[House Report 104-160]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-160
_______________________________________________________________________


 
               MOST-FAVORED-NATION TREATMENT FOR CAMBODIA

                                _______


 June 27, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1642]

      [Including cost estimate of the Congressional Budget Office]
    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1642) to extend nondiscriminatory treatment (most-
favored-nation treatment) to the products of Cambodia, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.
                            I. Introduction

                         A. PURPOSE AND SUMMARY

    H.R. 1642 provides for the extension of nondiscriminatory 
treatment (most-favored-nation treatment) to the products of 
Cambodia upon the effective date of a notice published in the 
Federal Register that a trade agreement obligating reciprocal 
most-favored-nation treatment between Cambodia and the United 
States has entered into force. The bill also requires the 
President to submit a report to Congress, no later than 18 
months after the date of enactment of the Act, on trade 
relations between the United States and Cambodia pursuant to 
the bilateral trade agreement.

                 B. BACKGROUND AND NEED FOR LEGISLATION

    Prior to 1951, the United States extended 
nondiscriminatory, or most-favored-nation (MFN), treatment to 
all of its trading partners, in accord with obligations 
undertaken when the United States joined the General Agreement 
on Tariffs and Trade (GATT) in 1948. However, Section 5 of the 
Trade Agreements Extension Act of 1951 directed the President 
to withdraw or suspend the MFN status of the Soviet Union and 
all countries under the domination of international communism. 
As implemented, the directive was applied to all then-existing 
communist countries, except Yugoslavia, as well as ``any part 
of Cambodia, Laos, or Vietnam which may be under Communist 
domination or control.''
    Section 231 of the Trade Expansion Act of 1962 broadened 
the 1951 suspension without fundamentally changing the nature 
of that authority by applying the suspension to ``any country 
or area dominated by Communism.'' Subsequently, Section 602(d) 
of the Trade Act of 1974 repealed Section 231 of the Trade 
Expansion Act of 1962. Title IV of the Trade Act of 1974, which 
governs the MFN status of nonmarket economies not receiving MFN 
tariff treatment as of January 5, 1975, does not apply to 
Cambodia because portions of the country not under communist 
control were still receiving MFN tariff treatment by the date 
stipulated in the statute. MFN status was withdrawn from 
Cambodia once the country fell to communism after March of 
1975. At the time of the enactment of the Harmonized Tariff 
Schedule (HTS) in the Omnibus Trade and Competitiveness Act of 
1988, ``Kampuchea'' was included in General note 3(b) on the 
list of countries whose products are denied MFN tariff 
treatment.
    After 20 years of undemocratic regimes and civil war, 
Cambodia held democratic elections in May of 1993 that were 
sponsored by the United Nations. Upon the formation of the 
freely elected Royal Cambodian Government on September 24, 
1993, the United States and Cambodia immediately established 
full diplomatic relations. Subsequently, the United States 
concluded a bilateral agreement with Cambodia in the Spring of 
1994 on bilateral trade relations and intellectual property 
rights protection that calls for a reciprocal extension of MFN 
status.
    Since taking office, the Cambodian government has taken 
steps, and planned additional action, to convert the Cambodian 
economy from one based on central planning to one based on 
market-oriented principles. The Committee believes that the 
extension of MFN tariff treatment to the products of Cambodia 
would assist in this transformation by making Cambodian exports 
to the United States more competitive in the global 
marketplace. In addition, establishing normal commercial 
relations with Cambodia on a reciprocal basis will promote U.S. 
exports to the rapidly growing Southeast Asian region and 
expand opportunities for U.S. businesses and investment in the 
Cambodian economy. The Committee also believes that expanding 
U.S. bilateral trade relations with Cambodia to include a 
commercial agreement will promote further progress by Cambodia 
on human rights and toward the adoption of regional and world 
trading rules and principles.

                         C. LEGISLATIVE HISTORY

Committee bill

    H.R. 1642 was introduced on May 16, 1995, by Mr. Crane of 
Illinois and Mr. Rangel of New York and referred to the 
Committee on Ways and Means. The bill as introduced contained 
two provisions: (1) amending General note 3(b) of the HTS by 
striking ``Kampuchea'' upon the effective date of a notice 
published in the Federal Register by the United States Trade 
Representative that a trade agreement obligating reciprocal MFN 
treatment between Cambodia and the United States has entered 
into force; and (2) requiring the President to submit a report 
to Congress, no later than 18 months after the date of 
enactment of the Act, on trade relations between the United 
States and Cambodia pursuant to the bilateral trade agreement.
    The Subcommittee on Trade of the Committee on Ways and 
Means marked up the bill on May 18, 1995, and ordered the bill 
to be favorably reported without amendment by a voice vote.
    The Committee on Ways and Means marked up the bill on June 
20, 1995, and ordered the bill to be favorably reported without 
amendment by a voice vote.

Legislative hearing
    The Subcommittee on Trade of the Committee on Ways and 
Means issued a request for written public comment on the 
extension of permanent and unconditional MFN to the products of 
Cambodia on February 23, 1995. The deadline for submission of 
comment was April 28, 1995. The Subcommittee received comments 
in favor of the proposed extension and no comments in 
opposition to it.

                      II. Explanation of the Bill

             a. congressional findings (sec. 1 of the bill)

Present law

    ``Kampuchea'' is listed in General note 3(b) of the HTS 
among the countries whose products are denied MFN tariff 
treatment.

Explanation of provision

    The provision contains the findings of the Congress that: 
(1) Cambodia is now under democratic rule after 20 years of 
undemocratic regimes and civil war, and is striving to rebuild 
its market economy; (2) extension of unconditional MFN 
treatment would assist Cambodia in developing its economy based 
on free market principles and becoming competitive in the 
global marketplace; (3) establishing normal commercial 
relations on a reciprocal basis with Cambodia will promote U.S. 
exports to the rapidly growing Southeast Asian region and 
expand opportunities for U.S. business and investment in the 
Cambodian economy; and (4) expanding bilateral trade relations 
with Cambodia to include a commercial agreement will promote 
further progress by Cambodia on human rights and toward 
adoption of regional and world trading rules and principles.

Reasons for change

    The provision makes reference to the domestic political and 
economic developments in Cambodia and notes that the 
normalization of trade relations between the United States and 
Cambodia will benefit both nations and encourage further 
progress by Cambodia on human rights and toward the adoption of 
multilateral trading principles.

Effective date

    The provision is effective upon enactment.

b. extension of nondiscriminatory treatment to the products of cambodia 
                                (sec. 2)

Present law

    ``Kampuchea'' is listed in General note 3(b) of the HTS 
among the countries whose products are denied MFN tariff 
treatment.

Explanation of provision

    The provision amends General note 3(b) of the HTS by 
striking ``Kampuchea.''

Reasons for change

    Amending the HTS by striking ``Kampuchea'' from the 
relevant portion of General note 3(b) will enable the products 
of Cambodia to receive permanent MFN tariff treatment. Since 
the HTS was enacted in 1988, the domestic political and 
economic situation in Cambodia has changed considerably. In 
1993, Cambodia held democratic elections sponsored by the 
United Nations which led to the establishment of full 
diplomatic relations between Cambodia and the United States. 
The Committee believes that the extension of MFN tariff 
treatment to the products of Cambodia would assist that country 
in its effort to develop its free market economy by making 
Cambodian exports to the United States more competitive in the 
global marketplace. In addition, establishing normal commercial 
relations with Cambodia on a reciprocal basis will promote U.S. 
exports to the rapidly growing Southeast Asian region and 
expand opportunities for U.S. businesses and investment in the 
Cambodian economy. The Committee also believes that expanding 
U.S. bilateral trade relations with Cambodia to include a 
commercial agreement will promote further progress by Cambodia 
on human rights and toward the adoption of regional and world 
trading rules and principles.

Effective date

    The provision is effective upon the publication of a notice 
in the Federal Register by the U.S. Trade Representative that a 
trade agreement obligating reciprocal MFN treatment between 
Cambodia and the United States has entered into force.

                     c. report to congress (sec. 3)

Present law
    No provision.

Explanation of provision

    The provision requires the President to submit a report to 
the Congress, no later than 18 months after the date of 
enactment of the Act, on trade relations between the United 
States and Cambodia pursuant to the bilateral trade agreement.

Reasons for change

    The provision requires the President to submit a report as 
described to assist Congress in its oversight of bilateral 
trade relations between the United States and Cambodia.

Effective date

    The provision is effective upon enactment.

                      III. Votes of the Committee

    In compliance with clause 2(l)(2)(B) of the Rules of the 
House of Representatives, the following statements are made 
concerning the votes of the Committee in its consideration of 
the bill, H.R. 1642.

Motion to report the bill

    The bill, H.R. 1642, was ordered favorably reported, 
without amendment, by voice vote on June 20, 1995, with a 
quorum present.

                           IV. Budget Effects

               a. committee estimate of budgetary effects

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of this bill, H.R. 1642, 
as reported:
    The Committee agrees with the estimate prepared by CBO, 
which is included below.

    b. statement regarding new budget authority and tax expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, the 
Committee states that the provisions of H.R. 1642 do not 
involve any new big authority, or any increase or decrease in 
revenues or tax expenditures.

      c. cost estimate prepared by the congressional budget office

    In compliance with subdivision (C) of clause 2(l)(3) of 
rule XI of the Rules of House of Representatives, requiring a 
cost estimate prepared by the Congressional Budget Office, the 
following report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 22, 1995.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 1642, a bill to extend nondiscriminatory 
treatment (most-favored-nation treatment) to the products of 
Cambodia, as ordered reported on June 20, 1995, by the 
Committee on Ways and Means. CBO estimates that extending most-
favored-nation (MFN) status to the products of Cambodia would 
not significantly affect federal government receipts. Because 
H.R. 1642 could affect receipts, pay-as-you-go procedures would 
apply to the bill.
    Under current law, general note 3(b) of the Harmonized 
Tariff Schedule of the United States (HTSUS) excludes the 
products of Cambodia from receiving nondiscriminatory 
treatment. H.R. 1642 would amend general note 3(b) of the HTSUS 
by deleting ``Kampuchea.'' Removing Kampuchea from the list 
would allow the United States Trade Representative (USTR) to 
negotiate a trade agreement obligating reciprocal MFN treatment 
between Cambodia and the United States.
    Granting MFN status would lower tariff rates on imports 
from Cambodia. CBO estimates that lowering tariff rates would 
reduce customs duty revenues below the level projected under 
current import levels and tariff rates. However, we expect that 
imports would rise in response to the lower domestic price 
resulting from the lower tariffs. The negative effect on 
revenues from the lower rates would virtually be offset by the 
positive effect on revenues from the greater volume of 
Cambodian imports. CBO estimates that granting MFN status to 
the products of Cambodia would not significantly affect federal 
government receipts.
    This estimate is based on 1994 Census data on imports from 
Cambodia. The increase in imports of goods from Cambodia 
resulting from the reduced prices of the imported products in 
the U.S.-reflecting the lower MFN tariff rates--has been 
calculated using estimates of the substitution between U.S. 
products and imports of the same goods. Also, the calculation 
assumes that the economy of Cambodia will function in the next 
year in a manner similar to that of the recent past. Obviously, 
political and economic changes could affect its ability to 
produce and export goods, its need to import goods from the 
U.S. and other countries, and the exchange rate between its 
currency and that of the U.S. However, we believe that the 
assumption of relatively constant economic performance is 
appropriate.
    If you wish further details, please feel free to contact me 
or your staff may wish to contact Melissa Sampson.
            Sincerely,
                                             James L. Blum,
                                     For June E. O'Neill, Director.

     V. Other Matters To Be Discussed Under the Rules of the House

          A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that it was as a 
result of the Committee's oversight activities concerning 
bilateral trade relations between the United States and 
Cambodia that the Committee concluded that it is appropriate to 
enact the provisions contained in the bill.

    B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE ON 
                    GOVERNMENT REFORM AND OVERSIGHT

    With respect to subdivision (D) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that no oversight 
findings or recommendations have been submitted to this 
Committee by the Committee on Government Reform and Oversight 
with respect to the provisions contained in this bill.

                    C. INFLATIONARY IMPACT STATEMENT

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee states that the 
provisions of the bill are not expected to have an overall 
inflationary impact on prices and costs in the operation of the 
national economy. As is indicated above (in Part IV of this 
report), the bill is projected to be deficit neutral over 
fiscal years 1995-2000.
       VI. Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, existing 
law in which no change is proposed is shown in roman):

            HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES

          * * * * * * *

                             GENERAL NOTES

    3. Rates of Duty. The rates of duty in the ``Rates of 
Duty'' columns designated 1 (``General'' and ``Special'') and 2 
of the tariff schedule apply to goods imported into the customs 
territory of the United States as hereinafter provided in this 
note:
    (a) * * *
    (b) Rate of Duty Column 2. Notwithstanding any of the 
foregoing provisions of this note, the rates of duty shown in 
column 2 shall apply to products, whether imported directly or 
indirectly, of the following countries and areas pursuant to 
section 401 of the Tariff Classification Act of 1962, to 
section 231 or 257(e)(2) of the Trade Expansion Act of 1962, to 
section 404(a) of the Trade Act of 1974 or to any other 
applicable section of law, or to action taken by the President 
thereunder: Afghanistan, Azerbaijan, Cuba, [Kampuchea], Laos, 
North Korea, Vietnam.
          * * * * * * *