[House Report 105-365]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-365
_______________________________________________________________________


 
             UNITED STATES-CARIBBEAN TRADE PARTNERSHIP ACT

                                _______
                                

October 31, 1997.--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. 2644]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2644) to provide to beneficiary countries under the 
Caribbean Basin Economic Recovery Act benefits equivalent to 
those provided under the North American Free Trade Agreement, 
having considered the same, report favorably thereon without 
amendment and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
 I. Introduction......................................................1
        A. Purpose and Summary...................................     1
        B. Background and Need for Legislation...................     1
        C. Legislative History...................................     2
II. Explanation of the bill...........................................3
        A. Short Title...........................................     3
        B. Findings and Policy...................................     3
        C. Definitions...........................................     5
        D. Temporary Provisions to Provide NAFTA Parity to 
            Beneficiary Countries................................     5
            1. Rules of Origin...................................     5
            2. Effective Date and Termination of Temporary 
                Treatment........................................     6
            3. Designation Criteria..............................     6
            4. General Review of Countries.......................     8
            5. Termination or Withdrawal of Benefits.............     8
            6. Safeguards........................................     9
            7. Treatment of Textile and Apparel Imports from 
                Caribbean Countries and Mexico...................    10
                a. GAL Program and ``807'' Tariff Treatment......    10
                b. Originating Textile and Apparel Goods.........    11
                c. Trade Preference Levels.......................    11
                d. Customs Procedures and Penalties for 
                    Transshipment................................    12
        E. Effect of NAFTA on Sugar Imports from Beneficiary 
            Countries............................................    12
        F. Duty-Free Treatment for Certain Beverages made with 
            Caribbean Rum........................................    13
        G. Meeting of Trade Ministers and USTR...................    14
        H. Report on Economic Development and Market Oriented 
            Reforms in the Caribbean.............................    14
        I. Revenue Provision.....................................    14
III.Vote of the committee............................................17

IV. Budget effects of the bill.......................................17
        A. Committee Estimates of Budgetary Effects..............    17
        B. Budget Authority and Tax Expenditures.................    18
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    18
 V. Other Matters to be Discussed Under the Rules of the House.......21
        A. Committee Oversight Findings and Recommendations......    21
        B. Summary of Findings and Recommendations of the 
            Committee on Government Reform and Oversight.........    21
        C. Constitutional Authority Statement....................    21
        D. Information Relating to Unfunded Mandates.............    21
        E. Applicability of House Rule XXI5(c)...................    21
VI. Changes in Existing Law Made by the Bill as Reported.............22

                            I. INTRODUCTION

                         A. Purpose and Summary

    H.R. 2644, The ``United States-Caribbean Trade Partnership 
Act'' strengthens the U.S. commitment to the Caribbean region 
to ensure that it is not eroded by the implementation of the 
North American Free Trade Agreement (NAFTA), which is having 
the unintended effect of diverting investment from the 
Caribbean Basin region to Mexico. The bill provides NAFTA 
parity benefits for Caribbean countries in order to restore 
benefits eroded by NAFTA implementation, and to preserve and 
attract investment to the CBI region.
    The bill would grant preferential tariff and quota 
treatment, equivalent to that accorded to Mexico under NAFTA, 
for a fourteen month period on those products which are 
currently excluded from the CBI, pending the accession of CBI 
countries to the NAFTA. The bill preserves authority in current 
law for the President to withdraw, suspend, or limit benefits 
if countries fail to meet designation criteria. In addition, 
H.R. 2644 also authorizes such actions with respect to new 
parity benefits, based on a review of designation criteria as 
further interpreted by the bill.
    In order to encourage the Administration to give a high 
priority to expanding trade with the Caribbean, the bill 
directs the USTR to meet on a regular basis with trade 
ministers of countries in the Caribbean to discuss the likely 
timing and possible procedures for initiating negotiations for 
the beneficiary countries to accede to NAFTA. The bill also 
requires reports to Congress which: 1) assess progress towards 
economic development and market oriented reforms in the 
Caribbean and, 2) analyze CBI countries with respect to their 
ability to undertake the trade obligations of NAFTA.

                 B. Background and Need for Legislation

    In February 1992, President Reagan announced that he would 
seek legislation to establish the Caribbean Basin Initiative 
(CBI), a program to further the economic development and 
political stability of Caribbean countries. The CBI was a 
package of economic assistance, trade benefits and other 
incentives. The Caribbean Basin Economic Recovery Act (CBERA) 
was enacted in 1983, with an effective date of January 1, 1984. 
Under the CBI, the President is authorized to grant to 
countries in the Caribbean and Central America, duty-free 
access to the U.S. market under certain conditions. CBI trade 
benefits were made permanent in 1990. Products which are 
excluded from duty-free treatment under CBI include: textile 
and apparel articles, canned tuna, petroleum and petroleum 
products, footwear, handbags, luggage, flat goods, work gloves, 
leather-wearing apparel, and certain watches.
    In 1993, total U.S. imports from CBI beneficiaries under 
the CBERA amounted to $10.1 billion. During the early years the 
CBERA was in effect, the U.S. ran a significant trade deficit 
with the region. In the fourth year of the program, the trade 
balance shifted in favor of the U.S. and has remained in 
surplus since that time. The U.S. surplus amounted to about $1 
billion in 1996, making the region one of the few in the world 
with which the U.S. has enjoyed a sustained favorable balance 
of trade. U.S. exports to CBI beneficiary countries amounted to 
$15.3 billion in 1996.

                         C. Legislative History

    H.R. 553, The Caribbean Basin Trade Security Act, was 
introduced on January 18, 1995 by Messrs. Crane, Gibbons, 
Rangel and Shaw.
    On February 10, 1995, the Subcommittee on Trade held a 
public hearing on H.R. 553. On March 29, 1995, the Subcommittee 
on Trade considered H.R. 553 and ordered the bill favorably 
reported to the full Committee on Ways and Means by a recorded 
vote of 11-3, with an amendment in the nature of a substitute. 
The Administration testified in support of the bill, as 
amended.
    On June 23, 1997, the Committee on Ways and Means approved 
the ``United States-Caribbean Basin Trade Partnership Act'' as 
Section 9, Subtitle H of H.R. 2014, the Taxpayer Relief Act of 
1997. These provisions as passed by the House were not included 
in the final Conference agreement.
    On October 8, 1997, H.R. 2644, the ``United States-
Caribbean Basin Trade Partnership Act,'' was introduced by 
Chairman Archer, containing provisions identical to those 
included in Subtitle H of H.R. 2014. On October 9, 1997, the 
Committee on Ways and Means ordered H.R. 2644 favorably 
reported by voice vote.

                      II. EXPLANATION OF THE BILL

                       A. Section 1: Short Title

    The short title of the bill is the ``United States-
Caribbean Trade Partnership Act''.

                   B. Section 2: Findings and Policy

            Present Law
    The Caribbean Basin Initiative (CBI) program was 
established by the Caribbean Basin Economic Recovery Act 
(CBERA), which was enacted on August 5, 1983. Thislegislation 
authorized the President to grant duty-free treatment to imports of 
eligible articles from designated Caribbean countries. The basic 
purpose of the CBI program, as originally proposed by President Ronald 
Reagan, was to respond to an economic crisis in the Caribbean by 
encouraging industrial development primarily through preferential 
access to the U.S. market. The goal was to promote political and social 
stability in a strategically important region. CBI trade benefits were 
made permanent in 1990.
            Explanation of provision
    Section 2(a) contains the findings of Congress that:
          (1) The Caribbean Basin Economic Recovery Act 
        represents a permanent commitment by the United States 
        to encourage the development of strong democratic 
        governments and revitalized economies in neighboring 
        countries in the Caribbean Basin region.
          (2) The economic security of the countries in the 
        Caribbean Basin is potentially threatened by the 
        diversion of investment to Mexico as a result of the 
        North America Free Trade Agreement (NAFTA).
          (3) Offering NAFTA equivalent benefits to Caribbean 
        Basin Initiative countries, pending their eventual 
        accession to the NAFTA, will promote the growth of free 
        enterprise and economic opportunity in the region and 
        thereby enhance the national security interests of the 
        United States.
          (4) Countries in the Western Hemisphere offer the 
        greatest opportunities for increased exports of United 
        States textile and apparel products.
          (5) Given the greater propensity of countries located 
        in the Western Hemisphere to use United States 
        components and to purchase United States products 
        compared to other countries, increased trade and 
        economic activity between the United States and 
        countries in the Western Hemisphere will create new 
        jobs in the United States as a result of expanding 
        export opportunities.
    Section 2 states that it is, therefore, the policy of the 
United States to: (1) offer Caribbean Basin partnership 
countries tariff and quota treatment equivalent to that 
accorded to products of NAFTA countries, and to seek the 
accession of these partnership countries to the NAFTA or a free 
trade agreement comparable to the NAFTA at the earliest 
possible date, with the goal of achieving full NAFTA 
participation by all Caribbean countries by January 1, 2005; 
and, (2) assure that the domestic textile and apparel industry 
remains competitive in the global marketplace by encouraging 
the formation and expansion of ``partnerships'' between the 
textile and apparel industry of the United States and the 
textile and apparel industry of various countries located in 
the Western Hemisphere.
            Reason for change
    This section outlines the Committee's view that the 
commitment made by the United States to countries in the 
Caribbean Basin region in 1983 has been unintentionally eroded 
by effects of the NAFTA which was implemented on January 1, 
1994. It states that the purpose of the bill is to encourage 
economic reforms in CBI countries that would prepare them for 
eventual accession to NAFTA or for participation in mutually 
advantageous free trade agreements that contains provisions 
comparable to the NAFTA. The Committee believes that 
encouraging the development of strong democratic governments 
and healthy economies in neighboring countries in the Caribbean 
and Central America will increase U.S. exports, decrease 
illegal immigration, and improve regional cooperation in 
efforts to fight drug trafficking. In addition, the Committee 
intends that this bill will foster increased opportunities for 
U.S. companies in the textile and apparel sector to expand 
coproduction arrangements with countries in the CBI region, and 
thereby sustain and preserve manufacturing operations in the 
U.S. that would otherwise be relocated to the Far East.

                       C. Section 3: Definitions

            Explanation of provision
    Section 3 defines several terms used in the bill.

     D. Section 4: Temporary Provisions to Provide NAFTA Parity to 
                         Partnership Countries

            Present law
    Under the CBERA, imports from CBI beneficiary countries, 
except for certain products that are statutorily excluded, are 
granted duty-free treatment, subject to specific eligibility 
requirements. Statutorily excluded articles are ineligible for 
duty-free treatment under the CBI. These excluded products are: 
textile and apparel articles that are subject to textile 
agreements, canned tuna, petroleum and petroleum products, 
footwear, handbags, luggage, flat goods, work gloves, and 
leather-wearing apparel. Also excluded are certain watches and 
watch products.
    Under NAFTA, imports of these products from Mexico 
(excluded from CBI andlisted above) receive either declining 
tariff or duty-free and quota-free treatment.
            Explanation of provision
    Section 4 of the bill amends section 213(b) of the CBERA to 
provide tariff and quota treatment on imports from CBI 
beneficiary countries of excluded articles that is identical to 
tariff and quota treatment accorded like articles imported from 
Mexico under the NAFTA during a temporary period of up to 
fourteen months.
            Reason for change
    The Committee believes that expanding the benefits of the 
Caribbean Basin Initiative on a temporary basis, to offer 
tariff and quota treatment similar to NAFTA will encourage 
partnership countries to complete the economic reforms 
necessary for them to negotiate accession to NAFTA.

                           1. Rules of Origin

            Present law
    Chapter Four of the NAFTA establishes rules of origin for 
identifying goods that are to be treated as ``originating in 
the territories of the NAFTA parties'' and are therefore 
eligible for preferential treatment accorded to originating 
goods under the NAFTA, including reduced duties and duty-free 
and quota-free treatment.
            Explanation of provision
    Section 4 of the bill provides that NAFTA tariff and quota 
treatment would apply to CBI articles which meet NAFTA rules of 
origin (treating the United States and CBI beneficiary 
countries as ``parties'' under the agreement for this purpose). 
Customs procedures applicable to exporters under the NAFTA also 
must be met for partnership countries to qualify for parity 
treatment. Imports of articles currently excluded under CBI, 
which do not meet the conditions of NAFTA parity, would 
continue to be excluded from the CBI program.
            Reason for change
    This section establishes ``NAFTA Parity'' for imports from 
partnership countries and ensures that Customs procedures 
required of Mexico under NAFTA would also be required of 
partnership countries receiving benefits under the bill.

        2. Effective Date and Termination of Temporary Treatment

            Present law
    CBI trade benefits were made permanent in 1990.
            Explanation of provision
    Under section 4 a temporary transitional period would begin 
May 15, 1998, and end on the date that either NAFTA accession 
or a reciprocal free trade agreement enters into force with the 
partnership country, or on July 15, 1999, whichever is earlier.
            Reason for change
    As discussed above, the Committee believes that offering 
temporary NAFTA benefits to CBI countries is in the national 
economic and security interest of the United States. However, 
the Committee would prefer a longer period than the fourteen 
months provided for in the bill, and will continue to work to 
identify an additional funding source to achieve this 
objective.

                        3. Designation Criteria

            Present law
    In determining whether to designate any country as a CBI 
beneficiary country, the President must take into account 7 
mandatory and 10 discretionary criteria that are listed in 
section 212 of the CBERA:
          (1) whether the country is a Communist country;
          (2) whether the country has nationalized, 
        expropriated or otherwise seized ownership or control 
        of U.S. property (including intellectual property), 
        unless he determines that prompt, adequate, and 
        effective compensation has been or is being made, or 
        good faith negotiations to provide such compensation 
        are in progress or the country is otherwise taking 
        steps to discharge its international obligations, or a 
        dispute over compensation has been submitted to 
        arbitration;
          (3) whether the country fails to act in good faith in 
        recognizing as binding or in enforcing arbitral awards 
        in favor of U.S. citizens;
          (4) whether the country affords ``reverse'' 
        preferences to developed countries and whether such 
        treatment has or is likely to have a significant 
        adverse effect on U.S. commerce;
          (5) whether a government-owned entity in the country 
        engages in the broadcast of copyrighted material 
        belonging to U.S. copyright owners without their 
        express consent or the country fails to work toward the 
        provision of adequate and effective intellectual 
        property rights;
          (6) whether the country is a signatory to an 
        agreement regarding the extradition of U.S. citizens;
          (7) whether the country has or is taking steps to 
        afford internationally recognized worker rights to 
        workers in the country;
          (8) an expression by the country of its desire to be 
        designated;
          (9) the economic conditions in the country, its 
        living standards, and any other appropriate economic 
        factors;
          (10) the extent to which the country has assured the 
        United States it will provide equitable and reasonable 
        access to its markets and basic commodity resources;
          (11) the degree to which the country follows accepted 
        rules of international trade under the GATT and Tokyo 
        Round agreements;
          (12) the degree to which the country uses export 
        subsidies or imposes export performance or local 
        content requirements which distort international trade;
          (13) the degree to which the trade policies of the 
        country are contributing to the revitalization of the 
        region;
          (14) the degree to which the country is undertaking 
        self-help measures to protect its own economic 
        development;
          (15) the extent to which the country provides under 
        its law adequate and effective means for foreign 
        nationals to secure, exercise, and enforce exclusive 
        intellectual property rights;
          (16) the extent to which the country prohibits its 
        nationals from engaging in the broadcast of copyrighted 
        material belonging to U.S. copyright owners without 
        their express consent; and,
          (17) the extent to which the country is prepared to 
        cooperate with the United States in the administration 
        of the Act.
    Under the CBERA, the President is prohibited from 
designating a country a beneficiary country if any of criteria 
(1)-(7) apply to that country, subject to waiver if the 
President determines that country designation will be in the 
U.S. national economic or security interest. The waiver does 
not apply to (4) and (6). Criteria (9)-(18) are discretionary. 
Under the CBERA, criteria (7) is included as both mandatory and 
discretionary.
            Explanation of provision
    The bill makes no change in country designation criteria 
established in the CBERA.

                     4. General Review of Countries

            Present law
    Section 212(f) of the CBERA requires the President, every 
three years, to submit to the Congress a complete report 
regarding the operation of the CBI program, including the 
results of a general review of beneficiary countries.
            Explanation of provision
    Section 4 of the bill amends section 212(f) of the CBERA to 
provide that the next review take place one year after the 
effective date of H.R. 2644 and subsequent reviews occur at 
three year intervals thereafter. The bill requires the 
President to conduct and report to Congress on triennial 
reviews of the benefits accorded under H.R. 2644. The review 
will be based on the 17 eligibility criteria listed in section 
212 of the CBERA, as further interpreted by the bill. These 
criteria include intellectual property protection, investment 
protection, market access, worker rights, cooperation in 
administering the program, and the degree to which the country 
follows accepted rules of international trade provided for 
under the World Trade Organization. The President may 
determine, based on the review, whether to withdraw, suspend, 
or limit new parity benefits. Existing authority in the CBERA 
would continue to withdraw, suspend, or limit current benefits 
atany time based on present criteria.
            Reason for change
    The Caribbean Basin Initiative is a conditional trade 
program because, under Section 212 of the CBERA, the President 
must take into account seven mandatory and ten discretionary 
criteria when determining whether to designate a country as a 
beneficiary country. Nevertheless, the Committee is aware that 
questions periodically arise regarding beneficiary countries' 
adherence to the eligibility criteria. As part of the 
implementation of this legislation, the Committee expects the 
President to offer adequate opportunities for interested 
parties to present information concerning CBERA beneficiaries' 
adherence to the eligibility criteria.
    The Committee intends that the triennial review of 
countries based on eligibility criteria in current law, as 
further interpreted by the bill, will reinforce the conditional 
nature of benefits accorded under the U.S.-Caribbean Basin 
Trade Partnership Act.

                5. Termination or Withdrawal of Benefits

            Present law
    The President may withdraw or suspend designation of any 
beneficiary country or withdraw, suspend, or limit the 
application of duty-free treatment to any article from any 
country if he determines that, as a result of changed 
circumstances, the country is not meeting criteria set forth in 
the statute for beneficiary country designation. The President 
must publish at least 30-days advance notice of the proposed 
action. The U.S. Trade Representative shall accept written 
public comments and hold a public hearing on the proposed 
action.
            Explanation of the provision
    All country designation criteria apply as under the CBERA. 
The President may withdraw, suspend, or limit the application 
of duty-free or preferential quota treatment to any article if 
he determines the country or the product, based on changed 
circumstances, should be barred from eligibility. The bill 
makes no change in the President's authority to withdraw, 
suspend, or limit current benefits under the CBERA at any time.
            Reason for change
    Broad authority for the President to withdraw, suspend, or 
limit benefits under the CBERA is retained in the bill. The 
bill provides similar authority for the President with respect 
to the new trade benefits that are provide by HR 2644.

                             6. Safeguards

            Present law
    The import relief procedures and authorities under section 
201-204 of the Trade Act of 1974 apply to imports from CBI 
beneficiary countries, as they do to imports from other 
countries. If CBI imports cause or threaten to cause serious 
injury to the domestic industry producing a like or directly 
competitive article, section 213(e) of the CBERA authorizes the 
President to suspend CBI duty-free treatment and proclaim a 
rate of duty or other relief measures.
    Under NAFTA, the U.S. may invoke a special safeguard 
provision at any time during the tariff phase-out period if a 
NAFTA-origin textile or apparel good is being imported in such 
increased quantities and under such conditions as to cause 
``serious damage, or actual threat thereof,'' to a domestic 
industry producing a like or directly competitive good. The 
President is authorized to either suspend further duty 
reductions or increase the rate of duty to the most-favored-
nation rate for up to three years. The NAFTA also provides for 
a ``quantitative restriction'' safeguard, which the United 
States or Mexico may invoke against ``non-originating'' textile 
or apparel goods, using the standard of ``serious damage, or 
actual threat thereof.''
            Reason for change
    The Committee believes that NAFTA equivalent safeguard 
authority is appropriate in order to ensure that the domestic 
textile and apparel industry is not damaged by increased 
imports from the Caribbean Basin region.
            Explanation of provision
    Normal safeguard authorities under CBERA would apply to 
imports of all products except textiles and apparel. NAFTA 
equivalent safeguard authorities would apply to imports of 
textile and apparel products from CBI countries, except that, 
under the bill, the President would not be obligated to provide 
equivalent trade liberalizing compensation to the exporting 
country.

 7. Treatment of Textile and Apparel Imports from Caribbean Countries 
                               and Mexico

a. GAL program and ``807'' tariff treatment

            Present law
    The ``Special Access Program for Textiles,'' established by 
regulation in February 1986, provides flexible Guaranteed 
Access Levels (GALs) to the U.S. market for textile or apparel 
and ``made up'' textile product categories (not fabric, yarn, 
or other textile products) assembled in CBI countries from 
fabrics wholly formed and cut in the United States, under 
bilateral agreements negotiated at the request of each 
Caribbean government. GALs (also know as ``807A'') are separate 
limits from (and usually significantly higher than) standard 
quota levels, and are generally increased upon request of the 
exporting country.
    Imports under item 9802.00.80 of the U.S. Harmonized Tariff 
Schedule (previously item 807) which are assembled abroad from 
U.S.-fabricated components, including apparel assembled in 
Caribbean countries from fabric cut in the United States, are 
assessed duty only on the value-added abroad. Under the NAFTA, 
Mexico receives duty-free and quota-free treatment on articles 
assembled from U.S.-formed and cut fabric.
            Explanation of provision
    Under section 4 of the bill, duty-free and quota free 
treatment applies to apparel that is: (1) subject to the 
``GAL'' program, (i.e. assembled from fabrics wholly formed and 
cut in the United States) and which meets the NAFTA yarn-
forward rule of origin; (2) cut and sewn in a partnership 
country from fabrics wholly formed in the United States, from 
yarns wholly formed in the United States; (3) is knit-to-shape 
in partnership country from yarns wholly formed in the United 
States; or (4) is made in a partnership country from fabric 
knit in a partnership country from yarn wholly formed in the 
United States. Hand-made, hand-loomed and folklore articles of 
the region also qualify for duty-free and quota-free treatment.
            Reason for change
    The bill would provide similar tariff and quota treatment 
on imports of textile and apparel products from partnership 
countries that is similar to the tariff and quota treatment 
accorded to like articles imported from Mexico under NAFTA. In 
addition, the bill would grant duty-free and quota free 
treatment to imports of three categories of apparel products 
that are not duty-free under NAFTA: (1) apparel cut and sewn in 
a partnership country from fabrics wholly formed in the United 
States, from yarns wholly formed in the United States; (2) 
apparel that is knit-to-shape in partnership country from yarns 
wholly formed in the United States; and (3) apparel that is 
made in a partnership country from fabric knit in a partnership 
country from yarn wholly formed in the United States.

b. Originating textile and apparel goods

            Present law
    Certain textile and apparel articles from major supplying 
CBI countries are subject to import quotas under bilateral 
agreements negotiated on a product-category basis under 
authority of Section 204 of the Agricultural Act of 1956 and in 
accordance with the Uruguay Round Agreement on Textiles and 
Clothing. Articles under quota may be assembled from U.S. and/
or foreign components.
            Explanation of provision
    Under section 4, imports of textile and apparel articles 
from CBI partnership countries that meet NAFTA rules of origin 
would receive equivalent tariff treatment to such goods of 
Mexico and enter quota-free. There would be no change in the 
treatment of non-originating textile products currently subject 
to import quotas under bilateral and multilateral textile 
agreements.
            Reason for change
    This provision furthers the general purposes of the bill 
described above.

c. Trade preference levels (TPLs)

            Present law
    Appendix 6(B) of the NAFTA provides a limited exception to 
the NAFTA rules of origin for textile and apparel goods. The 
exception takes the form of Tariff Preference Levels (TPLs) 
under which specific quantities of goods from each NAFTA 
country that do not meet NAFTA ``yarn-forward'' rules of origin 
will nonetheless be accorded NAFTA preferential tariff rates. 
Imports of such goods that exceed these quantities will be 
subject to MFN duty rates. Under NAFTA, TPLs are available for 
three broad categories of products: (1) cotton or man-made 
apparel; (2) wool apparel; and, (3) goods entered under 
subheading 9802.00.80 of the HTS.
            Explanation of provision
    Section 4 authorizes the USTR to establish TPLs for 
Caribbean textile and apparel products which are similar to 
those established for Mexican textile and apparel products in 
the NAFTA. After consulting with the domestic industry and 
other interested parties, USTR is authorized to establish TPLs 
in the followingcategories at specified levels: not more than 
45,000,000 square meter equivalents of cotton or man-made fiber 
apparel; not more 1,500,000 square meter equivalents of wool apparel; 
and, not more than 25,000,000 square meter equivalents of goods entered 
under subheading 9802.00.80 of the HTS. The bill requires that these 
amounts be allocated among the seven partnership countries which have 
the largest volume of textile and apparel exports to the United States, 
based on a pro rata share of the volume of their textile and apparel 
exports.
            Reason for change
    This provision furthers the general purposes of the bill 
described above.

d. Customs procedures and penalties for transshipment

            Present law
    Under NAFTA, Parties to the Agreement must observe Customs 
procedures and documentation requirements which are established 
in Chapter 5 of the NAFTA. Requirements regarding Certificates 
of Origin for imports receiving preferential tariffs are 
detailed in Article 502.1 of the NAFTA.
            Explanation of provision
    The bill directs the Secretary of the Treasury to prescribe 
regulations that require, as a condition of entry, that any 
importer of record that claims preferential tariff treatment 
for textile and apparel products under the bill must comply 
with requirements similar in all material respects to the 
requirements regarding Certificates of Origin contained in 
Article 502.1 of the NAFTA, for a similar importation from 
Mexico. In addition, if an exporter is determined under the 
laws of the United States to have engaged in illegal 
transshipment of textile or apparel products from a partnership 
country, then the President shall deny all benefits under the 
bill to such exporter, and to any successors of such exporter, 
for a period of 2 years.
    Finally, the bill requires the Commissioner of Customs to 
conduct a study analyzing the extent to which each partnership 
country has: (1) cooperated with the United States in instances 
of circumvention or alleged circumvention of existing quotas on 
imports of textile and apparel products; and (2) has taken 
appropriate measures consistent with its laws and domestic 
procedures to prevent transshipment and circumvention from 
taking place.
            Reasons for change
    These provisions address concerns raised by the textile and 
apparel industry that increasing trade with the Caribbean Basin 
region could result in illegal transshipments of textile and 
apparel products through the region.

    E. Section 5: Effect of NAFTA on Sugar Imports From Beneficiary 
                               Countries

            Present law
    Under the tariff-rate quota system for sugar, which was 
proclaimed by the President on December 23, 1994, the Secretary 
of Agriculture establishes the quota quantity that can be 
entered at the lower tier import duty-rates. The USTR allocates 
quantities to CBI countries that receive duty-free treatment. 
Imports above the in-quota amount from CBI countries are 
subject to tariffs at the higher over-quota rates.
    The quantity of sugar which may be imported duty-free from 
Mexico is governed by Section A of Annex 703.2 of the NAFTA. 
Under NAFTA, access grows over time to unlimited duty-free 
access for exports of sugar from Mexico beginning in the year 
2009.
            Explanation of provision
    Section 102 requires the President to monitor the effects, 
if any, of the NAFTA on access to the U.S. sugar market by CBI 
beneficiary countries. If the President considers that NAFTA 
implementation is affecting or likely will affect market access 
adversely, the President shall: (1) take action by Executive 
authority after consulting with interested parties and 
appropriate committees, or (2) propose legislation necessary or 
appropriate to ameliorate such effects.
            Reasons for change
    Section 5 responds to concerns raised by CBI beneficiary 
governments that additional access to the U.S. sugar market for 
Mexico under the NAFTA could potentially result in a decrease 
in access for exports of sugar from the Carribean and thereby 
reduce employment in the region.

   F. Section 6: Duty-Free Treatment for Certain Beverages Made With 
                             Caribbean Rum

            Present law
    Rum and beverages made with rum are eligible for duty-free 
entry into the United States both under the CBI program and 
NAFTA, provided they meet the CBI or NAFTA rules of origin and 
other requirements. When Caribbean rum is processed in Canada 
into a rum beverage and the beverage is exported from Canada 
into the United States, it is not eligible for duty-free 
treatment under either the CBI or the NAFTA. The beverage is 
ineligible for duty-free treatment under CBI because it is not 
shipped directly from a beneficiary country to the United 
States as the CBI rules require. The beverage does not qualify 
for NAFTA duty-free treatment because the processing in Canada 
is not sufficient to qualify it as a NAFTA ``originating 
good.''
            Explanation of provision
    Section 6 amends the CBERA to accord duty-free treatment to 
certain beverages imported from Canada if: (1) the rum is the 
growth, product, or manufacture of a beneficiary country or the 
U.S. Virgin Islands; (2) the rum is imported directly into 
Canada, and the beverages made from it are imported directly 
from Canada into the United States; and (3) the rum accounts 
for at least 90 percent by volume of the alcoholic content of 
the beverages.
            Reason for change
    This provision would ensure that certain rum beverages that 
originate in the CBI, but which are processed in Canada, are 
not denied duty-free treatment under the CBERA.

           G. Section 7: Meeting of Trade Ministers and USTR

            Present law
    No provision.
            Explanation of provision
    Section 7 directs the President to convene a meeting with 
the trade ministers of CBI partnership countries in order to 
establish a schedule of regular meetings, to commence as soon 
as practicable, of the trade ministers and the USTR. The 
purpose of the meetings shall be to further consultations 
between the U.S. and partnership countries concerning the 
likely timing and procedures for initiating negotiations for 
partnership countries to: (1) accede to NAFTA; or (2) enter 
into comprehensive, mutually advantageous trade agreements with 
the United States that contain comparable provisions to the 
NAFTA, and would make substantial progress in achieving the 
negotiation objectives listed in Section 108(b)(5) of Public 
Law 103-182. (These are general trade negotiating objectives 
for future free trade agreements which were included in the 
NAFTA implementing bill).
            Reason for change
    This provision is intended to encourage the United States 
Trade Representative to expand efforts to increase trade with 
countries in the Caribbean Basin region.

   H. Section 8: Report on Economic Development and Market Oriented 
                     Reforms in the Caribbean Basin

            Present law
    Under the CBERA, the President must submit a complete 
report to the Congress every 3 years on the operation of the 
program, including the results of a general review of 
beneficiary countries.
            Explanation of provision
    Section 8 requires the USTR to make an assessment of the 
economic development efforts and market oriented reforms in 
each partnership country, and the ability of each such country, 
on the basis of such efforts and reforms, to undertake the 
obligations of the NAFTA. Not later than July 1, 1998, the USTR 
shall submit to the President, the Committee on Finance, and 
the Committee on Ways and Means, a report on this assessment.
    The USTR shall include in this report a discussion of 
possible timetables and procedures pursuant to which 
partnership countries can complete the economic reforms 
necessary to enable them to negotiate accession to the NAFTA. 
The USTR shall also include an assessment of the potential 
phase-in periods for implementing NAFTA obligations that may be 
necessary to successfully integrate the lesser developed 
economies of the Caribbean into NAFTA.
    Section 8 lists factors USTR should consider in assessing 
the ability of Caribbean countries to accede to the NAFTA.
            Reason for change
    The report required in this section will provide important 
information regarding the progress that partnership countries 
are making with respect to making the economic reforms 
necessary to accede to NAFTA or to enter into a free trade 
agreement containing obligations similar to those contained in 
NAFTA.

                    I. Section 9: Revenue Provisions

            Present law
    For deduction purposes, any method or arrangement that has 
the effect of a plan deferring the receipt of compensation or 
other benefits for employees is treated as a deferred 
compensation plan (sec. 404(b)). In general, contributions 
under a deferred compensation plan (other than certain pension, 
profit-sharing and similar plans) are deductible in the taxable 
year in which an amount attributable to the contribution is 
includible in income. However, vacation pay which is treated as 
deferred compensation is deductible for the taxable year of the 
employer in which the vacation pay is paid to the employee 
(sec. 404(a)(5)).
    Temporary Treasury regulations provide that a plan, method, 
or arrangement defers the receipt of compensation or benefits 
to the extent it is one under which an employee receives 
compensation or benefits more than a brief period of time after 
the end of the employer's taxable year in which the services 
creating the right to such compensation or benefits are 
performed. A plan, method or arrangement is presumed to defer 
the receipt of compensation for more than a brief period of 
time after the end of an employer's taxable year to the extent 
that compensation is received after the 15th day of the 3rd 
calendar month after the end of the employer's taxable year in 
which the related services are rendered (the ``2\1/2\ month'' 
period). A plan, method or arrangement is not considered to 
defer the receipt of compensation or benefits for more than a 
brief period of time after the end of the employer's taxable 
year to the extent that compensation or benefits are received 
by the employee on or before the end of the applicable 2\1/2\ 
month period. (Temp. Treas. Reg. Sec. 1.404(b)-1T A-2.)
    The Tax Court recently addressed the issue of when vacation 
pay and severance pay are considered deferred compensation in 
Schmidt Baking Co., Inc., 107 T.C. 271 (1996). In Schmidt 
Baking, the taxpayer was an accrual basis taxpayer with a 
fiscal year that ended December 28, 1991. The taxpayer funded 
its accrued vacation and severance pay liabilities for 1991 by 
purchasing an irrevocable letter of credit on March 13, 1992. 
The parties stipulated that the letter of credit represented a 
transfer of substantially vested interest in property to 
employees for purposes of section 83, and that the fair market 
value of such interest was includible in the employees' gross 
incomes for 1992 as a result of the transfer.\1\ The Tax Court 
held that the purchase of the letter of credit, and the 
resulting income inclusion, constituted payment of the vacation 
and severance pay within the 2\1/2\ month period. Thus, the 
vacation and severance pay were treated as received by the 
employees within the 2\1/2\-month period and were not treated 
as deferred compensation. The vacation pay and severance pay 
were deductible by the taxpayer for its 1991 fiscal year 
pursuant to its normal accrual method of accounting.
---------------------------------------------------------------------------
    \1\ While the rules of section 83 may govern the income inclusion, 
section 404 governs the deduction if the amount involved is deferred 
compensation.
---------------------------------------------------------------------------
            Explanation of provision
    The bill specifically overrules the result in Schmidt 
Baking and provides that, with respect to severance pay,\2\ the 
Internal Revenue Code will be applied without regard to the 
result reached in that case. Thus, under the bill, the fact 
that severance pay is includible in income is not taken into 
account in determining whether or not payment has been made. In 
determining whether severance pay is deferred compensation, the 
fact that it is includible in the income of employees within 
the applicable 2\1/2\ month period is not taken into account in 
determining whether there has been payment or receipt by the 
employees. Rather, the item must have been actually paid or 
received within the 2\1/2\ period in order for the compensation 
not to be treated as deferred compensation.
---------------------------------------------------------------------------
    \2\ A provision that overrules Schmidt Baking other than with 
respect to severance pay is included in the H.R. 2646, the ``Education 
Savings Act for Public and Private Schools Act,'' as ordered reported 
by the Committee on Ways and Means on October 9, 1997.
---------------------------------------------------------------------------
    It is intended that similar arrangements, in addition to 
the letter of credit approach used in Schmidt Baking, do not 
constitute payment of severance pay, even if employees have an 
income inclusion. Thus, for example, payment does not include 
the furnishing of a note or letter or other evidence of 
indebtedness of the taxpayer, whether or not the evidence is 
guaranteed by any other instrument or by any third party. As a 
further example, payment does not include a promise of the 
taxpayer to provide service or property in the future (whether 
or not the promise is evidenced by a contract or other written 
agreement). In addition, payment does not include an amount 
transferred as a loan, refundable deposit, or contingent 
payment.
    The bill does not affect the determination of whether an 
item is includible in income. Thus, for example, using the 
mechanism in Schmidt Baking for severance pay still results in 
income inclusion to the employees, but the employer is not 
entitled to a deduction for the severance pay until actually 
paid to and received by the employees.
            Reasons for change
    Prior to the Tax Reform Act of 1986, an employer could make 
an election to deduct an amount representing a reasonable 
addition to a reserve account for vacation pay earned by 
employees before the close of the current year and expected to 
be paid by the close of that year or within 12 months 
thereafter. As a result of concerns that this rule provided 
more favorable tax treatment for vacation pay than other types 
of compensation or deductible items, the Tax Reform Act of 1986 
limited this special rule to vacation pay that is paid during 
the current taxable year within 8\1/2\ months after the close 
of the taxable year of the employer with respect to which the 
vacation pay was earned by employees.
    The tax treatment of vacation pay was again changed in the 
Omnibus Budget Reconciliation Act of 1987 (``OBRA 1987''). At 
that time, the Congress was concerned that then-present law 
provided more favorable tax treatment for vacation pay that was 
deferred by employees beyond the end of the year than was 
provided for other deferred benefits. The House and Senate 
bills would have repealed the reserve for accrued vacation pay 
and would have provided that deductions for vacation pay 
generally would be allowed in any taxable year for amounts paid 
during the year, plus vested vacation amounts paid or funded 
within 2\1/2\ months after the end of the year. The conference 
agreement followed a different approach, and provided that 
``vacation pay earned during any taxable year, but not paid to 
employees on or before the date that is 2\1/2\ months after the 
end of the taxable year, is deductible for the taxable year of 
the employer in which it is paid to employees.'' \3\ The key 
difference between the House and Senate provisions and the 
conference agreement to OBRA 1987 is that the conference 
agreement does now allow a deduction for amounts that vest and 
are funded (i.e., are includible in income) within 2\1/2\ 
months after the end of the employer's taxable year.
---------------------------------------------------------------------------
    \3\ H. Rept. 100-495, 921 (Dec. 21, 1987).
---------------------------------------------------------------------------
    The Committee believes that the decision in Schmidt Baking 
reaches an inappropriate result and represents an incorrect 
interpretation of the intent of the Congress in adopting the 
vacation pay provision in OBRA 1987. OBRA 1987 reflects 
Congressional intent and understanding that compensation 
actually paid beyond the 2\1/2\ month period is deferred 
compensation.
            Effective date
    The provision is effective for taxable years ending after 
October 8, 1997. Any change in method of accounting required by 
the provision is treated as initiated by the taxpayer with the 
consent of the Secretary of the Treasury. Any adjustment 
required by section 481 as a result of the change is taken into 
account in the year of the change.

                       III. VOTE OF THE COMMITTEE

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statement 
is made concerning the vote of the Committee on Ways and Means 
in its consideration of the bill, H.R. 2644.
            Motion to report the bill
    The bill H.R. 2644 was ordered favorably reported, by voice 
vote on October 9, 1997, with a quorum present.

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives, the Committee agrees 
with cost estimates furnished by the Congressional Budget 
Office (CBO) on H.R. 2644, set forth below.

                B. 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 H.R. 2644 does not include any new budget 
authority and reduces tax expenditures by an amount equal to 
the revenue raised by the provision clarifying the deduction 
for deferred severance pay.

      C. Cost Estimate Prepared by the Congressional Budget Office

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 17, 1997.
Hon. Bill Archer,
Chairman, House Committee on Ways & Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the United States-
Caribbean Trade Partnership Act, as ordered reported by the 
House Committee on Ways & Means on October 9, 1997.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Alyssa 
Trzeskowski.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

H.R. 2644.--United States-Caribbean Trade Partnership Act

    Summary: The Congressional Budget Office has reviewed the 
United States-Caribbean Trade Partnership Act, as ordered 
reported on October 9, 1997 by the House Committee on Ways and 
Means. This bill offers temporary NAFTA-parity benefits to 
Caribbean Basin countries in order to enhance trade between the 
United States and this region. The bill would also clarify the 
Internal Revenue Code to overrule the Schmidt Baking Company 
case with respect to severance pay. CBO and the Joint Committee 
on Taxation (JCT) estimate that the bill would increase 
receipts by $6 million in fiscal year 1998 and by $7 million 
over fiscal years 1998 through 2002. Because enacting the bill 
would affect receipts, pay-as-you-go procedures would apply.
    The bill contains one new private-sector mandate, but does 
not contain any intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act of 1995 (UMRA), and therefore 
would not impose any costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimate 
budgetary impact of the bill is shown in the following table.

                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                            1998     1999     2000     2001     2002   1998-2002
----------------------------------------------------------------------------------------------------------------
                                                    REVENUES                                                    
CBI NAFTA parity........................................      -60     -182        0        0        0       -242
Clarification of deduction for accrued severance pay....       66      105       55       11       12        249
----------------------------------------------------------------------------------------------------------------

Basis of estimate

    Revenues: Under current law, the United States offers duty-
free treatment to products of 24 countries in the Caribbean 
region through the Caribbean Basin Initiative (CBI)--a 
preferential trade program that extends duty-free treatment to 
a wide range of products imported from beneficiary countries. 
The CBI excludes the following products from such treatment: 
textile and apparel articles, luggage and handbags, certain 
leather goods, footwear, tuna, petroleum, and watches and watch 
parts.
    This bill would provide tariff and quota treatment 
equivalent to that accorded to products under the North 
American Free Trade Agreement (NAFTA) to products of Caribbean 
Basin partnership countries. NAFTA parity would begin May 15, 
1998 and would terminate on July 15, 1999. The bill would 
encourage the United States Trade Representative (USTR) to seek 
the accession of these beneficiary countries to the NAFTA or a 
comparable free trade agreement at the earliest possible date, 
with the goal of achieving full participation by all 
beneficiary countries by no later than January 1, 2005.
    The estimate of revenue loss is based on 1996 trade data. 
Tariff reductions follow the staged rate reductions that are 
stipulated in the NAFTA, under which the tariff treatment 
accorded at any time to any textile or apparel article that 
originates in the territory of a partnership country shall be 
identical to that which is accorded to a good of Mexico. This 
bill extends immediate duty-free and quota-free treatment to 
apparel articles assembled in an eligible Caribbean Basin 
partnership country formed from U.S. fabric, articles subjected 
to certain types of washing and finishing, articles knit-to-
shape from yarns wholly formed in the U.S., articles made in a 
partnership county from fabric knit in a partnership country 
from yarns, wholly formed in the U.S., and hand loomed, 
handmade, and folklore, and folklore articles originating in 
Caribbean Basin partnership countries.
    The bill also clarifies the Internal Revenue Code of 1986 
with respect to deductions for accrued severance pay to reverse 
the result reached in the case of the Schmidt Baking Company, 
Inc. v. Commissioner of Internal Revenue. JCT estimates the 
provision will increase revenues by $66 million in 1998, and by 
$249 million in the years 1998 through 2002. CBO concurs with 
this estimate.
    Pay-as-you-go considerations: Section 252 of the Balanced 
Budget and Emergency Deficit Control Act of 1985 sets up pay-
as-you-go procedures for legislation affecting receipts. The 
projected changes in receipts through 2007 are shown in the 
following table. For purposes of enforcing pay-as-you-go 
procedures, however, only the effects in the budget year and 
the succeeding four years are counted.

                                          PAY-AS-YOU-GO CONSIDERATIONS                                          
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                                1998    1999    2000    2001    2002   1998-2002
----------------------------------------------------------------------------------------------------------------
Changes in outlays...........................................       0       0       0       0       0          0
Changes in receipts..........................................       6     -77      55      11      12          7
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: The Joint 
Committee on Taxation has determined that H.R. 2644 contains 
one new private-sector mandate, as defined in UMRA. The 
provision relating to clarification of deduction for accrued 
severance pay is estimated to increase tax revenue by $249 
million over fiscal years 1998 through 2002, which is the 
estimated amount that the private sector will be required to 
spend in order to comply with this federal private sector 
mandate. The revenue provision will offset the budget cost of 
the reduced tariffs under the trade provision of the bill. The 
revenue provision will not impose a federal intergovernmental 
mandate on State, local, or tribal governments, as such 
governmental entities are generally exempt from federal income 
tax.
    Estimate prepared by: Alyssa Trzeszkowski.
    Estimate approved by: Rosemary Marcuss, Assistant Director 
for Tax Analysis.

                     Congress of the United States,
                               Joint Committee on Taxation,
                                  Washington, DC, October 16, 1997.
Mrs. June O'Neil,
Director, Congressional Budget Office,
Washington, DC.
    Dear Mrs. O'Neil: The staff of the Joint Committee on 
Taxation has reviewed the revenue provision of H.R. 2644 
(``United States-Caribbean Basin Partnership Act'') as ordered 
reported by the House Committee on Ways and Means on October 9, 
1997. In accordance with the requirements of Public Law 104-4, 
the Unfunded Mandates Reform Act of 1995, we have determined 
that the revenue offset provision of the bill contains a 
Federal private sector mandate: ``clarify deduction for accrued 
severance pay.''
    As indicated in the enclosed revenue table, this provision 
is estimated to increase tax revenue by $249 million over 
fiscal years 1998-2002, which is the estimated amount that the 
private sector will be required to spend in order to comply 
with this Federal private sector mandate. The revenue raised 
from this provision will offset the budget cost of the reduced 
tariffs under the trade provisions of the bill. The revenue 
provision will not impose a Federal intergovernmental mandate 
on State, local, or tribal governments, as such governmental 
entities are generally exempt from Federal income tax.
    If you would like to discuss this information further, you 
may call me or my staff.
            Sincerely,
                                   Kenneth J. Kies, Chief of Staff.
    Enclosure: Revenue table.

      ESTIMATED BUDGET EFFECTS OF A REVENUE OFFSET FOR H.R. 2644, THE ``UNITED STATES-CARIBBEAN BASIN TRADE     
            PARTNERSHIP ACT,'' AS APPROVED BY THE COMMITTEE ON WAYS AND MEANS; FISCAL YEARS 1998-2002           
                                            [In millions of dollars]                                            
----------------------------------------------------------------------------------------------------------------
                    Provision                       Effective    1998    1999    2000    2001    2002    1998-02
----------------------------------------------------------------------------------------------------------------
1. Clarify deduction for accrued severance pay..  tyea 10/8/97      66     105      55      11      12       249
----------------------------------------------------------------------------------------------------------------
Note: Details may not add to totals due to rounding.                                                            
                                                                                                                
Legend for ``Effective'' column: tyea=taxable years ending after.                                               

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee concludes 
that the actions taken in this legislation are appropriate 
given its oversight of international trade and tax matters.

    B. Summary of Findings and Recommendations of the Committee on 
                    Government Reform and Oversight

    In compliance with clause 2(l)(3)(D) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that no oversight findings or recommendations have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight with respect to the provisions in H.R. 
2644.

                 C. Constitutional Authority Statement

    With respect to clause 2(l)(4) of rule XI of the Rules of 
the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article 1 of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises, to pay the 
debts and to provide for * * * the general Welfare of the 
United States * * *'').

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the provision of the bill 
relating to the repeal of the 14-day rule on rental of vacation 
property will impose a Federal mandate on the private sector in 
the amount shown in the CBO estimate, above. This revenue is 
needed to offset the budget cost of the Trade Adjustment 
Assistance provision. This provision of the bill will not 
impose a Federal intergovernmental mandate on State, local, or 
tribal governments.

                 E. Applicability of House Rule XXI5(c)

    Rule XXI5(c) of the Rules of the House of Representatives 
provides, in part, that ``No bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase shall be considered as passed or agreed to unless 
so determined by a vote of not less than three-fifths of the 
Members.'' The Committee has carefully reviewed the provisions 
of the bill, and states that the provisions of the bill do not 
involve any Federal income tax rate increase within the meaning 
of the rule.

       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, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

               THE CARIBBEAN BASIN ECONOMIC RECOVERY ACT

          * * * * * * *

SEC. 212. BENEFICIARY COUNTRY.

  (a) * * *
          * * * * * * *
  (e)(1)(A) The President may, after the requirements of 
subsection (a)(2) and paragraph (2) have been met--
          [(A)] (i) withdraw or suspend the designation of any 
        country as a beneficiary county, or
          [(B)] (ii) withdraw, suspend, or limit the 
        application of duty-free treatment under this subtitle 
        to any article of any country,

if, after such designation, the President determines that as a 
result of changed circumstances such country would be barred 
from designation as a beneficiary country under subsection (b).
          (B)(i) Based on the President's review and analysis 
        described in subsection (f), the President may 
        determine if the preferential treatment under section 
        213(b)(2) and (3) should be withdrawn, suspended, or 
        limited with respect to any article of a partnership 
        country. Such determination shall be included in the 
        report required by subsection (f).
          (ii) Withdrawal, suspension, or limitation of the 
        preferential treatment under section 213(b)(2) and (3) 
        with respect to a partnership country shall be taken 
        only after the requirements of subsection (a)(2) and 
        paragraph (2) of this subsection have been met.
          * * * * * * *
  [(f) On or before October 1, 1993, and the close of each 3-
year period thereafter, the President shall submit to the 
congress a complete report regarding the operation of this 
title, including the results of a general review of beneficiary 
countries based on the considerations described in subsections 
(b) and (c).]
  (f) Reporting Requirements.--Not later than 1 year after the 
date of the enactment of the United States-Caribbean Trade 
Partnership Act and at the close of each 3-year period 
thereafter, the President shall submit to the Congress a 
complete report regarding the operation of this title, 
including--
          (1) with respect to subsections (b) and (c) of this 
        section, the results of a general review of beneficiary 
        countries based on the considerations described in such 
        subsections;
          (2) with respect to subsection (c)(4), the degree to 
        which a country follows accepted rules of international 
        trade provided for under the General Agreement on 
        Tariffs and Trade and the World Trade Organization;
          (3) with respect to subsection (c)(9), the extent to 
        which beneficiary countries are providing or taking 
        steps to provide protection of intellectual property 
        rights comparable to the protection provided to the 
        United States in bilateral intellectual property rights 
        agreements;
          (4) with respect to subsection (b)(2) and subsection 
        (c)(5), the extent that beneficiary countries are 
        providing or taking steps to provide protection of 
        investment and investors comparable to the protection 
        provided to the United States in bilateral investment 
        treaties;
          (5) with respect to subsection (c)(3), the extent 
        that beneficiary countries are providing the United 
        States and other WTO members (as such term is defined 
        in section 2(10) of the Uruguay Round Agreements Act 
        (19 U.S.C. 3501(10)) with equitable and reasonable 
        market access in the product sectors for which benefits 
        are provided under this title;
          (6) with respect to subsection (c)(11), the extent 
        that beneficiary countries are cooperating with the 
        United States in administering the provisions of 
        section 213(b); and
          (7) with respect to subsection (c)(8), the extent 
        that beneficiary countries are meeting the 
        internationally recognized worker rights criteria under 
        such subsection.

In the first report under this subsection, the President shall 
include a review of the implementation of section 213(b), and 
his analysis of whether the benefits under paragraphs (2) and 
(3) of such section further the objectives of this title and 
whether such benefits should be continued.

SEC. 213. ELIGIBLE ARTICLES.

  (a)(1) Unless otherwise excluded from eligibility by this 
title, and subject to section 423 of the Tax Reform Act of 
1986, and except as provided in section 213(b)(2) and (3), the 
duty-free treatment provided under this title shall apply to 
any article which is the growth, product, or manufacture of a 
beneficiary country if--
          (A) * * *
          * * * * * * *
  (5) The duty-free treatment provided under this [chapter] 
title shall apply to an article (other than an article listed 
in subsection (b)) which is the growth, product, or manufacture 
of the Commonwealth of Puerto Rico if--
          (A) * * *
          * * * * * * *
  (6) Notwithstanding paragraph (1), the duty-free treatment 
provided under this title shall apply to liqueurs and 
spirituous beverages produced in the territory of Canada from 
rum if--
          (A) such rum is the growth, product, or manufacture 
        of a beneficiary country or of the Virgin Islands of 
        the United States;
          (B) such rum is imported directly from a beneficiary 
        country or the Virgin Islands of the United States into 
        the territory of Canada, and such liqueurs and 
        spirituous beverages are imported directly from the 
        territory of Canada into the customs territory of the 
        United States;
          (C) when imported into the customs territory of the 
        United States, such liqueurs and spirituous beverages 
        are classified in subheading 2208.90 or 2208.40 of the 
        HTS; and
          (D) such rum accounts for at least 90 percent by 
        volume of the alcoholic content of such liqueurs and 
        spiritous beverages.
  [(b) The duty-free treatment provided under this title shall 
not apply to--
          [(1) textile and apparel articles which are subject 
        to textile agreements;
          [(2) footwear, handbags, luggage, flat goods, work 
        gloves, and leather wearing apparel not designated at 
        the time of the effective date of this title as 
        eligible articles for the purpose of the generalized 
        system of preferences under title V of the Trade Act of 
        1974;
          [(3) tuna, prepared or preserved in any manner, in 
        airtight containers;
          [(4) petroleum, or any product derived from 
        petroleum, provided for in headings 2709 and 2710 of 
        the Harmonized Tariff Schedule of the United States; or
          [(5) watches and watch parts (including cases, 
        bracelets and straps), of whatever type including, but 
        not limited to, mechanical, quartz digital or quartz 
        analog, if such watches or watch parts contain any 
        material which is the product of any country with 
        respect to which HTS column 2 rates of duty apply.]
  (b) Import-Sensitive Articles.--
          (1) In general.--Subject to paragraphs (2) through 
        (5), the duty-free treatment provided under this title 
        does not apply to--
                  (A) textile and apparel articles which were 
                not eligible articles for purposes of this 
                title on January 1, 1994, as this title was in 
                effect on that date;
                  (B) footwear not designated at the time of 
                the effective date of this title as eligible 
                articles for the purpose of the generalized 
                system of preferences under title V of the 
                Trade Act of 1974;
                  (C) tuna, prepared or preserved in any 
                manner, in airtight containers;
                  (D) petroleum, or any product derived from 
                petroleum, provided for in headings 2709 and 
                2710 of the HTS;
                  (E) watches and watch parts (including cases, 
                bracelets and straps), of whatever type 
                including, but not limited to, mechanical, 
                quartz digital, or quartz analog, if such 
                watches or watch parts contain any material 
                which is the product of any country with 
                respect to which HTS column 2 rates of duty 
                apply; or
                  (F) articles to which reduced rates of duty 
                apply under subsection (h).
          (2) NAFTA transition period treatment of certain 
        textile and apparel articles.--
                  (A) Equivalent tariff and quota treatment.--
                During the transition period--
                          (i) the tariff treatment accorded at 
                        any time to any textile or apparel 
                        article that originates in the 
                        territory of a partnership country 
                        shall be identical to the tariff 
                        treatment that is accorded at such time 
                        under section 2 of the Annex to an 
                        article described in the same 8-digit 
                        subheading of the HTS that is a good of 
                        Mexico and is imported into the United 
                        States;
                          (ii) duty-free treatment under this 
                        title shall apply to any textile or 
                        apparel article that is imported into 
                        the United States from a partnership 
                        country and that--
                                  (I) is assembled in a 
                                partnership country, from 
                                fabrics wholly formed and cut 
                                in the United States from yarns 
                                formed in the United States, 
                                and is entered--
                                          (aa) under subheading 
                                        9802.00.80 of the HTS; 
                                        or
                                          (bb) under chapter 
                                        61, 62, or 63 of the 
                                        HTS if, after such 
                                        assembly, the article 
                                        would have qualified 
                                        for treatment under 
                                        subheading 9802.00.80 
                                        of the HTS, but for the 
                                        fact the article was 
                                        subjected to bleaching, 
                                        garments dyeing, stone-
                                        washing, enzyme-
                                        washing, acid-washing, 
                                        perma-pressing, oven-
                                        baking, or embroidery; 
                                        or
                                  (II) is knit-to-shape in a 
                                partnership country from yarns 
                                wholly formed in the United 
                                States;
                                  (III) is made in a 
                                partnership country from fabric 
                                knit in a partnership country 
                                from yarns wholly formed in the 
                                United States;
                                  (IV) is cut and assembled in 
                                a partnership country from 
                                fabrics wholly formed in the 
                                United States from yarns wholly 
                                formed in the United States; or
                                  (V) is identified under 
                                subparagraph (C) as a 
                                handloomed, handmade, or 
                                folklore article of such 
                                country and is certified as 
                                such by the competent authority 
                                of such country; and
                          (iii) no quantitative restriction or 
                        consultation level may be applied to 
                        the importation into the United States 
                        of any textile or apparel article 
                        that--
                                  (I) originates in the 
                                territory of a partnership 
                                country, or
                                  (II) qualifies for duty-free 
                                treatment under subclause (I), 
                                (II), (III), (IV), or (V) of 
                                clause (ii).
                  (B) NAFTA transition period treatment of 
                other nonoriginating textile and apparel 
                articles.--
                          (i) Preferential tariff treatment.--
                        Subject to clause (ii), the President 
                        may place in effect at any time during 
                        the transition period with respect to 
                        any textile or apparel article that--
                                  (I) is a product of a 
                                partnership country, but
                                  (II) does not qualify as a 
                                good that originates in the 
                                territory of a partnership 
                                country or is eligible for 
                                benefits under subparagraph 
                                (A)(ii),
                        tariff treatment that is identical to 
                        the in-preference-level tariff 
                        treatment accorded at such time under 
                        Appendix 6.B of the Annex to an article 
                        described in the same 8-digit 
                        subheading of the HTS that is a product 
                        of Mexico and is imported into the 
                        United States. For purposes of this 
                        clause, the ``in-preference-level 
                        tariff treatment'' accorded to an 
                        article that is a product of Mexico is 
                        the rate of duty applied to that 
                        article when imported in quantities 
                        less than or equal to the quantities 
                        specified in Schedule 6.B.1, 6.B.2., or 
                        6.B.3. of the Annex for imports of that 
                        article from Mexico into the United 
                        States.
                          (ii) Limitations on all articles.--
                        (I) Tariff treatment under clause (i) 
                        may be extended, during any calendar 
                        year, to not more than 45,000,000 
                        square meter equivalents of cotton or 
                        man-made fiber apparel, to not more 
                        than 1,500,000 square meter equivalents 
                        of wool apparel, and to not more than 
                        25,000,000 square meter equivalents of 
                        goods entered under subheading 
                        9802.00.80 of the HTS.
                          (II) Except as provided in subclause 
                        (III), the amounts set forth in 
                        subclause (I) shall be allocated among 
                        the 7 partnership countries with the 
                        largest volume of exports to the United 
                        States of textile and apparel goods in 
                        calendar year 1996, based upon a pro 
                        rata share of the volume of textile and 
                        apparel goods of each of those 7 
                        countries that entered the United 
                        States under subheading 9802.00.80 of 
                        the HTS during the first 12 months of 
                        the 14-month period ending on the date 
                        of the enactment of the United States-
                        Caribbean Trade Partnership Act.
                          (III) Five percent of the amounts set 
                        forth in subclause (I) shall be 
                        allocated among the partnership 
                        countries, other than those to which 
                        subclause (II) applies, based upon a 
                        pro rata share of the exports to the 
                        United States of textile and apparel 
                        goods of each of those countries during 
                        the first 12 months of the 14-month 
                        period ending on the date of the 
                        enactment of the United States-
                        Caribbean Trade Partnership Act.
                          (iii) Prior consultation.--The 
                        President may implement the 
                        preferential tariff treatment described 
                        in clause (i) only after consultation 
                        with representatives of the United 
                        States textile and apparel industry and 
                        other interested parties regarding--
                                  (I) the specific articles to 
                                which such treatment will be 
                                extended,
                                  (II) the annual quantities of 
                                such articles that may be 
                                imported at the preferential 
                                duty rates described in clause 
                                (i), and
                                  (III) the allocation of such 
                                annual quantities among 
                                beneficiary countries.
                  (C) Handloomed, handmade, and folklore 
                articles.--For purposes of subparagraph (A), 
                the Trade Representative shall consult with 
                representatives of the partnership country for 
                the purpose of identifying particular textile 
                and apparel goods that are mutually agreed upon 
                as being handloomed, handmade, or folklore 
                goods of a kind described in section 2.3 (a), 
                (b), or (c) or Appendix 3.1.B.11 of the Annex.
                  (D) Bilateral emergency actions.--(i) The 
                President may take--
                          (I) bilateral emergency tariff 
                        actions of a kind described in section 
                        4 of the Annex with respect to any 
                        textile or apparel article imported 
                        from a partnership country if the 
                        application of tariff treatment under 
                        subparagraph (A) to such article 
                        results in conditions that would be 
                        cause for the taking of such actions 
                        under such section 4 with respect to an 
                        article described in the same 8-digit 
                        subheading of the HTS that is imported 
                        from Mexico; or
                          (II) bilateral emergency quantitative 
                        restriction actions of a kind described 
                        in section 5 of the Annex with respect 
                        to imports of any textile or apparel 
                        article described in subparagraphs 
                        (B)(i) (I) and (II) if the importation 
                        of such article into the United States 
                        results in conditions that would be 
                        cause for the taking of such actions 
                        under such section 5 with respect to a 
                        like article that is a product of 
                        Mexico.
                  (ii) The requirement in paragraph (5) of 
                section 4 of the Annex (relating to providing 
                compensation) shall not be deemed to apply to a 
                bilateral emergency action taken under this 
                subparagraph.
                  (iii) For purposes of applying bilateral 
                emergency action under this subparagraph--
                          (I) the term ``transition period'' in 
                        sections 4 and 5 of the Annex shall be 
                        deemed to be the period defined in 
                        paragraph (5)(E); and
                          (II) any requirements to consult 
                        specified in section 4 or 5 of the 
                        Annex are deemed to be satisfied if the 
                        President requests consultations with 
                        the partnership country in question and 
                        the country does not agree to consult 
                        within the time period specified under 
                        such section 4 or 5, whichever is 
                        applicable.
          (3) NAFTA transition period treatment of certain 
        other articles originating in beneficiary countries.--
                  (A) Equivalent tariff treatment.--
                          (i) In general.--Subject to clause 
                        (ii), the tariff treatment accorded at 
                        any time during the transition period 
                        to any article referred to in any of 
                        subparagraphs (B) through (F) of 
                        paragraph (1) that originates in the 
                        territory of a partnership country 
                        shall be identical to the tariff 
                        treatment that is accorded at such time 
                        under Annex 302.2 of the NAFTA to an 
                        article described in the same 8-digit 
                        subheading of the HTS that is a good of 
                        Mexico and is imported into the United 
                        States.
                          (ii) Exception.--Clause (i) does not 
                        apply to any article accorded duty-free 
                        treatment under U.S. Note 2(b) to 
                        subchapter II of chapter 98 of the HTS.
                  (B) Relationship to subsection (h) duty 
                reductions.--If at any time during the 
                transition period the rate of duty that would 
                (but for action taken under subparagraph (A)(i) 
                in regard to such period) apply with respect to 
                any article under subsection (h) is a rate of 
                duty that is lower than the rate of duty 
                resulting from such action, then such lower 
                rate of duty shall be applied for the purposes 
                of implementing such action.
          (4) Customs procedures.--
                  (A) In general.--
                          (i) Regulations.--Any importer that 
                        claims preferential tariff treatment 
                        under paragraph (2) or (3) shall comply 
                        with customs procedures similar in all 
                        material respects to the requirements 
                        of Article 502(1) of the NAFTA as 
                        implemented pursuant to United States 
                        law, in accordance with regulations 
                        promulgated by the Secretary of the 
                        Treasury.
                          (ii) Determination.--In order to 
                        qualify for such preferential tariff 
                        treatment and for a Certificate of 
                        Origin to be valid with respect to any 
                        article for which such treatment is 
                        claimed, there shall be in effect a 
                        determination by the President that--
                                  (I) the partnership country 
                                from which the article is 
                                exported, and
                                  (II) each partnership country 
                                in which materials used in the 
                                production of the article 
                                originate or undergo production 
                                that contributes to a claim 
                                that the article qualifies for 
                                such preferential tariff 
                                treatment,
                        has implemented and follows, or is 
                        making substantial progress toward 
                        implementing and following, procedures 
                        and requirements similar in all 
                        material respects to the relevant 
                        procedures and requirements under 
                        chapter 5 of the NAFTA.
                  (B) Certificate of origin.--The Certificate 
                of Origin that otherwise would be required 
                pursuant to the provisions of subparagraph (A) 
                shall not be required in the case of an article 
                imported under paragraph (2) or (3) if such 
                Certificate of Origin would not be required 
                under Article 503 of the NAFTA (as implemented 
                pursuant to United States law), if the article 
                were imported from Mexico.
                  (C) Penalties for transshipments.--If the 
                President determines, based on sufficient 
                evidence, that an exporter has engaged in 
                willful illegal transshipment or willful 
                customs fraud with respect to textile or 
                apparel articles for which preferential tariff 
                treatment under subparagraph (A) or (B) of 
                paragraph (2) is claimed, then the President 
                shall deny all benefits under this title to 
                such exporter, and any successors of such 
                exporter, for a period of 2 years.
                  (D) Study by ustr on cooperation of other 
                countries concerning circumvention.--The United 
                States Commissioner of Customs shall conduct a 
                study analyzing the extent to which each 
                partnership country--
                          (i) has cooperated fully with the 
                        United States, consistent with its 
                        domestic laws and procedures, in 
                        instances of circumvention or alleged 
                        circumvention of existing quotas on 
                        imports of textile and apparel goods, 
                        to establish necessary relevant facts 
                        in the places of import, export, and, 
                        where applicable, transshipment, 
                        including investigation of 
                        circumvention practices, exchanges of 
                        documents, correspondence, reports, and 
                        other relevant information, to the 
                        extent such information is available;
                          (ii) has taken appropriate measures, 
                        consistent with its domestic laws and 
                        procedures, against exporters and 
                        importers involved in instances of 
                        false declaration concerning fiber 
                        content, quantities, description, 
                        classification, or origin of textile 
                        and apparel goods; and
                          (iii) has penalized the individuals 
                        and entities involved in any such 
                        circumvention, consistent with its 
                        domestic laws and procedures, and has 
                        worked closely to seek the cooperation 
                        of any third country to prevent such 
                        circumvention from taking place in that 
                        third country.
                The Trade Representative shall submit to the 
                Congress, not later than October 1, 1998, a 
                report on the study conducted under this 
                subparagraph.
          (5) Definitions.--For purposes of this subsection--
                  (A) The term ``the Annex'' means Annex 300-B 
                of the NAFTA.
                  (B) The term ``NAFTA'' means the North 
                American Free Trade Agreement entered into 
                between the United States, Mexico, and Canada 
                on December 17, 1992.
                  (C) The term ``partnership country'' means a 
                beneficiary country.
                  (D) The term ``textile or apparel article'' 
                means any article referred to in paragraph 
                (1)(A) that is a good listed in Appendix 1.1 of 
                the Annex.
                  (E) The term ``transition period'' means, 
                with respect to a partnership country, the 
                period that begins on May 15, 1998, and ends on 
                the earlier of--
                          (i) July 15, 1999; or
                          (ii) the date on which--
                                  (I) the United States first 
                                applies the NAFTA to the 
                                partnership country upon its 
                                accession to the NAFTA, or
                                  (II) there enters into force 
                                with respect to the United 
                                States and the partnership 
                                country a free trade agreement 
                                comparable to the NAFTA that 
                                makes substantial progress in 
                                achieving the negotiating 
                                objectives set forth in section 
                                108(b)(5) of the North American 
                                Free Trade Agreement 
                                Implementation Act (19 U.S.C. 
                                3317(b)(5)).
                  (F) An article shall be deemed as originating 
                in the territory of a partnership country if 
                the article meets the rules of origin for a 
                good set forth in chapter 4 of the NAFTA, and, 
                in the case of an article described in Appendix 
                6.A of the Annex, the requirements stated in 
                such Appendix 6.A for such article to be 
                treated as if it were an originating good. In 
                applying such chapter 4 or Appendix 6.A with 
                respect to a partnership country for purposes 
                of this subsection--
                          (i) no countries other than the 
                        United States and partnership countries 
                        may be treated as being Parties to the 
                        NAFTA,
                          (ii) references to trade between the 
                        United States and Mexico shall be 
                        deemed to refer to trade between the 
                        United States and partnership 
                        countries, and
                          (iii) references to a Party shall be 
                        deemed to refer to the United States or 
                        a partnership country, and references 
                        to the Parties shall be deemed to refer 
                        to any combination of partnership 
                        countries or the United States.
          * * * * * * *