[Senate Report 105-82]
[From the U.S. Government Publishing Office]
Calendar No. 163
105th Congress Report
SENATE
1st Session 105-82
_______________________________________________________________________
CLARIFYING THE DESIGNATION OF NORMAL TRADE RELATIONS
_______
September 15, 1997.--Ordered to be printed
_______________________________________________________________________
Mr. Roth, from the Committee on Finance, submitted the following
R E P O R T
[To accompany S. 747]
[Including cost estimate of the Congressional Budget Office]
The Committee on Finance, to which was referred the bill
(S. 747) to amend trade laws and related provisions to clarify
the designation of normal trade relations, having considered
the same, reports favorably thereon without amendment and
recommends that the bill do pass.
I. Background
Since the 18th century, the policy underlying trade
relations between the United States and other countries has
rested on the principle of nondiscrimination--i.e., that the
United States will give equal treatment, in terms of tariff
rates, etc., to the same product it imports from any other
country. In return, other countries apply the same tariff
treatment to products they import from the United States as
they apply to imports from other countries. More recently, the
principle has also been extended to areas beyond just trade in
goods (e.g., trade in services).
The traditional term for this principle of
nondiscrimination is ``most-favored-nation,'' or MFN treatment.
This term is rooted in a very old concept of international law,
which states that in trade relations, a country will provide
the same trade treatment under its laws to all countries as it
provides to the ``most-favored nation.'' \1\
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\1\ A comprehensive history of the MFN principle is described in a
July 1973 report of the Committee on Finance (U.S. Senate Committee on
Finance, Executive Branch GATT Study No. 9, The Most-Favored-Nation
Provision, 93d Congress, 1st Session (July 1973)).
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Although the term harkens to a hypothetical most-favored
nation, in fact, MFN status does not provide any special
position or preferential treatment to other countries. Rather,
MFN refers to trade treatment that the United States normally
provides to all but six countries in the world \2\ and denotes
the ordinary, not the exceptional, trading relationship between
the United States and the vast majority of other countries.
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\2\ As of September 11, 1997, these countries were: Afghanistan;
Cuba; Laos; North Korea; Vietnam; and Yugoslavia (Serbia and
Montenegro).
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II. Summary of the Bill
Section 1(a) of the bill sets out the following four
Congressional findings:
1. Since the 18th century, the principle of
nondiscrimination among countries with which the United
States has trade relations, commonly referred to as
``most-favored-nation'' treatment, has been a
cornerstone of U.S. trade policy.
2. Although the principle remains firmly in place as
a fundamental concept in U.S. trade relations, the term
``most-favored-nation'' is a misnomer which has led to
public misunderstanding.
3. It is neither the purpose nor the effect of the
most-favored-nation principle to treat any country as
``most favored.'' Rather, the principle reflects the
intention to confer the same trade benefits on a
country that are conferred on any other country--i.e.,
that there is no intention to discriminate among
trading partners.
4. The term ``normal trade relations'' is a more
accurate description of the principle of
nondiscrimination as it applies to the tariffs
applicable generally to imports from U.S. trading
partners--i.e., the general rates of duty set forth in
column 1 of the Harmonized Tariff Schedule of the
United States (HTSUS).
Section 1(b) of the bill sets forth a sense of the Congress
that U.S. laws, treaties, agreements, executive orders,
directives, and regulations should more accurately reflect the
underlying principles of U.S. trade policy. Therefore, the term
``most-favored-nation'' should, where appropriate, be changed
to ``normal trade relations.''
Section 2 of the bill amends the following statutory
provisions to reflect the change of the term ``most-favored-
nation'' to ``normal trade relations'':
1. The heading for section 251 of the Trade Expansion
Act of 1962 (19 U.S.C. 1881);
2. Section 402 of the Trade Act of 1974 (19 U.S.C.
2432);
3. Section 601(9) of the Trade Act of 1974 (19 U.S.C.
2481(9));
4. Section 302(a)(3)(C) of the United States-Canada
Free Trade Agreement Implementation Act of 1988 (19
U.S.C. 2112 (note));
5. Section 202(n) of the North American Free Trade
Agreement Implementation Act (19 U.S.C. 3332(n));
6. Section 2(c)(11) of the Support for East European
Democracy (SEED) Act of 1989 (22 U.S.C. 5401(c)(11));
and
7. Section 103(4) of the United States-Hong Kong
Policy Act of 1992 (22 U.S.C. 5713(4)).
Section 3 of the bill specifies that the Act will have no
effect on the meaning of any provision of law, Executive order,
Presidential proclamation, rule, regulation, delegation of
authority, other document, or treaty or other international
agreement of the United States relating to the MFN principle,
which was in effect on or was to become effective on or after
the effective date of the Act. Rather, all of the foregoing,
shall continue in effect according to their terms until
modified, terminated, superseded, set aside, or revoked in
accordance with law.
III. General Explanation
A. Senate Action
On June 27, 1996, all 20 Members of the Senate Committee on
Finance cosponsored S. 1918, which, in substance, is identical
to S. 747. Although S. 1918 passed the Senate on September 10,
1996, by unanimous consent, the House did not consider the
legislation before the conclusion of the 104th Congress. This
legislation was reintroduced as S. 747 in the 105th Congress on
May 15, 1997, with the cosponsorship of 19 Members of the
Committee on Finance.
B. Committee Views
The Committee believes that the term ``most-favored-
nation'' treatment has become a source of confusion in
describing the principle of nondiscrimination in trade
relations with other countries and has unnecessarily
complicated the conduct of American foreign trade policy. MFN
is, in fact, a misnomer in that it inaccurately implies that
the United States confers some special trading privilege or
preferential treatment on countries to which it applies the
nondiscrimination principle.
Despite its name, MFN is not a special trading privilege or
reward, nor is it the most favorable trade treatment that the
United States gives its trading partners. Rather, MFN refers to
the normal trade treatment that the United States gives to
nearly every country in the world. Because there are only six
countries in the world to which the United States does not give
MFN status, MFN denotes the ordinary, not the exceptional,
trading relationship. Furthermore, the United States extends
better than MFN treatment to 150 countries and territories,
through the Generalized System of Preferences, the Caribbean
Basin Initiative, the Andean Trade Preferences Act, the United
States-Israel Free Trade Agreement, and the North American Free
Trade Agreement.
In order to correct the misconception created by the term,
``most-favored-nation,'' the Committee believes that the term
should be changed. It is the Committee's view that the term
``normal trade relations'' more accurately describes the
principle of nondiscrimination in trade relations and clarifies
that this principle under U.S. law denotes the ordinary and
normal, rather than the exceptional, trade relationship that
the United States has with nearly every country in the world.
It is not the Committee's intention to alter U.S.
international rights or obligations by virtue of this
legislation. MFN is a term with a long history of application
and interpretation. Therefore, the changes effected by this
legislation merely modify the language, not the content of U.S.
trade policy in order to make it more accurate and
comprehensible.
Accordingly, the Committee strongly supports enactment of
S. 747 to change the term ``most-favored-nation'' to ``normal
trade relations'' in U.S. law and regulation, wherever
appropriate.
IV. Vote of the Committee
In compliance with section 133 of the Legislative
Reorganization Act of 1946, the Committee states that S. 747
was ordered favorably reported unanimously by voice vote on
September 11, 1997.
V. Budgetary Impact
In compliance with sections 308 and 403 of the
Congressional Budget Act of 1974, and paragraph 11(a) of Rule
XXVI of the Standing Rules of the Senate, the following letter
has been received from the Congressional Budget Office stating
that the bill would have no budgetary impact:
VI. Regulatory Impact
In compliance with paragraph 11(b) of Rule XXVI of the
Standing Rules of the Senate, the Committee states that the
bill will not significantly regulate any individuals or
businesses, will have no impact on the personal privacy of
individuals, and will result in no significant additional
paperwork.
VII. Changes in Existing Law
In compliance with paragraph 12 of Rule XXVI of the
Standing Rules of the Senate, 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 italics, existing law in which no change
is proposed is shown in roman):
TRADE EXPANSION ACT OF 1962
* * * * * * *
TITLE II--TRADE AGREEMENTS
* * * * * * *
Chapter 6--General Provisions
* * * * * * *
SEC. 251. [MOST-FAVORED-NATION PRINCIPLE] NORMAL TRADE RELATIONS.
Except as otherwise provided in this title, in section
350(b) of the Tariff Act of 1930, or in section 401(a) of the
Tariff Classification Act of 1962, any duty or other import
restriction or duty-free treatment proclaimed in carrying out
any trade agreement under this title or section 350 of the
Tariff Act of 1930 shall apply to products of all foreign
countries, whether imported directly or indirectly.
* * * * * * *
TRADE ACT OF 1974
* * * * * * *
TITLE IV--TRADE RELATIONS WITH COUNTRIES NOT CURRENTLY RECEIVING
NONDISCRIMINATORY TREATMENT
SEC. 401. EXCEPTION OF THE PRODUCTS OF CERTAIN COUNTRIES OR AREAS.
Except as otherwise provided in this title, the President
shall continue to deny nondiscriminatory treatment to the
products of any country, the products of which were not
eligible for the rates set forth in rate column numbered 1 of
the Tariff Schedules of the United States on the date of the
enactment of this Act.
SEC. 402. FREEDOM OF EMIGRATION IN EAST-WEST TRADE.
(a) To assure the continued dedication of the United States
to fundamental human rights, and notwithstanding any other
provision of law, on or after the date of the enactment of this
Act products from any nonmarket economy country shall not be
eligible to receive nondiscriminatory treatment [(most-favored-
nation treatment)] (normal trade relations), such country shall
not participate in any program of the Government of the United
States which extends credits or credit guarantees or investment
guarantees, directly or indirectly, and the President of the
United States shall not conclude any commercial agreement with
any such country, during the period beginning with the date on
which the President determines that such country
(1) denies in citizens the right or opportunity to
emigrate;
(2) imposes more than a nominal tax on emigration or
on the visas or other documents required for
emigration, for any purpose or cause whatsoever; or
(3) imposes more than a nominal tax, levy, fine, fee,
or other charge on any citizen as a consequence of the
desire of such citizen to emigrate to the country of
his choice,
and ending on the date on which the President determines that
such country is no longer in violation of paragraph (1), (2),
or (3).
(b) After the date of the enactment of this Act, (A)
products of a nonmarket economy country may be eligible to
receive non-discriminatory treatment [(most-favored-nation
treatment)] (normal trade relations), (B) such country may
participate in any program of the Government of the United
States which extends credits or credit guarantees or investment
guarantees, and (C) the President may conclude a commercial
agreement with such country, only after the President has
submitted to the Congress a report indicating that such country
is not in violation of paragraph (1), (2), or (3) of subsection
(a). Such report with respect to such country shall include
information as to the nature and implementation of emigration
laws and policies and restrictions or discrimination applied to
or against persons wishing to emigrate. The report required by
this subsection shall be submitted initially as provided herein
and, with current information, on or before each June 30 and
December 31 thereafter so long as such treatment is received,
such credits or guarantees are extended, or such agreement is
in effect.
(c)(1) During the 18-month period beginning on the date of
the enactment of this Act, the President is authorized to waive
by Executive order the application of subsections (a) and (b)
with respect to any country, if he reports to the Congress
that--
* * * * * * *
TITLE VI--GENERAL PROVISIONS
SEC. 601. DEFINITIONS.
For purposes of this Act--
(1) Me term ``duty'' includes the rate and form of
any import duty, including but not limited to tariff-
rate quotas.
* * * * * * *
(9) The term ``nondiscriminatory treatment'' means
[most-favored-nation treatment] trade treatment based
on normal trade relations (known under international
law as most-favored-nation treatment).
* * * * * * *
UNITED STATES-CANADA FREE-TRADE AGREEMENT
IMPLEMENTATION ACT OF 1988
* * * * * * *
SEC. 302. RELIEF FROM IMPORTS.
(a) Relief From Imports of Canadian Articles.--
(1) A petition requesting action under this section
for the purpose of adjusting to the obligations of the
United States under the Agreement may be filed with the
United--States International Trade Commission
(hereafter in this section refereed to as the
``Commission'') by an entity, including a trade
association, firm, certified or recognized union, or
group of workers, which is representative of an
industry. The Commission shall transmit a copy of any
petition flied under this paragraph to the United
States Trade Representative.
* * * * * * *
(3)(A) By no later than the date that is 30 dew after
the date on which the President receives the report of
the Commission containing an affirmative determination
made by the Commission under paragraph (2)(A), the
President shall provide relief from imports of the
article originating in Canada that is the subject of
such determination to the extent that, and for such
time (not to exceed 3 years) as the President
determines to be necessary to remedy the injury found
by the Commission.
(B) The President is not required to provide import
relief by reason of this paragraph if the President
determines that the provision of such import relief is
not in the national economic interest.
(C) The import relief that the President is
authorized to provide by reason of this paragraph with
respect to an article originating in Canada is limited
to--
(i) the suspension of any further reductions
provided for under the Agreement in the duty
imposed on such article originating in Canada,
(ii) an increase in the rate of duty imposed
on such article originating in Canada to a
level that does not exceed the lesser of--
(I) [the most-favored-nation rate of
duty] the general subcolumn of the
column rate of duty set forth in the
Harmonized Tariff Schedule of the
United States that is imposed by the
United States on such article from any
other foreign country at the time such
import relief is provided, or
(II) [the most-favored-nation rate of
duty] the general subcolumn of the
column rate of duty set forth in the
Harmonized Tariff Schedule of the
United States that is imposed by the
United Sates on such article from any
other foreign country on the day before
the date on which the Agreement enters
into force, or
(iii) in the case of a duty applied on a
seasonal basis to such article originating in
Canada, an increase in the rate of duty imposed
on such article originating in Canada to a
level Chat does not exceed [the most-favored-
nation rate of duty] the general subcolumn of
the column rate of duty set forth in the
Harmonized Tariff Schedule of the United States
imposed by the United Sates on such article
originating in Canada for the corresponding
season immediately prior to the date on which
the Agreement enters into force.
* * * * * * *
NORTH AMERICAN FREE TRADE AGREEMENT
IMPLEMENTATION ACT
* * * * * * *
TITLE II--CUSTOMS PROVISIONS
* * * * * * *
SEC. 202. RULES OF ORIGIN.
(a) Originating Goods.--
* * * * * * *
(n) Origin of Automatic Data Processing Goods.--
Notwithstanding any other provision of this section, when the
NAFTA countries apply the [most-favored-nation] rate of duty
described in paragraph 1 of section A of Annex 308.1 of the
Agreement to a good provided for under the tariff provisions
set out in Table 308.1.1 of such Annex, the good shall, upon
importation from a NAFTA country, be deemed to originate in the
territory of a NAFTA country for purposes of this section.
* * * * * * *
SUPPORT FOR EAST EUROPEAN DEMOCRACY
(SEED) ACT OF 1989
* * * * * * *
SEC. 2. SUPPORT FOR EAST EUROPEAN DEMOCRACY (SEED) PROGRAM.
* * * * * * *
(c) SEED Actions.--Assistance and other activities under
the SEED Program (which may be referred to as ``SEED Actions'')
shall include activities such as the following:
* * * * * * *
(11) [Most Favored Nation Trade Status] Normal Trade
Relations.--The granting of temporary or permanent
nondiscriminatory treatment [(commonly referred to as
``most favored nation status'')] to the products of an
East European country through the application of the
criteria and procedures established by section 2432 of
Title 19.
* * * * * * *
UNITED STATES-HONG KONG POLICY ACT OF 1992
* * * * * * *
SEC. 103. COMMERCE BETWEEN UNITED STATES AND HONG KONG.
It is the sense of the Congress that the following, which
are based id part on the relevant provisions of the Joint
Declaration, are and should continue after June 30, 1997, to be
the policy of the United States with respect to commerce
between the United States and Hong Kong:
(1) The United States should seek to maintain and
expand economic and trade relations with Hong Kong and
should continue to treat Hong Kong as a separate
territory in economic and trade matters, such as import
quotas and certificates of origin.
* * * * * * *
(4) The United States should continue to grant the
products of Hong Kong nondiscriminatory trade treatment
[(commonly referred to as ``most-favored-nation
status'')] by virtue of Hong Kong's membership in the
General Agreement on Tariffs and Trade.
* * * * * * *