Senate Report 106-112 - THE AFRICAN GROWTH AND OPPORTUNITY ACT

[Senate Report 106-112]
[From the U.S. Government Publishing Office]

Calendar No. 212
106th Congress Report
SENATE
1st Session 106-112

======================================================================

THE AFRICAN GROWTH AND OPPORTUNITY ACT

_______

July 20, 1999.--Ordered to be printed

_______

Mr. Roth, from the Committee on Finance, submitted the following

R E P O R T

[To accompany S. 1387]

[Including cost estimate of the Congressional Budget Office]

The Committee on Finance, having considered legislation to
extend certain trade preferences to sub-Saharan African
countries, reports favorably thereon and refers the bill to the
full Senate with a recommendation that the bill do pass.

I. BACKGROUND

The purpose of this legislation is to authorize ``a new
trade and investment policy'' that is designed to encourage
increased trade and economic cooperation between the United
States and the sub-Saharan African (``SSA'') countries. It is
the expectation of the Finance Committee that the increased
trade and investment resulting from this legislation will
encourage those sub-Saharan African countries committed to
political and economic reform to continue to pursue such
reforms.
Currently, sub-Saharan Africa is a region that faces
significant economic and political difficulties, as well as
opportunities. The SSA countries are among the poorest and
least developed in the world. According to World Bank data, the
annual per capita GNP for the SSA countries averages only $490.
The political climate in several of the SSA countries, however,
has improved in recent years, though there remain a number of
SSA countries that suffer from significant instability.
Moreover, over 30 countries have taken steps toward economic
reform, including some liberalizing of exchange rates and
prices, privatizing state-owned enterprises, instituting
tighter disciplines over government expenditures, limiting
subsidies and reducing barriers to trade and investment.
Currently, trade between the United States and the SSA
countries is small. In 1998, U.S. merchandise exports to the
SSA countries amounted to less than 1 percent of total U.S.
merchandise exports ($6.7 billion), while imports from those
countries totaled only 1.7 percent of U.S. merchandise imports
($13.1 billion). Primary U.S. exports sectors are
transportation equipment, agricultural products, machinery,
electronic products and chemicals. Principal imports from sub-
Saharan Africa are energy-related products, minerals and
metals.
The United States' efforts to encourage trade with the SSA
countries have had limited success. For example, under the
Generalized System of Preferences (``GSP'') program, developing
countries are eligible to receive duty-free access to the U.S.
market for certain specified products. Although most of the SSA
countries are eligible for preferential tariff treatment under
the GSP program, only 14.6 percent of imports under the program
in 1998 were from the SSA countries. United States imports from
sub-Saharan Africa under GSP totaled $2.4 billion in 1998, with
imports from Angola ($1,571.3 million in 1998) and South Africa
($551.7 million in 1998) accounting for more than three-
quarters of this amount. Significantly, most petroleum
products--which constitute the largest category of merchandise
exports from the SSA countries--are not eligible for duty-free
treatment under the GSP program, except for the least-developed
countries (including Angola, whose GSP exports in 1998 were
predominantly comprised of petroleum products).
In the 105th Congress, the African Growth and Opportunity
Act (H.R. 1432) was introduced in the House of Representatives
on April 24, 1997, and was referred to the House Committees on
International Relations, Ways and Means and Banking and
Financial Services. The Committees on International Relations
and Ways and Means each reported the bill on March 2, 1998. The
Banking and Financial Services Committee was discharged of the
bill on March 2, 1998. The bill was passed by the House on
March 11, 1998, by a vote of 233-186.
In the Senate, the Finance Committee held a hearing on the
U.S.-sub-Saharan Africa trading relationship on June 17, 1998.
During this hearing, the Committee heard testimony from the
chief sponsors of the legislation from the House and Senate,
officials from the Administration and interested parties from
the private sector. The Committee also heard testimony on the
issue of trade with Africa on September 17, 1997. The Finance
Committee ordered an original measure (S. 2400) to be reported
on July 21, 1998. This bill included legislation authorizing a
new trade policy for sub-Saharan Africa.
In the 106th Congress, the African Growth and Opportunity
Act (H.R. 434) was introduced in the House of Representatives
on February 2, 1999, and was referred to the House Committees
on International Relations, Ways and Means, and Banking and
Financial services. The Committee on International Relations
ordered the bill to be reported with an amendment by a vote of
24-8 on February 11, 1999. The Committee on Ways and Means
ordered the bill to be reported with an amendment by voice vote
on June 10, 1999. The Committee on Banking and Financial
Services was discharged of the bill on June 17, 1999. A bill
identical to H.R. 434 was also introduced in the Senate (S.
666) on March 18, 1999.

II. GENERAL DESCRIPTION OF ACT

Summary

This Act has five primary components. First, the Act
provides eligible SSA countries with enhanced benefits under
the GSP program and extends both the enhanced and the regular
GSP benefits through September 30, 2006. Second, the Act
provides those countries quota-free and duty-free access to the
United States for certain textile and apparel products. Third,
the Act directs the President to create a United States-sub-
Saharan African Trade and Economic Cooperation Forum. Fourth,
the Act directs the President to examine the feasibility of
negotiating a free trade agreement with one or more of the SSA
countries. Fifth, the Act includes two revenue offsets.

Section-by-Section Description of the Act

Section 1: Short title; Table of contents

Section 1 of the bill provides that this Act may be
referred to as the ``African Growth and Opportunity Act.'' It
also lays out a table of contents for the Act.

Section 2: Findings

Section 2 of the bill enumerates 12 findings with regard to
this Act:
That it is in the mutual interest of the United
States and the countries of sub-Saharan Africa to promote
stable and sustainable economic growth and development in sub-
Saharan Africa.
That the 48 countries of sub-Saharan Africa form a
region richly endowed with both natural and human resources.
That sub-Saharan Africa represents a region of
enormous economic potential and of enduring political
significance to the United States.
That the region has experienced a rise in both
economic development and political freedom as countries in sub-
Saharan Africa have taken steps toward liberalizing their
economies and encouraged broader participation in the political
process.
That the countries of sub-Saharan Africa have made
progress toward regional economic integration that can have
positive benefits for the region.
That despite these gains, the per capita income in
sub-Saharan Africa averages less than $500 annually.
That U.S. foreign direct investment in the region
has fallen in recent years and the sub-Saharan African region
receives only minor inflows of direct investment from around
the world.
That trade between the U.S. and sub-Saharan
Africa, apart from the import of oil, remains an insignificant
part of total U.S. trade.
That trade and investment, as the American
experience has shown, can represent powerful tools for economic
development and for building a stable political environment in
which political freedom can flourish.
That increased trade and investment flows have the
greatest impact in an economic environment in which trading
partners eliminate barriers to trade and capital flows and
encourage the development of a vibrant private sector that
offers individual African citizens the freedom to expand their
economic opportunities and provide for their families.
That offering the countries of sub-Saharan Africa
enhanced trade preferences will encourage both higher levels of
trade and direct investment for the region as well as enhance
commercial and political ties between the United States and
sub-Saharan Africa.
That encouraging the reciprocal reduction of trade
and investment barriers in Africa will enhance the benefits of
trade and investment for the region as well as enhance
commercial and political ties between the United States and
sub-Saharan Africa.

Section 3: Statement of policy

Section 3 of the bill states the support of Congress for:
Encouraging increased trade and investment between
the United States and sub-Saharan Africa.
Reducing tariff and nontariff barriers and other
obstacles to sub-Saharan African and U.S. trade.
Expanding U.S. assistance to sub-Saharan Africa's
regional integration efforts.
Negotiating reciprocal and mutually beneficial
trade agreements, including the possibility of establishing
free trade areas that serve the interests of both the United
States and the countries of sub-Saharan Africa.
Focusing on countries committed to accountable
government, economic reform, and the eradication of poverty.
Strengthening and expanding the private sector in
sub-Saharan Africa.
Supporting the development of civil societies and
political freedom in sub-Saharan Africa.
Establishing a United States-sub-Saharan African
Economic Cooperation Forum.

Section 4: Sub-Saharan Africa defined

Section 4 defines sub-Saharan Africa as the forty-eight
countries listed in that section.

TITLE I: Extension of certain trade benefits to sub-Saharan Africa

Section 101. Eligibility for certain benefits

Section 101 of the bill amends the Generalized System of
Preferences (GSP) program, Title V of the Trade Act of 1974, by
inserting a new section 506A. This new section authorizes the
President to designate certain countries as beneficiary SSA
countrieseligible for certain enhanced benefits under the GSP
program.
In order to be designated as a beneficiary SSA country, and
therefore eligible for the benefits set forth in this section,
a country must satisfy three sets of criteria. First, the
President must find that the sub-Saharan African country has
established or is making continual progress toward
establishing:
A market-based economy, where private property
rights are protected and the principles of an open, rules-based
trading system are observed.
A democratic society, where the rule of law,
political freedom, participatory democracy, and the right to
due process and a fair trial are observed.
An open trading system through the elimination of
barriers to U.S. trade and investment and the resolution of
bilateral trade and investment disputes.
Economic policies to reduce poverty, increase the
availability of health care and educational opportunities,
expand physical infrastructure, and promote the establishment
of private enterprise.
Second, the President must find that the SSA country does
not engage in gross violations of internationally recognized
human rights or provide support for international terrorism and
cooperates in international efforts to eliminate human rights
violations and terrorist activities. Third, the SSA country
must satisfy the eligibility criteria for the GSP program.
Once a country has satisfied the eligibility criteria, it
can be designated by the President as a beneficiary sub-Saharan
African country and receive the enhanced GSP benefits set forth
in this section. The Committee intends that the eligibility
criteria described in section 101 apply only to the new
benefits described in the new section 506A and are not meant to
limit the GSP benefits available to the SSA countries under
current law.
The new section 506A would authorize the President to
provide duty-free treatment for any item, other than textiles
or apparel products or textile luggage, that is designated as
import sensitive under section 503(b)(1) of Title V. The
general rules of origin governing duty-free entry under the GSP
program will continue to apply, except that, in determining
whether products are eligible for the enhanced benefits of the
bill, up to 15 percent of the appraised value of the article at
the time of importation may be derived from materials produced
in the United States. In addition, under the new section 506A,
the value of materials produced in any beneficiary SSA country
may be applied in determining whether the product meets the
applicable rules of origin for purposes of determining the
eligibility of an article to receive the duty-free treatment
provided by this section. Section 101 also amends section
503(c)(2)(D) to waive permanently the competitive need limits
that would otherwise apply to beneficiary SSA countries.
The new section 506A established by section 101 of the Act
also requires the President to monitor, and report annually to
Congress, on the progress the SSA countries have made in
meeting the three categories of eligibility criteria set forth
above. The Committee expects that in the annual report required
in section 105 of this Act, the President will provide an
explanation of his assessment of the progress being made by
each country listed in section 4 toward meeting the stated
eligibility requirements, citing specific examples where
possible.
The new section 506A would require the President to
terminate the designation of a country as a beneficiary SSA
country if that country is not making continual progress in
meeting the eligibility requirements. Any such termination
would be effective on January 1 of the year following the year
in which the determination is made that the eligibility
criteria are no longer met.
Section 101 of this Act will also create a new section
505A, which sets a termination date for the duty-free treatment
provided by this Act as September 30, 2006. It also extends the
general GSP program for SSA countries through September 30,
2006. It further includes a clerical amendment to the table of
contents in title V of the Trade Act of 1974 and sets the
effective date for this Act as October 1, 1999.

Section 102: Treatment of certain textiles and apparel

Section 102 provides beneficiary sub-Saharan African
countries (as designated under the new section 506A of the
Trade Act of 1974 added by section 101 above) with duty-free
and quota-free access to the U.S. market for certain textiles
and apparel products. In order to receive these benefits, a
beneficiary Sub-Saharan African country must (1) adopt an
effective and efficient visa system to guard against unlawful
transshipment of textile and apparel products and the use of
counterfeit documents; and (2) enact legislation or regulations
that would permit the U.S. Customs Service to investigate
thoroughly allegations of transshipment through such country.
Section 5 directs the U.S. Customs Service to provide technical
assistance to the beneficiary sub-Saharan African countries in
complying with these two requirements.
The benefits under section 102 are available only for the
following textile and apparel products:
Apparel articles assembled in beneficiary sub-
Saharan African countries from fabrics wholly formed and cut in
the United States, from yarns wholly formed in the United
States.
Apparel articles cut and assembled in beneficiary
sub-Saharan African countries from fabric wholly formed in the
United States from yarns wholly formed in the United States,
and assembled with thread formed in the United States.
Handloomed, handmade and folklore articles, that
have been certified as such by the competent authority in the
beneficiary sub-Saharan African country.
The Committee expects that only genuinely handcrafted
articles, normally produced in limited quantities, will be
designated as eligible; this provision is not intended to
benefit large-scale, industrial production of textile or
apparel articles. Rather, consistent with the WTO Agreement on
Textiles and Clothing, the Committee intends that the
handloomed, handmade or folklore articles to which the benefits
will apply include only handloom fabrics of the cottage
industry, or hand-made cottage industry products made of such
handloom fabrics, or traditional folklore handicraft textile
and clothing products. In addition, the Committee intends that
textile luggage (i.e., luggage made of textile material
identified in headings 4202.12 and 4202.92 of the Harmonized
Tariff Schedule of the United States) be treated as a textile
product, and therefore it will not be eligible for duty-free or
quota-free treatment under this legislation (except when such
textile luggage has been certified as a handloomed, handmade or
folklore article).
The Committee also intends that this new program of textile
and apparel benefits will be administered in a manner
consistent with the regulations that currently apply under the
``Special Access Program'' for textile and apparel articles
from Caribbean Basin and Andean Trade Preference Act countries,
as described in 63 Fed. Reg. 16474-16476 (April 3, 1998). Thus,
the requirement that products must be assembled from fabric
formed in the United States applies to all textile components
of the assembled products, including linings and pocketing,
subject to the exceptions that currently apply under the
``Special Access Program.''
Section 102 provides that if an exporter is found to have
engaged in transshipment with respect to textile or apparel
products from a beneficiary SSA country, then the President
must deny all benefits under this section and under section 101
of this Act to such exporter, any successor of such exporter,
and any other entity owned or operated by the principal of the
exporter for a period of 2 years.
Section 102 also includes a safeguard measure, authorizing
the President to impose appropriate remedies, including
restrictions on or the removal of quota-free and duty-free
treatment, in the event that imports of textile and apparel
articles from a beneficiary SSA country are being imported in
such increased quantities as to cause serious damage, or actual
threat of such damage, under the Agreement on Textiles and
Clothing (``ATC''). The Committee intends that the injury
standard be the same as set forth under the ATC, even though
the remedies the President may impose under this provision
include withdrawing or restricting both the duty-free and
quota-free treatment provided under this section. With respect
to the imposition of quotas, the intent of the Committee is
that the President exercise his authority under the safeguard
provisions of this section only in a manner consistent with the
ATC; thus, the Committee does not intend that this provision
would authorize the President to impose quotas once they are
eliminated with respect to WTO members under the ATC in 2005.
The benefits provided by this section will be effective
from October 1, 1999 through September 30, 2006.
The benefits available under section 102 with regard to
textiles and apparel products are not provided as a part of the
GSP program. It is not the intent of the Committee that tariff
relief or quota removal for textile and apparel products become
or be treated as benefits provided under the GSP program.

Section 103: United States-Sub-Saharan Africa Trade and Economic
Cooperation Forum

Section 103 of the bill directs the President to establish
a United States-sub-Saharan African Trade and Economic
Cooperation Forum with interested SSA countries. The purpose of
this Forum is to foster close economic ties between the United
States and sub- Saharan Africa by encouraging meetings between
private sector, governmental and nongovernmental leaders to
discuss expanding trade and investment relations between the
United States and sub-Saharan Africa. Section 103 also directs
the President to meet with the heads of the governments of
interested SSA countries for the purpose of discussing
expanding trade and investment relations between the United
States and sub-Saharan Africa.

Section 104: United States-Sub-Saharan African free trade area

Section 104 directs the President to examine, and report
back to the Senate Committee on Finance and the House Committee
on Ways and Means regarding the feasibility of negotiating a
free trade agreement with interested sub-Saharan African
countries. If the President finds that such an agreement is
feasible, then the President must provide a detailed plan for
such negotiation(s) that outlines the objectives, timing,
potential benefits to the United States and sub-Saharan Africa,
and likely economic impact of any such agreement.

Section 105: Reporting requirement

Section 105 directs the President to submit to Congress
each year, for 5 years following enactment of the this Act, a
report on the implementation of this Act.

TITLE II: Revenue Provisions

Section 201. Limit use of non-accrual experience method of accounting
to amounts to be received for the performance of qualified
personal services (sec. 448 of the Internal Revenue Code)

present law

An accrual method taxpayer generally must recognize income
when all the events have occurred that fix the right to receive
the income and the amount of the income can be determined with
reasonable accuracy. An accrual method taxpayer may deduct the
amount of any receivable that was previously included in income
that becomes worthless during the year.
Accrual method taxpayers are not required to include in
income amounts to be received for the performance of services
which, on the basis of experience, will not be collected (the
``non-accrual experience method''). The availability of this
method is conditioned on the taxpayer not charging interest or
a penalty for failure to timely pay the amount charged.
A cash method taxpayer is not required to include an amount
in income until it is received. A taxpayer may not use the cash
method if the purchase, production, or sale of merchandise is a
material income producing factor. Such taxpayers are generally
required to keep inventories and use the accrual method of
accounting. In addition, corporations (and partnerships with
corporate partners) generally may not use the cash method of
accounting if their average annual gross receipts exceed $5
million. An exception to this $5 million rule is provided for
qualified personal service corporations, which are corporations
(1) substantially all of whose activities involve the
performance of services in the fields of health, law,
engineering, architecture, accounting, actuarial science,
performing arts, or consulting and (2) substantially all of the
stock of which is owned by current or former employees
performing such services, their estates, or their heirs.
Qualified personal service corporations may use the cash method
without regard to whether their average annual gross receipts
exceed $5 million.

reasons for change

The Committee understands that the use of the non-accrual
experience method provides the equivalent of a bad debt
reserve, which generally is not available to taxpayers using
the accrual method of accounting. The Committee believes that
accrual method taxpayers should be treated similarly, unless
there is a strong indication that different treatment is
necessary to clearly reflect income or to address a particular
competitive situation.
The Committee understands that accrual basis providers of
qualified personal services (services in the fields of health,
law, engineering, architecture, accounting, actuarial science,
performing arts, or consulting) compete on a regular basis and
on an even footing with competitors using the cash method of
accounting. The Committee believes that this competitive
situation justifies the continued availability of the non-
accrual experience method with respect to amounts to be
received for the performance of qualified personal services.
The Committee believes that it is important to avoid the
disparity of treatment between competing cash and accrual
method providers of qualified personal services that could
result if the non-accrual experience method were eliminated
with regard to amounts to be received for such services.

explanation of provision

The bill provides that the non-accrual experience method
will be available only for amounts to be received for the
performance of qualified personal services. Amounts to be
received for the performance of all other services will be
subject to the general rule regarding inclusion in income.
Qualified personal services are personal services in the fields
of health, law, engineering, architecture, accounting,
actuarial science, performing arts, or consulting. As under
present law, the availability of the method is conditioned on
the taxpayer not charging interest or a penalty for failure to
timely pay the amount.

effective date

The provision is effective for taxable years ending after
the date of enactment. Any change in the taxpayer's method of
accounting necessitated as a result of the proposal will be
treated as a voluntary change initiated by the taxpayer with
the consent of the Secretary of the Treasury. Any required
section 481(a) adjustment is to be taken into account over a
period not to exceed 4 years under principles consistent with
those in Rev. Proc. 98-60. ¹
---------------------------------------------------------------------------
\1\ 1998-51 I.R.B. 16.
---------------------------------------------------------------------------

Section 202. Expand reporting of cancellation of indebtedness income
(sec. 6050P of the Internal Revenue Code)

present law

Under section 61(a)(12), a taxpayer's gross income includes
income from the discharge of indebtedness. Section 6050P
requires ``applicable entities'' to file information returns
with the Internal Revenue Service (IRS) regarding any discharge
of indebtedness of $600 or more.
The information return must set forth the name, address,
and taxpayer identification number of the person whose debt was
discharged, the amount of debt discharged, the date on which
the debt was discharged, and any other information that the IRS
requires to be provided. The information return must be filed
in the manner and at the time specified bythe IRS. The same
information also must be provided to the person whose debt is
discharged by January 31 of the year following the discharge.
``Applicable entities'' include: (1) the Federal Deposit
Insurance Corporation (FDIC), the Resolution Trust Corporation
(RTC), the National Credit Union Administration, and any
successor or subunit of any of them; (2) any financial
institution (as described in sec. 581 (relating to banks) or
sec. 591(a) (relating to savings institutions)); (3) any credit
union; (4) any corporation that is a direct or indirect
subsidiary of an entity described in (2) or (3) which, by
virtue of being affiliated with such entity, is subject to
supervision and examination by a Federal or State agency
regulating such entities; and (5) an executive, judicial, or
legislative agency (as defined in 31 U.S.C. sec. 3701(a)(4)).
Failures to file correct information returns with the IRS
or to furnish statements to taxpayers with respect to these
discharges of indebtedness are subject to the same general
penalty that is imposed with respect to failures to provide
other types of information returns. Accordingly, the penalty
for failure to furnish statements to taxpayers is generally $50
per failure, subject to a maximum of $100,000 for any calendar
year. These penalties are not applicable if the failure is due
to reasonable cause and not to willful neglect.

reasons for change

The Committee believes that it is appropriate to treat
discharges of indebtedness that are made by similar entities in
a similar manner. Accordingly, the Committee believes that it
is appropriate to extend the scope of this information
reporting provision to include indebtedness discharged by any
organization a significant trade or business of which is the
lending of money (such as finance companies and credit card
companies whether or not affiliated with financial
institutions).

explanation of provision

The bill requires information reporting on indebtedness
discharged by any organization a significant trade or business
of which is the lending of money (such as finance companies and
credit card companies whether or not affiliated with financial
institutions).

effective date

The provision is effective with respect to discharges of
indebtedness after December 31, 1999.

III. CONGRESSIONAL ACTION

The Committee considered the legislation in the form of an
original bill on June 22, 1999, and ordered it reported
favorably on the basis of a voice vote.

IV. VOTE OF THE COMMITTEE

In compliance with paragraph 7(b) of rule XXVI of the
Standing Rules of the Senate, the Committee states that the
African Growth and Opportunity Act was ordered favorably
reported by a voice vote on June 22, 1999.

V. BUDGETARY IMPACT

A. Committee Estimates

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
statement is made concerning the estimated budget effects of
the bill.

ESTIMATED BUDGET EFFECTS OF THE ``AFRICAN GROWTH AND OPPORTUNITY ACT,'' AS APPROVED BY THE COMMITTEE ON FINANCE ON JUNE 22, 1999
[Fiscal Years 1999-2009, in millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Provision Effective 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000-2004 2005-2009 2000-2009
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Expansion of Generalized System of 10/1/99...................... ...... -46 -43 -44 -46 -49 -52 -56 ...... ...... ...... -228 -108 -336
Preferences to Sub-Saharan Africa\1\.
Revenue Offset Provisions:
1. Limit use of non-accrual tyea DOE..................... 12 77 60 33 28 10 12 14 16 18 20 208 80 288
experience method of accounting
to amounts to be received for
the performance of qualified
professional services.
2. Information reporting on coda 12/31/99................ ...... ...... 7 7 7 7 7 7 7 7 7 28 35 63
cancellation of indebtedness by
non-bank financial institutions.
---------------------------------------------------------------------------------------------------------------------------
Net total...................... ............................. 12 31 24 -4 -11 -32 -33 -35 23 25 27 7 8 15
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimate provided by the Congressional Budget Office.

Note: Details may not add to totals due to rounding.

Legend for ``Effective'' column: coda=cancellation of indebtedness after; DOE=date of enactment; and tyea=taxable years ending after.

Source: Joint Committee on Taxation.

B. Budget Authority and Tax Expenditures

1. Budget authority

In accordance with section 308(a)(1) of the Budget Act the
Committee states that the African Growth and Opportunity Act
involves no new or increased budget authority.

2. Tax expenditures

In accordance with section 308(a)(2) of the Budget Act, the
Committee states that the African Growth and Opportunity Act
will result in no change in tax expenditures over the period
fiscal years 1999-2009.

C. Consultation with Congressional Budget Office

In accordance with section 403 of the Budget Act, the
Committee advises that the Congressional Budget Office has
submitted the following statement on the budgetary impact of
the African Growth and Opportunity Act:

U.S. Congress,
Congressional Budget Office,
Washington, DC, July 15, 1999.
Hon. William V. Roth, Jr.,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for the African Growth and
Opportunity Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Hester
Grippando.
Sincerely,
Dan L. Crippen,
Director.
Enclosure.

African Growth and Opportunity Act

Summary: The African Growth and Opportunity Act would
authorize a new trade and investment policy for sub-Saharan
Africa. The bill would extend and expand the Generalized System
of Preferences (GSP) with respect to sub-Saharan Africa beyond
its current expiration of June 30, 1999, through September 30,
2006. The legislation would also amend the Internal Revenue
Code in order to limit the use of the nonaccrual experience
method of accounting and to require information reporting on
cancellations of indebtedness by nonbank financial
institutions. CBO and the Joint Committee on Taxation (JCT)
estimate that the bill would increase governmental receipts by
$23 million over the 1999-2004 period. Because the bill would
affect receipts, pay-as-you-go procedures would apply.
In addition, the bill could increase discretionary spending
by an average of about $2 million a year, assuming
appropriation of the necessary amounts. The legislation would
authorize annual high-level meetings between officials of the
United States government and their counterparts of sub-Saharan
countries eligible for benefits under the bill. The bill would
increase the number of foreign commercial service employees
stationed in Africa. The legislation would require the creation
of advisory committees and expanded reporting on trade and
investment policy with sub-Saharan Africa.
The bill contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (URMA) and would not affect
the budgets of state, local, or tribal governments. The
legislation would impose two new private-sector mandates by
limiting the use of the nonaccrual experience method of
accounting and by requiring information reporting on
cancellations of indebtedness by nonbank financial
institutions. JCT estimates that the direct costs of the new
mandates would not exceed the statutory threshold ($100 million
in 1996, adjusted annually for inflation) established by UMRA
in each of fiscal years 1999 through 2004.
Estimated cost of the Federal Government: The estimated
budgetary impact of the bill is shown in the following table.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
-----------------------------------------------
1999 2000 2001 2002 2003 2004
----------------------------------------------------------------------------------------------------------------

Changes in revenues

Trade Provisions:
Extension of GSP............................................ 0 -40 -33 -34 -36 -38
Expansion of GSP............................................ 0 -3 -10 -10 -10 -11
-----------------------------------------------
Subtotal of Trade Provisions.............................. 0 -43 -43 -44 -46 -49
Revenue Offset Provisions....................................... 12 77 67 40 35 17
-----------------------------------------------
Net Effect on Revenues.......................................... 12 34 24 -4 -11 -32

Changes in spending subject to appropriation

Estimated Authorization Level................................... 0 3 2 3 3 3
Estimated Outlays............................................... 0 2 3 2 2 2
----------------------------------------------------------------------------------------------------------------

Basis of estimate

Revenues
The bill would extend GSP, which expired on June 30, 1999,
for sub-Saharan Africa on October 1, 1999, through September
30, 2006. The bill would allow for refunds for GSP-eligible
goods entered between June 30, 1999, and October 1, 1999. The
estimate of extending the existing GSP program with respect to
sub-Saharan Africa was based on recent trade data imports for
U.S. consumption of goods from eligible countries. CBO assumes
that GSP imports would remain a constant portion of total
imports. CBO estimates a trade diversion of one-half of a
percentage point from non-sub-Saharan African GSP beneficiaries
who will no longer receive duty-free GSP treatment. Losses of
revenues from customs duties were projected using a trade-
weighted duty rate with respect to sub-Saharan Africa adjusted
for tariff reductions scheduled by the World Trade Organization
(WTO). CBO estimates that extending the existing GSP program
with respect to sub-Saharan Africa would reduce governmental
receipts by $182 million over the 2000-2004 period.
The current GSP excludes articles determined by the U.S.
Trade Representative (USTR) to be import sensitive from
receiving duty-free GSP treatment. The bill would allow
countries of sub-Saharan Africa to ask the President to
redetermine import sensitivity of GSO-excludedimports in the
context of imports from sub-Saharan Africa. Based on discussions with
the International Trade Commission (ITC), CBO identified products that
are now import-sensitive but are likely not to be considered import-
sensitive with respect to sub-Saharan Africa. USTR expects that the
program to grant additional sub-Saharan African imports duty-free GSP
treatment will not be implemented until eight months after the
enactment of the law on October 1, 1999. CBO does not expect that sub-
Saharan Africa will receive duty-free treatment for these articles
prior to May 1, 2000. Using trade-weighted duty rates adjusted for
reductions scheduled by the WTO, CBO estimates that this provision
would reduce receipts by $39 million over the 2000-2004 period.
Current law also excludes from duty-free treatment a list
of specific products, including apparel, textiles, footwear,
leather goods, glass, certain electronic products, and watches.
The legislation would extend duty-free treatment to these
products if the USTR determines that they are not import
sensitive with respect to sub-Saharan Africa. CBO based its
estimate of the loss of duties that would result from granting
these goods duty-free GSP treatment on recent collections data.
CBO assumed that under existing law, imports of these products
would grow at the same rate as total non-petroleum imports.
United States imports of footwear, leather goods, glass,
certain electronic products, and watches from sub-Saharan
Africa are insignificant compared with United States imports of
similar goods from other countries. CBO assumes that the USTR
will not rule these products import-sensitive. The bill would
also authorize the administration to grant duty-free and quota-
free treatment to apparel products assembled in sub-Saharan
Africa from fabrics wholly formed and cut in the United States
from yarn wholly formed in the United States. CBO estimates
that almost no apparel imports would qualify for special
treatment under this provision. CBO projects that granting
these additional products duty-free GSP treatment would reduce
receipts by $5 million over the 2000-2004 period.
All other revenue provisions in the bill were estimated by
JCT.
Spending subject to appropriation
CBO estimates that implementing the legislation would
increase discretionary spending by $3 million in fiscal year
2000 and between $2 million and $2.5 million each year
thereafter, assuming appropriation of the necessary amounts.
The bill would authorize the U.S. Trade Representative and
the Secretaries of Commerce, Treasury, and State to meet with
their counterparts from sub-Saharan African countries in an
annual trade and economic forum. It would require the United
States to host the first forum within 12 months of enactment.
Based on the cost of similar meetings, CBO estimates the
meetings would cost $2 million a year.
The legislation includes several reporting requirements. It
would require the Administration to determine whether sub-
Saharan countries are eligible to benefit from the bill's
preferential trade provisions and to monitor their compliance
with certain requirements. The bill also would require the
Customs Service to provide technical assistance to sub-Saharan
African countries that benefit from the preferential trade
provisions. To some extent, the Administration already performs
these responsibilities under current law. CBO estimates that,
subject to the availability of appropriated funding,
implementing these provisions would cost about $1 million in
fiscal year 2000 and less than $500,000 each year thereafter.
The estimated cost for fiscal year 2000 is higher because the
bill would require the administration to complete a one-time
study of the feasibility of negotiating free-trade agreements
with interested sub-Saharan countries. If the President
determines that such agreements are feasible, the bill would
require him to submit a detailed plan for such negotiations to
the Congress.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. For the
purpose of enforcing pay-as-you-go procedures, only the effects
in the current year, the budget year, and the succeeding four
years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
By Fiscal Year, in Millions of Dollars
---------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts............................................. 12 34 24 -4 -11 -32 -33 -35 23 25 27
Changes in outlays.............................................. (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Not applicable.

Estimated impact on State, local, and tribal governments:
The bill contains no intergovernmental mandates as defined in
UMRA and would not affect the budgets of state, local, or
tribal governments.
Estimated impact on the private sector: JCT has determined
that the bill would impose two new private-sector mandates by
limiting the use of the nonaccrual experience method of
accounting and by requiring information reporting on
cancellations of indebtedness by nonbank financial
institutions. JCT estimates that the direct costs of the new
mandates would not exceed the statutory threshold ($100 million
in 1996, adjusted annually for inflation) established in UMRA
in each of fiscal years 1999 and though 2004.
Estimated prepared by: Federal revenues: Hester Grippando;
Federal spending: Mark Grabowicz, Sunita D'Monte, and John
Righter.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis and Paul N. Van de Water, Assistant
Director for Budget Analysis.

VI. REGULATORY IMPACT AND UNFUNDED MANDATES

A. Regulatory Impact

In accordance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
statement concerning the regulatory impact of the African
Growth and Opportunity Act:

1. Impact on individuals and businesses

The Committee states that the non-revenue offset portion of
this Act does not alter any of the substantive or procedural
requirements of the programs involved and would not, as a
consequence, involve any new paperwork or regulatory burdens on
individuals.
The Committee further states that the bill provides the
following revenue offsets: (1) a limitation on the use of the
non-accrual experience method of accounting to amounts to be
received for the performance of qualified professional
services, effective for taxable years ending after the date of
enactment; and (2) a provision for information reporting on
cancellation of indebtedness after December 31, 1999. The
revenue offset provisions will increase the tax burden on the
affected taxpayers.

2. Impact on personal privacy and paperwork

The African Growth and Opportunity Act will have no impact
on personal privacy or paperwork.

B. Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).
The Committee on Finance has reviewed the provisions of the
African Growth and Opportunity Act as approved by the Committee
on June 22, 1999. In accordance with the requirements of Public
Law 104-4, the Committee has determined that the following
provisions of the bill contain Federal private sector mandates:
The use of the non-accrual experience method of
accounting is limited to amounts to be received for the
performance of qualified professional services.
Expand reporting of cancellation of indebtedness
income.
The Committee has determined that it is necessary to
include these provisions in the bill to provide revenue offsets
for the trade initiatives approved by the Committee.

C. Tax Complexity Analysis

Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the IRS Reform Act) requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of the Treasury) to provide
a tax complexity analysis. The complexity analysis is required
for all legislation reported by the Senate Committee on
Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
(the Code) and has widespread applicability to individuals or
small businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that amend the Internal Revenue Code and that have
widespread applicability to individuals or small businesses.

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 ACT OF 1974

* * * * * * *

table of contents

* * * * * * *

title v--generalized system of preferences

Sec. 501. Authority to extend preferences.
Sec. 502. Designation of beneficiary developing countries.
Sec. 503. Designation of eligible articles.
Sec. 504. Review and reports to Congress.
Sec. 505. Date of termination.
Sec. 505A. Termination of benefits for sub-Saharan African countries.
Sec. 506. Agricultural exports of beneficiary developing countries.
Sec. 506A. Designation of sub-Saharan African countries for certain
benefits.
Sec. 507. Definitions.

SEC. 503. DESIGNATION OF ELIGIBLE ARTICLES.

* * * * * * *

(2) Competitive need limitation.--

* * * * * * *

(D) Least-developed beneficiary developing countries and
beneficiary sub-saharan african countries._Subparagraph (A)
shall not apply to any least-developed beneficiary developing
country or any beneficiary sub-saharan African country.

* * * * * * *

SEC. 505. DATE OF TERMINATION.

* * * * * * *

SEC. 505A. TERMINATION OF BENEFITS FOR SUB-SAHARAN AFRICAN COUNTRIES.

In the case of a country listed in section 4 of the African
Growth and Opportunity Act that is a beneficiary developing
country, duty-free treatment provided under this title shall
remain in effect through September 30, 2006.

* * * * * * *

SEC. 506. AGRICULTURAL EXPORTS OF BENEFICIARY DEVELOPING COUNTRIES.

* * * * * * *

SEC. 506A. DESIGNATION OF SUB-SAHARAN AFRICAN COUNTRIES FOR CERTAIN
BENEFITS.

(a) Authority To Designate.--
(1) In general.--Notwithstanding any other provision
of law, the President is authorized to designate a
country listed in section 4 of the African Growth and
Opportunity Act as a beneficiary sub-Saharan African
country eligible for the benefits described in
subsection (b), if the President determines that the
country--
(A) has established, or is making continual
progress toward establishing--
(i) a market-based economy, where
private property rights are protected
and the principles of an open, rules-
based trading system are observed;
(ii) a democratic society, where the
rule of law, political freedom,
participatory democracy, and the right
to due process and a fair trail are
observed;
(iii) an open trading system through
the elimination of barriers to United
States trade and investment and the
resolution of bilateral trade and
investment disputes; and
(iv) economic policies to reduce
poverty, increase the availability of
health care and educational
opportunities, expand physical
infrastructure, and promote the
establishment of private enterprise;
(B) does not engage in gross violations of
internationally recognized human rights or
provide support for acts of international
terrorism and cooperates in international
efforts to eliminate human rights violations
and terrorist activities; and
(C) subject to the authority granted to the
President under section 502 (a), (d), and (e),
otherwise satisfies the eligibility criteria
set forth in section 502.
(2) Monitoring and review of certain countries.--The
President shall monitor and review the progress of each
country listed in section 4 of the African Growth and
Opportunity Act in meeting the requirements described
in paragraph (1) in order to determine the current or
potential eligibility of each country to be designated
as a beneficiary sub-Saharan African country for
purposes of sub-section (a). The President shall
include the reasons for the President's determinations
in the annual report required by section 105 of the
African Growth and Opportunity Act.
(3) Continuing compliance.--If the President
determines that a beneficiary sub-Saharan African
country is not making continual progress in meeting the
requirements described in paragraph (1), the President
shall terminate the designation of that country as a
beneficiary sub-Saharan African country for purposes of
this section, effective on January 1 of the year
following the year in which such determination is made.
(b) Preferential Tariff Treatment for Certain Articles.--
(1) In general.--The President may provide duty-free
treatment for any article described in section
503(b)(1) (B) through (G) (except for textile luggage)
that is the growth, product, or manufacture of a
beneficiary sub-Saharan African country described in
subsection (a), if, after receiving the advice of the
International Trade Commission in accordance with
section 503(e), the President determines that such
article is not import-sensitive in the context of
imports from beneficiary sub-Saharan African countries.
(2) Rules of origin.--The duty-free treatment
provided under paragraph (1) shall apply to any article
described in that paragraph that meets the requirements
of section 503(a)(2), except that--
(A) if the cost or value of materials
produced in the customs territory of the United
States is included with respect to that
article, an amount not to exceed 15 percent of
the appraised value of the article at the time
it is entered that is attributed to such United
States cost or value may be applied toward
determining the percentage referred to in
subparagraph (A) of section 503(a)(2); and
(B) the cost or value of the materials
included with respect to that article that are
produced in one or more beneficiary sub-Saharan
African countries shall be applied in
determining such percentage.
(c) Beneficiary Sub-Saharan African Countries, Etc.--For
purposes of this title, the terms ``beneficiary sub-Saharan
African country'' and ``beneficiary sub-Saharan African
countries'' mean a country or countries listed in section 4 of
the African Growth and Opportunity Act that the President has
determined is eligible under subsection (a) of this section.

* * * * * * *

INTERNAL REVENUE CODE OF 1986

* * * * * * *

SEC. 448. LIMITATION ON USE OF CASH METHOD OF ACCOUNTING.

(a) General Rule.--Except as otherwise provided in this
section, in the case of a--

* * * * * * *

(d) Definitions and Special Rules.--For purposes of this
section--

* * * * * * *

(5) Special rule for certain personal services.--In
the case of any person using an accrual method of
accounting with respect to amounts to be received for
the performance of services by such person in fields
described in paragraph (2)(A), such person shall not be
required to accrue any portion of such amounts which
(on the basis of experience) will not be collected.
This paragraph shall not apply to any amount if
interest in required to be paid on such amount or there
is any penalty for failure to timely pay such amount.

* * * * * * *

SEC. 6050P. RETURNS RELATING TO THE CANCELLATION OF INDEBTEDNESS BY
CERTAIN ENTITIES.

* * * * * * *

(1) Applicable entity.--The term ``applicable
entity'' means
(A) an executive, judicial, or legislative
agency (as defined in section 3701(a)(4) of
title 31, United States Code), and
(B) an applicable financial entity.
(2) Applicable financial entity.--The term
``applicable entity'' means--
(A) any financial institution described in
section 581 or 591(a) and any credit union,
(B) the Federal Deposit Insurance
Corporation, the Resolution Trust Corporation,
the National Credit Union Administration, and
any other Federal executive agency (as defined
in section 6050M), and any successor or subunit
of any of the foregoing, [and]
(C) any other corporation which is a direct
or indirect subsidiary of an entity referred to
in subparagraph (A) but only if, by virtue of
being affiliated with such entity, such other
corporation is subject to supervision and
examination by a Federal or State agency which
regulates entities referred to in subparagraph
(A)[.] and
(D) any organization a significant trade or
business of which is the lending of money.

* * * * * * *