[Senate Report 106-160]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 214
106th Congress                                                   Report
                                 SENATE
 1st Session                                                    106-160

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



 
        THE UNITED STATES-CARIBBEAN BASIN TRADE ENHANCEMENT ACT

                                _______
                                

               September 16, 1999.--Ordered to be printed

                                _______


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

                              R E P O R T

                         [To accompany S. 1389]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, having considered legislation to 
provide additional trade benefits to certain beneficiary 
countries in the Caribbean Basin, reports favorably thereon and 
refers the bill to the full Senate with a recommendation that 
the bill do pass.

                             I. BACKGROUND

    Congress enacted the Caribbean Basin Economic Recovery Act 
(``CBERA'') in 1983 to respond to an economic crisis in Central 
America and the Caribbean. The principal U.S. response to that 
crisis under CBERA was a broad grant of unilateral tariff 
preferences to qualifying beneficiary countries.
    In order to qualify, the beneficiary country had to request 
the opportunity to participate. The President then determined 
whether the country was eligible based on a variety of factors, 
including, among others, the country's commitment to afford the 
United States equitable and reasonable market access, the 
country's participation (at the time) in the General Agreement 
on Tariffs and Trade (GATT), its willingness to accept subsidy 
disciplines, the extent to which the country afforded adequate 
intellectual property protection, whether or not the country 
had taken steps to afford internationally recognized worker 
rights, and the extent to which the country's economic policies 
would contribute to the goals of the Caribbean Basin 
Initiative, or ``CBI'' as it is widely known.
    The original grant of preferences was limited to a period 
of 12 years. It covered virtually all trade with the CBI 
countries with the exception of textiles and apparel, canned 
tuna, petroleum and petroleum products, and certain watches and 
watch parts, handbags, luggage, flat goods such as wallets, 
change purses and key and eyeglass cases, work gloves and 
leather wearing apparel.
    The current CBI beneficiaries include Antigua and Barbuda, 
Aruba, Bahamas, Barbados, Belize, Costa Rica, Dominica, 
Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, 
Haiti, Honduras, Jamaica, Montserrat, Netherlands Antilles, 
Nicaragua, Panama, Saint Kitts and Nevis, Saint Lucia, Saint 
Vincent and the Grenadines, Trinidad and Tobago, and the 
British Virgin Islands.
    In 1990, Congress passed the Caribbean Basin Economic 
Recovery Expansion Act of 1990, the so-called ``CBI II.'' That 
Act made the unilateral grant of preferences permanent. It also 
expanded the tariff preferences. CBI II permitted the President 
to proclaim a tariff reduction of 20 percent (but not more than 
2.5 percent ad valorem on any article) in tariffs applicable to 
a subset of the previously excluded products--handbags, 
luggage, flat goods, work gloves, and leather wearing apparel. 
CBI II also allowed for duty-free treatment on articles, other 
than textiles and petroleum-based products, if made from U.S. 
fabricated components.
    In 1993, the United States, Canada, and Mexico signed the 
North American Free Trade Agreement (NAFTA). Among the 
commitments made by the United States to Mexico were the sharp 
reduction in duties and quantitative limits applicable to 
products ineligible for CBI treatment, including textiles and 
apparel. This bill is intended to afford CBI beneficiaries 
treatment akin to that afforded Mexican products in order to 
avoid undermining investment in the Caribbean Basin based on 
preferences previously available under the CBI.
    Like the CBI II, enacted in 1990, this legislation would 
expand the existing CBI by providing for additional tariff 
preferences on a number of products not previously covered by 
the program. Those benefits, however, are conditioned on the 
eligible beneficiary countries' trade policies, their 
participation and cooperation in the Free Trade Area of the 
Americas (FTAA) or other comparable trade initiatives, as well 
as certain non-trade factors provided for in the legislation.
    In the 105th Congress, the Ways and Means Committee ordered 
the United States-Caribbean Trade Partnership Act to be 
reported to the House of Representatives on October 9, 1997. 
The House voted on the bill on November 4, 1997, and it failed 
by a vote of 182-234.
    In the Senate, the Finance Committee reported out a version 
of the United States-Caribbean Trade Enhancement Act as an 
original bill (S. 1278) on October 9, 1997, and again as a part 
of a larger trade bill (S. 2400) on July 21, 1998. The Senate 
did not take action on it.

                     II. GENERAL DESCRIPTION OF ACT


Section 1. Short title; table of contents

    Section 1 provides that, if enacted, the measure may be 
cited as the ``United States-Caribbean Basin Trade Enhancement 
Act.'' It also lays out a table of contents for the Act.

Section 2. Findings and policy

    The findings contained in section 2 of the bill set out the 
underlying rationale for expansion of the CBI program. The 
over-arching purpose of the Act is to provide opportunities for 
the beneficiary countries to enhance their economic development 
and integration into the international trading system, while 
providing expanded export opportunities for U.S. goods as a 
result of the increased trade and economic growth that the 
enhanced CBI program is designed to foster. The findings 
underscore that point, as well as emphasize the United States' 
commitment to encouraging the development of strong democratic 
governments and revitalized economies throughout the region.
    The policy provisions of section 2 reflect the policy of 
the United States to encourage CBI beneficiaries to become a 
party to the FTAA or a comparable trade agreement at the 
earliest possible date. The provisions make the preferences 
afforded under this Act expressly contingent on a CBI 
beneficiary country's willingness to join the United States in 
those initiatives.

Section 3. Definitions

    Section 3 provides certain definitions applicable to the 
provisions of the Act, including definitions of ``beneficiary 
country,'' ``CBTEA,'' ``NAFTA,'' ``NAFTA country,'' ``WTO,'' 
and ``WTO member.''

         TITLE I--TRADE BENEFITS FOR CARIBBEAN BASIN COUNTRIES

Section 101. Temporary provisions to provide additional trade benefits 
        to certain beneficiary countries

    This section amends subsection 213(b) of the CBERA to 
provide a tariff preference to imports from the Caribbean Basin 
of products previously excluded from the CBI, including certain 
textile and apparel products, footwear, canned tuna, petroleum 
and derivatives, watches and watch parts. This legislation 
would establish a ``transition period'' of over five years from 
October 1, 1999 through December 31, 2004, during which 
additional tariff preferences could be made available on 
certain of those items.
    Eligibility for the program is left to the discretion of 
the President, but the proposal would provide very specific 
guidance as to the criteria the President should apply in 
making that determination. The starting point under this Act is 
compliance with the eligibility criteria set out in the 
original CBERA. This Act would add certain trade-related 
criteria, such as the extent to which the beneficiary country 
fully implements the various Uruguay Round agreements, whether 
the beneficiary country affords adequate intellectual property 
protection and protection to U.S. investors, and the extent to 
which the country applies internationally accepted rules on 
government procurement and customs valuation.
    This section also adds other criteria that reflect 
important U.S. initiatives. They include, among others, the 
extent to which the country has become a party to and 
implements the Inter-American Convention Against Corruption, is 
or becomes a party to a convention regarding the extradition of 
its nationals, satisfies the criteria for counter-narcotics 
certification under section 490 of the Foreign Assistance Act 
of 1961, and provides internationally recognized worker rights.
    Section 101(c) amends current reporting requirements and 
imposes new reporting requirements for the United States Trade 
Representative. First, it amends section 212(f) of the 
Caribbean Basin Economic Recovery Act (19 U.S.C. 2702(f)) to 
oblige the United States Trade Representative to report not 
later than December 31, 2001, and every two years thereafter 
while the program is in effect on the performance of each 
beneficiary country in meeting the applicable criteria. Before 
submitting such report, the United States Trade Representative 
must seek public comment. Second, it amends the reporting 
requirement in section 203(f) of the Andean Trade Preference 
Act (19 U.S.C.(f)) to oblige the United States Trade 
Representative to report on the operation of the ATPA on an 
annual basis beginning March 31, 2000.
    Section 101(d) amends current reporting requirements and 
imposes new reporting requirements for the International Trade 
Commission. First, it amends Section 215(a) of the Caribbean 
Basin Economic Recovery Act (19 U.S.C. 2704(a)) to oblige the 
United States International Trade Commission to assess the 
impact of the various CBI programs on U.S. industries, 
consumers, and the beneficiary countries in biennial reports 
beginning September 30, 2001. Second, it amends the Andean 
Trade Preference Act to require the U.S. International Trade 
Commission to submit biennial reports regarding the economic 
impact of the ATP on U.S. industries and consumers and the 
ATPA's effectiveness in promoting drug-related crop eradication 
and crop substitution efforts of the beneficiary countries. 
This report shall be submitted on a biennial basis on December 
31, alternating with the report required by section 215 of the 
CBERA.
    The preferences offered under this Act are divided between 
those made available for imports of certain textile and apparel 
products and those available for all other products covered by 
the legislation.
            Textiles
    With respect to textiles, this legislation adopts an 
approach consistent with that of the CBI II, one that will both 
provide expanded benefits to the CBI beneficiaries' apparel 
industry while affording new opportunities for U.S. textile, 
yarn, and thread producers. Section 101 would extend immediate 
duty-free and quota-free treatment to the following products:
          (1) apparel articles assembled in an eligible CBI 
        beneficiary country from U.S. fabrics wholly formed 
        from U.S. yarns and cut in the United States that would 
        enter the United States under Harmonized Tariff 
        Schedule (HTS) item number 9802.00.80 (a provision that 
        otherwise allows an importer to pay duty solely on the 
        value-added abroad when U.S. components are shipped 
        abroad for assembly and re-imported into the United 
        States);
          (2) apparel articles entered under chapters 61 and 62 
        of the HTS where they would have qualified for HTS 
        9802.00.80 treatment but for the fact that the articles 
        were subjected to certain types of washing and 
        finishing;
          (3) apparel articles cut and assembled in the 
        eligible CBI country from U.S. fabric formed from U.S. 
        yarn and sewn in the Caribbean with U.S. thread;
          (4) handloomed, handmade and folklore articles 
        originating in the CBI beneficiary country;
          (5) textile luggage assembled in an eligible CBI 
        beneficiary country from U.S. fabrics wholly formed 
        from U.S. yarns and cut in the United States that would 
        enter the United States under Harmonized Tariff 
        Schedule (HTS) item number 9802.00.80; and
          (6) textile luggage cut and assembled in the eligible 
        CBI country from U.S. fabric formed from U.S. yarn and 
        sewn in the Caribbean with U.S. thread.
    With respect to handloomed, handmade, and folkloric items, 
section 101 provides that the President, in consultation with 
the relevant beneficiary country, will determine which, if any, 
particular textile and apparel articles are to be treated as 
handloomed, handmade or folklore goods eligible for trade 
preferences under this program. 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 and with the provisions of 
the NAFTA, 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 handcraft textile and clothing products.
    As regards textile luggage, the Committee intends that the 
program cover items covered by two categories of the Harmonize 
Tariff Schedule of the United States (``HTS''). The program 
would cover luggage made of textile materials identified in 
headings 4202.12 and 4202.92 of the HTS.
    The Committee intends that the 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 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 101 would allow for the snapback of the tariff 
preferences provided under this section in the event of surges 
in imports that could cause serious damage to the U.S. industry 
producing a like product in the United States. To ensure that 
the preferences made available under this Act do not lead to 
the transshipment of textile and apparel products from other 
countries where the goods would be subject to U.S. quotas, this 
section includes two provisions penalizing such actions.
    First, it would penalize exporters found, on the basis of 
sufficient evidence, to have engaged in transshipment--all 
benefits under the program would be denied for a period of two 
years. Second, any country that was found, on the basis of 
sufficient evidence, to have failed to take action to prevent 
transshipment after a specific request for assistance in that 
regard from the President would have its exports reduced by 
three times the quantities found to have been transshipped. The 
Committee intends the ``sufficient evidence'' standard used 
here to be the same as that applied under Article 5:4 of the 
Agreement on Textiles and Clothing administered by the World 
Trade Organization (WTO).
            Other products
    On all other products covered by this Act (footwear, canned 
tuna, petroleum and derivatives, and watches and watch parts, 
and certain leather goods), the program would provide an 
immediate reduction in tariffs equal to the preference Mexican 
products enjoy under NAFTA. In other words, the applicable duty 
paid by importers on such goods would be equal to the duty 
applicable to the same goods if entered from Mexico.
    In order for their products to qualify for the preferences 
afforded under this Act, whether applied to textiles and 
apparel or other products, the beneficiary country must comply 
with customs procedures equivalent to those required under the 
NAFTA.

Section 102. Adequate and effective protection for intellectual 
        property rights

    Section 102 of this Act clarifies that, for purposes of 
assessing whether a CBI beneficiary is offering adequate 
intellectual property protection, compliance with the WTO 
Agreement on Trade-Related Aspects of Intellectual Property is 
not determinative.

                      TITLE II--REVENUE PROVISIONS

Section 201. Temporary increase in amount of rum excise tax that is 
        covered over to Puerto Rico and the U.S. Virgin Islands (sec. 
        7652 of the Internal Revenue Code (I.R.C.))

                              Present Law

    A $13.50 per proof gallon 1 excise tax is 
imposed on distilled spirits produced in or imported (or 
brought) into the United States (I.R.C. sec. 5001). The excise 
tax does not apply to distilled spirits that are exported from 
the United States or to distilled spirits that are consumed in 
U.S. possessions (e.g., Puerto Rico and the Virgin Islands).
---------------------------------------------------------------------------
    \1\ A proof gallon is a liquid gallon consisting of 50 percent 
alcohol.
---------------------------------------------------------------------------
    The Code provides for cover over (payment) to Puerto Rico 
and the Virgin Islands of $10.50 per proof gallon of the excise 
tax imposed on rum imported (or brought) into the United States 
(without regard to the country of origin) (I.R.C. sec. 7652). 
During the 5-year period ending on September 30, 1998, the 
amount covered over was $11.30 per proof gallon. This temporary 
increase was enacted in 1993 as transitional relief 
accompanying a reduction in certain tax benefits for 
corporations operating in Puerto Rico and the Virgin Islands 
(I.R.C. sec. 936).
    Amounts covered over to Puerto Rico and the Virgin Islands 
were deposited in the treasuries of the two possessions for use 
as those possessions determine.

                           Reasons for Change

    The Committee determined that an increase in the amount of 
rum excise taxes covered over to Puerto Rico and the Virgin 
Islands is appropriate in light of the trade concessions 
included in the bill for Caribbean Basin nations.

                        Explanation of Provision

    The bill increases from $10.50 to $13.50 per proof gallon 
the amount of excise taxes collected on rum brought into the 
United States that is covered over to Puerto Rico and the U.S. 
Virgin Islands.
    The bill further provides that $0.50 per proof gallon of 
the amount covered over to Puerto Rico will be transferred to 
the Puerto Rico Conservation Trust, a private, non-profit 
section 501(c)(3) organization operating in Puerto Rico.

                             Effective Date

    The provision is effective for excise taxes collected on 
rum imported or brought into the United States from July 1, 
1999, through September 30, 1999.

Section 202. Modify installment method and prohibit its use by accrual 
        method taxpayers (secs. 453 and 453A of the Internal Revenue 
        Code)

                              Present Law

    An accrual method taxpayer is generally required to 
recognize income when all the events have occurred that fix the 
right to the receipt of the income and the amount of the income 
can be determined with reasonable accuracy. The installment 
method of accounting provides an exception to this general 
principle of income recognition by allowing a taxpayer to defer 
the recognition of income from the disposition of certain 
property until payment is received. Sales to customers in the 
ordinary course of business are not eligible for the 
installment method, except for sales of property used or 
produced in the trade or business of farming and sales of 
timeshares and residential lots if an election to pay interest 
under section 453(l)(2)(B) is made.
    A pledge rule provides that if an installment obligation is 
pledged as security for any indebtedness, the net proceeds 
2 of such indebtedness are treated as a payment on 
the obligation, triggering the recognition of income. Actual 
payments received on the installment obligation subsequent to 
the receipt of the loan proceeds are not taken into account 
until such subsequent payments exceed the loan proceeds that 
were treated as payments. The pledge rule does not apply to 
sales of property used or produced in the trade or business of 
farming, to sales of timeshares and residential lots where the 
taxpayer elects to pay interest under section 453(l)(2), or to 
dispositions where the sales price does not exceed $150,000.
---------------------------------------------------------------------------
    \2\ The net proceeds equal the gross loan proceeds less the direct 
expenses of obtaining the loan.
---------------------------------------------------------------------------
    An additional rule requires the payment of interest on the 
deferred tax that is attributable to most large installment 
sales.

                           Reasons for Change

    The Committee believes that the installment method is 
inconsistent with the use of the accrual method of accounting 
and should not be allowed in situations where the disposition 
of property would otherwise be reported using the accrual 
method. The Committee is concerned that the continued use of 
the installment method in such situations would allow a 
deferral of gain that is inconsistent with the requirement of 
the accrual method that income be reported in the period it is 
earned, rather than the period it is received.
    The Committee also believes that the installment method, 
where its use is appropriate, should not serve to defer the 
recognition of gain beyond the time when funds are received. 
Accordingly, the Committee believes that proceeds of a loan 
should be treated in the same manner as a payment on an 
installment obligation if the loan is dependent on the 
existence of the installment obligation, such as where the loan 
is secured by the installment obligation or can be satisfied by 
the delivery of the installment obligation.
    The Committee recognizes that special considerations exist 
in the disposition of property that is used or produced in the 
trade or business of farming, as well as certain dispositions 
of timeshares and residential lots where an election is made to 
pay interest on deferred taxes. The Committee does not believe 
that the rules applicable to such situations should be modified 
at this time.

                        Explanation of Provision


Use of the installment method for accrual method dispositions

    The installment method of accounting generally may not be 
used for dispositions of property that otherwise would be 
reported for Federal income tax purposes using an accrual 
method of accounting. The bill does not change present law 
regarding the availability of the installment method for 
dispositions of property used or produced in the trade or 
business of farming. The bill also does not change present law 
regarding the availability of the installment method for 
dispositions of timeshares and residential lots if the taxpayer 
elects to pay interest under section 453(l)(2).
    The bill does not change the ability of a cash method 
taxpayer to use the installment method. For example, a cash 
method individual who owns all of the stock of a closely held 
accrual method corporation sells his stock for cash, a ten year 
note, and a percentage of the gross revenues of the company for 
the next ten years. Because the individual would otherwise 
report the disposition of the stock on the cash method, his 
ability to use the installment method in reporting the gain on 
the sale of the stock is not affected.

Modify pledge rule

    The bill also modifies the pledge rule to provide that 
entering into any arrangement that gives the taxpayer the right 
to satisfy an obligation with an installment note will be 
treated in the same manner as the direct pledge of the 
installment note. For example, a taxpayer disposes of property 
for an installment note. The disposition is properly reported 
using the installment method. The taxpayer only recognizes gain 
as it receives the deferred payments. However, were the 
taxpayer to pledge the installment note as security for a loan, 
the taxpayer would be required to treat the proceeds of such 
loan as a payment on the installment note and recognize the 
appropriate amount of gain. Under the bill, the taxpayer would 
also be required to treat the proceeds of a loan as payment on 
the installment note to the extent the taxpayer had the right 
to ``put'' or repay the loan by transferring the installment 
note to the taxpayer's creditor. Other arrangements that have a 
similar effect would be treated in the same manner.
    The modification of the pledge rule only applies to 
installment sales where the pledge rule of present law applies. 
Accordingly, the modified pledge rule does not apply to 
installment method sales made by a dealer in timeshares and 
residential lots where the taxpayer elects to pay interest 
under section 453(l)(2), to sales of property used or produced 
in the trade or business of farming, or to dispositions where 
the sales price does not exceed $150,000, because such sales 
are not subject to the pledge rule under present law.

                             Effective Date

    The provision is effective for sales or dispositions on or 
after the date of enactment.

                       III. CONGRESSIONAL ACTION

    The Committee considered the legislation in the form of an 
original bill on June 22, 1999, and ordered it reported 
favorably by 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 
U.S.-Caribbean Basin Trade Enhancement Act was ordered 
favorably reported by 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 ``UNITED STATES-CARIBBEAN BASIN TRADE ENHANCEMENT 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     2000-04   2005-09   2000-09
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Caribbean Basin Initiative \1\........      10/1/99   ........      -260      -268      -281      -299      -320       -86  ........  ........  ........  ........    -1,429       -86    -1,514
Increase Amount of Rum Excise Tax That        (\2\)        -16  ........  ........  ........  ........  ........  ........  ........  ........  ........  ........  ........  ........  ........
 is Covered Over to Puerto Rico and
 the U.S. Virgin Islands (from $10.50
 per proof gallon to $13.50 per proof
 gallon) \1\..........................
Revenue Offset Provision:
    1. Repeal installment method for    iseio/a DOE          4       477       677       406       257        72         8        21        35        48        62     1,889       174     2,063
     most accrual basis taxpayers;
     adjust pledge rules..............
                                       ---------------------------------------------------------------------------------------------------------------------------------------------------------
      Net total.......................  ............       -12       217       409       125       -42      -248       -78        21        35        48        62       460        88       549
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimate provided by the Congressional Budget Office.
\2\ Effective for rum imported into the United States after 7/1/99, and before 10/1/99.

Note.--Details may not add to totals due to rounding. Legend for ``Effective'' column: DOE = date of enactment; iseio/a = installment sales entered into on or 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 U.S.-Caribbean Basin Trade 
Enhancement 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 provisions of the U.S.-Caribbean 
Basin Trade Enhancement 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 U.S.-Caribbean Basin Trade Enhancement Act:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 22, 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 S. 1389, the United 
States-Caribbean Basin Trade Enhancement Act.
    If you would like further details about this estimate, we 
will be pleased to provide them. The CBO staff contacts are 
Hester Grippando (for revenues), Sunita D'Monte (for spending 
by the International Trade Commission), John Righter (for all 
other spending), and Leo Lex (for the state and local impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

               congressional budget office cost estimate

S. 1389--United States-Caribbean Basin Trade Enhancement Act

    Summary: S. 1389 would provide tariff and quota treatment 
similar to that accorded to products under the North American 
Free Trade Agreement (NAFTA) to certain products of countries 
that benefit under the Caribbean Basin initiative trade 
program. In addition, the legislation would amend the Internal 
Revenue Code to prohibit the use of the installment method of 
accounting and to modify the pledge rule for dispositions of 
property. The bill would also increase by $3 the share of the 
excise tax on rum that is distributed to Puerto Rico and the 
Virgin Islands. The higher share would apply only to 
assessments made between July 1, 1999, and September 30, 1999.
    CBO and the Joint Committee on Taxation (JCT) estimate that 
enacting the legislation would increase government receipts by 
$511 million over the 1999-2004 period. In addition, CBO 
estimates that direct spending would increase by $16 million in 
fiscal year 1999. Because the bill would affect receipts and 
direct spending, pay-as-you-go procedures would apply. CBO 
estimates that implementing the bill's provisions would not 
significantly affect spending subject to appropriation.
    The bill contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA). The legislation 
contains private-sector mandates that would prohibit the use of 
the installment method of accounting and modify the pledge rule 
for dispositions of property. JCT estimates that the costs of 
the mandates would exceed the threshold for private-sector 
mandates established in UMRA ($100 million in 1996, adjusted 
annually for inflation) in fiscal years 2000 through 2004.
    Estimated cost to 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      2005      2006      2007      2008      2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues:
  Carribean Basin trade...................         0      -252      -260      -272      -289      -309       -83         0         0         0         0
  Repeal installment method for most               4       477       677       406       257        72         8        21        35        48        62
   taxpayers, adjust pledge rules.........
                                           -------------------------------------------------------------------------------------------------------------
  Net Revenue Changes.....................         4       225       417       134       -32      -237       -75        21        35        48        62

                                                               CHANGES IN DIRECT SPENDING

Spending Under Current Law: \1\
  Estimated Budget Authority..............       290       290       290       290       290       290       290       290       290       290       290
  Estimated Outlays.......................       290       290       290       290       290       290       290       290       290       290       290
Proposed Changes:
  Estimated Budget Authority..............        16         0         0         0         0         0         0         0         0         0         0
  Estimated Outlays.......................        16         0         0         0         0         0         0         0         0         0         0
Spending Under S. 1389:
  Estimated Budget Authority..............       306       290       290       290       290       290       290       290       290       290       290
  Estimated Outlays.......................       306       290       290       290       290       290       290       290       290       290       290
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The amounts shown are estimated payments to Puerto Rico and the Virgin Islands for their share of excise taxes collected on rum produced in or
  brought to the United States.

Note. Implementing the bill would also increase spending subject to appropriation, but CBO estimates that such costs would not be significant.

    Basis of estimate: For the purposes of this estimate, CBO 
assumes that this bill will be enacted before the end of fiscal 
year 1999
            Revenues
    The bill would offer immediate duty-free and quota-free 
treatment to certain articles of apparel assembled in a 
beneficiary country. Products covered under this provision 
include articles assembled from fabric formed in the United 
States from yarn made in the United States (including fabrics 
that have undergone certain additional processing in a 
beneficiary country), articles cut in a beneficiary country 
from fabric formed of U.S. yarn and assembled with U.S. thread, 
and handmade or folklore articles from beneficiary countries. 
Based on 1998 collections data, CBO estimates that about $6 
billion in goods would enter the United States under this 
provision in fiscal year 2000. Under current law, most of the 
products covered in this provision enter under a special 
subheading in the Harmonized Tariff Schedule that allows for 
duties to be paid only on the value added to the product in the 
beneficiary country. CBO estimates that this provision would 
reduce receipts by $244 million in fiscal year 2000 and by 
$1,422 million over the 2000-2005 period.
    The legislation would also grant NAFTA parity to other 
articles imported into the United States from beneficiary 
countries, including luggage and handbags, certain leather 
goods, footwear, tuna, petroleum, watches, and watch parts. 
Based on recent collections data, CBO estimates that S. 1389 
would reduce receipts by $7 million in fiscal year 2000 and by 
$43 million over the 2000-2005 period.
    The Joint Committee on Taxation estimated that repealing 
the installment method of accounting and modifying the pledge 
rule for dispositions of property would increase revenues by 
$2.1 billion over the 1999-2009 period.
            Direct spending
    Under current law, a tax of $13.50 per proof gallon is 
assessed on distilled spirits produced in or brought into the 
United States. The treasuries of Puerto Rico and the Virgin 
Islands receive $10.50 of the tax assessed on rum manufactured 
in either territory. In addition, the territories receive 
payments, at a similar rate, on all rum imported into the 
United States from any foreign country. Those payments to 
Puerto Rico and the Virgin Islands are recorded as outlays in 
the budget.
    Under the bill, the governments of Puerto Rico and the 
Virgin Islands would receive the full $13.50 per proof gallon 
for assessments made between July 1, 1999, and September 30, 
1999. Based on recent tax and payment data, CBO estimates that 
increasing the territories' share of the excise tax would 
increase direct spending by $16 million in fiscal year 1999.
            Spending subject to appropriation
    The bill would require the Administration to determine 
whether Caribbean Basin countries are eligible to benefit from 
the bill's preferential trade provisions and to monitor their 
compliance with certain requirements. The Administration 
already performs similar responsibilities under the Caribbean 
Basin Economic Recovery Act. based on information from the 
Office of the United States Trade Representative and other 
affected agencies, CBO estimates that implementing these 
provisions would not significantly increase those agencies' 
costs.
    The legislation would also amend several existing reporting 
requirements of the Office of the United States Trade 
Representative and the International Trade Commission. The 
amendments would primarily change when and how often the 
reports are due. CBO estimates that those changes would 
increase spending subject to appropriation by less than 
$200,000 annually.
    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 outlays and government receipts that are subject to 
pay-as-you-go procedures are shown in the following table. For 
the purposes 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..........      4    225    417     134     -32      -237     -75     21     35     48     62
Changes in Outlays...........     16      0      0       0       0         0       0      0      0      0      0
----------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
The bill contains no intergovernmental mandates as defined in 
UMRA. CBO estimates that the governments of Puerto Rico and the 
Virgin Islands would receive an additional $16 million in 1999 
as a result of the bill's enactment. The bill would also 
require the government of Puerto Rico to transfer a portion (50 
cents per proof gallon of rum) of future payments from the 
excise tax to the Puerto Rico Conservation Trust Fund.
    Estimated impact on the private sector: The legislation 
contains private-sector mandates that would prohibit the use of 
the installment method of accounting and modify the pledge rule 
for dispositions of property. JCT estimates that the mandates 
would cost $1.9 billion over the 2000-2004 period and that the 
cost would exceed the threshold for private-sector mandates 
established in UMRA ($100 million in 1996, adjusted annually 
for inflation) in fiscal years 2000 through 2003.
    Estimate prepared by: Federal revenues: Hester Grippando; 
Federal spending: John Righter and Sunita D'Monte; impact on 
state, local, and tribal governments: Leo Lex.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis, and G. Thomas Woodward, Assistant 
Director for Tax 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 U.S.-
Caribbean Basin Trade Enhancement 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) repeal the installment method 
for most accrual basis taxpayers, effective for sales and other 
dispositions on or after the date of enactment; and (2) 
increase temporarily the amount of the existing rum excise tax 
that is covered over to Puerto Rico and the U.S. Virgin 
Islands. The installment method provisions will increase the 
tax burden on the affected taxpayers.

2. Impact on personal privacy and paperwork

    The U.S.-Caribbean Basin Trade Enhancement 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 
U.S.-Caribbean Basin Trade Enhancement 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 
revenue provisions of the bill contain the following Federal 
private sector mandate: The installment method of accounting is 
repealed for most accrual basis taxpayers. The Committee has 
determined that it is necessary to include this provision in 
the bill to provide a revenue offset 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 MADE BY THE BILL, AS REPORTED

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

                 Caribbean Basin Economic Recovery Act

                    Subtitle A--Duty-Free Treatment


SEC. 211. AUTHORITY TO GRANT DUTY-FREE TREATMENT.

    The President may proclaim duty-free treatment (or other 
preferential treatment) for all eligible articles from any 
beneficiary country in accordance with the provisions of this 
title.

SEC. 212. BENEFICIARY COUNTRY.

    (a)(1) For purposes of this title--
          (A) The term ``beneficiary country'' means any 
        country listed in subsection (b) with respect to which 
        there is in effect a proclamation by the President 
        designating such country as a beneficiary country for 
        purposes of this title. Before the President designates 
        any county as a beneficiary country for purposes of 
        this title, he shall notify the House of 
        Representatives and the Senate of his intention to make 
        such designation, together with the considerations 
        entering into such decision.
          (B) the term ``enter'' means entered, or withdrawn 
        from warehouse for consumption, in the customs 
        territory of the United States.
          (C) The term ``HTS'' means Harmonized Tariff Schedule 
        of the United States (19 U.S.C. 1202).
          (D) The term ``NAFTA'' means the North American Free 
        Trade Agreement entered into between the United States, 
        Mexico, and Canada on December 17, 1992.
          (E) The terms ``WTO'' and ``WTO member'' have the 
        meanings given those terms in section 2 of the Uruguay 
        Round Agreements Act (19 U.S.C. 3501).

           *       *       *       *       *       *       *

    (c) In determining whether to designate any country a 
beneficiary country under this title, the President shall take 
into account--

           *       *       *       *       *       *       *

          (9) the extent to which such country provides under 
        its law adequate and effective means for foreign 
        nationals to secure, exercise, and enforce exclusive 
        rights in intellectual property, including patent, 
        trademark, and copyright rights;

           *       *       *       *       *       *       *

Notwithstanding any other provision of law, the President may 
determine that a country is not providing adequate and 
effective protection of intellectual property rights under 
paragraph (9), even if the country is in compliance with the 
country's obligations under the Agreement on Trade-Related 
Aspects of Intellectual Property Rights described in section 
101(d)(15) of the Uruguay Round Agreements Act (19 U.S.C. 
3511(d)(15)).

           *       *       *       *       *       *       *

    (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 country, 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).] no longer satisfies one or more of the conditions for 
designation as a beneficiary country set forth in subsection 
(b) or such country fails adequately to meet one or more of the 
criteria set forth in subsection (c).
    (B) The President may, after the requirements of subsection 
(a)(2) and paragraph (2) have been met--
          (i) withdraw or suspend the designation of any 
        country as a CBTEA beneficiary country, or
          (ii) withdraw, suspend, or limit the application of 
        preferential treatment under section 213(b) (2) and (3) 
        to any article of any country, if, after such 
        designation, the President determines that as a result 
        of changed circumstances, the performance of such 
        country is not satisfactory under the criteria set 
        forth in section 213(b)(5)(B).
    (2)(A) The President shall publish in the Federal Register 
notice of the action the President proposes to take under 
paragraph (1) at least 30 days prior to taking such action.
    (B) The United States Trade Representative shall, within 
the 30-day period beginning on the date on which the President 
publishes under subparagraph (A) notice of proposed action--
          (i) accept written comments from the public regarding 
        such proposed action,
          (ii) hold a public hearing on such proposed action, 
        and
          (iii) publish in the Federal Register--
                  (I) notice of the time and place of such 
                hearing prior to the hearing, and
                  (II) the time and place at which such written 
                comments will be accepted.
    (3) If preferential treatment under section 213(b) (2) and 
(3) is withdrawn, suspended, or limited with respect to a CBTEA 
beneficiary country, such country shall not be deemed to be a 
``party'' for the purposes of applying section 213(b)(5)(C) to 
imports of articles for which preferential treatment has been 
withdrawn, suspended, or limited with respect to such country.

           *       *       *       *       *       *       *

    [(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.--
          (1) In general.--Not later than December 31, 2001, 
        and every 2 years thereafter during the period this 
        title is in effect, the United States Trade 
        Representative shall submit to Congress a report 
        regarding the operation of this title, including--
                  (A) with respect to subsections (b) and (c), 
                the results of a general review of beneficiary 
                countries based on the considerations described 
                in such subsections; and
                  (B) the performance of each beneficiary 
                country or CBTEA beneficiary country, as the 
                case may be, under the criteria set forth in 
                section 213(b)(5)(B)(ii).
          (2) Public comment.--Before submitting the report 
        described in paragraph (1), the United States Trade 
        Representative shall publish a notice in the Federal 
        Register requesting public comments on whether 
        beneficiary countries are meeting the criteria listed 
        in section 213(b)(5)(B)(i), and on the performance of 
        each beneficiary country or CBTEA beneficiary country, 
        as the case may be, with respect to the criteria listed 
        in section 213(b)(5(B)(ii).

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 subsection (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) that article is imported directly from a 
        beneficiary country into the customs territory of the 
        United States; and
          (B) the sum of (i) the cost or value of the materials 
        produced in a beneficiary country or two or more 
        beneficiary countries, plus (ii) the direct costs of 
        processing operations performed in a beneficiary 
        country or countries is not less than 35 per centum of 
        the appraised value of such article at the time it is 
        entered.

           *       *       *       *       *       *       *

    [(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 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;
          [(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; or
          [(6) articles to which reduced rates of duty apply 
        under subsection (h).]
    (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 air-tight 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) Transition period treatment of certain textile 
        and apparel articles.--
                  (A) Products covered.--During the transition 
                period, the preferential treatment described in 
                subparagraph (B) shall apply to the following 
                products:
                          (i) Apparel articles assembled in a 
                        cbtea beneficiary country.--Apparel 
                        articles assembled in a CBTEA 
                        beneficiary country from fabrics wholly 
                        formed and cut in the United States, 
                        from yarns wholly formed in the United 
                        States that are--
                                  (I) entered under subheading 
                                9802.00.80 of the HTS; or
                                  (II) entered under chapter 61 
                                or 62 of the HTS, if, after 
                                such assembly, the articles 
                                would have qualified for entry 
                                under subheading 9802.00.80 of 
                                the HTS but for the fact that 
                                the articles were subjected to 
                                stone-washing, enzyme-washing, 
                                acid washing, perma-pressing, 
                                oven-baking, bleaching, 
                                garment-dyeing, or other 
                                similar processes.
                          (ii) Apparel articles cut and 
                        assembled in a cbtea beneficiary 
                        country.--Apparel articles cut in a 
                        CBTEA beneficiary country from fabric 
                        wholly formed in the United States from 
                        yarns wholly formed in the United 
                        States, if such articles are assembled 
                        in such country with thread formed in 
                        the United States.
                          (iii) Handloomed, handmade, and 
                        folklore articles.--A handloomed, 
                        handmade, or folklore article of a 
                        CBTEA beneficiary country identified 
                        under subparagraph (C) that is 
                        certified as such by the competent 
                        authority of such beneficiary country.
                          (iv) Textile luggage.--
                                  (I) assembled in a CBTEA 
                                beneficiary country from fabric 
                                wholly formed and cut in the 
                                United States, from yarns 
                                wholly formed in the United 
                                States, that is entered under 
                                subheading 9802.00.80 of the 
                                HTS; or
                                  (II) assembled from fabric 
                                cut in a CBTEA beneficiary 
                                country from fabric wholly 
                                formed in the United States 
                                from yarns wholly formed in the 
                                United States, if such luggage 
                                is assembled in such country 
                                with thread formed in the 
                                United States.
                  (B) Preferential treatment.--Except as 
                provided in subparagraph (E), during the 
                transition period, the articles described in 
                subparagraph (A) shall enter the United States 
                free of duty and free of any quantitative 
                limitations.
                  (C) Handloomed, handmade, and folklore 
                articles defined.--For purposes of subparagraph 
                (A)(iii), the President, after consultation 
                with the CBTEA beneficiary country concerned, 
                shall determine which, if any, particular 
                textile and apparel goods of the country shall 
                be treated as being handloomed, handmade, or 
                folklore goods of a kind described in section 
                2.3 (a), (b), or 9c) or Appendix 3.1.B11 of the 
                Annex.
                  (D) Penalties for transshipments.--
                          (i) Penalties for exporters.--If the 
                        President determines, based on 
                        sufficient evidence, that an exporter 
                        has engaged in transshipment with 
                        respect to textile or apparel products 
                        from a CBTEA beneficiary country, then 
                        the President shall deny all benefits 
                        under this title to such exporter, and 
                        any successor of such export, for a 
                        period of 2 years.
                          (ii) Penalties for countries.--
                        Whenever the President finds based on 
                        sufficient evidence, that transshipment 
                        has occurred, the President shall 
                        request that the CBTEA beneficiary 
                        country or countries through whose 
                        territory the transshipment has 
                        occurred take all necessary and 
                        appropriate actions to prevent such 
                        transshipment. If the President 
                        determines that a country is not taking 
                        such actions, the President shall 
                        reduce the quantities of textile and 
                        apparel articles that may be imported 
                        into the United States from such 
                        country by the quantity of the 
                        transshipped articles multiplied by 3.
                          (iii) Transshipment described.--
                        Transshipment within the meaning of 
                        this subparagraph has occurred when 
                        preferential treatment for a textile or 
                        apparel article under subparagraph (B) 
                        has been claimed on the basis of 
                        material false information concerning 
                        the country of origin, manufacture, 
                        processing, or assembly of the article 
                        or any of its components. For purposes 
                        of this clause, false information is 
                        material if disclosure of the true 
                        information would mean or would have 
                        meant that the article is or was 
                        ineligible for preferential treatment 
                        under subparagraph (B).
                  (E) Bilateral emergency actions.--
                          (i) In general.--The President may 
                        take bilateral emergency tariff actions 
                        of a kind described in section 4 of the 
                        Annex with respect to any apparel 
                        article imported from a CBTEA 
                        beneficiary country if the application 
                        of tariff treatment under subparagraph 
                        (B) to such article results in 
                        conditions that would be cause for the 
                        taking of such actions under such 
                        section 4 with respect to a like 
                        article described in the same 8-digit 
                        subheading of the HTS that is imported 
                        from Mexico.
                          (ii) Rules relating to bilateral 
                        emergency action.--For purposes of 
                        applying bilateral emergency action 
                        under this subparagraph--
                                  (I) the requirements of 
                                paragraph (5) of section 4 of 
                                the Annex (relating to 
                                providing compensation) shall 
                                not apply;
                                  (II) the term ``transition 
                                period'' in section 4 of the 
                                Annex shall have the meaning 
                                given that term in paragraph 
                                (5)(D) of this subsection; and
                                  (III) the requirements to 
                                consult specified in section 4 
                                of the Annex shall be treated 
                                as satisfied if the President 
                                requests consultations with the 
                                beneficiary country in question 
                                and the country does not agree 
                                to consult within the time 
                                period specified under section 
                                4.
          (3) 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 CBTEA beneficiary 
                        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 in 
                        to 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 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.--
                                  (I) In general.--In order to 
                                quality for the preferential 
                                treatment under paragraph (2) 
                                or (3) 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 each country described in 
                                subclause (II)--
                                          (aa) has implemented 
                                        and follows, or
                                          (bb) is making 
                                        substantial progress 
                                        toward implementing and 
                                        following,
                                procedure and requirements 
                                similar in all material 
                                respects to the relevant 
                                procedures and requirements 
                                under chapter 5 of the NAFTA.
                                  (II) Country described.--A 
                                country is described in this 
                                subclause if it is a CBTEA 
                                beneficiary country--
                                          (aa) from which the 
                                        article is exported, or
                                          (bb) in which 
                                        materials used in the 
                                        production of the 
                                        article originate or in 
                                        which the article or 
                                        such materials undergo 
                                        production that 
                                        contributes to a claim 
                                        that the article is 
                                        eligible for 
                                        preferential treatment.
                  (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.
          (5) Definitions and special rules.--For purposes of 
        this subsection--
                  (A) Annex.--The term ``the Annex'' means 
                Annex 300-B of the NAFTA.
                  (B) CBTEA beneficiary country.--
                          (i) In general.--The term ``CBTEA 
                        beneficiary country'' means any 
                        ``beneficiary country'', as defined by 
                        section 212a(1)(A) of this title, which 
                        the President determines has 
                        demonstrated a commitment to--
                                  (I) undertake its obligations 
                                under the WTO on or ahead of 
                                schedule;
                                  (II) participate in 
                                negotiations toward the 
                                completion of the FTAA or a 
                                comparable trade agreement; and
                                  (III) undertake other steps 
                                necessary for that country to 
                                become a part to the FTAA or a 
                                comparable trade agreement.
                          (ii) Criteria for determination.--In 
                        making the determination under clause 
                        (i), the President may consider the 
                        criteria in sections 212 (b) and (c) 
                        and other appropriate criteria, 
                        including--
                                  (I) the extent to which the 
                                country follows accepted rules 
                                of international trade provided 
                                for under the agreements listed 
                                in section 101(d) of the 
                                Uruguay Round Agreements Act;
                                  (II) the extent to which the 
                                country provides protection of 
                                intellectual property rights--
                                          (aa) in accordance 
                                        with standards 
                                        established in the 
                                        Agreement on Trade-
                                        Related Aspects of 
                                        Intellectual Property 
                                        Rights described in 
                                        section 101(d)(15) of 
                                        the Uruguay Round 
                                        Agreements Act;
                                          (bb) in accordance 
                                        with standards 
                                        established in chapter 
                                        17 of the NAFTA; and
                                          (cc) by granting the 
                                        holders of copyrights 
                                        the ability to control 
                                        the importation and 
                                        sale of products that 
                                        embody copyrighted 
                                        works, extending the 
                                        period set forth in 
                                        Article 1711(6) of 
                                        NAFTA for protecting 
                                        test data for 
                                        agricultural chemicals 
                                        to 10 years, protecting 
                                        trade-marks regardless 
                                        of their subsequent 
                                        designation as 
                                        geographic indications, 
                                        and providing 
                                        enforcement against the 
                                        importation of 
                                        infringing products at 
                                        the border;
                                  (III) the extent to which the 
                                country provides protections to 
                                investors and investments of 
                                the United States substantially 
                                equivalent to those set forth 
                                in chapter 11 of the NAFTA;
                                  (IV) the extent to which the 
                                country provides the United 
                                States and other WTO members 
                                nondiscriminatory, equitable, 
                                and reasonable market access 
                                with respect to the products 
                                for which benefits are provided 
                                under paragraphs (2) and (3), 
                                and in other relevant product 
                                sectors as determined by the 
                                President;
                                  (V) the extent to which the 
                                country provides 
                                internationally recognized 
                                worker rights, including--
                                          (aa) the right of 
                                        association,
                                          (bb) the right to 
                                        organize and bargain 
                                        collectively,
                                          (cc) prohibition on 
                                        the use of any form of 
                                        coerced or compulsory 
                                        labor,
                                          (dd) a minimum age 
                                        for the employment of 
                                        children, and
                                          (ee) acceptable 
                                        conditions of work with 
                                        respect to minimum 
                                        wages, hours of work, 
                                        and occupational safety 
                                        and health;
                                  (VI) whether the country has 
                                met the counter-narcotics 
                                certification criteria set 
                                forth in section 490 of the 
                                Foreign Assistance Act of 1961 
                                (22 U.S.C. 2291j) for 
                                eligibility for United States 
                                assistance;
                                  (VII) the extent to which the 
                                country becomes a party to and 
                                implements the Inter-American 
                                Convention Against Corruption, 
                                and becomes party to a 
                                convention regarding the 
                                extradition of its nationals;
                                  (VIII) the extent to which 
                                the country--
                                          (aa) supports the 
                                        multilateral and 
                                        regional objectives of 
                                        the United States with 
                                        respect to government 
                                        procurement, including 
                                        the negotiation of 
                                        government procurement 
                                        provisions as part of 
                                        the FTAA and conclusion 
                                        of a WTO transparency 
                                        agreement as provided 
                                        in the declaration of 
                                        the WTO Ministerial 
                                        Conference held in 
                                        Singapore on December 9 
                                        through 13, 1996, and
                                          (bb) applies 
                                        transparent and 
                                        competitive procedures 
                                        in government 
                                        procurement equivalent 
                                        to those contained in 
                                        the WTO Agreement on 
                                        Government Procurement 
                                        (described in section 
                                        101(d)(17) of the 
                                        Uruguay Round 
                                        Agreements Act);
                                  (IX) the extent to which the 
                                country follows the rules on 
                                customs valuation set forth in 
                                the WTO Agreement on 
                                Implementation of Article VII 
                                of the GATT 1994 (described in 
                                section 101(d)(8) of the 
                                Uruguay Round Agreements Act);
                                  (X) the extent to which the 
                                country affords to products of 
                                the United States which the 
                                President determines to be of 
                                commercial importance to the 
                                United States with respect to 
                                such country, and on a 
                                nondiscriminatory basis to like 
                                products of other WTO members, 
                                tariff treatment that is no 
                                less favorable than the most 
                                favorable tariff treatment 
                                provided by the country to any 
                                other country pursuant to any 
                                free trade agreement to which 
                                such country is a party, other 
                                than the Central American 
                                Common Market or the Caribbean 
                                Community and Common Market.
                  (C) CBTEA originating good.--
                          (i) In general.--The term ``CBTEA 
                        originating good'' means a good that 
                        meets the rules of origin for a good 
                        set forth in chapter 4 of the NAFTA as 
                        implemented pursuant to United States 
                        law.
                          (ii) Application of chapter 4.--In 
                        applying chapter 4 with respect to a 
                        CBTEA beneficiary country for purposes 
                        of this subsection--
                                  (I) no country other than the 
                                United States and a CBTEA 
                                beneficiary country may be 
                                treated as being a party to the 
                                NAFTA;
                                  (II) any reference to trade 
                                between the United States and 
                                Mexico shall be deemed to refer 
                                to trade between the United 
                                States and a CBTEA beneficiary 
                                country;
                                  (III) any reference to a 
                                party shall be deemed to refer 
                                to a CBTEA beneficiary country 
                                or the United States; and
                                  (IV) any reference to parties 
                                shall be deemed to refer to any 
                                combination of CBTEA 
                                beneficiary countries or to the 
                                United States and a CBTEA 
                                beneficiary country (or any 
                                combination thereof).
                  (D) Transition period.--The term ``transition 
                period'' means, with respect to a CBTEA 
                beneficiary country, the period that begins on 
                October 1, 1999, and ends on the earlier of--
                          (i) December 31, 2004, or
                          (ii) the date on which the FTAA or a 
                        comparable trade agreement enters into 
                        force with respect to the United States 
                        and the CBTEA beneficiary country.
                  (E) CBTEA.--The term ``CBTEA'' means the 
                United States-Caribbean Basin Trade Enhancement 
                Act.
                  (F) FTAA.--The term ``FTAA'' means the Free 
                Trade Area of the Americas.

SEC. 215. INTERNATIONAL TRADE COMMISSION REPORTS ON IMPACT OF THIS ACT.

    [(a) The United States International Trade Commission 
(hereinafter in this section referred to as the ``Commission'') 
shall prepare, and submit to the Congress and to the President, 
a report regarding the economic impact of this Act on United 
States industries and consumers during--
          [(1) the twenty-four-month period beginning with the 
        date of enactment of this Act, and
          [(2) each calendar year occurring thereafter until 
        duty-free treatment under this title is terminated 
        under section 216(b). For purposes of this section, 
        industries in the Commonwealth of Puerto Rico and the 
        insular possessions of the United States shall be 
        considered to be United States industries.]
    (a) Reporting Requirement.--
          (1) In general.--The United States International 
        Trade Commission (in this section referred to a the 
        ``Commission'') shall submit to Congress and the 
        President biennial reports regarding the economic 
        impact of this title on United States industries and 
        consumers and on the economy of the beneficiary 
        countries.
          (2) First report.--The first report shall be 
        submitted not later than September 30, 2001.
          (3) Treatment of puerto rico, etc.--For purposes of 
        this section, industries in the Commonwealth of Puerto 
        Rico and the insular possessions of the United States 
        are considered to be United States industries.

           *       *       *       *       *       *       *


Andean Trade Preference Act

           *       *       *       *       *       *       *


SEC. 203. BENEFICIARY COUNTRY.--

           *       *       *       *       *       *       *


    (f) [Triennial Report] Report.--[On or before the 3rd, 6th, 
and 9th anniversaries of the date of the enactment of this 
title] Not later than March 31, 2000 and annually 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 (c) and (d). In 
reporting on the considerations described in subsection 
(d)(11), the President shall report any evidence that the crop 
eradication and crop substitution efforts of the beneficiary 
are directly related to the effects of this title.

           *       *       *       *       *       *       *


SEC. 206. INTERNATIONAL TRADE COMMISSION REPORTS ON IMPACT OF THE 
                    ANDEAN TRADE PREFERENCE ACT.

    [(a) In General.--The United States International Trade 
Commission (hereinafter in this section referred to as the 
``Commission'') shall prepare, and submit to the Congress, a 
report regarding the economic impact of this title on United 
States industries and consumers, and, in conjunction with other 
agencies, the effectiveness of this title in promoting drug-
related crop eradication and crop substitution efforts of the 
beneficiary countries, during--
          [(1) and 24-month period beginning with the date of 
        enactment of this title; and
          [(2) each calendar year occurring thereafter until 
        duty-free treatment under this title is terminated 
        under section 208(b).
[For purposes of this section, industries in the Commonwealth 
of Puerto Rico and the insular possessions of the United States 
shall be considered to be United States industries.]
    (a) Reporting Requirements.--
          (1) In general.--The United States International 
        Trade Commission (in this section referred to as the 
        ``Commission'') shall submit to Congress and the 
        President biennial reports regarding the economic 
        impact of this title on United States industries and 
        consumers, and, in conjunction with other agencies, the 
        effectiveness of this title in promoting drug-related 
        crop eradication and crop substitution efforts of the 
        beneficiary countries.
          (2) Submission.--During the period that this title is 
        in effect, the report required by paragraph (1) shall 
        be submitted on December 31 of each year that the 
        report required by section 215 of the Caribbean Basin 
        Economic Recovery Act is not submitted.
          (3) Treatment of puerto rico, etc.--For purposes of 
        this section industries in the Commonwealth of Puerto 
        Rico and the insular possessions of the United States 
        are considered to be United States industries.

           *       *       *       *       *       *       *


SEC. 7652. SHIPMENTS TO THE UNITED STATES.

           *       *       *       *       *       *       *


    (f) Limitation on Cover Over of Tax on Distilled Spirits.--
For purposes of this section, with respect to taxes imposed 
under section 5001 or this section on distilled spirits, the 
amount covered into the treasuries of Puerto Rico and the 
Virgin Islands shall not exceed the lesser of the rate of--
          (1) $10.50 ($11.30 in the case of distilled spirits 
        brought into the United States during the 5-year period 
        beginning on October 1, 1993), or.
          (2) the tax imposed under section 5001(a)(1), on each 
        proof gallon.
the preceding sentence shall not apply to articles that are 
tax-determined after June 30, 1999, and before October 1, 1999.

           *       *       *       *       *       *       *


INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



SEC. 453. INSTALLMENT METHOD.

    [(a) General Rule.--Except as otherwise provided in this 
section, income from an installment sale shall be taken into 
account for purposes of this title under the installment 
method.]
    (a) Use of Installment Method.--
          (1) In general.--Except as otherwise provided in this 
        section, income from an installment sale shall be taken 
        into account for purposes of this title under the 
        installment method.
          (2) Accrual method taxpayer.--The installment method 
        shall not apply to income from an installment sale if 
        such income would be reported under an accrual method 
        of accounting without regard to this section. The 
        preceding sentence shall not apply to a disposition 
        described in subparagraph (A) or (B) of subsection 
        (l)(2).

           *       *       *       *       *       *       *

    (d) Election Out.--
          (1) In general.--Subsection [(a)] (a)(1) shall not 
        apply to any disposition if the taxpayer elects to have 
        subsection [(a)] (a)(1) not apply to such disposition.

           *       *       *       *       *       *       *

    (i) Recognition of Recapture Income in Year of 
Disposition.--
        (1) In general.--In the case of any installment sale of 
        property to which subsection [(a)] (a)(1) applies--
                  (A) notwithstanding subsection [(a)] (a)(1), 
                any recapture income shall be recognized in the 
                year of the disposition, and
                  (B) any gain in excess of the recapture 
                income shall be taken into account under the 
                installment method.

           *       *       *       *       *       *       *

    (k) Current Inclusion in Case of Revolving Credit Plans, 
Etc.--In the case of--
          (1) any disposition of personal property under a 
        revolving credit plan, or
          (2) any installment obligation arising out of a sale 
        of--
                  (A) stock or securities which are traded on 
                an established securities market, or
                  (B) to the extent provided in regulations, 
                property (other than stock or securities) of a 
                kind regularly traded on an established market,
        subsection [(a)] (a)(1) shall not apply, and, for 
        purposes of this title, all payments to be received 
        shall be treated as received in the year of 
        disposition. The Secretary may provide for the 
        application of this subsection in whole or in part for 
        transactions in which the rules of this subsection 
        otherwise would be avoided through the use of related 
        parties, pass-thru entities, or intermediaries.

           *       *       *       *       *       *       *


SEC. 453A. SPECIAL RULES FOR NONDEALERS.

           *       *       *       *       *       *       *


    (d) Pledges, etc., of Installment Obligations.--(1) In 
general.--For purposes of section 453, if any indebtedness 
(hereinafter in this subsection referred to as ``secured 
indebtedness'') is secured by an installment obligation to 
which this section applies, the net proceeds of the secured 
indebtedness shall be treated as a payment received on such 
installment obligation as of the later of--

           *       *       *       *       *       *       *

    (4) Secured indebtedness.--For purposes of this subsection 
indebtedness is secured by an installment obligation to the 
extent that payment of principal or interest on such 
indebtedness is directly secured (under the terms of the 
indebtedness or any underlying arrangements) by any interest in 
such installment obligation. A payment shall be treated as 
directly secured by an interest in an installment obligation to 
the extent an arrangement allows the taxpayer to satisfy all or 
a portion of the indebtedness with the installment obligation.

           *       *       *       *       *       *       *


                                  
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