing the government to issue treasury 
bonds, most of which were short-term. In 1996, the government began 
issuing securities for longer terms (up to 5 and 10 years), including 
several dollar-denominated issues placed on the international market at 
lower rates of interest than offered on local currency denominated 
bonds.
    Several placements of dollar-denominated government securities were 
issued in 1999 to finance part of the budget deficit. The central bank 
and treasury also issued short-term notes to absorb excess liquidity 
and reduce consumption demand. The resulting higher interest rates 
curtailed capital flight and relieved some of the pressure on the 
foreign exchange market, but relatively high commercial bank lending 
rates have discouraged productive investment and retarded growth. 
However, despite increased reliance upon dollar-denominated instruments 
that carry lower coupon rates than notes denominated in local currency, 
debt service costs will increase in 2000 as a result of both higher 
debt and the depreciation of the local currency.
2. Exchange Rate Policy
    Guatemala's trade deficit and capital flight have put pressure on 
the foreign exchange market. Though Guatemala sold an additional $400 
million in foreign reserves in 1999, the local currency still 
depreciated by approximately 13 percent. Access to foreign exchange is 
unrestricted and there are no reports of foreign exchange shortages.
    Though the government in 1998 passed legislation to permit banks 
and financial institutions to offer dollar-denominated accounts, 
enabling regulations have not been issued. A number of local banks 
currently offer dollar denominated accounts in which the funds are 
actually held in offshore accounts.
3. Structural Policies
    As part of the Peace Process, the government is committed to 
increasing spending on social welfare programs, infrastructure 
expansion, and economic development programs. Though much of the 
financing for this additional spending will come from grants and loans 
provided by the international donor community, Guatemala must generate 
significant internal resources to complement foreign grants and lending 
to fund these expenditures. The recently created Tax Administration 
Superintendency has increased compliance, but it is highly doubtful 
that revenue targets can be met without broadening the tax base or 
introducing new taxes.
    Ninety percent of the government's current income is from taxes. 
Indirect taxes, primarily the value-added tax and duties, account for 
80 percent of all tax revenues. Personal income taxes account for less 
than two percent of all tax revenues. Guatemala received over $500 
million from the sale of the state-owned electricity company in 1998 
and will receive an additional $500 million over the next three years 
from the 1998 sale of the telephone company. Though these funds were 
earmarked for retirement of public debt and for investment in 
infrastructure, no appropriations or expenditures have been made thus 
far.
4. Debt Management Policies
    Guatemala's 1999 budget will be in deficit by about 2.9 percent of 
GDP. Despite inclusion of extraordinary capital income from the sale of 
state-owned assets, the FY 2000 budget projects a deficit of 
approximately $511 million, or approximately 3.0 percent of GDP. This 
deficit will be financed through a combination of internal borrowing, 
foreign borrowing, and loans from foreign governments and international 
lending agencies. Guatemala's total public debt at the end of 1999 will 
be approximately $3.4 billion, of which $900 million is internally held 
and $2.5 billion is foreign debt.
    Guatemala has successfully converted some domestic debt from short 
term, high-interest instruments to longer-term, lower interest debt, 
including dollar-denominated commercial debt. The FY 2000 budget calls 
for appropriation of $410 million for debt service. Guatemala is 
current in its payments on both U.S. and other foreign debt.
5. Aid
    Total foreign donations anticipated in the 2000 budget are 
approximately $54 million. However, the budget only includes funds 
already pledged and programmed. Actual financial assistance is usually 
significantly higher than as stated in the preliminary budget document.
6. Significant Barriers to U.S. Exports
    Guatemala applies the common external tariff schedule of the 
Central American Common Market, which has a range of from zero to 15 
percent for nearly all agricultural and industrial goods. Exceptions 
include milk products other than powdered milk, on which tariffs were 
sharply increased in 1999, and agricultural commodity imports in excess 
of their Tariff Rate Quotas (TRQ).
    Guatemala, in compliance with its WTO obligations, created TRQs for 
rice, corn, wheat and wheat flour, apples, pears, poultry and beef. The 
Ministry of Economy has implemented a new import policy for poultry 
that enlarges the TRQ to the level of Guatemala's final WTO commitment 
and reduces the in-quota tariff. However, all poultry parts are valued 
at a minimum of 56 cents/pound for customs purposes, significantly 
increasing the effective tariff rate and the cost of imported poultry 
products. Guatemala's current import tariff rates for agricultural 
products are below the WTO tariff bindings.
    Imported processed foods must be registered with the Ministry of 
Health by each individual importer. However, importers have the option 
of joining an association of importers and paying a fee for the use of 
other members' registrations. Processed foods must also be labeled in 
Spanish. Enforcement of this requirement has been lax, though 
compliance is increasing. Full enforcement could significantly impact 
imports from the United States.
    Sanitary and phytosanitary licenses are required for all imports of 
animal origin, and plants and vegetables. Inspection of the processing 
plant in the country of origin, at the importers' expense, is 
technically required for the license; however, implementation has been 
uneven, limiting trade disruption.
    Importers should be aware that manifests require consular 
certification, an administrative process that can be time consuming. 
Delays in obtaining certification have resulted in some losses to 
shipments of perishables. Guatemala has also contracted with a private 
import verification service to assess the value of exports to 
Guatemala, a process that will impose additional administrative 
procedures on U.S. exporters. Imports are not generally subject to non-
tariff trade barriers, though arbitrary customs valuation and excessive 
bureaucracy occasionally create delays and complicate the importation 
process.
    Some restrictions remain on foreign investment, but foreign 
investors generally receive national treatment. Subsurface minerals, 
petroleum, and other resources are property of the state and 
concessions are typically granted in the form of production-sharing 
contracts.
    Surface transportation is limited to companies with at least 51 
percent Guatemalan ownership. Foreign firms are barred from directly 
selling insurance or providing legal, accounting or other licensed 
professional services. This hurdle can be overcome by establishing a 
locally incorporated subsidiary or through a correspondent relationship 
with a local firm. Most of the major U.S. accounting firms, for 
example, are represented through one of these methods.
7. Export Subsidies Policies
    There are no export subsidies.
8. Protection of U.S. Intellectual Property
    Guatemala belongs to the World Trade Organization (WTO) and the 
World Intellectual Property Organization (WIPO). It is also a signatory 
to the Paris Convention, Bern Convention, Rome Convention, Phonograms 
Convention, and the Nairobi Treaty. Nevertheless, in 1999, the U.S. 
Trade Representative placed Guatemala on the ``Special 301'' Priority 
Watch List.
    The protection provided to intellectual property rights (IPR) 
holders is inadequate. Enforcement mechanisms are generally lacking, a 
poorly trained judiciary is slow to provide relief, and penalties are 
insufficient to dissuade IPR infringement. Although Guatemala passed a 
new Copyright Law in 1998, there have been no prosecutions. Local cable 
television companies have reduced their broadcasts of unauthorized 
programming considerably, and video piracy has diminished, but U.S. 
industry still suffers significant losses. Piracy, reproduction, and 
sale of computer software programs are also common.
    Patents: Guatemala's Patent Law is outdated. It does not protect 
mathematical methods, living organisms, commercial plans, surgical, 
therapeutic or diagnostic methods, or chemical compounds or 
compositions. Protection is limited to 15 years (10 years for the 
production of food, beverages, medicines, and agrochemicals), and is 
subject to compulsory licensing provisions and local exploitation 
requirements. Patent rights do not extend to any action executed in the 
pursuit of education, research, experimentation, or investigation. 
Patent rights do not preclude the importation of counterfeit goods 
unless the product is being produced in Guatemala. Protection lapses 
six years from the date of the patent if the product is not being 
produced locally.
    Trademarks: Guatemalan law does not provide sufficient protection 
against counterfeiting or misuse of trademarks, and the right to 
exclusive use is granted to the first to file. There is no requirement 
for use, nor any cancellation process for non-use. Firms whose 
trademarks have been registered by third parties often complain that 
legal remedies are slow and inadequate. Businesses whose trademark has 
been registered by another party are often forced either to buy out 
that party or pay a fee for use.
    The lack of protection of intellectual property rights is a 
significant barrier to trade and investment. Industry estimates that 85 
percent of all software used in Guatemala, including applications used 
by government agencies, are unlicensed or unauthorized copies. The lack 
of protection for well-known trademarks denies access to the Guatemalan 
market by legitimate rights-holders and is a disincentive to 
investment.
9. Worker Rights
    a. The Right of Association: This right is guaranteed by the 
constitution, though less than eight percent of the labor force is 
unionized. There are more than 1300 unions, the majority of which are 
private sector unions. The Ministry of Labor has significantly 
simplified and accelerated the process of obtaining legal authorization 
to form a union. This procedure now takes 23 working days. Significant 
changes were made in 1993 to modernize the Labor Code. In addition, the 
process for resolving ``workplace'' disputes has been decentralized 
with the opening of 21 branch offices of labor inspectors.
    b. The Right to Organize and Bargain Collectively: The Labor Code 
allows collective bargaining if at least 25 percent of a company's 
employees are union members. Anti-union practices, including 
discharging workers for attempting to organize a union, are legally 
forbidden. However, despite a major increase in the number of labor 
inspectors and inspections, enforcement of labor laws depends on an 
overloaded and inefficient labor court system. As a result, violations 
of worker rights are not always punished. The labor movement remains 
fractious. A widespread, historical distrust of unions by both 
employers and many workers, as well high rates of unemployment and 
underemployment, combine to make organizing and collective bargaining 
difficult.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced labor. Labor for prisoners with sentences of more than 
two years is obligatory, but this labor may not be used as punishment 
for expression of political or other opinions, or as a method of 
political reeducation.
    d. Minimum Age for Employment of Children: By law, children under 
the age of 14 may work only with written permission of their parents, 
certified by the Ministry of Labor. Though there are currently fewer 
than 5,000 such permits, tens of thousands of children under 14 work in 
both the formal sector, including agriculture, and the informal sector, 
generally in family enterprises. The Ministry of Labor, the Guatemalan 
Social Security Institute, the U.N. and various non-governmental 
organizations conduct programs aimed at reducing illegal child labor 
educating minors about their rights as workers.
    e. Acceptable Conditions of Work: The constitution provides for a 
44-hour normal work week and the average number of hours worked is 
42.5. Occupational safety and health regulations exist but often are 
not strictly enforced. The minimum wage is far below the level 
necessary to support an urban family of four, though many urban workers 
earn two or three times this amount; however, not all workers are paid 
the legally-mandated minimum wage.
    f. Rights in Sectors with U.S. Investment: Generally, international 
corporations adhere to the labor code and respect worker rights. There 
have been some complaints about treatment of workers in garment 
assembly factories (maquilas), especially in some of those operated by 
Koreans. However, observation of and respect for worker rights has 
improved in this sector recently, due both to increased publicity and 
also to cooperation between the Ministry of Labor and the Republic of 
Korea's Ambassador.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  191
  Food & Kindred Products......  83              ...............................................................
  Chemicals & Allied Products..  58              ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  48              ...............................................................
Wholesale Trade................  ..............  26
Banking........................  ..............  5
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  5
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  429
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosure of data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 HAITI


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP \2\.................................      3429      3800    4115.4
  Real GDP Growth (pct) \3\...............       1.1       2.9      2.26
  GDP by Sector:
    Agriculture...........................      -2.4       0.5       2.5
    Manufacturing.........................       0.6       5.5       1.2
    Services..............................       0.5       1.2       2.4
    Government............................      -0.2       N/A       N/A
  Per Capita GDP (US$)....................       458       497       506
  Labor Force (000's).....................     4,100     4,290      4380
  Unemployment Rate (pct).................        65        70        70

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      21.7       7.0      14.7
  Consumer Price Inflation................      17.0       8.2       9.9
  Exchange Rate (Gourde/US$ annual
 average)
    Market................................      16.9      16.8     16.94

Balance of Payments and Trade: \4\
  Total Exports FOB \5\...................     195.5     284.3     353.4
    Exports to U.S.\6\....................       188       210       N/A
  Total Imports FOB \5\...................     588.8    -659.8    -772.9
    Imports from U.S.\6\..................       512       515       N/A
  Trade Balance \5\.......................    -393.3    -375.5    -419.5
    Balance with U.S.\6\..................      -324      -305       N/A
  Current Account Deficit/GDP (pct).......       2.9       5.8       6.3
  External Public Debt....................      1025      1086      1140
  Debt Service Payments/GDP (pct).........       0.9       1.2      0.62
  Fiscal Deficit/GDP (pct)................       0.5       1.1       1.7
  Gold and Foreign Exchange Reserves (net)     162.5     194.8     218.3
  Aid from U.S.\7\........................       145       N/A       N/A
  Aid from All Other Sources..............       428       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  November. Fiscal year is October-September. Fiscal year data used
  because calendar year data is unavailable in many cases.
\2\ GDP at factor cost at 1976 prices.
\3\ Percentage changes calculated in local currency.
\4\ US and Haitian import/export data may vary as a result of different
  statistical practices. Data in Haiti are not reliable. Technical
  assistance is being provided to the Haitian Government to improve data
  collection procedures.
\5\ Merchandise trade for calendar year; does not include U.S. goods
  imported for processing and re-exported under the Caribbean Basin
  Initiative.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1998 figures are estimates based on data
  available through November. Figures include substantial amounts of
  U.S. goods imported for processing and re-exported under Caribbean
  Basin Initiative.
\7\ New commitments; USAID includes program assistance, budget support,
  and support for peacekeeping operations and police.

Sources: Various, including IMF. Where several data sets existed we have
  used those numbers provided by USAID.

1. General Policy Framework
    Haiti has a predominantly agriculture-based, market-oriented 
economy. Historically, Haiti's economic performance has been strongly 
influenced by the United States, its principal trading partner and 
largest bilateral aid contributor. Following the restoration of 
President Jean-Bertrand Aristide on October 15, 1994, Haiti embarked on 
an economic program based on macroeconomic stabilization, trade 
liberalization, privatization, civil service reform, and 
decentralization. The government reduced tariffs to a maximum of 15 
percent.
    In 1995, the Aristide government began to slip on its commitments 
to international financial institutions. Inadequate implementation of 
privatization, civil service reform, and other structural reforms tied 
to loans from the IMF and World Bank thwarted a scheduled signing of 
the Structural Adjustment Credit and the Enhanced Structural Adjustment 
Facility, and prompted the resignation of Prime Minister Smarck Michel.
    President Rene Preval took office in March 1996 and immediately 
moved to implement the structural adjustment program. The government 
proceeded to control expenditures and eliminate some 1,500 ``ghost 
employees.'' By September, parliament passed civil service reform 
legislation and a modernization law to enable the government to proceed 
with privatization through the granting of management contracts, 
concessions, or ``recapitalizations'' (the forming of joint ventures 
with private investors through partial divestitures of state-owned 
enterprises). By mid-September of 1998, a total of nearly 2,250 
``ghost'' employees had been removed from the government payroll, 
saving the Haitian treasury $5.9 million per year. A further 2,000 
people have been processed by the government for early retirement or 
voluntary departure.
    However, by late 1999 the government appeared to have slipped from 
its commitments both to privatization and to civil service reform. 
Although almost 5000 employees had been removed from government 
payrolls by the end of 1998, by July 1999 government expenditures on 
salaries had crept back to July 1998 levels, and hiring was on the 
rise. Further, only the two least complicated of a planned seven 
privatizations had taken place. With legislative elections slated for 
March 2000, followed by presidential elections late in the year, the 
chance of forward progress on privatization appears remote despite 
government promises to the contrary.
    The government maintained reasonably strict macroeconomic 
discipline during 1999. GDP growth hovered around 3 percent for both 
1998 and 1999. Inflation fell from 18 percent in 1997 to 7 percent in 
1998. By late 1999, inflation had crept past 9 percent and the 
previously stable gourde had begun to slip against the dollar. The 
triple pillars of international aid, remittances from the approximately 
one million Haitians living abroad and, increasingly, narcotics 
trafficking continue to prop up Haiti's economy.
    Reserve requirements (which currently stand at 30 percent for 
primary reserves) have been the central bank's primary monetary policy 
tool. They have been used to control the money supply and to assist in 
the financing of the public sector debt. Since November 1996, the 
central bank has successfully conducted bond auctions to control 
liquidity in the economy, which allow for lower reserve requirements. 
The central bank has a rediscount facility and a lending facility for 
commercial banks. Use of the rediscount facility has been limited by a 
lack of eligible financial paper to rediscount. Use of the lending 
facility has been limited by the relatively high interest rate charged 
(usually the legal maximum), and low legal limits relative to bank 
capital on the amounts commercial banks can borrow. An interbank market 
also exists.
2. Exchange Rate Policy
    For decades Haiti's currency, the gourde, was officially tied to 
the U.S. Dollar at the rate of five to one. A parallel market for 
foreign exchange emerged in the early 1980s, but for several years the 
official exchange rate continued to hold for some transactions. On 
September 16, 1991, the central bank ceased all operations at the 
official rate. In April 1995, the central bank abolished the 40 percent 
surrender requirement of export earnings. Haiti now has no exchange 
controls or restrictions on capital movements. Dollar accounts are 
available at local commercial banks. The gourde is allowed to float 
freely relative to the dollar and other currencies. The exchange rate 
gently declined from 15.5 to 17 gourdes per dollar during FY 97 and 
remained between 16 and 17 gourdes per dollar throughout 1998 and most 
of 1999. By late 1999, the gourde had slipped to 18 and appeared poised 
to slip further. Some critics of tight central bank monetary policy, 
particularly in the banking and export sectors, feel the gourde has 
become overvalued and might face swifter depreciation in the future. 
This and a possible increase in government spending during an election 
year may precipitate further exchange rate declines during 2000.
3. Structural Policies
    The government's role in Haiti's market-oriented economy has been 
sharply reduced since 1994-95. In the few cases where the government 
has attempted to control prices or supplies, its efforts were 
frequently undercut by contraband or overwhelmed by the sheer number of 
small retailers. Consumer prices are governed by supply and demand, 
though the small Haitian market is imperfect for determining some 
prices. Gasoline pump prices and utility rates are more effectively 
regulated, and are probably the only exceptions to market prices. 
Haitian law adjusts gasoline pump prices within a pre-determined band 
to reflect changes in world petroleum prices and exchange rate 
movements. High international market prices in late 1999 are forcing 
the GOH to consider raising the band and hence the final pump price. 
Prices in late 1999 effectively have the GOH subsidizing the cost of 
kerosene.
    Haiti's tax system is inefficient. Direct taxes on salary and wages 
represent only about 25 percent of receipts. Moreover, tax evasion is 
widespread and taxpayers were previously not registered with the tax 
bureau, Direction Generale des Impots (DGI). Not surprisingly, the 
government has made improved revenue collection a top priority. The DGI 
has organized a large taxpayers' unit which focuses on identifying and 
collecting the tax liabilities of the 200 largest corporate and 
individual taxpayers in the Port au Prince area, which are estimated to 
represent over 80 percent of potential income tax revenue. In mid-1999, 
the GOH created a State Secretary for Revenue to coordinate and oversee 
both Customs and DGI operations with a view toward increasing receipts 
from each. Efforts were also made to identify and register all 
taxpayers through the issuance of a citizen taxpayer ID card. In 
addition, the value added tax has been extended to include sectors 
previously exempt (banking services, agribusiness, and the supply of 
water and electricity). Both DGI and Customs made revenue collection a 
priority in 1999 and have continued to increase revenues. Nevertheless, 
in general, collection remains sporadic and inefficient.
4. Debt Management Policies
    Following the 1991 coup which ousted President Aristide, Haiti 
suspended all payments on its foreign debt. When President Aristide 
returned to office in October 1994, Haiti's arrears with the 
International Financial Institutions (IFIs) totaled some $84 million. 
The international community made it an immediate priority to clear 
Haiti's arrears with IFIs so that new lending could begin.
    On May 30, 1995, the Paris Club agreed to reschedule all of Haiti's 
bilateral debt to Paris Club members. Roughly two-thirds of this debt 
($75 million) was forgiven under ``Naples'' terms. The balance was 
rescheduled over 26-40 years. An overwhelming percentage (91 percent in 
FY 1995, 85 percent in FY 1996) of Haiti's debt is in concessional 
loans from IFIs. These loans typically have 10-year grace periods, 40-
year payback periods, and below-market interest rates.
    Haiti's external public debt rose to about 28.7 percent of GDP in 
FY 98 (from 34 percent at the end of FY 96). Haiti's external debt 
service has risen to about 8.4 percent of exports of goods and services 
in 1998 from 12 percent a year earlier. Final FY 99 figures are not yet 
available. With continued progress on economic reform and a modest debt 
service burden, GOH officials believe the country should be able to 
meet all its obligations in a timely manner.
5. Significant Barriers to U.S. Exports
    With the lifting of all economic sanctions against Haiti, the sharp 
reduction in tariffs, and the government's decision to remove all 
import licenses and the 40 percent foreign exchange surrender 
requirement on export earnings, there are few significant barriers to 
U.S. exports. Nevertheless, a number of fees and taxes continue to be 
levied on commodities imported into Haiti (i.e. verification fee, 
excise tax, etc.) The resumption of normal trade in October 1995 
unleashed tremendous pent-up demand for U.S. goods. While the demand 
for U.S. goods remained strong in 1999, political and economic 
uncertainty significantly constrained growth. The import of firearms 
and other weapons into Haiti is controlled for foreign policy reasons. 
Haitian importers must obtain a license to purchase such goods from 
U.S. suppliers. Haiti's efforts to facilitate inward investment are 
insufficient to significantly draw all but the most intrepid foreign 
investors. The newly founded, Taiwan-financed Center for Promotion of 
Investment hopes to address the problems Haiti has had in promoting 
investment and exports.
6. Export Subsidies Policies
    Haiti has no export subsidy programs.
7. Protection of U.S. Intellectual Property
    While infringement of intellectual property rights occurs in Haiti, 
the economy only produces a small variety of products, most of which 
are for export to the United States and other countries that do not 
tolerate open infringement. Most manufactured goods sold here are 
imported. The most recent example of intellectual property rights 
infringement was the broadcast of a recently released U.S. film on a 
Haitian cable TV station last year. This was taken up with the Haitian 
authorities and has not happened again. Pirated video and audio 
cassettes are widely available and of poor quality.
    Although the legal system affords protection of intellectual 
property rights, weak enforcement mechanisms, inefficient courts, and 
poor judicial knowledge of commercial law dilute the effectiveness of 
this statutory protection. Moreover, injunctive relief is not available 
in Haiti, so the only way to force compliance (should it become 
necessary) is to jail the offender. Efforts to reform and improve the 
Haitian legal system, now being undertaken with the assistance of 
international advisors, may prevent more extensive abuse of 
intellectual property rights as Haiti's economic recovery progresses. 
The Ministry of Commerce is working on legislation to protect 
intellectual property rights.
    Haiti is signatory to the Buenos Aires Convention of 1910 and the 
Paris Convention of 1883 with regard to patents, and to the Madrid 
Agreement with regard to trademarks, and is a member of the World 
Intellectual Property Organization. However, Haiti is not a signatory 
to the Berne Convention.
8. Worker Rights
    a. The Right of Association: The constitution and the labor code 
guarantee the right of association and provide workers, including those 
in the public sector, the right to form and join unions without prior 
government authorization. The law protects union activities, while 
prohibiting closed ``union shops.'' The law also requires unions, which 
must have a minimum of ten members, to register with the Ministry of 
Social Affairs within 60 days of their formation.
    Six principal labor federations represent about five percent of the 
total labor force, including about two to three percent of labor in the 
industrial sector. Each maintains some fraternal relations with various 
international labor organizations.
    b. The Right to Organize and Bargain Collectively: The labor code 
protects trade union organizing activities and stipulates fines for 
those who interfere with this right. Unions are theoretically free to 
pursue their goals, although government efforts to enforce the law are 
non-existent. Unions complain that employers do not allow unions access 
to workers, and individuals who attempt to join unions risk being 
fired. Organized labor activity is concentrated in the Port-au-Prince 
area, in state enterprises, the civil service, and the assembly sector. 
The high unemployment rate and anti-union sentiment among some factory 
workers has limited the success of union organizing efforts. Collective 
bargaining is nearly nonexistent, especially in the private sector. 
Employers can generally set wages unilaterally, in compliance with 
minimum wage (currently approximately $2 per day) and overtime 
standards.
    Haiti has no export processing zones, and the labor code does not 
distinguish between industries producing for the local market and those 
producing for export. Employees in the export-oriented assembly sector 
enjoy wages and benefits above the legal minimums, largely through 
piecework. Wages appear to be somewhat higher in the more capital-
intensive industries producing for the local market.
    c. Prohibition of Forced or Compulsory Labor: The labor code 
prohibits forced or compulsory labor. However, some children continue 
to be subjected to unremunerated labor as domestic servants. Rural 
families are often too large for the adult members to support, and 
children are sometimes sent to work for urban families in exchange for 
room, board and schooling. Reports of abuse are common, but the 
Ministry of Social Affairs rarely exercises its authority to remove 
children from abusive situations.
    d. Minimum Age for Employment of Children: The minimum employment 
age in all sectors is 15 years. Fierce adult competition for jobs 
ensures that child labor is not a factor in the industrial sector. As 
in other developing countries, rural families in Haiti often rely on 
their children's contribution of labor in subsistence agriculture. 
Children under 15 commonly work at informal sector jobs to supplement 
family income.
    e. Acceptable Conditions of Work: Annually, a minimum wage worker 
earns about $670, an income considerably above the per capita gross 
domestic product, but sufficient only to permit the family to live in 
very poor conditions. The majority of Haitians work in subsistence 
agriculture, a sector where minimum wage legislation does not apply.
    The labor code governs individual employment contracts. It sets the 
standard workday at 8 hours, and the workweek at 48 hours, with 24 
hours of rest on Sunday.
    The code also establishes minimum health and safety regulations. 
The industrial and assembly sectors largely observe these guidelines. 
The Ministry of Social Affairs does not, however, effectively enforce 
work hours or health and safety regulations.
    With more than 50 percent and possibly 75 percent of the active 
population unemployed or underemployed, workers are often not able to 
exercise the right to remove themselves from dangerous work situations 
without jeopardy to continued employment.
    f. Rights in Sectors with U.S. Investment: U.S. direct investment 
in goods-producing sectors in Haiti is limited, consisting of ownership 
of two garment factories and a very few joint ventures. In general, 
conditions differ little from other sectors of the economy. Wages paid 
in these industries tend to be above the legal minimum, and in the case 
of industries producing for the local market, often a multiple of the 
legal minimum. Employers in these sectors frequently offer more 
benefits than the average Haitian worker receives, including free 
medical care and basic medications at cost.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  0
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  1
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  32
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                HONDURAS


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (US$) \2\.............       4,386     5,135.0     4,825.0
  Real GDP Growth (pct).............         4.5         3.0        -3.0
  GDP by Sector:
    Agriculture.....................     1,667.0     1,555.1     1,430.7
    Manufacturing...................       935.0       989.0     1,018.7
    Services........................       459.0       475.0       480.7
    Government......................       298.0       318.0       324.4
  Per Capita GDP (US$) \3\..........         808         880         791
  Labor Force (000's)...............     1,955.0     2,040.8     2,299.0
  Unemployment Rate (pct) \4\.......         6.3         6.3        12.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2).................        39.2        18.4         N/A
  Consumer Price Inflation..........        12.8        15.7        11.6
  Exchange Rate (LP/US$ annual
 average)
    Official........................       13.14       13.54       14.56
    Parallel........................       13.05       13.41       14.42

Balance of Payments and Trade:
  Total Exports FOB.................     1,445.7     1,575.0     1,220.7
    Exports to U.S..................       613.6       590.7         N/A
  Total Imports CIF.................     2,148.6     2,499.6     2,828.9
    Imports from U.S................     1,033.0     1,165.8         N/A
  Trade Balance.....................      -702.9      -924.6    -1,608.2
    Trade Balance with U.S..........      -419.4      -575.1         N/A
  Current Account Deficit/GDP (pct).         3.3         0.3         9.4
  External Public Debt..............     3,454.5     3,481.8     4,383.0
  Debt Service Payments/GDP (pct)...        16.6        17.3         N/A
  Fiscal Deficit/GDP (pct)..........         2.6         1.5         N/A
  Gold and Foreign Exchange Reserves         606         670         N/A
  Aid from U.S......................        36.1        36.0   \5\ 555.7
  Aid from Other Countries..........         116         N/A       243.8
------------------------------------------------------------------------
\1\ 1999 figures are estimates based on data available in November.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Includes USAID, Department of Defense, and other agencies' disaster
  relief and reconstruction assistance in response to Hurricane Mitch.

1. General Policy Framework
    Honduras, already one of the poorest countries in the hemisphere, 
with low per capita income and relatively low health and education 
indicators, was struck a devastating blow by Hurricane Mitch. The late 
October 1998 disaster inundated the entire country, resulting in 
massive flooding and landslides that killed over 5,000 people, left 
tens of thousands homeless, caused over US$ 3 billion in destruction, 
seriously damaged the road network, virtually wiped out the important 
banana crop (second largest export), and plunged the country into 
recession. Heavy rain during the 1999 rainy season exacerbated the 
damage.
    Massive international assistance--led by the U.S. at over US$ 550 
million in FY 99--provided emergency relief and is helping Honduras 
rebuild. Many of the homeless have already received new houses in an 
effort led by churches and NGO's. Epidemics have been averted, basic 
services restored, and temporary repairs made. The overall pace of 
reconstruction has been slow due to the Honduran government's lack of 
planning and executive capacity, the slow arrival of international aid, 
and the need to ensure that assistance is not misused.
    Honduras has received significant debt relief in the aftermath of 
Hurricane Mitch, including the suspension of bilateral debt service 
payments and bilateral debt reduction. Honduras will likely qualify for 
multilateral debt reduction as well through the Highly Indebted Poor 
Countries (HIPC) Initiative.
    Honduras continues to maintain macroeconomic stability. After an 
inflationary spike at the end of 1998, inflation is expected to fall to 
less than 12 percent for 1999. The currency (lempira) has only 
moderately devaluated. A widened balance of payments deficit, worsened 
by the Mitch-induced recession with decreased exports (from crop damage 
and low world prices in coffee and bananas) and increased imports (for 
reconstruction), is being covered by international aid, reinsurance 
payments, and increased family remittances. International reserves have 
risen.
    Since 1990, succeeding governments have embarked on economic reform 
programs, dismantling price controls, lowering import tariffs, removing 
non tariff barriers to trade, adopting a free market exchange rate 
regime, removing interest rate controls, and passing legislation 
favorable to foreign investment. Honduras has committed to the 
International Monetary Fund to privatize management of the airports, 
the telephone system, and electricity distribution. Congress passed 
laws in late 1998 to encourage foreign investment in tourism, mining, 
and agriculture. The biggest success story of all has been the growth 
of the maquila industry (with significant U.S. investment), from 
virtually zero in 1989 to over 200 plants in 1999 generating over US$ 
300 million in foreign exchange and employing 110,000 workers. 
Nonetheless, the growth in foreign investment is hampered by a 
politicized judiciary subject to influence, insecure property titles, 
non-transparent bidding procedures, and cumbersome bureaucratic 
procedures.
    Honduras became a founding member of the World Trade Organization 
(WTO) in 1995 and participates in international trade negotiations, 
including those related to the establishment of the Free Trade Area of 
the Americas. A Bilateral Investment Treaty (BIT) was signed in 1995 
and ratified by the Honduran Congress, with ratification pending before 
the U.S. Senate. A bilateral Intellectual Property Rights Agreement was 
negotiated in March 1999. The Honduran Congress passed legislation in 
December 1999 to comply with the WTO's TRIPS agreement.
2. Exchange Rate Policy
    The central bank uses an auction system to regulate the allocation 
of foreign exchange. Dollar purchases, in which foreigners may 
participate, are conducted at 5 to 7 percent above or below the base 
price established every 5 days. During recent auctions, the central 
bank has been adjudicating an average of US$ 8 million daily. Foreign 
exchange demand in 1998 was 96.1 percent covered.
    The Foreign Exchange Repatriation Law passed in September 1990 
requires all Honduran exporters, except those operating in free-trade 
zones and export processing zones, to repatriate 100 percent of their 
export earnings through the commercial banking system. Until recently, 
commercial banks were allowed to use 70 percent of export earnings to 
meet their clients' foreign exchange needs. The other 30 percent had to 
be sold to the central bank at the prevailing interbank rate of 
exchange. Presently, commercial banks are required to sell 100 percent 
of these repatriated earnings to the central bank, which in turn 
auctions up to 60 percent in the open market.
3. Structural Policies
    Trade Policy: In an effort to increase trade and maintain 
competitiveness with its Central American neighbors, in recent years 
Honduras has cut its import duties to between zero and 19 percent for 
most items. Certain sensitive products, such as automobiles, are 
assessed at a higher rate of up to 35 percent. In 1995, Honduras and 
other Central American Common Market (CACM) members agreed to work 
toward the full implementation of a common external tariff ranging from 
zero to 15 percent for most products, but allowed each country to 
determine the timing of the changes. In 1997, tariff rates were reduced 
to one percent on capital goods, medicines and agricultural inputs, and 
on raw materials and inputs produced outside of Central America. 
Honduras also intends to reduce its extra-regional tariffs for 
intermediate and finished goods over the next several years to between 
10 and 17 percent.
    Honduras has sought to expand trade by negotiating, together with 
Guatemala and El Salvador, free trade agreements with other countries. 
Agreements with Mexico and the Dominican Republic are mostly complete 
but are still held up on the status of a few sensitive products. The 
Central Americans are negotiating free trade agreements with Panama and 
Chile and are studying proposals for agreements with the Andean 
Community and Taiwan.
    Pricing Policy: The only items under price control are coffee and 
medicines. The Government of Honduras maintains an informal control 
over prices of certain staple products such as milk, sugar, and cement 
by maintaining unwritten agreements with producers to limit and justify 
increases.
    Tax Policies: President Flores' April 1999 Economic Plan decreased 
the corporate tax rate from 40 percent to 30 percent in 1998 and to 25 
percent in 1999. The sales tax was increased from 7 percent to 12 
percent in June 1998, which helped maintain government revenue in the 
aftermath of Hurricane Mitch despite a sharp drop in economic activity. 
Sales taxes were increased to 15 percent on liquor and tobacco products 
and are even higher on new car purchases. Export taxes on bananas are 
being reduced in stages from 50 cents to four cents a box by the year 
2000. Export taxes on seafood, sugar and live cattle were eliminated in 
1998.
4. Debt Management Policies
    Debt service on Honduras' approximately US$ 4 billion public 
external debt is a major constraint on growth and represented about 35 
percent of the government budget in 1998. In the aftermath of Hurricane 
Mitch, with the consequent drop in revenue and increase in government 
expenditures, the need for debt relief became even more imperative. 
Despite Paris Club Debt Rescheduling Agreements in July 1995 and March 
1996, and over US$ 500 million in bilateral debt forgiveness (including 
US$ 430 million by the U.S. in 1991), Honduras had been unable to 
comply with the goals of the Enhanced Structural Adjustment Facility 
(ESAF) negotiated with the IMF in 1992. Honduras signed a new ESAF in 
1999, pledging to maintain responsible monetary policies, strengthen 
oversight of the financial sector, overhaul the national pension 
system, and accelerate the privatization of international airport 
management, the telephone company, and the electric company's 
distribution system.
    Honduras received significant bilateral debt relief. In 2000, it 
should receive even more relief on multilateral debt service in the 
years to come through the Highly Indebted Poor Countries (HIPC) 
Initiative. Shortly after Mitch, the Paris Club suspended bilateral 
debt service payments until 2002. Honduras subsequently signed an 
agreement with the Paris Club to reduce the overall bilateral debt 
burden by two thirds (Naples terms), saving the country some US$ 430 
million over the next three years. The U.S. and Honduras signed a 
bilateral debt reduction agreement in August 1999, which should save 
Honduras about US$ 65 million. Concerning the multilateral debt, which 
encompasses the bulk of the country's total public foreign debt, 
Honduras will qualify for significant debt relief under the enhanced 
HIPC framework established by the international donor community in 
Cologne in June 1999. Receipt of this relief is conditioned on the 
formulation of an effective poverty reduction strategy and fulfillment 
of the conditions of the 1999 IMF ESAF.
5. Aid
    As a result of the devastation caused by Hurricane Mitch, Honduras 
has been receiving an unprecedented increase in foreign assistance. At 
the May 1999 Stockholm consultative meeting, donors pledged US$ 2.7 
billion. As of October 1999, the Honduran government reported receiving 
or negotiating US$ 603.8 million in grants and US$ 885 million in 
loans, primarily from the Inter-American Development Bank and the World 
Bank.
    The U.S. has provided the single largest amount of aid to Honduras. 
According to Embassy calculations, the U.S. has spent or obligated US$ 
555 million in FY 99, US$ 55 million of which was spent on immediate 
emergency relief and the rest in reconstruction assistance. U.S. 
government agencies involved in assistance to Honduras include USAID 
(overall coordinator), DOD, USDA, USDOC, DOT, USGS, HUD, OPIC, and Ex-
Im Bank. Other countries have provided significant aid as well, 
including Japan, Sweden, Spain, Italy, Canada, and Germany.
6. Significant Barriers to U.S. Exporters
    Import Policy: While reforms have gone far to open up Honduras to 
U.S. exports and investment, some protectionist policies remain. Import 
restrictions are imposed on firearms and ammunitions, toxic chemicals, 
pornographic material and narcotics. Other import restrictions are 
applied to chicken meat and cosmetics. Import restrictions are mainly 
based on phyto-sanitary, public health, public morale, and national 
security grounds.
    Services Barriers : In certain services industries (e.g., local 
transportation, insurance, radio and TV stations, and 
distributorships), majority control must be in the hands of Honduran 
nationals. Special government authorization must be obtained to invest 
in the tourism, hotel and banking service sectors. Foreigners may not 
hold a seat in Honduras' two stock exchanges or provide direct 
brokerage services in these exchanges. Honduran professional bodies 
heavily regulate the licensing of foreigners to practice law, medicine, 
engineering, accounting, and other professions.
    Labeling and Registration of Processed Foods: Honduran law requires 
that all processed food products be labeled in Spanish and registered 
with the Ministry of Public Health. The law is usually not enforced for 
U.S. products in recognition of U.S. health inspection procedures.
    Investment Barriers: The 1992 Investment Law removed foreign 
ownership restrictions in most sectors. Companies that wish to take 
advantage of the Agrarian Reform Law, or engage in commercial fishing, 
forestry, or local transportation, however, must be majority owned by 
Hondurans.
    In addition, special government authorization is required for 
foreign investment in the following sectors: forestry, 
telecommunications, basic health, air transport, fishing and 
aquaculture, mining, insurance and financial services, private 
education, and agricultural and agro-industrial activities exceeding 
land tenancy limits established by law.
    Foreigners are barred from ownership of small businesses with 
equity less than 150,000 lempiras (about US$ 11,000). Foreign ownership 
of land within 40 km of the coastlines and national boundaries is 
constitutionally prohibited, though tourism investment laws allow for 
certain exceptions. A proposed constitutional amendment to modify the 
prohibition was dropped due to opposition by minority groups living 
along the Caribbean Coast. In all investments, at least 90 percent of a 
company's labor force must be Honduran, and at least 80 percent of the 
payroll must be paid to Hondurans. Inadequate land titling procedures 
have led to numerous investment disputes involving U.S.-citizen 
landowners. The U.S. government has worked extensively to assist these 
citizens, most of whose case are being litigated in Honduran courts.
    On July 1, 1995 Honduras and the U.S. signed the Bilateral 
Investment Treaty (BIT) at the Hemispheric Trade Ministerial in Denver, 
Colorado. This treaty has been ratified by the Honduran Congress; 
ratification by the U.S. senate is still pending.
    Government Procurement Practices: Foreign firms are given national 
treatment for public bids, although in practice, U.S. firms complain 
about the mismanagement and lack of transparency of government bid 
processes. To participate in public tenders, foreign firms are required 
to act through a local agent. Local agency firms must be at least 51 
percent Honduran-owned, unless the procurement is classified as a 
national emergency.
    Customs Procedures: Customs administrative procedures are 
burdensome. There are extensive documentary requirements and other red 
tape involving the payment of numerous import duties, customs 
surcharges, selective consumption taxes, and warehouse levies. Honduras 
agreed in November 1999 to implement eight Free Trade Area of the 
Americas customs related business facilitation measures. Honduras is 
also committed to implementing the majority of provisions of the World 
Trade Organization's Custom Valuation Agreement by January 2000.
7. Export Subsidies Policies
    Almost all export subsidies have been eliminated. Under the 
Temporary Import Law (RIT), exporters are allowed to introduce raw 
materials, parts, and capital equipment into Honduras exempt from 
surcharges and customs duties if the product is to be exported outside 
Central America. Export Processing Zones (ZIPS) are exempt from paying 
import duties and other charges on goods and capital equipment. In 
addition, the production and sale of goods within the ZIPS are exempt 
from state and municipal taxes. Firms operating in ZIPS are exempt from 
income taxes for twenty years, and municipal taxes for ten years. 
Foreigners exporting to Honduras are not required by law to sell 
through an agent or distributor, except when selling to the government.
8. Protection of U.S. Intellectual Property
    In December 1999, the Honduran government passed reforms to its 
Intellectual Property Rights (IPR) laws to comply with the World Trade 
Organization's Trade Related Aspects of Intellectual Property Rights 
(TRIPS) Agreement's January 1, 2000 deadline. The U.S. and Honduras 
initialed a Bilateral IPR Agreement in March 1999. Signing of this 
agreement is still pending.
    Despite the reforms, enforcement of IPR laws remains problematic 
due to insufficient resources. Although some progress have been made, 
there is still widespread piracy of many forms of copyrighted works, 
including books, sound and video recordings, compact discs, computer 
software and television programs. The illegitimate registration of 
well-known trademarks is still a problem as well.
9. Worker Rights
    a. The Right of Association: Union officials remain critical of 
what they perceive as inadequate enforcement of worker rights by the 
Ministry of Labor (MOL), particularly the right to form a union. 
Nonetheless, in November 1995, the MOL signed a memorandum of 
understanding with the U.S. Trade Representative's Office to implement 
11 recommendations for enforcement of the Honduran labor code and the 
resolution of disputes. The MOL has made positive changes implementing 
several of these recommendations, particularly as they relate to 
inspection and monitoring of maquilas (primarily, garment assembly 
plants). Through cooperation within the Tripartite Commission (unions, 
MOL, maquila association), the number of unannounced and repeat visits 
to maquila plants by inspectors from the MOL has increased, improving 
the MOL's effectiveness in enforcing worker rights and child labor 
laws.
    b. The Right to Organize and Bargain Collectively: The law protects 
worker rights to organize and to bargain collectively; collective 
bargaining agreements are the norm for companies in which workers are 
organized. Three large peasant organizations are affiliated directly 
with the labor movement. Only about fourteen percent of the work force 
is unionized, therefore, the economic and political influence of 
organized labor has diminished in recent years. Although the labor code 
prohibits retribution by employers for trade union activity, it is a 
common occurrence. Employers actually dismiss relatively few workers 
for union activity once a union is recognized; such cases, however, 
serve to discourage workers elsewhere from attempting to organize. 
Workers in both unionized and non-unionized companies are under the 
protection of the labor code, which gives them the right to seek 
redress from the Ministry of Labor. Over the past year, the Ministry of 
Labor took action in several cases, pressuring employers to observe the 
code. Labor or civil courts can require employers to rehire employees 
fired for union activity, but such rulings are uncommon. Labor leaders 
criticize the Ministry for not enforcing the labor code, for taking too 
long to make decisions, and for being timid and indifferent to workers' 
needs. The Ministry has increased inspections and the training of its 
inspectors; it needs to do more, however, to improve observance of 
international labor standards.
    c. Prohibition of Forced or Compulsory Labor: The constitution and 
the law prohibit forced or compulsory labor. Over the past year there 
were no official reports of such practices in the area of child labor.
    d. Minimum Age for Employment of Children: According to government 
and human rights groups, an estimated 350,000 children work illegally. 
The constitution and the labor code prohibit the employment of minors 
under the age of sixteen, except that a child who is fifteen years of 
age is allowed to work with the permission of his parents and the 
Ministry of Labor. The Children's Code prohibits a child of fourteen 
years of age or less from working, even with parental permission, and 
establishes prison sentences of three to five years for individuals who 
allow children to work illegally. An employer who legally hires a 
fifteen-year-old must certify that the child has finished or is 
finishing his compulsory schooling. The Ministry of Labor grants a 
number of work permits to fifteen-year-olds each year. It is common, 
however, for younger children to obtain these documents or to purchase 
forged permits. The Ministry of Labor cannot effectively enforce child 
labor laws, except in the maquila sector, and violations of the labor 
code occur frequently in rural areas and in small companies. Many 
children work on small family farms, as street vendors, or in small 
workshops to supplement the family income. In September 1998, the 
government created the National Commission for the Gradual and 
Progressive Eradication of Child Labor.
    e. Acceptable Conditions of Work: In the aftermath of the 
disastrous Hurricane Mitch, which struck Honduras in late October 1998, 
labor leaders agreed to forego the usual January (1999) pay increase in 
return for business leaders' pledge to control price increases for 
basic goods and services. When labor and business reached an impasse on 
wage negotiations in June 1999, the Catholic Church arbitrated a 25 
percent increase in the minimum wage, which was decreed by the 
government in July. It was also agreed that as of January 1, 2000, an 
increase of 8 percent will be effective for all workers and that the 
base for both increases will be the minimum wage effective before the 
salary increase in July. There will not be another raise in the minimum 
wage throughout 2000, as long as inflation (according to central bank 
statistics) does not exceed 12 percent during the first six months of 
the year, which it appears unlikely to do.
    Daily pay rates vary by geographic zone and the sector of the 
economy; urban workers earn slightly more than workers in the 
countryside. The lowest minimum wage occurs in the non-export 
agricultural sector, where it ranges from US$ 2.27 to US$ 2.89 (33.00 
to 42.00 lempiras) per day, depending on whether the employer has more 
than 15 employees. The highest minimum wage is US$ 3.79 (55.00 
lempiras) per day in the export sector, though most workers typically 
earn more. All workers are entitled to an additional month's salary in 
June and December of each year. The constitution and the labor code 
stipulate that all workers must be paid a minimum wage, but the 
Ministry of labor lacks the personnel and other resources for effective 
enforcement. The minimum wage is insufficient to provide a standard of 
living above the poverty line for a worker and his family.
    f. Rights in Sectors with U.S. Investment: The worker rights 
enumerated above are respected more fully in sectors with sizable U.S. 
investment than in sectors of the economy lacking substantive U.S. 
participation. For example, in a number of U.S.-owned maquila plants, 
workers have shown little enthusiasm for unionizing, since they 
consider their treatment, salary, and working conditions to be as good 
as, or better than, those in unionized plants. In establishing new 
investments in Honduras, U.S. businesses in recent years consciously 
have constructed their plants to meet more stringent U.S. government 
laws and regulations.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  190
  Food & Kindred Products......  184             ...............................................................
  Chemicals & Allied Products..  2               ...............................................................
  Primary & Fabricated Metals..  (\2\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  3               ...............................................................
Wholesale Trade................  ..............  2
Banking........................  ..............  5
Finance/Insurance/Real Estate..  ..............  29
Services.......................  ..............  0
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  186
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                JAMAICA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................     6,198.9     6,318.9      6332.1
  Real GDP Growth Rate \2\..........        -2.1        -0.7        -0.5
  GDP (at Current Prices) by Sector:
    Agriculture, Forestry, and             495.5       505.3         N/A
     Fishing........................
    Mining and Quarrying............       344.7       309.2         N/A
    Manufacturing...................       994.2       954.6         N/A
    Construction and Installation...       717.2       717.6         N/A
    Electricity and Water...........       136.4       145.1         N/A
    Transportation, Storage
    and Communication...............       687.8       746.7         N/A
    Retail Trade....................     1,418.3     1,454.0         N/A
    Real Estate Services............       314.1       338.2         N/A
    Government Services.............       750.5       799.5         N/A
    Finance.........................        39.7        29.7         N/A
    Other...........................       299.6       319.0         N/A
  GDP Per Capita (US$)..............     2,440.2     2,468.4     2,465.0
  Labor Force (000's)...............     1,133.8     1,128.6         N/A
  Unemployment Rate (pct)...........        16.5        15.5         N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) Dec-Dec..        12.5         7.2     \3\ 9.0
  Consumer Price Inflation..........         9.2         7.9         5.9
  Exchange Rate (J$/US$)............       35.58       36.68        39.0

Balance of Payments and Trade:
  Total Exports FOB.................     1,387.3     1,316.3     1,245.8
    Exports to U.S..................       462.9       520.4       468.5
  Total Imports CIF.................     3,127.8     2,991.7     2,728.0
    Imports from U.S................     1,504.4     1,523.3     1,364.0
  Trade Balance.....................    -1,740.5    -1,675.4    -1,482.2
    Balance with U.S................    -1,041.5    -1,002.9      -895.5
  External Public Debt \4\..........     3,277.6     3,306.4     3,030.1
  Fiscal Balance/GDP (pct) \5\......        -8.3        -7.5        -4.6
  Current Account Deficit/GDP.......         6.0         4.7         N/A
  Debt Service Payments/GDP.........        28.7        39.4         N/A
  Net Official Reserves \6\.........       540.0       579.4       526.2
  Aid from U.S.\7\..................        24.7        22.0        15.8
  Aid from Other Countries \8\......       149.7       143.0         N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data as of
  October.
\2\ Growth rate is based on Jamaican Dollars, whereas nominal GDP is
  shown in U.S. Dollars.
\3\ January-July 1999.
\4\ Figure as of August 1999.
\5\ Jamaican Fiscal Year (April-March) deficit.
\6\ Figure as of August 1999.
\7\ Estimates include Development, Food, and Military Assistance for FY
  97, FY 98 and FY 99.
\8\ Estimated commitments for development assistance from Jamaica's
  Cooperation Partners.

1. General Policy Framework
    Jamaica is an import-oriented economy. Imports of goods and 
services totaled USD 3.83 billion or 56 percent of GDP in 1998. Of this 
total, raw materials amounted to USD 1,507 million, while consumer 
goods and capital goods amounted to USD 924 million and USD 560 million 
respectively. Tourism (estimated at 15 Percent of GDP), bauxite/alumina 
(10 percent of GDP), and manufacturing exports (such as apparel, 
processing of sugar, beverages and tobacco, etc.--17 percent of GDP) 
are the major pillars sustaining the economy. In 1998, these three 
sectors accounted for 80.5 percent (U.S. dollars 2.35 billion) of the 
country's foreign exchange earnings. Remittances from Jamaicans living 
abroad are also a significant source of income and bring in over USD 
600 million annually. Both GDP and Foreign exchange inflows are 
sensitive to changes in the global economy, particularly with respect 
to commodity prices and the services/tourism sector.
    Jamaica has a work force of 1.13 million, representing 64 percent 
of total population (14 years and over). Women account for 46 percent 
of the total labor force. Sixty percent of Jamaica's work force is 
employed in the services sector, contributing about 77 percent of GDP 
(in constant 1986 dollars). Agriculture accounts for 7 percent of GDP 
and employs 21 percent of the workforce. The primary products are 
sugar, bananas, coffee and cocoa. The small size of the Jamaican 
economy, relatively high production costs (e.g., domestic interest 
rates) and cheap imports have reduced the contribution of the 
manufacturing sector over the last several years to about 17.3 percent 
of GDP in 1998. The once fast growing apparel industry (1980's) began 
to contract about five years ago. Four factories closed in 1999, five 
in 1998, and seven in 1997, following more than a dozen factory 
closures in 1996. Consequently, current employment in the apparel 
industry is down to approximately 20,000, a decline of 42 percent from 
its peak in 1994.
    The Jamaican economy suffered its third consecutive year of 
negative growth (0.7 percent) in 1998, Following a contraction of 2.1 
percent in 1997 and 1.8 percent in 1996. All sectors excepting bauxite/
alumina, energy, and tourism, shrank in 1998. This reduction in 
aggregate demand and output is the result of the government's continued 
tight macro-economic policies. In part, these policies have been 
successful. Inflation has fallen from 25 percent in 1995 to 7.9 percent 
in 1998. Through periodic intervention in the market, the central bank 
also has prevented any abrupt drop in the exchange rate. The Jamaican 
dollar declined from an average of 35.58 in 1997 to 36.68 to the U.S. 
dollar in 1998. However, The exchange rate has been slipping since the 
beginning of 1999, resulting in an average exchange Rate of Jdols 40.25 
to USD 1.00 in November 1999.
    Sustained high real-interest rates (commercial interest rates 
averaged almost 38 percent in the first nine months of 1999), along 
with increasing uncertainty about the stability of the exchange rate, 
weakness in the financial sector and lower levels of investment, 
continue to erode confidence in the productive sector. Unemployment/
underemployment has been growing as a result of lower exports, falling 
domestic demand, and the restructuring of companies. Major cash crops 
(e.g. sugar and bananas) have been affected by both the high cost of 
production and prolonged, adverse weather conditions.
    The economic recession continued into the first three quarters of 
1999. Tourism, and certain service sectors such as electricity and 
telecommunications are expected to show modest growth, but most other 
sectors continue to experience difficulties. The GOJ continues to 
encourage a more open economy by privatizing publicly-owned companies 
(now including some financial companies and real estate acquired in the 
last three years via financial-sector restructuring) and through 
slightly lower interest rates. The government continues its efforts to 
raise new sovereign debt in international and local financial markets 
in order to meet its U.S. dollar debt obligations, to mop up liquidity 
to maintain the exchange rate and to help fund the current budget 
deficit.
    The GOJ hopes to encourage economic activity during 1999/2000 
through a combination of privatization, financial sector restructuring, 
reduced interest rates, and by boosting tourism and related productive 
activities. However, the path to recovery will depend upon external 
developments in international markets and the government's ability to 
restore confidence that has been severely undermined by recent economic 
challenges and by social unrest.
    According to the recent Jamaica survey of living conditions, the 
poverty rate in Jamaica has been dropping since 1995, from 37.5 percent 
of households to 15.9 percent in 1998. This is due primarily to the 
decline in inflation from 25.6 percent in 1995 to 7.9 percent in 1998 
and the implementation of the National Poverty Eradication Policy and 
Program (NPEP). However, despite the drop in poverty rate, access to 
opportunities for education and health care remain inequitable.
    In March 1996, the government of Jamaica adopted the National 
Industrial Policy (NIP), a long term strategy to achieve sustained 
economic growth and development. During the first year, the nip's 
target was to achieve macro-economic stability by maintaining a stable 
exchange rate and reducing inflation and interest rates. These were 
substantially achieved. In its second phase, a three-year period 
beginning in 1997, the NIP aims at achieving stable growth by 
stimulating investment and export diversification. However, in 1998 
most of the NIP targeted sector strategies lagged, mainly because of 
economic and financial instability in the global economy which dampened 
domestic prices, and reduced both the volume of investment funds 
available from the domestic financial sector and the level of foreign 
direct investment.
    The banking and insurance sector is now being restructured by the 
GOJ. That sector has experienced serious difficulties since the end of 
1995, caused by a mismatch of assets and liabilities. The Financial 
Sector Adjustment Company (FINSAC), a government agency established in 
February 1997 to provide funding and to reorganize illiquid financial 
institutions, is now in the second and third phases of restructuring 
and divesting the assets of these institutions. FINSAC's interventions 
have amounted to approximately USD 2.3 billion. FINSAC is now in the 
process of aggressively marketing the assets it acquired, in order to 
lower the burden of debt servicing. Recent reports indicate that the 
market value of the assets that FINSAC acquired is now estimated at 
less than a quarter of the value that FINSAC originally paid.
    The Jamaican fiscal year (JFY) April 1999/March 2000 Budget calls 
for Jdols 160.1 billion in outlays. This is a 25.7 percent increase 
over the revised 1998/99 Budget. For JFY 1999/00, recurrent expenditure 
is Estimated at Jdols 87.2 billion and capital Expenditure at Jdols 
72.9 billion. Debt servicing is by far the largest expenditure 
category, accounting for 62 percent of the total budget, followed by: 
social and community services (17.9 percent); general government 
services (7 percent); economic development (5.7 percent); defense 
affairs, public order and safety (5.5 percent); and with the balance 
applied to unallocated expenditures (2 percent).
    The GOJ expects to finance 62 percent of the Jdols 160.1 billion 
budget with an expected total revenue of Jdols 88.1 billion which 
includes: tax and non-tax recurrent revenue, capital revenue 
(royalties, land sales, loan repayments, divestments); and transfers 
from the capital development fund (including the bauxite levy). The 
government will fund the balance from debt. The government plans to 
borrow Jdols 68.2 billion to balance the budget. Of this, 26.3 percent 
will be obtained through external loans, including institutional 
project loans (multilateral and bilateral, amounting to Jdols 2.6 
billion), and through other international capital markets (Jdols 15.4 
billion). The balance of Jdols 50.2 billion will be raised from the 
domestic market through local registered stock (LRS-Jdols 40 billion) 
and other (Jdols 10.2 billion). Although the government pledges to 
raise revenue through a rigorous program of enhanced tax compliance, 
reduce recurrent expenditure and better manage its fiscal deficit, loss 
of investor confidence and high levels of under employment will greatly 
hamper its efforts. Recent civil unrest over increases in fuel prices 
is tragic testimony to the hardships faced by ordinary Jamaicans and 
the government's failure to build popular support for greater 
sacrifices.
    The government continues to reduce excess liquidity by issuing 
``repos'', reverse repurchase of treasury bills, (i.e. sale of 
securities with an agreement to buy back on a later date at a given 
rate). The Bank of Jamaica's open market operations are one means by 
which the Government of Jamaica funds its fiscal Deficit.
    The Bank of Jamaica (BOJ) continued its tight monetary policy to 
absorb excess liquidity by issuing long term securities (local 
registered stock) and short-term treasury bills. In order to stabilize 
the Jamaican dollar the GOJ continues to accumulate foreign exchange 
reserves resulting in high borrowing, and sustained high real-interest 
rates on government securities.
    The bank of Jamaica has lowered its cash reserve requirement for 
commercial banks from 25 percent in August 1998 to 16 percent in 
October 1999. However, commercial banks have not responded by lowering 
their lending rates to an appreciable degree. The banks attribute this 
failure to the number of nonperforming loans carried on their books.
    Unable to float a bond issue in the international money markets, 
the GOJ turned to local markets, issuing U.S. dollar-denominated bonds 
in August (USD 40 million for five years at 12 percent and USD 10 
million for seven years at 11 percent) and in October 1999 (USD 50 
million for five years at 11.75 percent). Reportedly, only the USD 40 
million issue at 12 percent was fully subscribed.
    The bank of Jamaica achieved a positive stock of net international 
reserves (NIR) in 1993 for the first time since the mid 1970's. The NIR 
has remained positive, peaking at USD 715.6 million in January 1997. As 
of September 1999, due to central bank interventions to maintain the 
exchange rate, the NIR stands at approximately USD 526.24 million, the 
equivalent of 12.1 weeks of imports.
2. Exchange Rate Policy
    On September 26, 1991, exchange controls were eliminated to allow 
for free competition in the foreign exchange market. The principal 
remaining restriction is that foreign exchange transactions must be 
done through an authorized dealer. Licenses are regulated. Any company 
or person required to make payments to the government by agreement or 
law (such as the levy and royalty due on bauxite) will continue to make 
such payments directly to the bank of Jamaica. authorized dealers 
(commercial banks and cambios) are required to sell five percent of 
their foreign exchange purchases directly to the boj. In addition, 
under an agreement between the Petroleum Company of Jamaica (Petrojam) 
and the commercial banks, a further ten percent of foreign exchange 
purchases are sold to Petrojam.
    In 1994, cambios were designated as authorized dealers to promote 
an increase in the official inflows of foreign exchange. Cambios 
account for over a third of total foreign exchange purchases by 
authorized dealers. Reportedly, cambio dealers have been lobbying for 
increased flexibility in doing business in order to increase their 
market share and be viable. In 1998, total foreign exchange inflows 
through commercial banks and cambios increased by 2.1 percent to USD 
3.6 billion. From January to September 1999, foreign exchange inflows 
into the official market declined by 1.6 percent over the corresponding 
period in 1998 to U.S. dollars 2.65 billion. The average weighted 
selling rate has been slipping. On November 5, 1998, the rate was Jdols 
40.42 to USD 1.00. This decline is the result of uncertainty and 
speculation arising from unfavorable economic conditions, the 
postponement of a bond issue by the GOJ in the international market 
which was expected to help fund the current budget deficit and 
attractive returns on U.S. dollar bonds issued locally. There is a 
broad perception in the market that the present exchange rate is not 
sustainable. However, the GOJ is committed to defending the exchange 
rate within a targeted band through the bank of Jamaica's intervention.
3. Structural Policies
    The fair competition act was adopted in 1993 to create an 
environment of free and fair competition and to provide consumer 
protection. Free-market forces generally determine prices. However, 
certain public utility charges such as bus fares, water, electricity, 
and telecommunications remain subject to price controls and can be 
changed only with government approval.
    Taxation accounts for 87 percent of total recurrent and capital 
revenue. Major sources of tax revenue include: personal income tax 
(38.1 percent of tax revenue), value added tax (29.7 percent) and 
import duties (10.8 percent). The budget continues to stress a tight 
monetary policy, intended to curb inflation. The government proposes 
covering the growing budget deficit by a combination of increased taxes 
(cigarettes), higher fees (on passports, among other items) for 
consumers, and by borrowing.
    The Common External Tariff (CET) has been gradually reduced over 
the years. The rate structure was scheduled to be revised downward in 
four phases. In January 1999, the last phase of CET reduction was 
implemented in Jamaica with import or customs duty rates reduced for 
most items by 5 percentage points to a maximum of 20 percent. This 
figure refers to import duties only. In order to protect local 
producers, import duties on items such as certain agricultural products 
(such as chicken, beef and milk) and certain consumer goods carry 
higher duty rates. In addition to import duties, certain items such as 
beverages and tobacco, motor vehicles and some agricultural products 
carry an additional stamp duty (ranging from 25-56 percent) and special 
consumption tax (ranging from 5-39.9 percent). Additionally, most 
imported items are subject to the 15 percent general consumption tax 
(GCT). Goods originating from CARICOM countries are not subject to 
import duties.
    All monopoly rights of the Jamaica Commodity Trading Company (JCTC) 
ceased December 31, 1991, but it retains responsibility for the 
procurement of commodities under government to government agreements 
such as the P.L. 480 program. This administrative function is now 
transferred to the trade board effective FY 2000. The U.S. embassy is 
unaware of any government regulatory policy that would have a 
significant discriminatory or adverse impact on U.S. exports.
4. Debt Management Policies
    Jamaica's stock of external (foreign) debt grew marginally by one 
percent, to Jdols 3.3 billion in 1998. About 45 percent of the external 
debt is owed to bilateral donors (the United States is the largest 
bilateral creditor), 33 percent to multilateral institutions (down, due 
to a policy decision to reduce dependence on the IMF), and 23 percent 
to commercial banks and others. In 1998, for the third consecutive 
year, no official-bilateral obligations were forgiven, as took place 
from 1990-1995. According to the bank of Jamaica, the British 
government recently granted debt relief under the UK/Jamaica 
commonwealth debt initiative arrangement covering the period April 1, 
1999 to march 31, 2000 (amounting to 5.4 million pounds sterling). 
External debt is likely to increase only marginally or even decline as 
the government continues to raise more debt denominated in foreign 
currency on the domestic market. Further, although the bulk of the 
external debt consists of flows from multilateral and bilateral 
sources, there has been a growing shift to debt owed to private 
creditors--largely bond holders.
    Actual external debt-servicing during 1998 accounted for 19.86 
percent of exports of goods and services. The ratio of total 
outstanding external debt to exports of goods and services decreased 
from 177.6 percent in 1990, to 100.3 percent in 1996 as a result of 
debt reduction efforts and improvements in exports, but has since 
climbed to 103.3 percent in 1998. Debt-servicing continues to be a 
major burden on the government budget, accounting for some 62 percent 
of total outlays. In 1995 Jamaica ended its borrowing relationship with 
the IMF, but it continues to repay that institution, in order to reduce 
its overall debt burden. In 1995 Jamaica also completed a Multi-Year 
Rescheduling Arrangement (MYRA) with the Paris club, negotiated in 
1992. The MYRA rescheduled U.S. dollars 281.2 million of principal and 
interest for the period October 1992 to September 1995.
    Jamaica's internal (domestic) debt has ballooned in recent years, 
from Jdols 23.4 billion in 1993 to Jdols 121 billion in 1998. As of 
August 1999, the internal debt stood at Jdols 154.4 billion. The main 
factors contributing to the increased internal debt were: (a) 
neutralizing increased domestic liquidity resulting from the BOJ's 
interventions in the foreign exchange market; (b) budgetary financing; 
(c) liquidity support to commercial banks; and (d) intervening to 
absorb excess liquidity to maintain a stable exchange rate of the 
Jamaican dollar. Domestic debt is composed of government securities 
such as: t-bills (9.1 percent), local registered stock (76.4 percent), 
bonds (9.5 percent), and loans from commercial banks and other entities 
(5 percent).
    As a part of its debt management strategy, the GOJ plans to borrow 
from international capital markets in order to take advantage of 
competitive market rates and to substitute lower-cost external debt for 
higher-cost domestic debt. However, in mid-1999 as the result of 
unfavorable market conditions, the GOJ accepted the advice of its lead 
banker and postponed a ten-year bond offering that was expected to 
raise as much as USD 300 million in the international market to finance 
the budget deficit.
5. Aid
    In 1998, Jamaica received USD 165 million of official development 
assistance from multilateral agencies and other countries on a 
bilateral basis reflecting a decline of 5.4 percent over 1997. 
Bilateral sources contributed USD 64.1 million, while multilateral 
financial institutions contributed loans and grants valued at USD 97.4 
million.
    The United States is a major aid donor. In FY 1999, USD 9.9 million 
was disbursed as development assistance, USD 5 million was provided 
under the P.L. 480 program, and another USD 945,000 as military aid. In 
addition, there were 100 Peace Corps personnel who provided technical 
assistance in the areas of health, education, environment and small 
business development.
6. Significant Barriers to U.S. Exports
    Import licenses: although Jamaica has made considerable headway in 
trade liberalization, some items still require an import license, 
including: milk powder, plants and parts of plants for perfume or 
pharmaceutical purposes, gum-resins, vegetable saps and extracts, 
certain chemicals, motor vehicles, arms and ammunition, certain toys, 
such as water pistols, and gaming machines.
    Services barriers: foreign investors are now encouraged to invest 
in almost any area of the economy. On September 30, 1999, the GOJ and 
cable and wireless of Jamaica, ltd. Signed the `new connections' 
agreement that will end the monopoly rights granted until 2013 and will 
help phase-out C and W's telecoms monopoly over the course of three 
years. All existing telecom licenses are to be terminated and all new 
licenses will have to comply with a new telecommunications act, which 
parliament is expected to adopt by April 2000. The GOJ has announced 
the auction of two cellular phone licenses in 2000. However, there are 
still certain restrictions in the communications field: under the new 
cable TV policy, licenses are granted preferentially to companies that 
are incorporated in Jamaica and in which majority ownership and 
controlling interest are held by Jamaican or CARICOM nationals. In most 
other areas, there do not appear to be any economic or industrial 
strategies that have discriminatory effects on foreign-owned 
investments.
    Standards, testing, labeling, and certification: the Jamaican 
bureau of standards administers the Standards act, the processed food 
act and the weights and measures act. Products imported into Jamaica 
must meet the requirements of these acts. These include requirements 
for labeling. Items sold in Jamaica must conform to recognized 
international quality specifications. In most cases, Jamaica follows 
U.S. standards. In recent years, the bureau has become increasingly 
vigilant in terms of monitoring the quality of products sold on the 
local market. The quarantine division inspects and determines standards 
in the case of live animals. The ministry of health may inspect meat 
imports. In 1995, an amendment to the weights and measures act was 
passed aimed at enforcing compliance with the metric system of 
measurement. Imported goods are expected to conform to the metric 
system.
    Investment barriers: the government of Jamaica welcomes foreign 
investment and there are no policies or regulations reserving areas 
exclusively to Jamaicans. Foreigners are not excluded from 
participation in privatization/divestment activities. While each 
investment proposal is assessed on its own merits, investments are 
preferred in areas which may increase productive output, use domestic 
raw materials, earn or save foreign exchange, generate employment, or 
introduce new technology. The screening mechanisms are standard and 
nondiscriminatory. The main criterion is the credit-worthiness of the 
company. Environmental impact assessments are required for new 
developments. Although both foreign and domestic companies have 
complained that ``red tape'' is a hindrance in doing business, foreign 
investors are treated the same as domestic investors before and after 
investment.
    Government procurement practices: government procurement is 
generally done through open tenders. U.S. firms are eligible to bid. 
The range of manufactured goods produced locally is relatively small, 
so instances of competition between foreign goods and domestic 
manufacturers are very few. According to recent reports, a National 
Contracts Commission (NCC) was set up on October 8 to oversee the award 
and evaluation of government contracts. The NCC, which replaces the 
government's Contracts Commission, will be the central body responsible 
for awarding government contracts. On November 5 the Corruption 
prevention bill was passed in the senate, indicating that the country 
was making progress in opening up the government to greater scrutiny.
    Customs procedures: the customs department has recently been 
computerized. As of September 1999, all customs entries are being 
processed electronically in order to facilitate brokers and other 
customers. However, some of the local brokers are still finding it 
difficult to adjust to the new system. As a result businesses are 
likely to face some difficulties until the customs brokers are properly 
trained.
    Anti-dumping laws: on July 1, 1999, the GOJ implemented the new 
upgraded anti-dumping law. Among other things the act provides for the 
establishment of an anti-dumping and subsidies commission, the 
imposition of anti-dumping and countervailing duties on goods which are 
found to have been dumped or subsidized and the exemption of goods from 
the application of the act.
7. Export Subsidies Policies
    The export industry encouragement act allows approved export 
manufacturers access to duty-free imported raw materials and capital 
goods for a maximum of ten years. Other benefits are available from the 
Jamaican government's export-import bank, including access to 
preferential financing through the discounting of export receivables 
(up to 80 percent of export value at 12 percent), lines of credit, 
medium term modernization fund (at 18-21 percent interest) and export 
credit insurance. The export-import bank (EX-IM) and the Jamaica 
Exporters Association (JEA) recently introduced a new joint venture 
loan program targeting small exporters. The project, called ex-bed, is 
being financed by the EX-IM bank to the tune of Jdols 10 million at an 
interest rate of 12 percent per annum to be repaid within 90 days, 120 
days and 180 days respectively. JEA will provide technical and 
financial support through its small business export development 
project.
    In December 1996, the government of Jamaica launched phase one of a 
Special Assistance Program (SAP) for the export apparel industry. The 
objective is to improve competitiveness by encouraging companies to 
make structural changes and implement operational efficiencies. The sap 
targets the reduction of operational costs, specifically in the areas 
of rent, security and financing. During phase one of the program, a 
grant of Jdols 40 million (USD 1.1 million) was made available to cover 
5 percent of the companies' costs. Phase two of the program (August 
1997-March 1998), which has now been extended to March 2000, provides 
an additional Jdols 160 million (USD 4.4 million) to encourage the 
broader development of the industry, particularly in those areas which 
will enhance long-term competitiveness. Benefits include loan financing 
(working capital) through the Ex-Im bank at 12 percent, debt 
restructuring for local companies through the national investment bank 
of Jamaica at 18 percent, and finance for the retooling of factories 
for expansion through the National Development Bank at 13 percent 
(Jdols loans) and 12 percent (USD loans).
8. Protection of U.S. Intellectual Property
    Jamaica is a member of the World Intellectual Property Organization 
(WIPO) and of the Bern Convention (copyright protection). The Jamaican 
constitution guarantees property rights and has enacted legislation to 
protect and facilitate the acquisition and disposition of all property 
rights, including intellectual property. Jamaica and the United States 
signed a bilateral intellectual property rights agreement in March 
1994. In addition, a Bilateral Investment Treaty (BIT) came into force 
in March 1997 that also contains obligations to respect intellectual 
property.
    Jamaican laws address major areas of intellectual property rights 
(IPR) protection. Amendments to laws on copyrights and trademarks were 
made recently. Amendments to the copyright act include the conferment 
of protection on compilation works such as databases, and would also 
grant protection to individuals having rights in encrypted 
transmissions or in broadcasting or cable program services, and a right 
of action against persons who knowingly infringe those rights for 
commercial gain. Works already in the public domain in Jamaica would 
not be accorded protection. Remedies available include injunctions, 
damages, seizure and disposal/destruction of infringing goods. 
Penalties may include fines or imprisonment. Licensing for broadcasts 
is required for subscription TV. To date there are 37 subscriber TV 
licensees island wide. However, there are reports of unlicensed cable 
operators conducting business illegally. The broadcasting commission 
states that it has begun taking steps to halt this illegal activity. 
All licensees are required to receive permission from program providers 
before re-broadcasting.
    A draft bill on patents has been reviewed and corrections are being 
made in consultation with WIPO. The office of the parliamentary counsel 
is completing the revised law, which the government expects to be 
passed by the end of this year.
    Levels of IPR enforcement are limited by overall demands on police 
and overburdened courts. The government is making efforts to raise 
public awareness by seminars and publications.
    Litigation is a viable option in protecting intellectual property. 
In 1997, in individual lawsuits in Jamaican courts, U.S. corporations 
McDonald's and k-mart successfully defended their names and service 
marks against trademark infringement. In September 1999, the American 
company Costco International sued a local trading company for carrying 
out business under their name.
9. Worker Rights
    a. The Right of Association: The Jamaican constitution guarantees 
the rights of assembly and association, freedom of speech, and 
protection of private property. These rights are widely observed.
    b. The Right to Organize and Bargain Collectively: Article 23 of 
the Jamaican constitution guarantees the right to form, join and belong 
to trade unions. This right is freely exercised. Collective bargaining 
is widely used as a means of settling disputes. Industrial actions 
(generally brief strikes) are frequently employed in both private and 
public sector disputes. The Labor Relations and Industrial Disputes Act 
(LRIDA) codifies regulations on worker rights. About 15 percent of the 
work force is unionized, and unions have historically played an 
important economic and political role in Jamaican affairs. The public 
sector is highly unionized. Throughout 1997, the Ministry of Finance 
has been negotiating new two-year agreements covering tens of thousands 
of public sector employees. Reduced levels of inflation have enabled 
government negotiators to avoid budget-busting public sector salary 
increases.
    No free zone factory is unionized. Jamaica's largest unions claim 
this is because unionization is discouraged in the free zones. The 
ongoing contraction of the apparel industry and a lack of alternatives 
for its workforce (largely female heads of household, with minimal 
qualifications for other employment) are additional disincentives for 
unionization at the present time. However, in tourist areas, workers 
are often drawn away by more attractive employment opportunities in the 
local tourism sector.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is not practiced. Jamaica is a party to the relevant ILO 
conventions.
    d. Minimum Age for Employment of Children: The Juvenile Act 
prohibits child labor, defined as the employment of children under the 
age of twelve, except by parents or guardians in domestic, 
agricultural, or horticultural work. While children are observed 
peddling goods and services, child labor is not institutionalized. Both 
government and societal views are intolerant of the practice and the 
use of child labor in formal industries such as textiles/apparel is 
virtually non-existent.
    e. Acceptable Conditions of Work: A 40-hour week with 8-hour days 
is standard, with overtime and holiday pay at time-and-a-half and 
double time, respectively. The minimum wage is Jdols 800 for a 40-hour 
week or Jdols 20 per hour. There are frequently additional allowances 
(e.g. for transportation, meals, clothing, etc.). Unemployment 
compensation or ``redundancy pay'' is included in the negotiation of 
specific wage and benefit packages. Jamaican law requires all factories 
to be registered, inspected and approved by the Ministry of Labor. 
Inspections are limited by scarce resources and a narrow legal 
definition of ``factory.''
    f. Rights in Sectors with U.S. Investment: U.S. investment in 
Jamaica is concentrated in the bauxite/alumina industry, petroleum 
products marketing, food and related products, light manufacturing 
(mainly in-bond apparel assembly), banking, tourism, data processing, 
and office machine sales and distribution. Worker rights are respected 
in these sectors and most of the firms involved are unionized, with the 
important exception of the garment assembly firms. No garment assembly 
firms in the free zones are unionized; some outside the free zones are 
unionized. There have been no reports of U.S.-related firms abridging 
standards of acceptable working conditions. Wages in U.S.-owned 
companies generally exceed the industry average.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  144
  Food & Kindred Products......  -5              ...............................................................
  Chemicals & Allied Products..  141             ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  9               ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  11
Finance/Insurance/Real Estate..  ..............  6
Services.......................  ..............  39
Other Industries...............  ..............  1,660
TOTAL ALL INDUSTRIES...........  ..............  2,105
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 MEXICO


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     402.0     415.0     448.0
  Real GDP Growth (pct) \3\...............       7.0       4.8       3.4
  GDP by Sector:
    Agriculture...........................     21.42     20.51     21.74
    Manufacturing.........................     80.20     83.26     89.35
    Services..............................    253.24    258.75    277.95
  Per Capita GDP (US$)....................     4,232     4,294     4,565
  Labor Force (Millions)..................      36.6      37.5      38.7
  Unemployment Rate (pct).................       3.7       3.2       2.8

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      21.1      23.3      19.0
  Consumer Price Inflation................      15.7      18.6      12.9
  Exchange Rate (Peso/US$)................       7.9       9.1       9.6

Balance of Payments and Trade:
  Total Exports FOB \4\...................     110.4     117.5     131.0
    Exports to U.S.\4\....................      94.3     103.1     112.0
  Total Imports FOB \4\...................     109.8     125.2     136.0
    Imports from U.S.\4\..................      82.0      93.1     101.0
  Trade Balance \4\.......................       0.6      -7.7      -5.0
    Balance with U.S.\4\..................      12.3      10.0      11.0
  External Public Debt....................      88.3      92.3      91.1
  Fiscal Deficit/GDP (Pct)................       1.0       1.4       1.2
  Current Account Deficit/GDP (pct).......       1.8       3.5       2.8
  Debt Service Payments/GDP (pct).........      22.5      23.0      23.0
  Gold and Foreign Exchange Reserves......      28.0      30.1      31.0
  Aid from U.S............................       N/A       N/A       N/A
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  November.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade, Mexican data.

1. General Policy Framework
    The strong recovery that the Mexican economy experienced in 1996 
and 1997 tapered off in 1998, as the economy experienced a significant 
slowdown in the last quarter of the year. Nevertheless, Mexico's Gross 
Domestic Product (GDP) grew a healthy 4.8 percent in 1998. GDP 
acceleration resumed in the second quarter of 1999, and the economy is 
set to grow by about 3.4 percent for the entire year.
    Exports, led by the maquiladora industry, have remained the main 
engine of economic growth, and could surpass $131 billion in 1999. The 
country's aggressive market opening through bilateral and multilateral 
trade agreements has continued to create new markets for Mexican 
products, while allowing more foreign competition. Since recovering 
from the 1994-95 economic crisis, imports have increased at a faster 
rate than exports, resulting in a reversal of Mexico's trade surplus of 
the previous years. The slowdown that began late 1998 temporarily 
reversed that trend, however, and Mexico's trade deficit for 1999--
about $5 billion--will be lower than next year. Two-way trade with the 
United States has also continued to grow and (by Mexican figures) could 
surpass $210 dollars.
    The central bank's tight monetary policy, coupled with quiet 
international financial markets, led to a strong real and nominal 
appreciation of the peso. The currency appreciation helped the central 
bank regain its credibility and attain its inflation target of 13 
percent for 1999. The central bank's announced target of 10 percent 
inflation for next year portends a tight monetary policy throughout 
2000.
2. Exchange Rate Policy
    In December 1994, Mexico abandoned its exchange band mechanism, 
which had been in place since 1991, in favor of a free-floating 
exchange rate. The peso has floated freely since then with only 
infrequent interventions by the Bank of Mexico (Mexico's central bank). 
After losing more than half its value against the dollar in 1995, the 
peso was remarkably stable in 1996 and through most of 1997. The peso 
appreciated by roughly 18 percent in real terms from September 1998 to 
November 1999. To accumulate foreign reserves and weaken the peso to 
support exporters, the bank offered credit institutions monthly options 
to sell dollars to the central bank. The Bank of Mexico has purchased 
up to $600 to $800 million of these options from banks in a single 
month. The amount of these options, however, is still felt to be too 
small to have an appreciable impact on the exchange rate.
3. Structural Policies
    Mexico has reduced significantly regulation of the Mexican economy 
over the past decade. The government introduced legislation in 1993 to 
promote greater competition, limit monopolistic behavior, and prohibit 
practices that restrain trade. The Mexican Federal Competition 
Commission, established in that legislation, now has functioned 
successfully for more than four years. A 1993 Foreign Trade Law 
eliminated most nontariff trade restrictions and established remedies 
for unfair trade practices, such as export subsidies and dumping. The 
Mexican Customs Service also was modernized and automated. Customs Law 
reforms, implemented in 1996, have greatly assisted in the effort to 
weed out corruption. A project to examine all government regulations 
and to reduce them continues moving forward, with several federal 
ministries and the federal district having completed their work. State 
and local deregulation is also planned for the future.
    The government rarely publishes draft regulations for comment, 
although in most cases it informally circulates draft copies to major 
chambers and associations. This allows a few large organizations with a 
local presence to influence the regulation-making process. However, it 
does not provide the transparency that comes from publication, and can 
limit the ability of small and foreign entities to participate in the 
consultation process. In addition, final regulations routinely take 
effect the day after publication, increasing compliance burdens for 
unsuspecting foreign entities and sometimes causing confusion and 
delays at border crossing points.
    The government has privatized or eliminated more than 1000 
parastatal companies since 1986. State enterprises thus far privatized 
include commercial banks, the telephone company, a television network, 
airlines, steel production, most railroads and ports, warehouses, and 
several major industrial facilities. President Zedillo continued the 
privatization trend. In 1997 and 1998, multiple contracts were let for 
private sector construction of power plants and for distribution of 
natural gas to strategically chosen communities. The government 
continues working to privatize management and some facilities at the 
remaining government-operated ports, and has shed all railroads. A 
proposed constitutional amendment that would allow more private sector 
participation in the generation and distribution of electricity, 
however, has lingered in Congress.
    Airport privatization in mid November 1999 continues. Mexico's 
airports have been divided into five geographic areas. Each area will 
be managed by a group of investors. While some airport groups are fully 
operational, Pacifico and SouthEast for example, the privatization 
process for the remaining groups should near completion toward the end 
of 2000. The Mexican government will maintain control of a limited 
number of smaller airports in the interest of the public served by 
these regional facilities. The government announced plans to sell up to 
49 percent of its secondary petrochemical plants, despite opposition 
party resistance. There is now competition in most of Mexico for the 
provision of long-distance telephone service. However, legal struggles 
between Telmex and the new market entrants have somewhat complicated 
the development of competition in this sector.
4. Debt Management Policies
    Mexico has largely achieved the objectives laid out in the 
emergency economic program developed to cope with the 1995 peso crisis. 
During 1997 and the first three quarters of 1998, public sector debt 
continued to decline in real terms. The maturity of public debt was 
extended, the debt profile was reconfigured, the composition of 
external debt altered dramatically, and Mexico successfully returned to 
international capital markets. Among the most telling indicators of the 
success of Mexicos debt strategy were early repayment to the U.S. 
Treasury of all of the economic support funds extended to Mexico during 
the 1995 crisis, and Mexico's relative ease in weathering the effects 
of other-country financial crises in the fall of 1998.
    At the end of the first half of 1998, Mexico's net public sector 
external debt was $88.2 billion, a slight decrease from 1997. The Bank 
of Mexico auctions $250 million of dollar put options at the end of 
each month, which purchasers may exercise any time during the following 
month, subject to certain limitations. In 1998 total amortization of 
public external debt will be $22.1 billion, compared to $32.3 billion 
in 1997.
5. Significant Barriers to U.S. Exports
    Import Licenses: The Secretariat of Trade and Industrial 
Development (SECOFI) requires import licenses for a number of 
commercially sensitive products. In 1998, SECOFI expanded the import 
licensing system by establishing an ``automatic'' import license for 
certain Asian and European products because of concerns about dumping 
and under-invoicing. While NAFTA originated goods are exempt from these 
requirements, U.S. companies that obtain goods from covered countries 
may be affected by the requirements. The Secretariat of Agriculture 
requires a prior import authorization for fresh/chilled and frozen 
meat. In 1998, the Secretariat of Health announced new import license 
rules for certain food products. These rules call for either an 
``advance sanitary import authorization'' or ``notification of sanitary 
import'' prior to the product crossing the border. Obtaining these 
permits requires extensive documentation and certification by the 
exporter. In addition, Mexico maintains import licenses for sensitive 
products such as endangered species and weapons.
    Insurance: Until 1990, the Mexican insurance market was closed to 
foreigners. With the introduction of NAFTA, U.S. and Canadian insurers 
that had joint venture operations in Mexico were allowed to increase 
their ownership share from 30 percent in 1994 to 51 percent in 1996 and 
100 percent by the year 2000. Companies not already in Mexico could set 
up joint ventures and obtain majority control during 1998. U.S. 
insurers may also establish wholly owned subsidiaries in Mexico, 
subject to aggregate market share limits which will be eliminated in 
2000. Some third-country firms have entered through affiliates or 
subsidiaries in the United States or Canada under the NAFTA 
arrangement.
    Telecommunications: The main restriction in the telecommunications 
sector is a limitation on foreign investment in telephone and value-
added services to a 49 percent equity position. However, in cellular 
telephony, foreign investors may participate up to 100 percent, subject 
to approval by the national foreign investment commission. 
Nevertheless, foreign investors may only participate through a Mexican 
corporation. Mexico modified its constitution in 1995 to allow for 
private participation and equity in Mexican telecommunication 
satellites, including ownership of transponders. The government's 
satellite firm was privatized in early 1998. Foreign investment is 
limited to a 49 percent equity position.
    The Telmex legal monopoly on long distance and international 
telephone service ended in August 1996 and competition was introduced 
in January 1997. There currently is competition in all major cities and 
much of the rest of Mexico. Eight firms are currently authorized to 
provide long distance service, five of which have U.S. partners. USTR 
cited Mexico in its March 1998 annual ``1377'' review for failure to 
meet its WTO Basic Telecom Agreement commitments, including a 
discriminatory 58 percent surcharge on inbound international long 
distance traffic and failure to allow International Simple Resale 
(ISR). In December 1998, the government eliminated the 58 percent 
surcharge, but has yet to permit ISR. Local, basic telephone service is 
already technically open to competition, but practical competition in 
this area has not yet been fully developed.
    Since July 1999, Telmex has refused to provide any new private 
local lines when they are order by the competitive long distance 
carriers, Alestra and Avantel. Customers of Telmex, however, can still 
get comparable line orders filled. This raises questions about WTO 
commitments by Mexico to assure competitors access to and use of the 
Telmex network.
    Financial Services: The financial services sector is generally open 
and liberalized. Mexico continued during 1995 to promote competition 
and diversification in the financial sector by encouraging foreign 
investment. New rules adopted in 1995 allow foreign banks to acquire up 
to 100 percent ownership in existing banks that have less than six 
percent of the total capital in the banking system (effectively 
excluding Mexico's three largest banks). Legislation passed in December 
1998 removed the six percent cap, allowing 100 percent ownership of any 
bank. Foreigners may now own up to 25 percent of the total net capital 
of the banking system. Also, a single Mexican or foreign individual may 
own up to 20 percent of a given Mexican financial institution. As a 
group, foreigners can, in most cases, own up to 49 percent of a bank, 
stock brokerage house, or financial group.
    Standards, Testing, and Certification: The extensive use of 
mandatory standards, testing and labeling has the potential of acting 
as a barrier to trade and can raise the cost of exporting to Mexico. 
However, the government has displayed an increased willingness to work 
with U.S. industry to address U.S. concerns.
    The government has been the primary actor in determining product 
standards, labeling and certification policy, with input from the 
private sector. Mexican law requires that Mexican standards be based on 
``international standards,'' but Mexican standards sometimes will 
incorporate U.S. and Canadian standards when those differ from the 
international benchmark.
    With a view to increasing transparency, among other things, the 
government of Mexico revised its federal law on metrology and 
standardization in May 1997. While these changes provided for the 
privatization of its accreditation program and greater transparency, 
certain Mexican ministries deem that particular regulations are 
executive orders and therefore not required to be published for 
comment. In some cases the GOM refused to provide copies of the 
regulations for U.S. industry to review as was the case in recently 
revised regulations to Mexico's Health Law. U.S. exporters of vitamins 
have raised concerns that these revised regulations may impede their 
supply to the Mexican market. Low-dosage vitamins will be governed as 
medicines or pharmaceuticals which require inspection and approval of 
manufacturing facilities by the Mexican Ministry of Health in order to 
obtain a sanitary license. Mexican government officials have advised 
U.S. industry and government officials that it does not plan to conduct 
the inspections and approvals required for factories outside Mexico.
    Additionally, while the Federal Law on Metrology and 
Standardization provides for the adoption of emergency mandatory 
standards to deal with exceptional and unforeseen circumstances which 
might result in irreversible situations, the legitimacy of the 
emergency nature of some of these mandatory standards remains 
questionable. In certain instances, Mexico has been less than diligent 
in providing opportunity for comment by its trading partners.
    U.S. exporters have complained that since Mexican customs enforces 
standards for goods entering the country at the border and domestically 
produced products are inspected randomly at the retail level, 
enforcement of compliance with mandatory standards appears to be more 
stringent in the case of imports. U.S. exporters have also complained 
about inconsistencies at different ports of entry.
    Only Mexican producers or importers are allowed to obtain a NOM 
certificate (official document certifying that a particular good 
complies with an applicable standard). This poses a problem for U.S. 
exporters, if they use multiple importers. Each importer has to pay to 
have the same product tested at a Mexican lab every year, requiring 
costly redundant testing. In September, 1999, SECOFI published a 
proposal to revise its certification regulations. If adopted, the 
proposal would allows companies from countries with which Mexico has a 
free trade agreement (e.g., the United States) to obtain a NOM 
certificate. This would appear to address many of industry's concerns 
regarding the importer problem. However, industry is in the process of 
reviewing the revised procedures and is in the process of submitting 
comments.
    On January 1, 1998, Mexico was obligated to recognize conformity 
assessment bodies in the United States and Canada on terms no less 
favorable than those granted in Mexico. The requirement that there be a 
need for additional certification bodies and verification units before 
laboratories can be accredited remains questionable.
    Problems remain with restrictions on U.S. beef exports to three 
Mexican states that fail to recognize U.S. meat grades. In late 1998, 
Mexico suspended testing for heavy metals residues in imported meats 
based on national treatment differences between its standards for 
domestic and imported products. These standards, among the most 
restrictive in the world, were not based on international or NAFTA 
consensus, and had questionable scientific basis. Other new standards 
for imported grain and poultry, published in late 1998, are 
interrupting--or may interrupt--U.S. exports. Again, there are 
questions regarding conformity with international standards and sound 
scientific justification.
    Investment Barriers: The national foreign investment commission 
decides questions of foreign investment in Mexico. The country's 
constitution and Foreign Investment Law of 1992 reserve certain sectors 
to the state, such as oil and gas extraction and the transmission of 
electrical power, and a range of activities to Mexican nationals (for 
example, forestry exploitation, domestic air and maritime 
transportation.) Despite remaining restrictions, the Foreign Investment 
Law greatly liberalized foreign investment, eliminating the requirement 
for government approval in around 95 percent of foreign investments. 
The constitution was amended in 1995 to allow foreign investment in 
railroads, telecommunications and satellite transmission. An initiative 
to privatize the country's secondary petrochemical complexes did not 
succeed because it would have limited foreign investors to only 49 
percent ownership of existing facilities. Newly built petrochemical 
plants may have up to 100 percent foreign investment.
    Provisions contained in NAFTA opened Mexico to greater U.S. and 
Canadian investment by assuring U.S. and Canadian companies' national 
treatment, the right to international arbitration and the right to 
transfer funds without restrictions. NAFTA also eliminated some 
barriers to investment in Mexico such as trade balancing and domestic 
content requirements. These barriers are also being phased out in some 
sectors, such as automobile manufacturing. Mexico additionally has 
implemented its commitment under NAFTA to allow the private ownership 
and operation of electric generating plants for self-generation, co-
generation, and independent power production. In 1995, Mexico issued 
regulations for the first time allowing private sector participation in 
the transportation, distribution and storage of natural gas. Contracts 
let in 1997 and 1998 under the new regulations constitute one of the 
major success stories in Mexico's ongoing infrastructure development. 
In 1999, Mexico eliminated a four percent tariff on imports of natural 
gas, further liberalizing the sector.
    Investment restrictions still prohibit foreigners from acquiring 
title to residential real estate within 50 kilometers of the nation's 
coasts and 100 kilometers of the borders. However, foreigners may 
acquire the effective use of residential property in the restricted 
zones via a trust through a Mexican bank. At this time, only Mexican 
nationals may own gasoline stations, whose gasoline is supplied by 
PEMEX, the state-owned petroleum monopoly. These gasoline stations also 
only carry PEMEX lubricants, although other lubricants are manufactured 
and sold in Mexico. Both foreigners and Mexican citizens themselves 
encounter problems with enforcement of property rights.
    Government Procurement Practices: There is no central government 
procurement office in Mexico. Government agencies and public 
enterprises use their own purchasing offices to buy from qualified 
domestic or foreign suppliers, subject to guidelines issued by the 
comptroller's secretariat. In 1991, Mexico abandoned the rule that 
state-owned enterprises give preference in procurement to national 
suppliers. Suppliers from all countries may bid on most government 
tenders, and requirements for participation are the same for foreign 
and domestic suppliers. Because NAFTA allows some smaller contracts for 
goods, services or construction to be let without requiring them to be 
open to suppliers from all NAFTA countries, the Procurement Law enacted 
in 1994 distinguishes between procurement contests open to national 
versus international suppliers. The law, however, acknowledges Mexico's 
procurement obligations under NAFTA and other international trade 
agreements. Some companies have complained that Mexican government 
agencies do not always follow the procedural procurement requirements 
established by NAFTA. For example, a number of bid requests require 
tender submission in less than the 40 days established by NAFTA.
    A specific preferential treatment in public procurement is granted 
to domestic drug suppliers (which includes foreign companies 
established in Mexico). NAFTA gradually increases U.S. suppliers' 
access to the Mexican government procurement market, including PEMEX 
and the Federal Electricity Commission (CFE), which are the two largest 
purchasing entities in the Mexican Government. Under NAFTA, Mexico 
immediately opened 50 percent of PEMEX and CFE bids to competition by 
suppliers from NAFTA Parties. Each year, that percentage will increase 
until all PEMEX and CFE bids which are above the NAFTA value threshold 
will be open to goods and suppliers from NAFTA Parties. PEMEX and CFE 
procurement will be open by 2004.
    Customs Procedures: In 1996 Mexico enacted a new Customs Law that 
simplified a number of procedures. The law transfers a number of 
obligations to private sector customs brokers who are subject to 
sanctions if they violate customs procedures. As a result, some brokers 
have been very restrictive in their interpretation of Mexican 
regulations and standards. In an attempt to combat under-invoicing and 
other forms of customs fraud, Mexican customs also maintains (and in 
some cases has significantly expanded) measures that can impede 
legitimate imports, including an industry sector registry and reference 
prices. Importers of more than 400 different agricultural, textile, 
electronic, automotive, and other products from the United States and 
elsewhere currently must demonstrate payment of taxes and formally 
register with the Secretariat of Finance every twelve months. The 
registration process can be burdensome and time consuming, and no grace 
period is granted when new products become subject to the requirement. 
Mexico's reference pricing practice obligates importers of many of the 
same items to post a bond covering the difference in duties and taxes 
if the declared customs value of the good is below an official 
``estimated'' or ``reference'' price. Unless the government initiates 
an investigation, bonds generally are returned after six months. 
Importers can obtain expedited release of their guarantees if the 
exporting company provides a certified invoice authenticated by its 
local chamber of commerce. Reference prices are set in a non-
transparent and apparently arbitrary manner, and the practice may 
increase the cost of shipping certain U.S. products across the border 
and effectively restore tariffs on goods that would otherwise enter 
duty-free under the NAFTA. The Secretariat of Finance intended to 
replace the current bond system with a potentially more onerous cash 
deposit requirement in 1999, but has postponed the measure until April 
2000. The United States believes this policy is inconsistent with 
Mexico's international obligations.
6. Export Subsidies Policies
    The government has not had an export subsidy program. Provisions 
for promoting exports in the Foreign Trade Law have been limited to 
training and assistance in finding foreign sales leads, project 
financing (at market rates) for export oriented business ventures, and 
special tax treatment for companies that have significant export sales.
7. Protection of U.S. Intellectual Property
    Mexico is a member of the major international organizations 
regulating the protection of Intellectual Property Rights (IPR): the 
World Intellectual Property Organization (WIPO), the Geneva Convention 
for the Protection of Phonograms against Unauthorized Duplication of 
their Phonograms; the Berne Convention for the Protection of Literary 
and Artistic Works (1971); the Paris Convention for the Protection of 
Industrial Property (1967); the International Convention for the 
Protection of New Varieties of Plants; the Universal Copyright 
Convention, and the Brussels Satellite Convention.
    Mexico has implemented NAFTA obligations providing for 
nondiscriminatory national treatment of IPR matters, establishing 
certain minimum standards for protection of sound recordings, computer 
programs and proprietary data, and by providing express protection for 
trade secrets and proprietary information. The term of patent 
protection is 20 years from the date of filing. Trademarks are granted 
for 10-year renewable periods. The government continues to strengthen 
its domestic legal framework for protecting intellectual property. In 
1997 it implemented a new Copyright Law and amended its penal code to 
strengthen penalties against copyright piracy. In 1999 it again 
modified its penal code for copyright and trademark piracy, classifying 
them as felonies and increasing penalties. Mexico passed a law in 1996 
providing protection to plant species, and in 1998 provided protection 
for integrated circuits.
    In spite of the legal protection, the level of piracy and 
counterfeiting remains high in Mexico. Although federal authorities 
conduct investigations and carry out raids against pirates, there have 
been few criminal convictions stemming from these actions. Of the 
hundreds of raids carried out on behalf of the motion picture, 
recording, and software industries in 1998, the U.S. Government is only 
aware of one conviction for piracy. The government launched an anti-
piracy campaign in November 1998, including increased raids, stronger 
penalties for piracy, and a public awareness campaign. By classifying 
IPR piracy as a felony, individuals indicted for piracy cannot qualify 
for bail. As a result, a number of indicted pirates have been 
incarcerated while awaiting trail. It remains to be seen whether the 
campaign will increase the number of convictions. U.S. industry remains 
skeptical of the efforts made by the Mexican Government, particularly 
since the Attorney General's office (PGR), which carries out these 
criminal investigations, did not receive increased funding in the 
legislative package. Mexico has not been in full compliance with NAFTA 
or with the TRIPs Agreement in a number of areas, including copyright, 
protection of test data, plant varieties, and enforcement. As a result, 
Mexico was placed on the ``Special 301'' Watch List in 1999, 
particularly because of the high level of piracy.
8. Worker Rights
    a. The Right of Association: The constitution and the Federal Labor 
Law (FLL) give workers the right to form and join trade unions of their 
own choosing. Mexican trade unionism is well developed with about 25 
percent of the work force members in thousands of unions. Although no 
prior approval is required to form unions, they must register with the 
Federal Labor Secretariat or state labor boards to gain legal status. 
Federal or state authorities reportedly sometimes use this 
administrative procedure to withhold registration from groups 
considered disruptive to government policies, employers, or unions. 
Union registration was the subject of follow-up activities in 1996, 
1997, 1998, and 1999, pursuant to a 1995 agreement reached in 
ministerial consultations under the North American Agreement on Labor 
Cooperation (the NAFTA labor side agreement).
    Unions, federations, and labor centrals freely affiliate with 
international trade union organizations. The FLL protects labor 
organizations from government interference in their internal affairs. 
The law permits closed shop and exclusion clauses, allowing union 
leaders to vet and veto new hires and force dismissal of individuals 
the union expels. Such clauses are common in collective bargaining 
agreements. Again in 1998, the committee of experts of the 
International Labor Organization (ILO) found that such restrictions 
violate freedom of association, and asked the Mexican Government to 
amend these provisions. A 1996 Mexican supreme court decision 
invalidated similar restrictions in the laws of two states, and in 1999 
the same court ruled that public sector entities could not require that 
only one union represent workers.
    Most labor confederations, federations and separate national unions 
are allied with the governing Institutional Revolutionary Party (PRI). 
Union officers help select, run as, and campaign for PRI candidates in 
federal and state elections, and support PRI government policies at 
crucial moments. This gives the unions some influence on government 
policies, but limits their freedom of action. Rivalries within and 
between PRI-allied organizations are strong. A smaller number of labor 
federations and independent unions are not allied to the PRI.
    b. The Right to Organize and Bargain Collectively: The FLL strongly 
upholds this right. The public sector is almost totally organized. 
Industrial areas are also heavily organized. The law protects workers 
from antiunion discrimination but enforcement is uneven. Industry or 
sectoral agreements carry the weight of law in some sectors and apply 
to all sector firms, unionized or not, though this practice is becoming 
less common. The FLL guarantees the right to strike. On the basis of 
interest by a few employees, or a strike notice by a union, an employer 
must negotiate a collective bargaining agreement or request a union 
recognition election. In 1995, at union insistence, annual national 
pacts negotiated by the government and major trade union, employer and 
rural organizations ceased to limit free collective bargaining, which 
had been done for the past decade. The government, major employers, and 
unions meet periodically to discuss labor relations under the ``new 
labor culture'' mechanism. The government remains committed to free 
collective bargaining without guidelines or interference.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced labor and none has been reported in many years.
    d. Minimum Age for Employment of Children: The FLL sets 14 as the 
minimum age for employment, but those under 16 may work only six hours 
a day, with prohibitions against overtime, night labor, and performing 
hazardous tasks. Enforcement is reasonably good at large and medium-
sized companies but is inadequate at small companies and in agriculture 
and is nearly absent in the informal sector. The ILO reports 18 percent 
of children aged 12 to 14 work, often for parents or relatives. Most 
child labor takes place in the informal sector (including myriad street 
vendors and in thousands of family workshops), and in agriculture. 
Although enforcement is spotty, the government formally requires that 
children attend a minimum of nine years of school and has the ability 
to hold parents legally liable for their children's nonattendance. The 
government has a cooperative program with UNICEF to increase 
educational opportunities for youth.
    e. Acceptable Conditions of Work: The FLL provides for a daily 
minimum wage set annually, usually effective January 1 by the 
tripartite (government/labor/employers) National Minimum Wage 
Commission. Any party may ask the commission to reconvene to consider a 
special increase. In December 1998 the commission adopted a 14 percent 
increase. In Mexico City and nearby industrial areas, Acapulco, 
southeast Veracruz state's refining and petrochemical zone and most 
border areas, the daily minimum wage has been 34.45 pesos ($4.00 in 
early November 1998). However, daily minimum wage earners actually are 
paid 39.27 pesos due to a 14 percent supplemental fiscal subsidy (tax 
credit to employers). Approximately 47.4 percent of the labor force 
earns the daily minimum wage or less. Industrial workers, under 
collective bargaining contracts, tend to average three to four times 
the daily minimum wage.
    The law and collective agreements also provide extensive additional 
benefits. Those benefits which are legally required include social 
security (IMSS), medical care and pensions, individual worker housing 
and retirement accounts, substantial Christmas bonuses, paid vacations, 
profit sharing, maternity leave, and generous severance packages. 
Employer costs for these benefits run from 27 percent of payroll at 
small enterprises to over 100 percent at major firms with strong union 
contracts. Eight hours is the legal workday and six days the legal 
workweek, with pay for seven. Workers who are asked to exceed three 
hours of overtime per day or work overtime on three consecutive days 
receive triple the normal wage for that overtime. For most industrial 
workers, especially under union contract, the true workweek is 42 hours 
with seven day's pay. This is why unions jealously defend the legal ban 
on hiring and paying wages by the hour.
    Mexico's Occupational Safety and Health (OSH) laws and rules are 
relatively advanced. Completely revised regulations were published in 
1997. Employers must observe ``general regulations on safety and health 
in the work place'' (which reflects close NAFTA consultation and 
cooperation) issued jointly by the Labor Secretariat (STPS) and the 
Social Security Institute (IMSS). FLL-mandated joint labor-management 
OSH committees at each plant and office meet at least monthly to review 
workplace safety and health needs. Individual employees or unions may 
complain directly to STPS/OSH officials; workers may remove themselves 
from hazardous situations without reprisal and bring complaints before 
the Federal Labor Board at no cost. STPS and IMSS officials report 
compliance is reasonably good at most large companies, though federal 
inspectors are stretched too thin for effective comprehensive 
enforcement. There are special problems in construction, where 
unskilled, untrained, and poorly educated transient labor is common.
    f. Rights in Sectors with U.S. Investment: Conditions do not differ 
from those in other industrialized sectors of the Mexican economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  235
Total Manufacturing............  ..............  14,267
  Food & Kindred Products......  4,744           ...............................................................
  Chemicals & Allied Products..  2,203           ...............................................................
  Primary & Fabricated Metals..  438             ...............................................................
  Industrial Machinery and       831             ...............................................................
   Equipment.
  Electric & Electronic          569             ...............................................................
   Equipment.
  Transportation Equipment.....  2,066           ...............................................................
  Other Manufacturing..........  3,415           ...............................................................
Wholesale Trade................  ..............  1,092
Banking........................  ..............  591
Finance/Insurance/Real Estate..  ..............  4,206
Services.......................  ..............  1,108
Other Industries...............  ..............  4,378
TOTAL ALL INDUSTRIES...........  ..............  25,877
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               NICARAGUA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment
  Nominal GDP \2\......................    2,018.3    2,099.0    2,231.2
  Real GDP Growth (pct) \2\ \3\ \4\....        5.0        4.0        6.3
  GDP by Sector: \2\
    Agriculture \4\....................      575.0      632.5      663.5
    Manufacturing......................      418.9      431.2      479.9
    Services \5\.......................      865.6      887.2      941.3
    Government.........................      158.2      148.2      145.1
  Per Capita GDP (US$).................      436.0        431      453.7
  Labor Force (000's)..................    1,567.5    1,630.1    1,695.4
  Unemployment Rate (pct)..............       14.3       12.3       11.0

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............       50.1       20.0       21.9
  Consumer Price Inflation (pct)D7.3...       18.5       10.5
  Exchange Rate (Cordobas/US$-annual
 average)
    Official...........................        9.5       10.5       11.6
    Parallel...........................        9.5       10.6       11.7

Balance of Payments and Trade
  Total Exports FOB \6\................      703.6      573.2      573.7
    Exports to U.S.\7\.................        439      453.0      486.0
  Total Imports CIF \6\................   -1,371.4   -1,383.6   -1,593.1
    Imports from U.S.\7\...............       -290     -337.0       -370
  Trade Balance \6\....................     -667.8     -810.4   -1,019.4
    Balance with U.S.\7\...............         49         16         16
  External Public Debt (US$ bns).......        6.1        6.2        6.5
  Fiscal Deficit/GDP (pct).............        7.5        2.2        3.0
  Current Account Deficit/GDP (pct)....       40.3       39.0       38.0
  Debt Service Payments/GDP (pct)......       19.4       15.6       16.0
  Gold and Foreign Exchange Reserves...      387.0      356.0      400.0
  Aid from U.S.\8\.....................       27.0       70.0        N/A
  Aid from All Other Sources...........      292.0        N/A        N/A
------------------------------------------------------------------------
\1\ All 1999 figures are Central Bank projections based on data
  available in October 1999.
\2\ 1997 and 1998 GDP data revised by Central Bank in October 1999.
\3\ Percentage changes calculated in local currency.
\4\ Includes livestock, fisheries, and forestry.
\5\ Includes construction and mining.
\6\ Merchandise trade.
\7\ Source: U.S. Department of Commerce; 1999 figures are estimates
  based on trade data through August 1999.
\8\ Source: Embassy estimate of assistance from AID, USDA, and U.S.
  military for Hurricane Mitch relief.

1. General Policy Framework
    Nicaragua has made considerable progress since 1990 in moving from 
a centralized to a market-oriented economy. The country has liberalized 
its foreign trade regime, brought inflation under control, and 
eliminated foreign exchange controls. With the inauguration of 
President Arnoldo Aleman in January 1997, Nicaragua began to quicken 
the pace of its opening to foreign trade. The economy grew by 4 percent 
in 1998. To foster macroeconomic stability, the Aleman administration 
signed an Economic Structural Adjustment Facility (ESAF) program with 
the IMF in January 1998. Growth in 1999 is projected at 6.3 percent.
    At the end of its third year in office, the Aleman administration 
faced important economic challenges including: meeting the targets of 
an Enhanced Structural Adjustment Facility (ESAF) with the 
International Monetary Fund; reconstructing infrastructure devastated 
by Hurricane Mitch; making progress on the resolution of thousands of 
Sandinista-era property confiscation cases; and reducing unemployment 
and poverty in the hemisphere's second-poorest nation. Nicaragua's 
large current account deficit and fiscal deficit are counterbalanced by 
strong inflows of foreign assistance and private capital.
    Nicaragua is essentially an agricultural country with a small 
manufacturing base. The country is dependent on imports for most 
manufactured, processed, and consumer items. A member of the World 
Trade Organization, Nicaragua has reduced tariffs sharply and 
eliminated most non-tariff barriers. Private investment, from both 
domestic and foreign sources, is rising and the private banking sector 
continues to expand. Agriculture, construction, and the export sector 
have led Nicaragua's recent economic growth. The United States is 
Nicaragua's largest trading partner, with both exports and imports 
expanding in recent years.
2. Exchange Rate Policy
    Since January 1993, the Nicaraguan government has followed a 
crawling-peg devaluation schedule. The cordoba to dollar rate is 
adjusted daily. The GON reduced the devaluation rate at 9 percent in 
July 1999 and planned to reduce it further to 6 percent by the end of 
the year. A legal parallel exchange market supplies foreign currency 
for all types of exchange transactions. The spread between the official 
and parallel markets was under one half-percent in 1999. The government 
eliminated all significant restrictions on the foreign exchange system 
in 1996.
3. Structural Policies
    Pricing Policies: The Nicaraguan government maintains price 
controls only on sugar, domestically produced soft drinks, certain 
petroleum products, and pharmaceuticals. However, in the past, the 
government has negotiated voluntary price restraints with domestic 
producers of important consumer goods. During the aftermath of 
Hurricane Mitch, the government instructed distributors of basic food 
products to maintain stable food prices. However, that control no 
longer exists.
    Tax Policies: Nicaragua is in the process of implementing 
progressive import tax reductions through the year 2002. Since January 
1998, Nicaragua has imposed regular import duties (DAI) of 15 percent 
on final consumption goods and 10 percent on intermediate goods (there 
is no DAI on raw materials and capital goods produced outside of 
Central America, but raw materials and capital goods imported form any 
Central American country carries a 5 percent DAI). Some 900 items are 
levied with a temporary protection tariff (ATP) of 5 to 10 percent. The 
maximum rate of the combined DAI and ATP is 25 percent. A luxury tax is 
levied through the specific consumption tax (IEC) on 609 items that 
generally is lower than 15 percent. DAI, ATP and IEC are based on CIF 
value. Nicaragua levies a 15 percent value added tax (IGV) on most 
items, except agricultural inputs. Import duties on so-called 
``fiscal'' goods (e.g., tobacco, soft drinks, and alcoholic beverages) 
are particularly high. Importers of many items face a total import tax 
burden of 15 to 45 percent. In November 1999, Nicaragua raised tariffs 
on corn, sorghum, and rice in response to low world prices. This 
increase was done as a presidential decree, which must be renewed every 
thirty days.
    Nicaragua's 1997 tax reform law marked an important step by the 
Aleman administration towards fostering Nicaragua's insertion into the 
global economy. The reform: a) banned almost all non-tariff barriers on 
imports; b) eliminated the discretion of government officials to 
exonerate tariffs; c) repealed the restrictive Law on Agents, 
Representatives or Distributors of Foreign Firms; d) established a 
``rebate'' of 1.5 percent of FOB value for all exports; e) eliminated 
IGV on several activities; g) reduced municipal taxes from 2 to 1.5 
percent in 1998 and to 1 percent in 2000; h) eliminated income tax on 
interest and capital gains stemming from transactions on the local 
stock exchange; and i) set a schedule of progressive import tax 
reductions through the year 2002.
    In March 1999, the National Assembly passed a new package of 
reforms that situated Nicaragua ahead of the rest of the Central 
American countries in lowering tariffs and reducing exemptions. The 
reform established: a) tax exemptions for NGOs (non-governmental 
organizations) as long as they perform non-profit activities; b) 
exemptions on import taxes (DAI), luxury taxes (IEC), and sales taxes 
(IGV) for hospital investments; c) simplified taxes on vehicles based 
on engine size (this reform helped alleviate the discriminatory tariff 
treatment on some U.S. vehicles that have bigger engines than their 
Japanese competitors); exemption of DAI, ATP and IGV on crude or 
partially-refined petroleum, as well as on liquid gas and other 
petroleum derivatives; e) intermediate goods, and raw materials 
destined for the agricultural sector, small handicraft industry, 
fishing and aquaculture. In December 1999, Nicaragua instituted a 35 
percent tariff on all goods from Honduras as a retaliatory measure for 
Honduras signing a maritime border delineation agreement with Colombia.
4. Debt Management Policies
    The previous administration of Violeta Chamorro inherited a $10.7 
billion debt from the Sandinista regime in 1990. Over the next eight 
years, Nicaragua negotiated a series of deals that reduced its stock of 
debt to $6.2 billion. Despite this progress, Nicaragua's debt, at 
almost three times GDP, remains high. Accordingly, the Aleman 
government has made debt reduction a top priority. In April 1998, the 
Paris Club creditors and the Nicaraguan government reached an agreement 
on the terms and conditions for reducing and rescheduling Nicaragua's 
official debt. In response to damage caused by Hurricane Mitch, the 
Paris Club agreed in December 1998 to defer all debt service payments 
through February 2001. Another promising avenue for debt reduction of 
multilateral debt is through the Heavily Indebted Poor Countries (HIPC) 
Initiative. Largely because of its strong economic performance, 
Nicaragua was admitted in the HIPC program in late 1999. However, the 
HIPC decision point (conclusion of negotiations over HIPC progress 
indicators) had not been reached by year's end.
5. Aid
    Nicaragua is highly dependent on foreign aid to cover its trade and 
fiscal deficits. More than half of its assistance is provided by 
multilateral financial institutions like the Inter-American Development 
Bank and World Bank. European countries, Japan, Taiwan, and the United 
States are also major donors. Since 1990, the United States has 
provided more than $1 billion in assistance and debt-relief to 
Nicaragua. That money has funded such projects as balance of payments 
support for economic stabilization, primary education, health care 
reform, employment generation, food donations, and the strengthening of 
democratic institutions. In May 1999 as part of relief for damage 
caused by Hurricane Mitch, donor countries in Stockholm for a 
Consultative Group meeting agreed to provide Nicaragua with nearly $3 
billion in assistance and concessionary loans; this figure included 
funds already disbursed immediately following Hurricane Mitch. The U.S. 
commitment totaled nearly $100 million. Nicaragua is not believed to 
receive extensive amounts of military equipment from any third country, 
although Spain, Mexico, Taiwan, and France, among others, do provide 
training.
6. Significant Barriers to U.S. Exports
    Import Licenses: In most cases, the issuance of import licenses is 
a formality. Permits are required only for the importation of sugar, 
firearms and explosives. U.S. exporters of food products must meet some 
phytosanitary requirements.
    Services Barriers: Although 11 private banks are now operating, no 
U.S. bank has yet re-entered the Nicaraguan financial market. 
Legislation passed in 1996 opened the insurance industry to private 
sector participation and four private insurance companies have been 
formed. No U.S. insurance company has entered the Nicaraguan market, 
either.
    Investment Barriers: Remittance of 100 percent of profits and 
original capital three years after investment is guaranteed through the 
Central Bank at the official exchange rate for those investments 
registered under the Foreign Investment Law. Investors who do not 
register their capital may still make remittances through the parallel 
market, but the government will not guarantee that foreign exchange 
will be available. The U.S. Embassy is aware of no investor who has 
encountered remittance difficulties since the inception of the Foreign 
Investment Law in 1991. The fishing industry remains protected by 
requirements involving the nationality and composition of vessel crews, 
and a requirement for domestic processing of the catch. Expropriation 
still remains a problem, as the government has failed to set up 
property courts as promised to resolve the expropriations that occurred 
under the Sandinista government.
    Customs Procedures: Importers complain of steep secondary customs 
costs, including customs declaration form charges and consular fees. In 
addition, importers are required to utilize the services of licensed 
customs agents, adding further costs. Nicaragua has committed itself to 
implement WTO customs valuation procedures by September 2000, which 
will end the use of reference prices to determine import tax 
valuations.
    Private Property Rights: The need to resolve thousands of cases of 
homes, businesses and tracts of land confiscated without compensation 
by the Sandinista government during the 1980s remains a divisive issue 
in Nicaragua. The Nicaraguan government has made the resolution of 
these cases a priority. Nonetheless, potential investors must carefully 
verify property titles before purchase.
    In 1996, Nicaragua ratified the United States-Nicaragua Bilateral 
Investment Treaty that is designed to improve protection for investors. 
The treaty has not yet been submitted to the U.S. Senate for 
ratification.
7. Export Subsidy Policies
    All exporters receive tax benefit certificates equivalent to 1.5 
percent of the FOB value of the exported goods. Foreign inputs for 
Nicaraguan export goods from the country's free trade zones enter duty-
free and are exempt from value-added tax.
8. Protection of U.S. Intellectual Property
    Nicaragua belongs to the World Trade Organization (WTO) and the 
World Intellectual Property Organization (WIPO). It is signatory to the 
Paris Convention, Mexico Convention, Buenos Aires Convention, Inter-
American Copyrights Convention, Universal Copyright Convention, and the 
Satellites Convention.
    The government has indicated a firm commitment to providing 
adequate and effective intellectual property rights protection. 
However, current levels of protection still do not meet international 
standards. Although unable to dedicate extensive resources to 
protecting intellectual property rights, Nicaragua is working to 
modernize its intellectual property rights regime. In January 1998, 
Nicaragua and the United States signed a bilateral IPR agreement 
covering patents, trademarks, copyright, trade secrets, plant 
varieties, integrated circuits, and encrypted satellite signals. In 
1999, the National Assembly approved a new copyright law, a plant 
variety protection law, and a law on the protection of satellite 
signals. Draft laws on integrated circuit design and patents still 
require a vote in the National Assembly. The Presidency is reviewing 
draft laws on trademarks.
    Trademarks: Protection of well-known trademarks is a problem area 
for Nicaragua. Current procedures allow individuals to register a 
trademark without restriction for a renewable 10-year period at a low 
fee.
    Copyrights: Pirated videos are readily available in video rental 
stores nationwide, as are pirated audiocassettes and software. In 
addition, cable television operators are known to intercept and 
retransmit U.S. satellite signals, a practice that continues despite a 
trend of negotiating contracts with U.S. sports and news satellite 
programmers. According to estimates by the International Intellectual 
Property Alliance (IIPA), U.S. copyright-based industries' losses in 
Nicaragua due to piracy were $5.7 million in 1998. On August 21, 1999, 
the new copyright law went into effect; however, criminal penalties are 
delayed for 6-12 months. The U.S. Government and the industry hope to 
work with the Nicaraguan Government to provide training for effective 
enforcement.
9. Worker Rights
    a. The Right of Association: The Constitution provides for the 
right of workers to organize voluntarily in unions. The 1996 labor code 
reaffirmed this right. Less than half of the formal sector workforce, 
including agricultural workers, is unionized, according to labor 
leaders. The Constitution recognizes the right to strike. Unions freely 
form or join federations or confederations, and affiliate with and 
participate in international bodies.
    b. The Right to organize and Bargain Collectively: The Constitution 
provides for the right to bargain collectively. According to the 1996 
labor code, companies engaged in disputes with employees must negotiate 
with the employees' union if they are organized.
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced or compulsory labor. There is no evidence that it is 
practiced.
    d. Minimum Age for Employment of Children: The Constitution 
prohibits child labor that can affect normal childhood development or 
interfere with the obligatory school year. The 1996 labor code raised 
the age at which children may begin working with parental permission 
from 12 to 14. Parental permission is also required for 15 and 16 year-
olds. The law limits the workday for such children to 6 hours and 
prohibits work at night. However, because of the economic needs of many 
families and lack of effective government enforcement mechanisms, child 
labor rules are rarely enforced, except in the small, formal sector of 
the economy.
    e. Acceptable Conditions of Work: The 1996 labor code maintains the 
constitutionally mandated 8-hour workday. The standard legal workweek 
is a maximum of 48 hours, with one day of rest. The 1996 code 
established that severance pay shall be from one to five months' 
duration, depending on the length of employment and the circumstances 
of termination. The code also seeks to bring the country into 
compliance with international standards of workplace hygiene and 
safety, but the Ministry of Labor lacks adequate staff and resources to 
enforce these provisions. Minimum wage rates were raised in November 
1997, but the majority of urban workers earn well above the minimum 
rates.
    f. Rights in Sectors with U.S. Investment: Labor conditions in 
sectors with U.S. investment do not differ from those in other sectors 
of the formal economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing:...........  ..............  4
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  4               ...............................................................
  Metals, Primary & Fabricated.  (\2\)           ...............................................................
  Machinery, except Electrical.  0               ...............................................................
  Electric & Electronic........  0               ...............................................................
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  153
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than US$ 500,000.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 PANAMA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................     8,700     9,143     9,608
  Real GDP (1982 prices)..................     6,657     6,932     7,126
  Real GDP Growth (pct)...................       4.5       4.1       3.1
  Real GDP by Sector (1982 prices):
    Agriculture...........................       429       445       457
    Manufacturing.........................     1,231     1,290     1,368
    Services..............................     3,964     4,185     3,935
    Government............................       961       970     1,005
  Real Per Capita GDP (US$)...............     2,454     2,509     2,545
  Labor Force (000's).....................     1,049     1,083     1,089
  Unemployment Rate (pct).................      13.4      13.6      11.6

Money and Prices (annual percentage
 growth):
  Money Supply (M2) Growth (pct) \2\......       0.8      -0.1       N/A
  Consumer Price Inflation................       1.2       0.6         1
  Exchange Rate (Balboa/US$ annual                 1         1     \3\ 1
   average)...............................

Balance of Payments and Trade:
  Total Exports FOB \4\...................       648       705       810
    Exports to U.S........................       293       282       296
  Total Imports CIF \4\...................     2,992     3,398     3,440
    Imports from U.S......................     1,103     1,350     1,230
  Trade Balance \4\.......................    -2,344    -2,510     2,630
    Balance with U.S......................      -810     1,068      -934
  Colon Free Zone \5\
    Exports...............................     6,268     6,001     5,160
    Imports...............................     5,513     5,318     4,230
  External Public Debt....................     5,051     5,179  \6\ 5,58
                                                                       0
  Fiscal Deficit (-)/GDP (pct)\7\..............................
  Current Account Deficit (-)/GDP (pct)...      -6.6      13.5       N/A
  Debt Service Ratio (pct)................      12.2      13.4      13.5
  Gold and Foreign Exchange Reserves \8\..     1,148       954       N/A
  Aid from U.S............................       9.3       7.1       5.5
  Aid from All Other Sources..............       226       N/A       N/A
------------------------------------------------------------------------
\1\ Figures for 1999 are estimated unless otherwise indicated.
\2\ Figure is based on IMF 9/99 International Financial Statistics. M2 =
  Deposit Money + Quasi Money.
\3\ The balboa/dollar exchange rate is fixed at 1:1. The legal tender is
  the U.S. Dollar, so there is no parallel exchange rate.
\4\ Trade statistics do not include the Colon Free Zone.
\5\ The Colon Free Zone (CFZ) is the largest free trading area in the
  hemisphere.
\6\ External debt balance on 6/30/99.
\7\ Figures indicate deficit of the non-financial public sector as
  percent of GDP.
\8\ Figure is based on IMF 9/98 International Financial Statistics.
  Panama reports no gold holdings.

1. General Policy Framework
    Panama's economy is based on a well-developed services sector that 
accounts for well over 50 percent of GDP. Services include the Panama 
Canal, container port activities, flagship registry, banking, 
insurance, government, and wholesaling and distribution out of the 
Colon Free Zone. The industrial sector, which accounts for 19 percent 
of GDP, is made up of manufacturing, mining, utilities, and 
construction. Agriculture, forestry and fisheries account for 8 percent 
of GDP.
    The previous Government of Panama (GOP) implemented various 
economic policy reforms, including liberalization of Panama's trade 
regime, privatization of some state-owned enterprises, and 
restructuring of a government pension program. A Banking Reform Law was 
enacted in 1998, and in July 1999 a new law regulating securities 
markets was approved. Implementing regulations for the Bank Reform and 
Securities Laws have yet to be enacted. The incoming administration of 
Mireya Moscoso (September 1999) reversed some of the tariff reductions 
of the previous government. Until then, Panama, a newcomer to the World 
Trade Organization (WTO), had the lowest tariffs in Latin America. The 
Moscoso hike took agricultural goods' tariffs to the top limits of 
Panama's WTO accession binding, with some levies reaching 300 percent. 
It is as yet unclear what the current GOP's plan is to achieve its main 
priority of alleviating poverty and improving social services. 
Privatization of the few remaining inefficient government enterprises 
has been put on hold while the GOP explores options to finance social 
spending, possibly with the fund established with the proceeds of 
previous privatizations and the sale of properties ceded by the 
departure of the U.S. military.
    The economy grew 4.1 percent in real terms in 1998, down from 4.5 
percent in 1997. The GOP estimates growth in 1999 of slightly above 3 
percent. Economic growth has been hindered by the continued slump of 
the Colon Free Zone, which has seen a sales decline of over 20 percent 
in 1999. The main culprit for this is recession in the economies of the 
Free Zone's principal customers Venezuela, Colombia and Ecuador. Severe 
rains and flooding hurt Panamanian agricultural production, which had 
managed to expand by over 6 percent in the first half of the year. 
Construction and consumer spending have maintained a vigorous pace, 
fueled mainly by easy bank credit.
    The use of the U.S. Dollar as Panama's currency means fiscal policy 
is the government's only macroeconomic policy instrument. Therefore, 
government spending and investment are strictly bound by tax and non-
tax revenues, as well as by the government's ability to borrow. The 
latter may be reaching its upper limits, as Panama's overall debt 
exceeds 70% of GDP.
2. Exchange Rate Policy
    Panama's official currency, the balboa, is pegged to the dollar at 
a 1:1 ratio. The balboa circulates in coins only. All paper currency in 
circulation is U.S. currency. The fixed parity means the 
competitiveness of U.S. products in Panama depends on transportation 
costs as well as tariff and non-tariff barriers to entry. U.S. exports 
have no risk of foreign exchange losses on sales in Panama.
3. Structural Policies
    The government of President Mireya Moscoso has not yet adequately 
articulated an economic plan. In her election campaign, Moscoso 
promised to repeal the drastic reduction of agricultural tariffs by her 
predecessor, and to improve the lot of Panama's poor, specially the 
rural poor. The GOP has not undertaken any further initiatives toward 
trade liberalization nor reduction of structural economic distortions. 
Privatization of the state-run water and sewage company (IDAAN) is off 
the table, and similar plans for the international airport and a 
convention center are on hold. Progress to attract investment to the 
reverted areas has been stalled due to the government transition and, 
subsequently, a personal feud between Moscoso and the head of the 
agency in charge of this task. Panama was close to completing a free 
trade agreement with Mexico and with Chile, but talks bogged down over 
differences in the financial services sector and over Panama's 
agricultural tariff hike. Panama recently imposed draconian 
restrictions on Nicaraguan meat, prompting Nicaragua to retaliate. Its 
seizure of a large shipment of Canadian evaporated milk under a 
specious pretext will likely land Panama before a WTO dispute 
resolution panel.
    Foreign investment, much of it American, flowed into Panama at a 
steady pace under the former Perez-Balladarez administration. American 
energy, telecommunications and port/cargo companies invested 
significant amounts in newly deregulated and/or privatized sectors and 
companies. American products and services are widely available in 
Panama. However, the current government has done little to court new 
investors. Inter-GOP bickering has discouraged investor groups 
interested in developing the recently reverted Howard Air Force Base. 
And groundbreaking for construction of the $75 million Panama Canal 
Railway (a joint venture of two US firms) has been delayed by red tape 
and a lack of cooperation by GOP authorities. Several disputes between 
the GOP and American companies remain unresolved.
    The restrictive Panamanian Labor Code was revised in 1995, though 
strong opposition allowed only marginal reform. Unions continue to 
oppose reform initiatives, on occasion violently. In 1996, a special 
labor regime for export processing zones was created by executive 
decree. The constitutionality of the decree was challenged and the 
question is presently pending before the Supreme Court. Notwithstanding 
several health and housing programs, the government estimates that over 
40 percent of Panamanians live in poverty. Considering the relatively 
high per capita income level of over $3,550 (current dollars), Panama's 
historically skewed income distribution does not appear to be abating. 
Panama's Constitution requires that the minimum wage be reviewed every 
three years, due in 2000. The new GOP has sought to accelerate the 
review, although it has not called forcefully for a specific increase.
4. Debt Management Policies
    Panama's public external debt totaled $5.58 billion dollars at mid-
1999 and carried a rating from various independent agencies of 
``medium--below investment grade''. Panama's outstanding domestic debt 
was $1.7 billion at mid-year. The newly installed government has stated 
publicly its reluctance to take on more foreign debt, and its first 
government budget seems consistent with this premise. Debt service 
(principal and interest) exceeds $1 billion per year. The current GOP 
is studying mechanisms for paying down some of its debt, possibly with 
proceeds from the sale of the GOP's investment in the private telephone 
monopoly run by Cable and Wireless (UK).
5. Aid
    Development assistance from the United States through October 1999 
totaled $4.8 million. In addition, the United States Department of 
Agriculture's Animal and Plant Health Inspection Service (APHIS) 
operates a screw worm eradication program in Panama. In 1999 it spent 
approximately $15 million in this effort. APHIS plans to build a 
sterile screw worm fly plant in Panama at a cost of roughly $80 
million, for entry into service in 2003.
    Development aid from other sources came primarily from the Inter 
American Development Bank (IDB), with a projected $1 billion loan 
program over the next several years, and a standby facility from the 
International Monetary Fund (IMF). The World Bank funds various 
development and infrastructure projects in Panama.
6. Significant Barriers to U.S. Exports
    Panama's accession to the WTO transformed for the better a tariff 
regime that just a few years ago was one of the highest in the region. 
However, the new Moscoso government's primary trade initiative has been 
to dramatically increase tariffs on various agricultural imports. The 
period between publication of its decree to that effect and its entry 
into force (4 days) was entirely inadequate. Through its Ministry of 
Agricultural Development, Panama has adopted a de facto, arbitrary 
import licensing regime for goods that are subject to sanitary and 
phyto-sanitary permits under Panamanian law. Officials of the Health 
Ministry have hinted they may require that all foreign food-processing 
plants supplying Panama undergo inspections by Panamanian officials, an 
ominous development.
    The Panamanian judicial system presents another potential obstacle 
to investors and traders. There is a large backlog of criminal and 
civil cases, increasing at approximately 20,000 per year. Many 
investors have expressed concerns over the potential for corruption in 
the judicial process.
    The combination of relatively high costs for both utilities and 
labor makes unit production costs higher than average for the region. 
Also, investors complain of burdensome and excessive product 
registration requirements.
    As a WTO member, Panama's customs valuation system conforms to 
international standards. The processing of customs documents for 
imports is reasonably quick, efficient, and reliable. However, some 
importers have complained of product misclassification and, in isolated 
cases, demands for excessive duties. Importers of agricultural goods 
continue to face sudden and arbitrary changes in procedures and 
practices.
    In the financial services sector, restrictions on foreign ownership 
are minimal except in the case of non-bank finance companies. U.S. 
banks, insurance companies and brokerages are welcome and in some cases 
are leaders in the local market.
7. Export Subsidies Policies
    A law enacted in June 1995 allows any company to import raw 
materials or semi-processed goods at a duty of 3 percent for domestic 
consumption or production, or duty free for export production. The GOP 
is considering eliminating this duty altogether in 2000. Companies not 
receiving benefits under the ``Special Incentives Law'' of 1986 will be 
allowed a tax deduction of up to 10 percent on their profits from 
export operations through 2002.
    The Tax Credit Certificate (CAT) program, which subsidizes 
production of non-traditional exports, is being phased out. Through the 
year 2002, the program allows exporters to receive CATs worth 15 
percent of value added.
8. Protection of U.S. Intellectual Property
    Panama is a member of the World Intellectual Property Organization 
(WIPO), the Geneva Phonograms Convention, the Brussels Satellite 
Convention, the Universal Copyright Convention, the Bern Convention for 
the Protection of Literary and Artistic Works, the Paris Convention for 
the Protection of Industrial Property, and the International Convention 
for the Protection of Plant Varieties. In November 1998, Panama also 
ratified the WIPO Copyright Treaty and the WIPO Performances and 
Phonograms Treaty.
    Protection of intellectual property rights in Panama has improved 
significantly over the past several years, but serious concerns remain. 
Representatives of some U.S. firms allege that Panama provides 
inadequate copyright and trademark protection. For example, Nintendo of 
America and associated video game manufacturers petitioned the U.S. 
Trade Representative (USTR) in 1995 to remove Panama's benefits under 
the Generalized System of Preferences (GSP) program. However, in 
October 1998, USTR dismissed the petition, citing improvement in 
Panama's IPR regime.
    In 1998 Panama was placed in the ``Other Observations'' category of 
the USTR's ``Special 301'' review of IPR policies and practices, but 
was removed following the April 1999 review. USTR remains concerned 
about inadequate border measures to combat transshipment of counterfeit 
goods through Panama and about enforcement deficiencies in the Colon 
Free Zone (CFZ). In March 1998, an Intellectual Property Department was 
created in the CFZ. This is a positive step demonstrating Panama's will 
to improve enforcement. The new Department has enjoyed some success, 
but needs to do more to fully address this problem.
    In August 1994, the Legislative Assembly passed a new Copyright Law 
(Law 15) to help modernize copyright protection. A new Industrial 
Property Law (Law 35) went into force in November 1996. These laws are 
generally consistent with the standards specified in the WTO TRIPs 
Agreement. They explicitly protect foreign works. Although enforcement 
has improved in recent years, piracy and counterfeiting continue, 
particularly in the CFZ.
    The Government also passed an Anti-Monopoly Law in early 1996 
mandating the creation of four commercial courts to hear anti-trust, 
patent, trademark, and copyright cases exclusively. Two courts and one 
superior tribunal began to operate in mid-1997, but establishment of 
the other courts has been delayed. Some U.S. intellectual property 
owners have experienced significant delays when they have sought 
infringement remedies in the Panamanian judicial system.
    Over the past several years, Panamanian authorities have conducted 
numerous raids against large video piracy operations, and several cases 
are pending in the courts. In a series of raids in September 1998, 
authorities seized more than 5 million pirated compact discs being 
transshipped through Tocumen International Airport. This is believed to 
be the largest seizure ever in Latin America. Over the past year, the 
CFZ's new IP Department conducted more than 20 raids against CFZ 
companies accused of trafficking in counterfeit trademarked goods. The 
operating permits of some CFZ companies have been suspended as a 
result, but transshipment of such goods remains a serious problem.
    Patents: Panama's Industrial Property law provides 20 years of 
patent protection, improving on the former period of 5 to 15 years for 
foreigners and 5 to 20 years for Panamanians. The law grants patent 
protection from the date of filing. Pharmaceutical patents are granted 
for only 15 years, but can be renewed for an additional ten years, if 
the patent owner licenses a national company (minimum of 30 percent 
Panamanian ownership) to exploit the patent. The Industrial Property 
Law provides specific protection for trade secrets.
    Trademarks: The Industrial Property Law also provides for 
protection of trademarks. It simplifies trademark registration and 
gives protection for 10 years, renewable for an unlimited number of 
additional 10-year periods. While the law provides adequate protection, 
enforcement is another matter. Counterfeit merchandise, particularly 
apparel and footwear, watches, perfume, and sunglasses, are available 
in Panamanian stores. Trademark-infringing merchandise is also 
transshipped through the CFZ for distribution in Latin American 
markets. In implementing the Industrial Property Law, the CFZ 
administration created an Intellectual Property Department in March 
1998. The new IP Department and the CFZ Customs Office conducted 
various raids and seizures in 1999.
    Copyrights: The National Assembly in 1994 passed a comprehensive 
copyright bill, based on a World Intellectual Property Organization 
model. The law modernizes copyright protection in Panama, provides for 
payment of royalties, facilitates the prosecution of copyright 
violators, protects computer software, and makes copyright infringement 
a felony.
    Although the Attorney General's Office has taken a vigorous 
enforcement stance, the Copyright Office has been ineffective, and 
Panama's judicial system has not provided speedy and effective remedies 
for private civil litigants under the law. Panama is in the process of 
modernizing its copyright registration and patent and trademark 
registration capabilities. The Government had plans to consolidate 
copyright, patent, and trademark functions into a single autonomous 
entity, but these plans were delayed by the government transition. An 
initiative to create a specialized Prosecutor's Office for IPR was also 
delayed due to resource constraints.
9. Worker Rights
    a. The Right of Association: Private sector workers have the right 
to form and join unions of their choice, subject to registration by the 
government. The government does not control nor financially support 
unions, but most unions are closely affiliated to political parties. 
There are over 250 active unions, grouped under 6 confederations and 48 
federations, representing approximately 10 percent of the employed 
labor force. Civil service workers are permitted to form public 
employee associations and federations, though not unions. Union 
organizations at every level may and do affiliate with international 
bodies.
    b. The Right to Organize and Bargain Collectively: The Labor Code 
provides most workers with the right to organize and bargain 
collectively. The law protects union workers from anti-union 
discrimination and requires employers to reinstate workers fired for 
union activities. The Labor Code also establishes a conciliation board 
in the Ministry of Labor to resolve complaints and it provides a 
procedure for arbitration. The Civil Service Law allows most public 
employees to organize and bargain collectively and grants them a 
limited right to strike.
    c. Prohibition of Forced or Compulsory Labor: The Labor Code 
prohibits forced or compulsory labor, and neither practice has been 
reported.
    d. Minimum Age for Employment of Children: The Labor Code prohibits 
the employment of children under 14 years of age as well as those under 
15 if the child has not completed primary school. Children under age 16 
cannot work overtime; those under 18 cannot work at night. Children 
between the ages of 12 and 15 may perform light farm work that does not 
interfere with their education. The Ministry of Labor enforces these 
provisions in response to complaints and may order the termination of 
unauthorized employment. However, it has not enforced child labor 
provisions in rural areas due to insufficient staff.
    e. Acceptable Conditions at Work: The Labor Code establishes a 
standard workweek of 48 hours and provides for at least one 24-hour 
rest period weekly. It also establishes minimum wage rates, though in 
the relatively high cost urban areas, the minimum wage is not 
sufficient to support a worker and family above the poverty level. The 
Ministry of Labor does not adequately enforce the minimum wage law due 
to insufficient personnel and financial resources. Panamanian 
businesses routinely evade Social Security payroll contributions. The 
government sets and enforces occupational health and safety standards. 
It conducts periodic inspections of particularly hazardous employment 
sites as well as doing so in response to complaints. Workers may remove 
themselves from situations that present an immediate health or safety 
hazard without jeopardizing their employment. Health and safety 
standards generally emphasize safety rather than long-term health 
hazards, but training and workplace enforcement of safety regulations 
or on the use of safety equipment is lax. Complaints of health and 
safety problems continue in the construction, banana, cement, and 
milling industries.
    f. Rights in Sectors with U.S. Investment: Worker rights in sectors 
with U.S. investment generally mirror those in other sectors. As 
mentioned above, the banana industry, which has significant U.S. 
investment, continues to produce complaints of health hazards largely 
due to workers' exposure to pesticides. The Panama Canal has operated 
under separate labor regulations. It is unclear whether special 
arrangements will continue under the Panama Canal Authority post-1999.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  681
Total Manufacturing............  ..............  137
  Food & Kindred Products......  32              ...............................................................
  Chemicals & Allied Products..  28              ...............................................................
  Primary & Fabricated Metals..  10              ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  68              ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  118
Finance/Insurance/Real Estate..  ..............  25,145
Services.......................  ..............  501
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  26,957
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                PARAGUAY


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment:
  Nominal GDP \2\.........................     9,607     8,594     7,854
  Real GDP Growth (pct)...................       2.6      -0.5      -1.0
  GDP by Sector (pct):
    Agriculture...........................        27        27        28
    Manufacturing.........................        14        14        14
    Services..............................        37        37        36
    Government............................       6.0       6.0       5.0
  Per Capita GDP (1982 US$)...............     1,634     1,585     1,553
  Labor Force (000's).....................       N/A       N/A       N/A
  Unemployment Rate (pct).................       6.9       7.2       7.2
  Underemployment Rate (pct)..............      18.1      21.4        22

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................       7.7      -4.7      12.1
  Consumer Price Inflation (pct)..........       6.2      14.6       7.0
  Exchange Rate (GS/US$ Year End).........     2,294     2,830     3,310
    Official..............................       N/A       N/A       N/A
    Parallel..............................       N/A       N/A       N/A

Balance of Payments and Trade:
  Total Exports FOB \3\...................     3,980     3,824     2,714
    Exports to U.S.\3\....................      40.6      38.7     (\1\)
  Total Imports CIF \3\...................     4,186     3,938     2,801
    Imports from U.S.\3\..................       913       734     (\1\)
  Trade Balance \3\.......................      -207      -114       -87
    Balance with U.S.\3\..................      -872      -695     (\1\)
  External Public Debt....................     1,437     1,475     2,108
  Fiscal Deficit/GDP (pct)................      -0.8      -1.2       N/D
  Current Account Deficit/GDP (pct).......      -5.0      -2.7      -0.9
  Debt Service Payments/GDP (pct).........        17        19       3.8
  Gold and Foreign Exchange Reserves......       846       875     1,006
  Aid from U.S............................       4.8       2.2       3.0
  Aid from All Other Sources..............      36.2      33.5        44
------------------------------------------------------------------------
\1\ 1999 figures are central bank preliminary data except for U.S.
  imports and exports, which are taken from U.S. Department of Commerce
  Trade Statistics.
\2\ Percentage changes calculated in local currency.
\3\ Merchandise trade.
\4\ External and internal public debt only. Private external debt to GDP
  share not yet available.

1. General Policy Framework
    Over the last decade, Paraguay's economic policy framework has 
encouraged the re-export trade to Brazil and Argentina and provided tax 
and regulatory advantages as well as soft loans to non-competitive 
local industries. In agriculture, the government has continued non-
transparent state-run cotton programs for small farmers and kept hands 
off large-scale private sector oil seed production, the leading source 
of hard currency from exports. Government investment has shrunk as 
spending on debt service and government salaries to provide political 
patronage drain government revenue.
    Paraguay's economy is currently in recession, and growth has been 
weak since 1995. The GDP contracted 0.5 (one half) percent in 1998 and 
will likely contract at least an additional one percent in 1999. Until 
the mid-1990s, Paraguay largely avoided deficit spending and kept 
foreign debt at a manageable level. Government spending as a percentage 
of GDP began to increase earlier in the decade, but deficits were 
avoided due to revenue windfalls from taxes and tariffs on imports from 
the re-export trade. This windfall was not productively invested, but 
rather spent to swell already bloated government payrolls.
    The Central Bank under the Cubas administration (August 1998-March 
1999) kept interest rates high on guarani-based bonds sold to private 
banks, limiting liquidity and keeping exchange rate pressures off the 
guarani. In an effort to stimulate the economy, the Gonzalez Macchi 
government has lowered interest rates from 29 to 13.5 percent between 
May and November of 1999. A series of banking failures and political 
instability over the last several years has led investors to move to 
dollar-based deposits and loans. A higher than expected five percent 
increase in guarani-based deposits between August and September of 1999 
may indicate that the central bank is printing money as a response to 
growing revenue shortfalls, which stem from a deepening recession and a 
moribund re-export trade. The Paraguayan government is heavily 
dependent on tariff revenue, which will continue to shrink in the near 
future as Mercosur adjusts its common external tariff rate down from an 
average of 23 percent in 1999 to 15 percent in 2006.
    Paraguay's membership in Mercosur offers important opportunities. 
Efforts to improve weak infrastructure, especially in power 
transmission and distribution, telecommunications, road, river, and 
civil aviation systems, potable water, and sewage treatment, provide 
potential markets for United States' goods and services.
2. Exchange Rate Policy
    All foreign exchange transactions are settled at the daily free 
market rate. The central bank practices a dirty float, with periodic 
interventions aimed at stabilizing the guarani. These interventions 
have become more frequent, with the central bank selling $295 million 
in the first seven months of 1999. In the twelve months leading up to 
November, the guarani depreciated by 17 percent against the dollar. On 
November 15, the market rate stood at 3,330 guaranies to the dollar. 
Historically, the central bank accelerates the devaluation of the 
guarani in June and July by slowing the sale of dollars or purchasing 
dollars on the open market to help trigger the repatriation of foreign 
reserves from international sales of the cotton and soybean harvested 
in the first half of the year. It is legal to hold savings accounts in 
foreign currency, and in October 1994 a decree was promulgated that 
legalized contractual obligations in foreign currencies. With a 
lingering recession, the failure of many local banks, and exchange rate 
uncertainty, the dollar has become the preferred unit for large 
purchases, savings, and virtually all international transactions. 
Sixty-four percent of all funds in Paraguayan savings accounts are in 
dollar-based accounts as of September, 1999.
3. Structural Policies
    Consumer prices are generally determined by supply and demand, 
except for public sector utility rates (water, electricity, telephone), 
petroleum products, pharmaceutical products and public transportation 
fares. The Ministry of Finance oversees all tax matters. Under current 
law, corporate incomes are subject to a 30 percent tax rate. There is 
no personal income tax. As an incentive to investment, the tax rate on 
reinvested profits is 10 percent. The existing Investment Promotion Law 
(law 60/90) includes complete exemption from start-up taxes and customs 
duties on imports of capital goods. There is a 95 percent corporate 
income tax exemption for five years on the income generated directly 
from the GOP approved investment. The Ministry of Finance, at the 
urging of the IMF, is currently studying the elimination a variety of 
tax breaks, including law 60/90, to help balance the budget. The 
government implemented a value-added tax (IVA) in 1992. Some analysts 
have estimated that IVA compliance hovers around 30 percent. Charges of 
corruption among tax officials are endemic. Nearly half of all tax 
revenues are collected at customs on imported merchandise. Agriculture 
makes up nearly 25 percent of GDP, but contributes less than one 
percent of government revenue. Even though land taxes are low, chaotic 
land title records makes land tax evasion the norm.
4. Debt Management Policies
    In 1992, the government reduced external debt with both official 
and commercial creditors through a drawdown of foreign reserves. Since 
that time, however, increasingly large public deficits have nudged 
public debt back upward. Foreign reserves dwindled to $652 million by 
the end of June 1999. A $400 million loan from Taiwan in July 
temporarily bolstered reserves, which at the end of September stood at 
$1.004 billion. The government's debt at the end of September 1999 
totaled $2.044 billion. Paraguay owes $1.044 billion to multilateral 
lending institutions, $987 million to foreign governments and $13 
million to private foreign banks. Last year, a visiting representative 
from the World Bank announced that no new World Bank loans would be 
available to Paraguay until it allocated and properly accounted for 
existing loans. Paraguay continues to meet its obligations to foreign 
creditors in a timely fashion.
5. Aid
    Direct U.S. aid to Paraguay in fiscal year 1999 included roughly 
$918,000 in military assistance administered at post, such as 
international military education and training, information exchange 
visits and seminars; $228,000 in counter-narcotics assistance; and $6 
million in USAID disbursements for democracy, reproductive health and 
biodiversity protection. Indirect U.S. contributions via the Inter-
American Development Bank, World Bank and United Nations programs 
totaled tens of millions of dollars more.
6. Significant Barriers to U.S. Exports
    Paraguay is a member of the World Trade Organization (WTO) and has 
a relatively open market that does not require import licenses, except 
for used clothing (see below), guns and ammunition. However, the United 
States prohibits the export of U.S. guns and ammunition to Paraguay. 
U.S. companies have not fared well in non-transparent government 
procurement tenders. Paraguayan regulations require country of origin 
designation on domestic and imported products. Expiration dates are 
required for medical products and some consumer goods. As of January 
1998, imported beer is required to display detailed manufacture and 
content information, labeled in Spanish at the point of bottling. A 
similar regulation was put in place for shoes, clothing, packaged food, 
and other consumer products. However, labeling of imported goods at 
distribution centers within Paraguay is still commonplace. MERCOSUR-
wide labeling requirements are currently being developed.
    Law 194/93 established the legal regime between foreign companies 
and their Paraguayan representatives and has been described by 
executives of U.S. companies represented by local firms as increasing 
the risk of doing business here. This law requires that to break a 
contractual relation with its Paraguayan distributor, the foreign 
company must prove just cause in a Paraguayan court. If the 
relationship is ended without just cause, the foreign company must pay 
an indemnity. The rights under this law cannot be waived as part of the 
contractual relationship between both parties. Foreign companies have 
paid large sums when ending distributor relationships in Paraguay to 
avoid lengthy court cases or have maintained relationships with 
underperforming representatives to avoid such payments.
    Decree 11.459/95 requires importers of used clothing to obtain an 
import permit from the Ministry of Industry and Commerce. Importers 
must obtain a certification notarized in place of origin showing that 
the used clothing has been sanitized. In 1999, the Ministry of Industry 
and Commerce had refused to take action on applications to import used 
clothing, in effect prohibiting its importation.
    Decree 235/98, later modified by decree 2698/99, created a 
multiplier increasing the base value on imported cigarettes and beer 
prior to calculating excise tax. The same multiplier was not applied to 
domestic products. Income tax must be pre-paid on presumed profit 
margins of ten percent for imported cigarettes and thirty percent for 
imported beer prior to removal from customs. Local manufacturers of 
cigarettes and beer pay income taxes only on reported profit margins 
and at year-end.
7. Export Subsidies Policies
    There are no discriminatory or preferential export policies. 
Paraguay does not subsidize its exports. However, Paraguay exports 90 
percent of its cotton crop, and government-subsidized credit to small-
scale producers signifies an indirect export subsidy. Government 
subsidized financing for the 1997-98 crop was provided to the producers 
of 80 percent of the cotton harvest. Due to high default rates, 
subsidized credit for the 1998-99 crop was reduced to cover only 30 
percent of production. The government will provide small-scale farmers 
with subsidized inputs, such as seed and pest control products.
8. Protection of U.S. Intellectual Property
    Paraguay belongs to the World Trade Organization (WTO) and the 
World Intellectual Property Organization (WIPO). It is also a signatory 
to the Paris Convention, Bern Convention, Rome Convention, and the 
Phonograms Convention. In January 1998, the U.S. Trade Representative 
designated Paraguay as a ``Special 301'' Priority Foreign Country. On 
February 17, 1998, the U.S. Government initiated a 301 investigation of 
Paraguay as a result of its inadequate enforcement of intellectual 
property rights, its failure to enact adequate and effective IP 
legislation, as well as its status as a distribution and assembly 
center for pirate and counterfeit merchandise and the large illicit re-
export trade to other MERCOSUR countries.
    On November 17, USTR concluded a bilateral Memorandum of 
Understanding (MOU) and Enforcement Action Plan that contain specific 
near-term and longer-term obligations to improve the intellectual 
property regime in Paraguay. The Agreement contains commitments by 
Paraguay to take action against known centers of piracy and 
counterfeiting; pursue amendments to its laws to facilitate effective 
prosecution of piracy and counterfeiting; coordinate the anti-piracy 
efforts of its customs, police, prosecutorial, and tax authorities; 
implement institutional reforms to strengthen enforcement at its 
borders; and ensure that its government ministries use only authorized 
software.
    As a result of this agreement, the U.S. Government has revoked 
Paraguay's designation as a Priority Foreign Country and terminated the 
Special 301 investigation. Implementation of the MOU is being monitored 
under Section 306 of the U.S. Trade Act.
    Patents: Congress is currently considering comprehensive patent 
legislation. Domestic industry has lobbied heavily to weaken the law. 
In its IPR MOU with the U.S., Paraguay agreed to do everything possible 
to pass TRIPS consistent patent legislation during the first three 
months of the 1999 legislative session. Paraguay also has patent 
obligations as a member of the WTO.
    Trademarks: On August 6, 1998, a new Trademark Law was promulgated 
that includes a broader definition of trademarks. The law prohibits the 
registration of a trademark by parties with no legitimate interests. 
Provisions provide specific protection for well-known trademarks. The 
law also includes stronger enforcement measures and penalties for 
infractions. In practical terms, trademark violation is still rampant 
in Paraguay, and resolution in the courts is slow and non-transparent. 
The new law provides an important first step, but must be followed by 
increased enforcement and modernization of the judicial system to 
become fully effective.
    Copyrights: On October 15, 1998, then-President Cubas Grau signed a 
new Copyright Law, which follows international conventions to protect 
all classes of creative works. Software programs receive the same 
treatment as literary works under the law. The law contains norms that 
regulate contracts related to copyrights. Law 1444, passed on June 25, 
1999, made copyright violations ``public actions,'' allowing public 
prosecutors to take legal action without requiring the offended party 
to seek redress. Practical application of copyright protection suffers 
the same systemic challenges as trademark protection.
9. Worker Rights
    In October 1993 the Paraguayan Congress approved a new Labor Code 
that met International Labor Organization standards.
    a. The Right of Association: The Constitution allows both private 
and public sector workers, except the armed forces and police, to form 
and join unions without government interference. It also protects the 
right to strike and bans binding arbitration. Strikers and leaders are 
protected by the Constitution against retribution. Unions are free to 
maintain contact with regional and international labor organizations.
    b. The Right to Organize and Bargain Collectively: The law protects 
collective bargaining. When wages are not set in free negotiations 
between unions and employers, they are made a condition of individual 
employment offered to employees. Collective contracts are still the 
exception rather than the norm in labor/management relations.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced labor. Domestics, children, and foreign workers are not forced 
to remain in situations amounting to coerced or bonded labor.
    d. Minimum Age for Employment of Children: Minors from 15 to 18 
years of age can be employed only with parental authorization and 
cannot be employed under dangerous or unhealthy conditions. Children 
between 12 and 15 years of age may be employed only in family 
enterprises, apprenticeships, or in agriculture. The Labor Code 
prohibits work by children under 12 years of age, and all children are 
required to attend elementary school. In practice, however, many 
thousands of children, many under the age of 12, work in urban streets 
in informal employment.
    e. Acceptable Conditions of Work: The Labor Code allows for a 
standard legal work week of 48 hours, 42 hours for night work, with one 
day of rest. The law also provides for a minimum wage, an annual bonus 
of one month's salary, and a minimum of six vacation days a year. It 
also requires overtime payment for hours in excess of the standard. 
Conditions of safety, hygiene, and comfort are stipulated.
    f. Rights in Sectors with U.S. Investment: Conditions are generally 
the same as in other sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  14
Total Manufacturing............  ..............  22
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  22              ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  2
TOTAL ALL INDUSTRIES...........  ..............  204
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                  PERU


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment:
  Nominal GDP \2\.........................    65,207    62,968    59,300
  Real GDP Growth (pct) \3\...............       6.9       0.3       3.5
  GDP Growth by Sector:
    Agriculture...........................       4.9       3.6      14.5
    Manufacturing.........................       6.6      -2.8       3.0
    Services..............................       6.9       1.0      -0.3
    Government [included in ``Services'']
  Per Capita GDP (nominal US$) \2\........     2,675     2,534     2,350
  Labor Force (000's).....................     6,592     7,309       N/A
  Unemployment Rate (pct) \4\.............       7.7       7.7        10

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      18.2      10.4        14
  Consumer Price Inflation................       6.5       6.0         5
  Average Exchange Rate (Sol/US$)
    Inter-bank............................      2.66      2.93      3.37
    Parallel..............................      2.66      2.93      3.37

Balance of Payments and Trade:
  Total Exports FOB.......................     6,832     5,735     6,200
    Exports to the U.S.\5\................     1,579     1,808     1,835
  Total Imports FOB.......................     8,553     8,200     7,400
    Imports from U.S.\5\..................     2,001     2,003     1,635
  Trade Balance...........................    -1,721    -2,645    -1,200
    Balance with U.S......................      -422      -195       200
  External Public Debt....................    18,787    19,562    19,200
  Fiscal Deficit/GDP......................       0.1      -0.7      -2.5
  Current Account Deficit/GDP.............       5.0       6.0       4.5
  Debt Service Payments/GDP...............       1.3       1.4       1.0
  Net International Reserves..............    10,169     9,183     8,700
  Aid from U.S............................        97       105       123
  Total Aid...............................     285.1     288.9     626.2
------------------------------------------------------------------------
\1\ 1999 figures are estimates based on data available as of October.
\2\ GDP data calculated using nominal soles figures at average exchange
  rates. The Peruvian Government is well behind its target to release re-
  calculated GDP figures, with 1994 as the new base year (which will
  replace the current 1979 base year).
\3\ Percentage changes calculated from GDP data in local currency at
  1979 prices.
\4\ Urban, at the Third Quarter.
\5\ Estimates based on annualized official data for August 1999.
\6\ Inflation at year-end.

Source: Central Reserve Bank of Peru, National Institute of Statistics,
  Ministry of Labor, Presidency of the Council of Ministers, and Embassy
  estimates.

1. General Policy Framework
    Peru is a free market economy which provides significant trade and 
investment opportunities for U.S. companies. Over the past nine years, 
the government has implemented a wide-ranging privatization program, 
strengthened and simplified its tax system, lowered tariffs, opened the 
country to foreign investment, and lifted exchange controls and 
restrictions on remittances of profits, dividends and royalties.
    Macroeconomic/Fiscal Overview: The economy achieved a modest 
recovery in 1999; real GDP will grow an estimated 3.5 percent after a 
flat 0.3 percent in 1998. Economic performance in 1998 and 1999 was 
affected by several factors, including the ``El Nino'' weather 
phenomenon, which led to sharp declines in fish exports; worsening 
terms of trade (as prices for minerals--Peru's primary exports--
dropped); and dramatic outflows of short-term capital after the 
financial turmoil in Russia. The current account deficit contracted in 
1999, to about 4.5 percent of GDP. Inflation remained low by Peru's 
historical standards, hitting 5 percent for the year. The government's 
overall budget was slightly out of balance in 1999, as a result of 
sharply lower than expected revenues. Peru's macroeconomic stability 
has reduced underemployment from 74 percent during the 1980's to 43 
percent for the 1995-1998 period. The percentage of Peruvians living in 
poverty fell from 55.3 percent in 1991 to just under 40 percent in 
1997, according to government indicators.
    Trade Policy: Peru's economy is largely open to imports. As Peru's 
largest trading partner, the U.S. exported about $1.6 billion to Peru 
in 1999, well below the level of 1998. Peru's average tariff rate fell 
from 66 percent in 1990 to 13 percent in 1998. Some countries (not 
including the U.S.), however, avoid tariffs on a number of their 
exports to Peru because of preferential trade agreements. As a member 
of the Andean Community and of the Latin American Integration 
Association (ALADI), Peru grants duty-free access to many products 
originating in those countries. In June 1998, Peru signed a Free Trade 
Agreement with Chile, which will be phased in over a number of years. 
In April 1998, the Andean Community signed a framework agreement with 
MERCOSUR to establish a free trade area after the year 2000; further 
negotiations in 1999 must still take place on implementation of the 
agreement. Peru also plans to complete a Free Trade Agreement with 
Mexico by the year 2000. Peru officially became a member of APEC in 
November 1998.
    Monetary Policy: The central bank manages the money supply and 
affects interest and exchange rates through open-market operations, 
rediscounts and reserve requirements on foreign currency and local 
currency deposits. United States dollars account for two thirds of 
total liquidity (the legacy of hyperinflation), which complicates the 
government's efforts to manage monetary policy. Net foreign reserves 
have grown to about $9 billion (they were negative in mid-1990). Peru 
reached an agreement in July 1996 to reschedule its official debt 
(Paris Club), and closed a deal with its commercial creditors (Brady 
Plan) in March 1997.
2. Exchange Rate Policy
    The exchange rate for the Peruvian New Sol is determined by market 
forces, with some intervention by the central bank to stabilize 
movements. There are no multiple rates. The 1993 constitution 
guarantees free access to and disposition of foreign currency. There 
are no restrictions on the purchase, use or remittance of foreign 
exchange. Exporters conduct transactions freely on the open market and 
are not required to channel their foreign exchange transactions through 
the central bank. U.S. exports are generally price competitive in Peru.
3. Structural Policies
    Peru is a liberal economy largely dominated by the private sector 
and market forces. The government dramatically reduced its role in the 
economy after it began a privatization program in 1992. Since that 
time, most major state-owned businesses, including the telephone 
company, electric utilities and mining companies, have been sold. The 
government backtracked from its original plan to sell off substantially 
all its companies by 1995, and it intends to keep, for the foreseeable 
future, the remaining parts of the petroleum company (Petro Peru), some 
electrical utilities, and the Lima water company. In early 1997, the 
government announced that it would begin a new phase of the 
privatization program by selling concessions to build and/or operate 
public facilities such as airports, roads, railroads, and ports. U.S. 
companies have participated heavily in the privatization program, 
particularly in the mining, energy, and petroleum sectors.
    Price controls, direct subsidies, and restrictions on foreign 
investment have been eliminated. A major revision of the tax code was 
enacted at the end of 1992, and the tax authority (SUNAT) was 
completely revamped, as was the customs authority. Tax collection has 
improved from 4 percent of GDP in 1990 to over 14 percent by late 1998. 
Customs collections have more than tripled since the early 1990s, 
despite the sharp cut in tariff rates. Although income tax collection 
has increased, the government still relies heavily on its 18 percent 
Value-Added Tax (VAT). There are also several high excise taxes on 
certain items, such as automobiles and fuels.
4. Debt Management
    Peru's long and medium-term public external debt at the end of June 
1999 totaled about $19.2 billion--less than one third of GDP. Total 
service payments due on the debt for 1999 are estimated at $1.0 
billion. Peru has reduced the burden of external public debt steadily 
since 1993. The ratio of the debt service to exports of goods and 
services, which peaked at 76 percent in 1988, fell to 22 percent in 
1997. That ratio increased to 25 percent in 1998 and may stay there in 
1999. Although the external debt burden appears high when compared with 
similar countries, the Peruvian government has practically no domestic 
debt. Moreover, in recent years Peru has maintained a high level of 
international reserves, while about two thirds of deposits in the 
banking system are in dollars.
    Peru cleared its arrears with the Inter-American Development Bank 
in September 1991. In March 1993 it cleared its $1.8 billion in arrears 
to the International Monetary Fund (IMF) and World Bank, and negotiated 
an Extended Fund Facility (EFF) with the IMF for 1993-95. The 
government negotiated a follow-on EFF for 1996-1998 and an 
unprecedented third EFF for 1999-2001. The Paris Club rescheduled 
almost $6 billion of Peru's official bilateral debt in 1991. A second 
Paris Club rescheduling in May 1993 lowered payments for the period 
March 1993-March 1996 from $1.1 billion to about $400 million. A third 
rescheduling was completed on July 20, 1996, under which the Club 
creditors agreed to reschedule approximately $1 billion in ``official 
debt'' payments coming due between 1996 and 1999, and to reschedule 
some debt originally rescheduled in 1991 in order to smooth out Peru's 
debt service profile.
    Peru closed out a $10.5 billion Brady Plan commercial debt 
restructuring in March 1997. The government estimates annual 
obligations under the deal at about $300 million. With the Brady 
closing and the Paris Club rescheduling, Peru is now current with 
nearly all its international creditors.
5. Significant Barriers to U.S. Exports
    Almost all non-tariff barriers to U.S. exports and obstacles to 
direct investment have been eliminated over the past nine years. Peru 
became a founding member of the World Trade Organization in January 
1995.
    Import licenses have been abolished for all products except 
firearms, munitions and explosives; chemical precursors (used in 
illegal narcotics production); ammonium nitrate fertilizer (which has 
been used as a blast enhancer for terrorist car bombs), wild plant and 
animal species, and some radio and communication equipment. The 
following imports are banned: several insecticides, fireworks, used 
clothing, used shoes, used tires, radioactive waste, and cars over five 
years old and trucks over eight years old.
    Tariffs apply to virtually all goods exported from the U.S. to 
Peru, although rates have been lowered over the past few years. A new 
tariff structure that went into effect in April 1997, for example, 
lowered the average tariff rate from 16 to 13 percent. At the same 
time, the government did raise some tariffs on agricultural products 
and imposed an additional ``temporary'' tariff on agricultural goods, 
in a move to try to promote domestic investment in the sector. Under 
the new system, a 12 percent tariff applies to more than 95 percent (by 
value) of the products imported into Peru; a 20 percent tariff applies 
to most of the rest, while a few products are assessed rates (because 
of the additional ``temporary'' tariffs) of up to 25 percent. Another 
set of import surcharges also applies to four basic commodities: rice, 
corn, sugar and milk products. (The surcharge on wheat was eliminated 
in July 1998). Imports are also assessed an 18 percent value-added tax 
on top of any tariffs; domestically-produced goods pay the same tax as 
well. Some non-U.S. exporters have preferential access to the Peruvian 
market because of Peru's bilateral and multilateral trade agreements.
    There are virtually no barriers to investing in Peru, and national 
treatment for investors is guaranteed in the 1993 constitution. 
However, in an effort to preclude competition from foreign investors in 
recent privatizations of electrical utilities, COPRI, the Privatization 
Agency, has interpreted that a foreign company or individual is an 
investor only when the company or individual has actually invested, not 
when it is considering investing. Furthermore, a conflicting provision 
of law restricts the majority ownership of broadcast media to Peruvian 
citizens. Foreigners are also restricted from owning land within 50 
kilometers from a border, but can operate within those areas through 
special authorization. There are no prohibitions on the repatriation of 
capital or profits. Under current law, foreign employees may not make 
up more than 20 percent of the total number of employees of a local 
company (whether owned by foreign or national interests) or more than 
30 percent of the total company payroll, although some exemptions 
apply.
    Customs procedures have been simplified and the customs 
administration made more efficient in recent years. As part of the 
customs service reform, Peru implemented a system of pre-shipment 
inspections, through which private inspection firms evaluate most 
incoming shipments worth more than $5,000. (Exceptions include cotton 
and heavy machinery). The importer must pay up to one percent of the 
FOB value of the goods to cover the cost of the inspection. Some U.S. 
exporters have complained that the inspection system contributes to 
customs delays and conflicts over valuation.
6. Export Subsidies Policies
    The Peruvian Government provides no direct export subsidies. The 
Andean Development Corporation, of which Peru is a member, provides 
limited financing to exporters at rates lower than those available from 
Peruvian banks (but higher than those available to U.S. companies). 
Exporters can receive rebates of the import duties and a portion of the 
value-added tax on their inputs. In June 1995, the government approved 
a simplified drawback scheme for small exporters, allowing them to 
claim a flat 5-percent rebate, subject to certain restrictions. 
Exporters can also import, on a temporary basis and without paying 
duty, goods and machinery that will be used to generate exports and 
that will themselves be re-exported within 24 months. There are several 
small-scale export promotion zones where goods enter duty-free; they 
must pay duties if/when they enter the rest of the country.
7. Protection of U.S. Intellectual Property
    Peru belongs to the World Trade Organization (WTO) and the World 
Intellectual Property Organization (WIPO). It is also a signatory to 
the Paris Convention, Bern Convention, Rome Convention, Phonograms 
Convention, Satellites Convention, Universal Copyright Convention, and 
the Film Register Treaty. In April 1999, the U.S. Trade Representative 
placed Peru on the ``Special 301'' Priority Watch List due primarily to 
concerns raised by the International Intellectual Property Alliance 
(IIPA) about the lack of deterrent-level decisions issued by Peru's 
intellectual property rights (IPR) tribunal. This tribunal has more 
recently sped up its decision making process and has reversed its 
earlier tendency to reduce IPR fines.
    IIPA data show that piracy in the software and motion picture 
industries has declined sharply over the past four years. Software 
piracy fell from 83 percent in 1995 to 60 percent in 1998, while video 
piracy fell from 95 percent in 1995 to 50 percent in 1998. During the 
same period, piracy of sound recordings increased slightly from 83 
percent to 85 percent. Peru's market for sound recordings grew so 
rapidly between 1995 and 1998 that estimated trade losses due to piracy 
increased from $16 million to $50 million. IIPA's estimates for trade 
losses in all other sectors remained the same or fell slightly during 
the 1995-98 period.
    In April 1996, Peru passed two new laws to improve its intellectual 
property rights protection regime and bring its national laws into 
conformity with Andean Community decisions and other international 
obligations on intellectual property. Although the new laws are an 
improvement, they contain several deficiencies, and the government 
needs to bring its laws into conformity with the WTO TRIPs Agreement by 
the year 2000. Although enforcement efforts have increased, piracy 
remains widespread.
    Patents and Trademarks: Peru's 1996 Industrial Property Rights Law 
provides an effective term of protection for patents and prohibits 
devices that decode encrypted satellite signals, along with other 
improvements. In June 1997, based on an agreement reached with the U.S. 
Government, the Government of Peru resolved several apparent 
inconsistencies with the TRIPs Agreement provisions on patent 
protection and most-favored nation treatment for patents. Peruvian law 
does not provide for pipeline protection for patents or protection from 
parallel imports. Although Peruvian law provides for effective 
trademark protection, counterfeiting of trademarks and imports of 
pirated merchandise are widespread. Peru, along with its Andean 
Community partners, has been working toward completion of revisions of 
the common Andean Community policy on Industrial Property by January 
2000 to bring it into compliance with the TRIPs Agreement.
    Copyrights: Peru's Copyright Law is generally consistent with the 
TRIPs Agreement. However, textbooks, books on technical subjects, 
audiocassettes, motion picture videos and software are widely pirated. 
While the government, in coordination with the private sector, has 
conducted numerous raids over the last few years on large-scale 
distributors and users of pirated goods and has increased other types 
of enforcement, piracy continues to be a significant problem for 
legitimate owners of copyrights in Peru. Insufficient customs, police, 
and judicial action have been a problem in such areas as sound 
recordings.
8. Worker Rights
    Articles 28 and 42 of the Peruvian Constitution recognize the right 
of workers to organize, bargain collectively and strike. Out of an 
estimated economically active population of 10 million, only about five 
percent belong to unions. Close to one half the work force is employed 
in the informal sector, beyond government regulation and supervision.
    a. The Right of Association: Peruvian law allows for multiple forms 
of unions across company or occupational lines. Workers in probational 
status or on short-term contracts are not eligible for union 
membership. Union leaders complain that increasing numbers of employers 
are hiring workers under temporary personal service contracts to 
prevent union affiliation. Labor experts assert that companies prefer 
this type of hiring because it affords them the chance to adapt their 
total payroll to the business cycle without the hassle of having to 
seek government approval to release workers. Public employees 
exercising supervisory responsibilities are excluded from the right to 
organize and strike, as are the police and military. The amount of time 
union officials may devote to union work with pay is limited to 30 days 
per year. Membership or non-membership in a union may not be required 
as a condition of employment. However, there is no provision in the law 
requiring employers to reinstate workers fired for union activities. 
Although some unions have been traditionally associated with political 
groups, law prohibits unions from engaging in explicitly political, 
religious or profit-making activities. The International Labor 
Organization (ILO) in June 1996 called on the Peruvian Government to 
enhance freedom of association.
    b. The Right to Organize and Bargain Collectively: Bargaining 
agreements are considered contractual agreements, valid only for the 
life of the contract. Unless there is a pre-existing labor contract 
covering an occupation or industry as a whole, unions must negotiate 
with each company individually. Strikes may be called only after 
approval by a majority of all workers (union and non-union) voting by 
secret ballot. Unions in essential public services, as determined by 
the government, must provide sufficient workers, as determined by the 
employer, to maintain operations during the strike. Companies may 
unilaterally suspend collective bargaining agreements for up to 90 days 
if required by force majeure or economic conditions, with 15 days 
notice to employees. The Peruvian Congress approved legislation in 1995 
and 1996 amending the 1992 Employment Promotion Law, which union 
leaders claim restricts union freedom and the freedom to bargain 
collectively by making it easier to fire workers. The unions filed a 
complaint about this law with the ILO, and the ILO noted that the new 
legislation failed to effectively guarantee the protection of workers 
against acts of anti-union discrimination and to protect workers' 
organizations against acts of interference by employers.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited, as is imprisonment for debt. In response to a 
complaint filed with the ILO, however, the government in 1994 
acknowledged the existence of forced labor practices in remote areas of 
the country and said it had taken measures to end them. Although the 
constitution does not specifically prohibit forced or bonded labor by 
children, Peru has ratified ILO Convention 105 on the abolition of 
forced labor, including forced or bonded child labor. Nevertheless, 
there have been recent reports of forced or bonded child labor in a 
handful of small informal gold mining operations in a remote area of 
Peru.
    d. Minimum Age for Employment of Children: The minimum legal age 
for employment is 12. In certain sectors, higher minimums are in force: 
14 in agricultural work; 15 in industrial, commercial or mining work; 
and 16 in the fishing industry. Although education through the primary 
level is free and compulsory, many school-aged children must work to 
support their families. Child labor takes place in the informal economy 
out of the reach of government supervision of wages or conditions. In 
recent years, government surveys have variously estimated the number of 
child and adolescent workers to be anywhere from 500,000 to 1.9 
million.
    e. Acceptable Conditions of Work: The 1993 Constitution provides 
for a maximum eight-hour work day, a 48-hour work week, a weekly day of 
rest and 30 days annual paid vacation. Workers are promised a ``just 
and sufficient wage'' (to be determined by the government in 
consultation with labor and business representatives) and ``adequate 
protection against arbitrary dismissal''. No labor agreement may 
violate or adversely affect the dignity of the worker. These and other 
benefits are readily sacrificed by workers in exchange for regular 
employment, especially in the informal sector.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Peru 
is concentrated primarily in the mining and petroleum sectors, and more 
recently in electrical generation. Labor conditions in those sectors 
compare very favorably with other parts of the Peruvian economy. 
Workers are primarily unionized, and wages far exceed the legal 
minimum.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  117
Total Manufacturing............  ..............  215
  Food & Kindred Products......  75              ...............................................................
  Chemicals & Allied Products..  83              ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       (\2\)           ...............................................................
   Equipment.
  Electronic & Other Electric    0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  96
Depository Institutions........  ..............  (\1\)
Finance/Insurance/Real Estate    ..............  322
 \3\.
Services.......................  ..............  32
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  2,587
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).
\3\ Finance excludes depository institutions.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                          TRINIDAD AND TOBAGO


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................     5,780     5,811     6,136
  Real GDP Growth (pct)...................       3.4       3.2       5.6
  GDP by Sector:
    Agriculture...........................       124       119       126
    Manufacturing.........................       440       480       507
    Services..............................     3,503     3,841     4,056
    Petroleum.............................     1,638     1,242     1,312
    Government............................       477       518       547
  Per Capita GDP (US$)....................     4,537     4,531     4,785
  Labor Force (000's).....................       541       559       564
  Unemployment Rate (pct).................      14.5      14.2      14.1

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \2\............      11.6      12.3      -1.9
  Consumer Price Inflation................       3.8       5.6       3.7
  Exchange Rate (TT$/US$).................      6.29      6.30      6.30

Balance of Payments and Trade:
  Total Exports FOB.......................     2,542     2,264     2,219
    Exports to U.S........................       998       830       681
  Total Imports CIF.......................     3,036     3,011     2,167
    Imports from U.S......................     1,563     1,341     1,006
  Trade Balance...........................      -494      -747        52
    Balance with U.S. \3\.................      -565      -511      -325
  External Public Debt....................     1,541     1,430  \4\ 1,42
                                                                       0
  Fiscal Deficit/GDP (pct)................       0.1      -1.1      -1.3
  Current Account Deficit/GDP (pct).......      -6.6      -3.5       0.9
  Debt Service Payments/GDP (pct).........       8.0       5.0       4.6
  Gold and Foreign Exchange Reserves......       703       779   \4\ 706
  Aid from U.S.\5\........................       3.0       3.5       3.7
  Aid from Other Sources..................       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on 6 months of data, except as
  noted. 1997 and 1998 figures have been revised.
\2\ Through July 1999.
\3\ 1999 U.S. trade with Trinidad and Tobago are estimates based on 6
  months of data.
\4\ As of July 1999.
\5\ Represents primarily security assistance and counter-narcotics
  program funding, training, equipment transfers, and in-kind
  contributions. Includes USIA and USDA exchanges.

Source: All statistics compiled by the Central Statistical Office (CSO),
  except BOP figures which are compiled by the central bank.

1. General Policy Framework
    Trinidad and Tobago's substantial oil and natural gas reserves made 
it one of the richest countries in the Western Hemisphere during the 
oil booms of the seventies and early eighties. Much of the oil revenue 
windfall was used to subsidize state-owned companies and to fund social 
and infrastructure projects, which became a drain on government 
finances. A dramatic increase in domestic consumption contributed to 
overvaluation of the currency with a resulting decline in non-oil 
exports. The collapse of oil prices in the mid-1980's, and concurrent 
decrease in Trinidadian oil production caused a severe recession from 
which Trinidad and Tobago only recovered in 1994. Although structural 
reforms have begun to stimulate growth in non-hydrocarbon sectors, 
overall economic prospects remain closely tied to oil, gas and 
petrochemical prices and production.
    Since 1992, the government has successfully turned the state-
controlled economy into a market-driven one. In 1992, it began a large-
scale divestment program and has since partially or fully privatized 
the majority of state-owned companies. The government has also 
dismantled most trade barriers, with only a small number of products 
remaining on a ``negative list'' (requiring import licenses) or subject 
to import surcharges.
    Trinidad and Tobago aggressively courts foreign investors, and 
initialed a bilateral investment treaty with the United States in 1994, 
which came into force on December 26, 1996. Total U.S. direct 
investment flows have grown from US$475 million in 1995 to over US$1 
billion per year in recent years.
    The government uses a standard array of fiscal and monetary 
policies to influence the economy, including a 15 percent value-added 
tax (VAT) and corporate and personal income taxes of up to 35 percent. 
Improvements in revenue collection since 1993 have boosted VAT, income 
tax and customs duty revenues. This, together with additional revenues 
for the sale of offshore leases and tighter controls on spending, has 
contributed to slight fiscal surpluses since 1995. Simplification of 
the personal income tax regime in 1997, by eliminating many deductions 
in favor of a set standard deduction, and restructuring of the Board of 
Inland Revenue were designed to further boost revenue collection. 
Currently, tax collection systems are being modernized with the help of 
U.S. government advisors.
2. Exchange Rate Policy
    In April 1993 the government removed exchange controls and floated 
the TT dollar. The Central Bank loosely manages the rate through 
currency market interventions and consultations with the commercial 
banks. In 1996 foreign exchange pressure mounted, and a decision by the 
Central Bank to allow a freer float led to a depreciation, which went 
as low as TT$6.23 to US$1.00 in December, 1996. Since early November 
1997, the rate has hovered around TT$6.29 to US$1.00. Foreign exchange 
supply depends heavily on the quarterly tax payments and purchases of 
local goods and services by a small number of large multinational 
firms, of which the most prominent are U.S. owned. Foreign currency for 
imports, profit remittances, and repatriation of capital is freely 
available. Only a few reporting requirements have been retained to 
deter money laundering and tax evasion.
3. Structural Policies
    Pricing Policies: Generally, the market determines prices. The 
government maintains domestic price controls only on sugar, 
schoolbooks, and pharmaceuticals.
    Tax Policies: Imports are subject to the CARICOM Common External 
Tariff (CET). Since July 1, 1998, CARICOM tariff levels have been 
reduced to a targeted range of 0 to 20 percent. National stamp taxes 
and import surcharges on manufactured items were repealed as of January 
1, 1995.
    By the end of 1994, almost all non-oil manufactured products and 
most agricultural commodities were removed from the Import Negative 
List, which previously required licenses for certain imports. 
Initially, most agricultural products that had benefited from 
``negative list'' protection were instead subject to supplementary 
import surcharges of 5 to 45 percent. The list of products subject to 
import surcharges has now been reduced to two items--poultry and sugar.
    The standard rate of Value Added Tax (VAT) is 15 percent; however, 
many basic commodities are zero-rated. Excise tax is levied only on 
locally produced petroleum products, tobacco and alcoholic beverages. 
The corporate tax rate was lowered in 1994 from a maximum of 45 percent 
to 38 percent, and again in 1995 to 35 percent. While the tax code does 
not favor foreign investors over local investors, profits on sales to 
markets outside CARICOM are tax exempt, which benefits firms with non-
CARICOM connections.
    Income tax rates are from 28 percent on the first $50,000 of 
chargeable income and 35 percent thereafter. The taxpayer is entitled 
to an allowance of $20,000. Trinidad and Tobago and the United States 
have entered into a double taxation treaty.
    Regulatory Policies: All imports of food and drugs must satisfy 
prescribed standards. Imports of meat, live animals and plants, many of 
which come from the United States, are subject to specific regulations. 
The import of firearms, ammunition and narcotics are rigidly controlled 
or prohibited.
4. Debt Management Policies
    In the second quarter of 1998 Trinidad and Tobago completed 
repayment of a US$335 million International Monetary Fund loan and 
enjoys excellent relations with the international financial 
institutions. Its major lender is the Inter-American Development Bank 
(IDB).
    Since 1997, Trinidad's external debt has declined each year as has 
its debt service ratio. There has, however, been a slight increase in 
domestic debt as the GOTT has increasingly looked internally for 
financing. The lower total debt burden has allowed the government more 
flexibility in lowering import duties and trade barriers, benefiting 
U.S. exports.
5. Aid
    The majority of U.S. assistance to Trinidad and Tobago is in the 
form of support for justice and security and counter-narcotics 
programs. The Department of State has provided $400,000 in anti-
narcotics assistance in 1997, $500,000 in 1998, and $700,000 in 19998. 
The United States has also transferred to Trinidad and Tobago four 
aircraft and two Coast Guard patrol craft to Trinidad and Tobago in the 
past year.
6. Significant Barriers to U.S. Exports
    Trinidad and Tobago is highly import-dependent, with the United 
States supplying about 50 percent of total imports since 1997. Only a 
limited number of items remain on the ``negative list'' (requiring 
import licenses). These include poultry, fish, oils and fats, motor 
vehicles, cigarette papers, small ships and boats, and pesticides.
    Foreign ownership of service companies is permitted. Trinidad and 
Tobago currently has one wholly U.S.-owned bank, several U.S.-owned air 
courier services, and one U.S. majority-owned insurance company.
    The Trinidad and Tobago Bureau of Standards (TTBS) is responsible 
for all trade standards except those pertaining to food, drugs and 
cosmetic items, which the Chemistry, Food and Drug Division of the 
Ministry of Health monitors. The TTBS uses the ISO 9000 series of 
standards and is a member of ISONET. Standards, labeling, testing and 
certification rarely hinder U.S. exports.
    Foreign direct investment is actively encouraged by the government, 
and there are few if any remaining restrictions. Investment is screened 
only for eligibility for government incentives and assessment of its 
environmental impact. Both tax and non-tax incentives may be 
negotiated. A bilateral investment treaty with the United States, 
granting national treatment and other benefits to U.S. investors came 
into force on December 26, 1996. The repatriation of capital, 
dividends, interest, and other distributions and gains on investment 
may be freely transacted. Several foreign firms have alleged that there 
are inconsistencies and a lack of clear rules and transparency in the 
granting of long-term work permits. These generally fall into two 
categories, either that a permit is not granted to an official of a 
company which is competing with a local firm, or that the authorities 
threaten not to renew a permit because a foreign firm has not done 
enough to train and promote a Trinidadian into the position.
    Government procurement practices are generally open and fair; 
however, both local and foreign investors have called for greater 
transparency in the procurement process. Some government entities 
request pre-qualification applications from firms, then notify pre-
qualified companies in a selective tender invitation. Trinidad and 
Tobago signed the Uruguay Round Final Act on April 15, 1994, and became 
a WTO member on April 1, 1995, but is not a party to the WTO Government 
Procurement Agreement.
    Customs operations are being restructured and streamlined with the 
help of U.S. government advisors. UNCTAD's ASYCUDA trade facilitation 
system (automated system for customs data) was adopted on January 1, 
1995. Customs clearance can be time consuming because of bureaucratic 
delays.
7. Export Subsidies Policies
    The government does not directly subsidize exports. The state-run 
Trinidad and Tobago Export Credit Insurance Company insures up to 85 
percent of export financing at competitive rates. The government also 
offers incentives to manufacturers operating in free zones (export 
processing zones) to encourage foreign and domestic investors. Free 
zone manufacturers are exempt from customs duties on capital goods, 
spare parts and raw materials, and all corporate taxes on profits from 
manufacturing and international sales.
8. Protection of U.S. Intellectual Property
    Trinidad and Tobago signed an Intellectual Property Rights 
Agreement with the United States in 1994 which, along with Trinidad's 
commitments under the WTO TRIPs agreement, necessitated revisions of 
most IPR legislation. While the government's awareness of the need for 
IPR protection has improved, enforcement of existing regulations 
remains lax.
    Trinidad and Tobago is a member of the World Intellectual Property 
Organization and the International Union for the Protection of 
Industrial Property. It is a signatory to the Universal Copyright 
Convention, the Berne Convention for the Protection of Literary and 
Artistic Works, the Paris Convention for the Protection of Industrial 
Property, the Patent Cooperation Treaty, the Classification Treaties, 
the Budapest Treaty, and the Brussels Convention. It has recently 
signed the 1978 UPOV Convention for the Protection of New Varieties of 
Plants and the Trademark Law Treaty. The former was proclaimed into law 
on January 30, 1998, and the latter came into force on April 18, 1998. 
As a member of the Caribbean Basin Initiative, the government is 
committed to prohibiting unauthorized broadcasts of U.S. programs.
    The 1997 Copyright Act became effective as of October 1, 1997. The 
Act was written with the assistance of the World Intellectual Property 
Organization, and was forwarded to the United States for comment in 
compliance with the U.S./TT Bilateral Memorandum of Understanding on 
Intellectual Property Rights. The new Act offers protections equivalent 
to those available in the U.S. Enforcement of IPR laws remains a 
concern under the new Act. The Copyright Organization of Trinidad and 
Tobago has stepped up its enforcement activity since the new law came 
into effect, but has primarily targeted unauthorized use of locally 
produced music products. Video rental outlets in Trinidad and Tobago 
are replete with pirated videos, and pirated audiocassettes are sold 
openly in the street and in some stores. Local Cable TV operators feel 
that they will have to increase rates or eliminate some channels to 
comply with the new law.
    The Patents Act of 1996 introduced internationally accepted 
criteria for registration of universal novelty, inventive step and 
industrial applicability, along with a full search and examination 
procedure. The Act extended the period of protection to 20 years with 
no possibility of extension.
    The new Trademark Amendment Act came into effect in September 1997. 
Trademarks can be registered for a period of 10 years, with unlimited 
renewals. Counterfeiting of trademarks is not a widespread problem in 
Trinidad and Tobago.
    New technologies: Larger firms in Trinidad and Tobago generally 
obtain legal computer software, but some smaller firms use wholly or 
partially pirated software or make multiple copies of legally purchased 
software. Licensed cable companies are faced with unlicensed cable 
operators and satellite owners who connect neighborhoods to private 
satellites for a fee. Licensed cable companies provide customers with 
some U.S. cable channels, for which they have not obtained rights, 
arguing that since these services are not officially for sale in 
Trinidad, they are not stealing them.
    Given the popularity of U.S. movies and music, and the dominance of 
the United States in the software market, U.S. copyright holders are 
the most heavily affected by the lack of copyright enforcement. By 
signing the IPR agreement, the government has acknowledged that IPR 
infringement is a deterrent to investment and that it is committed to 
improving both legislation and enforcement.
9. Worker Rights
    a. The Right of Association: The 1972 Industrial Relations Act 
provides that all workers, including those in state-owned enterprises, 
may form or join unions of their own choosing without prior 
authorization. Union membership has declined, with an estimated 20 to 
28 percent of the work force organized in 14 active unions. Most unions 
are independent of the Government or political party control, although 
the Prime Minister was formerly president of the Sugar Workers Union. 
The Act prohibits anti-union activities before a union is legally 
registered, and the Labor Relations Act prohibits retribution against 
strikers. Both laws contain grievance procedures.
    b. The Right to Organize and Bargain Collectively: The right of 
workers to bargain collectively is established in the Industrial 
Relations Act of 1972. Antiunion discrimination is prohibited by law. 
The same laws apply in the export processing zones.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is not explicitly prohibited by law, but there have been no 
reports of its practice.
    d. Minimum Age for Employment of Children: The minimum legal age 
for workers is 12 years. Children from 12 to 14 years of age may only 
work in family businesses. Children under the age of 18 may legally 
work only during daylight hours, with the exception of 16 to 18 year 
olds, who may work at night in sugar factories. The probation service 
in the Ministry of Social Development and Family Services is 
responsible for enforcing child labor provisions, but enforcement is 
lax. There is no organized exploitation of child labor, but children 
are often seen begging or working as street vendors
    e. Acceptable Conditions of Work: In June 1998 the government 
passed the Minimum Wages Act which established a minimum wage of TT$ 7 
(US$ 1.10) per hour, a 40 hour work week, time and a half pay for the 
first four hours of overtime on a workday, double pay for the next four 
hours, and triple pay thereafter. For Sundays, holidays, and off days 
the Act also provides for double pay for the first eight hours and 
triple pay thereafter. The Maternity Protection Act of 1998 provides 
for maternity benefits. An Occupational Safety and Health Act is 
currently before Parliament.
    The Factories and Ordinance Bill of 1948 sets occupational health 
and safety standards in certain industries and provides for inspections 
to monitor and enforce compliance. The Industrial Relations Act 
protects workers who file complaints with the Ministry of Labor 
regarding illegal or hazardous working conditions. Should it be 
determined upon inspection that hazardous conditions exist in the 
workplace, the worker is absolved for refusing to comply with an order 
that would have placed him or her in danger.
    f. Rights in Sectors with U.S. Investment: Employee rights and 
labor laws in sectors with U.S. investment do not differ from those in 
other sectors.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  697
Total Manufacturing............  ..............  49
  Food & Kindred Products......  (\2\)           ...............................................................
  Chemicals & Allied Products..  5               ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       2               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  20
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  20
Services.......................  ..............  1
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  1,054
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                URUGUAY


                         Key Economic Indicators
      [Billions of U.S. Dollars unless otherwise indicated] \1\ \2\
------------------------------------------------------------------------
                                            1997       1998       1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\......................       20.0       20.8       19.3
  Real GDP Growth (pct)................        5.1        4.5       -2.5
  GDP Growth by Sector (pct):
    Agriculture........................       -1.4        5.8        8.0
    Manufacturing......................        5.8        2.4       -5.0
    Services...........................        3.8        3.3      0.5-1
    Government.........................        2.8        N/A        N/A
  Per Capita GDP (US$).................      6,322      6,560      6,000
  Labor Force (000's)..................    1,400/5      1,455      1,465
  Unemployment Rate (pct)..............       11.5       10.1       10.8

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............       21.3       18.4        9.0
  Consumer Price Inflation.............       15.2        8.6        4.0
  Exchange Rate \4\....................       9.45      10.47       11.4

Balance of Payments and Trade:
  Total Exports FOB \5\................        2.7        2.8        2.0
    Exports to U.S. (US$ millions).....        162        158        142
  Total Imports CIF \5\................        3.7        3.8        3.2
    Imports from U.S. (US$ millions)...        432        460        380
  Trade Balance \5\....................       -1.0       -1.0       -1.2
    Balance with U.S. (US$ millions)...       -270       -301       -238
  External Public Debt.................        5.5        6.1        6.3
  Fiscal Deficit/GDP (pct).............        1.4        0.9    2.5-3.0
  Current Account Deficit/GDP (pct)....        1.6        1.9    2.5-3.0
  Debt Service Payments/GDP (pct)......        5.2        5.8        6.0
  Gold and Foreign Exchange Reserves           2.1        2.4        2.4
   (net)...............................
  Aid from U.S. (US$ millions).........       8.45        7.9        2.6
  Aid from All Other Sources (US$           48.4/6        N/A        N/A
   millions)...........................
------------------------------------------------------------------------
\1\ Data in Uruguayan Pesos was converted into U.S. Dollars at the
  average interbank selling rate for each year.
\2\ 1999 figures are all estimates based on available monthly data in
  November 1999.
\3\ At producer prices.
\4\ Annual average quotation of Uruguayan Pesos/US$.
\5\ Estimate based on World Bank's World Development Indicators

Sources: Uruguayan Central Bank, Uruguayan National Institute of
  Statistics, World Bank, and U.S. Embassy Montevideo.

1. General Policy Framework
    The historical basis of the Uruguayan economy has been agriculture, 
particularly livestock production. Agriculture remains important both 
directly (beef, wool and rice) and indirectly for inputs to other 
sectors (textiles, leather and meat). Industry has undergone a strong 
reconversion process fostered by MERCOSUR (the Southern Cone Common 
Market) integration. Industrial production declined in the early 
nineties, but since 1994 it has resumed growth. At present industry 
accounts for 18 percent of Uruguay's GDP. The service sector, 
particularly tourism and financial services, dominates the economy, 
accounting for over 60 percent of GDP. Banking benefits from Uruguay's 
open financial system.
    1999 per capita income of $6,000, although down from 1998's level, 
still puts Uruguay in the World Bank's upper-middle income grouping. 
The UNDP Human Development report places it amongst the countries with 
high human development.
    Overall, the Uruguayan economy has performed relatively well in 
recent years with good rates of growth, low budget and current account 
deficits and declining inflation rates. The government has given the 
private sector access to many activities formerly reserved for the 
state.
    But 1999 has been a tough economic year for Uruguay as the effects 
of the Real devaluation in Brazil, the recession in Argentina, and the 
uncertainty of an election year in Uruguay ripple through the economy. 
Uruguay's gross domestic product is expected to decline by two-and-a-
half or three percent for the year as a whole. Exports have fallen and 
the current account deficit is expected to increase to 2.5 or 3.0 
percent of GDP, given the increased foreign trade deficit and a poor 
tourist season. Analysts expect Uruguay to resume growth in 2000 under 
a strengthened economic environment in Argentina and Brazil.
    Uruguay's risk rating for long-term debt issued in foreign currency 
improved in 1997 to BBB minus (by Standard & Poor's, Duff & Phelps and 
Europe's IBCA and, Baa3 by Moody's), reaching investment grade status 
and enabling U.S. Pension funds to invest in Uruguay's sovereign debt. 
Uruguay accesses funds in the international financial markets at the 
second lowest rate of any Latin American country.
    MERCOSUR faced several problems in late 1998 and 1999 that have 
affected the trade flows amongst its partners. Problems include the 
devaluation of Brazil's Real, the international financial crisis, lack 
of effective macroeconomic coordination, and the imposition of trade-
restrictive measures by Argentina and Brazil. But MERCOSUR has had a 
positive impact on Uruguay and, at present, trade with other MERCOSUR 
members accounts for more than forty percent of Uruguay's overall 
trade.
    The United States is the fourth largest Uruguayan trading partner, 
after Argentina, Brazil and the European Union. Since 1991 the U.S. has 
enjoyed a rapidly growing trade surplus with Uruguay. The United States 
bought 5.6 percent of Uruguay's exports ($ 158 million) and provided 
12.8 percent of the country's imports ($ 460 million) in 1998. Tariff 
rates will decline to zero percent for MERCOSUR products on January 1, 
2000. A common external tariff (CET) entered into effect on January 1, 
1995 for imports from non-MERCOSUR countries, ranging between zero to 
20 percent. The 20 percent level was raised to 23 percent in late 1997 
and is due to be reduced to 20 percent again in 2000. The MERCOSUR CET 
does not yet cover capital, informatic, and telecommunication goods.
2. Exchange Rate Policy
    The Uruguayan government allows the peso to float against the 
dollar within a three-percent range. The band currently rises by 7.4 
percent per year and the Central Bank may buy and sell dollars to keep 
the peso's value within the band. Depreciation outpaced inflation by 2 
percent in 1998, and by 4 percent in the 12-month period to September 
1999.
    Uruguay's monetary policy is geared at keeping inflation under 
control, using the nominal exchange rate as the main instrument. 
Central Bank intervention to defend the currency entails a loss of 
control over the money supply, limiting the effectiveness of monetary 
policy that is carried out through the issuance of very short-term 
paper.
    There are no restrictions on the purchase of foreign currency or 
remittance of profits abroad. Foreign exchange can be freely obtained. 
A vast part of the economy is dollarized.
3. Structural Policies
    Uruguay has traditionally been a market-oriented economy. Economic 
liberalization is supported by the present administration and was 
supported by the previous one. Regional integration (MERCOSUR and 
FTAA), reduced deficit spending, downsized government and lowered 
inflation enjoy strong support from the two political parties which 
make up the ruling coalition.
    A mild central administration reform has been implemented during 
this administration in order to eliminate redundant functions and 
divest non-essential activities. Many activities, formerly restricted 
to the state, have been transferred to the private sector under 
contract, concession or sale. The government ended its insurance and 
mortgage monopolies in 1995.
    Social security reform was also implemented, lowering a structural 
government deficit in the long run (prior to the reform the social 
security deficit amounted to 6 percent of GDP.) The reform changed the 
social security program from a defined-benefit system to a defined-
contribution system of individual accounts.
    The public sector deficit was 0.9 percent of GDP in 1998, and as of 
1999's first half, it was up to 2.4 percent (on a 12-month basis). The 
worsening of the deficit is the result of the decline in tax collection 
resulting from the slowdown in economic activity. The inflation rate 
decreased from 130 percent in 1990 to 8.6 percent in 1998, and the rate 
for the twelve-month period ending October 1999 had further decreased 
to 3.7 percent, the lowest rate in five decades. Three-percent 
inflation is expected for 2000. Price controls are limited to a small 
set of products and services for public consumption, such as bread, 
milk, passenger transportation, utilities and fuels. The government 
relies heavily on consumption taxes (value-added and excise) for its 
general revenue. Under a law of investment promotion, the government 
gives tax exemptions to investing firms. There are also incentives for 
companies which hire young people.
4. Debt Management Policies
    As of 1999's first quarter, the Uruguayan net external debt was 
$2.9 billion, 92 percent of which is public. Since 1996, Uruguay has 
been extending the maturity of its debt. While all the private sector's 
debt is short-term (one year or less,) public sector's debt has a 
longer maturity (fifty-eight percent of the latter matures after the 
year 2002.) Debt service in 1998 was $ 1.2 billion, equivalent to 28 
percent of combined merchandise and service exports, and to 5.8 percent 
of GDP.
    Total net foreign exchange reserves amounted to $2.4 billion as of 
September 1999, equivalent to 9.1 months of imports. An IMF stand-by 
program is in place and a joint agreement with the IMF and the World 
Bank was signed to ensure the availability of funds that would help 
Uruguay deal with the regional crisis, or with any expectations 
generated by the presidential and parliamentary elections that took 
place in 1999.
5. Aid
    Uruguay receives little non-military aid from the United States. 
During 1998 Uruguay received almost eight million dollars for U.S. 
peacekeeping, training and equipment assistance. Bilateral counter 
narcotics assistance totaled $ 150,000 in 1998 and will total $ 100,000 
in 1999.
    A Peace Corps program closed in 1997. Using 6 million dollars from 
a debt reduction program, the United States government and the 
Uruguayan government jointly manage the Fund of the Americas. This Fund 
is designed to use monies (which would otherwise be due to the United 
States) for local environmental and child welfare programs. According 
to the Uruguayan Presidency's Office of Budget and Planning, total 
estimated aid received from all other sources in 1996 and 1997 amounts 
to 125 million dollars (the government of Uruguay keeps aid statistics 
on a two-year basis).
6. Significant Barriers to U.S. Exports
    Certain imports require special licenses or customs documents. 
Among these are pharmaceuticals, some types of medical equipment and 
chemicals, firearms, radioactive materials, fertilizers, vegetable 
products, frozen embryos, livestock, bull semen, anabolics, sugar, 
seeds, hormones, meat and vehicles. To protect Uruguay's important 
livestock industry, imports of bull semen and embryos also face certain 
numerical limitations and must comply with animal health requirements, 
a process that can take a long time. Bureaucratic delays also add to 
the cost of imports, although importers report that a 
``debureaucratization'' commission has improved matters.
    Few significant restrictions exist in services. U.S. banks continue 
to be very active. Restrictions on professional services such as law, 
medicine or accounting are similar to most countries. Persons with non-
Uruguayan credentials who wish to practice their profession in Uruguay 
must prove equivalent credentials to those required of locals. 
Similarly, travel and ticketing services are unrestricted. A law 
allowing foreign companies to offer insurance (except work-related 
injury) coverage in Uruguay was passed in October 1993, although the 
former monopoly provider still maintains an overwhelming share of the 
market and regulation of the insurance sector is weak.
    There have been significant limitations on foreign equity 
participation in certain sectors of the economy. Investment areas 
regarded as strategic require government authorization. These include 
electricity, hydrocarbons, banking and finance, railroads, strategic 
minerals, telecommunications and the press. Uruguay has long owned and 
operated state monopolies in petroleum, rail freight, telephone service 
and port administration. However, passage of port reform legislation in 
April 1992 allowed for privatization of various port services. The 
state-owned natural gas company was privatized in late 1994. Both 
private consortia and the state-owned phone company (ANTEL) provide 
cellular telecommunications. Legislation to privatize ANTEL was 
overturned by referendum in 1992. Several state-owned firms and even 
city municipalities however, grant the concession of specific services 
to privately-owned companies.
    Government procurement practices are well defined, transparent and 
closely followed. Bid awards, however, often are drawn out and caught 
up in controversy. Tenders are generally open to all bidders, foreign 
and domestic. A government decree, however, establishes that local 
products or services of equal quality to, and no more than ten percent 
more expensive than foreign goods or services, shall be given 
preference. Among foreign bidders, preference will also be given to 
those who offer to purchase Uruguayan products. Uruguay has not signed 
the GATT/WTO government procurement code.
    The only exemptions to tariff regulations in the context of anti-
dumping legislation are minimum export prices, fixed in relation to 
international levels and in line with commitments assumed under the 
WTO. These are applied to neutralize unfair trade practices that 
threaten to damage national production activity or delay the 
development of such activities, and are primarily directed at Argentina 
and Brazil. Minimum export prices have been scheduled to be phased out, 
but a number are still in effect (textiles, clothing and sugar).
7. Export Subsidies Policies
    The government provides a nine-percent subsidy to wool fabric and 
apparel producers using funds from a tax on greasy and washed wool 
exports. Uruguay is a signatory of the GATT/WTO subsidies code.
8. Protection of U.S. Intellectual Property
    Uruguay's intellectual property (IP) regime does not yet meet 
international standards. Certain provisions of the recently-passed 
patent law appear to be TRIPs inconsistent and Uruguay's failure to 
pass a new copyright law is also a problem. Uruguay's copyright law 
dates to 1937; the extent to which it protects computer software is 
subject to judicial interpretation each time a case is presented. 
Enforcement of copyrights is still weak and piracy of business 
application software is estimated at 72 percent. Uruguay is a member of 
the World Intellectual Property Organization (WIPO) and a party to the 
Bern Convention, the Universal Copyright Convention (UCC) and the Paris 
Convention for the Protection of Industrial Property. Registering a 
foreign trademark without proving a legal commercial connection with 
the trademark is no longer a possibility; enforcement of trademark 
rights is excellent. (A trademark law was approved in 1998.) USTR 
placed Uruguay on its ``Special 301 Watch List'' in 1999 because of its 
failure to meet its international obligations for copyright and patent 
protection.
9. Worker Rights
    a. The Right of Association: The constitution guarantees the right 
of workers to organize freely and encourages the formation of unions. 
Labor unions are independent of government or political party control.
    b. The Right to Organize and Bargain Collectively: Collective 
bargaining takes place on a plant-wide or sector-wide basis, with or 
without government mediation, as the parties wish.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law and in practice.
    d. Minimum Age for Employment of Children: Children as young as 12 
may be employed if they have a work permit. Children under the age of 
18 may not perform dangerous, fatiguing, or night work, apart from 
domestic employment.
    e. Acceptable Conditions of Work: There is a legislated minimum 
wage ($93/month as of September 1998). The standard workweek is 48 
hours for six days, with overtime compensation. Workers are protected 
by health and safety standards, which appear to be adhered to in 
practice.
    f. Rights in Sectors with U.S. Investment: Workers in sectors in 
which there is U.S. Investment are provided the same protection as 
other workers. In many cases, the wages and working conditions for 
those in U.S.-affiliated industries appear to be better than average.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  160
  Food & Kindred Products......  40              ...............................................................
  Chemicals & Allied Products..  43              ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  51
Banking........................  ..............  203
Finance/Insurance/Real Estate..  ..............  111
Services.......................  ..............  12
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  567
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               VENEZUELA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                             1997      1998       1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \1\........................      88.4      95.0       95.1
  Real GDP Growth (pct) \2\..............       5.9      -0.7       -5.0
  GDP by Sector: \3\
    Agriculture..........................       2.5      -0.7        1.7
    Manufacturing........................       4.5      -4.7       -8.0
    Services.............................       3.7       0.5       -4.7
    Government...........................      -3.4       1.0        3.2
  Per Capita GDP (US$) \4\...............     3,882     4,087      4,013
  Labor Force (000's) \5\................     9,507     9,907     10,259
  Unemployment Rate (pct) \6\............      10.6      11.0       18.0

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \7\...........      62.5      18.6        3.7
  Consumer Price Inflation \8\...........      37.6      29.9       20.0
  Exchange Rate (BS/US$ annual average)
 \9\
    Official.............................     488.6     547.6      628.9
    Parallel.............................     488.6     547.6      628.9

Balance of Payments and Trade:
  Total Exports FOB \10\.................      23.7      17.5       18.5
    Exports to United States \11\........      13.4       9.3        9.8
  Total Imports FOB \10\.................      13.7      14.0       11.0
    Imports from United States \11\......       6.6       6.5        5.7
  Trade Balance \10\.....................      10.0       3.5        7.5
    Balance with United States \11\......       6.8       2.8        4.1
  External Public Debt \12\..............      23.8      22.9       22.6
  Fiscal Surplus (Deficit)/GDP (pct) \12\       1.7      -4.2       -3.1
  Current Account Surplus (Deficit)/GDP         4.4      -1.8        1.7
   (pct) \13\............................
  Foreign Debt Service Payments/GDP (pct)      11.9       7.8        7.3
   \14\..................................
  Gold and Foreign Exchange Reserves \15\      17.8      14.8       15.1
  Aid from United States.................       N/A       N/A        N/A
  Aid from All Other Sources.............       N/A       N/A        N/A
------------------------------------------------------------------------
\1\ Embassy's estimate based on inflation (20%), GDP Growth (-5%),
  Exchange rate (Bs/628.91), and population (23,706,711).
\2\ Embassy's estimate based on average of the official rate and most
  private estimates.
\3\ BCV and Veneconomy.
\4\ Calculation based on figures for no. 1 above.
\5\ Central Statistical Office (OCEI) as of the first semester 1999.
\6\ Ministry of Finance.
\7\ BCV as of October 29, 1999.
\8\ Embassy's estimate on the average for January-October, 1999.
\9\ Embassy's estimate based on the monthly depreciation rate of 1.28
  percent.
\10\ Veneconomy.
\11\ Department of Commerce, January-July, 1999. Embassy used average
  and derived projections therefrom.
\12\ GOV Budget Office (OCEPRE).
\13\ Embassy calculation.
\14\ OCEPRE, BCV, and Embassy calculation.
\15\ BCV as of November 18, 1999.

1. General Policy Framework
    Venezuela has undergone significant political and institutional 
change in the last year. In December 1998, Hugo Chavez Frias was 
elected President of Venezuela in a landslide. Chavez promised 
fundamental reforms that would benefit Venezuela's impoverished 
majority. Upon assuming office in February, Chavez began work on the 
centerpiece of his political project, a National Constituent Assembly 
(ANC) that would re-write Venezuela's Constitution. Pro-Chavez 
candidates won more than ninety percent of the seats in this Assembly 
in the July 1999 elections, and completed their work on a new 
Constitution draft on November 19. On December 15, the Venezuelan 
public will decide whether they approve in a national referendum vote.
    Despite the attention required by the constitutional debate, the 
Chavez administration and the Venezuelan Congress have passed numerous 
economic sectoral laws over the last year. In April 1999, Congress gave 
President Chavez temporary powers to rule by decree in the economic 
area with the passage of the ``Enabling Law.'' This ``fast track'' 
capability resulted in legislation in several areas, including new laws 
governing the electric and mining sectors, government procurement, 
income taxes, agricultural credit, and soon-to-be expected legislation 
covering foreign investment and telecommunications. The Chavez 
Administration also raised taxes to help cover the Government's budget 
deficit, levying a new financial transactions tax and broadening the 
base of the value added tax (VAT) (even as it lowered VAT tax rates to 
15.5 percent) soon after taking office. Congress approved a Bilateral 
Tax Treaty with the United States in August 1999.
    Much of the new legislation represented a welcome updating of old 
statutes and the introduction of new legal frameworks. The private 
sector generally looked with favor upon the sectoral legislation, 
particularly in the area of electric power generation. The new income 
tax law established taxation on the incomes of Venezuelan citizens, 
regardless of where they reside, a long-overdue reform that puts 
Venezuela into closer conformity with U.S. practices and could 
facilitate implementation of the Bilateral Tax Treaty, when that enters 
into force. Although some new legislation recognizes the importance of 
the private sector, other sectoral laws, such as the mining law, 
preserve an extensive role for the state. Prior to completing the draft 
in November, the constitutional debates had been fast-paced and wide-
ranging. The continued blizzard of political activity has caused 
uncertainty that has kept some investors on the sidelines. Nonetheless, 
Venezuela remains a country characterized by private enterprise, 
although those same enterprises operate under the shadow of potential 
heavy government oversight and regulation.
    The need for dramatic political reform was highlighted by the sharp 
economic downturn caused by a deep recession in Asia in 1997-1998 and a 
consequent fall in oil prices in the winter of 1997 and spring of 1998. 
When President Chavez assumed office in February 1999, oil had fallen 
to USD 8.43 per barrel, official unemployment reached 11 percent and 
budget calculations said the Government's budget deficit threatened to 
reach 9.5 percent of GDP. Chavez responded with a series of budget 
cuts, a .05 percent tax on financial transactions, a broadening of the 
15.5 percent VAT tax, and a reported tightening of customs collections. 
On the petroleum front, Venezuela joined OPEC and non-OPEC countries in 
a new round of production cutbacks in March 1999. Since that time, oil 
prices have rebounded strongly, easing the government's once-dire 
fiscal emergency. (On October 21, 1999, the price of Venezuela's basket 
of crudes and refined products reached a high of USD 20.25 per barrel, 
an increase of 140 percent over the low of the previous February.) 
Moreover, inflation fell due to restrained increases in public sector 
wages, a tight monetary policy, and the economic recession. (The 
inflation rate fell from 30 percent in 1998 to an estimated 20 percent 
for 1999.) Unemployment increased strongly. The official rate of 
unemployment now stands at 15 percent and observers outside the 
government say that the real rate is closer to 20 percent. Much foreign 
investment remains on hold pending improvement on the economic front 
and the outcome of constitutional debates.
    Venezuela is rich in petroleum, natural gas, hydroelectric power, 
bauxite, iron ore, coal, gold, and diamonds. The petroleum industry 
dominates Venezuela's economy. In 1998, it accounted for roughly 27 
percent of the country's GDP, 70 percent of export earnings, and 43 
percent of central government revenues. It is estimated that in 1999 
PDVSA's share of government revenues will increase with the rise in oil 
prices. The petroleum, petrochemicals and gas sectors will continue to 
play critical roles in the economy as these areas are further opened to 
foreign investment.
    The government has begun efforts to address the country's economic 
emergency through a variety of measures designed to both jump-start and 
ultimately to diversify the economy. The Chavez administration merged 
the Ministry of Agriculture and the Ministry of Industry and Commerce 
in October 1999 in an attempt to consolidate ministries and reduce 
government expenditures. The new Ministry of Production and Commerce is 
also undertaking programs to promote small and medium-sized businesses. 
President Chavez has also created a People's Bank to give loans to 
family businesses and micro-enterprises. Finally, the new tax law 
contains important incentives for investment, especially in the 
agricultural and tourist sectors in an effort to diversify the heavily 
petroleum-dominated economy.
    Overall, Venezuelan GDP fell 9.5 percent in the first semester of 
1999, the worst economic performance in ten years. By the fall of 1999, 
there were indications that the recession had bottomed out and some 
outside observers predicted that the Venezuelan economy would soon 
begin to recover. The Venezuelan stock index responded to this optimism 
and rose 35 percent in September 1999. Nonetheless, the Chavez 
government still faced difficult challenges in the form of stubbornly 
high unemployment, insufficient investment and continuing fiscal 
difficulties.
2. Exchange Rate Policy
    Since the elimination of exchange controls and the large 
devaluation of April 1996, the Central Bank of Venezuela (BCV) has 
maintained the bolivar within a gradually devaluing band. During this 
period, the bolivar's depreciation has not kept up with the rate of 
inflation. The bolivar depreciated 12 percent from January 1 to mid-
November 1999. The inflation rate for the same period ran over 18 
percent. Despite the negative impact that a strong bolivar has on 
domestic manufactures and non-oil exports, the government is expected 
to maintain its band system throughout at least the first quarter of 
the year 2000, if not longer. BCV reserves remain sufficient to support 
the bolivar, barring some unforeseen economic shock. President Chavez 
has spoken of moving to a fixed exchange rate, but as of this writing, 
the government has taken no action in this area.
3. Structural Policies
    Pricing Policies: The government in recent years has lifted price 
controls on basic goods and services. Now only those pharmaceuticals 
with less than four competitive products and gasoline remain subject to 
price controls. The government eliminated the remaining subsidy on 
gasoline in 1997, bringing domestic retail prices up to export prices.
    Tax Policies: The Venezuelan House of Deputies approved the U.S.-
Venezuelan Bilateral Tax Treaty in August 1999. The U.S. Senate gave 
its advice and consent to the Treaty on November 5, and now the treaty 
awaits an exchange of notes and signature by the Chief Executives of 
Venezuela and the U.S. This treaty seeks to eliminate double 
withholding and to promote information sharing between the tax 
authorities of the two countries. Venezuela adopted a globally based 
tax system with the passage of a new income tax law in November 1999. 
This brings Venezuelan tax law into closer alignment with the U.S. and 
should facilitate implementation of the Bilateral Tax Treaty.
    In Venezuela, the maximum income tax rate for individuals and 
corporations is 34 percent. Venezuelan law does not differentiate 
between foreign and Venezuelan-owned companies, except in the petroleum 
sector. PDVSA's hydrocarbon revenues are subject to a 67.7 percent 
income tax, in addition to a 16.7 percent royalty payment on 
production. In 1998, in a move criticized by some PDVSA executives, the 
government required PDVSA to pay a one-time ``dividend'' of $1.4 
billion to help the Venezuelan government fund its fiscal deficit. The 
Chavez administration has indicated that it may seek further PDVSA 
revenues to meet budgetary needs.
    Most joint ventures with PDVSA are liable to the same level of 
income tax, except for those involved in the development and refining 
of heavy and extra heavy crudes and off shore natural gas, which are 
subject to a reduced rate of 34 percent. (Joint ventures did not have 
to pay the 1998 dividend.) The government announced in September 1996 
that current and future projects involving extra heavy crude oil would 
also be entitled, on a case by case basis, to temporary reductions in 
the 16.7 percent royalty payment to as low as 1.5 percent. These 
reductions are granted for the construction phase of the projects.
    Since 1993, the government has imposed a one-percent corporate 
assets tax, assessed on the gross value of assets (with no deduction 
for liabilities) after adjustment for depreciation. Venezuela also 
applies a luxury tax, at a rate of 10 or 20 percent, on certain items 
such as jewelry, yachts, and high-priced automobiles and cable 
television.
    The Chavez administration began making important changes to the tax 
system in an effort to raise revenues under the auspices of the 
Enabling Law passed in April 1999. On May 14, 1999, the government 
imposed a 0.5 percent bank debit tax. On June 1, 1999, the government 
replaced its wholesale tax (ICVSM) with a value-added tax (IVA). The 
value-added tax rate is 15.5%, one percent lower than the rate of the 
wholesale tax it replaces. The new tax eliminates some exemptions, 
however, in an effort to broaden the tax base and raise revenues.
4. Debt Management Policies
    Venezuela's public sector's external debt stood at $23.8 billion at 
the end of 1997 and is expected to fall slightly to 23 billion by the 
end of 1998. External debt represents about 23 percent of GDP. 
Venezuela's external debt service totaled about 7.3 percent of GDP in 
1999, a fall from the previous year's level of 7.8 percent. Venezuela 
continues to carry a heavy domestic debt burden largely incurred during 
the 1994-95 banking crisis and as a result of the 1997 labor reforms.
5. Aid
    In FY 1999, the U.S. provided an estimated $700,000 in counter-
narcotics assistance to Venezuelan law enforcement agencies and the 
military from international narcotics control funds. The U.S. also gave 
the government $400,000 in aid under the International Military 
Education and Training Program (IMET) to strengthen the country's 
counter-narcotics capabilities.
6. Significant Barriers to U.S. Exports
    After many years of following an economic policy based on import 
substitution, Venezuela began to liberalize its trade regime with its 
accession to the General Agreement on Tariffs and Trade (GATT) in 1990. 
Venezuela became a founding member of GATT's successor, the World Trade 
Organization (WTO) in 1995 following completion of the Uruguay Round 
negotiations. Venezuela implemented the Andean Community's Common 
External Tariff (CET) in 1995, along with Colombia and Ecuador. The CET 
has a five-tier tariff structure of 0, 5, 10, 15, and 20 percent. 
Venezuela's average import tariff on a trade-weighted basis is roughly 
10 percent.
    Under the Andean Community's Common Automotive Policy (CAP), 
assembled passenger vehicles constitute an exception to the 20 percent 
maximum tariff and are subject to 35 percent import duties. The knock-
down kits from which such cars are assembled enter Venezuela with only 
a three percent duty. Imports of used automobiles, used clothing and 
used tires remain prohibited, even though Venezuela agreed to eliminate 
all GATT-inconsistent quantitative restrictions by the end of 1993 as 
part of its accession to the GATT. The CAP is scheduled for elimination 
by January 1, 2000, as part of Venezuela's commitment to conform to the 
World Trade Organization's prohibition on Trade Related Industrial 
Measures (TRIMS).
    Venezuela implemented the Andean Community's price band system in 
1995 for certain agricultural products, including feed grains, 
oilseeds, oilseed products, sugar, rice, wheat, milk, pork and poultry. 
Yellow corn was added to the price band system in 1996. Ad valorem 
rates for these products are adjusted according to the relationship 
between market commodity reference prices and established floor and 
ceiling prices. When the reference price for a particular market 
commodity falls below the established floor price, the compensatory 
tariff for that commodity and related products is adjusted upward. 
Conversely, when the reference price exceeds the established ceiling, 
the compensatory tariff is eliminated. Floor and ceiling prices are set 
once a year based on average CIF prices during the past five years. 
Normally, Venezuela publishes these prices on April 15. However, so far 
in 1999 Venezuela has not published its list of prices. This has upset 
several of the country's Andean Community (CAN) trading partners and 
has led both Colombia and Ecuador to sue Venezuela in the CAN.
    Import Licenses: Venezuela requires that importers obtain sanitary 
and phytosanitary (SPS) certificates from the Ministries of Health and 
Agriculture for most pharmaceutical and agricultural imports. The 
government routinely uses this requirement to restrict agricultural and 
food imports. For example, Venezuelan authorities banned the import of 
U.S. poultry in 1993 because avian influenza (AI) exists in the United 
States. The restriction is not based on a scientific risk assessment 
indicating that U.S. poultry exports pose a risk to the Venezuelan 
poultry industry. The Ministry of Agriculture modified this import 
prohibition in its Official Gazette on March 13, 1997, allowing the 
import of pathogenic free (SPF) eggs from ``avian influenza countries 
and the import of certain processed poultry products from AI 
countries.''
    In April 1997, the government lifted a ban on U.S. pork and swine 
imports imposed because of Porcine Reproductive and Respiratory 
Syndrome (PRRS). The Venezuelan Agricultural Health Service (SASA) and 
Ministry of Health officials also reviewed the U.S. meat processing 
system as overseen by the USDA and approved U.S. facilities for export 
to Venezuela. Venezuela now plans to invoke its WTO-negotiated Tariff 
Rate Quota (TRQ) for pork imports, again limiting market access below 
actual demand. The TRQ is 877 metric tons and is allocated once a year, 
mostly to members of the Venezuelan Association of Industrial Meat 
Producers (AICAR).
    The Ministry of Agriculture implemented a yellow corn import 
licensing system in February 1997, under its WTO tariff rate quota for 
sorghum and yellow corn. This allowed enforcement of domestic sorghum 
absorption requirements. Under this system, feed manufacturers must 
purchase a government-assigned amount of domestic sorghum at the 
official (i.e. higher than world market) price in order to obtain 
import licenses for yellow corn. The Ministry of Agriculture has 
announced that it may establish similar import license requirements for 
white corn, rice, powdered milk, and oil seeds.
    On November 1, 1999, the government established a new requirement 
for importers of agricultural goods. Importers must now register with 
the Ministry of Production and Commerce (MPC). They must provide the 
MPC with a list of their purchases, a list of the clients to whom they 
sell and copies of invoices for those sales. Ostensibly, this is to 
allow the MPC to investigate charges that imports harm the agricultural 
sector. Importers have complained that this practice establishes yet 
another bureaucratic barrier to imports.
    Services Barriers: Professionals working in disciplines covered by 
national licensing legislation (e.g. law, architecture, engineering, 
medicine, veterinary practice, economics, business administration/
management, accounting, and security services) must re-validate their 
qualifications at a Venezuelan University and pass the Associated 
Professional Exam. Foreign journalists who plan to work in the domestic 
Spanish language media face similar revalidation requirements.
    Standards, Testing, Labeling and Certification: The Venezuelan 
Commission of Industrial Standards (COVENIN) requires certification 
from COVENIN-approved laboratories for imports of over 300 agricultural 
and industrial products. U.S. exporters have experienced difficulties 
in complying with the documentary requirements for the issuance of 
COVENIN certificates. Some Venezuelan importers of U.S. products have 
alleged that COVENIN applies these standards more strictly to imports 
than to domestic products.
    The government started to require certificates of origin for 
imports in March 1996 that are ``similar to goods which currently have 
anti-dumping or compensatory measures applied to them.'' Importers have 
complained that the new requirement, which primarily affects textiles 
and garments, is burdensome and time-consuming to fulfill. Tariff and 
non-tariff barriers also inhibit the importation of milk, some cereals 
and certain live animals.
    Investment Barriers: Foreign investment is restricted in the 
petroleum sector, with the exploration, production, refining, 
transportation, storage, and foreign and domestic sale of hydrocarbons 
reserved to the government and its entities under the 1975 Hydrocarbon 
Law. However, private companies may engage in hydrocarbons-related 
activities through operating contracts or through equity joint ventures 
as long as the following conditions are met: 1) the joint ventures 
guarantee state control of the operation; 2) they are of limited 
duration; and 3) they have the prior authorization of Congress. PDVSA 
has opened the oil sector to increasing amounts of foreign investment 
since 1993 through both operating contracts and joint ventures.
    During 1999,the GOV passed significant legislation under the 
Enabling Law in the mining, electric and gas sectors. It was also 
considering new telecommunications legislation. Finally, the 
President's Council of Ministers passed a new investment law under the 
auspices of the Enabling Law. All of these proposals were generally 
pro-investment, assuming good-faith implementation of their provisions 
and adequate enforcement legislation and regulation. Consequently, when 
they come into force, these laws should reduce barriers to foreign 
investment in specific sectors and in the economy as a whole. The 
exploitation of iron ore remains reserved to the state and therefore is 
not open to foreign investment. (Iron ore is not covered by the new 
Mining Law.)
    Venezuela limits foreign equity participation (except that from 
other Andean Community countries) to 19.9 percent in enterprises 
engaged in television and radio broadcasting, in the Spanish-language 
press, and in professional services subject to national licensing 
legislation.
    Venezuelan law incorporates performance requirements and quotas for 
certain industries. Under the Andean Community's Common Automotive 
Policy (CAP), all car assemblers in Venezuela must incorporate a 
minimum amount of regional content in their finished vehicles. The 
local content requirement for passenger vehicles was 34 percent in 1999 
(though a revised auto regime is currently being developed.) The 
government enforces a ``one for one'' policy for performers giving 
concerts in Venezuela. This requires foreign artists featured in these 
events to give stage time to national performers. There is also an 
annual quota regarding the distribution and exhibition of Venezuelan 
films. At least half of the television programming must be dedicated to 
national programs. Finally, at least half of the FM radio broadcasting 
from 7 a.m. to 10 p.m. is dedicated to Venezuelan music.
    Venezuela's Organic Labor Law places quantitative and financial 
restrictions on the employment decisions made by foreign investors. 
Article 20 of the law requires that industrial relations managers, 
personnel managers, captains of ships and airplanes, and foremen be 
Venezuelan. Article 27 limits foreign employment in companies with ten 
or more employees to 10 percent of the work force and restricts 
remuneration for foreign workers to 20 percent of the payroll. The 
shortage of skilled Venezuelan workers in the oil sector sometimes 
makes it difficult for foreign oil companies to meet this requirement. 
Article 28 allows temporary exceptions to Article 27 and outlines the 
requirements to hire technical experts when equivalent Venezuelan 
personnel are not available.
    Government Procurement Practices: Venezuela's new Government 
Procurement Law, promulgated by the Executive under the auspices of the 
Enabling Law and published on October 11, 1999, provides details on 
required information for inclusion in an invitation to bid on a 
government contract and stipulates that there will be no discrimination 
against national bidders. The law grants the President and the 
Executive Branch enormous discretionary power in granting contracts. 
For example, the President may approve temporary measures to promote 
domestic production or offset unfavorable conditions for domestic 
industry and may set restrictions, criteria, and guidelines for 
preferences to Venezuelan nationals. Finally, in September 1999, the 
Ministry of Energy and Mines issued a directive to PDVSA instructing 
the company to favor national providers in its purchases of supplies.
    Customs Procedures: In the private sector, both Venezuelan and 
foreign companies complain that Venezuelan customs is plagued by 
corruption and antiquated procedures, which frequently delay the 
clearance of incoming goods. The government took the first step in 
modernizing customs procedures in October 1996 by initiating a new 
computerized operation at La Guaria, one of the country's main ports.
    The government passed a new Customs Law at the end of 1998 which 
made private customs agents criminally responsible for illegal 
shipments or undervalued shipments that enter the country. The 
government also instituted measures to assess customs charges for 
imported clothes according to minimum prices set by the bulk weight of 
a given shipment. Critics charged that the new regulations constitute 
an effort to protect manufacturers hard hit by the overvalued currency 
and the domestic recession. The government countered that the new 
customs regulations are temporary (they are renewable regulations set 
to last 180 days), and are designed to be stopgap measures to prevent 
the deliberate undervaluing of imports pending implementation of the 
new Customs Law. As of the fall of 1999, these temporary measures were 
still in effect, having been renewed twice.
7. Export Subsidies Policies
    Venezuela has a duty drawback system that provides exporters with a 
customs rebate paid on imported inputs. Exporters can also get a rebate 
of the 16.5 percent wholesale tax levied on imported inputs. Foreign as 
well as domestic companies are eligible for these rebates. Exporters of 
selected agricultural products--including coffee, cocoa, some fruits 
and certain seafood products--receive a tax credit equal to 10 percent 
of the export's FOB value.
8. Protection of U.S. Intellectual Property
    Venezuela belongs to the World Trade Organization (WTO) and the 
World Intellectual Property Organization (WIPO). It is also a signatory 
to the Paris Convention, Berne Convention, Rome Convention, Phonograms 
Convention, and the Universal Copyright Convention. In 1999, the U.S. 
Trade Representative maintained Venezuela on the ``Special 301'' Watch 
List because it does not yet provide adequate and effective protection 
of intellectual property rights (IPR).
    Although Venezuela has improved its protection of intellectual 
property rights over the last few years and in the Constitution draft, 
U.S. companies continue to express concern about inadequacies in the 
enforcement of patents, trademarks, and copyrights. The Venezuelan 
court system has been an unreliable means for pursuing IPR claims.
    In July 1996, the government took a significant step forward in 
improving enforcement by forming a special anti-piracy unit (COMANPI) 
to enforce copyright law, including efforts to counter the piracy of 
satellite signals and cable television. In 1998, COMANPI expanded its 
mandate to include enforcement of patents and trademarks. In March 
1997, the government created a new Intellectual Property and Trademark 
Office (SAPI) by merging the existing Industrial Property Office 
(SARPI) with the National Copyright Office. SAPI became operational on 
May 1, 1998. In general, SAPI has been active in enforcing IPR 
standards. The organization remains overstretched, however, with 
significant technical limitations and a large backlog of cases. SAPI's 
most recent Director General, Thaimy Marquez, who was appointed in May 
1999, has instituted an ambitious program to modernize the 
organization's computer database with a loan from the World Bank.
    Patents: Andean Community Decisions 344 and 345, which took effect 
in 1994, are comprehensive and offer a significant improvement over the 
previous standards of protection for patents and trademarks provided by 
Venezuela's 1955 Industrial Property Law. However, the CAN Decisions 
are not yet fully TRIPS consistent. For example, they deny 
pharmaceutical patent protection for medicines registered on the World 
Health Organization's list of essential drugs. Furthermore, they lack 
provisions concerning transitional (``pipeline'') protection and 
protection from parallel imports. The decisions also do not contain 
provisions for enforcing intellectual property rights.
    This legislation is now being updated, both in Venezuela and in the 
CAN. In the fall of 1999, the Venezuelan Congress was working on a 
TRIPS-consistent draft law to replace the 1955 Industrial Property Law. 
If all goes according to plan, Congress will complete this work before 
the WTO's January 1, 2000, deadline. Venezuela has also been a leader 
among the Andean countries in the process to modify Decision 344 to 
make it consistent with the WTO TRIPs Agreement.
    Trademarks: Decision 344 improves protection for famous trademarks, 
prohibits the coexistence of similar marks, and provides for the 
cancellation of trademark registrations based on ``bad faith.'' 
However, problems remain with Venezuela's trademark application 
process. Current procedures enable local pirates to produce and sell 
counterfeit products even after the genuine owners of those trademarks 
have undertaken (often lengthy) legal proceedings against the pirates. 
Trademark piracy is common in the clothing, toy, and sporting goods 
sectors. Enforcement remains inadequate. U.S. food distributor Sysco 
Corporation, Reebok Shoes, and Home Depot are all examples of U.S. 
companies now engaged in litigation to gain exclusive rights to the use 
of their trademarks in Venezuela.
    Copyrights: Andean Community Decision 351 and Venezuela's 1993 
Copyright Law are modern and comprehensive and have substantially 
improved protection of copyrighted products in Venezuela. The Copyright 
Law extended protection to a wide range of creative works, including 
computer software, satellite signals, and cable television. Despite 
consistent action on the part of COMANPI, computer software and video 
piracy are still common.
    New Technologies: Decision 351 and Venezuela's Copyright Law 
protect an array of creative activities in the computer and 
broadcasting fields. Nevertheless, Decision 344 excludes diagnostic 
procedures, animals, experiments with genetic material obtained from 
humans, and many natural products from patent protection. However, it 
does contain provisions for the protection of industrial secrets.
9. Worker Rights
    a. The Right of Association: Both the 1961 Constitution and local 
labor law recognize and encourage the right of unions to organize. The 
comprehensive 1990 Labor Code extends to all private sector and public 
sector employees (except members of the armed forces) the right to form 
and join unions of their choosing. One major union umbrella 
organization, the Venezuelan Confederation of Workers (CTV), three 
smaller unions affiliated with CTV, and a number of independent unions 
all operate freely. About 25 percent of the national labor force is 
unionized.
    b. The Right to Organize and Bargain Collectively: The Labor Code 
protects and encourages collective bargaining, which is freely 
practiced. Employers must negotiate a collective contract with the 
union that represents the majority of their workers in a given 
enterprise. The labor code also contains a provision stating that wages 
may be raised by administrative decree, provided that Congress approves 
the decree. The law prohibits employers from interfering with the 
formation of unions or with their activities and from stipulating as a 
condition of employment that new workers must abstain from union 
activity or that they must join a specified union.
    c. Prohibition of Forced or Compulsory Labor: The Labor Code states 
that no one may ``obligate others to work against their will.''
    d. Minimum Age for Employment of Children: The Labor Code allows 
children between the ages of 12 and 14 years to work only if the 
National Institute for Minors or the Labor Ministry grants special 
permission. However, children between the ages of 14 and 16 need only 
the permission of their legal guardians. Minors may not work in mines 
or smelters, in occupations ``that risk life or health,'' in jobs that 
could damage their intellectual or moral development, or in ``public 
spectacles.'' Those under 16 years of age cannot work more than six 
hours a day or 30 hours a week. Minors under the age of 18 years may 
work only between 6 a.m. and 7 p.m.
    e. Acceptable Conditions of Work: Effective May 1999, the monthly 
minimum wage for the private sector is $190 (BS 120,000) for urban 
workers and $170 (BS 108,000) for rural workers. The law excludes only 
domestic workers and concierges from coverage under the minimum wage 
decrees. The Ministry of Labor enforces minimum wage rates effectively 
in the formal sector of the economy, but generally does not enforce 
them in the informal sector. The new Constitution (subject to approval 
by referendum on December 15, 1999) would reduce the standard workweek 
to a maximum of 40 hours and requiring ``two complete days of rest each 
week.'' The code also states that employers are obligated to pay 
specific amounts (up to a maximum of 25 times the minimum monthly 
salary) to workers for accidents or occupational illnesses, regardless 
of who is responsible for the injury.
    In a statute passed in 1998, employers with fifty or more employees 
must now provide workers who earn less than twice the minimum wage 
(about $350 a month) with a meal during each work shift. Employers can 
do this by providing their own canteen, contracting with a food service 
or distributing lunch tickets that workers can redeem at food 
establishments.
    f. Rights in Sectors with U.S. Investment: People who work in 
sectors that receive high levels of U.S. investment receive the same 
protection as other workers. The wages and working conditions for those 
in U.S.-affiliated industries are better than average in the majority 
of cases.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,516
Total Manufacturing............  ..............  1,856
  Food & Kindred Products......  536             ...............................................................
  Chemicals & Allied Products..  192             ...............................................................
  Primary & Fabricated Metals..  124             ...............................................................
  Industrial Machinery and       26              ...............................................................
   Equipment.
  Electric & Electronic          81              ...............................................................
   Equipment.
  Transportation Equipment.....  369             ...............................................................
  Other Manufacturing..........  529             ...............................................................
Wholesale Trade................  ..............  230
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  64
Services.......................  ..............  153
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  5,697
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                       NEAR EAST AND NORTH AFRICA

                              ----------                              


                                ALGERIA

                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................    47,100    48,300    51,400
  Real GDP Growth \3\.....................       1.1       5.1       4.0
  GDP by Sector: \2\
    Agriculture...........................     4,497     5,756     6,171
    Manufacturing.........................     4,405     4,765     5,129
    Construction..........................     4,616     4,731     5,028
    Hydrocarbons..........................    13,717    10,700    12,042
    Services..............................    10,771    11,794    12,707
    Government............................     8,922     9,670    10,323
  Real Per Capita GDP (US$)...............     1,596     1,610     1,620
  Labor Force (millions)..................      8.07      8.10       8.3
  Unemployment Rate (pct).................      27.8      28.0      28.0
  Fiscal Deficit/GDP (pct)................       2.4     -3.50      -4.5

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................      18.5      19.0      21.5
  Consumer Price Index....................       5.7       5.0       3.5
  Exchange Rate (dinar/US$, annual
 average)
    Official \4\..........................      57.7      59.5        65
    Parallel \5\..........................      65.0      70.0        71

Balance of Payments and Trade:
  Total Exports...........................    14,640    10,213    12,100
    Oil/Gas...............................    13,700    10,100    11,000
    Exports to U.S.\6\....................     2,439     1,656     1,775
  Total Imports CIF.......................    10,190     9,403     9,900
    Imports from U.S.\6\..................       695       713       905
  Trade Balance...........................     4,450     1,500     1,200
    Balance with U.S......................     1,744       953       870
  Current Account Deficit/GDP (pct).......      6.45     -1.00      -1.6
  External Public Debt....................    31,050    30,261    28,960
  Debt Service/GDP (pct)..................       8.9      11.1      11.3
  Gold and Foreign Exchange Reserves......     8,500     8,300     6,510
  Aid from U.S.\7\........................       156       209       325
  Aid from All Sources \8\................       392       N/A       N/A
------------------------------------------------------------------------
\1\ Embassy estimates based on partial data furnished by Algeria's
  Central Bank.
\2\ GDP at current market price.
\3\ Percentage changes calculated in local currency.
\4\ Bank of Algeria and embassy estimate.
\5\ Embassy estimates.
\6\ 1999 data, based upon 9 month statistics.
\7\ In thousands of dollars, IMET and USIA exchanges.

1. General Policy Framework
    The Algerian market offers significant commercial opportunities to 
U.S. exporters and investors. Algeria has large proven oil and gas 
reserves with the potential for additional discoveries. U.S. technology 
and expertise are highly prized as a means to explore and exploit these 
resources. The hydrocarbon sector is the largest market for U.S. 
exports. However, Algeria is the world's fifth largest importer of 
wheat and Algeria is projected to import some $2.4 billion in 
foodstuffs in the year 2000. Other sectors where there is a strong 
potential demand for U.S. goods and services in Algeria include 
housing, consumer products, water projects, and telecommunications. 
Total Algerian imports in the year 2000 are expected to reach almost 
$10 billion. There are pressures for the government to deregulate the 
trade sector. According to the International Monetary Fund (IMF), total 
foreign exchange reserves peaked at $8.6 billion in March 1998. Current 
estimates are that reserves will fall to $5-6 billion by year-end 1999. 
However, with past debt rescheduling completed and steady energy 
exports, there is little danger of financial shortcomings. Algeria has 
a growing population, its infrastructure needs renovation, and there is 
a critical housing shortage. Over the medium and long term, Algeria 
should be a large, growing market for U.S. exports.
    U.S. exports to Algeria rose about 7 percent in 1999 relative to 
the level of the year before. U.S. agricultural exports to will 
increase in 1999-2000 due to a drought which will require additional 
wheat imports. The Algerians have requested a program of agricultural 
credits for 1999-2000. The World Bank plans to offer loans for housing, 
water and sewage, and urban transport.
    The 1998 government budget was the first one in four years not 
subject to the constraints of an IMF structural adjustment program. The 
government loosened the tight fiscal policy it has been pursuing in 
conjunction with the IMF-backed program. The drop in oil prices in 
early 1999 forced a revision of projected revenue and cuts in spending 
plans. The rebound of oil prices later in 1999 allowed some leeway in 
spending plans.
    The instruments of monetary policy in Algeria are limited. The Bank 
of Algeria controls monetary growth primarily via bank lending limits. 
Interest rates are set weekly by a government board. In late 1999, the 
central bank rediscount rate stood at 8.5 percent and commercial bank 
lending rates ranged between 8.5 and 10 percent. To finance government 
deficit spending, the government sells bonds on the primary market to 
Algerian customers. In 1998, for the first time the central bank opened 
a secondary market for government debt.
    Still, the lack of a modern financial services sector restricts 
growth of the private sector and is an impediment to foreign investment 
in Algeria. Reform efforts in the state-owned banking sector overall 
have progressed slowly. In the emerging private banking sector, private 
banks began operations in Algeria during 1998, including one U.S.-based 
bank. In late 1999 a major French financial institution announced plans 
to open an office in Algiers. The Algerian Government is also backing 
development of primary and secondary housing mortgage loan markets.
2. Exchange Rate Policy
    With hydrocarbon exports making up well over 90 percent of exports 
earnings, the price of oil is the major determinant of the exchange 
rate. A government board implements a managed float system for the 
dinar, which is convertible for all current account transactions. 
Private and public importers may buy foreign exchange from five 
commercial banks for commercial transactions provided they can pay for 
hard currency in dinars. Although commercial banks may buy foreign 
exchange from the Bank of Algeria at regular weekly auctions, at which 
they set the dinar's exchange rate, they are no longer required to 
surrender to the Bank of Algeria the foreign exchange they acquire and 
may trade these resources among themselves. However, since the central 
bank buys the foreign hydrocarbon export proceeds of the national oil 
company, SONATRACH, the bank plays the dominant role in the foreign 
exchange market. The primary objective of its intervention policy is to 
avoid sharp fluctuations in the exchange rate.
3. Structural Policy
    The government has changed major aspects of its regulatory pricing, 
and tax policies as part of its overall structural adjustment program 
during the past five years. It has loosened its tight hold on state-
owned company purchase, production, and pricing decisions in order to 
give their managers greater autonomy. During the late spring 1997, the 
government suspended its program of emergency financing for state-owned 
firms that had recourse to such funding to cover overdrafts and 
otherwise pay off outstanding debt. The government also pursued its 
policy of eliminating subsidies. Presently subsidies exist for basic 
food items (milk and wheat products), energy and public transportation. 
The government has privatized or liquidated 1000 state enterprises 
since 1996. In July, 1999 the Algiers Stock Exchange opened. There are 
plans for additional privatization as Algeria moves away from a 
socialist, centralized economy to one operating on market principles.
    The government ran a budget surplus in 1997 because of increased 
revenues from hydrocarbon exports, which accounted for about 60 percent 
of fiscal revenues and 95 percent of export earnings during the last 
two years. In 1996, the government modified its import duty schedule so 
that eight different rates cover all foodstuffs, semi-finished, and 
finished products, with the top rate being 45 percent in 1997. The 
government reformed its tax code in 1998 to encourage business 
development, cutting rates in several categories as part of the 1999 
budget. The new law will reduce corporate tax rates from 38 to 30 
percent, decreasing again to 18 percent if profits are re-invested in 
the company. The law also excludes from taxation profits on stock and 
bond sales for five years.
    Algeria is not a member of the World Trade Organization, but there 
is a movement to re-start stalled accession discussions. Algeria is 
hopes to begin formal negotiations in mid-2000 for an association 
agreement with the European Union.
4. Debt Management Policies
    At the end of 1998 total medium and long-term debt stood at $30.26 
billion. From 1994-1998 Algeria rescheduled some $10.48 billion of 
external debt. In May 1999, Algeria received a $300-million CCFF 
(``Compensatory and Contingency Financing Facility'') credit from the 
IMF and balance of payments support from the Arab Monetary Fund to help 
offset any negative impact of the fall in oil prices. Payment in 1998 
of principal and interest on the debt that had been rescheduled totaled 
$5.21 billion. The amounts for 1999-2001 are $5.81 billion, $4.20 
billion, and $4.13 billion, respectively. The share of export earnings 
spent on debt service payments in 1999 remained around 47 percent, the 
same as 1998. The debt service/exports ratio is expected to drop to 42 
percent in 2000.
    In order to meet debt service and support an increase in the real 
output of goods and services, the government is counting both on 
hydrocarbon export revenues to recover and on a substantial rise in 
non-hydrocarbon export revenues in the coming years. On the former 
point, in 1999 the Algerian economy remained sensitive to fluctuations 
in oil prices. Exports of non-hydrocarbon exports are expected to rise 
in the coming years.
    The central bank is estimating that the growth of Algeria's Gross 
Domestic Product (GDP) in volume terms will be about 5 percent per 
annum during the next three years (2000-2002). Based on the assumption 
that the average price of oil being $15 per barrel, the government 
assumes that Algeria's balance of payments will be such during this 
period that its stock of outstanding debt will decline by more than 
$3.82 billion between 1997 and 2003 (from $31.1 billion to $27.28 
billion). Under these assumptions, outstanding debt as a proportion of 
GDP will decline from 66.4 percent to 45.6 percent by the end of the 
period.
5. Significant Barriers to U.S. Exports
    Algeria has largely deregulated its merchandise trade regime. 
Import licenses are no longer required. The only imports subject to 
restrictions are firearms, explosives, narcotics, and pork products, 
which are prohibited for security or religious reasons. The government 
insists on particular testing, labeling, or certification requirements 
being met, however. The Ministry of Health requires distributors to 
obtain authorizations to sell imported drugs, which must have been 
marketed in their country of origin, as well as in a third country, 
before they may be imported. Government regulations stipulate that 
imported products, particularly consumer goods, must be labeled in 
Arabic. This regulation is enforced. It is helpful to label products in 
French. Food products when they arrive in Algeria must have at least 80 
percent of their shelf life remaining. Algeria's customs administration 
has simplified import clearance procedures, but the process remains 
time-consuming and the source of many complaints. The banking system is 
inefficient and the telecommunication system is not up to modern 
standards and capabilities. Licenses to offer Internet access have been 
granted to private firms, but overall access to the Internet and the 
use of e-commerce is weak.
    The government has deregulated some service sectors, notably 
insurance and banking. Air couriers are allowed to operate in Algeria 
subject to approval of the Algerian Ministry of Post and 
Telecommunications (PTT). DHL offers service in several Algerian 
cities. Although the PTT has a monopoly on all telecommunications 
services, it permits the local production, importation, and 
distribution of telecommunications equipment. A second cellular license 
is expected to be offered in 2000.
    There are no absolute barriers to or limitations on foreign 
investment in Algeria. The 1991 Hydrocarbons Sector Law and the 1991 
Mining Law, revised in 1999 to permit majority foreign ownership of 
mining enterprises, govern investments in these two local sectors. 
Production sharing agreements are routine and comply with international 
oil business norms.
    The Algerian Government's procurement practices do not adversely 
affect U.S. exports. Algeria participates officially in the Arab League 
boycott against Israel, but no U.S. firms have been disadvantaged by 
Algeria's policy in this regard.
6. Export Subsidies Policies
    About 95 percent of Algeria's export revenues are derived from oil 
and natural gas exports. The government does not provide direct 
subsidies for hydrocarbon or non-hydrocarbon exports. The government 
reactivated a non-hydrocarbon exports insurance and guarantee program 
in 1996, but it has had little effect. Almost all export restrictions 
have been removed, the exceptions being palm seedlings, sheep, and 
artifacts of historical and archaeological significance.
7. Protection of U.S. Intellectual Property
    Algeria is a member of the Paris Industrial Property Convention and 
the 1952 Convention on Copyrights. Algerian legislation protects 
intellectual property in principle but its enforcement is less than 
complete.
    Patents are protected by the law of December 7, 1993 and 
administered by the Institut Algerien De Normalisation Et De Propriete 
Industrielle (INAPI). Patents are granted for 20 years from the date 
the patent request is filed and are available for all areas of 
technology.
    The laws of March 19, 1966 and of July 16, 1976 afford trademark 
protection. In 1986, authority for the granting and enforcement of 
trademark protection was transferred from INAPI to the Centre National 
Du Registre Du Commerce (CNRC).
    A 1973 law provides copyright protection for books, plays, musical 
compositions, films, paintings, sculpture, and photographs. The law 
also grants the author the right to control the commercial exploitation 
or marketing of the above products. The 1973 law is being amended to 
include protection for (among other things) videos and radio programs.
    Algeria's intellectual property practices have had a minimally 
adverse affect on U.S. trade.
8. Worker Rights
    a. The Right of Association: Workers may form and be represented by 
trade unions of their choice. Government approval for the creation of a 
union is required. Unions may not affiliate with political parties or 
receive funds from abroad, and the government may suspend a union's 
activities if it violates the law. Unions may form and join federations 
or confederations, and they have affiliations with international labor 
bodies.
    b. The Right to Organize and Bargain Collectively: A 1990 law 
permits all unions to engage in collective bargaining. This right has 
been freely practiced. While the law prohibits discrimination by 
employers against union members and organizers, there have been 
instances of retaliation against strike organizers. Unions may recruit 
members at the workplace.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor has not been practiced in Algeria and is incompatible with the 
constitution.
    d. Minimum Age for Employment of Children: The minimum employment 
age is 16 years and inspectors can enforce the regulation. In practice, 
many children work part or full time in small private workshops and in 
informal trade.
    e. Acceptable Conditions of Work: The 1990 law on work relations 
defines the overall framework for acceptable conditions of work. The 
law mandates a 40-hour work week. The government has set a guaranteed 
monthly minimum wage of 6,000 Algerian Dinars ($100). A decree 
regulates occupational and health standards. Work practices that are 
not contrary to the regulations regarding hours, salaries, and other 
work conditions are left to the discretion of employers in consultation 
with employees.
    f. Worker Rights in Sectors with U.S. Investment: Nearly all of the 
U.S. investment in Algeria is in the hydrocarbon sector. Algerian 
workers in this sector enjoy all the rights defined above. These 
workers at American firms enjoy better pay and safety than do most 
workers elsewhere in the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,156
Total Manufacturing............  ..............  0
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  (\1\)
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  2,372
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                BAHRAIN


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (current)...........................     6,326     6,162     6,150
  Nominal GDP Growth (pct)................       4.1      -2.6         0
  GDP by Sector:
    Agriculture...........................        54        56        57
    Manufacturing.........................     1,177     1,035     1,050
    Financial.............................     1,337     1,412     1,500
    Government............................     1,082     1,149     1,300
  Per Capita GDP (US$) \2\................     9,806     9,508     9,230
  Labor Force (1,000's)...................       235       240       248
  Unemployment Rate.......................        15        16        17

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       8.2      16.6       6.8
  Exchange Rate (US$/BD)..................      2.65      2.65      2.65

Balance of Payments and Trade:
  Total Exports FOB \3\...................     4,310     3,263     3,450
    Exports to U.S........................       126       170       235
  Total Imports CIF.......................     3,857     3,554     3,000
    Imports from U.S......................       266       295       370
  Trade Balance...........................       453      -291       450
    Trade Balance with U.S.\4\............      -140      -125      -135
  External Public Debt....................       N/A       N/A       N/A
  Current Account Deficit/GDP (pct).......         0         0         0
  Debt Service Payments/GDP (pct).........       N/A       N/A       N/A
  Gold and Foreign Exchange Reserves......     1,035     1,015     1,020
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............      50.0      50.0      50.0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on data available in October
  1999.
\2\ Current prices, based on population projections.
\3\ Exports include transshipment, which accounts for 14 percent of non-
  oil exports from Bahrain.
\4\ Figures reflect merchandise trade.

Sources: Bahrain Monetary Agency, U.S. Department of Commerce, and
  Embassy estimates.

1. General Policy Framework
    Although the Government of Bahrain has controlling interest in many 
of the island's major industrial establishments, its overall approach 
to economic policy, especially those policies that affect demand for 
U.S. exports, can best be described as laissez faire. Except for 
certain basic foodstuffs and petroleum products, the price of goods in 
Bahrain is determined by market forces, and the importation and 
distribution of foreign commodities and manufactured products is 
carried out by the private sector. Owing to its historical position as 
a regional trading center, Bahrain has a well developed and highly 
competitive mercantile sector in which products from the entire world 
are represented. Import duties are assessed at a five percent rate for 
foodstuffs and non-luxuries, and a ten percent rate on most products. 
Duties on automobiles, boats, alcohol, and tobacco products are 
considerably higher. The Bahraini Dinar is freely convertible, and 
there are no restrictions on the remittance of capital or profits. 
Bahrain does not tax either individual or corporate earnings. The only 
exception would be for petroleum revenues under a production-sharing 
agreement.
    Over the past three decades, the government has encouraged economic 
diversification by investing directly in such basic industries as 
aluminum smelting, petrochemicals, and ship repair, and by creating a 
secure regulatory framework that has fostered Bahrain's development as 
a regional financial and commercial center. Despite diversification 
efforts, the oil and gas sector remains the cornerstone of the economy. 
Oil and gas revenues constitute approximately 50 percent of 
governmental revenues, and oil and related products account for about 
80 percent of the island's exports. Bahrain's oil production amounts to 
about 40,000 barrels a day (b/d), and it markets and receives oil 
revenues from the 140,000 b/d produced from Saudi Arabia's Abu Sa'fa 
offshore oil field.
    The budgetary accounts for the central government are prepared on a 
biennial basis. The budget for 1999 and 2000 was approved in December 
1998. Budgetary revenues consist primarily of receipts from oil, gas, 
and refinery products, supplemented by fees and charges for services, 
customs duties, and investment income. Bahrain has no income taxes and 
thus does not use its tax system to implement social or investment 
policies. Although initial budget figures for 1999 projected a $424 
million deficit--which was to be financed through the issuance of 
three-month and six-month treasury bills to domestic banks--sustained 
high global oil prices over the past nine months may help reduce the 
deficit, possibly halving it. The government also is considering 
financing its deficit through Islamic instruments.
    The instruments of monetary policy available to the Bahrain 
Monetary Agency (BMA) are limited. Treasury bills are used to regulate 
dinar liquidity positions of the commercial banks. Liquidity to the 
banks is provided now through secondary operations in treasury bills, 
including: (a) discounting treasury bills; and (b) sales by banks of 
bills to the BMA with a simultaneous agreement to repurchase at a later 
date (``repos''). Starting in 1985, the BMA imposed a reserve 
requirement on commercial banks equal to five percent of dinar 
liabilities. Although the BMA has legal authority to fix interest 
rates, it has not yet exercised the authority. The BMA has, however, 
published recommended rates for Bahraini Dinar deposits since 1975. In 
1982, the BMA instructed the commercial banks to observe a maximum 
margin of one percent over their cost of funds, as determined by the 
recommended deposit rates, for loans to prime customers. In August 
1988, special interest rate ceilings for consumer loans were 
introduced. In May 1989 the maximum prime rate was abolished, and in 
February 1990, new guidelines permitting the issuance of dinar 
certificates of deposit (CDs) at freely negotiated rates for any 
maturity from six months to five years were published.
2. Exchange Rate Policies
    Since December 1980, Bahrain has maintained a fixed relationship 
between the dinar and the dollar at the rate of one dollar equals 0.377 
BD. Bahrain maintains a fully open exchange system free of restrictions 
on payments and transfers. There is no black market or parallel 
exchange rate.
3. Structural Policies
    As a member of the six-nation Gulf Cooperation Council (GCC), 
Bahrain participates fully in GCC efforts to achieve greater economic 
integration among its member states (Kuwait, Oman, Qatar, Saudi Arabia, 
the United Arab Emirates, and Bahrain). In addition to according duty-
free treatment to imports from other GCC states, Bahrain has adopted 
GCC food product labeling and automobile standards. Efforts are 
underway within the GCC to enlarge the scope of cooperation in fields 
such as product standards and industrial investment coordination. In 
recent years, the GCC has focused its attention on negotiating a free 
trade agreement with the European Union. If these negotiations are 
successfully concluded, such an agreement could have a long-term 
adverse impact on the competitiveness of U.S. products within the GCC, 
including Bahrain.
    Bahrain is an active participant in the ongoing U.S.-GCC economic 
dialogue. In addition, Bahrain signed a Bilateral Investment Treaty 
(BIT) with the United States in September 1999, the first Gulf state to 
do so. The inaugural meeting of the Joint Economic Dialogue (JED) 
between Bahrain and the United States also took place in September 
1999. For the present, U.S. products and services compete on an equal 
footing with those of other non-GCC foreign suppliers. Bahrain still 
officially participates in the primary Arab League economic boycott 
against Israel, but does not observe secondary and tertiary boycott 
policies against third-country firms having economic relationships with 
Israel.
    With the exception of a few basic foodstuffs and petroleum product 
prices, the government does not attempt to control prices on the local 
market. Because most manufactured products sold in Bahrain are 
imported, prices basically depend upon the source of supply, shipping 
costs, and agents' markups. Commissions are capped at five percent and 
are due to be phased out by 2003. Since the opening of the Saudi 
Arabia-Bahrain causeway in 1985, and the 1998 revision in the Agency 
Law that abolished sole agency requirements, local merchants have been 
less able to maintain excessive margins and, as a consequence, prices 
have tended to fall as competition has heated up somewhat. Consumer 
competition is likely to increase further as the full impact of the 
1998 Agency Law revision takes effect.
    Bahrain is essentially tax-free. The only corporate income tax in 
Bahrain potentially would be levied on oil, gas, and petroleum 
producers, all of which are state-owned at this time. There is no 
individual income tax, nor does the country have any value-added tax, 
property tax, production tax or withholding tax. Bahrain has customs 
duties and a few indirect and excise taxes, which include a tax on 
gasoline, a 10 percent levy on rents paid by residential tenants, a 
12.5 percent tax on office rents, and a 15 percent tax on hotel room 
rates. Firms with 100 or more employees pay a training levy at the rate 
of 3 percent of the payroll for expatriates and one percent for 
Bahrainis.
4. Debt Management Policies
    The government follows a policy of strictly limiting its official 
indebtedness to foreign financial institutions. To date, it has 
financed its budget deficit through local banks. In April 1998, Bahrain 
launched its first bond issue--worth approximately $107 million--which 
was well received. The government has no plans for a second issue at 
this time. Bahrain has no International Monetary Fund or World Bank 
programs.
5. Aid
    Bahrain receives assistance in the form of project grants from 
Saudi Arabia, Kuwait, and the United Arab Emirates. On April 1, 1996, 
Bahrain began receiving 100 percent of the revenue from the 140,000 b/d 
of oil produced from Saudi Arabia's offshore Abu Sa'fa field. This has 
proved to be a major source of funding for the government's budget.
6. Significant Barriers to U.S. Exports
    Standards: Processed food items imported into Bahrain are subject 
to strict shelf life and labeling requirements. Pharmaceutical products 
must be imported directly from a manufacturer that has a research 
department and must be licensed in at least two other GCC countries, 
one of which must be Saudi Arabia.
    Investment: The government actively promotes foreign investment and 
permits 100 percent foreign ownership of new industrial enterprises and 
the establishment of representative offices or branches of foreign 
companies without local sponsors. Other commercial investments are made 
in partnership with a Bahraini national controlling 51 percent of the 
equity. Except for citizens of Kuwait, Saudi Arabia, and the United 
Arab Emirates, foreign nationals must lease rather than purchase land 
in Bahrain. There is, however, currently legislation under 
consideration that would allow all foreigners to own property in 
Bahrain. The government encourages the employment of local nationals by 
setting local national employment targets in each sector and by 
restricting the issuance of expatriate labor permits. Nevertheless, a 
sizable expatriate labor force continues to work in Bahrain.
    Government Procurement Practices: The government makes major 
purchasing decisions through the tendering process. For major projects, 
the Ministries of Works and Agriculture, and of Power and Water, extend 
invitations to selected, pre-qualified firms. Smaller contracts are 
handled by individual ministries and departments and are not subject to 
pre-qualification.
    Customs Procedures: The customs clearance process is used to 
enforce the primary boycott of Israel, insofar as it is enforced. While 
goods produced by formerly blacklisted firms may be subjected to minor 
delays, the secondary and tertiary boycotts are no longer used as the 
basis for denying customs clearance, and the process of removing firms 
from the blacklist has become routine, upon application by the subject 
firm. In addition, Bahraini customs protects against the import of 
pirated goods and enforces the Commercial Agencies Law. Goods 
manufactured by a firm with a registered agent in Bahrain may be 
imported by that firm's agents or, if by a third party, upon payment of 
a commission to the registered agent. This arrangement is being phased 
out (see above).
7. Export Subsidies Policies
    The government provides indirect export subsidies in the form of 
preferential rates for electricity, water, and natural gas to selected 
industrial establishments. The government also permits the duty-free 
importation of raw material inputs for incorporation into products for 
export and the duty-free importation of equipment and machinery for 
newly established export industries. The government does not target 
subsidies to small businesses.
8. Protection of U.S. Intellectual Property
    Bahrain is a signatory of the GATT Uruguay Round and World Trade 
Organization (WTO) agreements, including the Agreement on Trade-Related 
Aspects of Intellectual Property Rights (TRIPs), and is obligated to 
bring its laws and enforcement efforts into TRIPs compliance by January 
1, 2000. In February 1995, Bahrain joined the World Intellectual 
Property Organization (WIPO), and it signed the Berne Convention for 
the Protection of Literary and Artistic Works, and the Paris Convention 
for the Protection of Industrial Property on October 29, 1996.
    In April 1999, Bahrain became the first country in the Middle East 
to be removed from the U.S. Special 301 ``Watch List'' in recognition 
of its significant progress in providing adequate and effective 
enforcement of IP laws and regulations relating to copyrighted and 
trademarked goods. The government's copyright, patent, and trademark 
laws are being amended to become fully TRIPs-compliant by January 1, 
2000.
9. Worker Rights
    a. The Right of Association: The partially suspended 1973 
constitution recognizes the right of workers to organize, but western-
style trade unions do not exist in Bahrain, and the government does not 
encourage their formation. Article 27 of Bahrain's Constitution states: 
``Freedom to form associations and trade unions on national bases and 
for lawful objectives and by peaceful means shall be guaranteed in 
accordance with the conditions and in the manner prescribed by the law. 
No person shall be compelled to join or remain in any association or 
union.''
    In response to labor unrest in the mid-1950's and in 1965 and 1974, 
the government passed a series of labor regulations that, among other 
things, allows the formation of elected workers' committees in larger 
Bahraini companies. Worker representation in Bahrain today is based on 
a system of Joint Labor-Management Committees (JLCs) established by 
ministerial decree. Between 1981 and 1984, 12 JLCs were established in 
the major state-owned industries. In 1994, four new JLCs were 
established in the private sector, including one in a major hotel. In 
September 1998, three more JLCs were created, bringing the total number 
in Bahrain to nineteen.
    b. The Right to Organize and Bargain Collectively: Bahrain's Labor 
Law neither grants nor denies workers the right to organize and bargain 
collectively. While the JLCs described above are empowered to discuss 
labor disputes, organize workers' services, and discuss wages, working 
conditions, and productivity, the workers have no independent, 
recognized vehicle for representing their interests on these or other 
labor-related issues.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited in Bahrain, and the Labor Ministry is charged with 
enforcing the law. The press often performs an ombudsman function on 
labor problems, reporting instances in which private sector employers 
occasionally compelled foreign workers from developing countries to 
perform work not specified in their contracts, as well as Labor 
Ministry responses. Once a worker has lodged a complaint, the Labor 
Ministry opens an investigation and takes action.
    d. Minimum Age for Employment of Children: The minimum age for 
employment is 14. Juveniles between the ages of 14 and 16 may not be 
employed in hazardous conditions or at night, and may not work over six 
hours per day or on a piecework basis. Child labor laws are effectively 
enforced by Labor Ministry inspectors in the industrial sector; child 
labor outside that sector is less well monitored, but it is not 
believed to be significant outside family-operated businesses.
    e. Acceptable Conditions of Work: Minimum wage scales, set by 
government decree, exist for employees and generally afford a decent 
standard of living for workers and their families. The current minimum 
wage is $398 (150 BD) a month and may be increased, at least in select 
sectors such as tourism, to $451 (BD 170) a month. Wages in the private 
sector are determined on a contract basis. For foreign workers, 
employers consider benefits such as annual trips home, housing, and 
education bonuses part of the salary.
    Bahrain's Labor Law mandates acceptable working conditions for all 
adult workers, including adequate standards regarding hours of work 
(maximum 48 hours per week) and occupational safety and health. 
Complaints brought before the Labor Ministry that cannot be settled 
through arbitration must, by law, be referred to the Fourth High Court 
(Labor) within 15 days. In practice, most employers prefer to settle 
such disputes through arbitration, particularly since the court and 
labor law are generally considered to favor the worker.
    f. Rights in Sectors with U.S. Investment: The company law does not 
discriminate at all against foreign-owned companies and is in the 
process of being liberalized further. Workers at all companies with 
U.S. investment enjoy the same rights and conditions as other workers 
in Bahrain.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  -5
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  -4              ...............................................................
Wholesale Trade................  ..............  (\2\)
Banking........................  ..............  -74
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  (\2\)
Other Industries...............  ..............  (\2\)
TOTAL ALL INDUSTRIES...........  ..............  -139
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 EGYPT


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (Current Prices).................       76.2       83.8       89.7
  Real GDP Growth (pct) \2\............        5.3        5.7        6.0
  GDP by Sector:
    Agriculture........................       17.6       17.5       17.4
    Manufacturing......................       31.8       32.2       31.5
    Services...........................       42.6       42.3       43.3
    Government.........................        7.8        7.8        7.9
  Per Capita GDP (US$).................      1,260      1,310      1,406
  Labor Force (millions)...............      17.36       17.0       18.3
  Unemployment Rate (pct)..............        8.8        8.9        8.3

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............       15.1       12.3       11.4
  Consumer Price Inflation (period             6.2        4.0        2.9
   average)............................
  Exchange Rate (LE/US$ annual average)
    Market Rate........................       3.39       3.39      3.396

Balance of Payments and Trade:
  Total Exports FOB \3\................      5.345      5.128      4.445
    Exports to U.S.\3\.................      0.694      0.698  \5\ 0.660
  Total Imports FOB \3\................     15.565     16.899     16.969
    Imports from U.S.\3\...............      3.840      3.060  \5\ 3.000
  Trade Balance\3\.....................      -10.2      -11.7      -12.5
    Balance with U.S...................     -3.146     -2.361  \5\ -2.36
                                                                       0
  External Public Debt.................       28.8       28.1       28.2
  Fiscal Balance/GDP (pct).............       -0.9       -1.0       -1.3
  Current Account Balance/GDP (pct)....        0.7       -3.4       -1.9
  Debt Service Payments Ratio \4\......       16.0       13.0       11.0
  Gold and Foreign Exchange Reserves...       20.2       20.3       18.0
  Aid from U.S.........................      2.115      2.115      2.075
------------------------------------------------------------------------
\1\ Statistics are based on Egypt's fiscal year starting July 1 and
  ending June 30.
\2\ Percentage changes calculated in local currency.
\3\ Merchandise trade.
\4\ Ratio of external debt service to current account receipts.
\5\ Estimates.

1. General Policy Framework
    Egypt, with a population of 67 million and a per capita income of 
USD 1,400, is a large developing country. Its market economy is 
segmented into the state sector (estimated at 30 percent of GDP), and 
the private sector (70 percent of GDP). The Ministry of Finance 
estimates the informal sector is equivalent to 25 percent of the GDP. 
Foreign assistance has funded a significant portion of Egypt's 
infrastructure development. The role of private investment in key 
infrastructure areas has increased over the last year.
    Egypt's economic stabilization program that started in 1991 has 
improved most macroeconomic and trade indicators. Since 1991, real GDP 
growth has increased from 2 percent to 5 percent. Inflation decreased 
from 20 to 3 percent, foreign currency reserves increased from 7 to 17 
billion dollars and the budget deficit decreased from 17 to around 1 
percent of GDP. Tariff protection has been reduced with most favored 
nation (MFN) duties, which averaged 42 percent in 1991 now averaging 27 
percent. Most non-tariff barriers have been removed.
    Services make up the largest and fastest growing sector of the 
Egyptian economy, accounting for 58 percent of GDP (including 
government services). Tourism, the Suez Canal, trade, and banking are 
the largest service sub-sectors. Egypt exports primarily petroleum, 
light manufactures (textiles) and agricultural products, it imports 
machinery, refined oil products, and food products. Since 1995 Egypt's 
exports have remained at around 5 billion dollars while imports 
increased from 13 to 17 billion dollars.
    In 1997 and 1998 Egypt's key sources of foreign exchange (tourism, 
Suez Canal receipts, worker remittance and petroleum exports) suffered 
external shocks. As a result Egypt's current account went from a small 
surplus to a 2.5 billion-dollar deficit. The decline in foreign 
exchange earnings may have played a role in the government's decision 
to issue a trade decree in November 1998, requiring that consumer goods 
be imported directly from the country of origin. In November 1999, the 
GOE amended this trade measure thus allowing consumer goods to be 
sourced from manufacturers' regional branches or distribution centers 
and easing standards for providing the origin of goods. In 1999 some of 
the sources of foreign exchange earnings started to recover with 
tourist visitor numbers at record levels, Suez Canal receipts 
stabilizing and petroleum prices rising.
    The GOE's expenditures were around 22 billion dollars in FY 1998/
99, some 29 percent of GDP, with the fiscal deficit around 1 percent of 
GDP. The deficit was financed through issuance of government securities 
and foreign assistance. Fiscal revenues are mainly comprised of tax 
revenue, including income tax receipts and customs tariffs. Egypt has 
plans to widen the base of the sales tax by including wholesale and 
retail trade, although implementation has been delayed. Delays in 
completing tax reform may have wider implications for further 
reductions in tariffs, given the importance of customs revenues in 
overall government revenue.
    The GOE enacted Law 8 in 1997 to facilitate foreign investment by 
creating a unified and clear package of guarantees and incentives. 
Increasing the transparency of government regulations and strengthening 
intellectual property rights protection would encourage further foreign 
investment.
    The Central Bank of Egypt consults with the ministry of finance and 
the ministry of economy and foreign trade, but it is an autonomous body 
and bears the ultimate responsibility for defining Egypt's monetary 
policy. Historically movements in treasury bill rates have provided a 
better indication of central bank policy than the discount rate.
    In October 1999 President Mubarak appointed a new cabinet which has 
provided new impetus to Egypt's economic reform program. The new Prime 
Minister Atef Ebeid, who was previously in charge of the privatization 
program, is expected to increase the momentum of privatization. The 
merger of the ministry of economy with foreign trade under Youssef 
Boutros Ghali is likely to have a similar effect on trade and 
investment.
2. Exchange Rate Policy
    Law 38 of 1994 and the executive regulations issued under 
Ministerial Decree 331 of 1994 regulate foreign exchange operations in 
Egypt. Responsibility for exchange rate policy lies with the government 
of Egypt and is administered by the Central Bank of Egypt in 
consultation with the minister of economy and foreign trade.
    Central bank foreign exchange reserves stood at 17.4 billion 
dollars in August 1999. The GOE notes officially that the free market 
guides the rates of exchange set by the Central Bank of Egypt, other 
approved banks, and dealers. However, the central bank appears to 
actively monitor the exchange rate in order to assure the Egyptian 
pound's stability. According to the Central Bank of Egypt, the value of 
the Egyptian pound averaged around le 3.39 per USD in 1999. Rates 
offered by major commercial banks reflected only a modest spread over 
this average, in the range of 3.4 to 3.41 LE/USD. The rates offered by 
bureau of exchange, which account for approximately 6 percent to 10 
percent of daily foreign exchange transactions, ranged up to 3 percent 
above the standard commercial rate.
    The intervention currency is the U.S. dollar. There are no exchange 
or currency controls and foreign currency transfers are in principle 
unrestricted. In the last year, however, firms reported frequent delays 
in the processing of their requests to convert Egyptian pounds to 
foreign currency. Exports in recent years may have been affected by the 
real appreciation of the Egyptian pound since economic reform was 
initiated in 1991.
3. Structural Policies
    In general, prices for most products are market based, although the 
GOE provides direct and indirect subsidies on key consumer goods to 
benefit Egypt's poor (including bread, which stimulates the demand for 
U.S. wheat). Pharmaceutical prices are set by the Ministry of Health. 
Railway fares, electricity, petroleum products and natural gas prices 
are gradually being deregulated to reflect actual costs.
    Under its trade liberalization program and in accordance with its 
WTO obligations, Egypt has made progress in reducing its tariffs. The 
maximum rate for WTO-bound tariffs was recently reduced from 50 percent 
to 40 percent. Many cases of high tariffs persist, however, such as 
those affecting the import of automobiles, automobile spare parts and 
U.S. poultry products. Egypt does not maintain export quotes or require 
pre-approval for imports. It is in the process of implementing the 
harmonized system of classification. Although the government recognizes 
the need to eliminate procedural barriers to trade, businesses report 
that red tape and cumbersome bureaucracy remain significant problems.
    The GOE instituted a general sales tax (GST) in 1991 and is now 
moving towards adoption of a value-added tax. Since 1991 taxes on 
certain consumer goods not covered by the GST (alcoholic and soft 
drinks, tobacco and petroleum products) were raised and converted to ad 
valorem taxes (VAT). Other reforms included lowering marginal tax 
rates, simplifying the tax rate structure, and improving administration 
of tax policy. Despite such efforts, businesses consistently note the 
need for reform and modernization of Egypt's tax system, describing its 
current administration as cumbersome and frequently unpredictable.
4. Debt Management Policies
    In early 1991, official creditors in the Paris club agreed to 
reduce by 50 percent the net present value of Egypt's official debt, 
phased in three tranches of 15, 15 and 20 percent. The IMF conditioned 
release of the three tranches on successful review of Egypt's reform 
program. At about the same time, the United States forgave USD 6.8 
billion of high-interest military debt. As a result, Egypt's total 
outstanding debt has declined to about USD 28 billion, and the debt 
service ratio fell from nearly 50 percent in 1988 to 13 percent in 
1997/98.
    In 1996, Egypt began a new round of discussions with the IMF. In 
October 1996, the two sides agreed to an ambitious package of 
structural reform measures through 1998, and the IMF approved a USD 291 
million precautionary stand-by agreement for Egypt. This agreement 
paved the way for the release of the final USD 4.2 billion tranche of 
Paris club relief, reducing Egypt's annual debt servicing burden by USD 
350 million. In September 1998, Egypt declared that it would not sign a 
third program with the IMF. The relationship with the fund and the GOE 
has taken a consultative aspect.
5. Aid
    The United States is Egypt's largest provider of foreign 
assistance, having committed USD 2.1 billion in FY 2000. The assistance 
package is divided into economic support funds (USD 735 million) and 
military assistance (USD 1.3 billion). U.S. economic support assistance 
levels to Egypt will be gradually reduced over the next several years. 
Both governments are committed to working together to maximize the 
positive impact assistance has on Egypt's transition to a private-
sector-led, export-oriented economy. A significant portion of the funds 
in both assistance categories are used by Egypt to acquire U.S. goods 
and services. For example, around USD 200 million of exports were 
financed in FY 1999 through USAID's commodity import program. An 
additional USD 200 million was used to finance technical assistance and 
services. The department of agriculture, in separate programs (GSM 
102), allocated in FY 1999 about USD 200 million in U.S. exports to 
Egypt.
6. Significant Barriers to U.S. Exports
    Egypt became a member of the world trade organization (WTO) in June 
1995. Trade would be facilitated by increased transparency and improved 
notification to the WTO and major trading partners of changes the GOE 
makes to bring Egypt's trade regime into WTO compliance.
    Import Barriers: Egypt does not require licenses. For food and non-
food imports with a shelf life, the government mandates that they 
should not exceed half the shelf life at time of entry into Egypt. The 
importation of commodities manufactured using ozone-depleting chemicals 
is prohibited.
    Services Barriers: The Egyptian government runs many service 
industries. Recent government policies allow private sector involvement 
in ports, maritime activities and airports, an opening that has spurred 
significant interest and activity in the private sector. Private firms 
dominate advertising, services. Egypt modified laws and regulations in 
accordance with its WTO financial services commitments.
    Banking: Existing foreign bank branches have been permitted to 
conduct local currency operations since 1993. Two U.S. bank branches 
have licensed to do so. In June 1996, the parliament passed a bill 
amending the banking law and allowing foreign ownership in joint 
venture banks to exceed 49 percent, thus encouraging greater 
competition. In another significant development, Law 155 was passed in 
June 1998. It provided the constitutional basis needed to permit the 
privatization of the four public sector banks. (Privatizing publicly 
held banks will a complex and politically sensitive undertaking; the 
government has not yet named a public-sector bank for privatization.) 
In a move to eliminate a tax loophole and orient banks' portfolio 
managers to more economically productive investments, the government 
passed the Income Tax Law 5 of 1998. This law eliminated a loophole 
that allowed banks and financial institutions to deduct interest earned 
on government securities, as well as to deduct the interest paid on 
funds borrowed to purchase such securities.
    Securities: International brokers are permitted to operate in the 
Egyptian stock market. Several U.S. and European firms have established 
operations or purchased stakes in brokerage firms.
    Insurance: The passage of a new insurance law in June 1998 marked a 
potentially significant milestone for the sector and the national 
economy. The law permits foreign insurance companies to own up to 100 
percent of Egyptian insurance firms. In 1999 the GOE approved the first 
application by a U.S. firm for majority ownership. Previously, foreign 
ownership was restricted to a minority stake. The GOE appears more 
receptive to applications to establish new operations in the relatively 
undeveloped area of life insurance than in the non-life sectors. Four 
public-sector companies (one of which is a reinsurance company) 
dominate the insurance market. There are five private sector insurance 
companies, three of which are joint ventures with U.S. firms. Two of 
the joint ventures are operating in the free zones.
    Telecommunications: In October 1999 a new ministry of 
communications and information technology was created. The government 
had previously converted a government authority into Telcom Egypt, 
established a regulatory board for telecommunications and spun off 
responsibility for internet, cellular telephone and pay telephone to 
the private sector. In recent years Egypt's telecommunication 
infrastructure has undergone extensive modernization with the addition 
of five million lines. Telcom Egypt, the nation's fixed-line monopoly, 
announced in November that it would cut its international long distance 
rates by 25 percent. The government has indicated that it plans to sell 
20 percent of Telcom Egypt in the first quarter of 2000. The mobile 
system has expanded significantly in the last four years as the result 
of increased GSM capacity. In 1996 a government-owned firm (Arento) was 
created with an initial GSM capacity of 90,000 lines. The establishment 
of two private sector companies in 1998 (Mobinil and Misrphone) further 
boosted the GSM system by 130,000 lines. Some GOE officials have 
expressed interest in the WTO basic telecommunications agreement and 
the international telecommunications agreement.
    Maritime and Air Transportation: Maritime transport lines and 
services operated until recently as government monopolies. Law 22 of 
1998 opened these areas to the private sector. This law permits the 
establishment of specialized ports on a build-own-operated basis. Under 
the new business environment created by Law 22, the private sector is 
becoming increasingly involved in container handling. In addition, 
Egypt Air's monopoly on carrying passengers has been curtailed, and 
several privately owned airlines now operate regularly scheduled 
domestic flights, although the national carrier remains, by far, the 
dominant player in the sector. Private firms have also become active in 
airport construction.
    Standards, Testing, Labeling and Certification: While Egypt has 
decreased tariffs and bans on the importation of many products, other 
non-tariff barriers have increased. Items removed from the ban list 
were added to a list of commodities requiring inspection for quality 
control before customs clearance. This list now comprises 131 
categories of items, including meat, fruits, vegetables, spare parts, 
construction products, electronic devices, appliances, transformers, 
household appliances, and many consumer goods. Agricultural commodities 
have been increasingly subject to quarantine inspection, so much so 
that some importers have begun arranging inspection visits in the U.S. 
to facilitate Egyptian customs clearance. Product specification also 
can be a barrier to trade. For example, Egyptian standard number 1522 
of 1991 concerning inspection of imported frozen meat set an 
unattainable maximum 7 percent content of fat. There is a lack of clear 
standards for determining if processing is done according to Islamic 
rule, which restricts U.S. poultry parts exports.
    Imported goods must be marked and labeled in Arabic with the brand 
and type of the product, country of origin, date of production and 
expiry date, and any special requirements for transportation and 
handling of the product. An Arabic language catalog must accompany 
imported tools, machines and equipment. The government mandates that 
cars imported for commercial purposes must be accompanied by a 
certificate from the manufacturer stating that they are suited for 
tropical climates. Many of these standards violate the WTO agreement 
which prohibits ``nontechnical barriers to trade'' (NTB). Only bona 
fide health and safety standards based on scientific evidence are 
mandatory under WTO; all other standards must be voluntary.
    Investment Barriers: The General Authority for Free Zones and 
Investment (GAFI) which was placed under the Ministry of Economy and 
Foreign Trade in October has sole responsibility for regulating foreign 
investment. The GOE implemented Law 8 of 1997 to facilitate foreign 
investment by creating a unified and clear package of guarantees and 
incentives. Egypt signed a bilateral investment treaty with the United 
States in an investment guarantee agreement which extends political 
risk insurance (via OPIC) for American private investment. In addition, 
the GOE is a signatory of the international convention for the 
settlement of investment disputes.
    Government Procurement: The GOE passed a new government procurement 
law this year (Law 89 of 1998) in an effort to increase transparency, 
assure equal opportunity among bidders and protect contractor rights. 
The law mandates that: a bid may not be transformed into a tender (a 
main defect of prior law dating from 1983); decisions on bids are to be 
explained in writing; and more weight will be accorded to technical 
considerations in awarding contracts. The law also requires the 
immediate return of bid bonds and other guarantees once the tender is 
awarded. Egypt is not a signatory to the WTO government procurement 
agreement.
    Customs Procedures: In 1993, Egypt adopted the harmonized system of 
customs classification. Tariff valuation is calculated from the so-
called ``Egyptian selling price'' which is based on the commercial 
invoice that accompanies a product the first time it is imported. 
Customs authorities retain information from the original commercial 
invoice and expect subsequent imports of the same product (regardless 
of the supplier) to have a value no lower than that noted on the 
invoice from the first shipment. As a result of this presumption of 
increasing prices and the belief that under-invoicing is widely 
practiced, customs officials routinely and arbitrarily increase invoice 
values from 10-30 percent for customs valuation purposes. 
Multiplication of authorities for commodity clearance and inspection 
increases the complexity and costs of exporting to Egypt. As customs 
procedures are becoming increasingly automated through the use of 
computers, customs officials will no longer be able to exercise such 
subjective judgment over valuation of imports. The WTO customs 
valuation agreement comes into force for Egypt on July 1, 2000.
7. Export Subsidies
    At present Egypt has no direct export subsidies. Certain exporting 
industries may benefit from duty exemptions on imported inputs (if 
released under the temporary release system) or receive rebates on 
duties paid on imported inputs at the time of export of the final 
product (if released under the drawback system). Under its commitments 
to the World Bank, the Egyptian government has increased energy and 
cotton procurement prices and has abolished privileges enjoyed by 
public sector enterprises (subsidized inputs, credit facilities, 
reduced energy prices and preferential custom rates), thus reducing the 
indirect subsidization of exports.
8. Protection of U.S. Intellectual Property
    Watch List Designation: Due primarily to exclusion of 
pharmaceutical products from patentability the United States Trade 
Representative placed Egypt on a ``priority watch list'' in April 1997, 
and retained this designation in 1998 and 1999. Egypt is a signatory to 
the GATT TRIPs agreement, the Bern Copyright Convention, the Paris 
Patent Convention, the Paris Convention for Protection of Industrial 
Property of 1883, the Madrid Convention of 1954, and the Nice 
Convention for the Classification of Goods and Services. The GOE has 
several WTO TRIPs obligations that came into force on January 1, 2000.
    Patents: The existing Egyptian patent law (Law 132 of 1949) 
provides protection below international standards. It contains overly 
broad compulsory licensing provisions and excludes from patentability 
substances prepared or produced by chemical processes if such products 
are intended for food or medicine. The patent term is 15 years from the 
application filing date, compared with the international standards of 
20 years. A 5-year renewal may be obtained only if the invention is of 
special importance and has not been adequately worked to compensate 
patent holders for their efforts and expenses. Compulsory licenses, 
which limit the effectiveness of patent protection, are granted if a 
patent is not worked in Egypt within three years or is worked 
inadequately.
    Egypt has drafted, but not passed, legislation designed to improve 
patent protection by providing product versus process patents, 
increasing the protection period to 20 years, and offering fair 
prerequisites for compulsory licensing. However, the government may opt 
to delay implementation of the legislation, once passed, to take 
advantage of the transition period through 2005 granted to certain 
developing countries under the WTO TRIPs agreement.
    Copyrights: Egypt has strengthened since 1997 the enforcement of 
copyright protection laws already on the books, although enforcement 
remains erratic and inadequate. Law 29 of 1994 amended the copyright 
law (Law 38 of 1992) to ensure that computer software was afforded 
protection as a literary work, allowing it a 50-year protection term. 
Law 38 of 1992, an amendment to the out-of-date 1954 copyright law, 
increased penalties against piracy and provided specific protection to 
computer software. A 1994 decree also clarified rental and public 
performance rights, protection for sound recordings, and the definition 
of personal use.
    Trademarks: Egypt is considering completely revising its laws in 
order to enhance significantly legal protection for trademarks and 
industrial designs. The current trademark law, Law 57 of 1939, is not 
enforced strenuously and the courts have only limited experience in 
adjudicating infringement cases. Fines amount to less than USD 100 per 
seizure, not per infringement. Judgments and enforcement must be made 
separately in each of the 26 governorates.
    Trade Secrets: Egypt has no specific trade secrets legislation. 
Protection of commercially valuable information is possible through 
contractual agreement between parties. Breach of contractual terms of 
protection can be remedied in legal proceedings under either the civil 
or criminal code, depending on the severity of the damage caused.
    Semiconductor Chip Layout Design: There is no separate legislation 
protecting semiconductor chip layout design, although Egypt signed the 
Washington semiconductor convention.
9. Worker Rights
    a. Rights of Association: Egyptian workers may, but are not 
required to join trade unions. A union local or worker's committee can 
be formed if 50 employees express a desire to organize. Most members 
(about 27 percent of the labor force) are employed by state-owned 
enterprises. There are 23 industrial unions, all required to belong to 
the Egyptian Trade Union Federation (ETUF), the sole legally recognized 
labor federation. The ETUF, although semiautonomous, maintains close 
ties with the governing National Democratic Party. Despite the ETUF 
leadership assertion that it actively promotes worker interests, it 
generally avoids public challenges to government policies.
    b. The Right to Organize and Bargain Collectively: The proposed new 
labor law which remains pending from the last legislative session 
provides statutory authorization for collective bargaining and the 
right to strike, rights which are not now adequately guaranteed. Under 
the current law, unions may negotiate work contracts with public sector 
enterprises if the latter agree to such negotiations, but unions 
otherwise lack collective bargaining power in the state sector. Under 
current circumstances, collective bargaining does not exist in any 
meaningful sense because the government sets wages, benefits, and job 
classifications by law, allowing few issues open to negotiation. Larger 
firms in the private sector generally adhere to such government-
mandated standards.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is illegal and not practiced.
    d. Minimum Age for Employment of Children: In March 1996, the 
Egyptian parliament adopted a new ``comprehensive child law'' drafted 
by the National Council for Childhood and Motherhood. The minimum age 
for employment was raised from 12 to 14. Provincial governors may 
authorize ``seasonal work'' for children between 12 and 14. Education 
is compulsory until age 15. An employee must be at least 15 to join a 
labor union. The Labor Law of 1981 states that children 14 to 15 may 
work six hours a day, but not after 7 p.m. and not in dangerous 
activities or activities requiring heavy work. Child workers must 
obtain medical certificates and work permits before they are employed. 
Recent estimates by the Egyptian government put the number of child 
laborers at 1.5 percent of the total working population of 18.3 
million. Local non-governmental organizations put the number of 
children working at much higher, although verification is impossible. 
The majority of working children (78 percent) are employed on farms. 
Children also work as apprentices in auto and craft shops, in 
construction, and as domestics. Most are employed in the informal 
sector. The government has difficulty enforcing child labor laws due to 
a shortage of inspectors. Economic pressures, rural tradition, the 
inadequacy of the education system, and lack of government control in 
remote areas pose significant, but not insurmountable, barriers to 
addressing child labor issues in the near future.
    Egypt is signatory to the 1997 Oslo Action Plan calling for the 
immediate removal of children from hazardous occupations, a national 
action plan to address child labor issues, and the eventual elimination 
of child labor.
    e. Acceptable Conditions of Work: The government and public sector 
minimum wage is approximately USD 31 a month for a six-day, 42-hour 
workweek. Base pay is supplemented by a complex system of fringe 
benefits and bonuses that may double or triple a worker's take-home 
pay. The average family can survive on a worker's base pay at the 
minimum wage rate. The minimum wage is also legally binding on the 
private sector, and larger private companies generally observe the 
requirement and pay bonuses as well. The ministry of manpower sets 
worker health and safety standards, which also apply in the free trade 
zones, but enforcement and inspection are uneven.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,423
Total Manufacturing............  ..............  435
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  32              ...............................................................
  Primary & Fabricated Metals..  7               ...............................................................
  Industrial Machinery and       13              ...............................................................
   Equipment.
  Electric & Electronic          (\2\)           ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\2\)           ...............................................................
Wholesale Trade................  ..............  -48
Banking........................  ..............  163
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  43
Other Industries...............  ..............  -60
TOTAL ALL INDUSTRIES...........  ..............  1,955
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,00 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 ISRAEL


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      99.0      99.0      96.4
  Real GDP Growth.........................       2.9       2.2       2.0
  GDP by Sector:
    Agriculture...........................       2.0       2.0       2.0
    Manufacturing.........................       7.0      16.0      15.0
    Construction..........................       7.0       7.0       6.0
    Services..............................      40.0      43.0      43.0
    Public Sector.........................      34.0      33.0      34.0
  Per Capita GDP (US$)....................    17,150    16,570    15,775
  Labor Force (000's) \2\.................     2,210     2,270     2,320
  Unemployment Rate (pct) \2\.............       7.7       8.7       8.7

Money and Prices (annual percentage
 growth):
  Money Growth (M2) (pct) \3\.............        26        23        30
  Consumer Inflation (pct) \3\............       7.0       8.6       3.2
  Exchange Rate (NIS/US$) \2\.............      3.45      3.80      4.20

Balance of Payments and Trade:
  Total Exports FOB.......................      20.9      21.2      21.4
    Exports to U.S........................       7.3       8.3       8.5
  Total Imports CIF \4\...................      28.7      27.0      29.7
    Imports from U.S.\4\..................       5.4       5.4       6.3
  Trade Balance \4\.......................      -7.8      -5.8      -8.3
    Balance with U.S.\4\..................       1.9       2.9       2.2
  External Public Debt (gross)............      26.2      27.4      27.5
  Fiscal Deficit/GDP (pct)................       2.8       2.4       3.2
  Current Account Deficit/GDP (pct).......       3.3       2.3       2.5
  Debt Service/GDP (pct) \5\..............       6.5       6.5       6.5
  Gold and Foreign Exchange Reserves \6\..      20.3      22.7      21.9
  Aid from U.S............................       3.1       3.0       2.9
  Aid from Other Countries................         0         0         0
------------------------------------------------------------------------
\1\ 1999 indicators estimated using partial-year data.
\2\ Annual average.
\3\ December to December.
\4\ Excludes defense imports.
\5\ Includes private sector debt service.
\6\ At end of year.

1. General Policy Framework
    Israel is a small open economy, increasingly competitive 
internationally in such high technology sectors as telecommunications, 
software, pharmaceuticals, and biomedical equipment. Israel's economy 
grew rapidly in the first half of the 1990s, with growth averaging six 
percent annually. This expansion, during which Israel's economy grew in 
real terms by a cumulative 40 percent, was stimulated by a wave of 
immigration from the countries of the former Soviet Union and the 
erosion of Israel's economic isolation following peace agreements 
reached with Jordan and the Palestinians. Rising incomes and the needs 
of the immigrants encouraged a strong upsurge in imports, including 
from the United States. Merchandise imports almost doubled between 1990 
and 1996, rising from $15.1 billion to $29.6 billion; imports from the 
United States grew from $2.7 billion to $6.0 billion over the same 
period. Export growth, although strong, did not keep pace, and the 
current account deficit widened to over five percent of GDP in 1996.
    Since the mid-nineties, economic growth has slowed markedly. The 
economy grew only 2.2 percent in 1998 while per capita GDP fell. Growth 
in 1999 is expected to be about 2 percent. The economic slowdown was 
caused by a number of factors, including reduced immigration, the Asian 
financial crisis and restrictive monetary and fiscal policy, 
implemented to overcome the large budget deficits in the mid-90's. The 
government tightened fiscal policy beginning in 1997 in order to avert 
a potential crisis in Israel's balance of payments. This tightening cut 
Israel's budget deficit by roughly two percent of GDP. Fiscal restraint 
continued into the 1998 and 1999 budgets, but slower than expected 
growth resulted in an estimated increase of the budget deficit in 1999 
from 2.4 to 3.2 percent of GDP. The proposed FY 2000 budget (not yet 
passed by the Knesset) calls for a budget deficit of 2.5% in 2000. The 
government hopes to reduce the deficit to 1.5 percent of GDP by 2003. 
Defense spending remains the largest single component of the Israeli 
budget, although defense spending dropped from around 25 percent of GDP 
in the early 80s to less than 10 percent of GDP in 1998. In recent 
years, the most rapidly growing portions of the budget have been in the 
area of social services, such as health care, education, and direct 
payments to individuals and institutions. Between 1990 and 1998, for 
example, education spending rose 83 percent after inflation, while 
transfer payments increased by 76 percent.
    Since 1994, the Bank of Israel has maintained high interest rates 
in its campaign to slow inflation and to achieve eventual price 
stability. Its chief policy instrument is the interest rate charged on 
its ``monetary loans'' to the commercial banks; it also adjusts 
domestic liquidity through purchases and sales of treasury bills, and 
by adjusting the volume of its borrowings from the banks. With imports 
of goods and services amounting to some 45 percent of GDP, Israel's 
inflation rate is strongly influenced by exchange rate developments. 
After the consumer price index had risen only 3.0 percent in the twelve 
months ending in July 1998, the lowest rate of price increase recorded 
since the 1960s, a sharp decline in the value of the shekel in 
subsequent months gave a swift upward boost to inflation. The CPI 
finished up more than 8 percent for the year. In 1999, inflation has 
remained consistently low, with an inflation rate of around 3 percent 
expected at the end of the year. Israel's official inflation target for 
2000-2001 is 3-4 percent.
2. Exchange Rate Policy
    The shekel floats within a pre-defined target zone against a basket 
of currencies: the U.S. Dollar, Yen, Euro, and Pound Sterling. As a 
matter of policy, the Bank of Israel does not intervene in the foreign 
exchange markets as long as the shekel remains within the target zone, 
although it is obligated to do so once the limits of the zone are 
reached. During the first half of 1997, for example, large-scale 
capital inflows caused the shekel to appreciate to the edge of its 
target zone. To keep the shekel within the zone, the central bank was 
forced to absorb the inflow of foreign currency and to sterilize the 
effect on domestic liquidity of such purchases through increased 
borrowings from the public.
    Israel ended all foreign exchange controls for current transactions 
in 1993. In mid-1998, at the time of its fiftieth anniversary 
celebrations, Israel ended almost all of its remaining capital 
controls, except for limits on Israeli institutions' foreign 
investments and on access by non-Israelis to longer-term derivatives in 
the domestic market.
3. Structural Policies
    Over the past decade, Israel has gradually reduced the degree of 
government involvement in and control over the economy while increasing 
the influence of domestic and international competition. Israel signed 
a Free Trade Agreement with the United States in 1985 and has similar 
agreements with the EU, the EFTA, and seven other countries. Since 1991 
Israel has been unilaterally reducing tariffs on imports from countries 
with which it does not have trade agreements. This policy of increasing 
exposure to international competition has led to a significant 
restructuring of Israeli industry, causing job losses in such 
traditional light manufacturing sectors as shoes and textiles.
    Significant reforms with important commercial implications for U.S. 
companies are being undertaken in several sectors. The most significant 
progress has been made in the telecommunications sector. In 1997, two 
private consortia, each with a U.S. firm as a participant, began 
offering international telephone service in competition with the 
established government-owned company; prices for international calls 
fell by as much as 80 percent almost immediately. Further plans for 
liberalization of the telecommunications sector include allowing more 
cellular telephone operators (there are now three), and opening up 
domestic landline service to competition.
    The government raised almost $4 billion from the sale of shares in 
government-owned companies and banks in 1997 and 1998. The most 
important of these transactions was the sale to a U.S.-Israeli investor 
group of a controlling 43-percent stake in Bank Hapoalim. Bank Hapoalim 
is Israel's largest bank and has extensive holdings in Israeli 
industry. The government has sold off pieces of most other Israeli 
banks: it now retains majority ownership in only two of the five 
largest banks. The pace of privatization slowed in 1999; receipts for 
the first eight months of the year totaled under $300 million, less 
than one-third of the target for the year. The next big target for 
privatization is probably Bezek, the state domestic phone company. 
Efforts to sell all or part of the state airline El Al have stalled; it 
is unlikely that El Al will be privatized anytime soon.
    The state power company, Israel Electric (IEC), dominates 
electricity generation and distribution in Israel. Under current law, 
independent producers can generate up to ten percent of Israel's 
electricity; another ten percent of Israel's power needs could be met 
by imports. Both areas could provide opportunities for U.S. companies. 
Progress towards opening up the electricity market to competition, 
however, has been very slow. Currently, IPPs or imports are meeting 
virtually none of Israel's power needs.
4. Debt Management Policies
    The gross foreign debt of the public sector totaled $27.5 billion 
as of June 1999, all of it medium to long-term, and much of it 
guaranteed by the U.S. Government. Israel borrowed $9.2 billion between 
1993 and 1998, for example, in bonds guaranteed by the United States 
intended to assist with the absorption of the immigrants from the 
former Soviet Union. The external liabilities of the banking system and 
non-financial public sector brought Israel's total gross foreign debt 
to $56 billion as of mid-1999. After netting out foreign assets of 
$44.3 billion, the country's net debt stood at $11.7 billion.
    Anticipating the end of the U.S. loan guarantee program, the 
government began in 1995 to tap the international bond markets under 
its own name. Thus far, it has made successful offerings in the U.S., 
European, and Japanese bond markets.
5. Aid
    U.S. assistance to Israel for fiscal year 1999 included $1.92 
billion in military aid, of which over $1.4 billion was earmarked for 
procurement from the United States. U.S. aid also included economic 
assistance of $960 million and various forms of support for military 
R&D, notably for missile defense.
6. Significant Barriers to U.S. Exports
    With the exception of some categories of agricultural produce and 
processed foods, all duties on products from the United States were 
eliminated under the 1985 United States-Israel Free Trade Area 
Agreement (FTAA) by January 1, 1995. The FTAA liberalized and expanded 
the trade of goods between the United States and Israel, and spurred 
discussions on freer trade in services, including tourism, 
telecommunications, and insurance.
    Israel ratified the Uruguay Round Agreement on January 15, 1995. 
Israel became a member of the World Trade Organization on April 21, 
1995 and implemented the WTO regime on January 1, 1996.
    The U.S.-Israel FTAA allows the two countries to protect sensitive 
agricultural subsectors with nontariff barriers including import bans, 
quotas, and fees. These limitations have been carried forward into the 
WTO regime. Most quantitative limits have been translated into Tariff 
Rate Quotas (TRQs), while items previously banned now bear 
prohibitively high tariffs or fees that make imports of such goods 
uncompetitive with domestic production. The principal U.S. goods 
affected by these measures include poultry and dairy products, fish, 
and most fresh produce.
    In late 1996, the United States and Israel agreed on a five-year 
program of agricultural market liberalization. The agreement covers all 
agricultural products, and provides for increased access during each 
year of the agreement via TRQs and tariff reductions. This agreement 
will be renegotiated in 2000. Despite an Israeli commitment to issue 
all TRQ licenses for a given year no later than October 31 of the 
previous year, there continue to be substantial delays in the licensing 
of U.S. products. Division of general quotas into impractically small 
and non-commercial individual lots deters potential buyers from quota 
utilization.
    Israel has largely eliminated a unique form of protection for 
locally produced goods known as ``Harama,'' meaning, ``uplift.'' This 
was a 2-5 percent addition applied at the pre-duty stage to the CIF 
value of goods to bring the value of the products to a supposedly 
``acceptable'' level for customs valuation. Israel calculates import 
value according to the Brussels Definition of Value (BDV), a method 
that tolerates uplifts of invoice prices. Israel is not a signatory to 
the WTO Valuation Code, although it has expressed its intention to 
become one.
    A second uniquely Israeli form of protection is called ``TAMA.'' 
TAMA is a post-duty uplift designed to convert the CIF value plus duty 
to an equivalent wholesale price for purposes of imposing purchase tax. 
Coefficients for calculation of the TAMA vary from industry to industry 
and from product to product.
    In addition, purchase taxes from 25 to 95 percent are applied to 
goods ranging from automobiles to alcoholic beverages. Israel has 
eliminated or reduced purchase taxes on many products, including 
consumer electronics, building inputs, and office equipment. Where 
remaining, purchases taxes apply to both local and foreign products. 
However, when there is no local production, the purchase tax becomes a 
duty-equivalent charge.
    Israel has reduced the burden of some discriminatory measures 
against imports. Although Israel agreed in 1990 to harmonize standards 
treatment, either by dropping health and safety standards applied only 
to imports or making them mandatory for all products, implementation of 
this promise has been slow. Enforcement of mandatory standards on 
domestic producers can be spotty, and in some cases (e.g., 
refrigerators, auto headlights, plywood, and carpets) standards are 
written so that domestic goods meet requirements more easily than do 
imports. In September 1998, Israel amended its packaging and labeling 
requirements to allow non-metric packaging as long as information on 
pricing in standard metric units is provided. This change has 
facilitated the entry of U.S. food products packaged in non-metric 
sizes. Israel has agreed to notify the United States of proposed new 
mandatory standards to be recorded under the WTO.
    The Standards Institute of Israel is proposing a bilateral Mutual 
Recognition Agreement of Laboratory Accreditation with the United 
States that could result in the acceptance of U.S.-developed test data 
in Israel. The proposed program would eliminate the need for redundant 
testing of U.S. products in Israel to ensure compliance with mandatory 
product requirements. The Israeli cabinet decided in August 1999 that 
official Israeli standards could incorporate in their entirety more 
than one foreign standard. The government is developing implementing 
regulations. Once the regulations go into effect, this has potential to 
significantly reduce trade advantages enjoyed by products from the EU 
over goods of U.S. origin.
    The government actively solicits foreign investment, including in 
the form of joint ventures, and especially in industries based on 
exports, tourism, and high technology. Foreign firms are accorded 
national treatment in terms of taxation and labor relations and are 
eligible for incentives for investments in priority development zones 
after receiving the approval of the Ministry of Industry and Trade. The 
incentive program provides grants of up to twenty percent of the amount 
of capital invested and tax benefits for investments in the development 
priority regions. There are generally no restrictions on foreign 
ownership, but a foreign-owned entity must be registered in Israel. 
Profits, dividends, and rents can generally be repatriated without 
difficulty through a licensed bank. Over 2000 U.S. companies have 
subsidiaries or other representation in Israel, according to the 
Israel-American Chamber of Commerce. Investment in regulated sectors, 
including banking, insurance, and defense-related industries, requires 
prior government approval.
    Israel has one free trade zone, in the city of Eilat. In addition, 
there are three free ports: Haifa, Ashdod, and the port of Eilat. 
Enterprises in these areas may qualify for special tax benefits and are 
exempt from indirect taxation.
    Israel is a signatory to the Uruguay Round Procurement Code, 
intended to enable more open and transparent international tendering 
procedures for a wide range of government entities. However, while some 
government entities notify the U.S. Government of tenders valued at 
over $50,000, many do not, and the notices that are received frequently 
carry short deadlines and are often only in Hebrew. Moreover, U.S. 
suppliers have been locked out, to date, of Ministry of Defense food 
tenders for the army and other security forces. Complex technical 
specifications and kosher certification requirements discourage foreign 
participation. Recently, however, there have been new efforts to 
facilitate purchase of U.S. food products for the Israeli military.
    The government frequently seeks offsets (subcontracts to Israeli 
firms) of up to 35 percent of total contract value for purchases by 
ministries, state-owned enterprises, and municipal authorities. Failure 
to enter into or fulfill such industrial cooperation agreements (which 
may involve investment, co-development, co-production, subcontracting, 
or purchase from Israeli industry) may disadvantage a foreign company 
in government awards. Although Israel pledged to relax offset requests 
on civilian purchases under the FTAA, Israeli law continues to require 
such offsets. Israeli Government agencies and state-owned corporations 
not covered by the Uruguay Round Government Procurement Code follow the 
``Buy Israel'' policy to promote national manufacturers.
    Israeli law provides for a 15 percent cost preference to domestic 
suppliers in many public procurement purchases, although the statute 
recognizes the primacy of Israel's bilateral and multilateral 
procurement commitments. The cost preference for local suppliers can 
reach as high as 30 percent for firms located in Israel's priority 
development areas.
    In addition to its WTO multilateral trade commitments and its FTAA 
with the United States, Israel also has free trade agreements with the 
European Union, Canada, the Czech Republic, Slovakia, Turkey, Hungary, 
Poland, Slovenia, and the EFTA states. It also has a preferential trade 
agreement with Jordan. With respect to all other countries, Israel has 
substituted steep tariffs for nontariff barriers previously applied, 
and is gradually reducing those tariffs. Israel's import liberalization 
program and negotiation of new free trade agreements have diluted U.S. 
advantages under the bilateral FTAA.
    As part of the Middle East Peace Process, Israel has granted duty 
free access to its market for 50,000 tons of fresh and processed 
agricultural products from Jordan. It has also committed itself to 
allowing unlimited access for agricultural produce from the Palestinian 
Authority.
7. Export Subsidies Policies
    The U.S.-Israeli FTAA included an agreement to phase out the 
subsidy elements of export enhancement programs and to refrain from new 
export subsidies. Israel has already eliminated grants, except in the 
case of agricultural export and import substitution crops. In 1993, 
Israel eliminated the major remaining export subsidy, an exchange rate 
risk insurance scheme which paid exporters five percent on the FOB 
value of merchandise. Israel still retains a mechanism to extend long-
term export credits, but the volumes involved are small, roughly $250 
million. Israeli export subsidies have resulted in past U.S. 
antidumping or countervailing duty cases. Israel has been a member of 
the WTO/GATT Subsidies Code since 1985.
    Israel's Parliament, the Knesset, passed legislation in 1994 
authorizing the creation of Free Processing Zones (FPZs). Under the 
terms of the law, qualifying companies operating in the FPZs would be 
exempt from direct taxation for a twenty-year period, and imported 
inputs would be free from import duties or tariffs. Companies in FPZs 
would also be exempt from collective bargaining and minimum wage 
requirements, although subject to other labor laws. The legislation was 
originally intended to promote investment in export-related industries, 
but the wording of the legislation as passed does not limit applicant 
companies to exporters or providers of services to overseas clients. 
Government ministries continue to discuss details of the FPZ's. As of 
November 1999, no FPZ's had yet been established, although one had been 
proposed for the Beer Sheva region.
8. Protection of U.S. Intellectual Property
    Israel is a member of the World Trade Organization (WTO), and 
projects that it will be in compliance with its commitments under the 
Trade Related Aspects of Intellectual Property (TRIPS) Agreement by 
January 1, 2000. Israel expects to pass legislation before the end of 
1999 that will amend its patent, trademark, copyright, and other 
relevant laws to bring it into compliance with TRIPS. The 
pharmaceuticals industry, however, has raised questions about whether 
the TRIPS implementation law will satisfy the data protection 
requirements of TRIPS section 39.3. (More on pharmaceuticals below.)
    The GOI is also developing an updated copyright law, which it 
expects to bring to the Knesset in 2000. The proposed legislation would 
include enhanced rights of distribution in connection with rental 
rights and imports of copyrighted materials. Rental rights would 
include all protected works, including sound recordings, 
cinematographic works, and computer programs. Current Israeli patent 
law contains overly broad licensing provisions concerning compulsory 
issuance for dependent and nonworking patents. The government is 
working on revisions of laws on patents, cable broadcasting, trademarks 
and other areas.
    Israel is a member of the World Intellectual Property Organization 
(WIPO), and is a signatory to the Berne Convention for the Protection 
of Literary and Artistic Works, the Universal Copyright Convention, the 
Paris Convention for the Protection of Industrial Property, and the 
Patent Cooperation Treaty. Israel is also a member of the International 
Center for the Settlement of Investment Disputes (ICSID) and the New 
York Convention of 1958 on the recognition and enforcement of foreign 
arbitral awards.
    In February 1998, the Knesset passed a separate amendment to the 
Patent Law which will allow non-patent holders to manufacture limited 
quantities of patented pharmaceutical products prior to the expiration 
of patent rights, in preparation for submitting data necessary to 
obtain marketing approval to Israeli and foreign health authorities. 
The amendment also provides for a limited extension of the patent term 
for pharmaceutical products. The United States unsuccessfully objected 
to the amendment and urged that Israel model its law on the comparable 
provision of U.S. law.
    Israel passed legislation early in 1999 that would weaken patent 
protection by permitting parallel importation of patented 
pharmaceutical products. The United States has urged Israel not to 
enact the proposed legislation due to its potential adverse impact on 
the rights of U.S. patent holders.
    In April 1998, the U.S. Trade Representative placed Israel on the 
``Special 301'' Priority Watch List due in large part to U.S. concern 
over an increase in illegal copying and sale of video and audio 
recordings. In June 1998, USTR submitted an ``Action Plan'' to the 
Government of Israel addressing outstanding U.S. concerns, including 
increasing piracy levels of cable television transmissions, audio and 
videocassettes, compact disks, and computer software.
    In March 1999, the GOI submitted to USTR a report on its IPR 
enforcement activities and its progress in fulfilling the Action Plan. 
The GOI said its accomplishments included legislation to bring Israel 
into compliance with TRIPS obligations by the end of 1999, 
establishment of a new police unit dedicated to combat IPR violations, 
and establishment of an inter-ministerial committee under the Ministry 
of Industry and Trade to monitor progress on IP enforcement.
    Nevertheless, on April 30, 1999, USTR announced, based on its 
special 301 review, that the GOI had made little progress in 
implementing the 1998 Action Plan. As a result, USTR placed Israel on 
the priority watch list. In making this announcement, USTR cited 
specific concerns about:

        --the inadequacy of Israel's copyright law;
        --amendments to the pharmacists law that weaken patent 
        protection for pharmaceuticals;
        --high levels of IPR piracy, particularly audio CD's;
        --insufficient police and prosecutorial attention to IPR cases.

    USTR will conduct a Special 301 out-of-cycle review of Israel's IPR 
protection in December 1999.
9. Worker Rights
    a. The Right of Association: Israeli workers may join freely 
established organizations of their choosing. Most unions belong to the 
General Federation of Labor (Histadrut) and are independent of the 
government. In 1995, Histadrut's membership dropped sharply after the 
federation's links with the nation's largest health care fund were 
severed. A majority of the workforce remains covered by Histadrut's 
collective bargaining agreements. Non-Israeli workers, including 
nonresident Palestinians from the West Bank and Gaza who work legally 
in Israel, are not members of Israeli trade unions but are entitled to 
some protection in organized workplaces. The right to strike is 
exercised regularly. Unions freely exercise their right to form 
federations and affiliate internationally.
    b. The Right to Organize and Bargain Collectively: Israelis fully 
exercise their legal right to organize and bargain collectively. While 
there is no law specifically prohibiting antiunion discrimination, the 
Basic (i.e., quasi-constitutional) Law against discrimination could be 
cited to contest discrimination based on union membership. There are 
currently no export processing zones, although the free processing 
zones authorized since 1994 would limit workers' collective bargaining 
and minimum wage rights.
    c. Prohibition of Forced or Compulsory Labor: Israeli law prohibits 
forced or compulsory labor for both Israeli citizens and noncitizens 
working in Israel.
    d. Minimum Age for Employment of Children: Children who have 
attained the age of 15 and who remain obligated to attend school may 
not be employed, unless they work as apprentices under the terms of the 
apprenticeship law. Nonetheless, children who have reached the age of 
14 may be employed during official school holidays. The employment of 
children aged 16 to 18 is limited to ensure adequate time for rest and 
education. Ministry of Labor inspectors are responsible for enforcing 
these restrictions, but children's rights advocates contend that 
enforcement is unsatisfactory, especially in smaller, unorganized 
workplaces. Illegal employment of children does exist, probably 
concentrated in urban light industrial areas.
    e. Acceptable Conditions of Work: The minimum wage is set by law at 
47.5 percent of the average national wage, updated periodically for 
changes in the average wage and in the consumer price index. Union 
officials have expressed concern over enforcement of minimum wage 
regulations, particularly with respect to employers of illegal 
nonresident workers. Along with union representatives, the Labor 
Inspection Service enforces labor, health, and safety standards in the 
workplace. By law, the maximum hours of work at regular pay are 47 
hours per week (eight hours per day and seven hours before the weekly 
rest). The weekly rest must be at least 36 consecutive hours and 
include the Sabbath. Palestinians working in Israel are covered by the 
law and by collective bargaining agreements that cover Israeli workers.
    f. Rights in Sectors with U.S. Investment: Worker rights in sectors 
of the economy in which U.S. companies have invested are the same as 
described above.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  41
Total Manufacturing............  ..............  2,344
  Food & Kindred Products......  71              ...............................................................
  Chemicals & Allied Products..  65              ...............................................................
  Primary & Fabricated Metals..  15              ...............................................................
  Industrial Machinery and       -11             ...............................................................
   Equipment.
  Electric & Electronic          1,709           ...............................................................
   Equipment.
  Transportation Equipment.....  5               ...............................................................
  Other Manufacturing..........  490             ...............................................................
Wholesale Trade................  ..............  91
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  386
Services.......................  ..............  (\1\)
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  3,067
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosure of data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 JORDAN


                       Key Economic Indicators \1\
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998      1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     6,974     7,384     7,612
  Real GDP Growth (pct) \3\...............       1.3       2.2       2.0
  GDP by Sector:
    Agriculture...........................       208       186       N/A
    Manufacturing.........................       835       860       N/A
    Services..............................     1,285     1,354       N/A
    Government............................     1,256     1,331       N/A
  Per Capita Nominal GDP (US$) \4\........     1,516     1,552     1,565
  Labor Force (000's) \5\.................     1,024     1,250       N/A
  Unemployment Rate (pct) \5\.............      13.2      14.9       N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................       7.8       7.6       6.0
  Consumer Price Inflation \6\............       3.0       3.1       2.0
  Exchange Rate
    Official (JD/US$ annual average)......     0.709     0.709     0.709

Balance of Payments and Trade:
  Total Exports FOB \7\...................     1,835     1,802     1,835
    Exports to U.S.\8\....................      26.0      17.1      30.0
  Total Imports CIF\7\........     4,100     3,827     3,980
    Imports from U.S.\8\..................       402     353.1       270
  Trade Balance \7\.......................    -2,265    -2,025    -2,145
    Balance with U.S.\8\..................      -376      -336      -228
  Current Account Deficit/GDP (pct) \9\...     -0.42     -0.18       0.7
  External Debt Outstanding \10\..........     6,459     7,054     7,259
  Debt Service Payments/GDP (pct).........      12.3      10.5       N/A
    (Commitment Basis)
  Debt Service Payments/GDP (pct).........       7.5       6.9       N/A
    (Cash Basis)
  Fiscal Deficit/GDP (excluding grants)...      -7.7     -10.7      -7.0
  Fiscal Deficit/GDP (including grants)...      -3.1      -6.8      -3.3
  Gold and Foreign Currency Reserves \11\      2,400     1,954     2,726
   \12\...................................
  Official Foreign Currency Reserves \12\.     1,693     1,169     1,916
  Aid from U.S.\13\ \14\..................       180       207       262
  Aid from All Other Sources \14\.........       259       236       N/A
------------------------------------------------------------------------
\1\ Sources: Central Bank of Jordan's (CBJ) Monthly Bulletin, October
  1999; IMF First Review of EFF Arrangements, September 21,1999;
  Ministry of Finance's (MOF) Government Finance Bulletin, July 1999;
  and Ministry of Labor's Annual Report 1998. FY 1999 estimates are
  based on CBJ 1999 projections, in the 1998 Annual Report; MOF
  projections, and embassy projections for exports and imports to/from
  U.S. are based on 8 months of U.S. Commerce Department statistics.
  1998 figures are preliminary as per their sources.
\2\ FY 1999, based on Nominal GDP growth projection of 3.1 percent
  (IMF).
\3\ Percentage changes calculated in local currency for real GDP at
  constant market prices. Note that data for 1996-1999 has been revised.
\4\ For 1999, population estimate of 4,918,000 and projected nominal GDP
  growth rate of 3.1 percent.
\5\ Labor Force: Ministry of Labor Annual Report 1998; Unemployment: FY
  1998, official result of the first round of the Employment and
  Unemployment Survey conducted by the Department of Statistics
  (unofficial estimates are almost twice as high).
\6\ Percentage change in the Cost of Living Index.
\7\ Merchandise trade; exports and imports on customs basis.
\8\ Trade with U.S. based on Department of Commerce statistics. 1999
  projections estimated from 8 month trade figures.
\9\ Including grants. Figures for 1997 and 1998 are in surplus.
\10\ FY 1999 estimated from IMF debt growth projections.
\11\ Represents net foreign exchange reserves plus gold.
\12\ FY 1999 figures as at end of August.
\13\ FY 1996 includes $100 million of military equipment transfers;
  figures exclude credit guarantees and GSM grain soft loans, but
  include soft loan PL 480 (for agricultural commodities). Includes
  economic and military assistance. FY 1999 includes Section 416(b)
  donation of U.S. agricultural commodities.
\14\ Foreign grants as reported in the General Government Budget (CBJ
  reports), including the Iraqi grant. Total FY 1999 foreign grants
  going to the budget (including US ones) are expected to total US$ 290
  million.

1. General Policy Framework
    With a per-capita gross domestic product (GDP) of about $1,550, and 
a population of 4.9 million, Jordan has one of the smallest and poorest 
economies in the region. Since 1996, Jordan has experienced slow 
economic growth, declining per capita income, and high levels of 
unemployment. Real gross domestic product (GDP) is expected to grow in 
1999 at no more than two per cent, which is below the rate of 
population growth. Drought caused agricultural output to decline in 
1999.
    The government is committed to economic reform, especially in the 
area of privatization and in improving the investment climate. Jordan 
is in the process of acceding to the world trade organization (WTO), 
and is likely to gain membership during the first quarter of 2000. As a 
result, it is in the process of passing laws modernizing customs and 
phytosanitary regulations, intellectual property protection, the tax 
regime, laws regulating services, and many other aspects of its 
economy. Recently, after years of inaction, the government privatized 
the Aqaba Railway and partially privatized the state-owned cement 
company. Significant progress has been made towards privatizing the 
Jordan Telecommunications Company and Royal Jordanian, the national 
airline.
    The government offers significant incentives to foreign businesses 
wishing to establish operations in Jordan. The U.S. and Jordan have 
signed a Bilateral Investment Treaty, which protects investors and 
establishes procedures for resolving investment disputes, and a Trade 
and Investment Framework Agreement, which aims to broaden economic ties 
between the two countries.
    The United States offers unique trade benefits to Jordan through 
the designation of five ``Qualifying Industrial Zones'' (QIZs). Goods 
manufactured in QIZs, which require input from both Jordan and Israel, 
are allowed duty-free entry into the U.S. Thousands of jobs have been 
created in the last year due to this initiative. Other potential QIZs 
in Aqaba and Mafraq, are in the planning stage.
2. Exchange Rate Policy
    The Central Bank of Jordan (CBJ) oversees foreign currency 
transactions in Jordan and sets the exchange rate. The dinar-dollar 
fixed rate was instituted in 1995 and remains at 0.708 (buy) and 0.710 
(sell) dinar to the dollar (approximately $1.41 to the dinar). The 
dinar fluctuates against other currencies according to market forces.
    All restrictions pertaining to the inflow and outflow of foreign 
currency (including gold) were rescinded in 1997. The Jordanian dinar 
(JD) was made fully convertible for all commercial and capital related 
transactions. Foreign currency is obtainable from licensed banks at the 
legal market-clearing rate, which is the CBJ's official rate. Although 
there has been deterioration of the real effective exchange rate since 
the early 1990s, it is anticipated that the JD will remain pegged to 
the dollar at an exchange rate of approximately $1.41 to the JD, in 
light of the Central Bank's commitment to maintaining exchange rate 
stability.
    Moneychangers operate under Central Bank supervision and are free 
to set their own currency exchange rates. Moneychangers, unlike banks, 
do not pay CBJ commission fees for every exchange transaction, which 
gives them a competitive edge over banks.
    Banks do not require prior CBJ approval for the incoming and 
outgoing transfer of funds from either resident or non-resident 
accounts (including investment-related transfers). Banks, however, 
ultimately report all foreign currency transactions to the CBJ. Banks 
are permitted to open non-resident accounts in JD and/or foreign 
currency.
    The CBJ requires banks to submit non-resident supportive documents 
on behalf of their foreign clients every three years. Otherwise such 
accounts will be converted to resident foreign currency accounts. Non-
resident foreign currency accounts are exempted from all transfer-
related commission fees charged by the central bank.
    Banks may buy or sell an unlimited amount of foreign currency on a 
forward basis. Banks are permitted to engage in reverse operations 
involving the selling of foreign currency in exchange for JD on a 
forward basis for the purpose of covering the value of imports. There 
are no restrictions as to the amount resident account holders may 
maintain in foreign currency deposits, and there are no limits on the 
amount of funds residents are permitted to transfer abroad.
3. Structural Policies
    Although enjoying U.S. Generalized System of Preferences (GSP) and 
Normal Trade Relations benefits, Jordan does not provide reciprocal 
treatment of goods imported from the United States. Most imports into 
Jordan are subject to tariffs and duties, while industrial raw 
materials and capital equipment imported by licensed industrial 
projects may be exempted. The ceiling on all duties is 35 percent. Most 
additional customs taxes, fees and duties on regular imports have been 
abolished. However, luxury goods and automobiles are still assessed 
additional sales taxes, fees, and duties.
    The Kingdom's Income Tax Law imposes a 35 percent maximum marginal 
rate. Taxes on individual incomes vary between 5 percent (for annual 
incomes less than $3,000) and 30 percent (for annual incomes exceeding 
$22,500). Corporate taxes are set at 35 percent for banks and financial 
institutions and 25 percent for companies engaged in brokerage and 
agency activities. Re-invested profits and profits earned on exports 
are exempt from income tax.
    Current law imposes an across-the-board 13 percent sales tax. 
However, the sales tax is higher on certain items, such as cigarettes, 
alcohol and automobiles. The law exempts exports from the sales tax and 
empowers the Cabinet to impose additional sales taxes to compensate for 
revenue losses from reduced customs duties. After reducing duties on 
all imports to no more than 35 percent in mid-1999, the Council of 
Ministers lowered the special sales tax on imported automobiles. The 
result is that automobiles, although still expensive, are more 
affordable for the average Jordanian. Almost all types of professional, 
business and legal services are also subject to the 13 percent sales 
tax. The government is working to revise the sales tax and expects to 
introduce a VAT-like sales tax in mid-2000.
4. Debt Management Policies
    Jordan's outstanding external official debt is approximately $7 
billion. Jordan rescheduled $400 million in debt to Paris Club 
creditors in 1997, and a further $800 million in 1999, easing repayment 
pressure. The ratio of debt service to exports of goods and non-factor 
services has been decreasing since 1993, dropping from 35.9 percent in 
1993 to 21.4 percent in 1998, according to the central bank. More than 
25 percent of Jordan's external debt is to multilateral institutions, 
while its largest bilateral creditors are Japan, France and the United 
Kingdom.
5. Aid
    In fiscal year 1999, USAID's economic assistance program to Jordan 
totaled $200 million. In addition, the U.S. provided $45 million in 
Foreign Military Financing (FMF), and $1.6 million in International 
Military Education and Training Program (IMET) funds. Jordan also 
utilized $15 million in GSM 103 loan guarantees for grain purchases, 
and received 300,000 tons of wheat, worth approximately $40 million, 
donated under the Section 416(b) program. USAID's economic assistance 
program for FY 2000 is expected to be approximately $200 million.
6. Significant Barriers to U.S. Exports
    Import Licenses: Import licenses are generally not required. 
Approximately 50 special items do require prior clearance. The license 
regime will be modified in accordance with WTO requirements in early 
2000.
    Services Barriers: At present, market-entry barriers affect almost 
all service industries.
    Foreign suppliers of services do not receive Normal Trade Relations 
or national treatment. However, when Jordan accedes to the WTO in early 
2000, many of these barriers will be eased or lifted completely.
    Standards, Testing, Labeling, and Certification: Except for 
pharmaceuticals, which are handled by the Ministry of Health, the 
Jordanian Standards and Measures Department is responsible for most 
issues related to standards, measures, technical specifications and ISO 
certification. Imported products must comply with labeling and marking 
requirements issued by the Standards and Measures Department and 
relevant government ministries. Different regulations apply to imported 
foodstuffs, medicines, chemicals and other consumer products. Jordanian 
importers are responsible for informing foreign suppliers of any 
applicable labeling and marking requirements.
    Investment Barriers: The United States and Jordan signed a 
Bilateral Investment Treaty in 1997. The current Investment Promotion 
Law is designed to promote both local and foreign investment and to 
encourage the formation of joint ventures and multinational enterprises 
in Jordan. Most important to U.S. business, the law provides equal 
treatment for foreign and Jordanian investors. Restrictions on foreign 
investment remain in four sectors: media, construction, trade and 
commercial services, and mining.
    Government Procurement Practices: With few exceptions, the General 
Supplies Department of the Ministry of Finance makes government 
purchases. Foreign bidders are permitted to compete directly with local 
counterparts in international tenders financed by the World Bank. 
However, local tenders are not directly open to foreign suppliers. By 
law, foreign companies must submit bids through agents. While Jordan's 
procurement law does not allow non-competitive bidding, it does permit 
a government agency to pursue a selective tendering process. The law 
gives the tender-issuing department, as well as review committees at 
the Central Tenders and General Supplies Departments, the right to 
accept or reject any bid while withholding information on its 
decisions.
    Customs Procedures: Despite donor-supported reform efforts, 
cumbersome customs procedures continue to undermine Jordan's business 
and investment climate. Overlapping areas of authority and difficult 
clearance procedures remain in place. Actual appraisal and tariff 
assessment practices are frequently arbitrary and may even differ from 
written regulations. Customs officers often make discretionary 
decisions about tariff and tax applications when regulations and 
instructions conflict or lack specificity. Delays in clearing customs 
are common.
7. Export Subsidies Policies
    The Central Bank runs a low interest financing facility to support 
eligible exports, including all agricultural and manufactured exports 
with domestic value-added of not less than 25 percent. The Jordan Loan 
Guarantee Corporation offers soft loans to small scale, export-oriented 
projects in industry, handicrafts and agriculture. The Export and 
Finance Bank, a public shareholding corporation, provides commercial 
financing and loan guarantees to Jordanian exporters.
8. Protection of U.S. Intellectual Property
    After it accedes to the World Trade Organization, Jordan will be 
obligated to meet the requirements of the Trade Related Aspects of 
Intellectual Property (TRIPS) agreement. Jordan is a member of the 
World Intellectual Property Organization (WIPO), and is a signatory to 
the Paris Convention for the Protection of Industrial Property and the 
Berne Convention.
    In April 1999, the U.S. Trade Representative retained Jordan on the 
``Special 301'' Watch List for inadequate protection of intellectual 
property, but by the end of 1999, Jordan was taken off this list. 
Jordan has passed the appropriate intellectual property laws and is in 
compliance on this issue.
    In the area of copyrights, amendments to Jordan's Copyright Law 
were passed in September 1999 by parliament and provide an improved 
framework for protection of foreign copyrights. This law appears to 
comply with TRIPS requirements, but fully effective enforcement 
mechanisms are not yet in place. Amendments to the existing trademark 
law were approved by parliament in late 1999.
    A new patent law went into effect in December 1999. This law could 
curtail unauthorized copying of pharmaceutical products, which results 
in tens of millions of dollars in losses to U.S. and European 
pharmaceutical firms. The law appears to fall short of TRIPS data 
protection requirements, but this shortcoming will be addressed in 
additional legislation to be adopted before accession to the WTO.
    Software piracy is common in Jordan. However, the new copyright 
law, in conjunction with one high-profile raid on several retailers of 
pirate software, has begun to drive the pirate software market 
underground. In 1998, Jordan issued a decree requiring government 
ministries to use licensed software.
9. Worker Rights
    a. The Right of Association: Workers in the private sector and some 
state-owned companies have the right to establish and join unions. More 
than 30 percent of the Jordanian work force is unionized. Unions 
represent their membership in dealing with issues such as wages, 
working conditions and worker layoffs. Seventeen unions make up the 
General Federation of Jordanian Trade Unions (GFJTU). The GFJTU 
actively participates in the International Labor Organization.
    b. The Right to Organize and Bargain Collectively: Unions have, and 
exercise, the right to bargain collectively. GJFTU member unions 
regularly engage in collective bargaining with employers. Negotiations 
cover a wide range of issues, including salaries, safety standards, 
working conditions and health and life insurance. If a union is unable 
to reach agreement with an employer, the dispute is referred to the 
Ministry of Labor for arbitration. If the ministry fails to act within 
two weeks, the union may strike.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor is 
forbidden by the Jordanian Constitution, except in a state of emergency 
such as war or natural disaster.
    d. Minimum Age for Employment of Children: Children under age 16 
are not permitted to work except in the case of professional 
apprentices. Under an apprentice program, students may leave the 
standard educational track and begin part-time training (up to 6 hours 
a day) at age 13. In practice, enforcement of this law often does not 
extend to small family businesses that employ underage children.
    e. Acceptable Conditions of Work: Jordan's workers are protected by 
a comprehensive labor code, enforced by Ministry of Labor inspectors. A 
minimum wage of 80 JD per month was decreed in October 1999. The 
government maintains and periodically adjusts a minimum wage schedule 
of various trades, based on recommendations of an advisory panel 
consisting of representatives of workers, employers and the government. 
Maximum working hours are 48 per week, with the exception of hotel, 
bar, restaurant and movie theater employees, who may work up to 54 
hours. Jordan has a Workers Compensation Law and a social security 
system, which cover companies with more than five employees.
    f. Rights in Sectors with U.S. Investment: Worker rights in sectors 
with U.S. investment do not differ from those in other sectors of the 
Jordanian economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  -1
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  32
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 KUWAIT


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................    30,242    25,151    27,696
  GDP Growth (pct) \3\....................      -0.2     -16.3      10.1
  GDP by Sector:
    Manufacturing.........................     4,033     2,999     3,538
    Services..............................     3,602     3,617     3,655
    Government............................     6,399     6,643     6,842
    Petroleum.............................    12,158     7,772    12,062
  Per Capita GDP (US$)....................    13,691    11,075    12,089
  Labor Force (000's).....................     1,208     1,243     1,255
  Unemployment Rate (pct).................       1.3       0.7       0.5

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................       3.9      -0.8       2.6
  Consumer Price Inflation (pct)..........       0.7       0.2       0.3
  Exchange Rate (KD/US$ annual average)
    Official..............................     0.303     0.305     0.305

Balance of Payments and Trade:
  Total Exports FOB.......................    14,238     9,548     9,977
    Exports to U.S.\4\....................     1,998     1,471     1,344
  Total Imports CIF.......................     8,257     8,610     8,963
    Imports from U.S.\4\..................     1,394     1,479     1,212
  Trade Balance...........................     5,983       938     1,014
    Balance with U.S.\4\..................       604      -8.7       132
  Current Account Surplus/GDP (pct).......      26.8        10      18.4
  External Public Debt \5\................     1,404       802       451
  Debt Service Payments/GDP (pct).........       3.1       2.3       1.3
  Fiscal Deficit/GDP (pct) \6\............         4      16.2      23.7
  Gold and Foreign Exchange Reserves
    (US$ billions)........................       3.3       3.6       3.7
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ 1999 figures are projections based on data through August 1999.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 Figures are estimates based on data
  available through August 1999.
\5\ Based on Kuwaiti Government figures as of January 1999.
\6\ This is a Ministry of Finance projection calculated using an
  estimated world crude oil price of US$ 10/barrel; Embassy projects a
  lower deficit for FY 1999/2000.

1. General Policy Framework
    Kuwait is a politically stable state where the rule of law 
prevails. The press is largely free and commercial advertising is 
available. Arabic is the official language but English is widely 
spoken. Kuwait has a small and relatively open, oil-rich economy which 
has created an affluent society.
    Kuwait still faces several structural problems in its budget: 
excessive dependence on oil revenue, growing government expenditures 
due to the need for continued high defense spending, growing social 
expenditures resulting from high levels of government employment, and 
provision of heavily subsidized social services and utilities. 
Primarily because of weak oil revenues during the first half of 1999, 
Kuwait's budget was projected to be in deficit for the FY 1999/2000. A 
five-year plan to reduce government employment, reduce subsidies and 
encourage privatization of services is expected to be presented to 
parliament in late 1999 but may meet resistance. However, higher oil 
prices in the last half of 1999 should alleviate some of the pressure 
on Kuwait's budget and weaken the impetus for economic restructuring.
    Domestic investment is encouraged by provision of low cost land, 
subsidized utilities and waivers of duties and fees. These are offset 
by lengthy bureaucratic procedures, and for foreigners, high tax rates 
and complex procedures to secure work visas. The Kuwait Central Bank 
uses interest rates as its primary means to control money supply. This 
is accomplished through adjustments to the discount rate and through 
open market operations of government securities. Kuwait's money supply 
(M2) in August 1999 was up by 2.2% over the previous 12 months.
2. Exchange Rate Policy
    There are no restrictions on current or capital account 
transactions in Kuwait, beyond a requirement that all foreign exchange 
purchases be made through a bank or licensed foreign exchange dealer. 
Equity, loan capital, interest, dividends, profits, royalties, fees and 
personal savings can all be transferred in or out of Kuwait without 
hindrance.
    The Kuwaiti Dinar itself is freely convertible at an exchange rate 
calculated daily on the basis of a basket of currencies which is 
weighted to reflect Kuwait's trade and capital flows. Since the dollar 
makes up over half of the basket, the Kuwaiti Dinar has closely 
followed the exchange rate fluctuations of the U.S. Dollar over the 
past year.
3. Structural Policies
    Kuwait's government plays a dominant role in the local economy, 
which may diminish if moves toward privatization and rationalization of 
the economy are implemented. Kuwait's economy is heavily regulated, 
which restricts participation and competition in a number of sectors 
and strictly controls the roles of foreign capital and expatriate 
labor. Policies favor Kuwaiti citizens and Kuwaiti-owned companies. 
Income taxes, for instance, are only levied on foreign corporations and 
foreign interests in Kuwaiti corporations, at maximum rates of 55 
percent of taxable income. Individuals are not subject to income taxes, 
but the government is considering possible changes to its current 
income tax structure.
    Foreign investment is welcome in Kuwait for minority partnership in 
select sectors. Foreign nationals, save for the citizens of some GCC 
countries, are prohibited from having majority ownership in virtually 
every business other than certain small service-oriented businesses, 
and may not own property. Non-GCC nationals are forbidden to trade in 
Kuwait stocks on the Kuwait stock exchange except through the medium of 
unit trusts (mutual funds). Kuwait's parliament is currently reviewing 
legislation that would allow majority foreign ownership in selected 
sectors and allow direct foreign participation in the Kuwait Stock 
Exchange. Approval may occur before the end of 1999.
    Government procurement policies specify local products, when 
available, and prescribe a 10 percent price advantage for local 
companies on government tenders. There is also a blanket agency 
requirement for all foreign companies trading in Kuwait to either 
engage a Kuwaiti agent or establish a Kuwaiti company with majority 
Kuwaiti ownership and management.
4. Debt Management Policies
    Prior to the Gulf War, Kuwait was a significant creditor to the 
world economy, having amassed a foreign investment portfolio that was 
variously valued at $80 to $100 billion. Following liberation, Kuwait 
made the final payment on its $5.5 billion jumbo reconstruction loan in 
December 1996. The estimated value of the Kuwait Investment Authority's 
(KIA) foreign assets, concentrated primarily in the Fund for Future 
Generations, is now approximately $60 billion, while other government 
foreign assets are estimated at about $22 billion. The government is 
authorized by law to borrow up to KD 10 billion ($30.5 billion) or its 
equivalent in major convertible currencies. As of the end of August 
1999, the total outstanding balance of public debt instruments in KD 
issued by the Central Bank of Kuwait was KD 2.37 billion ($7.78 
billion), while Kuwait's official external debt was estimated at about 
$451 million.
5. Significant Barriers to U.S. Exports
    On July 1, 1992, Kuwait began collecting a four-percent tariff on 
most imports. This flat rate is applied to the Cost, Insurance and 
Freight (CIF) value of imported goods. Where imports compete with 
domestic ``infant industries,'' the Ministry of Commerce and Industry 
may impose protective tariffs of up to 25 percent. In such cases, 
tariff reviews and determinations are done on a case by case basis.
    There are no customs duties on food, agricultural items and 
essential consumer goods. Imports of some machinery, most spare parts 
and all raw materials are exempt from customs duties. Oil companies may 
apply for tariff exemptions for drilling equipment and certain other 
machinery, including that for new plants.
    Kuwait, like other GCC member states, maintains restrictive 
standards that impede the marketing of U.S. exports. For example, 
shelf-life requirements for processed foods are often far shorter than 
necessary to preserve freshness and result in U.S. goods being 
noncompetitive with products shipped from countries closer to Kuwait. 
Standards for many electrical products are based on those of the UK, 
which restrict access of competitive U.S. products. Standards for 
medical, telecommunications and computer equipment tend to lag behind 
technological developments, with the result that government tenders 
often specify the purchase of obsolete, more costly items. Government 
procurement policies specify local products when available and 
prescribe a 10 percent price advantage for local firms in government 
tenders.
    The government views its offset program as a major vehicle for 
motivating foreign investment in Kuwait. The U.S. Government opposes 
this type of program and has recommended that Kuwait carefully weigh 
all the potential costs to itself of an offset program. Interested U.S. 
firms should familiarize themselves with the terms of this program to 
ensure that the offset program does not become an undue obstacle to 
their business.
    In June 1993, Kuwait announced that it would no longer apply the 
secondary boycott to firms that do business with Israel and the 
tertiary boycott with firms that do business with firms subject to the 
secondary boycott, but would continue to apply the primary boycott to 
goods and services produced in Israel itself. Kuwait has also taken 
steps to revise its commercial documentation to eliminate all direct 
references to the boycott of Israel. Should U.S. firms receive requests 
for boycott-related information from private Kuwaiti firms or Kuwaiti 
public officials, they should advise the embassy of the request, report 
the request as required by law to the U.S. Department of Commerce, and 
take care to comply with all other requirements of the U.S. anti-
boycott laws. Kuwait, along with many other Middle East countries, 
continues to enjoy a waiver of the 1996 ``Brown Amendment'' 
requirements. The ``Brown Amendment'' prohibits defense sales to those 
countries that have not eliminated all vestiges of the enforcement of 
the secondary and tertiary boycott of Israel, unless waived by the 
President.
    For perishable imports arriving via air, land or sea, customs 
clearance is prompt and takes about three hours. To complete clearance, 
the importer presents its import license and quality test certificate. 
Recurring perishable imports can be cleared and taken to the importer's 
premises after a sample has been submitted to the municipality for 
quality testing.
    Usually, customs assesses duty on imported goods based on 
commercial invoices. If the customs officials believe the declared 
value unrealistic, they may make their own assessment.
    Importers do not need a separate import license for each product or 
each shipment. An importer does, however, need an annual import license 
issued by the Ministry of Commerce and Industry. To be eligible, the 
company must be registered both in the Commercial Register at the 
Ministry of Commerce and Industry, as well as at the Kuwait Chamber of 
Commerce and Industry. Kuwaiti shareholding in the capital of the 
company must be at least 51 percent.
    A special import license is required to import certain kinds of 
goods, such as firearms, explosives, drugs and wild animals. Some drugs 
require a special import license from the Ministry of Public Health. 
Imports of firearms and explosives require a special import license 
form the Ministry of Interior.
6. Export Subsidies Policies
    Kuwait does not directly subsidize any of its exports, which 
consist almost exclusively of crude oil, petroleum products and 
fertilizer. Almost 98 percent of Kuwait's food is imported. Farmers 
receiving government subsidies grow small amounts of local vegetables, 
and small amounts of these vegetables are sold to neighboring 
countries. However, not enough of these vegetables are grown or sold to 
make any significant impact on local or foreign agricultural markets. 
Periodically, Kuwait cracks down on the re-export of subsidized imports 
such as food and medicine.
7. Protection of U.S. Intellectual Property
    Kuwait is a member of the World Trade Organization (WTO) and hopes 
to have in place necessary legislation that will put it in compliance 
with its obligations under the Trade Related Aspects of Intellectual 
Property (TRIPS) Agreement by January 1, 2000. Kuwait joined the World 
Intellectual Property Organization (WIPO) in April of 1998, but has not 
yet signed the Berne Convention for the protection of literary and 
artistic works (copyright) or the Paris Convention for the protection 
of industrial property (patent and trademark). The U.S. Trade 
Representative listed Kuwait in 1999 on the ``Special 301'' Priority 
Watch List for lack of progress in passing copyright legislation, 
absence of patent coverage for pharmaceuticals, and Intellectual 
Property (IP) enforcement problems.
    Patents: Kuwait's 1961 Patent Law was never implemented and 
contained a number of deficiencies. The draft patent law being 
considered by its Parliament represents a significant improvement. 
While meeting basic requirements of the WTO Accord on Trade Related 
Aspects of Intellectual Property (TRIPS), questions remain regarding 
when coverage for pharmaceuticals will begin and how compulsory 
licensing provisions will be interpreted.
    Copyrights: In 1995, the Ministry of Information issued ministerial 
decrees protecting U.S. and British-copyrighted material. In April 
1998, Kuwait's Ministry of Planning issued a decree barring the use of 
pirated software on government computers. A draft Copyright Law, 
currently with the Kuwait Parliament, is expected to be acted on before 
the end of 1999. The draft is essentially TRIPS-consistent, but there 
are questions regarding its protection of sound recordings and rental 
rights (both TRIPS requirements). Kuwait's Ministry of Information has 
begun a program to educate its officials, and the Kuwait public, on 
implementation of the new law.
    Video piracy, in particular, remains a major concern despite 
efforts by the Ministry of Information to enforce the 1995 Ministerial 
Decree. Lack of staff and Kuwaiti officials' reluctance to publicize 
the names and locations where pirated products are seized have been two 
major obstacles. Uncertain and slow judicial action is also a hurdle. 
It is hoped that these problems will be addressed following passage of 
the copyright law.
8. Worker Rights
    a. The Right of Association: Both Kuwaiti and non-Kuwaiti workers 
have the right to establish and join unions; latest figures indicate 
50,000 workers are union members. The government restricts the free 
establishment of trade unions: workers may establish only one union in 
any occupational trade, and unions may establish only one federation. 
New unions must have at least 100 members, 15 of whom must be Kuwaiti. 
Expatriate workers, about 80 percent of the labor force, may join 
unions after five years residence, but only as nonvoting members. In 
practice, the Kuwait Trade Union Federation claims that this 
restriction is not enforced and that foreigners may join unions 
regardless of their length of stay.
    b. The Right to Organize and Bargain Collectively: While unions are 
legally independent organizations, 90 percent of their budgets derive 
from government subsidies and the government oversees their financial 
records. This extends to prescription of internal rules and 
constitutions, including prohibition of involvement in domestic 
political, religious or sectarian issues; unions nevertheless engage in 
a wide range of activities. Unions can be dissolved by court ruling or 
Amiri decree, although this has never happened. Were this to happen, 
union assets would revert to the Ministry of Social Affairs and Labor. 
Kuwaiti citizen, but not foreign, union members have the right within 
the union to vote and be elected. The law limits the right to strike; 
all labor disputes must be referred to compulsory arbitration if labor 
and management cannot reach a solution, and strikers are not guaranteed 
immunity from state legal or administrative action against them. 
Foreign workers, regardless of union status, may submit any grievance 
to the Kuwait Trade Union Federation, which is authorized to 
investigate their complaints and offer free legal advice.
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced labor ``except in the cases specified by law for 
national emergencies and with just remuneration.'' Foreign nationals 
must obtain a Kuwaiti sponsor to obtain a residence permit, and cannot 
change employment without permission of the original sponsors. Domestic 
servants, not protected by Kuwait's Labor Law, are vulnerable to abuses 
of this rule. Sponsors frequently hesitate to grant permission to 
change employment because of the various expenses they covered to bring 
the servants into the country, often ranging from $700 to $1,000. 
``Runaway'' maids can be treated as criminals under the law for 
violations of their work and residence permits, especially if they 
attempt to work for someone else without the required permits. Despite 
government protections, some sponsors continue to hold their servants' 
passports as a means of controlling their movement.
    d. Minimum Age for Employment of Children: Minimum legal age is 18 
years for all forms of work, both full and part-time. Employers may 
obtain permits to employ juveniles between the ages of 14 and 18 in 
certain trades, for a maximum of six hours per day, on condition that 
they work no more than four consecutive hours followed by a rest period 
of at least one hour. Compulsory education laws exist for children 
between the ages of 6 and 15. Some small businessmen employ their 
children on a part-time basis, and there have been unconfirmed reports 
of some South Asian domestic servants under 18 who falsified their age 
in order to enter Kuwait.
    e. Acceptable Conditions of Work: In the public sector, the 
effective minimum monthly wage is approximately $742 for Kuwaiti 
citizens and $296 for non-Kuwaitis; there is no private sector minimum 
wage. Labor law sets general conditions of work for both public and 
private sectors, with the oil industry treated separately. The Civil 
Service Law, which also pertains to the public sector, limits the 
standard workweek to 48 hours with one full day of rest per week, and 
provides for a minimum of 14 workdays of leave per year and a 
compensation schedule for industrial accidents. The law also provides 
for employer-provided medical care, periodic medical exams to workers 
exposed to environmental hazards on the job, and compensation to 
workers disabled by injury or disease due to job-related causes. Legal 
protections exist for workers who file complaints about dangerous work 
situations. Laws establishing work conditions are not always applied 
uniformly to foreign workers, and foreign laborers frequently face 
contractual disputes, poor working conditions and, in some cases, 
physical abuse.
    f. Rights in Sectors with U.S. Investment: Two significant U.S. 
investments in Kuwait in the oil industry, one in the partitioned 
neutral zone shared by Kuwait and Saudi Arabia and the other in Kuwait 
proper, operate under and in full compliance with the Kuwaiti labor 
law.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  (\1\)           ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  (\2\)           ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  17
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                MOROCCO


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................    33,160    36,179    35,573
  Real GDP Growth (pct) \3\...............      -2.2       6.3       0.2
  GDP by Sector:
    Agriculture...........................     5,093     5,911       N/A
    Manufacturing.........................     5,857     6,040       N/A
    Services..............................     6,451     6,833       N/A
    Government............................     4,428     4,378       N/A
  Per Capita GDP (US$)....................     1,218     1,303     1,250
  Labor Force (urban 000's)...............     5,068     5,137     5,160
  Urban Unemployment Rate (pct)...........      16.9      19.1      21.5

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................       9.2       7.7       9.5
  Consumer Price Inflation................       1.0       2.7       1.3
  Exchange Rate (DH/US$ annual average)
    Official..............................      9.60      9.59      9.90
    Parallel..............................       N/A       N/A       N/A

Balance of Payments and Trade:
  Total Exports FOB \4\...................     6,985     7,279     7,060
    Exports to U.S.\4\....................       164       198       220
  Total Imports CIF \4\...................     9,449    10,255    10,717
    Imports from U.S.\4\..................       509       643       740
  Trade Balance \4\.......................    -2,464    -2,974    -3,657
    Balance with U.S.\4\..................      -345      -445      -520
  External Public Debt (US$ billions).....      19.1      19.3      18.0
  Fiscal Deficit/GDP (pct) \5\............       3.3       3.5       2.3
  Current Account Deficit/GDP (pct).......       1.1       3.1       2.5
  Debt Service Payments/GDP (pct).........       8.5       8.3       8.1
  Gold and Foreign Exchange Reserves......     4,234     4,450     6,130
  Aid from U.S.\5\........................      13.5      17.6      16.4
  Aid from All Other Sources..............     1,750       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  November.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Fiscal Year Basis.

1. General Policy Framework
    Morocco boasts the largest phosphate reserves in the world, a 
diverse agricultural and fisheries sector, a high-potential tourism 
industry, a growing manufacturing sector, and a considerable inflow of 
funds from Moroccans working abroad. Most of Morocco's trade is with 
Europe, with France alone accounting for about a quarter of Morocco's 
imports and a third of its exports.
    The government has pursued market-oriented economic reforms since 
the early 1980s. It has restrained spending, revised the tax system, 
reformed the banking system, pursued appropriate monetary policies, 
eased import restrictions, lowered tariffs, launched a privatization 
program and liberalized foreign exchange controls. Monetary policy 
serves primarily to maintain Morocco's exchange rate. These reforms 
have helped restore macroeconomic equilibria: the current account 
deficit, fiscal deficit and inflation rates are well below their early 
1980s levels. Economic growth has been modest, with wide year-to-year 
fluctuations due to heavy dependence on agriculture and vulnerability 
to cyclical droughts.
    With the passing of power from the late King Hassan II to King 
Mohamed VI, Morocco has signaled its determination to intensify the 
economic reform process, and among other things, to streamline foreign 
and domestic investment procedures and devolve more power to regional 
governments. Morocco launched a privatization program in 1992 and since 
then 60 out of 114 state enterprises have been sold, raising $1.7 
billion. Among the companies currently slated for privatization are 
sugar plants, hotels, and banks. The national monopoly 
telecommunications firm Maroc Telecom and the national airline Royal 
Air Maroc are also scheduled for partial privatization in 2000, either 
through the Casablanca Stock Exchange or through strategic 
partnerships. The Moroccan Government has embraced private financing 
for the construction and operation of some highways, a new port for 
Tangier and other large infrastructure projects, including a $1.5 
billion electric power project awarded to a joint venture between an 
American and a European firm. American firms are currently competing 
for a concession to provide water and electricity distribution services 
to two cities in northern Morocco.
    Real GDP grew 6.3 percent in 1998 following a good harvest. 
Agricultural GDP increased by 16 percent in 1998. Following poor rains 
during the 1998-99 growing season, real GDP growth is expected to 
remain stagnant in 1999. A good start to the current rainy season has 
raised hopes for increased grain production for 2000. Morocco has a 
comfortable level of foreign exchange reserves, thanks in part to the 
recent sale for $1.1 billion of a second license to provide cellular 
phone services. This large influx of money has also resulted in the 
recent cancellation of new government debt issues. The government has 
been implementing incremental liberalization of exchange controls for 
Moroccan residents, most recently relaxing the amount of foreign 
currency Moroccan citizens can purchase in order to obtain medical 
treatment abroad. Morocco's chronic merchandise trade deficit grew in 
1998 as imports increased by 7.9 percent while exports remained 
stagnant. Receipts from remittances and tourism have increased steadily 
over the past three years, with tourism receipts up 19.3 percent thus 
far in 1999. Foreign investment for 1998 fell by 63.2 percent over the 
record 1997 levels, but appears to be recovering in 1999.
2. Exchange Rate Policies
    The Moroccan Dirham is convertible for all current transactions (as 
defined by the International Monetary Fund's Article VIII) as well as 
for some capital transactions, notably capital repatriation by foreign 
investors. Foreign exchange is routinely available through commercial 
banks for such transactions on presentation of documents. Moroccan 
companies may borrow abroad without prior government approval. 
Investment abroad by Moroccan individuals or corporations is subject to 
approval by the Foreign Exchange Board. Approval is routinely denied 
for projects that do not directly benefit Morocco. Private Moroccans 
continue to face several foreign exchange restrictions, notably against 
use of international credit cards. This makes it nearly impossible for 
Moroccans to use e-commerce to purchase goods internationally.
    The central bank sets the exchange rate for the dirham against a 
basket of currencies of its principal trading partners, particularly 
the French Franc and other European currencies. The rate against the 
basket has remained steady since a nine percent devaluation in May 
1990, with changes in the rates of individual currencies reflecting 
changes in cross rates. Since Morocco's average inflation rate 
throughout the 1990s has been greater than the other currencies, many 
economists believe that the dirham is now overvalued. The government 
argues consistently against devaluation. The large weight given to 
European currencies in the basket results in a greater volatility of 
the dollar than the European currencies against the dirham. This 
increases the foreign exchange risk of importing from the United States 
as compared to importing from Europe. The IMF has urged to GOM to 
introduce greater flexibility into its exchange rate regime, to help 
boost exports and promote growth.
3. Structural Policies
    The 1992 Foreign Trade Law committed Morocco to the principles of 
free trade, reversing the legal presumption of import protection. It 
replaced quantitative restrictions with tariffs (both ad valorem and 
variable) on the importation of politically sensitive items such as 
flour, sugar, tea and cooking oil.
    Interest rate policy has also changed in recent years. In 1994, the 
government revised the interest rate ceilings on bank loans. The new 
ceiling is set at a three to four percent markup over the rate received 
on deposits, including the below-market rates on required deposits. The 
effect of the change is to lower the interest rate ceilings, although 
real rates remain high.
    Morocco has a three-part tax structure consisting of a value-added 
tax, a corporate income tax, and an individual income tax. The 
investment code passed by the parliament in October 1995 reduced 
corporate and individual income taxes, as well as many import duties. 
The code also eliminated the value-added tax on certain capital goods 
and equipment. A plethora of minor taxes can significantly raise the 
cost of certain imported goods.
4. Debt Management Policies
    Morocco's foreign debt burden has declined steadily as a result of 
prudent borrowing and active debt management in recent years. Foreign 
debt fell from 128 percent of GDP in 1985 to about 53 percent of GDP in 
1998. Similarly, debt service payments before rescheduling, as a share 
of goods and services exports, fell from over 58 percent in 1985 to 
about 25 percent in 1998. The last Paris Club rescheduling took place 
in 1992. The government does not foresee the need for further Paris 
Club rescheduling, although it is pursuing other forms of debt relief 
with major official creditors. Since 1996, France and Spain have 
authorized debt-equity swaps covering 20 percent of eligible Paris Club 
debt. In October 1999, the Paris Club endorsed an increase to 30 
percent in the debt-swap ceiling.
5. Aid
    Less than 10 percent of the U.S. aid listed in the economic 
indicators section for 1997 or 1998 was military assistance. In 1999, 
approximately 25 percent of the aid was in the form of military 
assistance. In addition to the direct assistance listed, the United 
States leveraged $15 million in housing guaranty funds in 1997, and 
$11.5 million in 1999.
6. Significant Barriers to U.S. Exports
    Import Licenses: Morocco has eliminated import-licensing 
requirements on a number of items in recent years. Licensing 
requirements remain for firearms, used clothing, used tires and 
explosives.
    Tariffs: Tariffs have been gradually reduced in recent years. The 
maximum tariff for most goods is 35 percent, although the range of 
tariffs is 2.5 percent to 300 percent, with the highest tariffs applied 
to cereals. Despite the downward trend, tariffs on some products have 
increased as quantitative restrictions were replaced with higher 
tariffs. For example, following the elimination of licensing 
requirements, tariffs on dairy products, cereals, vegetable oils and 
sugar have increased. There is also a 10 to 15 percent surtax on 
imports of most goods as well as a value added tax ranging from 0 to 20 
percent. Tariffs on most industrial products imported from the European 
Union will be gradually eliminated once the Association Agreement is 
implemented, with a target date of 2010 for complete elimination.
    Services Barriers: Barriers in the services sector have been 
falling as Morocco conforms to its WTO engagements. In November 1989, 
parliament abrogated a 1973 law requiring majority Moroccan ownership 
of firms in a wide range of industries, thus eliminating what had been 
a barrier to U.S. investment in Morocco. In 1993, the Moroccan 
Government repealed a 1974 decree limiting foreign ownership in the 
petroleum refining and distribution sector, which allowed Mobil Oil to 
buy back the government's 50 percent share of Mobil's Moroccan 
subsidiary in 1994. Foreign companies cannot acquire a majority stake 
in firms in the insurance sector.
    Standards, Testing, Labeling and Certification: Morocco applies 
approximately 500 industrial standards based on international norms. 
These apply primarily to packaging, metallurgy and construction. 
Sanitary regulations apply to virtually all food imports. Meat should 
be slaughtered according to Islamic law. The government does not 
require locally registered firms to apply ISO 9000 usage. The use of 
the metric system is mandatory.
    Investment Barriers: The government actively encourages foreign 
investment. The parliament passed a new investment code in 1995 which 
applies equally to foreign and Moroccan investors, except for the 
foreign exchange provisions which favor foreign investors. Unlike the 
previous sectoral investment codes, the advantages offered under the 
new code are to be granted automatically. There are no foreign investor 
performance requirements, although the new code provides income tax 
breaks for investments in certain regions, and in crafts and export 
industries. Foreign investment is prohibited in certain sectors of the 
economy, including the purchase of agricultural land and investment in 
the phosphate sector.
    Government Procurement Practices: While government procurement 
regulations allow for preferences for Moroccan bidders, the effect of 
the preference on U.S. companies is limited. The Moroccan government 
has placed an increasing emphasis on transparency. Virtually all of the 
government procurement contracts that interest U.S. companies are large 
projects for which the competition is non-Moroccan (mainly European) 
companies. Many of these projects are financed by multilateral 
development banks, which impose their own nondiscriminatory procurement 
regulations. U.S. companies sometimes have difficulty with the 
requirement that bids for government procurement be in French.
    Customs Procedures: In principle, customs procedures are simple and 
straightforward, but in practice they are sometimes marked by delays. 
The Customs Administration has launched a program to speed up the 
customs clearance process. Average processing time has fallen from 
several days to several hours. A commercial invoice is required, but no 
special invoice form is necessary. Certification as to country of 
origin of the goods is required.
7. Export Subsidies Policies
    There are no direct export subsidies, although the 1995 investment 
code provides a five-year corporate income tax holiday for export 
industries. Morocco has a temporary admission scheme that allows for 
suspension of duties and licensing requirements on imported inputs for 
export production. This scheme includes indirect exporters (local 
suppliers to exporters). In addition, a ``prior export'' program 
exists, whereby exporters can claim a refund on duties paid on imports 
that were subsequently transformed and exported.
8. Protection of U.S. Intellectual Property
    Morocco has a relatively complete regulatory and legislative system 
for the protection of intellectual property, but strong enforcement is 
lacking. Morocco is not on the Special 301 Watch List or Priority Watch 
List. Morocco is a member of the World Trade Organization (WTO) and is 
expected to be in compliance with its obligations under the Trade 
Related Aspects of Intellectual Property (TRIPs) Agreement by early 
2000. Morocco is also a member of the World Intellectual Property 
Organization and is a party to the Berne Convention for the protection 
of literary and artistic works (copyright), The Universal Copyright 
Convention, the Paris Convention for the protection of industrial 
property (patent and trademark), the Brussels Satellite Convention, and 
the Madrid Agreement Concerning the International Registration of Marks 
(as revised at Nice, 1957).
    Copyright: The Moroccan Parliament is considering legislation that 
will increase protection for computer software. Morocco's new 
commercial courts recently ruled in Microsoft's favor in two cases 
against software pirates.
    Patents: A quirk dating from the era of the French and Spanish 
protectorates requires patent applications for industrial property to 
be filed in both Casablanca and Tangier for complete protection. The 
proposed 1996 industrial property code, expected to be implemented by 
2000, will amend this provision and require that applications be filed 
only in Casablanca.
    Trademarks: Counterfeiting of clothing, luggage, and other consumer 
goods is illegal, but not uncommon. Counterfeiting is primarily for 
local sales rather than for export. Trademarks must be filed in both 
Casablanca and Tangier, although this too will be amended in the new 
law.
9. Worker Rights
    a. The Right of Association: Workers are free to form and join 
unions throughout the country. The right is exercised widely but not 
universally. About six percent of Morocco's nine million workers are 
unionized, mostly in the public sector. The unions are not completely 
free from government interference. Narrowly focused strikes continue to 
occur. Work stoppages are normally intended to advertise grievances and 
last 48-72 hours. Unions maintain ties to international trade 
secretariats.
    b. The Right to Organize and Bargain Collectively: The protection 
of the right to organize and bargain collectively is implied in the 
Constitution and Labor Law. The government protections are generally 
not enforced in the informal sector. Observance of labor laws in larger 
companies and in the public sector is more consistent. The laws 
governing collective bargaining are inadequate. Collective bargaining 
has been a long-standing tradition in some parts of the economy, 
notably heavy industry, and is becoming more prevalent in the service 
sector.
    There is no law specifically prohibiting anti-union discrimination. 
Employers commonly dismiss workers for union activities regarded as 
threatening to employer interest. The courts have the authority to 
reinstate such workers, but are unable to enforce rulings that compel 
employers to pay damages and back pay.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited in Morocco.
    d. Minimum Age for Employment of Children: The law prohibits the 
employment of any child under 12 years of age. Special regulations 
cover the employment of children between the ages of 12 and 16. In 
practice, however, children are often apprenticed before age 12, 
particularly in the handicraft industry. The use of minors is common in 
this informal sector of the economy, which includes rug making, 
ceramics, wood working, and leather goods. Children are also employed 
informally as domestics and usually receive little remuneration. Child 
labor laws are generally well observed in the industrialized, unionized 
sector of the economy but not in the informal sector. In September 
1998, the Government of Morocco adopted the International Labor 
Organization's Convention 138 on the prohibition of child labor.
    e. Acceptable Conditions of Work: The minimum wage is about $180 a 
month and is not considered adequate to provide a decent standard of 
living for a worker and his or her family. However, this figure is 
above the per capita income. The minimum wage is not enforced 
effectively in the informal sector of the economy. It is enforced 
fairly well throughout the industrialized, unionized sectors where most 
workers earn more than the minimum wage. They are generally paid 
between 13 and 16 months salary, including bonuses, each year.
    The law provides for a 48-hour maximum workweek with not more than 
10 hours any single day, premium pay for overtime, paid public and 
annual holidays, and minimum conditions for health and safety, 
including the prohibition of night work for women and minors. As with 
other regulations and laws, these are not universally observed in the 
informal sector.
    f. Rights in Sectors with U.S. Investment: Worker rights in sectors 
with U.S. investment, all of which is in the formal, industrial sector 
of the Moroccan economy, do not differ from those described above.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  16
Total Manufacturing............  ..............  52
  Food & Kindred Products......  30              ...............................................................
  Chemicals & Allied Products..  21              ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  (\2\)           ...............................................................
  Other Manufacturing..........  -2              ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  86
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                  OMAN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997     \1\ 1998   \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\......................       15.8       14.1       14.2
  Real GDP Growth (pct) \3\............        3.6      -10.6        0.7
  GDP by Sector:
    Agriculture & Fisheries............        0.4        0.4        0.4
    Petroleum..........................        6.3        4.4        4.5
    Manufacturing......................        0.6        0.6        0.6
    Services \4\.......................        6.2        6.5        6.4
    (total services less public
 services sector)
    Government Services \4\............        1.8        1.7        1.6
  Per Capita GDP (US$).................      7,006      6,165      6,122
  Labor Force (000's)..................      630.9      634.8      624.0
  Unemployment Rate (pct)..............        N/A        N/A        N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2 Jan-Dec) \5\.       24.5        4.8        0.3
  Consumer Price Inflation \6\.........        0.4       -0.5       -0.5
  Exchange Rate (Omani Rial/US$).......        2.6        2.6        2.6

Balance of Payments and Trade:\7\
  Total Exports FOB....................        7.6        5.5        5.9
    Exports to U.S. (US$ millions) \8\.      260.9      230.4      227.7
  Total Imports CIF....................        5.2        5.8        4.6
    Imports from U.S. (US$ millions)         342.0      302.7      175.5
     \8\...............................
  Trade Balance........................        2.4       -0.3        1.3
    Balance with U.S. (US$ millions)...      -81.1      -72.2       52.2
  External Public Debt.................        3.0        N/A        N/A
  Fiscal Deficit/GDP (pct) \9\.........        0.2        6.9       10.8
  Current Account Deficit/GDP (pct)            7.0       20.8         12
   \10\................................
  Debt Service Payments/GDP (pct)......        2.0        N/A        N/A
  Gold and Foreign Exchange Reserves           2.1        2.0        2.5
   \11\................................
  Aid from U.S. (US$ millions) \12\....        0.2        0.2        0.2
  Aid from Other Sources...............        N/A        N/A        N/A
------------------------------------------------------------------------
\1\ All 1998 GDP data is provisional.
\2\ 1999 estimates are annualized based on January-June data from the
  Central Bank of Oman and the September 30, 1999 Ministry of National
  Economy statistical bulletin unless otherwise indicated.
\3\ The 1999 GDP growth rate was determined by annualizing the January-
  June 1999 GDP, using September 1999 statistics published by the
  Ministry of National Economy.
\4\ Health and Education are included in services, although most
  government-provided services shown are current (not capital)
  expenditures for public administration and defense.
\5\ 1999 money supply data is based on January through June 1999.
  Source: Central Bank of Oman.
\6\ Muscat Governate CPI.
\7\ The trade balance with the U.S. does not include Omani oil purchased
  by the United States on the spot market. Trade data does not
  necessarily include all U.S. exports subsequently reexported to Oman
  from Dubai, UAE, primary entrance point for most U.S. goods to the
  southern Arabian Peninsula.
\8\ 1999 trade data is annualized using January-September 1999 figures
  from the U.S. Department of Commerce. 1997-1999 trade data is from the
  U.S. Department of Commerce, which has lower figures for U.S. exports
  to Oman than Omani customs data, presumably due to the large numbers
  of U.S. products re-exported to Oman from the United Arab Emirates.
\9\ Fiscal deficit as a percentage of GDP was annualized using the
  August 31, 1999 figures.
\10\ Current account deficit for 1999 is based on the Standard and
  Poor's projection for the year.
\11\ Data represent Central Bank assets. 1999 data is June 30, 1999
  balance. The State General Reserve Fund does not publish its holdings.
\12\ Funding for International Military Education and Training (IMET)
  program.

Sources: Central Bank of Oman, Ministry of National Economy. Bilateral
  trade data is from U.S. Department of Commerce.

1. General Policy Framework
    The Sultanate of Oman is a nation of 2.3 million people (including 
as many as 600,000 expatriates) living in the arid mountains and desert 
plain of the southeastern Arabian Peninsula. Oman's nominal GDP in 1998 
was $14.1 billion, a decline of 10.6 percent from 1997. Oman is a small 
oil producer and ranks 18th in the world for overall oil production. In 
1998, Oman cut oil production to about 820,000 barrels per day in line 
with OPEC production cuts although Oman is not a member of OPEC. This 
was in response to declining oil prices in 1998, which saw a 29 percent 
drop in Omani oil revenue in 1998. This production cut was maintained 
in 1999 even after the oil price recovery which began during the second 
quarter of 1999. Oil revenue accounted for 61 percent of government 
revenues in the first eight months of 1999. Oman's estimated per capita 
GDP dropped from about $ 7,000 in 1997 to about $ 6,100 in 1998. 
Preliminary figures released by the Ministry of National Economy 
indicate no GDP growth during the first six months of 1999. However, 
the recovery in oil prices witnessed during the second quarter of 1999 
will most likely bring about a positive GDP growth of about one percent 
and a corresponding increase in per capita income. Oil revenues 
increased by 12.4 percent during the period January through July 1999 
compared to the same period in 1998. Preliminary 1999 figures also 
indicate a decrease in total imports of about 15 percent and an 
increase in exports of about 6.7 percent during the first seven months 
of 1999. This should result in a $1.3 billion trade surplus at the end 
of 1999.
    A significant proportion of Oman's rural population lives near the 
poverty line. The annual population growth, as estimated by the 
government, is around 2 percent. This presents an ever-increasing 
demand on infrastructure. It is estimated that 46 percent of the Omani 
population is under the age of 15 and 70 percent of the population is 
under the age of 25. Therefore job creation and ``Omanization,'' i.e., 
transfer of expatriate jobs to Omanis, are major government priorities.
    The Omani Government links developmental priorities and budgetary 
plans in five-year planning cycles. Oman's Fifth Five Year Plan, 1996-
2000, laid out a program designed to shift economic development from 
governmental to private initiative; diversify the national economy from 
dependence on crude oil revenue, primarily through future natural gas 
sales and light industry; and educate a productive national work force 
for private employment. Aiming at a zero deficit by the year 2000, 
stringent annual budgets were planned on the basis of revenue of $15 
per barrel of petroleum. While the 1997 budget deficit was just $47 
million, the sharp drop in oil prices in 1998 left Oman with a budget 
deficit of nearly $975 million in 1998, or approximately 6.9 percent of 
GDP. Despite fiscal tightening, there is no personal income tax in 
Oman, and with the exception of the recent introduction of modest fees 
for medical visits, Omanis continue to enjoy free medical care and free 
education, including post-secondary school, vocational and higher 
education. With oil prices around $ 10 a barrel by the end of 1998, the 
1999 State General Budget reduced expenditures by about 6 percent 
(compared to the 1998 budget) without affecting spending on such 
services as health, education, and electricity. The Omani government 
also took measures to increase non oil revenue in 1999 by increasing 
customs duties to 15 percent on a wide range of goods including 
automobiles and increasing the corporate income tax from 7.5 percent to 
12 percent. Preliminary figures issued by the Ministry of National 
Economy for the first eight months of 1999 revealed a fiscal deficit of 
around $ 1 billion.
    Among major public expenditure categories in 1998, defense and 
security accounted for 38 percent of current expenditures (military 
capital expenditures are not published). Current and capital 
expenditures for the national oil company Petroleum Development Oman 
(PDO) accounted for 15.2 percent of total public expenditures. This 
trend continued in 1999, as defense and security current expenditures 
accounted for 39 percent and PDO current and capital expenditure 
accounted for 13.9 percent of total public expenditures through the end 
of August 1999.
    Oman's economy is too small to require a complicated monetary 
policy. The Central Bank of Oman directly regulates the flow of 
currency into the economy. The most important instruments which the 
bank uses are reserve requirements, loan to deposit ratios, treasury 
bills, rediscount policies, currency swaps and interest rate ceilings 
on deposits and loans. Such tools are used to regulate the commercial 
banks, provide foreign exchange and raise revenue, not as a means to 
control the money supply. The large amounts of money repatriated from 
Oman by foreign workers and by foreign companies in Oman help ease 
monetary pressures but also contributes to current account deficits. 
Outward workers' remittances decreased by 13 percent in 1997 to $1.5 
billion, or 9.5 percent of GDP. Though outward workers remittance was 
further reduced to $ 1.4 billion in 1998, it increased as a percentage 
of GDP.
2. Exchange Rate Policies
    The rial has been pegged to the dollar since 1973. Since a 10.2 
percent devaluation in 1986, it has remained steady at about $2.60 to 1 
rial.
3. Structural Policies
    Oman operates a free market economy, but the government is at 
present the most important economic actor, both as an employer and as a 
purchaser of goods and services. Contracts for goods and services for 
the government, including the two largest purchasers, Petroleum 
Development Oman and the Defense Ministry, are done on the basis of 
tenders overseen by a Tender Board. Oman promotes private investment 
through a variety of soft loans (currently through the Ministry of 
Commerce and Industry and, for projects under 250,000 R.O., the Oman 
Development Bank, reorganized in 1997), tax incentives, modest 
procurement preferences, and subsidies, mostly to industrial and 
agricultural ventures. The government grants five-year tax holidays to 
newly established industries or expansion projects; a one time renewal 
is possible. Oman has fairly rigorous health, safety and environmental 
standards, and is attempting to upgrade its enforcement capabilities.
    Oman revised its corporate tax structure in 1999 to increase its 
non-oil revenue and make it easier for minority foreign-owned joint 
ventures to benefit from the national tax rate. A 12 percent maximum 
rate of corporate income tax is now applicable to wholly Omani-owned 
firms and companies with no more than 49 percent direct foreign 
ownership and majority Omani ownership. A graduated system of taxes, 
with a ceiling of 25 percent, applies to Omani/foreign joint venture 
companies with up to 99 percent direct foreign ownership. 100 percent 
foreign owned companies are subject to a corporate taxation rate of up 
to 50 percent, however, the tax rate for foreign petroleum companies is 
set in concession agreements. Import duties were hiked early in 1999 
and are currently between five percent and fifteen percent. There are 
no personal income taxes or property taxes. Employers pay 7 percent of 
a foreign worker's basic salary to a vocational training fund for 
Omanis, and 8 percent of an Omani's basic salary to a social security 
fund. The government imposes substantial fees for labor cards, and 
companies are liable for fines if they do not reach government-
specified levels of ``Omanization'' by the end of target deadlines.
    The Omani government continues to emphasize privatization of the 
telecommunications, power, and transport sectors as a national 
priority. In 1996, Oman became the first Gulf nation to turn 
exclusively to the private sector to finance, build and operate a power 
plant, a 90 MW plant in Manah. Title for the Manah plant will revert to 
the government after 20 years and the project is undergoing an 
expansion to reach 270MW. In 1999, the government awarded a tender for 
a 200 MW power plant in Salalah and selected international financial 
advisors for planned privatizations in the telecommunications, power, 
and aviation sectors. The government has been involved in a number of 
joint-ventures with private sector firms in major infrastructure 
projects. November 1998 saw the opening of a world-class container 
transshipment port at Salalah, owned and operated by Salalah Port 
Services (SPS) a joint venture between the Omani Government, Sea-Land 
(U.S.), Maersk Lines (Denmark), and Omani investors operating under the 
name Salalah Port Services. In mid-1999, Maersk purchased many of Sea-
Land's overseas operations, including Sea-Land's participation in the 
Port Salalah project. The container port, already one of the 20 largest 
ports in the world is in close proximity to major East-West shipping 
lanes and is expected to spur industrial growth in the Salalah area.
    In 1999 the government announced plans to establish an industrial 
free zone at Port Salalah, under the management of Salalah Port 
Services. As of October 1999, construction on the $2 billion Oman 
Liquefied Natural Gas (OLNG) plant at Sur was over 90 percent complete. 
A joint venture between the Omani Government, Royal Dutch Shell, Total, 
and Korea Gas, OLNG is expected to begin deliveries in April 2000. The 
entire 6.6 million ton/year LNG output of OLNG has been sold in long 
term contracts to Korea, India (an affiliate owned by the U.S. firm 
Enron), and Japan. Financing on the downstream plant is on a limited 
recourse basis, with upstream facilities and a 360 km pipeline financed 
through the corporate developers, principally Royal Dutch Shell. The 
future of the proposed Sur fertilizer plant, a joint venture between 
the Omani Government and Indian state investors, is not clear at this 
stage. The government is also planning gas-driven projects in the 
northern Omani port city of Sohar, including a $3 billion aluminum 
smelter complex (still seeking technical partners). However, government 
plans for a $900 million polyethylene plant in Sohar have stalled as 
the originial joint-venture partner, BP/Amoco, withdrew from the 
project in 1999. In 1999, the government proceeded with the planned 
$250 million expansion of Sohar port, awarding the tender for 
breakwater construction to Daewoo, and announced plans to build gas 
pipelines to Sohar and Salalah by 2001.
4. Debt Management Policies
    Oman's sovereign debt is estimated at $3 billion. In October 1999 
the government withdrew plans for a $400 million Eurobond issue, citing 
the improved performance of the economy in the wake of increased oil 
prices. Although Oman maintains a solid reputation for credit 
worthiness, in March 1999, Standard and Poors revised Oman's credit 
rating from stable to negative (BBB-). There are no International 
Monetary Fund or World Bank adjustment programs. The government gives 
little publicity to the occasional modest foreign aid that it donates. 
Sultan Qaboos also makes occasional personal donations to Arab causes, 
Muslim institutions, or worthy foreign organizations. Oman does not 
publish figures on the level of its external debt or its fund to meet 
future contingencies, the State General Reserve Fund (SGRF). The 1998 
budget crunch required a draw down of $704 million from the SGRF in 
1998 and $1.17 billion through August 1999, an increase of 200 percent 
over the corresponding period in 1998.
5. Significant Barriers to U.S. Exports
    A license is required for all imports. Special licenses are 
required to import pharmaceuticals, liquor and defense equipment. Some 
foreign suppliers have previously complained that exclusive agency 
agreements are difficult to break. In September 1996, Oman amended its 
agency law to allow non-exclusive representational agreements. Although 
currently not a member of the WTO, Oman is actively seeking to accede 
to the WTO and will need to introduce new legislation in order to 
comply with WTO requirements on market access for goods and services, 
intellectual property protection, and customs valuation.
    Services barriers consist of simple prohibitions on entering the 
market. For example, entry by new foreign firms in the areas of 
banking, accountancy, law and insurance is not permitted (except as 
contracted for specialized services required by the government), 
although joint ventures for professional services are encouraged 
between Omanis and foreign firms. The central bank seeks the 
strengthening and further consolidation of existing banks. It has 
placed limits on the percentage of the consumer loan portfolio and is 
pressing for the BIS 12 percent capital adequacy standard. Citibank has 
a wholly-owned branch in Muscat. Major U.S. engineering and accounting 
firms are well represented. Omani firms appear quite open to 
affiliation with U.S. firms. The U.S. firm Curtiss, Mallet-Prevost, 
Colt & Mosle is the only U.S. law firm with an office in Muscat and 
serves as legal counsel to the Ministry of Electricity of Water for the 
Salalah power privatization project.
    Tax policy discourages wholly foreign-owned firms. Oman attempts to 
attract foreign firms and investors to participate in joint ventures 
with Omani majority ownership. It has a case-by-case approach towards 
major projects by wholly or largely foreign owned firms. For very large 
strategic projects, Oman may offer foreign investors control 
commensurate with their investment and risk.
    Oman uses a mix of standards and specifications systems. Generally, 
GCC standards are adopted and used. However, because of the long 
history of trade relations with the UK, British standards have also 
been adopted for many items, including electrical specifications. Oman 
is a member of the International Standards Organization and applies 
standards recommended by that organization. U.S. exporters sometimes 
run afoul of dual language labeling requirements or, because of long 
shipping periods, have trouble complying with shelf-life requirements. 
U.S. export brokers and Omani trading firms are prone to trade 
difficulties when deliveries are not made within demanding government 
tender delivery dates.
    Despite requirements to ``Omanize'' the work force, the private 
sector depends on a high number of expatriates for managerial, 
technical, and physical labor. Government statistics indicate that over 
90 percent of workers in the private sector are expatriates.
    Oman continues to promote ``Buy Omani'' laws; this is a slow 
process as very few locally made goods meeting international standards 
are available. The Tender Board evaluates the bids of Omani companies 
for products and services at 10 percent less than the actual bid price, 
but imported goods and services bid by Omani agents are said to receive 
the same national preference. Because of short lead times on open 
tenders, it is often difficult to notify U.S. firms of trade and 
investment possibilities, and thereafter difficult for those firms to 
obtain a local agent and prepare tender documents. Foreign firms 
seeking to compete for open and unpublished tenders find it 
advantageous to develop relationships with local firms.
    Oman's customs procedures are complex. There are complaints of 
sudden changes in the enforcement of regulations. As part of 
``Omanization,'' only Omani nationals are permitted to clear shipments. 
Processing of shipments at Omani ports and airports can add 
significantly to the amount of time that it takes to get goods to the 
market or inputs to a project. Overland shipments from the UAE seldom 
encounter problems.
    Oman substantially eased visa requirements in 1999 by offering a 72 
hour visa for U.S. and European tourists and businessmen arriving at 
Muscat's Seeb Airport. However, this visa is non-extendable and the 
airline carrying the passenger is responsible for ensuring that the 
visitor departs on time, which in turn has discouraged use of this 
visa. Two-year multiple entry visas can be issued to American tourists 
and business representatives. In general, these visas are only issued 
at Oman's Washington embassy, although U.S. professionals residing in 
GCC countries can receive multiple-entry visas at the port of entry. 
Visa denials are not unusual for unaccompanied women tourists and young 
adult males. In late 1996, the Royal Oman Police reduced non-resident 
stays from two months to one month per entry, thereby hampering 
business visits of longer duration by U.S. and by non-U.S. citizen 
employees of U.S. firms. These visas can only be extended outside Oman, 
so visitors whose activities keep them here longer than a month face 
the added expense of a trip, usually to Dubai, for a visa renewal.
6. Export Subsidies Policies
    Oman's policies on development of light industry, fisheries, and 
agriculture aim to make those sectors competitive internationally. 
Investors in these three sectors receive a full range of tax 
exemptions, utility discounts, soft loans and, in some cases, tariff 
protection. The government has also set up an export guarantee program 
which both subsidizes the cost of export loans and offers a discounted 
factoring service.
7. Protection of U.S. Intellectual Property
    Oman's record on intellectual property protection has improved 
dramatically in recent years, in tandem with its efforts to accede to 
the World Trade Organization (WTO). Oman will have to meet its 
obligations under the WTO's Trade Related Aspects of Intellectual 
Property (TRIPS) Agreement immediately upon WTO accession. Oman is a 
member of the World Intellectual Property Organization (WIPO), and in 
1998 declared its accession to the Paris Convention for the Protection 
of Industrial Property (patents, trademarks and related industrial 
property) and Berne Convention for the Protection of Literary and 
Artistic Works. In 1998 and 1999, the Omani government implemented a 
ban on sales of pirated video and audiocassettes and pirated computer 
software, which once had dominated the local market. Since government 
enforcement of these bans began, sales of pirated tapes and computer 
software has virtually disappeared.
    Oman has a trademark law which it enforces. It does not, however, 
protect well-known marks unless they are registered in Oman. 
Application for trademark protection also requires a local agent. Oman 
affords little or no patent protection in critical areas such as 
pharmaceutical products. Oman has said it would recognize patents 
issued by the GCC patent office, but that offer will be of little value 
until the GCC patent office, which opened in November 1998, is running 
effectively.
8. Worker Rights
    Sultan Qaboos issued a Basic Law November 6, 1996 that serves as 
Oman's first written basic framework, akin to a constitution but 
consistent with Islamic Shari'a Law. In theory, the Sultanate should 
have issued legislation implementing the Basic Law's provisions within 
two years of its issuance. It is unclear whether or how any of the 
expected implementing measures will affect worker rights.
    a. The Right of Association: Articles 33 and 34 of the Basic Law 
establish the right to assemble and freedom of association when 
consistent with legal limitations and objectives. Currently, Omanis and 
resident foreigners alike are free to join only the relatively few 
officially sanctioned associations.
    b. The Right to Organize and Bargain Collectively: Since 1994, the 
Sultanate has indicated that it is reviewing a new labor law drafted by 
the Ministry of Social Affairs and Labor. Sultanate officials have 
characterized its provisions as consistent with international labor 
standards. It will reportedly contain a provision for the establishment 
of worker committees in the work place and remove the current 
prohibition against strikes. Oman is a member of the International 
Labor Organization.
    c. Prohibition of Forced or Compulsory Labor: Compulsory or forced 
labor is illegal. That said, foreign workers are typically unaware of 
their right to take disputes over contract enforcement to the Labor 
Welfare Board or are afraid that questions regarding their employment 
status will result in deportation.
    d. Minimum Age for Employment of Children: The Ministry of Social 
Affairs and Labor enforces 13 as the minimum employment age. Employers 
require the Ministry's approval to engage children between 13 and 16 
years of age in overtime, night, weekend or holiday, or strenuous work. 
Nonetheless, small family businesses in practice may employ underage 
children, particularly in the agricultural and fisheries sectors.
    e. Acceptable Conditions of Work: The minimum wage for 
nonprofessional expatriate workers is about $156 month, less any 
charges by Omani sponsors for the workers' visas, but does not cover 
domestic workers, farm hands, government employees, and workers in 
small businesses. Omani nationals tend to be well protected. Most 
employed Omanis work for the government, with a 35 hour work week and 
generous leave of between 42 to 60 days annually plus 9 days emergency 
leave and Omani holidays. Skilled foreign workers predominate in 
private sector employment and enjoy regionally competitive wages and 
benefits. Whether covered by the law or not, many unskilled foreign 
workers work for less than the minimum wage and for hours exceeding the 
40 to 45 hour private sector work week. The temperature during Oman's 
hot summer has never been officially recorded at the 50 degree 
(Celsius) mark, which, adhering to an International Labor Organization 
standard, would mandate the stoppage of outside labor. Non-Muslim 
workers are expected to respect the Ramadan month of daytime fasting by 
not publicly drinking or eating. Foreign workers find Oman very 
attractive for its employment opportunities and general living 
conditions.
    f. Rights in Sectors with U.S. Investment: To date, U.S. firms have 
little direct investment in Oman. U.S. petroleum firms operating in 
Oman comply fully with Omani labor law.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  59
Total Manufacturing............  ..............  0
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  84
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              SAUDI ARABIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                          1997      1998    \1\ \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.........................     146.3     128.9       140.0
  Real GDP Growth (pct)...............       1.9       1.6         1.0
  GDP by Sector:
    Agriculture.......................       8.9       9.1         N/A
    Manufacturing (including oil).....      13.5      12.6         N/A
    Services..........................      56.2      57.5         N/A
    Government........................      36.7      34.2         N/A
  Per Capita GDP (US$)................     6,836     6,190       6,543
  Labor Force (millions)..............       6.7       6.5         N/A
  Unemployment Rate (pct).............       N/A       N/A         N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)............       6.6       2.4         N/A
  Consumer Price Inflation............      -0.4      -0.2         1.0
  Exchange Rate (SR/US$ annual
 average)
    Official..........................     3.745     3.745       3.745

Balance of Payments and Trade:
  Total Exports FOB...................      60.7      39.7        37.5
    Exports to U.S....................       9.4       5.1         N/A
  Total Imports FOB...................     -26.4     -27.5       -27.4
    Imports from U.S..................       5.9       5.9         N/A
  Trade Balance.......................      34.2      12.1        10.0
    Balance with U.S..................       N/A       N/A         N/A
  Current Account Deficit/GDP (pct)...       0.3       -13          -5
  External Public Debt................       N/A       N/A         N/A
  Debt Service Payments/GDP (pct).....       4.7       5.3         5.1
  Fiscal Deficit/GDP (pct)............       1.1       8.8         N/A
  Gold and Foreign Exchange Reserves..      17.8      17.8         N/A
  Aid from U.S........................         0         0           0
  Aid from All Other Sources..........         0         0           0
------------------------------------------------------------------------
\1\ 1999 figures are projections.
\2\ Sources: IMF International Statistics Yearbook 1999; Saudi-American
  Bank Economic and Market Update; U.S. Embassy Riyadh 1999 Saudi
  Economic Trends Report; IMF Saudi Arabia Statistical Index.

1. General Policy Framework
    Saudi Arabia generally sets a framework for a free market economy, 
but with parastatals dominating economic output. Government policies 
generally encourage commercial enterprise, but a strict interpretation 
of Islamic mores limits the range of policy options as well as that of 
commercial endeavors. Since about 1970, Saudi Arabia has published a 
series of five-year development plans, focusing on infrastructure and 
industrialization. Development plans, however, are presented as 
planning tools, not as centralized controls, and the government 
emphasizes that its development plans rely on significant private 
sector involvement.
    The oil and government sectors are the engines of the economy. 
Parastatal enterprises, including Saudi ARAMCO (oil), Saudi Basic 
Industries Corporation (SABIC), and utilities, among others, tend to 
dominate the economy. Spending decisions taken by the few large state 
companies reverberate throughout the economy. Concerned with the 
security challenges posed by its neighbors, Saudi Arabia seeks 
sufficient military and security resources to protect its territory. 
The Saudis also protect the pilgrims who visit the two Islamic holy 
cities of Mecca and Medina. The kingdom is also a large buyer of 
advanced military technology.
    In 1998, oil sector revenues comprised an estimated 37 percent of 
GDP, and an estimated 70 percent of budget revenues. Other government 
revenues, including items such as customs duties, investment income, 
and fees for services, are to a large degree indirectly tied to oil, as 
capital available for consumption and investment is generally derived 
from oil receipts. In addition, the manufacturing and services sectors 
are largely dependent on petroleum and petrochemical activities.
    Starting with the oil boom dating from 1973, Saudi Arabia 
maintained annual budget surpluses until 1982, when the decline in oil 
prices led to a renewed deficit. These deficits have continued for the 
past 17 years. Initially, the deficits were financed by a drawdown of 
foreign exchange reserves. Starting in 1987, the government began 
financing deficits by issuing government bonds, and taking loans from 
domestic banks. The government has also accrued substantial arrearages 
to the private sector over the past decade, though these were paid down 
substantially in 1996 and 1997 with unanticipated oil revenues from 
these years.
    Spending in 1996 exceeded the budgeted target by $12 billion, but 
because of high oil revenues, the government achieved its deficit 
target of $4.5 billion. Oil revenues were higher than anticipated for 
1997 as well, allowing the government to end the year with a small $1.6 
billion deficit. However, the collapse in oil prices in late November 
1997 brought this favorable fiscal trend to an end. Saudi oil revenues 
dropped by 35 percent in 1998, leading to a deficit of $12.3 billion, 
or almost 10 percent of GDP. Oil prices have rebounded in 1999 and, 
coupled with increased fiscal discipline, have lowered the projected 
deficit to the $4-6 billion range. The government's hopes of achieving 
a balanced budget by 2000 depend mostly on what oil prices will be in 
that year.
    Money supply is regulated through the Saudi Arabian Monetary Agency 
(SAMA), which has statutory authority to set monetary reserve 
requirements for Saudi Arabian banks, impose limits on their total loan 
portfolio, and regulate the minimum ratio of domestic assets to their 
total assets. It also manages the bond market, and can repurchase 
development bonds and treasury bills as required. There is a limit to 
the amount of bonds that can be repurchased. SAMA oversees a financial 
sector consisting of 10 commercial banks. All 10 banks have majority 
private ownership, with the exception of National Commercial Bank, 
where state institutions purchased 50 percent of total shares in 1999. 
The Ministry of Finance oversees five specialized credit institutions.
2. Exchange Rate Policy
    The exchange rate for the Saudi Arabian Riyal is SR 3.745 = 
US$1.00. This rate has been consistent since 1986. Officially, the 
Riyal is pegged to the IMF's Special Drawing Rights (SDR) at SR 4.28255 
= SDR 1. There are no taxes on the purchase or sale of foreign 
exchange.
    Generally speaking, there are few foreign exchange controls for 
either residents or nonresidents, in keeping with the government policy 
to encourage an open economy. Of the few restrictions, the most 
noteworthy are: direct commercial transactions with Israel and Israeli-
registered corporations are prohibited, as are most transactions with 
Iraq; and, local banks are prohibited from inviting foreign banks to 
participate in riyal-denominated transactions without prior SAMA 
approval.
3. Structural Policies
    The government maintains price controls for basic utilities, 
energy, and many agricultural products. Water and electricity, for most 
consumers, are subsidized, with consumer prices often well below the 
cost of production, especially for potable water. Petroleum products 
and feedstocks for petrochemical industries are provided at below world 
market pricing, presumably reflecting discounts for lower costs in 
production and transport. The government maintains that local petroleum 
prices that are below world market averages (e.g., a gallon of gasoline 
sells for $.90 at the pump) reflect the low costs of production. 
Nonetheless, the effect of these low prices is that petroleum products, 
including many petrochemicals, are sold in Saudi Arabia at prices that 
effectively eliminate competing imports. Agricultural subsidies were 
dramatically curtailed in the early 1990s and have been reduced in 
recent budgets, in line with the government's deficit reduction plans 
and its goal to reduce water consumption.
    The Saudi Arabian Government imposes few taxes, relying on oil 
revenues, customs duties, and licensing fees for most government 
revenue. Saudi Arabian nationals pay no income tax, but are obliged to 
pay ``zakat,'' a 2.5 percent Islamic assessment based on net wealth 
(not income). Zakat is designed to support the Islamic community (e.g., 
to pay for hospitals, schools, support for the indigent). Saudi-owned 
businesses do not pay corporate tax beyond the ``zakat.'' Foreign 
companies and self-employed foreigners pay an income tax, but do not 
pay zakat. Business income tax rates range from 25 percent on annual 
profits of less than $26,667 to a maximum rate of 45 percent for 
profits of more than $266,667. Some foreign investors avoid taxation 
either in part or totally, by taking advantage of various investment 
incentives, such as 10-year tax holidays for investments in approved 
projects meeting specified requirements. Import tariffs are generally 
12 percent ad valorem (CIF), except on products imported from other 
member states of the Gulf Cooperation Council. Certain specified 
essential commodities (e.g., defense purchases) are not subject to 
custom duties. Saudi Arabia also levies a maximum 20 percent tariff on 
products that compete with local ``infant'' industries.
    The Saudi Arabian Government is currently considering changes to 
the Foreign Investment Code and related foreign corporate taxation 
laws, which may result in significant reductions in the amount foreign 
corporations are taxed. Changes to Saudi Arabia's tariff structure are 
also being considered in the context of Saudi Arabia's effort to gain 
membership in the World Trade Organization.
4. Debt Management Policies
    Saudi Arabia is a net creditor in world financial markets. SAMA 
manages foreign assets of roughly $54 billion in its issues and banking 
departments, and an estimated $29 billion for autonomous government 
institutions, including the Saudi Pension Fund, the Saudi Fund for 
Development, and the General Organization for Social Insurance. Under 
SAMA's rules, $17.8 billion of the roughly $54 billion in foreign 
assets is designated to guarantee the Saudi Riyal. In addition to 
overseas assets managed by SAMA, the commercial banking system has an 
estimated net foreign asset position of $11.4 billion.
    Public sector foreign debt, which stood at a level of $1.8 billion 
at the beginning of 1995, was retired in May of that year. Domestic 
banks, Saudi ARAMCO, Saudi Arabian Airlines, and other state-owned 
enterprises, however, have overseas liabilities.
    Government domestic borrowing has a short history in Saudi Arabia. 
The government began borrowing to finance budget deficits in 1987 by 
selling government development bonds having two-to-five year 
maturities. After the massive defense expenditures of the 1991 Gulf 
War, the government expanded its borrowing by signing loan syndications 
with international and domestic banks, and by introducing treasury 
bills. This debt, owed almost entirely to domestic creditors, such as 
autonomous government institutions, commercial banks, and individuals, 
ballooned to about $130 billion by the end of 1998, or over the GDP 
level. In addition, the government issued a series of bonds to farmers 
and some other private sector creditors (mainly contractors) for past 
due amounts. Paying down this debt is now a focus of government 
concern.
    Non-governmental external debt stood at $28 billion in 1998, up 
from $16 billion in 1996. This debt is serviceable, especially in light 
of improved oil revenues.
5. Significant Barriers to U.S. Exports
    Saudi Arabia is currently in the process of negotiating accession 
to the World Trade Organization (WTO). This may result in changes to a 
number of current regulations that have the potential to restrict entry 
of U.S. exports and investments.
    Import licensing requirements protect Saudi Arabian industries or 
enhance Saudi Arabian businesses. In most cases, foreign companies must 
operate through a Saudi Arabian agent. Contractors for public projects 
must purchase equipment and most supplies through Saudi agents. (This 
agency requirement does not apply to defense-related imports.) Saudi 
Arabia requires licenses to import agricultural products.
    Saudi Arabia's preshipment inspection regime, known as the 
International Conformity Certification Program (ICCP), is designed to 
protect Saudi Arabian consumers from inferior foreign products. The 
ICCP has elements that can be viewed as barriers to free trade--such as 
an ad valorem-based fee schedule--and remains controversial. It adds 
inspection costs to imported civilian products, may delay shipments to 
Saudi Arabia, and can increase exporter overhead.
    Restrictions on shelf life labeling standards in Saudi Arabia may 
make it difficult for some U.S. food producers to compete in the Saudi 
market.
    Saudi Arabia gives preference to imports from other members of the 
Gulf Cooperation Council (GCC) in government purchasing, with a 10 
percent price preference over non-GCC products for government 
procurement.
    Saudi Arabia requires foreign civilian contractors to subcontract 
30 percent of the value of government non-military contracts, including 
support services, to firms having Saudi-majority ownership. Many firms 
have reported that this has not been enforced consistently. Some U.S. 
businessmen have complained that this is a barrier to the export of 
U.S. engineering and construction services. Other service industries 
are restricted to government-owned companies, e.g., certain insurance 
and transportation services.
    The ``Investment of Foreign Capital Regulation'' establishes the 
following conditions for a non-Saudi national to obtain a license for a 
business and for investment of foreign capital (considerable revisions 
to the Regulation are nearing completion):
    a. Foreign capital must be invested in a development project, or in 
projects within the framework of the development plan in effect at the 
time of the investment. Investments in oil and mineral sectors are 
subject to special regulations of the Ministry of Petroleum and Mineral 
Resources.
    b. Foreign capital investment must be accompanied by foreign 
technical expertise. In addition, the ``foreign capital investment 
committee,'' established by the ``investment of foreign capital 
regulation,'' reviews license applications. The committee's screening 
of foreign investments is general; the criteria for screening, other 
than the two conditions listed above, appear to be limited to:

          --Ensuring that an investment does not violate the social or 
        religious mores of Saudi Arabia.
          --Regulating the number of establishments in any one sector, 
        to the level that the market will sustain.

    There is no requirement that a non-Saudi investor have a Saudi 
partner. At the same time, businesses having a minimum of 25 percent 
Saudi ownership are eligible for soft government loans, which are 
generally unavailable to firms lacking Saudi ownership. The government 
is currently reviewing foreign investment and agency regulations.
    Saudi labor law requires companies to employ Saudi nationals, but 
foreigners account for at least 90 percent of the private sector labor 
force. Large companies are required to increase their percentage of 
Saudi employees by a certain percentage annually or face restrictions. 
This emphasis on ``Saudiization'' is increasing as the number of 
unemployed/underemployed Saudis increases.
6. Export Subsidies Policies
    Saudi Arabian planners say that there are no export subsidy 
programs for industrial projects. Because feedstock prices are 
relatively low in Saudi Arabia, industrial production of petroleum and 
related downstream products is comparatively attractive. The government 
argues that this is simply a reflection of the low cost of domestic oil 
production. On January 1, 1998, the Saudi Government announced a 50 
percent across-the-board increase in natural gas prices from $.50/
million btu to $.75/million btu. The government has reduced subsidies 
to agriculture, which has resulted in reduced agricultural production 
available for export.
7. Protection of U.S. Intellectual Property
    Saudi Arabia has applied to join the World Trade Organization 
(WTO). As part of its accession effort, Saudi Arabia is revising all of 
its intellectual property laws to make them conform with the WTO's 
Trade Related Aspects of Intellectual Property (TRIPs) standards. Saudi 
Arabia remains on the USTR's ``Special 301 Watch List,'' having moved 
up in 1996 from the program's ``Priority Watch List'' in recognition of 
progress made in intellectual property rights protection. Saudi Arabia 
has joined the Universal Copyright Convention, and is a member of the 
World Intellectual Property Organization (WIPO), though not a 
contracting party to any of the treaties administered by WIPO. Efforts 
to protect intellectual property rights are uneven, and audio, video 
and software companies want greater protection of their product content 
in the Kingdom.
    Saudi Arabia has enacted a patent regulation and established a 
patent office. The regulation was patterned along the lines of the U.S. 
patent law, but does not reproduce it. The terms of patent protection 
are generally adequate, but the period of protection is 15 years, five 
years less than the international TRIPs standard. The regulation 
permits compulsory licensing if the patent holder refuses to use the 
patent, or for other public policy reasons, on a wider basis than 
permitted under TRIPs. Further, the Saudi Patent Office is functionally 
slow. The office has received several thousand patent applications 
since 1989, but has completed action on only a relative handful. The 
patent office lacks sufficient manpower to process the backlog of 
applications. The Gulf Cooperation Council (GCC) established a parallel 
patent office in October 1998, but that office is not yet issuing 
patents.
    Registration of trademarks is relatively uncomplicated, although 
some companies have complained that registration and search fees are 
high. Although legal remedies for infringement of a trademark exist, 
enforcement of trademark protection is inconsistent.
    The embassy has received no verifiable reports of book piracy, and 
only one report of the unlicensed use of a published photograph. Piracy 
of U.S.-produced audio and videocassettes has decreased due to 
government enforcement polices but remains a problem. Estimates of 
losses to computer software companies due to illegal copying vary 
widely, but are generally considered high.
8. Worker Rights
    a. The Right of Association: Saudi regulations prohibit labor 
associations.
    b. The Right to Organize and Bargain Collectively: Expatriates 
perform much skilled and almost all unskilled labor. Non-Saudi workers 
who seek to organize may be deported.
    c. Prohibition of Forced or Compulsory Labor: Forced labor is 
prohibited. However, as most unskilled labor is performed by 
expatriates, and as Saudi employers have legal authority over the 
movement of their contracted laborers, low paying labor may occur, 
especially in the case of domestic servants and in remote areas. During 
the past three years, the government has expelled many workers without 
proper work permits. One result of this may be to reduce the potential 
for abuse.
    d. Minimum Age for Employment of Children: The labor law states 
that ``a juvenile who has not completed 13 years of age shall not be 
employed.'' This restriction may be waived by application to the 
Ministry of Labor with the consent of the juvenile's parent or 
guardian. Children under 18 and women may not be employed in hazardous 
or unhealthy occupations. Wholly-owned family businesses and family-run 
farms are exempt from these rules.
    e. Acceptable Conditions of Work: Saudi Arabian authorities 
consider that provisions of Islamic Law (the Shariah) provide more than 
adequate protection for laborers, and therefore additional regulation 
is unnecessary. Conditions of labor, while far from perfect, may in 
some cases be better than those found in countries from which most 
poorer expatriates come. Although Saudi Arabia has no minimum wage, 
generally speaking, expatriate laborers come to Saudi Arabia because 
they can earn more than they could at home. They receive time-and-one-
half for hours (up to 12) over the 44 hours normally worked per week. 
The labor law requires employers to provide health insurance and to 
protect workers from job-related hazards and diseases.
    f. Rights in Sectors with U.S. Investment: Worker rights in sectors 
with U.S. investment do not differ from those elsewhere. Conditions of 
work at major U.S. firms and joint-venture enterprises are generally 
better than elsewhere in the Saudi economy. Workers in U.S. firms 
normally work a five to five-and-one-half day week (i.e., 44 hours) 
with paid overtime. Overall compensation tends to be at levels that 
make employment with U.S. firms attractive.

  Extent of U.S. Investment in Selected Industries--U.S. Direct Investment in Saudi Arabia on a Historical Cost
  Basis--1998. Generally it is assumed that the true value of U.S. direct investment in Saudi Arabia is in the
    range of $7-8 billion with the large majority in the petrochemical field. Antitrust concerns and general
               difficulties in gathering statistics make the exact aggregation of data impossible.
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  270
Total Manufacturing............  ..............  149
  Food & Kindred Products......  14              ...............................................................
  Chemicals & Allied Products..  (\1\)           ...............................................................
  Primary & Fabricated Metals..  20              ...............................................................
  Industrial Machinery and       (\1\)           ...............................................................
   Equipment.
  Electric & Electronic          1               ...............................................................
   Equipment.
  Transportation Equipment.....  5               ...............................................................
  Other Manufacturing..........  51              ...............................................................
Wholesale Trade................  ..............  105
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  1,533
Services.......................  ..............  280
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  4,209
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                TUNISIA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................    16,594.7   17,3463.3    18,733.7
  Real GDP Growth (pct) \3\.........         5.4         5.0         6.2
  GDP by Sector:
    Agriculture.....................     2,533.4      2,4812     2,732.1
    Manufacturing...................     3,496.7     3,636.8     3,924.7
    Services........................     6,514.0     6,919.9     7,535.2
    Government......................     2,565.0     2,680.4     2,797.1
  Per Capita GDP (US$)..............     1,953.4     2,098.2     2,238.2
  Labor Force (000's)...............       2,850       2,920       2,990
  Unemployment Rate (pct)...........          16          16        15.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........          16           6           9
  Consumer Price Inflation..........         3.7         3.1         3.0
  Exchange Rate (TD/US$ annual
 average)
    Official........................         1.1         1.1         1.2
    Parallel........................         N/A         N/A         N/A

Balance of Payments and Trade:
  Total Exports FOB \4\.............     5,589.0     5,717.8     5,878.2
    Exports to U.S.\4\..............        37.6        28.3        49.5
  Total Imports CIF \4\.............     7,994.1     8,324.1     8,373.0
    Imports from U.S.\4\............       343.4       287.7       411.3
  Trade Balance \4\.................    -2,405.1    -2,606.3    -2,494.8
    Balance with U.S................      -305.7      -259.4      -361.8
  External Public Debt..............     9,836.4     9,409.6    10,265.0
  Fiscal Deficit/GDP (pct)..........         4.2         3.0         2.8
  Current Account Deficit/GDP (pct).         3.3         3.4         2.0
  Debt Service Payment/GDP (pct)....         8.2         7.6         7.9
  Gold and Foreign Exchange Reserves       2,100       1,750       2,100
  Aid from U.S......................         0.9         0.9         8.4
  Aid from All Other Sources \5\....         N/A         N/A         N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on available monthly data in
  November.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Tunisia does not publish official aid figures.

Source: Tunisian Central Bank and other government sources.

1. General Policy Framework
    Tunisia has made significant progress toward establishing a market 
economy over the past decade. The European Union (EU)-Tunisian Free 
Trade Accord was signed in 1995 and formally came into effect on March 
1, 1998. Tunisia, having started implementing significant reforms in 
1996, is on schedule in reforming its economy as required by the 
Accord. Over a 12-year period, the terms of the Accord require the 
Tunisian Government to eliminate import tariffs and open the market to 
business competition. Although tariff revenues decreased from $732 
million in 1997 to $620 million in 1998, they reached $741 million in 
1999 due to increased levels of imports. Initially, the government 
expects significant economic turmoil as state owned firms are 
privatized, jobs are eliminated and companies are forced to become more 
efficient. This should adversely affect unemployment which is 
officially 15.6 percent, but is widely believed to be higher, with some 
regions registering 30 percent. However, in the long run, the accord 
should help the country by attracting foreign investment and creating 
an export-oriented economy based increasingly on manufactured products.
    The government's fiscal policy is socially oriented, designed to 
raise living standards and reduce poverty while maintaining economic 
and political stability. Approximately 58 percent of the government's 
budget is allocated for social programs, providing subsidies for 
education, basic foodstuffs and support for the poorest sectors of 
society. Since 1996, annual minimum wage increases have kept pace with 
the official inflation rate, which has averaged less than four percent 
annually for the period. The government has been commended by the IMF 
for prudent fiscal monetary measures in 1997, including trimming 
government expenditures while implementing food and energy price 
increases, as well as lowering tariff and nontariff barriers to trade. 
These trends continued in 1998 and 1999.
    Tunisia needed to raise $614 million in 1999 to finance its budget 
deficit which is equal to 2.8 percent of the 1999 projected Gross 
Domestic Product (GDP) of over $21.5 billion. Tunisia's economic 
performance and low perceived commercial and political risk have been 
recognized in international financial markets, permitting the 
government to successfully float loans in the bond market. In 1997, the 
government tapped the U.S. market for the first time with the 
successful issuance of $400 million of ``Yankee'' bonds. In 1999, 
Tunisia became the first African country to tap the Euro denominated 
bond market with a successful $209 million bond offering.
    The government predicts GDP growth of 6.2 percent for 1999, after 
posting 5.0 percent GDP growth in 1998. Tunisia maintains significant 
trade barriers to control the growth of imports and contain its trade 
deficit, which decreased over four percent from 1998 to 1999. Imports 
of goods and agricultural products rose during the last three years 
despite increased domestic agricultural production. Imports of consumer 
goods increased enough in 1997 that the government unofficially began 
restricting some imports, but this was not the case in 1998 or 1999. 
Customs duties and other import taxes will remain in place. In 1999, 
U.S. goods represented only 4.1 percent of total goods and services 
imported, but the U.S. held an eight to one trade surplus (according to 
Tunisian statistics) with Tunisia, primarily due to agricultural 
products. Trade with the U.S. experienced a strong rebound in 1999 
after a down turn in 1998, and the U.S.-North Africa Economic 
Partnership, proposed in 1998 and officially launched in March 1999, 
has the potential to bring about a significant increase in U.S. 
investment and trade with Tunisia. Opportunities for U.S. exports 
include electrical power generation systems, construction and 
engineering services, telecommunications and computer equipment, and 
agricultural products and equipment.
    The government, which exercises considerable control over the 
central bank, the stock market and other financial institutions, has 
kept tight control of the money supply. During the three year span from 
1997 to 1999, foreign exchange reserves have averaged about $2 billion, 
which represents between two and three months of imports. The 
government has continued its policy of not allowing the Tunisian Dinar 
to be traded on international markets. Government exchange controls for 
Tunisians traveling abroad were recently loosened to allow them to take 
up to $855 (1,000 dinars) per year out of the country, doubling the 
previous limit of 500 dinars per year.
2. Exchange Rate Policy
    While the dinar is not traded internationally on the world market, 
it is commercially convertible for most trade and investment 
operations, though some restrictions apply. Central bank authorization 
is needed for large-scale foreign exchange operations.
    The value of the dinar is tied to a basket of foreign currencies, 
primarily those of Tunisia's major trading partners, such as Germany, 
France, Italy, Japan and the United States. All exchange rate 
transactions are done internally, and the Tunisian Central Bank allows 
the rate to float within a narrow band fixed by the Bank. There is no 
``parallel'' or black market for currency exchanges within Tunisia, 
although such markets for the dinar exist in Libya and Algeria. In 
1999, the value of the dinar varied considerably versus the dollar. In 
January the dollar bought 1.09 dinars, and by July this reached 1.22. 
However, by November the rate had fallen to 1.18, giving the dollar an 
eight percent appreciation relative to the dinar year-to-date.
3. Structural Policies
    To meet the terms of the EU-Tunisian Free Trade Accord, the 
government is continuing to introduce structural economic reforms 
initiated in 1987 with the IMF and IBRD. As customs duties are 
eliminated over a 12-year period for a wide range of imports, Tunisian 
companies will have to become more competitive or risk going out of 
business. In conjunction with the Accord and in response to World Bank 
suggestions, the government has vowed to accelerate its privatization 
program. The government privatized approximately 60 companies between 
1987 and 1997 raising approximately $400 million. In 1998 alone, 
proceeds from privatization surpassed $400 million with the sale of 
approximately 20 additional companies. The sale of two cement plants 
accounted for $380 million of this amount. In 1999, the rate of 
privatization slowed considerably as the planned sale of three 
additional cement plants, with the reported value of $500 million, was 
rescheduled for 2000. Total receipts from privatization efforts in 1999 
were well below $100 million.
    Tax and customs policies favor ``offshore'' Tunisian-based foreign 
companies which manufacture locally and export 80 percent or more of 
their production, enjoying 10-year tax-free status and other benefits. 
Foreign companies that import materials for use or sale in the Tunisian 
market, however, have continued to see customs duties rise, where 
permitted by World Trade Organization (WTO) rules. This has adversely 
affected Tunisian-based U.S. companies which depend on materials 
produced in the United States for their products. Tunisia has three 
Value-Added Tax (VAT) rates (6, 18 and 29 percent) based on the 
category of good sold (i.e., luxury or staple products). In order to 
make up for the decline in import duties, the government raised its 
middle VAT rate in 1997 from 17 to 18 percent, and made greater efforts 
to enforce compliance on retailers, causing price increases on a wide 
range of domestic and foreign products. In 1999, receipts from VAT were 
34 percent above the 1997 level due to an increase in the volume of 
imports.
    As the government has continued to modernize its power generation 
utilities and industrial infrastructure, its official policy has been 
to make contract bidding transparent and open to foreign companies. 
U.S. firms have been actively encouraged to bid on a number of 
procurement contracts. Unfortunately, between 1996 and 1999, official 
tender policies were not always strictly adhered to and factors other 
than price and quality of technology offered appear to have played a 
role in the awarding of contracts. Examples, involving competing U.S. 
and foreign firms, include contracts in the electronics and 
agricultural sectors of the economy. Such occurrences could deter U.S. 
companies from bidding on future public contracts. However, private 
sector sources gave the government high marks for its transparency and 
fairness in handling the bidding for the Rades II independent power 
plant. This project was won by a U.S.-led consortium and is worth 
between $400 and $450 million. The contract for this project was signed 
in April 1999.
4. Debt Management Policies
    According to recent reports by the World Bank and the IMF, the 
government has managed its external debt portfolio well and has never 
had to reschedule its debt payments. Tunisia has won high investment 
grade ratings from a number of international rating agencies, such as 
Standard and Poor's, which assigned its triple b minus long-term rating 
in 1999 to a $209 million Euro bond issue. In 1997, Tunisia tapped the 
U.S. bond market for the first time and raised $400 million. In 
addition, several Tunisian commercial banks worked with U.S. investment 
firms in 1998 to raise money in U.S. commercial markets.
    In 1999, the government projected its foreign financing 
requirements to be approximately $762 million. In 1998, Tunisia's 
outstanding foreign debt increased by $860 million to $10.27 billion, 
representing approximately 47.8 percent of gross available domestic 
revenue. Debt service payments on foreign debt in 1998 are projected to 
be $1.7 billion. As mentioned above, the October 1998 privatization of 
two cement factories brought nearly $400 million to the Tunisian 
treasury, a timely infusion to address the budget deficit which saved 
the government from tapping the foreign debt market to meet that 
shortfall.
5. Aid
    Tunisia's USAID program was terminated in 1998 due to the country's 
progress on economic growth and development. In 1999, U.S. aid to 
Tunisia amounted to $8.4 million in military aid. These funds were used 
for the following programs: $5 million of Draw Down Authority to 
procure existing U.S. military goods and services, $2 million of 
Foreign Military Financing to purchase U.S. military goods and 
services, $900,000 in International Military and Educational Training 
and $400,000 in Humanitarian Assistance. The government does not 
publish foreign aid figures, therefore, the amount of aid from other 
sources is unavailable.
6. Significant Barriers to U.S. Exports
    Significant barriers do exist to U.S. exports to Tunisia. While 
Tunisia allows over 90 percent of goods to be imported without a 
license, import duties range from 10 to 230 percent (cheese 133 
percent, milk 200 percent). In addition, certain luxury consumer items 
and durable goods can be assessed a consumption tax that can be as high 
as 500 percent (small engine automobiles 50 percent, large engine 
automobiles 295 percent, champagne 500 percent). The consumption tax is 
used to offset the gradual elimination of tariffs, and is levied 
predominately on luxury goods regardless of whether they are imported 
or produced in Tunisia. At the retail level, the VAT can be applied to 
certain categories of goods.
    Import licenses are sometimes required for goods that compete 
against those produced by developing Tunisian industries, such as 
textiles. Licenses are also required for expensive consumer goods, such 
as automobiles, payment for which could adversely affect the short-term 
balance of payments. The stated purpose of the licenses is to allow 
nascent local industries to grow, and U.S. exports have been limited or 
prevented when they are seen to compete with them.
    Tunisia is moving to embrace ISO 9000 standards and testing. The 
Tunisian Consumer Protection Law of 1992 established standard labeling 
and marking requirements, and goods not specified under existing 
Tunisian regulations must meet international standards.
    While foreign investment is welcomed, investment barriers exist. 
For on-shore companies within the services sector (defined as those 
with more than 20 percent of output destined for the Tunisian market), 
the government must authorize a foreign capital share of more than 49 
percent. Foreign investors are denied treatment on par with Tunisians 
in the agricultural sector, and although land may be secured for long-
term leases (40 years), foreign ownership of agricultural land is 
prohibited. For foreign companies producing for the Tunisian market, 
local content provisions may apply, and hiring of foreign personnel is 
subject to regulation and usually limited to senior management. 
Normally, foreign companies cannot distribute products locally without 
a Tunisian distributor. The government does not allow the establishment 
of foreign franchise operations except in special circumstances. There 
is no limit on the amount of foreign currency which can be brought into 
the country, but any amount over TD 1,000 must be declared at the port 
of entry and only the unused dinar balance of declared foreign currency 
may be reconverted and taken out of the country.
    Laws concerning government procurement practices are nominally 
designed to make contract bidding objective, competitive, and 
transparent. However, in several recent cases, factors other than those 
specified in the tender offer appear to have played a role in 
determining who won the contract. This has caused some concern that the 
government will allow factors other than price, competitiveness and 
quality of technology or services offered to be the determining factors 
in awarding government contracts.
    Customs administrative procedures are often complex and burdensome, 
requiring time and patience to complete necessary paperwork demanded by 
the authorities. Problems that arise are addressed on a case by case 
basis, and business or political connections can greatly affect the 
rate at which products are cleared. Most foreign companies choose to 
work with private customs agents to expedite the processing of their 
imports.
7. Export Subsidies Policies
    The government does not provide export subsidies to Tunisian 
companies.
8. Protection of U.S. Intellectual Property
    Tunisia is a member of the World Trade Organization (WTO), but is 
availing itself of a transitional period provided to developing 
countries to phase in obligations under the WTO Trade Related Aspects 
of Intellectual Property (TRIPS) Agreement. Tunisia belongs to the 
World Intellectual Property Organization (WIPO), and is a signatory to 
the Berne Convention for the protection of literary and artistic works 
(copyright) and the Paris Convention for the protection of industrial 
property (patent, trademark and related industrial property). As a 
member of the World Intellectual Property Organization (WIPO) and as a 
signatory to the UNCTAD agreement on the protection of patents and 
trademarks, Tunisia has pledged to protect foreign property rights.
    In 1998, the U.S. Trade Representative named Tunisia to the 
``Special 301'' Other Observations List (the lowest level of inclusion) 
because of concerns over an absence of patent protection for 
pharmaceutical products that allows dozens of top-selling medicines to 
be sold in the local market. Once a medicine is manufactured in 
Tunisia, its importation is restricted, hindering access to the market 
for U.S. firms. In 1999, Tunisia did not appear on the ``Special 301'' 
list, because the ``other'' category was eliminated and it was 
determined that Tunisian IPR violations did not warrant inclusion in a 
higher category. Recent complaints of trademark pirating, largely in 
the field of apparel, and copyright infringement, such as software, 
recordings, and movies also indicate that IPR violation is a growing 
problem in Tunisia.
    Registration of foreign patents and trademarks is required with the 
national institute for standardization and industrial policy. However, 
Tunisia's patent and trademark laws are designed to protect only duly 
registered owners. In the area of patents, U.S. businesses are 
guaranteed treatment equal to that afforded to Tunisian nationals. 
Copyright protection is the responsibility of a separate government 
agency, which also represents foreign copyright organizations. Tunisian 
Copyright Law has been updated, but its application and enforcement 
have not been consistent with foreign commercial expectations. Print 
and video media are considered particularly susceptible to copyright 
infringement.
9. Worker Rights
    a. The Right of Association: The Constitution and the Labor Code 
stipulate the right of workers to form unions and this right is 
generally observed in practice. The Tunisian General Federation of 
Labor (UGTT) is Tunisia's only labor federation. About 15 percent of 
the country's work force are members, but a greater number are covered 
by UGTT negotiated contracts. The UGTT is independent of the government 
but certain laws restrict its freedom of action. The current UGTT 
leadership has tried to cooperate with the government and support its 
economic reform programs, in return for regular wage increases and 
protection for workers.
    b. The Right to Organize and Bargain Collectively: This right is 
protected by law and observed in practice. Wages and working conditions 
are set in triennial negotiations between the UGTT member unions and 
employers, and anti-union discrimination by employers is prohibited. 
Though the government does not participate in the negotiations, it must 
approve, but cannot modify, the agreements decided upon.
    c. Prohibition of Forced or Compulsory Labor: Tunisia abolished 
compulsory labor in 1989, and ended the practice of sentencing convicts 
to ``rehabilitation through work'' in 1995.
    d. Minimum Age for Employment of Children: In August 1996, the 
Labor Code raised the minimum age for employment in manufacturing from 
15 to 16 years, while the minimum age for light work in agriculture and 
nonindustrial sectors is 13 years. The government requires children to 
attend school until age 16 and employers must observe certain rules to 
insure children obtain adequate rest and attend school. The UGTT has 
expressed concern that child labor continues to exist disguised as 
apprenticeship.
    e. Acceptable Conditions of Work: The Labor Code provides for a 
range of minimum wages, which are set by a commission of government, 
UGTT and employers' representatives. Most business sectors observe a 
48-hour workweek, with one 24-hour rest period. The government often 
has difficulty enforcing the minimum wage law, especially in 
nonunionized sectors of the economy. Workplace health and safety 
standards are enforced by the government.
    f. Rights in Sectors with U.S. Investment: Working conditions tend 
to be better in export-oriented firms than in those producing 
exclusively for the domestic market.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  102
Total Manufacturing............  ..............  27
  Food & Kindred Products......  27              ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  1
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  22
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  153
----------------------------------------------------------------------------------------------------------------
Source: Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                          UNITED ARAB EMIRATES


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................      49.2      46.3      48.0
  Real GDP Growth (pct)...................       0.8      -8.1       2.5
  GDP by Sector: \3\
    Agriculture...........................       1.5       1.6       1.6
    Manufacturing.........................       5.5       5.5       5.5
    Services..............................      22.2      23.4      24.0
    Government............................       5.1       5.4       5.4
  Per Capita GDP (US$)....................    18,741    16,780    17,500
  Labor Force (000's).....................     1,330     1,380     1,400
  Unemployment Rate (pct).................       2.6       2.6       2.6

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       9.0       4.2       4.0
  Consumer Price Inflation (pct)..........       2.8     1.5-2       3.0
  Exchange Rate(Dirham/US$)
    Official..............................      3.67      3.67      3.67

Balance of Payments and Trade:
  Total Exports FOB \4\...................      34.0      30.4      33.5
    Exports to U.S.\5\....................       1.0       0.7       0.7
  Total Imports CIF \4\...................      26.6      27.2      29.0
    Imports from U.S.\5\..................       2.6       2.4       2.3
  Trade Balance \4\.......................       7.4       3.2       4.5
    Balance with U.S.\5\..................      -1.6      -1.7      -1.6
  Current Account Surplus/GDP (pct).......      12.8       3.9       6.0
  External Public Debt....................       0.0       0.0       0.0
  Debt Service Payments/GDP (pct).........       0.0       0.0       0.0
  Fiscal Deficit/GDP (pct)................       5.1      17.0      10.0
  Gold and Foreign Exchange Reserves (end        8.2       8.9       9.5
   of period).............................
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ Estimates based on available monthly data in November 1999.
\2\ GDP at current prices.
\3\ GDP at factor costs.
\4\ Merchandise trade; includes re-exports.
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through August.

Sources: Ministry of Planning, Central Bank, Ministry of Economy and
  Commerce.

1. General Policy Framework
    The United Arab Emirates (UAE) is a federation of seven emirates. 
The individual emirates retain considerable power over legal and 
economic matters, most significantly over ownership and disposition of 
oil resources. Each emirate has its own Customs Service, as well as its 
own Civil Aviation Authority. The federal budget is largely derived 
from transfers from the individual emirates. Abu Dhabi and Dubai, the 
most prosperous emirates, contribute the largest shares.
    Oil production and revenues from the sale of oil constitute the 
largest single component of GDP, accounting in 1998 for 22 percent of 
GDP and equaling roughly 33 percent of export and 86 percent of 
government revenue. Rising or declining oil prices have a direct effect 
on GDP statistics and an indirect impact on government spending but 
may, nevertheless, be less obvious in terms of overall economic 
activity. GDP declined by 5.8 percent in 1998, a decline attributable 
to sustained low oil prices. The great majority of the UAE's oil export 
income comes from Abu Dhabi Emirate, though Dubai and Sharjah also 
produce and export a modest amount of oil and gas products. The 
scarcity of oil and gas reserves in the UAE's northern emirates has led 
to continued--and successful--attempts at economic diversification. 
While the sharp drop in the oil sector's share of GDP in 1998 was due 
in large part to declining oil revenues, data over time indicates that 
the UAE has made significant progress in diversifying its economy away 
from oil. Important sectors under development include tourism, 
manufacturing, air travel and cargo services.
    Government fiscal policies aim to distribute oil wealth to UAE 
nationals by a variety of means. Support from the wealthier emirates of 
Abu Dhabi and Dubai to less wealthy emirates is provided through the 
federal budget, largely funded by Abu Dhabi and Dubai, and by direct 
grants from the governments of Abu Dhabi and Dubai.
    Federal commercial laws promote national ownership of business 
throughout the country. Foreign businesses, except those seeking to 
sell to the UAE Armed Forces, must have a UAE national sponsor. Agency 
and distributorship laws require that a business engaged in importing 
and distributing a foreign-made product must be owned 100 percent by a 
UAE national. Other businesses must be at least 51 percent owned by 
nationals. Companies located within the UAE's nine free zones are 
exempted from agency/distributorship, sponsorship, and national 
ownership requirements. However, if they lack 51 percent national 
ownership, they are treated as foreign firms and subjected to these 
requirements if they market products in the UAE.
    The central bank seeks to maintain the dirham/dollar exchange rate, 
which has not changed since 1980, and to keep interest rates close to 
those in the United States. Given these goals, the bank does not have 
the scope to engage in independent monetary policy. Trends in domestic 
liquidity continue to be primarily influenced by residents' demand for 
UAE Dirhams relative to foreign exchange. Banks convert dirham deposits 
to foreign assets and back again in search of higher rates of return 
and in response to fluctuations in lending opportunities in the 
domestic market. To a limited extent, domestic liquidity can be 
influenced by the central bank through its sale and purchase of foreign 
exchange, use of its swap facility, and transactions in its 
certificates of deposit.
    In recent years the UAE has run budget deficits. In 1994, the UAE 
budget deficit as a percentage of GDP was 7.9 percent; in 1998 that 
figure grew to 17.0 percent, largely attributable to a 34 percent drop 
in oil revenues that year. Assuming current policies remain unchanged, 
fiscal deficits will persist. Deficits are financed by domestic 
borrowing, principally by overdrafts from banks in which government 
entities have an ownership share, and by liquidation of or interest 
from overseas assets.
2. Exchange Rate Policies
    There are no restrictions on the import or export of either the UAE 
Dirham or foreign currencies by foreigners or UAE nationals, with the 
exception of Israeli currency and the currencies of those countries 
subject to United Nations sanctions. Since November 1980, the dirham, 
though formally pegged to the IMF's Special Drawing Rights (SDR) at the 
rate of 4.76190 dirhams per SDR, with a margin of fluctuation set 
initially at 2.25 percent and widened in August 1987 to 7.25 percent, 
has been kept in a fixed relationship with the U.S. Dollar. The 
exchange rate is 3.67 UAE Dirhams per 1 U.S. Dollar.
3. Structural Policies
    Foreign workers make up approximately 90 percent of the UAE labor 
force; in some areas of the private sector, 99 percent of workers are 
non-UAE nationals. In an effort to stem the problem of illegal 
immigration and employment, better regulate the labor market and 
improve its efficiency of administration, a new Labor Law came into 
effect on 1 October 1996 which dramatically increased the severity of 
penalties applicable to immigration offenses. As a result of the new 
immigration rules, nearly 10 percent of the UAE's population (roughly 
20 percent of its work force) left the country between the beginning of 
August and the end of October 1996, although most returned in 
subsequent months once their immigration status was clarified. 
Employment of UAE citizens--known as ``Emiratization''--is a stated 
national objective. In addition to persuasion and encouragement, the 
UAE Government has begun to employ legislation as a tool for promoting 
job opportunities for UAE nationals. Beginning in January 1999, 
employment of UAE nationals in the banking sector must increase by 4 
percent per year, with UAE nationals required to comprise 40 percent of 
total banking sector work force in 2009. Additional measures, such as a 
ban on unskilled labor from certain countries, are also being employed 
in an effort to manage the labor force.
    There is no income tax in the UAE. Foreign banks pay a 20 percent 
tax on their profits. Foreign oil companies with equity in concessions 
pay taxes and royalties on their proceeds. There are no consumption 
taxes, and the highest customs duty is 4 percent. More than 75 percent 
of imports still enter duty free. Gulf Cooperation Council (GCC) states 
continue to be engaged in discussions on unifying customs tariffs. Some 
progress has been made on this issue; the UAE, with its dependence on 
trade and its commitment to the free flow of goods, continues to push 
for lower rates than its GCC neighbors. Reaching agreement on a common 
GCC external tariff will represent a step forward in longstanding 
efforts to form a regional customs union.
    Prices for most items are determined by market forces. Exceptions 
include utilities, educational services, medical care and agricultural 
products, which are subsidized for UAE nationals.
    A passport and visa are required for entry into the UAE. Multiple 
entry visas for business or tourism and valid for up to ten years are 
available to U.S. passport holders from UAE embassies. Sponsors are not 
required, but applicants may be asked to provide an invitational letter 
to confirm the purpose of travel. These visas do not permit employment 
in the UAE. Visa applicants are now required to pay a 170 Dirham 
consular services fee when they apply.
4. Debt Management Policies
    The UAE Federal Government has no official or commercial foreign 
debt. Some individual emirates have foreign commercial debts, and there 
is private external debt. There are no reliable statistics on either, 
but the amounts involved are not large. The foreign assets of the Abu 
Dhabi and Dubai governments and their official agencies are believed to 
be significantly larger than the reserves of the central bank. It is 
conservatively estimated that assets of the Abu Dhabi Investment 
Authority (ADIA) total more than $125 billion.
5. Significant Barriers to U.S. Exports
    The UAE maintains non-tariff barriers to trade and investment in 
the form of restrictive agency, sponsorship, and distributorship 
requirements. In order to do business in the UAE outside of one of the 
free zones, a foreign business in most cases must have a UAE national 
sponsor, agent or distributor. Once chosen, sponsors, agents, or 
distributors have exclusive rights. They cannot be replaced without 
their agreement. Government tendering is not conducted according to 
generally accepted international standards. Re-tendering is the norm. 
To bid on federal projects, a supplier or contractor must be either a 
UAE national or a company in which at least 51 percent of the share 
capital is owned by UAE nationals. Federal tenders are required to be 
accompanied by a bid bond in the form of an unconditional bank 
guarantee for 5 percent of the value of the bid.
    Except for companies located in one of the free zones, at least 51 
percent of a business establishment must be owned by a UAE national. A 
business engaged in importing and distributing a product must be either 
a 100 percent UAE owned agency/distributorship or a 51 percent UAE/49 
percent foreign Limited Liability Company (LLC). Subsidies for 
manufacturing firms are only available to those with at least 51 
percent local ownership.
    The laws and regulations governing foreign investment in the UAE 
are evolving. There is no national treatment for investors in the UAE. 
Non-GCC nationals cannot own land or buy stocks, although limited 
participation by foreigners in some mutual funds is permitted. There 
have been no significant investment disputes over the past few years 
involving U.S. or other foreign investors. Claims resolution is 
generally not a problem, because foreign companies tend not to press 
claims, believing that to do so might jeopardize future business 
activity in the UAE.
6. Export Subsidies Policies
    The government does not employ subsidies to provide direct or 
indirect support for exports.
7. Protection of U.S. Intellectual Property
    The UAE is a member of the World Trade Organization (WTO) and 
should be in compliance with its obligations under the Trade Related 
Aspects of Intellectual Property (TRIPs) Agreement by January 1, 2000. 
The UAE is also a contracting party to the World Intellectual Property 
Organization (WIPO), and has signed the Paris Convention for the 
Protection of Industrial Property (patent, trademark and related 
industrial property). The UAE remains on USTR's ``Special 301'' Watch 
List because of deficiencies in protection of Intellectual Property 
Rights (IPR). In April 1999, the USTR cited inadequate protection of 
pharmaceutical patents as the primary reason for maintaining the UAE on 
the Watch List.
    In 1992 the UAE passed three laws pertaining to intellectual 
property: a Copyright Law, a Trademark Law, and a Patent Law. 
Enforcement efforts did not begin in earnest until 1994. As a result of 
these efforts, the UAE is largely clean of pirated sound recordings and 
films. While the government has also undertaken enforcement actions 
against local companies selling pirated computer software, U.S. 
industry remains concerned about reports of large-scale copying of 
business computer software by corporate end-users. Efforts to combat 
computer software and video piracy in the UAE have been successful; 
according to industry estimates, the rate of software piracy in 1998 
declined by 6 percentage points to 54 percent, a 10 percent decline 
compared to the previous year. The UAE is recognized as a regional 
leader in fighting computer software and video piracy.
    UAE patent law provides process, not product, patent protection for 
pharmaceutical products. The Ministry of Finance and Industry is 
currently in the process of amending the Patent Law; the amended 
version is expected to provide explicit product patent protection to 
pharmaceuticals, and should be in place before the WTO's 2000 deadline. 
A local pharmaceutical manufacturer continues to produce patent 
protected products. The Ministry of Information is currently amending 
the Copyright Law to bring it up to international standards.
    According to the International Intellectual Property Alliance, 
estimated 1998 losses to U.S. copyright-based industries were $22.4 
million in the UAE, a 19 percent decrease from the prior year.
8. Worker Rights
    a. The Right of Association: There are no unions and no strikes. 
The law does not grant workers the right to organize unions or to 
strike. Foreign workers, who make up the bulk of the work force, risk 
deportation if they attempt to organize unions or to strike. Since July 
1995, the UAE has been suspended from U.S. Overseas Private Investment 
Corporation programs because of the government's lack of compliance 
with internationally recognized worker rights standards.
    b. The Right to Organize and Bargain Collectively: The law does not 
grant workers the right to engage in collective bargaining, which is 
not practiced. Workers in the industrial and service sectors are 
normally employed under contracts that are subject to review by the 
Ministry of Labor and Social Affairs. The Ministry of Interior 
Naturalization and Immigration Administration is responsible for 
reviewing the contracts of domestic employees as part of residency 
permit processing. The purpose of the review is to ensure that the pay 
will satisfy the employee's basic needs and secure a means of living. 
For the resolution of work-related disputes, workers must rely on 
conciliation committees organized by the Ministry of Labor and Social 
Affairs or on special labor courts. Labor laws do not cover government 
employees, domestic servants, and agricultural workers. The latter two 
groups face considerable difficulty in obtaining assistance to resolve 
disputes with employers. While any worker may seek redress through the 
courts, this puts a heavy financial burden on those in lower income 
brackets. In Dubai's Jebel Ali Free Zone, the same labor laws apply as 
in the rest of the country.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is illegal and not practiced. However, some unscrupulous 
employment agents bring foreign workers to the UAE under conditions 
approaching indenture. The government prohibits forced and bonded child 
labor and enforces this prohibition effectively. In 1996, the UAE 
ratified the International Labor Organization's 1957 Abolition of 
Forced Labor Convention.
    d. Minimum Age for Employment of Children: Labor regulations 
prohibit employment of persons under age 15 and have special provisions 
for employing those aged 15 to 18. The Department of Labor enforces the 
regulations. Other regulations permit employers to engage only adult 
foreign workers. In 1996, the UAE ratified the International Labor 
Organization's 1973 Minimum Age Convention. In 1993, the government 
prohibited the employment of children under the age of 15 as camel 
jockeys and of jockeys who do not weigh more than 45 kilograms. The 
Camel Racing Association is responsible for enforcing these rules. 
Children under the age of 15 working as camel jockeys have still been 
observed. Several newspaper articles have appeared in 1999 detailing 
instances--some including abuse--of children as young as two years old 
being smuggled into the UAE to work as camel jockeys. The government 
prohibits forced and bonded child labor and enforces this prohibition 
effectively (see section 11c'' above). The government does not issue 
visas for foreign workers under the age of 16 years. Education is 
compulsory through the intermediate stage, approximately the age of 13 
or 14 years.
    e. Acceptable Conditions of Work: There is no legislated or 
administrative minimum wage. Supply and demand determine compensation. 
However, according to the Ministry of Labor and Social Affairs, there 
is an unofficial, unwritten minimum wage rate which would afford a 
worker and family a minimal standard of living. As noted above, the 
Ministry of Labor and Social Affairs reviews labor contracts and does 
not approve any contract that stipulates a clearly unacceptable wage.
    The standard workday and workweek are eight hours a day, six days 
per week, but these standards are not strictly enforced. Certain types 
of workers, notably domestic servants, may be obliged to work longer 
than the mandated standard hours. The law also provides for a minimum 
of 24 days per year of annual leave plus 10 national and religious 
holidays. In addition, manual workers are not required to do outdoor 
work when the temperature exceeds 112 degrees Fahrenheit. Most foreign 
workers receive either employer-provided housing or housing allowances, 
medical care, and homeward passage from their employers. Most foreign 
workers do not earn the minimum salary of $1,090 per month required to 
obtain residency permits for their families. Employers have the option 
to petition for a 6-month ban from the work force against any foreign 
employee who leaves his job without fulfilling the terms of his 
contract.
    The Ministry of Health, the Ministry of Labor and Social Affairs, 
municipalities and civil defense units enforce health and safety 
standards. The government requires every large industrial concern to 
employ a certified occupational safety officer. An injured worker is 
entitled to fair compensation. Health standards are not uniformly 
observed in the housing camps provided for foreign workers. Workers' 
jobs are not protected if they remove themselves from what they 
consider to be unsafe working conditions. However, the Ministry of 
Labor and Social Affairs may require employers to reinstate workers 
dismissed for not performing unsafe work. All workers have the right to 
lodge grievances with Ministry officials, who make an effort to 
investigate all complaints. However, the Ministry is understaffed and 
under-budgeted; complaints and compensation claims are backlogged.
    Rulings on complaints may be appealed within the Ministry and 
ultimately to the courts. However, many workers choose not to protest 
for fear of reprisals or deportation. The press periodically carries 
reports of abuses suffered by domestic servants, particularly women, at 
the hands of some employers. Allegations have included excessive work 
hours, nonpayment of wages, and verbal and physical abuse.
    f. Rights in Sectors with U.S. Investments: There is no difference 
in the application of the five worker rights discussed above between 
the sectors of the UAE economy in which U.S. capital is invested and 
other sectors of the economy. If anything, sectors containing 
significant U.S. investment, such as the petroleum sector, tend to have 
better working conditions, including higher safety standards, better 
pay, and better access to medical care.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  284
Total Manufacturing............  ..............  83
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  8               ...............................................................
  Primary & Fabricated Metals..  16              ...............................................................
  Industrial Machinery and       3               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  55              ...............................................................
Wholesale Trade................  ..............  122
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  137
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  710
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                               SOUTH ASIA

                              ----------                              


                               BANGLADESH

                         Key Economic Indicators
            [Millions of U.S. Dollars unless otherwise noted]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................     33,012     34,104     36,482
  Real GDP Growth (pct) \2\............        5.9        5.7        5.2
  GDP by Sector:
    Agriculture........................      9,618      9,770     10,927
    Manufacturing......................      3,049      3,275      3,262
    Services...........................     17,462     18,307     19,379
    Government.........................        N/A        N/A        N/A
  Per Capita GDP (US$).................        263        270        284
  Labor Force (000's)..................        N/A        N/A        N/A
  Unemployment Rate (pct)..............        N/A        N/A        N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............       10.8       10.1       13.1
  Consumer Price Inflation.............        2.6        7.0        9.0
  Exchange Rate (Taka/US$ annual
 average)
    Official...........................       42.8       45.4      47.95
    Parallel...........................        N/A        N/A        N/A

Balance of Payments and Trade:
  Total Exports FOB....................      4,406      5,161      5,313
    Exports to U.S.\3\.................      1.679      1,846        N/A
  Total Imports CIF....................      7,162      7,524      7,515
    Imports from U.S.\3\...............        259        318        N/A
  Trade Balance........................     -2,756     -2,363     -2,202
    Balance with U.S.\3\...............      1,420      1,528        N/A
  External Public Debt \4\.............     15,025     15,855     16,234
  Fiscal Deficit/GDP (pct).............        4.5        4.2        5.3
  Current Account Deficit/GDP (pct)....        2.4        3.6        4.2
  Debt Service Payments/GDP (pct)......        1.0        1.0        1.0
  Gold and Foreign Exchange Reserves...      1,719      1,751      1,522
  Aid from U.S.\5\.....................       73.6       77.0      153.0
  Aid from All Sources \6\.............      1,481      1,419      1,502
------------------------------------------------------------------------
\1\ The Bangladesh fiscal year is July 1 to June 30.
\2\ Percentage change calculated in local currency.
\3\ Figures are for the calendar year.
\4\ Medium and long-term.
\5\ Figures are for the U.S. fiscal year (October 1-September 30).
\6\ Disbursements.

1. General Policy Framework
    Bangladesh is one of the world's poorest, most densely populated, 
and least developed countries; its per capita income for fiscal year 
1999 (July 1, 1998 to June 30, 1999) is estimated at $285. A large 
proportion of its population of approximately 128 million is tied 
directly or indirectly to agriculture, which accounts for 30 percent of 
Gross Domestic Product (GDP) and about 70 percent of the labor force. 
Economic growth in fiscal year 1998-99 (FY 99) dropped one half a 
percentage point to 5.2 percent, primarily due to the disruptions cause 
by severe floods in 1998; nevertheless, it remained above the average 
annual growth rate of 4.0 to 4.5 percent over the last ten years. Even 
a 5-6 percent GDP growth rate, however, is inadequate to relieve the 
poverty faced by over half the population.
    GDP growth has been dampened over the years by a number of factors: 
low productivity growth in the agricultural sector, political and 
policy instability, poor infrastructure, corruption, and low domestic 
savings and investment. The state's presence in the economy continues 
to be large, and money-losing state enterprises have been a chronic 
drain on the treasury. Nonetheless, during the 1990's Bangladesh 
liberalized its economy, and the private sector assumed a more 
prominent role as the climate improved for free markets and trade. The 
Awami League government, which came to power in June 1996, has largely 
continued the market-based policies of its predecessor, the Bangladesh 
Nationalist Party, and made some regulatory and policy changes toward 
that end. However, implementation of new policy directives by the 
bureaucracy has been slow and uneven.
    Bangladesh suffered its worst flood in history during the summer 
and fall of 1998. The economic damage is difficult to estimate, but 
could have reached $1 billion. A large proportion of the winter rice 
crop could not be planted, which increased the food import bill 
dramatically despite the assistance of donor nations. The United States 
donated 700,000 metric tons of wheat. The World Bank and the 
International Monetary Fund (IMF) provided emergency balance of payment 
relief of about $320 million. For over two years, the IMF and 
Bangladesh have held inconclusive Enhanced Structural Adjustment 
Facility discussions, and an agreement is still not in sight. As of 
November 8, 1999, Bangladesh's foreign exchange reserves stood at about 
$1.6 billion, which is less than three months of import cover, but is 
considered normal for Bangladesh. These reserves have remained 
generally stable between $1.5 to $1.9 billion since November 1996.
    Inflation increased to nine percent in FY99, up from seven percent 
in FY98, reflecting flood-induced food price hikes in the first half of 
the fiscal year; in the second half of FY99, and into FY2000, inflation 
has continued to decline as good harvests have driven down food grain 
prices. Since Bangladesh has limited trade and investment links 
overseas, the economy was not greatly affected by either the Asian 
financial crisis, nor has it benefited much from the ongoing recovery 
in the Asian economies. However, to respond to a continuing 
overvaluation of the taka relative to its competitors, Bangladesh 
devalued its currency by three percent in FY99, and an additional 2.1 
percent to date in FY2000. Bangladesh's export performance, heavily 
concentrated in garments, slowed down to six percent growth in FY99, 
after several years of over 15 percent growth. Several factors, 
including flood-related supply disruptions, relative overvaluation of 
the taka, and some shift in U.S. apparel sourcing to Mexico, the 
Caribbean Basin, and southeast Asia contributed to this slowdown. The 
Bangladesh trade surplus with the U.S. continues to increase; it 
reached $1.5 billion in calendar year 1998.
    The FY99 government deficit increased to 5.3 percent in FY99 
compared to 4.2 percent in FY 98, largely due to the economic 
consequences of the floods in the summer of 1998. Revenue collections 
suffered due to both tax administration disruptions and a slowdown in 
economic activity during and after the floods. Tax revenues as a 
proportion of GDP fell to 7.3 percent in FY99, compared to 7.7 percent 
in FY98 and 7.6 percent in FY97. Government expenditures increased in 
response to the flood rehabilitation needs of the country, with 
expenditures as a proportion of GDP increasing to 14.3 percent in FY99 
from 13.9 percent in FY98. Although previous years' Annual Development 
Plan (ADP)--consisting largely of capital investment--typically fell 
short of target, ADP expenditures in FY99 actually exceeded the target 
as a result of increased flood-induced outlays. As in prior years, 
about 60 percent of the fiscal deficit was financed through external 
sources (e.g., aid) while domestic sources (e.g., government borrowing) 
accounted for about 40 percent.
    The government's primary monetary policy tools are the discount 
rate and the sale of Bangladesh Bank bills, though central bank 
influence over bank lending practices also plays an important role. 
Broad money growth (M2) increased to 13.1 percent in FY99 from 10.1 
percent in FY98, due largely to the government's increased borrowing 
needs in the wake of the 1998 floods. This increased government 
borrowing tended to crowd out private borrowing in the first half of 
FY99. Due to a continuing decline in inflationary pressures during 
1999, the central bank lowered its discount rate by one percentage 
point to seven percent in August 1999.
    Although the government has taken some liberal investment measures 
to foster private sector involvement in the energy, power, and 
telecommunications sectors, poor infrastructure (e.g., power shortages, 
port bottlenecks), bureaucratic inertia, corruption, labor militancy, a 
weak financial system which keeps the cost of capital high, political 
unrest, and a deteriorating law and order situation continued to 
discourage domestic and foreign investors in FY99.
2. Exchange Rate Policies
    At present, the central bank follows a semi-flexible exchange rate 
policy, revaluing the currency on the basis of the real effective 
exchange rate, taking account of the nominal exchange rates and 
inflation rates of major trading partners. A level of reserves equal to 
about 2.5 months of imports and a black market rate slightly above the 
official rate suggests that the currency is still somewhat overvalued. 
Foreign reserves have stabilized between $1.5 to 1.9 billion through 
1997-1999. Although this level is considered ``normal'' for Bangladesh, 
the country's foreign exchange position remains fragile. The taka 
remains under pressure, but its market value is bolstered by annual aid 
receipts and by remittances from overseas workers. The taka is nearly 
fully convertible on the current account. The official exchange rate on 
December 20, 1999 was Taka 51.0 to $1.
    Foreign firms are able to repatriate profits, dividends, royalty 
payments and technical fees without difficulty, provided appropriate 
documentation is presented to the Bangladesh Bank, the country's 
central bank. Outbound foreign investment by Bangladeshi nationals 
requires government approval and must support export activities. 
Bangladeshi travelers are limited by law to taking no more than $3,000 
out of the country per year. Dollars are bought and sold in the black 
market, fueled by the informal economy. U.S. exports do not appear to 
have been negatively affected by the taka devaluations in 1998 and 
1999.
3. Structural Policies
    In 1993, Bangladesh successfully completed a three-year ESAF 
program, meeting all the IMF fiscal and monetary targets. During the 
flood-induced economic crisis in 1998, Bangladesh signaled a 
willingness to enter into another ESAF program; however, as the 
Bangladeshi economy recovered smartly from the disruptions caused by 
the floods, Bangladesh's enthusiasm for a new ESAF program waned. 
Although there is little disagreement between the IMF and Bangladesh on 
the substance of the economic reforms that need to implemented (i.e., 
tax reform with better tax administration and a broadening of the tax 
base; financial sector reform with stronger oversight and supervision 
by the central bank, improvement in the operation of state-owned 
commercial banks, and improvement of loan portfolios; and, public 
sector reform with an acceleration in privatization of state-owned 
enterprises), negotiations have stalled.
    Bangladesh has managed to maintain a laudable measure of 
macroeconomic stability since 1993, but its macroeconomic position at 
the end of 1999 remains vulnerable, with slowing export growth, a 
stagnant industrial sector, inadequate infrastructure, a banking sector 
in need of comprehensive reforms, and an inefficient public sector that 
continues to drain the treasury. Progress on important economic reforms 
has been halting, though the government has instituted reforms of the 
capital market and taken some market-friendly decisions to encourage 
foreign investment. Overall, however, efforts at reform often are 
successfully opposed by vested interest groups, such as the 
bureaucracy, public sector labor unions or highly protected domestic 
producers. The public sector still exercises a dominant influence on 
industry and the economy; non-financial state-owned enterprises (SOEs) 
lost an estimated $281 million in FY99. Most public sector industries, 
including textiles, jute processing, and sugar refining, are chronic 
money losers. Their militant unions have succeeded in setting 
relatively high wages which their private sector counterparts often 
feel compelled to meet out of fear of union action.
    Private sector productivity is further stunted by the state's poor 
management of crucial infrastructure (power, railroads, ports, 
telecommunications, and the national airline), most of which are 
government monopolies. Recognizing this shortcoming, and in order to 
increase foreign investment in the power sector, the government 
formalized in October 1996 its private power policy, which grants tax 
holidays and duty-free imports of plant and equipment for private 
sector power producers. As of November 1999, the government was 
purchasing power from three international power producers, and was 
negotiating or had signed contracts with others. Private investment is 
also allowed in the telecommunications sector for cellular 
communications, and in the hydrocarbons sectors, where international 
companies initially expressed a high level of interest in a second 
round of bidding for remaining exploration rights. The difficulties and 
the high cost of doing business in Bangladesh, combined with weakness 
in the world oil market, have forced some companies to reconsider or 
limit their exposure in Bangladesh. Two international companies now 
deliver natural gas to the government, contributing 15-20 percent of 
daily supply. The government practically gave up trying to attract 
foreign portfolio investment in domestic capital markets after a stock 
market crash in late 1996 and turbulence in other financial markets 
around the world in 1997 and 1998. Long an easy source of funds for 
loss-making government corporations and preferred private sector 
borrowers who did not feel obliged to repay loans, the dysfunctional 
banking sector continues to be the subject of reform programs. The 
banking sector is dominated by four large nationalized commercial 
banks. However, entry of foreign and domestic private banks has been 
permitted; numerous new private domestic and foreign banks have 
established a foothold in the market since 1996.
4. Debt Management Policies
    Assessed on the basis of disbursed outstanding principal, 
Bangladesh's external public debt was $16.2 billion in FY99, up 
slightly from 15.9 billion in FY98. Because virtually all of the debt 
was provided on highly concessional terms by bilateral and multilateral 
donors (i.e. one or two percent interest, 30-year maturity, 20-year 
grace period), the net present value of the total outstanding debt is 
significantly lower than its face value. The external debt burden has 
eased during the 1990's with the external public debt as a percentage 
of GDP falling steadily from 45.8 percent in FY94 to 36.5 percent in 
FY98. Debt service as a percentage of current receipts has also 
declined, from 20 percent in FY91 to an estimated 8 percent in FY98. 
Bangladesh maintains good relationships with the World Bank, Asian 
Development Bank, the International Monetary Fund and the donor 
community. There has been no rescheduling of the external debt during 
FY99. Bangladesh has never defaulted on its external public debt, 
except in one instance where it deliberately missed a payment to make 
its point in a commercial dispute involving a loss-making fertilizer 
factory in which the Bangladesh government was the guarantor of the 
factory's debts.
5. Aid
    No military aid is included in the figures in the tables.
6. Significant Barriers to U.S. Exports
    Since 1991, the Government has made significant progress in 
liberalizing what had been one of the most restrictive trade regimes in 
Asia. Even so, Bangladesh continues to raise a relatively high share of 
its government revenues--nearly 60 percent--from import-based taxes, 
custom duties, VAT and supplementary duties on imports. Tariff reform, 
which began in 1994, has continued to date. The FY 2000 budget 
accelerated Bangladesh's efforts to shift from a tariff-based revenue 
system to an income-based one. Some of the more significant FY2000 
changes to the tariff regime included: reduction in customs duty 
brackets from five to four, lowering of the top duty rate from 40 
percent to 37.5 percent, and a unification of duty rates for different 
products within the broad HS code or product category, and a targeted 
reduction of duties to benefit certain sectors. The budget reduces the 
average tariff for capital goods from 12.6 percent in FY 99 to 8.9 
percent in FY2000, for intermediate goods from 19.1 percent to 15.5 
percent, and for consumer goods from 31.8 percent to 29.2 percent. 
Other reforms announced in the FY2000 budget include broadening 
coverage of the value added tax (VAT); measures designed to increase 
transparency, reduce corruption, and limit the discretion of the 
bureaucracy in adjudicating tax/tariff cases; introduction of a 
mandatory pre-shipment inspection (PSI) system of customs valuation, 
and; reduction in the number of personal income tax brackets and 
simplification of tax administration procedures.
    Bangladesh, a founding member of the World Trade Organization 
(WTO), is subject to all the disciplines of the WTO. Some barriers to 
U.S. exports or direct investment exist. Policy instability, when 
policies are altered at the behest of special interests, creates 
difficulties for foreign companies. A government monopoly controls 
basic services and long-distance service in the telecommunications 
market, although the government has allowed private companies to enter 
the wireless communication market. Nontariff barriers also exist in the 
pharmaceutical sector, where manufacturing and import controls imposed 
by the national drug policy and the Drugs (Control) Ordinance of 1982 
discriminate against foreign drug companies. Bangladesh is not a 
signatory to the WTO plurilateral agreements on government procurement 
or civil aircraft. Government procurement generally takes place through 
a tendering process, which is not always transparent. Customs 
procedures are lengthy and burdensome, and sometimes complicated by 
corruption. Introduction of the PSI system of customs valuation is 
expected to simplify customs procedures, make valuation less arbitrary, 
and reduce corruption.
    Other drawbacks to investment in Bangladesh include low labor 
productivity, poor infrastructure, excessive regulations, a slow and 
risk-averse bureaucracy, and uncertain law and order. The lack of 
effective commercial laws makes enforcement of business contracts 
difficult. Officially, private industrial investment, whether domestic 
or foreign, is fully deregulated, and the government has significantly 
streamlined the investment registration process. Although the 
government has simplified the registration processes for investors, 
domestic and foreign investors typically must obtain a series of 
approvals from various government agencies to implement their projects. 
Bureaucratic red tape, compounded by corruption, slows and distorts 
decision-making and procurement. Existing export processing zones have 
successfully facilitated investment and export growth, but are too 
small to alter significantly the overall investment picture in the 
country.
    Three years ago, the U.S. investment stock in Bangladesh was very 
small, totaling around $25 million, primarily in the assets of service 
companies and a few manufacturing operations. As work began in late 
1997 and 1998 based on agreements between the government and U.S. 
companies in gas exploration and production, lubricants and energy 
production, the amount of U.S. investment rose significantly, to about 
$700 million. Other opportunities for significant investment in gas 
exploration and production, power generation and private port 
construction/operation could further swell U.S. investment and trade.
7. Export Subsidies Policies
    The government encourages export growth through measures such as 
duty-free status for some imported inputs, including capital machinery 
and cotton, and easy access to financing for exporters. Ready-made 
garment producers are assisted by bonded warehousing and back-to-back 
letter of credit facilities for imported cloth and accessories. The 
central bank offers a 25 percent rebate to domestic manufacturers of 
fabric for ready-made garment exports. Exporters are allowed to 
exchange 100 percent of their foreign currency earnings through any 
authorized dealer. Government-financed interest rate subsidies to 
exporters have been reduced in stages over five years. Bangladesh has 
established Export Processing Zones (EPZs) in Chittagong and Dhaka, and 
has plans to open four more. Korean investors are undertaking to build 
and operate a private EPZ in Chittagong.
8. Protection of U.S. Intellectual Property
    Bangladesh is a signatory of the Uruguay Round agreements, 
including the WTO's Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPS), and is obligated to bring its laws and 
enforcement efforts into TRIPS compliance by January 1, 2006. 
Bangladesh has also been a member of the World Intellectual Property 
Organization (WIPO) in Geneva since 1985.Bangladesh has never been 
cited in the U.S. Trade Representative's ``Special 301'' Watch List, 
which identifies countries that deny adequate and effective protection 
for intellectual property rights or deny fair and equitable market 
access for persons that rely on intellectual property protection. Even 
though Bangladesh has not been placed on the ``Special 301'' Watch 
List, it has outdated Intellectual Property Rights (IPR) laws, an 
unwieldy system of registering intellectual property rights, and a weak 
enforcement mechanism. Intellectual property infringement is common, 
particularly of computer software, motion pictures, pharmaceutical 
products and audio and video cassettes. Despite the difficulties, U.S. 
firms have successfully pursued their IPR rights in Bangladeshi courts. 
A draft new Copyright Law to update Bangladesh's copyright system and 
bring it in compliance with TRIPS is before the cabinet for approval; 
the government expects to enact new legislation in the year 2000 to 
update its laws concerning trademarks, patents and industrial design.
9. Worker Rights
    a. The Right of Association: Bangladesh's Constitution guarantees 
freedom of association, the right to join unions, and, with government 
approval, the right to form a union.
    With the exception of workers in the railway, postal, telegraph, 
and telephone sectors, government civil servants are forbidden to join 
unions. However, some workers covered by this ban have formed 
unregistered unions. The ban also applies to security-related 
government employees, such as in the military and police. Civil 
servants forbidden to join unions, such as teachers and nurses, have 
joined associations that perform functions similar to labor unions.
    b. The Right to Organize and Bargain Collectively: Many unions in 
Bangladesh are highly politicized. Virtually all the National Trade 
Union centers are affiliated with political parties, including one with 
the ruling party. Pitched battles between members of rival labor unions 
occur regularly. Some unions are militant and allegedly engage in 
intimidation and vandalism. Unions do use their rights to call labor 
strikes.
    The Essential Services Ordinance permits the government to bar 
strikes for three months in any sector deemed ``essential.'' Mechanisms 
for conciliation, arbitration and labor court dispute resolution were 
established under the Industrial Relations Ordinance of 1969. There 
have been numerous complaints of garment workers being harassed and 
fired in some factories for trying to organize workers. Workers in 
Bangladesh's EPZs are prohibited from forming unions, and the 
government has not fulfilled promises that restrictions on freedom of 
association and formation of unions in the EPZs would be lifted in 
stages between 1995 and 2000. The AFL-CIO has petitioned the U.S. Trade 
Representative to revoke General System of Preference benefits for 
Bangladesh for its failure to keep its commitment to restore full labor 
rights in the EPZs.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor. The Factories Act and the Shops 
and Establishments Act, both passed in 1965, set up inspection 
mechanisms to guard against forced labor, but resources for enforcement 
are scarce. There is no evidence of forced labor, though conditions for 
some domestic servants resemble servitude, and some trafficked women 
and children work as prostitutes.
    d. Minimum Age for Employment of Children: Bangladesh has laws that 
prohibit labor by children. The Factories Act bars children under the 
age of 14 from working in factories. In reality, enforcement of these 
rules is inadequate. According to United Nations estimates, about one 
third of Bangladesh's population under the age of 18 is working. In a 
society as poor as Bangladesh's, the extra income obtained by children, 
however meager, is sought by many families. In July 1995, Bangladesh 
garment exporters signed a memorandum of understanding that has 
virtually eliminated child labor in the garment export sector. Under 
the MOU, schools and a stipend program were established for displaced 
child workers. A monitoring system managed by the ILO enforces the MOU. 
As a result of the MOU, child labor has been virtually eliminated from 
the garment export sector.
    e. Acceptable Conditions of Work: Regulations regarding minimum 
wages, hours of work, and occupational safety and health are not 
strictly enforced. The legal minimum wage varies depending on 
occupation and industry. It is generally not enforced. The law sets a 
standard 48-hour workweek with one mandated day off. A 60-hour 
workweek, inclusive of a maximum 12 hours of overtime, is allowed. 
Relative to the average standard of living in Bangladesh, the average 
monthly wage could be described as sufficient for minimal, basic needs. 
The Factories Act of 1965 nominally sets occupational health and safety 
standards. The law is comprehensive, but is largely ignored by many 
Bangladeshi employers.
    f. Rights in Sectors with U.S. Investment: There are few 
manufacturing firms with U.S. investment. As far as can be determined, 
firms with U.S. capital investment abide by the labor laws. Similarly, 
these firms respect the minimum age for the employment of children. 
According to both the government and representatives of the firms, 
workers in firms with U.S. capital investment generally earn a much 
higher salary than the minimum wage set for each specific industry, and 
enjoy better working conditions.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  0
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  0               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  -4
Services.......................  ..............  0
Other Industries...............  ..............  -2
TOTAL ALL INDUSTRIES...........  ..............  172
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 INDIA


                         Key Economic Indicators
            [Billions of U.S. Dollars unless otherwise noted]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     383.0     412.0     430.0
  Real GDP Growth (pct) \3\...............       5.1         6      -6.5
  GDP by Sector (pct estimated):
    Agriculture...........................      27.5      26.7      26.0
    Manufacturing.........................      23.9      25.3      24.5
    Services..............................      48.6      48.0      49.5
    Government............................       N/A       N/A       N/A
  Per Capita GDP (US$)....................     396.0     418.0     440.0
  Labor Force (millions)..................     396.0     410.0     420.0
  Unemployment Rate (pct).................      22.5      22.5      22.5

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3)................      18.0      18.4      18.0
  Consumer Price Inflation................       6.8      13.1       7.0
  Exchange Rate (Rupee/US$ annual average)
    Official..............................     37.12     42.08      43.5
    Parallel..............................     37.16     42.10      43.6

Balance of Payments and Trade:
  Total Exports FOB \4\...................      35.0      33.7      36.0
    Exports to U.S.\5\....................       6.7       7.0       8.0
  Total Imports CIF \4\...................      41.5      41.8      46.3
    Imports from U.S.\5\..................       3.6       3.5       3.6
  Trade Balance \4\.......................      -6.5      -8.1     -10.3
    Balance with U.S.\5\..................       3.1       3.5       4.4
  Current Account Deficit/GDP (pct).......       1.7       1.5       2.0
  External Public Debt \6\................      94.3      98.2      99.0
  Debt Service Payments/GDP (pct).........       2.7       2.5       2.2
  Fiscal Deficit/GDP (pct)................       5.7       6.3       5.5
  Gold and Foreign Exchange Reserves......      29.5      32.0      33.0
  Aid from U.S. (US$ million).............     121.8     156.0     129.0
  Aid from Other Countries................   3.2d2.7       N/A
------------------------------------------------------------------------
\1\ Data are for Indian fiscal year (April 1 to March 31) unless
  otherwise noted. 1999 figures are all embassy estimates based on data
  available in October 1999.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Source: U.S. Department of Commerce and ITC; calendar year, exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through October 1999.
\6\ Includes rupee debt of $10 billion to the former USSR.

Sources: Indian Government economic survey, Indian Government budgets,
  Reserve Bank of India bulletins, World Bank, USAID, and private
  research agencies.

1. General Policy Framework
    Economic reforms since 1991 have helped India achieve a large 
measure of macroeconomic stability and a moderate degree of 
liberalization of its trade, investment and financial sectors. These 
reforms boosted annual economic growth to around seven percent in the 
1994-1997 period. In Indian Fiscal Year (IFY) 1997-98, growth slowed to 
5.1 percent in the wake of the Asian financial crisis but increased to 
6 percent in IFY 1998-99. For IFY 1999-2000, the U.S. Embassy projects 
GDP growth of about 6 to 6.5 percent and industrial growth of about 6 
percent. The U.S. continues to be the largest investor in India and its 
biggest trading partner. The Indian economy has the potential to 
perform well, and the long-term prospects remain encouraging. There are 
continuing concerns, though, about inadequate infrastructure and 
chronic large budget deficits. The central government deficit has 
hovered around 5.5 to 6.5 percent of GDP with the consolidated public 
sector deficit (including states) remaining at a level of 9-10 percent 
of GDP.
    During the first six months of FY 1999-2000, money supply (M3) rose 
by an estimated 18 percent. The Reserve Bank of India (RBI) target for 
M3 growth is 15 to 15.5 percent for the year. Credit policies for 1999-
2000 announced in April and October 1999 have been aimed at 
accelerating industrial investment and output, and reducing interest 
rates while improving credit availability to business. Inflation has 
dropped considerably. Government and private forecasters now predict an 
average inflation rate (as measured by the Consumer Price Index) of 7 
percent during FY 1999-2000, following inflation of 13 percent in the 
previous year.
2. Exchange Rate Policy
    India has used exchange rate policy to improve its export 
competitiveness. On March 1, 1993, the exchange rate was unified and 
the rupee was made fully convertible on the trade account. On August 
20, 1994, the rupee was made fully convertible on the current account. 
Controls remain on capital account transactions, with the exception of 
Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs), 
but their gradual removal is expected as foreign exchange reserves grow 
and India makes progress in merging its capital markets with 
international financial markets. In June 1997, the Tarapore Committee 
on Capital Account Convertibility recommended a three year (1998-2000) 
period for complete capital account convertibility of the rupee. The 
government has stated however, that India is in no hurry to complete 
full convertibility, especially given the recent crisis in East Asian 
economies and the need to strengthen the banking sector further.
    The RBI intervenes in the foreign exchange market to maintain a 
stable rupee. The rupee is tied to a basket of currencies with the U.S. 
Dollar playing a predominant role. In IFY 1998-99, the exchange rate 
moved in the range of rupees 42.00-42.70 per dollar. From April to 
September 1999, the rupee depreciated by about 2 percent and is 
currently trading in the range of 43.2-43.50 per dollar. India was 
shielded from the East Asian currency crisis due to a staged approach 
to liberalization and its relatively low degree of exposure to global 
markets. In addition, India's short term foreign borrowing is low and 
Indian banks and financial institutions have very little exposure to 
the real estate sector.
3. Structural Policies
    Pricing Policies: Central and state governments still regulate the 
prices of many essential products, including food-grains, sugar, edible 
oils, basic medicines, energy, fertilizers, water, and many industrial 
inputs. Agricultural commodity procurement prices have risen 
substantially during the past seven years, while prices for nitrogenous 
fertilizer, rural electricity and irrigation are subsidized. Acute 
power shortages are forcing several states to arrest the financial 
decline of state electricity boards by moving to market pricing. The 
federal government has also begun to scrutinize more carefully the cost 
of its subsidies. The government in 1997 announced a plan to reduce 
subsidy rates on food, and fertilizers from the existing 90 percent to 
25 percent over the next five years. In September 1997, the government 
increased the prices of several petroleum products and committed to 
dismantling the Administered Price Mechanism for petroleum products 
over the next two years. However, progress has been slow.
    Many basic food products are under a dual pricing system: some 
output is supplied at fixed prices through government distribution 
outlets (``fair price shops''), with the remainder sold by producers on 
the free market. Prices in government outlets usually are regulated 
according to a cost-plus formula; some formulas have not been adjusted 
in more than a decade. Regulation of basic drug prices has been a 
particular problem for U.S. pharmaceutical firms operating in India, 
although changes in national drug policy have sharply reduced the 
number of price-controlled formulations from 142 in 1994 to 72 at 
present.
    Tax Policies: Public finances remain highly dependent on indirect 
taxes, particularly import tariffs. Between 1991 and 1998, indirect 
taxes accounted for about 70 percent of central government tax revenue. 
India's direct tax base is very narrow, with only 20 million taxpayers 
out of a total population of about one billion. Marginal corporate 
rates are high by international standards, although the FY 1996-97 
budget lowered the corporate income tax rate for foreign companies from 
55 percent to 48 percent. Tax evasion is widespread, and the government 
has stated that future rate cuts will depend on the success of efforts 
to improve tax compliance. Over the last seven years the government has 
been streamlining the nation's tax regime along the lines recommended 
by a government-appointed committee: increasing the revenue share from 
direct taxes; introducing a Value-Added Tax (VAT); and replacing 
India's complex tax code with one that is simple and transparent. The 
government also provides tax incentives for specific sectors, such as a 
10-year tax holiday for infrastructure projects.
    Regulatory Policies: The ``new industrial policy'' announced in 
July 1991 considerably relaxed government's regulatory hold on 
investment and production decisions. Under the new policies, industrial 
licenses are only required for 6 areas, defined as strategic. Some 
restrictions remain for manufacturing in certain sectors reserved for 
the public sector or small-scale industry. Additionally, the government 
announced in 1994 and 1995 liberal policies for the pharmaceutical and 
telecommunications industries. Most plant location strictures have been 
removed. Nevertheless, Indian industry remains highly regulated by a 
powerful bureaucracy armed with excessive rules and broad discretion. 
Government approval of foreign business investment projects often takes 
three to five years. As economic reforms take root at the federal 
level, the focus of liberalization is gradually shifting to state 
governments, which, under India's federal system of government, enjoy 
broad regulatory powers. The speed and quality of regulatory decisions 
governing important issues such as zoning, land-use and environment can 
vary dramatically from one state to another. Political opposition has 
slowed or halted important regulatory reforms governing areas like 
labor, bankruptcy, and company law that would enhance the efficiency of 
domestic and foreign investment.
4. Debt Management Policies
    External Debt Management: India's reliance during the 1980's on 
debt-financed deficit spending to boost economic growth meant that 
commercial debt and Non-Resident Indian (NRI) deposits provided a 
growing share of the financing for India's mounting trade deficit. The 
result was a hefty increase in external debt, compounded by rising real 
interest rates and a declining term structure that reflected India's 
falling creditworthiness. Total external debt rose from $20 billion in 
FY 1980-81 to about $84 billion in FY 1990-91. Fueled by rising debt 
service payments, foreign exchange reserves fell to $1.1 billion 
(excluding gold and SDRs) during the FY 1990-91 balance of payments 
crisis, the equivalent of only two weeks of imports. By October 1999, 
India's reform program had succeeded in boosting reserves to $33 
billion (excluding gold and SDRs).
    External Debt Structure: India's total external debt reached $98.2 
billion by March 1999. Debt service payments were estimated at $ 4.3 
billion in 1998-99. Roughly two-thirds of the country's foreign 
currency debt is composed of multilateral and bilateral debt, much of 
it on highly-concessional terms. The share of concessional debt in 
total debt is about 42 percent. The addition of new debt has slowed 
substantially, as the government has maintained a tight rein on foreign 
commercial borrowing and defense-related debt and has encouraged 
foreign equity investment rather than debt financing. As a result, the 
ratio of total external debt to GDP fell from 39.8 percent in FY 1992-
93 to 23.5 percent in FY 1998-99.
    Relationship with Creditors: India has an excellent debt servicing 
record. However, Standard and Poor's (S&P) in October 1998 downgraded 
India's foreign currency debt from BB+ to BB, one notch below the 
highest speculative grade. On the other hand, S&P at the same time 
upgraded its outlook on India from negative to stable. In October 1999, 
Moody's upgraded India's foreign currency rating outlook from stable to 
positive while maintaining an unchanged speculative grade rating of 
Ba2. Citing its growing foreign exchange reserves and ample food 
stocks, India chose not to negotiate an extended financing facility 
with the IMF when its standby arrangement expired in May 1993.
5. Significant Barriers to U.S. Exports
    Import Licensing: U.S. exports have benefited from significant 
reductions in India's import-licensing requirements. Since 1992, the 
government has eliminated the licensing system for imports of 
intermediates and capital goods, and has steadily reduced the import-
weighted tariff from 87 percent to 23 percent at present. U.S. exports 
to India increased from $2.0 billion in 1991 to $3.6 billion in 1998-
99. India currently maintains import restrictions (QRs) on more than 
1,400 tariff line items justified by India on balance of payments (BOP) 
grounds. For this reason, the U.S. requested the establishment of a 
World Trade Organization (WTO) dispute settlement panel in November 
1997 to resolve the issue. The panel's final report issued in April 
1999 ruled against India's claims that its BOP situation justified 
import restrictions. In August 1999, the WTO Appellate Body rejected 
India's appeal and confirmed the panel's ruling. India and the U.S. are 
currently working out an agreement regarding the phase-out period for 
QRs.
    Some commodity imports must be channeled (``canalized'') through 
public enterprises, although many ``canalized'' items are now 
decontrolled. The main canalized items currently are petroleum 
products, bulk agricultural products such as grains and vegetable oils, 
and some pharmaceutical products. U.S. exporters face a negative list 
of items which cannot be imported, affecting roughly one-fourth of all 
tariff lines, and tariff protection that is still very high by 
international standards. Import licenses are still required for 
pesticides and insecticides, fruits, vegetables and processed consumer 
food products, breeding stock, most pharmaceuticals and chemicals, and 
products reserved in India for small-scale industry. This licensing 
requirement serves in many cases as an effective ban on importation. 
The new Export Import Policy effective April 1, 1999, allowed import of 
several additional consumer products.
    Services Barriers: The government runs many major service 
industries either partially or entirely, but private sector 
participants are increasingly being allowed to compete in the market. 
Entry of foreign banks remains highly regulated, but approval has so 
far been granted for the operation of 25 new foreign banks or bank 
branches since June 1993, when the RBI issued guidelines under which 
new private banks may be established. Furthermore, financial 
authorities have permitted sweeping changes in non-bank financial 
services since then. India does not allow foreign nationals to practice 
law in its courts, but some foreign law firms maintain liaison offices 
in India. The government is now reviewing its monopoly on life and 
general insurance with a view to future liberalization and reform of 
the industry. Foreign and domestic joint ventures participate in 
telecommunications, advertising, accounting, and a wide range of 
consultancy services. There is a growing awareness of India's potential 
as a major services exporter and increasing demand for a more open 
services market.
    Standards, Testing, Labeling and Certification: Indian standards 
generally follow international norms and do not constitute a 
significant barrier to trade. However, India's food safety laws are 
often outdated or more stringent than international norms. Where 
differences exist, India is seeking to harmonize national standards 
with international norms. No distinctions are made between imported and 
domestic goods, except in the case of some bulk grains.
    Investment Barriers: The industrial policy introduced in July 1991 
achieved a dramatic overhaul of regulations restricting foreign 
investment. The requirement for government approval for equity 
investments of up to 51 percent in 48 industries covering the bulk of 
manufacturing activities has been entirely eliminated, although the 
government reserves the right to deny requests for increased equity 
stakes. Automatic approval up to 74 percent of FDI is permissible in 
eight categories including mining, storage, warehousing, and transport. 
In addition 100 percent of FDI is automatically approved in two 
sectors--electricity generation and transmission, and construction/
maintenance of roads. However, government approval of foreign 
infrastructure projects is frequently stalled for lengthy periods of 
time.
    Most sectors of the Indian economy are now open to foreign 
investors, except those that raise security concerns such as defense, 
railways and atomic energy. The U.S. and India have not negotiated a 
Bilateral Investment Treaty, although an agreement covering the 
operations of the Overseas Private Investment Corporation (OPIC) was 
updated in 1997. OPIC operations resumed in December 1998, following 
the partial lifting of sanctions imposed on India after its nuclear 
tests in May 1998. In 1994, India became a member of the Multilateral 
Investment Guarantee Agency (MIGA), an agency of the World Bank. The 
Indian Government ratified the Uruguay Round GATT agreement on January 
1, 1995 and is a member of the WTO.
    Government Procurement Practices: Indian Government procurement 
practices are not transparent and occasionally discriminate against 
foreign suppliers, but they are improving under the influence of fiscal 
stringency. Price and quality preferences for local suppliers were 
largely abolished in June 1992. Recipients of preferential treatment 
are now concentrated in the small-scale industrial and handicrafts 
sectors, which represent a very small share of total government 
procurement. Defense procurement through agents is not permitted, 
forcing U.S. firms to maintain resident representation. When foreign 
financing is involved, procurement agencies generally comply with 
multilateral development bank requirements for international tenders.
    Customs Procedures: Liberalization of India's trade regime has 
reduced tariff and non-tariff barriers, but it has not eased some of 
the worst aspects of customs procedures. Documentation requirements, 
including ex-factory bills of sale, are extensive and delays frequent. 
In 1996, the government switched to the harmonized system of commodity 
classification, removing ambiguities and providing more transparency to 
its export-import policy.
6. Export Subsidies Policies
    The 1991 budget phased out most direct export subsidies, but a 
tangle of indirect subsidies remains. Export promotion measures include 
exemptions or concessional tariffs on raw materials and capital inputs, 
and access to Special Import Licenses (SIL) for restricted inputs. 
Concessional income tax provisions apply to exports (export earnings 
are tax-exempt). Commercial banks provide export financing on 
concessional terms.
7. Protection of U.S. Intellectual Property
    India is a signatory of the GATT Uruguay Round and World Trade 
Organization (WTO) agreements, including the Agreement on Trade-Related 
Aspects of Intellectual Property Rights (TRIPS), and is obligated to 
bring its laws and enforcement efforts into TRIPS compliance by January 
1, 2000. The government has announced its intention to take full 
advantage of the 2005 transition period permitted to developing 
countries under TRIPS before implementing full patent protection. India 
is a member of the Berne Convention for the Protection of Literary and 
Artistic Works, and in August 1998, it became a member of the Paris 
Convention and the Patent Cooperation Treaty.
    In April 1998, the U.S. and India reached an agreement to resolve a 
long-running dispute over India's failure to implement its WTO TRIPs 
mailbox requirements for the filing of pharmaceutical and agricultural 
chemical product patent applications, and failure to implement a system 
for the granting of exclusive marketing rights. In April 1999, the 
Indian Parliament passed a patent bill establishing a ``mailbox'' 
system and allowing exclusive marketing rights, putting India in 
compliance with its TRIPS obligations.
    Over the past decade, USTR has targeted India as a Priority Foreign 
Country in the ``Special 301'' process, and despite some improvements, 
India is still included in the ``Special 301'' Priority Watch List. 
Based on past practices, India was identified in April 1991 as a 
``Priority Foreign Country'' under the ``Special 301'' provision of the 
1988 Trade Act, and a Section 301 investigation was initiated on May 
26, 1991. In February 1992, following a nine-month Special 301 
investigation, the USTR determined that India's denial of adequate and 
effective intellectual property protection was unreasonable and burdens 
or restricts U.S. commerce, especially in the area of patent 
protection. As a result, in April 1992, the President suspended duty-
free privileges under the Generalized System of Preferences (GSP) for 
$60 million in trade from India. In June 1992, additional GSP benefits 
were withdrawn, increasing the trade for which GSP is suspended to 
approximately $80 million.
    India's patent protection is weak and has especially adverse 
effects on U.S. pharmaceutical and chemical firms. Estimated annual 
losses to the pharmaceutical industry due to piracy are $450 million. 
India's Patent Act prohibits patents for any invention intended for use 
or capable of being used as a food, medicine, or drug or relating to 
substances prepared or produced by chemical processes. Many U.S.-
invented drugs are widely reproduced since product patent protection is 
not available. Processes for making drugs are patentable, but the 
patent term is limited to the shorter of five years from the grant of 
patent or seven years from the filing date of the patent application. 
Product patents in other areas are granted for 14 years from the date 
of filing.
    India continues to have high piracy rates for all types of 
copyrighted works. Strong criminal penalties are available on paper, 
and the classification of copyright infringements as ``cognizable 
offenses'' theoretically expands police search and seizure authority. 
However, the severe backlogs in the court system and excessive 
procedural requirements result in very few cases being brought to 
conclusion.
    Trademark protection is considered good, and will be raised to 
international standards with the passage of a new Trademark Bill that 
codifies existing court decisions on the use and protection of foreign 
trademarks, including service marks. The bill was first introduced in 
1995 but failed to win parliamentary approval. Passage of the bill is 
expected in 2000. Enforcement of trademark owner rights has been 
indifferent in the past, but is steadily improving as the courts and 
police respond to domestic concerns about the high cost of piracy to 
Indian rights' holders.
8. Worker Rights
    a. The Right of Association: India's Constitution gives workers the 
right of association. Workers may form and join trade unions of their 
choice; work actions are protected by law. Unions represent roughly 2 
percent of the total workforce, and about 25 percent of industrial and 
service workers in the organized sector.
    b. The Right to Organize and Bargain Collectively: Indian law 
recognizes the right to organize and bargain collectively. Procedural 
mechanisms exist to adjudicate labor disputes that cannot be resolved 
through collective bargaining. State and local authorities occasionally 
use their power to declare strikes ``illegal'' and force adjudication.
    c. Prohibition of Forced or Compulsory Labor: Forced labor is 
prohibited by the constitution; a 1976 law specifically prohibits the 
formerly common practice of ``bonded labor.'' Despite implementation of 
the 1976 law, bonded labor continues in many rural areas. Efforts to 
eradicate the practice are complicated by extreme poverty and 
jurisdictional disputes between the central and state governments; 
legislation is a central government function, while enforcement is the 
responsibility of the states.
    d. Minimum Age for Employment of Children: Poor social and economic 
conditions and lack of compulsory education make child labor a major 
problem in India. The government's 1991 census estimated that 11.3 
million Indian children from ages 5 to 15 are working. Non-governmental 
organizations estimate that there may be more than 55 million child 
laborers. A 1986 law bans employment of children under age 14 in 
hazardous occupations and strictly regulates child employment in other 
fields. Nevertheless, hundreds of thousands of children are employed in 
the glass, pottery, carpet and fireworks industries, among others. 
Resource constraints and the sheer magnitude of the problem limit 
ability to enforce child-labor legislation.
    e. Acceptable Conditions of Work: India has a maximum eight-hour 
workday and 48-hour workweek. This maximum is generally, observed by 
employers in the formal sector. Occupational safety and health measures 
vary widely from state to state and among industries, as does the 
minimum wage.
    f. Rights in Sectors with U.S. Investment: U.S. investment exists 
largely in manufacturing and service sectors where organized labor is 
predominant and working conditions are well above the average for 
India. U.S. investors generally offer better than prevailing wages, 
benefits and work conditions. Intense government and press scrutiny of 
all foreign activities ensures that any violation of acceptable 
standards under the five worker-rights criteria mentioned above would 
receive immediate attention.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  190
Total Manufacturing............  ..............  256
  Food & Kindred Products......  -40             ...............................................................
  Chemicals & Allied Products..  128             ...............................................................
  Primary & Fabricated Metals..  -110            ...............................................................
  Industrial Machinery and       227             ...............................................................
   Equipment.
  Electric & Electronic          78              ...............................................................
   Equipment.
  Transportation Equipment.....  -61             ...............................................................
  Other Manufacturing..........  35              ...............................................................
Wholesale Trade................  ..............  54
Banking........................  ..............  500
Finance/Insurance/Real Estate..  ..............  356
Services.......................  ..............  40
Other Industries...............  ..............  83
TOTAL ALL INDUSTRIES...........  ..............  1,480
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                PAKISTAN


                         Key Economic Indicators
            [Billions of U.S. Dollars unless otherwise noted]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................      63.2      63.3      60.3
  Real GDP Growth (pct)...................       1.9       4.3       3.1
  GDP by sector (pct):
    Agriculture...........................      25.3      25.2      24.5
    Manufacturing.........................      17.7      18.3      18.6
    Services..............................       8.5       9.7       8.9
    Government............................       6.2       6.1       6.1
  Real Per Capita GDP (US$)...............       493       483       483
  Labor Force (Millions)..................      36.8      37.7      38.6
  Unemployment Rate (pct).................       6.1       6.1       6.1

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      12.2      14.2       3.5
  Consumer Price Inflation................      11.8       7.8       6.1
  Exchange Rate (Rupees/US$)
    Official..............................      40.5      46.0      51.4
    Parallel..............................      41.6      52.2      54.2

Balance of Payments and Trade:
  Total Exports FOB \3\...................       8.1       8.4       7.7
    Exports to U.S........................       1.4       1.7       1.7
  Total Imports CIF \3\...................      11.2      10.3       9.3
    Imports from U.S......................       1.4       1.1       0.7
  Trade Balance \3\.......................      -3.1      -1.9      -1.6
    Balance with U.S......................       0.0       0.6       1.0
  External Public Debt....................      27.9      29.7      28.6
  Fiscal Deficit/GDP (pct)................       6.5       5.5       4.5
  Current Account Deficit/GDP(pct)........       6.2       3.2       3.0
  Debt Service Payments/GDP (pct).........       5.9       5.0       6.3
  Gold & Foreign Exchange Reserves........       1.9      1.54       2.3
  Aid from U.S. (U.S.$ millions)..........       1.9       1.9       1.0
  Aid from All Other Sources \4\..........       154      97.1     221.1
------------------------------------------------------------------------
\1\ Data are for the corresponding Fiscal Years ending June 30. Rupee
  exchange rates used to convert to dollars are 38.9 for 1997, 43.2 for
  1998, and 50.2 for 1999.
\2\ GDP at factor cost.
\3\ Merchandise trade.Gf\4\ No military aid is believed to be included
  in these figures. Figures are for grant assistance.

Sources: Various government, including State Bank of Pakistan and
  Ministry of Finance.

1. General Policy Framework
    In late 1999, Pakistan's economy continued in financial crisis. 
Following a difficult 1998 due to nuclear tests, the economy stabilized 
due to debt rescheduling and placing back on track the International 
Monetary Fund's (IMF) Enhanced Structural Adjustment Fund/Extended Fund 
Financing (ESAF/EFF) program in January 1999. Foreign exchange reserves 
climbed back up and stabilized to around $1.6 billion in late 1999. 
Foreign investment in FY 1998-99 plunged to $376 million, due to the 
poor investment climate and unresolved disputes with independent power 
producers. The government projects a growth rate in FY 1999-2000 of 4 
to 5 percent, up from 3.1 percent in 1998-99. Inflation remains under 
control due to slow monetary growth, lower international prices and the 
relatively stable rupee; it is projected to be around 6 percent.
    Pakistan's economic performance has been handicapped in recent 
years largely because of ineffective governance and weak policy 
implementation. Pakistan has the potential to achieve higher growth 
levels if the Government of Pakistan takes effective measures to 
achieve macro-economic stabilization and increase economic efficiency 
by restructuring its power sector and introducing financial sector 
reforms. The biggest challenge facing American firms in Pakistan is 
inconsistent, sometimes contradictory policies, and a recent record of 
not adhering to agreements reached with foreign investors. There is 
also a lack of transparency in government decision-making, coupled with 
allegations of systemic corruption. The new military government, which 
took over on October 12, 1999, has targeted economic revival as a main 
priority. Its stated goals are restoring investor confidence through 
stability and consistency in economic policies, increasing domestic 
savings, carrying out tax reforms, turning around state enterprises, 
boosting agriculture, and reviving industry.
    Monetary Policy: Recent monetary policy has been aimed at 
encouraging growth in the context of price stability. The government 
and the State Bank of Pakistan (SBP) are attempting structural reforms 
in an effort to move toward more indirect, market-based methods of 
monetary control along with greater autonomy for the SBP. Other 
government monetary reforms include efforts to reduce concessionary and 
government-directed credit schemes, enhance competition in the banking 
sector, and improve prudential regulation and supervision. Prior to the 
coup, however, state-owned development finance institutions, had 
continued to make politically influenced lending decisions and, partly 
as a result, have weak balance sheets. The trade deficit has been 
reduced from about $3.1 to 1.6 billion between 96/97 and 98/99, 
although in late 1999 it appears that imports are increasing. The 
current account deficit has also been halved, falling from $4.3 to 1.9 
billion. The money supply (M2) has also fallen sharply.
    Fiscal Policy: A central element of Pakistan's economic reforms has 
been the effort to reduce persistent government budget deficits. The 
budget deficit as a percent of GDP has shrunk from 6.3 to about 3.5 
percent, achieved not by improved tax collection and revenue 
generation, but largely by cutting expenditures, especially those 
budgeted for development. Defense spending and debt repayments absorb 
67 percent (80 percent of current expenditures) of total federal 
spending, leaving little for other basic government functions and 
improving the long-neglected social sectors. Meanwhile, the country has 
a very narrow tax base; perhaps one in one hundred Pakistanis pays 
income tax. The country has had to rely on import and excise taxes for 
a very high share of revenues, thus protecting inefficient industries 
and encouraging smuggling, and on official transfers from external 
creditors. The new military government has targeted loan defaulters and 
tax evaders and threatened severe punishment for those who do not pay 
back loans and taxes. It is too early, however, to assess whether it 
has the political will to implement the policy.
    The Government of Pakistan's medium-term adjustment program has 
aimed to broaden the tax base through extension of under-taxed sectors 
and reduction of exemptions; to shift from taxation of international 
trade to taxation of consumption; to move to market determination of 
administered prices; and to improve the productivity of public 
spending. Progress has been mixed. Agriculture remains very lightly 
taxed. In August 1999, a 15 percent General Sales Tax (GST) was levied 
on petroleum products, electricity, gas, and fertilizers through a 
revenue-neutral basis by reduction in development or additional 
surcharges. GST was also imposed on branded food products, selected 
medicines and imported fruits. The previous government faced strong 
resistance against bringing small businesses into the sales tax net, 
although the military government appears committed to carrying out the 
GST program. Maximum import tariffs have been reduced from 70 percent 
in 1994-95 to 35 percent in March 1999, as part of Pakistan's trade 
reform program.
2. Exchange Rate Policy
    Pakistan continued a managed floating exchange rate system until 
July 21, 1998. From July 22, 1998 the government introduced a multiple 
exchange rate system comprising an official rate, a floating interbank 
rate (FIBR), and a composite rate. On May 19, 1999 the government 
unified the exchange rate after a year long period of gradual 
transition. The exchange rate is stable at around rupees 51.50 per U.S. 
dollar, with less than a 5 percent kerb rate premium. The government 
does not allow authorized money changers a margin of greater than half 
a rupee per U.S. dollar between the buying and selling prices.
    In years previous to the foreign exchange crisis of 1998, Pakistan 
significantly liberalized foreign exchange controls. The rupee is fully 
convertible on current account. Foreign firms investing in Pakistan 
(other than banks and insurance companies) may remit profits and 
capital without prior approval. In response to the foreign exchange 
crisis of 1998, however, the government froze existing foreign currency 
accounts and denied access to official reserves. Subsequently, foreign 
currency accounts could be opened in commercial banks, but the State 
Bank does not provide forward cover for such accounts.
3. Structural Policies
    Under the three-year IMF ESAF/EFF program of October 1997, the 
government has continued to carry out its commitments to structural 
adjustment policies and macroeconomic objectives, including (a) to 
reduce the external current accounts deficit (strengthen external 
reserves); (b) to raise the annual growth rate of real GDP; and, (C) to 
progressively reduce inflation. In principle, the Government of 
Pakistan has been pursuing a long-term strategy of deregulation, 
reduction of the public sector role in the economy, and opening the 
economy to international competition. While progress has been made, the 
state remains an important player in the Pakistani economy, especially 
in the financial sector.
    Pricing and Tax Policies: Pakistani government agencies and public 
sector companies allow only exclusive agents to submit bids for tenders 
as an assurance that they receive only one quotation from each 
supplier. In the market, pricing is often complicated by the country's 
complex tax structure, which often includes a number of taxes and 
customs duties that marketers must build into their final sales prices. 
These include landing charges, customs duty, bank charges, insurance, 
and the recently introduced GST. The Government has recently done away 
with the ``octroi'' tax (a municipal toll tax). Exemptions or relief 
from import duties have been allowed on imported machinery. Tax relief 
has also been provided for expansion and balancing, modernization and 
replacement in existing industries.
    Regulatory Policies: As part of an integrated investment promotion 
strategy, Pakistan has undertaken a comprehensive program to bring the 
economy into a fully market-oriented system. In a new policy, announced 
April 1999, foreign investment on a repatriable basis has now been 
allowed in manufacturing, infrastructure, hotel/tourism, agriculture, 
services, and social sectors. Key features of Pakistan's investment 
climate include a general policy of permitting foreign investors to 
participate in local projects on an up to 100 percent equity basis, 
easing of work permit and remittance restrictions on expatriate 
managers and technical personnel, no requirement of government approval 
to set up an industry with a few very limited exceptions, statutory 
protection against expropriation, and no restrictions on borrowing by 
foreign entities.
4. Debt Management Policies
    Pakistan remains dependent on foreign donors and creditors to meet 
its financing needs. Even with IFI assistance, Pakistan has run a 
current account deficit in recent years. Both annual debt servicing 
requirements and the current account deficit have hovered around 3 
percent of GDP in recent years, while gross external public debt is 
over 50 percent of GDP.
    Until 1998, Pakistan had an excellent record of honoring external 
debt obligations. However, during the foreign exchange crisis of 1998, 
foreign exchange reserves declined to less than $450 million in 
November 1998. Arrears accumulated to over $1.5 billion. Pakistan came 
to the brink of a general payments default. The 1998 foreign exchange 
crisis led to IFI rescheduling late in the year and rescheduling with 
Paris and London club creditors. Pakistan still awaits an IMF tranche 
originally due for disbursement in July 1999. The disbursement was 
delayed by failure of the late Sharif government to implement IMF 
conditionality regarding fuel prices and continuing World Bank concern 
over the independent power project (IPP) dispute. With the recent coup, 
continued IFI support remains uncertain.
5. Significant Barriers to U.S. Exports
    Pakistan is a member of the World Trade Organization (WTO).
    Import Licenses: In recent years Pakistan has significantly 
reformed its previously restrictive import regime. Import licenses, 
formerly common, have been abolished on all ``freely importable'' 
goods, i.e. on all items not on the negative list (68 items banned 
mostly for religious, health or security reasons). All importing firms 
in the private sector must register as importers with the Government of 
Pakistan's Export Promotion Bureau and must have valid registration at 
the time of the import. Certain detrimental import restrictions, mostly 
questionable fees, have continued, including for soda ash. U.S. 
pharmaceutical manufacturers have faced discriminatory application of 
the internal sales tax between imported pharmaceutical raw materials 
and the same domestically produced raw materials. The imported raw 
materials also usually receive preferential tariff rates only if the 
same materials are not manufactured locally. The Pakistan government 
has also adopted a discriminatory policy against transnational 
pharmaceutical manufacturers by insisting that they can only register 
products that are on sale in the country of incorporation of the 
respective company, while local companies are not held to such a 
standard.
    Services Barriers: The new 1997 investment policy promised 
liberalization in services. Pakistan's offer in the WTO financial 
service negotiations in December 1997 included the right of 
establishment for banks, and grandfathered acquired rights of foreign 
banks and foreign securities firms. In the past foreign banks generally 
have been restricted to a few branches, faced higher withholding taxes 
than domestic banks, and experienced restrictions on doing business 
with state-owned corporations. New foreign entrants to the general 
insurance market are virtually barred. Foreign firms wishing to compete 
in the life insurance market face sever obstacles. Those few foreign 
insurance companies operating in Pakistan faced various tax problems 
and long delays in remitting profits. Under the WTO Agreement on Basic 
Telecommunications Services, Pakistan made commitments to provide 
market access and national treatment for all local, domestic long 
distance and international basic voice telecommunications services and 
private leased circuit services as of January 1, 2004. Packet-switched, 
e-mail, Internet, circuit-switched data services, and trunked radio 
services can be provided only through the network facilities of 
Pakistan Telecommunications Corp. until 2003. Up to 100 percent foreign 
investment on licensed services may be permitted; there will be no 
foreign ownership restrictions as of January 1, 2004. Pakistan also 
adopted some pro-competitive regulatory principles regarding 
transparency of regulations, interconnection and numbering, and 
competitive safeguards. Motion pictures face high tax rates, especially 
the practice of including the royalty value in the dutiable value of 
films imported for showing in theatres, which have sharply cut their 
export into Pakistan. Theater owners also lack the authority to set 
admission prices according to market conditions.
    Standards: The Pakistan Standards Institution (PSI) has so far 
established about 4,000 national standards for agriculture and food, 
chemicals, civil and mechanical engineering, electronics, weights and 
measures, and textile products. Testing facilities for agricultural 
goods are inadequate, and standards are inconsistently applied, 
resulting in occasional discrimination against U.S. farm products. 
Sometimes a U.S. exporter will encounter difficult with ``quality'' 
standards, usually in the context of protecting some domestically 
manufactured product.
    Investment Barriers: Pakistan has liberalized its foreign 
investment regime and officially encourages investment. Investors often 
face unstable policy conditions, however, particularly on large 
infrastructure projects. The Government of Pakistan has refused to 
recognize its contractual commitments to independent power producers, 
and has harassed these producers. These actions have severely damaged 
Pakistan's climate for foreign investment. Security concerns can also 
be disruptive factors influencing company choice of location of 
facilities and areas of operation. Local content requirements occur in 
the automobile, electronics, electrical products, and engineering 
industries under Pakistan's ``deletion program,'' but these will have 
to be phased out before January 1, 2000 in order for Pakistan to comply 
with the WTO Agreement on Trade Related Investment Measures (TRIMS).
    Government Procurement: The government, along with its numerous 
state-run corporations, is Pakistan's largest importer. Work performed 
for government agencies, including purchase of imported equipment and 
services, is often awarded through tenders that are publicly announced 
or issued to registered suppliers. Lack of transparency, however, has 
been a recurrent and substantial problem. The Government of Pakistan 
nominally subscribes to principles of international competitive 
bidding, but political influence on procurement decisions has been 
common, and decisions have not always been made on the basis of price 
and technical quality alone.
    Customs Procedures: Investors sometimes complain that the 
incentives advertised at the policy level are not implemented on-the-
ground, particularly with respect to customs. Pakistan has replaced its 
controversial pre-shipment inspection valuation system with an import 
trade price system run by the Pakistan customs agency. This change, 
however, has not eliminated complaints. In numerous disputes importers 
have asserted that import trade prices are arbitrarily set by customs 
officials. Investors also cite frequent changes in rates, and charge 
that customs officers often demand bribes. In July, Pakistan passed 
legislation to comply with the WTO Customs Valuation Agreement. Customs 
authorities are presently transitioning to the new system with plans 
for full compliance by January 1, 2000.
6. Export Subsidies Policies
    Pakistan actively promotes the export of Pakistani goods with 
measures such as government financing and tariff concessions on 
imported inputs, and income and sales tax concessions. These policies 
appear to be equally applied to both foreign and domestic firms 
producing goods for export. Pakistan has established export processing 
zones with benefits such as tax holidays, indefinite carry forward of 
losses, exemption of imports from taxes and duties, and exemption from 
labor laws and various other regulatory regimes.
7. Protection of U.S. Intellectual Property
    Pakistan is party to the WTO's Agreement on Trade-Related Aspects 
of Intellectual Property Rights (TRIPS), and is currently revising its 
laws to become TRIPS compliant by January 1, 2000, as required by 
TRIPS. Pakistan is a member of the Berne Convention for the Protection 
of Literary and Artistic Works, the Universal Copyright Convention, and 
the World Intellectual Property Organization, but is not a member of 
the Paris Convention for the Protection of Industrial Property. 
Pakistan has been on the U.S. Trade Representative's ``Special 301'' 
Watch List since 1989 due to widespread piracy, especially of 
copyrighted materials and slow efforts to implement its patent mailbox 
obligations under the TRIPS agreement. Present U.S. concerns include 
continuing high piracy levels; a TRIPS inconsistent copyright law; 
nominal fines for infringers; lack of patent protection for 
pharmaceutical products; a TRIPS inconsistent term of patent 
protection; and trademark infringement.
    Patents: Current law protects only process patents, though the 
government has stated its commitment to eventually offering product 
patents in accordance with WTO obligations.
    Trademarks: Since 1994, Pakistan has required that pharmaceutical 
firms label the generic name on all products with at least equal 
prominence as that of the brand name. This trademark labeling 
requirement serves to dilute in the minds of consumers the differences 
in quality, efficacy and safety among different products. There also 
have been occasional instances of infringement, including trading for 
toys and industrial machinery.
    Copyrights: The markets for imported computer software and, until 
recently, film videos, are nearly 100 percent pirated. Piracy of 
copyrighted textile designs is also a serious problem. Some counterfeit 
products made in Pakistan are exported to other markets. At least one 
local firm, however, is now distributing legitimate, copyrighted 
videotapes produced by U.S. film studios. As a result of strengthened 
law enforcement, some other pirate outlets are taking steps to offer 
legitimate products. Sustained stronger enforcement needs to be paired 
with action by the courts to prosecute and sentence violators.
    New Technologies: The impact on U.S. exports of weak IPR protection 
in Pakistan is substantial, though difficult to quantify. In the area 
of copyright infringement alone, the International Intellectual 
Property Alliance estimated that piracy of films, sound recordings, 
computer programs, and books resulted in trade losses of $80 million in 
1998.
8. Worker Rights
    a. Right of Association: The Industrial Relations Ordinance of 1969 
(IRO) gives industrial workers the right to form trade unions. A 
presidential ordinance in December 1998 banned all union activity in 
the Water and Power Development Authority (employing 130,000 workers) 
for two years. The Essential Services Maintenance Act of 1952 (ESMA) 
restricts union activity in sectors associated with state 
administration, meaning government services and state enterprises. The 
IRO prohibits anti-union discrimination by employers. Under the law, 
private employers are required to reinstate workers fired for union 
activities. However, workers usually do not pursue redress through the 
courts because they view the legal system as slow, prohibitively 
expensive, and corrupt.
    b. Right to Organize and Bargain Collectively: The right of 
industrial workers to organize and to freely elect representatives to 
act as collective bargaining agents is established in law. Legally 
required conciliation proceedings and cooling-off periods constrain the 
right to strike, as does the government's authority to ban any strike 
that may cause ``serious hardship to the community'' or prejudice the 
national interest. The government also may ban a strike that has 
continued for 30 days. The government regards as illegal any strike 
conducted by workers who are not members of a legally registered union. 
Police do not hesitate to crack down on worker demonstrations. The law 
prohibits employers from seeking retribution against leaders of a legal 
strike and stipulates criminal penalties for offenders. The law does 
not protect leaders of illegal strikes.
    c. Prohibition of Forced or Compulsory Labor: The Constitution and 
the law prohibit forced labor and slavery, including forced labor by 
children. The 1992 Bonded Labor System (Abolition) Act outlawed bonded 
labor, canceled all existing bonded debts, and forbade lawsuits for the 
recovery of existing debts. However, provincial governments, which are 
responsible for enforcing the law, have failed to establish enforcement 
mechanisms. The Government of Punjab, has now reportedly enhanced its 
activities, particularly in regard to bonded and child labor. Illegal 
bonded labor is widespread. It is common in the brick, glass, and 
fishing industries and is found among agricultural and construction 
workers in rural areas.
    d. Minimum Age of Employment of Children: Child labor is common and 
there are insufficient resources and inconsistent commitment to stop 
it. The Constitution prohibits employing children aged 14 years and 
under in factories, mines, and hazardous occupations. The 1991 
Employment of Children Act prohibits employing children under age 14 in 
certain occupations and regulates working conditions. Under this law, 
no child can work overtime or at night. According to a 1996 survey by 
the government and the ILO, 8.3 percent (over 3.6 million) of children 
between ages of 5 and 14 work. Few regard this survey as accurate, 
however, believing it understates the true dimensions of the problem.
    e. Acceptable Conditions of Work: The federal minimum wage for 
unskilled workers is rupees 1,950 ($38) per month, but it applies only 
to industrial and commercial establishments employing 50 or more 
workers. Federal law provides for a maximum workweek of 48 hours (54 
hours for seasonal factories) with rest periods during the workday and 
paid annual holidays. These regulations do not apply to agricultural 
workers, workers in factories with fewer than 10 employees, and 
contractors. In general, health and safety standards are poor. 
Provinces have been ineffective in enforcing labor regulations, because 
of limited resources, corruption, and inadequate regulatory structures.
    f. Rights in Sectors with U.S. Investment: Significant investment 
by U.S. companies has occurred in the power, petroleum, food, and 
chemicals sectors. U.S. investors in industrial sectors are all large 
enough to be subject to the full provisions of Pakistani law for worker 
protection and entitlements. In general, multinational employers do 
better than most employers in fulfilling their legal obligations, 
providing good benefits and conditions, and dealing responsibly with 
unions. The only significant area of U.S. investment in which worker 
rights are legally restricted is the petroleum sector, where the oil 
and gas industry is subject to the Essential Services Maintenance Act. 
That Act bans strikes and collective bargaining, limits a worker's 
right to change employment, and affords little recourse to a fired 
worker.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  50
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  22              ...............................................................
  Chemicals & Allied Products..  (\1\)           ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  31
Banking........................  ..............  143
Finance/Insurance/Real Estate..  ..............  107
Services.......................  ..............  (\1\)
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  416
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\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


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