    [JPRT 107-53]
    [From the U.S. Government Publishing Office]

     107th Congress         JOINT COMMITTEE PRINT                      S. Prt.
     2d Session                                                        107-53
    _________________________________________________________________________

                          COUNTRY REPORTS ON ECONOMIC
                           POLICY AND TRADE PRACTICES

                                   ----------

                                  R E P O R T

                                SUBMITTED TO THE

                         COMMITTEE ON FOREIGN RELATIONS

                                      AND

                              COMMITTEE ON FINANCE

                                     OF THE

                                  U.S. SENATE

                                    AND THE

                                  COMMITTEE ON
                            INTERNATIONAL RELATIONS

                                      AND

                          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

    Available via World Wide Web: http://www.access.gpo.gov/congress/senate

                              FEBRUARY 2002

    Printed for the use of the Committees on Foreign Relationsand Finance
      of the U.S. Senate, and International Relations and Ways and Means
      of the U.S. House of Representatives

             COUNTRY REPORTS ON ECONOMIC POLICY AND TRADE PRACTICES

    107th Congress
     2d Session              JOINT COMMITTEE PRINT                  S. Prt.
                                                                     107-53
    _______________________________________________________________________

                          COUNTRY REPORTS ON ECONOMIC
                           POLICY AND TRADE PRACTICES

                                   __________

                                  R E P O R T

                                SUBMITTED TO THE

                         COMMITTEE ON FOREIGN RELATIONS

                                      AND

                              COMMITTEE ON FINANCE

                                     OF THE

                                  U.S. SENATE

                                    AND THE

                                  COMMITTEE ON

                            INTERNATIONAL RELATIONS

                                      AND

                          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

                                FEBRUARY 2002

    Printed for the use of the Committees on Foreign Relations and Finance
      of the U.S. Senate, and International Relations and Ways and Means
      of the U.S. House of Representatives

                                   -----

                       U.S. GOVERNMENT PRINTING OFFICE
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                         COMMITTEE ON FOREIGN RELATIONS

                          JOSEPH R. BIDEN, Jr., Delaware, Chairman

    PAUL S. SARBANES, Maryland              JESSE HELMS, North Carolina
    CHRISTOPHER J. DODD, Connecticut        RICHARD G. LUGAR, Indiana
    JOHN F. KERRY, Massachusetts            CHUCK HAGEL, Nebraska
    RUSSELL D. FEINGOLD, Wisconsin          GORDON H. SMITH, Oregon
    PAUL D. WELLSTONE, Minnesota            BILL FRIST, Tennessee
    BARBARA BOXER, California               LINCOLN D. CHAFEE, Rhode Island
    ROBERT G. TORRICELLI, New Jersey        GEORGE ALLEN, Virginia
    BILL NELSON, Florida                    SAM BROWNBACK, Kansas
    JOHN D. ROCKEFELLER IV, West Virginia   MICHAEL B. ENZI, Wyoming

                            Edwin K. Hall, Staff Director
                   Patricia A. McNerney, Republican Staff Director
                                  ----------

                              COMMITTEE ON FINANCE

                         MAX BAUCUS, Montana, Chairman

    JOHN D. ROCKEFELLER IV, West Virginia    CHARLES E. GRASSLEY, Iowa
    TOM DASCHLE, South Dakota                ORRIN G. HATCH, Utah
    JOHN BREAUX, Louisiana                   FRANK H. MURKOWSKI, Alaska
    KENT CONRAD, North Dakota                DON NICKLES, Oklahoma
    BOB GRAHAM, Florida                      PHIL GRAMM, Texas
    JAMES M. JEFFORDS (I), Vermont           TRENT LOTT, Mississippi
    JEFF BINGAMAN, New Mexico                FRED THOMPSON, Tennessee
    JOHN F. KERRY, Massachusetts             OLYMPIA J. SNOWE, Maine
    ROBERT G. TORRICELLI, New Jersey         JON KYL, Arizona
    BLANCHE L. LINCOLN, Arkansas             CRAIG THOMAS, Wyoming

                          John Angell, Staff Director
            Kolan Davis, Republican Staff Director and Chief Counsel

                      COMMITTEE ON INTERNATIONAL RELATIONS

                            HENRY J. HYDE, Illinois, Chairman
    BENJAMIN A. GILMAN, New York           TOM LANTOS, California
    JAMES A. LEACH, Iowa                   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             DONALD M. PAYNE, New Jersey
    ILEANA ROS-LEHTINEN, Florida           ROBERT MENENDEZ, New Jersey
    CASS BALLENGER, North Carolina         SHERROD BROWN, Ohio
    DANA ROHRABACHER, California           CYNTHIA A. McKINNEY, Georgia
    EDWARD R. ROYCE, California            EARL F. HILLIARD, Alabama
    PETER T. KING, New York                BRAD SHERMAN, California
    STEVE CHABOT, Ohio                     ROBERT WEXLER, Florida
    AMO HOUGHTON, New York                 JIM DAVIS, Florida
    JOHN M. McHUGH, New York               ELIOT L. ENGEL, New York
    RICHARD BURR, North Carolina           WILLIAM D. DELAHUNT, Massachusetts
    JOHN COOKSEY, Louisiana                GREGORY W. MEEKS, New York
    THOMAS G. TANCREDO, Colorado           BARBARA LEE, California
    RON PAUL, Texas                        JOSEPH CROWLEY, New York
    NICK SMITH, Michigan                   JOSEPH M. HOEFFEL, Pennsylvania
    JOSEPH R. PITTS, Pennsylvania          EARL BLUMENAUER, Oregon
    DARRELL E. ISSA, California            SHELLEY BERKLEY, Nevada
    ERIC CANTOR, Virginia                  GRACE NAPOLITANO, California
    JEFF FLAKE, Arizona                    ADAM B. SCHIFF, California
    BRIAN D. KERNS, Indiana                DIANE E. WATSON, California
    JO ANN DAVIS, Virginia

                   Thomas E. Mooney, Sr., Staff Director/General Counsel
                         Robert R. King, Democratic Staff Director
                Kristin Gilley, Senior Professional Staff Member and Counsel

                                  ----------

                          COMMITTEE ON WAYS AND MEANS

                       BILL THOMAS, California, Chairman

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

                         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 \1\

    Africa:
        Ghana........................................................     1
        Nigeria......................................................     5
        South Africa.................................................    12
    East Asia and the Pacific:
        Australia....................................................    19
        China........................................................    23
        Hong Kong \1\................................................    30
        Indonesia....................................................    35
        Japan........................................................    42
        Korea, Republic of...........................................    48
        Malaysia.....................................................    54
        Philippines..................................................    62
        Singapore....................................................    70
        Taiwan \1\...................................................    74
        Thailand.....................................................    81
    Europe:
        European Union...............................................    89
        Austria......................................................    98
        Belgium......................................................   104
        Bulgaria.....................................................   109
        Czech Republic...............................................   116
        Denmark......................................................   122
        Finland......................................................   128
        France.......................................................   134
        Germany......................................................   138
        Greece.......................................................   143
        Hungary......................................................   149
        Ireland......................................................   154
        Italy........................................................   161
        The Netherlands..............................................   167
        Norway.......................................................   172
        Poland.......................................................   175
        Portugal.....................................................   182
        Romania......................................................   186
        Russia.......................................................   191
        Spain........................................................   198
        Sweden.......................................................   205
        Switzerland..................................................   208
        Turkey.......................................................   212
        Ukraine......................................................   217
        United Kingdom...............................................   224
    The Americas:
        Argentina....................................................   229
        Bahamas......................................................   233
        Bolivia......................................................   239
        Brazil.......................................................   244
        Canada.......................................................   252
        Chile........................................................   256
        Colombia.....................................................   263
        Costa Rica...................................................   272
        Dominican Republic...........................................   278
        Ecuador......................................................   283
        El Salvador..................................................   288
        Guatemala....................................................   293
        Haiti........................................................   298
        Honduras.....................................................   303
        Jamaica......................................................   309
        Mexico.......................................................   315
        Nicaragua....................................................   322
        Panama.......................................................   326
        Paraguay.....................................................   332
        Peru.........................................................   336
        Trinidad and Tobago..........................................   342
        Uruguay......................................................   346
        Venezuela....................................................   351
    Near East and North Africa:
        Algeria......................................................   359
        Bahrain......................................................   364
        Egypt........................................................   369
        Israel.......................................................   375
        Jordan.......................................................   379
        Kuwait.......................................................   383
        Morocco......................................................   388
        Oman.........................................................   393
        Saudi Arabia.................................................   399
        Tunisia......................................................   404
        United Arab Emirates.........................................   409
    South Asia:
        Bangladesh...................................................   415
        India........................................................   422
        Pakistan.....................................................   429

    ----------
    \1\ Reports also cover the following areas: Hong Kong and Taiwan.

                                    FOREWORD

                                  ----------

        The reviews on individual country economic policy and trade
    practices included in this report 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 these areas.
                                          Joseph R. Biden, Jr.,
                              Chairman, Committee on Foreign Relations.

                                                    Max Baucus,
                                        Chairman, Committee on Finance.

                                                 Henry J. Hyde,
                        Chairman, Committee on International Relations.

                                                   Bill Thomas,
                                 Chairman, Committee on Ways and Means.

                                     (vii)

                             LETTER OF TRANSMITTAL

                                  ----------

                                      U.S. Department of State,
                                      Washington, DC, January 11, 2002.

    Hon. Joseph R. Biden, Jr., Chairman,
    Committee on Foreign Relations.

    Max Baucus, Chairman,
    Committee on Finance.

    Henry J. Hyde, Chairman,
    Committee on International Relations.

    Bill Thomas, Chairman,
    Committee on Ways and Means.

        Dear Sirs: Pursuant to Section 2202 of the Omnibus Trade
    and Competitiveness Act of 1988, we are pleased to transmit the
    report entitled ``Country Reports on Economic Policy and Trade
    Practices.'' The report provides a detailed review of major
    economic policies and trade practices of countries with which
    the United States has significant economic or trade
    relationships.
        We hope this information is helpful to you. Please let us
    know if we can provide any further information on this or any
    other matter.
                Sincerely,
                                                 Paul V. Kelly,
                              Assistant Secretary, Legislative Affairs.

                                      (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. The Department of
    State's 13th annual report includes reports on 76 countries,
    customs territories and customs unions.
        Each country report contains ten sections.

       Key Economic Indicators: Economic indicators in the
            national income, monetary, and trade accounts.

       General Policy Framework: Overview of macroeconomic
            trends.

       Exchange Rate Policies: Their impact on the price
            competitiveness of U.S. exports.

       Structural Policies: Changes that may affect U.S.
            exports to that country.

       Debt Management Policies: Implications for trade
            with the U.S.

       Significant Barriers to U.S. Exports and Investment:
            Formal and informal barriers to U.S. exports and
            investment.

       Export Subsidies Policies: Measures to support
            exports, including those by small businesses.

       Protection of U.S. Intellectual Property: Laws and
            practices safeguarding intellectual property rights.

       Worker Rights: The final section has two parts:

        --laws and practices with respect to internationally
                recognized worker rights, and

        --conditions of worker rights in goods-producing sectors
                where U.S. capital is invested.

       Extent of U.S. Investment in Selected Industries:
            U.S. investment by sector where information is
            available.

        U.S. Embassies supplied the country report data, 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.

                                      (xi)

    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.

                                              E. Anthony Wayne,
                                           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] \1\ 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\ In 1995, the Committee on Foreign Affairs changed its name to
    the Committee on International Relations.

        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
        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 2000, submitted
    to the Committees on International Relations of the House of
    Representatives and on Foreign Relations of the U.S. Senate in
    January 2000. 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.
        The final section, Extent of U.S. Investment in Selected
    Industries, cites the U.S. direct investment position abroad
    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 2000 for all
    countries for which foreign direct investment has been reported
    to it. Readers should note that ``U.S. Direct Investment
    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. A
    ``(\1\)'' in a data cell indicates that data has been
    suppressed to avoid disclosing individual company information.

                         SOME FREQUENTLY USED ACRONYMS

                                  ----------

    ADB--Asian Development Bank
    AGOA--African Growth and Opportunity Act
    APEC--Asia-Pacific Economic Cooperation
    BIS--Bank for International Settlements
    CACM--Central American Common Market
    CARICOM--Caribbean Common Market
    CAP--Common Agricultural Policy (of the EU)
    CBTPA--Caribbean Basin Trade Partnership Act
    CCC--Commodity Credit Corporation (Department of Agriculture)
    CIF--cost, insurance and freight
    EBRD--European Bank for Reconstruction and Development
    EFTA--European Free Trade Association
    EMS--European Monetary System (of the EU)
    EPZ--export processing zone
    ERM--Exchange Rate Mechanism (of the EU)
    EU--European Union
    EXIMBANK--U.S. ExportImport Bank
    FDI--foreign direct investment
    FOB--free on board
    FOREX--foreign exchange
    FTA--free trade agreement
    FTAA--Free Trade Area of the Americas
    FY--fiscal year
    GATS--General Agreement on Trade in Services
    GATT--General Agreement on Tariffs and Trade
    GDP--gross domestic product
    GMO-genetically modified organism
    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--InterAmerican Development Bank
    IPR--intellectual property rights
    IT--information technology
    MFN--most favored nation
    NAFTA--North American Free Trade Agreement
    NGOs--nongovernment 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
    SDR--Special Drawing Rights (of the IMF)
    TRIPs--WTO Agreement on Trade Related Aspects of Intellectual
                Property Rights
    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
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                   1999     2000    \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\..........................    7,774    5,418     5,431
      Real GDP Growth (pct) \3\................      4.4      3.7       4.0
      GDP by Sector (pct):
        Agriculture............................     36.5     36.0       N/A
        Industry...............................     25.2     25.2       N/A
        Services...............................     18.5     18.7       N/A
        Government.............................     10.7     11.0       N/A
      Per Capita GDP...........................      324      294       288
      Labor Force (000s).......................    8,240    8,480     8,734
      Unemployment Rate (pct)..................       20      N/A       N/A

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).................     16.1     39.8      32.0
      Consumer Price Index (end-of-period).....     13.8     40.5      25.0
      Exchange Rate (Cedis/US$ annual average)     2,674    5,322     7,000
       Interbank...............................

    Balance of Payments and Trade:
      Total Exports FOB \4\....................    2,012    1,941     1,982
        Exports to United States \4\...........      209      205       215
      Total Imports CIF \4\....................    3,228    2,832     2,781
        Imports from United States \4\.........      233      191       201
      Trade Balance \4\........................   -1,216     -891      -799
        Balance with United States \4\.........      -24       14        14
      External Public Debt.....................    5,974    6,038     6,200
      Fiscal Deficit/GDP (pct).................      6.5      8.5       N/A
      Current Account Deficit/GDP (pct)........     13.8     11.2      10.8
      Debt Service Payments/GDP (pct)..........      9.0      9.0       9.0
      Gold and Foreign Exchange Reserves.......      420      256       N/A
      Aid from United States...................       58       60       N/A
      Aid from All Other Sources...............      N/A      N/A       N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are government 2001 budget projections and post
      estimates based on most recent data available.
    \2\ GDP at factor cost.
    \3\ Percentage changes calculated in local currency.
    \4\ Merchandise trade.

    1. General Policy Framework
        Ghana operates in a free market environment under a popularly
    elected civilian government. In December 2000, opposition leader John
    Agyekum Kufuor was elected President, marking the first time in
    Ghanaian history in which one democratically elected President replaced
    another. His New Patriotic Party won 100 of 200 seats in Parliament. A
    UK-trained lawyer with longstanding ties to the United States,
    President Kufuor has called for greater foreign investment and pledged
    a ``zero tolerance'' for corruption. Former President Rawlings, who had
    been at the helm of government since December 31, 1981, observed
    constitutional term limits, and after winning elections in 1992 and
    1996 did not run in the 2000 elections. An independent judiciary acts
    as the final arbiter of Ghanaian laws.
        Since 1983 Ghana has pursued an economic reform agenda aimed
    generally at reducing government involvement in the economy and
    encouraging private sector development. This has made the country one
    of the most open-market economies in the sub-region. The current
    government's economic program is focusing on the development of Ghana's
    private sector, which has been historically weak. Roughly two-thirds of
    some 300 state-owned enterprises have been sold to private owners since
    a divestiture program began in the early 1990s. The new government has
    stated its commitment to continuing the privatization program by
    offloading some of its interest in some state-owned enterprises,
    possibly including the Tema Oil Refinery, power and water utilities,
    ports and railways, and the national airline. The government's monopoly
    on the export of cocoa was removed in 1999, but full liberalization of
    this market has not yet been implemented.
        An economic downturn due primarily to external shocks began in late
    1999, worsened in 2000, and has not abated. Despite several years of
    economic reform the country still remains vulnerable to terms of trade
    shocks. The three major commodities--gold, cocoa, and timber--
    contribute over 70 percent of Ghana's foreign exchange earnings. The
    relatively low price of cocoa coupled with the increase in crude oil
    price in 2000 caused a large increase in trade loss. These factors led
    to a severe shortage of foreign exchange, rapid depreciation of the
    cedi against the dollar by about 60 percent, and an upsurge of
    inflation from 14 percent at the end of December 1999 to 41 percent at
    the end of December 2000. Imbalances caused by the terms of trade
    shocks were further exacerbated by heavy government spending and
    borrowing in the run-up to the December 2000 elections.
        The former government's hesitation to respond appropriately in an
    election year, especially to the rising cost of the supply of utility
    services and petroleum products, caused or contributed to an overall
    budget deficit of about 8.5 percent of GDP in 2000 compared to 6.5
    percent of GDP recorded in 1999. The government resorted to heavy
    domestic borrowing to make up for shortfalls from mainly non-tax
    revenue. To arrest inflation and the fast depreciating cedi, the Bank
    of Ghana (BOG), the central bank, pursued a tight monetary policy,
    increasing the primary reserve ratio from eight to nine percent. Heavy
    domestic borrowing by the government and the BOG's measures sent
    domestic lending rates from about 37 percent to about 50 percent. Real
    economic growth in 2000 was 3.3 percent, which followed the declining
    trend of 4.4 percent in 1999, and 4.7 percent in 1998.
        The new government took immediate steps to restore macroeconomic
    stability. It introduced measures to monitor and control expenditures,
    increase revenue mobilization, restructure short-term domestic debt,
    and seek debt relief under the HIPC initiative. To stem the
    accumulation of debts by the utilities and the oil refinery, the
    government took a bold step by significantly increasing fuel, water,
    and energy tariffs. The government's measures have yielded some
    positive results, as the cedi has remained stable since the beginning
    of 2001 and inflation and interest rates, though still high, have
    declined significantly. The government appears to be committed to
    sustaining this trend.
    2. Exchange Rate Policy
        The foreign exchange value of the Ghanaian cedi is established
    independently through the use of the Interbank Market and Foreign
    Exchange bureaus, and currency conversion is easily accessible.
    However, the BOG dominates the Interbank Market by controlling the
    supply of large amount of surrendered proceeds from gold and cocoa.
    Ghana fully accedes to Article IV of the IMF convention on free current
    account convertibility and transfer. In general, the exchange rate
    regime in Ghana does not have any particular impact on the
    competitiveness of U.S. exports.
    3. Structural Policies
        Ghana progressively lowered import quotas and surcharges as part of
    its structural adjustment program. Tariff structures are being adjusted
    in harmony with the ECOWAS Trade Liberalization Program. Import
    licensing was eliminated in 1989, but for some items such as drugs, an
    import permit is required. Imported goods currently enjoy generally
    unfettered access to the Ghanaian market.
        The government professes strong support for the principle of free
    trade, and is an active participant in the WTO. 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 frequently 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. Reductions in
    tariffs have increased competition for local producers and
    manufacturers while reducing the cost of imported raw materials. The
    government has announced plans to introduce an anti-dumping bill to
    Parliament to curb the import of ``inferior'' goods as a response to
    several complaints from consumers.
        The government in 2001 reduced the 20 percent special tax on some
    of the 32 selected ``non-essential'' imported goods to 10 percent and
    removed the tax completely on the rest. Major U.S. imports still
    affected by the tax are frozen meat and poultry. This tax no longer
    applies to used clothing, powdered milk, paper and plastic products. A
    0.5 percent ECOWAS levy on all imports from non-ECOWAS countries and
    0.5 percent Export Development and Investment Fund (EDIF) levy on all
    imports were introduced in 2000 and 2001 respectively. The standard
    import duty rate was lowered from 25 percent to 20 percent in 2000. In
    July, 2000 the government increased the Value-Added Tax (VAT) from 10
    percent 12.5 percent to specifically fund education.
    4. Debt Management Policies
        In March 2001, Ghana opted for debt relief under the enhanced
    Heavily Indebted Poor Country (HIPC) Initiative. Ghana is expected to
    reach HIPC Decision Point by December 2001, and the Government
    estimates a total of US$ 700 million in debt write off at the end of
    2004 when the country reaches its HIPC Completion Point. The government
    is also seeking debt relief from the Paris Club. There is currently a
    suspension in the payments of non-multilateral debts.
        Ghana's total outstanding external debt was approximately US$ 5.9
    billion at the end of the first quarter of 2001. Outstanding long-term
    debt was about US$ 5.4 billion (about 92 percent of total debt), of
    which US$ 1.6 billion and US$ 3.8 billion were owed to bilateral and
    multilateral institutions respectively. Ghana's domestic debt in mid-
    2001 was estimated to be some US$ 1.8 billion, almost all in short-term
    instruments. The government was attempting to severely limit additional
    domestic borrowing, and to restructure the existing debt into longer-
    term instruments. The government has announced plans to utilize
    receipts from the divestiture of state-owned enterprises to reduce the
    country's debt stock.
    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 and active
    participant in the WTO.
        Services Barriers: The Ghanaian investment code proscribes 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. Highly-publicized
    seizures of goods (pharmaceuticals and food items) with expired shelf-
    life dates have been occasionally carried out. The thrust of this law
    is to regulate imported food and drugs, but the law also applies to
    non-consumable imports as well. Locally-manufactured goods are subject
    to comparable testing, labeling, and certification requirements. Two
    destination inspection agencies contracted by the government also
    perform testing and price verification for some selected imports that
    are above US$ 5,000.
        Investment Barriers: Although the investment code incentives are
    relatively attractive, bureaucratic bottlenecks can delay the launching
    of new projects. The investment code guarantees free transferability of
    dividends, loan repayments, licensing fees and repatriation of capital.
    It also provides guarantees against expropriation or forced sale and
    delineates 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
    prior project approval from the Ghana Investment Promotion Center
    (GIPC).
        Government Procurement Practices: Currently, there are varying
    procedures for selling to the government, but a unified code is under
    preparation. The government is estimated to account for some 50-70
    percent of all imports into Ghana. While the Ghana Supply Company (GSC)
    acts as the principal purchasing agent of the government, its authority
    has gradually been eroded as heads of departments directly undertake
    below-threshold purchases of supplies and equipment. Former government
    import monopolies have been abolished. Parastatal entities continue to
    import some commodities, but they 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 enacted 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. Ghana is a member of the
    Universal Copyright Convention, the World Intellectual Property
    Organization, and the English-Speaking African Regional Intellectual
    Property Organization. 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. Fees for
    registration 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 in which trademarks
    have been misappropriated, the price and quality disparity is generally
    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 video tapes, DVDs, and computer software are
    examples of copyright infringement taking place locally. There are no
    data available to quantify the commercial impact of the sales of these
    pirated items, but the evidence suggests that sales are not being made
    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
    yet had a significant impact on U.S. exports to Ghana.
    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 the government
    to refuse to register a trade union, but this right has not been
    exercised by the current or past governments. No union leaders have
    been detained in recent years, nor has the right of workers to freely
    associate otherwise been circumscribed. The government has announced
    plans to present to Parliament soon a new bill that unifies all the
    existing labor laws and seeks to remove government and TUC control of
    labor.
        b. The Right to Organize and Bargain Collectively: The IRA provides
    a framework for collective bargaining and protection against antiunion
    discrimination. Civil servants are prohibited by law from joining or
    organizing a trade union. In December 1992, however, 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 two years there have been several industrial actions
    involving salary increase demands, conditions of service, and severance
    awards. There have been a number of short-lived ``wild cat'' strikes by
    doctors, university professors, 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 relatively 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 Manpower Development and Employment are responsible for
    enforcement of child labor laws.
        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 5,500, about 75 cents at the present rate of exchange, a
    sum that does not permit a single wage earner to support a family. A
    much-vaunted, government-commissioned study on civil service reform
    (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, data processing, and
    telecommunications. Labor conditions in these sectors do not differ
    significantly from the norm, except that wage scales in the formal
    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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  4
    Total Manufacturing.........  ...........  (\1\)
      Food & Kindred Products...  0
      Chemicals & Allied          0
       Products.
      Primary & Fabricated        (\1\)
       Metals.
      Industrial Machinery and    0
       Equipment.
      Electric & Electronic       0
       Equipment.
      Transportation Equipment..  0
      Other Manufacturing.......  0
    Wholesale Trade.............  ...........  0
    Banking.....................  ...........  0
    Finance/Insurance/Real        ...........  0
     Estate.
    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
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                   1999     2000    \1\ 2001
    ------------------------------------------------------------------------
    Income, Production, and Employment:
      Nominal GDP \2\..........................     35.7     37.0      39.0
      Real GDP Growth (pct)....................      2.7      3.8       4.0
      GDP by Sector (pct):
        Industrial \3\.........................     17.3     17.0       N/A
        Agriculture............................     40.7     41.5       N/A
        Services...............................     33.0     34.0       N/A
        Government.............................     11.0     25.0       N/A
      Per Capita GDP (US$) \4\.................      260      270       280
      Labor Force (Millions)...................     40.1     38.9       N/A
      Unemployment Rate (pct) \5\..............      3.0      3.1       5.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).................     31.6     48.1       N/A
      Consumer Price Inflation.................      6.6      8.0      18.0
      Exchange Rate (Naira/US$--annual average)     98.2      104       112
       \6\.....................................
      Free Market Rate.........................      101      110       132

    Balance of Payments and Merchandise Trade:
      Total Exports FOB \7\....................     12.9     19.1       N/A
        Exports to United States \8\...........      4.4      7.9       N/A
      Total Non-Oil Exports \8\ \9\............     0.20     0.24       N/A
      Total Imports CIF \7\....................    (8.6)    (8.7)       N/A
        Imports from United States \8\.........      0.6      0.5       N/A
      Trade Balance \7\........................      4.3     12.4       N/A
        Balance with United States \8\.........      3.8      7.4       N/A
      Current Account Deficit/GDP (pct)........      1.2     18.1       N/A
      External Public Debt.....................     28.1     27.8       N/A
      Fiscal Deficit/GDP (pct).................      8.4      2.9       N/A
      Debt Service Payments/GDP (pct)..........      1.5      1.7       N/A
      Gold and Foreign Exchange Reserves.......      5.5      9.9      11.9
      Aid from United States (US$ millions)         37.5      108       103
       \10\....................................
      Aid from All Other Sources...............      N/A      N/A       N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures, except exchange rates, are estimates based on
      available Central Bank of Nigeria (CBN) monthly data, October 2001
      (unless otherwise noted).
    \2\ GDP at current factor cost. Conversion to U.S. dollars at CBN rate
      104 naira per dollar for 2000.
    \3\ Total GDP for the Industrial sector (includes oil/gas,
      manufacturing, and mining). Percentage changes calculated in local
      currency.
    \4\ Source: IBRD.
    \5\ Real unemployment is estimated at 50 percent by unofficial sources.
      According to the CBN, official statistics are based on the number of
      unemployed registered with the Federal Ministry of Labor.
      Underemployment is estimated at 20 percent by the CBN.
    \6\ Annual average Interbank Foreign Exchange Market Rate.
    \7\ 2000 figures are CBN figures.
    \8\ 2000 figures are January-December.
    \9\ Source: Federal Office of Statistics
    \10\ Aid level in 2001 does not include military assistance provided
      under Operation Focus Relief.

    1. General Policy Framework
        With an estimated 125 million people, Nigeria is Africa's most
    populous nation. It is also the United States' fifth largest oil
    supplier. Nigeria potentially could offer investors a lowcost labor
    pool, abundant natural resources, and the largest domestic market in
    subSaharan Africa. However, its economy remains sluggish, its market
    potential unrealized. The country suffers from ill-maintained
    infrastructure, possesses an inconsistent regulatory environment, and
    enjoys a well-deserved reputation for endemic crime and corruption.
    Following decades of misrule under military strongmen, Nigeria's
    transportation, communications, health and power public services were a
    mess. Once a breadbasket, Nigeria witnessed a severe deterioration of
    its agricultural sector. Social, religious, and ethnic unrest, and a
    lack of effective due process, further complicate business ventures in
    Nigeria. Moreover, the government remains highly over-reliant on oil
    exports for its revenue and thus subject to the vagaries of the world
    price for petroleum. Investors must carefully research any business
    opportunity and avoid those opportunities that appear ``too good to be
    true.''
        The democratically elected civilian government of President
    Olusegun Obasanjo, inaugurated in May 1999, embarked on a program to
    improve the country's economic performance and refurbish its image.
    Ties have been reestablished with the international financial
    institutions and donor governments. Special panels have been
    established to investigate past government contracts and allegations of
    corruption. President Obasanjo has promised accountability and respect
    for the rule of law, and after years of harsh military rule, the impact
    on the public of this promise is dramatic.
        To strengthen the economy, the Obasanjo administration has embarked
    on an extensive reform program. Government controls over foreign
    investment have been eliminated. Previous government decrees that
    inhibited competition or conferred monopoly powers on public
    enterprises in the petroleum, telecommunications, power, and mineral
    sectors have been repealed or amended. Privatization of government
    enterprises continues, albeit at a very slow pace. Key privatizations
    of the national telecommunications monopoly NITEL and the electricity
    utility NEPA are anticipated. The government continues to seek a more
    painless, less confrontational mechanism for deregulation of the
    downstream petroleum sector. On the down side, tariffs on numerous
    products and even raw material inputs and capital equipment remain
    excessively high, leading to chronic tariff avoidance by Nigerian
    importers. The government has sought to enforce its tariff policy
    through 100 percent inspection of all goods entering the country.
        The National Assembly approved the 2001 budget prior to the
    beginning of the calendar year, a significant accomplishment compared
    to the 2000 budget process. The government in 2000 also succeeded in
    lowering its budget deficit to just 2.9 percent of GDP. Unfortunately,
    the deficit could widen again in 2001 as expenditure patterns for the
    federal, state and local governments display loose fiscal control,
    resulting in high liquidity problems throughout the economy. As a
    result, inflation which had fallen to just 6 percent by the end of 2000
    surged to about 18 percent by August 2001. In 2001, the government also
    continued deficit funding for the budget through the issuance of
    treasury bills. A new treasury bill, the Central Bank Certificate of
    Deposit, was introduced early in 2001 to mop up excess liquidity in the
    banking system. Despite opposition from the IMF, the Nigerian
    government defends its expansionary budgetary policies by insisting its
    poverty alleviation programs demand that adequate funds be expended for
    them to succeed. But even with more prudent, qualitatively improved
    fiscal behavior from the federal government, the Nigerian pattern of
    government expenditure continues to shift to the state and local
    government levels. The federal government exercises relatively little
    control over the caliber of state government spending. An improved oil
    revenue stream in 2000 due to high world oil prices fueled the demand
    for increased state revenue allocations from this ``oil windfall.''
        Throughout most of 2000, Nigeria's lively parallel market placed
    about a five percent discount on the Nigerian Naira. However, during
    2001 this discount expanded to 17-20 percent as the government from
    April on essentially froze its official exchange rate at about N111:1.
    Unusually heavy government spending early in the year and the transfer
    of public sector funds to commercial banks further exacerbated the
    liquidity overhang. At the same time the government sought to stabilize
    the Naira which encouraged widespread improper behavior by financial
    institutions and others who sought to take advantage of attractive
    currency arbitrage opportunities. The Central Bank of Nigeria (CBN) is
    implementing enforcement mechanisms to reduce this foreign exchange
    ``round-tripping''syndrome.
    2. Exchange Rate Policy
        In early 2000, a single interbank foreign exchange market rate
    (IFEM) was established for all foreign exchange transactions. Under
    this rate, which has become in effect the official exchange rate,
    commercial banks, oil companies, and the CBN can transact foreign
    exchange. However, all requests for foreign exchange transactions must
    be made through commercial banks who then must comply with required CBN
    documentation procedures for foreign exchange procurement. Companies
    and individuals may hold domiciliary accounts in private banks, and
    account holders have unfettered use of the funds. Foreign investors may
    bring capital into the country to finance investments, and remit
    dividends without prior Ministry of Finance approval. Bureau de Change
    offices are allowed a maximum of $5,000 per transaction.
    3. Structural Policies
        Although the Nigerian government maintains a system of
    ``incentives'' to foster the location of particular industries in
    economically disadvantaged areas, to promote research and development
    in Nigeria, and to favor the use of domestic labor and raw materials,
    in reality these programs have done little to benefit Nigeria's
    economic development. ``Pioneer'' industries may enjoy a nonrenewable
    tax holiday of five years, or seven years if the pioneer industry is
    located in an economically disadvantaged area. In addition, a number of
    Export Processing Zones (EPZs) have been established, most notably in
    southeastern Nigeria in Calabar, Cross River State. Currently, at least
    75 percent of production from an EPZ enterprise must be exported,
    although this percentage requirement may decrease if proposed
    regulatory changes are implemented. Unfortunately, to date only a
    minute level of exports, mostly to West African locations, has been
    registered from Nigeria's EPZs.
        In 1995, Nigeria liberalized its foreign investment regime,
    allowing 100 percent foreign ownership of firms outside the petroleum
    sector. Investment in the petroleum sector is still limited to existing
    joint ventures or productionsharing agreements. Foreign investors may
    buy shares of any Nigerian firm except those on a ``negative list''
    (for example, manufacturers of firearms and ammunition and military and
    paramilitary apparel). Foreign investors must register with the
    Nigerian Investment Promotion Commission 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
    nationalization or expropriation of a foreign enterprise by the
    Nigerian government except for such cases determined to be in the
    national interest.
        Criminal fraud conducted against unwary investors and personal
    security are chronic problems in Nigeria. Called ``419 fraud'' after
    the relevant section of the Nigerian criminal code, these ``advance-
    fee'' schemes target foreigners and Nigerians alike through the mail,
    the internet, and fictitious companies. Despite improved law
    enforcement efforts, the scope of the financial fraud continues to
    bring international notoriety to Nigeria and constitutes a serious
    disincentive to commerce and investment. Companies and individuals
    seeking to conduct business with a Nigerian firm or individual should
    conduct the appropriate due diligence to ascertain they are not the
    victims of 419 crime. Meanwhile, crime against individuals, both
    Nigerian and expatriate, in the form of carjackings, robberies,
    extortion, etc. is rampant.
    4. Debt Management Policies
        In August 2000, Nigeria and the IMF agreed to a precautionary one
    year, $1 billion Stand-by Arrangement. By August 2001, Nigeria had
    missed some of the key economic reform and budgetary targets agreed
    upon earlier under the Stand-by. Despite the missed targets, the IMF
    appears to be committed to working with Nigeria to develop a follow up
    arrangement.
        In December 2000, Nigeria reached agreement with the creditor Paris
    Club governments to reschedule over $23 billion in debt. Nigeria paid
    Paris Club creditors $700 million in 2000 and $1 billion in 2001. Under
    the agreement, roughly $20 billion of Nigeria's debt would be
    rescheduled over eighteen years with three years grace, while the
    remainder of Nigeria's debt would be rescheduled over the next five to
    nine years. Unfortunately, Nigeria has been unable to conclude
    bilateral agreements with most of its Paris Club creditors, despite
    extensions to the original April 15, 2001, deadline, and prospects for
    rescheduling remain tied to the outcome of events with the IMF.
    Discussions with the IMF and World Bank continue on a medium term
    economic program, and Nigeria is making some progress at meeting their
    criteria. According to the CBN's 2000 Annual Report, debt service
    payments in 2000 amounted to US $1,714.3 million, a marginal decline of
    $10.6 million from the 1999 level but more than the budgeted $1.5
    billion.
    5. Significant Barriers to U.S. Exports
        Initially implemented to restore Nigeria's agricultural sector and
    to conserve foreign exchange, import bans on foodstuffs had been
    severely compromised by widespread smuggling, food shortages, and
    sharply higher domestic prices for the protected items and domestic
    substitutes. Import bans on almost all agricultural commodities have
    been lifted in recent years. However, some of the ban eliminations are
    not being respected by Nigerian customs. The inconsistent, non-
    transparent application of rules by Government of Nigeria agencies
    poses a significant challenge for U.S. exports. Import restrictions
    still apply to aircraft and oceangoing vessels.
        While the Government of Nigeria continues to implement
    protectionist policies, highlighted by prohibitive import duties of up
    to 100 percent, tariff changes announced by the Government of Nigeria
    in December 2000 and amended in January 2001 both reduced and increased
    tariffs on a broad range of imported items. In particular, tariffs on
    some agricultural commodities remain extremely high and fully negate
    benefits to U.S. exporters of the Government of Nigeria's lifting of
    specific commodity import bans. While most Nigerian importers succeed
    in evading payment of the full tariffs, U.S. exporters who are careful
    to play by the rules report they are often disadvantaged and undercut
    by non-U.S. exporters who collaborate with Nigerian importers to avoid
    tariff payments, particularly on agricultural products. Immediately
    after lifting its longtime ban on corn imports, the Government of
    Nigeria placed a 70 percent duty on this grain. In conjunction with
    other surcharges and taxes, the effective tariff on corn imports is
    more than 80 percent. The Government of Nigeria's import duty for wheat
    imports increased from 7.5 to 15 percent in 2000. The U.S. share of
    Nigeria's wheat import market is nearly 90 percent. The effective
    import duty on rice was increased to approximately 85 percent. Duties
    on branded vegetable oil were increased from 35 percent to 60 percent
    and on hatchable eggs from 50 percent to 80 percent. Apples, fruit
    juices, and woven fabrics also face stiffer tariffs following the
    January 2001 tariff changes. The import of vegetable oil in bulk is
    banned.
        There continues to be pressure from Nigerian manufacturers on the
    government to lower tariffs on raw material inputs and machinery.
    Tariffs were reduced significantly to as low as five percent on such
    items as non-combed cotton, synthetic filament yarn, newsprint, textile
    and industrial machinery, vehicles, tractors, and chemicals. Cement
    imports must be imported in bulk only of not less than 10,000 mt or the
    full capacity of the carrying vessel.
        Nigeria is a long-standing member of the World Trade Organization
    (WTO). Its current tariff structure reflects revisions aimed at
    narrowing the range of custom duties, increasing rate coverage in line
    with WTO provisions, and decreasing import prohibitions. Overall,
    Nigeria continues slowly to reduce its tariffs and duties, although
    some excise duties eliminated in 1998 have been restored for certain
    goods such as cigarettes, cigars, tobacco, and spirits. For 1999, a 25
    percent import duty rebate that was granted importers in late 1997 was
    abolished. About 500 tariff lines were modified in 2001, including
    upward duty revisions averaging 25 percent on 70 tariff lines (on
    mostly agricultural products) and downward revisions of generally less
    than 10 percent on about 430 tariff lines. This roller-coaster raising
    and lowering of tariffs has resulted in a slight decrease in average
    tariff levels in 2001.
        Nigeria's ports continue to be a major hindrance for imports.
    Importers bemoan excessively long clearance procedures, petty
    corruption, the extremely high berthing and unloading costs, and
    arbitrary application of Nigerian regulations. All unaccompanied
    imports and exports regardless of value require pre-shipment inspection
    (PSI) and must be accompanied by an import duty report (IDR). The
    Nigerian Customs Service will confiscate goods arriving without an IDR.
    In addition, all goods are assessed a onepercent surcharge to cover the
    cost of inspection. In January 2001, the Government of Nigeria
    announced that all imported containers and vehicles must enter Nigeria
    through its ports. This policy was implemented in an attempt to halt
    the transshipment of vehicles and products from neighboring countries.
    In June 2001, the Government of Nigeria ordered 100 percent inspection
    by Nigerian Customs and the Nigerian Ports Authority of all goods
    entering Nigeria. This move was made in a bid to check the growing
    incidence of under-valuation of imports and smuggling, specifically
    according to the government, firearms and ammunition. The result of
    this enhanced inspection regime has been severe port congestion as
    ports lack the facilities to cope with the widely expanded operations.
    The Government of Nigeria has announced that it intends to continue the
    100 percent inspection regime indefinitely and would stop the pre-
    shipment inspection (PSI) system.
        The Obasanjo Administration has pledged to practice open and
    competitive contracting for government procurement, and anti-corruption
    is an energetic and central plank of the current government's
    procurement policies. However, U.S. companies continue to experience
    serious problems with non-transparent contract negotiations and
    corruption at high levels of the Nigerian government. Foreign companies
    incorporated in Nigeria are entitled to national treatment, and tenders
    for government contracts are published in Nigerian and international
    newspapers. The government has prepared guidelines for the procurement
    process. (Proper precautions should be exercised by prospective
    contractors to avoid possible ``419'' problems.) According to
    government sources, approximately five percent of all government
    procurement contracts are awarded to U.S. companies. However, numerous
    U.S. companies have experienced difficulties in landing government
    contracts despite their alleged technical and financial advantages.
    6. Export Subsidy Policies
        On paper, the Nigerian Export Promotion Council (NEPC) administers
    export incentive programs, including a duty drawback program, an export
    development fund, tax relief and capital assets depreciation
    allowances, and a foreign currency retention program. The effectiveness
    of these programs for more than a limited number of beneficiaries is
    dubious and their non-potency is reflected in Nigeria's export
    proceeds. In 2000, Nigeria exports increased by almost 50 percent,
    almost entirely due to higher prices for hydrocarbons. Although non-oil
    exports increased by 27 percent, its overall share in total exports in
    real terms actually decreased from 1.6 percent in 1999 to only 1.3
    percent in 2000. The CBN reported in September that there has not been
    any increase in non-oil export earnings yet in 2001. The duty drawback
    or manufacturing inbond program was 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 product exportation and repatriation of foreign
    exchange. Though meant to promote industrial exports, these schemes
    have been burdened by inept administration, confusion among
    industrialists, and corruption, causing in some cases losses to those
    manufacturers and exporters who opted to use them.
    7. Protection of U.S. Intellectual Property
        Nigeria is a signatory to the Universal Copyright Convention and
    the Berne Convention. In 1993, Nigeria also became a member of the
    World Intellectual Property Organization (WIPO), thereby becoming party
    to most of the major international agreements on intellectual property
    rights. 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 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. This act was
    amended in 1999 to include video rental and security devices. According
    to the Nigerian Trademarks Office, the Nigerian Trademarks Law is
    almost fully TRIPS (Trade Related Intellectual Property Rights)
    compliant, but the Government of Nigeria acknowledges there is room for
    improvement in such areas as Geographical Indications (GIs). The
    Federal Ministry of Justice is currently working to ensure its updated
    Trademarks Law is wholly TRIPS compliant.
        Although existing patent and piracy laws are considered reasonable,
    enforcement remains extremely weak and slow. Piracy of copyrighted
    material is widespread and includes a large portion of the
    pharmaceutical market and virtually 100 percent of the Nigerian
    recordings and home video market. Foreign companies rarely have sought
    trademark or patent protection in Nigeria because it was generally
    perceived as ineffective. Few cases involving infringement of
    nonNigerian copyrights have been successfully prosecuted in Nigeria,
    while the few court decisions that have been rendered have been
    inconsistent. Most copyright cases have been settled out of court.
    However, there are signs the pattern of abuse in intellectual property
    rights protection is being reversed. Nigerian companies, banks, and
    government agencies are increasingly being forced to procure only
    licensed software. The National Agency for Food and Drug Administration
    and Control (NAFDAC) has made highly publicized raids on counterfeit
    pharmaceutical enterprises. Establishment of specialized courts to
    handle intellectual property rights issues is being considered.
    Nigeria's active participation in international conventions has yielded
    positive results. Law enforcement agents occasionally do carry out
    raids on suspected sites for production and sale of pirated tapes,
    videos, computer software and books. Moreover, some Nigerian companies,
    including filmmakers, have sought to protect their legitimate business
    interests by banding together in bringing lawsuits against pirate
    broadcasters.
        The recent deregulation of Nigeria's television market has led to
    the creation of a number of broadcast and cable stations. Many of these
    stations utilize large satellite dishes and decoders to pull in
    transmissions for rebroadcast, providing unfair competition for
    legitimate public and private television stations.
    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
    startup 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, prohibits 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 homebased
    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 has also forced many children into the
    employment market, which is unable to absorb their labor due to high
    levels of unemployment. The use of 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 two to four 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 May 2000, the federal
    government approved a new National Minimum wage for both federal and
    state employees. Under the approved wage, federal workers are to
    receive a minimum monthly wage (salary and allowance) of 7,500 naira
    ($75) while state employees would receive 5,500 naira as a minimum
    monthly wage. The new wage review has, however, set many state
    governments and their employees on a collision course. While some
    states claim that they cannot afford the stipulated 5,500 naira labor
    unions and state workers insist their wages should be the same as those
    of federal workers. The last minimum wage review was carried out in
    1998 by the Abubakar regime. 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  -881
    Total Manufacturing.........  ...........  58
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          22           .............................
       Products.
      Primary & Fabricated        -1           .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  (\1\)        .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  ...........  (\1\)
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  274
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  6
        Total All Industries....  ...........  1,283
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                  SOUTH AFRICA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                   1999     2000    \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment: \2\
      GDP (at nominal prices)..................    130.0    126.1     108.1
      Real GDP Growth (pct)....................      1.9      3.1       2.5
      GDP by Sector:
        Agriculture............................      4.5      3.2       3.2
        Mining and Quarrying...................      6.4      6.5       6.9
        Manufacturing..........................     19.9     18.8      18.7
        Wholesale/Retail Trade.................     13.5     13.1      14.0
        Transport, communications..............     10.7     10.0      11.0
        Electricity, water.....................      3.6      2.9       2.8
        Construction...........................      3.0      2.8       2.8
        Financial Services.....................     17.9     20.3      20.5
        Government (community, social services)     20.4     19.3      18.7
        Other producers: social, private           (\8\)      3.1       3.1
         services..............................
      Per Capita GDP (US$).....................    3,040    2,885     2,576
      Total labor employed (millions)..........    10.37      N/A       N/A
      Total economically active (millions).....    13.53      N/A       N/A
      Official unemployment Rate (pct).........     23.3     25.8       N/A

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).................     13.6      6.2      12.9
      Consumer Price Index.....................      5.2      5.3       5.7
      Exchange Rate (Rand/US$--annual average)      6.11     6.93      8.29
       \1\.....................................

    Balance of Payments and Trade:
      Total Exports FOB \3\....................    24.65     27.6      30.1
        Exports to United States \4\...........      3.2      4.2       4.6
      Total Imports CIF \3\....................     24.5     27.3      26.7
        Imports from United States \4\.........      2.4      2.8       2.7
      Trade Balance \3\........................     0.15      0.3       3.4
        Balance with United States \4\.........      0.6      1.4       1.9
      External Public Debt/GDP (pct) \5\.......      2.0      3.0       N/A
      Fiscal Deficit/GDP (pct).................     -2.3     -2.0      -2.5
      Current Account Deficit/GDP (pct)........     -0.4     -0.3       0.6
      Debt Service Payments/GDP (pct)..........      5.5      5.2       4.9
      Gross Gold and Foreign Exchange Reserves.     11.2     11.1       4.2
      Aid from United States (US$ millions) \6\       53       47        53
      Total Aid (US $ millions) \7\............      141      141       100
    ------------------------------------------------------------------------
    \1\ Indicators for 2001 are projections. In South African Rand the GDP
      is projected to grow to R 896 billion and GDP per capita for 2001 is
      projected at R21,354.
    \2\ The following exchange rates were used in the calculations: $1/R6.11
      for 1999, 1$/R6.93 for 2000, 1$/R8.29 for 2001.
    \3\ Source: South African Reserve Bank Sept. 2001 Quarterly Bulletin.
      Exports: merchandise only--net gold exports excluded.
    \4\ Source: USITC. Exports FAS, imports customs basis.
    \5\ Figures for 1999, 2000 from SA Reserve Bank Quarterly Bulletin
      September 2001.
    \6\ The figures represent aid from USAID only.
    \7\ Source: SA Reserve Bank September 2001 Quarterly Bulletin and 2001
      Budget Review of the National Treasury.
    \8\ Included above.

    1. General Policy Framework
        South Africa is a middle income developing country with an economy
    marked by substantial natural resources, a sophisticated industrial
    base, and modern telecommunications and transport infrastructure. A
    member of the WTO, its policies largely promote free trade. It has a
    very developed legal sector, a sophisticated financial sector, and a
    stock exchange that ranks among the 20 largest in the world. South
    Africa has inexpensive electrical power and raw materials as well as
    lower labor costs than western industrialized countries. It has enjoyed
    positive economic growth since 1993. Following slow growth in real GDP
    of only 0.7, a turnaround started in 1999 with a 1.9 percent growth
    rate, followed by real GDP growth of 3.1 percent in 2000.
        The short and medium term prospects for South Africa are generally
    upbeat. Sound management at the macro-economic level continued to
    characterize the public finances during 2000/01 and the budget deficit
    as a percentage of the GDP was reduced to less than two percent. In
    general, the South African economy is adjusting satisfactorily to the
    challenges posed by the changing global economy. This is reflected in a
    low foreign debt-to-GDP ratio and declining interest and inflation
    rates. Even within the global economic slowdown, the South African
    economy is expected to grow perhaps 2.5 percent in 2001. With its large
    structural savings/investment gap, however, South Africa depends on
    foreign savings to support investment and growth. Progress in
    attracting higher levels of foreign direct investment (FDI) has been
    disappointing, hindered by the loss of confidence of international
    investors in emerging markets assets and South Africa's sluggish pace
    of privatization. Inflows of FDI are still more than fully offset by
    South African corporations' expansion and investment abroad as exchange
    controls are relaxed.
        The South African Reserve Bank (SARB) influences interest rates and
    controls liquidity through its rates on funds provided to private
    sector banks (repo rate), and to a lesser degree through the placement
    of government paper. In February 2000, an inflation targeting monetary
    policy framework was introduced. It is a broad based strategy for
    achieving price stability, centered on an analysis of price
    developments and not on some reference value for monetary growth. The
    SARB uses CPIX (Consumer Price Index for metropolitan and urban areas
    excluding interest costs on mortgage bonds) as the benchmark for
    inflation targeting. A CPIX band of three to six percent for the year
    2002 was set as target. With the adoption of an inflation targeting
    monetary policy framework, the SARB no longer has any intermediate
    policy targets or guidelines such as the exchange rate or growth in the
    monetary aggregates.
        The Competition Act of 1998 took effect in September 1999. The Act
    replaced the previous legislation with new provisions for a much
    stronger and more independent competition authority. The Commission has
    a range of functions, including investigating anticompetitive conduct,
    assessing the impact of mergers and acquisitions on competition and
    taking appropriate action, monitoring competition levels and market
    transparency in the economy, identifying impediments to competition,
    and playing an advocacy role in addressing these impediments. With
    record growth in merger and acquisition activity and a growing number
    of enforcement and exemption cases, the new Commission has accumulated
    a large caseload in a short period that has severely tested its
    resources. In its first year, it has handled over sixty merger cases
    and is playing a significant role in opening the economy.
        Although the country's economic fundamentals are in place, the
    Government of South Africa is still faced with serious challenges. To
    date, it has made little progress in changing the low overall income
    levels of the majority of people, addressing the highly skewed income
    distribution between the different race groups and with the creation of
    jobs. Other serious shortcomings include poor quality schools in the
    majority of areas of the country, the lack of social services for all
    and insufficient growth rates to address the huge unemployment problem.
        While poverty, inequality, unemployment, lack of skilled labor,
    corruption, increasing crime, and the acceleration in the incidence of
    HIV/AIDS remain significant sociopolitical problems, South Africa
    remains the largest and most developed country in Sub Saharan Africa.
    2. Exchange Rate Policy and Foreign Exchange Controls
        The market drives South Africa's exchange rate policy with the rate
    determined by supply and demand in the currency market. While the SARB
    has the option of intervention, its current policy is that it will not
    take that action. With the adoption of an inflation targeting monetary
    policy framework, the SARB no longer has any intermediate policy
    targets or guidelines such as the exchange rate or growth in the
    monetary aggregates. The South African authorities are committed to
    allowing the value of the rand to be determined by the market.
        The South African Reserve Bank (SARB) administers foreign exchange
    controls through its Exchange Control Department. Commercial banks act
    as authorized dealers of foreign exchange on behalf of the SARB. Unless
    otherwise authorized by the Exchange Control Department, all
    transactions between residents and nonresidents of SA must be accounted
    for through the authorized dealers. In general, there are no controls
    on the removal of investment income or on capital gains by
    nonresidents. Dividends from quoted companies may be paid to
    nonresidents without the approval of the SARB. Non-quoted companies may
    pay dividends to nonresidents, providing an auditor's report shows that
    such dividends are the result of earned profits. Foreign firms may
    invest in share capital without restriction. Royalties, license fees,
    and certain other remittances to nonresidents require the approval of
    the SARB.
        In March 1997, the Finance Ministry announced phased-in measures to
    relax foreign exchange controls, including doubling foreign firms'
    access to local credit and increasing, higher retention of offshore
    income, and increased ceilings on foreign investment holdings of local
    financial institutions. In particular, South African resident private
    individuals over the age of 18 and tax payers in good standing have,
    for the fist time, been allowed to invest abroad since July 1997. The
    R500,000 limit was increased to R750,000 per person in 2000. A number
    of other exchange control relaxations were also introduced in the past
    two years. In his 2001 Budget speech, the Minister of Finance
    emphasized that the global expansion of South African firms held
    significant benefits for the economy including expanded market access,
    increased exports, and improved competitiveness. In order to support
    this expansion from a South African base, the limit on the use of South
    African funds for new approved foreign direct investment was increased
    from R50 million to R500 million. And further, as part of the
    government's commitment to African economic recovery, South African
    firms were granted the permission to use up to R750 million of local
    cash holdings for new approved foreign direct investment in Africa.
        In the absence of a positive inflow of FDI, South Africa has had to
    rely on more volatile portfolio inflows instead, which are vulnerable
    to sentiment and speculation. During 2000, the surplus balance on the
    financial account contracted sharply, falling from R29.5 billion in
    1999 to R8.5 billion. These outflows via the financial account
    contributed to in the continued fall of the value of the South African
    currency. During 2000, the Rand fell by 12 percent in value against the
    U.S. dollar and remained volatile during the course of 2001. This
    depreciation has reduced the price competitiveness of U.S. exports. The
    impact on the loss of exports of U.S. agricultural products is
    particularly strong. South Africa has a surplus balance on trade with
    the United States.
    3. Structural Policies
        All prices of goods are market determined with the exception of
    petroleum products. With regard to agricultural products, the sugar
    industry is the only one in which a degree of price regulation still
    exists. Purchases by government agencies and major private buyers are
    by competitive tender for projects or supply contracts. The
    Preferential Procurement Policy Framework Act, enacted in February
    2000, aims to promote public sector procurement reform in all organs of
    state, to introduce a more uniform public sector procurement system and
    to provide implementing guidelines for the procurement policy. Under
    the Act, a government organization with a preferred provider program
    must use a preference point system. A contract will be awarded to the
    bidder with the highest number of points, provided the bidder is within
    a certain range of the lowest acceptable bid price. Regulations in
    terms of the Act were published during July 2001 to establish a formula
    for allowing preference points, e.g., for Historically Disadvantaged
    Individuals (HDIs), when tendering for a Government Procurement
    contract.
        In the 2000 Budget, several proposals were introduced with
    prospective effect, including residence-based income taxation and the
    capital gains tax. The South African tax system used to be based on the
    source principle and tax was levied on income from a source within
    South Africa irrespective of whether it was earned by a resident or
    nonresident. From 2001, South Africa has moved to a residence based
    income tax system. Tax is levied on residents of South Africa
    irrespective of where in the world the income is earned, although some
    categories of income and activities undertaken outside the country are
    exempted from South African tax. This structural change to the income
    tax was necessary to ensure that the South African tax system kept pace
    with globalization and the integration of South Africa with the world
    economy. Capital gains tax became effective from October 1, 2001.
    Effective rates for individuals will range from zero to 10.5 percent,
    retirement funds 6.25 percent, unit trusts 7.5 percent, life insurers
    from 6.25 to 15 percent, and companies 15 percent.
        Income tax payers are divided into two categories: individuals, who
    are taxed at progressive rates, and companies, taxed at 30 percent of
    taxable income. A secondary tax on companies (STC) (an additional tax
    on company income) is imposed at a rate of 12.5 percent on the net
    amount of dividends declared by a company. Withholding taxes are
    imposed on interest and royalties are remitted to nonresidents. South
    Africa has a 14 percent Value Added Tax (VAT). Exports are zero rated,
    and no VAT is payable on imported capital goods. During the recent two
    to three years, the government has undertaken measures 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 STC was halved to 12.5 percent in March 1996.
    In the 2000 Budget, extensive relief was also allowed on individual tax
    rates, with the top marginal tax rate to decrease to 42 from 45 percent
    and the lowest to 18 from 19 percent. The February 2001 Budget allowed
    for further personal income tax relief, resulting from the
    restructuring of income tax brackets. The measure boosted personal
    disposable income by R8.3 billion. The Minister of Finance also
    announced that $375 million has been set aside over the next four years
    for tax incentives targeted at strategic industrial projects that
    promise significant benefits to the South African economy such as job
    creation. During the 2000 Budget, a reduced tax rate of 15 percent of
    the first R100, 000 of taxable income was introduced for certain small
    businesses. In 2001, the tax privileges were extended to allow for the
    immediate deduction of investment expenditure in manufacturing assets
    for the year in which the investment is made.
        Labor and labor issues have a strong impact on needed investment.
    The government's privatization agenda meets with significant resistance
    from trade unions who are politically strong. Recent planned
    privatizations of two telecom entities have been delayed to next fiscal
    year. Further, inflexible labor laws, particularly with regard to
    collective bargaining, impede competitiveness gains and discourage
    investors.
    4. Debt Management Policies
        At the end of 2000, the SARB reported that total foreign (public
    and private) debt amounted to approximately $36.9 billion, down from
    $38.9 billion in 1999. 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
    decrease from 8.6 percent in 1999 to 6.2 percent in 2000.
        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. South Africa's liquid and
    sophisticated domestic capital market helped the country to cope
    relatively well with the 1998 global financial market crisis. The
    country did not require an IMF program and could easily afford not to
    borrow from international markets. Domestic debt, of which the bulk is
    medium and longterm, with an average duration of close to five years,
    accounts for over 90 percent of the national government's total debt
    portfolio. Foreign debt, almost entirely capital market debt, accounts
    for only six to seven percent of the portfolio and is mainly
    denominated in U.S. dollars, euros, and Japanese yen.
        In February 2001, the government announced that as part of a more
    active debt management policy, a program of debt consolidation was
    underway, a new long-dated inflation linked bond will be issued, and a
    bondstripping facility introduced. After extraordinary receipts and
    payments, the Net Borrowing Requirement (NBR) for 2000/01 came to R16.8
    billion ($2.4 billion).
        The SARB has made strong progress on reducing the liability of its
    net open forward position (NOFP). At end 2000 the NOFP stood at $9.5
    billion. Currently, it is $4.8 billion, which is roughly 64 percent of
    reserves.
    5. Significant Barriers to U.S. Exports
        South Africa is a member of the WTO. The government remains
    committed to the simplification and reduction of tariffs within the WTO
    framework, and maintains active discussions in trade organizations.
    Ninety-eight percent of South Africa's tariff lines are now bound. The
    number of antidumping petitions filed in South Africa, however, remains
    high. In a December 2000 ruling, the BTT reaffirmed the dumping duties
    on chicken pieces imported from the United States.
        In September 1996, DTI introduced an Industrial Participation (IP)
    program. Under the program, all government and parastatal purchases or
    lease contracts (goods, equipment or services) with an imported content
    equal to or exceeding $10 million (or the Rand equivalent thereof) are
    subject to an IP obligation. This obligation requires the seller/
    supplier to engage in commercial or industrial activity equaling or
    exceeding 30 percent of the imported content of total goods purchased
    under government tender. The Industrial Participation obligation must
    be fulfilled within seven years of the effective date of the IP
    agreement.
        Government purchases are by competitive tender for project, supply
    and other contracts. Foreign firms can bid through a local agent, who
    will then be so examined. The government, however, utilizes its
    position of both buyer and seller to promote the economic empowerment
    of historically disadvantaged groups through the Black Economic
    Empowerment (BEE) program.
        Regulations also set a legal framework and formula for allowing
    preference points to HDIs when tendering for a Government Procurement
    contract. Points are awarded based on such criteria as a percentage of
    HDI ownership and the percentage of HDI managers. Many U.S. companies
    operating in South Africa already have significant programs that
    support and empower HDIs and could therefore fare well in this system.
    However, the concern was never the point system but the possibility
    that HDI equity ownership is interpreted as a mandatory part of the
    system. This could have negative implications for multinational
    corporations (MNCs) because many MNC boards of directors may be
    unwilling to give away corporate equity solely for the purpose of doing
    business with the South African Government.
        The Telecommunications Act of 1996 (TCA) gave the
    telecommunications parastatal Telkom a monopoly over the provision of
    voice communication lines and the direct sale of infrastructure
    (including ``last mile'' services) to end users. The TCA also provided
    the Minister of Communications sole authority to set communications
    policy and to issue licenses. The industry regulator, the Independent
    Communications Authority of SA (ICASA) has a mandate to interpret the
    TCA, to issue regulations, and to recommend licensees. Frequently there
    is conflict between the Ministry, Telkom, and commercial
    telecommunications providers. ICASA was unable to resolve the dispute
    between Value Added Network Services (VANS) providers and Telkom for
    over three years. One of the VANS providers, AT&T, has complained to
    the U.S. Trade Representative (USTR) that the government was not living
    up to its WTO commitments by allowing Telkom to refuse service to VANS
    providers whom Telkom claimed were reselling capacity. ICASA has
    solicited input from the business community during the past year to
    assist in compiling new regulations covering VANS. As of June 2001, the
    Department of Communications has yet to issue final policy directives
    clarifying its stance on VANS and other telecommunications issues.
    6. Export Subsidies Policies
        Almost all export subsidies have been discontinued. The DTI has
    moved away from these policies to supply-side measures. One of the new
    programs, the Export Marketing Assistance Scheme (EMA), offers
    financial assistance for the development of new export markets, through
    financing trade missions and market research. The total amount allowed
    to the DTI for exporter assistance for 1999/2000 was less than $15
    million compared to exporter assistance of $150 million in 1997/98.
        DTI's division know as Trade and Investment South Africa (TISA) has
    a section dealing with trade facilitation by providing assistance to
    export development projects. It is also responsible for the provision
    of interest subsidies on medium and long term. The subsidies are based
    on the rate differential between South African and international
    lending rates. The subprogram also provides assistance to the
    Reinsurance Fund for Export Credit and Foreign Investment. A new
    government owned Export Credit Agency was established during 2001.
    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.
    7. Protection of U.S. Intellectual Property
        While South African IPR laws and regulations are largely TRIPS-
    compliant, there is continuing concern about copyright piracy and
    trademark counterfeiting. The U.S. copyright industry estimates that
    trade losses due to the piracy of copyrighted works continue to
    increase. The U.S. and South African governments have held extensive
    consultations to clarify a section of the South African Medicines Act,
    which appeared to grant the Minister of Health broad powers in regard
    to patents on pharmaceuticals. The governments reached an understanding
    that any action taken by the South African government will be compliant
    with TRIPS. A similar understanding was then reached between the
    pharmaceutical companies and the South African Government. Draft
    regulations to implement the agreement have been published during 2001
    and discussions with interested parties are continuing.
        Intellectual property rights (IPR) are protected under a variety of
    laws and regulations. Patents may be registered under the Patents Act
    of 1978 and are granted for twenty years. Trademarks can be registered
    under the Trademarks Act of 1993, are granted for ten years, and may be
    renewed for 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, cinematography 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 amended in 1992 to include computer software. The
    Department of Trade and Industry (DTI) 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
    Intellectual Property. South Africa is also a member of the World
    Intellectual Property Organization (WIPO). The SAG passed two IPR-
    related bills in Parliament at the end of 1997, the Counterfeit Goods
    Act and the Intellectual Property Laws Amendment Bills, thereby
    enhancing its IPR protection. The Counterfeit Goods Act provides for
    criminal prosecution of persons trading in counterfeit or pirated goods
    and establishes a special antipiracy unit. However, enforcement of
    these laws by the National Inspectorate has only recently begun in
    earnest. At the beginning of November 2000, 20 inspectors were
    appointed and trained. A number of warehouse facilities designated as
    counterfeit goods depots were appointed on a self-funding basis during
    the latter part of 2000. During 2001, the DTI put out a tender for the
    disposal of seized counterfeit goods in state warehouses.
    8. 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 3.3 million or
    31 percent of those employed in the wage economy. 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. There are reports, however, that women
    and children have been forced into prostitution.
        d. Minimum Age for Employment of Children: South African law
    prohibits employment of minors under age 15. Nor may children between
    ages 15 and 18 work if such employment ``places at risk the child's
    wellbeing, education, physical or mental health, or spiritual, moral or
    social development.'' Child labor is nevertheless prevalent in the
    rural areas of the former "homelands" and in the informal sector.
        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 and domestic workers. Occupational health and safety
    issues remain a top priority of trade unions, especially in the mining,
    construction 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  6
    Total Manufacturing.........  ...........  947
      Food & Kindred Products...  142          .............................
      Chemicals & Allied          205          .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    89           .............................
       Equipment.
      Electric & Electronic       71           .............................
       Equipment.
      Transportation Equipment..  141          .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  166
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  (\1\)
     Estate.
    Services....................  ...........  118
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  2,826
    ------------------------------------------------------------------------
    \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
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \3\......................     392.7      377.8      338.4
      Real GDP Growth (pct)................       4.2        1.5        2.5
      GDP by Sector: \4\
        Agriculture........................      12.8       10.8        9.6
        Manufacturing......................      47.7       43.2       38.7
        Services...........................     280.2      281.8      252.5
        Government.........................      14.6       14.1       12.6
      Per Capita GDP (US$).................    21,800     19,900     16,900
      Labor Force (000s)...................     9,470      9,700      9,800
      Unemployment Rate (pct)..............       7.0        6.3        6.9

    Money and Prices (annual percentage
     growth):
      Money Supply (M3)....................      10.1        4.5       10.6
      Consumer Price Inflation.............       1.8        5.8        4.0
      Exchange Rate (Aust$/US$--annual           1.56       1.74       1.99
       average) \2\ .......................

    Balance of Payments and Trade:
      Total Exports FOB....................      55.7       63.6       62.9
        Exports to United States...........       5.4        6.3        5.8
      Total Imports CIF....................      65.1       67.4       65.4
        Imports from United States.........      13.6       13.3       12.6
      Trade Balance........................      -9.4       -9.3       -3.5
        Balance with United States.........      -8.1       -7.0       -6.8
      External Public Debt.................      24.0       12.2        7.6
      Fiscal Surplus/GDP (pct).............       0.7        7.0        0.3
      Current Account Deficit/GDP (pct)....       5.8        4.0        3.5
      Debt Service Payments/GDP............       1.7        2.0        1.6
      Gold and Foreign Exchange Reserves...      22.0       18.8       19.0
      Aid from United States...............         0          0          0
      Aid from All Other Sources...........         0          0          0
    ------------------------------------------------------------------------
    \1\ 2001 figures are estimates based on available monthly data in
      October.
    \2\ Exchange rate fluctuations must be considered when analyzing data.
      Percentage changes calculated in Australian dollars.
    \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 (55-60
    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; 20 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.
        Australia was one of the OECD's fastest-growing economies
    throughout the 1990s, and, after a short downturn in late-2000,
    continues to grow faster than the OECD average. The resultant
    improvement in the labor market has seen unemployment fall below seven
    percent for the first time in a decade, with little hint of wage
    inflation. Price inflation, however, remains above average (around five
    percent p.a.) following the July 2000 introduction of a broad-based 10
    percent consumption tax and the continued depreciation of the
    Australian dollar. Cuts by the Reserve Bank of Australia (RBA) to
    official interest rates (150 basis points over 2000), while bolstering
    economic growth, will probably prevent the inflation rate returning to
    its long-term trend level (around two-three percent p.a.) until well
    into 2002.
        The Liberal/National coalition government continued its program of
    fiscal consolidation and debt reduction in its budget for the 2001-2002
    fiscal year, announcing a planned budget surplus of $0.8 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 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 percent. It is now in the
    process of selling the remaining federally-owned airports around
    Sydney.
        The General Tariff Reduction Program, begun in March 1991, has
    reached its conclusion, with most existing tariffs now at five percent
    or below. However, the passenger motor vehicles and textiles, clothing
    and footwear industries are still protected by high tariffs (15 and 25
    percent respectively) where they will remain, pending further review,
    until 2005.
        July 2000 saw the introduction of the Goods and Services Tax (GST),
    accompanied by significant cuts to personal income taxes. The GST is a
    broad-based consumption tax levied at 10 percent (exempting only basic
    food, education, health, and charities) and replaces the Wholesale
    Sales Tax and several other minor excises and taxes.
    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-2001 totaled $160 billion (48
    percent of GDP). Australia's net external public debt is $7 billion, or
    around two percent of GDP. 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 percent 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 eased in 1992, allowing up to 20 percent
    of the time used for paid advertisements to be filled with foreign-
    sourced material.
        Local content regulations also require that 55 percent of a
    commercial television stations' weekly broadcasts between the hours of
    6:00 a.m. and midnight must be dedicated to Australian-produced
    programs. (The United States 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 percent of
    their annual program budget to new Australian-produced content.
        Labeling: Various federal and state labeling requirements are being
    reconsidered in light of compliance with GATT obligations, utility and
    effect on trade. A new mandatory standard for foods produced using
    biotechnology came into effect in May 1999. The standard prohibits the
    sale of food produced using gene technology, unless the food has been
    assessed by the Australia New Zealand Food Authority (ANZFA) and listed
    in the standard. The Australia New Zealand Food Standards Council has
    directed ANZFA to require labeling for virtually all foods produced
    using biotechnology, with labeling of affected products to become
    mandatory on 7 December 2001.
        Commodity Boards: The export of almost all wheat, rice, and sugar
    remains under the exclusive control of commodity boards. The
    privatization of the Australian Wheat Board (AWB) in July 1999 saw its
    export controls transferred to the Wheat Export Authority (WEA), with
    veto rights over bulk export requests retained by the grower-owned
    former subsidiary of the AWB, AWB (International) Ltd. After review
    during 2000, the Federal government extended the WEA's export monopoly
    until 2004. Having terminated export support payment schemes and
    internal support programs for dairy producers, the Australian
    government has made a structural adjustment package available to dairy
    producers since June 2000.
        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, in a number of instances without the WTO-required
    science-based justification. 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 California table grapes, Florida citrus, stone fruit,
    chicken (fresh, cooked, and frozen), pork, apples, and corn.
        Investment: The government requires notification of investment
    proposals by foreign interests above certain notification thresholds,
    including: acquisitions of substantial interests, 15 percent by a
    single foreigner and 40 percent in aggregate, in existing Australian
    businesses with total assets over A$50 million; plans to establish new
    businesses involving a total investment of over A$10 million or more
    and takeovers of offshore companies whose Australian subsidiaries are
    valued at A$50 million or more, or account for more than 50 percent of
    the target company's global assets; and, direct investments by foreign
    governments or their agencies, 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 media sector, urban real estate
    or land, 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 IT companies with
    annual sales to the Government of Australia of more than A$40 million
    have been expected to enter into the Partnerships for Development (PFD)
    scheme. Under a PFD, the headquarters of the foreign firm agrees: to
    invest five percent of its annual local turnover on research and
    development in Australia; to export goods and services worth 50 percent
    of imports for hardware companies or 20 percent of turnover for
    software companies; and to 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 souring 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.
        On 1 June 2001, the Government of Australia released a discussion
    paper on the Strategic Industry Development Agreement Program, to
    replace the PFD scheme at some point in the second half of 2001. The
    proposed framework requires all companies wishing to supply Information
    and Communication Technology (ICT) products and services to the
    Government of Australia (including subcontractors and resellers) to be
    endorsed under the Endorsed Supplier Arrangement. Companies supplying
    more than A$10 million in ICT goods and services will be required to
    commit to industry development activities, such as research and
    development, export and value-added manufacturing initiatives, and
    technology transfer.
    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.
    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. In August 2000, Australia took final action to implement the
    1996 WIPO Copyright and World Performances and Phonograms Treaties. The
    United States is concerned over Australia's removal of restrictions on
    parallel imports, copyright piracy issues and with Australia's
    limitations on its protection of test data for certain chemical
    entities.
        Australia has allowed the parallel importation of sound recordings
    since 1998, and of branded goods (e.g. clothing, footwear, toys, and
    packaged food) since 2000. During July 2000, the Cabinet approved a
    proposal to remove the restriction on parallel imports for books and
    computer software. Although passed by the House in June 2001, the
    legislation is unlikely to be approved by the Senate in 2001.
        During December 2000, the Australian House of Representatives'
    Standing Committee on Legal and Constitutional Affairs released its
    report entitled ``Cracking down on copycats: enforcement of copyright
    in Australia.'' The Committee concluded that even though the level of
    copyright infringement in Australia is low by international standards,
    it does impose a significant and costly burden to many Australian
    industries that rely on creative endeavor. The Committee recommended
    amendments be made to the Copyright Act to make it easier for copyright
    holders to defend their rights in civil actions and to increase the
    criminal penalties for commercial infringement. It is unlikely these
    recommendations will be enacted in any form during 2001.
        In August 1999, the Australian Parliament enacted legislation
    permitting limited software recompilation. The impact of this
    legislation remains unclear; the U.S. government continues to monitor
    the potentially serious impact of software decompilation.
        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 products.
    No protection is provided for data submitted in regard to new uses and
    formulations.
        Trademarks: Australia provides Trade-Related Aspects of
    Intellectual Property Rights (TRIPs) compatible protection for both
    registered and unregistered well known trademarks under the Trademark
    Act of 1995. The term of registration is ten years.
    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 26
    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 that 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 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  6,992
    Total Manufacturing.........  ...........  7,964
      Food & Kindred Products...  1,197        .............................
      Chemicals & Allied          2,624        .............................
       Products.
      Primary & Fabricated        472          .............................
       Metals.
      Industrial Machinery and    705          .............................
       Equipment.
      Electric & Electronic       159          .............................
       Equipment.
      Transportation Equipment..  1,446        .............................
      Other Manufacturing.......  1,360        .............................
    Wholesale Trade.............  ...........  2,627
    Banking.....................  ...........  2,627
    Finance/Insurance/Real        ...........  8,145
     Estate.
    Services....................  ...........  2,242
    Other Industries............  ...........  4,843
        Total All Industries....  ...........  35,324
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     CHINA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000       2001
    ------------------------------------------------------------------------
    Income, Production and Employment \1\
      Nominal GDP \2\......................     986.9    1,077.1    1,160.0
      Real GDP Growth (pct) \3\............       7.1        8.0        7.5
      GDP by Sector: \4\
        Agriculture........................     174.1      171.2      176.0
        Manufacturing......................     486.0      548.0      597.5
        Services...........................     325.7      357.9      386.5
        Government \5\.....................     123.9      141.0        N/A
      Per Capita GDP (US$).................       787        829        892
      Labor Force (millions) \6\...........     711.6      717.8      724.0
      Unemployment Rate (pct) \7\..........       3.1        3.1        3.5

    Money and Prices (annual growth):
      Money Supply (M2) (pct)..............      15.3       12.3       13.5
      Consumer Price Inflation (pct).......      -1.4        0.4        1.0
      Exchange Rate (RMB/$US avg.).........       8.3        8.3        8.3

    Balance of Payments and Trade:
      Total Exports (FOB) \8\..............     194.7      249.1      269.2
        Exports to United States (U.S.           81.8      100.0      107.2
         data).............................
        Exports to United States (Chinese        41.9       52.1       55.2
         data).............................
      Total Imports CIF....................     158.7      214.7      241.3
        Imports from United States FAS           13.1       16.2       19.5
         (U.S. data).......................
        Imports from United States (Chinese      19.5       22.4       26.2
         data).............................
      Current Account Balance..............      15.7       20.5       12.4
        Balance with United States (U.S.         68.7       83.8       87.7
         data).............................
        Balance with United States (Chinese      22.4       29.7       29.0
         data).............................
      External Public Debt \9\.............     151.8      145.7      145.0
      Fiscal Deficit/GDP (pct).............       2.8        2.8        2.7
      Current Account Surplus/GDP (pct)....       3.0        2.2        2.0
      Debt Service Payments/Export (pct)...      11.3        9.2        9.0
      Debt Service Payments/GDP (pct)......       2.2        4.0        3.0
      Gold and Foreign Exchange Reserves...     155.3      166.1      200.6
      Aid from United States...............         0          0          0
      Aid from Other Sources...............       0.6        0.6        0.6
    ------------------------------------------------------------------------
    \1\ All income and production figures are converted into dollars at the
      exchange rate of RMB 8.3 = $US 1.00. Figures are in $US billions
      unless otherwise stated.
    \2\ GDP figures for year 2001 are estimates based on data available in
      October 2001.
    \3\ Official growth rate published by State Statistical Bureau based on
      constant renminbi (RMB) prices using 1978 weights.
    \4\ 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.
    \5\ Available Chinese GDP data do not disaggregate services provided by
      the government from overall services. Estimates for government
      contribution to GDP provided in the table have been calculated on an
      expenditure basis. They are not components of the aggregate or
      sectoral GDP figures, calculated on a production basis, given above.
      As GDP calculated on an expenditure basis differs only slightly from
      that using production figures, the figures do give a reasonable
      approximation to the contribution of government spending to the
      economy.
    \6\ ``Economically active population'' as presented in the China
      Statistical Yearbook (2001). Both 2000 and 2001 are Embassy estimates.
    \7\ ``Official'' urban unemployment rate for China's approximately 200
      million urban workers; agricultural laborers are assumed to be totally
      employed in China's official labor data. Many economists believe the
      real rate of urban unemployment is much higher.
    \8\ IMF for PRC global trade data; IMF estimates for full-year 2001
      global trade; U.S. Department of Commerce for U.S.-China bilateral
      trade data; PRC Customs for U.S.-China bilateral trade data; Embassy
      estimate for full-year 2001 bilateral trade.
    \9\ Includes loans from foreign government, loans from international
      financial institutions, international commercial loans, and other
      unspecified international liabilities.

    Sources: China Statistical Yearbook (2000, 2001); China Statistical
      Abstract (2001), People's Bank of China Quarterly Statistical
      Bulletin; U.S. Department of Commerce Trade Data; Asian Development
      Bank; Embassy estimates.

    1. General Policy Framework
        For two decades, China has pursued policies designed to achieve
    rapid growth and higher living standards. During this period, China has
    made a gradual transformation from a centrally planned, socialist
    economy toward a more marketbased economy. Though stateowned industry
    remains dominant in key sectors, the government has ``privatized'' many
    small and medium stateowned enterprises (SOEs) and has allowed the non-
    state sector, including private entrepreneurs, increased scope for
    economic activity. The International Monetary Fund (IMF) estimates that
    the nonstate sector accounts for three-fourths of industrial output, 50
    to 60 percent of Gross Domestic Product (GDP), and about 60 percent of
    nonagricultural employment.
        Most analysts expect China's GDP growth to be between seven and
    eight percent in 2001, slightly slower than the eight percent rate
    recorded in 2000. Increased domestic demand, fueled in large part by
    government-directed fixed-asset investment, played the key role in
    generating gross domestic product growth. Fixed-asset investment rose
    over 15 percent year-on-year during the first half of 2001, and the
    government's target was 10 percent for the full year. Exports, which
    made a strong contribution to output in 2000, grew only 7.3 percent
    year-on-year through August 2001, a decline of over 20 percentage
    points from the growth rate recorded for the full year 2000. In
    addition, supply of many industrial and consumer products in the
    domestic market continued to exceed demand. As a result, prices for
    those commodities continued to fall, although higher prices for
    services and some food products led to an increase of about one percent
    in the overall consumer price index.
        The Chinese government has used deficitfinanced fiscal stimulus to
    encourage domestic economic expansion since 1998. This program has
    contributed an estimated 1.52.0 percentage points to GDP annually. In
    2001, the Chinese government planned to issue ``special construction
    bonds'' worth the equivalent of about $US 18 billion to provide partial
    funding for projects designed to promote economic growth. The
    government issued roughly $US 43 billion in similar bonds from 1998 to
    2000. As of the end of 2001, the total value of these projects was
    approximately $US 290 billion. Because the yield on government bonds
    exceeded that of Chinese currency bank deposits, authorities have faced
    no difficulties in financing either the government deficit of about $US
    31 billion or its fiscal stimulus program through increased domestic
    issuance of government debt. At the end of 2000, the balance of China's
    national debt equaled approximately 15 percent of gross domestic
    product.
        The Chinese government recognizes, however, that major structural
    reform is needed in three related areas: the inefficient state-owned
    industrial sector, the financial system, and the social safety net. The
    earnings of state-owned enterprises (SOEs) rose in 2001, although the
    bulk of profits were concentrated in a handful of industries such as
    petroleum (helped by high world oil prices) and electric power (where
    government price controls ensure strong earnings). The large stock of
    nonperforming loans poses a critical obstacle to financial reform.
    Short-term bank loans primarily to (often unprofitable) SOEs accounted
    for about 60 percent of total outstanding lending in 2001, and
    government controls over interest rates as well as policy directives
    channeling bank credit to preferred industries and enterprises remained
    in effect. Outside observers estimate non-performing debt to be 30-50
    percent of outstanding loans--even after the transfer in 1999 of the
    equivalent of nearly $US 170 billion in non-performing loans to four
    state-owned asset management companies (AMCs). As of the end of June
    2001, the AMCs had ``disposed of'' the equivalent of almost $US 33
    billion in non-performing loans with a recovery rate of around 50
    percent of asset value. Stock and bond markets remained immature and
    highly sensitive to government policy changes or insider manipulation.
    Reform of the financial system will help allocate more efficiently
    China's huge pool of domestic savings and fund creation of pension,
    unemployment, and health care systems.
        China enjoys large inflows of foreign capital. Lured by a market
    with over one billion potential consumers, foreign companies have made
    China one of the world's largest destinations for foreign direct
    investment (FDI). Realized foreign direct investment reached $US 27
    billion by the end of August 2001, a 20 percent increase over the same
    period of the previous year.
    2. Exchange Rate Policies
        Foreigninvested enterprises (FIEs) and authorized Chinese firms
    have generally enjoyed liberal access to foreign exchange for
    traderelated and approved investment related transactions. FIEs may set
    up foreign currency deposits for trade and remittances. Since 1997,
    Chinese firms earning more than $US 10 million a year in foreign
    currency have been allowed to retain in foreign currency up to 15
    percent of their receipts. The Asia-wide economic slowdown and growing
    evidence of unauthorized capital outflows prompted the government to
    tighten documentation requirements in mid1998. U.S. firms reported that
    the extra delays caused by these measures had for the most part ended
    by mid1999. China introduced currency convertibility for current
    account, trade and transactions in December 1996 (in accordance with
    the IMF charter's Article VIII provisions). Capital account
    liberalization has been postponed indefinitely.
        Chinese authorities describe the exchange rate as a ``managed
    float.'' For the past three years, it has behaved like a rate pegged to
    the dollar, with a trading range of 0.3 percent; since 1996 the
    renminbi (RMB) has traded consistently at about RMB 8.3 per dollar.
    China uses the RMB/dollar exchange rate as the basic rate and sets
    cross rates against other currencies by referring to international
    markets. In September 2000, the Chinese authorities lifted interest
    rate controls on all foreign currency loans and on foreign currency
    deposits in excess of $US 3 million. A newly established association of
    Chinese banks, moreover, was granted the authority to set interest
    rates on foreign currency deposits under the $US 3 million level.
    Interest rates on foreign currency deposits have declined since the
    beginning of 2001 to match the low rates on domestic currency savings.
    Nevertheless, China's closed capital account means that ``black
    market'' trading continues to be a regular feature, albeit small, of
    the Chinese system. Forward rates are available in the small, offshore
    market.
    3. Structural Policies
                Price Controls
        The Chinese government, as part of its comprehensive reform of the
    economy, is committed to gradually phasing out remaining price
    controls. As of mid-2001, only thirteen categories of goods remained
    subject to price controls, down from 141 in 1992. The government
    nevertheless continues to apply direct price controls over commodities
    deemed strategically important such as petroleum and to influence the
    prices for sensitive goods such as grain. To curb surplus production in
    2000, the government allowed grain and cotton prices to fall by more
    than 20 percent, bringing domestic prices closer to international
    levels. China also maintains discriminatory pricing practices with
    respect to some services and inputs offered to foreign investors in
    China. China agreed to eliminate these practices when it became a
    member of the World Trade Organization (WTO). 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.
                Taxation
        China's accession to the WTO will accelerate the phaseout of tax
    preferences for foreign-invested enterprises. Domestic enterprises have
    long resented rebates and other tax benefits enjoyed by foreigninvested
    firms. The move toward national treatment will mean the gradual
    elimination of special tax breaks enjoyed by many foreign investors. In
    addition, more sophisticated collection methods should help reduce
    loopholes for all market participants. The National People's Congress
    (China's national legislature) passed a series of amendments to the
    country's tax collection law in April 2001 designed to make the tax
    code more standardized and transparent. Although State Administration
    of Taxation officials plan eventually to phase out rebates of Value-
    Added Tax payments for selected exports as a way to increase tax
    revenues, the authorities are likely to keep this measure in place at
    least through 2002 to spur exports.
                Regulatory Environment
        Many of the most significant barriers to trade and investment in
    China are not the result of explicit laws or regulations aimed at
    keeping out foreign products or capital. Rather, they are systemic
    problems that stem from a bloated, secretive, and interventionist
    bureaucracy inherited from the past. China has committed to address
    many of these problems when it joins the WTO (in December 2001) through
    increased transparency, notice and comment procedures for new laws and
    regulations, and the availability of judicial review of administrative
    actions. At present, however, Chinese ministries routinely implement
    policies based on internal ``guidance'' or ``opinions'' that are not
    available to new market entrants. Authorities usually are unwilling to
    consult with Chinese and foreign industry representatives before new
    regulations are implemented. Likewise, the lack of a clear and
    consistent framework of laws and regulations is an effective barrier to
    the participation of foreign firms in the domestic market. Even in
    areas where the law is clear, government bureaucracies often
    ``selectively apply'' regulations; China has many rules on the books
    that are ignored in practice until a person or entity falls out of
    official favor. Official corruption, particularly at provincial and
    local levels, is acknowledged to be a serious problem in China, as
    demonstrated by a series of recent crackdowns.
    4. Debt Management Policies
        At the end of 2000, China's external debt stood at just under $US
    146 billion, according to official Chinese data. Long-term lending made
    up over 90 percent of the outstanding balance. Given China's relatively
    strong export performance, investment inflows, and large foreign
    exchange reserves (over $US 190 billion at the end of August 2001),
    China can easily service its foreign debt obligations.
    5. Significant Barriers to U.S. Exports
        China's impending accession to the WTO would oblige it to address
    comprehensively many trade-distorting practices that limit the access
    of foreign firms to China's market. In preparation for accession, the
    Chinese government has undertaken a massive effort to revise its laws
    and regulations to bring them into compliance with WTO rules. China's
    2001-2005 Tenth Five-year Plan calls for an improved legal and
    regulatory framework and increased transparency. Meanwhile, in an
    effort to cope with a slowing economy and relatively weak external
    demand, China continued its reform efforts in 2000 and 2001. Some of
    the policies adopted have improved market access for U.S. goods and
    services. For example, a huge expansion in the number of firms with
    trading rights, reduction in the number of products subject to import
    quotas, and an improved system of distribution rights will all benefit
    foreign firms.
        Despite this progress, China still has substantial barriers.
    Furthermore, while China's trade liberalization efforts represent a
    step forward, China also introduced regulations that erected new or
    worsened existing trade barriers.
        Import licenses: Since the early 1990s, China has eliminated many
    import license requirements, a process that is continuing as
    preparations are made for China's WTO accession. Licenses are still
    required, however, for a number of items important to the United
    States, including grains, vegetable oil, cotton, iron and steel
    products, commercial aircraft, passenger vehicles, hauling trucks, and
    rubber products. China is considering adding more license requirements
    in an effort to combat smuggling of certain agricultural goods.
    Although Chinese regulations state that the issuance of most import
    licenses is ``automatic,'' the license applicant must prove that there
    is ``demand'' for the import and that there is sufficient foreign
    exchange available to pay for the transaction. The issuing entity is
    left with a large degree of discretion. In effect, this allows a local
    official to block license approval without offering an explicit reason.
    However, this system should be changing once China joins the WTO, as it
    has made commitments not to use its import licensing system as a trade
    barrier and to observe the principles of non-discrimination and
    national treatment.
        Services barriers: China's services sector has been one of the most
    heavily regulated and protected parts of the national economy. At
    present, foreign service providers are largely restricted to operations
    under the terms of selective ``experimental'' licenses. Strict
    operational limits on entry and restrictions on the geographic scope of
    activities severely constrain the growth and profitability of these
    operations.
        The commitments included in China's WTO accession agreement would
    provide access of foreign businesses to many services sectors. For
    example, China has committed to gradually phasing out geographical
    restrictions on insurance and banking services. Foreign banks can
    conduct local currency business with Chinese companies two years after
    China's WTO accession (subject to certain geographical restrictions),
    and with Chinese individuals five years after accession; all
    restrictions on foreign banks are to be removed five years after
    China's entry to the WTO. The Chinese have promised upon accession to
    allow foreign firms to distribute and service their own products made
    in China, and provide related services. After a three-year period,
    foreign enterprises will be able to engage in distribution services for
    most products (including providing related services).
        Standards, testing, labeling, and certification: China's testing
    and standards regimes are an area of serious concern for foreign
    producers. It is often difficult to ascertain what inspection
    requirements apply to a particular import, as China's import standards
    are not fully developed and often differ substantially from
    requirements imposed on domestic goods. New requirements are usually
    not released to traders with sufficient advance notice, making it
    difficult to sign long-term contracts and plan production. The United
    States and other countries have complained that safety and inspection
    procedures applied to imports are often more rigorous and expensive
    than those applied to domestic products. Furthermore, standards testing
    and inspection for domestic and imported goods were carried out by
    separate entities until August 2001 when the domestic testing and
    quarantine agencies merged. Of most serious concern, China's standards
    and quarantine requirements may not always be based on internationally
    accepted norms and sound science, resulting in serious burdens for
    foreign suppliers. However, many aspects of China's testing and
    standards regime should be changing when China joins the WTO. China has
    committed to ensure that its testing and standards bodies operate with
    transparency, apply the same technical regulations, standards and
    conformity assessment procedures to both imported and domestic goods,
    and use the same fees, processing periods, and complaint procedures for
    both imported and domestic goods. In addition, China has committed to
    accept the Code of Good Practice within four months after accession,
    and it will speed up its process of reviewing existing technical
    regulations, standards, and conformity assessment procedures and
    harmonizing them with international norms.
        Investment barriers: China has historically attempted to guide new
    foreign investment to ``encouraged'' industries. Over the past five
    years, China has implemented new policies introducing new incentives
    for investments in hightech industries and in China's central and
    western regions. In 2000, China published revised lists of sectors in
    which foreign investment would be encouraged, restricted or prohibited;
    further revisions are expected in 2001. Regulations relating to the
    encouraged sectors were designed to direct FDI to areas in which China
    could benefit from foreign assistance or technology, such as in the
    construction and operation of infrastructure facilities. Policies
    relating to restricted and prohibited sectors were designed to protect
    domestic industries for political, economic, or national security
    reasons. The number of restricted industries (currently including many
    service industries such as banking, insurance, and distribution) should
    decrease as China opens its service sector upon accession to the WTO.
    The production of arms and the mining and processing of certain
    minerals remain prohibited sectors.
        The law governing wholly foreign-owned enterprises (WFOEs) was
    revised in April 2001 to eliminate requirements regarding export
    performance; technology transfer and import substitution; foreign
    exchange balancing; direct domestic sales; and domestic sourcing,
    whenever possible, of raw materials, fuel, capital equipment, and
    technology. Under its accession agreement, China has also agreed not to
    enforce these types of requirements in existing contracts. Also, under
    the revised WFOE law, China may reject a WFOE application for several
    reasons, including nonconformity with the development requirements of
    China's national economy, potentially affording the government leverage
    in ``encouraging'' export performance, technology transfer, and import
    substitution. The law on Sino-foreign joint ventures was revised in
    March 2001 to eliminate a domestic procurement requirement. Chinese
    government agencies have, however, traditionally encouraged enterprises
    under their control to ``buy Chinese.''
        Government procurement practices: Government procurement in China
    has for many years been an opaque process. Foreign suppliers face overt
    and covert discrimination. Even when procurement contracts have been
    open to foreign bidders, such suppliers have often been discouraged
    from bidding by the high price of participation. The Chinese government
    has routinely sought to obtain offsets from foreign bidders in the form
    of local content requirements, technology transfers, investment
    requirements, countertrade, or other concessions. The problem extends
    beyond traditional government procurement to encompass China's many
    ``state-controlled'' entities. The State Economic and Trade Commission
    (SETC), in 1999, issued regulations requiring state-owned enterprises
    (SOEs) to purchase all capital equipment from either domestic
    manufacturers or foreign-invested enterprises in China except where the
    equipment is not available domestically. In its accession agreement,
    however, China has agreed that SOEs must make purchases and sales based
    solely on commercial considerations, such as price, quality,
    marketability and availability, and that the government will not
    directly or indirectly influence the commercial decisions of SOEs.
        China has made some efforts to open its government procedures to
    competitive bidding. On January 9, 2001, the Ministry of Finance (MOF)
    issued a document stressing that noncompetitive or protectionist ploys
    are strictly prohibited while selecting a procurement company for a
    loan project. However, as written the provisional procedures offer
    insufficient protection to foreign participants in government
    procurement projects.
        Customs procedures: In August 1998, the Customs Administration
    launched an ambitious program to standardize enforcement of customs
    regulations throughout China as part of a larger campaign to combat
    smuggling. The program was introduced to control and ultimately
    eliminate ``flexible'' application of customs duty rates at the port of
    entry. While foreign businesses selling goods into China at times have
    benefited from lower import duty rates, lack of uniformity made it
    difficult to anticipate in advance what the applied duty would be. The
    scale of the smuggling problem itself is illustrated by the continuing
    prosecution of China's largest ever smuggling case, in which $US 10
    billion in automobiles, oil, and other goods was imported illegally.
    The anti-smuggling campaign has reduced significantly the flexibility
    of the local customs officials to ``negotiate'' duties.
    6. Export Subsidies
        China abolished subsidies conditioned directly on export
    performance for most goods on January 1, 1991. Nonetheless, exports of
    agricultural products, particularly corn and cotton, still receive
    direct export subsidies as of 2001. There continue to be reports that
    some manufactured exports benefit from indirect subsidies through
    preferential or below-market rate access to inputs such as energy and
    raw materials. Many state-run companies also enjoy export subsidies
    through loans at preferential rates, forgiven or deferred loans, and
    preferential access to loans from the domestic banking sector. China
    has agreed to stop all export subsidies on agricultural and industrial
    goods as soon as it becomes a WTO member.
    7. Protection of Intellectual Property
        China has made progress in protecting intellectual property rights
    (IPR) since it signed IPR agreements with the United States in 1992 and
    1995. It has committed to bringing its IPR laws and regulations into
    full compliance with the WTO agreement on Trade-Related Aspects of
    Intellectual Property Rights (TRIPS) at the time of its accession to
    WTO. A new Patent Law came into effect on July 1, 2001, and new
    Trademark and Copyright Laws were passed October 27, 2001. 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, the Patent
    Cooperation Treaty, and the Madrid Protocol. The United States took
    China off Special 301 lists in 1996, but continues to monitor China
    under Section 306 of the Trade Act, which allows the United States to
    begin a fast-track examination, if necessary.
        Still, inadequate procedures for registering trademarks and
    copyrights continue to create difficulties for foreign companies doing
    business in China. The destructive effect of widespread IPR violations
    has discouraged additional direct foreign investment and threatened the
    longterm viability of some U.S. business operations in China. Some U.S.
    companies claim losses from Chinese counterfeiting equal 15 to 20
    percent of total sales in China. One U.S. consumer products company
    estimates that it loses $US 200 million annually due to counterfeiting.
        Patents. U.S. pharmaceutical companies continue to experience
    difficulties obtaining protection for their products. It can take
    months for a foreign patent application for administrative protection
    to be approved in China. Domestic imitation or similar pharmaceuticals
    can legally be approved for marketing while a foreign manufacturer's
    application for administrative protection is pending.
        Trademarks. Counterfeiting trademarks of brand-name products in
    China remains prevalent. Chinese counterfeiters market unauthorized
    copies of a wide variety of products, from motorcycles and designer-
    label clothes, to VCD's and computer hardware under U.S. trademarks.
    The inferior quality of fake and unauthorized products poses serious
    health and safety risks to consumers. While regional and interagency
    cooperation on IPR protection has improved, it is still inadequate.
    Insufficient administrative sanctions and infrequent use of criminal
    sanctions remain major enforcement problems.
        Copyrights. China is gradually recognizing the economic cost of
    copyright infringement. The past few months have witnessed a concerted
    anti-piracy crackdown effort, led by public security authorities and
    including all relevant ministries. Growing interest in copyright
    enforcement aside, significant problems still exist. The software
    industry lacks clear procedures for addressing corporate end-user
    software piracy; retail software revenue lost to piracy was estimated
    to total $US 1.1 billion at the end of 2000.
    8. Worker Rights
        a. The Right of Association: China's constitution provides for
    ``freedom of association,'' but in practice workers are not free to
    organize or join unions of their own choosing. Independent unions are
    illegal. Only official trade unions, affiliated with China's Communist
    Party and Government, are legal. By law, the AllChina Federation of
    Trade Unions (ACFTU) is the sole national labor organization. The ACFTU
    has control over all subsidiary union organizations and activities
    throughout the country. Workers are free to choose whether or not to
    join one of these official unions.
        b. The Right to Organize and Bargain Collectively: The law permits
    collective bargaining for workers in all types of enterprises. In
    practice, unions in the public sector have not traditionally engaged in
    collective bargaining, but rather acted as partners of management in
    determining wages, hours, and other conditions of work. In the private
    sector, where official unions are few and independent unions
    unavailable, workers face substantial obstacles to bargaining
    collectively with management. In 2001, changes to the Trade Union Law
    were proposed that could strengthen official unions' organizing and
    collective bargaining powers. On October 27, 2001, China amended its
    labor law recognizing limited rights for workers to strike.
        c. Prohibition of Forced or Compulsory Labor: Despite theoretical
    legal prohibitions against forced labor, China maintains penal
    facilities that require labor, to which individuals are sentenced
    through administrative process, without judicial review. In addition,
    individuals imprisoned through China's official judicial process are
    regularly forced to work while in prison. Reports suggest that, in some
    cases, authorities in penal institutions compel inmates to produce
    commercial goods and that working conditions for prisoners, especially
    on farms and mines, may be harsh.
        d. Minimum Age of Employment of Children: China's Labor Law bans
    children under 16 from most forms of work and bans dangerous work, like
    mining, for children aged 16 to 18. The law provides punishment for
    violation of these standards. Instances of child labor exist in China,
    although the problem is believed not to be widespread. The existence of
    a large surplus of adult workers, many of whom work long hours for low
    pay, probably reduces the attractiveness of child labor for employers.
    In 2001, the Chinese Government undertook an official investigation of
    the child labor issue.
        e. Acceptable Conditions of Work: China's Labor Law covers commonly
    accepted conditions of work. However, some workers, especially in the
    fast-growing private sector, work under illegal or unacceptable
    conditions. Workplace health and safety have been a particular problem.
    The Chinese Government has increased its efforts to enforce workplace
    health and safety regulations and, in 2001, proposed laws that would,
    for the first time, set consistent national workplace health and safety
    standards.
        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. U.S. companies in China
    are, in general, favorably regarded for their employment practices.
    Some have voluntarily adopted codes of conduct that provide for
    independent inspection 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1,846
    Total Manufacturing.........  ...........  5,663
      Food & Kindred Products...  181          .............................
      Chemicals & Allied          245          .............................
       Products.
      Primary & Fabricated        183          .............................
       Metals.
      Industrial Machinery and    931          .............................
       Equipment.
      Electric & Electronic       3,208        .............................
       Equipment.
      Transportation Equipment..  147          .............................
      Other Manufacturing.......  768          .............................
    Wholesale Trade.............  ...........  362
    Banking.....................  ...........  78
    Finance/Insurance/Real        ...........  740
     Estate.
    Services....................  ...........  295
    Other Industries............  ...........  594
        Total All Industries....  ...........  9,577
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                   HONG KONG

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................     157.4      162.5      161.7
      Real GDP Growth (pct)................       3.0       10.5       -0.3
      GDP by Sector:
        Agriculture........................       0.2        N/A        N/A
        Manufacturing......................       8.4        N/A        N/A
        Services...........................     124.6        N/A        N/A
        Government.........................      15.6       15.7       16.0
      Per Capita GDP (US$).................    23,824     24,375     23,571
      Labor Force (000s)...................     3,306      3,343      3,380
      Unemployment Rate (pct)..............       6.2        4.9        5.5

    Money and Prices (annual percentage
     growth):
      Money Supply (M2) \3\................       8.1        8.8       -0.4
      Consumer Price Inflation (pct).......      -4.0       -3.7       -1.5
      Exchange Rate (HK$/US$--annual
       average):...........................
        Official...........................      7.77       7.79       7.80

    Balance of Payments and Trade:
      Total Exports FOB \4\................     172.9      201.6      193.5
        Exports to United States \5\.......      10.5       11.5       10.1
      Total Imports CIF....................     178.6      212.6      204.8
        Imports from United States \5\.....      12.6       14.6       13.8
      Trade Balance........................      -5.7      -10.9      -11.3
        Balance with United States \5\.....      -2.1       -3.1       -3.7
      External Public Debt.................         0          0          0
      Fiscal Balance/GDP (pct).............       0.8       -0.6       -1.8
      Current Account Balance/GDP (pct)....       7.2        5.4        2.7
      Debt Service Payments/GDP (pct)......         0          0          0
      Gold and Foreign Exchange Reserves         96.3      107.6      110.8
       (end of period) \6\.................
      Aid from United States...............         0          0          0
      Aid from All Other Sources...........         0          0          0
    ------------------------------------------------------------------------
    \1\ Estimates from private sources based on monthly data through August
      2000.
    \2\ Expenditurebased GDP estimates.
    \3\ Money supply of Hong Kong dollars and foreign currencies.
    \4\ Of which domestic exports (as opposed to reexports) constituted 12.6
      percent (1999), 13.0 percent (2000) and 10.3 percent (2001 estimate
      based on data through August).
    \5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
      FAS, imports customs basis; 2001 figures are estimates based on data
      available through July 2001. Hong Kong merchandise trade includes
      substantial reexports (mainly from China) to the United States, which
      are not included in these figures.
    \6\ 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 dutyfree 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 but interest, royalties, dividends, capital gains and
    sales are not. In the face of a possible structural deficit, the
    government has faced pressure to identify new sources of revenue. A
    recent Advisory Committee report suggested 13 options to broaden the
    tax base including a general consumption tax, capital gains tax and tax
    on interest. However, Financial Secretary Antony Leung has indicated
    that none of these reforms will be implemented in the near future.
        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.
        The Asian financial crisis provoked a sharp economic downturn in
    1998 and the first half of 1999, but Hong Kong's economic fundamentals
    remained strong, with a stable banking system, prudent fiscal policy,
    and massive dollar reserves. A strong, export-led recovery in 2000 and
    early 2001 stalled abruptly at mid-year, following a slump in consumer
    demand in the United States and Europe. The September 11 terrorist
    attacks in the United States and subsequent further economic downturn
    in Hong Kong's major markets have worsened the short-term outlook.
    Unemployment is increasing (to around five percent) and Hong Kong will
    experience recession in 2001. The local community remains concerned
    about Hong Kong's long-term competitiveness in the face of challenges
    from mainland China. In response to these economic difficulties, the
    government unveiled a series of modest stimulus measures, including
    infrastructure expenditures, small tax cuts, employment generation, and
    development funds for small and medium enterprises. However,
    authorities generally resisted pressure for large-scale government
    expenditures to kick start the economy.
        One exception to this traditional laissez faire approach was the
    creation of a new Innovation and Technology Commission, which in mid-
    2000 was given responsibility for spearheading Hong Kong's move to
    create a ``knowledge based'' economy. The government's willingness to
    fund technology investment reflected the widespread belief that Hong
    Kong cannot compete in the high tech sector without targeted government
    support.
    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 runup to Hong Kong's reversion
    to Chinese sovereignty in 1997. PRC officials have supported Hong
    Kong's policy of maintaining the link. In December 2000, the Hong Kong
    Monetary Authority completed the third and final phase of the
    implementation of Hong Kong's U.S. dollar payment system, which allows
    local firms to achieve real-time settlement of U.S. dollar
    transactions. The establishment of the system is aimed at reinforcing
    monetary stability.
        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 by the value of the U.S. dollar in
    relation to third country currencies, with Hong Kong exports suffering
    during periods of strong U.S. dollar exchange rates.
    3. Structural Policies
        The government does not have pricing policies, except in a few
    sectors such as energy, which is a regulated duopoly. Even in these
    controlled 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. The Monetary Authority
    implemented the final phase of interest rate deregulation covering
    savings and current accounts in July 2001. Interest rates on all types
    of deposits are determined by competitive market forces. Consumption
    taxes on tobacco, alcoholic beverages, and some fuels constrain 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
    informal cartels, some of which are governmentregulated, to dominate
    certain sectors of the economy. These informal 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 91day bills in 1990.
    Since then, maturities have gradually been extended up to 10 years. 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 government owned 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.
        In October 2000, the government launched a partial privatization of
    the Mass Transit Railway Corporation to the general public in Hong Kong
    and domestic and international professional and institutional
    investors. The Initial Share Offer of this first-ever Hong Kong
    government privatization raised about US$1.3 billion, accounting for 23
    percent of government's total shareholding.
        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--most of which are related to health standards.
    These licensing requirements do not have a major impact on U.S.
    exports.
        There are several barriers to entry in the services sector, as
    follows.
        The government decided in May 1999 to maintain a moratorium on
    additional licenses for the local fixed telecommunications network
    services (FTNS), now contested by five companies, until January 2003.
    In January 2000, the Hong Kong government began opening of other
    telecom sectors, issuing five licenses for FTNS using wireless networks
    and 12 licenses for external FTNS providers using satellites. In
    February 2000, the government issued Letters of Intent to 13 applicants
    for cable-based external facilities, and since then at least two
    American companies have been licensed to land international data cables
    in Hong Kong. In September 2001, the government issued four Third
    Generation (3G) mobile services licenses. Under the terms of the
    license, 3G operators must offer 30 percent of their network capacity
    to non-affiliated service providers. The government plans to invite
    additional FTNS licenses by the end of 2001 and will fully open the
    sector effective January 1, 2003.
        The Hong Kong government limits foreign ownership of free-to-air
    television stations to 49 percent and imposes strict residency
    requirements on the directors of broadcasting companies. In June 2000,
    the Legislative Council (LEGCO) passed a Broadcasting Bill that ended
    the foreign ownership limit for cable broadcasters and substantially
    liberalized Hong Kong's television market. By adopting a more open and
    flexible regulatory framework, the bill aims to expand program choice,
    encourage investment and technology transfer in the broadcasting
    industry, promote fair and effective competition and spur the
    development of Hong Kong as a regional broadcasting and communications
    hub. The Information, Technology and Broadcasting Bureau moved quickly
    to exercise the new authorities granted by this bill, announcing five
    new television licenses in July 2000. These new broadcasters (several
    of which are foreign owned) will create new outlets for U.S.
    entertainment companies, which already enjoy a substantial presence in
    the Hong Kong market.
        Our bilateral civil aviation agreement does not permit code sharing
    and restricts the ability of U.S. cargo and passenger airlines to carry
    fifth freedom traffic to and from Hong Kong and other points. These
    restrictions limit the expansion of U.S. carrier services in the Hong
    Kong market.
        In June 2000, the LEGCO passed a Legal Practitioners (Amendment)
    Bill that removed the privileges conferred on barristers from England,
    Scotland, Northern Ireland and other Commonwealth countries. A Hong
    Kong court may admit a foreign lawyer to practice as a barrister if he
    is considered a fit and proper person and has complied with the general
    admission requirements, including passing any required examinations.
    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 2001. In the meantime, foreign
    banks 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
        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, a WTO member, passed a new Copyright Law
    in June 1997 and a modernized Trademark Law in May 2000. Enforcement of
    copyright and trademarks has improved measurably in recent years, but
    eliminating intellectual property piracy will require sustained effort.
        Copyrights: Sale of pirated discs at retail shopping arcades is
    much less widespread than it used to be but remains a problem. The
    United States has encouraged the government at senior levels to crack
    down on this retail trade, and on the distributors and manufacturers
    behind them. Hong Kong has responded by doubling Customs' enforcement
    manpower, conducting more aggressive raids at the retail level, passing
    new legislation and engaging in public education efforts to encourage
    respect for intellectual property rights. Recent raids have closed down
    some of the most notorious retail arcades and dispersed this illicit
    trade. In the first eight months of 2001, Customs seized 5.79 million
    pirated optical discs with a market value of US$14.1 million, and
    arrested 1,049 people. Hong Kong Customs intelligence operations and
    raids on underground production facilities have shut down most pirate
    manufacturing and forced retailers to rely increasingly on smuggled
    products. The judiciary has also begun to increase sentences and fines
    for copyright piracy, handing down 524 piracy-related jail sentences in
    the first half of 2001.
        With the government's success against optical disc pirates,
    increasing attention has turned to the problem of computer end-user
    piracy. In 1999, Hong Kong courts handed down a first conviction for
    unauthorized dealer hard-disk loading. The LEGCO also passed in June
    2000 an IPR miscellaneous amendments bill which makes it clearly
    illegal for companies to use unlicensed software in trade or business.
    Faced with intensive public criticism of the new criminal provisions
    for photocopying newspapers and magazine articles, the LEGCO passed a
    bill in June 2001 to suspend criminal provisions for unauthorized
    copying of materials other than computer programs, movies, television
    dramas and music. The bill also suspended criminal penalties for the
    use of parallel-import computer software. The suspension is an interim
    arrangement expiring on July 31, 2002. The government will consult the
    community with a view to formulating a long-term solution before then.
        Broadcast satellite signal piracy is also a growing concern for
    U.S. companies, and industry associations have asked the government to
    take action against pubs and other public venues that use satellite
    signals without compensation.
        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 associations report that Hong Kong-
    based web sites are being used to sell and transmit pirate software and
    music. Since April 2000, Hong Kong Customs has raided nine
    establishments believed to be engaged in Internet piracy. None of these
    cases has gone to court, but these raids put Hong Kong well ahead of
    its neighbors in tackling the problem of Internet-based piracy.
        Hong Kong's stepped-up IPR enforcement effort has helped to reduce
    estimated losses to U.S. film and music companies. The Business
    Software Alliance reported in May 2001 that software piracy in Hong
    Kong rose from 56 percent in 1999 to 57 percent in 2000. However,
    estimated total losses for the software industry decreased from US$88.6
    million to US$86 million. U.S. film and music distributors also report
    increasing levels of legitimate sales in Hong Kong.
    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. 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 removed the legal
    stipulation of trade unions' right to engage employers in collective
    bargaining and banned 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 nonindustrial establishments, subject to conditions aimed at
    ensuring a minimum of nine years of education and protecting their
    safety, health, and welfare. In 2000, there were three 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 2000, a total of 58,092 occupational
    accidents (33,652 of which are classified as industrial accidents) were
    reported, of which 199 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  202
    Total Manufacturing.........  ...........  3,283
      Food & Kindred Products...  -55          .............................
      Chemicals & Allied          374          .............................
       Products.
      Primary & Fabricated        349          .............................
       Metals.
      Industrial Machinery and    138          .............................
       Equipment.
      Electric & Electronic       1,758        .............................
       Equipment.
      Transportation Equipment..  33           .............................
      Other Manufacturing.......  686          .............................
    Wholesale Trade.............  ...........  5,617
    Banking.....................  ...........  2,405
    Finance/Insurance/Real        ...........  7,828
     Estate.
    Services....................  ...........  546
    Other Industries............  ...........  3,427
        Total All Industries....  ...........  23,308
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                   INDONESIA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                  1999      2000      *2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.............................      142       153       158
      Real GDP Growth (pct)...................      0.2       4.8       3.0
      GDP by Sector:
        Agriculture...........................     27.8      26.5      27.0
        Manufacturing.........................     36.2      39.9      40.2
        Services..............................     56.9      60.2      61.1
        Government............................      7.2       7.6       7.7
      Per Capita GDP (US$)....................      688       738       742
      Labor Force (millions)..................     94.8      96.5      98.2
      Unemployment Rate (pct) \1\.............      6.4       6.1       6.4

    Money and Prices (annual percentage
     growth):
      Money Supply (M2) (pct).................     11.9      15.6        10
      Consumer Price Inflation (pct)..........      2.0       9.3        12
      Exchange Rate (Rupiah/US$ annual            7,855     8,421    10,500
       average)...............................

    Balance of Payments and Trade:
      Total Exports FOB (includes oil and gas)     48.6      62.1      62.5
        Exports to United States \2\..........      9.5      10.3      10.4
      Total Imports CIF (includes oil and gas)     24.0      33.5      36.0
        Imports from United States \2\........      2.0       2.4       2.3
      Trade Balance...........................     24.6      28.6      26.5
        Balance with United States \2\........      7.5       7.9       8.1
      External Public Debt....................     85.5      84.0      83.0
      Fiscal Deficit/GDP (pct)................      3.9       1.5       3.7
      Debt Service Payments/GDP (pct) \3\.....     12.3      12.1      14.0
      Current Account Balance/GDP(pct)........      4.1       4.8       2.7
      Gold and Foreign Exchange Reserves (end      27.1      23.3      29.5
       of period).............................
      Aid from United States (millions of US$)      139       205       230
      Aid from All Other Sources \4\..........      7.8       4.2       4.5
    ------------------------------------------------------------------------
    * Embassy estimate.
    \1\ Official Government of Indonesia estimate of open unemployment. Does
      not measure underemployment.
    \2\ Department of Commerce statistics, customs value basis. Figures for
      2001 are estimates based on January to August data.
    \3\ IBRD Debtor reporting system. External debt only.
    \4\ 2001 number 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
        More than four years after the Asian financial crisis, Indonesia
    continues to struggle with the wreckage of its 1998 economic collapse.
    Its efforts to return to the sustained economic growth it enjoyed
    before 1997 have been made more difficult by the fact that the country
    is simultaneously undergoing a painful and, so far, incomplete
    transition to democracy. Government institutions are weak, political
    competition is robust and often violent, and powerful forces of the old
    regime retain sufficient influence to block reforms that threaten their
    privileges.
        In July 2001, the People's Consultative Assembly, the nation's
    highest legislative body removed President K.H. Abdurrachman Wahid and
    elected Vice President Megawati Soekarnoputri to the Presidency after
    almost a year of fierce political infighting. The new government's
    first task was to reverse a slumping economy and reinvigorate the
    economic reform process. Even if the new government succeeds in
    establishing much needed coherence in economic policymaking, daunting
    challenges remain. The Wahid government left most of the nation's
    problems unresolved, including: building effective, democratic
    institutions; establishing the rule of law; restoring private capital
    inflows; resolving violent regional conflicts; and addressing the
    chronic economic problems of corruption, a heavy debt burden, and a
    crippled banking system.
        Indonesia is the world's fourth most populous nation and the anchor
    of Southeast Asia politically and economically. The country has a
    strategic location, a large labor force earning relatively low wages,
    and abundant natural resources. The country retains its diversified
    export base of oil, gas, minerals, and agricultural commodities such as
    coffee, tea, rubber, timber, palm oil, and shrimp. After a nascent
    economic recovery in 2000, recent signs point to an economic slowdown
    coupled with increasing inflationary pressures. Observers expect
    overall real GDP growth in 2001 to be 3 percent, down from 4.8 percent
    a year earlier. The slowdown was most prominent in the export sector.
    Indonesia's exports in the first seven months of 2001 fell 3.4 percent
    over the same period one year earlier due to slower growth in
    Indonesia's major export markets. Indonesian exports to the United
    States will be flat this year at about $10.5 billion while imports from
    the United States, which fell by more than half between 1997 and 1998,
    will be about $2.3 billion.
        The IMF-supported stabilization and recovery program has provided
    the framework for Indonesia's economic recovery since November 1997.
    However, the government has been slow to implement its commitments. The
    Indonesian Bank Restructuring Agency (IBRA) has recapitalized the
    banking system, but it has not moved quickly to dispose of assets
    acquired in the debt-restructuring process or to take on uncooperative
    debtors. Thus it runs the risk of having to inject more funds into the
    banking system. 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,
    and this remains the government's long-term goal. However, the
    financial crisis put a heavy burden on government finances. To
    recapitalize the banking system, the government issued more than Rp 426
    trillion (USD 41 billion, at current exchange rates). Almost $25
    billion of this debt is at variable rates linked to SBI rates. This
    limits the government's ability to use monetary policy to fight
    inflation. Interest payments on domestic debt will reach Rp 55 trillion
    ($6.4 billion) or 19 percent of total spending in FY-2001. The
    government's chronic inability to expand domestic tax revenues and
    delays in sales of government assets held by IBRA means the
    government's fiscal position will remain precarious. The gap in FY-2002
    is targeted at approximately 2.5 percent of GDP.
        In parallel with its fiscal policy, the Indonesian government had a
    reputation for prudent monetary policy 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 have fueled inflation. Indonesian monetary
    authorities tried to dampen pressure on prices and the exchange rate by
    tightening monetary policy but the money supply has expanded faster
    than the targets agreed with the IMF (although base money is currently
    in line with targets). By mid-2001, inflation had reached an annual
    rate of 13 percent.
    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 (LOI) 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 launched its current three-year (EEF) agreement with the
    IMF in January 2000. A central focus of the IMF program is maintenance
    of fiscal sustainability and macroeconomic stability. The Government of
    Indonesia's progress on commitments has been erratic and, as a result,
    Indonesia has only completed three reviews under the program. (Reviews
    were originally scheduled on a quarterly basis.) The Government of
    Indonesia has failed to follow through on a number of crucial
    commitments that are important for putting public finances on a
    sustainable footing and maintaining macroeconomic stability. The
    Government of Indonesia has moved slowly on the sale of assets
    nationalized during the 1998 crisis, SOE privatization, and
    restructuring and privatization of the banking system. In addition,
    during the Wahid administration, the Government of Indonesia pushed for
    amendments to the central bank that would undermine Bank Indonesia's
    independence. The new Megawati government resumed discussions with the
    IMF in August 2001 and concluded a new LOI in September.
    4. Debt Management Policies
        Indonesia's foreign debt totaled $137.6 billion as of August 2001,
    with about $74 billion owed by the public sector and $63 billion by the
    private sector. Indonesia negotiated two successive two-year Paris Club
    agreements, rescheduling 100 percent of principal, but not interest.
    Indonesia's current Paris Club agreement expires at the end of March
    2002.
        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 continues to assert that it
    will not impose capital controls.
    5. Significant Barriers to U.S. Exports
        In recent years, Indonesia has liberalized its trade regime and
    taken a number of important steps to reduce protection. Since 1996, the
    Indonesian government has issued a series of deregulation packages
    intended to encourage foreign and domestic private investment. These
    packages have reduced overall tariff levels, simplified the tariff
    structure, removed restrictions, and replaced non-tariff barriers with
    more transparent tariffs.
        Despite the severe economic crisis of the past four years,
    Indonesia has maintained its policy of steady long-term tariff
    liberalization. Indonesia's applied tariff rates range from 5 to 30
    percent, although bound rates are, in many cases, much higher. The
    major exceptions to this are the 170 percent duty rates applied to all
    imported distilled spirits and the tariffs on motor vehicles and motor
    vehicle kits. Consecutive IMF programs in which Indonesia committed to
    implement a three-tier tariff structure (zero, five, or ten percent) on
    all imported products, except motor vehicles and alcoholic beverages,
    have reinforced the long-term liberalization policy. Indonesia also
    committed to eliminate all non-tariff barriers, except those for health
    or safety reasons, by the end of 2001. The ongoing domestic political
    crisis and deteriorating relations with the IMF may delay that
    timetable somewhat. More effective tariff liberalization has come from
    the ASEAN Free Trade Agreement under which members committed to a
    Common Effective Preferential Tariff (CEPT) scheme for most traded
    goods by 2003. Indonesia implemented its second stage of AFTA tariff
    reductions on January 1, 2001.
        Import tariffs on vehicles were lowered in June 1999 to 25-80
    percent (depending on engine size), 0-45 percent for trucks, and 25-60
    percent for motorcycles. The government also lowered rates for parts to
    a maximum 15 percent. Luxury taxes for sedans range from 10-75 percent,
    for trucks 0 percent, and for motorcycles 0-75 percent.
        Services trade barriers to entry continue to exist in many sectors,
    although the Government of Indonesia has loosened restrictions
    significantly in the financial sector. Foreign law firms, accounting
    firms, and consulting engineers must operate through technical
    assistance or joint venture arrangements with local firms.
        Indonesia has liberalized its distribution system, including ending
    some restrictions on trade in the domestic market. For example,
    restrictive marketing arrangements for cement, paper, cloves, other
    spices, and plywood were eliminated in February 1998. Indonesia opened
    its wholesale and large-scale retail trade to foreign investment,
    lifting most restrictions in March 1998. Some retail sectors are still
    reserved for small-scale enterprises under another 1998 decree. Large
    and medium scale enterprises that wish to invest in these sectors must
    enter into a partnership agreement with a small-scale enterprise,
    although this may not require a joint venture or partial share
    ownership arrangement.
        The weakness of the central government in a period of significant
    political upheaval has encouraged special interests, especially in the
    agricultural sector, to seek to reinstate some former special trade
    privileges. So far these efforts have had limited success but the trend
    is worrisome. Food labeling regulations requiring labels in the
    Indonesian language and expiration date (rather than the standard
    ``best used by'' date) are in place, but are not being enforced. A
    product registration regulation is also in place that requires detailed
    product processing information that approaches proprietary information.
    The registration procedure can also be quite lengthy and expensive.
    Indonesian importers and U.S. exporters have expressed concern that
    these regulations could act as non-tariff barriers to imports of
    packaged food products.
        New laws on regional autonomy and fiscal decentralization have
    granted significant new powers to provincial and sub-provincial
    governments. Local governments have begun to impose new tax or non-tax
    barriers on inter-regional trade as they seek new sources of local
    revenue. Implementing regulations have not been issued to fully clarify
    the authority and responsibility of the different levels of government.
        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. The government most recently revised its so-called ``negative
    investment list'' in July 2001. Sectors that remain closed to all
    foreign investment include taxi and bus transportation, local marine
    shipping, film production, distribution and exhibition, radio and
    television broadcasting and newspapers, some trade and retail services,
    and forestry concessions. The government removed foreign ownership
    limitations on banks and on firms publicly traded on Indonesian stock
    markets.
        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. With
    the implementation of political and fiscal decentralization, provincial
    investment boards now play a much great role in approving foreign
    investments in their regions.
        Government Procurement Practices: Technical guidelines for
    government procurement of goods and services are governed by
    Presidential Decree (Keppres) No. 18/2000. The decree establishes set-
    asides for small- and medium-sized enterprises according to the size of
    the procurement. Foreign suppliers are restricted to contracts worth
    over Rp. 10 billion ($1.2 million) for goods/services and over Rp. 2
    billion ($230,000) for consulting services. A foreign supplier is
    required to cooperate with a small- or medium-sized company or
    cooperative in the implementation of the contract. Bilateral or
    multilateral donors, who specify procurement procedures, finance most
    large government contracts. 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
    Value-Added Tax (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. Since 1998, the government has gradually
    increased the share of production that firms located in bonded zones
    are able to sell domestically, up to 100 percent.
    7. Protection of U.S. Intellectual Property
        Indonesia is a member of the World Intellectual Property
    Organization (WIPO) and in 1997 became a 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 2001, the U.S. Trade Representative placed Indonesia on the
    Special 301 Priority Watch List citing continued lack of effective
    enforcement of IP rights.
        Piracy of software, books, and videos in Indonesia is rampant. U.S.
    rightholders are concerned about the rapid increase in pirate optical
    disc (OD) production facilities in Indonesia. The capacity of these
    facilities far exceeds Indonesia's domestic demand indicating Indonesia
    is a growing export base for pirated media and software. The U.S.
    government has urged Indonesia to take quick action to register and
    control OD production equipment.
        As part of its efforts to comply with the WTO TRIPS agreement, in
    December 2000, Indonesia enacted new laws on protection of trade
    secrets, industrial design, integrated circuits, and plant varieties.
    In July 2001, Parliament passed amendments to existing laws on patent
    and trademarks. The government is also preparing amendments to the
    existing copyright law. Even with new laws in place, however,
    inadequate enforcement and a corrupt judicial system pose daunting
    problems for U.S. companies seeking enforcement of their rights in
    Indonesia. The Indonesian government has, at times, responded to U.S.
    companies bringing specific complaints about pirated goods or trademark
    abuse, but the Indonesian court system can be frustrating and
    unpredictable, and effective punishment of pirates of intellectual
    property is rare.
        Indonesia's new Patent Law did not improve several areas of concern
    to U.S. companies, including compulsory licensing provisions, a
    relatively short term of protection, and a provision allowing
    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 provided there are at least ten workers who wish to do
    so. All unions must be registered with the government. In August 2000,
    the government enacted a new law governing trade unions that continued
    a trend since 1998 toward removing barriers to freedom of association.
    Some labor organizations criticized the new law for maintaining some
    existing restrictions on unions. There are currently 59 national unions
    registered. The courts may dissolve a union under the 2000 law if union
    members are convicted of crimes against the state and sentenced to at
    least five years in prison.
        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 five
    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 those engaged in public service, have the legal right to strike.
    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. Security forces 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.
        c. Prohibition of Forced or Compulsory Labor: The law forbids
    forced labor, including forced and bonded labor by 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 ILO, over 3.4 million children (under 15 years of
    age) work ten hours or more per week. Some observers believe that
    number to be understated, because documents verifying age are easily
    falsified. The ILO ranks Indonesia as the third worst in Asia on child
    labor conditions. 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) and the government and the ILO signed
    a Memorandum of Understanding in March 2001. The government followed
    this with Presidential decree No. 12 of 2001 creating a National Action
    Committee to Eliminate the Worst Forms of Child Labor. Although the ILO
    has sponsored training of labor inspectors on child labor matters under
    the IPEC program, enforcement remains lax. The government ratified ILO
    Convention 138, which establishes a minimum working age of 15, in April
    1999 ILO Convention 182 on the Elimination of the Worst Forms of Child
    Labor in March 2000.
        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 $35 (Rp. 344,000) per month at an exchange rate of Rp 10,000 to
    the dollar). 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 seven-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. In general, government
    enforcement and supervision of labor standards are weak. Both law and
    regulations provide for minimum standards of industrial health and
    safety. In the largely westernoperated 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 corruption, by
    the limited number of qualified Department of Manpower inspectors and
    by the low level of employee appreciation for sound health and safety
    practices. 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 for
    direct-hire employees in firms with U.S. ownership are widely
    recognized as better than the norm for Indonesia. Contract labor,
    although widely used, does not receive the same benefits as direct hire
    employees. 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 direct 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 including the right to strike, join
    labor organizations, or negotiate collective agreements. Contract
    workers in the petroleum sector do have the right to organize and have
    joined independent trade unions. A 1995 Minister of Manpower regulation
    exempts the petroleum sector from legislation requiring employers to
    give permanent worker status to workers who have worked for the company
    under short-term contracts for more than three years. 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.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  8,440
    Total Manufacturing.........  ...........  273
      Food & Kindred Products...  21           .............................
      Chemicals & Allied          148          .............................
       Products.
      Primary & Fabricated        1            .............................
       Metals.
      Industrial Machinery and    -28          .............................
       Equipment.
      Electric & Electronic       3            .............................
       Equipment.
      Transportation Equipment..  (\1\)        .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  (\1\)
    Banking.....................  ...........  249
    Finance/Insurance/Real        ...........  385
     Estate.
    Services....................  ...........  (\1\)
    Other Industries............  ...........  2,219
        Total All Industries....  ...........  11,605
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     JAPAN

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000       2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................     4,505      4,753   \1\ 4,129
      Real GDP Growth (pct)................       0.8        1.5   \1\ -0.5
      GDP by Sector:
        Agriculture........................        58        N/A        N/A
        Manufacturing......................       970        N/A        N/A
        Services...........................       882        N/A        N/A
        Government.........................       403        N/A        N/A
      Per Capita Income (US$)..............    34,283     36,455        N/A
      Labor Force (millions)...............      67.8       67.7   \1\ 68.0
      Unemployment Rate (pct)..............       4.7        4.8    \2\ 5.0

    Money and Prices (annual percentage
     growth):
      Money Supply (M2+CD).................       3.6        2.1    \1\ 2.9
      Consumer Price Inflation.............       0.3       -0.6   \1\ -0.7
      Exchange Rate (Yen/US$--annual            13.91      114.9    \3\ 121
       average)............................

    Balance of Payments and Trade:
      Total Exports FOB....................     403.9      434.0    \4\ 180
        Exports to United States FOB.......     121.8      129.0     \4\ 63
      Total Imports CIF....................     280.5      344.2    \4\ 184
        Imports from United States CIF.....      57.8       65.3     \4\ 34
      Trade Balance........................     123.4       89.8     \4\ 30
        Trade Balance with United States...      64.0       63.7     \4\ 29
      Current Account Surplus/GDP (pct)....       2.4        2.5    \1\ 2.2
      External Public Debt.................       N/A        N/A        N/A
      Fiscal Deficit/GDP (pct).............       7.9       -7.5   \1\ -6.2
      Debt Service Payments/GDP (pct)......       N/A        N/A        N/A
      Gold and Foreign Exchange Reserves...     288.1      368.3    \2\ 360
      Aid from United States...............         0          0          0
      Aid from All Other Sources...........         0          0          0
    ------------------------------------------------------------------------
    \1\ 2001 figures are IMF projections (World Economic Outlook, September
      2001).
    \2\ As of end-July, 2001.
    \3\ January-August 2001, average.
    \4\ January-June 2001, seasonally adjusted, BOP basis.

    Sources: IMF, OECD, Ministry of Finance, Bank of Japan, Economic &
      Social Research Institute (Cabinet Office).

    1. General Policy Framework
        The Japanese economy is once again entering recession, in response
    to weakening external demand and reduction of worldwide investment in
    high technology sectors. Industrial production and manufacturing
    employment have both fallen sharply through mid-year, and most private
    forecasts expect a GDP decline of roughly one percent in 2001, with
    little if any growth in the following year.
        Japan's economic performance has been disappointing for most of the
    past ten years, with uneven but generally low growth, and persistent
    deflation (general price declines). The sources of Japan's economic
    difficulties go back to the collapse of the asset-price bubble in 1991,
    which left the banking and corporate sector with excessive and often
    unproductive investment and a huge volume of bad debts. Regulatory
    barriers that have prevented resources from moving to new growth
    sectors, and a decline in rates of return on investment have also
    compounded Japan's economic difficulties.
        Until this year, the government response to Japan's sluggish
    economy has been an expansionary fiscal policy, through a series of
    supplemental budgets, emergency spending packages (largely concentrated
    on public works), and special loan guarantees to stem the tide of
    corporate bankruptcies. The current Koizumi government has sought to
    break from the policy of fiscal support by capping the government
    budget deficit and promising thoroughgoing structural reform ``without
    sacred cows.'' The Bank of Japan has also reduced interest rates on
    short term funds to essentially zero, but its ability to lower real
    interest rates has been hampered by persistent deflation.
    2. Exchange Rate Policy
        The Japanese yen floats against other currencies, although the
    Japanese authorities have, at times, intervened to counter rapid
    exchange rate movements. The average exchange rate through the first
    eight months of 2001 was 121 yen per dollar, compared to 107 yen per
    dollar in 2000. A new Foreign Exchange Law in April 1998 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 high gross
    retail margins (needed to cover high fixed and personnel costs) and a
    complex distribution system, Japan's retail prices exhibit greater
    downward stickiness than in other large market economies. Some sectors,
    such as construction, are susceptible to cartel-like pricing
    arrangements, and the government can exert limited authority over
    pricing in heavily regulated sectors (e.g., transport and warehousing).
        Tax Policy: Total tax revenues as a share of the Japanese economy
    are comparable to the United States. Recent legislation reduced the
    effective corporate tax rate (combined central and local government) to
    40.9 percent, 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 ``consumption tax'' (actually Value-Added Tax) of
    five percent.
        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, block new entrants (domestic or foreign), and
    raise costs. These include high telecommunications interconnection
    rates, prolonged approval processes for medical devices and
    pharmaceuticals, and restrictions on foreign lawyers. The Japanese
    government has concluded an antitrust cooperation agreement with the
    United States. However, enforcement of competition policy needs
    additional rigor.
        In June 2001, President Bush and Prime Minister Koizumi agreed on a
    Regulatory Reform and Competition Policy Initiative as part of the new
    U.S.-Japan Economic Partnership for Growth. During its first year, the
    Initiative will establish four sectoral working groups to promote
    deregulation in the telecommunications, information technology, energy,
    and medical devices/pharmaceutical sectors. An additional ``cross-
    sectoral'' working group will address topics that have widespread
    impact on the economy, including competition policy, transparency in
    government rule-making, legal reform, commercial code issues,
    distribution, customs' clearance procedures, business facilitation, and
    other cross-sectoral issues not directly addressed in the sectoral
    working groups.
    4. Debt Management Policies
        Japan is the world's largest net creditor. The Bank of Japan's
    foreign exchange reserves exceed $270 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 have
    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 nontransparent regulations and
    government procedures, discriminatory standards, and exclusionary
    business practices. Japan also 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 United States and Japan
    concluded a new agreement to significantly liberalize the trans-Pacific
    civil aviation market. This eliminated many 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 had
    recently entered the U.S.-Japan market, more than doubling their access
    to Japan. The agreement also allowed code sharing (strategic alliances)
    between American and Japanese 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,
    scarcity of slots at Narita airport, along with expensive and
    inadequate facilities, have limited carriers' ability to use new
    traffic rights.
        U.S.-flag vessels serving Japanese ports have long encountered a
    restrictive, inefficient and discriminatory system of port
    transportation services, which prevents foreign shippers from handling
    their own cargos. After the Federal Maritime Commission (FMC) ruled in
    1997 that Japan maintained unfair shipping practices and imposed fines
    against Japanese ocean freight operators, the Japanese Government
    pledged to grant foreign carriers port transport licenses and to reform
    the Japan Harbor Transport Association's prior consultation system,
    which effectively allocates stevedoring work and restricts new
    entrants. The revised Port Transportation Business Law, which went into
    effect in November 2000, mandated that new entrants maintain staffing
    at 150 percent of current minimums. The FMC continues to monitor the
    situation.
        Energy: The government of Japan has taken a number of steps to
    begin deregulating its energy sector, including allowing companies with
    captive power assets to market excess generating capacity to major
    factories and other major users in March 2000. Within the Regulatory
    Reform and Competition Policy Initiative under the U.S.-Japan Economic
    Partnership for Growth framework, the U.S. government is encouraging
    Japan to speed up the process and create a more transparent and
    competitive environment for new entrants into the energy market. Open
    and non-discriminatory access to electrical transmission and
    distribution grids, and to LNG terminals and pipelines, are key steps
    for Japan. Competitive, transparent pricing also remains as an
    important unresolved issue in the Japanese market.
        Agricultural and Wood Products: Japan is the largest export market
    for U.S. farm and wood products. Sales are limited, however, by a
    variety of protectionist measures maintained by the government of
    Japan. Key priorities for trade liberalization include tariff reduction
    on raw and value-added products, elimination of unnecessary plant
    quarantine measures, more market oriented domestic farm policies,
    recognition of certification on organic foods and wood products, a
    commitment to science-based policies and education programs on foods
    produced through biotechnology, and continued deregulation of the
    housing sector affecting access for wood products.
        Tariff Reduction: Significant tariff reduction in Japan was
    achieved through the Uruguay Round Agreement, but agricultural tariffs
    in Japan remain high, ranging from 10 to 40 percent on a wide variety
    of items, including beef, oranges, and many processed foods. Tariffs on
    processed wood products place additional costs on end-users. These
    tariffs limit sales of U.S. farm products by encouraging substitution
    and/or reducing consumption altogether.
        Plant Protection and Quarantine Measures: Japan's failure to adopt
    system-wide sound scientific plant protection principles restricts
    entry of a wide variety of U.S. fresh fruits and vegetables. FAS/Japan
    estimates that unnecessary plant quarantine restrictions and
    requirements cost U.S. agriculture more than $500 million in lost sales
    opportunities every year. Japan unnecessarily restricts imports through
    outright bans on many products without sufficient scientific evidence
    that entry of the product presents a legitimate threat to local
    agriculture. Unnecessary testing and inspection requirements raise
    costs and reduce competitiveness of U.S. produce in Japan. In addition,
    failure to accept alternatives to methyl bromide fumigation for control
    of pests and unnecessary fumigation requirements for common pests that
    are already found in Japan present additional barriers to U.S.
    agricultural products.
        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.
        Biotechnology: Japan has adopted a scientific approach in its
    approval process for genetically modified (GM) foods. To date, the
    Ministry of Agriculture and Ministry of Health, Labor and Welfare,
    which regulate biotechnology products, have approved the importation of
    more than 30 GM plant varieties, including corn, potatoes, cotton,
    tomatoes, and soybeans. While U.S. and Japanese regulatory approaches
    to assessing safety of biotech products have been closely aligned, the
    United States is very concerned by Japan's decision to implement
    mandatory labeling of 24 whole and semi-processed foods made from corn
    and soybeans beginning April 2001.
        Accreditation for Wood and Organic Certifiers: In July 1999, the
    Japanese Agricultural Standard Law was amended to include a procedure
    to establish the ``equivalency'' of foreign countries' regulations, a
    prerequisite for U.S. certification organizations for wood and organic
    products to apply for accreditation by the Ministry of Agriculture,
    Forestry and Fisheries (MAFF). This time-consuming, two-step process is
    required to put them on equal footing with their Japanese counterparts.
        Rationalization of Building Standards Laws: The Japanese government
    has taken steps to make the Building Standard Law (BSL) performance-
    based, in line with its commitment to implement performance-based
    codes. Timely approval, acceptance, and ultimately sales of U.S. wood
    products are still limited by excessive regulation and continued
    reliance on prescriptive codes/standards. The United States has asked
    the Japanese government to review certain provisions of the BSL which
    are overly prescriptive or inconsistent, including fire test
    requirements and restrictions on the construction of special buildings.
        In housing policy, Japan has taken limited steps to make the sector
    more competitive and to make a greater variety of housing available to
    consumers at lower cost.
        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, the United States has
    pushed Japan to foster a more pro-competitive regime in the
    telecommunications sector. As a result of the July 2000 U.S.-Japan
    agreement to implement significant reductions in interconnection fees
    for connecting to the dominant carriers' local networks, competition
    has slowly begun to enter the telephone service market. In June 2001,
    the Ministry of Public Management, Home Affairs, Post and
    Telecommunications (MPHPT) revised the Telecom Business Law and
    introduced dominant carrier regulation. However, progress has been
    incremental and access to the telecommunications' and broadcasting
    market in Japan remains constrained by both regulatory and anti-
    competitive practices. New entrants continue to face higher costs and
    longer waiting periods for connecting to the dominant carriers' local
    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. It is still difficult for competing carriers to resolve
    problems with dominant carriers under the existing administrative
    framework.
        The United States remains very concerned by the fact that the MPHPT
    and the Japan Fair Trade Commission are within the same agency and
    recommends that Japan change the organizational status of the JFTC to
    an independent agency under the Cabinet Office. Furthermore, the United
    States continues to urge Japan to establish a strong independent
    regulator for the telecom business.
        Foreign computer and telecommunications equipment suppliers
    continue to have difficulty selling to the Japanese public sector and
    have a very small share of the market. Procurement from foreign sources
    by the Nippon Telegraph and Telephone (NTT) group companies, which
    collectively are the largest purchaser of telecommunications' equipment
    in Japan, remain below the level of foreign procurement by Japanese
    private sector telecommunications' carriers. Foreign investment in NTT
    and radio/television broadcasting companies is restricted.
        The U.S. government believes that mandatory labeling stigmatizes
    foods derived through biotechnology by suggesting a health risk when
    there is none. In response to labeling requirements, many Japanese
    manufacturers of products subject to mandatory labeling have switched
    to non-genetically engineered ingredients; this shift adds to confusion
    and misperceptions about the safety of biotech foods. The U.S.
    government agrees that labeling is necessary when there are health or
    safety reasons, such as a presence of an allergen, or changes in food
    characteristics, such as altered nutritional content. In these cases,
    the specific change, rather than the process by which it is produced,
    should be the subject of labeling.
        The government of Japan has stated that the objective of extending
    a mandatory labeling requirement to food that has been produced through
    biotechnology is to provide information to the consumer. The U.S.
    government agrees that it is important for consumers to have
    information on foods that have been genetically engineered, and
    believes there are a number of means other than labeling, such as
    educational materials and public fora, that can collectively provide
    more meaningful information to consumers on genetic engineering.
        Effective April 1, 2001, all U.S. certified organic foods must be
    certified by organizations accredited by the Ministry of Agriculture in
    order to be marketed as ``organic.'' The USDA's ISO Guide 65
    accreditation program provides sufficient assurance that certified
    products meet Japanese standards. Since ISO Guide 65 is the
    internationally recognized norm for conformity assessments of third-
    party certifiers, additional accreditation is unnecessary, costly, and
    threatens continued imports of U.S. organic foods, estimated at up to
    $100 million per year.
        Foreign Direct Investment (FDI): FDI in Japan has remained
    extremely small in scale relative to the size of the economy. In Japan
    fiscal year 2000, Japan's annual inward FDI totaled $28 billion (up
    from $21.5 billion the previous year), but still only 0.6 percent of
    its GDP. (Comparatively, FDI for the U.S. in 1999 was $276 billion,
    according to UN Conference on Trade and Development.) Although foreign
    investment in Japan is on the rise, Japan continues to attract the
    smallest amount of FDI as a proportion of total output of any major
    OECD nation (0.9 percent), reflecting the high costs of doing business
    (for example, registration, licenses, land prices and rents) and a
    continuing environment of structural impediments to foreign investment.
    The challenges facing foreign investors include: laws and regulations
    that hamper establishing new businesses and acquiring existing
    businesses, close ties between government and industry, informal
    exclusive buyer-supplier networks and alliances, and extensive cross-
    shareholding by Japanese firms.
        Recently, the Japanese Government has implemented potentially
    useful measures for increasing FDI, including a comprehensive revision
    of its Commercial Code. However, further revisions are needed to ensure
    a corporate regulatory environment, which allows existing Japanese
    companies to efficiently restructure, promote the development of new
    companies, and facilitate foreign firms' entry into the Japanese
    market. In 2002, the Japanese Diet will consider allowing firms to
    choose American-style board committees with a majority of outside
    members instead of statutory auditors (kansayaku). This could greatly
    improve corporate governance, management accountability to
    shareholders, and the attractiveness of investing in Japan. Japan has
    made significant improvements in accounting standards by introducing:
    consolidated accounting, FY 1999; pension accounting, requiring
    disclosure of assets and liabilities, and mark-to-market accounting for
    traded securities, FY 2000; and mark-to-market accounting for cross-
    held shares and other long-term holdings, FY 2001. However, the
    Ministry of Finance has yet to approve consolidated taxation, which
    would allow companies to use restructuring losses in one unit to
    balance profits in another unit.
        There are insufficient numbers of qualified lawyers, accountants,
    and other professional service providers in Japan, a significant
    barrier to investment and to corporate and debt restructuring. The
    number of qualified legal professionals in Japan is inadequate to
    support the many complex transactions necessary for restructuring
    Japan's economy. Additionally, Japan places severe limitations on the
    relationships permitted among Japanese lawyers and registered foreign
    lawyers.
        In October 2001, the United States and Japan launched an Investment
    Initiative to accelerate the pace of U.S. FDI in Japan and thus
    contribute to economic growth, job creation, and the introduction of
    new management practices. A new Investment Group will meet several
    times yearly and sponsor further measures to improve the investment
    environment in Japan.
        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 conforms to the
    letter of the WTO agreement, there have been reports that established
    domestic competitors continue to enjoy preferential access to tender
    information from some procuring entities. In some sectors unfair
    pricing remains a problem, preventing companies from winning contracts
    based on open and transparent bidding procedures. Some entities
    continue to draw up tender specifications to favor 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. The Japanese government should adapt
    customs clearance procedures to accommodate the rapid growth of express
    cargo carriers.
    6. Export Subsidies Policies
        In 2000, Japan remained the world's top aid donor for the tenth
    consecutive year, disbursing a total of $13.1 billion in official
    development assistance (ODA), representing about one-quarter of the
    total ODA of the advanced industrial countries. Although Japan had been
    moving towards untying its aid, during recent years this trend has
    reversed. Both Environmental Aid loans and Special Yen loans are tied
    to the purchase of Japanese products. This limits U.S. firms' ability
    to participate in these projects and denies recipient countries the
    opportunity to use aid as efficiently as possible. The U.S. government
    has opposed the trend towards retying and continues to address U.S.
    industry concerns that feasibility studies funded by Japanese grant
    aid, and tied to the use of Japanese firms, result in technical
    specifications 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 was removed from the Special 301 Watch
    List on May 1, 2000. However, in the May 2001 Special 301 announcement,
    the United States expressed concern about some aspects of intellectual
    property rights protection in Japan and noted that it would continue to
    carefully monitor these aspects.
        While Japan's IPR regime affords national treatment to U.S.
    entities, the U.S. government has been concerned by the long processing
    time for patent examination. Recent statistics show that it takes the
    Japan Patent Office an average of 21 months to respond to an applicant
    (First Action Period), longer than in other industrialized countries.
    Since all patent applications are opened to public inspection 18 months
    after filing, this 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 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.
        Japan's protection of trade secrets is inadequate. Because Japan's
    Constitution prohibits closed trials, the owner of a trade secret
    seeking redress may find the secret disclosed as part of the judicial
    process. While a recent amendment to Japan's Civil Procedures Act
    excludes Japanese court records containing trade secrets from public
    access, court proceedings remain open to the public and neither the
    parties nor their attorneys have confidentiality obligations.
        Trademarks must be registered in Japan to ensure enforcement,
    meaning delays make it difficult for foreign parties to enforce their
    marks. However, Japan is a party to the Madrid Protocol for centralized
    foreign trademark registration. 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 First Action Period for trademark applications takes
    about eleven months. The United States will continue monitoring Japan's
    approval time.
        End-user software piracy remains a major concern of United States
    and some Japanese software developers. Effective January 2001, Japan
    raised the level of punitive damages for software piracy from 3 million
    yen to 100 million yen. However, Japan still does not protect temporary
    copies, a requirement of the Berne Convention and the 1996 WIPO
    Copyright Treaty.
        The absence of a system of statutory damages is also a problem.
    Under the Japanese system, right holders need to prove actual loss in
    order to qualify for compensation from violators. Protection would be
    improved under a system where right holders only need to prove the loss
    and could be awarded damages within a fixed range for each work
    violated.
    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. 21.5 percent of Japan's labor force is unionized. The Japanese
    Trade Union Confederation (RENGO), which represents 7.2 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
    forced or bonded labor is not perceived as a problem. Japan is,
    however, a destination country for the trafficking of women for
    prostitution through debt bondage.
        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 range from
    about $18 per hour in Tokyo to $11 in rural northern Japan. 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  15,173
      Food & Kindred Products...  1,232        .............................
      Chemicals & Allied          2,843        .............................
       Products.
      Primary & Fabricated        330          .............................
       Metals.
      Industrial Machinery and    1,581        .............................
       Equipment.
      Electric & Electronic       2,033        .............................
       Equipment.
      Transportation Equipment..  2,391        .............................
      Other Manufacturing.......  4,764        .............................
    Wholesale Trade.............  ...........  4,689
    Banking.....................  ...........  733
    Finance/Insurance/Real        ...........  20,685
     Estate.
    Services....................  ...........  8,646
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  55,606
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                               REPUBLIC OF KOREA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      GDP (nominal/factor cost).........      405.8       457.4       434.5
      Real GDP Growth (pct) \2\.........       10.9         8.8         2.7
      GDP by Sector:
        Agriculture/Fisheries...........       20.7        21.0        21.1
        Manufacturing...................      124.6       144.1       135.1
        Electricity/Gas/Water...........       11.0        12.8        11.9
        Construction....................       35.3        37.5        36.7
        Financial Services..............       74.3        81.4        78.4
        Government Services.............       40.6        45.3        43.2
        Other...........................       99.4       115.3       108.0
      Government Expenditure (pct/GDP)..       10.4        10.2        10.3
      Per Capita GNI (US$)..............      8,551       9,628       9,019
      Labor Force (000s)................     21,634      21,950      22,270
      Unemployment Rate (pct)...........        6.3         4.1         3.9

    Money and Prices (annual percentage
     rate):
      Money Supply (M2).................       27.9        30.2        33.3
      Corporate Bonds \3\...............       9.85        8.12        7.10
      Personal Savings Rate.............        4.2        23.0        22.6
      Retail Inflation..................        0.8         2.3         4.6
      Wholesale Inflation...............       -2.1         2.0         2.6
      Consumer Price Index (1995 base)..      118.8       121.5       127.1
      Average Exchange Rate (Won/US$)...    1,189.5     1,130.6     1,285.0

    Balance of Payments and Trade:
      Total Exports FOB \4\.............      145.2       175.8       159.1
        Exports to United States \4\....       29.5        37.6        31.8
      Total Imports CIF \4\.............     -116.8      -159.2      -143.6
        Imports from United States \4\..      -24.9       -29.2       -25.8
      Trade Balance.....................       28.4        16.6         8.6
        Balance with the United States..        4.6         8.4         6.0
      External Debt \5\.................      137.1       136.3       117.7
      Debt Service Payments \6\.........      -45.4       -25.0       -35.3
      Gold and Foreign Exchange Reserves       74.1        96.2       100.0
       \7\..............................
      Aid from the United States........          0           0           0
      Aid from All Other Sources........          0           0           0
    ------------------------------------------------------------------------
    \1\ 2001 figures are estimates based on available monthly data and the
      economic forecasts made by local research institutes as of September
      5.
    \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. (Estimated figures are for the entire year 2001).
    \5\ Gross debt; includes non-guaranteed private debt. 2001 figure is an
      estimate based on available monthly data as of July.
    \6\ Note that the Government of the Republic of Korea does not release
      such data, so the 2001 figure is an estimate based on available
      related data as of September 14.
    \7\ 2001 figure is as of the end of September 2001.

    1. General Policy Framework
        In 2001, Korean economic conditions continued to worsen due to the
    triple distress of weakened global economic conditions (and related
    falls in Korea's exports), a severe slump in microchip/computer demand
    and prices, and low levels of Korean corporate fixed investment. The
    September 11, 2001, terrorist attacks in New York and Washington added
    stress to an already gloomy economic picture in 2001. Real annual
    average economic growth rate is not expected to exceed 2 percent, with
    inflation expected in the 4-5 percent range. Increased uncertainty in
    the economy could further dampen domestic consumption and investment.
    In the near term, decreasing exports of IT products and depressed
    consumer sentiment in industrialized countries will likely hamper the
    recovery of Korean exports in the near term. Recovery could come by the
    second quarter of 2002, at the earliest.
        The economic downturn contrasts sharply with Korea's 1999 and 2000
    rebound, when economic growth rose sharply from the unprecedented 1997-
    98 economic crisis. Buoyant domestic consumption and investment and a
    surge in exports to buoyant international markets mainly led the rally.
    During those years, Korea's gross domestic product (GDP) grew 10.9
    percent and 8.8 percent respectively in real terms, propelled by strong
    recoveries in principal industrial sectors, decisively reversing 1998's
    6.7 percent contraction, Korea's worst performance since the Korean
    War. GDP growth was particularly impressive in Q4 1999, 14.2 percent,
    and Q1 2000, 12.0 percent.
        Korea's economic recovery from the 1997-98 crisis was impressive
    but still is not firm or assured. Long-term success will depend on
    continued financial and corporate-sector restructuring to encourage a
    high pace of productive domestic and foreign direct investment.
    Otherwise, existing high levels of domestic corporate debt could
    threaten economic performance with the impact of significant
    bankruptcies.
        Korea's 1997-98 financial crisis coincided with the election and
    inauguration of President Kim Dae-jung. President Kim gave decisive
    support to a $58 billion International Monetary Fund (IMF) package,
    which he saw as Korea's best way out of the crisis. The package
    included loans from the IMF, World Bank, and the Asia Development Bank.
    Under the IMF program, the government took steps to open its financial
    and equity markets to foreign direct and portfolio investment and to
    reform and restructure its financial and corporate sectors to increase
    transparency, accountability and efficiency.
        The United States is a leading Korean trade partner, taking 22
    percent of Korea's exports and providing 20 percent of Korea's imports
    for the first eight months of 2001. Korea exports advanced electronic
    components and telecommunications equipment, automobiles, steel, and a
    wide variety of mid-level, medium-quality consumer electronics and
    other goods.
        In the early 1990s, wages rose faster than productivity and Korea
    lost its low-wage labor advantage to China and Southeast Asia. At the
    same time, Korea faced tough competition from Japan and other advanced
    countries in exporting cutting-edge, high-tech products. Through
    September 30, the average value of the Korean currency, the won, has
    been around 1,285 won per dollar. Korea's useable foreign currency
    reserves grew to over $100 billion by September 2001, which
    significantly reduced Korea's vulnerability to a repeat of the 1997-98
    financial crisis, when Korea nearly exhausted its foreign exchange
    reserves. Nonetheless, the trade surplus continues to narrow, as
    exports have decreased faster than imports. The Korean government has
    revised its trade surplus estimate for 2001 to $12 billion, from its
    previous estimate of $13 billion.
    2. Exchange Rate Policy
        Since the IMF program began in December 1997, foreign exchange and
    capital controls have been greatly relaxed or abolished. In conjunction
    with IMF program requirements, the exchange rate has been allowed to
    float (with Bank of Korea intervention nominally limited to smoothing
    operations only).
    3. Structural Policies
        In response to the 1997 financial crisis, the government has
    required greater corporate transparency, fostered the development of
    small- and medium-sized industries and implemented broad-based reforms
    of the financial system. The financial reforms include substantial
    liberalization of capital markets, and abolishing restrictions on
    foreign ownership of domestic stock shares and bonds and 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.
        Certain regulations may disadvantage foreign bank branches. For
    instance, Korea requires foreign branches to be separately capitalized;
    also, prudential lending limits are based on local branch capital as
    opposed to a foreign bank's total worldwide capital, while domestic
    banks may count their entire capital base as assessed capital. Foreign
    banks are also disadvantaged in access to local-currency lending. The
    April 1999 Foreign Exchange Transaction Law, fully implemented at the
    end of 2000, significantly liberalized formerly heavily regulated
    capital transactions.
        Korea's 1998 Foreign Investment Promotion Act streamlined foreign
    investment application procedures and eased barriers to foreign direct
    investment across a range of sectors. Korea now has a much more
    favorable climate for foreign direct investment (FDI). In the long run,
    increased openness to FDI should foster broader market access for
    imported goods. FDI levels for the two years 1998 and 1999 exceeded the
    total FDI that Korea received during the previous 37 years (1960-1997).
    In 2000, FDI was at the 1999 level, but has fallen somewhat in 2001.
    Investment restrictions remain on 21 industrial sectors, of which only
    seven are entirely closed. Mergers, including hostile acquisitions, are
    permitted, and most restrictions on foreign ownership of local shares
    have been lifted. For the first time in modern Korean history,
    foreigners now may purchase property and real estate. Tax incentives,
    especially for the high technology sector, have been increased, but
    restrictions on access to offshore funding (including offshore
    borrowing, intra-company transfers and inter-company loans) continue to
    be burdensome. Foreign equity participation limits, licensing
    requirements and other regulatory restrictions can limit FDI in sectors
    nominally open to foreigners. Foreign firms also face additional
    investment restrictions in many professional services sectors. The
    United States and Korea are negotiating these and other investment
    issues in the effort to conclude a bilateral investment treaty (BIT).
    4. Debt Management Policies
        At the end of July 2001, Korea's total foreign debt (largely
    private sector) totaled $125 billion, down from $136 billion in
    December 2000. By the end of July 2001, Korea's short-term debt as a
    percentage of total foreign debt was 31.2 percent, down from 32.4
    percent at the end of 2000.
    5. Significant Barriers to U.S. Exports
        During the 1990s, Korea steadily liberalized its markets for goods
    and services and substantially improved its investment climate for U.S.
    firms. Many protective tariffs were lowered or phased out as a result
    of bilateral negotiations, Uruguay Round commitments and other
    multilateral efforts. Various nontransparent policies and regulations,
    which directly or indirectly inhibited market access for imports, were
    clarified or eliminated. The government rejected explicit policies that
    encouraged anti-import sentiment among Korean consumers, and its
    efforts to address residual anti-import biases among Korean consumers,
    media and bureaucrats have started to have some meaningful impact.
    Introduced in late 1998, the new foreign investment regime is aimed at
    attracting rather than tolerating foreign investment; total foreign
    investment in 2001 is expected to reach $15 billion for the third
    straight year. The net effect of these changes is that Korea is now an
    easier place to do business than in the past. Several key sectors,
    especially agricultural products, pharmaceuticals, and automobiles,
    however, are still very challenging for foreign firms. Problems also
    exist in intellectual property rights protection.
        Korea's tariffs are generally modest. However, for agricultural
    products Korea's 50.3 percent average out-of-quota tariff contrasts
    sharply with the relatively low average tariff for industrial products
    of 7.5 percent. This disparity gives some indication of the political
    sensitivity of agricultural and fishery imports, which are further
    restricted by quotas and tariff rate quotas (TRQ), as well as by the
    restrictive way that Korea administers the quotas. Several agricultural
    products of interest to U.S. suppliers, such as rice and oranges, are
    directly hindered by these policies, although Korea purchased U.S. rice
    for the first time in 2001 since agreeing to open its rice market
    during the Uruguay Round. Korea also uses adjustment tariffs to respond
    to import surges; the majority of the 27 adjustment tariffs apply to
    agricultural products. The government eliminated its import
    diversification program, which barred certain imports from Japan, in
    June 1999 and its eight remaining GATT balance-of-payments restrictions
    at 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 improve transparency and due
    process to its regulatory system, in 1996, Korea enacted the
    Administrative Procedures Act, but public notice of new regulations, as
    well as comment and transition periods, are still not always adequate.
    The regulatory system does not consistently offer adequate recourse to
    those adversely affected by creation of new regulations. In 1998 a
    comprehensive effort at regulatory reform was initiated at the request
    of President Kim; thousands of regulations have been reviewed and many
    eliminated, but the impact on doing business has not been significant.
        Products regulated for health and safety reasons (such as
    pharmaceuticals, processed foods, medical devices, and cosmetics)
    typically require additional testing or certification from relevant
    ministries before they can be sold in Korea, resulting in considerable
    delays and increasing costs. Although new reimbursement pricing and
    product approval systems were recently put into place, the Korean
    health authorities have attempted to make changes to the system that
    will disadvantage foreign producers, generally without consultation or
    an adequate public comment period. As a result, the foreign
    pharmaceutical industry continues to face discriminatory barriers in
    Korea. Registration requirements for such products as chemicals,
    processed food, medical devices, and cosmetics hamper entry into the
    market as well. It has committed to bring its Food Code, Food Additive
    Code and labeling requirements into conformity with international
    standards, and has taken some steps to do so. 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 has made some efforts to reduce the
    quasi-legal, trade restrictive powers of a number of associations.
        While the Korean government made some effort to improve the market
    environment for foreign automobiles, including President Kim's March
    2001 statement encouraging Koreans to buy foreign cars, Korea's
    automobile market remains effectively closed to foreign imports with
    only 4,414 imported cars sold in 2000. Pursuant to the October 1998
    U.S.-Korea Memorandum of Understanding (MOU) on motor vehicles, Korea
    lowered some taxes that had a discriminatory impact on imported cars,
    bound its auto tariffs at eight percent, improved consumer financing of
    autos, and streamlined standards and certification. These steps have
    yet to have a meaningful impact. We have called on Korea to further
    reduce the tariff and tax burden on motor vehicle owners as called for
    in the MOU, to effectively counter the years of government-sponsored
    ant-import campaigns, and to improve consumer perception of foreign
    motor vehicles. In 2001, Korean imports of U.S. and other foreign cars
    are expected to barely exceed 8,000 units, far less than one percent of
    the domestic market.
        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. The quota acts as a deterrent to imported films,
    cinema construction, and the expansion of theatrical distribution. The
    Korean government, however, considers this a cultural rather than a
    trade issue.
        Korea is a party to the WTO Government Procurement Agreement (GPA).
        In January 2001, Korea removed most of the remaining non-tariff
    barriers on beef imports, with the notable exception of the dual retail
    distribution system separating domestic and imported beef, state
    trading and overly strict sanitary requirements. On September 10, 2001,
    Korea implemented the WTO Dispute Settlement Board (DSB)
    recommendations to remove the dual retail system, which controlled
    distribution of beef in the marketplace. In its stead Korea will impose
    a new record-keeping system applicable to all meat products effective
    January 1, 2002.
    6. Export Subsidies Policies
        In the past, Korea has aggressively promoted exports through a
    variety of policy tools, including export subsidies, directed credit
    and targeted industrial policies. While Korea has eliminated WTO-
    prohibited subsidies, concerns remain about subsidization in a variety
    of important sectors, such as shipbuilding, steel and semiconductors.
    In particular, apparent government subsidization of Hynix
    Semiconductor, Inc. (formerly Hyundai Electronics, Inc.) through
    various state-sponsored credit guarantees, a Korea Development Bank
    financing program, and influence over the lending decisions of key
    Hynix creditor banks have recently renewed concerns about inappropriate
    government intervention in the market place and retrenchment on
    financial and corporate reforms.
    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 and related enforcement measures can be
    problematic. Korea's Special 301 ``Priority Watchlist'' status was
    maintained in April 2001. Areas of continuing IPR concern include:
    protection of clinical drug test data, pre-existing copyrighted works
    and pharmaceutical patents, lack of coordination between Korean health
    and IPR authorities on drug product approvals for marketing; and
    counterfeit consumer products. The United States also has ongoing
    concerns about the consistency, transparency, and effectiveness of
    Korean enforcement efforts, particularly with regards to piracy of U.S.
    computer software and books.
        Korean patent law is quite comprehensive, offering protection to
    most products and technologies. However, it does not provide for
    effective pharmaceutical patent protection, and approved patents of
    foreign patent holders are still seen as vulnerable to infringement.
    Likewise, U.S. industry believes that Korean courts are deficient in
    terms of treatment and interpretation of its claims.
        Since the early 1990s, the government's protection of trademarks
    has improved. 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. The Korean Industrial Property Office (KIPO) is
    able 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.
        The Patent Utility, Industrial Design and Trademark laws were
    revised more recently to make it easier to establish damage amounts and
    adjust penalty provisions up to KRW 100 million (just under $100,000)
    fine or seven years' imprisonment. The Unfair Competition and Trade
    Secret Protection laws were also amended to enhance the protection of
    well-known trademarks. Korea's Copyright Act protects an author's
    rights, but local prosecutors take no action against infringement
    unless the copyright holder files a formal complaint. Recently, Korea
    amended its Computer Programs Protection Act (again). However, there
    are continuing concerns regarding the temporary copies issue. The
    Copyright Act (CA) has also been revised to meet the needs of the new
    information economy. Still, the CA is not in full compliance with
    provisions of the TRIPS Agreement that 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. In 1999 the Korean
    government devoted increased resources and staff to IPR enforcement
    activities, and President Kim himself directed cabinet agencies to
    step-up government efforts to protect intellectual property. In 2000,
    such activities dropped off precipitously, and IPR violations,
    especially of computer software, remain a problem. However, in 2001,
    President Kim Dae-jung made clear the government's determination to
    strengthen IPR enforcement activities. This was followed by vigorous
    two-month-long special enforcement period raids against more than 2,000
    suspected users of illegal computer software.
    8. Worker Rights
        a. The Right of Association: Most Korean workers enjoy the right of
    free association. White-collar workers in the government sector cannot
    join unions, but since 1999 have been allowed to form workplace
    consultative councils. Blue-collar employees in the postal service,
    railways, and telecommunications sectors, and the national medical
    center have formed labor organizations. In July 1999, 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.
        Labor law changes in 1997 authorized the formation of competing
    labor organizations in individual work sites beginning in the year
    2002, but in 2001 implementation of this was postponed for five years
    by mutual agreement among members of the Tripartite Commission. 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. However, 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 do 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 made it legal for
    companies to lay off workers for managerial reasons, including merger
    or acquisition, or in case of financial difficulties. Labor-management
    antagonism remains, and some major employers remain strongly anti-
    union.
        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 is not known to occur.
        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. In order to obtain employment, children under 18 must have
    written approval from their parents or guardians. Employers may only
    permit minors to work 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 as of
    August 2001 was 2100 won/hour (about $1.60/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. Recent legislation
    authorized a five-day, forty-hour workweek, but full agreement on
    implementation and the phase-in period has not yet been reached. Due to
    an insufficient number of inspectors, 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 and
    injuries 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  3,954
      Food & Kindred Products...  527          .............................
      Chemicals & Allied          807          .............................
       Products.
      Primary & Fabricated        19           .............................
       Metals.
      Industrial Machinery and    336          .............................
       Equipment.
      Electric & Electronic       1,059        .............................
       Equipment.
      Transportation Equipment..  196          .............................
      Other Manufacturing.......  1,009        .............................
    Wholesale Trade.............  ...........  858
    Banking.....................  ...........  2,104
    Finance/Insurance/Real        ...........  91
     Estate.
    Services....................  ...........  510
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  9,432
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    MALAYSIA

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................    79,037     89,659     90,920
      Real GDP Growth (pct) \2\............       6.1        8.3        2.0
      GDP by Sector (1987 prices):
        Agriculture........................     4,625      4,654      4,712
        Manufacturing......................    15,200     18,386     18,423
        Mining And Petroleum...............     3,677      3,794      3,829
        Construction.......................     1,822      1,841      1,932
        Services...........................    24,331     25,620     26,639
        Government Services................     3,736      3,788      4,056
      Per Capita GDP (US$).................     3,480      3,850      3,810
      Labor Force (000s)...................     9,010      9,573      9,801
      Unemployment Rate (pct)..............       3.0        3.1        3.9

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)(pct) \3\....       1.4        5.5        3.9
      Consumer Inflation (pct).............       2.8        1.6        1.3
      Exchange Rate (RM/US$--annual              3.80       3.80       3.80
       average)............................

    Balance of Payments and Trade:
      Total Exports FOB....................    84,097     98,429     87,754
        Exports to United States \4\.......    21,428     25,568     22,188
      Total Imports FOB....................    61,452     77,574     69,550
        Imports from United States \4\.....     9,079     10,938      9,496
      Trade Balance........................    22,645     20,855     18,204
        Balance with United States \4\.....    12,349     14,630     12,692
      External Public Debt.................    20,265     20,650     23,088
      Fiscal Surplus/GDP (pct).............      -6.0       -5.8       -6.5
      Current Account Surplus/GDP (pct)....      15.9        9.4        7.3
      Debt Service Payments/GDP (pct)......       7.5        6.3        6.5
      Gold and Foreign Exchange Reserves       30,900     29,900     29,900
       \5\.................................
      Aid from United States \6\...........       0.7        0.7      1.048
      Aid from All Other Countries.........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    Note: All data converted at annual average exchange rates.

    \1\ Malaysian Government estimates.
    \2\ Calculated in Ringgit to avoid exchange rate changes.
    \3\ As of August for 2001
    \4\ Annualized estimate on eight-month data from U.S. Department of
      Commerce for 2001
    \5\ As of October 15 for 2001.
    \6\ U.S. government assistance to Malaysia in FY2001 fell into four
      broad categories: the Trade Development Agency (TDA), approximately
      $250,000; the International Military Education Training (IMET)
      program, $700,000; the Enhanced International Peacekeeping Corporation
      Program (EIPC) $348,000; and the U.S.-Asia Environment Program (U.S.-
      AEP), $252,000.

    1. General Policy Framework
        Malaysia's economy slowed dramatically in 2001 in line with the
    economic slowdown in the United States, Malaysia's chief trading
    partner. The slowdown contrasts with Malaysia's strong recovery from
    the 1997-1999 regional economic and financial crisis. In 1998 the
    economy contracted 7.4 percent but rebounded with 6.1 percent growth in
    1999 and 8.3 percent growth in 2000, based largely on strong exports of
    electronics to the United States. Although consumer and investor
    confidence improved with the recovery, aggregate domestic consumption
    and investment remained subdued. In response to the global economic
    slowdown in 2001, the government introduced two stimulus packages,
    injecting $1.9 billion in new spending to boost the economy. The
    government projects a budget deficit equal to 6.5 percent of GDP during
    2001, followed by a deficit equal to 5.0 percent of GDP in 2002.
        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 to deal with a
    growing number of non-performing loans (NPLs) during the financial
    crisis. 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. As of June 2001, Danaharta has
    removed approximately 40 percent of the NPLs from the banking system.
    As of August 2001, CDRC has received requests for loan restructuring
    involving 62 cases with debts of $14.8 billion. CDRC leadership has
    pledged to resolve outstanding cases by August 2002.
        The government plays a strong, active role in the economy as
    investor, economic planner, approver of investment projects and public
    and private procurement decisions, as well as the author and
    implementer of domestic policies and programs. The government actively
    seeks to bolster the economic status of the Malay and indigenous
    communities (commonly referred to as bumiputera), in part through the
    awarding of 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,
    steel, and public transportation. 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 bumiputera 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, agricultural, mineral, and
    motor vehicle sectors) are also subject to non-automatic import
    licensing designed to protect import-sensitive or strategic industries.
    According to the Ministry of International Trade and Industry, the
    average applied MFN tariff rate of Malaysia is approximately 9.18
    percent. However, duties for tariff lines where there is significant
    local production are often higher. For example, 6.8 percent have tariff
    rates between 16 and 20 percent, 16.9 percent have tariff rates that
    exceed 20 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. In 2001, the government
    introduced two supplementary budget packages, totaling $1.9 billion in
    new spending. The 2002 budget, released October 19, provides for a
    deficit equal to five percent of GDP and features some personal income
    tax cuts along with provisions to stimulate domestic consumption and
    investment. The Malaysian government will finance the projected $4.9
    billion deficit primarily from domestic sources, although the
    government also plans an additional $950 million (net) in new foreign
    borrowings.
        Monetary Policy: The Central Bank continues its accommodative
    monetary policy, featuring low interest rates to stimulate economic
    recovery. The government loosened monetary policy in 1998, reducing
    reserve requirements from 13.5 percent as of year-end 1997 to 4 percent
    in September 1998. The average base lending rate dropped from 8.0
    percent in December 1998 to 6.8 percent in August 1999. In September
    2001 the Central Bank cut the 3-month intervention rate by 50 basis
    points to 5 percent, leading to a further drop in the base lending rate
    to 6.4 percent.
    2. Exchange Rate Policy
        As part of a broad effort to stabilize the currency while
    stimulating the economy, on September 1, 1998, the government fixed the
    exchange rate of the Ringgit to the dollar at RM 3.8/$1 and instituted
    selective capital controls, including a controversial tax on
    repatriated principal and profits. The government subsequently
    abolished most capital controls, but has maintained the fixed exchange
    rate, in spite of concerns that falling foreign exchange reserves,
    between May 2000 and June 2001, could lead to a reconsideration of the
    policy.
    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. 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 44 percent of government
    revenue with indirect taxes, export and import duties, excise taxes,
    sales taxes, service taxes, and other taxes accounting for another 29
    percent. The remainder comes largely from dividends generated by state-
    owned enterprises and petroleum taxes.
        The year 2002 budget focuses on stimulating domestic consumption
    and investment. The new budget marks the fifth consecutive federal
    government deficit. The budget features pump-priming measures,
    including a slight reduction in personal income taxes, lower import
    duties on over 200 products, as well as tax rebates and incentives to
    promote exports and e-businesses.
        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 has $42.7 billion in foreign debt, of which almost 90
    percent ($37.9 billion) is medium- and long-term debt (both public and
    private sector), almost all of which was granted on concessional terms.
    Short-term external debt remains low at an estimated $4.8 billion in
    2001, up slightly from the $4.6 billion registered in 2000. Malaysia's
    debt service ratio declined from a peak of 18.9 percent of gross export
    earnings in 1986 to 5.1 percent in 2000. The government estimates that
    the debt service ratio will increase to 5.8 percent in 2001.
    5. 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. Arguing that the national car industry
    requires additional time to become competitive internationally as a
    result of the regional financial crisis, Malaysia has requested
    additional time before reducing or abolishing these measures. Malaysia
    has requested an additional two-year extension of the phaseout period,
    until the end of 2003, for local content requirements in selected auto
    industry sectors that are inconsistent with its obligations under the
    WTO Agreement on Trade-Related Investment Measures (TRIMS) (see
    investment barriers). Further, ASEAN has accepted Malaysia's request
    for an extension of its commitments under the ASEAN Free Trade Area
    (AFTA) to reduce tariffs in the auto sector beginning in 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
    that could restrict market opportunities for imports.

    ------------------------------------------------------------------------
                                                                     Tariff
                                 Products                            (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).............................................         60
    Motorcycle (CKD).............................................         30
    ------------------------------------------------------------------------

        Restrictions on Construction Equipment: In October 1997 Malaysia
    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 October 1996 it 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 April 1999,
    another licensing requirement was established for certain iron and
    steel products.

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

        Duties on Selected Goods: Effective October 19, 2001, the 2002
    budget reduced high import duties on selected goods that were imposed
    to protect local producers from competition from imports. The budget
    also harmonized the import duties on selected intermediate and finished
    goods in order to avoid anomalies and to reduce the cost of doing
    business. Import duties on 55 ``long-protected'' items, (including
    suitcases, textiles, and cigarette lighters) have been reduced from
    between 20 and 105 percent to between 10 percent and 50 percent. Import
    duties on 25 intermediate goods, with duties higher than finished goods
    (including cocoa paste, plugs and sockets, and ball point pen parts)
    have been reduced from between 10 and 30 percent to between 5 and 25
    percent. Import duties on 109 goods, where the rates are not consistent
    with rates on goods from the same category (including adhesives,
    lingerie, and linens) have been reduced from between 25 and 30 percent
    to between 0 and 25 percent. Import duties on 27 items, which are
    competitive or not produced locally (including hydraulic fluids, color
    television receivers, and binoculars) have been abolished.
        Duties on High Value Food Products: In the 2002 budget, the
    government reduced tariffs on 64 selected food items to increase
    consumption and to harmonize import duties rates with Common Effective
    Preferential Tariff (CEPT) rates. Import duties for items such as
    anchovies, sweet corn, peaches, and mixtures of dried nuts and fruits
    were reduced from between 5 and 30 percent to between 2 and 15 percent.
    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: In 2001, the
    government increased the sales taxes for tobacco from 15 to 25 percent
    and for alcohol from 15 to 20 percent. In the 2002 budget, the
    government increased the import duty on cigarettes and tobacco products
    from $47/kg to $57/kg and increased the excise duty on cigarettes and
    tobacco products from $10.50/kg to $13/kg.
        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.
        Plastic Resins: U.S. exports of some plastic resins are hampered by
    20 percent tariffs. Additional measures may be forthcoming. In October
    2000, the Plastic Resins Producers Group of the Malaysian
    Petrochemicals Association requested government help in overcoming the
    combined effect of high feedstock resins and cheaper imported resins.
        Float Glass Tariff Differentials: Malaysia levies high duties (30
    to 60 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 Tariffs: Malaysia no longer has import
    duties on instant print film. The 2002 budget eliminates import duties
    on other film for color photography of paper, paperboard, and textiles.
    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. Effective in February 2000, Malaysia increased the
    tariff on newsprint (rolls and sheets) to 10 percent.
        Direct Selling Companies: In May 1999 the Malaysian government
    announced new requirements for the licensing and operation of direct
    selling companies. These requirements include the provisions that: 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 operating licenses. The Ministry
    indicated that the local content targets are not mandatory, except for
    adherence to Malaysia's national equity policy. In October 2001, the
    Minister of Domestic Trade and Consumer Affairs announced that the
    government had lifted its freeze on multi-level direct selling
    licenses. Licenses will be issues to companies with paid-up capital of
    RM 2.5 million ($657,000). Companies with foreign shareholders must
    have paid-up capital of RM 5 million ($1.3 million). The paid-up
    capital requirement for single-level and mail order companies is RM
    500,000 ($131,578). Existing licensed companies will be given one year
    to comply with this ruling. Single-level companies will be permitted to
    apply for multi-level licenses in November 2001, provided they have
    been operating for three years and have annual sales of more than RM 1
    million ($263,157).
        Franchising Practices: The Malaysian government designated 2001 as
    ``Franchising Year 2001,'' and it boasts the country as the top choice
    among franchisors and investors in the region, soon to rival Japan.
    While the Malaysian government's lofty predictions may be unrealistic,
    there is nevertheless much room for growth. However, the recently
    enacted Malaysian franchise law contains some provisions that are
    troubling to international franchisors including disclosure
    requirements, regulation of the relationship between the franchisor and
    the franchise, the role of the Malaysian government in franchising, and
    some differences in the treatment of domestic and foreign franchisors.
        Government Procurement: Malaysian Government policy calls for
    procurement to be used to support national objectives such as
    encouraging greater participation of ethnic Malays (bumiputera) 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 (extended to December
    31, 2003) 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 content 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-country WTO members to maintain such measures for a five-
    year transitional period after entry into force of the WTO. Malaysia
    was scheduled to eliminate these measures before January 1, 2000. In
    December 1999, Malaysia requested a two-year extension of the phase-out
    period. Subsequently, Malaysia requested an additional two-year
    extension. The United States is working in the WTO committee on TRIMs
    to ensure that WTO members meet its 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.
    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. Auditing and
    taxation services must be authenticated by a licensed auditor in
    Malaysia. Residency is required for registration.
        Banking: In March 2001, the Central Bank unveiled its 10-year
    Financial Sector Master Plan for developing a more competitive and
    resilient financial system. The Plan is focused on building competitive
    domestic banks and defers the introduction of new foreign competition
    until after 2007. No new licenses are being granted to either local or
    foreign banks; foreign banks must operate as locally controlled
    subsidiaries. (In December 2000, the government reissued a banking
    license to the Bank of China. That license had been surrendered in
    1959.) Foreign-controlled companies are required to obtain 50 percent
    of their local credit from Malaysian banks.
        Insurance: The Financial Sector Master Plan also recommends phased
    liberalization of the insurance industry, including lifting
    restrictions on employment by expatriate specialists, increasing caps
    on foreign equity, and opening the reinsurance industry to competition.
    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 nine 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. In February 2001, the Securities
    Commission released its Capital Markets Master Plan, which features
    liberalized foreign participation limits by 2003, at which time
    foreigners would be permitted to purchase a limited number of existing
    stockbroking licenses and take a majority stake in unit trust
    management.
        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. Eighty
    percent of television programming is required to originate from local
    production companies owned by ethnic Malays. However, in practice,
    local stations have considerable latitude in programming because of a
    lack of suitable local programming. Sixty percent of radio programming
    must be of local origin. The Communications and Multimedia Act
    transferred responsibility for regulating broadcasting from the
    Ministry of Information to the Ministry of Energy, Telecommunications,
    and Multimedia.
        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.
    6. 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.
    7. 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 was
    scheduled to meet its obligations under Trade Related Intellectual
    Property Agreement (TRIPS) on January 1, 2000. In 2000, the Malaysian
    government passed a number of new laws and amendments to existing
    legislation in order to bring Malaysia into compliance with its TRIPS
    obligations. New legislation on plant varieties is still being drafted.
        As the number of manufacturing licenses for CDs increased, so did
    piracy rates for music and video discs. Malaysia's production capacity
    for CDs far exceeds local demand plus legitimate exports, and pirated
    products believed to have originated in Malaysia have been identified
    throughout the Asia-Pacific region, North America, South America, and
    Europe. The International Intellectual Property Association (IIPA)
    estimates 2000 industry losses in Malaysia due to piracy at $161
    million. IIPA estimates 2000 piracy rates at 66 percent for business
    software, 98 percent for entertainment, and 80 percent for movies. In
    April 2000 the United States Trade Representative (USTR) placed
    Malaysia on the Special 301 Priority Watch List for its failure to
    substantially reduce pirated optical disc production and export. After
    an out-of-cycle review, in October 2001, USTR upgraded Malaysia to the
    Special 301 Watch List, in recognition of the steps Malaysia has taken
    to implement new legislation and enforce protection of intellectual
    property rights.
        The Malaysian government is aware of the problem and has expressed
    its determination to move against illegal operations. The Prime
    Minister and his cabinet have publicly spoken out about the need to
    improve IPR protection. A special task force, chaired by the Minister
    of Domestic Trade and Consumer Affairs, includes representatives from
    all ministries and agencies with responsibility for IPR. Government and
    industry cooperation has expanded. For example, in July 2000, the
    Ministry and the Business Software Alliance (BSA) launched ``Crackdown
    2000'' targeting corporate use of unlicensed software.
        In April 2000, the Malaysian Parliament passed amendments to the
    Copyright Act, the Patents Act, and the Trademarks Act, as well as
    legislation on layout designs of integrated circuits and geographical
    indications. In September 2000, the Ministry of Domestic Trade and
    Industry gazetted the Optical Disc Act 2000 establishing a licensing
    and regulatory framework for manufacturing copyrighted work and to
    control piracy. Manufacturers are required to obtain licenses from both
    the Ministry of International Trade and Industry and the Ministry of
    Domestic Trade and Consumer Affairs. Manufacturers were given six
    months, until September 15, to comply with the new act.
        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 thousands of 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.
    8. Worker Rights
        a. The Right of Association: By law most workers have the right to
    engage in trade union activity, but less than 10 percent of the work
    force is represented by one of Malaysia's 544 trade unions. Exceptions
    include certain categories of workers labeled ``confidential'' and
    ``managerial and executives,'' as well as police and defense officials.
    No legal barrier prevents foreign workers from joining a trade union,
    but the Immigration Department places conditions on foreign workers'
    permits that effectively bar the workers from joining a trade union.
    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 16. 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 does the law permit children to work more than six hours per
    day, or 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 plantation sector, assisting
    parents with the physical labor, but not receiving a wage. Child labor
    can also be found in urban areas in family-run food businesses, night
    markets and small-scale manufacturing.
        e. Acceptable Conditions of Work: There is no minimum wage, but
    prevailing wages generally provide an acceptable standard of living.
    Malaysian law stipulates working hours, mandatory rest periods,
    overtime rates, holidays, and other labor standards. The government
    enforces these standards. Working conditions and occupational safety
    concerns are considerably worse in the plantation sector. An
    occupational safety law provides some protections, but there are no
    specific statutory or regulatory provisions that provide a right for
    workers to remove themselves from a dangerous workplace without
    arbitrary dismissal.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1,252
    Total Manufacturing.........  ...........  3,411
      Food & Kindred Products...  -8           .............................
      Chemicals & Allied          312          .............................
       Products.
      Primary & Fabricated        -4           .............................
       Metals.
      Industrial Machinery and    202          .............................
       Equipment.
      Electric & Electronic       2,718        .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  192          .............................
    Wholesale Trade.............  ...........  271
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  470
     Estate.
    Services....................  ...........  150
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  5,995
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                  PHILIPPINES

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................      76.2       74.7       70.7
      Real GDP Growth (pct) \2\............       3.4        4.0        2.8
      Nominal GDP by Sector:
        Agriculture........................      13.1       11.9       10.3
        Manufacturing......................      16.5       16.9       15.9
        Services...........................      39.8       39.6       38.1
        Government \3\.....................       9.5        9.1        8.3
      Per Capita GDP (actual level, US$)...     1,019        977        903
      Labor Force (quarterly ave., 000s)...    30,759     30,911     32,500
      Unemployment Rate (quarterly ave.,          9.8       11.2       11.1
       pct)................................

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2) \4\.........      19.3        4.8       10.5
      Consumer Price Inflation (pct).......       6.7        4.4        6.3
      Exchange Rate (Peso/US$ annual
       average):...........................
        Interbank Rate.....................     39.09      44.00      51.00

    Balance of Payments and Trade:
      Total Exports FOB \5\................      34.2       37.3       31.7
        Exports to United States \6\.......      12.4       13.9       12.0
      Total Imports FOB \5\................      29.2       30.4       29.9
        Imports from United States \6\.....       7.2        8.8        8.6
      Trade Balance \5\....................       5.0        6.9        1.8
        Balance with United States \6\.....       5.2        5.1        3.4
      External Public Sector Debt..........      34.8       34.4   \8\ 32.6
      Fiscal Deficit/GDP (pct).............      -3.7       -4.1       -4.0
      Foreign Debt Service Payments/GDP           8.3        8.3    \8\ 9.3
       (pct)...............................
      Current Account Balance/GDP (pct)....      10.0       12.5        5.5
      Gold and Foreign Exchange Reserves...      15.1       15.0       14.0
      Aid from United States (US$ millions)      70.0       59.0   \8\ 24.0
       \7\.................................
      Aid from Other Bilateral Sources (US$     173.0       55.0   \8\ 16.0
       millions) \7\.......................
    ------------------------------------------------------------------------
    \1\ Figures for 2001 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 rates of year-end M2 levels.
    \5\ Merchandise trade (Philippine government data).
    \6\ Source: U.S. Department of Commerce; U.S. exports FAS, U.S. imports
      customs basis.
    \7\ Grants under bilateral agreements; amounts are inflows per balance
      of payments.
    \8\ Actual January-June 2001 data; actual public sector external debt as
      of June 2001.

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

    1. General Policy Framework
        President Macapagal-Arroyo has made poverty elimination the primary
    goal of her administration. Achieving that goal will not be easy. Since
    1997, the Asian financial crisis, extreme weather disturbances,
    political uncertainties, poor public sector governance, and a high
    population growth rate have resulted in a rise in poverty and
    increasingly inequitable income distribution in the Philippines. The
    incidence of poverty increased from 36.8 percent in 1997 to 40 percent
    in 2000, representing a setback from the steady declines recorded since
    1988. In 2000, the richest 30 percent of households received more than
    two-thirds of national income and the poorest 30 percent of households
    barely eight percent. Population growth has been a significant factor
    in rising poverty. After years of steady decline, from 3.08 percent per
    year in the 1960s to 2.32 percent per year for the 1990-1995 period,
    final 2000 census results estimated the Philippines' annual population
    expansion at a faster 2.36 percent clip.
        Agriculture contributes only 20 percent of GDP but generates 40
    percent of Philippine employment. Poverty incidence is much higher in
    rural areas (54 percent) than in urban areas (25 percent). Electronics,
    garments, and auto parts are the leading merchandise exports, but rely
    heavily on imported inputs. Dampened by the global economic crunch,
    January-August 2001 export receipts have declined by 13 percent year-
    on-year, led by a 21 percent slump in revenues from electronics
    shipments. Overseas workers remittances, estimated at $5-6 billion
    yearly, are a major source of foreign exchange. The balance of payments
    historically has registered current account surpluses (including those
    since the Asian crisis) during periods of economic weakness and
    lethargic import demand, but typically reverts to deficits as economic
    expansion accelerates. The domestic savings rate is relatively low
    compared to the rest of Asia, estimated at barely 17 percent of GDP in
    2000.
        Weak public sector finance has been a long-standing problem merely
    magnified by the Asian financial crisis. After four consecutive
    surpluses from 1994-1997, the national government has reverted to
    deficit spending since 1998, initially as an economic pump-priming
    measure. The medium-term fiscal program calls for gradually declining
    deficits starting in 2002, toward a balanced national government budget
    by 2006. The government perennially has problems containing its fiscal
    gap because revenues suffer from weak tax administration, while efforts
    to contain expenditures are hampered by the large share, over 70
    percent, of nondiscretionary expenditures such as payroll costs,
    interest payments and mandated transfers to local government units. The
    Philippines' tax-to-GDP ratio, among the poorest in the region, peaked
    at no more than 17.1 percent in 1998 before deteriorating in subsequent
    years to 13.7 percent in 2000. These fiscal difficulties have made it
    extremely difficult for the government to address the country's urgent
    infrastructure, health, and education needs and have complicated
    government efforts to manage domestic interest rates. While the
    Macapagal-Arroyo administration's fiscal team deserves praise for its
    determined efforts thus far to live within tight financial resources,
    revenue mobilization remains crucial to sustaining a deficit-reduction
    plan that supports a higher economic growth path and the socioeconomic
    needs of a growing population.
        Open market operations serve as the main policy tool to control
    money supply. The Bangko Sentral is working to shift from a base money
    to inflation-targeting framework before the end of 2001 to better
    fulfill its price stabilization mandate.
        Although subject to opposition from ultra-nationalist groups and
    vested interests, and their effectiveness tempered by political
    uncertainty and separatist violence, reforms to make the Philippines a
    more attractive destination for foreign investment continue to move
    forward. One important example is the Electric Power Industry Reform
    Act, which President Macapagal-Arroyo signed into law in June 2001
    despite strong opposition from ultra-nationalists, environmental
    groups, and entrenched economic interests. Culminating a month-long
    effort of intense lobbying to get legislators and the private sector
    onboard, President Macapagal-Arroyo signed an anti-money laundering law
    on the eve of the September 30 Financial Action Task Force deadline for
    passage of legislation, holding off likely FATF countermeasures. These
    successes built on legislation passed in 2000 under the Estrada
    administration, including the General Banking Law, Securities
    Regulation Code, and the Electronic Commerce Act.
    2. Exchange Rate Policy
        There are generally no restrictions to the full and immediate
    transfer of funds associated with import payments, foreign investments
    (i.e., capital repatriation and profit remittances), foreign debt
    servicing, and the payment of royalties, lease payments, and similar
    fees. To obtain foreign exchange from the banking system for such
    purposes, the Bangko Sentral ng Pilipinas (BSP, the central bank) only
    specifies certain registration and/or documentation requirements.
        The exchange rate is not fixed and varies daily in response to
    market forces, although the BSP imposes limits on banks' foreign
    exchange positions. Recent measures in response to speculative currency
    pressures and excessive foreign exchange volatility included monetary
    tightening (i.e., adjustments in reserve requirements and a generally
    cautious domestic interest-rate stance despite successive U.S. rate
    cuts); a lower over-the-counter ceiling for foreign exchange sales
    without documentation; expanded coverage of the BSP's Currency Risk
    Protection Facility (a nondeliverable forward hedging facility first
    introduced in December 1997 to reduce pressures in the spot market);
    and occasional liquidity infusions in the interbank foreign exchange
    market. The depreciation of the peso since the Asian financial crisis,
    from peso 26/dollar in June 1997 to nearly 51/dollar at present, has
    hurt the competitiveness of some U.S. exports.
    3. Structural Policies
        There are few activities closed to private enterprise, generally
    for reasons of security, health, and public morals. Prices are
    generally determined by market forces, although basic public services
    such as transport, water, and electricity are subject to government
    control or oversight. Government regulation of prices of petroleum
    products (for example, liquefied petroleum gas, regular gasoline, and
    kerosene) legally ended in July 1998 with the full deregulation of the
    oil industry, but the issue remains politically and socially sensitive.
    In response to public resistance to oil price increases, the government
    has sometimes stepped in to apply moral suasion on oil companies to
    limit, delay, or stagger fuel price adjustments, resulting in alleged
    cost under-recoveries. 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 in
    the last decade, important barriers to foreign entry remain. There are
    two ``negative lists'' of sectors 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. Imported manufactured items that
    are not locally produced generally face low tariffs, while imports that
    compete with local products face tariffs of up to 30 percent. The
    Philippines' Tariff Reform Program is gradually lowering applied duty
    rates on nearly all items toward a goal of zero to five percent tariff
    rates by 2004, except for sensitive agricultural products.
    4. Debt Management Policies
        While regulations have substantially eased, the Bangko Sentral ng
    Pilipinas continues to monitor and/or regulate foreign borrowings to
    ensure that they can be serviced with due regard for the economy's
    overall debt servicing capacity. Certain loans of the private sector
    must be approved by the Bangko Sentral regardless of maturity, the
    source of foreign exchange for debt service, and/or any other
    consideration. These are private sector debts guaranteed by the public
    sector, or covered by forex guarantees issued by local banks; loans
    granted by foreign currency deposit units funded from or collateralized
    by offshore loans or deposits; and loans with maturities of more than
    one year obtained by private banks and financial institutions for
    relending.
        According to the most recent quarterly estimates, the Philippines'
    recorded external debt, based on foreign credits approved or registered
    with the Bangko Sentral ng Pilipinas, stood at $50.9 billion as of end-
    June 2001, lower by 2.2 percent ($1.2 billion) from end-2000 and lower
    by 2.4 percent ($1.3 billion) year-on-year. The decline in the foreign
    debt stock reflected larger net repayments of foreign obligations,
    lower commercial bank liabilities, and currency revaluation
    adjustments. Concessional credits from multilateral and official
    bilateral lenders accounted for 48 percent of the country's external
    obligations. As of August 2001, the Bangko Sentral estimated that its
    gross international reserves equaled 133 percent of outstanding short-
    term external liabilities (residual maturity basis). Although the
    foreign debt stock declined, the BSP expects the ratio of debt service
    payments to merchandise and service exports to spike from 12.4 percent
    in 2000 to between 16 to 17 percent in 2001 (the highest since 1995)
    reflecting a combination of higher debt service outlays and slumping
    export receipts. These developments suggest vulnerabilities to
    unexpected reversals in export markets, highlighting the importance of
    addressing the weak state of government finances and attracting more
    sustainable, nondebt sources of foreign exchange.
        The Philippines had hoped to end over three decades of
    International Monetary Fund (IMF) supervision in March 1998, but opted
    for a two-year precautionary arrangement due to the regional currency
    crisis. The Estrada administration converted this program to a regular
    $1.4 billion standby arrangement in August 1998. The standby program
    should have concluded in March 2000 but was extended to December 2000
    to give the government more time to improve its fiscal performance and
    complete promised reforms, including legislation to restructure the
    energy sector. The Philippines nevertheless failed to make a graceful
    exit from the arrangement and to draw the last $300 million tranche
    from that facility, mainly because of worsening fiscal slippages. The
    government and the IMF have since agreed on a post-program monitoring
    framework, which involves a periodic review of economic and policy
    developments but no financial support from the Fund.
    5. Significant Barriers to U.S. Exports
        Tariffs: Imported items that are not locally produced generally
    face low tariffs (zero to five percent), while intermediate products
    and raw materials that are produced locally are generally assessed
    duties of three to ten percent. Finished products that compete with
    locally produced goods face higher tariffs of 15 to 30 percent. Under
    the current tariff schedule, issued on January 3, 2001, Executive Order
    334, tariffs will be gradually reduced in 2002 and 2003 to meet a
    uniform five percent tariff rate for all products by January 2004.
    Exceptions to this plan include some raw materials that would face a
    three percent rate for 2004, as well as finished automobiles and some
    agricultural goods. Imports of finished automotive vehicles, completely
    builtup units, will remain subject to a 30 percent tariff until 2004,
    when the tariff will fall to five percent. Agricultural goods such as
    sugar and rice now face in-quota tariff rates of between 20 and 45
    percent and out-of-quota rates of up to 65 percent. In 2004, the
    highest rate on agricultural goods will be reduced to 30 percent, both
    in and out of quota. The unweighted average nominal tariff rate was
    7.72 percent in 2001, down from 9.98 percent in 1999.
        Import Licenses: The National Food Authority (NFA), a government
    entity, is the sole authorized 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. Executive Order (E.O.) 209 of February
    2000 requires an eligible commercial fishing vessel operator to obtain
    an Authority to Import from the Maritime Industry Authority prior to
    tax and duty-free importation of fishing vessels or boats. Subject to
    other import regulations are certain other items, 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, certain agricultural commodities are subject to
    minimum access volume tariffrate 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.
        Banking: In the field of banking, May 1994 amendments to the 1948
    General Banking Act (GBA) allowed a maximum of 10 foreign banks to
    establish branches in the country. Those foreign banks are limited to
    opening six branches each. The General Banking Law of 2000 (signed in
    May 2000 to succeed the GBA) opened a seven-year window during which
    foreign banks may own up to 100 percent of one locally incorporated
    commercial bank or thrift institution (up from the previous 60 percent
    foreign equity ceiling, with no obligation to divest). However, for the
    first three years, such foreign investment may be made only in existing
    banks, reflecting the Bangko Sentral's current emphasis on banking
    sector consolidation. Regulations require that majority Filipino-owned
    domestic banks control, at all times, at least 70 percent of total
    banking system assets. Rural banking remains completely closed to
    foreigners.
        Securities: Stock and securities brokerage firms may be up to 100
    percent foreign owned but should incorporate under Philippine laws.
    Foreign ownership in securities underwriting companies is limited to 60
    percent. Securities underwriting 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: Minimum capitalization requirements increase with the
    degree of foreign equity. Current regulations specify that only the
    Philippines' Government Service Insurance System can provide coverage
    for governmentfunded and Build-Operate-Transfer (BOT) projects.
    Insurance and professional reinsurance companies operating in the
    country are required by law to cede to the industry-owned National
    Reinsurance Corporation of the Philippines at least 10 percent of
    outward reinsurance placements.
        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. For example, the
    practice of licensed professions such as engineering, medicine,
    accountancy, environmental planning, and law is fully reserved for
    Filipino citizens. Also reserved for Filipino citizens are enterprises
    engaged in retail trade (with paid-up capital of less than $2.5
    million, or less than $250,000 for retailers of luxury goods), mass
    media, small-scale mining, private security, cock fighting, utilization
    of marine resources, and manufacture of firecrackers and pyrotechnic
    devices. Up to 25 percent foreign ownership is allowed for enterprises
    engaged in employee recruitment and for public works construction and
    repair (with the exception of build-operate-transfer and foreign-funded
    or assisted projects, that is, foreign aid, where there is no upper
    limit). Foreign ownership of 30 percent is allowed for advertising
    agencies, while 40 percent foreign participation is allowed in natural
    resource extraction (the president may authorize 100 percent foreign
    ownership), educational institutions, express delivery, public
    utilities (including telecommunications, shipping, and shipyard
    operation, for example), commercial deep sea fishing, government
    procurement contracts, rice and corn processing (after 30 years of
    operation, before which time 100 percent foreign participation is
    allowed), and ownership of private lands. Retail trade enterprises with
    paid-up capital of more than $2.5 million but less than $7.5 million
    are limited to 60 percent foreign ownership until March 2002, after
    which 100 percent foreign ownership will be allowed. Enterprises
    engaged in financing and investment activities, including securities
    underwriting, are also limited to 60 percent foreign ownership.
        List B restricts foreign ownership (generally to 40 percent) for
    reasons of national security, defense, public health, safety, and
    morals. Sectors covered include explosives, firearms, military
    hardware, massage clinics, and gambling. This list also seeks to
    protect local small and medium firms by restricting foreign ownership
    to no more than 40 percent in nonexport firms capitalized at less than
    US$200,000.
        Incentives and Export Performance Requirements: In general,
    foreign-owned firms producing for the domestic market must engage in a
    pioneer activity to qualify for incentives administered by the
    government's Board of Investment (BOI). For exporters, the BOI imposes
    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 production, foreign firms
    that seek incentives from the Board of Investments must commit to
    divest to 40 percent ownership within 30 years or such longer period as
    the BOI may allow. The United States and the Philippines are near
    agreement on a plan that would phase out WTO-inconsistent local content
    and foreign exchange requirements under the Philippine motor vehicle
    development program by June 30, 2003.
        Local Sourcing Requirements: Outside of the investment incentives
    regime, investors in certain industries are subject to specific laws
    which require local sourcing. 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, thereby requiring local sourcing by soap
    and detergent manufacturers. The Philippine Department of Justice, in
    Opinion No. 88 (1999), stated that E.O. 259 conflicts with the
    country's obligations under the WTO Agreement on Trade-Related
    Investment Measures. Since then, the E.O. has not been enforced. Letter
    of Instruction (LOI) 1387, issued in 1984, requires mining firms to
    prioritize the sale of their copper concentrates to Philippine
    Associated Smelting and Refining Corp. (PASAR), a government-controlled
    firm until its privatization in 1998. The Retail Trade Act of 2000
    requires local sourcing for the first ten years after the law's
    effective date. During that period, at least 30 percent of the cost of
    inventory of foreign retail firms not dealing exclusively in luxury
    goods, and 10 percent of the inventory of firms selling luxury
    products, should consist of products assembled in the Philippines.
        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. As a general rule, Philippine-controlled firms should
    service locally-funded government consulting requirements. The
    Philippines is not a signatory of the WTO Government Procurement
    Agreement.
        Customs Procedures: All importers or their agents must file import
    entries with the Bureau of Customs (BOC), which then processes these
    entries through its Automated Customs Operating System (ACOS). ACOS
    uses a computer system to classify shipments as low-risk (green lane),
    moderate risk (yellow lane) or high risk (red lane). BOC officials say
    that shipments channeled through the yellow lane will require a
    documentary review, while red lane shipments will require physical
    inspection at the port. According to BOC, green lane shipments are not
    subject to any documentary or inspection requirements. BOC has also
    added a ``Super Green Lane'' for the largest importers (see below). BOC
    issued a series of regulations in December 1999 governing the
    implementation on January 1, 2000, of transaction value and outlining
    procedural steps importers will need to follow. Several of these
    regulations were revised on April 3, 2000. In April 2000, a new customs
    valuation law (R.A. 9135) went into effect. The new law clarifies the
    hierarchy of valuation methods to be used by BOC by removing reference
    to a price reference database and also authorizes the BOC to conduct
    post-entry audits. However, the BOC has not yet issued implementing
    rules and regulations for R.A. 9135.
    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. BOIregistered 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
    governmentdesignated export zones and industrial estates registered
    with the Philippine Economic Zone Authority enjoy basically the same
    incentives as BOIregistered firms, and a longer income tax holiday
    (ITH) of four years, extendable to a maximum of eight years. After the
    ITH period, a special five percent tax on gross income in lieu of all
    national and local taxes will apply. 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 based on incremental export revenues.
    7. Protection of U.S. Intellectual Property
        In addition to its commitments under the WTO TRIPs Agreement, the
    Philippines is a party to the Paris Convention for the Protection of
    Industrial Property, Berne Convention for the Protection of Literary
    and Artistic Works, Budapest Treaty on the International Recognition of
    the Deposit of Microorganisms, Patent Cooperation Treaty, and Rome
    Convention. Although the Philippines is a member of the World
    Intellectual Property Organization, it has not yet ratified the WIPO
    Performances and Phonograms Treaty or the Copyright Treaty.
        The Intellectual Property Code (R.A. 8293, 1997) provides the legal
    framework for IPR protection in the Philippines. The Electronic
    Commerce Act (R.A. 8792, 2000) extends this framework to the internet.
    Key provisions of the Intellectual Property Code are summarized here:
        Patents: The Philippines uses a first-to-file system, with a patent
    term of 20 years from date of filing, and provides for the
    patentability of micro-organisms and nonbiological and microbiological
    processes. The holder of a patent is guaranteed an additional right of
    exclusive importation of his invention. A compulsory license may be
    granted in some circumstances, including if the patented invention is
    not being worked in the Philippines without satisfactory reason,
    although importation of the patented article constitutes working or
    using the patent.
        Industrial Designs: The registration of a qualifying industrial
    design, including layout-designs of integrated circuits, shall be for a
    period of five years from the filing date of the application. The
    registration of an industrial design may be renewed for not more than
    two consecutive periods of five years each.
        Trademarks, Service Marks, and Trade Names: Prior use of a
    trademark in the Philippines is not a requirement for filing a
    trademark application. Well-known marks need not be in actual use in
    Philippine commerce or registered with the Bureau of Patents,
    Trademarks, and Technology Transfer. A Certificate of Registration
    (COR) shall remain in force for ten years. A COR may be renewed for
    periods of ten years at its expiration upon request and payment of a
    prescribed fee.
        Copyright: Computer software is protected as a literary work;
    exclusive rental rights may be offered in several categories of works
    and sound recordings; and terms of protection for sound recordings,
    audiovisual works, and newspapers and periodicals are compatible with
    the WTO Agreement on Trade-Related Aspects of Intellectual Property
    Rights (TRIPS Agreement).
        Performers Rights: ``The qualifying rights of a performer . . .
    shall be maintained and exercised fifty years after his death.''
    However, ambiguities exist concerning exclusive rights for copyright
    owners over broadcast and retransmission.
        Trade Secrets: While there are no codified rules on the protection
    of trade secrets, Philippine officials assert that existing civil and
    criminal statutes protect trade secrets and confidential information.
        Policy Framework: Deficiencies in the Intellectual Property Code
    remain a source of concern. Weaknesses include the lack of authority
    for courts hearing civil cases to order the seizure of pirated material
    as a provisional measure without notice to the suspected infringer,
    that is, ex-parte search rights (as required by Article 50 of the WTO
    TRIPS Agreement); ambiguous provisions on the rights of copyright
    owners over broadcast, rebroadcast, cable retransmission, or satellite
    retransmission of their works; and burdensome restrictions affecting
    contracts to license software and other technology.
        Under the Intellectual Property Code of the Philippines, the
    Intellectual Property Office (IPO) has jurisdiction to resolve certain
    disputes concerning alleged infringement and licensing. IPO's
    administrative complaint mechanisms, established in April 2001, has yet
    to be tested. In addition to the IPO, agencies with IPR enforcement
    responsibilities include the Department of Justice; National Bureau of
    Investigation; Videogram Regulatory Board (for piracy involving
    cinematographic works), the Bureau of Customs, and the National
    Telecommunications Commission (for piracy involving satellite signals
    and cable programming). The Presidential Interagency Committee on
    Intellectual Property Rights (PIAC-IPR) is composed of representatives
    from these and other agencies and is tasked with coordinating
    enforcement efforts. The private sector can file requests for IPR
    enforcement actions with the PIAC-IPR.
        Enforcement: Significant problems remain in ensuring the consistent
    and effective protection of intellectual property rights. According to
    aggregated industry statistics, the total annual loss resulting from
    copyright piracy in the Philippines in 2000 was estimated at about
    US$140 million. U.S. distributors report high levels of pirated optical
    discs of cinematographic, musical works, and computer games, and
    widespread unauthorized transmissions of motion pictures and other
    programming on cable television systems.
        Serious problems continue to hamper the effective operation of
    agencies tasked with IPR enforcement. Resource constraints, already a
    problem, have been exacerbated by general government budgetary
    shortfalls. In general, government enforcement agencies are most
    responsive to those copyright owners who actively work with them to
    target infringement. 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 Investigations and Videogram Regulatory Board have resulted
    in some successful enforcement actions. The designation of 48 courts to
    handle IPR violations has done little to streamline judicial
    proceedings, as these courts have not received additional resources and
    continue to handle a heavy non-IPR workload. Delays in the issuance of
    warrants are a problem and arrests are infrequent. 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.
    8. Worker Rights
        a. The Right of Association: All workers (including public
    employees) have the right to form and join labor unions. Although this
    right is exercised in practice, aspects of the public sector
    organization law restrict and discourage organizing. 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 groups. 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
    is uniform throughout the country, including industrial zones. However,
    local political leaders and officials governing some special economic
    zones have tried to frustrate union organizing efforts by maintaining
    ``union free/strike free'' policies. In the large informal sector, as
    well as in retail, information technology and garments, 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 generally
    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 or dangerous
    work. Government and international organizations estimates indicate
    that there are some 3.7 million working children, including 2 million
    in hazardous conditions. A significant number are employed in the
    informal sector of the urban economy 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
                Category                                      Amount
    ------------------------------------------------------------------------
    Petroleum.......................  ...............  1
    Total Manufacturing.............  ...............  1,207
      Food & Kindred Products.......  349              .....................
      Chemicals & Allied Products...  371              .....................
      Primary & Fabricated Metals...  55               .....................
      Industrial Machinery and        11               .....................
       Equipment.
      Electric & Electronic           283              .....................
       Equipment.
      Transportation Equipment......  0                .....................
      Other Manufacturing...........  140              .....................
    Wholesale Trade.................  ...............  232
    Banking.........................  ...............  201
    Finance/Insurance/Real Estate...  ...............  975
    Services........................  ...............  -15
    Other Industries................  ...............  308
        Total All Industries........  ...............  2,910
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                   SINGAPORE

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\...................     84,089      92,466      86,962
      Real GDP Growth (pct) \2\.........        5.9         9.9        -2.0
      GDP by Sector: \2\
        Agriculture \3\.................          0           0           0
        Manufacturing...................     21,079      24,890      23,583
        Services........................     57,205      62,731      45,654
        Government expenditure..........      8,799      10,762      15,892
      Per Capita GDP (US$)..............     21,284      23,000      21,645
      Labor Force (000s)................      1,976       2,192       2,000
      Unemployment Rate (pct)...........        3.5         3.1         4.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)..........        8.5        -2.9       -13.0
      Consumer Price Inflation (pct)....        0.0         1.8         1.4
      Exchange Rate (SGD/US$ annual            1.69        1.72        1.76
       average).........................

    Balance of Payments and Trade:
      Total Exports FOB.................    114,965     138,271     115,292
        Exports to United States CIF \4\     22,021      23,947      19,178
      Total Imports CIF.................    111,326     134,986     112,127
        Imports from United States FAS       18,961      20,185      17,548
         \4\............................
      Trade Balance.....................      3,638       3,285       3,165
        Balance with United States \4\..      3,060       3,762       1,630
      External Public Debt..............          0           0           0
      Fiscal Surplus/GDP (pct)..........        1.9         1.5         2.8
      Current Account Surplus/GDP (pct).       25.0        25.0        24.0
      Debt Service Payments/GDP (pct)...          0           0           0
      Gold and Foreign Exchange Reserves     77,176      80,427      74,353
      Aid from United States............          0           0           0
      Aid from All Other Sources........          0           0           0
    ------------------------------------------------------------------------
    Note: All percentage changes are calculated based on the local currency.

    \1\ 2001 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.
    \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
        Singapore's open-trade economic policies have enabled it to
    overcome land, labor and resource constraints to become the world's
    second most competitive economy (according to the World Economic
    Forum's 2001 ranking). It has also helped Singapore achieve the world's
    fifth highest per capita income, based on the World Bank's 1999/2000
    ranking of per capita GNP in purchasing power parity terms.
    Manufacturing, dominated by electronics, chemicals (including oil
    refining) and information technology-related products, accounted for 26
    percent of total GDP in 2000. Multinational companies accounted for 79
    percent of new manufacturing investment, which totaled US$5.4 billion
    in 2000. Wholesale and retail trade represented 17 percent of GDP in
    2000, reflecting Singapore's key role as a regional gateway. Financial
    services, which accounted for 11 percent of GDP in 2000, is the third
    largest economic sector.
        Trade was three times GDP in 2000; re-exports (transshipments)
    accounted for 43 percent of total merchandise exports. The United
    States is Singapore's second largest trading partner, after Malaysia,
    accounting for 16 percent of Singapore's total trade in 2000. U.S.
    exports to Singapore amounted to US$17.8 billion in 2000, while
    Singapore's exports to the United States totaled US$23.9 billion.
    Singapore was the tenth largest export market for the United States in
    2000. Over 1,515 U.S. companies have facilities in Singapore, with
    total investments of US$23.2 billion in 2000.
        While Singapore has a largely free-market business environment,
    government-linked companies (GLCs) and the public sector account play
    an important role in the economy, accounting for at least a quarter of
    GDP and over one third of the Singapore Exchange's capitalization.
    However, GLCs generally operate as commercial entities and frequently
    include private local and foreign equity. Many are publicly listed.
        The government pursues conservative fiscal policies designed to
    encourage high levels of savings and investment, but invests heavily in
    the country's social and physical infrastructure, including education
    and transportation. It also provides subsidies for public housing. Over
    a third of the budget is spent on defense. The government generally
    runs a budget surplus, US$3.1 billion in Singapore Fiscal Year (SFY)
    2000. Foreign reserves total over US$80 billion, with a substantial
    share invested overseas. The Central Provident Fund (CPF), a compulsory
    savings program that requires 36 percent of an individual's salary to
    be placed in a tax-exempt account, is the principal reason for the high
    gross national savings rate of about 50 percent of GDP.
        There are virtually no controls on capital movements. The key
    objective of the Monetary Authority of Singapore (MAS), the country's
    central bank, is to maintain price stability. It does so largely
    through exchange rate policy. MAS also engages in limited money-market
    operations to influence interest rates and ensure adequate liquidity in
    the banking system. Inflation has averaged 2.0 percent annually over
    the last 10 years, except for 1998 when there was deflation of 0.3
    percent due to the economic recession. Since the economic recovery,
    price levels have been rising with the CPI expected to increase by 3.5
    percent in 2001. The average prime lending rate among the leading banks
    is currently at 5.8 percent.
    2. Exchange Rate Policy
        Singapore has no exchange rate controls and exchange rates are
    determined freely by market forces. The Monetary Authority of Singapore
    (MAS) manages the Singapore dollar against a basket of currencies of
    Singapore's main trading partners and competitors, and the trade-
    weighted exchange rate is allowed to fluctuate within an undisclosed
    policy band. The Singapore dollar weakened during 2001. The government
    imposes certain restrictions to limit the internationalization of the
    Singapore dollar, although these have been loosened significantly, most
    recently in December 2000 and March 2001.
    3. Structural Policies
        Market forces generally determine product prices. The government
    conducts its bids by open tender and encourages price competition
    throughout the economy.
        Singapore's personal income tax rates range from two percent for
    the lowest income bracket to 28 percent for those earning annual
    incomes exceeding S$ 400,000 (about US$ 240,000), although most low-to-
    middle income Singaporeans benefit from tax exemptions and pay no tax.
    In April 2001, the government lowered corporate income tax rate from
    25.5 percent to 24.5 percent, both effective in 2002. Foreign firms are
    taxed at the same rate as local firms. Apart from residential
    properties sold within three years, there is no tax on capital gains.
    All products, including imported goods, are subject to a three percent
    value-added Goods and Services Tax (GST). Faced with a sharp economic
    downturn in 2001, the government announced two extra-budgetary spending
    and tax cut packages designed to support domestic demand, minimize
    unemployment, and reduce business costs.
        Investment policies are generally open and tailored to attract
    foreign investment and ensure an environment conducive to efficient
    business operations. The government vigorously develops and implements
    industrial policies, and in some limited areas links licenses for
    certain activities to performance requirements. It does not, however,
    impose production standards, require purchases from local sources, or
    specify a percentage of output for export. The government seeks to
    upgrade Singapore into what it terms a knowledge-based economy, with a
    particular focus on the logistics, electronics and info-technology,
    chemicals, life sciences, bio-medical, and healthcare sectors. It also
    wants to make Singapore a key Asia-Pacific financial center and an
    info-communication hub. As part of this process, the government has
    moved to open restricted sectors, such as domestic banking,
    telecommunications and power, to foreign investment. It extensively
    uses fiscal policy tools to encourage research and development, as well
    as attract foreign professionals to work in Singapore.
    4. Debt Management Policies
        Singapore has no external public debt. The country's total foreign
    reserves amounted to US$80.4 billion as of end-2000, sufficient to
    cover six months of imports. Singapore does not receive financial
    assistance from foreign governments.
    5. Significant Barriers to U.S. Exports
        Approximately 96 percent of imports are duty-free. Tariffs are
    primarily levied on cigarettes and alcohol to restrict their
    consumption. Excise taxes are levied on petroleum products and motor
    vehicles to restrict motor vehicle use. Import licenses are not
    required, customs procedures are minimal and designed to facilitate
    trade, and the standards' code is reasonable. All major government
    procurements are by international tender. Singapore is a signatory to
    the WTO Government Procurement Agreement.
        While welcoming foreign investment in most areas, important
    barriers to U.S. service providers remain in some sectors, particularly
    in finance and professional services.The Monetary Authority of
    Singapore (MAS) has liberalized domestic restrictions on foreign
    financial services providers. In 1999, it opened up the local
    securities market to foreign brokers, and issued ``qualifying full
    bank'' (QFB) licenses to four foreign banks. It plans to award two more
    QFB licenses by end-2001. However, QFBs remain limited to 15 locations
    (branches or ATMs) and are unable to access the local ATM network. This
    puts them at a major competitive disadvantage compared to the three
    Singapore-owned local retail banks.
        Foreign law firms can and do set up offices in Singapore, generally
    to advise multinational clients on third-country matters or financial
    transactions in Singapore's offshore market. Since 2000, the government
    has permitted a limited number of foreign law firms to enter into joint
    ventures (including partnerships) or ``formal alliances'' with local
    law firms, which can then market themselves as single service
    providers. Foreign lawyers in joint law ventures may practice Singapore
    law if they are registered to do so by the Attorney General, but may
    not appear before judicial and regulatory bodies or render legal
    opinions relating to Singapore law.
        Singapore opened its telecommunications industry to full
    competition and allowed full foreign ownership in April 2000. However,
    the cable industry remains in the hands of a monopoly provider,
    Singapore CableVision, a government-owned company. The government also
    restricts the importation of satellite receivers. The government is in
    the process of opening the power generation and supply sectors to
    foreign investment and competition. The electricity and gas
    distribution network will become a regulated monopoly operated by a
    corporatized-government entity.
        Direct selling and multi-level marketing companies face
    restrictions. The Multi-level Marketing and Pyramid Selling
    (Prohibition) Act of 2000 strengthened the prohibition on most multi-
    level marketing arrangements. While the government allows for
    arrangements that may have some of the features of multi-level
    marketing, the terms and conditions under which such arrangements can
    operate are unclear.
    6. Export Subsidies Policies
        Singapore does not directly subsidize exports. The government
    offers significant incentives to attract foreign investment, with most
    incentives directed at export-oriented industries. It also offers tax
    incentives to exporters and reimburses firms for certain costs incurred
    in trade promotion. 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 enacted a series of laws and amendments to existing
    provisions with the aim of rendering its IPR regime fully consistent
    with the WTO Agreement on Trade-Related Intellectual Property Rights.
    These measures include numerous amendments to its Copyright Law (1998
    and 1999) and the Medicines Act (1998), as well as a new Trade Marks
    Act (1999), Geographical Indications Act (1999), Layout Designs of
    Integrated Circuits Act (1999), and Registered Designs Act (2000).
    Singapore is a member of the World Intellectual Property Organization
    (WIPO) but has not yet ratified the WIPO Copyright Treaty and the WIPO
    Performances and Phonograms Treaty. Singapore is a signatory to the
    Paris Convention for the Protection of Industrial Property, the Patents
    Cooperation Treaty, and the Budapest Treaty. Singapore also became a
    member of the Berne Convention in December 1998 and acceded to the
    Madrid Protocol in 2000. Singapore was removed from the U.S. Special
    301 Watch List on April 30, 2001.
        Singapore's Patent Law, which came into force on February 23, 1995,
    established a revised patent system in Singapore and provides patent
    protection for a maximum term of 20 years, subject to the annual
    renewal of the patent. Under the revised system, applicants no longer
    need to obtain a UK patent first. There are no significant IPR problems
    in the area of patent protection.
        The new Trademarks Act, which came into force on January 15, 1999,
    includes new border enforcement measures and also extends protection of
    well-known trademarks and collective marks. However, the transshipment
    of counterfeit products through Singapore is a problem. The
    Geographical Indications Act, which came into force January 15, 1999,
    provides additional protection for wines and spirits and seeks to
    prevent the use and registration of misleading geographical indications
    (e.g. ``Virginia'' ham, ``California'' wine), which would constitute an
    act of unfair competition within the meaning of the Paris Convention.
        Amendments to the Copyright Act enhanced performers' rights,
    provided new protection for rental rights, strengthened customs
    controls and procedures, and legalized the seizure of business
    documents in raids on IPR violators. However, neither the exportation
    nor transshipment of infringing works, nor the use of infringing copies
    of software are considered criminal offenses. Most infringing products
    appear to be imported. While the overall software piracy level is among
    the lowest in Asia, it remains double that in the United States. Since
    January 2000, the Intellectual Property Rights Branch (IPRB) of the
    Singapore Police Force's Criminal Investigation Department (CID), has
    made progress in conducting sustained operations against retail vendors
    and distributors of pirated works. But pirated computer software,
    music, and cinemagraphic works remain commonly available, and the use
    of unlicensed software continues to be widespread. The government also
    has not abandoned its ``self help'' policy on enforcement, which places
    an undue and expensive burden on rights holders to initiate raids and
    prosecute pirates. Finally, local universities and other education
    institutions have thus far failed to implement fully their obligations
    under the law to pay royalty fees in exchange for the right to
    duplicate copyrighted printed works for use in course materials.
    8. Worker Rights
        a. The Right of Association: The Singapore Constitution gives all
    citizens the right to form associations, including trade unions.
    Parliament may, however, impose restrictions due to security, public
    order, or morality considerations. The right of association is
    delimited by the Societies Act, and labor and education laws and
    regulations.
        Singapore's labor force numbered 2.2 million in 2001, of which
    315,000 or about 15 percent were organized into 72 trade unions. Almost
    all of these unions are affiliated with an umbrella organization, the
    National Trades Union Congress (NTUC), which has a symbiotic
    relationship with the government.
        b. The Right to Organize and Bargain Collectively: 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 the 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 of age and restricts children under 17 from certain categories of
    work.
        e. Acceptable Conditions of Work: The Singapore labor market offers
    relatively high wage rates and working conditions consistent with
    international standards. However, Singapore has no minimum wage or
    unemployment benefits. The government's enforcement of comprehensive
    occupational safety and health laws, coupled with the promotion of
    educational and training programs, have reduced the frequency and
    severity of industrial accidents during the last decade.
        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.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1,718
    Total Manufacturing.........  ...........  11,834
      Food & Kindred Products...  5            .............................
      Chemicals & Allied          574          .............................
       Products.
      Primary & Fabricated        11           .............................
       Metals.
      Industrial Machinery and    5,411        .............................
       Equipment.
      Electric & Electronic       4,081        .............................
       Equipment.
      Transportation Equipment..  284          .............................
      Other Manufacturing.......  749          .............................
    Wholesale Trade.............  ...........  1,590
    Banking.....................  ...........  696
    Finance/Insurance/Real        ...........  6,217
     Estate.
    Services....................  ...........  908
    Other Industries............  ...........  282
        Total All Industries....  ...........  23,245
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     TAIWAN

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      GDP (at current prices)..............     287.8      309.4      287.0
      Real GDP Growth (percent)............       5.4        5.9       -0.4
      GDP by Sector:
        Agriculture........................       7.4        6.5        5.1
        Manufacturing......................      76.5       81.6       70.3
        Services...........................     184.9      202.7      194.0
        Government.........................      29.3       31.5       29.3
      Per Capita GDP (US$).................    13,114     13,985     12,877
      Labor Force (000s)...................     9,668      9,784      9,830
      Unemployment Rate (percent)..........       2.9        3.0        4.6

    Money and Prices (annual percentage
     growth):
      Money Supply (M2)....................       8.3        6.7        6.3
      Consumer Price Inflation.............       0.2        1.3        0.4
      Exchange Rate (NT$/US$): \2\.........
        Official...........................     32.23      31.34       33.8

    Balance of Payments and Trade: \3\
      Total Exports FOB \4\................     121.6      148.3      126.2
        Exports to U.S. CV \5\.............      35.2       40.5       33.3
      Total Imports CIF \4\................     110.7      140.0      113.2
        Imports from U.S. FAS \5\..........      19.1       24.4       18.7
      Trade Balance \4\....................      10.9        8.3       13.0
        Trade Balance with U.S. \5\........     -16.1      -16.1      -14.6
      External Debt........................      38.6       34.7       30.0
      Fiscal Deficit/GDP (pct).............       1.1        4.1        4.1
      Current Account Surplus/GDP (pct)....       3.3        2.9        4.2
      Gold and Foreign Exchange Reserves...     111.1      111.3      111.0
      Aid from U.S. \6\....................         0          0          0
      Aid from Other Countries.............         0          0          0
    ------------------------------------------------------------------------
    \1\ 2001 figures are estimated based on data from the Directorate
      General of Budget, Accounting and Statistics (DGBAS), or extrapolated
      from data available as of June 2001.
    \2\ An average of month-end exchange rate figures for each year.
    \3\ Merchandise trade only. Taiwan service trade statistics are not
      broken out by country.
    \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; 2001 figures are estimates based on data
      available through August. Taiwan MOF figures for merchandise exports
      (FOB) to and imports (CIF) from the United States were(US$ billions):
      (1999) 30.9/19.7, (2000) 34.8/25.1, (2001) 28.6/19.2.
    \6\ Aid disbursements stopped in 1965.
    \7\ Figures in the table and the following text disagreeing with those
      in the previous reports are mainly due to later revisions by DGBAS.

    1. General Policy Framework
        In 2001, Taiwan suffered from economic recession for the first time
    in five decades. Taiwan authorities in August estimated the real GDP
    reversed from six percent growth in 2000 to a decline of 0.37 percent
    in 2001. The September 11 terrorist attacks in New York and Washington,
    DC will likely drive the 2001 economic decline even deeper given that
    exports account for nearly half of the island's GDP. Per capita GDP
    will, therefore, decline from nearly US$14,000 in 2000 to below $13,000
    in 2001. Unemployment rose from below three percent two years ago to
    exceed five percent in August 2001. Taiwan's foreign exchange reserves
    as of August 2001 totaled $113 billion, the fourth largest in the world
    (after Japan, the People's Republic of China, and Hong Kong). Prices
    remained stable, rising 1.3 percent in 2000 and 0.3 percent in the
    first eight months of 2001.
        Industrial growth is now concentrated in semiconductors, electronic
    components, and information technology (IT) industries. Almost all new
    major investments in the past two years went to these industries, which
    accounted for 35-40 percent of Taiwan's total exports. Rising labor and
    land costs have long led many manufacturers in labor intensive
    industries to move offshore, mainly to Southeast Asia and mainland
    China. Services accounted for 65.5 percent of GDP in 2000, up 1.2
    percentage points from 1999. Merchandise exports fell from nearly half
    of GDP in 2000 to 44 percent in 2001 due to weak world demand for
    electronic goods.
        Economic recession has cut into tax revenue and broadened the
    fiscal deficit, driving up domestic public debt. The central fiscal
    deficit, jumping from 1.1 percent of GDP in 1999 to 4.1 percent in
    2000, is expected to reach five percent in 2002. During the period of
    1999-2002, the central government's outstanding debt will double from
    14.3 percent to 28.8 percent of GDP. Taiwan's central authorities now
    rely largely on domestic bonds and bank loans to finance the fiscal
    gap. National defense is no longer the largest expenditure category.
    Social welfare replaced national defense as the largest share of public
    expenditures in 2000 and 2001. Education, science and culture (ESC) is
    expected to replace social welfare as the largest public expenditure in
    2002. The share for ESC expenditure increased from 16 percent in during
    1999-2001 to 17 percent in 2002. On the other hand, the share for
    defense spending dropped from 20 percent in 1999 to 15 percent in 2001
    and 14 percent in 2002. The share for social welfare expenditure, shot
    up from 11 percent in 1999 to 18 percent in 2000-2001, but is expected
    to fall to 16.7 percent in 2002. The greatest pressure on the budget
    now comes from growing demands for improved infrastructure and social
    welfare spending, including reform of a deficit-plagued national health
    insurance program initiated in early 1995.
        The Working Party for Taiwan's accession to the World Trade
    Organization (WTO) completed work on all of Taiwan's WTO working party
    documents in September 2001, and WTO Ministers approved Taiwan's
    accession agreement in November 2001. 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
        Twenty-nine state-owned enterprises have been either totally or
    partially privatized in the past seven years, including nine in 1998,
    six in 1999, two in 2000, and three in 2001. During the seven-year
    period, 14 other state-owned companies have been closed. Liberalization
    efforts have resulted in the break up of state-owned enterprises'
    monopolies in wireless and fixed line telecommunications, power
    generation, and gasoline supply. Taiwan will phase out the monopoly in
    wine and beer production after it accedes to the WTO. State-owned
    enterprises accounted for 9.3 percent of GDP in mid-2001, down from 9.5
    percent a year earlier. Taiwan's Fair Trade Commission (FTC) acts to
    thwart noncompetitive pricing by state-run monopolies. FTC exemptions
    granted in 1992 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,
    both as part of its effort to accede to the WTO as well as to fulfill
    other policy objectives. Tariff reductions in July 1997 were designed
    to fulfill commitments made in the Information Technology Agreement and
    the WTO Agreement on Trade in Civil Aircraft. Taiwan will reduce
    tariffs on 5,200 import categories when it accedes to the WTO. The
    average tariff cut will be 32.4 percent. The nominal tariff rate will
    be lowered from 8.2 percent to 7.08 percent in the first year after its
    accession to WTO and to 4.15 percent by 2007. Many of the tariff cuts
    are of specific interest to U.S. industry.
        High tariffs and pricing structures on some goods, in particular on
    some agricultural products, hamper U.S. exports. However, under the
    bilateral WTO agreement reached in February 1998, Taiwan began to
    provide quotas for the import 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 into excise taxes and import tariffs,
    and also to gradually open the markets after Taiwan accedes to the WTO.
    4. Debt Management Policies
        Taiwan's outstanding long and short-term external debt as of March
    2001 totaled $32.3 billion, equivalent to 11 percent of GDP. Taiwan's
    outstanding external public debt was $28 million, compared to gold and
    foreign exchange reserves of $113 billion. Taiwan publishes the debt
    service ratio for the public sector only, with the ratio nearly zero.
    Debt service payment figures for the private sector are not available.
        Cross-border claims by Taiwan's banks as of March 2001 totaled
    $49.3 billion. Of the total claims, 36 percent went to nations in Latin
    America and the Caribbean Area, which maintain diplomatic relations
    with Taiwan. The credit is mainly used to build industrial zones and
    foster development of small and medium enterprises. 1.3 percent went to
    international institutions, including the Asian Development Bank (ADB),
    one of the two multilateral development banks in which Taiwan 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. Currently, of some 10,344 official import product
    categories, 1,006 are ``regulated'' and require approval from relevant
    authorities based on the qualifications of the importer, the origin of
    the good, or other factors. Another 130 categories require import
    permits from the Board of Foreign Trade. Imports of 252 categories are
    ``restricted,'' including ammunitions and some agricultural products.
    These items can only be imported under special circumstances, and are
    thus effectively banned. Eighty-six percent of the import categories
    are completely exempt from any controls.
        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 the employment of
    foreigners by securities firms, effective upon Taiwan's accession to
    the WTO. Taiwan removed the foreign ownership limit on companies listed
    on the Taiwan Stock Exchange and OTC Market in late 2000, with a few
    exceptions for designated industries. 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 nontrade
    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
    either upon accession to the WTO, or upon implementation of the new
    lawyer's law, whichever comes first.
        Insurance: In May 1997, the financial authorities announced that
    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 on supervision of such companies.
        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.
    Taiwan also permitted foreign firms to operate car leasing in November
    1997.
        Telecommunications: Taiwan's authorities issued three new fixed
    line licenses to private consortia in March 2000. Taiwan's private
    fixed-line telecommunication companies commenced services in August
    2001. Taiwan liberalized the submarine cable lease market in August
    2000. A U.S.-based submarine cable firm, Asia Global Crossing Taiwan
    Inc., started cable lease services in August 2001. Two other submarine
    cable firms are also expected to receive their operation licenses in
    the first quarter of 2002 and another one is in the application
    process. The international simple resale (ISR) market was opened in
    July 2001; seven out of 15 firms that applied for permits were awarded
    them. Qualified firms are expected to commence services by late 2001.
    Taiwan is scheduled to open the third generation (3 G) cellular phone
    market in late 2001. Under the bilateral WTO agreement signed in
    February 1998, the state-owned Chunghwa Telecom began to lower its
    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.
    Taiwan regulators have begun to address such unfair trading practices.
    In October 1998 Taiwan's legislature passed a revised Telecom Law. It
    raised the 20 percent limit on foreign ownership of a telecom firm to
    60 percent by allowing a combination of direct and indirect ownership.
    And, further amendment on the Telecom Law to be considered by the
    legislature in late 2001 will permit direct foreign ownership to 49
    percent. The aggregate of foreign ownership, including direct and
    indirect, will remain at 60 percent.
        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 time-consuming, cumbersome and non-transparent. Global
    budgeting, planned to begin in mid-2002, is expected to put further
    stress on U.S. and other research-based pharmaceutical companies. The
    requirement on foreign pharmaceutical factories to submit
    pharmaceutical plant validation files has been criticized by industry
    as onerous. The government agency responsible is seen as unable to
    process the information adequately. The reimbursement system also fails
    to account for significant quality differences between different brands
    of medical devices. In June 2000, Taiwan adopted a new medical device
    classification analogous to USFDA regulations (21 C.F.R.) to simplify
    registration procedures. However, Taiwan still subjects certain U.S.
    medical devices to clinical trials above and beyond those required for
    approval in the U.S. or EU markets. This testing requirement, combined
    with annual quotas on the introduction of new products, effectively
    constrains access of U.S. products to Taiwan's market.
        Movies and Cable TV: Taiwan eased import restrictions on foreign
    film prints, increasing the number of prints permitted 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) 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 programming to negotiate reasonable fees for their programs.
    Content providers have also experienced persistent problems with
    advertising masking by cable broadcasters in violation of their
    contracts.
        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; 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. For some of these
    products, Taiwan has adopted and expanded an inspection and
    certification registration system to eliminate duplicate inspection
    efforts. Imported autos face stringent noise, emission and fuel
    efficiency testing requirements. In March 1999, the United States and
    Taiwan signed a mutual recognition agreement (MRA) designed to
    eliminate duplicate testing of information technology equipment.
    Certain Taiwan exports to the United States previously tested for
    electromagnetic conformity in labs recognized by Taiwan authorities
    will no longer require duplicate inspections in a 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 some industries such as agriculture, broadcasting, and
    liquor and cigarette production. Fixed line telecommunications were
    liberalized by March 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. An amendment to the Civil Aviation Law that
    would raise the holding limit to 100 percent on air cargo forwarders 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. In early 1999, Taiwan opened cable and satellite television
    broadcasting services to foreign investors, subject to a 50 percent
    ownership limit. In August 2001, Taiwan's authorities proposed an
    amendment to the Telecom Law raising the foreign ownership limit on
    wireless and wire-line telecommunications firms from 20 to 60 percent.
    The government expects legislative passage of the amendment in 2002. In
    October 1999, Taiwan permitted foreign investment in liquefied natural
    gas and petroleum gas supply, subject to a 50 percent foreign ownership
    limit. A 50 percent foreign ownership limit also remains for power
    generation plants, power transmission or distribution firms, shipping
    agents, marine cargo forwarders, air-cargo terminals, and air-catering
    companies. Local content requirements in the automobile and motorcycle
    industries will be lifted as part of Taiwan's WTO accession.
    Restrictions on employment of foreign administrative personnel in
    foreign-invested firms remain in place.
        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)
    became effective in mid-1999. This law marks an important first step
    towards open, fair competition in Taiwan's multi-billion dollar market
    for public procurement projects. However, given discriminatory
    practices that continue to exist, in August 2001, a Memorandum of
    Understanding on Government Procurement between Taiwan and the United
    States was signed. Measures referred to in the Understanding, such as a
    broader definition of suppliers' qualification and establishment of
    post-award mediation of contract disputes, should improve market
    mechanisms as well as encourage foreign bidders' participation.
        Customs Procedures: Taiwan has amended its laws and regulations to
    implement the customs-procedure-related WTO agreements, including the
    Agreement on Customs Valuation, Agreement on Rules of Origin, Agreement
    on Anti-dumping, Agreement on Subsidies and Countervailing Measures,
    and Agreement on TRIPS. The customs procedures have, therefore, been
    streamlined. At times, however, the customs service still uses
    reference prices that are higher than the import costs reported by
    importers. This practice will need to be eliminated upon Taiwan's
    accession to the WTO.
    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 will reduce or eventually eliminate such
    subsidies as part of its commitments to WTO accession.
    7. Protection of U.S. Intellectual Property
        Intellectual property rights (IPR) protection continues to be a
    problem between the United States and Taiwan due to weaknesses in
    Taiwan's legal framework and law enforcement. In preparing for WTO
    accession, Taiwan has taken steps to amend its IPR laws in compliance
    with the WTO TRIPS requirements. Taiwan is not a party to any major
    multilateral IPR convention but is expected to soon become a WTO
    member. WTO ministers approved Taiwan's terms of accession in November
    2001, and Taiwan's membership will become effective 30 days after it
    files the necessary ratification instrument with the WTO's Director-
    General.
        In face of the U.S. concerns on IPR protection, Taiwan's
    Intellectual Property Office (IPO) has cooperated with police
    authorities since 2000 to implement an island-wide ``K-plan'' to crack
    down on counterfeit goods. In addition to the ``K-plan,'' the
    authorities also requested that optical media products (CD, CD-ROM,
    VCD, and DVD) bear source identification (SID) codes and MASK-ROMs bear
    special markings for tracking production. To protect optical media
    products, the U.S. requested Taiwan enact an optical disk law to
    control and curtail illegal manufacturers of optical media goods. In
    April 2001, the United States put Taiwan on the Special 301 Priority
    Watch List up from its placement on the Watch List in 2000. This action
    resulted from increased concern over Taiwan's inadequate progress in
    enacting optical media legislation, and Taiwan's failure to shut down
    known copyright pirates and to curtail increasing on-line piracy. An
    optical disk law was passed by the legislature in October 2001.
        Patents: An amendment to the Patent Law was passed by the
    legislature in October 2001. The bill extends the terms of patent
    protection to comply with TRIPS. The amendment also de-criminalizes the
    infringement of invention patents.
        Copyright: In compliance with TRIPS' requirements, a Copyright Law
    amendment was recently approved by the Legislative Yuan. The new law
    will treat ``computer programs'' as literary works conferring economic
    rights for a term consisting of the life of the author and fifty years
    after the author's death. Based on the new WIPO Copyright Treaty, the
    Intellectual Property Office (IPO) has submitted for Executive Yuan
    approval new draft amendments of the ``copyright law.'' The amendments,
    subject to legislative approval, will add the definition of public
    transmission and add provisions such as technological protection
    measures and electronic copyright for the management of information to
    protect copyright in digital web-site world.
        Optical Disc Law: To protect copyrights of works stored on optical
    discs, Taiwan's legislature passed an optical disc law to control
    equipment and production management on October 30, 2001. Manufacturers
    must apply for production licenses and SID codes used in the
    manufacture of optical discs. Violations will face a maximum three-year
    jail sentence and a fine of NT$6.0 million.
        Other areas of concern are poor protection for trade dress, such as
    packaging, configuration, and outward appearance of products, judicial
    difficulties in handling technical cases, and other judicial delays.
    The U.S. International Intellectual Property Alliance (IIPA) estimates
    Taiwan's weak IPR protection caused the U.S. copyright industry to lose
    US$557 million in 2000.
    8. Workers Rights
        a. The Right of Association: In 1995, the Judicial Yuan ruled that
    the right to organize trade unions was protected by the Constitution.
    Teachers formed the first association in February of 1999. The
    Examination Yuan also recognized that civil servants have a right of
    association in its proposed ``civil servant basic law,'' submitted to
    the Legislative Yuan in April 2000. Since taking power in May 2000,
    President Chen Shui-bian's administration has significantly eased
    restrictions on the right of association by recognizing six new island-
    wide labor federations, includingthe Taiwan Confederation of Trade
    Unions, the Chinese Labor Unions Federation, and the National Trade
    Union Confederation, etc. The progress of Taiwan democracy over the
    past decade has largely eased restrictions on association. However, the
    2000 Labor Rights Report, produced by the Labor Institute of the
    National Chengchi University, pointed out that labor not only needs
    eased restrictions on association, but also increased protection under
    the law. As of March 2001, some 2.9 million workers, or approximately
    30 percent of the 9.8 million-person labor force, belonged to 3,854
    registered labor unions.
        b. The Right to Organize and Bargain Collectively: The Labor Union
    Law (LUL) still forbids persons employed in administrative or
    educational agencies of governments at various levels and persons
    employed in munitions industries to organize labor unions. The
    settlement of labor disputes law also imposes restrictions making legal
    strikes difficult, thereby weakening unions' ability to collectively
    bargain. At present, Taiwan's unions have only 301 collective
    agreements with large-scale state-run and leading private enterprises.
        c. Prohibition of Forced or Compulsory Labor: The Labor Standards
    Law (LSL) prohibits forced or compulsory labor. Apart from forced
    prostitution and outside-contract jobs done by foreign workers, there
    were no reports of these practices.
        d. Minimum Age of Employment of Children: The Labor Standards Law
    prohibits forced and bonded child labor and stipulates age 15, after
    compulsory education required by the law ends, as the minimum age for
    employment. County and city labor bureaus enforce the minimum age law.
    Child labor is rare in Taiwan.
        e. Acceptable Conditions of Work: The Labor Standards Law is rigid
    and not well enforced in areas such as overtime work and pay and
    retirement payments. At the end of 2000, the LSL covered 5.7 million of
    Taiwan's 6.8 million salaried workers. Since 1997, minimum wage has
    remained at NT$15,840/per month (or US$460 at the exchange rate of
    NT$34.5 per US dollar); however, actual wage payments in the
    manufacturing sector have reached NT$38,792/per month in 2000, more
    than double the legal minimum wage. However, new contracts for guest
    workers, which include provision for deductions for formerly free room
    and board, have effectively lowered pay rates. Under an amendment to
    the LSL passed in June 2000, and taking effect in January of 2001,
    maximum working hours are limited to 84 hours every two-weeks, down
    from 48 hours/per week. Some employers assert that the amendment has
    increased production costs and forced them to move business offshore.
    In view of the recent economic slump, the authorities, following the
    recommendation of the Economic Development Advisory Committee (EDAC),
    plan to revise the LSL and allow employers more flexibility. The
    changes could negatively impact working conditions.
        f. Rights in Sectors with U.S. Investment: U.S. firms and joint
    ventures generally abide by Taiwan's labor law regulations. In terms of
    wage 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  60
    Total Manufacturing.........  ...........  3,692
      Food & Kindred Products...  59           .............................
      Chemicals & Allied          1,483        .............................
       Products.
      Primary & Fabricated        60           .............................
       Metals.
      Industrial Machinery and    188          .............................
       Equipment.
      Electric & Electronic       1,454        .............................
       Equipment.
      Transportation Equipment..  65           .............................
      Other Manufacturing.......  381          .............................
    Wholesale Trade.............  ...........  871
    Banking.....................  ...........  703
    Finance/Insurance/Real        ...........  1,972
     Estate.
    Services....................  ...........  154
    Other Industries............  ...........  285
        Total All Industries....  ...........  7,737
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                    THAILAND

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.......................    121,972     122,020     113,445
      Real GDP Growth (pct).............        4.2         4.4   \2\ 1.5-2.
                                                                          0
      GDP by Sector:
        Agriculture.....................     11,815      11,127       9,899
        Manufacturing...................     39,780      40,778      37,815
        Services........................     15,818      15,888      14,647
        Government \4\..................      8,802       8,885       8,801
      Per Capita GDP (US$)..............      1,947       1,955       1,804
      Labor Force (000s)................     32,719      33,260   \3\ 33,490
      Unemployment Rate (pct)...........        4.2         3.7     \3\ 3.6

    Money and Prices (annual percentage
     growth):
      Money Supply (M2).................        2.1         3.7     \5\ 5.4
      Consumer Price Inflation..........        0.3         1.6     \3\ 2.0
      Exchange Rate (BHT/US$--annual
       average):........................
        Official........................      37.84       40.16   \6\ 44.51

    Balance of Payments and Trade:
      Total Exports FOB \7\.............     56,800      67,940   \3\ 63,595
        Exports to United States \7\....     12,654      14,874      12,804
      Total Imports CIF \7\.............     47,529      62,420   \3\ 62,485
        Imports from United States \7\..      6,385       7,317       7,227
      Trade Balance \7\.................      9,271       5,520   \3\ 1,110
        Balance with United States \7\..      6,270       7,557       5,577
      External Public Debt..............     36,024      33,817   \5\ 30,939
      Fiscal Balance/GDP (pct)..........       -5.8       -4.05    \3\ -4.2
      Current Account Balance/GDP (pct).       10.2         7.5     \3\ 4.1
      Debt Service Payments/GDP (pct)...       11.6        10.4         N/A
      Gold and Foreign Exchange Reserves     34,781      32,661   \5\ 32,600
      Aid from United States \8\........       20.8         N/A         N/A
      Aid from All Other Sources........      110.7         N/A         N/A
    ------------------------------------------------------------------------
    All figures based on Royal Thai Government data.
    \1\ 2001 figures are all estimates based on six-month data unless
      otherwise indicated.
    \2\ Percentage changes calculated in local currency.
    \3\ Royal Thai Government projections.
    \4\ Government expenditure on GDP for illustrative purposes.
    \5\ Data as of August 2001.
    \6\ Based on nine-month data average.
    \7\ Merchandise trade under balance of payments concept.
    \8\ Based on fiscal year (October-September).

    1. General Policy Framework
        Since taking office in January 2001, the government of Prime
    Minister Thaksin Shinawatra has worked to accelerate Thailand's
    recovery from the 1997-98 East Asian financial crisis. The crisis began
    in Thailand, when a failed effort to defend the baht (the Thai
    currency) against exchange-rate speculation led the Bank of Thailand
    (BOT) to float the baht in July 1997. The baht lost half of its value
    against the U.S. dollar over the next six months, spreading the crisis
    to the real sector.
        In the decade through 1995, Thailand enjoyed one of the world's
    highest growth rates. With the onset of the crisis, however, real GDP
    dropped by 1.5 percent in 1997 and 10.8 percent in 1998. Strong
    external demand paced an export-led recovery in 1999 and 2000, with GDP
    rising over four percent in both years. The global growth slowdown,
    compounded by uncertainties in the wake of the terrorist attacks in the
    United States, will ease GDP growth to a projected 1.5-2.0 percent in
    2001. Over the long term, the Thai government must accelerate the slow
    pace of economic reform in order to raise the economy's growth
    potential.
        Economic contraction associated with the financial crisis slashed
    Thai imports, which dropped from $72 billion in 1996 to just over $40
    billion in 1998 before rebounding to $62.4 billion in 2000 and a
    projected $62.5 billion in 2001. Imports from the United States fell
    correspondingly, dropping from $8.7 billion in 1997 to $6.4 billion in
    1999 before recovering to $6.7 billion in 2000 and a projected $7.3
    billion in 2001. (Note: Different trade calculation methodologies
    result in discrepancies between U.S. and Thai figures; this report uses
    Bank of Thailand data).
        In August 1997, a $17.2 billion IMF program helped Thailand begin
    restructuring its economy and financial sector. The government closed
    or took over insolvent financial institutions, tightened provisioning
    requirements for banks, and began implementation of legal reforms to
    create a more modern, transparent financial sector. While the financial
    crisis stabilized by late 1998, production and demand did not respond,
    and the government shifted its focus to stimulating domestic demand.
    With the support of the IMF, the government ended years of balanced or
    surplus budgets by running fiscal deficits of over 3 percent of GDP in
    1998, close to 6 percent in 1999, about 4 percent in 2000, and a
    projected 4.2 percent in 2001.
        The Thaksin administration has made stimulating domestic demand a
    priority, and is in the initial stages of implementing a $1.3 billion
    fiscal stimulus program aimed at job creation. The stimulus program is
    part of the budget for fiscal year 2002, which began on October 1,
    2001. The government is also setting up a $1.8 billion Village Fund
    scheme, which will allow nearly 80,000 villages and urban communities
    to set up one million baht (around $23,000) revolving credit programs.
    Another key government program, the Thailand Asset Management
    Corporation (TAMC), will collect approximately $29 billion in bad
    loans, primarily from state-owned banks and private asset management
    companies. A legacy of the financial crisis, the bad loans will be
    restructured or even foreclosed with an eye toward facilitating
    corporate restructuring and improving banks' balance sheets. The
    government is financing its stimulus programs through domestic bond
    sales, as well as foreign debt and grant assistance.
        Thai monetary policy formally aims at keeping core inflation
    (excluding raw food and energy prices) between zero and 3.5 percent,
    but maintaining adequate system liquidity, keeping interest rates low,
    and stabilizing exchange rate movements are also major policy goals.
    The government uses a standard array of monetary tools but focuses on
    open market operations, particularly the repurchase market. The Thaksin
    administration has retained its commitment to inflation targeting but
    with a new emphasis on exchange rate stability. Current monetary policy
    does not target a specific level for the baht, but the government has
    said it 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 U.S. 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 and depreciated to 50 baht
    per dollar by January 1998. As reform measures and IMF support took
    hold, the baht stabilized and has traded in the 36 to 45 baht per
    dollar range since March 1998, settling at the 42-45 baht per level for
    most of 2001.
        The Thai government began liberalizing the exchange control regime
    in 1990 and has accepted IMF Article VII 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 in July 1997, the
    government tightened conditions on foreign exchange, requiring
    customers to show evidence of foreign currency obligations 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 at any
    one time to 50 million (about $1.12 million) per non-resident counter
    party (unless there is an underlying transaction requiring the
    currency) to cut down on offshore speculation.
    3. Structural Policies
        Market forces generally determine prices. Under the Price of Goods
    and Services Act of 1999, the government retains authority to set price
    ceilings for the prices of sugar and cooking gas. The government is
    also authorized to monitor the prices of fourteen additional products.
    Although in practice few commodities are subject to formal price
    controls, the government uses its control of major suppliers of
    products and services under state monopoly, such as the petroleum,
    aviation, and telecommunications sectors, to influence prices in the
    market. The government plans to sell shares in these state-owned
    enterprises to the public but will retain majority ownership in each
    sector.
        The Thai taxation system has undergone significant revision since
    1992, when a Value-Added Tax (VAT) scheme 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 consumption; the rate is scheduled to revert to 10
    percent on September 30, 2002. Exemptions 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. 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. The treaty will automatically
    terminate on January 1, 2003, however, if the United States and
    Thailand are unable to agree on an information exchange provision.
        The Board of Investment exerts wide-ranging influence on the
    formulation and implementation of trade and investment policies. It has
    advanced industrial decentralization and export promotion through the
    granting of tax holidays, import duty exemptions, and other incentives
    to foreign direct investors. Thailand has applied to the WTO for an
    extension of its local content requirements in the manufacture of milk
    and dairy products, which have been in effect since 1995.
    4. Debt Management Policies
        Thailand's financial crisis resulted in part from a large private
    sector external debt burden, but these debt levels have declined
    markedly since the onset of the crisis, falling from $85 billion at the
    end of 1997 to $42 billion at the end of July 2001. Thailand entered
    the crisis with low levels of public debt, but public borrowings have
    since risen significantly as the government expended heavily to
    stabilize the financial sector 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 July 2001, the figure
    had risen to $30.9 billion. Total external debt service as a percentage
    of exports of goods and services stood at 15.7 percent at the end of
    June 2001, including 7.5 percent in public debt and 8.2 percent in
    private sector debt. (Note: Public sector external debt refers to loans
    borrowed or guaranteed by the government or state-owned enterprises
    from overseas lenders.)
        Public sector debt is mostly 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,
    triggered by higher budget deficits, is a concern in Thailand, and the
    government is attempting to diversify its funding sources by developing
    a domestic bond market. By June 2001, total public sector debt,
    including the non-guaranteed debt of non-financial state-owned
    enterprises, had climbed to $62.6 billion, or 55.87 percent of
    Thailand's GDP, versus $40 billion, or 40 percent of GDP, at the end of
    1997.
        Thailand consistently met the targets and performance criteria
    elaborated in its IMF stand-by arrangement, which was completed in June
    2000. The government began to repay the IMF in the fourth quarter of
    2000 and other bilateral donors in 2001.
    5. Significant Barriers to U.S. Exports
        Tariffs: Thailand's high tariff structure remains a major
    impediment to market access in many sectors. A member of the World
    Trade Organization (WTO) and the ASEAN Free Trade Area (AFTA), Thailand
    has yet to complete efforts to rationalize a complicated tariff regime
    that has 44 rates. Highest tariff rates encompass locally produced
    import-competing products, including agricultural products, autos and
    auto parts, alcoholic beverages, fabrics, and some electrical
    appliances. In some cases, tariffs on unfinished products are higher
    than on related finished products. In the aftermath of the financial
    crisis, the government increased duties, surcharges, and excise taxes
    on a range of ``luxury'' imports from wine to passenger cars. However,
    the government continues to ease other import duties in line with WTO
    and AFTA commitments.
        Corn and fresh potatoes are subject to a Tariff Rate Quota (TRQ)
    that limits import levels. The restricted entry period for corn imports
    under the TRQ, generally February to June, usually ensures that U.S.
    corn is not competitive in the Thai market.
        Import Licenses: Thailand has committed to changing its import
    licensing procedures in connection with its WTO obligations. Import
    licenses still are required for 26 categories of items, down from 42
    categories in 1995-1996. Licenses are required for the import of many
    raw materials, petroleum, industrial, textiles, pharmaceuticals, and
    agricultural items. Imports of used motorcycles and parts, household
    refrigerators using CFCs, and gaming machines are prohibited. Import of
    some items not requiring licenses nevertheless must comply with
    applicable regulations of concerned agencies, including extra fees and
    certificate of origin requirements in some cases. Imports of food,
    pharmaceuticals, certain minerals, arms and ammunition, and art objects
    require special permits from relevant ministries.
        Service Barriers: In the banking sector, 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 report that requests for additional personnel
    customarily are approved. Since 1997, foreign ownership of Thai banks
    can exceed 49 percent for a period of ten years. (Foreign investors
    will not be forced to divest shares after 10 years, but will not be
    able to purchase additional shares.) Limits on foreign ownership of
    finance companies and securities companies were also liberalized in the
    aftermath of the financial crisis. Foreigners may hold majority stakes
    in Thai securities houses, although there are minimum investment
    requirements and restrictions on expatriate management.
        Telecommunications: The provision of telecommunications services is
    dominated by two state operators, the Telephone Organization of
    Thailand (TOT) and the Communications Authority of Thailand (CAT).
    Private participation is currently limited to concessions in wireless
    and fixed line sectors. The government's telecommunications master plan
    calls for the corporatization of TOT and CAT, with a view to
    privatization and coupling with strategic partners in the coming years.
    A law passed in October 2001 capped foreign ownership of domestic
    telecommunications companies at 25 percent. The possible retroactive
    impact of this provision on current private concessionaires, most of
    which already have over 25 percent foreign ownership, remains unclear.
    Thailand's WTO commitments require full market liberalization by 2006.
        Professional Services: The Alien Occupation Law reserves to Thai
    nationals certain employment, including within certain professional
    services such as accounting, architecture, law and engineering, the
    manufacture of traditional Thai handicrafts, and manual labor. All
    foreign nationals must obtain a work permit for employment.
        Standards, Testing, Labeling, and Certification: The Thai Food and
    Drug Administration (TFDA) requires permits for the importation of all
    food and pharmaceutical products. Costs, testing, duration, and demands
    for proprietary information associated with the permitting process can
    be burdensome. Labels bearing product name, description, net weight or
    volume, and manufacturing/expiration dates, printed in Thai and
    approved by the TFDA must be affixed to all imported food products.
        Investment Barriers: The U.S.-Thai Treaty of Amity and Economic
    Relations of 1966 (AER) accords U.S. citizens and businesses national
    treatment in many areas, exempting them from restrictions on foreign
    investment set out in the Alien Business Law (ABL). The AER does not
    exempt American investors from applicable restrictions in the fields of
    communications, transport, fiduciary functions, banking involving
    depositary functions, exploitation of land or other natural resources,
    and domestic trade in agricultural products. Some of these sectors are
    subject to limits on foreign equity participation, such as a 25 percent
    cap in the insurance and telecommunications sectors.
        The AER and ABL generally do not affect projects established with
    Board of Investment (BOI) promotion privileges or export businesses
    authorized under the Industrial Estate Authority of Thailand. BOI
    employs a variety of measures, including tax and duty incentives,
    guarantees against certain risks, and certain permit exemptions, to
    promote foreign investment in five favored areas: agriculture and
    agricultural products, environmental protection, technological and
    human resource development, basic transportation, infrastructure and
    services, and targeted industries. BOI seeks to steer projects to
    economically disadvantaged locations and to promote use of local
    materials in production.
        Non-Thai businesses and citizens generally are not permitted to own
    land unless given permission by the Board of Investment or unless land
    is on government-approved industrial estates. Exceptions include land
    necessary to the activities of petroleum concessionaires, part
    ownership of condominium buildings, and residences for foreign
    investors who invest a minimum of 40 million baht.
        Government Procurement Practices: Thailand is not a signatory to
    the WTO Government Procurement Agreement. Procurement regulations
    require that non-discriminatory treatment and open bidding be accorded
    to all potential bidders. However, procuring agencies are required to
    accord a 15 percent price advantage to domestic suppliers over foreign
    suppliers. In addition, they retain the right to accept or reject any
    or all bids at any time, may modify the technical requirements during
    the bidding process, and are not bound to accept the lowest bid. A
    directive from the Prime Minister's office in March 2001 urging
    ministries and state enterprises to purchase local products and employ
    local consultants as a budget-saving measure has compounded
    transparency problems. In some instances, government contracts require
    use of locally produced or assembled components.
        The government may require a counter-trade transaction on
    government procurement contracts valued at more than 300 million baht
    on a case-by-case basis, although the practice is not common.
    Restrictions on distribution by government hospitals of drugs not on
    the National List of Essential Drugs constrains the availability of
    imported products not on the list.
        Customs Procedures: The Thai Customs Department enjoys considerable
    autonomy and some of its practices appear arbitrary and irregular.
    Companies handling U.S. imports into Thailand occasionally reported
    excessive paperwork and formalities and lack of coordination between
    customs and other import-regulating agencies. Efforts to introduce a
    paperless customs system, including adoption of the World Customs
    Organization harmonized code and the use of an Electronic Data
    Interchange (EDI) system, have improved operations but are still in the
    process of being fully implemented. The pilot program for EDI became
    operational early in 1998 and the system reportedly covered 90 percent
    of Thai exports and 70 percent of imports as of October 2001. Customs
    Act amendments that went into effect January 2000 established
    transaction value as the basic standard for assessing customs duties,
    but officials reportedly are not applying the new standard in all
    cases. A government commitment to eliminate certificate of origin
    requirements for information technology (IT) imports has not been
    implemented fully, causing delays in the importation of U.S. IT
    products. Customs officials have been receptive to training programs
    offered by the U.S. private sector on streamlining customs procedures
    and implementing ``best practices'' to improve performance.
    6. Export Subsidies Policies
        The government maintains several programs that benefit exports of
    manufactured products or processed agricultural products. These include
    credit at below market level 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 with odd maturities or values
    otherwise unavailable in international credit markets; 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 interest rates on export credits below the prime rate offered by
    commercial banks. A 2000 law established a government office and fund
    to support small and medium enterprises, including market expansion
    abroad, but they are not operational yet.
    7. Protection of U.S. Intellectual Property
        The government has made significant progress in laying the legal
    foundation for IPR protection and enhancing enforcement efforts. During
    1999 and 2000, the government passed amendments to the Trademark Act
    and the Patent Act, a Protection of Plant Varieties Act, and a
    Protection of Integrated Circuits Design Law. As of October 2001, the
    Senate and House had passed versions of a draft Trade Secrets Act,
    which await reconciliation and publication in the Royal Gazette to
    become effective. The government has drafted a Protection of Geographic
    Indications Act and an Optical Disk Factory Control Act for submission
    to the parliament. 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. A specialized
    intellectual property court established in 1997 has improved judicial
    procedures and imposed higher fines. Criminal cases generally are
    disposed of within six to twelve months from the time of a raid to the
    rendering of a conviction. An enforcement offensive commenced in June
    2001 featured strong statements of commitment by the Prime Minister and
    cabinet and high-level police officials, boosted resources for
    enforcement efforts, and an increase in the level of raids on
    production and distribution facilities.
        Despite growing enforcement activity and good cooperation with
    rights-holders, levels of piracy remain high. Thailand has been on the
    Special 301 Watch List since 1994, and in June 2001 a consortium of
    rights-holders filed a petition to have Thailand's GSP benefits revoked
    unless additional progress was achieved in IPR protection (petition
    still pending as of October 2001). Thailand is a member of the World
    Intellectual Property Organization, the Berne Convention, and the WTO
    Trade-Related Aspects of Intellectual Property (TRIPS) Agreement.
    Thailand is not a signatory to the Paris Convention or the Patent
    Cooperation Treaty, although aspects of those instruments are addressed
    by local law.
        Obstacles to effective enforcement are numerous. Resource
    limitations, especially in the wake of the financial crisis, hamstring
    police capabilities and judicial administration alike. Corruption and a
    cultural climate of leniency can complicate many phases of the legal
    process. Irregularities in police and public prosecutor procedures
    occasionally have resulted in the substitution of insignificant
    defendants for major ones and the disappearance of vital evidence. The
    frequency of raids compromised by leaks from police sources has
    declined but remains a concern. Relatively few persons are serving time
    in jail for copyright infringement, although sentences and fines
    imposed have become more severe. Defendants sometimes disappear while
    on bail, and sentences occasionally are reduced or overturned on
    grounds that rights-holders sometimes regard as questionable. Pirates,
    including those associated with transnational crime syndicates, have
    responded to stepped up levels of enforcement with intimidation against
    authorities and rights-holders.
        Patent examinations can take more than five years. Recent changes
    to Thailand's Safety Monitoring Program (SMP) in the pharmaceutical
    sector allow generic versions of a non-patented product go into SMP and
    be marketed even while original innovative products are in SMP, giving
    rise to data protection concerns. For products with a patent pending,
    civil remedies to recover damages suffered by the patent-holder during
    the pending of its application are available after the patent is
    granted but are deemed inadequate by rights-holders. The government
    retains compulsory licensing authority in some instances but has yet to
    exercise it. The Government Pharmaceutical Office, a significant
    producer of pharmaceutical products in Thailand, is exempt from
    registration and approval requirements in manufacturing and
    distributing medicine.
        Although trademark-holders have won several notable cases, civil
    remedies remain largely untested as most rights-holders, especially
    copyright holders, choose to pursue criminal sanctions against
    violators. Rights-holders report that police cooperation is good and
    the frequency of raids is climbing. However, police undertake little
    enforcement apart from cases initiated by rights-holders. Effective
    prosecutions are labor-intensive for rights-holders, who investigate,
    participate in raids, help warehouse confiscated property, and prepare
    documentation for prosecution in a typical case.
        The U.S. pharmaceutical, film, and software industries estimate
    lost sales to American rights-holders at over $200 million annually.
    Although the government has made progress in cultivating public support
    for strong intellectual property protection, the market for pirated
    products remains strong.
    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. In practice,
    however, cases of management action against union organizers occur, and
    employers use loopholes in the law to fire union organizers. In May,
    one such instance was accepted by the International Labor
    Organization's Committee on Freedom of Association. Unions in Thailand
    may have relationships with unions in other countries, and with
    international labor organizations. The State Enterprise Labor Relations
    Act, enacted in early 2000, restored to state enterprise workers the
    right to form and join trade unions.
        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. However, they may be
    members of employee associations, state enterprise employees, essential
    workers (telecommunications, electricity, transportation, education,
    and health care personnel), and civil servants may not strike. Though
    legally recognized, 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, there are credible reports of
    sweatshops in which employers prevented workers from leaving the
    premises. There are no estimates of the numbers of such informal sector
    sweatshops.
        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. Compulsory education is 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. With few
    exceptions, U.S. companies strictly adhere to Thai labor laws.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  2,666
    Total Manufacturing.........  ...........  2,767
      Food & Kindred Products...  105          .............................
      Chemicals & Allied          399          .............................
       Products.
      Primary & Fabricated        69           .............................
       Metals.
      Industrial Machinery and    1,263        .............................
       Equipment.
      Electric & Electronic       509          .............................
       Equipment.
      Transportation Equipment..  93           .............................
      Other Manufacturing.......  329          .............................
    Wholesale Trade.............  ...........  318
    Banking.....................  ...........  650
    Finance/Insurance/Real        ...........  421
     Estate.
    Services....................  ...........  70
    Other Industries............  ...........  232
        Total All Industries....  ...........  7,124
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     EUROPE

                                  ----------

                                 EUROPEAN UNION

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.......................    8,464.5     7,891.5     8,280.7
      Real GDP Growth (pct).............        2.5         3.4         3.1
      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$).       22.4        20.8        21.9
      Total Employment (Annual                  1.6         1.6         1.7
       percentage change)...............
      Unemployment Rate (pct)...........        9.2         8.4         7.8

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2/M3).......        9.3         N/A         N/A
      Consumer Price Inflation..........        1.2         2.1         2.1
      Exchange Rate (USD/ECU annual            1.06        0.93         N/A
       average).........................

    Balance of Payments and Trade:
      Total Exports FOB.................      808.5       870.8         N/A
        Exports to United States........      192.5       214.9         N/A
      Total Imports CIF.................      823.7       953.8         N/A
        Imports from United States......      167.4       183.6         N/A
      Trade Balance.....................      -15.2       -83.0         N/A
        Balance with United States......       25.1        31.3         N/A
      External Public Debt (pct of GDP).       67.7        64.1        60.9
      Fiscal Deficit/GDP (pct)..........       -0.7         1.2        -0.2
      Current Balance/GDP (pct).........        0.3        -0.2        -0.3
      Debt Service Payments/GDP (pct)...        N/A         N/A         N/A
      Gross Official Reserves (billions       439.6         N/A         N/A
       of US$)..........................
      Aid from United States \2\........        N/A         N/A         N/A
      Aid from Other Sources............        N/A         N/A         N/A
    ------------------------------------------------------------------------
    \1\ Estimates.
    \2\ Military aid = 0

    Source: European Commission.

    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 are
    ceding to it increasing authority over their domestic and external
    policies. 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,
    particularly ``traditional'' trade issues. 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 and intellectual
    property rights issues, competency for policy and negotiations is
    shared between the EU and its member states. Beyond economics and
    trade, the EU is developing its other two ``pillars'': the common
    foreign and security policy (CFSP), and justice and home affairs
    (police and judicial cooperation).
        The EU 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 12
    participating countries (Denmark, Sweden and the United Kingdom are
    currently not included) have a single monetary policy conducted by the
    European System of Central Banks (ESCB), led by the Frankfurt-based
    European Central Bank (ECB). Member states generally achieved 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 (three percent of GDP) by seeking to achieve
    balanced budgets by 2002, although this target is likely to be delayed
    for some countries due to the current economic slowdown.
        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 $90 billion are divided generally among agricultural support
    (40 percent), ``structural'' policies to promote growth in poorer
    regions (40 percent), other internal policies (5 percent), external
    assistance (5 percent) and administrative and miscellaneous (5
    percent).
        The EU is currently preparing for the fifth enlargement and is
    negotiating accession agreements with twelve countries: Bulgaria,
    Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
    Poland, Romania, the Slovak Republic, and Slovenia. The best prepared
    of these countries are expected to join the EU by 2004. Turkey is also
    a formal candidate country but has not yet begun accession
    negotiations. Work is underway within the EU to update and reform the
    existing institutional structures to accommodate these potential new
    members.
    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
    (Greece joined the monetary union on January 1, 2001). 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 by the end of February 2002. During the
    transition period, there will be dual circulation between the euro and
    the respective national currencies, except in the case of Germany.
        The ECB 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 currency of
    Denmark which participates in the new Exchange Rate Mechanism (ERM-2)
    limiting its fluctuation against the euro to ( 2.25 percent. 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 (see
    below).
        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 are working
    on greater coordination of their tax policies, including the taxation
    of savings interest of non-residents, in addition to agreeing to a Code
    of Conduct to curb ``harmful'' business taxation as well as harmonizing
    the application of VAT to e-commerce transactions.
    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 one of the world's largest multilateral financing banks,
    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 lend to key developing
    countries, especially in Central Europe and the newly independent
    states of the former Soviet Union. To date, it has consistently taken a
    hard line on the rescheduling of EU debt by borrowing countries.
    5. Significant Barriers to U.S. Exports
                Import Policies
        Import, Sale, and Distribution of Bananas: On April 11, 2001, the
    U.S. goverment and the European Commission reached an agreement to
    resolve their long-standing dispute over the EU's banana import regime.
    The new regime, which is expected to enter into force on January 1,
    2002, will provide a transition to a tariff-only system by 2006. During
    the transition, bananas will be imported into the EU through import
    licenses distributed on the basis of past trade. In the past, two EU
    banana regimes were challenged successfully in the WTO, prompting U.S.
    retaliation worth $191.4 million against EU products. Under the terms
    of the agreement, the United States has suspended sanctions and will
    definitively lift the sanctions upon WTO issuance of an Article XIII
    waiver.
        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-1980s, U.S. wines have
    entered the EU market under a series of ``derogations'' granting EU
    regulatory exemptions. Negotiations on an agreement with the EU to
    ensure the EU market remains open to U.S. wine have been underway for
    several years but agreement has not been reached on a number of key
    issues, including in particular mutual recognition of oenological
    practices. The United States does not believe EU legislation on
    ``traditional expressions'' (terms such as ``vintage'' or ``tawny'') is
    consistent with the WTO Agreement on Trade Related Intellectual
    Property Rights (TRIPS), and therefore does not believe this area is
    appropriate for bilateral negotiation.
                Services Barriers
        EU Broadcast Directive: The EU's 1989 Broadcast Directive
    (Television without Frontiers) provides that a majority of
    entertainment broadcast transmission time be reserved for European-
    origin programs ``where practicable'' and ``by appropriate means.''
    Concerns have surfaced in EU accession negotiations where acceding
    countries are being held to a higher standard than are currently EU
    member states. The United States continues to monitor developments with
    respect to the Broadcast Directive, which is scheduled to undergo a
    revision in 2002.
        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. While generally
    welcoming this move, U.S. airline companies and ground-handling service
    providers remain concerned that airports can apply for exemptions to
    continue to have a monopoly service provider until January 1, 2002, and
    can also 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 EU member states.
        Postal Services: U.S. package and express mail service providers
    remain concerned that the prevalence of postal monopolies in many EU
    countries restricts their market access and subjects them to unequal
    conditions of competition. The Commission's May 2000 proposal to
    further limit the scope of the services that can be reserved for
    monopoly provision has faced stiff opposition in the European
    Parliament and some EU member states. It would require member states to
    reduce weight-limits on letters and direct mail from 350g to 50g by
    January 1, 2003. It would also require a reduction in price limits from
    five times the standard tariff to 2.5 times, and open up competition in
    express mail services and outward cross-border mail. However, in
    November 2000, the European Parliament's Regional Policy, Transport,
    and Tourism Committee voted that state monopolies could continue on all
    letter mail below 150g. If Parliament's vote stands, only 10 percent of
    the postal markets will be liberalized from 2003, instead of the 20
    percent favored by the Commission.
                Standards, Testing, Labeling and Certification
        EU member states still have widely differing standards, testing and
    certification procedures in place for some products. These differences
    may serve as barriers to free movement of these products within the EU
    and can cause lengthy delays in sales due to the need to have products
    tested and certified to account for differing national requirements.
    Nonetheless, the advent of the EU's ``new approach,'' which streamlines
    technical harmonization and the development of standards for certain
    product groups, based on ``essential'' health and safety requirements,
    generally points towards the harmonization of laws, regulations,
    standards, testing, and certification procedures within the EU. While
    the United States supports legitimate health and safety measures, we
    have concerns that the European standardization process lacks
    transparency and remains generally closed to U.S. stakeholders' direct
    participation.
        Businesses on both sides of the Atlantic have highlighted the
    importance of standards issues in U.S.-EU trade relations, in the
    context of the Transatlantic Business Dialogue and other fora. Although
    some progress has been made, a number of problems have caused concern
    to U.S. exporters. These include: legislative delays, inconsistent
    member state interpretation and application of legislation, the ill-
    defined scope of various Directives, unclear marking and labeling
    requirements for regulated products, and a frequent tendency to rely on
    design-based rather than performance-based standards. Such problems can
    complicate and impede U.S. exports to the EU.
        Mutual Recognition Agreements: In order to reduce standards-related
    trade barriers, the United States and the EU are committed to advancing
    joint efforts to promote mutual recognition, equivalency, and
    harmonization of standards. In 1998, both governments negotiated a
    Mutual Recognition Agreement (MRA) covering several important sectors
    (medical devices, pharmaceuticals, telecommunications equipment,
    electromagnetic compatibility, electrical safety, and recreational
    craft) allowing for conformity assessments to be performed in the
    United States to EU standards and vice versa. Both sides continue to
    work on issues related to the implementation of this MRA. Additionally,
    a separate MRA covering marine safety equipment was signed in June 2001
    by the United States and the EU under the Transatlantic Economic
    Partnership (TEP) and negotiations are continuing on MRAs for insurance
    services, architects and engineers. Finally, the United States and EU
    continue to work through TEP in developing a joint text on Guidelines
    for Regulatory Cooperation.
        PECAs: The EU has concluded Protocols to the Europe Agreements on
    Conformity Assessment and Acceptance of Industrial Products (PECAs)
    with several Central and East European (CEE) countries that are
    candidates for EU accession. PECA agreements with the Czech Republic
    and Hungary entered into force in June and July 2001, respectively.
    PECA Agreements with Latvia and Lithuania have been initialed, but no
    implementation dates have been set. PECAs are being negotiated with six
    other countries in the CEE region.
        Under a PECA, the EU and the accession candidate agree to recognize
    the results of each other's designated conformity assessment bodies/
    notified bodies, thereby eliminating the need for further product
    testing of EU products upon importation into that country. Only those
    products exported to the third country which are: (i) of EU origin, and
    (ii) certified by an EU notified body with the CE mark illustrating
    compliance with EU standards, will benefit from the provisions of the
    PECA. The United States has raised concerns about the PECA rule of
    origin, and the possible discriminatory effects of this provision, in a
    variety of WTO and bilateral fora, as well as with PECA partners.
        Biotechnology Product Approvals and Labeling: The EU's de facto
    moratorium on approvals for products made from modern biotechnology is
    adversely affecting U.S. exports of corn and oilseed rape (canola). In
    July 2001, the European Commission agreed on proposals for
    traceability, labeling, and biotech food and feed authorizations. These
    new proposals and draft Directive 01/18 (formerly known as 90/220)
    encompass the overall Commission strategy to restart the biotech
    approval process. The draft legislation contains three key parts:
    process-based labeling for food and feed products that contain or are
    derived from biotech ingredients, provisions for event-specific
    identity markers, and a tolerance for adventitious (unintended or
    accidental) presence of unapproved varieties. It is now up to the
    Commission to restart approvals based on companies' voluntary
    commitments to implement key elements of the draft proposals. There are
    concerns on the part of industry that many aspects of the new proposals
    would be unworkable, so that even if approvals were restarted,
    voluntary implementation of the Regulations as written would prove
    impossible.
        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). The United States has therefore imposed WTO-approved
    retaliation worth $116.8 million per year, pending EU compliance. A
    large body of scientific evidence indicates these products are safe as
    used. Discussions with the EU to resolve this matter are continuing.
        Specified Risk Material Ban: In May 2001, the EU adopted new
    legislation (Regulation 999/2001) affecting third-country requirements
    to remove specified risk materials (SRMs). The so-called TSE
    (Transmissible Spongiform Encephalopaties) Regulation replaces the
    previous SRM ban and includes transitional measures affecting imports
    as of July 1, 2001. These measures include certification that products
    of bovine, ovine and caprine origin do not contain SRMs or mechanically
    recovered meat and that the animals were not slaughtered by pithing or
    gassing. Additional transitional rules affecting imports entered into
    effect on October 1, 2001. These include extending the list of products
    that are obligated to meet the SRM requirements to include: rendered
    fats, gelatin, petfood, bones and bone products and raw material for
    the manufacture of animal feedstuffs. Exemptions from the above
    requirements are given to countries whose geographic BSE risk
    classification (GBR) is one (free from BSE). The GBR for the United
    States is two (provisionally free), therefore exporters from the United
    States will be required to certify SRM removal.
        Under the TSE legislation, countries are required to submit
    information for classification of TSE status. This status is based on
    the OIE (International Organization of Epizootics) criteria and will be
    determined by the countries' current GBR status as well as risk
    management measures, education, notification, surveillance and
    monitoring, and an affective feed ban in place. Country applications
    must be submitted to the Commission by January 1, 2002, and the
    Commission will determine third-country classifications by July 1,
    2002. Under current OIE criteria, countries classified as either one or
    two are not required to remove SRMs. The status of the United States
    will be reviewed in this context.
        Antimicrobial Treatments for Poultry: In 1997, the EU introduced a
    sanitary regime concerning poultry that did not permit the use of
    antimicrobial treatments, which most U.S. poultry producers use to
    reduce the level of pathogens in their products. U.S. poultry exports
    to the EU of around $50 million per year have since disappeared. Based
    on a 1998 study by the EU of the safety and efficacy of antimicrobial
    treatments, which concluded that some treatments could be used as a
    supplementary measure, the U.S. government has requested that the EU
    approve the use of certain antimicrobial treatments.
        Emergency Measures for Coniferous Non-Manufactured Wood Packing
    Material: The European Commission has adopted emergency measures
    requiring the treatment and marking of all new and used coniferous
    (e.g. pine, spruce, fir) non-manufactured wood packing material (NMWP)
    originating in the United States, Canada, China, or Japan beginning
    October 1, 2001, to prevent the introduction of the pinewood nematode.
    The pinewood nematode is a microscopic eelworm which has caused
    extensive mortality in pine trees in Japan and China. Work is currently
    underway in the United States to set up a program to meet the measures
    adopted by the EU. The United States has chosen to utilize the heat
    treated or kiln-dried mitigation as the preferred option to eliminate
    this pest on NMWP. However, the industry is likely to utilize
    fumigation as well. The International Plant Protection Convention,
    which is recognized by the World Trade Organization as the official
    plant protection body, will likely adopt measures very similar to those
    of the EU in April 2003 for all NMWP (softwoods and hardwoods).
        Hushkits or New Engine Modified and Recertificated Aircraft: In
    1997, pressure on EU authorities to reduce noise levels resulted in a
    European Commission (EC) 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 EU member states adopted a regulation limiting
    the registration and use within the EU of certain aircraft that had
    been modified and recertificated to be in full compliance with the
    existing performance-based standard adopted by the International Civil
    Aviation Organization (ICAO), and to which the EU member states had
    agreed. The EU regulation that entered into effect on May 4, 2000,
    establishes a design standard that restricts the operation of those
    recertificated aircraft that were equipped with ``hushkit'' noise
    reduction devices or ``re-engined'' with engines of a certain design.
    Ostensibly crafted to reduce noise around European airports, the
    regulation in effect is a trade barrier and has little impact on noise.
    It restricts operation of aircraft based on a design standard, and
    disproportionately impacts U.S. manufacturers and airlines. The United
    States has asked ICAO to resolve this dispute pursuant to Article 84 of
    the 1944 Convention of International Civil Aviation (Chicago
    Convention). With strong support from the United States, the 33rd
    Assembly of ICAO has unanimously adopted a Resolution that establishes
    an international framework on how states should manage noise around
    airports called the Balanced Approach. The European Commission has
    proposed a Directive that will, hopefully, reflect the principles of
    the ICAO Resolution and replace the hushkits Regulation before April 1,
    2002--the date that the Regulation is scheduled to be implemented.
        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 in EU member
    states. 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. The EU is moving forward with the creation of a European
    Aviation Safety Agency (EASA). The United States wants to ensure that
    decisions made by this agency are based on technical criteria and that
    safety and certification functions are kept strictly separate from
    commercial or economic policy considerations.
        Electrical and Electronic Equipment (EEE): The European Commission
    (DG Enterprise) is developing a draft Directive that would
    comprehensively regulate the product design of electrical and
    electronic equipment. It would be issued as a ``new approach''
    Directive, outlining so-called essential requirements that could be met
    through harmonized European standards. Unofficial versions of the DG
    Enterprise draft text have been shared selectively in Brussels and a
    formal proposal is expected before the end of 2002. While still
    assessing this proposal, U.S. industry is concerned that the draft has
    the potential to interfere with design flexibility, delay new product
    development and introduction, and impose extensive administrative
    burdens.
        Waste Management: In June 2001, the EU Council of Ministers reached
    political agreement on two related proposals: a Directive focusing on
    the ``take back'' and recycling of discarded equipment (known as Waste
    from Electrical and Electronic Equipment or ``WEEE''); and a Directive
    banning the use of certain substances (lead, mercury, cadmium, certain
    flame retardants) in new electrical and electronic equipment from
    January 1, 2007, (known as Restrictions on the Use of Hazardous
    Substances or ``RoHS''). A formal Council 'common position' was adopted
    in December 2001. The United States supports the drafts' objectives to
    reduce waste and the environmental impact of discarded products. The
    United States has expressed concerns, however, that the proposals
    lacked transparency in their development and would adversely affect
    trade in products where viable substitutes may not exist. The U.S.
    government will continue to closely monitor these proposals as they
    proceed through the legislative process to ensure that they will not
    unreasonably restrict trade
        Acceleration of the Phase-Out of HCFCs: The EU adopted Regulation
    2037/2000, a new and stricter Regulation for phasing-out all ozone
    depleting substances in the EU than that agreed under the Montreal
    Protocol. The U.S. government actively opposed early drafts, which
    proposed phase-outs of HCFCs by 2001 without yielding appreciable
    environmental benefits. The existing Regulation requires the air
    conditioning industry to phase out its use of HCFCs by 2001 while most
    other HCFC uses may continue until 2004. Small (100 kW) fixed air
    conditioners and heat pump units have been exempted from the initial
    phase-out.
        EU Chemicals Policy: In its White Paper ``Strategy for a Future
    Chemicals Policy'', the European Commission proposes a new and single
    system for assessing existing and new chemical substances called REACH
    (Registration, Evaluation, and Authorization of Chemicals). Under this
    new system, the burden for testing chemicals and carrying out risk
    assessments will shift to companies and importers, and they will also
    be required to make this information available to a central database
    run by the European Chemicals Bureau. In addition, the new system will
    extend data requirements to downstream users of chemicals. Potential
    implications of this new policy for U.S. business include the
    administrative burden of registering substances, the high cost and
    limited timeframe to carry out this testing, intellectual property
    rights issues linked to the release of test data, and the possible ban
    of some chemical substances based on the ``precautionary principle.''
    The U.S. government is actively monitoring this issue and has advocated
    full transparency and early dialogue with all interested stakeholders.
                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 right to provide aviation transport
    services within the EU is reserved to firms majority-owned and
    controlled by EU nationals. The right to provide maritime transport
    services within certain EU member states is also restricted.
        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.
    U.S. firms' right to national treatment in this area was reinforced by
    the EU's GATS commitments.
        Under the 1994 Hydrocarbons Directive, the notion of reciprocity
    may have been taken further to require ``mirror-image'' reciprocal
    treatment, under which an investor may be denied a license to explore
    for and exploit hydrocarbon resources 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, however, that
    thus far no U.S.-owned firms have been affected by these reciprocity
    provisions.
        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: Per EU Treaty Article 280, the EU and its member
    states are jointly responsible for the fight against fraud and
    corruption affecting the EU's financial interests. A detailed overview
    of EU and member state achievements in this regard (e.g. legislation
    protecting the euro against counterfeiting; public procurement
    legislation introducing a compulsory mechanism for excluding tenderers
    convicted of fraud/corruption) is provided in the Commission's year
    2000 annual report on the fight against fraud. This report, presented
    in May 2001, is available on-line at http://europa.eu.int/comm/anti--
    fraud/documents/ annual--reports/index--en.htm. All but one EU member
    state, Ireland, has ratified the OECD Convention on combating bribery
    of foreign public officials in international business transactions. The
    implementing legislation of some countries, however, appears to fall
    short of the Convention's requirements.
                Government Procurement
        The EU public procurement market is regulated by four ``classic''
    Directives: public works, public supplies, public services and
    utilities. The Directives cover contracts above a certain threshold in
    all public sectors except utilities, which is regulated by a separate
    Directive applicable to private as well as public undertakings. Large
    EU tenders for public works/supplies are open to American companies and
    will remain so under the terms of the Government Procurement Code.
    However, some contract opportunities in the utilities sector (water,
    transport, and telecommunications) are closed to U.S.-based companies
    because of certain articles in EU law permitting a local content
    requirement of 50 percent. Moreover, in the utilities sector,
    preference must be given to an EU bid over a non-EU bid if the bids are
    equivalent and the price difference is less than three percent.
        EU procurement rules are in the process of being reworked and
    simplified. Amendments include the clarification of existing Community
    Directives by merging the Supplies, Services and Works Directives. The
    second aim of the reform is to adapt procurement rules to modern
    administrative needs. Rules would be softened for complex contracts,
    where a dialogue between contracting authorities and tenderers is
    envisaged to determine the contract conditions. In addition,
    contracting authorities would be able to specify their requirements in
    terms of performance and not only in terms of standards, which would
    make it easier for U.S. firms to bid on EU tenders. Lastly, the new
    proposal will exclude telecommunications from the Utilities Directive,
    and provides for the exclusion of sectors such as water and electricity
    once liberalization is achieved in these areas. The direct consequence
    of this move is that neither public nor private telecommunications
    operators will have to follow procurement rules when awarding
    contracts, enabling U.S. firms to bid on them. (Note that in 1998 the
    Commission issued an interpretive Communication in which it said that
    since most member states had achieved full competition in the area of
    telecommunications, this sector was to be excluded from the Utilities
    Directive).
        The changes proposed by the European Commission are currently being
    reviewed by the European Parliament. Parliamentary sources indicated
    that it is unlikely to be fully approved before the end of November
    2001. Various Parliamentary committees have submitted approximately 400
    amendments to promote ``green'' procurement practices, such as specific
    production processes, eco-labels and environmental auditing
    certifications, as well as provisions designed to link the procurement
    procedure to social and labor law. One of the most contentious
    amendments submitted by the European Parliament would increase the
    level of thresholds of application of the Directives. Once the
    Parliament comes to agreement on these issues, it will submit the
    amended proposals to the Council, which will then work to find a common
    position with the Parliament and the Commission. This process may last
    until the end of 2002.
    6. Export Subsidies Policies
        Government Support for Airbus: Since the inception of Airbus in
    1967, the Airbus member governments (France, Germany, Spain and the
    United Kingdom) have provided massive direct subsidies to their
    respective member companies to aid in the development, production and
    marketing of the Airbus family of large civil aircraft. These subsidies
    have enabled Airbus to garner approximately 50 percent of new orders
    over the last three years. The Airbus governments continue to subsidize
    their member companies and have offered financial support for the
    development of the A380 ``superjumbo'' aircraft. European officials
    have claimed that member states' support will be in compliance with the
    1992 bilateral Agreement on Large Civil Aircraft. However, the United
    States believes that government support of Airbus raises serious
    concerns about member state adherence to their bilateral and
    multilateral obligations in this sector, including the 1995 WTO
    Agreement on Subsidies and Countervailing Measures (SCM). It has urged
    the Airbus governments to ensure the terms and conditions of their
    support for the A380's development are consistent with commercial
    terms, reflecting the fact that Airbus is now a highly competitive
    global producer of aircraft. Discussions on this issue are expected to
    continue in 2002.
        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. In accordance with this Directive, EU shipbuilding subsidies
    were eliminated as of December 31, 2000. In July 2001, the European
    Commission put forward a proposed Regulation setting up a ``temporary
    support mechanism'' for those segments of the EU shipbuilding industry
    (container ships and products and chemical tankers) found to be
    considerably injured by unfair trade practices of Korean shipyards. The
    proposed Regulation would enter into effect after initiation of a WTO
    dispute settlement proceeding against Korea and would expire with the
    conclusion of the WTO proceeding, or in any case on December 31, 2002.
    EU member states still have to formally approve the Commission's
    proposal.
    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 members of all
    the relevant World Intellectual Property Organization (WIPO)
    conventions, and they and the EU regularly join with the United States
    in encouraging other countries to adopt and enforce high IPR standards,
    including those in the WTO Agreement on Trade-related Aspects of
    Intellectual Property Rights (TRIPS). However, there are a few member
    states with whom the United States has raised concerns, either through
    Special 301 or WTO Dispute Settlement Procedures, about failure to
    fully implement the TRIPS Agreement.
        Patents: Patent filing and maintenance fees in the EU and its
    member states are significantly more expensive than in other countries
    including the United States. In an effort to introduce more reasonable
    costs, the European Patent Office (EPO) reduced fees for filing by 20
    percent in 1997. In July 2000, the European Commission proposed a
    Regulation to establish a European Community (EC) patent that, once
    granted, would be valid in all 15 EU member states without additional
    costly translations. At present, the Regulation is being considered by
    a Council working group, which hopes to complete its work by the end of
    2001. Internal Commission disagreement has blocked progress on a
    parallel effort to propose an EC software patent. Patent protection for
    biotechnological inventions is governed by a 1998 Directive harmonizing
    national member state rules in this area. This Directive is still in
    the process of transposition.
        Trademarks: Registration of trademarks with the European Community
    trademark office (Office for Harmonization in the Internal Market, or
    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 WIPO Madrid Protocol, negotiated in 1989,
    provides for an international trademark registration system permitting
    trademark owners to register in member countries by filing a
    standardized application. EU accession to the Protocol is hampered by
    Spanish objections, but member states in favor of EU accession hope to
    persuade Spain to drop its opposition.
        Geographical Indications (GIs): In 1999, the United States
    initiated a WTO dispute settlement case against the EU, based on
    apparent TRIPS deficiencies in EU Regulation 2081/92 governing
    geographical indications for agricultural products and foodstuffs. The
    regulation denies nations treatment to foreign GIs. Under the
    regulation, only domestic GIs can be registered; foreign GIs cannot be
    registered and are thus ineligible for protection. Further, the
    regulation permits dilution and even cancellation of trademarks when a
    GI is created later in time. At the most recent U.S.-EU consultations
    on this issue, held in July 2001, the EU indicated it is in the process
    of amending certain articles of the regulation so as to bring those
    articles into compliance with the TRIPS Agreement. This would fix many
    of our concerns. In addition, we have asked for further amendments, and
    the EU has agreed to take our request into consideration. The United
    States looks forward to reviewing the adequacy of these amendments, and
    will consider the next steps in this dispute accordingly.
        Copyrights: The EU's legislative framework for copyright protection
    consists of a series of Directives covering areas such as the legal
    protection of computer programs, the duration of protection of authors'
    rights and neighboring rights, and the legal protection of databases.
    In May 2001, the EU adopted a Directive covering copyright in the
    digital economy. It guarantees authors' exclusive reproduction rights
    with a single mandatory exception for cache, or temporary, copies, and
    an exhaustive list of other exceptions which individual member states
    can select and include in national legislation. This list is meant to
    reflect different cultural and legal traditions, and includes private
    copying ``on condition right holders receive fair compensation.'' EU
    member states have until the end of 2002 to implement the new rules.
    8. Worker Rights
        Labor legislation still remains largely the domain of individual
    member states. Decisions taken at the Lisbon, Luxembourg, Cardiff, and
    Cologne EU Summit Meetings of the EU have, however, significantly
    increased cooperation and coordination 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. The Lisbon Summit set a goal to
    raise the EU's employment rate from 60 percent to 70 percent by 2010.
    It also stressed the need for appropriate lifelong learning and
    training to meet the needs of a growing information society. The EU is
    also beginning to address the problems of the population bulge,
    pensions, and health care for the elderly through informal coordination
    mechanisms.
        In July 2001, the European Commission put forward a communication
    setting out a proposed EU strategy to promote core labor standards in
    the context of globalization. The Commission proposes, among other
    things, to make existing ILO (International Labor Organization)
    instruments more effective and to continue efforts to launch a regular
    international dialogue on trade and labor. The proposed labor standards
    strategy is subject to European Parliament and Council review before
    final adoption.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  26,051
    Total Manufacturing.........  ...........  168,648
      Food & Kindred Products...  15,594       .............................
      Chemicals & Allied          52,605       .............................
       Products.
      Primary & Fabricated        9,385        .............................
       Metals.
      Industrial Machinery and    23,141       .............................
       Equipment.
      Electric & Electronic       17,490       .............................
       Equipment.
      Transportation Equipment..  15,497       .............................
      Other Manufacturing.......  34,936       .............................
    Wholesale Trade.............  ...........  34,365
    Banking.....................  ...........  18,083
    Finance/Insurance/Real        ...........  239,523
     Estate.
    Services....................  ...........  47,243
    Other Industries............  ...........  39,504
        Total All Industries....  ...........  573,416
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                    AUSTRIA

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                        1999          2000        \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and
     Employment:
      Nominal GDP.................    210,069.7     189,899.5   \2\ 190,353.
                                                                          2
      Real GDP Growth (pct).......          2.8           3.3           1.3
      GDP by Sector:
        Agriculture...............      4,175.1       3,496.3           N/A
        Manufacturing.............     61,525.9      56,269.3           N/A
        Services..................    117,257.9     103,222.4           N/A
        Government................     13,028.7      11,486.9           N/A
      Per Capita GDP (US$)........       25,960        23,416    \2\ 23,360
      Labor Force (000s)..........        3,701         3,701         3,721
      Unemployment Rate (pct).....          4.0           3.7           3.8

    Money and Prices (annual
     percentage growth):
      Money Supply Growth (M2)....          4.6           2.8           N/A
      Consumer Price Inflation....          0.6           2.3           2.6
      Exchange Rate (Euro/US$--           12.91         14.93         15.29
       annual average) Official...

    Balance of Payments and Trade:
      Total Exports FOB...........     64,235.2      64,232,2   \2\ 67,310.0
        Exports to United States..      2,931.5       3,223.9       3,400.0
      Total Imports CIF...........     69,617.4      69,064.3   \2\ 72,730.0
        Imports from United States      3,719.9       3,785.9       4,000.0
      Trade Balance...............     -5,382.2      -4,832,1      -5,420.0
        Balance with United States       -788.4        -562.0        -600.0
      External Public Debt \3\....     17,925.7      15,447.0      12,206.1
      Fiscal Deficit/GDP (pct)....          2.2           1.1           0.7
      Current Account Deficit/GDP           3.2           2.8           2.6
       (pct)......................
      Debt Service Payments/GDP             0.7           1.4           1.4
       (pct) \4\..................
      Gold and Foreign Exchange        20,193.6      17,394.5           N/A
       Reserves (Year-End) \5\....
      Aid from United States......            0             0             0
      Aid from All Other Sources..            0             0             0
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on latest available data and
      economic forecasts in October 2001.
    \2\ The apparent decline in 2000 and/or 2001 figures is a result of
      exchange rate fluctuations between the euro and the U.S. dollar. In
      local euro currency, figures show an increase in 2000 and/or 2001.
    \3\ Since the start of the Economic and Monetary Union (EMU) on January
      1,1999, external debt is defined as debt denominated in other
      currencies than the euro.
    \4\ Debt service payments on external public debt.
    \5\ Since the start of the EMU, the Austrian National Bank's foreign
      exchange reserves are part of the Eurosystem. The apparent decline in
      the 2000 figure is a result of exchange rate fluctuations between the
      euro and the U.S. dollar. In euro currency, figures were stable.

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

    1. General Policy Framework
        Based on per capita GDP, Austria is the fifth richest EU country.
    Austria has a skilled labor force and a record of excellent industrial
    relations. Its economy is dominated by services, accounting for 70
    percent of employment, followed by manufacturing. Small and medium-
    sized companies are predominant. After previous governments had
    privatized most of the formerly state-owned manufacturing industries,
    the Conservative (OVP)-Freedom Party (FPO) government that took office
    in 2000, decided to go ahead with further privatization, including in
    the banking, telecommunications and energy sectors. It was also
    considering full privatization of partly privatized companies,
    including Austrian Airlines and OMV petroleum company; but more
    recently has put these projects on hold due to changed economic
    conditions.
        Exports of Austrian goods and services account for more than 45
    percent of GDP. Austria's major goods export market is the EU,
    accounting for 66 percent of Austrian exports, with 41 percent to
    Germany and 7 percent to Italy, compared to 5 percent to the United
    States. However, given Austria's traditional expertise in Central and
    Eastern European (CEE) markets, exports to that region have soared
    since 1989, accounting for 13 percent of Austrian exports in 2000.
    Numerous multinationals have established their regional headquarters in
    Austria as a ``launching pad'' to the CEE markets.
        The government has been less bound than its predecessors by the
    Austrian tradition of setting economic policy in consultation with the
    so-called ``Social Partners,'' 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. The government broke precedent by not consulting
    with the social partner institutions on important economic policy
    decisions such as social benefits reform and balancing the budget.
        As a member of the EU's Economic and Monetary Union (EMU), Austria
    is required to keep its budget deficit in line with the EU's Stability
    and Growth Pact. The budget consolidation process is hard, however, as
    the federal deficit had to come down from 2.5 percent of GDP in 1999.
    Strong economic growth and swift implementation of tax increases and
    pension reform helped the new government to limit the federal deficit
    to 1.4 percent of GDP in 2000 and the consolidated public sector
    deficit to 1.1 percent of GDP. The government intends to further reduce
    the federal deficit to 1.1 percent in 2001 and to 0.7 percent by 2002,
    and to balance the consolidated public sector budget by 2002. Reduced
    economic growth prospects, increased spending on family allowances and
    halting public service reform, however, make the target more difficult
    to hit.
        Other foci of economic policy are introducing the single euro
    currency, reforming the social and pension systems, implementing an
    ambitious privatization program, and creating a more competitive
    business environment. Although Austria's economy has become
    considerably more liberal and open, foreign investors as well as local
    businesses must still cope with rigidities, barriers to market entry,
    and an elaborate regulatory environment in some sectors.
    2. Exchange Rate Policies
        As one of the twelve 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 government's goal is to
    balance the consolidated public sector budget by 2002, offsetting the
    slight federal deficit with a regional and local government surplus.
    The Austrian National Bank (ANB) is a member of the European System of
    Central Banks (ESCB) and supports the ECB's focus on maintaining price
    stability in formulating exchange rate and monetary policies. On
    December 31, 1998, the exchange rate for the euro was fixed at Austrian
    schillings (AS) 13.7603.
        In 2000, the euro, and with it the Austrian schilling, lost
    considerable ground against the dollar. In 2001, the dollar continued
    to rise further against the schilling parallel to its rise against the
    single euro currency.
    3. Structural Policies
        Austria's 1995 accession to the EU forced the government to
    accelerate structural reforms and open the economy, removing many
    nontariff barriers to merchandise trade and fully liberalizing cross-
    border capital movements.
        While the government continues to be a major player in the economy,
    government spending (federal, provincial and local governments plus
    social security, but excluding parastatals) fell to 52.4% of GDP in
    2000 from 57.4% 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's plans for a balanced total public
    sector budget and privatization should reduce this share further. In
    May 2000, Parliament passed a law establishing a legal framework for
    privatization of remaining government shareholdings. Meanwhile, the
    government has sold all its shares in the Postal Savings Bank, Vienna
    airport company, Austria tobacco company, and Dorotheum auction house
    and bank, and a majority in Telekom Austria. The government will also
    review full privatization of its shareholdings in already partly
    privatized companies, including Austrian Airlines, OMV petroleum
    company and Voest-Alpine steel. A stated policy of ``maintaining the
    Austrian interest'' in banks and basic industries has so far not had
    any real effect. Foreign investors have been successful in obtaining
    shares in important Austrian industry sectors, for example the banking,
    telecom and energy sectors.
        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 is now open to
    competition, but more so in mobile than in fixed-line telephony,
    including Internet service. The government also moved ahead with the
    liberalization of the highly centralized and virtually closed
    electricity market. All customers are allowed to choose their
    electricity supplier as of October 2001. However, federal, state, and
    local governments maintain control of the electricity distribution
    grid. The federal government is likely to keep its 51 percent majority
    in the federal power company ``Verbund'' because selling these shares
    requires a two-thirds majority in Parliament. Preparations are also
    under way to liberalize the natural gas market in 2002.
        In past years, the government has cut red tape to make Austria more
    attractive for investors. Procedures for investors to obtain necessary
    permits and other approvals have been streamlined and the time for
    approvals cut considerably. However, approval for larger projects can
    still be burdensome and lengthy. The government's plans for
    implementing ``one-stop-shopping'' for all necessary permits, even
    online, have not yet made much progress, in part due to jurisdictional
    problems. Other measures planned to improve the business climate and
    stimulate entrepreneurial activity include the reduction of non-wage
    costs for labor, strengthening the equity market for small- and medium-
    sized enterprises, reducing the number of laws and regulations for
    business, drafting a new company law, reforming the Business Code to
    liberalize establishing new businesses, allowing more flexible work
    hours, and more liberal shopping hours. So far, progress in all these
    areas is limited.
    4. Debt Management Policies
        Austria's external debt management has had no significant impact on
    U.S. trade. At the end of 2000, the Austrian federal government's
    external debt amounted to $15.4 billion, 14 percent of the government's
    overall debt, and consisted of 93 percent bonds and 7 percent credits
    and loans. Debt service on the federal government's external debt
    amounted to $2.6 billion in 2000, or 1.4 percent of GDP and 2.8 percent
    of total exports of goods and services. The total public sector
    external debt in 2000 was not significantly higher than the federal
    government's external debt. Total gross public debt was 62.9 percent of
    GDP at the end of 2000 and, thus, still above the 60 percent ceiling
    set under the Maastricht convergence criteria. Republic of Austria
    bonds are rated AAA by recognized international credit rating agencies.
    5. Significant Barriers to U.S. Exports
        The United States is Austria's largest non-European trading
    partner, contributing 5.5 percent of Austria's total 2000 imports. The
    United States was Austria's third largest supplier worldwide after
    Germany and Italy. 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. A
    GATT member since 1951, Austria is a signatory to the successor WTO.
        Import License Requirements: The EU, and therefore Austria,
    requires import licenses for a number of products, first and foremost
    for agricultural and health products on health grounds. In general, an
    Austrian importer must possess an export license from the supplier
    country and then obtain permission to import from the Austrian
    authorities.
        Separate from the issue of licensing is the issue of approval of
    pharmaceuticals for reimbursement under Austrian health insurance
    regulations. The Austrian social insurance association, ``Hauptverband
    der Sozialversicherungstraeger,'' decides which products are approved
    for reimbursement by health insurance plans. Pharmaceuticals not
    approved by the Hauptverband have higher out-of-pocket costs for
    patients. Therefore U.S. innovative pharmaceutical companies have
    complained that difficulty placing products on the list of reimbursable
    products amounts to a market access restriction. The United States and
    Austria are discussing this issue under Informal Commercial Exchange
    (ICE) talks.
        Various agricultural products are banned from the Austrian market
    for the same reasons. 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. The Austrian
    government, moreover, has ruled out a lifting of the ban in the near
    future. Further, the EU has not approved any U.S. poultry plants,
    ruling out the possibility of importing U.S. poultry, or products
    containing poultry. Finally, the EU has not approved most genetically
    modified plants available in the United States; 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
    Austrian government went well beyond EU requirements in ordering corn
    to be plowed under in 2001 when it was found to contain adventitious
    trace amounts of EU-approved GMO varieties. A more detailed discussion
    of these and other EU-wide barriers can be found in the country report
    for the European Union.
        Service Barriers: Providers of financial services such as insurance
    and banking have to meet reciprocity requirements, and at least one
    manager of each branch or subsidiary must have residence in Austria.
    Providers of legal services must submit specific proof of their
    qualifications, such as university education or number of years of
    practice. Potential health and social services providers are subject to
    an economic test and must obtain a business permit from the local
    governments. Travel agencies and tour operators require a proof of
    qualification and must be listed with the Austrian Ministry of
    Economics. 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.
        Several competitors now offer fixed-line telephone service over
    Telekom Austria lines, which, however, still dominates fixed-line
    service over the ``last mile.'' The telecommunications' control
    authority issued an order for unbundling of the local loop in September
    2000. Competitors are supposed to negotiate with the incumbent Telekom
    Austria regarding conditions of local loop access, and will have
    recourse to the telecoms' control authority if they cannot reach
    agreement with the dominant carrier. ``Third generation'' mobile
    telephony licenses were issued in December 2000.
        Labeling requirements: Information is required for most, and all
    wrapped, foodstuffs identifying the composition of the product, the
    manufacturer, methods of storage and preparation, and the quantity.
    Other important requirements include washing instructions on textiles,
    and certification of safety (the CE mark) on machines, toys, and baby
    accessories.
        Investment barriers: Austria is in compliance with WTO Trade
    Related Investment Measures (TRIMS) agreement notification. There are
    limited restrictions on foreign investment in Austria with regard to
    sectors. However, at least one manager must meet residency and other
    legal qualifications. Non-residents must appoint a representative in
    Austria. Although not required in order to gain access to tax
    incentives, performance requirements may be imposed when foreign
    investors seek financial or other assistance from the Austrian
    government. The Residence Law and the Foreign Workers Employment Law
    exempt skilled U.S. labor (e.g., managers and their dependents) from an
    increasingly restrictive quota system for residence permits.
        Foreign and domestic private enterprises are free to establish,
    acquire, and dispose of interests in business enterprises, with the
    exception of railroads, some utilities, and state monopolies. As the
    government continues to pursue privatization, some of these industries
    are gradually being opened up to private investment as well. In July
    2001, a law on terrestrial private television was adopted that allows
    foreign investments in this area for the first time.
        The Austrian electricity market was fully liberalized for consumers
    and foreign investors in October 2001, but the majority shares of the
    Austrian suppliers remain in the hands of various levels of government.
    In October 2002, the gas market will be completely opened up as well.
    Overall costs in Austria are similar to those in France and Italy,
    lower than in Germany and Japan, but higher than in the United States,
    Canada, and the U.K.
        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. In defense contracts, offset
    agreements are common practice. U.S. firms have reported experiencing a
    strong pro-EU bias in government contract awards, and a similar pro-EU
    bias (in some instances an even more narrow call for ``Austrian
    solutions'') has also appeared to play a role in some privatization
    decisions. In a recent procurement case, however, the U.S. firm
    Sikorsky was able to secure a major contract for ``Blackhawk''
    helicopters over European competitors, in a hard-fought competition in
    which offsets were a major factor.
        Customs Procedures: There are no particularly burdensome
    procedures. However, in compliance with the EU Generalized System of
    Preferences, a customs declaration must be made in order to bring goods
    from a third country to Austria. Depending on the product and the
    country of origin, specific evidence must be included.
    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. Some export
    promotions, however, fall under the category ``development aid.'' The
    Austrian Kontrollbank (AKB), Austria's export financing agency,
    administers the government's export guarantees. Credits under the AKB's
    export financing scheme are provided in conformity with the rules of
    the OECD Arrangement on Guidelines for Officially Supported Export
    Credits (``Consensus''). The AKB publishes conditions and eligible
    country lists, but they are far from transparent. The Finance Ministry
    hired a private consultancy firm to review whether comprehensiveness
    and a proper risk analysis are guaranteed in connection with the AKB's
    assumptions of liabilities.
    7. Protection of U.S. Intellectual Property
        The legal system protects registered interests in intellectual
    property rights, including patents, trademarks, and copyrights. Austria
    is a party to the World Intellectual Property Organization and several
    international intellectual property conventions, such as the European
    Patent Convention, the Paris Industrial Property Convention, 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 the World Trade Organization Treaty on
    Intellectual Property (WTO TRIPS) negotiations, Austria prefers the
    ``first-to-file'' and not the U.S.-favored ``first-to-invent''
    principle. Further, initiatives should be encouraged to promote trade
    of property protected by copyright, according to Austrian negotiators.
        Patents: In compliance with the WTO TRIPS agreement obligations,
    Austria extended patent terms on inventions to 20 years after
    application. However, the Parliament has delayed the decision on a
    patent law amendment that would have implemented the 1998 EU guideline
    on the protection of biotechnological inventions. This amendment would
    strengthen regulations on patent offences and compensation, and the
    obligations to give information.
        Copyrights: The 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. In 2001, Austria, in line with EU requirements,
    implemented a law against product piracy to prevent trade in
    counterfeit goods. A special problem under Austrian copyright law is
    that ``tourist establishments'' (hotels, inns, bed and breakfast
    establishments, etc.) may show cinematographic works or other
    audiovisual works, including videos, to their guests without prior
    authorization from the copyright holder. The United States holds this
    provision to be inconsistent with Austria's obligations under the Berne
    Convention and TRIPS. Austrian copyright law also requires that a
    license fee be paid on imports of home video and DVD cassettes and
    broadcasting transmissions. Of these fees, 51 percent are paid into a
    fund dedicated to social and cultural projects. In the view of the
    United States, the copyright owners should receive the revenues
    generated from these fees and any deductions for cultural purposes
    should be held to a minimum.
        New Technologies: Due to the alleged possibility of patenting
    genes, plants and animals, Austria is reluctant to implement the EU
    directive 98/44/EG on the protection of biotechnological inventions.
    The delay may infringe U.S. investments. Content piracy on the Internet
    is another growing problem although the copyright law is fully
    applicable in this regard. However, the Austrian courts are hesitant to
    enforce the law against the pirates.
        U.S. investors are entitled to the same kind of protection under
    Austrian patent and copyright legislation as are Austrian nationals.
    Intellectual property problems do not specifically affect U.S. trade.
    Austria was not mentioned in the U.S. government's ``Special 301''
    review in 2000.
    8. Worker Rights
        a. The Right of Association: Workers have the constitutional right
    to form and join unions without prior authorization. All 12 sectoral
    unions belong to the Austrian Trade Union Federation (OGB), which has a
    highly centralized leadership structure that does, de facto, not allow
    other unions to thrive. Although the right to strike is not provided
    explicitly in the Constitution, it is universally recognized. Labor
    participates in the ``social partnership,'' in which the leaders of
    Austria's labor, business, and agricultural institutions jointly try to
    influence legislation on social and economic issues. Under the current
    government their impact is decreasing.
        b. The Right to Organize and Bargain Collectively: Unions have the
    right to organize and bargain collectively. Almost all large companies,
    private or state-owned, are organized. Worker councils operate at the
    enterprise level, and workers are entitled by law to elect one-third of
    the members of supervisory boards of major companies. Collective
    agreements covering wages, benefits and working conditions are
    negotiated exclusively by the OGB with the National Economic Chamber
    and its associations, which represent the employers. All workers except
    civil servants are required to be members of the Austrian Chamber of
    Labor, a public body that is enabled to act for workers' rights along
    with the OGB.
        c. Prohibition of Forced or Compulsory Labor: Forced or compulsory
    labor is prohibited by law, and this prohibition is enforced
    effectively. Trafficking in women for the purpose of forced
    prostitution, however, remains a problem.
        d. Minimum Age for Employment of Children: The minimum legal
    working age is 15. The law is enforced effectively.
        e. Acceptable Conditions of Work: There is no legally mandated
    minimum wage. Instead, nationwide collective bargaining agreements set
    minimums by job classification for each industry. Workers as well as
    the jobless are entitled to a variety of generous social benefits that
    guarantee a high standard of living on average. Over half of the
    workforce works a maximum of either 38 or 38.5 hours per week, although
    the legal workweek has been established at 40 hours. The Labor
    Inspectorate ensures the effective protection of workers by requiring
    companies to meet Austria's extensive occupational health and safety
    standards. Slight differences between blue collar and white collar
    workers with regard to health care were further reduced in 2000.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  1,114
      Food & Kindred Products...  39           .............................
      Chemicals & Allied          73           .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    131          .............................
       Equipment.
      Electric & Electronic       403          .............................
       Equipment.
      Transportation Equipment..  228          .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  592
    Banking.....................  ...........  1,601
    Finance/Insurance/Real        ...........  126
     Estate.
    Services....................  ...........  164
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  3,676
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    BELGIUM

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP (at current prices) \2\..       222        230      230.3
      Real GDP Growth (pct) \3\............       1.5        2.8        2.0
      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
        Manufacturing......................      17.8        N/A        N/A
        Government.........................       N/A        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\........    24,598     22,519     22,578
      Labor Force (000s)...................     4,514      4,558      4,596
      Unemployment Rate (pct)..............       8.8        7.0        7.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............       5.5        5.5        N/A
      Consumer Price Inflation.............       1.1        2.7        2.2
      Exchange Rate (BF/US$--annual             37.48      43.66       45.5
       average)............................

    Balance of Payments and Trade:
      Total Exports FOB \5\................     179.2      186.1      204.5
        Exports to United States \6\.......       8.2        9.0        9.0
      Total Imports CIF \5\................     164.9      173.0      194.2
        Imports from United States \6\.....      12.3       13.9       12.5
      Trade Balance \5\....................      14.3       13.1       10.3
        Balance with United States \6\.....       4.1        4.9       -3.5
      Current Account/GDP (pct)............       4.1        4.5        5.5
      External Public Debt.................      11.2        7.5        N/A
      Fiscal Deficit/GDP (pct).............      -0.9       -0.5        0.2
      Debt Service Payments/GDP............       N/A        N/A        N/A
      Aid from United States...............         0          0          0
      Aid for All Other Sources............         0          0          0
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on monthly data available in
      October 2001.
    \2\ GDP at factor cost.
    \3\ Percentage changes calculated in local currency.
    \4\ At 1985 prices.
    \5\ Merchandise trade. Government of Belgium data.
    \6\ FAS.

    Source: U.S. Department of Commerce and U.S. Census Bureau.

    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 2 percent. Belgium ranked as the twelfth-largest trading
    country in the world in 2000, with exports and imports each equivalent
    to about 75 percent of GDP. More than eighty percent of Belgium's trade
    is with other European Union (EU) members. Eight 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 eight 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 three 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 2002 budget is projected to
    be balanced and continues the debt reduction policies with the aim of
    achieving a debt/GDP ratio making substantial progress towards the 60
    percent of GDP Maastricht benchmark (from 106.8 percent of GDP in 2001
    to 103.7 percent in 2002).
        Economic growth this year is mainly created through domestic
    demand, driven by higher consumer and producer confidence. Wage costs
    seem to be under control, but unemployment is expected to go up again
    after reaching a 10-year low in the middle of 2001. However, the seven
    percent is an average figure which glosses over significant
    differences, both between demand and supply as well as between regions.
        Belgium's unemployment situation improved slowly last year.
    Standardized EU data put Belgium's unemployment rate at seven percent
    in June 2001, slightly below the EU's average. For 2002, unemployment
    is expected to go up again. However, strong regional differences in
    unemployment rates persist, with rates in Wallonia and Brussels being
    two to three times higher than in Flanders. 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 slow
    down considerably in 2001 and 2002, as over-investments and risk-
    aversion put limits on the recovery (and hence profits) of the
    corporate sector. Sectors that are expected to perform relatively well
    in this downturn of the business cycle are energy, pharmaceuticals, and
    distribution.
                Government Role in the Economy
        Since 1993, the Belgian government has privatized BF 280 billion
    worth of public sector entities. In 2000, the government did not raise
    any further money through privatization, although it is now actively
    pursuing public private partnerships (PPPs). Further privatization of
    the last two enterprises with a strong public sector stake, Sabena (if
    it emerges from its current bankruptcy) and Belgacom, will probably
    occur before the end of this coalition's term, i.e. 2003.
                Balance of Payments Situation
        Belgium's current account surplus stagnated in 2000: at 4.1 percent
    of GDP, it was well above the EU average of 1.5 percent of GDP, and one
    of the largest in the OECD area. However, during the first half of
    2001, the surplus was reduced from euro 3.23 billion one year ago to
    euro 2.4 billion. This decline can be largely attributed to a slowdown
    in exports due to the deteriorating international business cycle.
    Imports were relatively stable in this period because of sustained
    consumer confidence and exchange-rate movements. Another cause of the
    decline were the reduced incomes from Belgian foreign investments,
    mainly in the U.S. capital markets.
                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.
    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: The top marginal rate on wage and salary income is 55
    percent. Corporations (including foreign-owned corporations) pay a
    standard income tax rate of 33 plus a three percent so-called crisis
    tax. This is a reduction from the previous 41 percent rate. 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 36 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. In 2000, the federal government announced several measures aimed
    at gradually reducing the personal income taxes. However, the impact of
    these will only be measurable before the next general elections in
    2003. 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 six 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. Discussions on this subject between industry
    representatives and the Belgian government may lead to tangible
    improvements.
    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 eight 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 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 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: 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 six 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. Discussions on this subject have been going on between industry
    representatives, the U.S. Embassy and the Belgian government for
    several 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.
        Within the European Union, the European Commission has authority
    for developing most aspects of EU-wide external trade policy, and most
    trade barriers faced by U.S. exporters in EU member states are the
    result of common EU policies. Such trade barriers include: the import,
    sale and distribution of bananas; restrictions on wine exports; local
    (EU) content requirements in the audiovisual sector; standards and
    certification requirements (including those related to aircraft and
    consumer products); product approvals and other restrictions on
    agricultural biotechnology products; sanitary and phytosanitary
    restrictions (including a ban on import of hormone-treated beef);
    export subsidies in the aerospace and shipbuilding industries; and
    trade preferences granted by the EU to various third countries. A more
    detailed discussion of these and other barriers can be found in the
    country report for the European Union.
    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 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 36 to 33 percent in one year, still representing a loss of $520
    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 nonassignability 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 United
    States, 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: The Community Patent Convention has only been ratified by
    Germany and Greece, and so a single European patent does not yet exist.
    In the meantime, the patent applicant can choose between a national and
    a multiple-country patent. A patent thus granted is valid in Belgium
    only when a copy of the grant is in one of Belgium's three national
    languages and is filed with the Belgian Office of Industrial Property.
    To obtain a national patent in Belgium, the inventor or his/her
    assignee must file a request with the Office of Industrial Property in
    the Ministry of Economic Affairs. Officially, the Belgian Patent Office
    cannot refuse to grant anyone a patent. Normal Belgian patents last for
    six years, and those who require a twenty year patent must request a
    ``Novelty and Non-Obvious Search.'' Once granted, the patent is
    registered with the Register of Patents, again located in the Ministry
    of Economic Affairs. However, the validity of the Patent is not
    guaranteed. The Belgian courts have the power to nullify a patent if
    the court feels that the patent does not meet the Novelty and Non-
    obvious specifications.
        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. Truckers, 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 6.4 percent for the 2000-2002 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 BF 47,265 ($1,074); 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  -164
    Total Manufacturing.........  ...........  7,346
      Food & Kindred Products...  1,018        .............................
      Chemicals & Allied          4,558        .............................
       Products.
      Primary & Fabricated        143          .............................
       Metals.
      Industrial Machinery and    206          .............................
       Equipment.
      Electric & Electronic       312          .............................
       Equipment.
      Transportation Equipment..  229          .............................
      Other Manufacturing.......  880          .............................
    Wholesale Trade.............  ...........  1,828
    Banking.....................  ...........  543
    Finance/Insurance/Real        ...........  4,024
     Estate.
    Services....................  ...........  2,996
    Other Industries............  ...........  -163
        Total All Industries....  ...........  16,409
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                    BULGARIA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................      12.4         12         13
      Real GDP Growth (pct)................       2.4        5.8          5
      GDP by Sector: \3\
        Agriculture........................       1.9        1.5        N/A
        Manufacturing......................       2.9        2.9        N/A
        Services...........................       6.1        6.1        N/A
        Government.........................       3.8        3.3        N/A
      Per Capita GDP (US$).................     1,510      1,459      1,634
      Labor Force (000s)...................     3,819      3,831      3,823
      Unemployment Rate (pct) \4\..........      13.8       18.1       16.8

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............       5.3       15.7       15.6
      Consumer Price Inflation.............       6.2       11.4        3.4
      Exchange Rate (Leva/US$ annual
     average): \5\
        Official...........................       1.8        2.1        2.2
        Parallel...........................       N/A        N/A        N/A

    Balance of Payments and Trade:
      Total Exports FOB....................       4.0        4.8        5.1
        Exports to United States (US$             147        189        225
         millions) \6\.....................
      Total Imports CIF....................       5.1        5.9        6.5
        Imports from United States (US$           194        191        215
         millions) \6\.....................
      Trade Balance........................      -1.1       -1.2       -1.4
        Balance with United States (US$           -47         -2         10
         millions) \6\.....................
      External Public Debt.................       9.4        9.2        8.2
      Fiscal Deficit/GDP (pct).............       0.9        1.1        1.5
      Current Account Balance/GDP (pct)....      -5.4       -5.8       -5.2
      Debt Service Payments/GDP (pct)......       8.4        9.8        9.9
      Gold and Foreign Exchange Reserves...       3.5        3.4        3.2
      Aid from United States (US$ millions)      38.8       64.6       51.1
       \7\.................................
      Aid from All Other Sources (euro          113.6       93.7        277
       millions) \8\.......................
    ------------------------------------------------------------------------
    \1\ 2001 figures are annualized Bulgarian National Bank (BNB) estimates
      based on six to nine months of historical data, unless otherwise
      stated. All are calendar years. Figures for 1999 and 2000 are
      official.
    \2\ GDP and GDP per capita as measured in U.S. dollars declined between
      1999 and 2000 due to changes in the exchange rate.
    \3\ Sectoral GDP data is unavailable, but gross value added by sector is
      provided for 1999 and 2000.
    \4\ Annual average.
    \5\ The CBA is pegged to the EUR. Therefore, the exchange rate reflects
      the EUR/$ rate. Parallel exchange rate does not exist in Bulgaria as
      exchange rates were liberalized in February 1991, according to the
      BNB.
    \6\ For January to June 2001, exports to the United States were $131
      million; imports amounted to $119 million. Source: National Statistics
      Institute.
    \7\ Both U.S. Agency for International Development (USAID) and
      Department of Defense (DOD) provided assistance. For Fiscal 2001,
      USAID assistance includes $36 million in Southeast Europe enterprise
      Development (SEED) money, primarily for economic restructuring,
      democracy building, support for the social sector, and improving laws
      and law enforcement. For Fiscal 2001, total DOD assistance is
      projected at $15.1 million. For Fiscal 2000, total DOD assistance
      totaled $6.8 million ($10.4 million in Fiscal 1999).
    \8\ Assistance provided by the European Union. The Phare program
      extended 865.5 million euro between 1989-1999. From 2000 onwards, EU
      assistance includes two new programs: Instrument for Structural
      Policies for Pre-Accession (ISPA) providing between 83 million and 125
      million euro and Special Accession Program for Agriculture and Rural
      Development (SAPARD) providing 52 million euro.

    1. General Policy Framework
        Parliamentary elections in June 2001 resulted in the defeat of the
    government of Prime Minister Ivan Kostov and his Union of Democratic
    Forces (UDF) and its replacement by a coalition government led by
    former king (now Prime Minister) Simeon Saxe-Coburg. The coalition
    consists of the newly-formed National Movement Simeon II (NMSS), which
    holds exactly half of the seats in the National Assembly, and the
    predominantly ethnic-Turkish Movement for Rights and Freedoms (MRF).
    Despite its substantial progress on far-reaching economic reform,
    Kostov's government fell due to popular discontent with persistently
    high unemployment, low incomes, and perceived corruption. The new
    government is committed to maintaining stable macroeconomic policies,
    continuing privatization, attracting foreign investment, and achieving
    membership in NATO and the EU. Key economic portfolios in the new
    government are held by young, Western-trained and -experienced
    reformers.
        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 (CBA),
    which succeeded in stabilizing the economy. The 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. The BNB can only
    refinance commercial banks in the event of systemic risk to the banking
    system.
        In August 2001, the government proposed an economic program
    including: elimination of tax for reinvested business profits,
    reduction in individual income tax rates, a 17 percent boost in the
    minimum wage to 100 leva ($47) per month, doubling the child subsidy to
    $7.50 per month, hikes in residential energy prices, reform of customs
    to improve collection and fight corruption, reform and centralization
    of the privatization process, cuts in administrative personnel, and a
    business loan fund. During negotiations on a new stand-by agreement the
    IMF expressed concern over the potential loss of tax revenue and wants
    the government to maintain a budget deficit of less than 0.5 percent of
    GDP. With a potentially worsening international economic situation
    following the September 11 events, the government is reducing its
    growth estimates, facing less flexibility in policy choices, and
    reportedly scaling back its tax cut proposals.
        In 2000, the government ran a budget deficit of 1 percent of GDP, a
    figure expected to rise slightly to 1.5 percent of GDP in 2001 due to
    the government's tax policy aimed at stimulating higher economic growth
    and job creation coupled with increases in civil servants' wages and
    pensions. Between January and September 2001, the government ran a
    budget deficit of BGN 182 million or about 0.6 percent of the projected
    2001 GDP. Foreign investment inflows rose to a record US$1.0 billion in
    2000. With delays in some large privatization deals, foreign direct
    investment amounted to US$ 410 million in the first half of 2001. The
    economy as a whole grew by a faster-than-expected 5.8 percent in 2000.
    In addition, the true size of the economy is as much as 20 to 30
    percent larger than that reported by official statistics, which do not
    include the informal or shadow economy. However, economic growth,
    particularly in Bulgaria's private sector, has not been rapid enough to
    prevent a rise in unemployment, which reached 18 percent in 2000. The
    Bulgarian government projects sustained economic growth of four to five
    percent annually over the next few years. In the first half of 2001,
    GDP grew by 4.8 percent over the same period in 2000.
        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. Bulgaria's association agreement
    with the European Union (EU) took effect January 1, 1994, and Bulgaria
    began 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 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.
        Most commercial banks are licensed to conduct currency operations
    abroad. Companies may freely buy foreign exchange for imports from the
    interbank market. 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 liberalized its foreign currency laws effective January 1,
    2000. Bulgarian and foreign citizens may take up to BGN 5,000 ($2,200)
    or an equivalent amount of foreign currency out of the country without
    declaration. Regulations allow foreign currency up to BGN 20,000
    ($8,700) to be exported upon written declaration. Transfers exceeding
    BGN 20,000 must have the prior approval of the BNB. Foreigners are
    permitted to export as much currency over the foreign currency
    equivalent of BGN 20,000 as they have imported into Bulgaria without
    prior approval. All these regulations remain in effect as of October 1,
    2001.
    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 have hindered private
    business development. The government completed a review of licensing
    regimes and eliminated about 100 of these requirements in 2000. In
    April 2001, parliament amended the Law on International Commercial
    Arbitration to allow an international arbiter to participate in
    arbitration when a foreign-owned company is involved. However, the
    court would be in Bulgaria.
        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. The privatization process has commenced for a
    number of large enterprises, including the Bulgarian Telecommunications
    Company, the state insurance company (DZI), a tobacco manufacturer
    (Bulgartabak), and others. As of September 2001, the Government of
    Bulgaria had sold approximately 79 percent of state assets destined for
    privatization. All banks except the State Savings Bank have either been
    sold or are in the privatization process. Parliament is expected to
    pass by the end of November 2001 a new Privatization Act aimed at
    increasing transparency, openness and effectiveness of the
    privatization process. This Act is expected to make all remaining SOEs
    (about 1,783 valued at 25 billion leva) available for privatization
    with the exception of some strategic enterprises such as the nuclear
    power plant (Kozloduy) and Bulgargas. The Act is also expected to
    abolish the existing privatization technique of negotiations with
    potential buyers, mandate privatization only through auctions and
    tenders, and eliminate all preferences in favor of controversial
    management-employee buyouts (MEBOs).
        Bulgaria taxes value added, profits and income, and maintains
    excise and customs duties. In 1999, the government reduced the Value
    Added Tax (VAT) by two percentage points to 20 percent and the profits
    tax for large businesses by three percentage points to 27 percent. In
    2000, the profits tax for large businesses was further reduced by two
    percentage points, the amount of non-taxable income for individuals was
    increased and voluntary VAT registration for businesses with turnover
    from BGN 50,000 to BGN 75,000 was introduced. In 2001, the government
    further cut the corporate profit tax rate, personal income tax and
    social security contribution rates by five percentage points, two
    percentage points and three percentage points, respectively.
    4. Debt Management Policies
        Bulgaria's democratically-elected government 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 2001, gross external debt amounted to $9.96
    billion and the Bulgarian government projects the debt to remain within
    the same range by the end of 2001. While debt to commercial creditors
    accounted for 58 percent of the total external debt, debt to official
    multilateral and bilateral creditors stood at 36 percent. In the coming
    years, the government hopes to reduce the ratio of foreign debt to GDP
    to 60 percent (derived from the Maastricht Criteria, but not an actual
    requirement for joining the EU or EMU), as a result of projected
    economic growth, limited net borrowing needs, and better debt
    management. The Bulgarian government has asked Paris Club creditors to
    swap official debt for infrastructure and environment projects.
        Under the Extended Fund Facility (EFF), the IMF provided credits of
    about US$814 million. The government has sought additional external
    financing from the World Bank, the European Union, and other donors.
    World Bank lending to date comprises 27 projects for a total value of
    US$1.5 billion. In 1999, the World Bank disbursed a second FESAL of
    US$100 million and approved an Agricultural Structural Adjustment Loan
    worth US$75 million. In 2000, the World Bank approved an Environment
    and Privatization Support Adjustment Loan of US$50 million and Health
    Sector Reform Loan of US$63 million. Two new loans, an Education
    Modernization Loan of US$14 million and a Child Welfare Reform Loan of
    about US$8 million, became effective in 2001.
        According to the Ministry of Finance, at the end of July 2001
    aggregate government foreign debt, excluding guarantees, was US$
    8,176,400,000. Guarantees amounted to US$502.7 million. 64.7 percent of
    total debt and 67.3 percent of foreign debt were denominated in U.S.
    dollars, according to the Finance Ministry. In addition, 73.4 percent
    of foreign debt had floating interest rates.
    5. Significant Barriers to U.S. Exports
        Bulgaria acceded to the World Trade Organization in 1996. Bulgaria
    acceded to the WTO Plurilateral Agreement on Civil Aircraft and
    committed to sign the Agreement on Government Procurement, though it
    has not yet done so. Bulgaria ``graduated'' from Jackson-Vanik
    requirements and was accorded unconditional Most Favored Nation
    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 many
    U.S. companies. In July 2000 a bilateral agreement between the EU and
    Bulgaria came into force, reducing duties on some EU farm products to
    zero. 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 and a free
    trade agreement with Macedonia entered into force in January 2000.
        In 1999, 2000, and 2001 average Bulgarian import tariffs were
    reduced significantly, and the government has committed to a further
    round of reductions in average most-favored-nation tariff rates.
    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 zero to 30 percent (average tariff on industrial products is
    equivalent to 10 percent) and from about zero to 74 percent for
    agricultural goods (average tariff on agricultural goods is equivalent
    to 22 percent). In December 1998, Parliament revoked exemption from 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 were 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.
        The State Agency 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. This agency
    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.
        Bulgaria is making an effort to harmonize its national standards
    with international standards. Bulgaria is a participant in the
    International Organization for Standardization and the International
    Electrotechnical Commission. Bulgaria is in the process of harmonizing
    80 percent of its standards to European standards, in anticipation of
    joining the European Union. As of October 2001, Bulgaria has adopted
    3,500 EU standards representing 40 percent of all applicable EU
    standards. Under the 1999 National Domestic Standards Act, all domestic
    standards are no longer mandatory. The major requirements for the
    safety of products are regulated in ordinances issued by the separate
    ministries in compliance with the respective EU directives. Bulgarian
    authorities expect to adopt 80 percent of the applicable EU standards
    by 2005.
        All imports of goods of plant or animal origin are subject to
    European Union phytosanitary and veterinary control standards, and
    relevant certificates should accompany such goods. However, Bulgarian
    authorities have modified their national regulations to accept U.S.
    Department of Agriculture certificates.
        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. The government does provide concessionary finance to
    agricultural producers for purchase of equipment and farming inputs.
    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. Bulgarian legislation in this
    area is considered to be among the most modern in Central and Eastern
    Europe. Amendments to the Law on Copyright and Neighboring Rights
    adopted in March 2000 extended copyright protection to 70 years, and
    introduced a new neighboring right for film producers, provisional
    measures to preserve evidence of IPR infringement, and special border
    measures. In September 1999, Parliament passed a series of laws on
    trademarks and geographical indications, industrial designs, and
    integrated circuits.
        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. 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, the
    International Convention for the Protection of New Varieties of Plants;
    the Vienna Agreement Establishing an International Classification of
    the Figurative Elements of Marks; the Nice Agreement Concerning the
    International Classification of Goods and Services for the Purposes of
    the Registration of Marks; the Strasbourg Agreement Concerning the
    International Patent Classification; and the Locarno Agreement
    Establishing an International Classification for Industrial Designs. On
    acceding to the WTO, Bulgaria agreed to implement the Agreement on
    Trade-Related Aspects of Intellectual Property Rights (TRIPS) without a
    transitional period. In January 2001, the Bulgarian parliament ratified
    the WIPO ``Internet'' treaties, the WIPO Copyright Treaty and the WIPO
    Performance and Phonograms Treaty.
        Pharmaceuticals manufacturers note that Bulgaria has not introduced
    data exclusivity or supplementary patent protection in line with the
    Agreement on TRIPS and the EU Association Agreement. The industry
    further claims that drug pricing and reimbursement procedures are not
    transparent. These companies also report that enforcement of patent
    rights for their products is ineffective. The Bulgarian government has
    also proposed amendments strengthening protection for pharmaceutical
    tests.
        Software piracy continues to be a problem, although an industry
    legalization campaign, which began in 1999, has made dramatic gains
    against unauthorized software. Local software industry representatives
    report that, with good cooperation from Bulgarian law enforcement
    authorities, the campaign has brought the piracy rate down to
    approximately 80 percent of the market. Thanks to improvements in
    enforcement and the legal regime, audiovisual piracy has decreased
    dramatically since 1998.
        U.S. industries report that lack of effective judicial remedies for
    infringement of intellectual property rights is a barrier to
    investment. U.S. companies have also cited illegal use of trademarks as
    a barrier to the Bulgarian market.
    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 (CITUB) and Podkrepa, which between them
    represent the overwhelming majority of unionized workers. Although
    there are other legally registered unions, only CITUB and Podkrepa have
    the status of ``social partners'' with the right to participate in the
    Tripartite Councils that were strengthened as part of the institution
    of the Currency Board. The unions attained this status through a
    legislated census, the results of which were announced on December
    1998. The next census is scheduled to take place in early 2002.
        The 1986 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 (military, police, energy,
    health-care, post services, and judiciary) 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. Both labor unions challenged the legality of the
    definition of essential services and they have contacted the ILO to
    investigate the legality of blanket restrictions on the right to strike
    for workers in the health, transportation, and energy sectors. The
    Labor Code's prohibitions against antiunion discrimination include a
    six-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. As of September 2000,
    construction battalions in the armed forces have been terminated.
        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 legislation conforms to ILO
    Convention 182, ratified June 17, 2000, by Bulgaria, and EU standards.
    However, low funding and other pressing economic priorities hamper
    effective child labor law enforcement, compilation of adequate
    government statistics, and public awareness campaigns. The shadow
    economy fosters child labor violations. Observers have estimated that
    between 50,000 and 100,000 children under 16 are illegally employed in
    Bulgaria, and the problem appears to be growing due to persistent high
    unemployment and low wages for adults, particularly in rural areas.
        e. Acceptable Conditions of Work: The national monthly minimum wage
    equates to approximately $47. 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, but is
    weaker in the emerging private sector.
        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. The 1998 Law on Safety and Health Conditions
    regulates health and safety standards in the workplace and requires all
    employers to introduce minimum health and safety standards by the end
    of 2001. During this three-year phase-in period, employers that do not
    provide the minimum health and safety standards in the workplace are
    obliged to pay an added remuneration to workers. The Law mandates that
    all factories that do not provide the minimum health and safety
    standards should be shut down and requires 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1
    Total Manufacturing.........  ...........  31
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          0            .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  10           .............................
    Wholesale Trade.............  ...........  0
    Banking.....................  ...........  0
    Finance/Insurance/Real        ...........  0
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  2
        Total All Industries....  ...........  33
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                 CZECH REPUBLIC

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                 1999      2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP (US$ billion) \2\..........    53.06      50.7       54.8
      Real GDP Growth (pct)..................     -0.2       2.9        3.3
      GDP by Sector (pct): \2\
        Agriculture..........................      3.7       3.8        3.9
        Manufacturing........................     26.3      27.8       29.0
        Services.............................     56.8      56.1       56.5
        Government \3\.......................     32.5      33.1       33.5
      Per Capita GDP (US$) \2\...............    5,405     5,004      5.329
      Labor Force (000s).....................    5,170     5,203      5,213
      Unemployment (pct).....................      9.4       8.8        8.5

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)...............      8.1       7.7       10.0
      Consumer Price Inflation...............      2.1       3.9        6.0
      Exchange Rate (CKR/US$):
        Official.............................    34.60     38.59      38.90

    Balance of Payments and Trade: \4\
      Total Exports FOB (USD bill)...........     26.8      29.0       21.6
        Exports to United States.............      0.6       0.8        0.7
      Total imports CIF (USD bill)...........     28.9      32.5       23.9
        Imports from United States...........      1.2       1.4        0.9
      Trade Balance (USD bill)...............    -2.06      -3.5       -2.3
        Balance with United States...........    -0.53     -0.61      -0.28
      Current Account Deficit/GDP (pct)......     -1.5      -4.8       -5.0
      External Public Debt \5\...............     24.3      22.0       23.0
      Fiscal Deficit (Central)/GDP (pct).....      1.6       1.8        9.4
      Debt Service Payments/GDP (pct)........      5.6       8.9        6.8
      Gold and Foreign Exchange Reserves.....     12.8      13.1       14.0
      Aid from United States \6\.............      6.5       6.0        8.9
      Aid from All Other Sources.............      N/A       N/A        N/A
    ------------------------------------------------------------------------
    \1\ Unless stated otherwise, 2001 figures are based on the latest data
      of the Czech Statistical Office (CSO) from September 2001, 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 percent of GDP.
    \4\ January through August 2001 data. 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\ Military aid only, U.S. AID assistance was phased out by September
      30, 1997.

    1. General Policy Framework
        The Czech Republic is a small, open economy with a free and
    competitive market. It is currently recovering from unfinished
    structural reforms problems mainly in the fields of bank privatization,
    industrial restructuring, legal reform, and financial markets
    transparency. Unfinished structural reforms lay at the heart of the
    Czech Republic's severe recession in 1998-1999, which led to an
    economic contraction of 2.3 percent in 1998. Economic recovery has been
    strong in 2000 and 2001, growing at 3.9 percent in the first half of
    2001. However, a growing fiscal deficit and the effects of the
    worldwide slowdown may threaten continued expansion.
        Until 1998, the Government of the Czech Republic pursued balanced
    budgets, incurring only small actual deficits. Budget deficits have
    traditionally been financed through the issuance of government bonds
    purchased by private investors, predominantly commercial banks.
    Economic recession, tax shortfalls, and the Social Democratic
    government's pledge to support a wide range of social welfare and
    investment programs led to a 1999 budget deficit of 1.6 percent of GDP.
    The deficit planned for the 2000 budget (1.8 percent of GDP) grew to
    2.4 percent, and the deficit planned for the 2001 budget (2.4 percent
    of GDP) is currently 9.5 percent of GDP and may continue to grow. The
    2002 budget, under discussion in late 2001, 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 invest $10 million or more in manufacturing 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. The incentives package was further enhanced by
    the new Act on Investment Incentives, effective as of May 1, 2000,
    which codifies, simplifies and extends the original national incentives
    scheme. The investment threshold was lowered to $5 million in regions
    with the unemployment rate at least 25 percent higher than the national
    average and investors in these regions can receive up to 200 thousand
    crowns (US$ 5,000) for each newly created job plus 35 percent of the
    requalification costs, among other improvements.
        The incentives resulted in a strong inflow of foreign direct
    investment ($4.9 billion in 1999, $4.6 billion in 2000, $2.3 billion to
    June 30, 2001), and the trend is expected to continue. Portfolio
    investments in 2001 were $3.7 billion to June 30, 2001.
        The Czech National Bank (CNB) is responsible by law 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 measures including a floating exchange rate, relatively
    high interest rates, and high compulsory bank reserves designed to
    dampen inflation and reduce external imbalances. Monetary policy during
    most of 1998 remained restrictive. In 1999, with the current account
    well on the way to recovery and the exchange rate of the crown
    relatively strong, the central bank, ahead of its inflation target for
    a second year in row, cut interest rates several times. Influenced by
    the government's expansive fiscal policy, increasing consumer demand
    and the possibility of new demands for wages increase in the fall, the
    CNB slightly increased interest rates in 2001. The CNB is likely to
    meet its net inflation target of two to four percent at the end of
    2001.
    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, subject to government
    action on implementing regulations. As of 2000, all capital account
    restrictions were removed except for the purchase of real estate in the
    Czech Republic by foreigners. 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 Russia's 1998 financial
    turmoil. The crown appreciated in value due to significant interest
    rate differentials between the Czech Republic and its major trading
    partners. It has remained strong even after the central bank reduced
    interest rates significantly in 1998 and 1999, as currency traders bet
    on EU convergence. The CNB's recent move against inflation, weakening
    foreign currencies, and expected inflows from privatization have pushed
    the crown to record highs in late 2001.
    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. Detailed accession negotiations began in
    November 1998. Even though the Czech government is striving for full EU
    membership by end 2003, most observers do not anticipate that will be
    achieved prior to 2004 or 2005. As part of the EU accession process,
    many of the Czech Republic's regulatory policies and practices are
    being harmonized with 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 in the business climate for U.S. firms.
        Czech tax codes are generally in line with European Union tax
    policies. According to OECD methodology, in 2000 tax collections
    amounted to 39.5 percent of GDP. In 2000, the government reduced taxes
    on corporate profits from 35 percent to 31 percent. The tax rate for
    the highest personal income tax bracket was lowered to 32 percent.
    Employer and employee social insurance contributions are respectively
    35 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.
        The need for an improved bankruptcy code remains an important
    structural impediment. Most observers believe the slow and uneven
    courts and weakness of creditors' legal rights has hampered the current
    bankruptcy law from acting as an effective vehicle for corporate
    restructuring. Members of Parliament and others have called for a
    bankruptcy law with provisions similar to the U. S. Chapter Eleven or
    ``London Rules'' for out-of-court settlements to encourage
    resuscitation of troubled firms. Several amendments, the latest in
    force as of May 1, 2000, have sought to address these concerns.
    Presently, there is a three to four-year backlog in the bankruptcy
    courts and only a small secondary market for the liquidation of seized
    assets. A complete overhaul of the bankruptcy code is under
    consideration for late 2001.
    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 2000, gross foreign debt measured $22 billion and is not
    expected to change much in 2001. As of June 30, 2001, gross foreign
    debt measured $21 billion, the bulk being the debt of companies ($11.8
    billion) and commercial banks ($8.3 billion). Debt service as a
    percentage of GDP and debt service to exports stand at 7.1 percent and
    8.5 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. The government was considering its first
    issuance of Eurobonds in 2001.
    5. Significant Barriers to U.S. Exports
        The Czech Republic is committed to a free market and maintains an
    open economy with few barriers to trade and investment. It is a member
    of the World Trade Organization (WTO) and of the WTO's Information
    Technology Agreement. The Czech Republic is not a signatory to the
    General Agreement on Tariffs and Trade (GATT) civil aircraft code.
        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. As of 2001, EU industrial products
    enjoy duty-free status. A number of U.S. companies from different
    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 agricultural/food products standards and
    trade legislation. 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 the Czech food legislation with the EU also
    means that certain products currently prohibited in the EU will also be
    prohibited in the Czech Republic. U.S. exporters of beef, poultry, pork
    and horsemeat are not able to ship to the Czech Republic due to
    concerns about special risk materials shared by the EU. In November
    2000, reacting to the EU BSE outbreak, the Czech State Veterinary
    Administration prohibited specific risks' materials usage in pet food,
    and the Animal and Plant Health Inspection Service (APHIS) cannot
    guarantee that U.S. pet food producers meet this requirement. Another
    problem with the pet food certificate is the bacterial testing
    requirement, which is stricter in the Czech Republic than in the EU.
    APHIS is currently in the process of negotiating possible changes to
    the Czech veterinary requirements
        A final bill in line with EU directives to regulate Genetically
    Modified Organisms (GMOs) entered into force January 1, 2001, including
    decrees regulating new GMO varieties for field testing that the Czech
    Republic continues to approve.
        In July 2000, the Czech Republic signed the Protocol on Conformity
    Assessment and Acceptance of Industrial Products (PECA) with the EU,
    which as of January 1, 2001, enables imports of EU industrial products
    without any additional testing. The Czech Republic has refused to
    extend the benefit of this agreement to products produced in the United
    States that meet EU certification requirements.
        American business people often cite a convoluted, bureaucratic
    system (both at national and local levels), which can act as an
    impediment to market access. Often considerable time is required to
    finalize a deal, or enforce the terms of a contract. On occasion,
    European companies have sought 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. A procurement law introduced in 1994 proved
    unsatisfactory. Several revisions aimed at making the law simpler and
    more transparent failed. Recognizing that no amendment will help, the
    Czech Republic is currently working on a brand new procurement law to
    enter force in 2002. The Czech Republic is not a signatory 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 the same, and
    both are subject to the same tax codes. 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
    an OECD member, the Czech Republic committed not to discriminate
    against foreign investors in privatization sales, with only a few
    sectors excepted. 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 enforceable secured interests. 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. 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 5,405 authorized rulings, and in the re-
    licensing process, which is complete, revoked 240 licenses. It has,
    however, been hampered by budgetary constraints and a lack of rule-
    making authority. A new law on the Securities Commission is being
    prepared to improve its status.
        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.
    6. 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.
    7. 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. An amendment providing
    70 years of copyright protection for literary works, up from the
    present 50 years entered into force on December 1, 2000. The Czech
    Republic passed most of its TRIPs-related legislation in 2000 and the
    last commitment, the broadcasting law, entered into force in July 2001.
        As a result of enforcement weaknesses and delays in indictments and
    prosecutions, the U.S. government placed the Czech Republic on its
    Special 301 Watch List during the 1999 cycle. The Embassy continues to
    work with U.S. industry and Czech government officials to improve
    enforcement of IPR norms. Two recent legislative amendments expanded
    the tools for enforcement of IPR. One entered force on December 1,
    1999, and boosts the powers of the customs service to seize counterfeit
    goods. The other, in effect as of September 1, 2000, allows the Czech
    Commercial Inspection (CCI) to act directly in IPR cases. Formerly, the
    CCI could only act in conjunction with the police. As a result of these
    changes, the United States government removed the Czech Republic from
    the Special 301 Watch List in 2001.
    8. Worker Rights
        a. The Right of Association: Czech 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 CzechMoravian Chamber
    of Trade Unions (CMKOS), a democratically oriented, republic-wide
    umbrella organization for member unions. The unions are not affiliated
    with political parties and exercise their 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 to affiliate with and participate in
    international bodies. Union membership, compulsory under the Communist
    regime, has declined since 1990.
        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 potential 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 5,000 Czech crowns per month
    (approximately $132), although the monthly average is 14,018 Czech
    crowns (approximately $369) per month. Average net wages are 2.7 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 40 hours. It also requires paid rest of at least
    30 minutes during the standard 8hour workday, as well as annual leave
    from 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  86
    Total Manufacturing.........  ...........  151
      Food & Kindred Products...  49           .............................
      Chemicals & Allied          42           .............................
       Products.
      Primary & Fabricated        7            .............................
       Metals.
      Industrial Machinery and    15           .............................
       Equipment.
      Electric & Electronic       -88          .............................
       Equipment.
      Transportation Equipment..  136          .............................
      Other Manufacturing.......  -10          .............................
    Wholesale Trade.............  ...........  119
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  (\2\)
     Estate.
    Services....................  ...........  42
    Other Industries............  ...........  35
        Total All Industries....  ...........  802
    ------------------------------------------------------------------------
    \1\ Less than $500,000 (+/-).
    \2\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    DENMARK

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\...................    176,160     162,608     168,000
      Real GDP Growth (pct) \2\ \3\.....        2.1         3.2         1.2
      GDP by Sector: \4\
        Agriculture.....................      4,018       3,693       3,800
        Manufacturing...................     26,030      24,276      25,000
        Services........................     72,261      68,234      70,700
        Government......................     34,214      30,520      31,500
      Per Capita GDP (US$) \2\..........     33,118      30,467      31,360
      Labor Force (000s)................      2,823       2,837       2,844
      Unemployment Rate (pct)...........        5.6         5.3         5.2

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2) (pct)....        2.8        -1.4         2.3
      Consumer Price Inflation (pct)....        2.5         3.0         2.3
      Exchange Rate (DKK/US$ annual
     average):
        Official........................       6.98        8.09        8.09

    Balance of Payments and Trade:
      Total Exports FOB \5\.............     49,679      50,132      55,000
        Exports to United States \5\....      2,774       2,977       3,700
      Total Imports CIF \5\.............     44,669      44,218      47,000
        Imports from United States \5\..      2,131       1,810       2,000
      Trade Balance \5\.................      5,010       5,914       8,000
        Balance with United States \5\..        643       1,167       1,700
      External Public Debt..............     25,072      27,070      22,000
      Fiscal Deficit/GDP (pct)..........       -3.1        -2.8        -2.0
      Current Account Surplus/GDP (pct).        1.7         2.2         3.1
      Debt Service Payments/GDP (pct)...        1.4         1.9         1.7
      Gold and Foreign Exchange Reserves     24,240      15,093      17,000
      Aid From United States............        N/A         N/A         N/A
      Aid From Other Sources............        N/A         N/A         N/A
    ------------------------------------------------------------------------
    Note: Dollar figures are based on mean exchange rate for calendar year.
    \1\ 2001 figures are all estimates based on available data as of October
      5, 2001.
    \2\ Gross Domestic Product in Market Prices.
    \3\ Percentage changes calculated in local currency.
    \4\ GDP measured as ``Gross Value Added by Industry.''
    \5\ Merchandise trade (excluding European Union agricultural export
      subsidies).

    Sources: Danish Bureau of Statistics, Danish Ministry of Economics,
      Danmarks Nationalbank (the Central Bank), and Embassy calculations/
      projections.

    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 that effectively
    links Denmark with the rest of Europe. The Oeresund bridge connecting
    Denmark and Sweden that opened in 2000 is expected to assist the
    Oeresund region to become a center and a gateway that will attract
    significant foreign investment in high-tech industries, including
    biotechnology, pharmaceutical research, and information technology.
    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.
        Despite projected economic growth rates of less than two percent
    annually in 2001 and 2002, the Danish economy is fundamentally strong,
    with comfortable public budget and balance of payments surpluses. In
    addition, the Danish economy, due to its dependence on foreign
    developments, is flexible and ready to adapt rapidly to changed world
    developments. Following the September 11, 2001, terrorist attacks in
    the United States, economic growth projections have been slightly
    reduced and it is the government's hope and goal to avoid a recession.
    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 firmly linking the Danish krone to
    the European Union's (EU) common currency, the euro.
        Developments during the first half of 2001 in some key economic
    indicators (limited growth in private consumption, mostly due to a drop
    in car sales, and a growing surplus on the current account) suggest
    that the government's austerity measures, the ``Whitsun Package''
    introduced in the summer of 1998, remain efficient. The Whitsun
    package, which aimed at curbing private consumption and restoring a
    balance of payments surplus, includes reduction of tax credits for debt
    interest payments in order to discourage new loan taking. The measures
    also aimed 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 will drop from three percent of GDP in 2000 to two percent in
    2001, with a further drop to 1.7 percent projected for 2002. This is
    due to the generally lower economic activity and to new large tax
    deductions for pension funds' losses in 2001 on their stock holdings.
    The inflation rate has dropped from three percent in 2000 to 2.3
    percent in 2001. The inflation is mostly fueled domestically with wage
    inflation running at about four percent.
        Denmark welcomes foreign investment, and is home to close to 300
    subsidiaries of U.S. companies. From 1997 through 1999, U.S. direct
    investment in Denmark almost quintupled to some $11.2 billion (at
    market value using the current DKK/$ exchange rate). Most of the
    increase in U.S. direct investment has been in the form of acquisitions
    of Danish IT and telecom 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's opt-out of the European Monetary Union's (EMU) third
    phase (establishment of a joint EU currency and relinquishment of
    jurisdiction over monetary policy) was maintained in a referendum on
    September 28, 2000, when 53.2 percent of the voters rejected Danish
    participation. Several years are likely to pass before a Danish
    Government will test this opt-out again, although Denmark's economic
    performance is likely to continue to meet the established convergence
    criteria for participating in the EMU's third phase.
    2. Exchange Rate Policy
        Denmark is a member of the European Monetary System (EMS) and its
    Exchange Rate Mechanism (ERM). From the early 1980s until 1999, the
    Government linked the krone closely to the German mark through the ERM,
    and beginning January 1, 1999, (through the ERM2) to the euro. In
    August 2001, the trade-weighted value of the krone was 2.1 percentage
    points higher than in August 2000, due mostly to the krone's
    appreciation against the Swedish krone and the yen. In the first eight
    months of 2001 compared with the same period in 2000, the krone dropped
    some six percent against the dollar (from DKK 7.83 to DKK 8.35 to
    $1.00). Despite this increase in the dollar rate, the krone-value of
    U.S. exports to Denmark (as measured by the Danish Bureau of
    Statistics) in the first seven months of 2001 rose some 10 percent. In
    the same period, Danish exports to the United States benefited from the
    high dollar and increased close to 30 percent in krone-value. The
    development in U.S. exports to Denmark indicates that U.S. exports to
    Denmark in 2000 had reached a base level less sensitive to dollar rises
    3. Structural Policies
        Danish price policies are based on market forces. The Government's
    Competition Agency regulates entities with the ability to fix prices
    because of their market dominance. Denmark, during 1997, changed its
    competition legislation from the former ``control'' principle to the
    internationally recognized ``prohibition'' principle. The law was
    expanded in late summer 2000 to include ``merger control.'' Since 1998,
    the Competition Agency has made raids on some 40 companies and in all
    but one or two found proof of anti-trust violations.
        The highest marginal individual income tax rate, including the
    gross labor market contribution ``tax,'' is about 64 percent, and
    applies to taxable earnings exceeding some $37,600 (2001). Foreign
    executives, earning more than $65,000 annually and foreign researchers
    working in Denmark on a contract may for a period of up to three 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. The government pays most sick leave
    and unemployment insurance costs. Employees pay their contribution to
    unemployment insurance out of their wages, while a large part of
    unemployment benefits is financed from general revenues.
        The Danish United States 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 at present 30 percent and
    favorable depreciation rules and other deductions exist.
    4. Debt Management Policies
        Except for 1998, Denmark has had a balance of payments surplus
    since 1990. Consequently, foreign debt gradually fell from over 40
    percent of GDP in 1990 to some 17 percent at the end of 2000. With a
    projected surplus of more than $5 billion on the balance of payments in
    2001, the foreign debt's share of GDP is projected to fall to some 13
    percent. Net interest payments on the foreign debt in 2000 cost Denmark
    some four percent of its goods and services export earnings. Moody's
    Investors Service and Standard and Poor's give the public domestic debt
    their highest ratings, Aaa and AAA, respectively. For the public
    foreign debt, their ratings are Aaa and AA+.
        From 1999 to 2000, the net foreign debt (public and private)
    increased by some $5 billion to $27 billion, mostly due to a drop in
    the value of foreign stocks held by Danes. At the end of 2000, the
    public sector foreign debt, including foreign exchange reserves and
    krone-denominated government bonds held by foreigners, totaled $22
    billion and the private sector foreign debt $5 billion.
        During 2000, the central government debt denominated in foreign
    currencies dropped five percent to $10.5 billion, of which 93 percent
    was denominated in euros (and none in U.S. dollars). The central
    government foreign debt has an average term of some two years.
        Denmark's central government budget 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 Danish
    Central Bank (Danmarks Nationalbank) 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. The Central Bank closely follows and
    adjusts Danish interest rates in response to European Central Bank
    interest rate adjustments. The Danish discount rate as of October 5,
    2001, stood at 3.75 percent. The Central Bank's lending rate stood at
    4.10 percent, down 1.5 percentage points from late September 2000.
    5. Significant Barriers to U.S. Exports
        Within the European Union, the European Commission has authority
    for developing most aspects of EU-wide external trade policy, and most
    trade barriers faced by U.S. exporters in EU member states are the
    result of common EU policies. Such trade barriers include: the import,
    sale and distribution of bananas; restrictions on wine exports; local
    (EU) content requirements in the audiovisual sector; standards and
    certification requirements (including those related to aircraft and
    consumer products); product approvals and other restrictions on
    agricultural biotechnology products; sanitary and phytosanitary
    restrictions (including a ban on import of hormone-treated beef);
    export subsidies in the aerospace and shipbuilding industries; and
    trade preferences granted by the EU to various third countries. A more
    detailed discussion of these and other barriers can be found in the
    country report for the European Union.
        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, nondiscriminatory
    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. While no U.S. banks are directly represented in
    Denmark, a number of 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 of Denmark liberalized Danish telecommunications
    services in 1997; however, the network, i.e., the raw copper, remained
    controlled by the formerly government-owned Tele Danmark A/S (now known
    as TDC). The large U.S. company SBC Communications (formerly Ameritech)
    holds a controlling interest, 42 percent, of TDC. Access for other
    telecom operators to the raw copper opened in 1999. Sonofon, a
    Norwegian Telenor-controlled cellular mobile telephone network with
    U.S. Bell South participation, competes with TDC in that area. A number
    of foreign operators, including Swedish Telia and French Orange, are
    making strong inroads into the Danish market, which increases
    competition. The Danish Government on September 20, 2001, awarded 3-G
    (UMTS) licenses to four companies, TDC, Telia, Orange, and the Hong
    Kong based HI3G, at a price of $117 million per license.
        Danish government procurement practices meet the requirements of
    the WTO Agreement on Government Procurement (GPA) 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,'' the
    EU ``Ecoaudit'' and the Nordic ``Swan Label'' requirements may be
    difficult for some U.S. companies to meet. In addition, local
    governments to an increasing extent apply ``social'' criteria in their
    procurement, e.g., that companies employ welfare recipients in less
    demanding jobs. The Danish government uses offsets only in connection
    with military purchases not covered by the GATT/WTO code and EU
    legislation. Denmark has no ``Buy Danish'' laws.
        Denmark recently finalized a regulation, which will phase out
    certain industrial greenhouse gases, including hydrofluorocarbons
    (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6). The
    Danish government will phase out import, sale, and use of these gases
    and new products containing them beginning in 2002, with a complete ban
    in effect by January 1, 2006. There are exemptions for certain
    products, including small refrigerating systems containing HFCs,
    medical aerosol sprays, vaccine coolers, and lab equipment, and all
    production for export is exempt. However, specific exemptions are
    temporary in nature (e.g., ``allowed until further notice''). The
    phase-out is part of Denmark's Climate Change strategy, which also
    includes a tax on these gases and products. The U.S. air-conditioning
    and refrigeration industry has complained about the Danish policy,
    saying that it doesn't focus on emissions management, nor does it
    consider the energy efficiency of their products. The regulation has
    also been criticized for exempting exports.
        The Danish government uses offsets 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 $374 million in
    2000, about 10 percent of the value of Danish agricultural exports
    including export subsidies to non-EU countries. Danish government
    support for agricultural export promotion programs is insignificant.
    Denmark has limited direct subsidies for its non-agricultural exports
    except for shipbuilding which, until the end of 2000, benefited from a
    general EU-wide subsidy of nine percent of the contract value. Denmark
    opposes resumption of EU shipbuilding subsidies and would rather see an
    eventual update of the 1994 OECD agreement and subsequent ratification
    by the world's leading shipbuilding nations, including the United
    States. The former shipbuilding subsidies have not prevented the
    closure of many of Denmark's shipbuilders in the face of increased and
    (allegedly unfairly) low-priced production in the Republic of Korea and
    elsewhere.
        The government does not directly subsidize exports by small and
    medium size companies. Denmark does, however, have support programs
    that indirectly assist exports through promotions abroad, establishment
    of export networks for small and medium-sized companies, research and
    development, and regional development.
        Denmark also has a well-functioning export credit and insurance
    system. In its foreign development assistance, Denmark, as a general
    rule, 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
    stopped 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 music 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: In mid-2000, the quasi-official
    Danish copyright collecting agency Copydan entered an agreement with
    the private U.S. Copyright Clearance Center providing for reciprocal
    reimbursement of royalty payments for photocopying of copyrighted
    works. In addition, Denmark in 2001 introduced new legislation which
    resolved a long-standing TRIPS Article 50 issue with the United States
    and which is expected to significantly reduce computer software piracy,
    particularly by private companies. Also in 2001, Denmark introduced a
    new levy on blank music CDs, the proceeds of which will be shared with
    U.S. rightholders in a way similar to the present, but naturally
    declining in value, levy on blank audio tapes.
    8. Worker Rights
        a. The 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. Trade unions are an essential factor in political life
    and represent their members effectively. During 2000, only 124,800
    workdays were lost due to labor conflicts. This compares with the 3.2
    million workdays lost in 1998 in connection with the spring 1998 labor
    contract negotiations (see 8.b below). Greenland and the Faroe Islands
    have the same respect for worker rights, including full freedom of
    association, as Denmark.
        b. The Right to Organize and Bargain Collectively: Workers and
    employers acknowledge each other's 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
    negotiations between the various employers' associations and their
    union counterparts and present contracts range in length from two to
    four years. 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. In 2000, the mediator's proposal for new four-year
    contracts in the industrial area won broad approval. In 2001, contracts
    in the agricultural industry were agreed to between management and
    labor. 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 at present is
    equal to about $9.50 per hour. Danish law provides for five weeks of
    paid vacation each year. However, the most recent private and public
    sector contract agreements provide for five extra holidays to be phased
    in not later than 2003. 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
    workplace 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1,099
    Total Manufacturing.........  ...........  2,340
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          (\1\)        .............................
       Products.
      Primary & Fabricated        28           .............................
       Metals.
      Industrial Machinery and    (\1\)        .............................
       Equipment.
      Electric & Electronic       487          .............................
       Equipment.
      Transportation Equipment..  -13          .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  619
    Banking.....................  ...........  (\2\)
    Finance/Insurance/Real        ...........  1,278
     Estate.
    Services....................  ...........  111
    Other Industries............  ...........  171
        Total All Industries....  ...........  5,618
    ------------------------------------------------------------------------
    \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
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000        2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP (at factor cost) \10\.      128.4       121.4   \1\ 123.2
      Real GDP Growth (pct).............        4.2         5.7     \1\ 2.7
      GDP by Sector:
        Agriculture, Forestry and               4.2         3.8     \1\ 3.8
         Logging........................
        Manufacturing, Construction,           34.3        34.2    \1\ 33.5
         Mining and Quarrying...........
        Electricity, Gas and Water              2.3         1.9     \1\ 2.1
         Supply.........................
        Services........................       69.9        65.5    \1\ 68.0
        Taxes on products less subsidies       17.7        15.9    \1\ 15.8
      Per Capita GDP (US$) \9\..........     24,830      23,432   \1\ 23,747
      Labor Force (000s)................      2,557       2,589   \1\ 2,603
      Unemployment Rate (pct)...........       10.2         9.8     \1\ 9.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)..........        6.6         0.0   \2\ -0.02
      Consumer Price Inflation..........        1.2         3.4     \3\ 3.0
      Exchange Rate (FIM/US$ annual            5.58        6.45    \4\ 6.67
       average).........................

    Balance of Payments and Trade:
      Total Exports FOB.................       41.7        45.5     \5\24.5
        Exports to United States........        3.3         3.4     \5\ 2.0
      Total Imports CIF.................       31.5        33.8    \5\ 18.4
        Imports from United States......        2.5         2.4     \5\ 1.2
      Trade Balance.....................       10.2        11.7     \5\ 6.1
        Balance with United States......        0.8         0.9     \5\ 0.8
      External Public Debt..............      -20.9       -39.4    \6\ -5.5
      Fiscal Surplus/GDP (pct) \7\......        1.9         6.9     \1\ 4.1
      Debt Service Payments/GDP (pct)           3.0         3.3     \1\ 3.1
       \8\..............................
      Gold and Foreign Exchange Reserves        8.4         8.9     \9\ 8.4
      Aid from United States............        N/A         N/A         N/A
      Aid from All Other Sources........        N/A         N/A         N/A
    ------------------------------------------------------------------------
    \1\ Estimate, Ministry of Finance. September 2001.
    \2\ Bank of Finland, August 2000-August 2001.
    \3\ Bank of Finland, January-August 2001.
    \4\ Bank of Finland, January-July 2001 average.
    \5\ Board of Customs, January-July 2001.
    \6\ Bank of Finland, January-June 2001.
    \7\ Net financing requirement, percent of GDP.
    \8\ General government interest expenditures.
    \9\ Bank of Finland, May 2001.
    \10\ Declines in Nominal and Per Capita GDP (despite positive growth
      rates) are due to the depreciating value of the Finnish Mark.

    1. General Policy Framework
        Fueled by the booming Nokia-led electronics industry, Finland has
    been amongst the fastest growing economies in the European Union (EU)
    with GDP growth averaging 4.8 percent per annum since 1994. Finland's
    membership in the EU, Finland joined on January 1, 1995, also helped
    spur structural changes in key economic sectors. Unemployment, at 9.8
    percent in 2000, however, still remains above the EU average.
        A key factor in Finland's recovery from its deep recession of the
    early 1990's was the strong growth in output in the manufacturing
    industry deriving largely from the success of telecommunications
    equipment exports. In 2000, exports accounted for more than 40 percent
    of Finland's overall output. However, weaker international demand has
    affected exports and production in the forest and electronics
    industries, and the latter part of 2001 looks bleak for the export
    industry. After seven successive years of robust growth, total output
    leveled off in early 2001. Over the January-July 2001 period, total
    output grew by 1.6 percent on 2000. The volume of Finland's total
    output fell for the third month in a row, off one percent year-on-year
    in July 2001. In July 2001, Ministry of Finance slashed its forecast
    for 2001 GDP growth by a full percentage point to 2.7 percent and
    lowered its 2002 estimate to 2.5 percent, due to global economic
    slowdown and the decline in exports, which is beginning to affect
    industrial production. The Ministry of Finance's next GDP growth
    estimate is scheduled for early November 2001, and is expected to be
    significantly lower, reflecting a continued global economic slowdown,
    exacerbated in part by the September 11 terrorist attacks on the United
    States.
        In 2000, the central government's finances reached a surplus for
    the first time since 1990, and rose to 3.5 percent of GDP. After strong
    growth in 2000, the surplus in central government finances is estimated
    to decrease considerably this year, especially since business
    performance is slackening and receipts from corporate income taxes are
    falling. Inflation reached a rate of 3.4 percent in 2000, becoming one
    of the highest in the euro zone. This can be explained mainly by higher
    oil prices, but price increases in housing and the depreciation of the
    euro has also played a role. The rise in consumer prices slowed down to
    the euro area average in summer 2001, and with economic growth
    receding, inflationary pressures are estimated to continue easing in
    the latter half of 2001. The consumer price index is expected to rise
    by an average of 2.7 percent in 2001.
        State debt is still at a high level, although it dropped from FIM
    404.6 ($72.5) billion in 1999 to FIM 376.9 ($ 58.4) billion in 2000,
    and is expected to total FIM 357.9 ($ 53.6) billion in 2001. The debt-
    to-GDP ratio is expected to fall only slightly. The overall government
    debt ratio (ratio of EMU debt to GDP) is predicted to fall from 44.1
    percent in 2000 to 42 percent by the end of 2001.
        In 2000, Finland's tax ratio (gross wage-earner taxation, including
    compulsory employment pension contributions, relative to GDP) was up to
    46.9 percent from 46.2 percent in 1999. A decrease is expected in 2001
    (44 percent) and in 2002 (42.6 percent) due to scheduled tax cuts.
        Key fiscal policy aims in the government program are to freeze
    central government spending at the level of the 1999 budget in real
    terms, to maintain central government finances in surplus (around 1.5
    percent of GDP), and to clearly reduce state debt.
        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 has helped
    reduce the cartelized nature of many Finnish industries. Legislation
    that took effect at the beginning of 1993 liberalizing foreign
    investment restrictions has helped spur an increase in foreign
    portfolio investment and hence has contributed to the
    internationalization of large Finnish companies. In 2000, capital
    flowed out of the country in the net amount of FIM 55 ($ 8.5) billion,
    almost equivalent to the surplus in the current account. The net
    outflow of foreign direct investment was FIM 65 ($10.1) billion.
    Investment outflows continue to exceed direct investment in Finland.
    Finland is hoping to capitalize on its location and expertise to serve
    as a gateway for foreign investors in the newly independent states of
    the former Soviet Union and the Baltic states. This effort had scored
    only limited success with relatively few foreign firms establishing
    production and warehousing facilities in eastern Finland, close to the
    major Russian markets. The Russian financial crisis in 1998 caused a
    significant slowdown in gateway activity, although there are now signs
    of recovery.
    2. Exchange Rate Policy
        The European Commission reported on March 25, 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 January 1, 2002. Both euros and Finnish marks
    will be in dual circulation for a period of two months, January 1-
    February 28, 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 European Central Bank (ECB). The Finnish mark
    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 are taxed at a 17
    percent rate. Medicines, books, passenger transportation,
    accommodation, TV licenses, admission fees to cultural and
    entertainment events, cinema performances and use of sporting
    facilities are taxed at an eight percent rate. Services, including
    health care, education, insurance, newspaper and periodical
    subscriptions, and rentals are not subject to VAT.
        Agricultural and forestry products continue to be subject to
    different forms of non-VAT taxation. In 1995, a uniform tax rate of 28
    percent took effect on capital gains, which include dividends, rental
    income, insurance, savings, forestry income, and corporate profits. The
    sole exception was bank interest, on which the tax rate was increased
    from 20 to 25 percent at the beginning of 1994. The corporate and
    capital gain income tax rate was increased from 28 per cent to 29 per
    cent in January 2000.
        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 European Fair Trade Association tariff area.
        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 many 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.
        The only major divestment of state share holdings in 2000 was the
    sale of three percent of the stake in the telecom service provider
    Sonera, which brought in FIM 2.02 billion ($30 million) at a time when
    the firm's stock was near its historic high of 90 Euros. The Finnish
    state has share holdings in 46 major companies, at present it controls
    four stock exchange companies: Sonera; the national airline Finnair;
    the energy group Fortum; and the chemical group Kemira. The Finnish
    state has decided to sell its majority stake of 56 percent in chemical
    industry group Kemira to Swedish Industri Kapital, and in return will
    receive a minority holding of 34 percent in a new, as yet nameless,
    company. However, in order for the deal to be finalized, the Finnish
    parliament must authorize the state to sell all of its holdings in
    Kemira. The wholly state owned Finnish defense group Patria, has
    decided to sell 27 percent of its shares to European Aeronautic Defense
    and Space Company (EADS) and become a strategic partner with EADS.
        In May 2000, the government reached a decision-in-principle on the
    use of state sales proceeds between 2000 and 2003. The government will
    boost basic funding for universities and will commit to certain
    projects aimed at bolstering long-term growth prospects. The rest of
    privatization proceeds already realized or forthcoming will be
    allocated to debt redemption.
        State aid to industry was at a relatively high level in Finland in
    the first years of the 1990s. This was mainly due to the severe
    depression that Finland experienced at that time. It should be noted,
    however, that even in those years Finland was no more generous in
    subsidizing its manufacturing companies than the EU countries on
    average. The government has begun to reduce subsidies in line with the
    need for greater fiscal discipline and it is the government's policy to
    continue this trend. 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 system of direct business subsidies was streamlined in early
    2001, so that existing subsidy programs were merged. The system of
    business subsidies consists of three forms of subsidies, i.e.
    investment aid, development aid for small and medium sized enterprises,
    and aid for the operating environment of businesses.
        The Finnish economy faces two major challenges. First, the
    competition the Finnish economy is facing is clearly increasing and
    spreading to new sectors threatening traditionally sheltered sectors of
    the economy. Second, with the population aging, labor supply is set to
    decline in the next decade, correspondingly weakening the financial
    base by increasing outlays for social security and pensions. Finland's
    priority during next few years is to rise the effective retirement age.
    These challenges highlight the importance of fiscal restraint and
    structural reforms. There is a growing need in general government
    finances to concentrate on relieving the expenditure pressure caused by
    the aging population and on reducing the central government debt ratio.
    The key task in structural policy is to secure prerequisites for
    employment-oriented stable economic growth. To counter the economic
    slowdown, Finland plans to lower taxes and increase investment.
    4. Debt Management Policies
        Under the government's EMU convergence program, the gross
    government debt is projected to drop from 44.1 percent of GDP in 2000
    to 42 percent by the end of 2001.
        In May 2001, Standards & Poor's announced it would keep its rating
    of Finnish long term government bonds at their second-best rating, AA+
    , adding that the outlook on long term ratings remains positive. In
    September 2001, Moody's rated Finnish long-term government bonds at its
    best rating, AAA. In November 2000, Fitch IBCA confirmed the rating of
    Finnish long-term government bonds as AAA, short-term foreign currency
    at F1, and rated the outlook as stable.
        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 independent states of 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 0.31 percent of GDP in 2000. The Finnish government
    estimates foreign assistance will rise to 0.34 percent of GDP in 2001
    and 0.341 percent of GDP in 2002.
    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 some U.S. company applications
    for commercialization of genetically modified organisms (GMOs) such as
    insect-resistant corn. The Ministry for Environment 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 has gone into effect. Finland has
    exceptions to the EU directives on 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 such companies establish an office in
    Finland. In most cases, such restrictions will cover workers'
    compensation insurance companies 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. The number of mobile telephones exceeded the number of fixed-
    line connections beginning in 1998. Finland's mobile phone penetration
    is 75 percent, with 3.9 million mobile phones in use. As of September
    2001, Finns have been able to make local calls using the operator of
    their choice by using a five -digit code at the beginning of the
    number. It is also possible to choose which operator is used when
    calling from a fixed-line phone to a mobile subscriber.
        Finland was the first country to grant licenses for third-
    generation mobile-phone networks. In March 1999, four
    telecommunications companies were granted licenses to construct 3G
    mobile networks in Finland. Contrary to many other European countries,
    licenses were free of charge and granted to the most qualified
    applicants, rather than by auction. Licenses were technology-neutral,
    but all four licensees are expected to use the European UMTS
    technology. 3G mobile operations are expected to be launched by the
    beginning of 2002. The world's first 3G WCDMA voice call on the
    commercial 3G PP (3rd generation partnership program) system was made
    between Nokia laboratories in Oulu and Salo, Finland, in mid August
    2001.
        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 remained, 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 were abolished in
    January 2000, bringing Finland fully in line with EU norms.
        Foreigners residing outside of the EEA who wish to carry on trade
    as private entrepreneurs or as partners 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 from outside the EEA 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.
        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.
        Within the European Union, the European Commission has authority
    for developing most aspects of EU-wide external trade policy, and most
    trade barriers faced by U.S. exporters in EU member states are the
    result of common EU policies. Such trade barriers include: the import,
    sale and distribution of bananas; restrictions on wine exports; local
    (EU) content requirements in the audiovisual sector; standards and
    certification requirements (including those related to aircraft and
    consumer products); product approvals and other restrictions on
    agricultural biotechnology products; sanitary and phytosanitary
    restrictions (including a ban on import of hormone-treated beef);
    export subsidies in the aerospace and shipbuilding industries; and
    trade preferences granted by the EU to various third countries. A more
    detailed discussion of these and other barriers can be found in the
    country report for the European Union.
    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 decided that payment of shipyard
    subsidies would end at the end of year 2000. According to Finland's
    year 2000 supplementary budget, subsidies were granted on ship orders
    up to a total value of FIM 6 billion ($930 million) and the industry
    granted an appropriation of FIM 140 ($21.7) million, in order to secure
    the competitiveness of the shipbuilding industry. Since spring 1996,
    Finnish shipyards have received 1.1 billion FIM ($169 million) in
    direct production support. The EU ministers discussed in mid July 2001
    a plan to reintroduce subsidies to their shipbuilders as a ``temporary
    support mechanism'' to protect the industry from South Korean
    competition, which was said to benefit from unfair subsidies.
    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. Patent
    rights are consistent with the international standards. In 1996,
    Finland joined the European Patent Convention (EPC).
        Finland is a member of the World Intellectual Property
    Organization, 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 United
    States, and by some measures (e.g., BSA), is the lowest in the world.
        Finland has been a member of the Paris Convention for the
    Protection of Industrial Property since 1921, the Berne Convention for
    the Protection of Literary and Artistic Works since 1928, and the Rome
    International Convention for the Protection of Performers, Producers of
    Phonograms and Broadcasting Organizations since 1983.
        Finland is a member of the WTO. It shares the U.S. overall
    philosophy on an open and fair international trading system. Its
    government procurement practices have been consistent with EU policies
    and there has been no pattern of discrimination against U.S.
    businesses.
        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 from 67 percent in 1994 to 30
    percent in 2000. Retail software revenue lost to piracy amounted to $
    46.5 million in 2000, BSA reported.
        The Finnish Copyright Act, which traditionally 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.
    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. During 1993-2000,
    the percentage of workers who were organized dropped from 85 to 79
    percent, mainly due to the fact that people between 35 and 44 years of
    age have started to lose their interest in labor unions, a recent study
    found. 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 2000,
    there were 96 strikes and 2001 will be dominated by a five months long
    doctors' strike, which started in May and ended in September 2001, and
    proved to be expensive for everyone. Despite this major strike,
    statistics show that the number of working days lost to strikes has
    been reduced significantly over the past thirty years. 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. The law prohibits forced and bonded labor by children and
    adults, and such practices do not exist. The government enforces these
    prohibitions effectively.
        d. Minimum Age for Employment of Children: Youths under 16 years of
    age cannot work more than six 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.
        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 sectors. The legal workweek consists of
    five 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: Conditions in all 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  81
    Total Manufacturing.........  ...........  672
      Food & Kindred Products...  7            .............................
      Chemicals & Allied          355          .............................
       Products.
      Primary & Fabricated        59           .............................
       Metals.
      Industrial Machinery and    77           .............................
       Equipment.
      Electric & Electronic       61           .............................
       Equipment.
      Transportation Equipment..  77           .............................
      Other Manufacturing.......  36           .............................
    Wholesale Trade.............  ...........  328
    Banking.....................  ...........  20
    Finance/Insurance/Real        ...........  -3
     Estate.
    Services....................  ...........  68
    Other Industries............  ...........  114
        Total All Industries....  ...........  1,279
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     FRANCE

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                           1999       2000     \1\ 2001(est)
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.....................     1,383      1,237         1,314
      Real GDP Growth (pct)...........       3.0        3.1           2.3
      GDP by Sector (previous year         1,318      1,187           N/A
       prices): \2\...................
        Agriculture...................        39         34           N/A
        Manufacturing.................       331        302           N/A
        Services......................       680        613           N/A
        Government and Non-Profit            268        239           N/A
         Services.....................
      Per Capita GDP (US$)............    23,858     21,355        21,900
      Labor Force (000s)..............    25,983     26,155        25,839
      Unemployment Rate (pct average).      11.0        9.5           8.9

    Money and Prices (annual
     percentage growth):
      Money Supply Growth (M3) \3\....       7.3        7.6           7.9
      Consumer Price Inflation               0.5        1.7           1.7
       (average)......................
      Exchange Rate (FF/US$--annual          6.2        7.1           7.3
       average).......................

    Balance of Payments and Trade:
      Total Exports FOB \4\...........       302        299           296
        Exports to United States \4\..        23         26            24
      Total Imports CIF \4\...........       285        308           301
        Imports from United States \4\        26         29            25
      Trade Balance CIF/FOB...........        17         -9            -5
        Balance with United States \4\        -3         -3            -1
      External Public Debt............       N/A        N/A           N/A
      Fiscal Deficit/GDP (pct)........       1.6        1.4           1.4
      Current Account \4\.............        37         21            19
      Current Account Surplus/GDP            2.6        1.6           1.5
       (pct)..........................
      Debt Service Payments/GDP (pct).       N/A        N/A           N/A
      Gold and Foreign Exchange               71         68            72
       Reserves \5\...................
      Aid from United States..........       N/A        N/A           N/A
      Aid from All Other Sources......       N/A        N/A           N/A
    ------------------------------------------------------------------------
    \1\ Embassy estimates based on published French government data unless
      otherwise indicated.
    \2\ GDP excludes Value Added Tax (VAT) and other taxes.
    \3\ 2001 figure reflects M3 as of July.
    \4\ 2001 estimate based on seven months.
    \5\ 2001 estimate based on eight months.

    1. General Policy Framework
        France is the fifth largest industrial economy in the world, with
    annual gross domestic product about 15 percent 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 ninth 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 7.3
    percent to $20 billion in 2000, while merchandise imports from France
    grew 15.8 percent to $30 billion, according to the same source. This
    resulted in a U.S. merchandise trade deficit with France of about $7
    billion. French trade data account differently for re-exports and
    transshipments via neighboring European countries, and as a result
    France reports a trade deficit of about $1 billion with the United
    States in 2000. Trade in services is expanding rapidly. In 2000, it
    added about $2 billion to the total volume of trade between the United
    States and France. The United States and France are the world's top two
    exporters in several important sectors, including defense products,
    agricultural goods, and services.
        France's annual real GDP growth rate in 2001 is projected to be
    about 2.3 percent according to French government estimates, following
    growth of 3.1 percent in 2000. Economic growth in the first two
    quarters of 2001 was disappointing. Growth has been domestic-demand led
    as export growth has been significantly affected by the economic
    slowdown in the United States and among France's European partners,
    notably Germany. The employment picture improved early in the year, but
    deteriorated during summer. The unemployment rate decreased to 8.7
    percent in February, remained at this level until May, and began to
    rise in June, reaching 9 percent in August. Based on government
    projections the general government budget deficit should stay unchanged
    at 1.4 percent of GDP in 2001 compared with 2000. Current indicators,
    notably business and household confidence, show the economic situation
    deteriorating. International factors, notably effects of September 11
    attacks in the United States, are now creating further downward risks
    to GDP growth. Independent French economists forecast annual growth at
    about 2 percent in 2001 and to 1.8 percent in 2002.
        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 reductions
    of taxes and government spending, increased flexibility of labor
    markets, and further deregulation of goods' and services' sectors.
    Further progress will depend on policies adopted by the government
    formed after legislative and presidential elections next year, and its
    room for maneuver.
        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. This has produced a slow but progressive opening of
    telecommunications and electricity markets, and re-structuring of
    state-owned defense firms. Nevertheless, 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. Within the European Union, the European
    Commission has authority for developing most aspects of EU-wide
    external trade policy, and most trade barriers faced by U.S. exporters
    in EU member states are the result of common EU policies. Such trade
    barriers include: the import, sale and distribution of bananas;
    restrictions on wine exports; local (EU) content requirements in the
    audiovisual sector; standards and certification requirements (including
    those related to aircraft and consumer products); product approvals and
    other restrictions on agricultural biotechnology products; sanitary and
    phytosanitary restrictions (including a ban on import of hormone-
    treated beef); export subsidies in the aerospace and shipbuilding
    industries; and trade preferences granted by the EU to various third
    countries. A more detailed discussion of these and other barriers can
    be found in the country report for the European Union.
        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; exotic
    meats (e.g., ostrich, emu and alligator); and live crawfish unless
    authorized by special agreement. Current regulations discriminate
    against imports of bovine semen and embryos from the United States by
    strictly controlling their marketing in France.
        The French government established a policy on applications of
    biotechnology in agriculture and food production in 1998 that has
    restricted imports and production of goods made with transgenic
    materials or processes, principally corn, soybeans, and derived
    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. A 40 percent domestic content requirement for
    music, excluding classical music and jazz, broadcast by French radio
    stations mandated by a 1994 law was lowered to 35 percent in 2000.
    Continuation and growth of a strong French motion picture and
    television industry 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.
        In October 2001, the United States and France amended the 1998
    bilateral civil aviation agreement to conform with all the necessary
    elements of an open skies agreement.
    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.
    French government subsidies to agricultural production are primarily
    indirect. 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.
        In April 2001, the European Union notified the United States that
    France and several other Member States had made commitments to provide
    development support for the Airbus A380 (super-jumbo) aircraft. In
    addition, the French government and local authorities in Toulouse
    announced in 2001 publicly funded projects valued at more than $270
    million to provide infrastructure improvements related to the
    production of the A380 at Airbus facilities in France.
    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 work 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
    42.02 per hour (about $5.60). Since February 2000, the legal workweek
    is 35 hours for firms of 20 or more workers. Firms with fewer than 20
    workers will have until January 2002 to reduce their workweek to 35
    hours. 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1,010
    Total Manufacturing.........  ...........  16,515
      Food & Kindred Products...  3,387        .............................
      Chemicals & Allied          3,742        .............................
       Products.
      Primary & Fabricated        3,800        .............................
       Metals.
      Industrial Machinery and    1,330        .............................
       Equipment.
      Electric & Electronic       1,242        .............................
       Equipment.
      Transportation Equipment..  594          .............................
      Other Manufacturing.......  2,419        .............................
    Wholesale Trade.............  ...........  2,558
    Banking.....................  ...........  1,823
    Finance/Insurance/Real        ...........  9,964
     Estate.
    Services....................  ...........  5,537
    Other Industries............  ...........  1,680
        Total All Industries....  ...........  39,087
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                    GERMANY

                           Key Economic Indicators \1\
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000        2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\...................     2113.5      1868.6      1867.5
      Real GDP Growth (pct, y/y) \3\....        1.8         3.0         0.8
      GDP by Sector (pct):
        Agriculture.....................        6.4         5.8         5.8
        Manufacturing...................       22.8        23.3        23.3
        Services........................       70.8        70.9        70.9
        Government \4\..................       48.2        47.3        47.4
      Per Capita GDP (US$)..............   25,711.7    22,732.4    22,719.0
      Labor Force (000s) \5\............     38,838      40,204      41,155
      Unemployment Rate (pct) \5\.......       10.5         9.6         9.4

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)..........        5.2         4.1         4.0
      Consumer Price Inflation..........        0.6         2.0         2.5
      Exchange Rate (DM/US$--annual            1.84        2.04        2.02
       average).........................

    Balance of Payments and Trade:
      Total Exports FOB.................      546.1       549.1       252.7
        Exports to United States........       55.2        58.5        30.5
      Total Imports CIF.................      475.9       495.3       288.3
        Imports from United States......       26.8        29.4        16.0
      Trade Balance.....................       69.8        53.8        71.1
        Balance with United States......       28.4        29.1        14.5
      External Public Debt \6\..........     1287.9      1122.4      1121.4
      Fiscal Deficit/GDP (pct)..........       -1.4         1.5        -2.4
      Current Account Deficit/GDP (pct).       -0.2        -1.7        -1.1
      Debt Service Payments/GDP (pct)...        3.5         3.3         3.3
      Gold and Foreign Exchange Reserves       99.6        90.2        84.9
      Aid from United States............          0           0           0
      Aid from All Other Sources........          0           0           0
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on the first half, except GDP
      and fiscal balance, which are full-year forecasts.
    \2\ At 1995 prices.
    \3\ Percentage change in real GDP calculated in DM, national currency,
      at 1995 prices.
    \4\ Also included in services category.
    \5\ 2001 figures based on eight-month average and Embassy forecast.
    \6\ Total outstanding public debt

    1. General Policy Framework
        Germany's economy is the world's third largest, with total output
    equivalent to just under two trillion in 2000 (in nominal terms). Real
    GDP growth, which had dropped to 1.5 percent in 1999, rose to 3 percent
    in 2000. Most German public and private forecasters are now estimating
    growth to be less than one percent for 2001. 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 cyclical upswing in 2000 was
    based on the recovery in global conditions. The current decline in
    global economic indicators is reflected in German figures for 2001.
    Inflation remains very low, partly as a result of deregulation in the
    electricity and telecommunications sectors, and after rising in 2000
    with the impact of higher oil prices, is now once again receding.
        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. Differences in economic growth between western
    Germany, faster, and ``new'' states in the east, slower, have at least
    temporarily complicated economic convergence between the two regions, a
    key national objective. In addition, unemployment rates remain high,
    appearing to stagnate at almost four million people unemployed
    nationwide. Germany's total population stands at just over 82 million.
    Unemployment is about twice as high in eastern Germany as in the west.
        Increased government outlays associated with German unification 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 raising 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 contributed to
    the dramatic ballooning of public sector deficits and borrowing since
    1990 and thus 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 sought the cooperation of unions and employers in
    fashioning its labor market policies. Consensus has been possible on
    some issues, such as wage restraint in centrally negotiated agreements,
    expansion of training opportunities for young people entering the work
    force and improved opportunities for older workers. However, on many
    other issues there has been no consensus and the government has pursued
    its own course of action, generally favoring pro union policies.
    Deficit reduction efforts have focused on federal spending restraint;
    one-off revenues, such as the auction of Universal Modem
    Telecommunications System (UMTS) wireless telephone licenses in 2000,
    have been applied toward debt reduction. The government has introduced
    tax reforms, which reduce corporate income tax rates and close
    loopholes, extending relief to families, and raise energy taxes for
    environmental reasons. The government has made progress in 1999 and
    2000 in reducing the budget deficit. Strong economic growth and
    favorable demographic trends combined in 2000 to increase employment
    significantly and to reduce unemployment rates. However, unemployment
    has climbed steadily in 2001, due primarily to slower economic growth,
    and unemployment is again at politically sensitive levels. Slower
    growth and the fiscal actions taken in response to the September 11
    terrorist attack in the United States are expected to lead to an
    increase in the budget deficit. Germany employs a broad range of fiscal
    and market tools in financing public expenditures.
    2. Exchange Rate Policies
        On January 1, 1999, the euro was introduced in Germany and the
    Deutsche Mark was fixed at 1.96 to the euro. Euro notes and coins will
    be introduced on January 1, 2002, but many non-cash transactions are
    already denominated in the new currency. 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
    economy 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 EU partners,
    the impact of German unification, pressure from globalization on
    traditional manufacturing industries, and 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 by the OECD. These can be broadly grouped
    as follows:

              (1) a rigid labor market;
              (2) a regulatory system that discourages new market entrants;
            and
              (3) high marginal tax rates and high contribution rates
            mandatory for social insurance programs.

        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 compatibility with the desired
    economic growth and employment levels identified by the German
    government and Germany's competitiveness as a location for business and
    investment. The government, as noted, has pursued tax reform, but the
    significant tax overlay encompassing federal, state and local taxes
    remains one of the highest tax burdens in the world. The government has
    not undertaken formal structural reform of the labor market and has
    instituted some changes that make the market more inflexible. At the
    same time, however, gradual changes are taking place in the labor
    market as a result of competitive forces, new technologies, new forms
    of employment, and the process of negotiations between unions and
    employers, at both the firm and the industry level.
        In recent years, the government has reorganized the German Federal
    Railroad, the Federal Post (Deutsche Post) and Deutsche Telecom (DT).
    The initial public offering for Deutsche Post (DP) was in November 2000
    and was quite successful. The government opened the telecommunications
    network to competition on January 1, 1998, the date when its new
    Regulatory Authority for Telecommunications and Post (RegTP) began
    operation. From that time on, the government has reduced its ownership
    share of the former monopoly DT to 42 percent in several tranches.
    Since then, however, U.S. telecommunications trade associations also
    filed complaints with USTR (in February 1999, 2000, and 2001) under
    Section 1377 of the Omnibus Trade and Competitiveness Act of 1988,
    charging that Germany was not fully complying with the WTO's Basic
    Telecommunications Agreement. USTR continues to monitor the German
    market. The federal government also has sold its remaining stake in the
    national airline, Lufthansa. The EU gas liberalization directive went
    into effect on August 10, 2000, but the negotiated third-party access
    agreement (TPA) agreed to by market participants in Germany has not
    produced the degree of competion that followed the electricity
    deregulation in April 1998. 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.
        Despite the real progress in market liberalization in recent years,
    lack of competition and overregulation remain a problem and drive up
    business costs. Services subject to excessive regulation and/or market
    access restrictions continue to affect the telecommunications, posts,
    utilities, banking and insurance sectors. For example, after RegTP
    issued numerous procompetitive decisions in 1998-1999, competitors to
    incumbent DT charged that decisions have since then tended to favor DT,
    or at least have not promoted competition. The state's large ownership
    share of DT, however, has made the government very sensitive to the DT
    share price, which plummeted in 2001 to below its initial offering
    price after reaching its high in March 2000. In 2001, the government
    extended the DP monopoly on letter service until 2007, having earlier
    undertaken to lift the monopoly on January 1, 2003. DP lost two cases
    brought by competitors before EU competition authorities in 2001. On
    the positive side of the structural reform ledger, the German
    government in 2001 also repealed two important laws dating to the 1930s
    that severely limited price competition.
    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 (consolidated) budget by 2004.
        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 Germany. 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. In 2000, U.S. exports to Germany
    totaled $29.4 billion, while U.S. imports from Germany reached $58.5
    billion. 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, however, enforces import license requirements
    placed on some products by the European Union.
        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 and internet service providers. Germany has no
    foreign ownership restrictions on telecommunications services. Germany
    has supported the ``safe harbor'' agreement of July 2000 that bridges
    different approaches to protection of personal data between the United
    States and the EU. A 1998 EU data privacy directive prohibits
    businesses from exporting ``personal information'' unless the receiving
    country has in place privacy protection that the EU deems adequate.
        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, can restrict market access for many U.S. products (e.g.,
    genetically modified organisms and hormone-treated beef).
        Government Procurement: Germany's government procurement is
    nondiscriminatory and appears to comply with the GATT Agreement on
    Government Procurement. The German Public Procurement Reform Act, which
    establishes examining bodies that have the responsibility to review the
    awarding of public contracts and to investigate complaints pertaining
    to the procurement process, came into effect on January 1, 1999.
        Investment Barriers: Under the terms of the 1956 U.S.-FRG Treaty of
    Friendship, Commerce and Navigation, U.S. investors are afforded
    national treatment. The government and industry actively encourage
    foreign investment in Germany. As noted above, U.S. investors in
    recently privatized/deregulated sectors, such as postal services,
    telecommunications and energy, have encountered government activities
    that favor former monopolists. Beyond this, 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.
        Within the European Union, the European Commission has authority
    for developing most aspects of EU-wide external trade policy, and most
    trade barriers faced by U.S. exporters in EU member states are the
    result of common EU policies. Such trade barriers include: the import,
    sale and distribution of bananas; restrictions on wine exports; local
    (EU) content requirements in the audiovisual sector; standards and
    certification requirements (including those related to aircraft and
    consumer products); product approvals and other restrictions on
    agricultural biotechnology products; sanitary and phytosanitary
    restrictions (including a ban on import of hormone-treated beef);
    export subsidies in the aerospace and shipbuilding industries; and
    trade preferences granted by the EU to various third countries. A more
    detailed discussion of these and other barriers can be found in the
    country report for the European Union.
    6. Export Subsidies Policies
        Germany does not directly subsidize exports outside the European
    Union's framework for export subsidies for agricultural goods.
    Competitors have charged DP with cross subsidization to preserve its
    domestic market share and gain entry to and increase market share in
    third countries, including the United States. The European Commission
    in early 2001 ruled against DP on a formal antitrust complaint from a
    U.S. parcel delivery company for abusing its dominant position. The
    Commission, however, is continuing a major anti-trust investigation of
    state aids for DP, which has been underway since 1994.
        The German government is also providing a DM 2.5 billion loan on
    attractive terms to Airbus Germany for the development of the A 380
    airliner. Repayment is contingent on future sales of the airplane.
    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. Germany's commitments under the intellectual property
    rights portions (TRIPS) of the Uruguay Round, implementation in 1993 of
    the EU's Software Copyright Directive, as well as an educational
    campaign by the software industry have helped address concerns from
    some U.S. firms about the level of software piracy.
    8. Worker Rights
        a. The Right of Association: Article IX of the German Constitution
    guarantees full freedom of association. Worker 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 used infrequently. Basic wages and
    working conditions are negotiated at the industry level between trade
    unions and employer associations. Nonetheless, some firms, especially
    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 have withdrawn at
    least part of their workforce from the jurisdiction of the employers
    association, complaining of rigidities in the centralized negotiating
    system. Those no longer covered by centrally negotiated agreements have
    not, however, refused to bargain as individual enterprises. German law
    mandates a system of work councils with broad rights of
    ``codetermination'' on some aspects of company policy and practice. In
    addition, German law provides for worker membership on supervisory
    boards of larger firms and those in particular industries. Thus many
    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
    generally bars child labor under age 15. There are exemptions for
    children employed on 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, the collective bargaining agreements set
    minimum pay rates and are legally enforceable. In most cases, 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  2,946
    Total Manufacturing.........  ...........  26,801
      Food & Kindred Products...  467          .............................
      Chemicals & Allied          4,873        .............................
       Products.
      Primary & Fabricated        1,210        .............................
       Metals.
      Industrial Machinery and    6,063        .............................
       Equipment.
      Electric & Electronic       2,537        .............................
       Equipment.
      Transportation Equipment..  6,979        .............................
      Other Manufacturing.......  4,673        .............................
    Wholesale Trade.............  ...........  3,215
    Banking.....................  ...........  699
    Finance/Insurance/Real        ...........  14,678
     Estate.
    Services....................  ...........  2,729
    Other Industries............  ...........  2,542
        Total All Industries....  ...........  53,610
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     GREECE

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                           1999         2000       \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and
     Employment:
      Nominal GDP \2\................   124,808.0    111,940.0    119,914.0
      Real GDP growth (pct) \3\......         3.3          4.3          4.5
      GDP by Sector: \4\
        Agriculture..................     8,928.0      7,545.0      7,685.0
        Manufacturing................    24,125.0     20,980.0     21,815.0
        Services.....................    81,280.0     74,535.0     78,760.0
          Of which:..................
            Government...............     8,050.0      7,235.0      7,545.0
      Per Capita GDP (US$)...........    11,848.4     10.618.6     11,350.9
      Labor Force (000s).............     4,434.8      4,461.4      4,488.1
      Unemployment Rate (pct)........        11.9         11.1         11.0

    Money and Prices (annual
     percentage growth):
      Money Supply Growth (M4N Dec)..         5.5         10.4      \5\ 6.5
      Consumer Price Inflation.......         2.6          3.1          3.5
      Exchange Rate (DRS/US$ annual
       average):.....................
        Official.....................       305.6        365.4        375.0
        Parallel.....................         N/A          N/A          N/A

    Balance of Payments and Trade:
      Total Exports FOB \6\..........    10,510.0     10,760.3     10,500.0
      Total Exports FOB \7\..........     8,546.9     10,201.3     10,700.0
        Exports to United States \8\.       563.1        591.4    \9\ 301.5
      Total Imports CIF \6\..........    28,422.0     28,501.3     28,500.0
      Total Imports CIF \7\..........    26,493.4     30,436.0     29,800.0
        Imports from United States          995.5      1,221.8    \9\ 692.5
         \8\.........................
      Trade Balance \6\..............   -17,912.0    -17,741.0    -18,000.0
      Trade Balance \7\..............   -17,946.5    -20,234.7    -19,100.0
        Balance with United States...       432.4        630.4    \9\ 391.0
      External Public Debt...........    33,600.0     27,045.0     24.990.0
      Fiscal Deficit/GDP (General             1.8          1.1   \10\ (- 0.5
       Government) (pct).............                                     )
      Debt Service (Public                   17.5         19.6         16.9
       Sector)Payments/GDP(pct)......
      Gold and Foreign Exchange          18,948.6     13,533.3   \11\ 7,000.
       Reserves......................                                     0
      Aid from United States.........         N/A          N/A          N/A
      Aid from All Other Sources.....         N/A          N/A          N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on available data in October.
    \2\ GDP at market prices.
    \3\ Percentage changes calculated in local currency.
    \4\ Factor cost.
    \5\ M3. The monetary factor used in the Economic Monetary Union.
    \6\ Merchandise Trade; National Statistical Service of Greece; Customs
      Data.
    \7\ Trade; Bank of Greece data; on a settlement basis for 1999. The Bank
      of Greece data, especially those on exports, used to underestimate
      true trade figures since exporters were not obliged to deposit their
      export receipts in Greece. Effective 1999, the Bank of Greece has been
      implementing a new set of accounts to be in line with other EU central
      banks. The new data are based on the new system (resident/non-resident
      basis).
    \8\ U.S. Department of Commerce. U.S. exports and general imports,
      customs value.
    \9\ January-July 2001 data.
    \10\ (-) denotes surplus.
    \11\ Eurosystem reserves definition. Foreign exchange reserves do not
      include: (1) claims on non-euro area residents in euro (2) claims on
      euro area residents in foreign currency and euro, and (3) the
      contribution of the Bank of Greece to the ECD capital and foreign
      reserve assets.

    1. General Policy Framework
        Greece, a member of the European Union (EU) since 1981, officially
    joined the EU Economic and Monetary Union (EMU) on January 1, 2001, and
    became a part of the EU single currency club. Its economy is segmented
    into the state sector, estimated at 40 percent of GDP, and the private
    sector, 60 percent of GDP. It has a population of 10.7 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,
    such as roads, rail, and telecommunications, reflects its middle-income
    status. Per capita GDP is $11,350, 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 65 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 2000 imports were $28.5 billion,
    while exports were only $10.8 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. Greece's growth (4.5 percent
    projected in 2001) has greatly depended on EU financing the last
    decade. Greece has received about $20 billion for major infrastructure
    projects (road and rail networks, ports, airports, telecommunications,
    etc.) from the EU over the period 1994-99. Greece will get another EU
    structural funds package of about $24 billion for the period 2000-2006.
    Greece will also undertake a number of infrastructure projects to host
    the 2004 Summer Olympic Games.
        Greece joined the Economic and Monetary Union (EMU) as of January
    1, 2001, having met all the macroeconomic convergence criteria for
    participation in the EMU established by the Maastricht Treaty. This
    positive outcome was the result of the implementation of a six-year
    convergence program designed to meet EMU entry requirements. Greece's
    fiscal balance has improved due to higher tax revenues and greater
    fiscal discipline. A more effective tax collection system, abolition of
    numerous tax exemptions, and the imposition of additional taxes led to
    higher revenues. Expenditures rose slightly in real terms due to a
    small increase in the wage bill (public sector) and a higher increase
    in government subsidies and support to social insurance funds. Outlays
    for interest payments showed a small decline due to lower interest
    rates. Greece has managed to keep inflation close to the EU average, at
    around 3.6 percent for the first eight months of 2001. In 2000, the
    unemployment rate dropped to 11.1 percent from 11.9 percent in 1999 and
    is expected to drop further to 11 percent in 2001. By the end of 2000,
    as a result of a fiscal policy focused on expanding revenue collection,
    the government budget deficit to GDP ratio had fallen to 1.1 percent.
    According to preliminary data, the 2001 general government budget shows
    for the first time a surplus of 0.5 percent of GDP.
        Greece's large general government debt (102 percent of GDP or $119
    billion in 2000) stems to a great extent from government acquisition of
    failing enterprises and a deficit run public sector for many years.
    Greece's social security program has also been a major drain on public
    spending. Deficits are financed primarily through issuance of
    government securities. For 2001 the government expects a reduction of
    the debt to 98.9 percent of GDP. The government debt to GDP ratio is
    projected to decline further to 95.2 percent in 2002, 90.5 percent in
    2003 and 84 percent of GDP in 2004. Outlays for military procurement,
    the cost of 2004 Athens Olympic Games, and pressure from social
    insurance's rising obligations may make it increasingly difficult to
    meet these targets unless a comprehensive economic policy and necessary
    reforms are implemented.
        The Bank of Greece, Greece's central bank, is a member of the
    European Central Bank, which determines the monetary policy to be
    followed by the EU member countries participating in the EMU.
    2. Exchange Rate Policy
        Greece's foreign exchange market is in line with EU rules on free
    movement of capital. As of January 1, 2001, when Greece joined the EMU,
    the drachma's central rate was set at 340.75 drachmas per euro.
    3. Structural Policies
        Greece's structural policies need to conform to the provisions of
    the EU Single Market and the Maastricht Treaty on Economic and Monetary
    Union. Since Greece joined the Eurozone on January 1, 2001, it will
    have to undergo serious structural reform to sustain EMU convergence
    criteria. Toward this end, the Greek government has opened its
    telecommunications market and has plans to gradually liberalize its
    energy sector. In the energy field, the Greek energy market has entered
    a phase of deregulation. Since February 19, 2001, about 34 percent of
    eligible customers of middle and high-tension voltage may obtain their
    electricity from producers other than the state monopoly, the Public
    Power Corporation (PPC). To date, however, there is no other
    electricity supplier. The electricity market in Greece will have to be
    fully deregulated by the year 2005.
        The Greek government plans to privatize or sell minority stakes in
    public sector enterprises and organizations by the end of 2001. In
    accordance to this plan, at the end of June 2001 the government issued
    a bond loan convertible to about 10 percent of the stocks of the
    Hellenic Telecommunications Organization (OTE), which reduced
    government holding to 42 percent. The privatization plan also includes
    Hellenic Petroleum (23 percent currently traded in the market), Olympic
    Airways, Public Power Corporation, Natural Gas Corporation, Hellenic
    Aerospace Industry, the port operations in Piraeus and Thessaloniki,
    and the Agricultural Bank of Greece. 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 several years.
        About one quarter of the goods and services included in the
    Consumer Price Index (CPI) are still 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). The latest
    legislation was voted in Parliament in December 2000 and provides for
    tax relief measures including: gradual reduction of the top tax rate
    for personal income to 40 percent from the current 45 percent; gradual
    reduction of the tax on corporation profits from the current 40 to 37.5
    percent in 2001 and 35 percent in 2002; adjustment of the personal
    income tax scale to inflation every two years; higher tax rebates to
    large families; and lower taxes for new farmers.
    4. Debt Management Policies
        Greece's ``General Government Debt'' (the Maastricht Treaty
    definition) is projected at $119 billion, or 98.9 percent of GDP
    (market prices) in 2001. External debt accounted for 24.2 percent of
    total government debt in 2000 and is projected to drop to 20.8 percent
    in 2001. 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, 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. As a
    result, U.S. companies often employ 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. In November 1997,
    however, 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: Under the ``Open Skies'' aviation agreements that the
    United States has with most EU member states, there are no restrictions
    on bilateral routes, capacity or pricing. Greece is one of several
    member states without an Open Skies agreement, and where the U.S.-
    Greece bilateral aviation agreement still contains some limitations.
        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 for film,
    software, music, and books is problematic, but has improved in the last
    few years.
        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.
        Recently, 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: Greek authorities take into serious
    consideration local content and export performance when evaluating
    applications for tax and investment incentives. However, they are not
    mandatory prerequisites for approving investments.
        Greece, which restricted 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 recently opened its
    telecommunications market and has plans to gradually liberalize its
    energy sector. 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 has
    entered a phase of deregulation since February 19, 2001. The
    electricity market in Greece will have to be fully deregulated by the
    year 2005.
        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.
    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).
        Despite Greece's legal framework for (Law 2121 of 1993 on
    copyrights and Law 2328 of 1995 on media) and voiced commitment to
    copyright protection, Greece has been on the Special 301 ``Priority
    Watch List'' from 1994 to April 2001. The U.S. government launched a
    WTO TRIPS non-enforcement challenge and consultations under WTO
    auspices were started in June 1998. The United States, Greece and the
    European Union observed that estimated levels of television piracy in
    Greece have fallen significantly since 1996. According to statistics
    from the company for protection of audio-visual works, losses from
    audio-visual piracy have fallen from 60 million U.S. dollars in 1996 to
    10 million U.S. dollars in 2000. Also, since 1998 several criminal
    convictions for television piracy have been made in Greece.
        In April 2001, Greece, the United States, and the European
    Commission sent a letter to the WTO outlining the Greek government's
    commitment to continue to reduce the level of audiovisual piracy.
    Consequently, the United States Trade Representative announced that the
    U.S., Greece, and the European Commission had resolved their dispute
    over audiovisual piracy and Greece was upgraded from the Priority Watch
    List to the Special 301 Watch List.
        Another significant intellectual property protection problem in
    Greece is lack of effective protection of copyrighted software. The
    piracy rate for entertainment software is very high in Greece. Pirated
    copies of console games enter Greece from Eastern and Central Europe
    and are produced locally. Pirated CD-based games are also imported and
    represent 90 percent of the illegal market with the rest locally
    produced on CD copiers. The Business Software Alliance reports the
    problems of counterfeit products loaded on hard disks and sales of
    counterfeit products throughout Greece. Like the other copyright
    industries, the computer software industry reports that it experiences
    long delays and non-deterrent fines, which kept its piracy rate in 2000
    at 66 percent of total sales, the highest in the European Union.
        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. U.S. companies report that counterfeit apparel is
    routinely brought into Greek ports from other non-EU countries.
        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 ban strikes that they find
    illegal and abusive. Legislation permits dismissal of workers
    participating in illegal strikes, particularly those workers who have
    been designated as skeleton staff in public enterprises and utilities,
    so ``social needs'' will not be disrupted during a strike.
        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 hazardous industries
    and lower age limits for family businesses, theaters, and the cinema.
        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.
        The government launched a second legalization process in 2001
    allowing undocumented immigrants who were living in Greece for more
    than one year to apply for residence and work permits. About 350,000
    immigrants from the estimated 800,000 aliens were registered and
    received a six month permit, during which they have to produce
    additional supporting documents in order to qualify for a full
    temporary residence permit valid for a year which is renewable. About
    250,000 aliens had registered during the previous legalization programs
    and received ``green cards'' which allow them to live and work in the
    country for one to three years. Those issued green cards have the same
    labor and social security rights as Greek workers. Non-registered
    immigrants are 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  78
    Total Manufacturing.........  ...........  29
      Food & Kindred Products...  -30          .............................
      Chemicals & Allied          33           .............................
       Products.
      Primary & Fabricated        2            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       13           .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  11           .............................
    Wholesale Trade.............  ...........  178
    Banking.....................  ...........  117
    Finance/Insurance/Real        ...........  152
     Estate.
    Services....................  ...........  40
    Other Industries............  ...........  77
        Total All Industries....  ...........  672
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                    HUNGARY

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................     48.02      46.32   \2\ 50.0
      Real GDP Growth (pct)................       4.4        5.2        3.8
      GDP by Sector: (pct)
        Agriculture........................       4.8        4.1        4.0
        Manufacturing......................      27.7       29.2       29.2
        Construction.......................       4.7        4.6        4.8
        Services...........................      43.0       42.6       42.7
        Government.........................      19.8       19.5       18.8
      Per Capita GDP (US$).................     4,808      4,621      4,903
      Labor Force (000s)...................     4,113      4,146      4,080
      Unemployment Rate (pct)..............       6.5        6.0        5.6

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M3).............      16.1       12.7   \3\ 15.1
      Average Consumer Price Inflation.....      10.0        9.8        7.8
      Official Exchange Rate (HUF/$ annual     237.29     282.27        290
       average)............................

    Balance of Payments and Trade:
      Total Exports FOB....................      25.0       28.1       29.3
        Exports to United States...........        .5         .6     \4\ .7
      Total Imports CIF....................      28.0       32.1       32.8
        Imports from United States.........       1.9        2.7        2.5
      Trade Balance........................      -3.0       -4.0       -3.5
        Balance with United States.........      -1.4       -2.1       -1.8
      Current Account Deficit/GDP (pct)....       4.4        3.3        3.0
      Net External Public Debt.............       2.9       -0.2    \5\ 2.0
      Fiscal Deficit/GDP (pct).............       3.9        3.5        3.4
      Debt Service Payments/GDP (pct)......       9.3          9        8.5
      Gold and Foreign Exchange Reserves...      10.9       11.2   \5\ 12.0
      Aid from United States (US$ millions)       9.9        4.0          0
      Aid from All Other Sources...........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ Source: Central Statistical Office and National Bank data through
      October 2001, except as noted.
    \2\ Apparent inconsistency with growth figures due to the strengthening
      of the dollar against the Hungarian forint.
    \3\ September 2000 to September 2001.
    \4\ Source: U.S. Department of Commerce; 2001 figures projected from
      January to August data. U.S and Hungarian-source bilateral trade
      figures differ markedly, due to country-of-origin distinctions in
      exports whose final assembly occurs in Hungary.
    \5\ August 2001.

    1. General Policy Framework
        Hungary has 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 to 1994) 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 to 1998) achieved economic
    stabilization through an IMF-coordinated austerity program adopted in
    March 1995, and accelerated privatization and economic reform. In 2000,
    Hungary continued to post solid increases in industrial output,
    exports, and overall output. Continued economic restructuring under the
    current government (elected in May 1998) is expected to allow for
    sustainable growth in the medium term. Regional disparities in economic
    growth, income and employment exist in Hungary.
        A revised privatization program enacted in 1995 gave new momentum
    to sales of government enterprises and assets, largely on a cash basis,
    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 comes from the private
    sector, and Hungary has progressively lowered government expenditures
    as a percentage of GDP. Other significant reforms initiated in 1995
    include means testing of social welfare payments (partially reversed by
    the current government) and pension reform (implemented in January
    1998). The unfinished reform agenda includes rationalizing health care,
    tax reform and local government financing.
        Privatization revenues helped to reduce substantially Hungary's
    foreign debt. The government has an unblemished debt payment record and
    since late 1996 all major credit rating agencies have rated its foreign
    currency obligations at investment grade. Foreign currency reserves
    stood at $12 billion through August 2001, enough for more than four
    months of imports.
        The government has pledged to continue reducing fiscal deficits.
    The consolidated budget deficit in 2001 will equal about 3.4 percent of
    GDP, down from 3.5 percent in 2000. However, the government has
    dramatically increased off-budget spending for road construction and
    housing, bringing the real deficit to more than five percent of GDP.
    Hungary finances its state deficit primarily through foreign and
    domestic bond issues. Projections for Hungary's 2001 current account
    deficit vary widely, but recent monthly statistics indicate that the
    deficit could end up lower than the 2000 deficit of $1.5 billion.
    Following a cumulative decline of 17 percent from 1995 to 1996, net
    real wages are expected to increase 5 to 7 percent in 2001, after an
    estimated 4.3 percent increase in 2000.
        Hungary has been a leader among Central European countries
    inattracting foreign direct investment, with an estimated $23 billion
    in cumulative inflows since 1989. The United States is a leading
    investor in Hungary with over $8 billion in cumulative FDI since 1989.
    Tax incentives and related credits are available for foreign
    investments, especially in underdeveloped regions. Hungary will have to
    transform these into regional development schemes after its EU
    accession. Hungarian law currently permits the establishment of
    companies in customs-free zones, which are exempt from indirect
    taxation tied to the turnover of goods. These zones, the engines of
    Hungarian industry and foreign trade, will face significant changes
    after Hungary's EU accession, but until then there are no plans to
    reduce the preferences guaranteed to them.
        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 the earliest
    possible accession date of January 1, 2003.
    2. Exchange Rate Policy
        The Government Decree on Foreign Currency (effective June 16, 2001)
    made the Hungarian forint fully convertible and abolished remaining
    restrictions on currency transactions, including permitting foreigners
    to buy Hungarian bonds and invest in derivatives. Foreigners and
    Hungarians can maintain both hard currency and forint accounts. Hungary
    widened the intervention band for the forint from  2.25 to
     15 percent on May 4, 2001, and eliminated the crawling peg
    on October 1, 2001. These changes have allowed the forint to fluctuate
    freely within the larger band. The forint was widely considered to be
    undervalued prior to the changes. In the months since, the forint
    appreciated steadily and in recent months settled at a rate about 9
    percent above the reference peg to the Euro, an appreciation of about 7
    percent. The crawling peg, in place since 1995, coupled with
    liberalization and prudent fiscal and monetary policy helped slow
    average annual inflation from 28.3 percent in 1995 to 9.8 percent in
    2000. The strengthening of forint in 2001 is expected to further reduce
    inflation in 2001 and 2002.
    3. Structural Policies
        The market freely sets prices for most products and services. User
    prices for pharmaceuticals, public transport, and utilities are set in
    some cases by the state. The government offers a wholesale floor price
    for many agricultural products. Public opposition and regulatory
    intervention have prevented utility prices (e.g., natural gas for
    heating and cooking) from reaching market levels, causing power
    companies to receive less than the cost-plus-eight percent return
    stipulated in privatization contracts. MOL has suffered significant
    losses since 2000 because the government fixed natural gas prices at a
    level substantially lower than world market prices.
        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 income tax
    remains low at 18 percent. A ten-year corporate tax holiday applies to
    investments of at least $33 million, as of October 2000, or $10 million
    in less developed regions, and a five-year, 50 percent tax holiday
    applies to investments of at least $3.3 million. Other incentive
    programs exist, including some offered by counties and municipalities.
    Consult the Country Commercial Guide for additional information.
        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 next areas of government finance reform
    are health care and local government financing. Health care costs are
    emerging as a drain on the budget and a source of fiscal indiscipline.
    The government continues to control pharmaceutical prices in order to
    limit health spending. Wholesale reforms are unlikely until after the
    2002 election.
    4. Debt Management
        Hungary is a moderately indebted country with gross foreign debt
    expected to be $33.5 billion at the end of 2001. Net public domestic
    debt was $20.2 billion at the end of June 2001. Hungary is one of a
    handful of countries that has never defaulted or rescheduled its
    foreign debt. Moody's has upgraded the foreign currency ceilings for
    bonds and bank deposits in Hungary from Baa1 to A3, and other major
    credit rating companies to A- at the end of 2000. A standby credit
    arrangement with the IMF ended in February 1998 by mutual agreement.
    Hungary is expected to have reserves of $12 billion at the end of 2001.
    5. Significant Barriers to U.S. Exports
        Hungary's trade policies are shaped primarily by its World Trade
    Organization (WTO) commitments and its efforts to accede to the
    European Union (EU). Hungary's progressive implementation of its
    Uruguay Round agreements has generally improved U.S. access to the
    Hungarian market. Hungary cut its average most-favored-nation (MFN)
    import duties from 13.6 percent in 1991 to 8.0 percent in 1998. Hungary
    has not yet acceded to the WTO Information Technology Agreement (but
    must as a condition of EU membership) and does not belong to the WTO
    Plurilateral Agreement on Civil Aircraft.
        Under Hungary's 1993 EU Association Agreement, Hungary completely
    eliminated tariffs on industrial products from the EU as of January 1,
    2001. EU nonindustrial exports can also enter Hungary with reduced
    tariff rates on a selective basis. However, until Hungary adopts the EU
    common external tariff (CXT), U.S. exports to Hungary are subject to
    MFN tariff rates, which are often quite high. For example, Hungary's
    MFN rate on automobiles is 43 percent, while automobiles of at least 60
    percent EU origin enjoy duty-free access. These differentials between
    tariffs on EU goods and U.S. goods disadvantage U.S. exporters, and the
    United States is in ongoing discussions with Hungary to reduce the
    differentials in key areas. Duty must be paid on imports from outside
    the Pan European Free Trade Zone, which may then be exported duty-free
    to other countries within the Zone. Duty paid on inputs processed and
    then exported within the zone is no longer refundable, a problem that
    the Hungarian government has addressed on a case-by-case basis for U.S.
    firms exporting from Hungary to European markets.
        Although 96 percent of imports (in value terms) no longer require
    an import license, quota constraints apply to some 20 product groups,
    including cars, textiles, and precious metals (the quotas, however, are
    not actually reached 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 progressively replaced by tariff-rate quotas.
    In 1997, Hungary eliminated an import surcharge imposed as part of the
    March 1995 austerity package.
        For domestic political reasons, Hungary has not yet implemented an
    amendment to the 1996 Media Law which would harmonize Hungary's
    broadcast regime with EU directives on content and quotas. Current
    draft legislation would require that over 50 percent of both public and
    private TV broadcasting be European programming, where practicable. In
    the meantime, the more restrictive original law still governs, which
    requires 70 percent European content. The Media Act revision would also
    limit any single cable provider to one-sixth of the household market.
    The Unified Communications Act passed in 2001 will eliminate the
    monopoly of the formerly state-owned telecommunications company at the
    end of 2001. Smaller local telephone operators have monopoly rights for
    local services until the end of 2002.
        On February 26, 2001, Hungary and the EU signed a Protocol to the
    Europe Agreement on Conformity Assessment and Acceptance of Industrial
    Products (PECA), under which the EU and Hungary agreed to recognize the
    results of each other's designated conformity assessment bodies, thus
    eliminating the need for further product testing of EU products
    imported into Hungary. However, it appears these benefits will only
    apply to products that are both of EU country origin and bear the
    ``CE'' mark denoting compliance with EU standards. As such, products of
    U.S. origin that bear the CE mark may not receive testing-free entry
    into Hungary. The United States government has, and will continue to,
    discuss its concerns over PECA with Hungary and the EU in bilateral and
    multilateral settings.
        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. Hungary has requested a seven-year transition period after EU
    accession to eliminate this restriction.
        Under the November 1995 Law on Government Procurement, public
    tenders must be invited for purchases of goods with a value over
    $33,000. As of October 2000, the same is true of construction projects
    worth $66,000 or designs and services worth over $16,500. Bids that
    contain 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 involving government tenders.
        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).
    6. Export Subsidies Policies
        The Hungarian 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. Hungary offers no direct
    export subsidies on industrial products, but does give export subsidies
    to some agricultural products. 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
    abiding by the terms of that agreement in phasing out subsidies,
    despite continued political pressure from domestic constituencies.
    7. Protection of U.S. Intellectual Property
        Intellectual property rights laws in Hungary are generally good,
    but insufficient resources, court delays, and relatively light
    penalties hamper enforcement. In 1993, the United States and Hungary
    signed a comprehensive Bilateral Intellectual Property Rights Treaty.
    Hungary 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. In compliance with its
    TRIPS obligations, Hungary enacted a new copyright law that went into
    effect on September 1, 1999, that introduced modern copyright
    legislation. Some question exists of whether sufficient legal authority
    exists for civil ex parte search procedures.
        In May 2001, the United States Trade Representative announced that
    it had upgraded Hungary to the Special 301 Priority Watch List because
    Hungary does not adequately protect confidential test data submitted by
    pharmaceutical companies seeking marketing approval, contrary to its
    obligations under Article 39.3 of TRIPS. On April 12, 2001, the
    Hungarian government issued a ministerial decree to provide this so-
    called data exclusivity protection, but the decree does not take effect
    until January 1, 2003, and would not provide protection for test data
    submitted prior to that date. The Hungarian government claims that its
    unfair competition legislation is adequate to prevent generic drug
    manufacturers from using data submitted by multinational research
    pharmaceutical firms, but examples exist where generics have actually
    come to market prior to or very soon after the original product. The
    United States has urged Hungary to rectify this situation at every
    possible opportunity. Hungary did not provide product patents (only
    process patents) for pharmaceuticals before 1994, and examples exist of
    domestic generic drugs coming to market before process patents expire.
        Pharmaceutical manufacturers have also tried unsuccessfully to get
    the Hungarian government to reverse the burden of proof in patent
    infringement court cases. The industry has also reported a lack of
    transparency in the Hungarian government's drug pricing and
    reimbursement policies, claiming the government discriminates against
    imported drugs in favor of domestically produced generics.
        Trademark infringement is a problem in Hungary, with various
    counterfeit goods (e.g., perfumes, clothing) available on the local
    market. These goods appear to be entering Hungary from other countries
    rather than being manufactured here. The number of civil actions
    brought before the Budapest Metropolitan Court (the exclusive court of
    competence for these cases) is up dramatically since 1997, but the
    enforcement of sanctions against the sale of pirated goods is still
    lacking. There are no available estimates of the losses incurred by the
    various industries due to either black or gray market activities. This
    area of IPR infringement is receiving increased attention from
    Hungarian and international law enforcement, however, due to the
    involvement of organized crime and connections with money laundering
    schemes.
        Copyright protection is weak in Hungary, with pirated CDs, tapes,
    videos, and software available on the local market. Many of these
    products are produced in Hungary. Video and cable television piracy is
    widespread, and local television and cable companies regularly transmit
    programs without authorization. U.S. industry estimates that 40 percent
    of the videotapes available in Hungary in 2000 were pirated copies.
    Local groups such as the Business Software Alliance and the Hungarian
    Anti-Piracy Association are funded in part by manufacturers
    associations (e.g., Motion Picture Association) and are working to
    reduce the level of piracy, in cooperation with Hungarian law
    enforcement. There are about 1,000 software copyright court cases tried
    each year. Government cooperation has been good, but not enough
    resources are available to effectively stop copyright infringement.
        The Pharmaceutical Research and Manufacturers Association estimates
    it loses between $50 and $100 million annually due to the data
    exclusivity problem and other weaknesses in Hungary's patent protection
    regime. The International Intellectual Property Alliance estimated
    losses to U.S. trade in 2000 due to copyright piracy at $55.6 million.
    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 private sector.
    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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  -47
    Total Manufacturing.........  ...........  834
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          62           .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    399          .............................
       Equipment.
      Electric & Electronic       79           .............................
       Equipment.
      Transportation Equipment..  107          .............................
      Other Manufacturing.......  66           .............................
    Wholesale Trade.............  ...........  151
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  (\1\)
     Estate.
    Services....................  ...........  -55
    Other Industries............  ...........  76
        Total All Industries....  ...........  1,040
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    IRELAND

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\...................    2,267.0      91,300      97,700
      Real GDP Growth (pct) \3\.........       10.5        11.5         6.0
      GDP by Sector: \4\
        Agriculture.....................      3,627       3,360         N/A
        Manufacturing...................     35,140      36,013         N/A
        Services........................     45,568      45,858         N/A
        Government......................      3,172       2,878         N/A
      Per Capita GDP (US$)..............    424,067      23,652      25,310
      Labor Force (000s)................      1,711       1,732       1.779
      Unemployment Rate (pct) \5\.......        5.6         4.1         3.7

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M3E) \6\.....        N/A         N/A         N/A
      Consumer Price Inflation (pct)....        1.6         5.6         5.3
      Exchange Rate (IP/US$--annual
       average):........................
        Official........................        .74         .85         .92
        Parallel........................        N/A         N/A         N/A

    Balance of Payments and Trade:
      Total Exports FOB \7\.............     70,200      73,125      75,600
        Exports to United States........     10,894      13,131      *7,488
      Total Imports CIF \7\.............     46,777      50,900      49,800
        Imports from United States......      7,733       8,288      *4,564
      Trade Balance.....................     23,423      22,225     *15,899
        Balance with United States......      3,161       8,750      *2,923
      External Public Debt \8\..........     46,845      40,483      34,294
      Exchequer Surplus/GDP (pct) \9\...        1.7         3.1         2.6
      Debt Service Payments/GDP (pct)...        3.6         2.4         N/A
      Gold and Foreign Exchange Reserves      5,693       6,794         N/A
      Aid from United States \10\.......          5           8           8
      Aid from All Other Sources \11\...      1,322       2,197         N/A
    ------------------------------------------------------------------------
    * Total for January-June 2001.
    \1\ 2001 figures are estimates based on data available through June
      2001.
    \2\ GDP at current market prices.
    \3\ GDP at constant market prices (local currency).
    \4\ GDP at constant factor cost.
    \5\ ILO definition.
    \6\ Broad money (from 1998 CBI discontinued publishing M3E).
    \7\ Merchandise trade.
    \8\ Total amount owed by Irish government at year ending December 31,
      1999 and 2000 at the average yearly exchange rate. The figure for year
      2001 represents the value of government debt on March 31, 2001.
    \9\ General government.
    \10\ In 2000, the United States contributed 19.6 million dollars to the
      International Fund for Ireland (IFI). A further 19.6 million dollars
      is committed for 2001. It is estimated that a quarter of this amount
      is spent in the Republic of Ireland's border counties.
    \11\ These figures include transfers from the EU's European Social fund,
      Regional Development Fund, Cohesion Fund and Special Program for
      Northern Ireland and the border counties, as well as the contributions
      from countries other than the United States to the IFI.

    Sources: Central Bank of Ireland (CBI), Central Statistics Office (CSO),
      and National Treasury Management Agency (NTMA).

    1. General Policy Framework
        In 2001, the Irish economy continues to grow strongly, albeit at a
    slower rate than previous years. The unprecedented double-digit
    economic growth recorded in 1999 and 2000 has tapered off and signs of
    slowdown are apparent. Last year's significant expansion in output was
    driven by strong domestic demand and impressive external trade
    performance. The deceleration on growth, as witnessed in the first six
    months of 2001, reflects the impact of a slowdown in the U.S. and the
    European Union and the effects of animal health problems.
        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 economic programs
    agreed by the government, employers, and trade unions, in order to
    limit wage growth and boost employment creation; (3) the ten (12.5
    percent beginning in 2003) percent corporate tax rate for international
    manufacturing and service companies, together with generous grants to
    export-oriented multinational firms who locate in Ireland; and (4) high
    levels of investment in education, training and physical
    infrastructure, much of it funded by generous transfers from the
    European Union. 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.
        The results have been impressive. Real Irish GDP growth has
    averaged over eight percent since 1994, and real Irish incomes have
    increased by almost two-thirds since the beginning of the decade. Fast
    growth has been accompanied by increasing openness to the world
    economy. In 2000, total imports and exports were equivalent to over 140
    percent of GDP, compared with under 100 percent a decade earlier.
    Thanks in large part to the strong performance of Irish-based U.S. and
    other multinational firms, Ireland now enjoys a huge surplus in
    merchandise trade (equivalent to 29 percent of GDP in 2000), which more
    than offsets trade deficits in services and factor incomes. Despite
    fast growth, inflation remained low for much of this period, averaging
    just two percent in 1994-97. Since late 1999, however, inflation has
    accelerated from year-on-year rates of 2 percent to a rate of 7 percent
    in November 2000, and slowed to 4.6 percent in August 2001. The weak
    value of the euro vis-a-vis the U.S. dollar, higher oil prices,
    increasing wage costs, rising disposable incomes, relatively low
    interest rates, lower taxes, fast employment, and strong growth in
    property prices have together resulted in these recent levels of high
    inflation.
        Fiscal policy: After the runaway public deficits of the mid 1980s,
    the Irish government has since maintained a more prudent fiscal
    position. Fast economic growth, combined with limited growth in public
    spending, has kept Ireland's general government deficit below 2.5
    percent of GDP since 1989. In recent years, Irish governments have
    enjoyed large general government surpluses. In 2000, the general
    government surplus was 3.6 percent of GDP and is expected to contract
    to 2.6 percent in 2001. This was consistent with the provisions of the
    1992 Maastricht Treaty, which required EU member states to keep their
    fiscal deficits below three percent of GDP, and allowed Ireland to be
    confirmed in May 1998, along with ten other EU member states, as a
    starting participant in the final stage of economic and monetary union
    (EMU), which began in 1999.
        In spring 2000, the European Commission censured Ireland for
    pursuing ``an over expansionary fiscal policy.'' Tax cuts in four
    consecutive budgets, coupled with significant increases in the
    Government of Ireland's spending, prompted the Commission to issue a
    formal censure to Ireland. In the Commission's eyes, Ireland breached
    the European Union's Broad Economic Policy Guidelines, and it was
    obligated to either postpone future tax cuts or cut back on public
    spending.
        Government surpluses, together with fast growth in national income,
    have reduced Ireland's Debt/GDP ratio from over 125 percent in 1987 to
    39 percent at the end of 2000. The National Treasury Management Agency
    predicts a further decline in 2001 in the ratio of about eight
    percentage points and another five percentage points in 2002. In
    nominal terms, national debt at the end of 2000 amounted to just over
    34.7 billion dollars. Of this, 5.5 percent was denominated in non euro
    currency. The burden of debt service costs on the economy and the
    taxpayer continued to fall in 2000. The ratio of interest payments to
    tax revenues declined by 2.5 percentage points, continuing the downward
    trend of the past several years. As a result, interest on the debt now
    absorbs some 7.6 percent of tax revenue compared to almost 28 percent
    in 1990.
        Personal income and consumption taxes form the bulk of total
    government tax revenue. There are two personal tax rates, the standard
    20 percent rate and the higher 42 per cent rate. The higher rate kicks
    in at slightly below the median industrial wage (about 23,000 dollars).
    In a bid to secure continued trade union commitment to modest nominal
    wage increases and to make entry level jobs more attractive to the
    long-term unemployed and non traditional participants in the Irish
    workforce (older citizens and mothers), the current government lowered
    personal tax rates and introduced a tax credit system. The rate of
    Value Added Tax (VAT), a consumption tax, at 20 percent, is high by
    European standards. VAT rates in EU Members States, including Ireland,
    can be raised, but not lowered, without EU approval.
        The standard rate of corporate tax is 20 percent. Corporate
    taxation, however, makes a relatively modest contribution to public
    finances, and few U.S.-owned businesses pay this rate because of the
    special ten percent rate available to companies producing
    internationally-traded manufactured goods and services, and to
    companies operating in certain industrial zones. Most Irish-based,
    U.S.-owned businesses pay corporate tax at the special ten percent
    rate. In response to European Commission criticism that the special
    rate of corporate tax constituted a subsidy to industry, the government
    committed to harmonize the special and standard rates to one single
    rate of 12.5 percent by 2003, thereby eliminating the differential
    treatment. In the interim, corporate taxes will fall from rates of 20
    percent in 2001 to 16 percent in 2002 and finally to 12.5 percent in
    2003.
        Monetary policy: Beginning in 1999, monetary policy in Ireland, as
    in the other eleven EU states adopting the single European currency, is
    formulated by the European Central Bank (ECB) in Frankfurt. The Irish
    Central Bank will continue to exist as a constituent member of the
    European System of Central Banks (ESCB) and will be 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) will, ex officio, have one vote in
    the ECB's 17-member monetary policy committee, although each national
    central bank governor in the committee will be expected to disregard
    the individual performances of their own national economies in
    formulating a common monetary policy for the euro area. The 1992
    Maastricht treaty 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 of below two percent. In making its assessment of future
    consumer price movements, the ECB will consider trends in money supply,
    private sector credit, and a range of intermediate price indicators.
    The primary instrument of monetary policy is expected to be open market
    operations by the ECB and the national central banks (purchases and
    repurchases of government securities at a discount rate announced
    weekly).
    2. Exchange Rate Policies
        On January 1, 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 continues
    to circulate until the introduction of euro notes and coins in January
    2002, it acts as a ``denomination'' of the euro, with an irrevocably
    fixed exchange rate to the euro and the eleven other participating
    currencies. The conversion rate between the Irish pound and the euro
    was fixed at the rate of one euro to Irish pounds 0.787564.
        The euro is freely convertible for both capital and current account
    transactions. The Maastricht Treaty makes exchange rate policy for the
    euro the responsibility of EU finance ministers, subject to the proviso
    that exchange rate policy does not threaten price stability in the euro
    area. Ireland is unique among all other euro members in that its
    largest trading partner, the UK, remains, for the near future, outside
    the single euro currency. Ireland's loss of control over its exchange
    rate with UK sterling poses risks to Irish industry dependent on UK
    suppliers. The current weak value of the euro vis-a-vis sterling places
    pressure on Irish importers to increase the flexibility of their cost
    base. Conversely, the weak euro has helped Irish producers to increase
    export flows to the UK and U.S. The fear at present is that the euro
    will appreciate against sterling and the dollar making Irish exports
    relatively expensive and uncompetitive. The Irish pound averaged $1.17
    against the dollar in 2000 (IP 1.0 = $ 1.35), and is expected to
    average in the region of $1.15 (IP 1.0 = 1.15) in 2001.
    3. Structural Policies
        Economic policy in Ireland is geared primarily towards maintaining
    low unemployment and raising average living standards, although income
    redistribution, social cohesion and regional development are also
    important goals. After the failure of expansionary fiscal policies in
    the late 1970s to stimulate growth, government policy makers focused on
    supply-side measures aimed at creating an environment attractive to
    private enterprise and in particular to inward direct investment by
    export-oriented multinationals. The most important policies in this
    regard have been:

              (a) Tight control over the public finances in order to
            maintain macroeconomic stability. In 1997, Ireland recorded its
            first general government surplus in over 50 years;
              (b) The development of a social consensus on economic policy
            through national wage agreements negotiated by the government,
            employers, and trade unions. The latest agreement, the Program
            for Prosperity and Fairness, took effect at the beginning of
            April 2000 and trades off continued wage/pay moderation by
            trade unions in return for substantial cuts in personal
            taxation;
              (c) The promotion of greater competition and liberalization
            in the economy, and reducing the number of state-owned
            industries, particularly in the provision of transport, energy
            and communications services;
              (d) The availability of a special ten percent rate of
            corporate taxation and generous grants to attract foreign
            investment, which rises to 12.5 percent from 2003 onwards;
              (e) a commitment to the single European market and to Irish
            participation in EMU;
              (f) 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); and
              (g) Improvements in physical infrastructure (in all areas
            from roads to environmental systems to housing stock, details
            of which are contained in the National Development Plan 2000-
            2006). Structural investment between 2000-2006 is expected to
            total around 48 billion dollars. Much of this will be funded by
            Irish tax payers as opposed to previous national development
            plans, which were funded by generous EU transfers.

        The success of the above policies in attracting foreign investors
    and raising incomes has had two distinct effects on U.S. exports to
    Ireland. First, over 580 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. Second, the fast growth in both
    personal incomes and corporate profitability in Ireland has led to a
    strong increase in demand for U.S. capital and consumer goods from
    Irish companies and workers. The combination of the above two effects
    has seen U.S. exports to Ireland increase by a factor of five between
    1983 to 2000. 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 government debt. Ireland's General
    Government Debt at the end 2000 amounted to just over 40.5 billion
    dollars (using average 2000 exchange rates), equivalent to just over 31
    percent of GDP. By end 2000, Ireland's comparative indebtedness was the
    second lowest among the 15 EU Member States. 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. However, because of
    increased fiscal rectitude since the late 1980s, Ireland is the only EU
    Member State to have a lower Debt/GDP ratio in 1997 than it had in
    1991.
        While the absolute level of debt has remained within a relatively
    narrow range over recent years, the ratio of Debt to GDP has declined
    sharply because of the very strong growth of the Irish economy.
    Reported 2000 debt service expenditure was 2,579 million dollars, some
    43 million dollars below the budget of 2,622 million dollars.
        The burden of debt service costs on the economy and the taxpayer
    continued to fall in 2000. The ratio of interest payments to tax
    revenues declined by 2.5 percentage points, continuing the downward
    trend of the past several years. As a result, interest on the debt now
    absorbs approximately 7.6 percent of tax revenue compared to almost 30
    percent in 1990. Debt servicing costs are expected to continue to fall
    significantly as a proportion of national income and total government
    expenditure in the coming years, reflecting moderate interest rates,
    falling nominal debt levels and sustainable Irish income growth. This
    should pave the way for further reform of the personal taxation system,
    resulting in lower personal income tax levels and thus increasing
    consumer demand for U.S. exports of goods and services.
    5. 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 2000 were valued at 8.4 billion dollars (17 percent of total
    imports), up from just over three billion dollars in 1990. Irish
    exports to the United States have increased at an even faster rate over
    the same period. Irish exports to the U.S. in 2000 standing at 13.1
    billion dollars resulting in a 4.7 billion dollars trade surplus for
    Ireland. Ireland has been running a trade surplus with the United
    States since 1997.
        The United States is the second largest exporter of goods to
    Ireland. The UK is the only country to outstrip the U.S. in the terms
    of value of merchandise products exported to Ireland. There are several
    significant barriers to trade of importance to potential U.S.
    exporters, particularly with regard to trade in services. Specifically,
    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. Under the
    agreement, any carrier of passengers or cargo providing North Atlantic
    services to Dublin airport must also provide service to Shannon airport
    on Ireland's west coast. In addition, under the bi-lateral U.S.-Ireland
    civil aviation agreement, the ``Shannon stopover'' requirement adds
    unnecessary costs to both U.S. air carriers and U.S. exporters.
        Ireland's markets for electricity and gas are being liberalized in
    accordance with EU energy directives. Ireland has opened 33-40 percent
    of its electricity market to competition, in accordance with EU
    guidelines. This development has sparked significant interest among
    electricity suppliers, both domestic and foreign, in the Irish
    electricity market. However, the provision of electricity in Ireland is
    relatively costly for suppliers owing to low demographic density in
    areas outside the major urban centers. The experience of private sector
    investors in the Irish energy market has been mixed. Suppliers of
    electricity have fared better than those in the gas sector.
        The market for telecommunications services in Ireland was fully
    liberalized in December 1998: more than one year ahead of the original
    timetable agreed to with the European Commission in 1996. Prior to
    liberalization, the state-owned telecommunications company, Telecom
    Eireann, was the monopoly provider of voice telephony services to the
    general public. The market for leased lines and other data transmission
    services was progressively liberalized earlier in the 1990s. Telecom
    Eireann was publicly floated on the Dublin and New York stock exchanges
    in May 1999, under its new name ``Eircom.'' As part of privatization,
    Eircom sold off the state-owned cable network, ``Cablelink'' to
    ``Ntl,'' an Anglo-U.S. firm, which is presently launching a raft of
    telecommunications services ranging from an extension of the cable
    network to the provision of next generation internet facilities.
        There are three licensed mobile telephony network providers. These
    include Eircell (formerly a subsidiary of Eircom and now owned by a UK-
    based Vodafone), Esat-Digiphone and Meteor (U.S. consortium). A
    competitive market environment is emerging in Ireland in both land
    based and mobile telecoms networks. The EU's telecom ministers decision
    of October 2000 agreed to a series of ``local loop unbundling rules.''
    As a result, access to the last mile of telephone lines was liberalized
    in Ireland January 1, 2001. The Office of the Director of
    Telecommunications has set a tariff for the ``last mile,'' which is
    presently being challenged by Eircom in the Irish courts.
        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 certain foods containing genetically modified organisms
    (GMOs), bananas from outside the Caribbean area, cosmetics containing
    specified risk materials (SRMs), and some wines, although as with other
    goods, the above restrictions are determined at EU level.
        Ireland has been a member of the World Trade Organization (WTO)
    since January 1, 1995. The WTO agreement was ratified by the Irish
    parliament in November 1994. As a 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 an MFN, non-preferential WTO basis.
    6. Export Subsidy 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 exemptions from taxes and duties on
    imported inputs used in the manufacture of goods destined for non-EU
    countries. Furthermore, Ireland applies a special ten percent rate of
    corporation tax (the standard rate is 20 percent) to companies
    producing manufactured goods and services for export to companies
    operating out of the SDFPZ and the International Financial Services
    Center (IFSC) in Dublin. Under pressure from the European Commission,
    which viewed the special tax as a subsidy to industry, the Irish
    government is now committed to eliminating the special rate by
    harmonizing at 12.5 percent by 2003.
        In May 1998, the United States instituted WTO dispute settlement
    consultations with Ireland in relation to Ireland's ``special trading
    house'' tax regime. Under section 39 of the Irish Finance Act 1980, the
    ten percent rate of corporation tax is available to ``special trading
    houses,'' which are companies that act as an access mechanism and
    marketing agent for Irish-manufactured products in foreign markets.
    Following the U.S. action, the Irish government announced in June 1998
    its intention to seek parliamentary approval for the termination of the
    scheme ``at the earliest opportunity.'' Trading houses already licensed
    under the scheme continued to receive the tax break until December 31,
    2000, when the scheme expired under existing EU directives.
        Other activities that qualify for the special ten percent rate of
    corporate taxation include design and planning services rendered in
    Ireland in connection with specified engineering works outside the
    European Union. This applies 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 20 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 (CAP), the Irish Department of Agriculture, Food
    and Rural Development administers CAP Export Refund and other subsidy
    programs on behalf of the EU Commission.
    7. 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. In July 2000, Irish President McAleese signed
    new legislation that brought Irish Intellectual Property Rights (IPR)
    law into compliance with Ireland's obligations under the WTO Trade-
    related Intellectual Property Treaty (TRIPs). Following final
    administrative preparations required under the new law, the legislation
    came into force in early fall 2000 and gives Ireland one of the most
    comprehensive systems of IPR protection in Europe.
        The new Irish legislation is a wholesale reform of previous Irish
    IPR law. Among its many provisions, this new legislation specifically
    addresses several TRIPs inconsistencies in Irish copyright, patent and
    trademark legislation, which had been of concern to foreign investors,
    including the absence of a rental right for sound recordings, the lack
    of an ``anti-bootlegging'' provision, and low criminal penalties which
    failed to deter piracy. The new legislation should, by improving
    enforcement and penalties on both the civil and criminal sides, help
    reduce the high levels of software and video piracy in Ireland
    (industry sources estimated that in 2000, approximately 50 percent of
    PC software used in Ireland was pirated).
        As part of this new comprehensive copyright legislation, changes
    were also made to revise the non-TRIPs conforming sections of Irish
    patent law. Specifically, the new IPR legislation addresses two
    concerns of many foreign investors about the previous legislation. One,
    the compulsory patent licensing provisions of the previous 1992 patent
    law were inconsistent with the ``working'' requirement prohibition of
    TRIPs articles 27.1 and the general compulsory licensing provisions of
    article 31. Two, applications processed after December 20, 1991, did
    not conform to the non-discrimination requirement of TRIPs article
    27.1.
        In light of Irish government progress in passing new IPR
    legislation, USTR suspended WTO dispute settlements proceeding against
    Ireland and removed Ireland from the ``watchlist'' in its latest annual
    special 301 review of intellectual property protection by U.S. trading
    partners.
        Ireland offers exceptional trade and business opportunities in the
    technological services sector, particularly for e-commerce and other
    internet related businesses. The Irish government has put into place,
    ahead of many of its fellow EU Member States, flexible, market driven
    legal and regulatory regimes on key issues such as electronic
    signatures, consumer and data protection, encryption policy, and
    intellectual property protection for internet based industries. The
    government, as part of its goal of making Ireland a transatlantic e-
    commerce hub, has aggressively invested in broad bandwidth throughout
    the country. Irish officials are also proactively supporting Irish
    private and public involvement in development of the ``next generation
    internet.'' The recently announced ``Technology Foresight Fund,'' an
    Irish government program to fund basic scientific research projects
    with potential for commercial development, will focus on computers and
    internet related research, as one of its priorities. There are no major
    trade barriers to exports or investment in e-commerce or internet
    related sectors.
        Opportunities in the biotechnology sector also exist. An initial
    government sponsored ``Consultation Paper'' on biotechnology
    development, released in 1999, strongly argued for increased government
    support for all areas of biotechnology research, development, and
    commercialization. Irish policies in the planting and consumer sale of
    genetically modified (GM) crops and food products are still evolving
    and there are some restrictions on importation of GM seeds and foods,
    in accordance with existing EU directives. Research involving GM crops
    and products is being conducted in Ireland after approval from the
    Irish environmental ministry.
        Ireland is a growing center for biomedical research and the Irish
    government has identified it as a priority sector for development. Both
    Irish and U.S. biomedical firms are active in Ireland. There are no
    significant barriers to either the export of biomedical products or
    foreign direct investment in the biomedical sector.
    8. 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. About 55 percent of workers in the public sector and
    45 percent 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 734,842 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 antiunion 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. The current partnership agreement, the Program for
    Prosperity and Fairness, trades off moderation by trade unions in wage
    demands in return for cuts in personal taxation by the government.
    Employer interests in labor matters, and during the negotiations of
    these national partnership agreements, are represented by the Irish
    Business and Employers Confederation (IBEC). Foreign-owned businesses
    participate in IBEC at all levels. 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 of 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, the Irish government announced in April 1998 proposals
    for the introduction of a national hourly minimum wage of Irish pounds
    4.40 (around 5.30 dollars), which came into effect in April 2000. The
    national minimum wage was increased in July 2001 to Irish pounds 4.70.
        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 set a
    maximum of 48 working hours per week, requires that workers be given
    breaks after they work certain periods of time, imposes limits to shift
    working, and mandates four weeks annual leave for all employees. Worker
    rights legislation increasingly is being set by the European
    Commission, and further Directives in this area, including rights for
    part-time workers and the right of equal treatment, can be expected in
    coming years.
        f. Rights in Sectors with U.S. Investment: The worker rights
    described above are applicable to 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  667
    Total Manufacturing.........  ...........  9,874
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          3,753        .............................
       Products.
      Primary & Fabricated        192          .............................
       Metals.
      Industrial Machinery and    460          .............................
       Equipment.
      Electric & Electronic       1,433        .............................
       Equipment.
      Transportation Equipment..  32           .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  620
    Banking.....................  ...........  -50
    Finance/Insurance/Real        ...........  12,668
     Estate.
    Services....................  ...........  9,277
    Other Industries............  ...........  313
        Total All Industries....  ...........  33,369
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     ITALY

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Real GDP \2\......................    1,170.7     1,204.8     1,225.9
      Real GDP Growth (pct) \3\.........        1.6         2.9         1.7
      GDP (at current prices) \3\.......    1,179.8     1,073.8     1,123.0
      GDP by Sector:
        Agriculture.....................       33.7        28.6         N/A
        Manufacturing...................      247.9       225.8         N/A
        Construction....................       51.3        47.2         N/A
        Services........................      846.9       771.2         N/A
        Government......................      202.6       181.1         N/A
      Per Capita GDP (US$)..............     20,469      18,563      19,416
      Labor Force (millions)............       23.4        23.5        23.7
      Unemployment Rate (pct)...........       11.4        10.6         9.6

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2) \4\......        6.8         4.4         4.3
      Consumer Price Inflation..........        1.7         2.5         2.8
      Exchange Rate (Lira/US$ annual           1818        2102        2160
       average of market rate)..........

    Balance of Payments and Trade:
      Total Exports FOB \5\.............      245.4       237.0       103.0
        Exports to United States \5\....       21.9        24.6        10.1
      Total Imports CIF \5\.............      220.5       235.7       102.5
        Imports from United States \5\..       10.7        12.5         5.5
      Trade Balance \5\.................       14.9         1.3         0.5
        Balance with United States \5\..       11.2        12.1         5.8
      External Public Debt..............       75.3        77.7         4.6
      Fiscal Deficit/GDP................        1.9         1.5         1.5
      Current Account Surplus/GDP (pct).        0.7        -0.4        -0.6
      Debt Service Payments/GDP (pct)           6.8         6.2         6.4
       \6\..............................
      Gold/Foreign Exchange Reserves....       45.2        40.4       47.1
    ------------------------------------------------------------------------
    \1\ 2000 estimates based on data available through June.
    \2\ 1995 prices; GDP at factor cost.
    \3\ Percentage changes calculated in local currency. Exchange rate
      changes account for discrepancy between rising GDP figures (calculated
      in local currency) and falling current price GDP (calculated in
      dollars).
    \4\ 1999 and 2000 data are the growth rate of M2 in the euro area
      through December 1999 and 2000. 2001 data is through June 2001.
    \5\ Merchandise trade. 2001 data through May.
    \6\ Represents total debt-servicing costs.

    1. General Policy Framework
        Italy has the world's sixth largest 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 on January 1, 2002.
    The lire will co-exist with the euro from January 1 to February 28, and
    can be used as an official currency for transaction. After February 28,
    2002 and for a period of ten years, lire can be exchanged for euros
    only at the Bank of Italy. Public opinion polls consistently rank Italy
    as one of the most ``pro-euro'' countries in Europe.
        Italy has a private sector characterized by a large number of small
    and medium-sized firms and a few multinational companies with wellknown
    names such as Fiat, Benetton, 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 and social problems.
        The Italian 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 significantly in some
    sectors. In other sectors, particularly in energy, the State still has
    a strong presence. The government retains a potentially blocking
    ``golden share'' in industrial companies privatized thus far. The
    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 high in comparison to EU
    standards, driven up 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 1990s, Italy started to address a number of macroeconomic
    problems in order to qualify for first round EMU membership. The public
    sector deficit fell from 1.9 percent of GDP in 1999 to 1.5 percent at
    end-2000, aided by higher than expected tax revenues. This year, lower
    than expected GDP growth and lower than expected tax revenues,
    particularly in capital gains, are expected to produce a deficit/GDP
    ratio well above the 0.8 percent target and as high as 1.2 percent. The
    level of public debt, second highest among the EMU countries as a share
    of GDP, has started to decline but remains over 100 percent of GDP. The
    Italian government plans to reduce the debt level gradually to the EMU
    target level of 60 percent of GDP in 2016.
        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 these powers have been transferred to the European Central
    Bank, with the Bank of Italy retaining banking supervision
    responsibilities. Consumer inflation accelerated from 1.7 percent in
    1999 to 2.5 percent for 2000, fueled by higher oil prices, a weakening
    euro and worsening of terms of trade. This trend continued through the
    first seven months of 2001, producing an average inflation of 2.9
    percent. Inflation is expected to slow in the last part of the 2001,
    producing an average annual inflation rate of about 2.8 percent.
    Producer prices also accelerated from minus 0.3 percent in 1999 to 6.0
    percent in 2000, because of higher prices for petroleum and other raw
    materials and of the strengthening of the dollar versus the euro.
    Producer price increases decelerated to four percent in the first half
    of 2001 and are expected to decelerate further in the second half of
    the year.
    2. Exchange Rate Policy
        On January 1, 1999 Italy relinquished control over exchange rate
    policy to the European Central Bank. The Euro, now used for non-cash
    transactions, begins circulation in January 2002 in twelve countries of
    the EU, including Italy. Italy's participation in the euro will
    simplify trade for those companies exporting to several EU countries.
    3. Structural Policies
        Italy has not implemented any structural policies over the last
    three 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 antitrust 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-1970s.
    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 5.6
    percent of total debt. Italy maintains relatively steady foreign debt
    targets, and uses issuance of foreigndenominated debt essentially as a
    source of diversification, rather than need.
    5. Significant Barriers to U.S. Exports
        In general, EU agreements and practices determine Italy's trade
    policies. These policies include preferential trade agreements with
    many countries.
        Import Licensing: With the exception of a small group of largely
    agricultural items, practically all goods originating in the United
    States 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. More than 70 percent of Italy's population
    of 57 million use mobile phones. 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 telecommunications sector, Italy issued more than
    140 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.
        Obtaining rights-of-way is one area where U.S. firms may have
    experienced difficulties. U.S. companies have raised concerns that
    current and former state parastatals (highways, gas, railways) hold
    almost all the best rights-of-way licenses. Under Italian code, state-
    owned entities are not obligated to concede rights-of-way to
    communications' licensees. In addition, the Government of Italy and the
    Communications Authority maintain that they do not have any authority
    over local law provisions and decisions by municipalities that give
    preferential treatment to the former state-owned companies. Embassy
    will continue to monitor this issue carefully and raise this issue with
    appropriate Italian government officials.
        There has also been some recent concern regarding the continued
    presence of the government in the telecommunications market. In
    addition to maintaining a golden share in Telecom Italia, the
    Government of Italy has a controlling interest, through parastatal
    energy company ENEL, in WIND/Infostrada, the second largest national
    operator, as well as significant interest in Blu, another large
    national telecoms operator. In addition, the new center-right
    government is pursuing a plan to reduce responsibilities of the
    independent Communications Authority in favor of expanding the role of
    the Communications Ministry. Under plans of the former center-left
    government, the Ministry was slated to be abolished.
        In August 1997, Italy established an independent regulatory
    authority for all communications, including telecommunications and
    broadcasting. Concerns remain regarding regulatory due process,
    transparency, and even-handedness in general. Nevertheless, the Italian
    market is much more open to services imports in this sector than it was
    prior to implementation of the EU telecommunications' 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 to
    20 percent of their seats, distributed over no fewer than three
    screens, to screening 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.
        Italy imposes some limits on foreign ownership in banks. According
    to the Banking Law, a foreign institution wanting to increase its stake
    in a bank to above five percent needs authorization from the Bank of
    Italy.
        Some professional categories (e.g. engineers, architects, lawyers,
    accountants) face restrictions that limit their ability to practice in
    Italy without possessing EU/Italian nationality, having received an
    Italian university degree, or having been authorized to practice by
    government institutions. Regarding lawyers in particular, a recent
    Italian law could force foreign firms to reorganize the internal
    structures of their Italian firms.
        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.
        Starting October 1, 2001, the EU, including Italy, requires that
    blood products, gelatin, tallow and mechanically removed meat such as
    that used in some pet foods, be subject to Commission regulation 1326/
    2001. This regulation requires that various animal products, even pet
    foods, not intended for human consumption, not contain specified risk
    materials (SRMs) and that these foods be certified to that effect.
        In August 2000, Italy banned the commercialization of four biotech
    corn varieties that had been approved by the European Union after
    extensive testing. The ban appears to violate EU regulations.
        Rulings by individual local customs authorities can be arbitrary or
    incorrect, resulting in denial or delays of U.S. exports' entry 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 antitrust law gives the Antitrust Authority 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 nontransparent
    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 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 operating at
    present similar to the initial subsidies.
    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 August 2000, the Italian Parliament enacted the long-awaited
    ``anti-piracy'' law, providing for higher criminal penalties for IPR
    violations. Italy has since been removed from the U.S. Trade
    Representative's Special 301 IPR ``Priority Watch List'' to the ``Watch
    List.'' According to American film, music and software industry
    representatives, enforcement against piracy has been improving over
    recent years. With this new legislation, law enforcement agencies and
    magistrates are empowered with more effective tools to combat piracy
    and are, according to the industry, already obtaining very good
    results. In August 2001, the Government of Italy passed implementing
    regulations for the anti-piracy law. The regulations appear to
    generally satisfy U.S. industry, with some exceptions. The United
    States government will continue to closely monitor developments in this
    area.
    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
    the workplace. The unions claim to represent between 35-40 percent of
    the work force. Trade unions are free of government controls and have
    no formal ties with political parties. The right to strike is embodied
    in the constitution and is frequently exercised. In April 2000, a new
    law changed provisions of a 1990 measure governing strikes affecting
    essential public services (e.g., transport, sanitation, and health).
    The new law defined minimum service to be maintained during a strike as
    50 percent of normal, with staffing by at least one-third the normal
    work force. The law established compulsory cooling off periods and more
    severe sanctions for violations. Besides transport worker unions, the
    law also covers lawyers and self-employed taxi drivers. These changes
    enjoyed the backing of the three major national trade union
    confederations, which sought to avoid inconvenience to tourists and the
    traveling public alike during the Catholic Church's Jubilee year.
        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. By custom, although not by
    law, national collective bargaining agreements apply to all workers,
    regardless of union affiliation. Dismissals of workers must be
    justified in writing. If a judge deems the grounds spurious, he can
    order that a dismissed worker be reinstated or compensated. In firms
    employing more than 15 workers, the option to choose between
    reinstatement and compensation lies with the worker. In firms with
    fewer than 15 workers, this choice is the employer's.
        c. Prohibition of Forced or Compulsory Labor: The law prohibits
    forced or compulsory labor, including that performed by children, and
    generally it does not occur. Some illegal immigrants and children were
    forced into prostitution. Trafficking of illegal immigrant women and
    children for prostitution and forced labor is also a problem.
        d. Status of Child Labor Practices and Minimum Age for Employment:
    The law forbids the employment of children under age 15, with some
    limited exceptions, and requires that those between the ages 15-18
    receive their education either in school for academic instruction or at
    a job site for vocational training. There also are specific
    restrictions on employment in hazardous or unhealthful occupations for
    men under age 18, and women under age 21. The enforcement of minimum
    wage laws is difficult in the extensive underground economy. Estimates
    of the number of child laborers differ, ranging from 30,000 to 350,000.
    The most probable figure may be in the range of 50,000. Most of these
    cases involve immigrants, but instances involving Italian children also
    have been reported. The footwear and textile industries have
    established a code of conduct that prohibits the use of child labor in
    their international as well as national activities, applicable to
    subcontractors as well. In 1999, a child labor clause was attached to
    the national labor contract in the health sector, whereby the parties
    committed themselves not to use surgical tools produced by child labor.
    The law forbids forced or bonded labor involving children. Italy
    ratified ILO convention 182 prohibiting the worst forms of child labor
    following completion of parliamentary action in May 2000.
        e. Acceptable Conditions of Work: Minimum wages are not set by law,
    but rather by collective bargaining agreements on a sector by sector
    basis. These specify minimum standards to which individual employment
    contracts must conform. A 1997 law reduced the legal workweek from 48
    to 40 hours. Most collective agreements provide for a 36 to 38 hour
    workweek. The average contractual workweek is 39 hours but is actually
    less for many industries. Overtime work may not exceed 2 hours per day
    or an average of 12 hours per week. Unless otherwise limited by a
    collective bargaining agreement, ceilings established in a 1998 law set
    maximum permissible overtime hours in industrial sector firms at no
    more than 80 per quarter and 250 annually. The law sets basic health
    and safety standards and guidelines for compensation for on-the-job
    injuries. For most practical purposes, European Union directives on
    health and safety also have been incorporated into the law. Labor
    inspectors are from the public health service or from the Ministry of
    Labor. 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 jeopardizing their continued
    employment.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  14,498
      Food & Kindred Products...  934          .............................
      Chemicals & Allied          3,588        .............................
       Products.
      Primary & Fabricated        96           .............................
       Metals.
      Industrial Machinery and    1,167        .............................
       Equipment.
      Electric & Electronic       1,346        .............................
       Equipment.
      Transportation Equipment..  989          .............................
      Other Manufacturing.......  6,376        .............................
    Wholesale Trade.............  ...........  2,637
    Banking.....................  ...........  270
    Finance/Insurance/Real        ...........  1,929
     Estate.
    Services....................  ...........  2,236
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  23,622
    ------------------------------------------------------------------------
    \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\
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \2\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \3\...................      399.8       369.0       379.5
      Real GDP Growth (pct) \4\.........        3.7         3.5         1.5
      GDP by Sector:
        Agriculture.....................        9.9         9.0         9.0
        Manufacturing...................       59.6        55.7        57.5
        Services........................      136.5       127.7       132.4
        Government......................       42.3        38.3        38.5
      Per Capita GDP (US$)..............     25,304      23,208      23,719
      Labor Force (000s)................      7,292       7,439       7,543
      Unemployment Rate (percent).......        4.0         3.6         3.2

    Money and Prices (annual percentage
     growth):
      Money Supply (M2) \5\.............        8.4        10.3         9.9
      Consumer Price Inflation..........        2.2         2.6         4.5
      Exchange Rate (guilders/US$ annual
       average):........................
        Official........................       2.07        2.39        2.50

    Balance of Payments and Trade:
      Total Exports FOB \6\.............      198.3       206.2       209.6
        Exports to United States \7\....        8.5         9.7        10.2
      Total Imports CIF \6\.............      189.3       195.5       197.8
        Imports from United States \7\..       19.4        22.0        23.0
      Trade Balance \6\.................        9.0        10.7        12.8
        Balance with United States \7\..      -10.9       -12.3       -11.0
      Current Account Surplus/GDP (pct).        4.1         5.1         5.0
        External Public Debt \8\........          0           0           0
      Debt Service Payments/GDP (pct)          13.2         7.3         4.3
       \8\..............................
      Fiscal Deficit/GDP (pct)..........        0.4         1.5         1.0
      Gold and Foreign Exchange Reserves        N/A         N/A         N/A
       \9\..............................
      Aid from United States............          0           0           0
      Aid from All Other Sources........          0           0           0
    ------------------------------------------------------------------------
    \1\ All figures have been converted at the average guilder/US$ exchange
      rate for each year.
    \2\ 2001 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\ Netherlands contribution to euro-zone monetary aggregates.
    \6\ Merchandise trade.
    \7\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
      FAS, imports customs basis; 2001 figures are estimates based on data
      available through October 2001.
    \8\ All public debt is domestic and denominated in guilders. Debt
      service payments refers to domestic public debt.
    \9\ Since January 1, 1999, published by the European Central Bank on a
      consolidated basis.

    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, which 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 successfully reduced its role in the economy
    during the 1990s, and structural and regulatory reforms have been an
    integral component of Dutch economic policy since the early 1980s.
    Telecommunication services have been fully liberalized since January 1,
    1998, and further deregulation and privatization of the Dutch
    electricity and gas markets will take place in 2004. 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 sustained and
    environmentally sustainable economic growth and development by way of
    fiscal consolidation, labor and product market reforms, economic
    restructuring, energy conservation, environmental protection, regional
    development, and other national goals. Economic policy is conducted
    within the framework of a national environmental action plan. General
    elections in May of 2002 will result in a new coalition government,
    which will likely continue current policies but also emphasize
    security, healthcare and education.
        After more than four years of average four percent GDP growth,
    falling unemployment and modest inflation, the Dutch economy has
    shifted into lower gear. The Dutch economy is expected to expand by
    less than two percent in 2001 and 2002 as a result of declining real
    growth rates for exports, consumer spending, and corporate investment.
    Employment growth will slow down considerably, stabilizing the level of
    unemployment at slightly over three percent of the labor force.
    Consumer price inflation will peak in 2001at close to five percent,
    partly reflecting imported inflation and a hike in indirect taxes.
    Inflation is forecast to ease to 2.5 percent in 2002.
        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 balance registered a
    surplus of 1.5 percent of GDP in 2000, and is expected to remain in
    surplus in 2001 (one percent of GDP) and beyond. The stock of public
    debt is forecast to fall from a high of 62.9 percent of GDP in 1999, to
    51.7 percent in 2001. Both fiscal deficit and public debt have
    converged well below the deficit and debt criteria in the EMU's Growth
    and Stability Pact.
        The deficit is largely funded by government bonds. Since January 1,
    1994, financing has also been covered by Dutch Treasury Certificates
    (DTC). DTCs replace a standing credit facility for shortterm deficit
    financing with the central bank that, 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 policy is no longer under
    the exclusive control of the Dutch authorities but is determined by the
    Eurosystem (the European Central Bank and the 11 national Central Banks
    in the euro area), and is attuned to the euro area as a whole. On
    December 31, 1998, the exchange rate of the euro vis-a-vis the guilder
    was fixed 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 initiated a fundamental reform of the tax system. The
    new tax regime entails a shift from direct to indirect taxes, a
    broadening of the tax base, and a reduction of the tax rate on labor.
    On January 1, 2001, in a first step in the reform process, Dutch
    authorities lowered wage and individual income taxes, while raising
    excise duties, ``green'' taxes, and Value-Added Tax (VAT) rates. The
    highest marginal tax rate on wage and salary income was reduced from 60
    percent to 50 percent, while the top VAT rate was increased from 17.5
    to 19 percent. The effective corporate income tax rate in the
    Netherlands is among the lowest in the European Union. Effective
    January 1, 1998, the standard corporate tax rate paid by corporations
    (including foreign-owned corporations) was reduced from 36 percent to
    35 percent on all taxable profits. Since January 1, 1997, the Dutch
    have been offering multinationals a more attractive tax regime for
    their group finance activities, effectively reducing the 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. Investment subsidies are
    available to foreign and domestic firms alike. Subsidies are also
    available to stimulate research and development and to encourage
    development and use of new technologies 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 close to five percent of GDP and
    no external debt, the Netherlands is a major creditor nation. Since the
    early 1980s, gross public sector debt (EMU criterion) has grown
    sharply, to 81.2 percent of GDP. Starting in 1993, the Dutch fiscal
    balance has drastically improved. The debt to GDP ratio is also falling
    more rapidly than anticipated. Debt servicing and rollover in 2000 fell
    to less than eight percent of GDP, with interest payments amounting to
    three 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 2001.
    Official Development Aid (ODA) amounts to 0.8 percent of GDP or $3.5
    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 relatively
    few trade complaints are registered by U.S. firms.
        The few trade barriers that do exist usually result from common EU
    policies. Within the European Union, the European Commission has
    authority for developing most aspects of EU-wide external trade policy,
    and most trade barriers faced by U.S. exporters in EU member states are
    the result of common EU policies. Such trade barriers include:
    restrictions on wine exports; local (EU) content requirements in the
    audiovisual sector; standards and certification requirements (including
    those related to aircraft and consumer products); product approvals and
    other restrictions on agricultural biotechnology products; sanitary and
    phytosanitary restrictions (including a ban on import of hormone-
    treated beef); export subsidies in the aerospace and shipbuilding
    industries; and trade preferences granted by the EU to various third
    countries. A more detailed discussion of these and other barriers can
    be found in the country report for the European Union.
        The following are areas of bilateral concern for U.S. exporters:
        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.
        Broadcasting and Media Legislation: The Dutch fully comply with the
    EU Broadcast Directive. 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. Cartel legislation, which took effect in 1996, bans
    cartels unless its proponents can conclusively demonstrate a public
    interest. Since 1998, the United States has received no complaints by
    U.S. firms of having been disadvantaged by cartels in the Netherlands.
        Pharmaceuticals: U.S. pharmaceutical companies have complained that
    the criteria used by the Dutch Health Insurance Board too often result
    in their new-to-market products being incorrectly classified with
    compounds determined by the board as ``therapeutically equivalent''
    (and therefore reimbursable at a lower rate) than as ``unique,
    innovative compounds,'' reimbursed at a higher international reference
    price. U.S. companies have also voiced concerns that the Dutch Health
    Insurance Board procedures have resulted in considerable and
    unnecessary delays in classifying products for reimbursement.
    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 of the
    interest costs of the 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.
        Adhering to the EU shipbuilding regime, the Dutch have discontinued
    generic support of their shipbuilding industry effective January 1,
    2001.
    7. Protection of U.S. Intellectual Property
        The Netherlands has a generally good set of IPR legislation and
    regulations in place. 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 inventions are granted retroactively
    from 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 Europewide 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 potentially detrimental
    to U.S. investors and exporters.
        The enforcement of antipiracy laws remains a concern to U.S.
    producers of software, audio and videotapes, and textbooks. According
    to the estimates of the Business Software Alliance, as much as 40
    percent of all software used in the country is illegally copied. The
    Dutch government has recognized the need to protect intellectual
    property rights and law enforcement personnel have worked with industry
    associations to find and seize pirated software. Dutch IP legislation
    explicitly includes computer software as intellectual property under
    the copyright statutes.
    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 of 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. 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 2000, some
    9,400 labor days were lost due to industrial disputes compared with
    75,800 days in 1999.
        b. The Right to Organize and Bargain Collectively: This right is
    recognized and well established. There are no union shop requirements.
    Discrimination against workers because of union membership is illegal.
    Dutch society has developed a social partnership between 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 that 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-hour
    workweek is established by law, the official average workweek for
    adults working full time currently averages 37 hours. Work-shortening
    programs (ADV) effectively reduce the average workweek to 36 hours. The
    gross minimum wage in 2001 amounted to about $1,000 per month. The
    legallymandated minimum wage is subject to a semi-annual 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  3,149
    Total Manufacturing.........  ...........  24,228
      Food & Kindred Products...  2,830        .............................
      Chemicals & Allied          12,832       .............................
       Products.
      Primary & Fabricated        -52          .............................
       Metals.
      Industrial Machinery and    2,925        .............................
       Equipment.
      Electric & Electronic       3,584        .............................
       Equipment.
      Transportation Equipment..  -26          .............................
      Other Manufacturing.......  2,135        .............................
    Wholesale Trade.............  ...........  10,486
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  71,373
     Estate.
    Services....................  ...........  4,602
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  115,506
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     NORWAY

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.......................    153,526     161,807     164,700
      Real GDP Growth (pct) \2\.........        1.1         2.3         2.4
      Real Mainland GDP Growth (pct)....        1.0         1.8         1.5
      GDP by Sector:
        Agriculture.....................      2,942       2.642       2,600
        Manufacturing...................     16,627      14,795      14,900
        Oil and Gas Production..........     21,756      38,780      38,400
        Services........................     87,324      82,841      84,300
        Government......................     23,944      24,739      26,600
      Per Capita GDP (US$)..............     34,423      36,037      36,519
      Labor Force (000s)................      2,330       2,350       2,360
      Unemployment Rate (pct)...........        3.2         3.4         3.3

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)..........        5.5         8.5         8.0
      Consumer Price Inflation..........        2.3         3.1         3.3
      Exchange Rate (NOK/US$--annual            7.8         8.8         9.0
       average).........................

    Balance of Payments and Trade:
      Total Exports FOB.................     45,680      60,136      58,800
        Exports to United States \3\....      4,051       5,710       5,650
      Total Imports CIF.................     35,474      34,386      35,400
        Imports from United States \3\..      1,440       1,544       1,900
      Trade Balance.....................     10,206      25,750      24,400
        Balance with United States......      2,611       4,166       3,750
      External Public Debt..............        922         850         750
      Fiscal Surplus/GDP (pct)..........        2.7        10.8        14.6
      Current Account Surplus/GDP (pct).        3.9        14.3        13.7
      Debt Service Payments/GDP (pct)...         42          72         100
      Gold and Foreign Exchange Reserves     24,819      27,939      29,000
       \4\..............................
      Aid from United States............          0           0           0
      Aid from All Other Sources........          0           0           0
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on monthly data in October
      2001.
    \2\ Growth figures are based on local currency GDP values.
    \3\ U.S. Department of Commerce statistics.
    \4\ Includes gold but excludes assets in the state petroleum fund.

    1. General Policy Framework
        Exploitation of Norway's major non-renewable energy resources,
    crude oil and natural gas, will most likely remain the major foundation
    for production and income growth for at least the next three decades.
    On Norway's offshore continental shelf, remaining oil reserves,
    discovered plus undiscovered, will last for some 30 years at current
    extraction rates, while the equivalent figure for natural gas is about
    125 years. On the mainland, energy-intensive industries such as metal
    processing and fertilizer production will remain prominent thanks to
    abundant hydropower resources.
        Some constraints continue to limit Norway's economic flexibility
    and ability to maintain international competitiveness. Labor
    availability remains limited by Norway's small 4.5 million population
    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 remains protected from international competition by
    subsidies and other barriers to trade.
        State intervention in the economy remains significant. The
    government owns up to 50 percent of domestic businesses, although part-
    privatization of state oil firm, Statoil, and state telecoms group,
    Telenor, has taken place over the past year. In December 2000, the
    Government of Norway proposed part-privatization of Statoil, up to one-
    third of the company, and the sale of 21.5 percent of the State Direct
    Financial Interest (SFDI) to Statoil, 15 percent, and other oil
    companies, 6.5 percent. Parliament agreed to the Government of Norway's
    plan, and 23 percent of Statoil was sold in an initial stock market
    offering on June 18, 2001. Telenor, meanwhile, was part-privatized in
    December 2000, leaving the government with a stake of 78 percent. In
    June 2000, the Government of Norway announced that the state stake in
    Telenor may be cut to 34 percent. While part-privatization has been
    taken place, the state is expected to remain in effective control of
    Statoil, Telenor, and Norway's two leading banks by keeping stakes of
    at least one-third, enough to control the boards of these enterprises.
    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 33.5 percent of total
    government 2001 revenue. Since 1995, Norway has been a net foreign
    creditor and has posted budget surpluses. The surpluses are transferred
    to a petroleum fund and invested in foreign assets (an estimated US$67
    billion at the end of 2001) to meet future spending.
        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 liquid gas driven buses and
    the electric car. 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 government aims to keep the Norwegian currency (krone) stable.
    On March 29, 2001, the government issued a new regulation on monetary
    policy, with the introduction of an inflation target of 2.5 percent.
    The central bank noted that the new policy guidelines would few
    implications for Norwegian foreign exchange rate policy because stable
    inflation goes along with currency stability.
        By way of background, the Norwegian krone was un-pegged from the
    European Currency Unit (ECU) in December 1992. Since 1994, the
    government's stated policy has been to maintain krone stability vis-a-
    vis European currencies. The central bank uses interest rates and open
    market operations to foster currency stability in a managed float. With
    the introduction of the euro January 1, 1999, Norwegian policy was to
    keep the krone stable against the 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 being the
    most heavily subsidized in the OECD. While some progress has been made
    in reducing subsidies in the 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, deregulation of government
    telecommunications services has taken place since 1998.
    4. Debt Management Policies
        The state's exposure in international debt markets remains very
    limited thanks to the Norway's growing oil wealth and the country'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$ 750 million in 2001.
    Norway's status changed from a net debtor to a net creditor country in
    1995 largely because of the oil/gas-boosted budgetary surpluses.
    5. Significant Barriers to U.S. Exports
        Norway is a member of the WTO and supports free trade principles,
    but 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
    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 limited due to government part-ownership of
    the two largest commercial banks, and the existence of specialized
    state banks, which 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.
    6. Export Subsidy Policies
        As a general rule, the Norwegian government does not subsidize
    exports, although some heavily subsidized goods, such as cheese, 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
    after other major shipbuilders including the United States and Japan
    ratify the agreement.
    7. 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.
    8. 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 Government of
    Norway 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 three days of paid
    leave are granted per year. 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  4,192
    Total Manufacturing.........  ...........  810
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          19           .............................
       Products.
      Primary & Fabricated        9            .............................
       Metals.
      Industrial Machinery and    210          .............................
       Equipment.
      Electric & Electronic       7            .............................
       Equipment.
      Transportation Equipment..  -11          .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  325
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  609
     Estate.
    Services....................  ...........  253
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  6,303
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     POLAND

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................   155,200    157,700    176,400
      Real GDP Growth (pct)................       4.1        4.8        2.0
      GDP by Sector (pct):
        Agriculture........................       4.5        2.9        N/A
        Manufacturing \2\..................      36.5       31.7        N/A
        Services...........................      46.3       53.1        N/A
        Government.........................      12.7       12.3        N/A
      Per Capita GDP (US$) \3\.............     4,014      4,082      4,564
      Labor Force (000s)...................    17,214     17,300        N/A
      Unemployment Rate Year-end (pct).....      13.1       15.0       17.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............      19.3       11.8       15.0
      Consumer Price Inflation (annual            7.3       10.1        6.0
       average)............................
      Exchange Rate (PLN/US$; annual
     average):
        Official...........................      3.97       4.35       4.12

    Balance of Payments and Trade:
      Total Exports FOB (US$ billions) \4\.      26.3       28.3       32.0
        Exports to United States (US$             0.8        1.0        1.1
         billions) \5\.....................
      Total Imports CIF (US$ billions).....      40.7       41.4       43.9
        Imports from United States (US$           0.8        0.7        1.0
         billions) \5\.....................
      Trade Balance (US$ billions).........     -14.4      -13.1      -11.9
        Balance with United States (US$           0.0        0.3        0.1
         billions) \5\.....................
      External Public Debt (US$ billions)..      32.1       33.0        N/A
      Fiscal Deficit/GDP (pct).............       2.0        2.2        4.0
      Current Account Surplus/Deficit/GDP        -7.5       -6.3       -5.8
       (pct) \6\...........................
      Debt Service Payments/GDP (pct) \7\..       3.4        4.0        4.5
      Gold and Foreign Exchange Reserves         27.3       25.5       28.0
       (US$ billions) \8\..................
      Aid from United States (US$ millions)      26.3       10.0       70.0
       \9\.................................
      Aid from Other Sources (US$ millions)       300        820        900
       \10\................................
    ------------------------------------------------------------------------
    \1\ Polish government estimates as of August 2001, unless otherwise
      noted.
    \2\ Manufacturing including construction.
    \3\ Per capita GDP given in nominal terms.
    \4\ Polish government trade figures, without transshipments via third
      countries.
    \5\ U.S. Dept. of Commerce and U.S. Census Bureau; exports FAS, imports
      customs basis.
    \6\ Including estimated unrecorded trade.
    \7\ Debt service includes paid interest and principal.
    \8\ Data available through August 2001.
    \9\ U.S. government estimate; includes economic and military assistance.
      In 2000, the United States provided Poland with law enforcement and
      export control programs worth about $1 million, military assistance
      programs totaling about $12.2 million, and excess defense articles
      valued at about $56 million.
    \10\ EU declared assistance; includes PHARE; 2001 includes ISPA and
      SAPARD.

    1. General Policy Framework
        Over the past decade, Poland has transformed its economy with
    generally sound macroeconomic management and a commitment to structural
    reforms, making it one of the most successful and open transition
    economies. After four consecutive years of annual six to seven percent
    growth, the Polish economy slowed in 1998, in large part due to the
    Asian and Russian crises. Since then, Poland's economy has grown more
    slowly due to declining domestic demand (both consumption and
    investment); GDP growth for 2001 is estimated at below two percent.
    Over the last decade, the private sector has grown as a result of
    privatization and liberalization, but many of the larger, publicly-
    owned enterprises inherited from the communist era, notably those in
    such sectors as coal mining, steel, and rail transport, remain in need
    of further restructuring. Polish agriculture sector remains handicapped
    by surplus labor, inefficient small farms, and lack of investment.
    Government estimates indicate the shadow ``gray economy'' now generates
    around 15-16 percent of GDP.
        Government Priorities: A member of the WTO, OECD, and NATO, Poland
    now considers membership in the European Union (EU) one of its highest
    priorities. The process (supported by a majority of Poles) affects most
    economic policies, from the budget to reforms. By fall 2001, Poland had
    provisionally closed 17 of 29 negotiating chapters. Poland hopes to
    close the remaining chapters by the end of 2002, in time for accession
    on January 1, 2004. Poland continues to liberalize its trade and
    investment regimes through international (WTO, OECD), regional (Central
    European Free Trade Agreement or ``CEFTA''), and various bilateral
    agreements. Poland also seeks improvement in bilateral economic
    relations with Russia, Ukraine, and China.
        Fiscal Policy: Reforming Poland's public finances is one of the
    highest priority challenges facing the government elected in September
    2001. While Poland's central government debt, at 40 percent of GDP,
    remains moderate, the combination of slower economic growth and new
    spending commitments enacted by the parliament in recent years has put
    the budget under strain. The original draft forecast for the 2002
    government deficit, before corrective measures, was over ten percent of
    GDP. The government is seeking to cap the deficit at five percent. New
    public borrowing has been limited in recent years due to sizeable
    privatization revenues. However, the number of companies to be
    privatized is shrinking rapidly and revenues from this source will dry
    up within the next few years, forcing action to curb the budget deficit
    to prevent the government debt ratio from approaching the
    constitutional limit of 60 percent of GDP. The constitution prohibits
    the National Bank of Poland (NBP) from financing the budget deficit.
    The government's flexibility in curbing public spending is limited,
    however, by Poland's generous social insurance system (retirement,
    disability, unemployment, and welfare benefits), debt service
    obligations, and the costs of the four major reforms (affecting the
    health, education, pension, and administrative systems) implemented in
    1998-99. Poland's overall public spending is governed by the 1998 Act
    on Public Finances, which clarifies the responsibilities of the various
    budgetary players, sets measures to improve the transparency of public
    finances, establishes rules for local governments, and prepares for
    Poland's EU accession. It also establishes procedures to be followed if
    total public debt, including government guarantees, exceeds certain
    limits.
        Monetary Policy: An independent, 10-member Monetary Policy Council
    (MPC) sets monetary policy, which is implemented by the NBP, using a
    formal inflation target. Increasingly restrictive fiscal and monetary
    policies reduced annual average inflation from 37 percent in 1993 to
    10.1 percent in 2000. In 1999, average CPI inflation was 7.3 percent,
    but an acceleration in late 1999 and early 2000 led the MPC to miss its
    targets in both years. In response, monetary policy was tightened
    significantly, with the MPC raising rates by a total of six percentage
    points from late 1999 to the fall of 2000. As a result of both tighter
    money and the slowing economy, inflation has dropped significantly,
    with the estimated CPI increase for 2001 of 4.7 percent, below the
    MPC's six-to-eight percent target range. The target for 2002 is five
    percent and that for 2003 is below four percent. Despite substantial
    reductions in nominal interest rates in 2001 (a cumulative 6.0
    percentage points through October), real interest rates have remained
    high, dampening economic growth and keeping the Polish zloty relatively
    strong.
    2. Exchange Rate Policies
        On April 12, 2000, the NBP abandoned the crawling peg it had used
    since 1991 and allowed the zloty to float freely. The decision was in
    line with government plans to let the zloty find its equilibrium level
    before applying for participation in the European Exchange Rate
    Mechanism and then the European Monetary Union. As the zloty had been
    floating within the 15 percent band for several years without NBP
    intervention, the decision to float did not have a significant impact
    on the foreign exchange market. The government reserves the right to
    intervene in the market to prevent destabilizing swings.
        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
    securities issued in OECD countries, 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. Poland's remaining restrictions on
    capital movements, other than foreign direct investment flow and short-
    term capital flow, are limited to real estate investment abroad and in
    Poland. The remaining restrictions on foreign direct investment concern
    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, coal, and some pharmaceuticals continue. The government
    hopes eventually to 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. The government has also taken steps to
    promote greater competition in the Polish markets for oil and
    telecommunications services, where price rises contribute considerably
    to inflation.
        Taxes: Poland's total tax burden, at 41 percent of GDP, is
    comparable to that of many Western European countries. However, only
    about half of this amount is collected by the central government, with
    the remainder going to the social insurance system, local governments,
    and various special-purpose extra-budgetary funds. A tax reform package
    approved in late 1999 significantly reduced corporate income taxes and
    streamlined exemptions. Value-Added Tax (VAT) rates were also revised
    to meet EU rules, but a companion bill to reduce and simplify personal
    income taxes was vetoed by the president. The corporate income tax rate
    was reduced to 30 percent in 2000, 28 percent in 2001, 24 percent in
    2003, and 22 percent in 2004. Personal income tax rates remain
    unchanged at 19, 30, and 40 percent. The new government, which took
    office in October 2001, is expected to introduce changes to the tax
    system and undertake deep reforms of public finances. Under pressure
    from the EU, Poland amended the rules governing special economic zones
    (SSEs) that permit tax breaks for foreign investment. These new
    regulations are less advantageous for investors than the old rules, but
    more compliant with EU mandates. Under the new regulations, which
    entered into force January 1, 2001, new companies registered in SSEs
    are eligible to receive grants amounting up to 50 percent of initial
    capital. The new regulations are not retroactive.
        Regulatory Policies: Poland's regulatory regime is being harmonized
    with EU standards. Existing regulatory structures are variously faulted
    for the excessive burden imposed on businesses, lack of transparency
    and predictability, and lack of effectiveness. An independent regulator
    for the telecommunications sector began functioning in 2001. Current
    concerns include product certification standards and pharmaceutical
    registration and pricing mechanisms, which effectively impede market
    access.
    4. Debt Management Policies
        Poland improved its foreign debt situation through rescheduling
    agreements with the Paris Club (1991) and the London Club (1994), which
    reduced Poland's debt by nearly half. As of July 2001, Poland's total
    official foreign debt was $28.2 billion, including $20.1 billion to the
    Paris Club, $2.2 billion to other institutions (IMF, World Bank, EBRD
    and BIS), $4.1 billion in Brady Bonds, and $1.7 billion in other
    foreign bonds. Since 1995, Poland has held investment grade ratings
    from various agencies and has been a net borrower on the world capital
    markets at a small premium over German bond rates. In September 2001,
    Poland had a Moody's rating of Baa1 and a Standard and Poor's rating of
    BBB+ (stable outlook). Debt servicing remains relatively low both in
    relation to government expenditure (12-14 percent) and GDP (3 percent),
    although amortization payments are scheduled to rise significantly in
    the next few years. Foreign debt servicing represents a sustainable
    proportion of exports of goods and services. As of mid-2001, the
    private sector had an estimated $30 billion in foreign debt. The share
    of short-term foreign debt in Poland's total foreign debt oscillates
    around 13.5 percent and has remained almost unchanged since 2000.
    Poland's total state debt (foreign and domestic) amounted to 40 percent
    of GDP in July 2001. The Ministry of Finance plans to establish a
    public debt risk management agency similar to those operating in other
    OECD-countries.
    5. Significant Barriers to U.S. Exports
        Tariffs: Poland's tariff policy reflects a trend toward
    liberalization as required by its WTO commitments and a strong bias in
    favor of its regional free trade partners (EU, EFTA, CEFTA, Estonia,
    Latvia, Lithuania, Israel, and Turkey). In 2000, duty-free industrial
    imports from the EU and Poland's free trade partners accounted for 72.3
    percent of total industrial imports. By the end of 2000, Poland had
    eliminated most tariffs and trade barriers on industrial goods from the
    EU and EFTA countries (except cars and steel products). Poland and the
    EU agreed in 2000 to eliminate tariffs on a range of unprocessed
    agricultural goods and are negotiating a similar agreement on processed
    agricultural products. The reduction or elimination of tariff and trade
    barriers with other free trade partners is also continuing. U.S.
    exporters in a broad range of industry sectors have complained that the
    growing differences between Most Favored Nation (MFN) tariffs applied
    to U.S. goods and preferential tariffs applied to goods from the EU and
    Poland's free trade partners have diminished their business prospects
    and ability to compete on the Polish market. While giving the EU and
    its free trade partners preferential access, Poland has maintained MFN
    tariffs at levels that often exceed the EU common external tariff rates
    that Poland must adopt upon joining the EU. Thus, many U.S. firms face
    a bigger competitive disadvantage in Poland than in the EU. The U.S.
    and Polish governments have been engaged for some years in an effort to
    address this and other bilateral trade issues. In June 2001, they
    agreed to a package of measures including the suspension in 2002 of
    Polish tariffs on a limited range of industrial and agricultural goods
    of interest to U.S. exporters, continued U.S. support for Poland's
    participation in the Generalized System of Preferences (GSP) program
    until it joins the EU, and the creation of a formal dialogue for
    addressing bilateral trade concerns.
        Import Licenses: Licenses are required for strategic goods on
    Wassenaar dual use and munitions lists, as well as for fuel and
    tobacco. Imports of U.S. grain and oilseed imports, which had amounted
    to some $100 million in 1997, are blocked by Poland's zero tolerance
    phytosanitary inspection policy for several common weed seeds.
    Scientific evidence indicates that such weed seeds already exist in
    Poland and neighboring countries, yet Polish authorities have been
    unwilling to relax their zero tolerance policy. While neighboring EU
    countries do not have a zero tolerance policy on weed seeds, it remains
    unclear whether Poland will be required to adopt the less restrictive
    EU tolerance levels when it joins the EU. Certificates from the United
    States Department of Agriculture are required for meat, dairy products
    and live animals. Poland banned imports of meat and bone meal (MBM) in
    February 2001from countries that have Bovine Spongiform Encephalopathy
    (BSE). Previously, Poland had annually imported upwards of 300,000 tons
    of MBM valued at $100 million, virtually all from the EU. Poland
    refused to permit imports of U.S. MBM as an alternative, despite the
    fact that the United States has no reported cases of BSE, unless U.S.
    MBM undergoes more costly heat and pressure treatments outlined in
    European Commission decision 96/449/EC. Poland also banned imports of
    gelatin of bovine origin from all countries in February 2001 because of
    BSE concerns. Poland implemented regulations on biotechnology and
    genetically modified organisms (GMO), following EU norms in mid-2001.
        Services Barriers: Poland has made progress, but many barriers
    remain, especially in audiovisuals, 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 liberalization commitments made by
    Poland upon joining the OECD. However, legislation passed by the
    Parliament in 2000 requires broadcasters to meet the 50 percent quota
    only where practical, thereby bringing 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 allowed firms from OECD countries to open branches and
    representative offices in the insurance and banking sector in 1999, as
    well as subsidiaries of foreign banks. The government began to sell
    stakes in the state telecommunications monopoly (TPSA) in October 1998,
    and agreed to open domestic long-distance service to competition in
    1999 and international services in 2003. Parastatal enterprise France
    Telecom became TPSA's largest shareholder in 2001, but the government
    still retains significant control. Several competitors now provide
    local phone service and domestic long distance service. Thus far,
    government regulatory agencies' efforts to curb anti-competitive
    behavior by TPSA, which retains a monopoly over interconnection and
    international long distance, have been insufficient.
        Standards, Testing, Labeling, and Certification: Harmonization of
    standards, certification, and testing procedures with those of the EU,
    including greater reliance on voluntary standards, is now the main
    objective of Polish standards policy. Under the 1997 European
    Conformity Assessment Agreement, Poland agreed to introduce an EU-
    compatible certification system; to gradually align its regulations and
    certification procedures with the those of the EU; to remove from
    mandatory certification those products free from certification
    requirements in the EU; and to automatically provide a ``B'' safety
    certificate to EU products subject to mandatory certification. However,
    there have been delays in implementing these commitments. Currently,
    products manufactured in Poland or imported into Poland for the first
    time that can be of potential danger or serve to protect or save
    health, life or environment, are subject to certification with a
    reserved safety mark of Polish Research and Certification Center or to
    issuance by the manufacturer at his risk a declaration of compliance. A
    Polish ``B'' safety certificate has been required since 1997 for
    imports and domestic products and affects about one third of all
    products marketed in Poland. Poland does not automatically accept the
    EU ``CE'' mark or other international product standards. Non-acceptance
    of many international standards, certification, and conformity testing
    procedures are associated with long delays, involving expensive testing
    processes. Poland has bilateral mutual recognition agreements on
    standards and conformity testing procedures with Ukraine, China,
    Belarus, Germany, the Czech Republic, the Russian Federation, Italy,
    and Switzerland, which allow the importation of certain products from
    these countries based on conformity statements issued by the foreign
    producer. Phytosanitary standards on weed seeds have had a major
    adverse impact on the ability of U.S. farmers to export grains to
    Poland. Pharmaceuticals and medical materials are subject to entry in
    the Register of Pharmaceuticals and Medical Materials, which requires
    positive results of laboratory tests.
        Investment Barriers: Lack of transparency and clearly stated rules
    in government decision-making processes, as well as outright
    corruption, are widely recognized as informal barriers to foreign
    investment. Polish law permits 100 percent foreign ownership of most
    corporations. However, some restrictions remain on foreign investment
    in certain ``strategic sectors,'' such as mining, steel, defense,
    transport, and energy, while certain controls remain on other foreign
    investment. Broadcasting law still restricts foreign ownership to 33
    percent, while foreign ownership of air transport is confined to 49
    percent. The cap on foreign ownership in telecommunications was lifted
    on January 1, 2001. No foreign investment is currently allowed in
    gambling. The privatization of the energy, steel, and
    telecommunications sectors envisions significant foreign investment, as
    does a restructuring plan for the defense industry. The privatization
    process lacks transparency and relatively few U.S. firms have shown
    interest in investing in state-owned firms, in part because of
    transparency concerns but also because of the unstable regulatory
    environment. As a result of OECD accession, foreigners in Poland may
    purchase up to 4,000 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 stateowned enterprises. In actual practice, many
    government procurements are carried out in a non-transparent manner
    that has produced highly publicized accusations of corruption. The
    exception for state-owned enterprises is a loophole that often produces
    questionable tender results. 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 may
    qualify for ``domestic'' status. There is also a protest/appeals
    process for tenders thought to be unfairly awarded. Since September
    1997, Poland has been an observer to the WTO's Government Procurement
    Agreement (GPA). In order to accede to the GPA in accordance with its
    EU accession requirements, Poland is expected to start GPA accession
    negotiations in 2002. In June 2001, the Law on Public Procurement has
    been amended to conform to the EU regulations.
        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, Lithuania, and
    Turkey, 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 in January 1998, but some problems remain, including the amount
    of paperwork required and the lack of electronic clearance procedures.
    A new, EU-compatible tariff classification system to be introduced in
    January 2002 may cause some initial confusion.
    6. Export Subsidies Policies
        With its 1995 WTO accession, 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 stateowned
    enterprises continue to receive direct or indirect production subsidies
    to lower export prices. Polish industry and exporters criticize the
    government for too little export promotion support. Poland's export
    insurance agency has limited resources and rarely guarantees contracts
    to highrisk countries such as Russia, placing Polish firms at a
    disadvantage to most western counterparts.
    7. Protection of U.S. Intellectual Property
        While Poland has significantly improved its legal framework for
    intellectual property rights protection, this progress is overshadowed
    by insufficient enforcement and recent moves to abolish the
    confidentiality of proprietary test data for pharmaceutical drugs
    (``data exclusivity''). 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, and
    audio-visual works, as well as industrial patterns. Amendments to the
    Copyright Law, designed to bring it fully into compliance with Poland's
    TRIPS obligations, were enacted in July 2000. The amendments provide
    full protection of all pre-existing works and sound recordings.
    Amendments designed to bring the Industrial Property Law, which
    protects patents and trademarks, into compliance with TRIPS obligations
    were implemented in August 2001.
        Poland suffers from high rates of piracy, in large part due to weak
    control of its eastern border and reluctance to clean up or shutdown
    large outdoor markets. Most pirated materials available, particularly
    CDs and CD-ROMs, are produced in the former Soviet Union and Romania.
    With better laws in place and improved cooperation between government
    and industry, enforcement has improved in recent years. Nevertheless,
    the cumbersome judicial system and the general lack of knowledge about
    IPR remain impediments. Criminal penalties increased and procedures for
    prosecution were somewhat simplified when the amendments to the
    Copyright Law took effect. Industry associations estimate 2000 levels
    of piracy in Poland to be: 33 percent for sound recordings, 25 percent
    for motion pictures, 54 percent for business software, and 85 percent
    for entertainment software. Poland is currently on the ``Special 301
    Watch List'' due primarily to ineffective enforcement.
        Separately, pharmaceutical producers are affected by substandard
    data exclusivity and patent protection for their products. Until late
    2001, test data submitted to the government to register a drug
    generally received three years of data exclusivity. However, in a
    number of cases, the data exclusivity period was actually less. In a
    turn for the worse, Parliament passed and the President signed new EU
    accession related legislation in fall 2001 that, among other things,
    abolishes the period of data exclusivity until Poland joins the EU.
    This law clearly violates Poland's WTO TRIPS commitments and stands to
    have a negative impact on foreign R&D pharmaceutical companies
    operating in Poland. The U.S. government is actively engaged with the
    Polish government in an effort to restore the period of data
    exclusivity. To join the EU, Poland will also have to change its law to
    provide for supplemental protection certificates (patent extensions).
    The adoption of EU compatible patent legislation and the re-
    registration of Polish pharmaceuticals according to EU-compatible
    criteria are problematic issues in Poland's accession process.
     8. 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 officers, 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
    under 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 or exceed the above five worker rights
    standards. 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  4
    Total Manufacturing.........  ...........  1,171
      Food & Kindred Products...  106          .............................
      Chemicals & Allied          367          .............................
       Products.
      Primary & Fabricated        56           .............................
       Metals.
      Industrial Machinery and    -4           .............................
       Equipment.
      Electric & Electronic       1            .............................
       Equipment.
      Transportation Equipment..  5            .............................
      Other Manufacturing.......  640          .............................
    Wholesale Trade.............  ...........  335
    Banking.....................  ...........  1,014
    Finance/Insurance/Real        ...........  89
     Estate.
    Services....................  ...........  20
    Other Industries............  ...........  110
        Total All Industries....  ...........  2,743
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                    PORTUGAL

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................     114.2      104.9      109.0
      Real GDP Growth (pct) \2\ \3\........       3.1        3.3        1.7
      GDP by Sector: \4\
        Agriculture........................       4.3        4.0        3.9
        Industry...........................      29.5       29.3       29.3
        Services...........................      66.2       66.7       66.8
        Government.........................      44.7       44.6       46.0
      Per Capita GDP (US$) \2\.............    11,420     10,490     10,583
      Labor Force (000's)..................     5,057      5,097      5,187
      Unemployment Rate (pct)..............       4.5        3.8        3.9

    Money and Prices (annual percentage
     growth):
      Money Supply (M2)....................       9.5        5.2        6.4
      Consumer Price Inflation.............       2.4        2.3        4.3
      Exchange Rate (PTE/US$ annual               188        218        224
       average)............................

    Balance of Payments and Trade:
      Total Exports FOB \4\................      23.9       23.2       22.8
        Exports to United States \5\.......       1.2        1.6        1.7
      Total Imports CIF \4\................      38.6       38.1       35.3
        Imports from United States \5\.....       1.0        1.0        1.3
      Trade Balance........................     -14.7      -14.9      -12.5
        Balance with United States.........       0.2        0.6        0.4
      External Public Debt.................       N/A        N/A        N/A
      Fiscal Deficit/GDP (pct) \2\.........       1.7        1.4        1.1
      Current Account Deficit/GDP (pct)....       8.4       10.0       10.1
      Debt Service Payments/GDP (pct)......       N/A        N/A        N/A
      Gold and Foreign Exchange Reserves...      14.1       14.2       13.9
      Aid from the United States...........         0          0          0
      Aid from All Other Sources...........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are estimates based on available data in October; some
      previous year figures have been revised.
    \2\ Portuguese Ministry of Finance.
    \3\ Percentage changes calculated in local currency.
    \4\ Portuguese Ministry of the Economy.
    \5\ Department of Commerce.

    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-
    seven 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-seven 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.
        Portugal has experienced a broad-based economic expansion since
    1993. Much of this growth can be linked to the country's successful
    efforts to join the 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, moderate
    inflation rates and stable interest rates. Lower interest rates 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 Portuguese economy has
    continued to expand over the past year, the rate of growth has
    moderated, and is forecast to be lower than the EU average for the
    coming year.
        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 a projected 100 percent of disposable income by the end of 2001.
    Other manifestations include an inflation rate that is persistently
    higher than the Euro-zone average, a large and 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. Moreover, the government has found it difficult to impose
    fiscal restraint; government spending continues to rise as a percent of
    GDP.
    2. Exchange Rate Policy
        On January 1, 1999, Portugal and 10 other European countries
    entered the European 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 over 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 its aggressive privatization schedule. By the end
    of 1999, total privatization receipts reached $23.5 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.
        The government has recently instituted a number of tax reform
    measures, embodied in both the December 2000 Tax Reform Act and the
    2001 Budget Law. These initiatives recognize the need to widen the tax
    base, improve tax administration, and harmonize policies with other EU
    jurisdictions. A new tax administration body, the General Tax
    Administration, was created in September 1999, to coordinate the
    auditing, training and planning of the individual tax directorates.
    Supplementary professional qualification is being provided by the Tax
    Training Institute, and several hundred new inspectors have been hired.
    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 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 3.2 percent of GDP in 2000.
    5. Significant Barriers to U.S. Exports
        Within the European Union, the European Commission has authority to
    develop most aspects of EU-wide external trade policy, and most trade
    barriers faced by U.S. exporters in EU member states are the result of
    common EU policies. Such trade barriers include: the import, sale and
    distribution of bananas; restrictions on wine exports; local (EU)
    content requirements in the audiovisual sector; standards and
    certification requirements (including those related to aircraft and
    consumer products); product approvals and other restrictions on
    agricultural biotechnology products; sanitary and phytosanitary
    restrictions (including a ban on import of hormone-treated beef);
    export subsidies in the aerospace and shipbuilding industries; and
    trade preferences granted by the EU to various third countries. A more
    detailed discussion of these and other barriers can be found in the
    country report for the European Union.
        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 sectors. 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
        Trademark Protection: 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. The law, however, is not
    considered to be entirely consistent with the terms of the trade
    related intellectual property provisions of GATT (TRIPS).
        Copyright Protection: Portugal is finishing the process of adopting
    EU directives in the form of national legislation. Most recently, the
    country adopted the EU directive on protection of data bases (Decree
    Law 122/2000, July 4, 2000). Software piracy remains a problem,
    however.
        Patent Protection: Currently, Portugal's patent protection is
    afforded by the Code of Industrial Property that went into effect on
    June 1, 1995. In 1996, new legislation was passed to extend the life of
    then-valid patents to 20 years, consistent with the provisions of
    TRIPS. The current code, however, remains inconsistent with TRIPS in
    certain regards. Portugal's perceived weak protection for test data,
    coupled with high registration costs, have restricted the introduction
    of new drugs into the country.
    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 one to
    three 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 of Portugal is fighting child labor through the
    office known as PEETI (Plan for Eliminating Exploitation of Child
    Labor), which was established by legislation passed in July 1998, and
    falls under the jurisdiction of the Ministry of Labor and Solidarity.
    The group collaborated with the ILO in 1998 and 1999 in a first of its
    kind survey to try to ascertain the extent of child labor in Portugal.
    The survey, which polled thousands of students and their parents,
    indicates that there are between 18,000 and 34,000 children who perform
    some kind of work in Portugal. The survey also indicates, however, that
    the majority of these situations constitute children working for their
    parents on family-owned farms, in which the labor does not interrupt
    education. Portugal ratified ILO Convention 182 on June 1, 2000.
        PEETI has called for stronger domestic legislation specifying the
    minimum age for employment, to be applied to all sectors of the
    economy. The organization also supports legislation which will extend
    labor laws to include all work done that has an economic value, even
    that done for family-owned businesses and farms. Finally PEETI is
    pushing legislation which makes it a felony to continue to employ
    minors once a firm has been notified of a violation.
        Portugal has a regular system of unannounced inspections of firms
    by the Inspectorate General of Labor to check for the illegal
    employment of minors. Many current violations of labor laws, however,
    are thought to occur in the home, where children are engaged on a
    ``piece-work'' basis in the clothing and footwear sectors and where
    labor inspectors do not have authority to inspect. To fight this
    phenomenon, the Government of Portugal has begun a program of
    unannounced inspections involving representatives of the Inspectorate
    General of Labor, the Social Security Inspection Services, and a
    representative of the court.
        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 2001, the monthly minimum wage was raised to
    67,000 escudos/month (approximately $305 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  479
      Food & Kindred Products...  113          .............................
      Chemicals & Allied          95           .............................
       Products.
      Primary & Fabricated        -11          .............................
       Metals.
      Industrial Machinery and    (\1\)        .............................
       Equipment.
      Electric & Electronic       237          .............................
       Equipment.
      Transportation Equipment..  69           .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  278
    Banking.....................  ...........  128
    Finance/Insurance/Real        ...........  214
     Estate.
    Services....................  ...........  491
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  1,784
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    ROMANIA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                        1999          2000        \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and
     Employment:
      Nominal GDP (Billion Current    521,735.5     796,533.7     1,103,100
       Lei) \2\...................
      Real Lei GDP Growth (pct)           (3.2)           1.6           4.5
       \3\........................
      GDP by Sector (Million US$):     34,026.9      36,724.8      37,820.0
        Agriculture...............      4,729.7       4,192.4       5,656.5
        Manufacturing.............      9,459.5      10,136.9      11,348.0
        Services..................     19,837.7      22,395.5      20,815.5
      Per Capita GDP (US$)........      1,512.3       1,639.5       1,692.4
      Labor Force (Millions)......          9.8           9.5           9.5
      Unemployment Rate (pct).....         11.8          10.5           9.9

    Money and Prices (annual
     percentage growth):
      Money Supply Growth (M2)....         44.9          38.0          25.4
      Consumer Price Inflation....         54.8          40.7          32.6
      Exchange Rate (Lei/US$
       annual average):...........
        Official..................     15,333.0      21,689.2      29,160.0
        Parallel..................     16,315.0      22,139.9      29,352.0

    Balance of Payments and Trade:
      Total Exports FOB \4\.......      8,504.7      10,366.5      12,025.1
        Exports to United States          316.9         379.8         408.9
         \4\......................
      Total Imports CIF \4\.......     10,395.3      13,054.5      16,918.6
        Imports from United States        362.4         391.1         458.3
         \4\......................
      Trade Balance FOB/CIF \4\...     -1,890.6      -2,688.0      -4,893.5
        Balance with United States        -45.5         -11.3         -49.4
      External Public Debt \5\....      6,220.3       6,884.2       7,100.0
      Fiscal Deficit/GDP (pct) \6\          4.0           3.7           3.6
      Current Account Deficit/GDP           3.8           3.8           7.9
       (pct)......................
      Debt Service Payments/GDP            10.4           5.9           5.1
       (pct) \7\..................
      Gold and Foreign Exchange         2,492.9       3,396.6       4,506.5
       Reserves \8\...............
      Aid from United States......         56.0          33.8          36.0
      Aid from All Other Sources..        172.8         324.2         300.0
    ------------------------------------------------------------------------
    \1\ 2001 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\ Public Guaranteed Debt included.
    \6\ Consolidated budget deficit.
    \7\ Short-term, included.
    \8\ Official reserves with the central bank.

    1. General Policy Framework
        Despite a slow start, market-based economic reforms have steadily
    picked up pace in 2001, the first year of the new government GDP growth
    has increased dramatically, exports have continued to grow, moderately
    tight fiscal policy has resulted in lower inflation, there has been
    modest progress in privatization, and industrial output has increased.
    On the negative side, a surge in imports has led to a widening current
    account deficit.
        GDP is expected to rise around 4.5 percent in 2001. (The informal
    economy is estimated at more than 25 percent of official GDP. The
    current account deficit has widened to more than double normal figures,
    and external public debt has only slightly increased. Improved tax
    collection and tight public spending should bring the consolidated
    budget deficit down to around 3.5 percent of GDP under the new IMF's.
    Public direct and guaranteed external debt service was projected to
    drop to 5.1 percent of the GDP in 2001. Foreign public debt has
    increased only slightly, and Romania has continued to meet its debt
    obligations on time and in full. As a result of Romania's continued
    good record on debt service and steady growth of official foreign
    exchange reserves, , up 56.7 percent by June 2001 from June 2000,
    rating agencies have upgraded Romania's country rating to B(B) by
    Fitch, B(B) by Standard and Poor's, B-three (B3) from Moody's Investor
    Service.
        Romania is committed to becoming a member of the European Union
    (EU), which is by far its largest trading partner, and has opened 15
    accession chapters so far, of which eight are closed. Trade with the EU
    now accounts for 68 percent of Romania's merchandise exports and 56
    percent of imports. Trade with the United States accounts for 3.4
    percent of Romania's exports and 3.3 percent of its imports. In 2001,
    U.S. exports to Romania are projected to grow 17 percent.
    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 less in 2001 compared to 2000. For the
    first half of the year, the nominal devaluation was 12.5 percent, while
    the real appreciation was 2.3 percent. The central bank has remained
    committed to increasing the official forex reserves and has agreed to
    full future convertibility of the capital account, but the necessary
    conditions for the later are not yet in place and may require three to
    four years to complete.
    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,
    taxation, and SMEs. While new legislation is necessary to create a
    basis for a market economy, frequent regulatory change has slowed down
    the pace of trade and investment. Legal framework implementation has
    remained a serious problem, given subjective and sometimes corrupt
    manipulations. Another major legislative problem is the politically
    driven change of direction after elections, when several market-
    oriented ordinances adopted by the former government were immediately
    repealed by the new one, often without being submitted them to
    parliament for debate. Two of the most important ordinances repealed
    referred to private pension funds and the protection of minority
    shareholders. Both have impacted foreign investments in Romania,
    although the impact of repeal of the former was negative, while the
    repeal of the latter was mixed.
        Agricultural prices are generally determined by market forces, and
    there are no export quotas. Over the past two years tariffs have been
    reduced by 66 percent. However, very modest progress has been made in
    agricultural sector privatization, and Agriculture Structural
    Adjustment (ASAL) program agreed with the World Bank was terminated.
    The Agricultural Bank's privatization, completed in 2001, represents a
    good reform opportunity both for agri-business investments in Romania,
    as well for the development of the retail banking sector.
        Currently, deep-seated problems remain in the agricultural sector.
    Among them:

       the continued pervasive state presence, including in
            acquisition prices, 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;
       limited financial services, few private input suppliers, and
            little extension services;
       agricultural coupons for tiled lands that arrive too late to
            be helpful for agricultural production.

        The pace of reform in heavy industry has been even slower. The
    state has retained ownership of 65 percent of the industrial sector.
    Plant inventories and arrears have been up in 2001. While the
    government remains committed to privatizing, albeit with only moderate
    success to date, most liquidation procedures were halted and productive
    assets have been re-opened for social cause, regardless of financial
    cost. The recent privatization of Sidex, the largest steel plant, is a
    positive sign. Meanwhile, industrial direct or indirect subsidies such
    as soft loans are still largely concentrated in loss-making industries
    such as truck and tractor construction. However, tax incenives granted
    to potential growth sectors, such as IT or aluminum represented
    positive exceptions to this rule in 2001. Other sectors having good
    growth driving potential such as food-processing have received no
    support.
        As a rule, the government does not interfere with market forces by
    implementing price controls; however, in order to provide some social
    comfort and anti-inflation leverage, it has sometimes released supplies
    from the state reserves of basic food-stuffs such as edible oil, sugar,
    etc.
    4. Debt Management Policies
        At the end of June 2001, Romania's medium and long-term external
    debt amounted to $10.0 billion, up slightly from $9.9 billion at the
    end of 2000. The National Bank's foreign exchange reserves amounted to
    $4.5 billion, gold included, and the total reserve assets of the
    banking system reached $5.7 billion in June 2001. Romania has claims
    against foreign countries amounting to $3 billion.
        The Government of Romania succeeded in avoiding default in 1999
    without resorting to roll-over, and since then has increased foreign
    exchange reserves. In 1999-2000, Romania succeeded in significantly
    cutting the current account deficit. In 2001, the trade deficit has
    been driving a booming current account deficit. After long
    negotiations, the previous government concluded with the IMF a new
    stand-by loan worth $535 million, the first installment ($73 million)
    of which was released in August 1999. A second tranche was released in
    June 2000 after significant delay, but the program expired in February
    2001 without any more disbursements. The IMF Board approved a new 380
    million Stand-By Agreement on October 31. The first installment was $66
    million, and the first program review is scheduled for February 2002.
        The previous government received a $300 million Private Sector
    Structural Adjustment Loan (PSAL) from the World Bank, which was fully
    disbursed. Under the PSAL, the Government of Romania worked to reform
    the banking sector, close loss-making firms, and improve the business
    environment. The World Bank will continue this work with the new
    Government of Romania through a second PSAL that is expected to be
    approved shortly.
        Despite the absence of an IMF program, the Government of Romania
    succeeded in tapping international private capital markets this year at
    favorable rates. A January 2001 Eurobond issue in the amount of EUR 150
    million, with an interest rate of 11.5 percent for five years was re-
    opened in March for another EUR 150 million, with the same maturity, at
    an 11.25 percent interest rate. In June 2001, EUR 600 million were
    obtained for seven years at 10.65 percent, but there was sufficient
    demand to have sold EUR 1300 million in bonds. The spreads on Romanian
    debt have remained stable despite emerging market turmoil dues to
    Argentina's debt problems.
    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 that directly
    prejudice foreign trade or business operations. Tariff preferences
    resulting from Romania's Association Agreement with the EU have
    disadvantaged U.S. exports in several sectors, including agriculture,
    telephonic equipment, computers, and beverages.
        Bureaucratic red tape and frequent changes in the legal framework
    make doing business in Romania challenging. Negotiating contracts can
    be time consuming 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 and expedient legal recourse to recover claims against
    debtors has represented a further complication for foreign investors.
        The cost of doing business in Romania is relatively high for the
    region, particularly for office rental, transportation and
    telecommunication services. Lack of an efficient payment system further
    delays transactions in Romania. Capital requirements for foreign
    investors are not onerous, but local capital remains expensive. Also,
    taxes on both profits and operations are steep. Investors complain of
    inconsistency in Romania's policy on tax incentives for foreign
    companies. Foreign companies have qualified for some tax exemptions
    based on the size of their direct investment.
        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 obstacle to investment.
    Government approval of joint ventures requires extensive documentation.
    U.S. cumulative direct investments in Romania totaled US$ 693.2 million
    by December 2000, which represents 8.2 percent of the total foreign
    direct investment in Romania. The figure for 2000 is US$ 107.2 million.
        Romania is a full 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 a commercial and 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. Modern patent, trademark, and copyright laws are
    in place. In 2001, the Romanian Parliament ratified the latest
    copyright and neighboring right treaties of Geneva that Romania had
    signed and adhered to since 1996: WIPO copyright treaty and WIPO
    artistic performance and phonogram treaty. Still, enforcement is
    limited and often ineffective, especially in the copyright area.
        Pirated copies of audio and video cassettes, CDs, and software are
    still 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 Berne 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 implemented the WTO agreement on intellectual
    property beginning January 1, 2000. Industrial property law amendments
    needed for full compliance with TRIPS have already been drafted, but
    not yet enacted. These drafts include the law for changing and
    completing Patent Law (64/1991) and the draft law for changing and
    completing Industrial Drawing and Model Protection (129/1992).
        The TRIPS-consistent Copyright and Neighboring Rights Law has been
    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 and
    appropriate budget. The Business Software Association estimates that
    currently, pirated products account for about 77 percent of the
    Romanian market, down from 95 percent prior to the law's coming into
    force. The music piracy rate is estimated at 55 percent and audio-
    visual piracy about 50 percent. In order to solve this problem, the
    government drafted a bill that came into force in 2001 regulating the
    customs' right to check on imports from the IPR point of view.
        On March 26, 2001, almost five years after the passage of the
    Copyright Law, Romania carried out the first mass-destruction of seized
    counterfeited CDs and music tapes.
    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). In early 2001,
    the government concluded a Social Pact with national union
    confederation and employer associations, under which the unions agreed
    not to stage national strikes, in return for promises regarding wages,
    pensions and new labor legislation. However, the Social Pact does not
    prevent local unions from staging protests and strikes protesting
    privatization or restructuring of their companies or wage levels that
    do not keep the pace with the rate of inflation.
        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 workweek
    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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  27
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          (\1\)        .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    1            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  5            .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  ...........  21
    Banking.....................  ...........  0
    Finance/Insurance/Real        ...........  (\1\)
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  24
        Total All Industries....  ...........  106
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     RUSSIA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                           1999         2000       \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and
     Employment:
      Nominal GDP \2\................       4,546        7,063   \3\ 5,475.9
      Real GDP Growth (pct)..........         5.4          8.3        \3\ 5
      GDP Growth 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 Personal Income              650        900.3        1,228
       (US$).........................
      Labor Force (000s).............      72,000       72,300       71,000
      Unemployment Rate (pct)........        12.6         10.4          8.2

    Money and Prices (annual percent
     growth):
      Money Supply Growth (M2).......        57.2         47.1     \3\ 19.4
      Consumer Price Index (percent          36.6         20.2     \3\ 13.9
       increase).....................
      Exchange Rate (Ruble/US$--            24.63        28.15     \4\ 29.4
       annual average)...............

    Balance of Payments and Trade:
      Total Exports (FOB)............        72.9        103.0         51.3
        Exports to United States.....         5.8          7.8      \6\ 4.1
      Total Imports (CIF)............        30.3         33.9         19.5
        Imports from United States...         1.8          2.3      \6\ 1.6
      Trade Balance..................        42.6         69.1         31.8
        Balance with United States...         4.0          5.5      \6\ 2.5
      Current Account................        24.6         46.3     \7\ 11.7
      External Public Debt...........       159.7          147      \8\ 141
      Fiscal Deficit/GDP (pct).......         1.7        -2.46     \5\ -4.2
      Debt Service Payments/GDP (pct)         5.9          2.4      \5\ 3.5
      Gold and Foreign Exchange              12.5         27.9     \4\ 37.9
       Reserves......................
      Aid from United States (US$         1,937.1      1,108.9        978.9
       millions) \9\.................
      Aid from All Other Sources.....         N/A          N/A          N/A
    ------------------------------------------------------------------------
    \1\ 2001 data has been provided for the last available period (8/00)
      unless otherwise noted.
    \2\ Billions of Russian Rubles.
    \3\ Data for the period January-August 2001.
    \4\ Data as of September 28, 2001.
    \5\ Data for the period January-July 2001.
    \6\ U.S. Commerce Department data for the period January-July 2001.
    \7\ Data for the first quarter of 2001.
    \8\ Data as of January 2001.
    \9\ U.S. government assistance (by fiscal year) including food
      assistance, not including donated humanitarian commodities shipped by
      U.S. government.

    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 is in its third year of economic growth, albeit
    at a slower rate. Continued high commodity prices spur this growth, but
    increased private consumption and investment also contribute.
    Significant ruble appreciation since mid 2000 has sharply reduced
    exports and accelerated imports, but import substitution industries.
    The economy has continued to benefit from increased monetization of the
    economy, a substantially improved fiscal situation, and a perception of
    greater political stability. Further economic growth depends on several
    factors, some internal (continued structural reform, domestic
    investment, improved rule of law) and some external (oil and other
    commodity prices, foreign investment flows).
        The Russian economy grew 8.3 percent in 2000. In the first six
    months of 2001, GDP increased 5 percent (year-on-year) and forecasts
    for calendar year 2001 are for 5.5 percent GDP growth. However, real
    appreciation of the ruble in the second half of 2000 due to the strong
    current account surplus and relaxation of fiscal and monetary policies
    slowed the growth of export and industrial production. Net exports are
    a declining but still large contributor to GDP (estimated at 16
    percent, down from 24 percent in 2000), as oil and other commodity
    prices remain relatively high. Imports in dollar terms have only
    recently begun to rise, although the weakness of the euro against both
    the dollar and the ruble has masked import volume increases. (Note:
    Many of Russia's imports are denominated in euros.) Domestic demand is
    increasing and becoming a major economic driver. Total investment also
    increased substantially in 2001, up eight percent during the first
    eight months of 2001. Both foreign and domestic investment grew, and
    increasing amounts went into light industry and food processing,
    indicating deepening economic recovery and increased productivity.
        In the medium term, economic development will depend on a continued
    recovery in domestic demand and investment, underpinned by progress on
    structural reform. The Russian government has made impressive strides
    to implement its reform program, passing a major tax reform,
    simplifying the tariff system, reducing administrative barriers to
    business, and allowing for the sale of commercial and residential land
    in cities and villages. However, problems in the investment climate,
    including poorly functioning judicial and enforcement systems and
    poorly developed capital markets, present significant disincentives to
    domestic and foreign investment. The banking sector has stabilized from
    its collapse in 1998, but still does not effectively intermediate
    savings to productive investments on a large scale. State banks
    increasingly are crowding out private banks for commercial lending.
    Capital flight has leveled off, however, and flight capital is
    returning home to Russia in the guise of foreign investment.
        Russia continues to exhibit fiscal discipline, based on better
    fiscal policy and tax collection and achieved primary and overall
    surpluses in 2000. In the first eight months of 2001, the federal
    budget surplus was R85 billion, or 1.5 percent of GDP. Expenditures
    were R895 billion and revenues were R980.1 billion. Budget surpluses
    were largely due to higher energy sector tax receipts and improvements
    in compliance. A relaxation of fiscal and monetary policy in the fourth
    quarter of 2000 resulted in a surge of capital outflows; in the first
    quarter of 2001, however, key monetary aggregates were in line with
    projections. The budget surplus has been the major factor in this
    regard, absorbing the monetary liquidity created by the huge increase
    in foreign reserves. Restraining monetary growth has been a significant
    challenge, in the context of high dollar inflows and the government's
    desire to build reserves and avoid significant ruble appreciation or
    inflation. While the Central Bank of Russia (CBR) is limited in its
    sterilization efforts due to lack of financial instruments, the recent
    lifting of the 0.8 percent tax on bonds and other measures make it
    easier for the CBR to issue its own bonds, which, along with increased
    use of its deposit mechanism, should help to absorb liquidity. The
    Russian government and CBR continue to coordinate their fiscal and
    monetary policies to try to avoid substantial real ruble appreciation.
    The CBR has intervened selectively to even out exchange rate
    fluctuations, preventing sharp appreciation or depreciation. Inflation
    was about 18 percent in 2000, and is projected to be 16-18 percent for
    2001.
        The positive trend for Russia's economy should be put in
    perspective. The cost of Russia's 1998 financial collapse was
    significant. Measured in dollar terms at the average rate of exchange
    (and keeping in mind that the sharp devaluation may have magnified the
    drop), Russia's GDP in 1999 was only about $183 billion, slightly more
    than half of its value in 1995 ($337 billion). Even with strong growth
    registered in 2000 and some real ruble appreciation, Russia's GDP in
    dollar terms may not reach pre-crisis levels until 2001 or later.
    2. Exchange Rate Policy
        The objective of the CBR's exchange rate policy is to prevent sharp
    fluctuations. The CBR and Russian government also are working together
    to prevent significant real ruble appreciation due to high dollar
    inflows from high oil and commodity prices. The nominal ruble/dollar
    exchange rate has been rising relatively smoothly over the first nine
    months of 2001, and was up by 4.4 percent by the end of September. Even
    though the ruble depreciated in nominal terms, it continued to grow in
    real terms and was up by 9.5 percent in the first nine months of 2001.
    This real appreciation in exchange rates has only partially offset the
    large devaluation in 1998, so the price competitiveness of imported
    goods (including U.S. goods) has recovered only marginally.
        During the first nine months of 2001, the CBR's international
    reserves grew to post-Soviet record levels of $37.9 billion: up by
    33.92 percent since Jan.2001. Relatively high ruble liquidity, as
    reflected in the approximately R75-90 billion held in banks'
    correspondent accounts at the CBR, reflects the CBR's purchase of
    dollars. Monetary base growth over the first nine months reflects the
    same fact. Most of these CBR ruble emissions have been ``sterilized''
    by the Russian government's budget surplus, rather than by traditional
    central bank operations.
        Part of the ruble's strength can be explained by administrative
    controls maintained by the CBR. The CBR still restricts banks from
    trading on their own accounts, converting funds in S-accounts from the
    GKO restructuring, and depositing amounts equivalent to those it holds
    in S-accounts of non-residents. The CBR also continues restrictions on
    foreign exchange for export contracts, but a new law implemented on
    August 10, 2001, reduces the rate from 75 to 50 percent of the
    repatriated export proceeds that must be sold on authorized exchanges.
    Under these conditions, the CBR only needs to make tactical
    interventions in the foreign exchange markets to smooth volatility.
    3. Structural Policies
        The Russian government in 2001 continued to pursue the course of
    market economic structural reforms outlined in the government's
    ``Strategy of Development of the Russian Federation through 2010.''
    Minister of Economic Development and Trade German Gref, whose Center
    for Strategic Research developed this reform plan, is pressing forward
    on its implementation. The plan focuses on modernizing the economy
    through releasing private initiative and ensuring a favorable
    environment for economic activity, including fair rules for
    competition, deepening of the rule of law, integration into the world
    economy, and reform of Russia's natural monopolies. The strategy
    includes a detailed table of actions to be undertaken in its initial 18
    months, and more general goals for the following eight years.
        The continued emphasis on reform from above, coupled with the more
    cooperative Duma (parliament) that emerged from the December 1999
    elections, has made some significant progress on reform legislation in
    2001. That said, the government has husbanded its political capital,
    and pressed only for top priority reforms. Following upon the
    individual income tax reform in 2000, the Duma passed a new corporate
    profits tax that lowers rates to 24 percent, and brings deduction
    practices close to international standards. The Duma also passed a new
    land code that will legalize sales of non-agricultural land. Other
    measures passed this year include the first tranche of the government's
    de-regulation package. The measures recently passed will limit the
    number of sectors subject to licensing, protect businesses from
    excessive inspections, and simplify business registration.
        Despite the progress on some structural reforms, much additional
    work remains in key areas such as banking reform, judicial reforms,
    corporate governance, agricultural land reform, and changes needed to
    bring Russia's legislation into line with WTO requirements.
    4. Debt Management Policies
        The Government of Russia is seeking to reduce substantially its
    internal and external debt, and to minimize new debt or contingent
    guarantee liabilities. In 2000 and 2001, government budget surpluses,
    combined with trade and current account surpluses, have allowed Russia
    to meet external debt payments and build Central Bank reserves. Since
    the August 1998 financial crisis, it has restructured almost all of its
    internal and pre-1992 external debt with the London and Paris Clubs,
    and completed the restructuring of its MinFin3 bonds. The 2002 Russian
    government budget assumes payment of roughly $14 billion in official
    debt service payments falling due. In 2003, the Government of Russia
    faces a debt spike to $19 billion because of higher MinFin and Eurobond
    payments, although it has prepaid $1 billion of this already and may
    have repurchased some of its private sector debt. At this point, the
    Government of Russia is not seeking a new Paris Club restructuring. The
    IMF is monitoring Russian economic performance in the context of a
    Post-Monitoring framework. Given its strong international reserve
    situation, the government is not seeking a Stand-by facility.
        The CBR continues to prohibit the conversion of S-account (accounts
    through which non-residents invested in government securities) rubles
    to foreign currency, except during occasional CBR foreign exchange
    auctions. Investors also may invest restricted S-account rubles in
    certain securities and trade assets within a S-account. Many foreign S-
    account holders have been able to repatriate their funds, at
    substantial discounts, through schemes by which they bought and then
    resold authorized securities.
    5. Significant Barriers to U.S. Exports
        Complicated economic conditions continue to pose a greater hurdle
    for U.S. exports to Russia than statutory trade barriers. Despite
    continuing economic growth, imports are only now beginning to approach
    pre-1998 levels, as incomes remain low and real appreciation of the
    ruble has been slow. Russia's overall imports in the first half of 2001
    rose almost 25 percent from the still depressed levels for the same
    period in 2000. U.S. exports to Russia also increased in 2001, up about
    18 percent from the previous year's level. With reduced availability of
    trade finance, exporters remain cautious about entering the Russian
    market, where they now face much stronger domestic competition from
    Russian companies that used the weak ruble to build up their market
    share.
        Since 1995, Russian tariffs have generally ranged from zero to
    thirty percent, with average import tariff rates at 11.4 percent. For
    some products, however, including poultry and automobiles, compound
    duties with minimum tariffs per unit or by weight effectively raised
    tariff rates above their ad valorem equivalents. This has particularly
    affected poultry imports, although this year's modifications in
    compound poultry duties have brought effective duties closer to the
    nominal 25 percent rate. In addition, excise taxes are applied to a
    select group of imports, while Value-Added Tax (VAT) is applied to
    virtually all imports. The VAT, which is applied on the import price
    plus tariff, is currently 20 percent with the exception of some
    medicines, food products and items for children, which are taxed at 10
    percent. Russia's new unified tariff regime, which applies the same
    duty across broad product categories, took effect in January 2001.
    These new tariffs generally range from 5 to 20 percent, with a very
    small number of items remaining at the zero (insulin), 25 (poultry,
    automobiles), and 30 percent (sugar) levels. For sugar, Russia also has
    resorted to high seasonal tariffs on top of these rates and the
    introduction of a tariff rate quota. The Russian government is
    discussing imposing tariff rate quotas on other imports, including
    rice, poultry and red meats. The first results show the new tariff
    structure has made modest progress in the government's goal of
    simplifying customs administration, reducing fraud, and through better
    compliance eventually increasing customs revenues, although more
    thorough going customs reform will be needed to make more substantial
    progress toward these objectives.
        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); and on aircraft and certain aircraft components (for which
    tariffs are set at 20 percent). For the time being, the Russian
    government has suspended waivers on aircraft import tariffs for
    purchases by Russian airlines.
        Throughout 2001 Russia maintained export duties (for exports to
    non-CIS countries) on many products 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 25 percent. Throughout the year, the government has adjusted
    export duties on crude oil and oil products to reflect changes in world
    oil market prices, with the duty now set at 34 euros per ton.
        Import licenses are required for the 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. Most import licenses
    are issued by the Russian Ministry of Economic Development and 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. The government has
    continued tight controls on alcohol production, including import
    restrictions, export duties, and increased excise taxes. Many of these
    controls are designed to increase budget revenues.
        The Law on Protective Trade Measures, passed in spring 1998, gives
    the government authority to undertake antidumping, countervailing duty
    and safeguard investigations, under certain conditions. Because of the
    law's provisions and Russian companies' lack of familiarity with such
    measures, Russian companies have only been able to file successful
    actions in a handful of cases, mostly safeguards cases. So far, there
    has not been a single successful anti-dumping action under the law. The
    Ministry of Economic Development and Trade has stated it plans by the
    end of 2001 to submit amendments to the Law on Protective Trade
    Measures, to make easier for Russian companies to file actions. Under
    the government's economic reform plan, such protective actions are to
    replace tariffs as the preferred method for protecting domestic
    industry.
        The June 1993 Customs Code standardized Russian customs procedures,
    bringing them generally in accordance with international norms, but
    significant problems remain. 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. An
    April 2000 State Customs Committee restriction that forced U.S. poultry
    importers to ship directly through Russian ports remains in place. The
    Veterinary Service regularly promulgates internal regulations that
    impede trade. On the positive side, Russian customs is implementing the
    ``ClearPac'' program in the Russian Far East that facilitates customs
    clearance from the United States, and there is discussion of extending
    the program to other regions.
        U.S. companies continue to report that Russian procedures for
    certifying imported products and equipment are non-transparent,
    expensive, time-consuming 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. The
    Government of Russia is considering a reform of its standardization
    law, to be submitted to the Duma by the end of the year. Some reform
    proposals would reduce the number of areas subject to standards to a
    minimum. Occasional jurisdictional overlap and disputes between
    different government regulatory bodies compound certification problems.
        Some of Russia's current legislation in the services sector is
    overtly protectionist. In theory, foreign participation in banking has
    been limited to 12 percent of total paid-in banking capital, but the
    legal basis for this restriction was never fully established. In the
    aftermath of the financial crisis, foreign banks' share has exceeded
    this limit, but the government has taken no action. The Government of
    Russia's most recent banking strategy has proposed abolishing this
    quota entirely. Foreign investment is also limited in other sectors,
    such as electricity generation and aviation. An October 1999law
    implicitly allows majority-foreign-owned insurance companies to operate
    in Russia for the first time, but restricts their 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 insurance companies currently
    licensed in Russia from these restrictions. In practice, foreign
    companies are often disadvantaged vis-a-vis Russian counterparts in
    obtaining contracts, approvals, licenses, registration, and
    certification, and in paying taxes and fees.
        Despite the passage of a revised 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 rights to purchase
    securities, to transfer property rights, to protect rights in Russian
    courts, to repatriate funds abroad after payment of duties, and to
    receive compensation for nationalizations or illegal acts of Russian
    government bodies. The law goes on to state, however, that Federal law
    may provide for a number of exceptions, including where 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 potential large number of exceptions thus gives
    considerable discretion to the Russian government. The law provides a
    ``grandfather clause'' to protect existing ``priority'' (foreign
    charter capital of over $4.1 million and with a total investment of
    over $41 million) foreign investment projects with a foreign
    participation over 25 percent from unfavorable changes in the tax
    regime or new restrictions on foreign investment, but the law's
    protections have not been effective. Lack of corresponding customs and
    tax legislation has so far prevented implementation of these tax
    protections.
        The September 2001 passage of a land code for non-agricultural land
    will for the first time permit foreign ownership of real estate.
        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. In
    November 2000, Russia changed its previous regime for arms export sales
    and established a unified state arms sales organization,
    Rosoboroneksport through merger and consolidation. Arms exports require
    licensing by the Ministry of Economic Development and Trade. Export
    control policy is coordinated by the interagency Export Control
    Commission.
        Most of these issues are up for negotiation as part of the terms of
    Russia's accession to the World Trade Organization (WTO). The
    government has made accelerated WTO accession its top economic
    priority. By mid 2001, the government completed twelve working party
    meetings. The pace of accession negotiations has accelerated throughout
    the year, as bilateral goods and services market access negotiations
    continue to make progress. The Russian government provided a revised
    services market access offer in early 2001, and has also revised its
    goods tariff offer. 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. Low domestic prices for energy, which are provided to all
    industries, are seen by some as providing a hidden subsidy to some
    export industries, such as metals producers. The government is moving
    to encourage more realistic pricing for energy, however. Soft credits
    are at times provided to small enterprises for specific projects.
    Senior Russian officials have publicly advocated establishing an export
    credit agency, along the lines of the U.S. Exim Bank, but no concrete
    steps have been taken to establish such an agency.
    7. Protection of U.S. Intellectual Property
        Under the U.S.-Russia Trade Agreement, which was originally signed
    with the Soviet Union in 1990, Russia is obligated to take steps to
    provide for the adequate and effective protection and enforcement of
    intellectual property (IP). To address these obligations, the United
    States and Russia established a bilateral working group, which met
    again in February 2001. In addition, Russia must fully comply with the
    Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement
    upon its accession to the WTO. In 2001, the U.S. Trade Representative
    retained Russia on the ``Special 301'' Priority Watch List for a fifth
    year, due in large part to concerns over weak enforcement of IP laws
    and regulations as well as the lack of retroactive copyright protection
    for U.S. works in Russia. In 2000, the U.S. copyright industry filed a
    petition with the U.S. Trade Representative requesting review of
    Russia's eligibility under U.S. Generalized System of Preferences (GSP)
    program, citing deficiencies in Russia's IP regime and inadequate
    enforcement of IP in Russia. The U.S. government continues to review
    this petition.
        Russia is a member of 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), 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 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. The government submitted new draft
    legislation in June 2001 to the Duma to provide for retroactive
    protections for copyrights and other measures to bring Russia into
    compliance with its bilateral and multilateral obligations, but the
    Duma has yet to take action on these laws.
        Legal enforcement of intellectual property rights (IPR) has seen
    some improvements through 2001, although the overall level of piracy
    remains high. A new Criminal Code that took effect January 1, 199,
    contains considerably stronger penalties for IPR infringements, and
    amendments passed by the Duma in 2001 will further increase penalties.
    However, there are still disappointingly few cases in which these
    penalties have been applied. Widespread sales of pirated U.S.
    videocassettes, recordings, books, computer software, clothes, toys,
    medicines, foods and beverages continue, and there are disturbing signs
    of increased manufacturing capacity for optical media that could be
    used to produce pirated product.
        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.
        Losses to U.S. industry from pirated products sold in Russia (a
    significant portion of which are produced in third countries) are
    estimated to be significant, although there are few reliable estimates
    of their value, or of the value of purchases that Russian consumers,
    with their limited incomes, would make of non-pirated goods.
    Counterfeit goods also cause significant losses and may pose dangers to
    consumer health and safety. Investors in the consumer goods sector
    continue to warn the Russian government that they will not make further
    investments if infringement of intellectual property rights continues.
    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 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
    continued to work with management to discourage the establishment of
    new unions. While recent court decisions have supported the right of
    association and often ruled in favor of employees, enforcement of these
    decisions remains difficult. Registration procedures for unions are
    governed by the Law on Trade Unions, which specifies that registration
    requires a simple ``notification'' and submission of documents.
    Regional Departments of Justice throughout Russia have often ignored
    the procedures set out by this law and refused to register new unions
    by requiring changes in charter documents or confirmation of attendance
    at founding conferences. Such practices have prevented the registration
    of new unions or the re-registration of existing ones.
        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. Past 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 considered technically illegal, as the procedures for
    disputes remain exceedingly complex. Moreover, courts have the right to
    order the confiscation of union property to settle damages and losses
    to an employer, if a strike is found to be illegal. Reprisals for
    strikes are common, although strictly prohibited by law.
        In December 2001, the Duma will consider amendments to a proposed
    new draft Labor Code. The draft code seeks to diminish the role of
    government in setting and enforcing labor standards and to move toward
    more flexible labor markets. In the conceptual scheme of the new code,
    trade unions are expected to play a balancing role in representing
    workers' interests. There are significant gaps in the proposed regime,
    however, including the lack of a clear enforcement mechanism for
    failure or refusal by an employer to engage in good faith collective
    bargaining or other obligations. Moreover, there is a substantial risk
    that existing unions will be dominated by employers under the proposed
    labor relations scheme, particularly in industries with oligopolistic
    structures. Final approval of a new code is not expected until the
    spring of 2002, at the earliest.
        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. The increase
    in the number of children working and living on the streets is largely
    the result of drastic economic changes and a deterioration in the
    social service infrastructure.
        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.
    While the overall problem of nonpayment of wages has diminished
    greatly, wage arrears in June 2001 equaled over $1.14 billion. The
    monthly minimum wage of $10.20 (300 rubles) remains below the official
    subsistence level of $51 (1,507 rubles) and approximately 31 percent of
    the population have incomes below this survival level. Workers' freedom
    to move in search of new employment is constrained economically and is
    further limited by the system of residency permits, which is still in
    use in cities such as Moscow and St. Petersburg. 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
    existing Labor Code and are the same as in other parts of the country.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  496
    Total Manufacturing.........  ...........  138
      Food & Kindred Products...  157          .............................
      Chemicals & Allied          -73          .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    3            .............................
       Equipment.
      Electric & Electronic       2            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  -76
    Banking.....................  ...........  3
    Finance/Insurance/Real        ...........  3
     Estate.
    Services....................  ...........  -294
    Other Industries............  ...........  366
        Total All Industries....  ...........  635
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     SPAIN

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Real GDP (1995 Prices) \2\...........     538.4      484.7      487.6
      Real GDP Growth (pct) \3\............       4.0        4.1        3.0
      GDP (At Current Prices)..............     599.3      558.3      580.7
      GDP by Sector:
        Agriculture........................      21.1       18.3       19.1
        Industry...........................     120.0      109.3      113.7
        Construction.......................      44.5       44.6       43.5
        Services...........................     356.1      332.1      345.4
        Government.........................      57.7       54.1       56.2
      Per Capita GDP (US$).................    14,957     13,992     14,554
      Labor Force (000s)...................    16,423     16,844     17,000
      Unemployment Rate (pct)..............      15.9       14.1       12.7

    Money and Prices (annual percentage
     growth):
      Money Supply (M2)....................       6.0        3.7        3.0
      Consumer Price Inflation.............       3.0        4.0        3.3
      Exchange Rate (PTA/US$ annual             156.3    180.678      185.0
       average)............................

    Balance of Payments and Trade:
      Total Exports FOB \4\................     111.4      113.7        127
        Exports to United States \4\.......       4.8        5.5        6.4
      Total Imports CIF \4\................     146.3      153.4      171.0
        Imports from United States \4\.....       7.9        8.0        9.0
      Trade Balance \4\....................     -34.9      -39.7      -44.0
        Balance With United States \4\.....      -3.1       -2.5       -2.6
      External Public Debt.................      66.4       61.1       60.0
      Fiscal Deficit/GDP (pct).............       1.1        0.3        0.0
      Debt Service Payments (Paid).........       N/A        N/A        N/A
      Gold and Foreign Exchange Reserves...      39.8       35.2       36.0
    ------------------------------------------------------------------------
     Sources: Bank of Spain, Spanish National Institute of Statistics

    \1\ 2001 figures are all estimates based on available monthly data in
      June.
    \2\ GDP at factor cost. GDP appears lower in 2000 and 2001 due to
      exchange rate fluctuations.
    \3\ Percentage changes calculated in local currency.
    \4\ Merchandise trade. Spanish Customs.

    1. General Policy Framework
        Spain's economy continues to perform well. The Government of Spain
    estimates 3 percent GDP growth for the year 2001, a deceleration from
    the 4.1 percent growth in GDP for 2000. Thus far, growth continues to
    be broadly based and is supported by the services sector, agriculture,
    construction, consumer demand, and capital good investment. Growth
    prospects have been dampened in part due to the effects of the global
    economic slowdown.
        Throughout the 1990s 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
    budget deficit/GDP ratio to fall to 0.4 percent in 2001. The
    government's overall debt/GDP ratio should fall to 60 percent in 2001.
        Although high compared to EU averages, Spain's current unemployment
    rate of 12.7 percent is Spain's lowest level in over a decade.
    Employment growth in early 2001 was underwritten by changes in 2000
    that provided flexibility in hiring practices. Recently released
    monthly unemployment figures show slight increases in unemployment
    starting in July 2001.
    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 through July 2001
    was 0.893 or 186.6 pesetas to the dollar. The rate in September 2001
    was 1 euro equals $0.904
    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 follows the U.S.-EU mutual recognition
    agreements in its application of certain nontariff regulations and
    conformity assessment procedures applied to certain goods from the
    United States.
        Spain requires import licenses and imposes quotas on certain
    industrial products. While there are no quotas on U.S.-origin
    manufactured products, Spain 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 invoice 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.
        Not infrequently, U.S. products face rigorous application of import
    requirements. Goods that are shipped to a Spanish customs area without
    proper import licenses or declarations are subject to considerable
    delay, may run up substantial demurrage charges, and have recently been
    rejected outright. 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.
        Current Investment Law complies with all EU regulations. Non-EU
    resident investors must obtain Spanish government authorization to
    invest in broadcasting (signatories to the WTO Telecoms Agreement are
    exempt from this requirement), gaming, air transport, or defense. EU
    resident companies (i.e. companies deemed European under article 58 of
    the Treaty of Rome) are free from almost all restrictions.
    4. Debt Management Policy
        Almost 30 percent of Spanish medium and long-term debt is held by
    non-residents. Approximately 21 percent of Spanish government debt is
    short-term (less than one year) and 79 percent is long-term (i.e.
    maturities greater than five years).
        At the end of August 2001, international reserves at the Bank of
    Spain totaled 39.1 billion euros or $35.2 billion.
    5. Significant Barriers to U.S. Exports:
        In general, EU agreements and practices determine Spain's trade
    policies. Within the European Union, the European Commission has
    authority for developing most aspects of EU-wide external trade policy,
    and most trade barriers faced by U.S. exporters in EU member states are
    the result of common EU policies. Such trade barriers include: the
    import, sale and distribution of bananas; restrictions on wine exports;
    local (EU) content requirements in the audiovisual sector; standards
    and certification requirements (including those related to aircraft and
    consumer products); product approvals and other restrictions on
    agricultural biotechnology products; sanitary and phytosanitary
    restrictions (including a ban on import of hormone-treated beef);
    export subsidies in the aerospace and shipbuilding industries; and
    trade preferences granted by the EU to various third countries. A more
    detailed discussion of these and other barriers can be found in the
    country report for the European Union.
        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. In compliance with
    the Uruguay Round agreement all import duties on agricultural products
    have been reduced by an average of 20 percent, though in sensitive
    sectors some tariffs remain at prohibitively high levels.
        In addition to these mechanisms, the EU employs a variety of strict
    animal and plant health standards which act as barriers to trade. At
    times, 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 beef production in the EU, including in Spain, 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 two WTO rulings (original case and appeal) 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 that 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.
        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 and specified non-
    grain feed ingredients and sorghum from non-EU countries. The Uruguay
    Round agreement effectively extended this agreement indefinitely.
        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 bioengineered agricultural products has halted U.S. corn
    exports to Spain. Due to the EU's failure to approve all but two
    transgenic corn varieties, U.S. corn exports to Spain have virtually
    been eliminated, costing U.S. exporters about $100-150 million per
    year. The figure for the entire EU would be somewhat higher. Unless the
    EU takes steps to lift its moratorium on approval of transgenic
    products and streamlines its biotech product approval process, U.S.
    exporters will continue to be unable to ship U.S. corn to Spain. The
    United States remains interested in maintaining access to the Spanish
    feed grain market and will continue to press the EU on this issue and
    is currently exploring the concept of providing USDA certified,
    identity preserved corn shipments, containing only EU approved
    varieties.
        Telecommunications: Spain liberalized its telecommunications market
    beginning in 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 in 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 three digital
    television platforms, Via Digital, Canal Satellite Digital, and Onda
    Digital/Retevision (over a terrestrial network), which currently offer
    digital television programming. Spain's mobile telephony market has
    also experienced a very rapid growth in subscribers. The government
    granted four licenses for third generation mobile telephony in 2000,
    and six licenses for wireless local telephone services. New
    opportunities are emerging in advanced telecommunications services,
    including the internet and high-speed data transmission. Finally, the
    government 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: In 1999, the Spanish
    Parliament adopted legislation that incorporated the EU Television
    without Frontiers Directive and revised the 1994 Spanish law on
    television broadcasting. The 1999 law explicitly requires television
    operators to reserve 51 percent of their annual broadcast time for
    European audiovisual works. It also created an ``investment quota,''
    obliging television operators to devote 5 percent of their annual
    earnings to finance European feature length films and films for
    European television. This investment quota was further defined in new
    July 2001 legislation (60 percent of the investment quota must be spent
    on audiovisual works in one of Spain's official languages).
        Motion Picture Screen Quotas and Dubbing Licenses: In 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. In July 2001, the Spanish
    Parliament adopted new legislation that maintains the film screen
    quotas. The new law notes that it is possible that the screen quotas
    may be eliminated in five years.
        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. In 1998, the Catalan regional
    government adopted a decree under its new law on language policy, which
    called 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, the regional government annulled the legislation
    in 2000.11Product Standards and Certification Requirements: Product
    certification requirements have been liberalized considerably since
    Spain's entry into the EU leading to increased transparency of process.
    National regulations in the telecommunications sector now conform to EU
    directives. CE registration in any EU member state is recognized in
    Spain, which shortens the approval process particularly for telecom and
    medical equipment. 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.
        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 U.S.-EU Mutual
    Recognition Agreement, when fully implemented, will permit certain
    conformity assessments (e.g., product tests) to be performed in the
    United States to EU requirements. This should improve market access,
    reduce costs, and shorten the time required to market certain U.S.
    products in the EU.
        Aviation: Under the ``Open Skies'' aviation agreements that the
    United States has with most EU member states, there are no restrictions
    on bilateral routes, capacity or pricing. Spain is one of a few member
    states without an Open Skies agreement.
    6. Export Subsidies Policies
        Spain aggressively uses ``tied aid'' credits to promote exports in
    Latin America, the Maghreb, and China. Such credits reportedly are
    consistent with the OECD arrangement on officially supported export
    credits.
        Total Spanish agricultural exports in 2000 totaled $16.4 billion.
    While the majority, typically 75 percent, of Spain's agricultural trade
    is confined to markets within the EU, some of Spain's exports are
    subsidized with EU funding and compete with the United States in third-
    country markets. Most of this trade is destined for Eastern Europe or
    North Africa. Spanish products receiving the most EU export funding
    include sugar, rice, wine, red meat, and dairy products. Spain
    generally receives about $200 million annually in EU funds to directly
    subsidize agricultural exports (1999 = $222.2 million, 2000 = $194.4
    million). This export subsidy support is minor when compared to the
    $5.5-6.0 billion of domestic support Spain receives annually under the
    Common Agricultural Policy (CAP).
        The Spanish government has indicated that it is likely to provide
    financial support to Airbus for the development of the A380 megaliner.
    The terms of its financial support are not available at present.
    7. Protection of U.S. Intellectual Property
        Spanish patent, copyright, and trademark laws 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 1992, Spain enacted a modernized Patent Law, which increases the
    protection afforded patent holders. With this law, Spain's
    pharmaceutical process patent protection regime expired and product
    protection took effect. Given the long (10 to 12 years) 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 2002 or 2003. 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 losses as a result. In
    2000, the government introduced an amendment to Article 100 of the
    Medicine's Act in an attempt to address the issue, but it has not
    resolved the problem.
        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.
    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 detect counterfeit products more
    effectively.
        Spain further revised its patent and trademark laws in 2001 to
    facilitate an easier application and approval process, increase
    consumer protection, incorporate new technology into procedures, and
    further synchronize Spanish laws with modern EU regulations and other
    multilateral agreements. Major changes to the system, to be implemented
    fully by July 2002, will allow applicants to enjoy a 15 percent
    discount on fees using electronic applications, to apply for multiple
    classes of trademarks and patents with a single application, and to be
    informed earlier of the chances of approval. Changes also include
    increased minimum fines and punishments for trademark violations, more
    legal recourses for trademark and patent holders, and allowing consumer
    protection groups to participate in the application process. Spain has
    also introduced the concept of a ``notorious trademarks'', well-known
    trademarks with high-volume sales and value which will enjoy new
    special protections, as well as including protections against third-
    party use of a registered trademark in web domains. In October 2001,
    the Spanish Patent Office (OEPM) was authorized to conduct preliminary
    examinations of international patents, the only office to accept
    applications in the Spanish language.
        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.
    The Spanish Constitutional Court has accepted the case for review. A
    decision is still pending.
        Spanish Copyright Law provides a solid framework for intellectual
    property rights protection of movies, videocassettes, sound recordings,
    and software. It includes provisions that allow for unannounced
    searches in civil lawsuits and searches to take place under these
    provisions. Spain has a low incidence of motion picture, i.e. video,
    and audiocassette piracy. The Spanish government prohibits the running
    of cable across public thoroughfares and also strictly enforces the
    Copyright Law that stipulates that no motion picture can be shown
    without authorization of the copyright holder.
        Software piracy has periodically been a serious problem for Spain,
    leading to its inclusion on the Special 301 ``watch list'' in 1999.
    Measures instituted by the Spanish Government to improve property
    rights for software in recent years led to Spain's removal from the
    Special 301 list in 2001.
    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 and 2 by autonomous authorities) and a month's paid
    vacation. The employee receives his/her 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  149
    Total Manufacturing.........  ...........  8,603
      Food & Kindred Products...  1,593        .............................
      Chemicals & Allied          1,832        .............................
       Products.
      Primary & Fabricated        1,277        .............................
       Metals.
      Industrial Machinery and    123          .............................
       Equipment.
      Electric & Electronic       1,020        .............................
       Equipment.
      Transportation Equipment..  1,838        .............................
      Other Manufacturing.......  921          .............................
    Wholesale Trade.............  ...........  1,608
    Banking.....................  ...........  2,096
    Finance/Insurance/Real        ...........  1,176
     Estate.
    Services....................  ...........  559
    Other Industries............  ...........  370
        Total All Industries....  ...........  14,561
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     SWEDEN

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................     240.3      224.5      206.6
      Real GDP Growth (pct) \3\............       4.1        3.6        1.6
      GDP by Sector:
        Agriculture........................       7.0        6.5        6.0
        Manufacturing......................      45.5       43.6       39.4
        Services...........................     107.3      101.2       92.3
        Government.........................      48.5       43.3       39.0
      Per Capita GDP (US$) \2\.............    27,124     25,333     23.213
      Labor Force (000s)...................     4,308      4,362      4,405
      Unemployment Rate (pct)..............       5.6        4.7        4.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M3) \4\.........       6.8        6.1        1.0
      Consumer Price Inflation.............       0.3        1.3        2.6
      Exchange Rate (SEK/US$)..............      8.26       9.16      10.24

    Balance of Payments and Trade:
      Total Exports FOB \5\................      84.8       87.0       77.6
        Exports to United States \6\.......       7.8        8.2        7.9
      Total Imports CIF \5\................      68.6       72.8       66.0
        Imports from United States \6\.....       4.0        4.9        3.9
      Trade Balance \5\....................     15.55      14.08      12.50
        Balance with United States \6\.....       3.9        5.0        5.4
      External Public Debt \7\.............      35.9       27.4       23.1
      Fiscal Balance/GDP (pct).............       3.9        1.3        8.2
      Current Account Surplus/GDP (pct)....       3.7        2.9        1.9
      Foreign Debt Service Payments/GDP           5.4        5.7        6.6
       (pct)...............................
      Gold and Foreign Exchange Reserves...      18.4       17.9       14.7
      Aid from United States...............         0          0          0
      Aid from All Other Sources...........         0          0          0
    ------------------------------------------------------------------------
    \1\ 2001 figures are all forecasted before the September 11 terrorist
      attacks on the United States. The effect of the attacks on the Swedish
      economy is still uncertain, but experts all agree that growth for 2001
      will be lower than previously estimated.
    \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. Census Bureau 2001 figures are estimates based on data
      available through July.
    \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 1980s 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 7.3
    percent. (Swedes quote two unemployment figures, open and ``hidden.''
    ``Hidden'' unemployment, those in government training and work
    programs, accounts for 2.6 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 on an EU level.
        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. Domestic demand is now driving Sweden's strong growth
    (the growth figure for 2000 is estimated at 3.9 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 1980s and the conservative coalition government at the
    beginning of the 1990s 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 1980s. No capital or exchange controls remain. (The
    central bank does track transfers for statistical purposes).
    3. Structural Policies
        Sweden's tax burden is 52.2 percent of GDP for 2001. Central
    government expenditure during the recent severe recession was nearly 75
    percent of GDP, and in 2001 it will come down to 54 percent. The
    maximum marginal income tax rate on individuals is 56.7 percent.
    Effective corporate taxes are comparatively low at 28 percent, though
    social security contributions add about 32 percent to employers' gross
    wage bills. The Value-Added Tax has a general rate of 25 percent, a
    lower rate of 12 percent for food, domestic transportation, and
    tourist-related services, and a rate of 6 percent for daily and weekly
    papers, cultural events, and commercial sports.
        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-manufactured. 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 nonproliferation 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 borrowed heavily in
    foreign currencies starting from the fall of 1992, increasing the
    central government's foreign debt five-fold to about a third of the
    public debt. Since then, the ratio has come down to one fifth of 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 1990s. Total debt is declining from early decade
    highs as a result of budgetary surpluses and strong economic growth.
    Gross government debt is projected to drop to 52.4 percent of GDP in
    2001 and to 50.2 in 2002.
    5. Significant Barriers to U.S. Exports
        Sweden is open to imports and foreign investment and it 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 with the EU's. Sweden is
    now open to virtually all foreign investment. 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
        Swedish law generally provides adequate protection of all property
    rights, including intellectual property. As a member of the European
    Union, Sweden adheres to a series of multilateral conventions on
    industrial, intellectual, and commercial property. Swedish copyright
    law protects computer programs and databases. Enforcement of the law,
    however, has been less than ideal, although a contradiction between
    Sweden's constitution and its international obligations to protect
    unpublished, copyrighted material has been resolved in a satisfactory
    manner. Still, there are some minor restrictions of the rights granted
    under Swedish Copyright Laws that violates Sweden's national treatment
    obligations arising from the Berne Convention and the TRIPS agreement.
        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.
    Around 80 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
    nonunion 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  93
    Total Manufacturing.........  ...........  2,860
      Food & Kindred Products...  -27          .............................
      Chemicals & Allied          206          .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    293          .............................
       Equipment.
      Electric & Electronic       846          .............................
       Equipment.
      Transportation Equipment..  183          .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  354
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  6,022
     Estate.
    Services....................  ...........  1,141
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  11,371
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                  SWITZERLAND

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................     259.3      241.1       60.8
      Real GDP Growth (pct) \3\............       1.5        3.0        1.7
       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 \4\.....................      37.7       34.1        8.9
      Per Capita GDP (US$) \5\.............    36,319     33,889     35,603
      Labor Force (000s) \6\...............     3,258      3,225        N/A
      Unemployment Rate--Average (pct) \7\.       2.7        2.0        1.8

    Money and Prices (annual percentage
     growth):
      Money Supply (M3) \8\................       1.0       -1.6       -1.8
      Consumer Price Inflation (pct) \9\...       0.8        1.6        1.3
      Exchange Rate--Average (SFr/US$) \10\      1.50       1.69       1.70

    Balance of Payments and Trade:
      Total Exports \11\...................      76.3       74.9       20.4
        Exports to U.S. \12\...............       8.7        8.7        4.6
      Total Imports \13\...................      75.6       76.1       20.2
        Imports from U.S. \12\.............       4.6        5.2        2.3
      Trade Balance \14\...................       0.7       -1.2        0.2
        Balance with U.S. \12\.............       4.1        3.5        2.3
      External Public Debt \15\............      68.2       64.0       63.3
      Fiscal Deficit/GDP (pct) \15\........       0.7       -1.1        N/A
      Current Account Surplus/GDP (pct)          11.6       12.9        9.8
       \16\................................
      Debt Service Payments/GDP (pct) \17\.       0.9        0.9        0.7
      Gold and Foreign Exchange Reserves         40.9       47.6       52.0
       \18\................................
      Aid from U.S.........................         0          0          0
      Aid from All Other Sources...........         0          0          0
    ------------------------------------------------------------------------
    \1\ If 2001 figure is not noted as partial data, then it is an estimate.
    \2\ 2001 figure is through March. 1999 figure through March was 61.0.
      2000 figure through March was 57.1.
    \3\ 2001 figure is through March. 1999 figure through March was 0.6.
      2000 figure through March was 3.9.
    \4\ Including Social Welfare Expenditures; 2001 figure is through March.
      1999 figure through March was 9.4. 2000 figure through March was 8.5.
    \5\ Note: The Nominal GDP and the Average Population used in the
      calculation of the 2001 data are estimates. These figures are SFr
      421,500.003106 and 7.1319.106 persons, respectively.
    \6\ Full-time equivalent employment; 2000 figures are provisional.
    \7\ 2001 figure is a mean average of data through June. 1999 figure
      through June was 3.0. 2000 figure through June was 2.2.
    \8\ 2001 figure is a mean average of data through June. 1999 mean
      average through Junewas 1.1. 2000 mean average through June was 1.6.
    \9\ 2001 figure is a mean average of data through June. 1999 mean
      average through Junewas 0.5. 2000 mean average through June was 1.6.
    \10\ 2001 figure is through June. 1999 figure through June was 1.47.
      2000 figure through June was 1.65.
    \11\ 2001 figure is through March. 1999 figure through March was 17.9.
      2000 figure through March was 18.1.
    \12\ 2001 figures are through June.
    \13\ 2001 figure is through March. 1999 figure through March was 18.2.
      2000 figure through March was 18.5.
    \14\ 2001 figure is through March. 1999 figure through March was -0.3.
      2000 figure through March was -0.3.
    \15\ Federal government only (i.e. excluding cantons and communities).
    \16\ 2001 figure is through March. 1999 figure through March was 10.4.
      2000 figure through March was 14.7.
    \17\ Federal government only (i.e. excluding cantons and communities).
      Note: The GDP figure used in the calculation of the 2001 data is a
      bank estimate for the entire year--not the first quarter data
      specified in ``2001 Nominal GDP''. This figure is SFr 421.5 Billion.
    \18\ 2001 figure is a mean average of data through June. 1999 mean
      average through June was 40.4. 2000 mean average through June was
      42.1.

    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, and a large services
    sector (i.e., banking and insurance). 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, but not part of the
    EEA or a member of the EU. With some two-thirds of its exports going to
    Europe, the government pursues policies aimed at maintaining
    Switzerland's competitiveness in Europe while seeking to diversify its
    export markets. The Swiss parliament and a subsequent public referendum
    both approved bilateral agreements, which Switzerland concluded with
    the EU in December of 1998, which cover seven different sectors. Before
    the agreements can take effect they must first be ratified by all 15 EU
    member states. Ratification has been concluded in every country except
    France, Ireland, and Belgium. These countries are expected to complete
    the process before the end of 2001.
        After strong economic growth during the eighties, the Swiss economy
    was western Europe's weakest between 1990-1996, with growth averaging
    around zero percent per year (unemployment, however, never rose 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 that
    passed in 1998 essentially requires the federal budget to be balanced
    by 2001. The government is on track to achieve this, due to strict
    control of expenditures and higher tax receipts thanks to improved
    economic growth. GDP growth of 1.5 percent in 1999 improved to 3.0
    percent in 2000 before falling back to an expected 1.7 percent in 2001.
    Expectations for 2002 are a fall in GDP growth to 1.8 percent.
        No systematic use is made of fiscal policy to stimulate the
    economy. 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 discount rate adjustments and open
    market operations.
    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 1990s). The SNB has shown its willingness to follow an
    accommodating money supply policy, even to exceed its money supply
    growth targets when necessary, to minimize upward pressure on the
    franc.
    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 has brought liberalization and privatization to
    the Swiss telecommunications sector, opening the market to investment
    and competition from foreign firms. Over 50 Swiss and foreign companies
    are now offering fixed line services. Mobile telephony is shared by the
    three operators Swisscom, Sunrise (Teledenmark), and Orange (France
    Telecom), all of which also own third generation mobile telephony
    licenses (UMTS). In total four such licenses were auctioned off in
    December 2000.
        Agriculture is heavily regulated and supported by the federal
    government. Legislation that took effect January 1, 1999, is gradually
    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 1999 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 generally in Switzerland. New draft
    legislation has been introduced in Parliament that would further
    strengthen competition laws by enhancing the impartiality of the
    government-appointed Competition Commission, and by allowing the
    government to punish firms for first offenses (currently punishment can
    only occur after a firm has received one warning).
        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. 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
    that became effective in this sector in 1998, this market has been
    greatly opened to foreign competitors.
        Standards, Testing, Labeling, and Certification: The government
    must approve all genetically modified organism products before they can
    be sold and consumed in Switzerland. In addition, all food products
    with a genetically modified organism content above one percent must be
    labeled as such. A new law took 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. The United States 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 Agreement on Government Procurement 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 some agricultural
    items, the Swiss market is essentially open for the import of U.S.
    goods.
    6. 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.
    7. 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 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.
        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 $91 million in 2000 (down from
    $107 million in 1999). 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 List.
    8. 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.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  152
    Total Manufacturing.........  ...........  4,698
      Food & Kindred Products...  86           .............................
      Chemicals & Allied          2,779        .............................
       Products.
      Primary & Fabricated        134          .............................
       Metals.
      Industrial Machinery and    607          .............................
       Equipment.
      Electric & Electronic       556          .............................
       Equipment.
      Transportation Equipment..  49           .............................
      Other Manufacturing.......  486          .............................
    Wholesale Trade.............  ...........  15.577
    Banking.....................  ...........  2,974
    Finance/Insurance/Real        ...........  28,384
     Estate.
    Services....................  ...........  1,687
    Other Industries............  ...........  1,402
        Total All Industries....  ...........  54,873
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     TURKEY

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                        1999          2000        \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and
     Employment:
      Nominal GNP.................        187.4         201.9     \2\ 149.8
      Real GNP Growth (pct).......         -6.4           6.1       \2\ 8.0
      Real GNP growth by Sector
     (pct): \3\
        Agriculture...............         -4.6           4.1          -1.6
        Manufacturing.............         -5.0           5.6          -5.2
        Services (total)..........        -21.9          57.7          36.4
        Government................          2.7           1.9           3.7
      Per Capita GNP (US$)........        2,878         2,986     \2\ 2,261
      Labor Force (000s)..........       21,644        20,180    \3\ 21,127
      Unemployment Rate (pct).....          7.3           6.3       \3\ 6.9

    Money and Prices (annual
     percent growth):
      Money Supply Growth (nominal        106.5          42.5      \4\ 85.6
       M2)........................
      Consumer Price Inflation             68.8          39.0      \2\ 65.0
       (pct)......................
      Exchange Rate (TL/US$ annual      417,581       623,704   \5\ 1,300,00
       average)...................                                        0

    Balance of Payments and Trade
     6/:
      Total Exports FOB...........         26.6          27.3          35.0
        Exports to United States..          2.4           3.1           3.5
      Total Imports CIF...........         40.7          53.9          45.0
        Imports from United States          3.1           3.9           3.0
      Trade Balance...............        -14.1         -26.7         -10.0
        Balance with United States         -0.5           0.8          -0.5
      External Debt stock.........          105         117.8      \7\111.9
      Budget Deficit/GNP (pct)....           12         -10.5    \8\ -16.28
      Current Account Balance/GNP          -0.7          -4.9       \2\ 1.1
       (pct)......................
      External Debt Service                 9.9          10.9      \1\ 11.0
       Payments/GNP (pct).........
      Gold and Foreign Exchange            35.0          37.4      \9\ 32.7
       Reserves \7\...............
      Aid from United States......        0.018         0.008     \10\ .003
      Aid from All Other Sources..          N/A           N/A           N/A
    ------------------------------------------------------------------------
    \1\ Unless otherwise noted, 2001 data are annualized projections based
      on the first six months of the year.
    \2\ Official (Turkish Government) estimate.
    \3\ First half of 2001.
    \4\ End of August 2001.
    \5\ Official estimate for average TL/USD exchange rate.
    \6\ Suitcase Trade Included. Embassy projection based on the January-
      July 2001 actual trade data.
    \7\ June 2001 (end-year figure expected to be similar).
    \8\ Turkish Finance Ministry projection for 2001.
    \9\ As of September 28, 2001. This figure includes foreign exchange
      reserves of commercial banks and other financial institutions. Central
      bank foreign exchange reserves and gold reserves were worth $20.0
      billion.
    \10\ Fiscal 2001 IMET funding was $1.6 million; the USAID Population
      Program totaled $1.4 million in Fiscal 2001.

    Source: Turkish State Institute of Statistics, Turkish Treasury
      Undersecretariat, Central Bank of Turkey, U.S. Embassy sources. IMF
      commitments in 2001. Turkey introduced a direct support system for
      farmers in 2001 under a World Bank.

    1. General Policy Framework
        Since the early 1980s, Turkey's economic policy makers have moved
    away from the statist principles on which the Republic was founded,
    reducing protectionist measures and opening the economy to foreign
    trade and investment. Entry into a customs union with the European
    Union in January 1996 was a major milestone in terms of market opening.
        Although Turkey enjoyed relatively high rates of economic growth in
    the 1990's, large public sector deficits have contributed to
    persistently high inflation and periodic economic crises as various
    governments have been forced to rein in spending. In December 1999,
    Turkey introduced an IMF-backed three-year disinflation and structural
    adjustment program to resolve its fundamental fiscal problems. The
    program rested on fiscal discipline, far-reaching structural reforms
    and, until February 2001, an exchange-rate regime based on a peg that
    crawled with targeted inflation. The program brought inflation down to
    39 percent in 2000, from 69 percent in the previous year. However,
    weaknesses in the financial sector, attributable in part to years of
    politically directed lending at state-owned banks, erupted in a
    financial crisis in November 2000. The government's assumption of a
    considerable portion of these institutions' questionable loans
    dramatically increased the government's internal debt burden. This
    increase, coupled with the perception that the government was not fully
    committed to structural reforms, led to a second crisis in February
    2001. With overnight interest rates soaring over 1500 percent, Turkey
    abandoned its fixed (crawling peg) exchange rate and floated the
    Turkish lira. Since then, Turkey has struggled to reduce high interest
    rates and inflation, and has faced a sharp decline in output. The
    downtown in emerging markets following the September 2001 terrorist
    attacks in the United States has put additional pressure on Turkey's
    exchange rate and on public finances.
        As a result of the 2001 crisis, Turkey revised its economic growth
    forecast to -8.0 percent for 2001, though many analysts believe the
    recession will be even deeper. The GOT forecasts a return to growth of
    about four percent in 2002. Inflation in 2001 is projected to increase
    to 85 percent, and then to fall to about 35 percent in 2002.
    2. Exchange Rate Policy
        Until February 22, 2001, the Turkish Lira (TL) was fixed in value
    to a basket of the U.S. dollar and the euro under a crawling exchange
    rate policy. On that date, the Turkish authorities allowed the TL to
    float. Although the TL is fully convertible, it lost nearly 60 percent
    of its value relative to the U.S. dollar between February and October
    2001.
    3. Structural Policies
        Turkey has made progress in liberalizing its trade, investment, and
    foreign exchange regimes. Nevertheless, successive governments' failure
    to complete structural reforms has limited private sector growth,
    efficient distribution of economic resources, and allowed state-owned
    enterprises to impose substantial burdens on the state budget.
    Government control of key retail prices, especially in the energy and
    utilities sectors, contributes to market distortion, as prices are
    sometimes manipulated to meet political objectives, held in check
    before elections and accelerating after. The government actively
    supports the agricultural sector through both subsidized inputs and
    high support prices, although these have been limited by fiscal
    austerity and Turkey's program.
        Turkey's IMF program commits the government to implement far-
    reaching structural reforms in banking, energy, civil aviation, and
    telecommunications, among other sectors. New banking legislation has
    improved government supervision to reduce the possibility of future
    banking crises. The Government of Turkey plans to privatize nearly 100
    percent of Turk Telecom, the state monopoly provider of fixed voice
    services, with up to 45 percent of the company available to a foreign
    investor. The Turkish government has also committed to liberalizing
    voice telephony by 2004. A new electricity market law, providing for a
    market in electric power and an independent regulatory body, was passed
    in February 2001. Other major state-owned firms, including Turkish
    airlines and the Turpas oil refiner, are also slated for privatization.
        Turkey provides a variety of investment incentives to both domestic
    and foreign investors. These include exemptions from certain taxes on
    profits, value-added and customs duties on machinery and equipment
    imports. Turkey also provides soft loans for research and development
    as well as special tax holidays and discounted utility charges for
    investments in the country's eastern and southeastern provinces.
    4. Debt Management Policies
        As of June 2001, Turkey's gross outstanding external debt was about
    $111.9 billion (or about 65 percent of GNP), 56.0 percent of which is
    government debt. Turkey has had no difficulty servicing its foreign
    debt in the past.
        Rates on Turkey's lira-denominated domestic debt decreased
    significantly in 2000, from an average of 110 percent in 1999, to the
    35 to 40 percent level as a result of the disinflation program.
    However, the banking sector crisis in November 2000 and February 2001
    caused Treasury bill rates to rise to over 90 percent. As a result of
    rising rates on Treasury bills, Turkey may face a serious domestic debt
    rollover problem in 2002.
    5. 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 approximately 10 percent to 5 percent. By comparison, the rate of
    protection for industrial exports from EU and EFTA countries in 1995
    had been six 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. As part of
    the customs union agreement, Turkey revised its trade, competition, and
    incentive policies to meet EU standards.
        The customs union excludes nonprocessed agricultural commodities.
    For many of these, Turkey maintains steep tariffs as well as non-tariff
    barriers. 300,000 tons of wheat and 28,000 tons of rice are allowed
    duty free entry from the EU. U.S. exporters, as well as some Turkish
    importers, have voiced continued frustration over tariff and non-tariff
    barriers to agricultural trade. Although, the ban on breeding cattle
    imports was lifted in 1999, permits are limited by Ministry of
    Agriculture and Rural Affairs (MARA) regulations. Imports of feeder
    cattle and meat remain prohibited.
        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) require licenses.
    Moreover, a number of agricultural commodities and other processed
    products require licenses. In addition, the government requires
    laboratory tests and certification that quality standards are met for
    imports of human and veterinary drugs and foodstuffs. While food import
    control certificates can be issued in one to two weeks, delays at MARA
    headquarters are frequent and limited government testing facilities
    adversely affects imports. Recent changes in procedures and standards
    for some imported foods products, like corn, rice, and bananas, also
    discouraged trade. Some U.S. exporters report that a new regulation
    restricting import of obsolete items has been applied arbitrarily to
    exclude equipment which has been manufactured more than a few months
    prior to importation.
        Services Barriers: Establishment in financial services, including
    banking and insurance, and in the petroleum sector requires special
    permission from the GOT. The equity participation ratio of foreign
    shareholders is restricted to 20 percent in broadcasting, and 49
    percent in aviation, value-added telecommunication services and
    maritime transportation.
        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 government
    is preparing a new bill on public procurement which, when passed,
    should improve transparency. The entry into force of a Bilateral Tax
    Treaty between the United States and Turkey in 1998 eliminated the
    application of a 15 percent withholding tax on U.S. bidders for Turkish
    government contracts.
        Investment Barriers: Turkey has an open investment regime, but all
    companies, regardless of nationality, are subject to excessive
    bureaucracy, political and macroeconomic uncertainties, and a sometimes
    unclear legal environment. There is a screening process for foreign
    investments, which the government applies on a MFN basis; once
    approved, firms with foreign capital are treated as local companies.
        The Turkish government accepts binding international arbitration of
    investment disputes between foreign investors and the state; this
    principle is enshrined in the U.S.-Turkish Bilateral Investment Treaty
    (BIT). For many years, there was an exception for ``concessions''
    involving private (primarily foreign) investment in public services. In
    1999, the Parliament passed a package of amendments to the constitution
    allowing foreign companies access to international arbitration for
    concessionary contracts. In 2000, the Turkish government completed
    implementing legislation for arbitration. In 2001, the Parliament
    approved a law further expanding the scope of international arbitration
    in Turkish contracts. The BIT entered into force in May 1990.
        Turkey is a founding member of the World Trade Organization.
    6. 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 WTO standards. Historically, wheat and sugar are the
    main subsidized commodities, and Turkey exceeded its wheat export
    subsidy limits for grains in 2000. Due to lower production, Turkey is
    not expected to subsidize wheat exports in 2001. With the assistance of
    the World Bank, Turkey is shifting from production subsidies to a more
    efficient direct support payment system for farmers. The Turkish
    Eximbank provides exporters with credits, guarantees, and insurance
    programs. Certain tax credits also are available to exporters.
    7. 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. In 2001, the Parliament
    enacted amendments to the copyright law which provide retroactive
    protection, expand the list of protected items and increased deterrent
    penalties against piracy. These amendments brought Turkey into
    compliance with the WTO Agreement on Trade Related Aspects of
    Intellectual Property Rights (TRIPS). In recognition of Turkey's
    progress in the IPR area, USTR removed Turkey from its Special 301
    Priority Watch List and placed the country on its Watch List in 2001.
        Although intellectual property holders have praised Turkey's new
    legislation as a significant improvement in the legal regime, at least
    one company alleges that implementing regulations governing
    broadcasting do not adequately protect producers of intellectual
    property. In the software area, 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. However,
    foreign drug manufacturers contend that data exclusivity infringement
    and restrictive government price and procurement policies are serious
    barriers. Trademark holders contend that there is widespread and often
    sophisticated counterfeiting of their marks in Turkey.
        Turkish police and prosecutors are working closely with trademark,
    patent, and copyright holders to conduct raids against pirates within
    Turkey. Although several cases have been brought to conclusion
    successfully, U.S. industry believes continued enforcement efforts are
    needed.
    8. Worker Rights
        a. The Right of Association: Workers, except police and military
    personnel, have the right to associate freely and to form
    representative unions. This right encompasses civil servants, including
    school teachers. The constitutional right to strike is restricted. For
    example, the Constitution does not permit strikes among civil servants,
    workers engaged in the protection of life and property, and those in
    the mining and petroleum industries, sanitation services, national
    defense, and education. Turkish law requires collective bargaining
    before a strike. The law specifies the steps that a union must take
    before it may strike or before an employer may engage in a lockout.
    Nonbinding mediation is the last of those steps. Unions are forbidden
    to engage in secondary (solidarity), political, or general strikes, or
    in slowdowns. The right to strike is suspended for the first 10 years
    in free trade zones, although union organizing and collective
    bargaining are permitted. In sectors in which strikes are prohibited,
    disputes are resolved through binding arbitration.
        b. The Right to Organize and Bargain Collectively: All industrial
    workers have the right to organize and bargain collectively, and most
    industrial and some public sector agricultural workers are organized.
    The law requires that, in order to become a bargaining agent, a union
    must represent not only 50 percent plus 1 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 and
    statutes prohibit compulsory labor, including that performed by
    children, and the government generally enforces these provisions in
    practice.
        d. Minimum Age for Employment of Children: The constitution and
    labor laws forbid the full-time 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 states that ``no one shall be required to perform
    work unsuited to his/her age, sex, and capacity.'' With this article
    and related laws, the Turkish government guarantees to protect 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 to set minimum wages at least every two years through a
    tripartite government-union-industry board. In recent years, it has
    done so annually. In 2000, there were two adjustments which were
    cumulatively less than the inflation rate. Public workers who are part
    of the collective labor agreements also received an inflation-indexed
    increase and a five percent prosperity rate increase. The Labor Law
    sets a 45 hour work week, although most unions have bargained for fewer
    hours. The law also 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. The law
    mandates occupational safety and health regulations and procedures, but
    in practice limited resources and lack of safety awareness often result
    in inadequate inspection and enforcement programs.
        f. Rights in Sectors with U.S. Investment: Conditions do not differ
    in sectors with U.S. investment.
        Parliament recently endorsed a package of constitutional amendments
    which, when implemented, should strengthen worker rights in Turkey.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  46
    Total Manufacturing.........  ...........  746
      Food & Kindred Products...  191          .............................
      Chemicals & Allied          81           .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       -12          .............................
       Equipment.
      Transportation Equipment..  228          .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  30
    Banking.....................  ...........  351
    Finance/Insurance/Real        ...........  2
     Estate.
    Services....................  ...........  53
    Other Industries............  ...........  150
        Total All Industries....  ...........  1,378
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    UKRAINE

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000       2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................     31.57      31.79   \1\ 24.79
      Real GDP Growth (pct) \2\............      -0.4        5.8   \1\ 10.8
      GDP by Sector:
        Agriculture........................      3.33       4.46    \4\ 4.8
        Manufacturing......................      8.64      10.99   \4\ 11.6
        Services...........................     12.68      15.33   \4\ 14.2
        Government.........................       N/A        N/A        N/A
      Per Capita GDP (US$).................       619      656.0        N/A
      Labor Force (millions)...............      22.7      23.13        N/A
      Unemployment Rate (pct) (Official           4.3       4.22   \1\ 3.65
       Rate)...............................

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M3).............        41         45     \1\ 19
      Consumer Price Inflation.............      19.2       25.8    \1\ 3.3
      Exchange Rate (Hryvnia/US$--annual         5.22       5.44   \1\ 5.35
       average)............................
        Official...........................      4.39       5.43   \1\ 5.34

    Balance of Payments and Trade:
      Total Exports, FOB (State Statistics       16.2      19.52   \4\ 9.71
       Committee)..........................
        Exports to United States (US$             538      725.5   \4\ 256.4
         million) \3\......................
      Total Imports, CIF (State Statistics       15.2      18.12   \4\ 7.98
       Committee)..........................
        Imports from United States (US$           568      360.4   \4\ 217.7
         million) \3\......................
      Trade Balance........................     -0.48       -1.4   \4\ -1.74
        Balance with United States (US$           -30        365   \4\ 38.7
         million) \3\......................
      External Public Debt/GDP (pct).......      39.4       32.6   \5\ 26.3
      Fiscal Surplus (Deficit)/GDP (pct)...      -1.5       -0.7    \4\ 1.5
      Current Account Deficit/GDP (pct)....       2.6        4.7    \4\ 3.0
      Debt Service Payments/GDP (pct)......      1.24       1.81   \5\ 2.05
      Gold and Foreign Exchange Reserves...      1.09       1.48   \6\ 2.72
      Aid from United States (US$ million)        195        185        169
       \7\.................................
      Aid from All Other Sources \8\.......      1.05        N/A        525
    ------------------------------------------------------------------------
    \1\ 2001 figure based on data available January through August. Source:
      International Center for Political Studies in Kiev and the Government
      of Ukraine.
    \2\ Percentage changes calculated in local currency, adjusted for
      inflation.
    \3\ Merchandise trade.
    \4\ 2001 figure based on data available January through June. Source:
      International Center for Political Studies in Kiev and the Government
      of Ukraine.
    \5\ 2001 figure based on data available January through July. Source:
      International Center for Political Studies in Kiev and the Government
      of Ukraine.
    \6\ 2001 figure based on data available January through September.
      Source: International Center for Political Studies in Kiev and the
      Government of Ukraine.
    \7\ Figures for 1999 and 2000 are actual FY expenditures. For 2001,
      assistance was focused on economic reform and privatization, small
      business development, energy and environment (including nuclear safety/
      Chornobyl), democracy and local government, legal reform, and health
      and social development.
    \8\ In September 1999, Ukraine fell out of compliance with IMF standards
      and disbursements under the EFF facility were suspended until December
      2000. Ukraine went off track in January 2001 and completed the prior
      actions for the resumption of the Funds program in September 2001. In
      September 2001, the World Bank's Board of Directors confirmed that
      Ukraine had successfully completed conditions precedent to the first
      disbursement of the World Bank's Programmatic Adjustment Loan and
      voted to go forward with this new lending program. The next
      disbursement, currently scheduled for 2002, will require Board review
      to determine whether reform benchmarks were achieved. Until the
      resumption of the IMF's lending program, the World Bank had held off
      additional lending to Ukraine.

    1. General Policy Framework
        Since achieving independence in August 1991, Ukraine has followed a
    course of democratic development and slow economic reform. While
    significant progress has been achieved, particularly in the last few
    years, a tremendous amount of work still lies ahead. Ukraine ranks
    among the poorest countries in Europe. Basic prerequisites for
    sustained economic growth such as adherence to the rule of law and
    respect for market forces remain elusive. Until these basic weaknesses
    are addressed, Ukraine is unlikely to attract the volumes of foreign or
    domestic investment the country needs to raise living standards. The
    country's resources and economic strengths include rich agricultural
    land, significant coal and modest gas and oil reserves, a strong
    scientific establishment, and an educated, skilled workforce. After
    suffering a decade of annual economic declines, Ukraine's economy grew
    by six percent in 2000, triple the rate initially forecast for the
    year. While initial 2001 economic projections foresaw real growth of
    approximately 4 percent and inflation of 12.3 percent, actual results
    again greatly exceeded expectations. Real GDP growth for the first
    eight months of 2001 was estimated at approximately 10.5 percent.
    Inflation for the same period was only 3.3 percent.
        The government has recently been successful in efforts to achieve
    macroeconomic stability, but Ukraine still has much progress to make in
    key structural areas such as pushing ahead with strategic
    privatization, widening the tax base, and improving contract
    enforcement. Past deficit financing of the budget 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,
    pension, and energy arrears. Most of these practices have stopped; in
    particular, the government is meeting its current wage and pension
    obligations and has paid off pension arrears. However, the value added
    tax (VAT) refund arrears have accumulated rapidly in 2001, reaching 4.5
    billion hyrvnia in July. The Ministry of Finance has stopped offsets
    and barter transactions in executing the budget with virtually 100
    percent of budget transactions are now in cash (as opposed to about 50
    percent in 1999).
        The Ukrainian government improved the quality of the 2001 budget
    and by limiting the deficit. The IMF voiced doubts about the
    government's ability to collect an expected 5.9 billion UAH from
    privatization in 2001. As a result, the government sequestered funds in
    the third and fourth quarters, when most privatization revenues were
    scheduled to flow in. Ukraine's better-than-expected fiscal position
    also was achieved by increased tax collection and higher than expected
    economic growth. A new Budget Code passed in March 2001 calls for
    further reform of the budget process and will be the guiding document
    for the formation of the 2002 budget. It is expected to further improve
    Ukraine's budget process. Ukraine was initially hit hard by the August
    1998 Russian financial crisis, but has managed to weather the effects
    of this crisis relatively well since then.
        For much of its history, Ukraine has relied upon various measure to
    support its national currency, the hryvnia, in the face of downward
    pressures brought about by internal forces such as high inflation and
    external shocks such as the 1998 financial panic, which resulted in a
    23 percent depreciation of the real exchange rate. With the onset of
    economic growth in 2000, however, pressure on the hryvnia began to
    abate and the currency largely stabilized. Thus far in 2001, the
    hryvnia has appreciated against the U.S. dollar slightly to UAH 5.27 to
    the dollar. The strength of the hryvnia is mirrored in Ukraine's
    foreign reserve situation. As of September 2001, Ukraine's foreign
    reserves reached $2.72 billion, their highest level since independence.
    In response to the improved economic performance, lowered inflation and
    improved reserves, the National Bank of Ukraine has lowered its key
    discount rate four times thus far in 2001 and by September it stood at
    15 percent.
        Ukraine is an emerging market at the crossroads of Eastern Europe,
    Russia, Central Asia, and the Middle East, and holds great potential as
    a new market for U.S. trade and investment. Despite this promise,
    serious obstacles remain. Foreign direct investment (FDI) is $83 per
    capita and $4.064 billion overall. U.S. investment, at $689.3 million
    (through July 2001), is the largest single source of FDI in Ukraine.
    Private investment (including U.S. investment) is greatly hampered by
    rampant corruption, over-regulation, lack of transparency, high
    business taxes, an inability to enforce contracts, and inconsistent
    application of local law.
        Ukraines's three-year, $2.6 billion IMF EFF program began in 1998
    and stipulates that the government must take steps towards tax reform,
    a lower budget deficit, deregulation, and other measures to encourage
    private investment. From September 1999 to December 2000 and January
    through September 2001, the IMF halted programs due to slippages in
    project implementation. The EFF was restarted in September 2001 after
    Ukraine made substantial progress in meeting the IMF's macro-economic
    objectives and in ensuring greater budget/fiscal transparency,
    privatization, and overall economic reform. At the same time, the World
    Bank approved disbursement of the first tranche of its Programmatic
    Adjustment Loan (PAL) to Ukraine.
        In August 2001, the U.S. Trade Representative revoked Ukraine's
    Generalized System of Preferences (GSP) privileges as a result of
    Ukraine's inability to protect intellectual property rights. At the
    same time, USTR published a list of products that could be targeted for
    sanctions should Ukraine not take serious steps to rapidly improve IPR
    protection. The goods targeted for sanctions include textiles,
    chemicals, and some steel products, all of which Ukraine exports to the
    United States in large quantities. While USTR has not announced the
    estimated cost of the potential sanctions, the Ukrainian government has
    estimated that Ukraine will lose $400 million in exports. The textile
    industry in Ukraine has estimated that the sanctions would force the
    industry to cut 40,000 jobs. USTR has given Ukraine until December 20,
    2001 to make significant progress in IPR protection before a decision
    on sanctions will be made.
        Despite some progress in deregulation, Ukraine still awaits a much-
    needed surge in new investment. Domestic and foreign investors remain
    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 situation in the private banking sector,
    rife with non-performing loans and lacking good lending opportunities,
    remains precarious. The parliament approved a new banking law in
    January 2001. By January 17, 2002, all commercial banks will need to be
    relicensed under the more stringent requirements of this law. The law
    introduces western-style capital adequacy requirements and structures
    to improve supervision of commercial banks. Since 1998, the number of
    banks in Ukraine has decreased to 155 from 186. Because of the new and
    more stringent licensing requirements, this number is predicted to
    shrink by an additional 15-25 instututions that will either have to
    merge, be bought out, or disappear entirely.
    2. Exchange Rate Policy
        Ukraine has taken several measures to maintain exchange rate
    stability. Although the National Bank of Ukraine (NBU) lifted most
    currency transaction restrictions in March-June 1999 (including lifting
    prohibition of advance payment on import contracts) and opened an
    interbank market for foreign exchange, enterprises are still obliged to
    sell 50 percent of their hard currency earnings. This requirement was
    slated for removal in the spring of 2000, but it is still in place. It
    is unclear whether the NBU will issue a resolution removing the
    requirement, which it continues to use as a measure to maintain
    exchange rate stability.
        Foreign exchange related restrictions have produced hardships for
    U.S. firms doing business with Ukraine. U.S. exporters are 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 getting inputs needed for their operations. Overall,
    Ukraine will need to introduce more flexible exchange rate policies, as
    this is key for underlying macroeconomic adjustment.
    3. Structural Policies
        Ukraine's burdensome and nontransparent tax structure remains a
    major hindrance to foreign investment as well as to domestic business
    development. Personal income and social security taxes remain high. 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. A new tax code is currently being
    considered by the Rada. According to the proposed new code, a number of
    taxes and duties would be reduced and others, such as an innovation
    fund tax, some insurance fund taxes and some local taxes would be
    eliminated. The Value-Added Tax (VAT) eventually would be decreased by
    3 percent, from 20 to 17 percent. A key issue will be to ensure that if
    the tax code substantively reduces taxes it must also increase the tax
    base by a commensurate amount to protect fiscal sustainability.
        The regulatory environment is chaotic, and Ukraine's product
    certification system, though undergoing some positive changes, still
    remains an obstacle to trade, investment, and the development of
    domestic business. The regulatory environment is closely associated
    with corruption, which has worsened in recent years, according to
    Transparency International. They ranked Ukraine as the world's ninth
    most corrupt nation in 2001. Procedures for obtaining various licenses
    remain complex, unpredictable and subject to graft. This significantly
    raises the cost of doing business in Ukraine and encourages the
    maintenance of the shadow economy. In June 2000, the Rada passed a law
    on licensing which identified 70 types of business activity that
    require a license and established a procedure for licensing. The law is
    intended to coordinate and simplify previously conflicting rules on
    licensing. In addition, in May 2001 the Rada passed a law ``On
    Recognition of Conformity,'' which greatly reduces the list of goods
    and services subject to compulsory certification. Compulsory
    certification is required for goods designated as potentially dangerous
    to humans or the environment.
    4. Debt Management Policies
        As of June 2001, Ukraine's foreign debt stood at $7.75 billion, or
    roughly 20 percent of GDP. This represented a decrease from the 2000
    figure of $10.58 billion. External debt service as a percent of GDP was
    4 percent in 2000 and is estimated to be 3.5 percent in 2001. The
    largest individual creditors are the IMF, World Bank, and other IFIs.
    In September 2000, general parameters for future state-debt policies
    (specifically 2001-2004) were issued to help curb the growing foreign
    debt. The parameters call for a more structured money borrowing policy,
    including the use of different lending sources from year to year.
    Ukraine has managed to restructure its private external debt in a
    comprehensive fashion and eased repayment crunches owing to the short-
    term nature of Ukraine's debts. As long as Ukraine stays on track with
    the IMF, it should use Paris Club restructuring to help smooth debt
    payments.
    5. Significant Barriers to U.S. Exports
        An array of taxes and duties remains a major obstacle to trade or
    investment. These taxes include VAT, import duties and excise taxes.
    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. The maximum import duty in Ukraine is currently 20 percent, a
    reduction from 25 percent last year. Excise duty rates are charged in
    addition to import duties and range from 10 to 100 percent of the
    declared customs value. This can result in duties and fees amounting to
    over 100 percent of the declared value of the item. In July 2001, a new
    law ``On Customs Tariff of Ukraine'' entered into force. Under this
    law, the government cannot introduce or change import tariffs and
    duties without corresponding legislation from the Rada. Ukraine's
    tariff system now encompasses 97 product categories and lists over
    10,000 products subject to import duties. A new law ``On Introducing
    Changes in Certain Legal Acts Regarding Taxation of Excisable Goods''
    entered into force in January 2000. Under this law, the number of
    excisable goods has decreased. Goods still subject to excise taxes now
    fall into five main groups: alcohol, tobacco, oil products,
    automobiles, and jewelry. Previously there had been 20 categories of
    excisable goods. All imported goods are subject to VAT (currently 20
    percent). Energy imports are technically also subject to VAT, but the
    rate has been set at zero.
        Ukraine's domestic production standards and certification
    requirements are arduous but apply equally to domestically produced and
    imported products and can thus be seen as an impediment to business in
    general rather than just to U.S. exports. Product testing and
    certification generally relate to technical, safety and environmental
    standards, and efficacy requirements for pharmaceutical and veterinary
    products. Such testing often requires official inspection of the
    company's production facility at the company's expense. Unfortunately,
    testing is often done in sub-standard facilities and on a unit-by-unit
    basis rather than ``sample'' testing. In cases where Ukrainian
    standards are not established, country of origin standards may be
    accepted.
        Import licenses are required for very few goods. Goods that need
    licenses include medicines, pesticides, and some industrial chemical
    products. The United States is urging Ukraine to enact licensing
    legislation for optical media production. These licensing requirements
    would help alleviate the severe CD piracy problem in Ukraine.
        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, all serve to impede U.S.
    exports to and investment in Ukraine.
    6. Export Subsidies Policies
        Over the last several years, as part of its effort to balance the
    budget, the government has significantly reduced the amount of direct
    subsidies it provides to state-owned industries. Nonetheless, subsidies
    remain an important factor in Ukraine's economy, particularly in the
    coal and agriculture sectors. These subsidies, however, do not appear
    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 support small business.
        In October 2000, the Council of Ministers of the European Union
    gave Ukraine the status of a country with a market economy. In addition
    to moving Ukraine closer to WTO accession, the new status indicates
    that subsidies to exporters are fewer in the eyes of pro-market
    entities, such as the World Bank, and will allow Ukraine to better
    protect its interests. Furthermore, in-kind subsidies, in the form of
    reduced tax payment, have been significantly reduced.
        As of 2001, there were eleven Special Economic Zones (SEZ) and nine
    priority investment territories (PIT) in operation, offering tax and
    import duty exemptions and other benefits to encourage investment and
    production of goods for export. The zones have been criticized for
    encouraging existing firms to relocate, rather than spurring new
    investments, and for being used to import finished consumer goods tax-
    free. There is a moratorium on creation of new SEZs until 2003.
    Nevertheless, such regions remain a significant factor in Ukraine's
    strategy for attracting investment, and no existing SEZs or PITS have
    been phased out. The IFIs, IMF and World Bank, have suggested that the
    zones be eliminated and have advised the government to focus instead on
    improving the overall investment climate in the entire country. The
    government has said that it will gauge the effectiveness of all SEZs
    and PITs to determine whether any should be eliminated.
    7. Protection of U.S. Intellectual Property
        Since gaining its independence, Ukraine has made progress in
    enacting legislation and adopting international conventions to protect
    intellectual property rights. Nonetheless, further changes in
    legislation and strengthened enforcement are necessary before Ukraine
    establishes a modern, internationally acceptable level of intellectual
    property protection as enshrined in the World Trade Organization's
    TRIPs agreement. Intellectual property rights violations range from
    petty trademark, geographic indication, and patent theft to industrial
    scale copyright infringements. In March 2001, the Office of the United
    States Trade Representative (USTR) designated Ukraine a Priority
    Foreign Country under U.S. trade law as a result of widespread piracy
    and export of optical media products. In August 2001, USTR published a
    list of Ukrainian exports to the United States, which could be subject
    to trade sanctions if Ukraine failed to take adequate steps to address
    the problem. At the same time, USTR revoked Ukraine's preferential
    duty-free treatment for certain exports to the United States under the
    Generalized System of Preferences (GSP). USTR will be forced to impose
    sanctions if Ukraine does not fulfill the requirements of the United
    States-Ukraine Joint Action Plan to Combat Optical Media Piracy, which
    was announced in June 2000. GSP privileges will be reinstated only
    after Ukraine passes legislation to combat optical media piracy and
    implements the provisions of the legislation.
        As part of its commitments under the plan, Ukraine has taken
    measures to strengthen copyright protection while introducing criminal
    liability for copyright violations. In 2001, Ukraine passed The Law on
    Copyrights and Neighboring Rights and a Criminal Code, which introduces
    penalties for IPR violations. The Parliament has also passed a new
    Civil Code, which includes a book on intellectual property rights; the
    President has announced his intention to sign the Civil Code in the
    near future. The government has also committed itself to introducing a
    licensing regime for the manufacture of optical media products in order
    to adequately deal with commercial scale CD piracy. The country's
    trademark laws are generally viewed as adequate. Enforcement, however,
    has been uneven, since police, prosecutors and judges have only
    recently started to increase the attention paid to intellectual
    property violations. Thus piracy of well-known consumer brand names is
    common business practice in Ukraine. Rules governing geographic
    indications are still believed to be inadequate to fulfill the WTO's
    TRIPs agreement.
        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 Geneva Phonograms
    Convention, the Trademark Law Treaty, and the Budapest Treaty. Ukraine
    recently ratified the Rome Convention and the WIPO Copyright Treaty and
    the WIPO Performances and Phonograms Treaty. The country's political
    leadership has defined WTO ascension as an important policy goal of the
    country. A working group meeting was held in June 2000. 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.
    8. 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. Despite these constitutional
    assurances, however, a new trade union law signed by the president in
    September 1999 introduced a requirement for unions to register with the
    Ministry of Justice. It also established categories of unions and
    limited the ability of newer unions to represent workers in nation-wide
    negotiations. This was brought before the Supreme Court of Ukraine, and
    in November 2000 the court struck down several restrictive provisions
    of the law.
        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. The successor to the Soviet trade
    unions, known as the Federation of Trade Unions (FPU), often works
    independently of the government, but most FPU affiliates are closer to
    management. Independent unions provide an alternative to the official
    FPU unions in many sectors of the economy but are generally much
    smaller than FPU unions. The new 1999 trade union law, drafted with the
    help of the FPU, hampers the activities of independent unions. Although
    to date the consequences of the law have been mixed, it is potentially
    a dangerous hurdle for the development of free and truly independent
    worker representation. Specifically, Articles 11 (scope of union type)
    and 16 (registration) are criticized by independent unions and the
    International Labor Organization (ILO). In 1999, the ILO publicly
    stated that the law was not in compliance with its Convention 87 on the
    freedom of association, to which Ukraine is a party. In August 2000,
    the AFL-CIO filed a petition with the United States Trade
    Representative to strip Ukraine of its GSP status, in part due to this
    law. In October 2000 the Supreme Court of Ukraine began consideration
    of a constitutional challenge to the law, and in November the court
    found several provisions of the law unconstitutional, prompting both a
    positive response from the ILO and the refusal by the USTR to consider
    the AFL-CIO's petition on Ukraine.
        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. The government, in
    agreement with trade unions, establishes wages in each industrial
    sector and invites all unions to participate in the negotiations. To
    participate in collective bargaining agreements, however, a union must
    obtain legal status through registration. In addition, to participate
    in nation-wide negotiations a union must meet requirements to be
    registered as a nation-wide union. Independent unions generally find
    the 1999 trade union law to be more restrictive than the old Soviet
    legislation because of difficulty in obtaining national status and
    registration. To acquire national status, a union must have
    representation in more than half of the regions of Ukraine, or at one
    third of the enterprises in a regionally based sector, or to have a
    majority of union members in the sector. Without a national level of
    registration the union cannot negotiate at the national level, in
    effect prejudicing the bargaining process against the independent
    unions and favoring the official unions. This aspect of the 1999 trade
    union law violates the ILO's Convention 87 on Freedom of Association
    and Collective Bargaining, to which Ukraine is a party. The law is
    further criticized by the ILO for its failure to amend an older
    collective bargaining provision whereby the largest unions (FPU) are
    permitted to represent all unions when a common bargaining strategy
    cannot be agreed upon. A new law, currently pending in parliament,
    would give proportional representation to all unions engaged in
    collective bargaining negotiations. In the meantime, the Ukrainian
    Supreme Court struck down the provisions of this law requiring that
    certain benchmarks be met for a union to be able to bargain
    collectively at different levels.
        c. Prohibition of Forced or Compulsory Labor: The constitution
    prohibits compulsory labor, and it is not known to occur. Human rights
    groups, however, describe the common use of army conscripts and youths
    in alternative service for refurbishing and building private houses for
    army and government officials as compulsory labor. 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. The extent to which the decree
    is enforced is unknown, but there have been no recent reports of
    complaints from university students.
        d.  Minimum Age for Employment of Children: The minimum employment
    age is 17 years. In certain non-hazardous industries, enterprises may
    negotiate with the government to hire employees between 14 and 17 years
    of age, with the consent of one parent. The government does not
    specifically prohibit forced and bonded labor of children, but the only
    reports of such practices involve girls trafficked for sexual
    exploitation.
        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.
    Conditions are especially hazardous for miners. Mining accidents
    claimed the lives of 216 miners during the first half of the year. It
    is estimated that there are 5.2 deaths per million tons of coal
    extracted. 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. In addition to poor conditions, many workers go without
    pay for months due to the poor status of the economy and the inability
    of many older enterprises to earn income.
        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
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  0
    Total Manufacturing.........  ...........  (\1\)
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          0            .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  -46
    Banking.....................  ...........  0
    Finance/Insurance/Real        ...........  (\1\)
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  54
        Total All Industries....  ...........  76
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                 UNITED KINGDOM

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................   1,443.6    1,441.8    1,447.0
      Real GDP Growth (Pct)................       2.2        3.1        1.9
      GDP by Sector: \3\
        Agriculture........................      15.1        N/A        N/A
        Mining.............................      29.1        N/A        N/A
        Manufacturing......................     239.3        N/A        N/A
        Services...........................     924.9        N/A        N/A
        Government.........................      65.1        N/A        N/A
      Per Capita GDP (U.S.$)...............    24,262     24,130     23,205
      Labor Force (Millions)...............      30.1       30.1       30.1
      Unemployment Rate (Pct)..............       4.1        3.6        3.2

    Money and Prices (Annual Percentage
     Growth):
      Money Supply Growth \4\..............      11.7        4.6        6.1
      Consumer Price Inflation.............       1.6        2.9        2.1
      Exchange Rate (US$/BPS--Annual             1.62       1.52       1.42
       Average)............................

    Balance of Payments and Trade: \5\
      Total Exports FOB....................     252.1      273.4      288.7
        Exports to United States...........      39.4       43.9       43.5
      Total Imports CIF....................     287.8      315.4      340.9
        Imports from United States.........      39.6       41.6       41.6
      Trade Balance........................     -26.2      -28.8      -37.7
        Balance with United States.........      -0.2       -2.3        1.9
      Total Public Debt/GDP (Pct)..........      44.7       42.1       39.6
      Fiscal Deficit/GDP (Pct).............       1.7        2.1        0.8
      Current Account Deficit/GDP (Pct)....      -1.1       -1.7       -1.5
      Gold and Foreign Exchange Reserves...      34.1       37.6       46.7
      Aid from United States...............         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 2001 figures are forecasts, unless otherwise indicated.
    \3\ Gross value added at current basic prices. ``Agriculture'' includes
      hunting, forestry and fishing. ``Services'' includes electricity, gas,
      and water supply, construction, wholesale and retail trade, transport
      and communication, financial intermediation, adjustment for financial
      services, education, health, social work, and other services.
      ``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.

    Sources: The Oxford Economic Forecasting and London Business School 2000
      Economic Outlook, the UK Office for National Statistics, and the Bank
      of England.

    1. General Policy Framework
        The United Kingdom (UK) has the fourth largest economy in the
    industrialized world, with an estimated nominal GDP of about $1.45
    trillion in 2001. The UK's 59.8 million inhabitants live in an area the
    size of New York and Pennsylvania (which have a population about half
    the size). Per capita income is forecast to be approximately $28,144 in
    2001.
        The UK is in its ninth year of economic expansion since the 1991-92
    recession. Real GDP growth was 1.9 percent in 2001, down from 2.2 and
    3.1 percent in 1999 and 2000, respectively. The two largest impacts on
    the British economy have been the global economic slowdown, including
    the downturn of the U.S. economy, and the outbreak of foot and mouth
    disease. The slowdown in the U.S. economy affects the UK through export
    markets as U.S. imports compose approximately three percent of overall
    GDP. Moreover, overinvestment in telecommunications infrastructure,
    including prices paid for third generation licenses by British firms,
    could exacerbate the UK slowdown.
        Since the outbreak of foot and mouth disease in February 2001, some
    5.8 million animals have been culled. This is approximately 13 percent
    of the total livestock population in the country, although the majority
    of the cull is sheep. The impact of the outbreak is expected to lower
    GDP only 0.1 percent as the agricultural sector makes up just 2.7
    percent of overall economic output. The indirect effects of the foot
    and mouth outbreak could prove more damaging in the tourism sector,
    which accounts for 4.0 percent of GDP.
        The main engine of growth in the UK economy is the services sector,
    which accounts for about 75 percent of GDP. Business, finance,
    transport, storage and communication services were the principal
    drivers in service growth, as the sector continued to strengthen into
    2001. However, the service sector is expected to slow to 3 percent
    growth in 2001 from 3.4 percent last year. The service sector has
    proven more resilient than manufacturing, which makes up 20 percent of
    GDP. It is believed that the service sector will account for most of
    GDP growth in 2001 as manufacturing is close to technical recession.
    One reason for this is the weakness of the euro relative to the pound
    sterling, which has made exports to the EU more expensive. Another is
    the dramatic fall in telecommunications equipment demand that has led
    to large manufacturing job losses in this sector.
        Since breaking even in 1998, the current account continues to be in
    deficit. In 1999, the deficit equaled 1.2 percent of GDP. A U.S.
    slowdown could contribute to a widening of the UK current account
    deficit, which is expected to be 1.5 percent of GDP in 2001. This is,
    however, modest compared to a level of 4.6 percent of GDP in 1989. For
    the second year in a row, the UK is forecasted to have a trade surplus
    with the United States of 1.9 percent.
        Government consumption rose at an annual rate of 3.2 percent in the
    first quarter of 2001. This higher government consumption and
    investment is expected to boost GDP growth in 2001, with increases in
    pensions spending, and changes to the working families tax credit.
    Unemployment has fallen every year since 1993. In 2001, unemployment is
    expected to be 3.2 percent. Employment expanded by 218,000 new jobs
    during the first eight months of 2000, and more people are employed in
    Britain than ever before.
        Fiscal Policy: The Labour government has adhered to its ``Code for
    Fiscal Stability'' since it was elected into office in May 1997, as the
    balance of current government receipts and expenditures has turned into
    a surplus. Outstanding public sector net debt was reduced to 31.6
    percent of GDP in March 2001 from a recent peak of 44.4 percent in mid
    1997. However, higher spending, together with the impact of slower
    economic growth on government revenues, will lead to a sharp reduction
    in the budget surplus.
        Tax Policy: Chancellor Gordon Brown's budget plan for 2000-2 sought
    to take advantage of the booming economy in order to provide additional
    tax cuts and credits. In March 1999, the Chancellor announced a new 10
    percent ``starting rate'' of tax, the lowest since 1962, on the first
    1,500 pounds (now 1,520) of taxable income. In March 2000, the budget
    included further increases in public spending for health and education
    along with more cuts in taxes. In keeping with the Labour government's
    promise from last year, the income tax ``basic rate'' (applied to
    taxable earnings from 1,521 to 28,400 pounds) will be reduced from 23
    percent to 22 percent for the 2000-2001 tax year. The government will
    also extend the New Deal and Working Families Tax Credit Program in
    2001. Many new measures will be established to ease the transition
    between coming off welfare and going to work, including one-off grants
    of up to 400 pounds and efforts to assist in purchasing cars, tools or
    interview suits. In line with the government's central theme of
    promoting modernization through investment in high-tech industries, the
    Chancellor announced that capital gains taxes for businesses in
    operation over five years will be reduced from 40 percent to 10 percent
    (previously only companies in business over ten years received this
    lower rate). These plans are predominantly aimed at helping the working
    poor; high-income earners will experience a greater tax burden through
    a number of tax increases.
        Monetary Policy: In 1997, Chancellor Gordon Brown granted the Bank
    of England independence in setting monetary policy to achieve the
    inflation target of 2.5 percent. The Bank of England's dominant policy
    instrument is its ability to set the interest rate each month in order
    to maintain price stability. Inflation remains under control, averaging
    three percent for 2000 and two percent in 2001. This has allowed the
    Bank of England to reduce interest rates to the lowest level in years.
    The Monetary Policy Committee surprised the financial markets in August
    by cutting UK interest rates to five percent. In September, the
    Committee cut interest rates again by 25 basis points to 4.75 percent
    as a reaction to the decline of international financial markets caused
    by the September 11 terrorist attacks in the United States.
    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. Sterling
    appreciated significantly between the beginning of 1996 and early-to-
    mid-1998, with the trade-weighted exchange rate index (1990=100) rising
    from a low of 83.5 to a high of 107.1 in April 1998. The pound lost
    ground against the dollar in 2001, however forecasts show a gradual
    recovery between 2002-2005. In contrast, the pound weakened against the
    euro in 2001 and continued weakening is predicted in the following
    three years.
        The current government favors joining the new European common
    currency in principle, provided that the following five economic tests
    are met:

              1. There is convergence between EU and UK business cycles and
            economic structures.
              2. The EMU provides flexibility for the British economy.
              3. Membership has a positive investment impact.
              4. The British financial services industry is sufficiently
            prepared for entry.
              5. Membership promotes growth, stability, and employment.

        At present, the British public is divided on the issue.
    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 labor market flexibility and relatively
    low labor costs 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 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. Further liberalization of
    the financial services, air travel, energy, and telecommunications
    sectors are all economic goals of the Labour government.
        The main economic focus of the Labour government, re-elected in May
    2001, was welfare reform, trade liberalization, and productivity
    improvement. The relationship with Europe also dominates the economic
    landscape of the UK, particularly on the question of whether the UK
    should adopt the single European currency.
        As the European Union (EU) continues to integrate, instances of
    friction have arisen between the UK and other member states due to the
    UK's more flexible economic environment. UK labor laws, for example,
    allow employers greater leeway to reduce staff than do their
    counterparts elsewhere in the EU. The UK also has disagreed with other
    member states on tax and other policies.
        Private sector production, transportation, warehousing,
    communications, and distribution facilities infrastructure in the UK
    are adequate, although some of the physical assets employed show the
    need for repair and replacement. Much of the responsibility for public
    sector infrastructure in the UK has been transferred to the private
    sector and to independent executive agencies that are accountable to
    government departments. To supplement government investment, Public
    Private Partnership (PPP) initiatives have enabled private finance
    initiative schemes to create viable business entities from public
    assets at minimal cost to the government. Since 1997, the Department of
    Trade and Industry reports that over 150 contracts have been signed.
    The recent establishment of a PPP for air traffic control was extremely
    controversial, and the public worries that similar schemes will be
    established in health and other services.
    4. Debt Management Policies
        The UK has no meaningful external public debt. London is one of the
    foremost international financial centers in the world, and British
    financial institutions are major intermediaries of credit flows to
    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.
        Within the European Union, the European Commission has authority
    for developing most aspects of EU-wide external trade policy, and most
    trade barriers faced by U.S. exporters in EU member states are the
    result of common EU policies. Such trade barriers include: the import,
    sale and distribution of bananas; restrictions on wine exports; local
    (EU) content requirements in the audiovisual sector; standards and
    certification requirements (including those related to aircraft and
    consumer products); product approvals and other restrictions on
    agricultural biotechnology products; sanitary and phytosanitary
    restrictions (including a ban on import of hormone-treated beef);
    export subsidies in the aerospace and shipbuilding industries; and
    trade preferences granted by the EU to various third countries. A more
    detailed discussion of these and other barriers can be found in the
    country report for the European Union.
        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. Talks since 1994 towards an
    Open Skies agreement have not been successful but negotiations are
    continuing. The U.S. goal continues to be to negotiate an agreement
    that benefits as many cities, airlines, and consumers as possible.
    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. 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 seven
    million workers, about one-third of the work force, are organized.
    Employers are barred from discriminating based on union membership. The
    Employment Relations Act of 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. In 2001, the UK agreed to an EU
    directive that will compel employers to consult their workforces on
    issues such as layoffs and plant closures.
        Unions are legally 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. Most union
    contracts are of much shorter duration (typically one year), than in
    the United States. Like the United States, however, most collective
    bargaining can occur on virtually any issue at any level--unlike many
    other European states where industry-wide, national bargaining is still
    widely practiced.
        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. ``Closed shops,'' which
    restrict employment to union members, are illegal.
        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: The UK's first official national
    minimum wage took effect on April 1, 1999. As of October 1, 2001, the
    minimum wage became 4.10 pounds, with a special ``development rate'' of
    3.50 pounds for 18 to 21 year-olds. Daily and weekly working hours are
    limited by law, according to an EU directive outlawing mandatory
    workweeks longer than 48 hours.
        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 conscientious. Unions have a legal right to appoint
    safety representatives where an employer has recognized their union. In
    non-unionized workplaces, the employer must still consult employees but
    can choose to do so directly or set up a system of employee
    representatives on health and safety, whose rights are more limited
    than union safety representatives.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  15,749
    Total Manufacturing.........  ...........  50,994
      Food & Kindred Products...  4,815        .............................
      Chemicals & Allied          16,170       .............................
       Products.
      Primary & Fabricated        2,188        .............................
       Metals.
      Industrial Machinery and    9,022        .............................
       Equipment.
      Electric & Electronic       3,977        .............................
       Equipment.
      Transportation Equipment..  4,319        .............................
      Other Manufacturing.......  10,504       .............................
    Wholesale Trade.............  ...........  7,953
    Banking.....................  ...........  9,930
    Finance/Insurance/Real        ...........  100,273
     Estate.
    Services....................  ...........  17,258
    Other Industries............  ...........  31,227
        Total All Industries....  ...........  233,384
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                  THE AMERICAS

                                  ----------

                                   ARGENTINA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production, and Employment:
      GDP (at Current Prices) \2\..........       283        285        276
      Real GDP Growth (pct)................      -3.0       -0.5       -2.0
      GDP by Sector (pct):
        Agriculture, Forestry, Fishing.....       4.6        4.8        5.0
        Industry...........................      27.6       27.6       24.3
        Manufacturing \3\..................      18.1       17.6       17.1
        Services...........................      67.7       67.7       68.0
        Government \3\.....................      10.7       11.0       10.9
      Per Capita GDP (US$).................     7,750      7,700      7,400
      Labor Force (Millions)...............      14.2       14.4       14.7
      Unemployment Rate (pct) (May)........      14.5       15.4       16.4

    Money and Prices (annual percentage
     growth):
      Money Supply (M2) (Dec.).............      -1.4       -3.9      -12.0
      Consumer Price Inflation (Dec./Dec.).      -1.8       -0.7       -1.5
      Exchange Rate (Peso/US$) \2\.........       1.0        1.0        1.0

    Balance of Payments and Trade:
      Total Exports FOB....................      23.3       26.4       27.4
        Exports to United States \4\.......       2.6        3.1        3.1
      Total Imports CIF....................      25.5       25.2       22.7
        Imports from United Stated \4\.....       4.9        4.7        4.5
      Trade Balance........................      -2.2        1.2        4.7
        Balance with United States \4\.....      -2.3       -1.6       -1.4
      External Public Debt.................      84.8       84.6       84.0
      Fiscal Deficit, GDP (pct) Federal          -2.5       -2.4       -2.7
       Government..........................
      Consolidated Public Sector...........      -4.2       -3.6       -3.7
      Current Account Deficit/GDP (pct)....      -4.2       -3.1       -2.5
      Debt Service Payments/GDP (pct) \5\..       3.6        4.3        5.0
      Gold and Foreign Exchange Reserves...      26.4       25.1       15.0
      Aid from United States...............       N/A        N/A        N/A
      Aid from All Other Sources...........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ Figures for year 2001 are Embassy estimates based on January through
      August data.
    \2\ The Argentine peso was tied to the U.S. dollar at the rate of one to
      one in 1991.
    \3\ Manufacturing and Government figures show percentage of total GDP.
    \4\ Source: U.S. Department of Commerce; Calendar Year 2001 figures are
      estimates based on data available through July.
    \5\ External public debt service payments.

    1. General Policy Framework
        Following years of high inflation and exchange rate instability,
    beginning in 1990 Argentina undertook a series of reforms, which
    stabilized the economy through the 1990s. The peso was linked to the
    dollar under a currency board arrangement, many barriers to trade and
    investment were dismantled, and by the mid-1990s, most state-owned
    entities were privatized. Despite a sharp recession in 1995, real GDP
    growth averaged over six percent a year from 1991-1997. However, the
    Mexican peso crisis, the Asian and Russian financial crises, the
    continuing depreciation of the Brazilian currency, as well as a lack of
    government fiscal restraint resulted in a recession in 1998 that
    continues through today. The economy is estimated to shrink two percent
    in 2001.
        President Fernando de la Rua, who took office in December 1999, has
    maintained the principle elements of the country's economic policy,
    including the convertibility of the peso and the dollar, as well as
    relatively open markets for trade. Recent changes in currency, tax, and
    trade regulations have created uncertainty in the trade and investment
    community about doing business in Argentina. However, in the long term,
    Argentina retains promise as a market for well-informed U.S. business
    people.
        Argentina's financial sector is considered sound and foreign
    capital flows freely. However, Argentina's fiscal situation remains a
    concern. A zero deficit law, which cut government employees' salaries
    and limits government spending to its income on a monthly basis, was
    instituted in July of 2001. Tax evasion, however, remains a major
    problem. In January 2001, Argentina concluded a new $40 billion bailout
    package with the International Monetary Fund (IMF) that briefly
    increased lender and investor confidence. In June 2001, it consolidated
    a large part of its debt in an exchange of bonds, which also increased
    investor confidence briefly. In August, it obtained an additional five
    billion dollars in an expanded IMF credit.
    2. Exchange Rate Policy
        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, under
    a currency board type of arrangement called ``convertibility.'' This
    rate is expected to remain unchanged in the medium term. Argentina has
    no exchange controls.
    3. Structural Policies
        Argentina's economic reforms in the last decade have achieved
    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
    drastically cut the average import tariff. Argentina's average applied
    tariff currently is around 13.5 percent.
        Argentina, Brazil, Paraguay, and Uruguay established the Southern
    Cone Common Market (Mercosur) in 1991, and in 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. However, the tariff on capital goods, which account for over
    40 percent of U.S. exports to Argentina was reduced to zero in 2001.
    Argentina, as a member of Mercosur, is discussing the prospect of a
    free trade agreement with the Andean community and the European Union
    (EU). It is also engaged in negotiations to establish the Free Trade
    Area of the Americas (FTAA), and in Mercosur-U.S. negotiations known as
    the Four Plus One process.
        Argentina signed the Uruguay Round agreements in April 1994. Its
    congress ratified the agreements at the end of 1994, and Argentina
    became a founding member of the World Trade Organization (WTO) on
    January 1, 1995.
    4. Debt Management Policies
        Argentina's public debt maturities are mostly concentrated in the
    medium to long term. Public sector debt increased in 2000, rising to
    almost $130 billion. Public sector debt service payments on external
    debt in 2001 will represent about five percent of GDP. The turmoil in
    international financial markets in recent years complicated Argentine
    access to foreign capital; however, through additional financing from
    the IMF and the large debt exchange of June 2001, the government seems
    to have met its external financing requirements through 2001. Despite
    this, Argentina growth and tax collections remain stagnant, and the
    country remains vulnerable to external shocks.
    5. Significant Barriers to U.S. Exports
        Argentina and Brazil protect their respective automobile assembly
    industries through a combination of quotas and high tariffs negotiated
    among Mercosur members. The government has negotiated a new common
    Mercosur auto policy with Brazil and other Mercosur members that
    extends quotas and tariffs through 2005.
        Although Argentina is one of the most open markets in Latin
    America, domestic political pressure, the impact of the continuing
    devaluation of Brazil's real, and continued high unemployment in
    Argentina have led the government to take some ad hoc protectionist
    measures.
        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, it is not fully functional.
        Services Barriers: In 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: Foreign investment receives national treatment
    under Argentine law. Firms need not obtain permission to invest in
    Argentina. Foreign investors may wholly own a local company, and
    investment in firms whose shares trade on the local stock exchange
    requires no government approval. There are no restrictions on
    repatriation of funds.
        The United States-Argentina Bilateral Investment Treaty (BIT) came
    into force in 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 on-going disputes with Argentine national or
    provincial authorities.
        Government Procurement Practices: Argentina is not a signatory to
    the WTO Government Procurement Agreement. The de la Rua administration
    has re-established a ``Buy Argentine'' preference that allows Argentine
    companies to lower their bids as much as five percent to match foreign
    companies' bid offers. Argentine sources receive preference only when
    all other factors (price, quality, etc.) are equal.
        Customs Procedures: Customs procedures are opaque 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. In 1997, the
    government merged the customs and tax collection authorities to boost
    revenues and improve efficiency. In September 2001, it abolished a
    troublesome pre-shipment inspection system that verified the price,
    quality and quantity of imports.
    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 established a ``convergence factor'' exchange-rate
    differential for imports and exports in 2001. Under this system,
    exporting companies receive an advantageous exchange rate for foreign
    currency received for exported products. The exchange rate for exports,
    which is adjusted daily, sets the value of one peso at the equivalent
    of 50 U.S. cents plus one half the value of the EU's currency, the
    euro.
    7. Protection of U.S. Intellectual Property
        Argentina belongs to the 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 the United States withdrew 50 percent of Argentina's
    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 decree in 1996 that
    improves earlier Argentine patent legislation, but provides less
    protection than that called for in the Agreement on Trade-Related
    Aspects of Intellectual Property Rights (TRIPS). Starting in November
    2000, this decree authorized the National Institute for Intellectual
    Property (INPI) to provide pharmaceutical patent protection. As a
    result, more than 100 pharmaceutical patents have been issued. However,
    the new patent regime does not provide patent protection for products
    under development, does not adequately protect confidential data, and
    contains ambiguous language on parallel imports and compulsory
    licenses. As a result of these shortcomings, the U.S. government has
    been in WTO dispute settlement consultations with Argentina for more
    than one year.
        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. Regardless, video and CD piracy
    remains a serious problem. Efforts are underway to combat this,
    including arrests, seizure of pirated material, and introduction of
    security stickers for cassettes. In 1998, the Argentine Congress
    enacted legislation making software piracy a criminal offense. However,
    the Argentine government has yet to comply fully with an agreement to
    legalize unlicensed software in use in government offices.
        Trademarks: Trademark laws and regulations in Argentina are
    generally TRIPS-consistent. The key problem is a slow registration
    process, which the government has worked to improve.
        Trade Secrets: Although Argentina has no trade secrets 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 be
    interpreted to cover this technology, 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
    to 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 antiunion practices. The passage of a major labor reform law
    in May 2000 promotes bargaining on a local, provincial or company
    level, rather than negotiating at the national level on a sectoral
    basis. 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 2000.
        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 6 hours a day or 35 hours a week. The law
    is generally enforced, but there are credible reports that child labor
    in the informal economy is increasing.
        e. Acceptable Conditions of Work: The national monthly minimum wage
    is $200, although 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 generally 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  654
    Total Manufacturing.........  ...........  3,623
      Food & Kindred Products...  883          .............................
      Chemicals & Allied          1,549        .............................
       Products.
      Primary & Fabricated        213          .............................
       Metals.
      Industrial Machinery and    47           .............................
       Equipment.
      Electric & Electronic       -5           .............................
       Equipment.
      Transportation Equipment..  151          .............................
      Other Manufacturing.......  785          .............................
    Wholesale Trade.............  ...........  389
    Banking.....................  ...........  2,319
    Finance/Insurance/Real        ...........  5,633
     Estate.
    Services....................  ...........  698
    Other Industries............  ...........  1,172
        Total All Industries....  ...........  14,489
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                  THE BAHAMAS

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment
      Nominal GDP (Current Prices)......       4575        4920        5170
      Real GDP Growth (pct).............        6.0         5.0         3.5
      GDP by Sector (Estimated pct):
        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$)..............     15,004      15,850      16,361
      Labor Force (000s)................    156,000     157,640         N/A
      Unemployment Rate (pct)...........        7.8         7.0         7.8

    Money and Prices (Annual Percentage
     Growth):
      Money Supply (M2) (% Increase)....       12.3         8.4         N/A
      Commercial Interest Rate (Percent)       6.75        6.00         N/A
      Personal Savings Rate.............       3.28        2.71        2.70
      Consumer Price Inflation \2\......        1.3         1.6         1.5
      Exchange Rate (US$/B$--annual            1.00        1.00        1.00
       average).........................

    Balance of Payments and Trade:
      Total Exports (FOB)...............      428.1       766.1         N/A
        Exports to United States \3\....      335.9       485.6       148.6
      Total Imports (CIF)...............     1907.1      2275.8         N/A
        Imports from United States \3\..     1671.6      1991.2       535.8
      Trade Balance.....................    -1249.3     -1346.0         N/A
        Balance with United States......     -646.7      -753.8         N/A
      External Public Debt..............      106.5       115.9         N/A
      Fiscal Deficit/GDP (pct)..........          4           3         3.4
      Gold Reserves.....................        N/A         N/A         N/A
      Foreign Exchange Reserves.........      404.0       342.6         N/A
      Debt Repayment....................       72.5          75          90
      Aid from United States............          0       100.0     252,000
      Aid from All Other Countries......        N/A         N/A         N/A
    ------------------------------------------------------------------------
    \1\ Finance Ministry Projections.
    \2\As of March 2001.
    \3\ Source: 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.
        Central Bank economists had already predicted a slowdown in the
    Bahamian economy due to the recession in the U.S. Since the September
    11 terrorist attacks in the U.S., key economic indicators in The
    Bahamas has declined severely. Tourism, the largest economic sector in
    The Bahamas, was immediately affected. Major hotels report occupancy
    rates as low as 15 percent, less than a quarter the normal rate for
    this time of year. Businesses in the tourist district report a 50
    percent decrease in sales. Hotels have already announced that they are
    moving to a reduced workweek and furloughing some employees. The
    general consensus is that sizable layoffs of personnel by the hotels
    and many businesses dependent on the tourist trade are almost
    inevitable. If this downturn in tourism continues, the economic loss to
    The Bahamas will be enormous.
        The United States remains The Bahamas' major trading partner. U.S.
    exports to The Bahamas went from $842 million in 1999 to $1026.6
    million in 2000. Approximately 88 percent of its imports originate in
    the United States, and most Bahamian purchases of third-country exports
    are acquired through American distributors. According to data from the
    Ministry of Economic Development, the average tariff rate has fallen
    from 40 to 30 percent while the number of customs duty rates were
    reduced from 123 to 29 over the last decade. 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 Bahamas received observer status in the WTO in
    2001 and declared its intent to pursue full accession. A WTO Working
    Party has been formed to consider Bahamian accession.
        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 2001/2002
    balanced budget totaled $1035 million with no new taxes. Government
    outlays for education, health, social benefits and services, and
    national security accounted for the majority of the Government's total
    expenditure. Total debt service declined by $5.2 million to $67.8
    million in 2000 which, combined with marginally increased exports of
    goods and non-factor services, resulted in a smaller debt service ratio
    of 2.8 percent relative to 3.0 percent in 1999. 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 2001-2002 is projected to increase to $1,030
    million. This represents an increase of 3.2 over the 2000/1 budget or
    about 4.9 percent over the projected 2000/1 outturn.
        Again this year, the budget emphasized duties to promote e-commerce
    and development of the telecommunications infrastructure. Consequently,
    the Bahamian government plans to move ahead with completing the
    privatization of The Bahamas Telecommunications Corporation (Batelco).
    The Bahamian government's policy requires that internet access is
    provided to all Bahamian schools free of charge and that the cost of
    this access will be allocated among all telecommunications providers.
    In order to promote this, custom duties on computer hardware, computer
    parts, computer paper, and cameras, including still image versions,
    were eliminated. In addition, the Public Utilities Commission (PUC)
    implemented new license fees for Internet Service Providers and a wide
    range of telecommunication services provided by Batelco. Some of those
    fees, including Internet service, public paging, specialized mobile
    radio trunking, and private specialized mobile radio are considered too
    high. Conversely, the PUC's existing radio communication license fees
    are substantially lower than those charged in several other countries
    and will be increased.
        The Bahamian government has continued its policy of rationalization
    of Customs duties and providing relief to Bahamians where possible and
    reduced customs duty on a number of items including office equipment
    and supplies, carpet and other floor covering, some small household
    appliances, appliances used in medical, surgical, dental and veterinary
    science, some fruits and vegetables, and some vitamins.
        The 1999-2000 budget cut tariff rates on imported video and
    audiotapes 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.
        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 temporally on chicken, and
    reduced on combination TV and radio appliances, combination TV and VCR
    appliances, and golf carts.
        The government knows 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 123 separate import duty rates to
    29 rates as of July 1, 1997. 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 1999, which has not changed.
    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 2.2 percent as
    of June 2001.
        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 results of these incentives
    has been slow, particularly in view of the devastating fire that
    destroyed a part of downtown Nassau including the straw market (a
    favorite tourist shopping site specializing in handicrafts and
    souvenirs), on September 4th. The tourism industry has also declined
    significantly as a result of the September 11th terrorist attacks
    against the United States.
        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 2000 that foreign
    capital inflows for the decade of the 1990s went from $84.6 million in
    1990 to $820.8 in 1999.
        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; and over $100,000, tax is 1.5 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) and other public
    utilities. It has also established a Public Utilities Commission to
    regulate local public utilities corporations.
        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 Bahamian Stock Market is now up and running with 15
    stocks.
        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 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 International Business Companies Act, simplifying
            procedures and reducing costs for incorporating companies.

        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.
        In addition, in June 2000, Sun International lost its government
    tax concession because it failed to proceed with its commitment to
    commence the 700-room Phase III of its resort complex in July 1, 2000.
    The Bahamian government originally granted the $3 million tax incentive
    package in return for Sun's commitment to construct 1200 additional
    hotel rooms on Paradise Island, but part of these incentives were to be
    suspended if work did not begin on replacement of the old Holiday Inn
    and Paradise Paradise Hotels by January 2000. Sun International's
    Chairman and CEO Sol Kerzner said Sun had to commit all its development
    resources to repairing hurricane damage in 1999 and developing its
    Ocean Club Resort, golf course and time share project (part of its
    Phase II development). Kerzner also said that the labor environment
    (shortage of skilled workers) and massive overspending on the project's
    first two phases resulted in his decision to halt Phase III. In
    February 2001, Sun International officially opened its new Harborside
    Resort of timeshare condominiums on Paradise Island and completed
    renovations to the Ocean Club.
    4. Debt Management Policies
        The National Debt comprising Government Direct Debt and Contingent
    Liabilities, which are the Government Guaranteed borrowings of the
    Public Corporations, amounted to $1.88 billion at the end of 2000.
    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 still 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.
        According to data from the Ministry of Economic Development, the
    average tariff rate in the Bahamas has fallen from 40 to 30 percent
    while the number of duty rates were reduced from 123 to 29 over the
    last decade.
        The Ministry of Agriculture restricted banana imports in October
    1995, as part of an effort to create a market for locally grown
    bananas. The restrictions have been extended to include other varieties
    of produce for which the Ministry determines that local farmers (e.g.
    Christmas poinsettias, romaine lettuce, yellow squash, and zucchini)
    can meet the demand. 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. 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. The law allows for compulsory licensing of encrypted
    signals to the local cable company, a violation of the Berne
    Convention. The Bahamian government has promised to amend the law to
    prohibit the practice.
        The majority of videos available for rent are the result of
    unauthorized copying 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 videotapes, 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. Although these laws are fully
    enacted, they are still widely ignored.
    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: In 2001, the government passed
    the Employment and Protection Act, and has promised to pass a Minimum
    Wage Bill and a Health and Safety Bill. Two other pieces of legislation
    (the Trade Union and Industrial Relations and Industrial Tribunal
    bills) were abandoned as politically infeasible. The total package had
    drawn heavy criticism from both Bahamian employers and trade unions.
    The Minimum Wage Bill, has been criticized as going against recent IMF
    advice for the GCOB to increase labor productivity and control wages in
    order to sustain future economic growth. If enacted, the bills will
    give the Government the right to establish wage minimums for the
    private sector, shorten the work week, increase paid vacations,
    guarantee paid sick leave and severance pay, and grant employees new
    protections against unfair dismissal.
        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 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  631
    Total Manufacturing.........  ...........  (\1\)
      Food & Kindred Products...  0            .............................
      Chemicals & Allied          (\1\)        .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    -2           .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  (\1\)
    Banking.....................  ...........  -3,783
    Finance/Insurance/Real        ...........  3,507
     Estate.
    Services....................  ...........  32
    Other Industries............  55
        Total All Industries....  668
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    BOLIVIA

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \6\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment \1\
      Nominal GDP..........................     8,323      8,456   \7\ 8,112
      Real GDP Growth (pct)................       0.4        2.4        0.5
      GDP growth by Sector:
        Agriculture........................      2.89       2.97       2.00
        Manufacturing......................      2.40       1.65       0.80
        Services \2\.......................      4.94      -1.63      -1.00
        Government.........................      1.53       0.92       1.20
      Per Capita GDP (US$).................     1,027      1,020        977
      Labor Force (million)................       2.4        2.5        2.6
      Unemployment Rate (pct) \3\..........       8.0        7.5        N/A

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2) \4\.........      -2.8       13.1        8.0
      Consumer Price Inflation.............       3.1        3.4        3.0
      Average Exchange Rate (Bs/US$).......      5.80       6.17       6.58
        Parallel...........................      5.84       6.20       6.62

    Trade and Balance of Payments:
      Total Exports FOB....................     1,139      1,328      1,490
        Exports to United States FOB.......       465        349        392
      Total Imports CIF....................     1,855      1,977      2,015
        Imports from United States CIF.....       438        431        439
      Trade Balance........................      -704       -600       -525
        Balance with United States.........        27        -82        -47
      Current Account Deficit/GDP (pct)....      -8.5       -7.1       -6.5
      External Public Debt.................     4,574      4,460      4,680
      Debt Service Payments/GDP (pct) \5\..       2.6        3.0        3.2
      Fiscal Deficit/GDP (pct).............       3.4        4.0        6.0
      Gold and Foreign Exchange Reserves...     1,114      1,184       1068
      Aid from United States...............        76        155        138
      Aid from All Other Sources...........       530        468        410
    ------------------------------------------------------------------------
    \1\ IMF projections, UDAPE, National Institute of Statistics (INE),
      Central Bank of Bolivia and Embassy projection.
    \2\ Does not include electricity, gas, water, transportation, or
      communications.
    \3\ For urban areas; data does not consider underemployment.
    \4\ Includes National Currency Deposits indexed to U.S dollar and U.S
      dollar deposits.
    \5\ Includes short-term debt.
    \6\ 2001 figures are yearly projections.
    \7\ The pace of devaluation of the boliviano exceeded that of inflation,
      which resulted in a lower nominal GDP (in dollars), though real GDP
      increased.

    1. General Policy Framework
        Nineteen 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
    in the business community by exposing it to increasing international
    competition. Parallel reforms in the judicial system, such as the
    implementation of the new Code of Criminal Procedures in March 2001,
    should help strengthen the rule of law in the coming years.
        The foundation of this new economic system was the privatization
    (called ``capitalization'' in Bolivia) of five large state-owned
    corporations and the establishment of a regulatory system to monitor
    the key sectors. The capitalization program has succeeded in promoting
    steady rates of growth of private investment, principally from the
    United States and in the hydrocarbons sector. Moreover, the opening of
    the telecommunications sector, programmed for November 2001, has
    attracted other U.S. operators that have committed significant amounts
    of investment in Bolivia during 1999 and 2000. This investment portends
    enhanced prospects for economic growth in the coming years. Although
    the Government initially projected economic growth for 2001 at four
    percent, an ongoing economic slowdown caused mainly by low commodity
    export prices and economic slowdown in Bolivia's principal trading
    partners, including the United States, obligated authorities to lower
    growth projections for 2001 to only 0.5 percent. The United States has
    been Bolivia's largest trading partner and the largest direct investor
    during the last decade.
        Macroeconomic indicators have improved steadily since the
    Government undertook stabilization and structural reforms in the mid-
    1980s. However, the Bolivian economy has been essentially stagnant
    since 1999. Commercial bank deposits had more than doubled since 1991,
    to over $4.4 billion in 1999, but significantly decreased to $4 billion
    in 2000 and to $3.6 billion as of August 2001. At the same time the
    amount of non-performing loans have increased from $266 million in 1999
    to approximately $578 million as of August 2001 (over 18 percent of the
    total loan portfolio). 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 2000), decreasing slightly to $980 million (April
    2001). Net reserves were slightly more than five months of imports as
    of February 2001. As tax revenue dropped due to the economic downturn,
    the budget deficit for the non-financial public sector increased to 3.4
    percent of GDP in 1999, 4.0 percent in 2000 (largely as a result of
    pension reform), and likely even higher for 2001 and 2002. Lately, the
    public deficit has been financed primarily by domestic debt purchased
    by local banks and pension administrators.
        The money supply (M1) has grown steadily since 1991, with M1 now
    averaging around 12 percent of GDP. Total liquidity (M4) represented
    approximately 53 percent of GDP in 2000. Although the M2 growth rate
    had decreased significantly since 1997, reaching negative levels during
    1999, it increased by approximately 13 percent in 2000 and it is
    expected to grow by 8 percent in 2001. 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 may be
    written in dollars. Banks offer dollar accounts and make loans in
    dollars. In fact, at the end of August 2001, nearly 91 percent of the
    $3.6 billion of deposits in the Bolivian financial system was
    denominated in dollars. The Bolivian Central Bank usually adjusts its
    discount rate and conducts open market operations to control money
    supply. In addition, the Bank has infrequently changed reserve
    requirements for commercial banks.
        Low rates of inflation at home and abroad have helped to lower
    interest rates. By December 2000, the average rate paid on dollar
    deposits was approximately 4.25 percent, and the average rate charged
    on dollar loans was 15.29 percent. Increased bank competition and new
    foreign investment in the sector will likely cut financial spreads,
    making credit still cheaper in the near-term. Financial spreads
    continued to grow in 2001 due to a large increase in banks' non-
    performing loans portfolios.
    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, which fell with respect to the dollar by 6.2 percent in
    1999, 6.7 percent in 2000, and 5.5 percent as of September 2001.
    3. Structural Policies
        A variety of laws have liberalized the economy significantly since
    the change in Bolivia's economic policies in the mid-1980s. Bolivia has
    consolidated economic stability through the application of a policy of
    fiscal and monetary discipline since 1986. Markets for goods and
    services and interest rates were liberalized, an exchange rate policy
    was applied based on a single flexible exchange rate, and a tax reform
    law was implemented.
        In 1990, the Government of Bolivia lowered import 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 on goods, whether imported or produced domestically.
    There are also excise taxes charged on some consumer products.
    Generally, no import permits are required, except for the import of
    arms and pharmaceutical products. However, in an effort to fight
    contraband imports, the Government of Bolivia issued Supreme Decrees
    26327 and 26328 on September 22, 2001, establishing automatic import
    licenses and labeling norms for selected products such as cooking oil,
    sugar, pasta, and wine. While the import licenses are established for
    two years, there is no time limit for the labeling requirement. Further
    regulation must be issued in the coming months in order to apply these
    two new decrees.
        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, which was further
    elaborated in the Arbitration Law, enacted on March 11, 1997. Bolivia
    ratified a Bilateral Investment Treaty with United States on June 7,
    2001; the treaty came into effect in July 2001.
        The 1996 Hydrocarbons Law authorized YPFB (the petroleum parastatal
    company) 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. The
    recent Mining Law taxes 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 the new Banking Law, the Government
    of Bolivia enacted a new financial law in 1998, the Law of Property and
    Popular Credit, which changed the organization of financial regulatory
    bodies. It also provided for improved regulation for all types of
    financial institutions and promoted stability in the financial system,
    while also inducing greater competition and efficiency. Although the
    government has announced several times its intention to enact a deposit
    insurance law, the bill has yet to be approved by the Bolivian
    congress.
        The Government of Bolivia created a Sectoral Regulation System
    (SIRESE) in October 1994 to regulate the electricity,
    telecommunications, hydrocarbons, transportation, and water sectors.
    The Electricity Law (1994), the Telecommunications Law (1995) and the
    Hydrocarbons Law (1996) defined the functions and attributions of their
    respective Superintendents. The five Superintendencies are autonomous
    institutions whose activities are financed through the assessment of
    fees on firms operating in their respective sectors. SIRESE is led by a
    General Superintendent, to whom decisions handed down by the individual
    Superintendents may be appealed. Concessions of public services and
    licenses are granted by administrative resolution issued by the
    respective Superintendent. The SIRESE law establishes general
    principles governing anti-competitive practices. Specifically,
    companies engaged in regulated activities are forbidden from
    participating in agreements, contracts, decisions and/or practices
    whose purpose or effect is to hinder, restrict or distort free
    competition.
    4. Debt Management Policies
        The Government of Bolivia owes about $4.3 billion to foreign
    creditors as of April 2001. Almost two-thirds of this amount is owed to
    international financial institutions, principally the Inter-American
    Development Bank, the International Development Agency of the World
    Bank, and the Andean Development Corporation. One-third is owed to
    foreign governments and less than 0.5 percent is owed to private banks.
    Bilateral debt payments have been rescheduled six times by the Paris
    Club, and several foreign governments, including the United States,
    have unilaterally forgiven substantial amounts of bilateral debt. In
    1998 and 2001, Bolivia entered into the Highly Indebted Poor Country
    (HIPC) I and II programs respectively. The first agreement will reduce
    multilateral debt stock by approximately $460 million in present value
    (NPV) terms over the life of the agreement, while the second or
    enhanced HIPC will do so by $854 million in NPV terms. The Consultative
    Group of international donors in 1999 approved an additional $960
    million in aid for Bolivia. In addition, the Consultative Group meeting
    in September 2001 approved an additional $1.3 billion in aid.
    5. Significant Barriers to U.S. Exports
        There are no significant barriers to U.S. exports or U.S direct
    investment in 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. However, Bolivia has neither endorsed the
    Plurilateral Agreement on Government Procurement nor declared any
    commitment on civil aircraft and related services.
        Import licenses are usually required for firearms, certain chemical
    products and seeds. Pharmaceutical products must be approved under
    World Health Organization guidelines and registered with the Vice
    Ministry of Health. Insecticides require an import permit and a ``free
    sale'' certificate from the Ministry of Agriculture. The Government of
    Bolivia issued Supreme Decrees 26327 and 26328 on September 22, 2001,
    establishing automatic import license and labeling norms for selected
    products such as cooking oil, sugar, pasta, and wine. Import permits,
    which must be obtained from the Vice Ministry of Industry and Commerce,
    are required for imports of used clothing and rags.
        Bolivia's commitments under GATS are modest, although its
    liberalization efforts have established the bases for expanding them.
    In some cases, existing legislation offers more liberal treatment to
    foreign and domestic providers than the GATS agreements. For instance,
    Bolivia has undertaken several commitments in telecommunications;
    hospital services; hotels and restaurants; travel agencies and tour
    operators; and recreational, cultural and sporting services. Bolivia
    has endorsed several protocols on financial services and has committed
    to ratifying the fifth protocol.
        Although the Ministry of Agriculture issued a one-year resolution
    banning the import of products containing genetically modified
    organisms in January 2000, this resolution has not been enforced.
        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 Bolivian government enacted a law establishing 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, which came into effect on July 7, 2001.
        On July 28, 1999, the Government of Bolivia enacted Supreme Decree
    1990 mandating an in-depth customs reform. This new law gave the
    Government of Bolivia the necessary tools to begin fighting the
    corruption that permits huge amounts of contraband into Bolivia,
    resulting in significant losses of tariff revenue. The law
    depoliticized the selection of customs officials and has helped
    professionalize the customs service, though much remains to be done.
    6. Export Subsidies Policies
        The Government of Bolivia 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 Nairobi
    Treaty. In 2000, the U.S. Trade Representative placed Bolivia on the
    ``Special 301'' Watch List, where it remained in 2001. Although the
    Government of Bolivia, both domestically and within the framework of
    the Andean Community, has enacted several regulatory norms relating to
    copyrights, trademarks and patents, enforcement remains weak.
        Weak enforcement of existing laws has done little to discourage
    piracy in Bolivia. Nonetheless, there have been some recent positive
    developments. In 1997, the Government of Bolivia created the National
    Intellectual Property Service, which for the first time unified the
    administration of patents, trademarks, copyrights, and other
    intellectual property. In 1992, the government enacted the Copyright
    Law, which together with key changes in the Code of Criminal Procedure,
    effected in 2001, should create the proper legal environment to enforce
    IPR protection. The Government of Bolivia has proposed a draft
    Intellectual Property Law that should bring Bolivia's IPR protection up
    to the standards specified in the WTO TRIPS Agreement. Although the
    government hoped to enact this law during 2000, the Bolivian Congress
    has yet to discuss the bill. Creating awareness in the judiciary and
    among the public of IPR rights is another formidable challenge facing
    the National Intellectual Property Service.
        According to the International Intellectual Property Alliance
    Report for 2000, piracy resulted in estimated total losses to U.S.
    businesses in Bolivia of $28.1 million during 2000. Estimated losses
    were $4.1 million due to piracy of business software, $15 million in
    sound recording and music, $2 million in motion pictures, $1.5 million
    in entertainment software, and $5.5 million in book piracy. According
    to the IIPA, Bolivia has one of the highest rates of software piracy in
    Latin America, with an estimated 84 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 of Bolivia to dissolve
    unions, through this power to thwart union activities has not been
    known to have been used 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
    of Bolivia does not prosecute those responsible, nor does it impose
    penalties.
        Unions are not free from influence by political parties, but
    organized labor is increasingly looking outside the established party
    structure to represent its interests. 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. Labor leaders complain, however, that a Supreme Decree
    established in 1985 that included a provision for the free contracting
    of labor has been abused by employers to dismiss employees for
    organizing workers. 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 and a 1999 law specified a broad range of activities not
    suitable for employment of adolescents. The Labor Code permits
    apprenticeship for those 12 to 14 years of age. Wage employment for
    children under 14 is illegal. In the large informal sector, however,
    urban children hawk goods, shine shoes and assist transport operators;
    rural children often work with parents on family farms or cooperative
    mines from a early age. Children are not generally employed in
    factories or formal businesses. Responsibility for enforcing child
    labor provisions resides in the Labor Ministry, but a severe lack of
    resources means that enforcement is almost non-existent.
        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 latest IMF's agreement, but it has
    yet to do so.
        e. Acceptable Conditions of Work: The law establishes annually a
    minimum wage. The 2001 minimum wage was established at Bs 400 per month
    (approximately $60), including bonuses and fringe benefits. The minimum
    wage does not provide a decent standard of living, and most workers in
    the formal sector 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, mining
    and telecommunications. 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  -7
    Total Manufacturing.........  ...........  0
      Food & Kindred Products...  0            .............................
      Chemicals & Allied          0            .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  ...........  (\1\)
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  0
     Estate.
    Services....................  ...........  (\1\)
    Other Industries............  ...........  181
        Total All Industries....  ...........  170
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     BRAZIL

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                 1999      2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\........................      530       596        500
      Real GDP Growth (pct) \3\..............      0.8       4.5        1.5
      GDP by Sector (pct share):
        Agriculture..........................      8.3       7.8        8.0
        Industry.............................     35.5      37.2       36.0
        Services.............................     56.2      55.0       56.0
      Per Capita GDP (US$) \4\...............    3,200     3,600      3,000
      Labor Force (millions).................     79.3      80.4       81.5
      Unemployment Rate (pct)................      7.6       7.9        8.0

    Money and Prices (annual percentage
     growth):
      Money Supply (M2)......................      7.8       3.3        9.0
      Consumer Price Index \5\...............      9.0       6.0        6.7
      Exchange Rate (R$/US$ annual average):
        Commercial...........................     1.82      1.83       2.41
        [Depreciation (pct)].................       58       0.5         32

    Balance of Payments and Trade:
      Total Exports FOB \6\..................     48.0      55.1       59.0
        Exports to United States \6\.........     10.9      13.4       14.8
      Total Imports FOB \6\..................     49.2      55.8       58.2
        Imports from United States \6\.......     11.9      13.0       14.2
      Trade Balance \6\......................     -1.2      -0.7        0.7
        Balance with United States \6\.......     -1.0       0.3        0.6
      External Public Debt \7\...............    100.8      92.5       95.0
      Current Account Deficit/GDP (pct)......      4.4       4.1        5.2
      Fiscal Deficit/GDP (pct):..............
        Nominal..............................     10.0       3.6        8.0
        Primary (excludes interest)..........     -3.1      -3.4       -3.4
      Debt Service Payments/GDP (pct)........      2.7       2.9        3.7
      Gold and Foreign Exchange Reserves.....     36.3      33.0       36.0
      Aid from United States (US$ millions)       13.9      12.7       15.4
       \8\...................................
      Aid from Other Countries...............      N/A       N/A        N/A
    ------------------------------------------------------------------------
    \1\ Estimates except where noted.
    \2\ GDP at market prices.
    \3\ Percentage change calculated in local currency.
    \4\ At current prices.
    \5\ Source: IPCA (Broad National CPI).
    \6\ Merchandise trade; Source: Ministry of Development, Industry, and
      Foreign Trade (MDIC). Trade totals are preliminary for entire year.
      U.S. totals are extrapolated from January-July data.
    \7\ Non-financial public sector (excludes Petrobras and CVRD).
    \8\ USAID only.

    1. General Policy Framework
        Brazil's economic performance in 2000 was solid and stable, with
    moderate growth (4.4 percent), relatively low inflation (6 percent),
    falling interest rates (15.75 percent at year-end), fiscal discipline
    (primary surplus equal to 3 percent of GDP) and stable external
    accounts.
        Entering 2001, there were widespread expectations that the economic
    trends would continue along the same lines. However, the economy has
    been hampered by several factors, most notably an economic crisis in
    Argentina, falling growth in the major world economies, a serious
    electricity shortfall in Brazil, and most recently the aftermath of the
    September 11 terrorist attacks in the United States. Several political
    scandals and uncertainty as to the outcome of the 2002 presidential
    election have also increased investor uncertainty. The exchange rate
    has weakened appreciably through mid-October (42 percent for the year),
    raising the prospect of higher inflation, which in turn has led the
    Central Bank to raise interest rates (19 percent). A shortage of rain
    has led to electricity rationing (20 percent reduction from 2000
    consumption levels). The higher interest rates and electricity
    rationing will affect economic activity, and GDP growth projections for
    the year are now around 1.6 percent. Market expectations for GDP growth
    in 2002 are 2.5 percent.
        In the past decade, Brazil has undertaken a number of economic
    reforms that should allow it to absorb these shocks. In 1994, Brazil
    initiated an economic stabilization plan, known as the Real Plan. The
    plan was highly successful in reducing longstanding inflation. The plan
    also inaugurated one of the world's largest privatization programs.
    However, growth slowed, the economy was dependent on external
    financing, and the government failed to control its finances, which
    left the economy vulnerable to external shocks. Following the Russian
    debt default in August 1998, the economy entered into recession. In
    spite of a $42 billion assistance package negotiated with the IMF and
    other lenders, the government was forced to float and devalue the real
    in January 1999. Brazil complied with all the key targets in its 1998
    program, and in August 2001 signed a new $15 billion program with the
    IMF, which extends until December 2002.
        Since 1999, the government has been dedicated to fiscal discipline,
    highlighted by the passage in May 2000 of the Fiscal Discipline Law,
    which sets strict limits on government spending at the federal and sub-
    federal level. The government also initiated an inflation targeting
    program as the basis of monetary policy, wherein the government sets a
    target and the Central Bank strives to bring keep inflation within two
    percentage points of the target. Inflation was right on target for 2000
    ( six percent). The 2001 target is four percent, but inflation will
    exceed not only the target, but most likely will breach the two
    percentage points band (i.e., six percent). If inflation exceeds the
    outer band, the Central Bank president needs to address an open letter
    to the Minister of Finance explaining why the target was not met. The
    inflation target for 2002 is 3.5 percent, while market expectations for
    the year are 5.6 percent.
        While many changes have been implemented, the government needs to
    continue its economic reform program, notably tax and pension reform.
    The balance of payments has also emerged as a concern. Brazil has been
    financing its large current account deficit with record levels of
    foreign direct investment ($30.5 billion in 2000). However, investment
    declined in 2001 (the 2001 estimate is $19 billion), so part of the
    current account deficit will have to be financed by external borrowing.
    Foreign direct investment for 2002 is expected to be around $15
    billion. The trade balance probably will likely show a small surplus in
    2001, and an improved outlook in 2002 (an approximately $3 billion
    surplus). Exports have grown rapidly but have been hampered by weak
    prices for Brazilian commodities and more recently by slowing foreign
    demand. Meanwhile, imports, which had grown rapidly, have dropped
    recently because of weak local demand.
        The Brazilian Statistical Institute (IBGE) has estimated that the
    economy grew 4.46 percent in 2000. Growth was balanced across basic
    sectors, with industry growing 5 percent, services by 3.9 percent and
    agriculture by 3 percent. Within the industrial sector, mining turned
    in the best performance with 11.5 percent growth. Manufacturing
    activity grew 5.7 percent and construction by 2.1 percent. In the
    services sector, the communications subsector turned in the best
    performance by far with a 17 percent expansion. Commerce rose 5.5
    percent and transportation 3.4 percent. GDP grew 3.1 percent in the
    first half of 2001, but growth will be much lower in the second half of
    the year.
        In 2001, Brazil's average applied tariff was 13.8 percent. Brazil
    currently maintains no applied tariff rates in excess of 35 percent,
    but does have safeguard measures in place for some imports, such as
    toys. A small number of imports are banned altogether, such as
    remanufactured auto parts. Brazil and its Mercosur partners, Argentina,
    Paraguay and Uruguay, implemented the Mercosur Common External Tariff
    (CET) on January 1, 1995. The CET covers approximately 85 percent of
    9,394 tariff items and ranges between zero and 23 percent. Most of the
    remaining 15 percent should be covered by 2003, and full coverage
    should be reached by 2006. Exceptions to the CET include
    telecommunications equipment, computers, some capital goods and
    products included on Brazil's national list of exceptions to the CET,
    such as footwear, powdered milk, automobiles, wine and consumer
    electronics. Brazil, and its Mercosur partners, implemented a temporary
    general across-the-board 3 percentage point tariff increase in late
    1997 and early 1998 in response to balance of payments difficulties.
    The measure was originally due to expire at the end of 2000. A half-
    percentage point decrease was agreed to by Mercosur members effective
    January 2001, and an additional one percentage point decrease will take
    place on January 1, 2002, with the remaining one percentage point
    decrease likely taking place in 2003. There have been some trade
    tensions recently, particularly between Argentina and Brazil, over
    Argentine changes to its tariff and import regimes affecting Mercosur
    parties, and over the trade impacts of Brazilian currency depreciation
    under its floating exchange rate regime.
        Chile and Bolivia became associate members of Mercosur in October
    1996, and in August 1999, Brazil signed a trade preference agreement
    with the Andean Community. In June 2000, the Common Market Council of
    Mercosur established a December 2001 deadline for the negotiation of a
    Free-Trade Area between Mercosur and the Andean Community, which would
    replace the existing bilateral agreements between both regional
    agreements' members. The negotiations, however, are proceeding slowly.
        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 switched to a unitary, floating rate foreign exchange regime
    in January 1999. There is also an informal parallel market but volumes
    are small. The government has acted to remove impediments to a fully
    convertible currency, both for current and capital account
    transactions. In mid-2000, it eliminated numerous regulations affecting
    exchange transactions and consolidated all remaining requirements into
    one regulation.
        The exchange rate was stable for most of 2000, and the Central Bank
    intervened on only limited occasions to prevent excess volatility.
    However, the real depreciated roughly 40 percent in the first 10 months
    of 2001, and the Central Bank has increased the measures taken to
    support the real. It maintains that it is taking these measures to
    prevent excessive movement in the exchange rate, and that it is not
    seeking to set the actual exchange rate. Measures that the Central Bank
    have taken include sales of dollars into the exchange market; increased
    placement of dollar-indexed government debt, which serves as a hedge
    against devaluation; and an increase in banks' reserve requirements,
    which reduces liquidity.
    3. Structural Policies
        Although some administrative improvements have been made in recent
    years, the Brazilian legal and regulatory system is not fully
    transparent. The government has historically exercised considerable
    control over private business through extensive and frequently changing
    regulations. Brazil accelerated the privatization program initiated in
    1990 to reduce the size of the government, improve public sector fiscal
    balances, and transfer much of the infrastructure investment
    responsibilities to the private sector. The government has created new
    regulatory agencies for the telecommunications, petroleum and
    electricity sectors. As part of its efforts to keep inflation down, the
    government is reluctant to allow raises in public utility rates that
    fully reflect cost increases including those related to currency
    depreciation.
        Steel companies and most petrochemical companies owned by the
    government, the main exception being Petrobras, have 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. Most electric
    distribution companies have been privatized, but most generation
    capacity remains under government control. The government has auctioned
    concessions for cellular services (although some of the concessions
    offered in 2001 did not receive any bids), petroleum exploration, and
    hydroelectric generation. Privatization revenues peaked in 1997-98, and
    the pace of privatization since then has slowed, although the
    government sold the Sao Paulo state bank Banespa for $3 billion in
    November 2000. The government had planned to privatize several
    electricity generation companies in 2001, but those plans have been
    placed on hold with the electricity crisis. As of July 2001, Brazil
    realized $84.9 billion in direct sales revenues and a further $18.1
    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, production, movement, consumption, property 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. The government, congress, and
    private sector have endorsed various plans to simplify the various
    value-added and transaction taxes, but the proposals have not advanced.
    While the overall objective remains simplification, the government
    imposed an additional tax on financial transactions as a temporary
    revenue raising measure, although the tax has been extended until 2002,
    and the government is seeking to extend it until 2004. Currently, tax
    collections at all levels amount to about 31 percent of GDP.
    4. Debt Management Policies
        Brazil's total external debt as of August 2001 was $210 billion, of
    which 44.2 percent was owed by the public sector (excluding Petrobras
    foreign branches) and the remainder by the private sector. This was
    down slightly from debt at the end of 2000, $217 billion. In mid-2001,
    the Central Bank reduced its estimate of outstanding foreign debt by
    $30 billion, to reflect debt that had been prepaid by the private
    sector but not reported to the Central Bank. 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. In August, Brazil
    negotiated a new $15 billion IMF program, as a follow-on to its prior
    program. The new program will remain in force until the December 2002,
    the end of the current government. In 2001, the Government of Brazil
    issued approximately $7 billion in foreign debt, which more than rolled
    over the $4 billion in debt that matured during the year.
        A large share of total government debt, including some debt issued
    domestically, is denominated in or indexed to a foreign currency. As
    the real has weakened, the stock of debt in terms of local currency has
    risen. Furthermore, the majority of domestic debt carries a floating
    interest rate, and interest rates have increased in the course of 2001.
    As a result, the stock of government debt has risen in 2001, from 49
    percent of GDP at the end of 2000, to 54 percent as of August 2001.
    5. Significant Barriers to U.S. Exports
        Since 1990, Brazil has made substantial progress in reducing
    traditional border trade barriers (tariffs, import licensing, etc),
    although tariff rates in many areas such as information technology and
    automobiles remain high. Significant non-border trade barriers remain.
        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, a wide variety of products were subject to non-
    automatic licensing. A primary concern was the reported use of minimum
    reference prices by Customs officials both as a requirement to obtain
    import licenses and/or as a base requirement for import. Such measures
    have been characterized by Brazil 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. In July
    2000, the United States held WTO dispute settlement consultations with
    Brazil over the reference price issue. The Brazilian government
    reportedly modified its customs regime somewhat, but has not codified
    these changes in publicly available documents. The significant
    depreciation in the real since 1999 has probably made it unnecessary
    for Brazilian authorities to continue using these ``administrative
    procedures'' for the time being.
        Agricultural Barriers: Brazil prohibits the entry of poultry and
    poultry products from the United States, alleging lack of reciprocity.
    The issue, however, should not be reciprocity, but rather the
    fulfillment of WTO obligations regarding sanitary and phytosanitary
    decisions, which dictate that such determinations shall be based only
    upon sufficient scientific evidence.
        For the past several years, Brazil blocked U.S. wheat imports due
    to several phytosanitary issues related to wheat, including TCK smut,
    cereal stripe and flag smut. In March 2001, the Ministry of Agriculture
    lifted the ban on U.S. Soft Red Winter, Hard Red Spring, and Hard Red
    Winter wheat. The ban remains on Duram and White wheats. Exports of the
    approved wheat varieties must come with an additional declaration in
    the phytosanitary certificate that ``the wheat comes from an area free
    of Anguina tritici,'' and cannot be shipped out of west coast ports.
    Importation of U.S. wheat from the states of Washington, Oregon, Idaho,
    California, Nevada, and Arizona remains prohibited due to phytosanitary
    concerns. USDA continues to work with the Brazilian government to
    resolve the import restriction.
        The debate over agricultural biotechnology in Brazil has escalated
    dramatically during the last two years as the Brazilian Government was
    ready to approve the first commercial planting of Roundup Ready
    soybeans. Brazil has an approval process for biogenetically altered
    agricultural products, which resulted in the approval of Roundup Ready
    soybeans in 1998. However, the Brazilian government subsequently
    suspended its approval in response to a court ruling, citing the need
    for environmental impact studies on the product. As of October 2001,
    the Brazilian government has still not reapproved Roundup Ready
    soybeans for use on the Brazilian market, while the issue remains in
    the courts. Also, during the past year, the United States lost several
    opportunities to sell corn to Brazil because of the lack of government
    approval for imports of biotech products and the ensuing court battles
    against imports of biotech products. Brazilian policy on biotech
    remains inconsistent and lacks transparency.
        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. Service trade opportunities in some
    sectors have been affected by limitations on foreign capital
    participation. A telecommunications law that allows for the limitation
    of foreign ownership of carriers is of concern, except that it has not
    been used or implemented to date. In general, because of the need for
    foreign direct investment, some restrictions have eased. On September
    4, President Cardoso signed a provisional measure creating a national
    film agency. The taxes envisaged in the measure appear to
    disproportionately affect foreign audiovisual content.
        Some service trade possibilities 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.
        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. Privatization of the monopoly
    Brazil Reinsurance Institute is stalled by legal challenges. U.S. and
    other foreign reinsurers have expressed concern with proposed
    regulations regarding the reinsurance market following the sale.
        The United States 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. Naval authorities attempted to
    collect lighthouse dues in 2000 from flag ships of countries, such as
    the United States, with bilateral maritime agreements, even though
    these dues were in violation of these agreements.
        Investment Barriers: Various prohibitions restrict foreign
    investment in internal transportation, public utilities, media,
    shipping, and other ``strategic industries.'' In the auto sector, local
    content and incentive-based export performance requirements were
    introduced in 1995, but expired in December 1999 consistent with a
    bilateral autos agreement between the United States and Brazil.
        Foreign ownership of land in rural areas and adjacent to national
    borders remains prohibited under law number 6634.
        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 2000.
        There is no Bilateral Investment Treaty (BIT) between the United
    States and Brazil. Brazil has signed some 16 BITs with other countries,
    none of which has been ratified. The principal point of contention
    seems to be objection by the legislative branch over dispute settlement
    language.
        Government Procurement: Brazil is not a signatory to the WTO
    Agreement on Government Procurement, and transparency in the
    procurement process could be improved. Remaining limitations on foreign
    capital participation in procurement bids can reportedly impair access
    for potential service providers, including in the energy and
    construction sectors. Brazilian federal, state and municipal
    governments, as well as related agencies and companies, follow a ``buy
    national'' policy, and rules permit the government to provide
    preferential treatment in government procurement decisions to foreign
    companies with production facilities in Brazil. However, Brazil permits
    foreign companies to compete in any procurementrelated multilateral
    development bank loans and opens selected procurements to international
    tenders. To the extent that the privatization program in Brazil
    continues and nondiscriminatory policies are adopted, U.S. firms will
    have greater opportunities in Brazil.
        Law 8666 of 1993, covering most government procurement other than
    informatics and telecommunications, requires nondiscriminatory
    treatment for all bidders, regardless of the nationality or origin of
    product or service. However, the law's implementing regulations allow
    consideration of nonprice factors, give preferences to certain goods
    produced in Brazil and stipulate local content requirements for
    eligibility for fiscal benefits. Decree 1070 of March 1994, which
    regulates the procurement of informatics and telecommunications goods
    and services, requires federal agencies and parastatal entities to give
    preference to locally produced computer products based on a complicated
    and nontransparent price/technology matrix.
        Customs Procedures: Customs clearance in Brazil can be time
    consuming and frustrating. In a report issued by the ICEX (the
    Institute for the Study of Foreign Trade Operations) in 1999 the
    average customs clearance time in Brazil was the slowest in the
    Hemisphere (150 hours). Products can get ``caught up'' in customs
    because of minor errors in paperwork. The Brazilians recognize that
    many of its ports, loading and unloading as well as customs clearance
    need increased efficiency. To this end, they have been working on a
    ``green line'' expedited method of clearance.
    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.
    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 and to directly finance production of tradeable
    goods. In 2000, $931 million was budgeted for PROEX with $492 million
    slated for equalization and $439 million for direct financing. $471
    million was actually spent on equalization, and $415 million went to
    financing. In earlier years, 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, 70 percent in 1999, and
    approximately 95 percent in 2000. In 1999, a WTO panel found PROEX
    interest equilization payments on regional aircraft to be a prohibited
    subsidy. The WTO Appellate Body upheld this finding. The Government of
    Brazil states that it has modified PROEX to bring it into conformity
    with WTO subsidy rules.
    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. Brazil has not yet ratified the WIPO Treaties on
    Copyright and Performances and Phonograms. In 2001, the U.S. Trade
    Representative placed Brazil on the ``Special 301'' Watch List
    primarily as a result of serious concerns regarding copyright
    enforcement. In June and December 2000, the United States government
    held WTO consultations on the ``local working'' provision in Brazil's
    patent law that appears to be TRIPs inconsistent, and in January 2001
    requested the formation of a WTO panel. In June 2001, the United States
    agreed to terminate the WTO proceeding, without prejudice, based on
    Brazil's commitment to hold talks with the United States should it deem
    it necessary to grant a compulsory license. Brazil does not have a
    history of issuing compulsory licenses. Although Brazil has made
    progress toward improved protection for intellectual property rights,
    copyright piracy and lax copyright enforcement remain a serious
    problem.
        In the past four years, Brazil has passed revised copyright,
    software, patent, and trademark legislation. Brazil's new Industrial
    Property Law took effect in May 1997, bringing most aspects of Brazil's
    patent and trademark regime up to the standards specified in the WTO
    TRIPs Agreement. However, the new law also includes a local working
    provision that appears to be TRIPs-inconsistent, as noted above.
        Patents: The 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 is being processed. In December 1999, the Brazilian
    Government issued a provisional measure, which has subsequently become
    law that includes a requirement for Health Ministry approval prior to
    the issuance of a drug patent. This could conflict with Article 27 of
    the TRIPS agreement, and U.S. officials have raised this concern with
    their Brazilian counterparts. In April 1997, a Plant Variety Law was
    passed that provides protection to producers of new varieties of seeds.
        Trade Secrets: The 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 Industrial Property Law improves Brazil's trademark
    laws, providing better protection for internationally known trademarks,
    but contains a long list of categories of marks that are not
    registrable. U.S. industry has expressed concern with the continued
    high level of counterfeiting in Brazil, although some foreign firms
    have been successful in court actions against trademark infringement.
        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 serious
    problem. The generally inefficient nature of Brazil's courts and
    judicial system, combined with resource constraints, and other law
    enforcement priorities have complicated the enforcement of intellectual
    property rights. The Brazilian government is working on a project to
    broaden criminal penalties and streamline the judicial process. In May
    2001, the government created an inter-ministerial committee to address
    copyright piracy. As of October 2001, the committee has made little
    concrete progress. The U.S. private sector estimates that trade losses
    from piracy of videocassettes, sound recordings and musical
    compositions, books and computer software were over $800 million in
    2000. Problems have been particularly acute with regard to sound
    recordings and video cassettes.
        Semiconductor Chip Layout Design: In April 1996, a bill to protect
    layout designs of integrated circuits was introduced. The draft law was
    still under discussion in 2001, but the bill has languished.
    8. Worker Rights
        a. The Right of Association: Brazilian law provides for the
    representation of all workers, except members of the military, the
    uniformed police, and firefighters. The only significant limitation on
    freedom of association is ``unicidade'' (literally ``one per city''),
    which restricts representation for any professional category to one
    union in a given geographical area. Although the major labor centrals
    oppose this restriction, there is insufficient support in the Congress
    to pass a proposed constitutional amendment which would end unicidade.
    The labor movement is largely independent of the government and of
    political parties.
        b. The Right to Organize and Bargain Collectively: The Constitution
    guarantees the right to organize and to engage in collective
    bargaining. Approximately 16 percent of the work force is unionized,
    but nearly twice this share is covered by collective bargaining
    agreements. The government, businesses, and unions are working to
    expand and improve mechanisms of collective bargaining, but many issues
    normally resolved in negotiations still come under the purview of
    Brazil's labor courts, which have the power to intervene in wage
    bargaining and impose settlements. The government generally respects
    the right of workers to strike, provided that a number of conditions
    are met, such as prior notification and maintenance of essential
    services.
        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 Ministry of Labor and the
    Catholic Church's Pastoral Land Commission (CPT) have documented cases
    of forced labor in a variety of rural activities including forest
    clearing, logging, charcoal production, livestock raising, and
    agriculture. The federal government coordinates a task force,
    comprising seven different ministries, to combat forced labor, and the
    Ministry of Labor has augmented the task force with mobile inspection
    teams. Although the mobile inspection teams have been effective, the
    hidden nature of forced labor and the lack of effective prosecution of
    those who recruit and contract forced laborers allow perpetrators to
    operate with relative impunity.
        d. Minimum Age for Employment of Children: The Brazilian
    Constitution prohibits work by children under the age of 16. The
    incidence of child labor has fallen impressively in recent years, but
    more than 3.8 million children under 16 years of age continue to work.
    Common activities include fishing, street peddling, shoe shining,
    raising livestock, and harvesting sugarcane, manioc, tobacco, cotton,
    coffee, citrus fruits, and a variety of other crops. The government is
    committed to reducing child labor, and it coordinates a number of
    effective programs to remove children from work and keep them in
    school. Civil society and international organizations have also
    contributed significantly to curbing child labor in Brazil.
        e. Acceptable Conditions of Work: Brazil has a minimum wage of
    approximately 70 dollars (180 reais) a month, subject to an annual
    increase each April. Many workers, particularly those outside the
    regulated economy, 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 law
    requires work in excess of 44 hours a week to be compensated at a rate
    equal to time and a half, 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. Union representatives report that
    the Ministry of Labor, which is 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1,102
    Total Manufacturing.........  ...........  18,940
      Food & Kindred Products...  2,450        .............................
      Chemicals & Allied          3,473        .............................
       Products.
      Primary & Fabricated        1,458        .............................
       Metals.
      Industrial Machinery and    1,867        .............................
       Equipment.
      Electric & Electronic       1,794        .............................
       Equipment.
      Transportation Equipment..  2,198        .............................
      Other Manufacturing.......  5,698        .............................
    Wholesale Trade.............  ...........  792
    Banking.....................  ...........  2,139
    Finance/Insurance/Real        ...........  6,240
     Estate.
    Services....................  ...........  925
    Other Industries............  ...........  5,424
        Total All Industries....  ...........  35,560
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     CANADA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated*]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production, and Employment:
      Nominal GDP..........................     656.4      711.0      727.5
      Real Growth Rate (pct)...............       5.1        4.4        1.4
      GDP by Sector (pct):
        Agriculture........................         2          2          2
        Manufacturing......................        33         33         30
        Services...........................        67         67         69
        Government.........................        20         20         24
      Per Capita GDP (US$).................    21,140     22,755     22,948
      Total Labor Force (000s).............    15,721     15,999     16,214
      Unemployment Rate (pct)..............       7.6        6.8        7.1

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2) \2\.........       3.6        5.5        4.0
      Consumer Price Inflation.............       1.7        2.7        2.9
      Exchange Rate: (C$/US$--annual           1.4858     1.4852     1.5382
       average) \3\........................

    Balance of Payments and Trade:
      Total Exports (Goods only)...........     245.8      284.5      278.6
        Exports to United States...........     208.9      244.7      239.6
      Total Imports (Goods only)...........     219.9      244.6      237.9
        Imports from United States.........     167.8      180.2      171.3
      Trade Balance (Goods only)...........      25.8       39.9       40.7
        Balance with United States.........      34.7       50.4       60.0
      Current Account Balance/GDP (pct)....       0.2        2.5        2.4
      Net External Public Debt \4\.........     379.9      368.6      365.0
      Net External Public Debt/GDP (pct)         58.9       51.8       51.0
       \4\.................................
      Fiscal Balance/GDP (pct).............       1.3        1.4        1.0
      Gold and Foreign Exchange Reserves         28.6       32.4       34.2
       \2\.................................
      Aid from United States...............         0          0          0
      Aid from All Other Sources...........         0          0          0
    ------------------------------------------------------------------------
    * Conversion from C$ to US$ distorts levels, growth rates and ratios.
    \1\ 2001 data is private sector projection.
    \2\ Actual as of September 30, 2001.
    \3\ January to September 2001 average.
    \4\ Canadian government data.

    1. General Policy Framework
        Canada has an affluent, high-tech industrial economy that closely
    resembles the United States in its per capita output, market-oriented
    economic system and pattern of production. The close proximity and
    integrated manufacturing sectors of Canada and the United States have
    resulted in the largest bilateral merchandise trade relationship in the
    world. In addition, the United States and Canada share one of the
    world's largest bilateral direct investment relationships. In 2000, the
    stock of Canadian foreign direct investment in the United States,
    including investments from Canadian holding companies in the
    Netherlands, was $103.7 billion. At the same time, U.S. foreign direct
    investment in Canada was $126.4 billion.
        In 2000, total two-way trade in goods and services between the
    United States and Canada was over $470 billion, or $1.3 billion each
    day. When investment income was included, the daily average was $1.4
    billion. This is more than U.S. trade with the rest of the Western
    Hemisphere, and almost equal to total U.S. trade with the entire 15-
    country European Union. Indeed, in merchandise alone, Canada exports 86
    percent of its goods to the United States, and 72 percent of the goods
    it imports come from the United States. Consequently, trends evident in
    the United States economy are mirrored in Canada. For example, in 2000,
    while the U.S. economy grew by 4.1 percent, Canada's economy expanded
    by 4.4 percent. By the second quarter of 2001, the U.S. and Canadian
    economies slowed significantly, growing at annualized rates of 0.2
    percent and 0.4 percent, respectively, and indications for an actual
    decline in growth in both countries in the third quarter were evident
    in August. The terrorist attacks on September 11, 2001, will exacerbate
    the negative impact of the current ``bust'' cycle not just in the
    United States, but also in Canada.
        Corporate profits were projected to be weak in Canada and the
    United States prior to events on September 11 due primarily to the drop
    in North American stock markets late last year and the slump in the
    North American auto industry. In the wake of the September 11 attacks,
    a number of companies are expected to go bankrupt and assets will be
    sold off. While there will be some increase arising from rebuilding
    efforts in New York, analysts believe this will not be enough to offset
    the general weakness across the United States and therefore, Canada. In
    addition, several sectors will incur serious layoffs, which will put
    upward pressure on the unemployment rates in both countries.
        Public Sector (government) spending should be relatively strong in
    Canada in the aftermath of September 11. Transportation infrastructure
    and enhanced border/airport security will require updated equipment and
    improvements to existing structures. Military, law enforcement, and
    intelligence agencies may see increased expenditures. Most of this
    spending will occur at the federal level, although there is also a need
    for the provinces and municipal governments to boost spending on
    infrastructure, including security precautions at power plants, water
    treatment plants, reservoirs, and transportation. Increased government
    spending could result in a temporary return to public sector deficits.
    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, but does not practice a policy of intervening to pursue
    exchange rate targets.
    3. Structural Policies
        Prices for most goods and services are established by the market.
    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 recorded a C$15 billion budgetary
    surplus in FY2000-2001 (April 1-March 31), which was used to reduce the
    national debt. The paydown reflected the federal government's
    commitment to ongoing debt reduction and cut Canada's debt-to-GDP ratio
    to 51.8 percent from a peak of 71.2 percent five years earlier.
    Currently, the Canadian government projects the ratio to drop to 40
    percent within the next four years, although increased expenditures on
    security could slow debt reduction for the next few years.
    5. Significant Barriers to U.S. Exports
        The 1989 U.S.-Canada Free Trade Agreement and the 1994 North
    American Free Trade Agreement have eliminated most tariff and many
    nontariff trade barriers between the two countries. However, nontariff
    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 in some cases. Canada maintains some restrictions on foreign
    investment and content in the ``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.
        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. Under an agreement negotiated with
    the U.S. government, smaller circulation foreign-based publishers are
    exempt from the Act, as are foreign-controlled publications that
    contain 15 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 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
    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.
        U.S. lumber producers have argued for years that Canadian
    provinces' forest management practices (e.g., log export restrictions
    and low ``stumpage'' fees for harvesting timber on Crown land)
    constitute subsidies to Canadian lumber exports. The United States and
    Canada signed a five-year Softwood Lumber Agreement (SLA) in the spring
    of 1996. Upon the expiry of the agreement at the end of March 2001,
    several U.S. lumber firms petitioned the U.S. Department of Commerce
    Import Administration to initiate countervailing duty (CVD) and
    antidumpting (AD) investigations.
        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 in recent years now allow foreign banks to opt out of
    the federal insurance plan, and foreign banks can now set up two types
    of branches, full-service and lending. Full-service branches are
    authorized to take non-retail deposits of not less than C$150,000 (est.
    $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 and
    reinsurance 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 premia.
        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 applies various restrictions to imports of supply-managed
    products (dairy and poultry), as well as fresh fruit and vegetables,
    potatoes, and processed horticultural products. The United States
    continues to pursue these issues bilaterally.
        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
    antidumping and countervailing duties. Canada operates a partially
    bifurcated trade remedies system under SIMA. The Deputy Minister of
    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 a constraint on U.S. trade. In
    addition, customs reclassification of prepared food products to bring
    them under supply-managed categories is looming as a potential new
    problem area.
        Transboundary environmental issues continue to be a major priority
    of U.S. citizens from Maine to Alaska. Cooperation dates back to the
    1909 Boundary Waters Treaty, and has grown to include collaboration on
    transboundary watersheds, flooding, air pollution, water use, 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 NAFTA Commission on Environmental Cooperation.
    Several other provisions of the NAFTA also touch upon environmental
    regulation, including Chapter 7 on agriculture and sanitary and
    phytosanitary measures, and Chapter 11, which covers investment.
        Section 301 Investigation of Canadian Wheat Board: The United
    States Trade Representative has initiated an investigation of certain
    trade practices of the Canadian Wheat Board (CWB) under section 301 of
    the Trade Act of 1974. This decision is in response to a petition filed
    by the North Dakota Wheat Commission alleging that the CWB engages in
    unreasonable trade practices that have resulted in economic harm to
    U.S. wheat growers. The allegations raise questions about how the CWB
    markets wheat in the United States and third country markets. North
    Dakota has requested a delay in the final determination of this case.
    6. Export Subsidies Policies
        With regard to Canada's policies on milk, the United States
    maintains that in light of the fact that there are now separate
    provincial export programs, Canada continues to provide export
    subsidies on dairy products due to ongoing price differentials between
    domestic and export milk prices. The United States will continue to
    press Canada to adhere to its export subsidy reductions as outlined in
    the WTO Agreement on Agriculture.
    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, Berne Convention, Rome Convention, Patent Cooperation
    Treaty, Strasbourg Agreement, Budapest Treaty, and the Universal
    Copyright Treaty. The Canadian government has signed the WIPO Copyright
    Treaty and (WCT) the WIPO Performances and Phonograms Treaty (WPPT),
    but has not ratified either of them because of intense lobbying by
    Canadian broadcasters and Provincial Ministers of Education. The United
    States has ratified the two treaties, which are expected to set the
    standard for intellectual property protection in future international
    trade treaties.
        The Canadian government is currently reviewing its copyright laws
    as they pertain to digital copyright issues and compulsory licensing
    with respect to the Internet. Over 600 submissions have been received,
    including input from the U.S. National Association of Broadcasters
    (NAB) and AOL/Time Warner. Once the comment period has concluded and
    the Government of Canada has studied all submissions, it is scheduled
    to produce a list of policy options in early 2002. The United States
    hopes that Canada will ratify both the WCT and the WPPT, and that it
    will join the other G-7 countries and explicitly exclude Internet
    retransmission from compulsory licensing.
        U.S. recording artists are discriminated against in Canada because
    the country adheres to the principles of reciprocity, as opposed to a
    NAFTA obligation of national treatment, regarding royalty payments by
    radio stations, and the distribution of a private copying levy, to
    recording artists. Royalty payments by radio stations (``neighboring
    rights'') are distributed solely to domestic artists and artists from
    countries that are signatories of the Rome Convention, which the United
    States has not signed. Canada's private copying regime calls for the
    distribution of a levy on recordable, blank audio media, payable by
    manufacturers and importers of blank tapes and compact discs, to
    domestic artists and to artists from countries that have exactly the
    same levy in place. The United States has a levy for cds but not blank
    tapes, therefore, U.S. artists do not benefit from Canada's regime. For
    the past three years, the Office of the United States Trade
    Representative (USTR) has kept Canada on its ``Special 301'' Watch List
    because Canada is applying the principles of reciprocity in its
    ``neighboring rights'' and private copying regimes, as opposed to its
    NAFTA obligation of national treatment. The Government of Canada has
    broad authority to grant the benefits of these two regimes to other
    countries, although it has yet to announce a determination regarding
    the United States.
    8. Worker Rights
        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. Workers in both the public and
    private sectors exercise their rights to organize and bargain
    collectively, although some essential public sector employees have
    limited collective bargaining rights that vary from province to
    province. Union membership in mid-2000 was 3.7 million people,
    representing 30.4 percent of Canada's workforce. There is no forced or
    compulsory labor practiced in Canada.
        Generally, workers must be 17 years of age to work in an industry
    under federal jurisdiction, e.g. railways, airlines and shipping.
    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. Federal and provincial labor codes
    establish labor standards governing maximum hours, minimum wages and
    safety standards and those standards are respected in practice. Labor
    laws, rights and regulations of a particular jurisdiction apply
    universally to all employees and employers operating in that
    jurisdiction, no distinction is made between domestic Canadian and
    foreign-based employers and investors.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  18,018
    Total Manufacturing.........  ...........  50,425
      Food & Kindred Products...  4,445        .............................
      Chemicals & Allied          8,929        .............................
       Products.
      Primary & Fabricated        3,630        .............................
       Metals.
      Industrial Machinery and    3,447        .............................
       Equipment.
      Electric & Electronic       3,271        .............................
       Equipment.
      Transportation Equipment..  12,707       .............................
      Other Manufacturing.......  13,996       .............................
    Wholesale Trade.............  ...........  9,834
    Banking.....................  ...........  1,999
    Finance/Insurance/Real        ...........  29,125
     Estate.
    Services....................  ...........  8,297
    Other Industries............  ...........  8,724
        Total All Industries....  ...........  126,421
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                                     CHILE

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                 1999      2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\........................     67.7      71.3       63.6
      Real GDP Growth (pct) \2\..............     -1.1       5.4        3.5
      GDP Growth by Sector (pct): \2\
        Fishing..............................      1.7      12.1        2.7
        Agriculture..........................     -1.3       5.5        3.8
        Mining...............................     16.2       4.4        2.8
        Manufacturing........................     -0.7       5.0        5.0
        Construction.........................    -10.0      -0.3        6.2
        Services.............................     -1.0       4.5        6.2
        Government...........................      1.4       2.1        3.0
      Per Capita GDP (US$) \2\...............     4505      4603       4873
      Labor Force (000s) \4\.................    5,934     5,870      5,863
      Unemployment Rate (pct) \2\............      9.7       9.2        9.4

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2) \2\...........      9.1       7.2        9.4
      Consumer Price Inflation (pct) \2\.....      2.3       4.5        3.1
      Exchange Rate (Peso/US$--annual              509       540        715
       average) \2\..........................

    Balance of Payments and Trade:
      Total Exports FOB \2\..................     15.6      18.2       18.0
        Exports to United States \3\.........      3.0       3.5        3.7
      Total Imports CIF \2\..................     14.0      16.7       16.9
        Imports from United States \3\.......      3.1       3.3        3.3
      Trade Balance \2\......................      1.6       1.5        1.1
        Balance with United States \3\.......     -0.2       0.2        0.4
      Total External Debt \2\................     34.2      36.8       36.9
      Private Debt...........................     28.3      31.3       31.8
      Public Debt............................      5.8       5.6        5.2
      Fiscal Balance/GDP (pct) \2\...........     -1.5       0.1       +1.0
      Debt Service Payments/Exports (pct) \2\     27.7      25.4       30.8
      Gold and Foreign Exchange Reserves (US$     14.7      14.7       14.1
       billions) \2\.........................
      Aid from United States (US$ millions)..      0.3       0.3        0.3
      Aid from All Other Sources.............      N/A       N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are projections.
    \2\ 2001 dollar value of GDP has declined because of this year's peso
      depreciation. The 2001 figure is a recent Santander estimate. Other
      data is Central Bank of Chile.
    \3\ U.S. Department of Commerce, International Trade Administration
      Statistics.
    \4\ National Institute of Statistics, Chile.

    1. General Policy Framework
        Chile has maintained market-oriented economic policies for nearly
    three decades. It was the first country in Latin America to implement
    fully a market-based economic model, including large-scale
    privatizations of state enterprises, liberalizing wages and prices,
    instituting fiscal responsibility, lowering barriers to foreign trade
    significantly and removing barriers to foreign investment. These
    policies, along with Chile's commitment to an export-oriented growth
    strategy, have created a modern, competitive economy that has enjoyed
    exceptionally high rates of growth over the last 15 years. Chile has
    also succeeded in improving living standards and reducing poverty
    during that time.
        In the late 1990's, Chile's economy fell victim to global fallout
    from a series of financial crises in various emerging market countries.
    Economic growth declined significantly along with foreign investment in
    Chile and demand for the country's leading exports. In 1999, the
    Central Bank abandoned the exchange band and adopted a policy of
    targeting inflation using short-term interest rate policy and limited
    intervention in currency markets. Inflation has remained below five
    percent since this policy has been in place, and the country's
    independent Central Bank is expected to keep the price level stable.
        While Chile's economy returned to strong growth (five percent) in
    2000, it fell victim in 2001 to the worldwide slump and concerns in
    financial markets over a possible default in Argentina. Unemployment,
    meanwhile, has remained persistently high for the last two years, and
    is currently hovering near ten percent, despite large-scale government
    jobs programs. World prices for copper, which continues to represent
    approximately 40 percent of Chile's exports, have declined by 28
    percent since late 2000. The value of the peso has also declined by
    over 25 percent in the same time period, but slack domestic demand has
    so far prevented businesses from passing price hikes on to consumers.
    Most government and private sector experts expect GDP growth in the
    range of three to four percent in both 2001 and 2002. Chile's economy
    continues to attract foreign investment; FDI during the first six
    months of the year totaled over three billion dollars, surpassing the
    figure for all of 2000.
        The government of President Ricardo Lagos, which assumed power in
    March 2000, has maintained Chile's longstanding commitment to a
    disciplined fiscal policy. Over the long term, the Chilean government
    aims to maintain what it calls a ``structural'' surplus, basing its
    planned expenditures on projections of the price of copper and an
    underlying capacity for economic growth of approximately five percent.
    The policy is directed at maintaining a limited capacity for counter-
    cyclical government spending. Chile's level of public foreign debt
    remains low (less than one percent of GDP), and the country's sovereign
    bonds are considered investment grade. Chile maintains reserves of over
    $14 billion dollars, or the equivalent of 10 months of imports. The
    country's current account deficit in 2001 is expected to equal roughly
    2.2 percent of GDP.
        In the past year, the Chilean government has enacted several new
    pieces of legislation that will have an impact on the country's
    economic climate. Labor reform measures have increased protections of
    basic worker's rights while seeking to facilitate the hiring of new
    entrants into the workforce. A new law on taxes has lowered rates for
    most individuals and increased them slightly on businesses. Meanwhile,
    the Chilean government has continued its efforts to negotiate free
    trade agreements (FTAs) with its leading commercial partners. FTA talks
    with the United States were nearing conclusion at the end of 2001, and
    Chilean negotiators hope to wrap up similar negotiations with the
    European Union in mid-2002. Similar discussions are also underway with
    South Korea and Singapore.
    2. Exchange Rate Policies
        The Central Bank moved to a freely floating exchange-rate system
    from an exchange-rate band in September 1999. This represented a
    significant change from previous policy, which sought to keep the peso/
    dollar rate within pre-set parameters. The Central Bank now targets
    inflation via short-term interest rate policy and limited intervention
    in currency markets to reduce exchange rate volatility. The Bank's
    target range for inflation is 2-4 percent. In June 2001, the Central
    Bank cut the main inter-bank interest rate to 3.5 percent, the lowest
    level in 15 years. The Bank expected to maintain low rates until an
    eventual economic recovery increases inflationary pressures. Over the
    last several years, the Central Bank has gradually reduced restrictions
    on foreign-exchange outflows other than reporting requirements. A legal
    parallel market operates with rates almost identical to the inter-bank
    exchange rate.
        During 2001, the peso has lost over 25 percent of its value against
    the dollar. This decline has resulted from the Argentinean economic
    crisis and from a decline in international demand for Chilean exports
    and financial instruments. The Central Bank has intervened in exchange
    markets several times in recent months in order to defend the peso. By
    mid-October, the central bank had spent approximately $700 million
    defending the currency. The President of the Central Bank has indicated
    that The Central Bank is willing to spend an additional $1.3 billion
    from now until the end of the year to reduce exchange rate volatility.
    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. Most 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 to both the Government of
    Chile's practice of making import decisions based on competitiveness,
    as well as the Government of Chile's policy of not setting prices.
        Tax policies: Forty percent of total tax revenues are generated by
    an 18 percent Value-Added Tax (VAT), which applies to all sales
    transactions. There is an eight 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 seven percent in 2002, and to six percent in 2003. Six percent will
    then become the new base tariff rate. Computers enter Chile duty-free
    as a result of the WTO Information Technology Agreement.
        In August 2001, the Chilean Congress passed a tax reform bill. The
    new law cuts personal income tax rates across the board with the top
    marginal rate being cut from 45 percent to 40 percent for income over
    about $75,000 per year. Persons earning less than approximately $7,000
    per year are exempt from income taxes. In order to compensate for the
    anticipated $150 million in lost revenue, the new tax law raised the
    corporate tax rate from 15 percent to 17 percent for retained earnings.
    There is also a 35 percent tax on distributed profits. There are tax
    incentives in the tax code to promote Foreign Direct Investment,
    regional development, specific industries, and capital contribution and
    donations to educational and cultural institutions. All individuals
    domiciled or resident in Chile are subject to personal income tax on
    their worldwide income. Nonresidents are taxed on their Chilean-source
    income only. Individuals working in Chile for periods not exceeding six
    months in a year are considered non-residents. A Chilean resident
    corporation is subject to corporate income tax on its worldwide income.
    A corporation is considered resident if it is incorporated in Chile. A
    branch of a foreign corporation is taxed on its own worldwide income.
    However, income derived from certain regions of Chile located in the
    extreme north and south is exempt from corporate tax. Many smaller
    enterprises underreport income, but tax evasion is a minor problem.
        Regulatory policies: The most heavily regulated areas of the
    Chilean economy are utilities, the banking sector, securities markets,
    and pension funds. Other regulations tend to be focussed in labor,
    environment, and health standards. While no government regulations
    explicitly discriminate against U.S. exports to Chile, certain health
    regulations on processed foods have effectively excluded U.S. products,
    including breakfast cereals and snack foods. Chile's sanitary
    regulations have also limited U.S. meat exports to Chile. Other
    government programs, like the price-band system for some agricultural
    commodities described below, discourage 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, and most major infrastructure projects have been
    developed in this way. 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, with the
    major ports already privatized. Concession projects for 2001 include
    highways, prisons, and airport improvements.
    4. Debt Management Policies
        Due to Chile's vigorous economic growth, fiscal responsibility and
    careful debt management over the last decade, the magnitude of foreign
    debt no longer constitutes a major structural problem. As of August
    2001, Chile's public and private foreign debt was $36.9 billion, or 50
    percent of GDP (in 1985, the debt-to-GDP ratio was 125 percent).
    Public-sector debt has remained low the past five years, fluctuating
    between $5 and $6 billion and representing 7.3 percent of GDP in 2000.
    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. The uniform eight percent
    import tariff 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 2000s
    with Canada, Mexico, Venezuela, Colombia, Ecuador, Peru, Bolivia, El
    Salvador, Nicaragua, Honduras, Guatemala, Belize, and Mercosur. Chile
    is also an active participant in negotiations for the Free Trade Area
    of the Americas (FTAA), and currently is negotiating a free trade
    agreement with the United States. Negotiations are supposed to be
    concluded early in 2002. Tariffs also are lower than eight 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 eight percent import duty. Duties may be waived 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 below). There is an additional
    luxury tax of 85 percent on the CIF value of automobiles in excess of
    $15,000. This tax discourages sales of larger and more expensive
    vehicles, including many U.S.-made automobiles. Auto sales on the whole
    have been declining since the 1998 recession. Sales in 2001 are 23.5
    percent below those of 2000 and less than 50 percent of auto sales in
    1997. General Motors has the greatest market share with 19.8 percent of
    the market.
        Another tax that has had the effect of discouraging U.S. exports
    was a prejudicial excise tax on distilled liquors that compete with
    domestically produced liquors. In late 1997 the legislature passed a
    law to modify gradually, but not eliminate, the discriminatory taxation
    faced by imported liquors. The European Union won a WTO panel appeal
    over Chile's discriminatory liquor taxation. The United States was a
    third party observer to the panels. New WTO compliant laws regarding
    the taxation of distilled spirits have been passed by the Chilean
    congress. The United States was a third party observer to the panels.
        Import licenses: 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
    (DL) 600, sets the standard of treatment of foreign investors to be the
    same as that of Chilean investors. DL 600 investment is generally
    direct investment. 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. DL 600 limits foreign loan leveraging to a 1:1
    ratio. Associated external loan financing in excess of the value of a
    direct foreign investment cannot enter under the provisions of DL 600
    (i.e., free of deposit requirements).
        Outside DL 600 Foreign Investment can enter Chile under Chapter 14
    of the Central Bank Regulations. Few firms have used this means of
    investment, as it lacks the guarantees provided by the contract with
    the Foreign Investment Committee. The Central Bank has the authority to
    require that investors deposit a percentage of the value of short-term
    capital inflows in a non-interest-bearing Central Bank account for as
    long as two years. This deposit (known as encaje) was required by the
    Bank through mid-1998 and was set at that time at 30 percent for one
    year. Since 1998, the Bank has not required such deposits and has set
    the requirement at zero percent. The Bank does, however, retain the
    right to reinstate the encaje in the future.
        There is not a 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.
        There are some deviations, both positive and negative, from the
    nondiscrimination standard. On the positive side 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.
    Examples of less than national treatment include the following:
        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.

       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.

        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 non-tariff barrier is the import price-band
    system for wheat, wheat flour, and sugar. When import prices are below
    a set threshold, surtaxes are levied on top of the across-the-board
    eight percent tariff to bring import prices up to an average of
    international prices over previous years. Domestic flour millers and
    beverage manufacturers continue to complain bitterly about the high
    duties on wheat and sugar. Imports of U.S. wheat are expected to be
    down in 2001.
        Sanitary and phytosanitary requirements: Chile has improved its
    recognition of pest-free areas in the United States, but delays on
    approval for many U.S. fruits and vegetables continue to hamper
    increased sales to Chile. On a positive note, Chile is in the process
    of granting market access for Oregon and Idaho apples and pears, and
    California and Arizona citrus. Chile has begun to publish its
    regulations and, in some cases, allows a public comment period on
    proposed rules. Most import permits for processed foods 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
    effectively preclude imports of U.S. beef. Chile's livestock products
    law requires first-hand Chilean inspection of every U.S. establishment
    wishing to export to Chile. Products affected include red meat, dairy
    and pet food. Chile does not recognize the U.S. livestock products
    inspection system. Chile is, however, in the process of recognizing the
    U.S. salmon egg inspection system.
        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-entities companies are
    made among competing imports. Requests for public and private bids are
    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.
        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 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. Legislation intended to bring Chile
    into compliance with its WTO TRIPS commitments is pending in the
    Chilean Congress.
        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 50 percent,
    believed to be the lowest rate in Latin America. The decline is in part
    the result of a campaign by the United States and international
    industry, with the cooperation of Chile's courts and government, to
    suppress the use of pirated software. 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
        Patents: Patents are valid for a nonrenewable term of 15 years.
    Under Articles 37 and 38 of Law 9,039, the direct uses of natural
    resources or energy, regardless of whether such uses are newly
    discovered may not be patented. Chile's patent office processes
    pharmaceutical patents extremely slowly, and many patent holders have
    seen their rights degraded by the issuance of marketing approval to
    unauthorized copies. Protection for confidential data provided to
    patent and health authorities is inadequate.
        Industrial Designs: Industrial designs may be registered for a non-
    renewable term of 10 years. Packaging may be included in the goods
    protected as industrial designs if the requirements for new development
    and originality are met. Industrial designs may not protect clothing
    designs. Registration for an industrial design is valid for a
    nonrenewable term of 10 years.
        Utility Models: Utility models protect inventions of a lesser
    inventive degree than patents. Registration of a utility model is valid
    for a nonrenewable term of 10 years.
        Internet Domain Name Registry: Registration of domain names using
    ``.cl'' requires a local presence in Chile. Foreign applicants must
    provide the name and taxpayer number of an administrative contact with
    a Chilean address. Applications to register domain names containing
    ``.cl'' are subject to an initial fee of about $50, which is valid for
    the first two years of the domain's operation. A maintenance fee of
    approximately $20 must be paid every two years thereafter.
    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 10
    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. On
    September 11, 2001, the Chilean Congress passed a broad reform of the
    nation's labor code. Several amendments to the code were designed to
    strengthen worker protections, especially regarding the ability to
    organize unions. The new code also sets forth enhanced penalties for
    anti-union activities.
        b. The Right to Organize and Bargain Collectively: During the last
    decade, the climate for collective bargaining has improved, though
    unions still face difficulties. Sector-wide collective bargaining is
    allowed but not mandatory. The process for negotiating a formal labor
    contract is heavily regulated, a vestige of the statist labor policies
    of the 1960s. The law also permits worker-management discussions to
    reach collective agreements without direct union involvement. These
    agreements are still subject to some government regulations, and have
    the same force as a collective bargaining agreement.
        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 15 to 18 may be legally employed with permission of
    parents or guardians and in restricted types of labor. Some children
    under 15 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. The majority of these were
    males from single-parent households headed by women.
        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, although this will be reduced to 45 hours
    in January 2005. The minimum wage, currently around $150 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. After rising steadily over the
    proceeding ten years, minimum wage and wages as a whole have
    essentially been flat over the past two years. Poverty rates have
    declined steadily from 46 percent of the population in 1987 to 20.6
    percent in 2001.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  73
    Total Manufacturing.........  ...........  1,363
      Food & Kindred Products...  151          .............................
      Chemicals & Allied          230          .............................
       Products.
      Primary & Fabricated        (D)          .............................
       Metals.
      Industrial Machinery and    17           .............................
       Equipment.
      Electric & Electronic       (\1\)        .............................
       Equipment.
      Transportation Equipment..  (\1\)        .............................
      Other Manufacturing.......  186          .............................
    Wholesale Trade.............  ...........  374
    Banking.....................  ...........  700
    Finance/Insurance/Real        ...........  3,557
     Estate.
    Services....................  ...........  210
    Other Industries............  ...........  4,569
        Total All Industries....  ...........  10,846
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    COLOMBIA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment: \2\
      Nominal GDP..........................      85.3       87.9       88.2
      Real GDP Growth (pct)................      -4.3        2.8        2.0
      GDP by Sector:
        Agriculture........................      12.5       12.9       13.3
        Manufacturing......................      11.1       11.9       12.3
        Services (includes financial)......      34.2       34.8       33.3
        Commerce...........................       9.7       10.2       10.6
        Government \3\.....................      25.7       25.4       27.2
      Per Capita GDP (US$).................     2,097      2,118      2,087
      Labor Force (000s) \4\...............    17,521     17,836     18,157
      Unemployment Rate (pct)..............      18.1       19.5       18.7

    Money and Prices (annual percentage
     growth): \5\
      Money Supply Growth (M2).............      10.5        4.7        2.8
      Consumer Price Inflation.............       9.2        8.7        8.2
      Exchange Rate (Peso/US$ annual
     average)
        Official...........................   1,756.8    2,080.0    2,298.2

    Balance of Payments and Trade: \6\
      Total Exports FOB....................      11.5       13.0       14.5
        Exports to United States...........       5.6        6.5        7.5
      Total Imports CIF....................      10.6       11.5       12.7
        Imports from United States.........       3.9        3.8        4.3
      Trade Balance........................       0.9        1.5        1.8
        Balance with United States.........       1.8        2.7        3.2
      Current Account Deficit/GDP (pct)....      -2.4       -2.0       -2.6
      External Public Debt.................      19.7       20.2       22.0
      Debt Service Payments/GDP (pct)......       3.2        3.9        2.8
      Fiscal Deficit/GDP (pct).............      -5.8       -3.6       -3.0
      Gold and Foreign Exchange Reserves...       8.1        9.0        9.7
      Aid from the United States (US$            18.8      129.1      119.5
       millions) \7\.......................
      Aid from All Other Sources...........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are estimates based on available monthly data in
      October.
    \2\ Percentage changes calculated in local currency. Sources for all
      figures in section except government spending are National Department
      of Statistics (DANE). For government spending: Ministry of Finance.
    \3\ Approved national budget. Source: Ministry of Finance.
    \4\ Economically active population for the whole country.
    \5\ Source: Banco de la Republica (BDR).
    \6\ Source: Ministry of Foreign Trade.
    \7\ Aid reflects U.S. AID program only.

    1. General Policy Framework
        Colombia's economic liberalization, which consisted of tariff
    reductions, financial deregulation, privatization of state-owned
    enterprises, and adoption of a more liberal foreign exchange regime,
    was initiated by the administration of President Cesar Gaviria (1990-
    94). 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.
        By the mid-1990's, fiscal and current account deficits were
    increasing. Government spending surged during the Samper administration
    (1994-98), while the fiscal deficit and public sector debt increased
    dramatically. The financing of larger deficits had contractionary
    effects on the private sector by pushing interest rates higher.
    Economic growth slowed beginning in 1996, until the first recession
    since 1931 began in late 1998. Colombia's economy picked up again after
    the 1998-99 recession, the worst in seventy years in a country
    accustomed to more than forty years of steady growth. Colombia faced
    negative growth of 4.3 percent in 1999, caused by a contraction of
    aggregate demand due to a generalized and significant fall in prices
    and a crisis in the financial system. The construction industry, one of
    the largest employment sectors in Colombia, was particularly hard-hit
    by tight credit conditions. As a result, unemployment increased
    dramatically reaching over 18 percent by year-end in 1999.
        The drop in economic activity was less dramatic in the third
    quarter of 1999, while economic indicators began to show positive
    trends during 2000. Economic growth was 2.8 percent in 2000. However,
    unemployment rose to over 19.5 percent by year-end in 2000, and stood
    at 18.6 as of September 2001. It is worth noting that what appears to
    be a decrease of unemployment is actually the result of changes in the
    way unemployment rate is calculated. Colombia's National Department of
    Statistics (DANE) recently decided that instead of using data for the
    main seven cities, it would use data for the 13 largest cities to
    calculate the national unemployment rate. In any event, continued very
    high unemployment remains Colombia's greatest economic problem.
        The Pastrana administration (1998-2002) has sought to promote trade
    and investment, reduce the fiscal deficit, and achieve peace with the
    guerrilla insurgency. Measures taken by the Colombian government to
    lower inflation and interest rates and increase the real exchange rate
    aided a modest economic improvement. Tough budget cuts and the
    successful flotation of the peso helped, along with an agreement with
    the International Monetary Fund for a US$ 2.7 billion Extended Funds
    Facility. The IMF accord entailed commitments to achieve specific
    macro-economic targets and to seek structural reform legislation,
    including a reform of departmental and municipal pensions, a broader
    pension reform, a revenue-enhancing tax reform, and an amendment
    capping transfer payments to departmental and municipal governments
    currently mandated under the 1991 Constitution. Thus far, the
    government has been able to pass legislation in all these areas except
    the broad pension reform which is still pending. The peso has
    stabilized, and needed macro-economic reforms have been executed
    relatively smoothly.
        The National Planning Department (DNP) has estimated growth for
    2001 at 2.4 percent, slightly lower than the 2.8 registered in 2000.
    This is mainly due to lower world economic expectations and to the
    behavior of domestic demand, which has not recovered in the face of
    continued high unemployment. As of October 2001, DNP estimates growth
    for 2002 at four percent. Private analysts such as ANIF, Fedesarrollo,
    and others suggest the government's expected growth rates for 2001-02
    are overestimated. Guerrilla attacks on a major oil pipeline led to an
    interruption in oil exports, very low international coffee prices have
    affected over 400,000 families, credit conditions are still tight, and
    a constant capital outflow and emigration are all direct threats to a
    strong economic recovery.
        Colombia's current fiscal crisis began in the mid 1990's and
    attained its critical point in 1999, when the consolidated fiscal
    accounts had a cash deficit of 4.3 percent of the GDP. If other accrued
    basis operations are added, this cash flow deficit added up to 6.3
    percent of GDP in 1999. Although the central government has faced
    serious obstacles to successful fiscal adjustment, because of the
    narrow margins of its expenditure policy and the modest revenue
    increases gathered from several tax reforms, the fiscal deficit is
    scheduled to decline to 2.8 percent of GDP in 2001 and 1.8 percent of
    GDP in 2002 under the IMF program. Although the government has said it
    will meet its obligations with the IMF, as of October 2001, many
    analysts remain skeptical that the target can be met. Instead they
    estimate a 3.1 percent of GDP deficit aided by a projected further
    deterioration in the finances of the public pension systems. The
    structural reform agenda for 2002 calls for considerable action to
    strengthen the control over expenditure at all levels of the public
    sector; an improvement in the finances of the Social Security
    Institute's (ISS) health services and the passing by Congress of a
    second-generation pension reform.
        Colombia has major commercial and investment links to the United
    States. Colombia's largest trading partner in 2000 was the United
    States, which received 49.8 percent of Colombia's exports (up from 48.5
    percent in 1999) and provided 40 percent of Colombia's imports (down
    from 42.1 percent in 1999). The rise in exports was largely due to
    improved international prices for oil, a strong performance of non-
    traditional exports, and a weaker peso, which led to improved
    competitiveness for non-traditional goods. Approximately 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). Other important export products are gold,
    emeralds, chemical products, plastic products, machinery, textiles and
    apparel. The United States also holds the largest country share of
    foreign direct investment: $5.3 billion, or 26.6 percent of the
    estimated total direct foreign investment of $19.9 billion.
        Between 1990 and 1999 the government privatized a number of state-
    owned banks, ports, railroads, and mining companies. It also sold
    concessions to private providers of telecommunications and broadcasting
    services that began using the government-owned spectra. The 50 percent
    government-owned share of the Carbocol coal mining company was
    privatized in October 2000. The Pastrana administration's plans to
    privatize the remaining profitable public enterprises, including the
    Bogota Telephone Company (ETB), the electricity transmission company
    (ISA), and the electricity generating company (ISAGEN), plus 14
    electric distributors, have been postponed repeatedly. Over the past
    two years, the Constitutional Court suspended the privatization of
    ISAGEN several times, and there were no bidders at the auction of ETB.
        The government has made clear that eventually it will privatize a
    number of assets in various sectors, except for Banco Agrario, the
    state owned bank oriented at rural Colombia. The government still
    maintains participation in US$ 2.1 billion.
        Colombia has one of the highest taxation levels in Latin America.
    Colombia's general tax structure is mainly composed of four internal
    and two external taxes. The internal taxes are made up of an income
    tax, a Value-Added Tax (VAT), a stamp tax on written contracts, and a
    tax on gasoline. A withholding mechanism is applied to the first three,
    which has the effect of speeding up collection. The external taxes are
    tariffs and a value-added tax on imports.
        As mentioned above, rising fiscal deficits forced the authorities
    to adopt several tax reforms over the last years. Between 1990 and 2000
    there were at least eight tax reforms, which were not based on a single
    set of guiding principles, such as the opening of the economy, the
    social security system, or fiscal decentralization. Some of these
    reforms were directly associated with structural reforms implemented in
    other economic fields. Others were simply designed to help bridge the
    increasing gap between the government's expenditures and revenues. In
    December 1998, the Colombian Congress passed a major tax reform law
    (Law 488), which lowered the VAT from 16 to 15 percent, while widening
    coverage; increased the stamp tax from 1 percent to 1.5 percent of the
    contract's total value; and established a Unified Tax Regime (UTR) for
    small taxpayers, which aimed to facilitate tax collection from
    entrepreneurs and small businesses. On December 29, 2000, a new tax
    reform (Law 633) was decreed. This reform aimed to improve tax
    collection in order to contribute to the elimination of the fiscal
    deficit. The reform consisted basically of an increase in the 0.2
    percent tax on all transactions in the financial system, which the
    government had implemented back in December 1998 through an economic
    emergency decree. This tax, previously limited in duration, was made
    permanent and was increased from 0.2 percent to 0.3 percent. As well,
    the VAT was increased back from 15 percent to 16 percent, and measures
    were taken to benefit taxpayers who voluntarily repatriate capital from
    abroad and to control tax evasion and contraband. A requirement that
    all corporations invest 0.6 percent of their liquid assets in seven-
    year term ``peace bonds,'' terminated last May 2001 with a final
    issuance by the government.
        Colombia's political Constitution of 1991 established an autonomous
    Central Bank responsible for maintaining the currency's purchasing
    power (Law 31 of 1992). To meet this objective, the Central Bank's
    board of directors makes and implements the country's monetary,
    exchange rate, and financial policies. 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 it had been actively intervening
    in the foreign exchange market to maintain the foreign exchange rate
    within a band system, until September 1999, when the exchange band was
    removed. Colombia enjoyed single digit inflation in 1999, inflation
    dropped from 26.8 percent in 1991 to 8.7 percent in 2000, though this
    in large measure was a result of the low level of economic activity. As
    of September 2001, inflation had already reached 7.9 percent, making it
    difficult to meet the official target for 2001 of 8 percent.
    2. Exchange Rate Policy
        After the passage of the 1991 Constitution, the Central Bank no
    longer kept the monopoly on trade in foreign currency. Market forces
    were left to determine the exchange rate as well as the allocation of
    foreign trade resources. Exchange control mechanisms were modified and
    the financial institutions became more involved in foreign currency
    trading. Law 9 of 1991 revoked Law 444 of 1967, which had been enforced
    for the last 25 years. With these reforms anybody could hold foreign
    currency or assets. Between 1991 and 1994 there was a transition period
    towards a system of exchange rate bands, which was finally established
    in February of 1994. Throughout these years, the exchange authorities
    continued to announce ``official exchange rates'' on a daily basis
    according to the crawling peg system. However, in September 1999,
    Colombia abandoned its crawling band exchange regime and adopted
    measures that permitted the peso to float freely against the dollar and
    other currencies. Before the elimination of the band, the Central Bank
    intervened in the market by buying or selling dollars to keep the
    dollar's price in pesos within the band in response to exchange market
    pressure. The exchange rate stabilized soon after abolition of the
    band, subsequently responding to economic and political developments.
    The peso's depreciation, along with a low inflation, has had a positive
    impact on Colombia's foreign sector competitiveness. Depreciation over
    the last years 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 produced a dramatic turnaround in
    Colombia's overall trade balance, as well as its bilateral balance with
    the United States. Between 1998 and 2000, Colombia's overall trade
    balance swung from a $3.8 billion deficit to a $1.5 billion surplus,
    while the U.S.-Colombia trade balance swung from a $627 million U.S.
    surplus to a $1 billion deficit. As of July 2001, the U.S.-Colombia
    trade balance had registered a $1 billion deficit. However, there may
    be signs that this trend is beginning to change. As of October 2001,
    the peso had depreciated only 4 percent from the beginning of the year,
    and depreciation expectations for the year-end vary between 7 percent
    and 8.3 percent, equal or slightly lower than expected inflation, which
    could actually result in the peso's revaluation in real terms.
    3. Structural Policies
        As a 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 variable tariffs of
    agricultural imports. Tariff rates for agricultural products subject to
    the price-band system vary between 27 and 107 percent. Thirteen basic
    agricultural commodities including wheat, sorghum, corn, rice, barley,
    milk, and chicken parts, and an additional 150 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.
        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 to
    provide Most Favored Nation (MFN) treatment equally to all WTO members.
        All foreign investment in petroleum exploration and development in
    Colombia must be carried out under an association contract between the
    investor and the state petroleum company, ``Ecopetrol.'' The terms of
    the standard association contract were modified in 1994, 1995, 1997,
    1998, and again in 1999. The Pastrana administration has acknowledged
    Colombia's need for new oil reserve discoveries and implemented a new
    hydrocarbon policy designed to attract foreign investment. The 1999
    reform included royalty relief, accelerated environmental licensing,
    and a reduction in Ecopetrol's participation requirement from 50
    percent to 30 percent. The new policy represents one of the most
    comprehensive reforms of the last 30 years, and has the long-term goal
    of producing 1.5 million barrels per day by the year 2010. In positive
    reaction to these changes, a record 32 contracts for exploration or
    incremental production were awarded in 2000. Government officials hope
    to award another 30 contracts by year-end in 2001. These changes will
    hopefully enhance the attractiveness of Colombia's oil investment
    climate. Continuing security problems however, are a drag on increased
    petroleum investment.
        Colombia adopted a harmonized automotive policy with Venezuela and
    Ecuador, which went into effect in January 1994. Automotive parts and
    accessories, and motor vehicles imported from any of the three
    signatory countries have a zero import duty, while those imported from
    third countries are covered with CET rates varying between 3 and 35
    percent depending on the type of vehicle and automotive part. A new
    Andean auto regime was adopted in November 1999, in which common
    external tariff rates remained unchanged, but regional content
    requirements were gradually increased from the current average of 23
    percent to a maximum of 34 percent by the year 2009.
        The Pastrana administration has taken concrete steps to promote
    trade and investment. An agreement with the U.S. government
    establishing periodic Trade and Investment Council meetings with the
    Andean Community was signed in October 1998. Efforts have also been
    made to improve oversight of the television sector and reduce cable and
    satellite signal piracy. A Presidential Directive was issued in early
    1999, requiring all Colombian public entities to respect international
    copyrights. The Pastrana administration amended an article in the 1991
    Constitution, repealing the previously allowed expropriation of foreign
    investment without compensation.
    4. Debt Management Policies
        Colombia's foreign debt has increased significantly over the last
    years. The foreign debt of the non-financial public sector (including
    the central government) climbed from representing 14.2 percent of GDP
    in 1995 to 24 percent of GDP in 2000. The overall consolidated debt of
    the non-financial public sector (foreign and domestic) went from
    representing 24.9 percent of GDP in 1995 to 46.2 percent of GDP in
    2000. The central government's indebtedness accounted for 80 percent of
    such an increase in the total debt. Thus, the central government has
    followed a strategy consisting of replacing foreign debt with domestic
    debt. The so-called TES's (treasury bills) have been the main
    instruments in this strategy. By year-end of 2000, these leading
    governmental securities represented 88 percent of Colombia's total
    internal debt. Currently, the central government counts with other
    instruments, yet the TES's continue to be paramount. As of July 2001,
    the government had drawn sufficient demand from investors to complete
    bond deals for $2 billion. In 1999, international financial
    institutions supported the Colombian government's fiscal adjustment and
    development programs through 2002: a $2.7 billion guarantee (Extended
    Funds Facility) from the International Monetary Fund, and loans at
    concessionary rates in the amount of $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. Additional multilateral loans amount
    to the totality of the government's $3.5 billion financial needs for
    2001. The Finance Minister has already approved additional issuances
    for $2.2 billion in capital markets to ensure in advance needed
    resources for 2002. As of September 2001, Colombia's total (public and
    private) foreign debt amounted to $35.7 billion.
        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, such rating companies (namely Standard & Poors, Moody's, and Duff
    & Phelps) downgraded Colombia's debt to ``speculative grade,'' 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. In May 2000, Standard
    & Poors downgraded Colombia's short-term perspectives to ``negative''
    citing uncertainty in the peace process and insufficient progress in
    needed structural reforms. Foreign perspectives deteriorated even more
    after financial crises unfolded in Turkey and Argentina in early 2001.
    In contrast to the treatment given to those countries, in April 2001,
    Moody's maintained Colombia's short-term perspectives at ``stable,''
    citing increased stability in Colombia's foreign accounts and the
    country's efforts to balancing its fiscal accounts. However, the major
    rating companies reiterated that Colombia would not improve its credit
    rating until it deepened its structural reforms, thus permitting a
    reduction of its local and foreign debt indicators.
    5. Significant Barriers to U.S. Exports
        Import Licenses: Colombia requires import licenses for less than
    two percent of all products, which include 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 chicken parts and other preserved chicken and turkey
    products. In addition, since the promulgation of Decree 2439 in
    November 1994, Ministry of Agriculture approval has been required for
    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, malt barley, corn, rice, sorghum, and
    wheat flour. Prior to its termination in the first quarter of 2000, the
    Colombian Institute of Foreign Trade (INCOMEX) excluded powdered milk
    from the licensing regime, which had previously restricted milk imports
    during Colombia's high milk production season. The majority of used
    goodscars, manufactured auto parts, tires, and clothing--are prohibited
    from import, and those that are allowed, such as machinery, are subject
    to licensing.
        Services Barriers: The ``apertura'' policy implemented during the
    1990's promoted and facilitated the importation of most services.
    Sector liberalization has progressed farthest in financial services,
    telecommunications, accounting/auditing, energy, and tourism. It has
    occurred to a lesser extent in audiovisual services, legal services,
    insurance, distribution services, advertising, and data processing.
    Colombian television broadcast laws (Law 182/95 and Law 375/96) impose
    several restrictions on foreign investment. For example, foreign
    investors must be actively engaged in television operation in their
    home country and their investments must involve an implicit transfer of
    technology. At least 50 percent of programmed advertising broadcast on
    television must have local content. Foreign talent may be used in
    locally produced programming, but limits are set by the National
    Television Commission. Until October 2000, foreign investment in
    television was limited to 15 percent of the total capital of local
    television production companies. However, Decree 2080 of October 18,
    2000, abolished the limits on foreign investment in the Colombian
    motion picture industry. As a result, foreign investment in local
    television production companies is now unlimited. 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. Colombia permits 100 percent foreign
    ownership of insurance firm subsidiaries. It does not, however, allow
    foreign insurance companies to establish local branch offices.
    Insurance companies must maintain a commercial presence in order to
    sell policies other than those for international travel or reinsurance.
    Colombia denies market access to foreign maritime insurers. A
    commercial presence is required to provide information processing
    services. All tourism service providers must be registered with the
    Ministry of Economic Development and must be licensed by the
    Government's National Tourism Corporation. Health service providers
    must be registered with the various supervisory entities (the Ministry
    of Health, the National Council of Social Security and Health, and the
    Superintendency of Health) which impose strict parameters pertaining to
    cost accounting structures and the quality of the service provided.
    Foreign educational institutions must have resident status in Colombia
    in order to receive operational authority from the Ministry of
    Education.
        Investment Barriers: Colombian foreign investment statutes provide
    for national treatment for foreign investment. 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. On June 1, 2000, the Council for
    Social and Economic Policy (CONPES) approved modifications to the rules
    governing foreign portfolio investment. Additionally, the Colombian
    government issued Decree 2080 of October 18, 2000, by which it
    simplified paperwork requirements on foreign investment funds
    (electronic submission of required documents to Colombian authorities
    is now permitted) and lifted restrictions to foreign investment in
    publicly traded companies. The new decree provided for the elimination
    of limits on acquisitions of shares with voting rights by foreign
    investment funds. Likewise, automatic authorization for these funds was
    established. Prohibitions on foreign investment in real estate
    companies were abolished by Decree 241 of February 8, 1999. 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.
    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. The government retains the right to identify other sectors in
    which to limit or forbid foreign investment.
        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 grants 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 instituted a requirement that companies
    without local headquarters must certify government procurement
    reciprocity in the home country. A local agent or legal representative
    is required for all government contracts. Although Law 80 has given
    more dynamism to the government contracting system, Colombia is still
    not a signatory of the WTO government procurement code, and there have
    been complaints of non-transparency in the awarding of major 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.
        During 2000, the Colombian government submitted to Congress a bill
    reforming Law 80. The bill would prohibit donors to political campaigns
    from participating in contracts or bidding processes offered by their
    beneficiaries. It would also eliminate non-bid contracts providing
    equal treatment to foreign and domestic bidders, and would create a
    virtual system for public tenders where local and foreign bidders may
    participate through an official website. If enacted, this measure could
    reduce corruption and lack of transparency in procurement contracts.
        Customs Procedures: In 1996, Colombia incorporated the GATT's
    customs valuation code into its legislation. Additionally, all
    importers of goods with a value of $5,000 and above must present the
    ``Andean Customs Valuation Declaration'' in which the importer states
    the real value of the merchandise. In December 1999, the Ministries of
    Finance and Foreign Trade abolished a pre-shipment certification
    requirement for exports to Colombia. Thus, the pre-shipment inspection
    certificate is no longer required to clear goods through Colombian
    customs. A new Customs Code--Decree 2685--was approved on December 28,
    1999, simplified export procedures. The new code entered into force on
    July 1, 2000.
    6. Export Subsidies Policies
        Although Colombia has made commitments to abide by the provisions
    of the GATT Subsidies Code, by phasing-out any export subsidies
    inconsistent with that code, it still maintains certain export
    subsidies. Colombia's tax rebate certificate program (CERT) contains a
    subsidy component, which the Government of Colombia has stated it will
    replace with an equitable drawback system, although it has not yet done
    so. 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
    ``special machinery import-export system'' also constitutes an export
    subsidy through the mechanism of tax exemptions on imported machinery.
    Other than the above, Colombia's subsidy practices are generally
    compatible with WTO standards.
    7. Protection of U.S. Intellectual Property
        Colombia remains on the Special 301 ``Watch List'' for not
    providing effective protection of intellectual property rights (IPR).
    It has been on the ``Watch List'' every year since 1991. Colombia 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 Plant Varieties. 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).
    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. USTR has noted
    that piracy has worsened in Colombia since 1998, with counterfeit CD's,
    videos, software, and books flooding the local market.
        In 2000, the Colombian government reformed the Criminal Code (Law
    599 of 2000) to further criminalize intellectual property piracy. The
    new code became effective in July 2001. Colombia has also created a
    Special Investigative Unit within the Prosecutor General's Office
    dedicated to intellectual property rights issues. This unit began
    functioning in November 1999, and is currently working on more than
    4,000 cases, a large proportion of which are against pirate TV
    operators and against several telecommunications companies accused of
    offering illegal ``callback'' services.
        A major intellectual property rights issue has been the need for
    the Colombian Government to license legitimate pay television operators
    and to pursue pirate operators. Colombia's Television Broadcast Law
    increased legal protection for all copyrighted programming by
    regulating satellite dishes, and enforcement has begun through a
    licensing process. In 1999, the Colombian National Television
    Commission (CNTV) made efforts to reduce the widespread piracy by
    legitimizing non-royalty paying service providers. As of October 2001,
    the CNTV had completed licensing for 117 cable television operators on
    municipalities with less than 100,000 inhabitants, and 46 cable TV
    operators on municipalities with more than 100,000 inhabitants,
    covering 86 municipalities all over the country. CNTV also made efforts
    to pursue pirate operators by initiating investigations of 282
    suspected pirate operators, eight of which have so far incurred
    sanctions. In spite of such efforts, industry concerns remain very
    intense. The U.S. Motion Picture Association (MPA) estimates that at
    least 90 percent of the video market is pirate or systematically
    involved in unauthorized transmissions of MPA member company products.
    Annual losses due to audiovisual piracy are estimated to be $40 million
    in 2000.
        Patent and Trademarks: Colombian trademark protection requires
    registration and use of a trademark in Colombia. Trademark registration
    has a 10-year duration and may be renewed for successive 10-year
    periods. Thus, the Colombian law provides 20-year protection for
    patents and reversal of burden of proof in cases of alleged patent
    infringement. The provisions of decisions covering protection of trade
    secrets and new plant varieties are generally consistent with world-
    class standards for protecting intellectual property rights, and
    provide protection for a similar period of time. In December 2000,
    Andean Community Decision 486 became into effect replacing Decision
    344. This new patent and trademark regime provides for improved
    protection to patents, trademarks, and industrial inventions, rules of
    origin, and unlawful competition related to industrial property.
    Decision 486 eliminates previous restrictions on biotechnology
    inventions, increases protection on industrial designs from eight to
    ten years, protects traditional knowledge of indigenous, Afro-American,
    or local communities, protects integrated circuit (microchip) designs,
    and provides improved protection to industrial secrets in accordance
    with the TRIPS agreement. This decision, however, still contains
    deficiencies in the areas of working requirements, transitional
    ``pipeline'' protection, protection from parallel imports, denial of
    pharmaceutical patent protection for products with multiple or dual use
    ``active principal,'' and protection of confidential data submitted for
    non-patented pharmaceuticals and agro-chemicals.
        In spite of such legislative improvement, U.S. pharmaceutical firms
    continue to press for a range of legislative and administrative
    reforms. According to U.S. industry, Colombia maintains a policy which
    lacks clarity regarding protection of industrial secrecy, and promotes
    unbranded pharmaceuticals at the expense of the brands typically
    produced by multinational companies. Social security Law 100 specifies
    that under a basic health plan, pharmaceutical products be supplied
    based on a list of 307 generic substances, thereby threatening the
    brand-name pharmaceutical market in Colombia. Enforcement of trademark
    legislation in Colombia also needs to show progress in the fight
    against contraband and counterfeiting. Colombia is a member of the
    Inter-American Convention for Trademark and Commercial Protection. The
    Superintendency of Industry and Commerce acts as the local patent and
    trademark office in Colombia. This agency suffers greatly from
    inadequate financing and a large backlog of trademark and patent
    applications.
        Copyrights: In November 2000, Colombia ratified the WIPO Copyright
    Treaty and the WIPO Performances and Phonograms Treaty. However,
    contraband and counterfeiting remain widespread. Although In 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, reports on
    the effectiveness of this decision are mixed. According to the
    Colombian Ministry of Foreign Trade (MFT), enforcement authorities saw
    a drop of 26 percent in business software piracy in 1999, and a greater
    drop of 30 percent in 2000. However, the U.S. Motion Picture
    Association (MPA) reports very disappointing results in terms of
    deterrent sentences, civil judgments, or actual reductions in the
    levels of piracy, to show for these efforts. The most recent available
    data from the International Intellectual Property Alliance (IIPA)
    suggests that U.S. industries continue to lose substantial revenue from
    piracy--$193 million in 2000. 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
    in Colombia videocassette piracy increased to 90 percent of the video
    market in 2000; sound recording piracy represents 60 percent of the
    market; business software piracy 55 percent of the market; while
    entertainment software piracy increased to 85 percent of the market.
        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.
    8. Worker Rights
        a. The Right of Association: Colombian law recognizes the right 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. In 1999, President
    Pastrana approved Law 584, which limits government interference in a
    union's right to free association.
        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 recent estimates by the Ministry of Labor, and the National Labor
    School (a labor-oriented NGO), approximately six percent of the
    Colombian work force (1,054,400 workers) is organized into 5,470
    registered unions, 70 percent of which are affiliated with one of three
    confederations (CTC, CGTD, and CUT). High unemployment (18.5 percent as
    of September 2001), traditional antiunion attitudes, union
    disorganization and weak leadership limit workers' bargaining power in
    all sectors.
        In May 1998, the International Labor Organization (ILO) expressed
    serious concern at allegations of murders, forced disappearances, death
    threats, and other acts of violence against trade union officials and
    members. The ILO documented more than 300 murders of trade union
    members during 1995-98. In June 2000, the ILO governing body adopted
    the conclusions of a November 1999 Direct Contact Mission, which
    recommended an urgent inquiry into the participation of public
    officials in the creation of paramilitary groups, an increase in
    government budgetary allocations to protect trade union officials, and
    an increase in efforts to combat impunity. After its 89th annual
    session in June 2001, the ILO appointed a Technical Commission to
    continue to monitor status of union members' rights in Colombia. This
    Commission is expected to produce a report by the end of 2001.
        Labor leaders throughout the country continue to be targeted by
    paramilitaries, guerrillas, narcotics traffickers, and their own union
    rivals. Labor leaders and NGO's reported that 105 union members were
    killed during 2000 and 47 union members were killed during the first
    eight months of 2001. According to the National Labor School, more than
    2,200 union members have been murdered since 1986.
        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 in the formal sector. However,
    women are trafficked for the purpose of forced prostitution,
    paramilitary forces and guerrilla groups forcibly conscript indigenous
    people, and thousands of children are forced to serve as paramilitary
    or guerrilla combatants, prostitutes, or coca pickers.
        d. Minimum Age for Employment of Children: The constitution bans
    the employment of children under the age of 14 in most jobs. The Minors
    Code, established in 1989 under Decree 2737, prohibits the employment
    of children under the age of 12 and stipulates exceptional
    authorization by Labor Ministry inspectors for the employment of
    children between the ages of 12 and 17. These provisions are respected
    in large enterprises and in major cities. Nevertheless, Colombia's
    extensive and expanding informal economy remains effectively outside
    government control. In Colombia there are 10 million children between
    ages 7 and 17, or nearly a quarter of the population. A Roman Catholic
    Church study conducted in May 1999 found that approximately 2.7 million
    children work, including approximately 700,000 who labor as coca
    pickers. According to Ministry of Labor estimates for 2000, 2.5 million
    children work, although this figure excludes both children in the
    informal sector and child soldiers. The same source estimated that
    working children ages 7 to 15 earn between 13 and 47 percent of the
    minimum wage. An estimated 30 percent of working children have regular
    access to health care, and the health services of the social security
    system cover only 12 percent of child laborers. Approximately 28
    percent of children are employed in potentially dangerous activities.
    Child labor in urban centers typically involves very young children
    selling sweets on the streets or simply begging. Child prostitution is
    also a problem. In rural areas, children also work often in substandard
    conditions in agriculture, leather tanning, and small family-operated
    mines.
        e. Acceptable Conditions of Work: The government sets a uniform
    minimum wage for workers each January to serve as a benchmark for wage
    bargaining. The minimum wage for 2001 is approximately $125 (286,000
    pesos) per month. Although the annual increase in the minimum wage is
    based on the government's target inflation rate, the minimum wage has
    not kept up with inflation. According to government estimates, the cost
    of the monthly low-income family shopping basket is 2.4 times the
    monthly minimum wage. For middle-income families, the price of the
    shopping basket is 6.1 times the minimum wage. Seventy-seven percent of
    Colombian workers earn less than twice the minimum wage. 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 a 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. Working conditions in those
    sectors tend to be superior to those prevailing elsewhere in the
    economy, due 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  772
    Total Manufacturing.........  ...........  1,373
      Food & Kindred Products...  348          .............................
      Chemicals & Allied          425          .............................
       Products.
      Primary & Fabricated        104          .............................
       Metals.
      Industrial Machinery and    (\1\)        .............................
       Equipment.
      Electric & Electronic       (\1\)        .............................
       Equipment.
      Transportation Equipment..  (\1\)        .............................
      Other Manufacturing.......  443          .............................
    Wholesale Trade.............  ...........  96
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  758
     Estate.
    Services....................  ...........  48
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  4,423
    ------------------------------------------------------------------------
    \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\
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000       2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................    15,732     15,884     16,303
      Real GDP Growth (pct) \3\............       8.3        1.7        0.5
      GDP by Sector (pct):
        Agriculture........................       8.8        8.8        7.0
        Industry...........................      24.3       21.0       20.0
        Services...........................      39.9       40.2       43.5
        General Government.................       7.5        7.6        7.4
      Per Capita GDP (US$).................     3,856      3,950      3,800
      Labor Force (000s)...................     1,383      1,391      1,400
      Unemployment Rate (pct)..............       6.0        5.2        6.2

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............      16.4       20.0       18.0
      Consumer Price Index.................      10.1       11.0       12.0
      Exchange Rate (Colones/US$ annual
     average):
        Parallel...........................     282.0      308.7      336.5

    Balance of Payments and Trade:
      Total Exports FOB....................   6,641.0    5,880.0    5,132.0
        Exports to United States...........   3,452.0    3,083.0    2,670.0
      Total Imports CIF....................   6,350.7    6,380.0    6,400.0
        Imports from United States \4\.....   3,581.0    3,388.0    3,390.0
      Trade Balance........................     290.3      500.0    1,268.0
        Balance with United States.........    -129.0     -305.0     -720.0
      External Public Debt \5\.............   3,057.0    3,150.6    3,171.0
      Fiscal Deficit of Public Sector/GDP         3.2        3.8        4.0
       (pct)...............................
      Current Account Deficit/GDP (pct)....       0.7        1.0        1.9
      Foreign Debt Service Payments/GDP           0.5        0.6        0.8
       (pct)...............................
      Gold and Foreign Exchange Reserves      1,471.4    1,300.0    1,200.0
       (December 31).......................
      Aid from United States \6\...........      10.2        1.3        2.8
      Aid from All Other Sources...........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on available monthly data in
      October.
    \2\ GDP at factor cost.
    \3\ Percentage changes calculated in local currency.
    \4\ U.S. government trade data figures are significantly lower for U.S.
      exports to Costa Rica ($2,381 million in 1999 and $2,445 million in
      2000) compared to Costa Rica's data for imports from the U.S. This
      difference is largely due to country of origin accounting for INTEL
      trade.
    \5\ June 2001 estimate by the Central Bank of Costa Rica.
    \6\ The United States provides some financial assistance to the Costa
      Rican Coast Guard and civilian police programs that cooperate with
      U.S. law enforcement agencies engaged in combating narcotics
      trafficking. This aid totaled approximately $3 million in 2001.

    1. General Policy Framework
        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 refining and distribution, and insurance.
    Costa Rica's gross domestic product (GDP) in 2000 grew only 1.7 percent
    after strong growth of 8.3 percent in 1999. The Central Bank projects a
    GDP growth rate of 0.5 percent in 2001, though this figure may be
    revised downward following the negative economic impact of the
    September 11 terrorist attacks. Economic growth in recent years has
    been led by foreign investments in the free trade zones and a fast-
    growing tourism industry. While foreign direct investment has not
    reached the levels achieved during 1998-1999 resulting from the major
    investment by INTEL, FDI remains an important element for Costa Rica's
    economy, totaling an estimated US$ 457 million in 2001. Traditional
    agricultural activities such as banana, coffee, beef, and dairy
    production have fared less well in an atmosphere of increased global
    competition and low world agricultural commodity prices. Some non-
    traditional exports, such as ornamental plants and cut flowers, are
    also expected to suffer as a result of declining world demand and the
    rising cost of air transportation.
        Costa Rica's most pressing economic problem is the fiscal deficits
    of the central government and the combined public sector. The fiscal
    deficit of the combined public sector grew from 3.2 percent of GDP in
    1999 to 3.8 percent of GDP in 2000. Servicing the interest expense on
    the accumulated public sector debt accounts for over 30 percent of the
    government budget. The majority of the debt is financed in domestic
    capital markets, placing upward pressure on interest rates. The growing
    costs of Costa Rica's extensive social services, coupled with poor
    performance in collecting taxes, limits the government's ability to
    address needed infrastructure improvements and to contain the fiscal
    deficit.
        The Rodriguez Administration, inaugurated in May 1998, has been
    unable to achieve a political consensus on an appropriate mechanism to
    allow private sector participation 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 Bechtel signed a contract on October
    18, 2000, to manage the Juan Santamaria International Airport in San
    Jose. Additional concessions are being considered to operate prisons,
    the country's principal Pacific seaport, and the railroads. The Costa
    Rican government is either reviewing or will soon review the bids for
    these three concessions.
        Costa Rica has reduced most tariff rates for imported goods to 15
    percent or lower in unison with its Central American neighbors. Costa
    Rica has signed Free Trade Agreements with Canada, Mexico, the Central
    American Common Market, the Dominican Republic, and Chile. The
    agreement with Canada remains to be ratified by both countries. The
    agreement with the Dominican Republic has not entered into force
    because of Dominican concerns about the quotas contained in the
    agreement for chicken and powdered milk. Similar trade agreements are
    being negotiated with Panama and Trinidad and Tobago. There are also
    Bilateral Investment Treaties (BIT) that provide some trade preferences
    to Canada, Venezuela, Paraguay, Chile, Argentina, Great Britain, the
    Netherlands, Germany, Switzerland, Taiwan, and the Czech Republic. BITs
    with Korea and Switzerland require ratification by the Legislative
    Assembly. Costa Rica joined the Cairns Group of agricultural free
    traders at the beginning of 2000. These market-opening initiatives are
    consistent with the global economic outlook of the Rodriguez
    administration which has viewed the attraction of foreign investment in
    export-oriented, high-technology industries and services as an
    important source for the country's future economic growth. Costa Rica's
    exports per capita are now among the highest in Latin America and the
    Caribbean. However, elements of the traditional agricultural sector are
    resisting further market opening and are seeking to slow the pace of
    reform within the Legislative Assembly.
    2. Exchange Rate Policy
        Costa Rica's exchange rate has followed a ``crawling peg'' of small
    daily changes since 1983. 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 public and private business is transacted at the same
    exchange rate. Commercial banks are free to negotiate foreign exchange
    rates but must liquidate their foreign exchange positions daily with
    the Central Bank. There are no controls on holding or remitting foreign
    exchange.
        The colon-to-dollar exchange rate rose 6.7 percent during 2000,
    while the consumer price index (CPI) changed 10.3 percent. The exchange
    rate rose 3.2 percent during the first semester of 2001, while the
    Consumer Price Index increased 6.6 percent. The Central Bank's policy
    of not devaluing the colon at the rate of inflation may negatively
    impact Costa Rica's trade competitiveness.
    3. Structural Policies
        Prices are set by the market, except in sectors controlled by the
    state (e.g., gasoline, electricity, telecommunications, and insurance).
    Government procurement is generally by open public tender in which
    foreign suppliers are free to compete. Antitrust legislation and rules
    protect consumers against product misrepresentation and price fixing.
        Tax revenue is largely derived from sales and value-added taxes,
    with lesser amounts obtained from customs and income taxes. Companies
    in free trade zones benefit from income tax holidays and duty
    exoneration on imported inputs that are subsequently re-exported. Costa
    Rica must phase-out its tax incentives for companies operating in the
    free trade zones by January 1, 2003, to be in compliance with its
    commitments under the WTO Agreement on Subsidies and Countervailing
    Measures. The Costa Rican government is considering various alternative
    tax proposals, such as a flat tax of 15 percent or less for all
    companies operating in Costa Rica, but no decision has yet been made.
    There have been no recent tax modifications that affect the import of
    U.S. goods and services. There are no export taxes.
        Regulatory policies do not discriminate against U.S. exports.
    4. Debt Management Policies
        Costa Rica's foreign official debt totaled $3,150 million on
    December 31, 2000. This was equivalent to 20.3 percent of GDP. In
    addition, there was an outstanding domestic debt equivalent to USD
    5,508 million, equivalent to 35.4 percent of GDP, on December 31, 2000.
    The Ministry of Finance has been retiring domestic debt, which is
    denominated in higher interest local currency, and replacing it with
    lower interest U.S. dollar denominated foreign debt, in an attempt to
    reduce the public sector deficit which was equivalent to 3.8 percent of
    GDP on December 31, 2000.
        Costa Rica does not have IMF or World Bank adjustment programs.
    Costa Rica agreed to IMF Standby Programs in 1993 and 1995 but made no
    withdrawals. Costa Rica last went to the Paris Club for debt
    rescheduling in 1993.
    5. Significant Barriers to U.S. Exports
        Costa Rica replaced all import licenses and permits when it joined
    the WTO in 1994. The Central Bank now monitors imports for statistical
    purposes only. The current tariff on most goods is between 1 and 15
    percent of the CIF price, with a few items such as poultry, milk and
    automobiles taxed at higher levels. 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 real estate and
    equity in Costa Rican companies, including companies engaged in most
    service businesses. Individuals or firms seeking concessions for beach
    front land, which by law are public and administered by local
    governments, must be Costa Rican or meet certain residency
    requirements. Foreigners may establish businesses once they are legal
    residents of Costa Rica. Several activities are reserved for the state,
    including telecommunications, the transmission and distribution of
    electricity, hydrocarbon and radioactive mineral extraction and
    refining, insurance underwriting, and 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 are
    difficult to meet 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 unless they are also
    registered in Costa Rica. The three state-owned commercial banks
    account for well over two-thirds of the country's demand deposits.
    Private banks are required to place 17 percent of their demand deposits
    with state-owned banks which pay minimal interest rates.
        Documentation and labeling of U.S. exports to Costa Rica must use
    the metric system and contain specific information in Spanish. All used
    cars imported into Costa Rica must have emission control certificates
    issued by the country from where the vehicle is exported (not the
    country of manufacture, if different). This requirement has proven
    difficult to meet by importers because such certificates are not always
    available. Car bumpers are subject to strength requirements.
    Phytosanitary and zoosanitary restrictions and high tariffs
    significantly constrain imports of some agricultural products. These
    restrictions have been used to limit the importation of U.S. chicken
    products in 2001. The Ministry of Health must approve imports of
    pharmaceuticals, veterinary drugs, herbicides and pesticides, and the
    same items must be legally available in the exporting country.
        National treatment is granted for most investments. Exceptions
    include power generation for sale to the national grid, where 35
    percent Costa Rican equity is required, and radio and television
    broadcasting, where Costa Rican majority ownership is required. Costa
    Rican laws have encouraged the development of tourism and
    nontraditional exports, but incentive programs have been eliminated or
    scaled back in recent years. Export performance requirements are
    limited to free trade zones, where companies must be engaged in export
    industries to qualify for an income tax holiday. Income tax holidays
    are scheduled to end in 2003 due to Costa Rica's WTO TRIMS commitments.
    There are no local content requirements. The Labor Code ordinarily
    limits the percentage of foreign workers that can work in an enterprise
    to 10 percent of the total work force. Foreigners may be paid 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 tenders. 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 with the required procedures. Appeals of contract
    awards are common, lengthy, and costly. No special requirements apply
    to foreign suppliers, and U.S. companies regularly win public
    contracts. However, foreign suppliers without a legal representative in
    Costa Rica are disadvantaged in dealing with the government procurement
    process.
        Past government expropriation policies have 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 was often not provided and was rarely prompt. Some unpaid
    expropriation claims date back to the early-1970s. New legislation in
    1995 improved the situation by requiring compensation as a prior
    condition for effecting an expropriation. Resolution of investment
    disputes remains difficult, however. The courts take an average of
    eight years to resolve civil suits. Recourse to international
    arbitration is possible through the International Center for the
    Settlement of Investment Disputes (ICSID) as of 1993. Several domestic
    arbitration bodies also have been established, but in practice there
    has been little recourse to arbitration by parties to investment
    disputes. 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 oceanfront 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 of Costa Rica removed hundreds of squatters that seized
    property belonging to a large U.S. agricultural company in 2001,
    although the threat of a new ``invasion'' on this land remains.
        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.
    6. Export Subsidies Policies
        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 that are to be phased out in 2003 as
    called for by the WTO. The Active Processing Regime of 1997 offers
    similar duty-free entry for imported inputs but does not provide tax
    holidays.
    7. Protection of U.S. Intellectual Property
        Costa Rica belongs to the 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 and the
    1996 WIPO copyright and phonograms treaties. Costa Rica was raised from
    the Special 301 Watch List to the Priority Watch List in 2001 due to
    widespread copyright and trademark piracy.
        Significant weaknesses continue to exist in copyright and trademark
    enforcement. The Legislative Assembly passed eight new laws in 2000 to
    bring domestic legislation into compliance with WTO TRIPS commitments,
    including the law on enforcement passed in October 2000.
    Representatives of industries affected by copyright piracy have
    expressed concern that penalties and enforcement procedures in the new
    legislation are inadequate. The Government of Costa Rica has responded
    in the second half of 2001 with an increase in enforcement actions and
    raids against those violating intellectual property rights.
        Patents: The new legislation passed in 2000 provides for 20-year
    patents, replacing shorter periods in the previous legislation. There
    is some concern that the transition from one-year patents for
    pharmaceuticals and agricultural chemicals to twenty-year patents will
    leave some products, in use before the new law was published but not
    registered with Costa Rica's patent office, vulnerable to piracy. No
    patent protection has been available for plant or animal varieties or
    for any biological or microbiological process or products. However, 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.
        Trademarks: Trademarks, service marks, trade names and slogans can
    be registered in Costa Rica. Registration is renewable for 10-year
    periods. Counterfeit goods, particularly designer jeans and sportswear,
    are widely available. Enforcement has been difficult due to the lack of
    adequate legislation specifying the nature of a trademark violation and
    the penalties associated with the violation. Affected companies believe
    the new enforcement legislation will make effective criminal
    prosecution of violators possible, but the law has yet to be tested.
    Some enforcement actions have been taken in 2001 against companies
    importing or producing counterfeit jeans.
        Copyright: Costa Rica's copyright laws are generally adequate,
    though some industries believe that there is insufficient protection
    against parallel imports of copyrighted goods into markets with
    exclusive distribution rights. Software, audio and other industries
    vulnerable to copyright violations are also concerned that the new
    enforcement legislation is inadequate because it: 1) requires the party
    whose copyright is violated to file a complaint before a case can be
    prosecuted criminally; and 2) provides lesser penalties against
    violators than copyright owners requested.
        Costa Rica enacted new legislation in 2000 providing protection to
    integrated circuit designs. Satellite signal piracy exists,
    particularly in rural areas, but major metropolitan cable television
    operators carry programming that is, in most part, legally acquired.
        The International Intellectual Property Association estimates
    losses of about $20 million in 2000 due to illegal copying of business
    software, motion pictures and sound recordings. Estimates of losses are
    not available for the illegal copying of entertainment software or
    counterfeit sportswear, which are known problems in Costa Rica.
    8. 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. 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, low-interest loans,
    health clinics, recreation centers, and other benefits. Both solidarity
    associations and labor unions coexist at some workplaces, primarily in
    the public sector. Business groups claim that solidarity associations
    provide for better working conditions and labor relations than in firms
    where workers are represented by unions and there are no solidarity
    associations. However, labor unions allege that private businesses use
    solidarity associations to prevent union organization in contravention
    of International Labor Organization rules.
        b. The Right to Organize and Bargain Collectively: The constitution
    protects the right to organize. The Labor Code enacted in 1993 provides
    protection from dismissal for union organizers and members and requires
    employers found guilty of discrimination to reinstate workers fired for
    union activities. Costa Rica approved a law in June 2001 permitting
    public employees to participate in collective bargaining, except in
    circumstances that would violate existing bylaws or when an employee
    occupies a managerial position.
        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 and establish age
    limitations. The government enforces this prohibition.
        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 Constitution provides special employment protection for women
    and youth. Adolescents between the ages of 15 and 18 can work a maximum
    of 6 hours daily and 36 hours weekly with special permission from the
    Government. Children under age 15 cannot work legally. 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 and rural economies because of
    poverty and insufficient resources for the state to enforce compliance.
        e. Acceptable Conditions of Work: The Constitution provides for a
    minimum wage, and a National Wage Council sets minimum wage and salary
    levels 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 free trade zones.
    Companies in sectors with significant U.S. investment generally respect
    worker rights, especially at plants under U.S. ownership and
    management. Abuses have occurred 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  31
    Total Manufacturing.........  ...........  764
      Food & Kindred Products...  116          .............................
      Chemicals & Allied          166          .............................
       Products.
      Primary & Fabricated        28           .............................
       Metals.
      Industrial Machinery and    301          .............................
       Equipment.
      Electric & Electronic       96           .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  56           .............................
    Wholesale Trade.............  ...........  1,147
    Banking.....................  ...........  0
    Finance/Insurance/Real        ...........  2
     Estate.
    Services....................  ...........  -2
    Other Industries............  ...........  41
        Total All Industries....  ...........  1,983
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                     ______

                               DOMINICAN REPUBLIC

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                 1999      2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\........................     17.3      19.7       21.6
      Real GDP Growth (pct) \3\..............      8.0       7.8        3.0
      GDP by Sector:
        Agriculture..........................      6.7       5.0        N/A
        Manufacturing........................      6.4       9.0        N/A
        Services.............................      7.7      10.3        N/A
        Government...........................      3.1       4.3        N/A
      Per Capita GDP (US$)...................    2,076     2,304      2,486
      Labor Force (000s).....................    3,457     3,528        N/A
      Unemployment Rate (pct)................     13.8      13.9        N/A

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)...............     24.0      14.1        N/A
      Consumer Price Inflation...............     5.10      9.02       8.00
      Exchange Rate (DR Peso/US$ annual
       average):.............................
        Official.............................    15.83     16.18        N/A
        Parallel.............................    16.03     16.42      16.67

    Balance of Payments and Trade:
      Total Exports FOB \4\..................     5.21      5.73       6.18
        Exports to United States \4\.........     4.29      4.38       4.43
      Total Imports CIF \4\..................     8.04      9.48       9.00
        Imports from United States \4\.......     4.10      4.44       4.80
      Trade Balance (US$ millions) \4\.......    -2.83     -3.75      -2.82
        Trade Balance with United States \4\.     0.19     -0.06      -0.37
      External Public Debt...................     3.66      3.68        N/A
      Fiscal Deficit/GDP (pct)...............      0.8       0.1        N/A
      Current Account Deficit/GDP (pct)......      2.5       5.2        N/A
      Debt Service Payments/GDP (pct)........      2.2       2.5        N/A
      Gold and Foreign Exchange Reserves.....     0.88      0.82       0.80
      Aid from United States (US$ millions)      46.25     13.86      19.37
       \5\...................................
      Aid from All Other Sources.............    151.4     102.6        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on available monthly data
      through June 2001.
    \2\ GDP at factor cost.
    \3\ Percentage changes calculated in local currency.
    \4\ Merchandise Trade; exports FAS, imports customs basis.
    \5\ Military aid equaled $870,000 in 1999, $850,00 in 2000, and
      $1,099,000 in 2001.

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

    1. General Policy Framework
        President Hipolito Mejia took office on August 16, 2000, pledging
    to maintain the macroeconomic stability that has helped the Dominican
    Republic achieve high levels of growth over the past five years. At the
    same time, he made clear his intention to share the benefits of that
    growth more broadly through increased government attention to
    education, housing, agriculture, and health. His plans for new
    initiatives in these areas were initially hampered by the impact on
    government finances of high world oil prices and election year spending
    in the waning months of the Fernandez Administration. These caused a
    drain on foreign exchange reserves and left a large fiscal deficit. In
    early November 2000, the new Mejia government proposed a series of tax
    measures, passed by Congress the following month, in order to close the
    government's fiscal deficit and to provide funds for new government
    programs. These included an increase in the Value Added Tax (VAT) from
    8 to 12 percent; a new minimum income tax equal to one and one-half
    percent of gross revenues; increases in selective consumption taxes on
    automobiles, alcoholic beverages, and tobacco products; and an across-
    the-board reduction in tariff levels.
        A reduction in demand for Dominican exports, especially from the
    United States, and the new tax measures combined to halt growth
    entirely in the first half of 2001. The terrorist attacks in the United
    States in September 2001 resulted in a sharp decline in hotel
    reservations. Thus despite signs that economic activity had begun to
    pick up in the third quarter, growth for the year is likely to be
    minimal. The Caribbean Basin Trade Partnership Act (CBTPA) went into
    effect in October 2000 and provides tariff benefits for Dominican
    apparel and other products. Effects of CBTPA should be felt more
    strongly in 2002. Inflation, which began to edge up toward the end of
    2000, has moderated in 2001, and will likely end the year well below 10
    percent.
        The exchange rate of the Dominican peso against the U.S. dollar has
    remained stable through most of 2001. 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.
        The Central Bank regulates the money supply by issuance of new
    money through the banking system, by the purchase or issuance of debt
    instruments of the Central Bank itself, and at times by direct limits
    on bank sector net assets. 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.
        The government has continued timely payments of foreign private
    bank debt and payments on renegotiated Paris Club debt. The government
    has also, however, accumulated large arrears to domestic suppliers and
    contractors, although some efforts have been made to pay this down. For
    example, in September 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 government also began in 2000 to
    issue bonds under new legislation that authorized liquidation of around
    $300 million in internal debt. In September 2001, the Dominican
    government issued $500 million of sovereign bonds the proceeds of which
    will be used to finance several infrastructure projects. 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.
    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. Since then, it has continued to devalue slowly with
    the most recent official rate (October 2001) set at 16.66 pesos/dollar.
    The unofficial rate has also devalued and is currently in the range of
    16.83 pesos to the dollar. An October 1999 increase in the fee for
    purchasing foreign currency to 5 percent (up from 1.75 percent)
    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
        Market forces determine most domestic prices, although
    distortionary government policies sometimes limit the operation of
    these forces. High tariff and nontariff barriers have also increased
    the cost of doing business in the Dominican Republic. Following the
    negotiation of free trade pacts with Central America and with Caribbean
    Community (CARICOM), however, the Mejia administration submitted, and
    Congress approved, a new proposal to decrease tariff levels to Central
    American/CARICOM levels (i.e. a top tariff of 20 percent).
        The Dominican Republic has ratified the GATT 94 and participates in
    World Trade Organization (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.
        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, hinder economic growth and innovation. The difficulties of
    protecting intellectual property rights have slowed the use of modern
    medicines. A chaotic land tenure system and the unwillingness of large
    landowners to modernize impede investment in modern agricultural
    techniques.
    4. Debt Management Policies
        A significant portion of the Dominican Republic's 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 buyback schemes and U.S. Treasurybacked
    rescheduling. Payment to foreign private and public creditors in the
    financial sector has generally been current since then. A September
    1999 Dominican request to defer Paris Club debt payments due in the
    first half of 2000 was denied. Government payments to foreign
    nonfinancial institutions are notoriously slow. Some debts are over ten
    years old.
    5. Significant Barriers to U.S. Exports
        Trade Barriers: In 2000, the Dominican government lowered tariff
    rates on imports in order to comply with the terms of new Free Trade
    Agreements with CARICOM and five Central American countries. Most
    Dominican tariffs now range from 3 to 20 percent. Virtually all tariffs
    are bound in the World Trade Organization (WTO) at 40 percent. In
    addition, the government imposes a 15 to 60 percent selective
    consumption tax on ``nonessential'' imports such as home appliances,
    alcohol, perfumes, jewelry, and automobiles. In early 2000, the
    government 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. Importers are still concerned,
    however, because the selective consumption tax on whisky (much of which
    is imported) is 45 percent, while that on rum (nearly all of which is
    domestically produced) is only 35 percent.
        The Dominican Republic requires a consular invoice and
    ``legalization'' of documents, which must be performed by a Dominican
    Consulate in the United States. 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.
        Customs Procedures: Bringing goods through Dominican Customs can
    often be a slow and arduous process. Customs Department interpretation
    of exonerated materials being brought into the country often provokes
    complaints by businesspersons. 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. The Dominican
    government implemented the WTO Customs Valuation Code in July 2001, but
    has been granted a waiver to permit use of minimum prices on several
    categories of goods.
        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. Some U.S. bidders on government
    contracts have complained that the provisions of the U.S. Foreign
    Corrupt Practices Act often puts them at a serious disadvantage in what
    are sometimes non-transparent bidding procedures.
        Investment Barriers: Legislation designed to improve the investment
    climate passed in November 1995. 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. Foreign employees may not
    exceed 20 percent of a firm's work force. This does not include foreign
    employees who perform managerial or administrative functions only.
        The electricity sector is a weak link in the Dominican economy with
    long blackouts, especially in the hot summer months, a regular
    occurrence. The state electricity company's distribution units and
    thermal generation facilities were capitalized in 1999, and are now
    under the control of private sector operators. This, together with new
    investments underway in both power generation and transmission, should
    improve the electricity situation over the next few years.
        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 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.
    6. Export Subsidies Policies
        The Dominican Republic has two sets of legislation for export
    promotion: the Free Trade Zone Law (Law no. 890, passed in 1990) and
    the Export Incentive Law (Law no. 69-79, passed in 1979). There is no
    preferential financing for local exporters nor is there a government
    fund for export promotion.
        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 (FTZs). 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. Investors operating
    in the Dominican Republic's FTZs 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.
        The Export Incentive Law provides for tax and duty free treatment
    of inputs from overseas that are to be processed and reexported as
    final products. The Dominican Export Promotion Center and the Customs
    Service manage this legislation. In practice, use of the export
    incentive law to import raw materials for process and reexport is
    cumbersome and delays in clearing customs can take anywhere from 20 to
    60 days. This customs clearance process has made completion of
    production contracts with specific deadlines difficult. As a result,
    nonfree 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.
    7. Protection of U.S. Intellectual Property
        The Dominican government has taken several steps to improve
    protection of intellectual property rights, but piracy remains a
    serious problem. The Dominican Republic belongs to the WTO, and is a
    signatory to the Paris Convention, Berne Convention, Madrid Agreement,
    and the Rome Convention. Since 1998, the Dominican Republic has
    appeared on the U.S. Trade Representative's ``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.
        Patents: Patents are difficult to receive and enforce against a
    determined intellectual property thief. In 1999, however, the Supreme
    Court upheld the rights of a foreign patent holder against a local
    laboratory. New patent legislation passed in 2000 does not appear to be
    wholly in compliance with the Dominican Republic's obligations under
    the WTO Agreement on Trade Related Aspects of Intellectual Property
    Rights (TRIPS). The Mejia government has pledged, however, in
    connection with its bid for eligibility for CBTPA benefits, to bring
    IPR protection up to TRIPS standards. In 2001, the Pharmaceutical
    Research and Manufacturers Association filed a petition requesting a
    review of the Dominican Republic's eligibility for benefits under the
    Generalized System of Preferences due to continued patent violations.
        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 a new, TRIPS-compliant copyright law passed in
    2000 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.
    8. Worker Rights
        a. The Right of Association: The Constitution provides for the
    freedom of workers in all sectors, except the military and police, to
    organize labor unions and for the right of workers to strike. It also
    provides for private sector employers to lock out workers. Workers in
    all sectors exercise these rights. Organized labor represents
    approximately 10 percent of the work force and is divided among three
    major confederations and a number of independent unions. The government
    generally respects association rights and places no obstacles to union
    registration, affiliation or the ability to engage in legal strikes.
        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. In practice, however, workers are
    sometimes fired because of their union activities.
        c. Prohibition of Forced or Compulsory Labor: Although the law
    prohibits all forms of forced or compulsory labor, such practices still
    exist to a limited extent. There have been several reports of coerced
    overtime in factories and of workers being fired for refusing to work
    overtime. Union officials state that newly hired workers are not
    informed that overtime is optional.
        d. Minimum Age for Employment of Children: The Labor Code prohibits
    employment of children under 14 years of age and places restrictions on
    the employment of children under the age of 16. These restrictions
    include limiting the daily number of working hours to six, prohibiting
    employment in dangerous occupations or in establishments serving
    alcohol, and limiting nighttime work. Dominican law requires eight
    years of formal education. The high level of unemployment and lack of a
    social safety net create pressures on families to allow or encourage
    children to earn supplemental income. Tens of thousands of children
    begin working before the age of 14, primarily in the informal economy,
    small businesses, clandestine factories, and prostitution. The Ministry
    of Labor, in collaboration with the International Labor Organization's
    Program on the Eradication of Child Labor and the U.S. Department of
    Labor, has implemented programs to combat child labor.
        e. Acceptable Conditions of Work: The constitution empowers the
    Executive Branch to set minimum wage levels, and the Labor Code assigns
    this task to a national salary committee. Congress also may 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. In practice, a typical workweek is Monday through
    Friday plus a half day on Saturday. The Code grants workers a 35
    percent differential for work totaling between 44 and 68 hours per
    week, and double time for any hours above 68 per week. The Dominican
    Social Security Institute (IDSS) sets workplace safety and health
    conditions. The existing social security system is seriously
    underfunded and applies to only about nine percent of the population.
    Conditions for agricultural workers, especially in the sugar industry,
    are generally much worse than in other sectors.
        f. Rights in Sectors with U.S. Investments: The Labor Code applies
    in the more than 40 established FTZs. The FTZ companies, over sixty
    percent of which are U.S.owned or associated, employ approximately
    200,000 workers, mostly women. Some FTZ companies have been accused of
    discharging workers who attempt to organize unions, but these
    allegations have primarily been made against non-U.S. companies. Some
    companies in the FTZs adhere to significantly higher worker safety and
    health standards than do nonFTZ 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  590
      Food & Kindred Products...  31           .............................
      Chemicals & Allied          31           .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  529          .............................
    Wholesale Trade.............  ...........  49
    Banking.....................  ...........  90
    Finance/Insurance/Real        ...........  (\2\)
     Estate.
    Services....................  ...........  19
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  1,126
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.
    \2\ Less than $500,000 (+/-).

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

                                     ______

                                    ECUADOR

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000       2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \1\......................      13.8       13.6       17.8
      Real GDP Growth (pct) \2\............      -7.3        2.3        4.6
      GDP by Sector:
        Agriculture, Fishing...............      -1.3       -5.3        3.8
        Petroleum, Mining..................       0.3        4.8        8.1
        Manufacturing......................      -7.2        5.2        5.1
        Commerce, Hotels...................     -12.1        4.7        3.1
        Finance, Business Services.........       1.4        1.6        1.7
        Government, Other Services.........     -15.0       -1.0        1.9
      Per Capita GDP (US$).................     1,109      1,079      1,383
      Urban Labor Force (estimate--000s)        3,441      3,880      3,900
       \3\.................................
      Urban Unemployment (pct).............      15.1       10.3       10.4

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............      43.0        N/A        N/A
      Consumer Price Inflation.............      52.2       96.1       29.2
      Exchange Rate (Sucres/US$--annual
     average):
        Central Bank.......................    11.165        N/A        N/A
        Market.............................    11,182        N/A        N/A

    Balance of Payments and Trade:
      Total Exports FOB \4\................       4.5        4.9        2.7
        Exports to United States...........       1.7        1.9        N/A
      Total Imports CIF \4\................       3.0        3.7        2.9
        Imports from United States.........        .9         .9        N/A
      Trade Balance........................       1.5        1.2       -0.2
        Balance with United States \4\.....       0.8        1.0        N/A
      External Public Debt.................      13.0       13.4       10.9
      Fiscal Balance (NFPS)/GDP (pct)......      -4.7       -0.4        1.8
      Debt Service Payments/GDP (pct) \5\..       7.6       15.4        4.8
      Current Account Deficit/GDP (pct) \6\       6.9        9.0          0
      Gold and Foreign Exchange Reserves          872      1,179      1,184
       \7\.................................
      Aid from United States (FY-US$             17.0       17.8       27.0
       millions)...........................
      Aid from Other Sources (US$ millions)       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 GDP figures are Central Bank of Ecuador estimates as of August
      2001.
    \2\ The Central Bank's 2000 GDP figure is not compatible with its listed
      rate of growth. The Central Bank has been unable to resolve the
      discrepancy.
    \3\ Economically active urban population figure provided by INEC.
    \4\ 2001trade figures are estimates as of July.
    \5\ Ratio calculated based on Central Bank figures for debt service
      payments actually made (principal and interest). Does not include
      transactions to reschedule or forgive debt.
    \6\ 2001 figure is estimate through Q2.
    \7\ Freely disposable international reserves.

    Source: Central Bank of Ecuador and IMF 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. Deteriorating economic performance in 1997-1998
    culminated in a severe economic and financial crisis in 1999. The
    crisis was precipitated by a number of external shocks, including the
    El Nino weather phenomenon in 1997, a sharp drop in global oil prices
    in 1997-1998, and international emerging market instability in 1997-
    1998. These factors highlighted the Government of Ecuador's
    unsustainable economic policy mix of large fiscal deficits and
    expansionary monetary policy and resulted in an 7.3 percent contraction
    of GDP, annual year-on-year inflation of 52 percent and a 65 percent
    devaluation of the national currency in 1999.
        On January 9, 2000, the Administration of President Jamil Mahuad
    announced its intention to adopt the U.S. dollar as the official
    currency of Ecuador to address the ongoing economic crisis. Subsequent
    protest led to the removal of Mahuad from office and the elevation of
    Vice President Gustavo Noboa to the Presidency.
        The Noboa government confirmed its commitment to dollarize as the
    centerpiece of its economic recovery strategy. The government also
    entered into negotiations with the International Monetary Fund (IMF),
    culminating in a 12-month Standby Agreement with the Fund, which has
    been extended through the end of 2001. Additional policy initiatives
    include efforts to: reduce the government's fiscal deficit, implement
    structural reforms to strengthen the banking system, and restructure
    Ecuador's external debt.
        The government has introduced measures that have resulted in a
    sharp shift in its fiscal balance from a deficit of 1.2 percent of GDP
    in 1998 to a primary surplus of 4 percent in 1999. However, the overall
    deficit remained at six percent of GDP in 1999, due mainly to the
    rising cost of debt service following the devaluation of the sucre and
    bond issues to fund financial sector recapitalization. Fiscal
    performance in 2000 was better than expected, due largely to increasing
    oil prices and improved revenue collections. The overall deficit for
    2001 was 0.1 percent of GDP. Budget performance in 2001 to date has
    also been strong, with the Government registering a small overall
    surplus in its fiscal accounts through July, the most recent month for
    which figures are available.
    2. Exchange Rate Policy
        Up until February of 1999, the Central Bank maintained a crawling
    peg exchange rate system. At that time, continued pressure on the
    currency led the Central Bank to abandon its crawling peg and float the
    sucre. Continued expansionary monetary policy resulted in year-on-year
    devaluation of 65 percent in 1999.
        In March 1999, the Ecuadorian Congress codified dollarization with
    the approval of the ``Law of Economic Transformation.'' Among other
    things, the law declared the U.S. dollar as the legal tender of Ecuador
    and directed the central bank to cease issuing sucres except for coins
    in denominations not exceeding one dollar. The law mandates that all
    currency in circulation, bankers' deposits at the central bank, and
    sucre-denominated central bank stabilization bonds be fully backed by
    freely disposable international reserves.
        The legislation envisaged a six-month window for holders of sucres
    to exchange their liabilities into dollars at the rate of 1 dollar to
    25,000 sucres. Despite a few bumps along the way, the transition to
    dollarization proceeded relatively smoothly and on September 10, 2000,
    the sucre ceased to be legal tender in Ecuador. Initially, inflation
    rates were high as the residual affects of dollarization worked their
    way through the system and Ecuador ended 2000 with annual inflation of
    96.1 percent. However, the rate of inflation has slowed sharply
    throughout 2001. As of August, the most recent month for which figures
    are available, annual inflation was 29.2 percent in 2001.
    3. Structural Policies
        The Government of Ecuador has introduced reforms to increase fiscal
    transparency into the budget process, permit increased investment
    (including by private firms) in the oil sector, and to raise private
    sector participation in the electricity and telecommunication sectors.
    Other structural reform measures focus on the need to reduce fuel
    subsidies and better target poverty assistance to the most needy. There
    are reform efforts underway to increase the efficiency of the tax and
    customs services to raise budget revenues and reduce inefficiency and
    corruption. However, progress on structural reforms has proceeded very
    slowly.
    4. Debt Management Policies
        In August 1999, the Government of Ecuador announced that it could
    no longer afford to service its debt and that it would not meet a
    payment on its Discount Brady Bonds, making Ecuador the first country
    to default on Brady Bonds. In October 1999, Ecuador also failed to meet
    a coupon payment on its Eurobonds. By end-1999, external payment
    arrears were $925 million, of which 75 percent was owed to Paris Club
    creditors. The total stock of debt at end-1999 stood at $16.1 billion
    (120 percent of GDP).
        Ecuador negotiated a reorganization of its Brady Bonds and euro
    obligations in August 2000. The agreement involved the swap of $3.49
    billion in euro and Brady Bond obligations for $3.95 billion in new
    debt, issued in two tranches maturing in 2012 and 2030.
        In September 2000, Ecuador finalized a debt restructuring agreement
    with the Paris Club on debts due through April 30, 2001. The deal
    allowed Ecuador to consolidate $880 million in arrears, with a view
    toward further rescheduling on debts coming due after April 30, 2001.
    The deal was concluded on so-called ``Houston terms'', with debts being
    subject to repayment over periods ranging from 18 to 20 years, with
    grace periods ranging from 3 to 10 years, depending on the type of
    debt.
        However, implementation of Ecuador's Paris Club agreement was
    stalled for the first half of 2001 pending successful conclusion of the
    second review under Ecuador's Standby Agreement with the IMF. The
    second review was eventually concluded on May 25, 2001. Ecuador has yet
    to sign bilateral implementing agreements with many of its debtors,
    including the United States, that would bring the Paris Club agreement
    into force with individual debtor countries. The government recently
    began to negotiate debt swaps for social development programs with some
    of its Paris Club debtors but has concluded few agreements to date.
    5. Significant Barriers to U.S. Exports
        Ecuadorian trade policy was substantially liberalized during the
    early 1990s, resulting in a reduction in tariffs, elimination of many
    nontariff surcharges, and enactment of an in-bond processing industry
    (maquila) law. Ecuador joined the Andean Pact in 1995 and the World
    Trade Organization (WTO) in 1996.
        Upon accession to the WTO, Ecuador set most of its tariff rates at
    30 percent or less. The current average applied tariff rate is around
    13 percent ad valorem. Ecuador subscribes to the Andean Community's
    common external tariff (CET), which has a four-tiered structure: 5
    percent for most raw materials and capital goods; 10-15 percent for
    most intermediate goods, and 20 percent for most consumer goods.
    Through Tariff Rate Quotas (TRQs), Ecuador agreed to provide market
    access at non-restrictive tariff rates, while providing a measure of
    protection for politically sensitive commodities.
        As an emergency fiscal measure, the Government of Ecuador imposed a
    temporary import surcharge of two to five percent in March 1998. The
    surcharge was raised to 2 to 10 percent in February 1999, in response
    to the government's worsening budget situation. The surcharge was
    eventually phased out in February 2001.
        Customs procedures can be difficult but are not generally used to
    discriminate against U.S. products. The government has failed to
    implement its commitment not to use sanitary and phytosanitary
    restrictions to block the entry of certain imports. 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.
        Ecuador continues to impose certain formal and informal trade
    restrictions. All importers must obtain a prior license from the
    Central Bank, primarily for statistical purposes. Licenses are
    obtainable through private banks and are usually made available.
    Imports of psychotropic medicines and certain precursor chemicals used
    in narcotics processing require prior authorization from the National
    Drug Council (CONSEP).
        Recent legislation effectively discriminates against branded
    medicines, many of which are U.S. products. The ``Law on Generic
    Drugs'', passed in 2000, forbids Government entities from buying
    branded pharmaceutical products. The same law lowered drugstore gross
    profit margins for branded pharmaceuticals to 20 percent, while
    maintaining the margins for generic drugs at 25 percent and requiring
    drugstores to devote a certain percentage of shelf space to generic
    medicines.
        Although a discriminatory 1976 law regarding the termination of
    exclusive distributorship arrangements was repealed in 1997, the U.S.
    government remains concerned that the 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. While legal efforts
    by local distributors to obtain benefits under the repealed law have
    met with little success, cases continue to be filed, resulting in
    considerable legal expenses for U.S. firms who previously worked with
    local distributors in Ecuador.
        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.
        Government procurement practices are not sufficiently transparent.
    Bidding for government contracts can be cumbersome and time-consuming.
    Bids for public contracts are often delayed or cancelled. 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 is a member of 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
    upgraded 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. In 2001, Ecuador was
    removed from the list entirely, the only country in the Andean region
    that is not currently listed.
        Ecuador's protection of intellectual property is based primarily on
    the 1998 Intellectual Property Law, which protects patents, trademarks,
    copyrights and plant varieties. The law generally meets the standards
    specified in the WTO TRIPs Agreement. Although a 1996 Andean Pact court
    decision overturned Ecuadorian regulations that provided transitional
    or ``pipeline'' protection for previously unpatentable products, the
    government approved 12 ``pipeline'' patents in 1998. In 1999, the
    Andean Community imposed sanctions on Ecuador on the grounds that
    Ecuador had violated the Community's patent regime.
        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 designs, and trade secrets. Although the Ecuadorian
    Congress has not ratified the IPRA, it enacted legislation in 1998 that
    generally harmonizes local law with the Agreement's provisions (with
    the notable exception of ``pipeline'' protection).
        Enforcement of intellectual property rights has improved in
    Ecuador, but copyright infringement still occurs, and there is
    widespread local trade in pirated audio and video recordings, as well
    as computer software. 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. Companies willing to
    pursue pirates have often been successful in obtaining relief from the
    courts. Some local pharmaceutical companies produce or import patented
    drugs without licenses.
        In September 2000, the Andean Community trade ministers approved
    Decision 486, which entered into force on December 1, 2000, replacing
    Decision 344 as the Andean Community's Common Industrial Property
    Regime. Decision 486 is a notable improvement over Decision 344 in
    bringing the region's IPR regime into conformance with WTO standards.
    However, Decision 486 appears to have shortcomings with respect to
    protection of data confidentiality and protection for second-use
    patents. Efforts to challenge problematic provisions on second-use
    patents have not been successful in the Andean Tribunal to date.
    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 allowed to form trade unions. Less than 12 percent
    of the labor force, mostly skilled workers in parastatal and medium-to-
    large-sized industries, is unionized. 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, such as a long-
    running strike by public health workers in June through August 2001.
        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 the 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.
        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 work week, two weeks of annual vacation, a minimum wage and other
    variable, employer-provided benefits such as uniforms and training
    activities. The minimum wage is set by the Ministry of Labor every six
    months and can be adjusted by Congress. Minimum monthly compensation is
    approximately $100. 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
    agricultural and informal mining sectors.
        f. Worker Rights in Sectors with U.S. Investment: Economic sectors
    with U.S. investment include petroleum, telecommunications, chemicals
    and related products, and food and related products. U.S. investors in
    these sectors are primarily large multinational companies that abide by
    the Ecuadorian Labor Code. U.S. workers 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  461
    Total Manufacturing.........  ...........  175
      Food & Kindred Products...  -10          .............................
      Chemicals & Allied          109          .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  (\2\)        .............................
      Other Manufacturing.......  (\2\)        .............................
    Wholesale Trade.............  ...........  53
    Banking.....................  ...........  (\2\)
    Finance/Insurance/Real        ...........  124
     Estate.
    Services....................  ...........  5
    Other Industries............  ...........  (\2\)
        Total All Industries....  ...........  838
    ------------------------------------------------------------------------
    \1\ Less than $500,000 (+/-).
    \2\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                  EL SALVADOR

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.......................   12,470.0    13,213.0    13,957.0
      Real GDP Growth (pct).............        3.4         2.0         2.0
      GDP by Sector:
        Agriculture.....................    1,297.0     1,271.0     1,290.9
        Manufacturing...................    2,872.0     3,169.2     3,408.0
        Services........................    7,439.0     7,460.4     7,872.8
        Government......................       38.0       995.4     1,020.4
      Per Capita GDP (US$)..............      2,026       2,105       2,183
      Labor Force (000s) \2\............    2,350.0     2,395.0     2,660.0
      Unemployment Rate (pct) \3\.......        7.3         6.9         7.0

    Money and Prices (Annual Percentage
     Growth):
      Money Supply Growth (M2)..........        9.0         8.0         9.1
      Consumer Price Inflation..........       -1.0         4.3         3.5
      Exchange Rate (Fixed Colon/US$)...       8.75        8.75        8.75

    Balance of Payments and Trade:
      Total Exports (FOB)...............    2,510.0     2,950.0     1,967.0
        Exports to United States........    1,576.0     1,927.0     1,271.9
      Total Imports CIF.................    4,094.0     4,948.0     3,421.7
        Imports from United States......    2,109.0     2,450.0     1,661.2
      Trade Balance.....................   -1,584.0    -1,998.0    -1,454.7
        Balance with United States......     -533.0      -523.0      -389.3
      External Public Debt..............    2,831.0     2,832.0     2,980.5
      Fiscal Deficit/GDP (pct)..........        2.5         3.0         3.6
      Debt Service Payments/GDP (pct)...        3.0         2.5         3.5
      Gold and Foreign Exchange Reserves    1,969.0     1,890.0     1,805.0
       \4\..............................
      Aid from United States \5\........       46.8        58.0       103.2
      Aid From All Other Sources \6\....      223.6       189.0       313.5
    ------------------------------------------------------------------------
    \1\ Annualized 2001 figures are Central Bank estimates. Trade figures
      are for January-August, 2001
    \2\ Estimate, Economically Active Population, i.e. all those over age
      15.
    \3\ Figures do not include underemployment; 2001 rate is estimate.
    \4\ As of September 2001.
    \5\ Figures do not include military aid.
    \6\ Grants; including NGO assistance but not bilateral loan programs.

    1. General Policy Framework
        The Salvadoran government's two principal policies for financial
    stability and economic growth are the adoption of the U.S. dollar as
    legal tender and the pursuit of free trade agreements (FTAs). These
    polices are being implemented on the foundation of measures put in
    place during the last decade that mandated fiscal conservatism,
    monetary discipline, privatization, and rapid market and trade
    liberalization. The Monetary Integration Law, effective on January 1,
    2001, made the U.S. dollar the principal legal currency and fixed its
    exchange rate with the Salvadoran colon at 8.75 to a dollar, the same
    rate that has been in place for seven years. Dollars are replacing
    colons, which are no longer being printed. All financial transactions,
    public and private, can now be done in dollars. President Francisco
    Flores has also aggressively sought new FTAs with the United States and
    other countries. In 2001, FTAs that El Salvador, along with other
    Central American countries, had reached with Mexico and with the
    Dominican Republic went into effect. The Salvadoran assembly also voted
    to approve an El Salvador-Chile FTA. Negotiations for FTAs with Canada
    and with Panama were initiated.
                Economy's Performance in 2001
        El Salvador's Central Reserve Bank is predicting an economic
    expansion of two percent in 2001, despite successive economic shocks,
    the most severe being the two devastating earthquakes early in the year
    that killed and injured thousands and left 1.5 million homeless.
    Additional economic shocks include: the slowdown in the United States,
    El Salvador's largest export market; a sharp drop in the price of
    coffee, the main agriculture export and an important source of rural
    employment; and a drought in the eastern part of the country. The
    largest source of foreign earnings in 2001 has been remittances from
    Salvadorans working outside the country, mostly in the United States,
    followed by exports by the so-called ``maquila'' assembly plants.
        The Salvadoran economic expansion has been slowing for the last
    four years and has dropped precipitously from the six and seven percent
    annual growth rates achieved following the 1992 peace accords, which
    ended El Salvador's 12-year-long civil war. In the first quarter of
    2001, the Salvadoran economy grew by 1.7 percent, followed by a 1.5
    percent expansion in the second. During the first half of the year, the
    traditional agricultural sector contracted, while manufacturing grew by
    more than five percent. Construction also grew substantially,
    particularly in the second quarter.
        When coffee is excluded, exports have increased by 7.4 percent for
    the period January-August 2001, according to the central bank. Of the
    total exports of $1.97 billion for the eight month period, the maquilas
    account for $1.1 billion. This represents a 5.3 percent growth over
    2000, despite the slowing economy in the United States, where most of
    the Salvadoran maquila products are shipped. The Salvadoran Office of
    Investment Promotion reported that 14 companies had made commitments in
    2001 to set up new operations in El Salvador, mostly maquila plants.
        Exports of other nontraditional exports, excluding the maquilas,
    also increased in 2001, rising to $672 million, a 6.8 percent increase
    over the previous year. The value of traditional agricultural exports,
    on the other hand, decreased more than 40 percent, dragged down by the
    world price of coffee that has fallen to its lowest levels in 26 years.
    Coffee export earnings for January-August 2001 totaled $102 million,
    about $163 million less than for the same period in 2000.
        Salvadoran imports also rose in 2001, increasing by 7.8 percent to
    total $3.4 billion for January-August 2001. Imports of intermediate
    goods rose the most, rising 15.8 percent. The trade deficit at the end
    of August was $1.45 billion. The central bank attributed the higher
    deficit to the slowdown in the United States and increased imports for
    earthquake reconstruction. Remittances from Salvadorans abroad, mostly
    in the United States, continued to rise in 2001, totaling $1.25 billion
    by the end of August, an 11.1 percent increase over the same period in
    2000. The remittances have become an important source of funds for
    reconstruction and cover about 85 percent of the trade deficit,
    according to the central bank.
        Domestic interest rates have declined, a development that is
    directly tied to dollarization since dollar lending rates have always
    been lower than colon rates. Energy prices have also moderated in 2001.
    Consumer price inflation is around 3 to 3.5 percent.
                Fiscal Developments
        The confidence that Salvadoran economic policy during the last
    decade has engendered among investors was seen in July when just months
    after the devastating earthquakes the government was able to sell
    $353.5 million in bonds in New York. The funds obtained from the sales
    of the 10-year, 8.6-percent interest rate bonds will be used to fund
    the government's budget and earthquake reconstruction.
        Privatization continues to be a major part of Salvadoran fiscal
    policy. Since 1998, the government has privatized the state telephone
    company, the electricity distribution companies, the thermal power
    plants, and pension funds.
        The 2001 $2.2 billion central government budget continued to shift
    spending toward social investments, with about one third of the funds
    dedicated to social development including health, education, and public
    works. The fiscal deficit is now about 3.6 percent of GDP. To help deal
    with the deficit, the Ministry of Finance plans to seek better tax
    collection, completion of privatization, and the implementation of
    measures to make the government more efficient. The 13 percent Value-
    Added Tax (VAT), which is applied to all goods and services both
    domestic and imported, accounts for about 55 percent of tax
    collections.
    2. Exchange Rate Policy
        On January 1, 2001, the Government of El Salvador enacted the
    Monetary Integration Law that made the U.S. dollar the nation's legal
    currency. The law mandated that for a transition period the dollar will
    circulate alongside the Salvadoran colon and fixed the exchange rate at
    8.75 colons to the dollar. Within a period of no more than two years,
    the dollar is expected to completely replace the colon, which is no
    longer being printed. This law also required banks to convert
    depositors' colon-denominated accounts to dollar-denominated accounts
    and made the dollar the financial system's accounting unit. Businesses
    are free to sign contracts denominated in dollars, colons, and other
    major currencies.
    3. Structural Policies
        The United States is El Salvador's main trade partner. Imports from
    the United States have increased an average of 16 percent per year
    since 1993 and account for 50 to 65 percent of all Salvadoran imports.
    Key to this trend is the multi-year program, concluded in July 1999, to
    drastically lower tariffs. Under this program, tariffs for most capital
    goods and raw materials have been reduced to zero or one percent, and
    tariffs on intermediate and finished goods have been reduced to a
    maximum rate of 15 percent. Close to 80 percent of all Salvadoran
    imports consist of capital and intermediate products. El Salvador's
    1998 environmental law is providing new opportunities for the sales of
    U.S. clean technology products.
        The fastest growing trade/investment category has been the apparel
    and clothing maquila industry, in which companies from the United
    States and other countries ship cut cloth to plants in El Salvador
    where they are sewed into finished garments for reexport, principally
    to the United States. President Clinton signed into law in 2000 the
    Caribbean Basin Trade Partnership Act (CBTPA), which expanded the
    access to the U.S. market granted to El Salvador and other countries
    participating in the Caribbean Basin Initiative.
        The government has substantially simplified customs procedures in
    recent years. A new system implemented in 1998, called
    ``Teledespacho,'' allows importers and exporters to send their
    commercial invoices, bills of lading, and airway bills through an
    electronic link to the Salvadoran customs officer for processing. This
    system allows merchandise to clear customs seven days a week. The
    Salvadoran government also has an ``Autoliquidation'' process that
    allows assessment and payment of duties directly by the importer,
    without physical inspection in most cases.
        El Salvador has a liberal privatization regime under which it has
    privatized the state owned telephone company (ANTEL), four electricity
    distribution and two thermal generating companies, and pension funds.
    All represent good opportunities for U.S. companies.
        Prices are unregulated, with the exception of bus fares and
    utilities. These too are being deregulated. While fuel prices are not
    regulated, commercial margins on gasoline and diesel fuel are set by
    regulation at the import level and by the terms of an agreement between
    the government and the oil industry at the wholesale level. A
    commission to monitor the telecommunications and electric sectors
    (SIGET) has been established.
    4. Debt Management Policies
        El Salvador has traditionally pursued a conservative debt policy.
    External debt stood at $2.98 billion in August 2001. Almost 70 percent
    of this debt has been contracted with international financial
    institutions. The debt service in 2000 amounted to $341 million. 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. In August 2001, Moody's rated El
    Salvador's foreign currency government bonds as Baa3 and its domestic
    currency bonds as Baa2, ratings that put the Salvadoran issues ahead of
    most of the rest of Latin America. Standard and Poor's, which rated
    fewer countries, gave El Salvador a BB+/Stable/B rating on January 22,
    2001, a week after the first earthquake. This rating is ahead of many
    other Latin American countries.
        In recent years, El Salvador has succeeded in obtaining diverse
    financing for various purposes from different international sources.
    These include the sales of bonds, Inter-American Development Bank and
    World Bank loans, bilateral development assistance, and grants and
    donations. In addition to the $353 million bond sale in July 2001, in
    August 1999 El Salvador successfully placed $150 million in Euro-Bonds.
    The Finance Minister has announced plans to consolidate and refinance
    outstanding government debt. Responding to the January and February
    2001 earthquakes, donors gathered in Madrid in May where they pledged
    $1.3 billion for earthquake reconstruction and recovery. About $150
    million of that amount was short-term.
    5. Significant Barriers to U.S. Exports
        El Salvador is a World Trade Organization (WTO) member and has
    implemented most of its Uruguay Round commitments on schedule. 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 zero to 15 percent. The range by category is zero to one percent
    for capital goods and raw materials, 5 to 10 percent for intermediate
    products, and generally 15 percent for finished goods. Higher tariffs
    of 15 to 30 percent are applied to automobiles, agricultural products,
    textiles and some luxury items.
        In April 2000, the Salvadoran government announced high protective
    tariffs on certain grain and food imports to encourage domestic
    production. Under this new scheme, white and yellow corn are charged 20
    percent ad valorem duties; paddy and milled rice, 40 percent; fluid
    milk and dairy products, 40 percent; sorghum, 40 percent; and pork, 40
    percent. Otherwise, the government policy on basic grain tariffs
    (applied to imports from countries outside the Central American Common
    Market) is set by seasonal supply and demand conditions in the local
    market.
        Generally, standards have not been a barrier for the importation of
    U.S. food products. Poultry is the notable exception. Since 1992, the
    government has imposed a zero tolerance requirement for several common
    avian diseases such as aviana denovirus, chicken anemia, and
    salmonella, effectively blocking all imports of U.S. poultry. The
    Ministry of Agriculture requires a salmonella-free certificate showing
    that the product has been approved by U.S. health authorities for
    public sale. These standards are applied in a discriminatory manner,
    since domestic producers are not subject to the same requirements. U.S.
    officials have met with Salvadoran authorities to discuss this issue,
    but to date there has been no success in getting the regulations
    changed.
        The Salvadoran government also requires that rice shipments be
    accompanied with a U.S. Department of Agriculture certificate stating
    that the rice is free of Tilletia barclayana, although there is no
    practical treatment against T. barclayana. El Salvador failed to inform
    the WTO, under the Agreement on the Application of Sanitary and Phyto-
    Sanitary Measures, about these restrictions.
        All fresh food, agricultural commodities, and live animals must be
    accompanied by a sanitary certificate. Basic grains and dairy products
    also must have import licenses. Authorities have not enforced the
    Spanish language labeling requirement.
        The government is an active participant in the Free Trade Area of
    the Americas process. The country is a member of the Central American
    Common Market.
        El Salvador officially promotes foreign investment in virtually all
    sectors of the economy. Foreign investment laws allow unlimited
    remittance of net profits, except for some services (hotels,
    restaurants, etc.) where the law allows 50 percent. No restrictions
    exist on establishing foreign banks or branches of foreign banks in El
    Salvador. The 2000 government procurement law applies to the central
    government, autonomous agencies, and municipalities. El Salvador is not
    a signatory to the WTO Agreement on Government Procurement.
    6. Export Subsidies Policies
        El Salvador offers a six percent rebate to exporters of non-
    traditional goods based on the FOB value of the export. Coffee and
    sugar can qualify for this rebate if they are shipped as a processed
    product. Products from the maquila assembly plants qualify if they meet
    the criteria of 30 percent national value added in the production
    progress. Firms operating in the free trade zones are not eligible for
    the rebate but enjoy a 10-year exemption from income tax as well as
    duty-free import privileges.
    7. Protection of U.S. Intellectual Property
        El Salvador has accepted the disciplines of the WTO's Agreement on
    Trade-Related Aspects of Intellectual Property Rights (TRIPS) and is a
    member of the World Intellectual Property Organization (WIPO). The
    current Intellectual Property Protection Law has been in effect since
    1993. To help enforce the law the Office of the Attorney General in
    1996 established a special unit for handling complaints about
    violations of intellectual property rights. The unit has conducted
    raids and made seizures of items such as pirated shoes, clothing,
    books, music recordings, videos, pharmaceuticals, and software.
        El Salvador was removed from the Special 301 Watch List in July
    1996. A September 2000 ``out-of-cycle'' U.S. Trade Representative's
    Watch List review of El Salvador determined that the country should not
    be put on the list again, but requested continued progress on bringing
    existing laws into compliance with the TRIPS agreement and called
    attention to the need for further action against software piracy.
        In the 1993 law, patent terms were extended to 20 years from the
    filing date and the definition of what could be patented was broadened.
    Computer software is protected, as are trade secrets. Salvadoran
    authorities have drafted legal changes to make the IPR laws more TRIPS
    compliant. Legislation to make these legal changes may be taken up by
    the Legislative Assembly in 2001.
        Copyrights are also protected by the 1993 law and the Salvadoran
    penal code was amended that same year to provide for criminal penalties
    for copyright violations. El Salvador has adhered to the Berne
    Convention. Despite certain positive developments, there are still many
    complaints about copyright piracy. Groups such as the International
    Intellectual Property Alliance say that software piracy continues to be
    a serious problem in El Salvador and that there are serious defects in
    the enforcement of civil and criminal laws intended to protect
    copyrights.
        Trademarks are regulated by the Central American Convention for the
    Protection of Industrial Property. 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. In trademark cases, there
    have been problems in getting enforcement of rulings ordering violators
    to cease using well known marks. El Salvador is signatory of the Geneva
    Phonograms, Paris Industrial Property and the Berne Artistic and
    Library Works Conventions.
    8. Worker Rights
        a. The Right of Association: The Salvadoran Constitution provides
    for the rights of workers and employers to form unions or associations,
    and the government generally has respected these rights. Some workers,
    however, have complained that the government impeded them from
    exercising their right of association. Union leaders asserted that the
    government and judges used excessive formalities to deny applications
    for legal standing to labor organizations. 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. Unions and
    strikes are legal only in the private sector. Employees of autonomous
    public agencies may form unions but not strike.
        b. The Right to Organize and Bargain Collectively: 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.
    Workers and the International Labor Organization report instances of
    employers using illegal pressure to discourage organizing, including
    the dismissal of labor activists and the maintenance of lists of
    workers who would not be hired because they had belonged to unions.
        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.
        d. Minimum Age for Employment of Children: The constitution
    prohibits the employment of children under the age of 14. Minors 14 or
    older may receive special Labor Ministry permission to work, but only
    where such employment is indispensable to the sustenance of the minor
    and his family. Child labor is not found in the industrial sector.
    Legal workers under the age of 18 have special additional rules
    governing conditions of work.
        e. Acceptable Conditions of Work: The minimum wage is $4.80 (42
    colones) per day for commercial, industrial, construction, and service
    employees. For general agricultural workers, it is $2.47 per day.
    Workers hired for harvests have a minimum wage of $2.70 day. Minimum
    wage for seasonal agriculture industry workers is $3.57. The law limits
    the workday to six hours for youths between 14 and 18 years of age and
    eight 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 maquilas (assembly or processing plants) in Free Trade
    Zones (FTZ). Most FTZ companies have accepted codes of conduct from
    their parent corporations or U.S. purchasers. These codes include
    worker rights protection clauses. There were credible reports of
    factories dismissing union organizers.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  152
      Food & Kindred Products...  12           .............................
      Chemicals & Allied          42           .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       (\1\)        .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  28
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  251
     Estate.
    Services....................  ...........  10
    Other Industries............  ...........  99
        Total All Industries....  ...........  745
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                   GUATEMALA

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................    18,072     18,415     18,860
      Real GDP Growth (pct)................       3.5        3.2        2.4
      GDP by Sector (pct):
        Agriculture........................        23         23         22
        Manufacturing......................        21         21         22
        Services...........................        47         47         47
        Government.........................         8          8          8
      Per Capita GDP (US$).................     1,635      1,636      1,630
      Labor Force (000s) \3\...............     4,208      4,317      4,481
      Unemployment Rate (pct) \4\..........       N/A        N/A        N/A

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............      10.0       14.0       13.0
      Consumer Price Inflation.............       5.2        5.1       10.0
      Exchange Rate (Quetzal/US$ annual
     average):
        Financial Market Rate (2001 data is      7.40       7.77        8.1
         unofficial Embassy estimate)......

    Balance of Payments and Trade:
      Total Exports FOB \5\................     2,493      2,708      2,440
        Exports to United States...........       838        971        870
      Total Imports CIF \5\................     4,560      4,885      5,280
        Imports from United States.........     1,851      1,957      2,110
      Trade Balance \5\....................    -2,067     -2,177     -3,170
        Balance with United States \5\.....    -1,013       -986     -1,240
      External Public Debt \6\.............     2,600      2,600      2,700
      Fiscal Deficit/GDP (pct) \6\.........       2.8        1.8        2.8
      Current Account Deficit/GDP (pct) \6\       5.5        4.8        5.5
      Debt Service Payments/GDP (pct) \6\..       2.0        3.1        2.9
      Gold and Foreign Exchange Reserves        1,100      1,800      1,900
       (Millions Net) \6\..................
      Aid from United States...............       102       60.6       53.2
      Aid from All Other Sources...........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on available data in October.
    \2\ GDP expressed in millions of U.S. dollars.
    \3\ 1999 Labor Force Data: Secretariat for Economic Integration in
      Central America.
    \4\ Does not reflect estimated 40 to 50 percent underemployment.
    \5\ 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. U.S. government data for U.S.
      imports from Guatemala were $2,265 million in 1999 and $2,072 million
      in 1998.
    \6\ Data from the Guatemalan government's preliminary 2001 budget
      projection and Guatemala's Central Bank.

    1. General Policy Framework
        Following the signing of the 1996 Peace Accords, which ended a 36-
    year armed internal conflict, Guatemala experienced a resurgence of
    civic participation culminating in the creation of a Fiscal Pact in
    2000. The Fiscal Pact was designed to bring together various sectors to
    develop tax and other proposals that would help the government increase
    revenues from 8 percent of GDP to 12 percent, and therefore, to ensure
    implementation of social reforms promised in the Peace Accords. The
    Portillo administration did not accept some of the recommendations of
    the Fiscal Pact, and specifically rejected a proposed increase in the
    Value-Added Tax (VAT). However, in a July 2001 fiscal reform package,
    the government reversed its earlier position and increased the VAT from
    10 percent to 12 percent.
        Inconsistent policy messages and political infighting in the ruling
    party have created an uncertain investment climate. Increased
    polarization has characterized the relationship between the government
    and the private sector. A perception of official corruption and violent
    crime are two additional problems plaguing the current administration.
        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 equal footing. Real GDP
    growth has averaged above 3 percent and population growth about 2.9
    percent annually for the last three years. Security concerns, as well
    as 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 the operation of the railroad
    and the postal service. Actions taken by the government during 2000 to
    investigate the legality of contracts signed by the previous
    administration cast a shadow over the investment climate, but the
    Government of Guatemala seems to have moved away from this policy.
    Guatemala has been a member of the WTO since 1995.
        Agriculture and commerce are the dominant economic activities.
    Agriculture accounts for two thirds of exports and about 40 percent of
    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. Dramatic
    declines in world prices for coffee have adversely affected the economy
    during 2000 and 2001. Nontraditional agricultural exports, e.g.,
    specialty vegetables and fruits, berries, shrimp, and ornamental plants
    and flowers, account for an increasing share of export revenues. Other
    nontraditional industries that have experienced recent growth and have
    favorable prospects are apparel assembly for export and tourism. The
    textile sector expected significant increases in its exports to the
    United States as a result of enhanced benefits it receives under the
    Caribbean Basin Initiative since October 2000, but concerns that
    Guatemala would be disqualified over concerns for its respect for
    internationally recognized workers rights, along with a worldwide
    shakeout in the apparel industry due to slower world growth, has slowed
    foreign investment. Remittances from abroad 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 2002 in order to fund social and economic development
    projects as set forth in the Peace Accords. However, tax revenues in
    2001 are expected to be around 9.7 percent of GDP and the budget for
    2002 estimates tax revenues of 11 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 indexed issues placed on the international market at
    lower rates of interest than offered on local currency denominated
    bonds.
        In 1999, the Guatemalan currency experienced strong downward
    pressure in the foreign exchange market, leading the central bank to
    issue short-term notes to absorb excess liquidity and reduce
    consumption demand. Though the central bank achieved macroeconomic
    stability in 2000 and the first half of 2001, having curtailed capital
    flight and controlled inflation, its outstanding debt increased over
    300 percent and has contributed to high domestic interest rates. High
    commercial bank lending rates continue to discourage productive
    investment and retard growth. Furthermore, the high volume of open
    market operations implies a large future cost to the central bank and
    has raised the question of whether the central bank can continue to
    maintain a relatively permissive monetary policy in the face of
    continued fiscal debt. Several placements of dollar-denominated
    government securities were issued in 1999 to finance part of the budget
    deficit, but the deficit remains problematic. Despite increased
    reliance upon dollar-denominated instruments that carry lower coupon
    rates than notes denominated in local currency, debt service costs will
    increase in 2001 as a result of both higher debt and the depreciation
    of the local currency.
    2. Exchange Rate Policy
        Guatemala pursues a ``dirty float'' exchange rate regime.
    Guatemala's trade deficit and capital flight in 1999 put pressure on
    the foreign exchange market. Though Guatemala sold an additional $400
    million in foreign reserves in 1999, the local currency depreciated by
    approximately 13 percent. By issuing short-term notes to absorb the
    excess liquidity, the Central Bank stabilized the exchange rate in
    2000, while simultaneously managing to raise foreign reserves to
    approximately $1.8 billion. Access to foreign exchange is unrestricted
    and there are no reports of foreign exchange shortages. The exchange
    rate has been mostly stable in 2001 with the Central Bank only rarely
    intervening in the market.
        In December 2000, Congress approved the Law of Free Negotiation of
    Currencies, which since May 2001 permits Guatemalan banks to offer
    different types of dollar-denominated accounts. In fact, accounts can
    be held in any currency, but in practice, the dollar is the only
    foreign currency used with any significance. The same bill legalized
    the dollar and other currencies for most real transactions. In June
    2001, Guatemala also officially approved usage of non-Guatemalan
    currencies, and the dollar has quickly assumed an important, though,
    not dominant, role throughout the banking sector.
    3. Structural Policies
        The government is committed by the Peace Accords to increasing
    spending on social welfare programs, infrastructure expansion, and
    economic development programs. Much of the financing for this
    additional spending will come from grants and loans provided by the
    international donor community, but Guatemala is under pressure to
    generate significant internal resources to complement foreign grants
    and lending to fund these expenditures. The Fiscal Pact sought to
    address Guatemala's need for higher internal income by designing a new
    tax system. Among numerous other changes, the Fiscal Pact included a
    proposal to raise the nation's VAT from 10 to 12 percent, which was
    finally passed by Congress in July 2001. Together with the increase in
    the VAT, Congress also approved an increase on the Agricultural and
    Mercantile Industries Tax and a new Fiscal Stamp on Cigarettes, Sodas,
    and Alcoholic Beverages. The later three taxes were expected to yield
    an additional US$300 million, but the Constitutional Court is hearing a
    challenge to the Stamp Tax, and its future is in doubt. Measures to
    constrain public expenditures are still being considered, but have not
    been implemented. Fiscal reform will be addressed in a stand-by
    agreement under negotiation with the International Monetary Fund (IMF)
    and will likely be central to future World Bank and Inter-American
    Development Bank programs.
        The Superintendency of Tax Administration, created in 1999 to
    improve compliance, reported revenue increases of 3.2 percent in the
    first seven months of 2001, as compared to the same period in 2000.
    Ninety percent of the government's current income is from taxes.
    Indirect taxes, primarily the VAT and duties, account for 80 percent of
    all tax revenues. Personal income taxes account for less than two
    percent of all tax revenues.
    4. Debt Management Policies
        The projected deficit for the FY 2001 budget was originally of 1.7
    percent of GDP. A combination of lower tax revenues during the first
    seven months of 2001 have forced the government to increase that
    estimate to 2.8 percent of GDP. The FY 2002 budget, though not yet
    approved, projects a deficit of US$457 million, about two percent of
    GDP. In the absence of firm policies designed to increase revenues and
    political commitments to fund the peace accords, many experts expect
    higher fiscal deficits than those forecast by the government. 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 2000 was
    approximately $3.7 billion, of which $1 billion is internally held and
    $2.7 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 2001 budget calls
    for appropriation of $452 million for debt service. Guatemala is
    current in its payments on both U.S. and other foreign debt.
    5. Significant Barriers to U.S. Exports
        Guatemala applies the common external tariff schedule of the
    Central American Common Market, which ranges from zero to fifteen
    percent for most agricultural and industrial goods. Exceptions include
    agricultural commodity imports in excess of the Tariff Rate Quotas
    (TRQ).
        The TRQ for beef is suspended for 2001 and there is no quota
    assignment this year nor is there an import license required. All
    imported beef pays a 15 percent tariff, and the importation is open
    without limit. However, the Government of Guatemala reserves the right
    to implement the TRQ if the need arises.
        This year, the importation of three products, poultry, wheat and
    wheat flour, was liberalized, and quota assignments are no longer
    needed. Furthermore, tariffs were reduced for these products. The
    poultry tariff was completely eliminated. Wheat and wheat flour tariffs
    were lowered to 2 percent and 4 percent respectively. Guatemala's
    current import tariff rates for agricultural products are below WTO
    tariff binding rates, and the changes that occurred earlier this year
    have simplified entry.
        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
    the association's registrations. Processed foods must be labeled in
    Spanish, however a stick-on label is permitted. While, enforcement of
    this requirement has been lax, compliance is increasing. Importers
    should be aware that the Ministry of Health requires a Free Sale
    Certificate for imports of all processed food products.
        Phytosanitary and Zoosanitary licenses are required for all imports
    of plant and animal origin. 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, and trade
    disruption limited.
        Imports are not generally subject to non-tariff trade barriers,
    though excessive bureaucracy occasionally creates delays and
    complicates the import process.
        Some restrictions remain on foreign investment, but foreign
    investors generally receive national treatment. However, recent
    attempts by the government to renegotiate existing investment terms
    have negatively affected some foreign investments. 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.
    6. Export Subsidies Policies
        Guatemala offers duty drawback and deferral programs based on
    Decree 65-89, Law of Free Trade Zones (FTZs), and Decree 29-89, Law of
    Promotion and Development of Export Activities and Drawback (Maquila).
    According to Ministry of Economy statistics, at the end of 2000, a
    total of 866 companies had qualified for maquila status and 294 that
    had been qualified since lost their license for various reasons,
    leaving 572 operating maquilas. 16 areas have qualified as Free Trade
    Zones and 80 companies are operating in the FTZs. Together, Maquilas
    and FTZs employ 148,437 workers.
    7. 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, Berne Convention, Rome Convention, Phonograms
    Convention, and the Nairobi Treaty.
        In August 2000, the Guatemalan Congress passed legislation that
    should increase the protection afforded to the holders of intellectual
    property rights. Effective November 1, 2000, IPR violations became
    criminal, as opposed to civil, offenses. In July 2001, the government
    named a special prosecutor for IPR. In recognition of this progress,
    the U.S. Trade Representative removed Guatemala from the ``Special
    301'' Priority Watch List and placed it on the Watch List.
    8. Worker Rights
        The Guatemalan Constitution and the country's labor code guarantee
    a progressive range of internationally recognized worker rights.
    Exercise of these rights, however, is not effectively secured by the
    institutions charged with doing so. Guatemalan labor activists
    persistently complain that, when their labor and civil rights are
    violated, at times egregiously, the justice system fails to redress the
    injury and the perpetrators benefit from impunity. Labor Code reforms
    were approved by Congress in April and May 2001, implementing
    Guatemala's commitments to the ILO and under the 1996 Peace Accords.
    Guatemala's beneficiary status under the Caribbean Basin Trade
    Preference Act (CBTPA) and the General System of Preferences (GSP) were
    reviewed with a focus on labor rights in April. Guatemala was found to
    be eligible under both programs in May.
        a. The Right of Association and b. The Right to Organize and
    Bargain Collectively: The Guatemalan Constitution guarantees the right
    of association. The constitution also specifically guarantees workers
    the right to unionize. Furthermore, the constitution stipulates that
    ``what is established in treaties and conventions to which the state is
    party is to be considered part of the basic rights enjoyed by
    Guatemalan workers.'' Guatemala is one of only 27 countries to have
    ratified all of the ILO's ``core'' conventions, including Convention 87
    (Freedom of Association and Protection of Right to Organize),
    Convention 98 (Right to Organize and Collective Bargaining), and, in
    September, Convention 182 (Worst Forms of Child Labor). Labor Code
    reforms approved by Congress in May implemented Guatemalan commitments
    under several of these conventions.
        In practice, workers who exercise the right of association and try
    to organize unions are often fired for doing so. The law fully protects
    workers from retribution for forming and participating in trade union
    activities, but effective enforcement of these provisions is the
    exception rather than the rule. Less than 3 percent of the country's
    workforce of 4.3 million is organized. Most of these workers belong to
    private sector unions. Public sector employers are among the worst
    violators of the right of association, according to a September United
    States Verification Mission in Guatemala (MINUGUA) report. Under the
    Portillo administration, the Labor Ministry has attempted to improve
    the labor inspection function.
        The Labor Code allows collective bargaining if at least 25 percent
    of a company's employees are union members. Many employers routinely
    seek to circumvent labor code provisions in order to resist union
    activities, which they view as disruptive and as a challenge to their
    full control of the workplace. An ineffective legal system and
    inadequate penalties for violations have hindered enforcement of the
    right to form unions and participate in trade union activities.
    Although the Labor Code provides that workers illegally fired for union
    activity should be reinstated within 24 hours, in practice employers
    often file a series of appeals, or simply defy judicial orders of
    reinstatement. Penalties for defying such orders were increased
    somewhat in the 1992 labor code reform and again in June 1998. Labor
    Code reforms enacted in May increased Labor Ministry discretion to levy
    fines on employers for noncompliance, and increased existing fines
    substantially. However, fines can be appealed in the courts, causing
    long delays in the administration of justice.
        c. Prohibition of Forced or Compulsory Labor: The constitution bars
    forced or compulsory labor.
        d. Minimum Age for Employment of Children: The constitution bars
    employment of minors under the age of 14 except as authorized by law.
    In addition, the constitution prohibits ``employing minors in work that
    is incompatible with their physical ability or that puts at risk their
    moral development.'' Employment of minors requires written permission
    from the Ministry of Labor. There are fewer than 5,000 such permits in
    effect, the majority of them for work in the in-bond processing for
    export, or maquila, sector. The Ministry of Labor is engaged actively
    in reducing the number of these permits and issued less than 1,500 in
    1999. However, many children under the age of 14 are employed without
    legal permission. They generally receive no social benefits, social
    insurance, vacations, or severance pay, and earn below-minimum
    salaries. The Labor Ministry has a program to educate minors, their
    parents, and employers on the rights of minors in the labor market. In
    1992 the government formed the Child Worker Protection Unit within the
    Ministry of Labor. The Labor Ministry administers a ``National Program
    for the Prevention and Eradication of Child Labor and Protection of
    Adolescent Workers'' and cooperates with NGO programs to combat child
    labor.
        e. Acceptable Conditions of Work: The constitution provides for a
    44-hour normal workweek 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: With few exceptions,
    international corporations adhere to the labor code and respect worker
    rights. There have been some credible complaints about failure to
    respect the right of association in the construction phase of power
    generating plants and in the maquila sector. U.S. companies are among
    the leaders in requiring that maquilas that produce garments for them
    adhere to codes of conduct with respect to working conditions and
    worker rights. Many coffee plantations also violate labor rights,
    particularly by often failing to pay workers the national minimum wage.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  474
    Total Manufacturing.........  ...........  230
      Food & Kindred Products...  103          .............................
      Chemicals & Allied          61           .............................
       Products.
      Primary & Fabricated        2            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  64           .............................
    Wholesale Trade.............  ...........  34
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  123
     Estate.
    Services....................  ...........  3
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  904
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     HAITI

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      GDP \2\..............................   4,115.4    4,164.8    4,206.4
      Real GDP Growth (pct) \3\............      2.34        1.2          1
      GDP by Sector:
        Agriculture........................       2.5        N/A        N/A
        Manufacturing......................       1.2        N/A        N/A
        Services...........................       2.4        N/A        N/A
        Government.........................       9.0       11.1       11.2
      Per Capita GDP (US$).................       506        528        528
      Labor Force (000s)...................     4,380        N/A        N/A
      Unemployment Rate (pct)..............        65         52         55

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............      17.7       30.9        N/A
      Consumer Price Inflation.............       8.1       11.4       16.7
      Exchange Rate (Gourde/US$--annual
     average):
        Market (end of period).............     16.10      19.62      23.83

    Balance of Payments and Trade: \4\
      Total Exports FOB \5\................       349        327        305
        Exports to United States \6\.......       301        297        267
      Total Imports FOB \5\................       743       1003       1028
        Imports from United States \6\.....       614        577        588
      Trade Balance \5\....................      -394       -676       -723
        Balance with United States \6\.....       N/A        N/A        N/A
      Current Account Deficit/GDP (pct)....       7.3        7.1        N/A
      External Public Debt.................     1,100      1,170       1200
      Fiscal Deficit/GDP (pct).............       1.7        2.2        2.2
      Debt Service Payments/GDP (pct)......      0.62        N/A        N/A
      Gold and Foreign Exchange Reserves          207        189        144
       (net)...............................
      Aid from United States \7\...........     101.8       71.7       73.9
      Aid from All Other Sources...........       357        370        250
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on available monthly data in
      October. 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\ U.S. and Haitian import/export data may vary as a result of
      different statistical practices. Data in Haiti is 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; 2000 figures are estimates based on data
      available through September. 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 used
      those numbers provided by USAID.

    1. General Policy Framework
        Haiti has a predominantly agriculture-based, market-oriented
    economy with a small industrialized export sector centered on textiles
    and garments. Historically, Haiti's economic performance has been
    strongly influenced by the United States, its principal trading partner
    and largest bilateral aid contributor. Over the last two years, the
    economy has been stagnant and declining, as the government has been
    gripped by a political crisis stemming from the disputed May 2000
    parliamentary elections.
        Starting in 1999, Haiti's economy began to slide after two years of
    positive growth as the result of a persistent political crisis. Real
    GDP growth fell and per capita GDP declined to about $540 in 2000.
    Macroeconomic stability was adversely affected by a significant
    increase in the fiscal deficit. The deficit, plus political uncertainty
    and higher world oil prices put pressure on the exchange rate and
    inflation. The prolonged political crisis has had a negative effect on
    private sector confidence and levels of investment. Foreign assistance
    levels declined steadily in the late 1990s and the political situation
    prevented donors from developing a comprehensive strategy to address
    pervasive structural problems in the economy. Public revenue from
    taxation and customs duties is low and there is little scope to
    increase exports or tax revenue in the short term. Haiti already is the
    poorest country in the Western Hemisphere. The weakening of its economy
    in 1999-2001 has serious implications for future economic development
    as well as longer-term efforts to improve living standards and
    alleviate poverty.
        Lack of economic reform progress remains a major problem. In late
    2000, a Staff Monitored Program was negotiated with the IMF but the
    Government of Haiti was not able to meet the agreed benchmarks within
    the first quarter after signature. The political crisis and the lack of
    an IMF agreement prevent the resumption of crucial budgetary assistance
    from international donors. The absence of progress on economic reform
    has also discouraged private foreign and domestic investors from
    establishing new ventures in Haiti. The new Aristide government will
    have to address these and other fundamental issues if Haiti's economy
    is to break its historic cycle of economic oppression and poverty.
        The public sector deficit, historically a chronic problem,
    increased in 2000-2001 due to higher government spending, cutbacks in
    foreign aid, reduced economic activity, and widespread tax evasion.
    After the inauguration of President Aristide in February of 2001, the
    government pledged to increase tax revenues and, to a lesser extent,
    control expenditures. Historically, the Government of Haiti was heavily
    dependent on international assistance to finance its deficits resulting
    from a bloated public sector, central government support for
    inefficient state-owned enterprises, and significant unbudgeted
    expenses. Deficit spending in 2000-2001 and the end of multilateral and
    bilateral budgetary assistance from the donor community due to the
    political crisis led to an almost 30 percent depreciation of the gourde
    during the same period. The Government of Haiti was able to stabilize
    the value of the gourde through a combination of increased bank reserve
    requirements and the drawdown of foreign exchange reserves but may not
    be able to do so indefinitely.
        Structural reforms in 1986-87 greatly reduced government's role in
    Haiti's import-based economy. Additional reforms implemented in 1995
    further liberalized trade and the authorities do not restrict cross-
    border capital flows. In an economy dominated by small-scale traders
    and merchants, it is almost impossible for the government to control
    retail prices of food products and consumer goods. Utility prices and
    pump prices for fuel are probably the only exceptions to the rule.
        Much of Haiti's economy is informal, neither measured nor
    controlled by official regulations. Although the formal unemployment
    rate would exceed 50 percent if it were calculable, the labor
    participation rate is very high, as both men and women engage in
    informal economic activities to boost household income. Such activities
    include street vending, handicraft manufacturing, and the provision of
    personal services. Until recently, the formal banking sector did not
    extend credit to the informal sector, but new micro-credit programs are
    beginning to reach small- and medium-sized enterprises in Port-au-
    Prince.
        Resolution of Haiti's political crisis could unleash forces that
    could expand Haitian exports, revive the formal sector and improve
    prospects for foreign trade and investment. A period of sustained
    political stability is also necessary to implement a comprehensive,
    donor-supported program to remove the serious structural impediments to
    sustainable economic growth and poverty alleviation.
    2. Exchange Rate Policy
        Haiti has no exchange controls or restrictions on capital
    movements. Dollar accounts are available at local commercial banks. The
    gourde, the official currency, is allowed to float freely relative to
    the dollar and other currencies. For decades, the gourde was tied to
    the U.S. dollar at five to one, and it became common to quote prices in
    Haitian dollars as well as gourdes. The Haitian dollar, an artificial
    construct and not an actual unit of currency, is worth five gourdes.
    The exchange rate in October 2001 was about 25 gourdes to the U.S.
    dollar. Given the rising fiscal deficit in CY 2001 and a perceived
    uncertainty about the future of the economy, some observers believe the
    gourde may face continued depreciation in the future.
    3. Structural Policies
        The government's role in Haiti's market-oriented economy has been
    reduced since 1995. 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. Subsidized
    gasoline pump prices and utility rates are more effectively regulated,
    and are probably the only exceptions to market prices. Haitian law
    permits the government to adjust gasoline pump prices within a pre-
    determined band to reflect changes in world petroleum prices and
    exchange rate movements but this mechanism does not function
    automatically. The Haitian government raised pump prices in early
    September 2000 in response to high international market prices in late
    1999 and 2000, but it did not permit petroleum product prices to
    fluctuate when the world price of oil exceeded the band several weeks
    later. Despite the price hike, continued increases in international
    prices have cut sharply into government tax revenues from the sale of
    fuel products.
        Haiti's tax collection system is inefficient. Direct taxes on
    salary and wages represent only about 25 percent of receipts. Moreover,
    tax evasion is widespread. 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 Haitian
    government 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). Collection remains sporadic and inefficient,
    even though the tax authorities are under increasing pressure to raise
    tax revenues and have announced new measures to do so.
    4. Debt Management Policies
        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 portion 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 is about $1.1 billion. Despite a
    modest debt service burden, Haiti regularly falls into arrears on its
    payments to both bilateral lenders and International Financial
    Institutions.
    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 have been few significant
    barriers to U.S. exports since 1995. 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 2001, political and
    economic uncertainty significantly constrain growth. The import of
    firearms and other weapons into Haiti is controlled for foreign policy
    reasons. Prospective 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 domestic and foreign
    investors. An improved policy environment and the political will to put
    it into action are required, supported by the strengthening of key
    legal, regulatory and judicial institutions to create an environment of
    respect for the rule of law.
    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 exported to the United States and other countries that do not
    tolerate open infringement. Most manufactured goods sold here are
    imported. Pirated video and audiocassettes 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.
        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. 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. A draft update of the
    Labor Code is currently in circulation and may be considered when
    parliament reconvenes in 2001.
        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. 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.
    Unions complain that employers do not allow unions access to workers,
    and individuals that attempt to join unions risk being fired.
    Collective bargaining is nearly nonexistent, especially in the private
    sector. Employers can generally set wages unilaterally, in compliance
    with minimum wage (currently set at 36 Haitian gourdes per day) and
    overtime standards.
        Haiti has one nascent export processing zone, 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 piece-work. 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. In recent
    years, the Ministry of Social Affairs has expanded the capacity of its
    Institute of Social Well-being (IBESR) 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,
    and the ILO has begun working closely with these sectors to meet
    international standards. Individual firms are motivated to comply with
    codes of conduct adopted by some of the U.S.-based multinational
    corporations that import textiles and garments from Haiti. They are
    making efforts to bring their plants into conformity with such codes.
    The Ministry of Social Affairs does not 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 a few 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  0
      Food & Kindred Products...  0            .............................
      Chemicals & Allied          0            .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  ...........  0
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  (\1\)
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  0
        Total All Industries....  ...........  50
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    HONDURAS

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP (US$) \2\.............    5,346.0     5,704.0     5,903.6
      Real GDP Growth (pct).............       -1.9         4.7     3.5-4.0
      GDP by Sector:
        Agriculture.....................    1,482.0     1,587.0     1,621.0
        Manufacturing...................      992.0     1,025.0     1,116.8
        Services........................      491.0       508.0       694.6
        Government......................      305.0       318.0       319.8
      Per Capita GDP (US$/population)...        891         920         922
      Labor Force (000s)................    2,128.5     2,220.5     2,334.6
      Official Unemployment Rate (pct)..        3.7         3.3         4.2

    Money and Prices (annual percentage
     growth):
      Money Supply (M2).................       20.6        17.0        13.8
      Consumer Price Inflation..........       10.9        10.1        9-10
      Exchange Rate (LP/US$ annual
     average):
        Official........................      14.56       15.19       15.63
        Parallel........................      14.42       14.97       15.52

    Balance of Payments and Trade:
      Total Exports FOB.................    1,303.9     1,539.0     1,408.7
        Exports to United States \3\....      457.4       526.9       321.8
      Total Imports CIF.................    2,558.0     2,867.0     2,802.7
        Imports from United States \3\..    1,193.3     1,328.5       714.6
      Trade Balance.....................   -1,254.1    -1,328.0     -1393.0
        Balance with United States \3\..     -735.9      -828.5      -392.8
      External Public Debt..............    4,728.0     4,664.5     4,080.0
      Fiscal Deficit/GDP (pct)..........        3.7         3.2         4.9
      Current Account Deficit/GDP (pct).        3.2         4.1         5.6
      Debt Service Payments/GDP (pct)...       14.1        31.1        21.5
      Gold and Foreign Exchange Reserves    1,001.3     1,022.5     1,047.5
      Aid from United States \4\........      555.7        42.7        45.1
      Aid from Other Countries..........      165.2       212.4       159.9
    ------------------------------------------------------------------------
    \1\ 2001 figures are projections based on data available in July.
    \2\ GDP at factor cost.
    \3\ Honduran trade data does not include transactions with the large
      maquila (apparel assembly plants) sector, which is accounted for as a
      value-added service. U.S. government data for trade with Honduras is
      significantly higher: U.S. exports to Honduras were $2.4 billion in
      1999 and $2.6 billion in 2000. U.S. imports from Honduras were $2.7
      billion in 1999 and $3.1 billion in 2000.
    \4\ Includes USAID disaster relief and reconstruction assistance
      expenditures in response to Hurricane Mitch.

    1. General Policy Framework
        Despite recovering from the devastation of Hurricane Mitch in
    October 1998, Honduras is still one of the poorest countries in the
    hemisphere with low per capita income and education indicators. Massive
    international assistance, led by the United States at approximately
    $644 million for 1998-2001, provided emergency relief and is helping
    Honduras rebuild. Many of the homeless have received new houses in an
    effort led by churches, NGOs and the Honduran government. In general,
    the reconstruction effort has been on schedule and largely successful.
        Honduras received significant debt relief in the aftermath of
    Hurricane Mitch, including the deferral of all bilateral debt service
    payments between November 1998 and December 2001 by the Paris Club. In
    July 2000, Honduras reached its decision point under the Highly
    Indebted Poor Countries (HIPC) Initiative, qualifying the country for
    interim debt relief. On October 5, 2001, the IMF approved a third year
    Poverty Reduction Growth Facility (PRGF) program which could make
    Honduras eligible for up to $220 million in debt relief through the end
    of 2002.
        Honduras made progress toward macroeconomic stability. Inflation
    fell from 10.9 percent in 1999 to 10.1 percent in 2000 and is estimated
    to be 9 to 10 percent in 2001. A widening balance of payments deficit,
    initially worsened by the Mitch-induced recession with decreased
    exports (from crop damage and low world prices in coffee, bananas, and
    palm oil) and increased imports (for reconstruction), is being covered
    by international aid, reinsurance payments, and increased family
    remittances. Low world coffee prices during the 2000-2001 coffee
    harvest and a drought in June and July 2001 have further worsened
    Honduras' agriculture production capacity and, in addition to high
    international oil prices, ultimately the balance of payments deficit.
    In mid-2001, the Central Bank introduced dollar-denominated monetary
    absorption certificates as a way to stabilize inflation and the
    exchange rate and ordered that international reserves not drop below
    the 2000 level of $1.022 billion.
        Since 1990, succeeding governments have embarked on economic reform
    programs, dismantling price controls, lowering import tariffs, removing
    nontariff barriers to trade, adopting a free market exchange rate
    regime, removing interest rate controls, and passing legislation
    favorable to foreign investment. In the three-year PRGF approved by the
    IMF in March 1999, Honduras committed to privatize management of the
    airports, the telephone company, and electricity distribution. Airport
    management was turned over to a United States-led consortium in October
    2000, but the telephone company bid failed the same month and a bill
    authorizing privatization of electricity distribution continues to
    languish in Congress. In 2001, talk of opening the telecom market by
    bidding out the Band B cellular service has been met with resistance in
    the Congress. In addition, Honduras has also failed to privatize its
    electrical distribution sector for the past 22 months because of
    continued opposition within the Honduran Congress. As of November 2001,
    Congress has approved only 53 of 152 articles of law that would allow
    for privatization. Waiver requests were recently approved by the IMF,
    IDB, and World Bank for non-performance in this area. The sector
    remains highly inefficient and a drain on the Government of Honduras'
    budget. Congress passed laws in late 1998 to encourage foreign
    investment in the tourism, mining, and agriculture sectors, though
    their potential has yet to be realized. The biggest success story of
    all has been the growth of the apparel (assembly) industry, with
    significant U.S. investment, from virtually zero in 1989 to over 200
    plants in 2000 generating almost $550 million in foreign exchange and
    employing over 125,000 workers by December 2000. Implementation of the
    Caribbean Basin Trade Partnership Act in October 2000, which provides
    enhanced benefits to Honduras and other countries of the region, was
    expected to further boost investment and employment in the sector.
    However, a slowdown in the U.S. economy is blamed for over 20 maquila
    closings in 2001 and an estimated net job loss of 10,000 workers.
    Overall growth in foreign investment is hampered by a politicized
    judiciary subject to influence, a deficient education system, insecure
    property titles, non-transparent bidding procedures, cumbersome
    bureaucratic requirements, and generally perceived lack of private
    sector confidence in the government and the economy.
        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 U.S.-Honduras Bilateral Investment Treaty (BIT) entered
    into force in July 2001. The United States and Honduras are finalizing
    the text of a bilateral Intellectual Property Rights Agreement, a draft
    of which was initialed in March 1999. The Honduran Congress passed
    legislation in December 1999 to partially 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 accepted in a band seven percent above or seven
    percent below the base price established every five days. The base
    price moves according to relative inflation and price indices of
    Honduras' main commercial trading partners. During recent auctions, the
    Central Bank has been adjudicating an average of $8 million daily.
        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 inter-bank rate of
    exchange. Presently, commercial banks are required to sell 100 percent
    of these repatriated earnings to the Central Bank (except for exporters
    operating in free trade zones and export processing zones as well as
    remittances), which in turn auctions up to 60 percent in the open
    market.
    3. Structural Policies
        Trade Policy: In an effort to maintain competitiveness with its
    Central American neighbors, import tariffs were lowered and now range
    between 1 and 17 percent for most items. However, sensitive items such
    as automobiles are assessed additional nontariff charges that can equal
    35 percent. Honduras is a member of the Central American Common Market,
    which includes Costa Rica, El Salvador, Nicaragua and Guatemala. In
    1995, Honduras and other Central American Common Market (CACM) members
    agreed to work toward the full implementation of a common external
    tariff (CET) ranging between zero and 15 percent for most products, but
    allowing each country to determine the timing of the changes. With the
    exception of certain items, there are no duties for products traded
    among CACM members; however, Nicaragua imposed a 35 percent still
    current tariff on Honduran imports in December 1999 as a result of an
    ongoing maritime boundary dispute. Tariffs on certain raw materials and
    inputs produced outside the Central American region and tariffs on
    capital goods have been reduced to one percent. Extra-regional tariffs
    for intermediate goods have been reduced to 10 percent, while tariffs
    on finished goods have been reduced to 15 percent. On August 29, 2000,
    Honduras, along with Nicaragua, joined the customs union formed by
    Guatemala and El Salvador in 1996. In order to facilitate customs'
    processing, El Salvador and Guatemala established Satellite Customs'
    Offices at the Honduran port of Puerto Cortes and the El Amatillo
    border crossing between Honduras and El Salvador.
        After nine years of negotiations, a free trade agreement between
    the members of the Northern CACM Triangle (Honduras, Guatemala and El
    Salvador) and Mexico took effect on June 1, 2001. A free trade
    agreement with the Dominican Republic and an agreement strengthening
    trade relations with Colombia were approved by the Honduran National
    Congress in October 2001. Honduran trade officials are close to
    finishing negotiations with Chile. In addition, Honduras has showed
    interest in a free trade agreement with Canada and Taiwan.
        Pricing Policy: Medicines are the only products under a formal
    price control regime. The government also reviews the price of
    gasoline, diesel, and liquid propane gas, as well as the rates for
    public transportation and public utilities. In addition, the Government
    of Honduras also maintains informal control over prices of cement and
    certain staple products, such as milk and sugar, by pressuring
    producers and retailers to keep prices as low as possible. Products
    imported into Honduras are usually priced on the CIF value, import
    duties, in-country transportation costs, and distribution margins.
        Tax Policies: The corporate income tax rate decreased from 30
    percent in 1998 to 25 percent in 1999. The sales tax was increased from
    7 percent to 12 percent in 1998 for most products. Products exempted
    from this tax include staple foods, milk, juice, purified water, fuels,
    medicines, agrochemicals, household cleaning products, books, magazines
    and educational materials, agricultural machinery and tools,
    handicrafts, and capital goods such as trucks, cranes, tractors, and
    computers. Alcohol, cigarettes, and tobacco products are assessed a 15
    percent tax. A one percent tax applied on the FOB value of all export
    articles was eliminated in 2000. Export taxes on bananas have been
    reduced in stages from 50 to 4 cents a box in 2000. Special export
    taxes on seafood, sugar, and live cattle were eliminated in 2000.
    Tourism services have been subject to a four percent tax since 1998.
    4. Debt Management Policies
        At the end of 2000, Honduras' total external debt stock was $4.08
    billion. Honduras signed an Enhanced Structural Adjustment Facility
    (ESAF, now Poverty Reduction and Growth Facility [PRGF]) Agreement with
    the IMF in March 1999. In April 1999 the Paris Club granted a three-
    year rescheduling on Naples terms: 67 percent reduction of eligible
    debt. Combined with the debt service deferral, this reduced the
    originally scheduled debt service for 1999 from $396 million to $348
    million. Honduras also received special assistance from bilateral
    donors, mainly through the Central American Emergency Trust Fund
    (CAETF), which reduced its debt service payments to multilateral
    creditors. Honduras received pledges of donor support at the May 1999
    Consultative Group Meeting in Stockholm of $2.7 billion. In July 2000,
    the IMF and the World Bank Boards approved Honduras' decision point
    under the Heavily Indebted Poor Countries (HIPC) Initiative. In October
    2001, the IMF approved Honduras' third-year PRGF, and along with the
    World Bank, the Poverty Reduction Strategy Paper, which makes Honduras
    eligible for interim debt relief and qualify for $556 million in debt
    relief in present value terms or $900 million in nominal terms at its
    completion point in December 2002. Some key conditions of the new PRGF
    include controlling public sector wages, submitting legislation to
    reform the civil service, and financial legislation to limit the
    personal liability of bank regulators and halting the real appreciation
    of its currency.
    5. Significant Barriers to U.S. Exporters
        Import Policy: The government forbids the import of certain items
    that compete with domestic industries. These vary over time, but at
    present include cement, sugar, rice from southeastern Asia, and beef
    from South America. Import restrictions are also imposed on firearms
    and ammunitions, toxic chemicals, pornographic material, and narcotics.
    Other import restrictions are applied to chicken meat. Import
    restrictions are mainly based on phytosanitary, public health, public
    morals, and national security factors.
        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, insurance 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, contain
    expiration dates, and be 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 Honduran Constitution requires that all
    foreign investments complement, but not substitute for, national
    investment. Although there is a clear preference on the part of the
    government for new foreign investment in export industries, there are
    no officially mandated requirements that foreign investors must satisfy
    as a condition for investing in Honduras. The 1992 Investment Law
    guarantees national treatment to foreign private firms in Honduras,
    with only a few exceptions. There are restrictions limiting the number
    of foreign nationals working for a company. In certain types of
    industries, majority Honduran ownership is required. Roasting of coffee
    (traditionally Honduras' second foreign exchange earner) is tightly
    controlled by four or five firms. Foreign companies that wish to own
    land based on the Agrarian Reform Law, engage in commercial fishing,
    local transportation, and forestry, or are representatives, agents, or
    distributors for foreign companies or seek to operate radio and
    television stations, must partner with Honduran nationals. There are
    also limits on the amount of land a single corporation may own. Small-
    scale commercial and industrial activities with an investment no
    greater than Lempiras 150,000 ($11,000) excluding land, buildings and
    vehicles are reserved exclusively for Honduran nationals.
        The Honduran Constitution prohibits the foreign ownership of land
    within 40 kilometers of land borders and shorelines. A proposed
    constitutional amendment to modify the prohibition was dropped in 1999
    due to opposition by ethnic 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. Embassy
    has worked extensively to assist these citizens, most of whose cases
    are being litigated in Honduran courts.
        On July 12, 2001, a Bilateral Investment Treaty between the United
    States and Honduras went into force. The Treaty provides for equal
    protection under the law for U.S. investors in Honduras and permits
    expropriation only in accordance with international law standards and
    accompanied by adequate compensation. U.S. investors in Honduras also
    have the right to submit an investment dispute to binding international
    arbitration.
        Government Procurement Practices: Foreign firms are legally given
    the same treatment as national firms for public bids. In practice,
    however, 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. By
    law, local agency firms must be at least 51 percent Honduran-owned,
    unless the procurement is classified as a national emergency.
        Under the State Contracting Law, all public works contracts over
    Lempiras 200,000 ($13,000) must be offered through public competitive
    bidding. The government publishes tenders in Honduras' major
    newspapers. All contracts over Lempiras 2,250,000 ($150,000) with
    government ministries must be reviewed by the Office of the State's
    Legal Advisor. Government purchases and project acquisitions are
    generally exempted from import duties.
        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. In February
    2000, Honduras implemented the World Trade Organization Customs
    Valuation Agreement, which establishes rules for the determination of
    the customs value.
    6. Export Subsidies Policies
        Almost all export subsidies have been eliminated. The Temporary
    Import Law (RIT) allows exporters to introduce raw materials, parts,
    and capital equipment into Honduras exempt from surcharges and customs
    duties if the product is to be incorporated into a product which is
    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 who export to the government are required by law
    to sell through an agent or distributor.
    7. Protection of U.S. Intellectual Property
        Honduras largely complied with the World Trade Organization's Trade
    Related Aspects of Intellectual Property Rights (TRIPS) Agreement's
    required January 1, 2000, deadline. In December 1999, the Honduran
    Congress passed two new laws related to intellectual property to
    correct deficiencies in previous legislation concerning copyrights,
    patents, and trademarks. The new Copyright Law adds more than 20
    different criminal offenses related to copyright infringement and
    establishes fines and suspension of services that can be levied against
    offenders. The new Law of Industrial Property, which covers both
    trademarks and patents, includes modifications on patent protection for
    pharmaceuticals, extending the term from seventeen to twenty years to
    meet international standards. The term for cancellation of a trademark
    for lack of use has been extended from one year to three years. Bills
    protecting integrated circuits and genetic plant modifications are
    pending before the Honduran Congress.
        To be protected under Honduran law, patents and trademarks must be
    registered with the Ministry of Industries and Trade. The life of a
    patent ranges from 10 to 20 years, depending on the importance of the
    invention. Trademarks are valid for up to 10 years from the
    registration date. Well-known trademarks are protected under the Pan
    American Convention (1927), to which Honduras is a party.
        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 and computer
    software. The illegitimate registration of well-known trademarks is
    still a problem as well. The United States and Honduras initialed a
    Bilateral IPR Agreement in March 1999. Signing of this agreement is
    still pending.
    8. 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. 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 14 percent of the work force is
    unionized, so 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. Labor or civil courts can require employers to
    rehire employees fired for union activity. 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 the
    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 family farms, as street vendors, or in
    workshops to supplement the family income. In September 1998, the
    government created the National Commission for the Gradual and
    Progressive Eradication of Child Labor. In June 2001, the National
    Congress ratified Convention 182 of the International Labor
    Organization prohibiting the Worst Forms of Child Labor.
        e. Acceptable Conditions of Work: 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
    $2.25 to $3.19 (35.00 to 49.50 lempiras) per day, depending on whether
    the employer has more than 15 employees. The highest minimum wage is
    $4.08 (63.30 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.
    In October 2000, the private sector and two of Honduras' three national
    labor confederations negotiated a general monthly wage increase of $23
    (350 lempiras) for workers earning up to $400 (6000 lempiras) per
    month. This increase will take effect upon its approval by the Honduran
    Congress.
        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. In establishing new investments in Honduras, U.S.
    businesses in recent years consciously have constructed their plants to
    meet more stringent U.S. laws and regulations. Some U.S.-owned apparel-
    assembly plants have implemented the Worldwide Responsible Apparel
    Production, an industry code of conduct.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  192
      Food & Kindred Products...  208          .............................
      Chemicals & Allied          2            .............................
       Products.
      Primary & Fabricated        -1           .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  -26          .............................
      Other Manufacturing.......  ...........  .............................
    Wholesale Trade.............  ...........  3
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  9
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  -119
        Total All Industries....  ...........  115
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    JAMAICA

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.......................    6,818.2     6,894.8     6,948.0
      Real GDP Growth (pct) \2\.........       -0.4         0.8         0.5
      GDP by Sector:
        Agriculture, Forestry and             509.7       479.4         N/A
         Fishing........................
        Mining and Quarrying............      305.4       319.2         N/A
        Manufacturing...................      987.0       990.4         N/A
        Construction and Installation...      703.5       713.9         N/A
        Electricity and Water...........      260.5       297.2         N/A
        Transportation, Storage, and          735.8       731.9         N/A
         Communication..................
        Retail Trade....................    1,468.9     1,476.0         N/A
        Real Estate Services............      421.7       419.7         N/A
        Government Services.............      865.6       838.6         N/A
        Finance.........................      554.1       567.3         N/A
        Other...........................      524.4       534.5         N/A
        Less Imputed Service Charges....      518.3       473.2         N/A
      Per Capita GDP (US$)..............    2,643.0     2,652.0     2,670.0
      Labor Force (000s)................    1,119.1     1,105.3         N/A
      Unemployment Rate (pct)...........       15.7        15.5        15.5

    Money and Prices (annual percentage
     growth):
      Money Supply (M3) \3\.............       17.3        10.6         2.0
      Consumer Price Inflation..........        6.8         6.1         7.0
      Exchange Rate (JDOLS/US$--annual        39.33       43.32       45.90
       average).........................

    Balance of Payments and Trade:
      Total Exports FOB.................    1,247.0     1,300.0     1,285.0
        Exports to United States........      461.0       496.0       400.0
      Total Imports CIF.................    2,904.0     3,191.0     3,267.0
        Imports from United States......    1,437.0     1,431.0     1,468.0
      Trade Balance.....................   -1,657.0    -1,891.0    -1,982.0
        Balance with United States......     -976.0      -935.0    -1,068.0
      External Public Debt \4\..........    3,024.1     3,375.2     3,970.0
      Fiscal Balance/GDP (pct) \5\......       -4.3         1.4         N/A
      Current Account Deficit/GDP (pct).        3.7         4.1         N/A
      Debt Service Payments/GDP.........       32.7        32.9         N/A
      Net International Reserves \6\....      446.3       970.0     1,600.0
      Aid from United States \7\........       23.1        13.6        14.4
      Aid from All Other Sources \8\....      165.4       302.7         N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on available monthly data as of
      September 2000.
    \2\ Growth rate is based on Jamaican dollars whereas nominal GDP is
      shown in U.S. dollars.
    \3\ 1999 and 2000 figures is growth from December to December. Figure
      for 2001 is growth from January-June.
    \4\ Figure as of May 2001.
    \5\ Jamaican fiscal year (April-March).
    \6\ Figure based on September 2001.
    \7\ Estimates include development, food, and military assistance for
      FY99, FY00 and FY01.
    \8\ Estimated disbursements for development assistance from Jamaica's
      cooperation partners (bilateral and multilateral).

    1. General Policy Framework
        Jamaica is an import-oriented economy. Imports of goods and
    services totaled US$ 4.08 billion or 55 percent of GDP in 2000. Of this
    total, raw materials amounted to US$ 1,713 million, while consumer
    goods and capital goods amounted to US$ 976 million and US$ 511 million
    respectively. Tourism (estimated at 15 percent of GDP), bauxite/alumina
    (9 percent of GDP), and manufacturing exports (including apparel,
    processing of sugar, beverages and tobacco estimated at 16 percent of
    GDP) are the major pillars sustaining the economy. In 2000, these three
    sectors accounted for about 76 percent (US$ 2.48 billion) of the
    country's exports of goods and services. Remittances from Jamaicans
    living abroad are also a significant source of income and bring in over
    US$ 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 1.11 million, representing 61 percent
    of total population 14 years and over. Women account for 44.4 percent
    of the total labor force. About 65 percent of Jamaica's work force is
    employed in the services sector, contributing about 60 percent of GDP
    in constant 1986 dollars. Agriculture accounts for 7.1 percent of GDP
    and employs 22 percent of the workforce. The primary agricultural
    products are sugar, bananas, coffee, and cocoa. The small size of the
    domestic market, relatively high production costs, and inexpensive
    imports have reduced the contribution of the manufacturing sector over
    the last several years to about 16 percent of GDP in 2000. The apparel
    industry began to contract in the mid-1990's. Employment in that sector
    is approximately 13,000, a decline of 64 percent from 1995.
        The Jamaican economy grew by 0.8 percent in 2000 after four
    consecutive years of economic decline. Economic performance from 1995-
    1999 was hampered by a financial sector crisis, unfavorable
    international developments, high interest rates limiting economic
    expansion, adverse weather conditions affecting agriculture and the
    restructuring (downsizing/mergers and bankruptcies) of companies the
    result was reduced consumption and falling real investment. Economic
    performance in 2000 was boosted by 4.4 percent growth in service
    sectors (tourism, financial sector, electricity, water, transport,
    storage, and communications). Marginal growth in manufacturing and
    construction was offset by contraction in agriculture and the bauxite
    industry, resulting in a net 2.3 percent decline in the goods-producing
    sectors.
        The economic recovery continued into the first half of 2001.
    However, the recent downturn in the U.S. economy is likely to have a
    negative impact on the tourist industry and some export industries.
    Bauxite/alumina and telecommunications are expected to show robust
    growth this year, while most other sectors may show modest growth. The
    government has maintained a stable macro economic framework and is
    committed to continued fiscal and monetary restraint under its IMF
    Staff Monitored Program (SMP). A sustained reduction in interest rates
    is a major objective of the 2001 economic program. Lower domestic
    interest rates would reduce debt-service requirements and encourage
    private investment.
        The Government of Jamaica's five-year program to rescue the banking
    and insurance sector following the 1996 financial collapse is in its
    final stages of operation. The Financial Sector Adjustment Company
    (FINSAC), a government agency established in February 1997 to provide
    funding and to reorganize illiquid financial institutions, has
    completed its intervention and rehabilitation phase and is now
    accelerating the divestment of assets. To facilitate FINSAC's exit, the
    debt obligations of FINSAC have been addressed by:

       the write off of FINSAC's debt obligations to the public
            sector entities and to the Central Government;

       the repayment of obligations to the Bank of Jamaica;

       the pay-down of some FINSAC bonds through concessional loans
            from the Inter-American Development Bank (IDB), CDB and World
            Bank; and

       the assumption of remaining FINSAC liabilities by the
            Central Government through the conversion of FINSAC bonds to
            Local Registered Stocks (long term loans).

        Since 1997, a series of amendments to the laws governing the
    financial sector have been passed to strengthen the regulation of the
    sector. The most recent is the Financial Services Commission (2000).
    This commission will be responsible for the efficient regulation and
    supervision of entities dealing in securities, collective investment
    funds (e.g. unit trusts and mutual funds), investment advisors, the
    insurance industry, and pension funds.
        The Jamaican government's fiscal year (JFY) April 2001/March 2002
    budget calls for JDOLS 185.5 billion in outlays. This is a 1.6 percent
    decline over the revised 2000/01 budget. For JFY 2001/02, recurrent
    expenditure is estimated at JDOLS 106.4 billion and capital expenditure
    at JDOLS 79.1 billion. Debt servicing is by far the largest expenditure
    category, accounting for 62 percent of the total budget. Other major
    budget expenditures include: education (10.7 percent), general
    government services (6.3 percent), public order and safety (5.3
    percent), health services (4.2 percent), roads (1.2 percent), tourism
    (1 percent), and transport and communication services (1 percent).
        The Government of Jamaica expects to finance about 59 percent of
    the JDOLS 185.5 billion in expenditures through a projected total
    revenue of JDOLS 108.7 billion. Recurrent revenues include: tax and
    non-tax receipts, capital revenue (royalties, land sales, loan
    repayments, and divestments), and transfers from the capital
    development fund (including the bauxite levy). The balance will come
    from debt including both external borrowing, JDOLS 32.3 billion (or
    42.1 percent of the total deficit) and internal borrowing, JDOLS 44.5
    billion.
        The Bank of Jamaica (BOJ) continues a tight monetary policy and
    absorbs excess liquidity by issuing long-term securities (local
    registered stock) and short-term treasury bills. Open market operations
    is one means by which the Government of Jamaica funds its fiscal
    deficit. The BOJ continues to reduce excess liquidity through the
    reverse repurchase of treasury bills.
        The BOJ lowered the cash reserve requirement for commercial banks
    from 25 percent in August 1998 to 10 percent in September 2001.
    However, commercial banks have been slow to respond by lowering their
    lending rates and domestic credit is under utilized.
    2. Exchange Rate Policy
        Jamaica eliminated exchange controls a decade ago. The principal
    remaining restriction is that foreign exchange transactions must be
    done through a licensed dealer or cambio. Any company or person
    required to make payments to the government by agreement or law, such
    as the levy and royalty due on bauxite, must make those payments
    directly to the Bank of Jamaica. Authorized dealers and cambios are
    required to sell a minimum of 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 2000, total foreign exchange inflows through commercial banks
    and cambios increased by 33.8 percent over 1999 to US$ 4.6 billion.
    From January to August 2001, foreign exchange inflows into the official
    market declined by 5 percent over the corresponding period in 2000 to
    US$ 2.4 billion. The average weighted selling rate for the JDOL
    remained fairly stable moving from JDOLS 45.53 to the U.S. dollar in
    December 2000, to JDOLS 45.80 to the U.S. dollar in the first eight
    months of 2001. There is a broad perception in the market that the
    Jamaican dollar is at least somewhat overvalued. However, the
    Government of Jamaica is committed to defending the exchange rate
    within a targeted band.
    3. Structural Policies
        In general, prices are freely determined. 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. The Fair Competition Act provides for an
    environment of free and fair competition and consumer protection.
        According to JFY 01/02 estimates, tax revenues account for 90.5
    percent of total recurrent and capital revenue. Major sources of tax
    revenue include: personal income tax (38.8 percent of total tax
    revenue), value added tax (28.0 percent), special consumption tax (10.9
    percent), and import duties (10.4 percent). The budget continues to
    target inflation through a tight fiscal policy. The government proposes
    covering the budget deficit by a combination of revenue enhancement
    measures (such as user fees, drivers license fees and stamp duties),
    expansion of the tax net, divestment proceeds and by borrowing.
        In January 1999, the Caribbean Community (CARICOM) Common External
    Tariff (CET) reduction was implemented by the Government of Jamaica
    thus reducing import or customs duty rates on non-CARICOM products to a
    maximum of 20 percent. Goods originating from CARICOM countries are not
    subject to import duties. In order to protect local producers, import
    duties on 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 25-63 percent) and special consumption tax (ranging from
    5-39.9 percent). Further, most imported items are subject to the 15
    percent General Consumption Tax (GCT).
        The responsibility for the procurement of commodities under
    government to government agreements such as the PL. 480 program was
    transferred to the Trade Board in FY2000. The 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 increased by 11.6
    percent to US$ 3.38 billion in 2000 following a decline of 8.5 percent
    in 1999. About 36 percent of the external debt is owed to bilateral
    donors, of which the United States is the largest, and 33 percent to
    multilateral institutions. Government securities, primarily bonds,
    account for 25.6 percent of the external debt, while five percent of
    the external debt is owed to commercial banks. The balance of external
    debt, 1.4 percent, is composed of supplier credit and other government
    liabilities. The British Government has agreed to grant debt relief
    under the UK/Jamaica Commonwealth Debt Initiative Arrangement for the
    period of April 1, 1999 to March 31, 2001 amounting to 5.4 million
    pounds sterling and for the period April 2000 to March 2003 amounting
    to 11.4 million pounds sterling. In addition, the Canadian government
    forgave CDOLS 18.1 million in bilateral debt during FY01/02. External
    debt is likely to show modest growth during the year 2001. 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.
        In 2000, the World Bank reclassified Jamaica from ``severely
    indebted'' to ``moderately indebted'' country. In April 2001, Moody's
    and S&P upgraded the credit rating to Ba3 and the outlook for Jamaica
    from ``stable'' to ``positive'' respectively. Despite these positive
    developments, total debt service obligations continue to be of serious
    concern. According to JFY01/02 official budget projections, debt
    servicing will account for 62 percent of total expenditures. In July
    2000, Jamaica reached an agreement with the Fund on a Staff-Monitored
    Program (SMP), under which IMF staff will work with the Government of
    Jamaica to monitor compliance with a mutually-agreed medium-term
    economic program.
        The Government of Jamaica has outlined medium-term strategies to
    manage the debt problem that include: renegotiating and refinancing
    domestic debt, lowering interest rates, reducing the volume of domestic
    debt and accessing external capital market for additional funds.
        Official external debt increased by 17.8 percent from January
    through May 2001, to US$ 3.97 billion. A US$ 153.5 million Eurobond
    issue in February and a US$ 400 million Eurobond issue in May
    contributed to the increase. According to the Ministry of Finance, the
    government borrowed on international capital markets early this year in
    order to take advantage of ``opportunities in the capital market'' and
    to shift the government's high-interest, Jamaican dollar denominated
    paper to dollar and euro denominated paper at minimum cost. Ministry of
    Finance officials expect no significant borrowing during the rest of
    the year. Total external debt is expected to fall during the second
    half of the year as the government continues scheduled repayments
    without taking on new obligations.
        Jamaica's internal (domestic) debt has ballooned over the last five
    years, from JDOLS 77.7 billion in 1996 to JDOLS 187.5 billion in 2000.
    As of May 2001, internal debt stood at JDOLS 284.6 billion. This rapid
    increase was due largely to the conversion of FINSAC debt into Local
    Registered Stock (LRS--long term government securities) in order to
    bring obligations incurred during the financial sector clean up ``on
    budget.'' Domestic debt is composed of government securities such as:
    T-bills (4.1 percent), Local Registered Stock (71.9 percent), bonds
    (22.4 percent), and loans from commercial banks and other entities (1.7
    percent).
    5. 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 encouraged to invest in
    almost every area of the economy. In September 1999, the Government of
    Jamaica and Cable and Wireless of Jamaica, Ltd. agreed to accelerate
    the end of the monopoly rights originally granted to Cable and Wireless
    until 2013. This agreement will phase-out Cable and Wireless' telecoms
    monopoly over the course of three years (i.e., by 2003). During the
    first phase in 1999/2000, the Government of Jamaica issued two mobile
    phone licenses to Digicel (an Irish company) and U.S.-based cellular
    company Centennial Communications Corp. Phase Two of the
    telecommunications sector's liberalization became effective September
    1, 2001, when full facilities based competition in domestic services
    including Internet access using cable television networks and wireless
    local loop began. However, there are still certain restrictions in the
    communications field: under the cable television policy, preference in
    licensing is given to companies that are incorporated in Jamaica and in
    which majority ownership and controlling interest are held by Jamaican
    or CARICOM member-state nationals. The Embassy is not aware of any
    other economic or industrial strategies that have discriminatory
    effects on U.S. 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 stipulations, including labeling requirements. Items sold
    in Jamaica must conform to recognized international quality
    specifications. Imported goods are expected to conform to the metric
    system. 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. As of September 14, 2000,
    the Customs Department began to collect a new standards compliance fee
    of 0.03 percent of CIF from importers on behalf of the Bureau of
    Standards. The Quarantine Division of the Ministry of Agriculture
    inspects and determines standards in the case of live animals. The
    Ministry of Health inspects meat imports. No animal carcasses (meat,
    bones, hide, skin, hooves, etc.) can be imported without a permit
    issued by the Director of Veterinary Services, Jamaica, along with an
    official health certificate issued by an official government
    veterinarian.
        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. Both foreign and domestic companies complain that ``red
    tape'' is an obstacle to doing business, but foreign investors are not
    treated differently than domestic investors, either before or after
    establishment.
        Government procurement practices: Government procurement is
    generally done through open tenders. U.S. firms are eligible to bid.
    The National Contracts Commission is the central body responsible for
    awarding government contracts.
        Customs procedures: An ongoing modernization program at the Customs
    Department includes the computerization of most customs operations.
    However, inadequate staffing and administrative problems at Customs
    still result in periodic delays.
        Anti-Dumping laws: On July 1, 1999, the Government of Jamaica
    implemented the amended Customs Duties, Dumping and Subsidies Act.
    Among other things the Act establishes an Anti-Dumping and Subsidies
    Commission. Safeguard legislation (protecting industries from serious
    injuries caused by a sudden surge in imports of a particular item) has
    been submitted to the Cabinet for approval.
    6. Export Subsidies Policies
        The Export Industry Encouragement Act (EIEA) allows approved export
    manufacturers access to duty-free imported raw materials and capital
    goods and exempts those manufacturers from income and dividend taxes
    for a maximum of ten years. However, in accordance with the WTO
    Agreement on Subsidies and Countervailing Measures, the incentives
    offered under the EIEA will be phased out by 2003. Other incentives are
    available from the Jamaican government's Export-Import Bank, including
    access to preferential financing, lines of credit, medium term
    modernization fund lending (at 12 percent interest) and export credit
    insurance. The Jamaican Export-Import Bank (EX-IM) and the Jamaica
    Exporters Association (JEA) introduced a joint-venture loan program
    targeting small exporters in 1999. The EXIM bank provides JDOLS 40
    million for the program. JEA provides technical and financial support
    through its Small Business Export Development Project. In addition,
    effective September 2000, EXIM bank will make an additional JDOLS 150
    million available to exporters at 9.5 percent for short-term pre-and-
    post shipment working capital.
    7. Protection of U.S. Intellectual Property
        The Jamaican Constitution guarantees property rights, and Jamaica
    has enacted legislation to protect and facilitate the acquisition and
    disposition of all property rights, including intellectual property.
    Jamaica is a member of the World Intellectual Property Organization
    (WIPO) and a signatory of the Berne Convention (copyright protection).
    Jamaica and the United States signed a Bilateral Intellectual Property
    Rights Agreement in March 1994. In addition, the 1997 Bilateral
    Investment Treaty (BIT) also contains obligations to respect
    intellectual property.
        Jamaican laws address major areas of intellectual property rights
    (IPR) protection. The Copyright and Trade Mark Acts were amended in
    1999. Amendments to the Copyright Act protect compilation works such as
    databases. Amendments also protect individuals with rights in encrypted
    transmissions as well as in broadcasting or cable program services. In
    addition, the amendments grant a right of action against persons who
    knowingly infringe upon those rights for commercial gain. Remedies
    available include injunctions, damages, seizure and disposal/
    destruction of infringing goods. Penalties also may include fines or
    imprisonment.
        A revised bill on patents has been drafted and submitted to the
    parliament for discussion. The government expects this bill to be
    passed before the end of 2001/early 2002.
        Litigation is a viable option in protecting intellectual property.
    In individual lawsuits in Jamaican courts, a number of U.S.
    corporations have successfully defended their names and service marks
    against trademark infringement. Over the last three years, American
    companies including Kmart and Costco International have successfully
    sued local trading companies for trademark infringement. Jamaican
    companies have also successfully taken IPR infringers to court. In
    August 2000, Paymaster Jamaica Ltd. sued Bill Express for infringing on
    its exclusive rights to computer software.
    8. 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.
        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 of 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. Children are observed peddling
    goods and services, and there are scattered reports of children working
    in fishing villages. However, 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 nonexistent.
        In September 2000 the Government signed a memorandum of
    understanding with the ILO in preparation to ratify ILO Convention 182
    on the prohibition and elimination of the ``worst forms'' of child
    labor.
        e. Acceptable Conditions of Work: A 40-hour week with an 8-hour day
    is standard. Overtime and holiday pay are given at time-and-a-half and
    double time, respectively, except in the tourism industry. The minimum
    wage is JD 1,200 for a 40-hour week or JD 30 per hour though most
    workers are paid more. 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. Scarce
    resources and a narrow legal definition of the term ``factory'' combine
    to limit inspections.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  239
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          167          .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  259
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  14
     Estate.
    Services....................  ...........  53
    Other Industries............  ...........  1,969
        Total All Industries....  ...........  2,596
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     MEXICO

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                  1999      2000      2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP.............................      484       540       590
      Real GDP Growth (pct)...................      3.7       6.9         1
      GDP by Sector (Still seeking this
     information):
        Manufacturing.........................     92.5     107.6     109.0
        Agriculture...........................     20.6      22.7      23.0
        Services: \2\.........................
          Commerce, Restaurants, Hotels.......     87.6     110.7       115
          Transportation, Storage,                 49.0      59.7      63.4
           Communications.....................
          Financial, Insurance, Real Estate,       57.2      65.4      70.2
           Rents..............................
          Communal, Social, Personal..........      104     120.1     132.1
      Per Capita GDP (US$)....................    4,927     5,460     5,840
      Labor Force (Millions)..................     37.5      39.7      41.1
      Unemployment Rate (pct).................      2.5       2.2   \1\ 2.4

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)................     16.8       4.9      11.5
      Consumer Price Inflation................     12.3       9.0       6.5
      Exchange Rate (Peso/US$)................      9.6       9.4   \3\ 8.1

    Balance of Payments and Trade:
      Total Exports FOB.......................    136.4     166.4   \4\ 80.5
        Exports to United States..............    120.4     147.6      71.2
      Total Imports FOB.......................    142.0     174.5      84.4
        Imports from United States............    105.3     127.6      60.1
      Trade Balance...........................     -5.6      -8.1      -3.9
        Balance with United States............     16.0      20.0      20.4
      External Public Debt (net)..............     96.8      84.6      87.7
      Fiscal Deficit/GDP (Pct)................      1.1       0.9       0.7
      Current Account Deficit/GDP (pct).......      2.9       3.1       3.5
      Debt Service Payments/Exports (pct).....     20.2      14.7      13.8
      Gold and Foreign Exchange Reserves......     70.9      74.6      89.8
      Aid from United States..................      N/A       N/A       N/A
      Aid from All Other Sources..............      N/A       N/A       N/A
    ------------------------------------------------------------------------
    Note: The data comes from the Mexican Bulletin of Statistical
      Information (INEGI) and the Secretariat of Economy (SECON).
    \1\ Average of first seven months of 2001.
    \2\ Numbers are rounded.
    \3\ Average of first seven months of 2001.
    \4\ Accumulated trade first six months of 2001.

    1. General Policy Framework
        Mexico has experienced uninterrupted economic growth since 1996.
    Growth averaged 5.2 percent during 1996-1999 and reached 6.9 percent in
    2000. Due to the downturn in the U.S. economy, 2001 growth estimates
    are sharply down. Analysts forecast the September 11 terrorist attacks
    against the United States will impede any growth that had been
    anticipated for Mexico for the remainder of 2001 and the beginning of
    2002.
        Exports, led by the ``maquiladora'' industry, remain Mexico's
    primary engine of growth. Mexico's exports totaled $166 billion in
    2000, representing nearly 31 percent of Mexico's GDP. Almost 90 percent
    of Mexico's exports went to the United States in 2000 representing over
    27 percent of Mexico's GDP. Mexico's close ties to the U.S. market were
    an advantage during the long expansion in the United States but now
    sharply limit Mexican growth.
        Mexico is trying to diversify its markets through bilateral and
    multilateral trade agreements, including a Free Trade Agreement (FTA)
    with the European Union, which was concluded in 2000. These FTAs will
    eventually create new markets for Mexican products, while allowing more
    foreign competition, although we expect that exports to the United
    States will continue to dominate Mexico's trade picture.
        Reflecting the peso appreciation caused by high exports and strong
    FDI inflows, Mexico's imports have been rising faster than exports, and
    have reversed Mexico's trade surplus of earlier years. Mexico's trade
    deficit for 2000 totaled about $8 billion and may rise in 2001.
        Mexico is the second-largest trading partner for the United States
    after Canada. The United States is overwhelmingly Mexico's largest
    export market and source of imports. Two-way trade with the United
    States totaled $275.2 billion in 2000. During the first six months of
    2001, two-way trade amounted to $131.3 billion, down somewhat from the
    first six months of 2000. We expect the final trade figure for 2001 to
    be lower than 2000 because of the economic slowdown in the United
    States and the decrease in border-cross trade in the aftermath of
    September 11. However, this would be the first decline since NAFTA was
    implemented in 1994. Once a recovery starts in the United States, we
    expect the two-way trade figures to grow again.
        The Mexican government adopted tight monetary and fiscal policies
    in 2000 in response to rapid economic growth (at one point in 2000, the
    economy was growing at 7.8 percent on an annualized basis). Growth for
    2001 has been revised downwards from seven percent to one percent or
    less, with negative growth for the last two quarters of 2001. Despite
    the economic outlook, the Mexican Central Bank is not likely to loosen
    monetary policy significantly because high wage settlements in some
    sectors and a weakening peso pose inflationary dangers. There is little
    room for a looser fiscal policy because the goal of the Fox
    Administration's proposed fiscal reform is to raise revenue as a
    percentage of GDP, not cut taxes.
    2. Exchange Rate Policy
        Since December 1994, the peso has been floating freely, with only
    infrequent interventions by the Bank of Mexico. During September and
    October 2001, the peso depreciated somewhat vis a vis the dollar but
    for most of 2000 and 2001 the peso appreciated. The central bank's
    tight monetary policy, strong export growth, and high FDI inflows
    largely explain the peso's real appreciation during the period. FDI
    inflows for 2001 were especially high because of Citigroup's $12.5
    billion purchase of Banamex. Mexico's oil exports in 2000 took on added
    significance because of high international oil prices (prices are
    currently declining). The accumulated impact of these developments
    raised Mexico's perceived creditworthiness, which further bolstered the
    value of the peso.
    3. Structural Policies
        Since the NAFTA was implemented in 1994, two-way trade between the
    United States and Mexico has grown from $106.5 billion to $275.2
    billion in 2000. The rapid growth in two-way trade has been remarkable
    given that Mexico's economy is about a twentieth of the size of the
    U.S. economy. Geographic proximity to the United States has spurred
    this growth, but the key factors have been NAFTA and Government of
    Mexico policies, which have effectively opened up the Mexican market to
    most types of U.S. exports and investment. In 2000, for instance, the
    United States supplied about 73 percent of Mexico's imports.
        Mexican law acknowledges Mexico's obligations under NAFTA and other
    international agreements regarding government procurement obligations.
    American firms have in the past complained to the U.S. Embassy that,
    occasionally, Mexican government procurement authorities have not
    complied with the obligation to provide forty days notice for bid
    submissions, but these complaints declined in 2001.
        Mexico is a lightly-taxed country by international standards. Tax
    collections plus revenues from the state-owned oil company, PEMEX,
    amount to roughly 18 percent of GDP. The Fox Administration has
    proposed a fiscal reform law, which would impose a uniform Value-Added
    Tax (VAT). The idea is to reduce Mexico's dependence on oil revenues,
    and generate net additional revenue for Mexico's pressing social needs.
    Moody's rated Mexican government bonds as investment grade last year,
    but Standard & Poors (S&P) is waiting to do so until passage of the
    fiscal reform law. The proposed law has run into stiff resistance in
    Congress and passage is uncertain.
    4. Debt Management Policies
        Mexico has successfully returned to international capital markets
    since the peso crisis. While Mexican bonds are still not rated
    investment grade by S & P, in January 2001 Mexican bonds were yielding
    only about 400 basis points above U.S. Treasurys. Mexico's 2001 foreign
    debt as a percentage of exports amounts to 93 percent, and its short-
    term debt as a percentage of reserves 65 percent. These are considered
    manageable numbers by most financial analysts.
    5. Significant Barriers to U.S. Exports
        There are no significant barriers to most U.S. exports in Mexico.
    There are, however, some products which are subject to anti-dumping
    and/or countervailing duties, which effectively shut out U.S. products.
    Products subject to these duties are listed in the March 2, 2001,
    edition of the Diario Oficial (Mexico's equivalent of the Federal
    Register) and include pork, beef, apples, High Fructose Corn Syrup
    (HFCS), liquid soda, hydrogen peroxide, ammoniac sulphate, gasoline
    additives, cristal polysterene, polycloride (PVC), bonded paper,
    corrugated rods, and unfinished steel tubes. American agricultural
    exporters are also concerned that in 2003, when import tariffs and
    quotas on a number of agricultural products are scheduled for
    elimination under the terms of the NAFTA, the Mexican government will
    come under pressure from local producers to place non-tariff barriers
    on many of these products.
        Mexico is open to most types of foreign investment. The two most
    important exceptions are energy and telecommunications. Mexico's
    constitution and Foreign Investment Law of 1992 reserve oil and gas
    extraction and electric power transmission for the state. Only Mexican
    citizens may own gasoline stations. Gasoline is supplied by PEMEX, the
    state-owned petroleum monopoly. These gasoline stations sell only PEMEX
    lubricants, although other lubricants are manufactured and sold in
    Mexico. Mexico does allow private, including foreign, ownership and
    operation of electric power plants. The government also encourages
    private sector participation in the transportation, distribution, and
    storage of natural gas. However, there has been little private and
    foreign investment in these areas because of regulatory uncertainties.
        Foreign investment in most telecommunication services is limited to
    a 49 percent equity position. In cellular telephony and paging
    services, 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.
        Telmex's legal monopoly on long distance and international
    telephone service ended in August 1996, and competition was introduced
    in January 1997. There is competition in all major cities and much of
    the rest of Mexico. Eight firms are authorized to provide long distance
    service; five of these have U.S. partners. USTR cited Mexico in its
    April 2001 annual ``1377'' review for failure to meet its commitments
    under the WTO Basic Telecommunication Agreement. USTR's concerns
    include a lack of proper regulation of the dominant carrier, Telmex,
    and failure of the regulator to provide for cost-based interconnection
    at all technically feasible points on Mexico's network, including
    cross-border interconnection and International Simple Resale. Local,
    basic telephone service is technically open to competition, but
    practical competition in this area has not developed. The United States
    is concerned about the lack of competition in Mexico's
    telecommunications sector and may pursue more competition in this
    sector through WTO mechanisms.
        Mexico has made a complete turnaround with respect to allowing
    private and foreign ownership in the banking sector. In 1982, the banks
    were nationalized. With this year's Citigroup acquisition of Banamex,
    foreigners now control about 80 percent of the banking industry.
    Citigroup, Banco Bilbao Vizcaya Argentarias (through its purchase of
    BANCOMER), and Banco Santander (through its purchase of SERFIN) hold
    roughly two-thirds of the nation's bank deposits. Foreign ownership
    over the medium-term should encourage the adoption of international
    standards in Mexican banking.
        With increased transparency as one of its objectives, the
    Government of Mexico revised the Federal Law on Metrology and
    Standardization in May 1997. While the changes provided for
    privatization of the accreditation program and greater transparency,
    some Mexican ministries continue to consider particular regulations to
    be executive orders that need not be published for comment and thereby
    exempt from WTO and NAFTA rules concerning notification of proposals
    and an opportunity for comment.
        U.S. exporters of certain vitamins, nutritional supplements, and
    herbal remedies have reported that Mexico's revised health law
    regulations impede their access to the Mexican market. There is a lack
    of clarity as to what products are now classified as medicines or
    pharmaceuticals, for which Mexico's Ministry of Health requires
    inspection and approval of the manufacturing facility in order to
    obtain a sanitary license. Additionally, Mexican government officials
    have advised U.S. industry and government officials that Mexican law
    does not allow them to conduct the required inspections and approvals
    for foreign-based facilities and are looking at ways to address these
    concerns consistent with WTO and NAFTA obligations. However, since the
    regulations' implementation in February 2000, the U.S. government has
    seen no progress.
        Mexico's Law on Metrology and Standardization mandates that
    products subject to technical regulations (``Normas Oficiales
    Mexicanas'' (NOMs)) be certified by the government agency that issued
    the NOM or by an authorized independent certification body. Under
    NAFTA, Mexico was required, starting January 1, 1998, to recognize
    conformity assessment bodies in the United States and Canada on terms
    no less favorable than those applied in Mexico. The current position of
    the Government of Mexico is to only recognize additional certification
    bodies on a ``needs basis'' raises serious concerns and is a strong
    indication that the existing product certification bodies will continue
    to monopolize the market.
        U.S. exporters have complained that standards are enforced more
    strictly for imports than for domestically produced products. Imports
    are inspected at the border by Customs, while domestic products are
    inspected randomly at the retail level by the Procuraduria Federal del
    Consumidor (PROFECO, the Mexican federal consumer protection agency).
    U.S. exporters have also complained of inconsistencies among ports of
    entry.
        Mexico has approximately 700 mandatory standards (NOMs), and the
    number increases weekly. Only 81 have been issued by the Secretariat of
    the Economy. The rest are from eight other government agencies. Each
    agency has its own NOM compliance certification procedures. Only
    Economy and the Secretariat of Agriculture (for a limited subsector of
    its NOMs) have published their certification procedures. On February
    29, 2000, SECOFI published new procedures to certify NOM compliance.
    They became effective on May 1, 2000. The new procedures apply only to
    Economyissued NOMs, and allow foreign manufacturers from countries
    having trade agreements with Mexico to hold title to NOM certificates.
    The procedures allow expansion of the ownership of a NOM certificate to
    more than one importer. Prior practice required each importer to pay
    for a separate certificate, even if importing a product identical to
    that imported by another importer (this remains true for NOMs issued by
    government agencies other than Economy).
        The new procedures were designed to reduce the cost of exports to
    Mexico by eliminating redundant testing and certification. However,
    companies complain that the product certification bodies have increased
    the cost of certification and are charging for expansion of ownership
    of a certificate. U.S. companies are thus not benefiting from the new
    procedures. Additionally, U.S. companies have reported the Mexican
    laboratories are requiring that the products tested and certified meet
    the rules of origin with which Mexico has a free trade agreement,
    basically tying rules of origin to conformity assessment.
        In 1996, Mexico enacted a new Customs Law that simplified
    procedures. The law transferred some operations 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 maintains (and in some cases has significantly
    expanded) measures that can make it more expensive to bring in
    legitimate imports, including an industry sector registry and estimated
    prices. During 2001, the most serious change was a reduction in the
    number of port-of-entry through which some textile products can enter
    Mexico.
        Mexico uses estimated prices for customs valuation of a wide range
    of products imported from the United States and other countries:
    including apples, milled rice, beer, distilled spirits, chemicals,
    wood, paper and paperboard products, textiles, apparel, toys, tools,
    and appliance. On October 1, 2000, the Mexican government implemented a
    burdensome new surety system for goods subject to these prices. Since
    that date, importers can no longer post a bond to guarantee the
    difference in duties and taxes if the declared value of an entering
    good is less than the official estimated price. Instead, they must
    deposit the difference in cash at a designated Mexican financial
    institution or arrange one of two alternative sureties (a trust or line
    of credit). The cash is not returned for six months, and then only if
    the Mexican government has not initiated an investigation and if the
    supplier in the country of exportation has provided an invoice
    certified by its local chamber of commerce. U.S. exporters have long
    complained that estimated pricing under Mexico's old surety system
    unfairly restricted trade, but implementation of the cash deposit
    requirement has created significant additional costs. Indeed, Mexican
    banks charge as much as $1,500 to open cash accounts and $250 for each
    transaction.
    6. Export Subsidies Policies
        The government does not have 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 Producers 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 established 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.
    Mexico has acceded to the WIPO Copyright Treaty and the Performances
    and Phonograms Treaty, which provide protection for digital works.
        The United States and Mexico regularly review progress on IPR
    issues. The United States is principally concerned with the lack of
    consistent enforcement of IPR rights in Mexico. According to statistics
    collected by industry organizations, IPR enforcement actions during the
    first six months of 2001 declined significantly compared with the first
    six months of 2000. Music piracy increased dramatically in 2000
    compared with 1999, according to industry. Total losses in 2000
    amounted to $ 525.7 million. Besides combating the continuing high
    piracy levels in Mexico, the United States wants Mexico to improve its
    protection of test data held by patent holders from use by ``second
    comer'' companies seeking permission to market drugs. The United States
    is also concerned that the Mexican Copyright Law is not fully compliant
    with NAFTA and the WTO Agreement on Trade-Related Aspects of
    Intellectual Property Rights and is consulting with Mexico on how to
    address the deficiencies.
    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; about 25
    percent of the work force is unionized. 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. In 1999, a 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. A 2000 Supreme Court decision
    invalidated ``exclusion contracts,'' which mandated that only one trade
    union could represent workers.
        Most labor confederations, federations, and separate national
    unions are still allied with the Institutional Revolutionary Party
    (PRI), which governed Mexico for 71 years, until December 2000. Union
    officers help select, run as, and campaign for PRI candidates in
    federal and state elections, and have supported PRI government policies
    at crucial moments. This generally gave the unions some influence on
    government policies, but limited their freedom of action. Rivalries
    within and between PRI-allied organizations have been strong. Although
    the benefits of labor's special relationship with the PRI and the
    government have been decreasing in recent years, the PRI's loss of the
    presidency in July 2000 will be the real test of the relationship. A
    smaller number of labor federations and independent unions are not
    allied with 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. As many as 90
    percent of contracts registered are signed without the knowledge or
    approval of the workers. Independent unions have often encountered
    obstacles to recognition, especially by local labor boards. Industry or
    sectoral agreements carry the weight of law in some sectors and apply
    to all sector firms, unionized or not, although 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, as had been the case for the previous 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 for many years.
        d. Minimum Age for Employment of Children: The FLL sets 14 as the
    minimum age for employment, and children under 16 may work only six
    hours a day, with prohibitions against overtime, night labor, and
    performing hazardous tasks. Enforcement is reasonably good at medium
    and large 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 (for
    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 may
    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 199, the commission adopted a 10 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 37.90 pesos ($4.10 in
    late September 2000). However, daily minimum wage earners actually are
    paid 43.21 pesos, due to a 14 percent supplemental fiscal subsidy (tax
    credit to employers). Approximately 16 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. Legally required benefits include social security, 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. 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 the overtime.
    For most industrial workers, especially under union contract, the true
    workweek is 42 hours with seven days' 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 reflect 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
    and state inspectors (fewer than 700 nationwide) 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  163
    Total Manufacturing.........  ...........  20,379
      Food & Kindred Products...  5,969        .............................
      Chemicals & Allied          3,436        .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    1,095        .............................
       Equipment.
      Electric & Electronic       (\1\)        .............................
       Equipment.
      Transportation Equipment..  5,029        .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  1,450
    Banking.....................  ...........  1,189
    Finance/Insurance/Real        ...........  6,732
     Estate.
    Services....................  ...........  1,200
    Other Industries............  ...........  4,301
        Total All Industries....  ...........  35,414
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                   NICARAGUA

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                             1999        2000      \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\...................    2,267.0     2,364.5     2,435.4
      Real GDP Growth (pct) \2\ \3\ \4\.        7.4         4.3         3.0
      GDP by Sector: \2\
        Agriculture \4\.................      643.0       696.8       752.5
        Manufacturing...................      643.0       660.2       660.0
        Services \5\....................      825.1       852.1       878.2
        Government......................      155.9       155.4       144.5
      Per Capita GDP (US$)..............      459.0       466.0       468.0
      Labor Force (000s)................    1,728.9     1,815.3      1901.7
      Unemployment Rate (pct)...........       10.7         9.8        10.3

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)..........       18.8         -.5         7.4
      Consumer Price Inflation (pct) \1\        7.2         9.9        10.0
      Exchange Rate (Cordobas/US$--
     annual average):
        Official........................       11.8        12.7        13.5
        Parallel........................       11.9        12.8        13.6

    Balance of Payments and Trade;
      Total Exports FOB \6\.............      545.2       645.1       640.0
        Exports to United States \7\....      493.0       590.0       625.0
      Total Imports CIF \6\.............   -1,698.7    -1,647.7     -1700.0
        Imports from United States \7\..     -374.0      -379.0      -425.0
      Trade Balance \6\.................   -1,153.5     -1002.6    -1,060.0
        Balance with United States \7\..      119.0       190.2       200.0
      External Public Debt (US$ bns)....        6.5         6.7         6.6
      Fiscal Deficit/GDP (pct)..........       12.3        14.0        17.0
      Current Account Deficit/GDP (pct).       48.2        36.9        36.8
      Debt Service Payments/GDP (pct)...        7.4         7.5         7.6
      Gold and Foreign Exchange Reserves      348.8       316.4       388.1
       \8\..............................
      Aid from United States \9\........      149.6        29.0        34.2
      Aid from All Other Sources \10\...      409.4       333.8       216.0
    ------------------------------------------------------------------------
    \1\ Most 2001 figures are Central Bank projections based on data
      available in September 2001.
    \2\ GDP data is based on Embassy projection.
    \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; 2001 figures are estimates
      based on trade data through July 2001.
    \8\ Source: Central Bank figure from September 2001.
    \9\ Source: Embassy estimate of assistance from AID, USDA, and U.S.
      military for Hurricane Mitch relief.
    \10\ Includes debt forgiveness.

    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 reached 7 percent
    growth in 1999 but slowed to 4.3 percent in 2000 as the Hurricane Mitch
    reconstruction boom subsided and some private investment decisions were
    postponed to await the outcome of November 2001 elections. To foster
    macroeconomic stability, the Aleman administration has adhered to
    structural adjustment programs with the International Monetary Fund
    (IMF). Nicaragua, with its huge debt of $6.7 billion, continues to seek
    forgiveness of the vast majority of its external debt under the Heavily
    Indebted Poor Countries (HIPC) Initiative.
        At the end of its fifth year in office, the Aleman administration
    faced a series of economic challenges. In the span of one year (August
    2000-August 2001), the government intervened in four local banks
    because of poor lending policies and apparent fraud. The drop in the
    international price of coffee--Nicaragua's main export--exacerbated
    Nicaragua's economic slowdown and increased rural unemployment as many
    coffee producers reduced operations. Additionally, a large current
    account deficit and fiscal deficit continues to hamper the economy and
    are counterbalanced by strong inflows of foreign assistance. All of
    these factors have contributed to weak economic growth that, in turn,
    has inhibited poverty reduction. Due to poor economic performance, a
    significant amount of labor migration has occurred in recent years from
    Nicaragua to Costa Rica, raising tensions between the two countries.
        Furthermore, unresolved property confiscation cases from the
    Sandinista era continue to hinder economic development. 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 nontariff barriers.
    Private investment, from both domestic and foreign sources, rose
    vigorously in 1999 and but declined in 2000. The primary focus of
    private investment has been hotels, housing, and commerce. 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 Government of Nicaragua in December 1999 reduced
    the devaluation rate of the cordoba to six percent per annum. A legal
    parallel exchange market supplies foreign currency for all types of
    exchange transactions. The spread between the official and parallel
    markets was slightly under one half of one percent in 2001. 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 progressive import tax
    reductions through the year 2002. Nicaragua imposes regular import
    duties (DAI) of 15 percent on 1,257 final consumption goods and a DAI
    of 5 percent on intermediate goods. Some 900 items are levied with a
    temporary protection tariff (ATP) of 5 to 10 percent, above the DAI.
    The maximum rate of the combined DAI and ATP on most items is 20
    percent. A luxury tax is levied through the specific consumption tax
    (IEC) on 609 items. The tax generally is lower than 15 percent, with a
    few significant exceptions. The DAI and ATP taxes are based on CIF
    value. The IEC tax for domestic goods is based on the manufacturer's
    price, and for imported goods on CIF. Alcoholic beverages and tobacco
    products are an exception, in that the IEC is assessed on the price
    charged to the retailer. 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. Some protected agricultural
    commodities such as corn and rice face special import tariffs of up to
    55 percent. Cars with large engines (greater than 4000 cc) face an IEC
    tax of 25 percent, which has a discriminatory effect on larger U.S.
    vehicles. Vehicles with smaller engines are charged between zero and
    three percent IEC tax. Importers in general face a total import tax
    burden of 15 to 63 percent.
        The Tax Justice Act of 1999, which placed Nicaragua ahead of the
    rest of Central American countries in lowering tariffs and reducing
    exemptions, established tax exemptions for nongovernmental
    organizations, hospital investments, and the agricultural, small
    handicraft, fishing, and aquaculture sectors. The importation of crude
    or partially-refined petroleum, liquid gas, and other petroleum
    derivatives were also exempted from some taxes. In April 2000, the
    National Assembly modified the Tax Justice Law to further reduce
    nominal luxury (IEC) taxes and to extend benefits enjoyed by
    cooperatives and the small business, agricultural, aquaculture and
    fishing sectors. Citing obligations to Nicaragua's Central American
    free trade partners, in May 2001, the Nicaraguan government raised the
    DAI tariff on most finished goods to 15 percent. Taxes on chicken
    products, mineral water, soft drinks, alcoholic beverages, cigars, and
    cigarettes were also increased.
        Apart from regular tax policy, in December 1999, Nicaragua
    instituted a 35 percent tariff on all Honduran goods. The tax was
    imposed as a retaliatory measure for Honduras' signing of a maritime
    border agreement with Colombia that delineates areas to Honduras
    previously claimed by Nicaragua. Nicaragua has also implemented a 35
    percent tariff on all Costa Rican and Colombian goods.
    4. Debt Management Policies
        With a foreign debt of more than $6 billion, Nicaragua has one of
    the highest per capita debts in the world. In March 1998, the IMF
    approved a structural adjustment program for Nicaragua. As part of the
    IMF program, the Nicaraguan government agreed to implement an
    aggressive policy directed at cutting the government fiscal deficit,
    implementing structural reforms, and maintaining overall monetary
    stability. The IMF and Nicaraguan government negotiated fiscal targets
    through December 2001, and the next government is expected to negotiate
    a new three-year IMF program in 2002.
        Nicaragua should receive debt service relief in 2003 through the
    HIPC initiative. In December 2000, Nicaragua reached the HIPC Decision
    Point, which outlines actions to be taken by the Nicaraguan government
    to obtain debt forgiveness (worth approximately $4.5 billion). Under
    HIPC, Nicaragua's main creditors committed themselves to provide
    significant debt forgiveness when Nicaragua reaches the HIPC Completion
    Point. Reaching that stage will depend on the ability of Nicaragua to
    fulfill its commitments to the multilateral lending institutions and
    bilateral donor countries. One key requirement is the implementation of
    a coherent poverty reduction strategy.
    5. 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 and labeling requirements.
        Services Barriers: After a series of bank failures, six private
    banks now operate in Nicaragua. No U.S. banks have established a
    presence in the country. Legislation passed in 1996 opened the
    insurance industry to private sector participation and four private
    insurance companies have been formed. No U.S. company has entered the
    Nicaraguan insurance 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. Expropriations
    from the Sandinista era remain an impediment to investment, as land
    titling is often unclear. In 2000, the government opened new property
    tribunals to help address this issue.
        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 had been scheduled to
    implement WTO customs valuation procedures in September 2000, however
    it continues to use reference prices to determine import tax
    valuations. Implementation of the WTO standards is reportedly awaiting
    the publication of applicable regulations in the national registry.
        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 been submitted to but not yet ratified by the U.S.
    Senate.
    6. Export Subsidy Policies
        All exporters receive tax benefit certificates equivalent to 1.5
    percent of the FOB value of the exported goods. Legislation passed in
    2000 provides for a 37-cent tax rebate on every exported pound of
    trawled shrimp and 7 cent rebate on every pound of farmed shrimp
    exported. Foreign inputs for Nicaraguan export goods from the country's
    free trade zones enter duty-free and are exempt from value-added tax.
    7. 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. While
    current levels of protection still do not meet international standards,
    progress has been made in recent years. Although unable to dedicate
    extensive resources to protecting intellectual property rights (IPR),
    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, a law on the protection of satellite
    signals, and a law on integrated circuit design. In 2000, the Assembly
    passed a new law on patents, followed by passage of a modern law on
    trademarks in 2001.
        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: Despite decreasing over the past year, pirated videos
    are still widely available in video rental stores nationwide, as are
    pirated audiocassettes and software. Increasingly fewer cable
    television operators intercept and retransmit U.S. satellite signals,
    though the practice persists despite a trend of negotiating contracts
    with U.S. sports and news satellite programmers. In August 1999, a new
    copyright law went into effect; however, criminal penalties were
    delayed for 6-12 months. Video and audiocassette pirates as well as
    small cable operators asked the National Assembly for additional
    extensions, but the National Assembly denied them. Since passage of the
    law, the U.S. government and industry have worked with the Nicaraguan
    government to provide training for effective enforcement. In May 2001,
    the first raid on vendors of pirated material was made at the largest
    market in Managua with several arrests and a large amount of
    merchandise seized.
    8. 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 six 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 formal sector of the
    economy.
        e. Acceptable Conditions of Work: The 1996 labor code maintains the
    constitutionally mandated eight hour workday. The standard legal
    workweek is a maximum of 48 hours, with one day of rest. The 1996 code
    established that severance pay be equivalent to one to five months'
    salary, depending on the circumstances of termination and the length of
    employment. 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, and
    increased further in August 1999, 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  5
      Food & Kindred Products...  0            .............................
      Chemicals & Allied          (\1\)        .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  ...........  4
    Banking.....................  ...........  0
    Finance/Insurance/Real        ...........  0
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  (1
        Total All Industries....  ...........  179
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     PANAMA

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP..........................     9,556     10,049     10,245
      Real GDP (1982 prices)...............     7,158      7,341      7,429
      Real GDP Growth (pct) \2\............       3.2        2.7        1.2
      Real GDP by Sector (1982 prices):
        Agriculture........................       461        507        495
        Manufacturing......................     1,340      1,343      1,280
        Services \3\.......................     5,356      5,571      5,654
      Real Per Capita GDP (US$)............     2,529      2,571      2,547
      Labor Force (000s)...................     1,050      1,095      1,110
      Unemployment Rate (pct)..............      11.6       13.3        N/A

    Money and Prices (annual percentage
     growth):
      Money Supply (M2) Growth (pct) \3\...       8.5       10.0        0.4
      Consumer Price Inflation.............       1.5        1.8        0.1
      Exchange Rate (Balboa/US$ annual              1          1          1
       average) \4\........................

    Balance of Payments and Trade:
      Total Exports FOB \5\................       822        860        906
        Exports to United States...........       364        378        398
      Total Imports CIF \5\................     3,516      3,379      3,132
        Imports from United States.........     1,742      1,764      1,409
      Trade Balance \5\....................    -2,724     -2,519     -2,226
        Balance with United States.........    -1,378     -1,386     -1,011
        Colon Free Zone: \6\
          Exports..........................     5,160      5,377      5,430
          Imports..........................     4,230      4,657      4,843
          CFZ Balance......................       930        720        597
      External Public Debt \7\.............     5,411      5,332      6,278
      Fiscal Deficit (-)/GDP (pct) \8\.....       1.6        1.3        2.5
      Current Account Deficit (-)/GDP (pct)      14.4        9.1        5.9
      Debt Service Ratio (pct).............       8.7       10.9        8.3
      Gold and Foreign Exchange Reserves          823        723      1,149
       \9\.................................
      Assistance from United States \10\...      17.0       19.1       24.1
      Assistance from All Other Sources....       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ Figures for 2001 are estimated unless otherwise indicated.
    \2\ Figure is based on IMF 8/2001 International Financial Statistics. M2
      = Deposit Money + Quasi Money.
    \3\ Services total includes government spending, which accounts for
      roughly 14 percent of Panama's GDP.
    \4\ 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.
    \5\ Trade statistics do not include the Colon Free Zone.
    \6\ The Colon Free Zone (CFZ) is the largest free trading area in the
      hemisphere.
    \7\ External debt balance on June 30, 2001.
    \8\ Figures indicate deficit of the non-financial public sector as
      percent of GDP.
    \9\ Figure is based on IMF 8/2001 International Financial Statistics.
      Panama reports no gold holdings.
    \10\ U.S. government agencies' projections (agencies included are USAID,
      the Department of Agriculture's APHIS Program, and the Department of
      State's Narcotic Affairs Programs).

    1. General Policy Framework
        Panama's economy is based on a well-developed services sector that
    accounts for about 75 percent of GDP. Services include the Panama
    Canal, container port activities, shipping, ship registry, banking,
    insurance, wholesaling and distribution out of the Colon Free Zone, and
    government activities (which represents about 14 percent of GDP). The
    industrial sector, which accounts for 18 percent of GDP, is made up of
    manufacturing, mining, utilities, and construction. Agriculture,
    forestry and fisheries account for the remaining seven percent of GDP.
        The economy grew 2.7 percent in real terms in 2000, down from 3.2
    percent in 1999. The government of Panama originally estimated 2001
    growth would reach 4.0 percent, but has since lowered its forecast to
    1.0-1.5 percent. Some independent economists forecast even slower
    growth. Regardless, real per capita income has been stagnant since
    1999. Economic growth has been hindered by low commodity prices for
    certain agricultural products, the slower than expected rebound of the
    Colon Free Zone, the continued effects of the departure of the U.S
    military, and the overall economic weakness of the region. Another
    debilitating factor has been the Government of Panama's incoherent
    economic agenda. Since its inauguration in 1999, the Moscoso
    Administration has also failed to address adequately matters of concern
    to business, such as Panama's high debt, fiscal imbalance, and costly
    labor law. These conditions, a protectionist retreat in some areas of
    trade, the loss of momentum in privatization, along with several
    unresolved Government of Panama investment disputes and concerns with
    major foreign investors, have created a feeling of uncertainty about
    Panama's business prospects and have slowed new investment. Slower
    growth and rising unemployment are likely on Panama's short- and
    medium-term horizon.
        The main culprit for the slow rebound of the Colon Free Zone is the
    continued political instability and accompanying economic downturn in
    its principal customer countries Venezuela, Colombia, and Ecuador.
    Consumer spending, especially in sectors dependent on disposable
    income, slowed considerably during the first half of the year. The
    combination of relatively high costs for utilities and low productivity
    of labor continues to make unit production costs higher than average
    for the region. The construction industry has reported a serious
    downturn in 2001, coming off two years of solid growth. Still, the
    industry remains heavily engaged in the Panamanian economy due to
    relatively easy bank credit and sustained demand for residential
    property by migrants from South America.
        Overall, the state has reduced its direct involvement in the
    Panamanian economy in recent years. Despite this favorable trend, the
    Panamanian government has retained market-distorting indirect taxation.
    It remains a large, yet passive investor in recently privatized
    telecommunications, ports, and energy sectors. To its credit, the
    current Panamanian government lowered Panama's budget deficit from 4.4
    percent in 1998 to 1.3 percent in 2000. The Government of Panama's
    expected 2.5 percent budget deficit for 2001 falls short of its IMF
    commitments to have a balanced budget, as the slowing economy has
    raised health and other government costs and depressed revenues and tax
    collections. The Moscoso administration has slowed the trade
    liberalization of the previous government, as foreign competition has
    hit the agricultural sector especially hard. In its second month in
    office, the government dramatically raised tariffs on some agricultural
    goods to the top limits of Panama's binding ceilings negotiated for its
    WTO accession, with some levies reaching over 300 percent.
    Privatization of the few remaining government enterprises has been
    stalled, despite their persistent inefficiencies in government hands.
        The government has expanded its efforts to encourage growth in the
    telecommunications and tourism sectors. Several tax and tariff
    exemptions and long leaseholds have been given to startups in these
    industries. The government has also moved to enhance its promotion of
    both these sectors to external markets and investors. It recently
    approved a new $10 million tourism promotion campaign and has pledged
    to remove some taxes on outgoing long distance calls in order to
    attract ``call centers'' to Panama.
        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 nontax
    revenues, as well as by the government's ability to borrow. The latter
    may be reaching its upper limits, as Panama's overall debt is now
    nearly 80 percent of GDP. The new government postponed tax and spending
    reform in the face of a slowing economy in 2001, but has hinted it will
    propose new tax legislation in late 2001.
    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 nontariff barriers to entry. U.S. exporters
    have no risk of foreign exchange losses on sales in Panama.
    3. Structural Policies
        The Moscoso administration came to power in 1999 on a platform that
    supported higher social spending to alleviate poverty and higher
    tariffs to ease pressure on a suffering and politically important
    agriculture sector hurt by the previous Government of Panama 's sudden
    and dramatic trade opening. During her campaign President Moscoso
    questioned the government's privatization campaign and pledged to keep
    IDAAN, Panama's government water utility, public. Her administration's
    initial economic objective was to find interest rate savings on
    sovereign debt in order to free money for social spending. The
    Government of Panama also raised tariffs steeply on some agricultural
    goods to provide relief to some farmers. The government failed to rally
    public support for proposals to reduce debt and redeploy funds from
    privatizations and sales of former U.S. military properties. It also
    put the brakes, at least temporarily, on its effort to reform Panama's
    tax system, per its IMF commitments, due to pressure from business,
    labor, and the political opposition, who argued that tax reform should
    wait until the economy improves. Other commitments to the IMF, such as
    the closing of two state banks, overhauling social security,
    administrative reform of IDAAN, and achieving a balanced budget remain
    unfulfilled.
        Foreign investment, much of it American, flowed into Panama at a
    steady pace under the former Perez-Balladares Administration. American
    energy, transportation, telecommunications and port/cargo companies
    invested significant amounts in newly deregulated and/or privatized
    sectors and companies. Relations between some of these investors and
    the current government suffered early on from various causes. The
    Government of Panama has lately begun to address these problems more
    constructively. Nevertheless, FDI has dropped considerably. Various
    incentives for investment exist in Panamanian law, but they are
    neutralized in many cases by Panama's outdated and restrictive labor
    code and the small size of the domestic market.
        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, albeit a recent
    agreement in the banana industry may provide a breakthrough in work
    rule modernization in that industry. Panama's constitution requires
    that the minimum wage be reviewed every two years. In 2000, the
    Panamanian government raised the wage 12 percent or to just over $250/
    month and pledged future wage raises that would amount to 40 percent by
    the end of Moscoso's term.
        Panama is not a party to any free trade agreement. In May 2001,
    Panama and the Central American Common Market (CACM) agreed on a common
    text and format for a Free Trade Agreement. The Panamanian government
    is currently negotiating the list of products and services that will be
    covered with each participating country. The government hopes to have
    agreements with both Nicaragua and El Salvador by the end of 2001, with
    agreements with the other members of the CACM coming within 2002. After
    completing an agreement with the CACM, the government hopes to restart
    its stalled negotiations for a trade agreement with Mexico. Panama is
    an active participant in FTAA negotiations, and serves as the temporary
    site of the FTAA Secretariat until February 2002. Panama has expressed
    a strong interest in becoming the permanent site of the FTAA.
        Panama maintains no restrictions on capital flows or capital
    repatriation by foreign investors, nor does it reserve large sectors of
    the economy for its nationals. There are no restrictions on the
    repatriation of profits.
    4. Debt Management Policies
        Panama's public external debt totaled $6.28 billion dollars at mid-
    2001, while domestic debt totaled just under $2.1 billion. Although
    Panama's sovereign debt rating remains just below investment grade,
    several Panamanian banks enjoy investment grade status. The Moscoso
    government initially stated its reluctance to take on more foreign
    debt, but ended up borrowing an additional $750 million in early 2001.
    Debt service (principal and interest) exceeded $1.7 billion (17 percent
    of GDP) in 2000 and will climb to 23 percent when $500 million of
    principal is due in February 2002. Panama's total debt has grown as a
    result of continuing fiscal deficits, a slowing economy, dysfunctional
    tax collection, and a heavy government payroll. Many expect the current
    Panamanian government to try once again to tap Panama's $1.3 billion
    Fiduciary Fund, money accrued from privatizations and the sale of
    former U.S. military properties, to pay down some of its debt. The
    government sought legislative approval for a similar measure in early
    2000, but obtained only modest changes to the law governing the use of
    the funds. Panama's $1.35 billion Fiduciary Fund remains, for now,
    subject to strict investment and capital preservation guidelines.
    Despite the country's relatively heavy debt burden, the sovereign debt
    rating agencies have maintained their ratings on Panama at just below
    investment grade.
    5. 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 most protectionist in
    the region. However, the Moscoso government's primary trade initiative
    was an abrupt increase in tariffs on various agricultural imports.
    Through its Ministry of Agricultural Development, Panama has too
    frequently adopted a de facto, arbitrary import licensing regime for
    goods that are subject to sanitary and phyto-sanitary permits under
    Panamanian law. The plant inspection and certification process required
    of foreign meat and poultry processing plants is time consuming, lacks
    transparency, and constitutes an additional barrier.
        The Moscoso Administration has refused to include the Panama Canal
    Authority as part of it offer for accession to the WTO Government
    Procurement Agreement (GPA). Despite repeated efforts to engage the
    Government of Panama on the issue, it continues to stall the accession
    process.
        The Panamanian judicial system presents another potential obstacle
    to investors and traders. There is a large backlog of criminal and
    civil cases that can take years to be resolved. Many investors have
    concerns over the potential for corruption in the judicial process.
        As a WTO member, Panama has ensured that its customs valuation
    system now conforms to international standards. Overall, the processing
    of customs documents for manufactured or mineral imports is reasonably
    quick, efficient, and reliable. Panama has begun to implement a system
    for automated, electronic submission of documents, as per its FTAA
    ``business facilitation'' obligations. 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.
    6. Export Subsidies Policies
        Panamanian law allows any company to import raw materials or semi-
    processed goods at a duty of three percent for domestic consumption or
    processing, or duty free for export production, except for the several
    so called sensitive agricultural products, such as rice, dairy
    products, pork products, and tomato products. This was negotiated and
    approved under Panama's accession to the WTO. Extraordinary quotas have
    been authorized for rice and pork products when stocks have gone down
    in order to prevent scarcity of food products.
        Because of its WTO obligations, Panama has revised its export
    subsidy policies. The Tax Credit Certificate (CAT), which was given to
    firms producing nontraditional exports when the exports' national
    content and value-added met minimum established levels, is scheduled to
    be phased out in 2002. But during the WTO Doha meetings in November
    2001, the Government of Panama asked for and received an extension from
    the WTO regarding the use of CATs. As of December 2001, a final date
    for a CAT phase-out has yet to be announced. The government has become
    more strict in defining national value-added, attempting to reduce the
    amount claimed by exporters and to eliminate recently publicized cases
    of corruption it the system.
        A number of industries that produce exclusively for export, such as
    shrimp farming and tourism, are exempted from paying certain types of
    taxes and import duties. The Government of Panama uses this policy to
    attract foreign investment. Companies that profit from these exemptions
    are not eligible to receive CATs for their exports.
        The Tourism Law of 1994 (Law 8) allows deduction from taxable
    income of 50 percent of any amount invested by Panamanian citizens in
    tourism development.
        Law 25 of 1996 provides for the development of ``export processing
    zones'' (EPZ's) as part of an effort to broaden the Panamanian
    manufacturing sector while promoting investment in former U.S. military
    bases that were transferred to Panama. Companies operating in these
    zones may import inputs duty-free if products assembled in the zones
    are to be exported. The government also provides other tax incentives
    to EPZ companies. Most EPZ's remain in the early stages of development,
    with only a few tenants. They are growing sporadically depending on
    location.
    7. 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 Berne 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 addition, Panama
    was one of the first countries to ratify the WIPO Copyright Treaty and
    the WIPO Performances and Phonograms Treaty.
        Protection of intellectual property rights (IPR) in Panama has
    improved significantly over the past several years. The government
    passed an Anti-Monopoly Law in 1996 mandating the creation of
    commercial courts to hear anti-trust, patent, trademark, and copyright
    cases exclusively. Two district courts and one superior tribunal began
    to operate in 1997 and have been adjudicating intellectual property
    disputes. IPR policy and practice in Panama is the responsibility of an
    Inter-institutional Committee. This committee consists of
    representatives of six government agencies and operates under the
    leadership of the Vice-Minister of Foreign Trade. It coordinates
    enforcement actions and develops strategies to improve compliance with
    the law.
                Copyrights
        The National Assembly in 1994 passed a comprehensive copyright bill
    (Law 15), 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 lead prosecutor for IPR cases in the Attorney General's
    Office has taken a vigorous enforcement stance, the Copyright Office
    remains small and ineffective.
        The Copyright Office has been slow to draft and move forward
    further improvements to the Copyright Law to implement the new WIPO
    treaties (the WIPO Copyright Treaty and the WIPO Performances and
    Phonographs Treaty). Nevertheless, their proposal also would establish
    new offenses, such as for internet-based copyright violations, raise
    the penalties for infractions, and enhance border measures. This
    proposed draft legislation is moving forward with technical assistance
    from SIECA (the Central American Economic Integration System).
                Patents
        A new Industrial Property Law (Law 35) went into force in 1996 and
    provides 20 years of 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
        Law 35 also provides trademark protection, simplifying the process
    of registering trademarks and making them renewable for ten-year
    periods. The law's most important feature is the granting of ex-officio
    authority to government agencies to conduct investigations and to seize
    materials suspected of being counterfeited. Decrees 123 of November
    1996 and 79 of August 1997 specify the procedures to be followed by
    Customs and CFZ officials in conducting investigations and confiscating
    merchandise. In 1997, the Customs Directorate created a special office
    for IPR enforcement, followed by a similar office created by the CFZ in
    1998. The Trademark Registration Office has undertaken significant
    modernization with a searchable computerized database of registered
    trademarks that is open to the public.
    8. 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 or financially support
    unions, but most unions are closely affiliated with 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, financial
    resources, and competing priorities in the face of local tolerance,
    particularly among indigenous peoples.
        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 and families routinely evade Social Security payroll
    contributions. The government is responsible for occupational health
    and safety standards. On paper the government has the responsibility
    for conducting periodic inspections of particularly hazardous work
    sites, but in practice its ability to perform adequate safety
    inspections is hindered by poor funding and lack of trained personnel.
    The labor code permits workers to remove themselves from situations
    that present an immediate health or safety hazard without jeopardizing
    their jobs, however this practice almost never occurs. Health and
    safety standards generally emphasize safety rather than long-term
    health hazards. Although training and workplace enforcement of safety
    regulations and the use of safety equipment has been lax, Panama has
    recently inaugurated new programs in cooperation with the U.S.
    Department of Labor to raise public awareness of worker safety issues
    and improve local safety standards. Complaints of health and safety
    problems continue in the construction, banana, cement, and milling
    industries, among others.
        f. Rights in Sectors with U.S. Investment: Worker rights in sectors
    with U.S. investment generally mirror those in other sectors. Banana
    workers continue to complain of health hazards largely due to alleged
    exposure to pesticides.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  273
    Total Manufacturing.........  ...........  152
      Food & Kindred Products...  40           .............................
      Chemicals & Allied          (\1\)        .............................
       Products.
      Primary & Fabricated        30           .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  446
    Banking.....................  ...........  16
    Finance/Insurance/Real        ...........  34,388
     Estate.
    Services....................  ...........  182
    Other Industries............  ...........  -50
        Total All Industries....  ...........  35,407
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    PARAGUAY

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                 1999      2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production, and Employment:
      Nominal GDP \2\........................    7,741     7,501      7,398
      Real GDP Growth (pct)..................     -0.5      -0.4       -0.5
      GDP by Sector (pct):
        Agriculture..........................       27        27         27
        Manufacturing........................       14        12         12
        Services.............................       37        36         36
        Government...........................       22        25         25
      Per Capita GDP (1982 US$)..............    1,576     1,514      1,344
      Labor Force (000s).....................      N/A       N/A        N/A
      Unemployment Rate (pct)................       12        17         20
      Underemployment Rate (pct).............       22        26         28

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)...............     10.7       2.2        2.0
      Consumer Price Inflation (pct).........      7.0      11.0       14.0
      Exchange Rate (GS/US$ Year End)........    3,310     3,550      4,500
        Official.............................      N/A       N/A        N/A
        Parallel.............................      N/A       N/A        N/A

    Balance of Payments and Trade:
      Total Exports FOB \3\..................    2,673     2,251      2,050
        Exports to United States \3\.........       48        66         48
      Total Imports CIF \3\..................    3,042     2,837      2,450
        Imports from United States \3\.......      515       360        340
      Trade Balance \3\......................     -349      -586       -400
        Balance with U.S. \3\................     -467      -294       -292
      External Public Debt...................    2,108     2,354      2,180
      Fiscal Deficit/GDP (pct)...............     -3.6      -3.9       -0.5
      Current Account Deficit/GDP (pct)......     -0.9      -2.2       -2.0
      Debt Service Payments/GDP (pct)........      3.8       4.0        4.0
      Gold and Foreign Exchange Reserves.....      988       720        680
      Aid from United States.................      3.0       3.0        3.0
      Aid from All Other Sources.............       44        45         45
    ------------------------------------------------------------------------
    \1\ 2001 figures are central bank preliminary data.
    \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.
        The economy in Paraguay has been falling for the past three years,
    while population growth has continued unabated. According to the
    Paraguayan Central Bank, the GDP fell by 0.5 percent in 1999 and 0.4
    percent in 2000. It is expected to fall by 0.5 percent in 2001. Until
    the mid-1990s, Paraguay largely avoided deficit spending and kept
    foreign debt at manageable levels. 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 9.5 percent between
    May 1999 and September 2000. However, the regional crisis started in
    Argentina and the fall in the value of the Brazilian real have forced
    the Central Bank to bring short-term rates back up to 28 percent. A
    series of banking failures and political instability over the last
    several years has led investors to move to dollar-based deposits and
    loans. The Paraguayan government is heavily dependent on tariff
    revenue, which will continue to shrink in the near future as Mercosur
    adjusts downward its common external tariff rate.
        Paraguay's membership in Mercosur offers some opportunities.
    Efforts to improve weak infrastructure, especially in power
    transmission and distribution; telecommunications; road, river, and
    civil aviation systems; postal system; potable water; and sewage
    treatment provide potential markets for United States' goods and
    services. Privatization of state monopolies is moving forward, with the
    first privatization of the fixed-line telecom company expected to be
    completed by the end of 2001. With its partners in Mercosur, Paraguay
    has renewed discussions with the U.S. on promoting economic integration
    and business facilitation under a 4+1 formula.
    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. With the recent
    fluctuations in the value of the Brazilian real, these interventions
    have become more frequent. Over the past 9 months, the guarani has
    depreciated by 29 percent against the dollar. On October 11, the market
    rate stood at 4,440 guaranies to the dollar. 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. Two-thirds of all funds in Paraguayan
    savings accounts are in dollar-based accounts as of October 2001.
    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, the corporate income tax rate is 30 percent. 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
    investment approved for fiscal incentives under law 60/90. The Ministry
    of Finance, at the urging of the IMF, is currently studying the
    elimination of a variety of tax breaks, including Law 60/90, to help
    balance the budget. Implemented in 1992, the value-added tax (IVA)
    stands at ten percent. 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 over 25 percent of GDP, but
    contributes less than one percent of government revenue. Even though
    land taxes are low, chaotic land title records make 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 stood at $680 million at the end of
    August 2001. The government's debt at the end of July 2001 totaled
    $2.160 billion. Nearly all of this is bilateral or multilateral debt
    with minimal outstanding loans to private sector banks. Although the
    World Bank had initially announced that it would close its office in
    Paraguay at the end of 2000, the office has remained open, though
    staffed only part-time. A recent IMF survey showed that Paraguay was
    generally on target with the IMF plan, though the pace of state reform
    was still deemed to be too slow. Paraguay continues to meet its
    obligations to foreign creditors in a timely fashion.
    5. 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 guns and ammunition. However, the United States prohibits the
    export of U.S. guns and ammunition to Paraguay. U.S. companies have
    fared poorly in non-transparent government procurement tenders.
    Paraguayan regulations require country of origin designation on
    domestic and imported products. Expiration dates must be printed on
    medical products and some consumer goods. 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. 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. A case
    currently before the Supreme Court challenges the constitutionality of
    this law.
        Decree 7084/00 prohibits the importation of used clothing. This
    follows years of virtual prohibition under a system in which importers
    were required to obtain a permit to import used clothing from the
    Ministry of Industry and Commerce. However, the Ministry of Industry
    and Commerce never issued any permits.
        Decree 235/98, later modified by Decrees 2698/99 and 8366/00,
    created a multiplier increasing the base value on imported 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.
    6. 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. The government
    provides small-scale farmers with subsidized inputs, such as seed and
    pest control products.
    7. 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, Berne Convention, Rome Convention, and the
    Phonograms Convention. In August 2000, Paraguay ratified the WIPO
    Copyright Treaty (LAW 1582) and the WIPO Performances and Phonograms
    Treaty (LAW 1583). 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 legislation, its status
    as a distribution center for counterfeit merchandise, and the large
    illicit re-export trade to other MERCOSUR countries.
        On November 17, 1998, 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 antipiracy
    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. On September 20, 2000, the
    United States and Paraguay signed a Memorandum of Agreement under which
    the U.S. government agrees to jointly develop and fund a program to
    improve Paraguay's IPR protection regime. Since then, progress has been
    made in the enforcement of intellectual property rights, though much
    still remains to be done.
        Patents: The Senate is currently considering the final version of
    comprehensive patent legislation. Domestic industry has successfully
    lobbied to weaken the law. 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 nontransparent.
    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: A new Copyright Law was signed on October 15, 1998,
    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.
    8. 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  18
    Total Manufacturing.........  ...........  18
      Food & Kindred Products...  0            .............................
      Chemicals & Allied          0            .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  18           .............................
    Wholesale Trade.............  ...........  (\1\)
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  0
     Estate.
    Services....................  ...........  0
    Other Industries............  ...........  (\1\)
        Total All Industries....  ...........  432
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                      PERU

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production, and Employment:
      Nominal GDP \2\......................    51,627     53,512     54,765
      Real GDP Growth (pct) \3\............       0.9        3.1        0.5
      GDP Growth by Sector:
        Agriculture........................      11.7        6.2        0.3
        Manufacturing......................      -0.5        6.7        0.0
        Services...........................       1.4        2.7        3.0
        Government [included in                   3.6        1.8        1.5
         ``Services''].....................
      Per Capita GDP (nominal US$) \2\.....     2,046      2,085      2,099
      Labor Force (000s)...................    10,072     10,387     10,691
      Unemployment Rate (pct) \4\..........       8.0        7.4        9.5
      Underemployment Rate (pct) \4\.......      43.5       43.0       45.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............      16.4        5.1        6.4
      Consumer Price Inflation \5\.........       3.7        3.7        2.8
      Average Exchange Rate (Sol/US$):
        Inter-bank.........................      3.38       3.49       3.52
        Parallel...........................      3.38       3.49       3.51

    Balance of Payments and Trade:
      Total Exports FOB....................     6,119      7,028      7,400
        Exports to the United States \6\...     1,765      1,881      1,990
      Total Imports FOB....................     6,749      7,349      7,400
        Imports from United States \6\.....     2,102      2,153      2,170
      Trade Balance........................      -631       -321          0
        Balance with United States.........      -338       -272       -180
      External Public Debt.................    20,099     19,588     19,300
      Fiscal Deficit/GDP...................      -3.1       -3.2       -2.6
      Current Account Deficit/GDP..........      -3.7       -3.0       -2.6
      Debt Service Payments/GDP............       3.9        4.1        3.7
      Net International Reserves...........     8,404      8,180      8,270
      Aid from United States...............       123        111        110
      Total Aid............................       349        323         --
    ------------------------------------------------------------------------
    \1\ 2001 figures are year-end estimates based on data available as of
      October.
    \2\ GDP data calculated using nominal soles figures at average exchange
      rates.
    \3\ Percentage changes calculated from GDP data in local currency at
      1994 prices.
    \4\ Urban, at the Third Quarter. 2001 figure incorporates Lima
      metropolitan area data only
    \5\ Inflation at year-end.
    \6\ Estimates based on annualized official data for September 2001.

    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 has a free market economy which provides significant trade and
    investment opportunities for U.S. companies. Over the past ten years,
    the government has implemented a wideranging 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: Peru is facing its fourth straight
    year of sluggish growth, after first suffering from severe climatic
    conditions and global financial turmoil, and then political instability
    which led to the resignation of President Fujimori in November 2000.
    After posting a modest GDP growth of 3.1 percent in 2000, real GDP
    growth for 2001 is now estimated to be 0.5 percent, the result of the
    slowdown in the United States and other industrialized countries and of
    the September 11 terrorist attacks in the United States, which led to a
    drop in tourism and other travel to Peru. The post-Fujimori transition
    government led by Valentin Paniagua paid close attention to fiscal
    responsibility and handed a structurally sound economy to the country's
    democratically-elected Alejandro Toledo administration in July 2001,
    which is pursuing policies intended to attract foreign investment. The
    current account deficit is expected to contract in 2001 to about 2.6
    percent of GDP. Inflation remains very low by Peru's historical
    standards and is expected to hit 2.8 percent for the year. The
    government's overall budget deficit will be larger than originally
    expected for 2001 as a result of election-related expenses, a sharp
    drop in revenues, and economic recovery measures. Peru's macroeconomic
    stability has brought about a substantial reduction of the high
    underemployment rate, from 74 percent during the late 1980's and early
    1990's to 43 percent in 2000. Poverty has also gone down since 1991,
    but unofficial sources estimate that 50 percent of the population still
    lives in poverty and 15 percent lives in extreme poverty.
        Trade Policy: Peru's economy is largely open to imports. As Peru's
    largest trading partner, the United States was expected to export about
    $2.2 billion to Peru in 2001, a slight increase over the 2000 level.
    Peru's average tariff rate has dropped consistently from 80 percent in
    1990 to the current level of about 12 percent. Some countries (not
    including the United States) 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; although ongoing
    negotiations to define some aspects of the agreement have delayed
    implementation. Peru is a member of the World Trade Organization (WTO)
    and APEC, and is an active participant in negotiations toward the Free
    Trade Area of the Americas.
        Monetary Policy: The central bank manages the money supply and
    interest and exchange rates through openmarket operations, rediscounts
    and reserve requirements on dollar and sol deposits. United States
    dollars account for at least three quarters of total liquidity (the
    legacy of hyperinflation), which complicates the government's efforts
    to manage monetary policy. Net foreign reserves stand at about $8.2
    billion, down from over $10 billion four years ago but still well above
    accepted norms. 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 has a liberal economy largely dominated by the private sector
    and market forces. The government has reduced its role in the economy
    since it began a privatization program in 1992. Since that time, most
    major stateowned businesses, including the telephone company,
    railroads, 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 has kept the remaining parts of the
    petroleum company (Petro Peru), some electrical utilities, and the Lima
    water company. The Toledo government announced in August 2001 that it
    would begin a new phase of the privatization program by selling off
    most remaining state-owned utilities and offering concessions to build
    and/or operate a range of public facilities. After several years of
    delay, the giant Camisea natural gas field concession was granted in
    February 2000 and the transportation and distribution contract was
    awarded in October 2000. Operation, modernization and expansion of
    Lima's Jorge Chavez International Airport was granted in a 1.2 billion
    dollar, thirty-year concession to a private consortium in February
    2001. The Bayovar phosphate mine, regional airports, highways, and a
    number of regional maritime ports are among concessions expected to be
    auctioned shortly. 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 almost 15 percent by 2000.
    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
    ValueAdded Tax (VAT). There are also several high excise taxes on
    certain items, such as automobiles, fuels, and beer.
    4. Debt Management
        Peru's long and medium-term public external debt at the end of
    September 2001 totaled $19.3 billion, about 35 percent of GDP. Total
    service payments due on the debt for 2001 are estimated at $2 billion.
    Peru has reduced its burden of the external public debt steadily since
    1993. The ratio of debt service to exports of goods and services stood
    at 31 percent in 2000. Although this debt burden appears high when
    compared with similar countries, the Peruvian government has a limited
    amount of domestic debt and, in recent years, has maintained a high
    level of international reserves. Moreover, 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 199395. 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. In 2000, after pursuing a claim
    in U.S. courts for several years, a private firm that had bought $11
    million in private commercial debt not included in the Brady deal
    succeeded in achieving a $58 million settlement, including interest and
    fees, with the government of Peru. There is approximately $100 million
    in similar non-Brady debt on secondary markets.
    5. Significant Barriers to U.S. Exports
        Almost all nontariff barriers to U.S. exports and most obstacles to
    direct investment have been eliminated over the past ten years.
        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, cars over five
    years old, and trucks over eight years old.
        Tariffs apply to virtually all goods exported from the United
    States to Peru, although rates have been lowered over the past few
    years. The tariff structure that went into effect in April 1997, for
    example, lowered the average tariff rate from 16 to 13 percent.
    Selective tariff reductions in 2001 on some intermediate goods lowered
    the average tariff to just under 12 percent. The government does
    maintain some ``temporary'' tariff surcharges on agricultural goods, in
    a move to try to promote domestic investment in the sector. Under the
    current system, a 12 percent tariff applies to more than 65 percent (by
    value) of the products imported into Peru; a 4 percent tariff applies
    to about twenty percent of goods, and 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. 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
    tariff reduction 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
    VAT on their inputs. In June 1995, the government approved a simplified
    drawback scheme for small exporters, allowing them to claim a flat five
    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, Berne Convention, Rome Convention, Phonograms
    Convention, Satellites Convention, Universal Copyright Convention, and
    the Film Register Treaty. In April 2001, the U.S. Trade Representative
    removed Peru from the ``Special 301'' Priority Watch List and placed
    the country on the Watch List due to increased efforts to improve IPR
    protection. Nevertheless, concerns remain about the adequacy of IPR law
    enforcement, particularly with respect to the relatively weak penalties
    that have been imposed on IPR violators.
        The government is generally proactive in promoting and protecting
    intellectual property rights for domestic and foreign interests.
    Although enforcement efforts have increased, piracy remains widespread.
    Industry data show that piracy in the software and motion picture
    industries has declined sharply since the mid-1990s. The Business
    Software Alliance (BSA) estimates that software piracy fell from 86
    percent in 1994 to 63 percent in 1999, though some estimates now put
    the figure back at 70 percent in 2001. The International Intellectual
    Property Alliance (IIPA) estimates that 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 same 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 were an
    improvement, they contained several deficiencies. The government
    believes that the Andean Community's September 2000 adoption of
    Decision 486 brings its laws into conformity with the WTO TRIPS
    Agreement. Nonetheless, there is some question within the Andean
    Community about whether national law or the Community Decisions on IPR
    would prevail in the case of conflict between them. Although it had
    been previously thought that the higher standard would prevail, the
    Andean Community Secretariat issued rulings in 2000 which determined
    that Peru violated Decision 344 by issuing ``second use'' patents.
    These rulings (Andean Community resolutions 358 and 406) threaten to
    undermine the ability of member states to implement national laws that
    are stronger than Andean Community norms. U.S. pharmaceutical companies
    are particularly concerned that, in light of resolutions 358 and 406,
    ambiguities in the new Decision 486 regarding the patentability of
    ``second use'' innovations could undermine the Peruvian government's
    ability to enforce second use patents. After Peru appealed the
    decision, the Court determined in October 2001 that the government
    could not issue second use patents, and the Peruvian government was
    exploring next steps. U.S. companies are also concerned that Decision
    486 is not sufficiently explicit regarding the confidentiality of data
    included with patent applications, thereby opening the way to the
    possible erosion of protections for such information.
        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.
        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. Peru signed the World Intellectual
    Property Organization's treaty on Copyrights in July 2001, but has yet
    to ratify the associated Phonograph and Performances Treaty. The two
    treaties will together strengthen Peru's IPR laws and provide
    protection to domestic and foreign companies alike.
    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 shortterm contracts are eligible for union membership, but
    cannot join the same unions as permanent employees. Union leaders
    complain that increasing numbers of employers are hiring workers under
    temporary personal service contracts to complicate 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 nonmembership 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 profitmaking 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 preexisting 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 nonunion) 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 antiunion 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. Nevertheless, there
    were two reports of such labor in informal gold mines in a remote area
    of Peru during 1999. However, information received during the year
    indicates Peruvian authorities are addressing the practice. 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.
        d. Minimum Age of 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 schoolaged 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 eighthour work day, a 48hour 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  358
    Total Manufacturing.........  ...........  196
      Food & Kindred Products...  66           .............................
      Chemicals & Allied          89           .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    (\1\)        .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  45           .............................
    Wholesale Trade.............  ...........  56
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  841
     Estate.
    Services....................  ...........  55
    Other Industries............  ...........  (D)
        Total All Industries....  ...........  3,317
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                              TRINIDAD AND TOBAGO

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                 1999      2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP............................    6,792     8,024      8,945
      Real GDP Growth (pct)..................      7.1       6.9        4.4
      GDP by Sector:
        Agriculture..........................      132       133        129
        Manufacturing........................      557       617        666
        Services.............................    3,944     4,535      5,218
        Petroleum............................    1,533     2,079      2,203
        Government...........................      622       593        698
      Per Capita GDP (US$)...................    4,785     6,162      6,900
      Labor Force (000s).....................      564       564        584
      Unemployment Rate (pct)................     13.1      12.8       12.1

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)...............    -0.34      2.93        5.4
      Consumer Price Inflation...............      3.4       3.5        4.4
      Exchange Rate (TT$/US$)................     6.30      6.28       6.24

    Balance of Payments and Trade:
      Total Exports FOB......................    2,803     4,287      4,338
        Exports to United States.............    1,285     2,179      3,078
      Total Imports CIF......................    2,743     3,319      5,387
        Imports from United States...........      756     1,072        984
      Trade Balance..........................       62       968     -1,049
        Balance with United States \2\.......      529      1107       2094
      External Public Debt...................    1,474     1,704      1,804
      Fiscal Deficit/GDP (pct)...............    -0.95     -0.45       -0.4
      Current Account Deficit/GDP (pct)......      0.7       0.2        3.7
      Debt Service Payments/GDP (pct)........      4.6       5.7        N/A
      Gold and Foreign Exchange Reserves.....    1,073     1,410      1,845
      Aid from United States \3\.............      3.5       3.7        4.6
      Aid from All Other Sources.............      N/A       N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on six months of data, except
      as noted. 1999 and 2000 figures have been revised based on Ministry of
      Finance and Central Bank revisions.
    \2\ 2001 U.S. trade with Trinidad and Tobago are estimates based on 7
      months of data.
    \3\ Represents primarily security assistance and counter-narcotics
      program funding, training, equipment transfers, and in-kind
      contributions. Includes USIA and USDA exchanges. In addition, the
      Department of Defense provides US$250,000 per year in Foreign Military
      Finance grants (FMF), and US$125,000 in International Military
      Education and Training (IMET) funding.

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

    1. General Policy Framework
        The twoisland nation of Trinidad and Tobago has enjoyed seven
    straight years of real GDP growth as a result of economic reforms,
    supplemented by tight monetary policy and fiscal responsibility, and
    high oil prices. The collapse of oil prices in the mid-1980s and
    concurrent decrease in Trinidadian oil production caused a severe
    recession from which Trinidad and Tobago only recovered in 1994. Over
    the last three years growth in GDP averaged 6.1 percent annually, with
    a 4.4 percent growth rate in 2000. Despite minor slowdowns in the
    economy, the Central Bank estimates a similar growth rate for 2001.
    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. The Liquefied
    Natural Gas (LNG) sector has seen substantial growth in the past four
    years and has made Trinidad & Tobago the single largest supplier of LNG
    to the U.S. market (provides 52 percent of LNG to U.S.)
        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
    from 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. Due to
    increasing revenue from the energy sector and lower consumer demand,
    the rate has strengthened during the past year, recently reaching a
    rate of TT$6.18. 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 nonoil 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 1995 from a maximum of 45 percent
    to 38 percent, and again in 1996 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 TT$50,000 of
    chargeable income and 35 percent thereafter. The taxpayer is entitled
    to an allowance of TT$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 government 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. 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.
        The government actively encourages foreign direct investment, 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 a permit is not granted to an official of a company
    competing with a local firm, or the authorities threaten to not 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 Automated System for Customs
    Data (ASYCUDA), a trade facilitation system, was adopted on January 1,
    1995. Customs clearance is complex and can be time consuming because of
    procedural delays.
    6. 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.
    7. Protection of U.S. Intellectual Property
        Trinidad and Tobago signed an Intellectual Property Rights
    Agreement with the United States in 1994 that, 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 also 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 United States. 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.
        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.
    8. 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 antiunion 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  1,063
    Total Manufacturing.........  ...........  62
      Food & Kindred Products...  (\1\)        .............................
      Chemicals & Allied          17           .............................
       Products.
      Primary & Fabricated        (\2\)        .............................
       Metals.
      Industrial Machinery and    4            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  (\2\)        .............................
    Wholesale Trade.............  ...........  (\2\)
    Banking.....................  ...........  (\2\)
    Finance/Insurance/Real        ...........  (\2\)
     Estate.
    Services....................  ...........  1
    Other Industries............  ...........  118
        Total All Industrie.....  ...........  1,331
    ------------------------------------------------------------------------
    \1\ Less than $500,000 (+/-).
    \2\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    URUGUAY

                             Key Economic Indicators
           [In Billions of U.S. Dollars unless otherwise indicated\1\]
    ------------------------------------------------------------------------
                                                 1999      2000     \2\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \3\........................     20.9      20.0       19.6
      Real GDP Growth (pct) \4\..............     -2.8      -1.3       -1.5
       GDP Growth by Sector (pct):
        Agriculture..........................     -7.2      -2.7       -3.0
        Manufacturing........................     -8.4      -2.4       -3.5
        Services.............................      1.3       2.0        1.0
        Government...........................      N/A       N/A        N/A
      Per Capita GDP (US$)...................    6,331     6,033      5,900
      Labor Force (000s).....................    1,500     1,526      1,550
      Unemployment Rate (pct)................     11.3      13.0       15.5

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2)...............      8.9       5.5       -4.0
      Consumer Price Inflation...............      4.2       5.7        5.5
      Exchange Rate (U peso/US$--annual           11.3      13.6       13.3
       average)..............................

    Balance of Payments and Trade:
      Total Exports FOB......................      2.2       2.3        2.1
        Exports to United States (US$              141       180        170
         millions)...........................
      Total Imports CIF......................      3.4       3.5        3.3
        Imports from United States (US$            375       336        290
         millions)...........................
      Trade Balance (FOB-CIF)................     -1.2      -1.2       -1.2
        Balance with United States (US$           -234      -156       -120
         millions)...........................
      External Public Debt (Gross)...........      5.9       6.2        6.8
      Fiscal Deficit/GDP (pct)...............      0.9       3.7        3.6
      Current Account Deficit/GDP (pct)......      2.9       2.9        3.0
      Debt Service Payments/GDP (pct)........      N/A       N/A        N/A
      Gold and Foreign Exchange Reserves           2.4       2.6        2.7
       (net).................................
      Aid from United States (US$ millions)        4.7       1.4        1.7
       \6\...................................
      Military Aid (US$ millions) \6\........      3.6       1.4        1.1
      Aid from All Other Sources (US$              N/A       N/A        N/A
       millions).............................
    ------------------------------------------------------------------------
    \1\ Data in Uruguayan pesos was converted into U.S. dollars at the
      average interbanking selling rate for each year.
    \2\ 2001 figures are all U.S. Embassy Montevideo estimates based on
      available data as of October 2001.
    \3\ At producer prices.
    \4\ Calculated based on GDP in constant 1983 pesos.
    \5\ U.S. Embassy Montevideo

    Sources: Uruguayan Central Bank and Uruguayan National Institute of
      Statistics (INE).

    1. General Policy Framework
        Uruguay is a market-oriented economy. The current administration,
    which took office in March 2000, has declared its intent to intensify
    the economic liberalization process that began over a decade ago. As in
    the past three administrations, the ruling coalition's principal goals
    are regional integration (MERCOSUR and FTAA), reduced deficit spending,
    government downsizing, and lower inflation.
        Social indicators place Uruguay among the most advanced countries
    in Latin America. Uruguay has the highest literacy rate, the most
    equitable income distribution and the lowest urban poverty in Latin
    America. The country's per capita gross domestic product (GDP) of
    $6,000 puts it in the World Bank's uppermiddle income grouping. Uruguay
    is also in the United Nation Development Program's category of
    countries with high human development.
        In 1997, Uruguay's risk rating for long-term debt issued in foreign
    currency was upgraded to BBB minus by Standard & Poor's, Duff & Phelps,
    and Europe's IBCA and to Baa3 by Moody's. Although all risk rating
    firms continued to grant Uruguay ``Investment Grade'' status in 2001,
    FitchIbca-Duff&Phelps lowered its outlook for Uruguay to ``negative''.
        Since 1999, Uruguay has been undergoing its worst recession in
    fifteen years. GDP plunged 2.8 percent in 1999 and 1.3 percent in 2000;
    it is expected to drop one to two percent in 2001. Key factors which
    negatively impacted the economy in 2000 include higher international
    interest rates, a tight credit policy, higher oil prices, a decline in
    prices for locally-produced commodities, a severe drought, low demand
    from neighboring Argentina and Brazil, and the depreciation of the euro
    against the U.S. dollar. Increased Argentine economic instability, an
    historically weak Brazilian currency, and the dissemination of foot-
    and-mouth disease hampered the Uruguayan economy in 2001. Future
    economic recovery will largely depend on the economic situation in
    Argentina and Brazil.
        Uruguay is a founding member of MERCOSUR, the Southern Cone Common
    Market, created in 1991 and composed of Argentina, Brazil, Paraguay and
    Uruguay, with Chile and Bolivia as associate members. Montevideo is the
    administrative capital of MERCOSUR, and Uruguay is the geographical
    center of MERCOSUR's most populated and richest area. Uruguay's trade
    with its MERCOSUR partners accounts for over 45 percent of its overall
    trade. MERCOSUR has been facing serious growing pains for the last
    three years, which seriously increased trade and political disputes
    amongst its partners. Problems include lack of an effective common
    external tariff, absence of macroeconomic and exchange rate
    coordination, political problems in Paraguay and Argentina, the
    imposition of trade-restrictive measures in all four countries, and a
    war of incentives between Argentina and Brazil to attract foreign
    investment. MERCOSUR is holding simultaneous market access negotiations
    with the United States and the European Union.
        The United States is Uruguay's fourth largest trading partner after
    Argentina, Brazil and the European Union. The U.S. share of Uruguay's
    imports has remained stable over the last decade at about 10 percent.
    The new government has made increased trade with the United States,
    Mexico, and Canada a high priority. According to a 1999 Uruguayan
    government study, the United States is the largest foreign investor in
    Uruguay, with 32 percent of overall foreign direct investment (FDI).
        Uruguay's monetary policy seeks to keep inflation under control,
    and the nominal exchange rate is its main instrument. The current
    exchange rate system limits the Central Bank's monetary policy to the
    issuance of short-term paper. A large part of the economy is
    dollarized.
        The Government of Uruguay significantly reduced public expenditures
    in 2000 and 2001, but the continuing reduction in tax revenue has
    prevented a decline in the budget deficit, which remains at 3.9 percent
    of GDP. Uruguay--s tax burden is over thirty percent of GDP. The tax
    system is highly dependent on a Value Added Tax (VAT) that accounts for
    over half of overall tax revenues. As of October 2001, the Executive
    Branch was working on a bill to lower the VAT rate and eliminate some
    of its exemptions. There is no personal income tax, and the corporate
    income tax rate is 30 percent. The Government of Uruguay has
    established certain tax benefits to favor local and foreign investment.
    2. Exchange Rate Policy
        The Uruguayan government allows the peso to float against the
    dollar within a specified range, six percent, and the Central Bank may
    buy and sell dollars to keep the peso's value within the band. This
    system has been in effect since 1991 and the band's width and rate of
    growth have been modified on several occasions. In June 2001, the
    Government of Uruguay increased the rate of depreciation of the peso/
    dollar exchange rate and widened the band in which the exchange rate
    may move, from three to six percent, in order to counter the declining
    competitiveness of Uruguayan exports. The band currently rises by 15.3
    percent per year. Devaluation outpaced inflation by 2.6 percent in
    2001. The Central Bank's net foreign exchange reserves stood at $2.7
    billion as of August 2001, equivalent to almost three times the money
    in circulation. These reserves offer a strong backup for the exchange
    rate. There are no restrictions on the purchase of foreign currency or
    remittance of profits abroad, and foreign exchange can be freely
    obtained.
    3. Structural Policies
        Uruguay switched from an import-substitution model that depressed
    growth in the sixties to an export-led model in the early seventies,
    when it launched a tax reform, liberalized foreign trade and the
    financial sector, and opened the economy to foreign investment. The
    eighties were a ``lost decade'' for Uruguay like many other Latin
    American countries. The need to finance high public deficits and to
    maintain the exchange rate, along with the existence of easily
    available international funds, induced the government to borrow heavily
    from abroad. In November 1982, the crawling-peg exchange rate system
    was abandoned, and the peso was devalued from 14 to 28 pesos per
    dollar. GDP plunged 9.4 percent in 1982 and further declined by 5 and 1
    percent in 1983 and 1984, respectively. Economic growth recovered in
    1985, and averaged 3.5 percent between 1985 and 1999.
        Uruguay implemented tight monetary and fiscal policies in the
    nineties, including a reduction in the size and scope of the public
    sector, reduced inflation and a transformation of the pension system
    that aimed to lower a structural government deficit in the long run.
    Prior to the reform, the social security deficit amounted to six
    percent of GDP).
        The Government of Uruguay has announced that it intends to foster
    economic efficiency through demonopolization and the reduction of
    bureaucratic red tape. A budget law approved in February 2001 provides
    for demonopolization of telecommunications and insurance, except for
    worker's compensation insurance, but basic telephony remains a
    monopoly. It also created regulatory agencies for telecommunications
    and electricity, and equalized tax treatment of public and private
    firms. The Government of Uruguay has announced that it may demonopolize
    oil refining. However, despite a commitment to the IMF, as of October
    2001 it is still unclear whether Uruguay will also demonopolize oil
    imports. Previous administrations have given the private sector access
    to areas formerly reserved for the state, including insurance and
    mortgages, road construction and repair, piped-gas distribution, water
    sanitation and distribution, cellular telephony and airline
    transportation. A 1997 law allows for the private generation of energy,
    but transmission and distribution rights, wheeling rights, remain a
    state monopoly. According to a recent study by a well-known think tank,
    utility demonopolization would create 45,000 new jobs. In 2001, the
    Government of Uruguay transferred operation of the country's sole
    container terminal to the private sector on a 30-year build, operate
    and transfer system (BOT) basis and announced its intent to transfer
    other public works.
        A government decree establishes that local products or services of
    equal quality, and no more than ten percent more expensive than foreign
    goods or services, shall be given preference in government tenders.
    4. Debt Management Policies
        Uruguay has never defaulted on its debts. Net external debt
    decreased steadily as a percentage of GDP from 1988 to 1998, but the
    need to finance higher budget deficits has driven it upward since 1999.
    The vast majority of the external debt is public and dollar-
    denominated. While all private sector debt is short-term, one year or
    less, public sector debt has a longer maturity (i.e. half of the total
    debt matures after the year 2005). The current administration has made
    lowering the budget deficit and the public debt in the mid-term a
    priority.
        The Inter-American Development Bank is the single most important
    lender, with half of all external loans. It is followed by the World
    Bank, which has one-fourth. A US$193 million IMF stand-by credit is in
    place until March 2002. Uruguay does not usually draw funds from IMF
    credits, but keeps them in reserve as a precaution.
    5. 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 ``de-
    bureaucratization'' 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.
    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 a big market share 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, basic telephony, and the press. Uruguay has long owned and
    operated state monopolies in petroleum, railways, 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. Water and
    sewage services are almost entirely provided by the state-run company,
    OSE. Both private consortia and the state-owned phone company (ANTEL)
    operate cellular telecommunications. Legislation to privatize ANTEL was
    overturned by referendum in 1992. A budget law approved in February
    2001 provides for private transportation over state-owned railways and
    demonopolization of telecommunications, except basic telephony, which
    remains a monopoly. Several state-owned firms and even city
    municipalities 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.
        Reference prices were eliminated in 1994, but minimum export prices
    are still applied on a few items, textiles and clothing, to neutralize
    unfair trade practices that threaten to damage national production
    activity or delay the development of such activities. These are fixed
    in relation to international levels and in line with commitments
    assumed under the WTO.
    6. Export Subsidies Policies
        The WTO agreement on Subsidies and Countervailing Measures has been
    adopted by law but no regulations implementing the agreement have been
    issued.
        The government provides a nine-percent subsidy to wool fabric and
    apparel producers using funds from taxes on certain wool exports.
        Enterprises that export vehicles or motor parts wholly or partly
    constructed in Uruguay may benefit from a customs concession,
    applicable to the importation of motor vehicles assembled abroad.
    7. Protection of U.S. Intellectual Property
        Uruguay is a member of the World Intellectual Property Organization
    (WIPO) and a party to the Berne Convention, the Universal Copyright
    Convention (UCC), and the Paris Convention for the Protection of
    Industrial Property. Although Uruguay is a WTO member, its IP regime
    does not yet meet international TRIPs standards. In 2001, USTR
    downgraded Uruguay from the Special 301 Watch List to the Priority
    Watch List because it considered that Uruguay's copyright law does not
    provide adequate IPR protection. In 2000 and 2001, the International
    Intellectual Property Rights Alliance (IIPA) petitioned USTR to review
    Uruguay's Generalized System of Preferences (GSP) benefits as a result
    of Uruguay's continued failure to meet its TRIPS obligations.
        The most serious lack of IPR protection is the lack of a modern
    copyright law. Uruguay's copyright law dates to 1937 and the three past
    administrations (15 years) have pushed for a new law. Uruguay affords
    copyright protection to artistic works, including movies, books,
    records, videos, and software. Despite legal protection, enforcement of
    copyrights for software is still weak. IIPA estimates pirating of
    business application software and entertainment software of 70 percent
    in 1999. It also estimated losses due to software piracy of $23 million
    in 1999. IIPA estimated trade losses of over $8 million for 1999 from
    piracy of videotapes (65 percent), records and music (35 percent) and
    books (31 percent). In 2000, Parliament split the copyright bill into
    two parts, one to regulate software and the other to regulate other
    copyright-related issues. The lower House of Parliament passed both
    bills in late 2000. They are currently being considered in the Senate
    as of October 2001.
        The government passed a patent law in 1999 that provides that
    invention patents have a 20-year term of protection from the date of
    filing. Patents of utility models and industrial designs have a 10-year
    term protection from the date of filing that may be extended once for
    five more years. The law provides a lax definition of compulsory
    licensing and a vague determination of the ``adequate remuneration'' to
    be paid to the patent holder. U.S. pharmaceutical industry
    representatives are unhappy with the law, believing that its compulsory
    licensing requirements are not TRIPS consistent.
        The government also approved a trademark law in 1998 that upgrades
    trademark legislation to TRIPS standards. Foreign trademarks may be
    registered in Uruguay and receive the same protection as domestic
    trademarks. The law provides that the registration of a trademark will
    last ten years and that it can be renewed as many times as desired. It
    also provides for prison sentences ranging from six months to three
    years for violations. Registering a foreign trademark without proving a
    legal commercial connection with the trademark is not possible and
    enforcement of trademark rights is good.
    8. 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 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 special work permit. Children under the
    age of 15 may not perform industrial jobs. 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
    monthly wage, US$78 as of October 2001. The minimum wage functions,
    however, more as an index for calculating wage rates than as a true
    measure of minimum subsistence levels, and it would not provide a
    decent standard of living for a worker and family. This wage is not
    binding for the vast majority of the economic sectors that pay
    significantly higher salaries. The industrial and commercial standard
    workweeks are 48 hours and 44 hours, respectively with overtime
    compensation. Workers are protected by health and safety standards,
    which appear to be adhered to in practice. There are tax incentives for
    companies that hire young people.
        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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  (\1\)
    Total Manufacturing.........  ...........  192
      Food & Kindred Products...  58           .............................
      Chemicals & Allied          40           .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    (\1\)        .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  6            .............................
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  88
    Banking.....................  ...........  257
    Finance/Insurance/Real        ...........  112
     Estate.
    Services....................  ...........  (\1\)
    Other Industries............  ...........  25
        Total All Industries....  ...........  693
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                   VENEZUELA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................     103.3      120.5      125.0
      Real GDP Growth (pct) \3\............      -6.1        3.2        3.0
      GDP by Sector:
        Agriculture........................      -2.1        2.2        2.2
        Manufacturing......................      -9.2        3.6        3.2
        Services...........................      -4.0        3.4        3.0
        Government.........................       1.2        3.1        2.9
      Per Capita GDP (US$).................     4,357      4,985      5,080
      Labor Force (000s)...................    10,225     10,327     10,430
      Unemployment Rate (pct)..............      14.5       13.2       13.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............      20.0       27.8       15.0
      Consumer Price Inflation.............      20.0       13.4       13.0
      Exchange Rate (BS/US$ annual average)
        Official...........................    605.70     679.93     725.00
        Parallel...........................    605.70     679.93     725.00

    Balance of Payments and Trade:
      Total Exports FOB \4\................      20.8       34.0       28.8
        Exports to United States \5\.......      11.3       18.6       15.8
      Total Imports CIF \4\................      13.2       16.1       16.8
        Imports from United States \5\.....       5.4        5.6        5.8
      Trade Balance \4\....................       7.6       17.9       12.0
        Balance with United States \5\.....       5.9       13.0       10.0
      External Public Debt.................      21.1       20.2       19.8
      Fiscal Surplus (Deficit)/GDP (pct)...      -2.6       -2.1       -3.5
      Current Account Surplus (Deficit)/GDP       3.6       11.1        6.0
       (pct)...............................
      Debt Service Payments/GDP (pct)......       6.1        5.9        5.4
      Gold and Foreign Exchange Reserves...      15.4       20.5       17.4
      Aid from United States \6\...........       N/A        N/A      0.047
      Aid from All Other Sources...........       N/A        N/A        N/A
    ------------------------------------------------------------------------
    \1\ 2001 figures are all estimates based on extrapolated data available
      as of October.
    \2\ GDP at market value.
    \3\ Percentage changes calculated in local currency.
    \4\ Merchandise trade.
    \5\ Source: U.S. Department of Commerce.
    \6\ $486,000 in Military IMET funding, and $4,208,683 in Narcotics
      Affairs assistance.

    1. General Policy Framework
        The Government of Venezuela (GOV) officially maintains a policy
    that promotes foreign investment. Following a serious recession in
    1999, the climate for foreign investment improved in 2000 as the
    economy recovered with a growth rate of 3.2 percent under the influence
    of a strong recovery in global oil prices. Many investors, however,
    have been cautious in their plans due to long-term economic and
    political uncertainty. President Chavez has often expressed a desire
    for a ``multipolar'' political and economic world, and has expressed
    serious reservations over the proposed Free Trade of the Americas
    Agreement (FTAA). Despite the uncertainty, several sectors continue to
    attract significant foreign investment, particularly
    telecommunications, electrical power generation and distribution, and
    oil and gas.
        Foreign investors have expressed its concern over a comprehensive
    new hydrocarbon law, which may make foreign investment in this critical
    sector more difficult. The law, enacted in November 2001, will increase
    royalty payments owed by investors and will require that the state
    control at least 51 percent of each joint venture.
        Real GDP increased by 3.2 percent in 2000, and is expected to
    continue its growth in 2001 with most public and private estimates of
    GDP growth in the two to three percent range. Inflation for 2000 was
    13.4 percent and is expected to be 12-14 percent in 2001. Much of the
    stabilization in the inflation rate is due to the continuation of a
    foreign exchange rate policy that maintains a gradual depreciation of
    the Bolivar at an annual rate of approximately seven percent.
        President Chavez has consistently called for increases in foreign
    investment, and has opened several economic sectors previously closed
    to foreign participation, notably the telecommunications and natural
    gas sectors. A Bilateral Investment Treaty between the two countries is
    under discussion following a two-year hiatus. If enacted, this treaty
    would provide greater protection to foreign investors in Venezuela.
        Over the past year, Venezuela's money supply (M2) expanded
    gradually in keeping with moderate GDP growth of approximately 3.4
    percent over the first semester. In early September, however, the
    Central Bank of Venezuela significantly reduced monetary liquidity to
    counter pressure on the local currency. Through a combination of
    additional debt issues and increases in the reserve requirements of
    commercial banks, the Central Bank reduced M2 by more than two percent
    in four weeks. It is anticipated that money supply will be tightly
    controlled to dampen inflationary pressures and support the Bolivar.
    The negative side of this policy is a marked increase in lending
    interest rates and consequently lower economic growth for the rest of
    2001. The Director of the Central Bank has stated clearly that the
    Bank's primary responsibility is to control inflation. Therefore, one
    can expect continued aggressive use of monetary policy as a
    macroeconomic tool.
        Overall, uncertainty emanating from a polarized domestic political
    situation and President Chavez's criticism of globalization have
    combined to dampen a previously encouraging climate for U.S. exports.
    While much of President Chavez's legislation is positive, his frequent
    verbal attacks on U.S. ``economic hegemony'' and the worrisome
    hydrocarbon law may worsen the domestic economic situation and cause
    some hesitation in foreign companies looking to invest in Venezuela.
    2. Exchange Rate Policy
        The Central Bank of Venezuela (BCV) has maintained the bolivar
    within a band of 7.5 percent centered on a gradually depreciating
    target exchange rate compared with the U.S. dollar. The target rate had
    been allowed to depreciate at a rate of 0.5 percent per month. Over the
    past two years, depreciation of the bolivar has not kept up with the
    rate of inflation, but convergence is occurring as the core inflation
    rate gradually dissipates. The appreciation of the Bolivar has a
    strongly negative impact on non-oil exports, but the government is
    expected to keep the band system for the near future. Central bank
    foreign reserves are sizable, and are more than adequate to support the
    gradually devaluing currency.
    3. Structural policies
        Pricing Policies: Price controls on basic goods and services do not
    exist. Only gasoline, and those pharmaceuticals with fewer than four
    competitive products remain subject to price controls. Foreign
    investors in capital markets and foreign direct investment projects are
    guaranteed the right to repatriate dividends and capital under the
    Constitution. However, the Law Governing the Foreign Exchange System
    (Extraordinary Official Gazette No. 4,897 dated May 17, 1995) permits
    the executive branch to intervene in the foreign exchange market ``when
    national interests so dictate.'' The government exercised this option
    during the 1994-95 financial crisis and placed restrictions on foreign
    exchange conversion or repatriation for investors. These restrictions
    were eliminated with the end of foreign exchange controls on April 22,
    1996.
        Tax Policies: The U.S.-Venezuelan Bilateral Tax Treaty, which went
    into effect in November 1999, eliminates double tax withholding and
    standardizes information sharing between the tax authorities of the two
    countries.
        The maximum income tax rate in Venezuela for individuals and
    corporations is 34 percent. Venezuelan law does not differentiate
    between foreign and Venezuelan-owned companies, except in the petroleum
    and mining sectors. 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.
        The Chavez Government is currently working on a new hydrocarbon
    law, expected to be one of the last pieces of legislation to be passed
    under the current Enabling Law. Industry representatives have expressed
    their concerns on several issues including a minimum of 51 percent
    PDVSA participation in projects, an increase of royalty to 30 percent,
    and the grandfathering of previously awarded contracts.
        Regulatory Policies: There are no official discriminatory
    regulatory policies which affect specific U.S. products or services. As
    detailed in Section 5 below, Venezuela has used import certificate
    requirements for certain agricultural products to unofficially restrict
    importation of these products.
    4. Debt Management Policies
        Venezuela's public sector's external debt was $20.2 billion at the
    end of 2000 and is expected to fall slightly to $19.8 billion by the
    end of 2001. External debt will be equal to approximately 16 percent of
    GDP by the end of 2001. Venezuela's external debt service totaled 5.9
    percent of GDP in 2000. This figure is expected to drop to 5.4 percent
    this year. The government's proposed budget indicates a decision to
    expand social and infrastructure spending in 2001-02 in an effort to
    meet numerous pressing social demands in education, health and social
    welfare. To pay for the high government expenditures in 2002, the
    government is planning to borrow $10.9 billion ($6.9 billion after
    amortization) and stop payments to its Macroeconomic Investment and
    Stabilization Fund, which accrues excess oil revenues.
        The Government of Venezuela will finish 2001 with a fiscal deficit
    close to four percent of GDP due to falling oil revenues and an
    expansive spending program designed to revitalize the economy.
    Adherence to OPEC-mandated cuts in oil production and a rapidly falling
    average oil price in the face of reduced global energy demand were the
    principal components in this deficit. The announced federal budget for
    2002 will produce an even greater fiscal deficit, on the order of five
    percent of GDP, unless the oil sector turns around or substantial
    reductions in spending occur. Even with Venezuelan oil in the USD
    $18.50 range, the budget planning office projects financing needs of
    approximately USD $10 billion. The sources for this amount will be
    international capital markets, domestic debt, increased dividends from
    PDVSA, or the Macroeconomic Stabilization Fund. Excessive reliance on
    any of these options will create long-term fiscal pressures.
    Expenditures will be difficult to reduce due to political
    considerations.
    5. Significant Barriers to U.S. Exports
        Venezuela began to liberalize its trade regime with its accession
    to the General Agreement on Tariffs and Trade (GATT) in 1990, and the
    World Trade Organization in 1995. 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 zero, 5, 10,
    15, and 20 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.
        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, and processed
    poultry was added in 2001. 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. Venezuela publishes
    these prices each April.
        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.
    Specifically, licenses are required for milk, cheese, oilseeds, and
    yellow corn. The government has been known to use this requirement to
    restrict agricultural and food 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 revalidate their
    qualifications at a Venezuelan university and pass the Associated
    Professional Exam. Exceptions may be granted to foreign service
    companies and their professional staff for limited periods of time and
    for specific projects or contracts. Foreign journalists who intend to
    work in the domestic Spanish language media must meet 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 had trouble in complying
    with the documentary requirements for the issuance of COVENIN
    certificates
        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. However, private companies
    may engage in hydrocarbons-related activities through operating
    contracts or through equity joint ventures with state owned PDVSA. The
    new hydrocarbon law will change the parameters for these contracts, and
    is expected to make hydrocarbon investment more costly and difficult
    for U.S. corporations.
        The exploitation of iron ore and hydropower generation in the
    Caroni river basin remain reserved for the state. However, one area
    that is rapidly changing is telecommunications. Under the new
    Telecommunications Law, the fixed-line telephone monopoly was
    deregulated in mid-2001. Extensive participation by U.S. firms in both
    the supply and operations sectors of the industry is starting to take
    shape.
        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. In the
    media sector, 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 limits foreign equity participation (except that from
    other Andean Community countries) to 19.9 percent in companies engaged
    in television and radio broadcasting, in the Spanish-language press,
    and in professional services subject to national licensing legislation.
        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 are
    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. Article
    28 allows temporary exceptions to Article 27 and outlines the
    requirements to hire technical experts when equivalent Venezuelan
    personnel are not available. Article 19 requires that all orders and
    instructions to workers are given in Spanish.
        Government Procurement Practices: Venezuela's Government
    Procurement Law stipulates that there will be no discrimination in the
    award of government contracts. However, the law leaves the Executive
    Branch significant discretionary power in granting contracts. For
    example, the President may promote domestic production or offset
    unfavorable conditions for domestic industry and may set criteria for
    preferences to Venezuelan nationals.
        Customs Procedures: In response to widespread complaints regarding
    the extent of corruption in Venezuela's Customs Service, President
    Chavez has embarked on a public campaign to modernize and restore
    confidence in the service. Although the government passed a customs law
    in 1998 that made private customs agents criminally responsible for
    illegal or undervalued shipments that enter the country, the problem
    remains significant and its resolution will require a concerted effort
    by the government.
    6. 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 14.5 percent wholesale tax levied on imported inputs. Both
    foreign and domestic companies are eligible for these rebates. However,
    the government has traditionally delayed making these duty drawback
    payments. 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.
    7. Protection of U.S. Intellectual Property
        Venezuela has recently made progress in the protection of
    Intellectual Property Rights (IPR). However, comprehensive legislation
    remains to be enacted and enforcement of IPR laws remains lax. The
    Venezuelan Industrial Property Office (SAPI) was successful in
    improving its service to the business community, but had less success
    in pushing for increased resources for the anti-piracy brigade
    (COMANPI) and for the special IPR prosecutor's office. The Venezuelan
    government is also working to get a new Industrial Property Law
    approved by the National Assembly (Congress), as well as promoting the
    ratification of the WIPO treaties. Unfortunately, pirated optical media
    remains readily available. Venezuela remained on USTR's Special 301
    ``Watch List'' following the annual review in April 2001.
        Venezuela is an active member of the World Intellectual Property
    Organization (WIPO). It is also a signatory to the Berne Convention for
    the Protection of Literary and Artistic Works, the Geneva Phonograms
    Convention, the Universal Copyright Convention, and the Paris
    Convention for the Protection of Industrial Property. Through Andean
    Community Decision 486, Venezuela has ratified the provisions of the
    WTO Agreement on Trade-Related Aspects of Intellectual Property Rights
    (TRIPS).
        Patents and Trademarks: Venezuela provides the legal framework for
    patent and trademark protection by the newly enacted Andean Community
    Decision 486, which substitutes for Decision 344, and the 1955 National
    Industrial Property Law. Andean Community Decision 486 takes major
    steps towards bringing Venezuela into WTO TRIPS compliance, but without
    corresponding local laws Venezuela is not completely TRIPS compliant.
    Andean Community Decision 345 covers patent protection for plant
    varieties.
        While the government introduced legislation in early 1996 to update
    the 1955 Industrial Property Law to bring Venezuela into compliance
    with TRIPS, the draft legislation was sidelined by President Chavez's
    constitutional reform process. However, the National Assembly is
    debating a new Industrial Property Law, which should address many of
    the outstanding TRIPS issues. A new customs law, which includes
    provisions for TRIPS-consistent border controls to impede the
    importation of pirated goods, became law in November 1998, and a
    revision to this law is pending.
        A significant patent issue continues to be the patentability of
    ``second uses.'' While Venezuela continues to stand behind its decision
    to issue second-use patents, Andean community Decision 486, like the
    previous Decision 344, is still ambiguous on second-use patents. It
    left intact the murky language from the old Decision 344 which has been
    interpreted by the Andean Community Secretary General as not allowing
    second use patents. The Andean Community has brought actions (still
    pending) in the Andean Community Supreme Court to disallow the second
    use patents issued to Pfizer in Venezuela, Peru, and Ecuador. Because
    of the Secretary General's interpretation on Decision 344, it is widely
    believed that the Andean Community Supreme Court will eventually
    disallow a second use patents in the Andean Community. Thus, while
    Venezuela has been one of the Andean Community countries advocating in
    support of second use patents, their position may be overturned by the
    decision of the Andean Community Supreme Court.
        Copyrights: The Venezuelan copyright and trademark enforcement
    branch of the police (COMANPI) continues to be understaffed with only
    nine permanent investigators to cover the entire country. The lack of
    personnel, coupled with a very limited budget and inadequate storage
    facilities for seized goods, has limited COMANPI's effectiveness.
        The legal framework for the protection of copyrights is provided by
    Andean Pact Decision 351 and Venezuela's 1993 Copyright Law. The 1993
    Copyright Law is modern and comprehensive and extends copyright
    protection to all creative works, including computer software. A
    National Copyright Office was established in October 1995 and given
    responsibility for registering copyrights, as well as for controlling,
    overseeing and ensuring compliance with the rights of authors and other
    copyright holders. The government formed COMANPI in July 1996 to act as
    an enforcement arm of the National Copyright Office. This police unit
    has the power to seize goods, make arrests and close establishments for
    violations of the law. However, it can only act based on a complaint by
    a copyright holder; it cannot carry out an arrest or seizure on its own
    initiative. COMANPI works closely with private sector representatives
    of the U.S. copyright industry, who provide the unit with intelligence
    information, financial backing and training.
    8. Worker Rights
        a.  The Right of Association: Both the 1999 Constitution and local
    labor law recognize and encourage the right of unions to organize. The
    comprehensive 1990 Labor Code extends to all private and public sector
    employees, except members of the armed forces, the right to form and
    join unions. One major union umbrella organization, the Venezuelan
    Confederation of Workers (CTV), three smaller confederations, and a
    number of independent unions all operate freely. It is estimated that
    30 percent of the formal labor force belongs to unions.
        b.  The Right to Organize and Bargain Collectively: The labor code
    protects and encourages collective bargaining, which is actively
    practiced in the Venezuelan economy, even in critical economic sectors
    such as oil production. Employers must negotiate a collective contract
    with the union that represents the majority of their workers. The labor
    code states that wages may be raised by administrative decree, if the
    National Assembly approves the decree. The law prohibits employers from
    interfering with the formation of unions or their activities. Employers
    may not stipulate as a condition of employment that new workers refrain
    from union activity.
        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 only
    require 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 6 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 2001, the monthly
    minimum wage for urban workers is $213 (BS 158,400 and $192 (BS
    142,560) for rural workers. The law excludes only domestic workers 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 reduces the standard workweek to a maximum of 40 hours and
    requires ``two complete days of rest each week.'' The code 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.
        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 usually better than those found in
    wholly owned domestic enterprises.

    Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
                Position Abroad on an Historical Cost Basis--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  2,803
    Total Manufacturing.........  ...........  1,366
      Food & Kindred Products...  347          .............................
      Chemicals & Allied          272          .............................
       Products.
      Primary & Fabricated        97           .............................
       Metals.
      Industrial Machinery and    35           .............................
       Equipment.
      Electric & Electronic       49           .............................
       Equipment.
      Transportation Equipment..  145          .............................
      Other Manufacturing.......  421          .............................
    Wholesale Trade.............  ...........  176
    Banking.....................  ...........  51
    Finance/Insurance/Real        ...........  727
     Estate.
    Services....................  ...........  811
    Other Industries............  ...........  2,489
        Total All Industries....  ...........  8,423
    ------------------------------------------------------------------------
    Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                   SOUTH ASIA

                                  ----------

                                   BANGLADESH

                             Key Economic Indicators
            [In Millions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Real GDP Growth (pct) \2\............       4.9        5.5        6.0
      GDP Growth by Sector:
        Agriculture........................       4.8        6.4        5.0
        Industry...........................       4.9        5.6        8.7
        Services...........................       5.2        5.3        5.2
      Per Capita GDP (Current US$).........       357        373        359
      Labor Force (000s)...................       N/A        N/A        N/A
      Unemployment Rate....................       N/A        N/A        N/A

    Money and Prices (annual percent
     change):
      Money Supply Growth (M2).............      12.8       19.9       15.0
      Consumer Price Inflation (annual            9.0        4.5        2.2
       average)............................
      Exchange Rate (Taka/US$--annual
     average):
        Official...........................      47.9       49.7      54.04
        Parallel...........................       N/A        N/A        N/A

    Balance of Payments and Trade:
      Total Exports FOB....................     5,313      5,752      5,872
        Exports to United States \3\.......     2,273      2,417      1,401
      Total Imports CIF....................     7,515      8,200      8,367
        Imports from United States \3\.....       300        239        157
      Trade Balance........................    -2,202     -2,448     -2,495
        Balance with United States \3\.....     1,973      2,178      1,243
      External Public Debt \4\.............    14,800     15,790        N/A
      Fiscal Deficit/GDP (pct).............       5.3        6.5        7.0
      Current Account Balance..............        NA        -61       -741
      Debt Service Payments/GDP (pct)......       6.7        7.3         NA
      Gold and Foreign Exchange Reserves...     1,500      1,500      1,295
      Aid from United States \5\...........       153       92.8       95.6
      Aid from All Sources \6\.............     1,474      1,575        N/A
    ------------------------------------------------------------------------
    \1\ Figures are for Bangladesh's fiscal year (FY), July 1 to June 30.
    \2\ Based on 1995/1996 base year; percent in constant prices
    \3\ Figures are for calendar year; 2001 up through July 2001.
    \4\ Medium and long-term; Based on Ministry of Finance, Foreign
      Assistance Accounts.
    \5\ Figures are for the U.S. fiscal year (October 1-September 30).
      Security assistance from the United States to the Bangladesh military
      during fiscal year 2001 totaled $503,000 for International Military
      Education Training (IMET). In addition to IMET, Enhanced International
      Peacekeeping Cooperation (EIPC) grants were provided to the Bangladesh
      military in the amount of $275,000 for training and $1.8 million for
      purchasing training equipment. These grants are to be expended over a
      five-year period, and roughly $51,000 was obligated in fiscal year
      2001.
    \6\ Disbursements; year 2000 number is provisional. Total does not
      include security cooperation/assistance.

    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
    2001 (July 1, 2000 to June 30, 2001) is estimated at $359. A large
    proportion of its population of roughly 130 million is tied directly or
    indirectly to agriculture, which accounts for 26 percent of Gross
    Domestic Product (GDP) and about 70 percent of the labor force.
    Industrial output remains narrowly focused. Economic growth in fiscal
    year 2001 was six percent, up by one-tenth of a percent point from
    2000. Bangladesh's economic growth has averaged five percent annually
    over the last ten years. However, economists estimate that growth rates
    of seven to eight percent are required to begin to alleviate the
    nation's extreme poverty.
        Bangladesh's industrial output, heavily concentrated in garments,
    showed 8.7 percent growth in fiscal year 2001, an increase of more than
    3 percentage points from fiscal year 2000. However, recent data show
    signs of a slowing down of activity over the last quarter of the fiscal
    year. Growth in agricultural output slowed to 5 percent in fiscal year
    2001, from 6.4 percent one year earlier. Service sector output grew by
    5.2 percent, roughly the same as fiscal year 2000.
        GDP growth continues to be weakened by low productivity, political
    instability, poor infrastructure, corruption, and low domestic savings
    and investment. High government borrowing and the widespread inflow of
    smuggled goods are the latest problems putting strains on the already
    weak economy. Bangladeshi exports, particularly ready-made garments to
    the United States and Europe, grew steadily over fiscal year 2001.
    However, July exports of ready-made garments ($336 million) grew at a
    much slower pace (3 percent versus 12 percent in June, 19 percent in
    May and 15 percent in April) and August exports posted a decline to
    $306 million. The state's presence in the economy continues to be
    large, and money-losing state enterprises have been a chronic drain on
    the treasury. During the 1990's Bangladesh took steps to liberalize 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, continued the market-
    based policies of its predecessor, the Bangladesh Nationalist Party
    (BNP), and made some regulatory and policy changes toward that end.
    However, implementation of new policy directives by the bureaucracy has
    been slow and uneven among the sectors.
        National elections were held on October 1 and the BNP claimed two-
    thirds of the total 300 seats in the Bangladesh Parliament. Early
    expectations are high that the new government will accelerate reforms
    to begin improving Bangladesh's investment climate.
        The World Bank and the International Monetary Fund (IMF) provided
    emergency balance of payment relief of about $320 million in fiscal
    year 1999, and over the past two years the IMF and Bangladesh have held
    follow-on discussions for a new loan program, though no agreement has
    been reached. Bangladesh's official foreign exchange reserves continued
    to edge downward throughout fiscal year 2001, but stabilized under the
    Caretaker Government (mid-July through September). The reserve level in
    October 2001 stood at around $1.1 billion, roughly equivalent to 1.5
    months of imports of goods and services. Loose fiscal and monetary
    policies have added to Bangladesh's balance of payments problems and
    have limited much needed credit expansion to the private sector.
        Inflation has fallen from the 9 percent level reached in fiscal
    year 1999 following the 1998 flood to an annual rate of 2.2 percent by
    the end of fiscal year 2001. Inflation currently stands at 1.5 percent,
    and most resident economists believe that the decline will go no
    further. A presumed record level of smuggled goods is credited by many
    for keeping the prices of consumable goods down.
        Responding to the overvaluation of its currency (the ``taka'')
    relative to the currencies of its main export competitors, Bangladesh
    devalued the taka by 3 percent in fiscal year 1999, by 2.1 percent in
    early fiscal 2000, by another 6 percent in mid-August 2000, and another
    5.5 percent in May 2001. Although resident economists believe that the
    latest devaluation, along with low inflation, has helped place
    Bangladesh in a competitive position it has not seen since 1997, most
    believe that further devaluation of the taka is needed. Other factors
    have limited Bangladesh's export competitiveness over the past several
    years, including the country's expensive and unreliable ports.
        The fiscal year 2002 national budget released in July 2001
    projected total resources of just under $8 billion, using the current
    57 taka to one dollar exchange rate. Revenue sources for the next
    fiscal year are projected to include $4.8 billion from tax collection,
    $1.7 billion from domestic financing, and $1.4 billion from foreign
    financing. Of the domestic financing, $390 million will come from bank
    borrowing and the remaining $1.4 billion will come from the sale of
    savings certificates. The budget projected $1.4 billion in
    concessionary foreign aid loans and grants, a 15 percent rise from the
    final fiscal year 2001 total. $956 million, or 20 percent of projected
    fiscal year 2002 revenue, will be used to pay off public debt interest.
        The budget projected a 13 percent rise in tax collection from the
    previous year's $3.4 billion collected, citing improved tax
    administration, closer monitoring, incentives to tax collectors, and
    modernization of operations as ways to increase revenues. The National
    Bureau of Revenue (NBR) exceeded its fiscal year 2001 collection goal
    of $3.4 billion by about $35 million. However, resident economists are
    warning that new practices and procedures needed to continue growth in
    revenue collections are reaching their limits. Unless major overhauls
    within the NBR are approved by the new government, future revenue
    growth targets will be hard to meet. Data released by the NBR in mid-
    October 2001 show that the revenue collection target for the first
    quarter 2002 was not achieved.
        The budget proposed total expenditures of over $7.8 billion for
    fiscal year 2002, a six percent rise from 2001 actual spending. If both
    tax collection and proposed spending meet their targets for fiscal year
    2002, the overall budget deficit is projected to be over $3 billion,
    roughly a four percent rise from the 2001 planned deficit.
        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) in fiscal year 2001 fell to 15 percent from
    over 19 percent growth in fiscal year 2000, due largely to the
    government's continued high recourse to central bank financing of the
    deficit. Although the government has enacted some liberal investment
    policies to foster private sector involvement (mainly in energy and
    telecommunications), poor infrastructure, bureaucratic inertia,
    corruption, labor militancy, and a generally weak financial system
    discourage investment. Political unrest and a deteriorating law and
    order situation also discourage domestic and foreign investors.
        The fiscal year 2002 budget proposed a continuing expansion of
    liquidity (in the form of interest free bonds) to Bangladesh's
    nationalized commercial banks that are burdened with bad loans. Reduced
    interest rates for lending to priority sectors like infrastructure,
    information technology, oil and gas, and agriculture-based industries
    were proposed in the budget, but assistance to several key sectors,
    primarily garments and frozen seafood, fell short of the business
    community's expectations. The import of capital machinery by export-
    oriented industries was made duty-free with indemnity bonds.
        Poverty alleviation programs were the largest recipients of the
    fiscal year 2002 budget allocations, receiving $1.9 billion, or roughly
    25 percent of total projected spending. Of this amount, Bangladesh's
    Annual Development Program (ADP) will receive $1.2 billion.
        The new government's Finance Minister was quick to express concern
    over the proposed 2002 national budget, and the new government's
    intention to review the budget and revise accordingly.
    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, vis-a-vis a basket of select currencies. Annual aid
    receipts and remittances from overseas workers, an important source of
    foreign exchange earnings, have kept the exchange market somewhat
    stable over the past several years and going into fiscal year 2001,
    workers' remittances were expected to remain a bright spot for the
    economy. However, official receipts fell dramatically in the first
    quarter, never rebounded, and fell by 3.4 percent over the entire
    period. An estimated $1 billion in remittances entered Bangladesh
    outside of official channels during fiscal year 2001, and the
    government's delayed decisions to devalue the local currency added
    unnecessary strain on the market. Workers' remittances rose sharply
    during the first two months of fiscal year 2002, showing a 13 percent
    increase over the same period in fiscal year 2001.
        Foreign firms are able to repatriate profits, dividends, royalty
    payments and technical fees without difficulty, provided appropriate
    documentation is presented to the Bangladesh Bank. However, U.S.
    investors do complain about the delays in getting the central bank's
    approval to repatriate profits. 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.
    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 loan program; however, as the
    Bangladeshi economy recovered smartly from economic disruptions caused
    by the floods, Bangladesh's enthusiasm for a new loan program waned.
    Although there is little disagreement between the IMF and Bangladesh on
    the substance of needed economic reforms (i.e., tax reform with better
    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,
    improvement of loan portfolios; and public sector reforms with an
    acceleration of privatization of state-owned enterprises), progress in
    negotiations has not occurred.
        Bangladesh has managed to maintain a laudable measure of macro-
    economic stability since 1993, but its macroeconomic position 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 slow,
    although the government has instituted reforms of the capital market
    and taken some market-friendly decisions to encourage foreign
    investment. Vested interest groups often successfully oppose reform
    effort. The public sector still exercises a dominant influence on
    industry and the economy even though less than five percent of the
    labor force is employed by state-owned enterprise (SOEs). Non-financial
    SOEs are losing an estimated $290 million a year. 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.
        The difficulties and the high cost of doing business have forced
    some companies to reconsider or limit their exposure in Bangladesh.
    Recognizing major shortcomings for private sector productivity, poor
    management of crucial infrastructure for power, rail lines, roads,
    ports, and telecommunications, in October 1996 the government
    formalized its private power policy, which grants tax holidays and the
    duty-free import of plant and equipment for independent power producers
    (IPP). As of fall 2001, IPPs were generating 35 percent of all the
    electricity to the national grid. Private investment is also allowed in
    the telecommunications sector for cellular communications, and in the
    hydrocarbons sector, where international oil companies have entered
    into production sharing contracts with the government to obtain gas
    exploration rights in block concessions. Bangladesh also witnessed a
    dramatic increase in the number of internet service providers following
    the sharp reduction in the tax on Very Small Aperture Terminals (VSATS)
    in early 2000.
        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. The banking sector is now dominated by four
    large nationalized commercial banks. However, entry of foreign and
    domestic private banks was permitted in 1996, and now numerous new
    private domestic and foreign banks, including U.S. banks American
    Express and Citicorp have established a foothold in the market. The
    banking sector continues to be in need of major reform, particularly in
    the area or loan defaults and high interest rates for key industrial
    sectors.
    4. Debt Management Policies
        Assessed on the basis of disbursed outstanding principal,
    Bangladesh's external public debt was $15.8 billion in fiscal year
    2001, an 11 percent rise from fiscal year 2000. Because virtually all
    of the debt was provided on highly concessional terms by bilateral and
    multilateral donors, the net present value of the total outstanding
    debt is significantly lower than its face value. Bangladesh maintains
    good relationships with the World Bank, Asian Development Bank, the
    International Monetary Fund, and the donor community.
    5. 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 from import-based taxes, custom duties, the
    Value-Added Tax (VAT), and supplementary duties on imports. Overall,
    tariff reform in Bangladesh is slow, but Bangladesh is continuing its
    efforts to shift from a tariff-based revenue system to an income-based
    one. The government has reduced import duty tariffs from an average of
    17 percent to 13 percent over the past five years. Some of fiscal year
    2002 budget changes to the tariff regime included additional tariff
    reductions for various types of industrial and environmental capital
    machinery.
        On August 15, 2001, the NBR issued a statutory order to impose
    supplementary duties on imports of numerous nonessential consumer
    items, ranging from 5-15 percent. This change was not viewed in any way
    as a roll back of trade liberalization, but as simply the use of a
    temporary market instrument to slow down import growth and decline of
    foreign reserves. This statutory order is expected to stay in effect
    during fiscal year 2002.
        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 allows private companies to enter the
    wireless communication market. Non-tariff 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 agreements on government procurement or civil
    aircraft.
        Government procurement generally takes place through a tendering
    process, which is typically not transparent, meaning U.S. businesses
    are not always guaranteed a level field for competing. Customs
    procedures are lengthy and burdensome, and sometimes complicated by
    corruption. Introduction of the PSI system of customs valuation has
    help simplify customs procedures and make valuation less arbitrary.
    However, the level of corruption remains a major concern.
        Other drawbacks to investment in Bangladesh include low labor
    productivity, poor infrastructure, excessive regulations, a slow and
    risk-averse bureaucracy, and unpredictable 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.
        On May 3, 2001, the United States Treasury announced that
    delegations from the United States and Bangladesh reached agreement on
    the text of a treaty for the avoidance of double taxation and the
    prevention of fiscal evasion with respect to taxes on income. The
    initialing off of the Agreement indicates the recommendation of the
    negotiators that the governments sign the treaty and complete the steps
    necessary in each country to bring the treaty into force. Both sides
    are now finalizing the necessary clearances and approvals and final
    signature is expected to take place by late October 2001.
        Export processing zones (EPZs) in Dhaka, Chittagong, Khulna and
    Ishwardi have successfully led to increased foreign investment in
    Bangladesh, but the country was at risk of losing access to benefits
    under Generalized System of Preferences (GSP) due to the government's
    slow pace in providing EPZs workers their labor rights. While
    substitutes for some of the provisions have been implemented through
    EPZ regulations, which the Bangladesh Export Processing Zone
    Association (BEPZA) is charged with enforcing, professional and
    industry-based unions are prohibited in the zones. A small number of
    workers in the EPZs skirted prohibitions on forming unions by setting
    up associations. In August, BEPZA reported that workers had begun
    selecting representatives for workers' welfare committees and dispute
    resolution tribunals. Gaining experience in resolving disputes between
    workers and managers is an interim step designed to ease the transition
    to the right to freedom of association and collective bargaining by
    January 1, 2004, when all sections of labor law are due to apply in the
    EPZs. By the end of fiscal year 2001, the United States had invested
    $16.9 million into the Dhaka and Chittagong EPZs, far below the
    investments made by East Asian investors. The government has plans to
    establish new export processing zones in Comilla and Mongla.
        Agreements between Bangladesh and U.S. companies in gas exploration
    and production and energy production prompted the rise in total U.S.
    foreign direct investment (FDI) from $25 million before 1995 to $885
    million in 2001. Other opportunities for significant investment in gas
    exploration and production, power generation, private port
    construction/operation and telecommunications could further swell U.S.
    investment and trade, if the new government makes needed economic
    policy changes and gas export decisions. At present, the United States,
    with 84 industrial projects (worth roughly $4.5 billion in potential
    investment outlays) registered by the Bangladesh Board of Investment
    (BOI), is the top provider of direct investment to Bangladesh. Of these
    projects, 26 are 100 percent U.S. owned (worth $3.1 billion) and the
    remaining 61 projects ($1.4 billion) are joint ventures with
    Bangladeshi investors. According to the BOI, by the end of fiscal year
    2001, 25 of these projects (worth $880 million) have been implemented,
    including the completion of the power generation plant in Haripur built
    by AES. 15 projects ($1.2 billion) are under progress, and the
    remaining 44 projects ($2.4 billion) are pending.
        Inadequate infrastructure, especially power supplies, port and
    transportation, is undermining efforts to attract FDI to Bangladesh and
    getting projects implemented once they have been registered with the
    BOI. Slow bureaucratic decision-making, corruption, occasional general
    strikes (hartals), and a largely unskilled labor force are further
    hindering prospects for investing in Bangladesh.
    6. 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 and lower interest rate 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.
    Similar subsidies are offered to selected leather products,
    manufactured jute products and artificial flowers. Exporters are
    allowed to exchange 100 percent of their foreign currency earnings
    through any authorized dealer.
    7. 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, the country has outdated Intellectual Property Rights (IPR) laws,
    an unwieldy system of registering intellectual property rights, and an
    almost nonexistent 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. Bangladesh enacted a Copyright Law in
    July 2000, updating its copyright system and bringing the country into
    compliance with TRIPS; the Government has been urged to move quickly on
    getting the law implemented. Progress in getting similar laws enacted
    for trademarks and patents and design has been extremely slow.
    8. Worker Rights
        a. The Right of Association: The Constitution provides for the
    right to join unions and, with government approval, the right to form a
    union. Bangladesh's total work force is approximately 58 million
    persons, of whom about five million work in the formal sector. Of
    those, approximately 1.8 million belong to unions, most of which are
    affiliated with the various political parties. There are no reliable
    labor statistics for the large unreported informal sector, in which the
    vast majority of Bangladeshis work.
        For a union to obtain and maintain its registration, 30 percent
    workplace participation is required. Moreover, would-be unionists
    technically are forbidden to engage in many activities prior to
    registration, and legally are not protected from employer retaliation
    during this period.
        The right to strike is not recognized specifically in the law, but
    strikes are a common form of workers' protest. The Essential Services
    Ordinance permits the Government to bar strikes for 3 months in any
    sector that it declares essential.
        There are no legal restrictions on political activities by labor
    unions, although the calling of nationwide general strikes (hartals) or
    transportation blockades by unions is considered a criminal rather than
    a political act and thus is forbidden.
        There are no restrictions on affiliation with international labor
    organizations, and unions and federations maintain a variety of such
    links. Trade unionists are required to obtain government clearance to
    travel to ILO meetings, but there were no reports that clearances were
    denied during the year.
        b. The Right to Organize and Bargain Collectively: The law permits
    workers to engage in collective bargaining only through representation
    by unions legally registered with the Registrar of Trade Unions as
    collective bargaining agents. Labor unions are affiliated with the
    various political parties; therefore, each industry generally has more
    than one labor union (one or more for each political party). To engage
    in collective bargaining, each union must nominate representatives to a
    Collective Bargaining Authority (CBA) committee, which the Registrar of
    Trade Unions must approve after reviewing the selection process.
    Collective bargaining occurs on occasion in large private enterprises
    such as pharmaceuticals, jute, or textiles but, because of high
    unemployment, workers may forgo collective bargaining due to concerns
    over job security. Collective bargaining in small private enterprises
    generally does not occur. The International Confederation of Free Trade
    Unions (ICFTU) has criticized the country for what it views as legal
    impediments that hamper such bargaining.
        The National Pay and Wages Commission determines pay levels and
    other benefits for public sector workers. Their recommendations are
    binding and may not be disputed except on the issue of implementation.
        The Registrar of Trade Unions has wide powers to interfere in
    internal union affairs. The Registrar has the authority to enter union
    premises and inspect documents; however, there were no reports during
    fiscal year 2001 that the Registrar of Trade Unions had abused these
    powers.
        The country's five Export Processing Zones (EPZs), of which three
    are operational, are exempt from the application of the Employment of
    Labor (Standing Orders) Act of 1965, the Industrial Relations Ordinance
    of 1969, and the Factories Act of 1965. Among other provisions, these
    laws establish the freedom of association and the right to bargain
    collectively, and set forth wage and hour and occupational safety and
    health standards. (See Section 6.)
        c. Prohibition of Forced or Compulsory Labor: The Constitution
    prohibits forced or compulsory labor, including that performed by
    children; however, the Government does not enforce this prohibition
    effectively. The Factories Act and Shops and Establishments Act, both
    passed in 1965, established inspection mechanisms to enforce laws
    against forced labor; however, these laws are not enforced rigorously,
    partly because resources for enforcement are scarce. There is no large-
    scale bonded or forced labor; however, numerous domestic servants,
    including many children, work in conditions that resemble servitude and
    many suffer physical abuse, sometimes resulting in death. Between
    January and August, newspapers reported ``unnatural deaths'' of 12
    domestic servants, including one who was only 11 years old. Newspapers
    also reported five separate cases of children being tortured by their
    domestic employers; in one case a ten year old girl allegedly was
    beaten until she lost consciousness. In the past, the Government has
    brought criminal charges against employers who abuse domestic servants;
    however, many impoverished families settle for financial compensation.
        There is extensive trafficking in both women and children, mainly
    for purposes of forced prostitution, although in some instances for
    labor servitude outside of the country (see Section 6.f.).
        d. Minimum Age for Employment of Children: There is no law that
    uniformly prohibits the employment of children, and child labor is a
    serious problem. Some laws prohibit labor by children in certain
    sectors. The Factories Act of 1965 bars children under the age of 14
    from working in factories. This law also stipulates that children and
    adolescents are allowed to work only a maximum 5-hour day and only
    between the hours of 7 a.m. and 7 p.m. The Shops and Establishments Act
    of 1965 prohibits the employment of children younger than the age of 12
    in commercial workplaces. The Employment of Children Act of 1938
    prohibits the employment of children under the age of 15 in the
    railways or in goods' handling within ports. In March, the Government
    ratified ILO Convention 182 on the elimination of the worst forms of
    child labor.
        There is virtually no child labor law enforcement outside the
    export garment sector. Penalties issued by the Ministry of Labor for
    child labor violations are nominal fines ranging from $4 to $10. The
    Ministry of Labor has fewer than 110 inspectors to monitor 180,000
    registered factories and establishments, charged with enforcing labor
    laws pertaining to more than one and one half million workers within
    its jurisdiction. Further, most child workers are employed in
    agriculture and other informal sectors, where no government oversight
    occurs.
        As part of a 1995 Memorandum of Understanding (MOU) between the
    Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the
    ILO, and UNICEF which aims to eliminate child labor in the garment
    sector, BGMEA has established its own Vigilance Team which inspects
    member factories. Among 3300 garment factories inspected, the team
    found 531 member factories employing a total of 1278 children. The
    BGMEA Vigilance Team fined each factory US$ 100. Also under the MOU,
    the ILO and UNICEF offer former child employees a small monthly stipend
    while attending school to help replace their lost income.
        In cooperation with the Non-Formal Education Directorate of the
    Government and some NGO partners, UNICEF is implementing a ``hard-to-
    reach'' program to provide education to 350,000 (primarily working)
    children in urban slum areas around the country. Working with the
    Government, NGOs, and some trade unions, ILO/IPEC has 20 action
    programs, targeting about 6,000 children working in hazardous
    conditions, designed to ensure that children receive an education,
    rather than removing children from work.
        e. Acceptable Conditions of Work: There is no national minimum
    wage. Instead the Wage Commission, which convenes every several years,
    sets wages and benefits industry by industry, using a range based on
    skill level. In most cases, private sector employers ignore this wage
    structure. For example, in the garment industry, many factories do not
    pay legal minimum wages, and it is common for workers of smaller
    factories to experience delays in receiving their pay, or to receive
    ``trainee'' wages well past the maximum 3 months. Wages in the EPZs are
    generally higher than outside the zones.
        The law sets a standard 48-hour workweek with one day off mandated.
    A 60-hour workweek, inclusive of a maximum 12 hours of overtime, is
    allowed. The law is enforced poorly in industries such as hosiery and
    ready-made garments.
        The Factories Act of 1965 nominally sets occupational health and
    safety standards. The law is comprehensive but largely is ignored by
    employers. For example, there are many fire safety violations in the
    garment industry. Many factories are located in structures that were
    not designed adequately for industrial use, nor for the easy evacuation
    of large work forces. In November 2000, 48 garment workers, including
    10 children, were killed and over 100 persons were injured when they
    were unable to escape from a factory fire due to locked exits. On
    August 8, 2001, 18 garment workers were trampled to death because an
    exit gate jammed as they were fleeing a factory after a fire alarm. In
    addition numerous factories have insufficient toilet facilities (for
    example, 1 toilet for 300 employees). Workers may resort to legal
    action for enforcement of the law's provisions, but few cases actually
    are prosecuted. Enforcement by the Labor Ministry's industrial
    inspectors is weak, due both to the low number of labor inspectors and
    to endemic corruption and inefficiency among inspectors. Due to a high
    unemployment rate and inadequate enforcement of the laws, workers
    demanding correction of dangerous working conditions or refusing to
    participate in perceived dangerous activities risk losing their jobs.
        f. Rights in Sectors 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  181
    Total Manufacturing.........  ...........  0
      Food & Kindred Products...  0            .............................
      Chemicals & Allied          0            .............................
       Products.
      Primary & Fabricated        0            .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  ...........  (\1\)
    Banking.....................  ...........  (\1\)
    Finance/Insurance/Real        ...........  (\1\)
     Estate.
    Services....................  ...........  1
    Other Industries............  ...........  2
        Total All Industries....  ...........  215
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                     INDIA

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                              \1\ 1999   \1\ 2000   \2\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \3\......................     448.0      478.0      498.0
      Real GDP Growth (pct) \4\............       6.4        5.2        5.1
      GDP by Sector (pct estimated):
        Agriculture........................      26.6       25.3       25.0
        Manufacturing......................      24.5       26.2       23.8
        Services...........................      49.0       48.5       51.2
        Government.........................       N/A        N/A        N/A
      Per Capita GDP (US$).................     452.0      486.0      505.0
      Labor Force (millions)...............     420.0      436.0      448.0
      Unemployment Rate (pct)..............      22.5       22.5       22.5

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M3).............      14.6       16.7       14.5
      Consumer Price Inflation \5\.........       3.4        3.8        6.0
      Exchange Rate (Rupee/US$ annual
     average):
        Official...........................     42.08       45.6       47.8
        Parallel...........................      43.3       46.7       48.3

    Balance of Payments and Trade:
      Total Exports FOB \6\................      36.8       44.4       47.5
        Exports to United States \7\.......       8.5        9.1        8.0
      Total Imports CIF \4\................      49.8       49.7       52.5
        Imports from United States \7\.....       3.6        2.8        2.0
      Trade Balance \6\....................     -13.0       -5.3       -5.0
        Balance with United States \7\.....       4.9        6.3        6.0
      External Public Debt \8\.............      97.7       98.4      102.5
      Central Government Fiscal Deficit/GDP       5.6        5.2    5.0-5.5
       (pct)...............................
      Current Account Deficit/GDP (pct)....       1.0        0.5        0.8
      Debt Service Payments/GDP (pct)......       2.5        2.2        2.1
      Gold and Foreign Exchange Reserves...      32.5       38.1       45.0
      Aid from United States (US$ million).     125.8      125.8      123.0
      Aid from All Other Sources \9\.......     2,990    3,174.2        N/A
    ------------------------------------------------------------------------
    \1\ 1999 and 2000 data differ from data contained in previous reports
      inasmuch as previous figures provided by the Government of India were
      provisional.
    \2\ Data are for the Indian Fiscal Year (IFY), April 1 to March 31,
      unless otherwise noted. Figures for 2001 are either Embassy or Center
      for Monitoring the Indian Economy (CMIE, a private research agency)
      estimates based on data available in September 2001.
    \3\ GDP at factor cost.
    \4\ Percentage changes calculated in local currency.
    \5\Wholesale price index is benchmark for inflation.
    \6\ Merchandise trade.
    \7\ Source: Directorate General of Commercial Intelligence Service,
      Department of Commerce, on a fiscal year basis. Figures for 2001 are
      estimates based on data available through September 2001.
    \8\ Includes a rupee debt of $4.4 billion (provisional figures as of
      March 2000) to the former Soviet Union.
    \9\ Derived using data from USAID and the Indian Finance Ministry's
      Annual Report.

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

    1. General Policy Framework
        India has experienced increased rates of growth and macroeconomic
    stability since economic reform and trade liberalization policies were
    initiated in 1991. Prior to the September 11 attacks against the United
    States, the Center for Monitoring the Indian Economy (CMIE) projected
    GDP growth in Indian Fiscal Year (IFY) 2001-02, April 1 to March 31, to
    be 5.1 percent, while industrial growth was expected to reach 4.5
    percent. In the wake of September 11, some analysts expect that growth
    will fall short of these targets, falling below the five percent growth
    achieved in IFY 1997-98 in the wake of the Asian Financial Crisis. For
    example, the IMF estimates GDP growth as low as 4.5 percent. India's
    highest rate of growth since 1991 was 1994-1997 when the economy grew
    at close to seven percent annually. Despite relatively stagnant U.S.
    trade and investment flows to India, the United States continues to be
    the largest investor in India and its biggest trading partner.
        There are continuing concerns over inadequate infrastructure,
    especially with respect to roads, ports, power, and drinking water.
    Infrastructure investment has lagged. In IFY 2000-01, the central
    government's gross fiscal deficit rose to 5.1 percent of GDP with the
    consolidated public sector deficit, including states, rising to over 10
    percent. Chronic budget deficits are also a problem and the high fiscal
    deficit/GDP rate continues to be a significant drag on economic growth.
        Credit policies announced in April 2001 have focused on softening
    interest rates to the minimum extent possible while emphasizing the
    need to guard against emerging inflationary pressures (e.g., the
    possibility of a higher oil import bill that would affect foreign
    exchange levels and overall inflation). The average inflation rate, as
    measured by the Consumer Price Index, is expected to reach about 6
    percent during IFY 2001-02, compared to 3.8 percent the previous year.
    During the first five months of IFY 2001-02, the money supply (M3) rose
    by an estimated 17 percent, much more than the Reserve Bank of India's
    (RBI) target of 14.5 percent.
    2. Exchange Rate Policy
        The exchange rate was unified and the rupee was made fully
    convertible on the trade account in 1993, and on the current account in
    the following year. Controls remain on capital account transactions,
    with the exception of those made by NonResident Indians (NRIs) and
    foreign institutional investors. The gradual removal of these controls
    is expected as foreign exchange reserves increase 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
    defended its position by arguing that India is in no hurry to complete
    full convertibility, especially given the 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. From April to September 2001, the rupee depreciated
    substantially (3.5 percent) against the dollar and is, as of October
    2001, trading in the range of 47.80-48.05 per dollar. In IFY 2000-01
    the average exchange rate was rupees 45.61 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
    financial markets. In addition, India's short term foreign borrowing is
    relatively 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 (e.g., food-grains, sugar, basic
    medicines, energy, fertilizers, and water), while many basic foods 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 costplus formula. However,
    wheat, rice, and sugar are supplied to persons living below the poverty
    line at subsidized rates. 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 pricecontrolled formulations from 142 in 1994 to 72 at
    present. The Government of India is seeking to reduce the number of
    drugs under the Drug Price Control Order, but has made little headway
    in this regard. Agricultural commodity procurement prices have risen
    substantially during the past nine years, while prices for nitrogenous
    and phosphatic fertilizers, rural electricity, and irrigation are
    subsidized. Acute power shortages are forcing several states to adopt
    market pricing for electricity, although progress in this area has been
    slow. The federal government has also begun to scrutinize the cost of
    its subsidies more carefully, especially in the power sector. The
    Government of India's oil price control mechanism is scheduled to be
    dismantled in April 2002.
        Tax Policies: Public finances remain highly dependent on indirect
    taxes, particularly import tariffs, which account for about 67 percent
    of central government revenue. India's direct tax base is small: only
    26 million taxpayers out of a possible 250 million households. Marginal
    corporate rates are high by international standards, although the
    corporate income tax rate for foreign companies has been lowered from
    55 percent to 48 percent. Tax evasion is rampant. The government has
    stated that future rate cuts will depend on the success of efforts to
    improve tax compliance. The government worked to simplify India's
    complex tax code and has announced that a full-fledged Value Added Tax
    (VAT) will be in place by April 2002. In early 2001, the excise and
    custom duty structure was rationalized by reducing three tiers of
    excise duties to one, and five tiers of custom duties to four. In
    August 2001, the government adopted transfer pricing regulations which
    will become effective in April 2002. The government provides certain
    tax incentives, such as a 10year tax holiday for knowledge-based
    industries like pharmaceuticals and biotechnology, two sectors which
    are of interest to US firms.
        Regulatory Policies: Indian industry remains highly regulated by a
    powerful bureaucracy armed with excessive rules and broad discretion.
    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 extensive regulatory
    powers. The speed and quality of regulatory decisions governing
    important issues such as zoning, landuse and the environment varies
    dramatically from one state to another. At the federal level, the
    abolition of industrial licensing for many sectors, the convertibility
    of the rupee on trade and current account transactions, and the advent
    of a regulatory approach more conducive to investment and competition
    have produced a change in the Indian business climate. Independent
    regulators have been established in key areas, electricity and
    insurance, but are still developing their methodologies, policies, and
    procedures to ensure transparency and independence from the government
    and the government bodies they oversee. Nevertheless, Indian industry
    remains highly regulated by a powerful bureaucracy armed with excessive
    rules and broad discretion. Coalition politics and political opposition
    have slowed or halted important regulatory reforms in areas like labor
    and bankruptcy law that would enhance the efficiency and levels of
    domestic and foreign investment.
    4. Debt Management Policies
        External Debt Structure and Management: The government has slowed
    the addition of new debt substantially in the past year by maintaining
    a tight rein on foreign commercial borrowing and defenserelated debt,
    encouraging foreign equity investment rather than debt financing,
    lowering the ratio of total external debt to GDP from 39.8 percent in
    IFY 199293 to 21.4 percent in IFY 2000-01. India's total external debt
    reached $100.25 billion in March 2001 due to the accretion of $5.5
    billion under the India Millennium Deposits. India has an excellent
    debt servicing record, and debt service payments were estimated at $4.4
    billion in IFY 2000-01. Roughly twothirds of the country's foreign
    currency debt is composed of multilateral and bilateral debt, with much
    of it (approximately 38.5 percent) on highly concessional terms. As a
    result, India had boosted foreign exchange reserves to $42.5 billion,
    excluding gold and SDRs. The increase in foreign exchange reserves is
    attributed to higher growth in revenue from tourism, higher net inflows
    of FIIs, higher FDI inflows, and a contraction in India's trade
    deficit.
        Relationship with Creditors: 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. In October 1998, Standard and Poor's (S&P)
    downgraded India's foreign currency rating from BB+ to BB. 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. In August 2001, S&P downgraded its outlook on both local
    and foreign currency from stable to negative due to unchecked fiscal
    deficits and rising domestic indebtedness. Moody's also lowered India's
    sovereign rating ceiling from positive to stable.
    5. Significant Barriers to U.S. Exports
        Import Licenses: U.S. exports have benefited from significant
    reductions in India's importlicensing requirements. Since 1992, the
    government has eliminated the licensing system for imports of
    intermediates and capital goods. India's average import tariff fell
    drastically during the last decade but has been static for several
    years and is currently 28.3 percent. U.S. exports to India increased
    from $2 billion in 1991 to $2.8 billion in IFY 2000-01. Historically,
    India maintained quantitative restrictions (QRs) on imports on balance
    of payments grounds. The last of these QRs was removed in April 2001
    under an agreement with the WTO and the United States.
        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, some
    pharmaceutical products, and bulk grains (wheat, rice, and maize).
    Under an April 1999 WTO dispute settlement ruling, India is committed
    to removing many of its ``canalization'' requirements, but no progress
    has been made. Import licenses are still required for pesticides and
    insecticides, some fruits and vegetables, breeding stock, most
    pharmaceuticals and chemicals, and products reserved in India for
    smallscale industry. This licensing requirement serves in many cases as
    an effective ban on importation.
        Services Barriers: Government-owned companies dominate many service
    industries, but private sector participants are increasingly being
    allowed to compete in the market. Entry of foreign banks remains highly
    regulated. Foreign Banks entered the market in 1993, and as of
    September 2001, 45 foreign banks were operating approximately 200
    branches in India. India does not allow foreign nationals to practice
    law in its courts, but some foreign law firms maintain liaison offices
    in India. India recently opened the general insurance and the domestic
    long distance telephony sectors to private and foreign investment.
    Foreign investors, however, are limited to a 26 percent share of
    insurance companies and a 49 percent stake in domestic long distance
    firms.
        Standards, Testing, Labeling and Certification: Indian standards
    generally follow international norms and do not constitute a
    significant barrier to trade. 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. Labeling of genetically modified organisms (GMOs)
    is not yet an issue in India and imports of GMOs are negligible. In
    November 2000, the Indian government promulgated new regulations
    dictating that the import of 131 specified commodities (mainly food
    preservatives, color, dyes, steel, and cement) will be subject to
    compliance with specified Indian quality standards, and that exporters/
    manufacturers will be required to register with, and obtain a
    certificate from, the Bureau of Indian Standards before exporting such
    goods to India. The government also subjected all imports of packaged
    goods intended for retail sale to carry specified declarations prior to
    clearance through Indian Customs. The declaration shall include: name/
    address of the importer; generic and common name of the commodity being
    imported; net quantity; month and year of packaging; and the maximum
    retail price at which the commodity will be sold to the consumer. Many
    U.S. companies have pointed out that conformity to the labeling
    requirements before clearance of goods is ``time-consuming'' and
    creates operational problems.
        Investment Barriers: Automatic approval of up to 74 percent of FDI
    is permitted in six sectors including mining, storage, warehousing, and
    transport. In addition, 100 percent of FDI is automatically approved in
    a few sectors: electricity generation and transmission, construction/
    maintenance of roads, venture capital funds, business e-commerce,
    hotel/tourism, pharmaceuticals, and Mass Rapid Transport Systems.
    Government approval of foreign infrastructure projects that are not
    subject to the automatic approval process are frequently held up for
    lengthy periods of time. The requirement for government approval for
    equity investments of up to 51 percent in 47 industries, including the
    bulk of manufacturing activities, has been entirely eliminated,
    although the government reserves the right to deny requests for
    increased equity stakes in these sectors.
        Most sectors of the Indian economy are now open to foreign
    investors, except for a few big public sectors such as railways, atomic
    energy, and hydro-power. In May 2001, the government opened the defense
    equipment industry to private investors with an FDI limit of 26
    percent. The government also raised permissible foreign equity in
    banking from 20 percent to 49 percent, and in Internet Service
    Providers (ISP) sector from 49 percent to 74 percent. The United States
    and India have not negotiated a Bilateral Investment Treaty, although
    the Overseas Private Investment Corporation (OPIC) may offer coverage.
    In 1994, India became a member of the Multilateral Investment Guarantee
    Agency, an agency of the World Bank. India is a member of the WTO. With
    regard to Trade-Related Investment Measures (TRIMs), the United States
    is challenging in WTO the local content and trade balancing measures
    that India applies to foreign joint ventures in the motor vehicle
    manufacturing sector.
        Franchising Practices: The Government of India has stringent rules
    governing ``royalty,'' which inhibits franchise development. The
    royalty amount franchisors can charge and repatriate is based on
    outdated and complicated rules that are often unclear as they are
    treated differently by various Indian government offices. Bureaucratic
    hurdles have caused some U.S. franchisors to withdraw from business
    deals after long struggles.
        Government Procurement Practices: Government procurement practices
    are not transparent and discriminate against foreign suppliers, but are
    improving as a result of fiscal stringency. Recipients of preferential
    treatment in government procurement are now concentrated in the
    smallscale industrial and handicrafts sectors. However, public sector
    enterprises receive preferential treatment as they may undercut the
    lowest bid on a government contract by 10 percent. Defense procurement
    through agents is not permitted. When foreign financing is involved,
    procurement agencies generally comply with multilateral development
    bank requirements for international tenders. India is not a signatory
    of the WTO Government Procurement Agreement.
        Customs Procedures: Liberalization of India's trade regime has
    reduced tariff and nontariff barriers, but it has not eased some of the
    worst aspects of customs procedures. Documentation requirements are
    extensive and delays are frequent. India has now introduced a
    harmonized system of classification of export and import items on a
    standardized form at a 6-digit level to simplify procedures.
    6. Export Subsidies Policies
        The government still maintains a web of indirect export subsidies.
    Export promotion measures include exemptions or concessional tariffs on
    raw materials and capital inputs and heavy subsidies for exports of
    wheat and rice. The Special Import License (SIL) requirement was
    eliminated on April 1, 2001, pursuant to the WTO panel report on
    balance of payments-based QRs. Concessional income tax provisions
    traditionally applied to exports (export earnings are taxexempt),
    although the Indian government is eliminating this provision over five
    years in equal stages. Commercial banks provide export financing on
    concessional terms.
    7. Protection of U.S. Intellectual Property
        Various statutes for the protection of intellectual property rights
    exist, especially with respect to copyrights and trademarks, although
    enforcement is poor and piracy is rife. Copyright enforcement,
    particularly with the proliferation of the Internet and cable
    television, is generating increased attention from the Indian
    judiciary. Still, there have been only four criminal convictions for
    piracy in India since the new copyright law went into effect in 1995.
    India failed to meet the January 1, 2000, deadline for the second set
    of TRIPS obligations requiring further amendments to its Patents Bill.
    A draft Patents Bill is pending with a joint parliamentary committee.
    The Indian government has announced its intention to take full
    advantage of the 2005 transition period allowed for 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. In August 1998, it became a member of the Paris
    Convention, and in December 1998 it became a signatory to the Patent
    Cooperation Treaty. Despite some improvements in its protection of
    patent rights, the USTR has targeted India as a Priority Foreign
    Country in the ``Special 301'' process, and included it in the 2001
    ``Special 301'' Priority Watch List.
        In April 1992, the United States 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 total affected trade to approximately $80 million.
    However, in August 2001 GSP benefits totaling $543 million were
    restored to India.
        India's patent protection is weak and has especially adverse
    effects on US pharmaceutical and chemical firms. Estimated annual
    losses to the pharmaceutical industry due to piracy are about $500
    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 may be
    patented, 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.
        Trademark protection is considered good and was raised to
    international standards with the passage in December 1999 of a new
    Trademark Bill that codifies existing court decisions on the use and
    protection of foreign trademarks, including service marks. 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.
        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.
    Still, severely backlogged Indian courts, coupled with the excessive
    requirements of Indian criminal procedure, have led to infrequent and
    lax enforcement. The recently passed Information Technology Act
    provides a legal framework for the prevention of piracy and protection
    of intellectual property rights, to include penalties for the
    unauthorized copying of computer software.
        The proliferation of unregulated cable television operators has led
    to pervasive cable piracy. A strong anti-piracy effort in the business
    applications software field, where India ranks third in the world with
    $5 billion in sales in 1999, has produced a drop in the business
    software piracy rate from 78 percent in 1995 to 61 percent in 1999.
    According to a recent industry report, trade losses due to the piracy
    of U.S. motion pictures, sound recordings and musical compositions,
    computer programs, and books totaled $310 million in 1999.
    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 and 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
    states' ability to enforce child labor legislation. The U.S. Department
    of Labor has initiated cooperative programs with the Indian government
    to address child labor. The Government of India recently announced its
    intention to introduce legislation to provide compulsory education to
    all children between the ages of 6 and 14. The legislation is likely to
    be introduced in the Winter Session of Parliament beginning November
    2001.
        e. Acceptable Conditions of Work: India has a maximum eighthour
    workday and 48hour 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  -430
    Total Manufacturing.........  ...........  790
      Food & Kindred Products...  239          .............................
      Chemicals & Allied          92           .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    358          .............................
       Equipment.
      Electric & Electronic       157          .............................
       Equipment.
      Transportation Equipment..  -161
      Other Manufacturing.......  (\1\)        .............................
    Wholesale Trade.............  ...........  124
    Banking.....................  ...........  291
    Finance/Insurance/Real        ...........  179
     Estate.
    Services....................  ...........  68
    Other Industries............  ...........  236
        Total All Industries....  ...........  1,258
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

                                     ______

                                    PAKISTAN

                             Key Economic Indicators
            [In Billions of U.S. Dollars unless otherwise indicated]
    ------------------------------------------------------------------------
                                                1999       2000     \1\ 2001
    ------------------------------------------------------------------------
    Income, Production and Employment:
      Nominal GDP \2\......................      54.0      57.09      54.74
      Real GDP Growth (pct)................       3.1        4.8        2.7
      GDP by sector (pct):
        Agriculture........................      24.5       26.0       24.7
        Manufacturing......................      18.6       16.7       17.4
        Services...........................       8.9        9.3        9.6
        Government.........................       6.1        6.3        6.4
      Per Capita GDP (US$).................       406        415        389
      Labor Force (Millions)...............      38.6       40.4       41.2
      Unemployment Rate (pct)..............       6.1        6.0        6.0

    Money and Prices (annual percentage
     growth):
      Money Supply Growth (M2).............       3.5        9.4        7.0
      Consumer Price Inflation.............       6.1        3.6        4.4
      Exchange Rate (Rupees/US$--annual
     average):
        Official...........................      50.2       51.7       58.3
        Parallel...........................      54.2       54.2      61.25

    Balance of Payments and Trade:
      Total Exports FOB \3\................       7.7       8.56       9.14
        Exports to United States...........       1.7       2.12       2.24
      Total Imports CIF \3\................       9.3       10.3      10.66
        Imports from United States.........       0.7      0.647      0.563
      Trade Balance \3\....................      -1.6       -1.7       -1.5
        Balance with United States.........       1.0        1.4        1.6
      External Public Debt.................      37.6       36.5       37.1
      Fiscal Deficit/GDP (pct).............       6.0        6.5        5.3
      Current Account Deficit/GDP (pct)....       4.1        1.9        1.8
      External Debt Service Payments/GDP          5.5        4.5        4.1
       (pct)...............................
      Gold & Foreign Exchange Reserves.....       2.3       2.00       2.66
      Aid from United States (U.S.$                42       49.5        2.7
       millions)...........................
      Aid from All Other Sources \4\.......       2.3        1.4        1.6
    ------------------------------------------------------------------------
    \1\ Data are for the corresponding Fiscal Years ending June 30. Rupee
      exchange rates used to convert to dollars are 50.2 for 1999, 51.7 for
      2000, and 58.3 for 2001. Data for 2001 is provisional.
    \2\ GDP at factor cost.
    \3\ Merchandise trade.
    \4\ No military aid is believed to be included in these figures. Figures
      are for disbursed loans and grants.

    Sources: Various government sources, including the State Bank of
      Pakistan, the Federal Bureau of Statistics and the Ministry of
      Finance.

    1. General Policy Framework
        During 2000-2001, Pakistan's economic growth slowed down from the
    previous year as gross domestic product (GDP) grew at the rate of 2.7
    percent against 4.8 percent during 1999-2000. The slowdown in growth
    was attributed to an unprecedented drought that affected most parts of
    the country. Agriculture contracted by 2.5 percent due to a 40percent
    shortfall in water for irrigation. By contrast, the performance of the
    large-scale manufacturing sector was strong, recording growth of 8.4
    percent after declining by 0.2 percent in 1999-2000. The major
    contributors to GDP growth were manufacturing and services. Inflation
    remained low at 4.4 percent during 2000-01. Both exports and imports
    increased during 2000-2001 and the trade deficit dropped from $1.7 to
    $1.5 billion. Pakistan continued to face a difficult balance-of-payment
    situation with foreign exchange reserves moving upward only slightly to
    $1.7 billion as of August 2001.
        Pakistan's economic performance has been handicapped in recent
    years by ineffective governance and weak policy implementation. The
    Government of Pakistan has succeeded in achieving some macro-economic
    stability which, if maintained, will help the country to achieve higher
    growth levels. The introduction of financial sector reforms and
    restructuring the power sector which are now underway should help to
    increase economic efficiency. The biggest challenges facing American
    firms in Pakistan have been inconsistent and sometimes contradictory
    policies and security threats in some parts of the country. The
    Government of Pakistan must also overcome a recent record of not
    adhering to contracts reached with foreign investors. The military
    government of President Musharraf, which took over on October 12, 1999,
    has made economic revival its main priority. Its stated goals are
    restoring investor confidence through stability and consistency in
    economic policies, increasing domestic savings, carrying out tax
    reforms, restructuring and privatizing state enterprises, boosting
    agriculture, and reviving industry. To date this government has made
    significant progress on broadening the tax base and embarked on
    comprehensive reforms in many areas, including police and judicial
    reform. While significant momentum has built in the reform effort, much
    remains to be done, particularly in reviving foreign and domestic
    investor confidence.
        Monetary Policy: The Government of Pakistan followed a tight
    monetary policy during 2000-2001 to stem the slide of the rupee, which
    was floated on July 20, 2000. Actual growth in money supply remained
    stagnant at just under 7 percent against a target of 10.5 percent in
    1999-2000. Only near the end of the year did the State Bank of Pakistan
    (SBP) loosen its monetary policy in an effort to increase credit to the
    industrial sector. During 2000-2001 the SBP exercised greater policy
    independence and moved toward more indirect, market-based methods of
    monetary control. The SBP uses the discount rate, reserve requirements
    and open market operations with government securities to conduct its
    monetary policy. The government has also undertaken a program of
    financial reforms designed to enhance competition in the banking
    sector, eliminate directed credit and improve prudential regulation and
    supervision. Interference by past governments in state-owned bank
    lending practices left many of those banks with weak balance sheets.
    Recently a Corporate and Industrial Restructuring Corporation has been
    established to take over the bad loans of the banking sector and to
    revive sick industries, an effort aimed at improving state-owned bank
    balance sheets and preparing them for privatization.
        A December 1999 Supreme Court decision requiring the government to
    establish an interest (``riba'') free, Islamic banking system still
    stands, but the Court extended the implementation deadline one year
    until June 2002. The Government of Pakistan created two commissions,
    one at the State Bank of Pakistan and the other at the Ministry of
    Finance to study how to implement this decision without disrupting the
    country's financial markets.
        Fiscal Policy: A central element of Pakistan's economic reforms has
    been the effort to reduce persistent deficit spending by increasing
    revenues and controlling expenditures. Under a Stand-by Arrangement
    with the International Monetary Fund, the government held to a strict
    deficit target, achieving a sharp reduction in the fiscal deficit from
    6.5 percent of GDP in FY 1999-2000 to 5.3 percent of GDP in FY 2000-
    2001. This was the first time in 18 years that the fiscal deficit
    dropped below 6 percent. Wide ranging tax reforms, improved
    documentation of the economy and tighter control on expenditures were
    the factors contributing to this reduction. Current expenditures
    declined to 19 percent of GDP in FY 2000-01 from 20.2 percent the
    previous year. Debt repayment absorbed approximately 40 percent of the
    government's budget. When combined with defense outlays, this figure
    rises to 64 percent of total spending (75 percent of current
    expenditures), leaving little room for other basic government functions
    or for improving the long-neglected social sector. On the revenue side
    the government has made some limited progress is expanding the
    country's very narrow tax base; perhaps 1 in 100 Pakistanis pays income
    tax. The current government has made compliance with the tax regime,
    including a 15 percent general sales tax , a keystone of its economic
    reform program. The government financed its fiscal deficit by the sale
    of short-term treasury bills and long-term Pakistan Investment Bonds,
    as well as borrowing from foreign commercial banks and multilateral
    institutions.
    2. Exchange Rate Policy
        In July 2000, the State Bank of Pakistan (SBP) abandoned its
    exchange rate band of rupees 52.10-52.30 to the dollar established in
    May 1999 and freely floated the rupee. Under the new exchange-rate
    system each bank quotes its own rate depending on its short and long
    positions. Strong competition, however, means the exchange rates vary
    little among the banks. There is also an informal but legal foreign
    exchange market in Pakistan that generally buys and sells foreign
    currency at a premium. It is linked to an informal and undocumented
    international capital transfer system that channels approximately two-
    thirds of the remittances from Pakistanis working abroad. The
    government is seeking to unify the two foreign exchange markets by
    improving the flow of funds through the banking system (i.e.,
    increasing speed and lowering cost) and improving regulation of the
    private money changers. The rupee has depreciated almost 22 percent
    against the dollar over the last year. With very limited foreign
    reserves the SBP has little means with which to intervene in the
    foreign exchange market. The SBP has used a policy of tight domestic
    credit to limit depreciation of the rupee.
        The government has gradually taken measures to lift the capital
    controls it re-imposed during the currency crisis of 1998 when it froze
    existing foreign currency accounts and denied access to official
    reserves. Most foreign exchange controls have now been removed and the
    rupee is now considered ``fully convertible'' for current account
    operations. Foreign firms investing in Pakistan (other than banks and
    insurance companies) are allowed to remit profits and capital without
    prior government approval. Corporate and individual foreign currency
    accounts can once again be opened in commercial banks. However, the SBP
    does not provide forward cover for such accounts.
    3. Structural Policies
        Pakistan is implementing structural reforms, in consultation with
    the International Financial Institutions (IMF, World Bank, Asia
    Development Bank), aimed at achieving sustainable growth. These
    include: (a) reducing the fiscal deficit by broadening the tax base and
    controlling expenditures, (b) reducing the current account deficit by
    promoting exports and following a market-based exchange rate system,
    (c) containing inflation by limiting government borrowing from the
    banking sector, and (d) deregulating and increasing the role of the
    private sector through privatization of major state-owned enterprises.
    In principle, the Government of Pakistan has been pursuing a long-term
    strategy of market liberalization, reducing the government's direct
    intervention and opening the economy to international competition.
    While significant progress has been made, the state remains an
    important player in the Pakistani economy.
        Pricing and Tax Policies: Pakistani government agencies and public
    sector companies allow only exclusive agents to submit bids for tenders
    to ensure that they receive only one quotation from each supplier. In
    the market, pricing is complicated by a complex and confusing tax
    structure consisting of multiple taxes and customs duties. Currently
    the general sales tax, excise duties, income and corporate taxes,
    withholding tax and custom duties are the major taxes. While the
    government has moved to diversify its revenue sources, custom duties
    continue to provide almost 40 percent of total tax revenues. The
    present government is considering reducing the number of taxes at the
    federal level to three major taxes (sales, income and trade) within the
    next two years. At the provincial level, the government has already
    reduced the number of taxes from 29 to 8. Exemptions or relief from
    import duties have been allowed on imported machinery. Tax relief has
    also been provided for expansion and modernization of existing
    industries.
        Regulatory Policies: As part of an integrated investment promotion
    strategy, Pakistan has undertaken a comprehensive program to make its
    economy fully market-oriented. Foreign investment in the manufacturing,
    infrastructure, hotel/tourism, agriculture, services, and social
    sectors can be fully repatriated. Key features of Pakistan's investment
    climate include a general policy of permitting foreign investors to
    participate in local projects at 100-percent equity, relaxing work
    permit and remittance restrictions on expatriate managers and technical
    personnel, eliminating government approval requirements (with a few
    very limited exceptions), providing statutory protection against
    expropriation, and allowing unrestricted local borrowing by foreign
    entities. During the last year the government provided additional
    incentives to investors by reducing bureaucratic discretion and
    offering tax and other incentives in the infrastructure, services and
    agriculture sectors. The government decided to give ``priority
    industry'' status to tourism, housing and construction sectors,
    approved a new list of industries qualifying for ``value-added'' status
    (entitled to the highest level of incentives), and allowed the non-
    manufacturing sector to remit royalties and technical and franchise
    fees.
    4. Debt Management Policies
        Pakistan remains dependent on foreign donors and creditors to
    finance its balance-of-payment deficit. The government signed a ten-
    month $596 million Stand-By Arrangement with the IMF in November 2000
    which it successfully completed. Pakistan has also received this year a
    $350 million Structural Adjustment Credit from the World Bank and $750
    million from the Asian Development Bank for projects in the areas of
    micro finance and judicial reforms. As a result of its work with these
    International Financial Institutions, Pakistan was able to concluded an
    agreement in January 2001 with its official creditors under the Paris
    Club, rescheduling $1.8 billion in debt. If Pakistan successfully
    negotiates a multi-year Poverty Reduction and Growth Facility with the
    IMF, it will seek additional debt relief within the Paris Club.
        A steady increase in external liabilities and debt service payments
    has reduced the net inflow of foreign resources to Pakistan. Gross
    external public debt is over 74 percent of GDP while debt servicing has
    hovered above 3 percent during the 1990s. Rescheduling dropped debt
    service to 2.5 percent of GDP during the last three years. At the same
    time, debt rescheduling has resulted in the accumulation of capitalized
    interest on debt stock, causing long and medium term debt as a ratio of
    GDP to rise from around 37 percent during the second half of the 1990s
    to above 44 percent during 2000-01.
    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 have
    been abolished on all goods not subject to an import ban. Pakistan
    maintains a ``negative list'' of all restricted imports. These items
    are restricted on religious, security and balance-of-payment grounds or
    to protect domestic industry. There is also a list of restricted or
    conditional items that may be imported only by certain parties (e.g.,
    the government or other specified users) or by certain special
    arrangements (e.g., imports against credit). All importing firms in the
    private sector must register as importers with the Government of
    Pakistan's Export Promotion Bureau. U.S. pharmaceutical manufacturers
    have faced discriminatory application of the internal sales tax between
    some of the imported pharmaceutical raw materials (taxed at 15 percent)
    and the same domestically produced raw materials (exempt from
    taxation). Imported raw materials receive preferential tariff rates if
    the same materials are not manufactured locally.
        Services Barriers: Investment policy changes in 1997 provided some
    access to the services sector through foreign direct investment. In the
    social sector, including education, technical and vocational training,
    human resource development and medical and diagnostic services, foreign
    investment with 100 percent ownership of equity is permitted, provided
    a minimum-equity requirement of $0.3 million is met. Other services
    like wholesale distribution, retail trade, transportation, technical
    testing facilities, and audio-visual services are also open to foreign
    investment with the same minimum-equity requirement. However, foreign
    ownership of 100 percent equity is only allowed at the onset of the
    investment in these sectors, and must be reduced to 60 percent within
    five years with the condition that the repatriation of profits is
    restricted to a maximum of 60 percent of total equity or profits.
        Pakistan's offer in the WTO financial service negotiations in
    December 1997 included the right to establish banks and grandfathered
    acquired rights of foreign banks and foreign securities firms. The
    general insurance and life insurance sectors are now open to foreign
    investors; they are entitled to hold a 51-percent stake in companies in
    these sectors. Foreign investors in the insurance sector, however, must
    meet a minimum-equity investment requirement of $2 million in foreign
    exchange and raise an equal amount in equity in the domestic market.
    There are no restrictions on repatriation of profits, but the original
    capital invested in the insurance sector can not be repatriated. 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. E-mail, Internet, electronic information services,
    data communication network services, trunk radio services, cellular
    mobile telephone services, audiotex, voice mail and card-pay services,
    close user group for banking operations, international satellite
    operators for domestic data communication, paging services, vehicle
    tracking system and global mobile personal communication systems are
    now open for 100 percent foreign ownership at the onset of the
    investment, which has to be reduced to 60 percent within five years.
    However, the amount of foreign equity investment shall not be less than
    $0.3 million in these services. Other telecommunication services can be
    provided only through the network facilities of the Pakistan
    Telecommunication Company Limited (PTCL). 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. The government has eliminated most taxes on
    imported motion pictures, which are now subject to a tariff of 10
    percent, along with the 15 percent general sales tax.
        Standards: The Pakistan Standards and Quality Control Authority
    (PSQCA), formerly known as the Pakistan Standards Institute, is the
    national standards body. The PSQCA set standards, establishes
    inspection systems, collaborates with international organizations such
    as the International Standards Organization, and disseminates
    information on standards and quality control. There are currently about
    4,600 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. U.S. exporters sometimes
    encounter difficulty 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. In the past,
    however, investors have faced unstable policy conditions, particularly
    on large infrastructure projects. The Government of Pakistan has now
    resolved operating contract disputes with all IPPs. Security concerns
    also affect investment decisions, including the choice of facility
    location and area of operation. Local content requirements occur in the
    automobile, electronics, electrical products, and engineering
    industries under Pakistan's ``deletion program.'' This deletion policy
    was to have ended on December 31, 1999, under Pakistan's commitment to
    the WTO TRIMS agreement. Pakistan sought from the WTO a seven-year
    extension of the content-requirement waiver. The WTO granted a two-year
    extension ending December 31, 2001, with an additional two years
    possible upon submission of a local-content requirement phase-out plan.
    Pakistan accepted the WTO decision and has conveyed its two-year phase-
    out plan to the WTO.
        Government Procurement: The government, along with its numerous
    state-owned 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. In the past, political influence on
    procurement decisions has been common, and decisions have not always
    been made on the basis of price and technical quality alone. There has
    been a greater degree of transparency in procurement practices since
    the current government took office in October 1999. International
    tenders are now properly advertised and the past practice of sole-
    source contracting by means of company-specific specifications has been
    eliminated. The current government has also established an office for
    procurement reform in an attempt to introduce and enforce better
    procurement practices in Pakistan.
        Customs Procedures: Investors sometimes complain that the
    incentives advertised at the policy level are not implemented on the
    ground, particularly with respect to customs. The government does not
    maintain a pre-shipment inspection valuation system. In January 2000,
    the government began implementing a transactional valuation system
    where 99 percent of import valuation is based on invoices in accordance
    with the WTO's Customs Valuation Agreement. At the same time the
    Government of Pakistan applied for a minimum-value waiver for customs
    valuation for some products. Currently, about 85 percent of imports are
    assessed under the WTO-accepted customs valuation system.
    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 holidays. These policies
    appear to be equally applied to both foreign and domestic firms
    producing goods for export. The government withdrew the subsidy on
    export finance as part of its trade-policy reform commitment with the
    IMF due to its strain on the national budget. The trade policy provides
    for linking the interest rates on export finance to interest rates on
    government treasury bills, which are determined by market forces.
    Pakistan has established export processing zones with benefits such as
    tax holidays, indefinite carry forward of losses, exemption of imported
    inputs from taxes and duties, and exemption from various 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 has revised its laws to
    become TRIPS compliant. New laws on copyright, industrial designs,
    layout of integrated circuits, trademarks and patents have been
    enacted. A new law on plant breeders' rights has yet to materialize due
    to federal-provincial jurisdiction problems. While Pakistan has enacted
    IPR laws covering most domains, enforcement remains weak. 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.
        Patents: Recently the Government of Pakistan enacted a new patent
    law which protects both process and product patents. Patents are
    granted for up to 20 years from the date of application. Legal remedies
    such as injunctions are available in the case of patent infringement.
        Trademarks: Pakistan enacted a new Trade Marks Ordinance which
    provides for registration and protection of trade marks and for the
    prevention of the use of fraudulent marks. The new ordinance replaces
    the Trade Marks Act 1940 which provided trade mark protection but did
    not meet all the requirements of the TRIPS agreement. Pakistan has done
    away with a requirement that pharmaceutical firms label the generic
    name on all products with at least equal prominence as that of the
    brand name, although they must still display the generic name. There
    also have been occasional instances of trademark infringement,
    including for toys and industrial machinery.
        Copyrights: According to estimates made by the International
    Intellectual Property Alliance, in 2000 about 80 percent of computer
    software and 60 percent of motion pictures sold in the Pakistani market
    were pirated. Piracy of copyrighted textile designs is also a serious
    problem. Some counterfeit products made in Pakistan are reportedly
    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 and
    stronger enforcement needs to be paired with action by the courts to
    prosecute and sentence violators. The new copyright law provides for
    much higher penalties for piracy.
        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 $155.6 million
    in 2000.
    8. Worker Rights
        a. The Right of Association: The Industrial Relations Ordinance of
    1969 (IRO) gives industrial workers the right to form trade unions but
    is subject to major restraints in some employment areas. 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. The Essential Services Maintenance Act of 1952
    restricts union activity in sectors associated with state
    administration, i.e., government services and state enterprises. The
    government lifted a ban on union activity in the Water and Power
    Development Authority (employing 130,000 workers) through an executive
    ordinance in July 2000, but suspended all union activities in the
    national flag carrier, Pakistan International Airlines (PIA) in May
    2001. The Labor Minister has pledged that union activities would be
    restored as soon as PIA regains its financial health.
        b. The 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 strikes that have
    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 effective
    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
    agriculture sector, brick, fishing and construction industries.
        d. Minimum Age of Employment of Children: Child labor is common and
    widespread. In May 2000, the government issued a comprehensive
    ``National Policy and Plan of Action to Combat Child Labor.'' In August
    2001 it ratified ILO Convention No. 182 on the worst forms of child
    labor. Pakistan recognizes the ILO definition of the worst forms of
    child labor and hazardous work. The Labor Ministry is now working to
    frame new laws on child labor that are consistent with Pakistan's
    commitments under Convention 182. 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 hazardous occupations and regulates
    working conditions. Under this law, no child can work overtime or at
    night. Resources to stop child labor remain insufficient, particularly
    in the provision of educational opportunities. Industry specific,
    public-private efforts, particularly in the export sector, have
    achieved notable success in eliminating child labor. Enforcement also
    remains a serious problem, with few inspectors and low fines and
    penalties imposed. 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. Many observers believe this survey understates the true
    dimensions of the problem.
        e. Acceptable Conditions of Work: In September 2001, the government
    increased the federal minimum wage for unskilled workers to
    approximately $41 per month. The law applies only to industrial and
    commercial establishments employing 50 or more workers. Federal law
    also 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 limited. Provinces have been
    ineffective in enforcing labor regulations, because of inadequate
    resources, corruption, and a weak regulatory structure.
        f. Rights in Sectors with U.S. Investment: Significant investment
    by U.S. companies has occurred in the power, petroleum, food, and
    chemical 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 are
    more diligent in fulfilling their legal obligations, providing good
    benefits and working 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. The oil and gas industry is
    subject to the Essential Services Maintenance Act which bans strikes
    and collective bargaining, limits a worker's right to change
    employment, and offers 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--2000
                          [In Millions of U.S. Dollars]
    ------------------------------------------------------------------------
              Category                                   Amount
    ------------------------------------------------------------------------
    Petroleum...................  ...........  221
    Total Manufacturing.........  ...........  19
      Food & Kindred Products...  34           .............................
      Chemicals & Allied          (\1\)        .............................
       Products.
      Primary & Fabricated        (\1\)        .............................
       Metals.
      Industrial Machinery and    0            .............................
       Equipment.
      Electric & Electronic       0            .............................
       Equipment.
      Transportation Equipment..  0            .............................
      Other Manufacturing.......  0            .............................
    Wholesale Trade.............  ...........  56
    Banking.....................  ...........  134
    Finance/Insurance/Real        ...........  60
     Estate.
    Services....................  ...........  2
    Other Industries............  ...........  25
        Total All Industries....  ...........  515
    ------------------------------------------------------------------------
    \1\ Suppressed to avoid disclosing data of individual companies.

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

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