[Federal Register Volume 64, Number 87 (Thursday, May 6, 1999)]
[Notices]
[Pages 24439-24446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11413]


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OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE


Report on Trade Expansion Priorities Pursuant to Executive Order 
13116 (``Super 301'')

AGENCY: Office of the United States Trade Representative.

ACTION: Notice.

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SUMMARY: Notice if hereby given that the United States Trade 
Representative (USTR) has submitted the report on United States trade 
expansion priorities published herein to the Committee on Finance of 
the United States Senate and Committee on Ways and Means of the United 
States House of Representatives pursuant to the provisions (commonly 
referred to as ``Super 301'') set forth in Executive Order No. 13116 of 
March 31, 1999.

DATES: The report was submitted on April 30, 1999.

FOR FURTHER INFORMATION CONTACT: Demetrios Marantis, Assistant General 
Counsel, Office of the U.S. Trade Representative, 600 17th Street, 
N.W., Washington, DC 20508, 202-395-3581.

SUPPLEMENTARY INFORMATION: The text of the USTR report is as follows.

Identification of Trade Expansion Priorities Pursuant to Executive 
Order 13116

    Last month, the United States Trade Representative (USTR) released 
the President's 1999 Trade Policy Agenda and the 1999 National Trade 
Estimate Report on Foreign Trade Barriers (NTE Report). This report 
builds on the prior two reports and is submitted pursuant to Executive 
Order 13116 of March 31, 1999. The ``Super 301'' provisions of the 
Executive Order direct the USTR to review U.S. trade expansion 
priorities and identify priority foreign country practices, the 
elimination of which is likely to have the most significant potential 
to increase United States exports, either directly or through the 
establishment of a beneficial precedent.

I. Trade Expansion Priorities and Priority Foreign Country 
Practices

    In preparing this report, USTR has reviewed the 1999 Trade Policy 
Agenda to identify U.S. trade expansion priorities and the 1999 NTE 
Report and public comments submitted to USTR to assess foreign country 
practices that we seek to eliminate. Based on this review, USTR has 
determined that the U.S. trade expansion priorities include the 
launching of a new, multilateral round of global trade negotiations; 
ensuring that WTO Members fully implement existing commitments; ongoing 
strategic enforcement of U.S. rights under bilateral, regional, and 
multilateral trade agreements and under U.S. trade laws; and 
integrating China and other economies into the world trading system. 
The USTR is not identifying any ``priority foreign country practices'' 
within the meaning of the Executive Order at this time, but does find 
that a number of practices warrant the initiation of WTO dispute 
settlement proceedings or other actions in the context of our bilateral 
trade relationships.

A. The Third Ministerial Conference and the New Round

    Ambassador Charlene Barshefsky, the United States Trade 
Representative, will chair the WTO's Third Ministerial Conference in 
Seattle, Washington, November 30--December 3, 1999. The event, which 
will be the largest trade meeting ever held in the United States, will 
set the agenda for the WTO for the next decade and launch a new round 
of global trade negotiations. The Administration has engaged in an 
extensive consultative process to develop this agenda, involving the 
broadest range of citizens concerned about trade. Broadly speaking, the 
agenda will: set a negotiating agenda and work program; provide for 
institutional reform, including transparency, and ensure that the WTO 
will continue to be a forum for on-going trade liberalization and 
reform, by delivering results at Seattle.
    At the meeting, Trade Ministers from around the world will focus on 
the important issues facing the trading system and the new economy of 
the 21st century. As a starting point, the United States joins other 
nations in emphasizing the important issue of implementation of 
existing agreements--from agriculture to textiles. As we approach 
January 1, 2000, the majority of transition periods in the Agreements 
on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 
Trade-Related Investment Measures (TRIMS), and Customs Valuation will 
expire for most developing countries. Ensuring compliance with these 
Agreements will be an important feature of our work as we shape the 
WTO's forward agenda.
    Beyond implementation, the negotiations, to begin in early 2000, 
will be comprised of a new round of liberalization commitments in 
services trade, a new phase in agriculture policy reform and market-
opening undertakings, and other negotiations on topics to be agreed at 
the meeting, possibly a new round of industrial tariff and non-tariff 
negotiations. Certain Members have also identified foreign direct 
investment and competition policy as possible topics for negotiation. 
The important relationship of trade and the environment, as identified 
in President Clinton's May 1998 address before the WTO, is an area that 
will require further work in the WTO, as will forging the consensus on 
addressing trade and labor.
    Launching the round will also require attention to institutional 
improvements within the WTO to facilitate trade, to improve the 
participation of less developed economies in the world economy, and to 
coordinate effectively with other international bodies such as the IMF 
and World Bank. The United States seeks to strengthen public confidence 
in the WTO as an institution by improving its transparency and 
openness, particularly in WTO dispute settlement proceedings, including 
the review of the system that is to be completed before the Seattle 
meeting. Civil society must be able to contribute to the work of the 
WTO, to ensure both that the WTO hears many points of view including 
those from business, labor, environmental, consumer and other groups, 
and that its work will rest on the broadest possible consensus.
    Finally, the U.S. vision for the new round requires that we set an 
agenda that accommodates rapid technological developments and addresses 
the broadest range of concerns. The Ministerial, and the time prior to 
the meeting itself, provide the United States the opportunity to 
showcase the relevance of the WTO to the information revolution, the 
development of electronic commerce, and other rapidly changing, high-
technology fields. We seek to reach agreements expanding the product 
coverage in the landmark Information Technology Agreement (ITA) and 
expand on the 1998 Ministerial Declaration on Electronic Commerce which 
calls on WTO Members to refrain from imposing customs duties on 
electronic transmissions. We also intend to strengthen the system to 
contribute to the Administration's wider policy of eradicating the 
potential for bribery and corruption and promoting economic efficiency, 
by completing an agreement on transparency in government

[[Page 24440]]

procurement at the Seattle meeting. Expanding market access 
opportunities, including through early agreements to liberalize tariffs 
in sectors first identified in APEC (i.e., chemicals, energy and 
environment-related goods, medical and scientific equipment, forest 
products, fish, gems and jewelry, and toys), remains a priority.

B. Implementation of Existing WTO Commitments

    Full implementation of existing WTO agreements is critical to 
ensuring that the United States achieves the full benefit of what it 
bargained for in the Uruguay Round of multilateral trade negotiations, 
as well as to maintaining public confidence in an open trading system 
and building public support for the new round of negotiations. There 
are five critical aspects of WTO implementation: compliance with WTO 
commitments that entered into effect in January 1995; compliance with 
WTO commitments that are subject to transition periods or phase-in 
provisions, many of which will enter into effect by January 1, 2000; 
acceptance of the protocols on basic telecommunications services and 
financial services and implementation of the corresponding commitments; 
compliance with accession protocols; and compliance with the rulings 
resulting from WTO dispute settlement proceedings in a timely and 
complete manner.
    The primary means of enforcing WTO commitments that have entered 
into effect is the WTO dispute settlement mechanism, which is discussed 
in further detail below. In the coming months, one of USTR's top 
priorities will be to focus on Members' preparations for the phase-in 
by January 1, 2000 of commitments in three critical areas:
     Intellectual Property Protection--WTO developing country 
members are required to implement most of their commitments under the 
Agreement on Trade Related Aspects of Intellectual Property Rights 
(TRIPS) by the end of this year. We are monitoring this closely and are 
prepared to both assist countries in developing laws and enforcement 
mechanisms at their request and invoke dispute settlement procedures in 
the event members fail to meet their obligations.
     Customs Valuation--More than 50 countries are required to 
fully implement the obligations of the Agreement on Customs Valuation--
a critical obligation in realizing market access. Full and effective 
implementation of this Agreement will head off disputes in the future. 
The United States is also concerned about implementation of existing 
customs valuation obligations, which is discussed in further detail 
below.
     Trade Related Investment Measures (TRIMs)--December 31, 
1999, is the deadline established in the TRIMs Agreement for developing 
countries to eliminate measures which they notified as inconsistent 
with the TRIMs Agreement. Throughout the remainder of 1999, the United 
States will be monitoring steps taken by those countries due to come 
into compliance by this deadline, and will be prepared to bring dispute 
settlement cases for measures which have not been removed by the agreed 
deadline.
    In addition, USTR will work bilaterally and within the Council for 
Trade in Services to ensure the full implementation of Members' 
commitments under the Fourth Protocol to the General Agreement on Trade 
in Services (GATS), i.e., the Basic Telecom Agreement, which entered 
into force on February 5, 1998, and the Fifth Protocol to the GATS, 
i.e., the Financial Services Agreement, which entered into force on 
March 1, 1999. The United States will continue to insist that all 
countries that failed to meet the deadline for acceptance of these two 
agreements bring their commitments into force as soon as possible. For 
the Basic Telecom Agreement, those countries are: Brazil, Dominica, 
Guatemala, Papua New Guinea, and the Philippines. For the Financial 
Services Agreement, those countries are: Australia, Bolivia, Brazil, 
Bulgaria, Costa Rica, Dominican Republic, El Salvador, Luxembourg, 
Ghana, Honduras, Jamaica, Kenya, Nigeria, Nicaragua, the Philippines, 
Poland, Slovenia, and Uruguay.
    USTR will continue to use WTO committees and bilateral mechanisms 
to address implementation issues. For example, the United States will 
work through the WTO Committee on Agriculture to seek compliance with 
the various obligations under the Agriculture Agreement, including 
those on tariff-rate quotas, domestic support and export subsidies. 
Likewise, the United States will be vigilant in its enforcement of 
textile quotas and implementation of textile market access requirements 
overseas. Preventing circumvention is a high priority as well. Last 
year, we reached an important new agreement with Hong Kong on measures 
to improve information-sharing and strengthen cooperation to prevent 
circumvention, and we are working with Macau, China and others on 
similar initiatives.
    In addition, we will continue to work with other WTO Members under 
the aegis of the Committee on Antidumping Practices and its Ad Hoc 
Group on Implementation to secure better adherence to WTO rules and 
procedures governing the conduct of antidumping investigations and 
administrative reviews. The increased use of these remedies by a 
growing number of WTO Members with different legal systems and levels 
of experience poses special challenges to U.S. exporters. The United 
States expects strict compliance with the WTO Antidumping Agreement's 
substantive obligations, as well as its rules which guarantee 
transparency and due process, so that these remedies can remain a fair 
yet effective complement to ongoing trade liberalization.

C. Strategic Enforcement of WTO Rights and U.S. Trade Laws

    One of this Administration's top trade expansion priorities is 
vigorous monitoring and enforcement of trade agreements, which includes 
the active use of the WTO dispute settlement process and strategic 
application of U.S. trade laws.
1. WTO Dispute Settlement Process
    Since the WTO's creation in 1995, the United States has filed more 
complaints--44 to date--than any other WTO Member and has participated 
as a third party in a number of other cases. Our overall record of 
success is very strong. We have prevailed in 22 of the 24 U.S. 
complaints acted upon so far, either by successful settlement or panel 
victory. These favorable rulings and settlements have involved an array 
of sectors within the fields of manufacturing, agriculture, services, 
and intellectual property.
a. WTO Disputes
    As a result of this year's review of its trade expansion 
priorities, and its monitoring of compliance with U.S. trade 
agreements, the Administration will take the following actions to 
enforce U.S. rights under those agreements:
    EU--Avionics. The United States will request WTO consultations with 
the European Union (EU) on French government subsidies for avionics 
equipment under the WTO Agreement on Subsidies and Countervailing 
Measures. In an effort to displace U.S.-sourced flight management 
systems, the French government, with European Commission approval, has 
agreed to grant 140 million French francs (approximately 40 percent of 
the projected costs) between 1997-1999 for a project involving Sextant 
Avionique of France and Smiths Industries of the United Kingdom to 
jointly develop a

[[Page 24441]]

new flight management system adapted to Airbus aircraft. The aid takes 
the form of a ``reimbursable advance payment'' to be repaid on a 
percentage of sales of the new system; however no repayment is required 
if the program is unsuccessful.
    India--Auto TRIMs. The United States will request WTO consultations 
with India on its new auto policy. Last year, India implemented new 
measures governing investments in the automotive industry. All new and 
existing firms wishing to operate auto manufacturing investments in 
India are required to sign a standardized agreement with the Government 
of India that contains local content and foreign exchange balancing 
requirements. The Indian program would inhibit the free flow of trade 
and investment and is inconsistent with India's obligations under the 
WTO Agreement on Trade-Related Investment Measures (TRIMs). According 
to the American Automobile Manufacturers Association (AAMA) the 
approximate size of the vehicle market in India in 1998 was 604,000 
units. A large portion of vehicles sold in India are produced locally. 
Auto parts sales into India are also reduced by these measures.
    Korea--Barriers to the Import and Distribution of Foreign Beef. In 
response to a 1989 GATT panel ruling, Korea agreed to phase out its 
import restrictions on beef. However, Korea simply replaced its ban 
with a temporary quota and comprehensive restrictions on the ability to 
import and distribute beef, including a requirement that imported beef 
be sold in separate retail establishments. These and other barriers 
prevented U.S. exporters from fully utilizing the 1997 and 1998 minimum 
market access commitments Korea had made for beef. In 1998, the 
underfill of Korea's beef import quota was approximately 60 percent.
    The U.S. Government has worked to establish a market-driven beef 
import system in Korea by seeking the elimination of Korean Government 
measures that impede the entry and distribution of foreign beef. In 
September and November 1998, the U.S. and Korean Governments held two 
rounds of talks, and convened again in January 1999, in an attempt to 
conclude an agreement providing for liberalized beef trade. In the 
absence of an agreement, the United States requested WTO dispute 
settlement consultations on February 1, 1999. On April 28, the United 
States requested the establishment of a WTO dispute settlement panel on 
Korea's beef import and distribution system after WTO consultations 
held on March 11 and 12 failed to resolve the U.S. concerns.
    Customs Practices: The benefits of market access commitments are 
undermined when countries engage in certain customs practices, such as 
the use of minimum reference prices to determine the customs value of 
an imported good. The WTO Customs Valuation Agreement (CVA) stipulates 
that the transaction price is the primary basis for customs valuation 
determinations, and the U.S. Government is working to ensure that 
countries comply fully with their obligations under the CVA. We are 
actively pursuing the issue of reference prices in the WTO Committee on 
Customs Valuation and are closely examining reports of non-compliance 
with CVA commitments, particularly in those countries with current 
obligations, such as Brazil, India and Mexico. We are soliciting 
additional information on these practices and, as appropriate, will 
subsequently pursue dispute settlement consultations with the relevant 
countries that do not satisfactorily address these concerns.
b. Dispute Settlement Rules
    USTR's review of trade expansion priorities has shown that, while 
the WTO dispute settlement system generally works well, improvements in 
the rules governing compliance with panel and Appellate Body reports 
are necessary. The EU's failure to implement a WTO-consistent banana 
regime following WTO dispute settlement proceedings, and its impending 
failure to eliminate its import ban on meat produced with hormones, 
illustrate how a Member that fails to implement WTO dispute settlement 
rulings can continue causing harm to U.S. exporters for an extended 
period of time. The United States is seeking improvements in the rules 
governing implementation of panel and Appellate Body reports in the 
context of this year's review of the WTO Dispute Settlement 
Understanding (DSU), and there is ongoing review regarding other 
possibilities for improvement.
    In the interim, we will continue to exercise our rights to suspend 
concessions with respect to the trade of a Member that fails to 
implement WTO recommendations. On April 19, the United States suspended 
concessions in the amount of $191.4 million against the EU because of 
its failure to implement a WTO-consistent banana regime. USTR is now 
preparing to take similar action against EU imports if the EU does not 
implement WTO findings against its meat import ban by May 13, 1999, 
which is the deadline for implementation in that dispute.
2. U.S. Trade Laws
    The U.S. trade laws are a vitally important means of ensuring 
respect for U.S. rights and interests in trade. We will continue to 
challenge aggressively market access barriers abroad using Section 301, 
Special 301, Section 1377, Super 301 and Title VII 1 to open 
foreign markets and ensure fair treatment for our goods and services, 
protect U.S. intellectual property rights, and ensure compliance with 
telecommunications agreements. These provisions work in tandem with 
dispute settlement procedures, and also assist us in completing and 
enforcing agreements with trading partners that are not WTO Members or 
in areas not covered by WTO rules. In addition, this Administration is 
fully committed to using U.S. antidumping, countervailing duty, and 
safeguards laws and will insist that America's trading partners play by 
the rules.
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    \1\ These provisions can be found in: Sections 301-310 of the 
Trade Act of 1974 (``Section 301''); Section 182 of the Trade Act of 
1974 (``Special 301''); and Section 1377 of the Omnibus Trade and 
Competitiveness Act of 1988 (``Section 1377''). The procedures set 
forth in Section 310 of the Trade Act of 1974 (``Super 301'') and 
Title VII of the Omnibus Trade and Competitiveness Act of 1988 
(``Title VII'') were re-instituted by Executive Order 13116 of March 
31, 1999.
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    Section 301: On April 29, USTR initiated an investigation under 
Section 301 of the Trade Act of 1974, as amended, regarding Canadian 
regulations affecting tourism in the U.S.-Canada border region. 
Measures maintained by the Province of Ontario generally prohibit U.S. 
fishermen from keeping the fish they catch on lakes lying across the 
Minnesota-Ontario border if the U.S. fisherman does not spend the night 
in an Ontario commercial establishment or otherwise contribute to the 
Ontario tourist industry. Canadian federal measures impose work permit 
requirements on U.S. fishing guides who conduct tours on those lakes. 
These measures discriminate in favor of Canadian tourist 
establishments.
    Special 301: Through the Special 301 process, USTR systematically 
monitors levels of intellectual property protection around the world. 
Each year, USTR identifies those foreign countries that deny adequate 
and effective protection of intellectual property rights or fair and 
equitable market access for U.S. persons that rely on intellectual 
property protection. As a result of the 1999 Special 301 review, USTR 
placed 17 trading partners on the ``Priority Watch List'' and 37 
trading partners on the ``Watch List'', and announced the initiation of 
WTO dispute settlement

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proceedings involving Argentina, Canada and the European Union. See 
USTR Announces Results of Special 301 Review, released April 30, 1999, 
for further information concerning the protection of U.S. intellectual 
property rights.
    Section 1377: This year's review, which was completed on March 30, 
1999, focused on compliance with the WTO Basic Telecommunications 
Agreement by WTO Members, particularly the EU, Mexico, Japan and 
Germany. The review indicated that the WTO agreement has increased 
market access for U.S. telecommunications companies in foreign markets, 
but that ongoing enforcement of the agreement is needed to ensure 
continued growth in world-wide competition for telecommunications 
services. See USTR Press Release 99-29, March 30, 1999 for further 
information on this year's 1377 review.
    Title VII: The Title VII report gives USTR the means to identify 
foreign countries that have failed to comply with their obligations 
under the WTO Agreement on Government Procurement (``GPA''), Chapter 10 
of NAFTA, or other agreements relating to government procurement; or 
otherwise discriminated against U.S. products and services when making 
government purchases. In addition, USTR is directed to consider a 
number of other factors in making its determination of whether to 
identify a country in the Title VII report. The Title VII report, 
released simultaneously with this report and the Special 301 report, 
builds upon the information found in the President's 1999 Trade Policy 
Agenda and the 1999 NTE Report on Foreign Trade Barriers so as to be 
more flexible and effective in achieving its goal of eliminating unfair 
procurement practices. In the past, Title VII has been a useful and 
effective tool in challenging foreign governments' procurement 
barriers. For details on this year's report, see Title VII report, 
released on April 30, 1999.
    Steel: It is critically important that we promote free and fair 
trade abroad and that we effectively enforce our trade laws in order to 
give Americans the confidence needed to keep our markets open. In 
response to the substantial increase in U.S. steel imports beginning in 
April 1998, the Administration responded with a comprehensive and 
effective set of actions which were outlined in the President's Steel 
Report to the Congress of January 7, 1999. Thanks to these measures, 
steel imports began to drop after November 1998. The Administration is 
committed to aggressively enforcing U.S. trade law to address the 
adverse impact that unfairly traded steel imports have on U.S. steel 
companies and U.S. jobs. In the report, the Administration stated its 
willingness, if needed, to self-initiate trade cases with respect to 
steel imports from Japan--the single largest source of the import 
surge--if imports did not return to appropriate pre-crisis levels. With 
respect to the antidumping cases filed by U.S. industry and workers 
concerning imports of carbon flat-rolled products, the Commerce 
Department expedited these investigations and, with respect to imports 
from Japan and Russia, invoked the critical circumstances provision 
with a view to retroactive application of the antidumping margins. 
Additionally, the Administration invoked, for the first time, the 
market disruption article of the 1992 U.S.-Russia Trade Agreement to 
negotiate a restraint agreement on imports into the United States from 
Russia of all steel products not already subject to restraints or 
dumping orders.
    The Administration also expanded discussions on steel issues with 
Korea, the third largest source of the 1998 steel import surge, with 
the objective of substantial progress toward eliminating Korean 
government involvement in the steel sector. U.S. industry has long-
standing concerns with the Korean government's support for Korean steel 
producers, for example, through directed lending, which has resulted in 
uneconomic steel capacity expansions in Korea. For example, the U.S. 
and Korean governments conducted an exchange of letters in August 1998 
and April 1999 regarding steel.
    These actions, grounded in U.S. trade law and fully consistent with 
U.S. international obligations, resulted in a sharp reduction of 
unfairly traded steel imports beginning in December 1998. Active import 
monitoring is underway with a view to prompt application of U.S. trade 
laws should injurious import growth resume.

D. Integrating Other Economies Into the WTO System

    The WTO is engaged in accession negotiations with 30 separate 
economies, including China, Chinese Taipei, Russia, Ukraine, and 
Vietnam. Their accession to the WTO will make the trading system nearly 
universal. It will remove a source of distortion and frustration in 
trade for the United States and will give the newly-acceding members a 
greater stake in stability and prosperity beyond their borders--thus 
strengthening peace in the next century. To support both domestic 
reform and the rules of the trading system, these countries must be 
brought into the WTO on commercially meaningful terms. The result must 
be enforceable commitments to open markets in goods, services and 
agricultural products; transparent, non-discriminatory regulatory 
systems; and effective national treatment at the border and in the 
domestic economy.
    In the months to come, we will negotiate intensely with all 
acceding economies, including China--the largest prospective WTO 
Member. We have made important progress with China in the past two 
years, particularly during the visit of Premier Zhu Rongji in April 
1999, and intensive negotiations are continuing.

E. Bilateral/Regional Trade Expansion Priorities and Trade Practices of 
Concern

1. Africa
    President Clinton's Partnership for Economic Growth and Opportunity 
in Africa, announced and adopted in 1997, established a vigorous U.S. 
trade policy approach toward sub-Saharan Africa. The key objectives of 
the Partnership Initiative include: Support for economic reforms 
underway in the region; enhanced U.S.-sub-Saharan African trade and 
investment ties; support for Africa's full integration into the 
multilateral trading system; and support for sustainable economic 
development. The Partnership Initiative also aims to strengthen U.S. 
economic engagement with countries of sub-Saharan Africa.
    USTR is also committed to facilitating greater African integration 
into the global economy by helping African nations and their regional 
organizations develop greater capacity to expand trade and investment 
protection. At the recently concluded U.S.-Africa Ministerial in 
Washington D.C., the USTR underscored the resolve of the United States 
and Africa to build capacity to promote broader participation by 
African countries in the multilateral trading system. Specifically, the 
United States agreed to continue technical assistance workshops in 
Africa on the WTO. The United States and African participants also 
agreed on the need for multilateral institutions to more effectively 
coordinate and cooperate with the WTO on trade and investment issues 
affecting African countries and to support African Economic Community 
(AEC) permanent observer status in the WTO, pending the decision of the 
WTO on modalities for observership. African and U.S. representatives 
will establish a mechanism for regular consultations on WTO and related 
matters, in Geneva and Washington, as preparation for the WTO 
Ministerial advances.

[[Page 24443]]

    USTR recently hosted roundtables with African Trade Ministers on 
mechanisms to strengthen U.S.-Africa cooperation in the WTO and in the 
GSP Program and U.S. market access requirements. In 1997, USTR enhanced 
the Generalized System of Preferences Program (GSP) by adding over 
1,700 new tariff lines for least developed countries, 29 of which are 
in Africa. True to President Clinton's vision, USTR's unprecedented 
engagement with African countries has resulted in trade agreements, 
incentives for reform and regional integration, and initiatives to 
enhance Africa's participation in the global trading system.
2. Asia--Pacific
    The Clinton Administration has developed a wide-ranging program of 
bilateral, regional and multilateral initiatives to reduce barriers to 
U.S. exports of goods, services, and investment in the Asia-Pacific 
region. The major trade policy priorities for this important economic 
region are:
     To harness the momentum for reform generated by the 
financial crisis to promote economic recovery and the type of trade 
policy changes that the United States has consistently advocated: 
Enhanced market access, transparency, economic deregulation and 
investment decisions based upon market disciplines. Such trade policies 
complement firmly the goals of financial market stabilization, as 
evidenced by the strong emphasis on structural reform in the 
International Financial Institution (IFI)'s programs. The United States 
is actively pursuing these objectives both through bilateral and 
multilateral channels, in particular, the Asia Pacific Economic 
Cooperation (APEC) forum;
     To realize the commitment of APEC members to long-term 
trade and investment liberalization through improved assessment and 
implementation of individual and collective APEC action plans and 
special initiatives such as EVSL (Early Voluntary Sectoral 
Liberalization); and
     To secure full implementation of WTO obligations by APEC 
members. This aspect of USTR's work will assume heightened importance 
over the coming year given the obligation of developing countries to 
fully implement the WTO agreements on TRIPS, TRIMs, and Customs 
Valuation as of January 1, 2000. This requirement should greatly 
strengthen our efforts to address inadequate protection of intellectual 
property rights, trade-distorting investment requirements, and 
inefficient and corrupt customs practices which have been pervasive 
problems throughout the region.
    Priority issues for three of our largest trading partners in the 
region--China, Japan, and Korea--are outlined in the relevant sections 
below.
3. Canada
    Agriculture: Even though Canada is our largest trading partner and 
our second largest agricultural market, Canada continues to have 
restrictive policies limiting market access to key U.S. agricultural 
products. In 1998, the United States exported over $7 billion while 
importing $7.7 billion of agricultural products. In December 1998, we 
took an important step toward reducing these restrictions by concluding 
an initial bilateral market access package opening opportunities for 
American grain farmers, cattle ranchers and other agricultural 
producers. We are closely monitoring implementation of the December 
agreement and have already witnessed improved access for cattle and 
rail shipments of wheat. For example, over 51,000 head of cattle moved 
into Canada in the first three months of 1999, compared to only 1,000 
head of cattle in all of 1998. In addition, over 225,000 tons of wheat 
and barley were transshipped through Canada on the rail system. 
Nevertheless, Canada still maintains a number of policies that restrict 
access of U.S. agricultural products, including grain. We pressed the 
government of Canada in March 1999 concerning unequal access to 
Canadian grain handling facilities and the Canadian Wheat Board, 
excessive monitoring by the Canadian Grains Commission on wheat 
imports, and unequal access to rail cars and rail rates. We are 
continuing frequent discussions with Canada on these and other related 
issues to provide U.S. producers improved market access for 
agricultural products. We hope these issues will be resolved in the 
near term.
    Magazines: USTR continues to seek a negotiated settlement with 
Canada on its continued discriminatory practices against U.S. 
magazines. In 1997, the United States successfully challenged Canada's 
protectionist magazine regime in the World Trade Organization. By the 
WTO deadline, October 1998, Canada terminated its longstanding ban on 
split-run imports, eliminated the 1995 special excise tax on split-
runs, and modified its discriminatory postal rates and postal subsidies 
for magazines. However, Canada introduced Bill C-55, which simply 
accomplishes the same result as the import ban and excise tax--keeping 
U.S. and other foreign-produced split run magazines from competing in 
the Canadian market. If negotiators are unsuccessful in resolving this 
dispute and Bill C-55 is enacted, the United States will take action of 
an equivalent commercial effect to protect its interests.
4. China
    China remains a major focus of our bilateral trade initiatives. We 
are actively monitoring China's implementation of our trade agreements 
on intellectual property rights, textiles, and market access. Obtaining 
strengthened protection and enforcement of trademarks, copyrights and 
other intellectual property rights (IPRs), enhanced market access and 
national treatment for products that depend on intellectual property, 
such as pharmaceuticals and motion pictures, are key objectives. In 
addition, we are addressing issues relating to market access and 
investment in the telecommunications and direct marketing sectors. We 
will follow up on recent progress on resolving sanitary and 
phytosanitary (SPS) issues with China to ensure that China's government 
fully implements our market opening agreements, which will allow U.S. 
exports of meat, citrus fruit, and Pacific Northwest wheat.
    While we are working bilaterally to open up particular sectors of 
China's market, we are also working in the multilateral context to 
achieve broad-ranging reform of China's trade regime through 
negotiations on China's accession to the WTO. Recently, we have made 
significant progress on the market access aspects of these 
negotiations, including on agriculture, services, and industrial goods. 
Reaching agreement on these issues as well as on application of WTO 
rules to China will mark an important step forward in China's overall 
accession process.
5. Europe
    With the U.S.-EU trade and investment relationship being the 
largest and most complex in the world, the United States is very 
committed to strengthening trade relations with the EU. USTR will 
address problems in our trade relations both bilaterally and through 
the new multilateral negotiating round President Clinton has proposed. 
The United States hopes to make progress through the Transatlantic 
Economic Partnership (TEP) initiative begun last year. The TEP Action 
Plan calls for bilateral U.S.-EU consultations and/or negotiations in 
several specific issue areas: technical trade barriers, agriculture 
(including biotechnology and food safety), intellectual property, 
government procurement, services, electronic commerce, environment, 
labor and advancing shared values such

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as transparency, environmental protection, and participation for civil 
society. The initiative also encompasses enhanced U.S.-EU cooperation 
on multilateral trade issues. USTR also is working to ensure the 
protection of U.S. interests as the EU expands to include Central and 
Eastern European nations.
    Nevertheless, the United States has a number of serious concerns 
regarding certain EU activities related to trade. Our decision to 
request WTO consultations with the EU on its action affecting U.S. 
flight management systems (the ``avionics case'') underscores U.S. 
determination to challenge the EU's use of those measures which 
advance, in a manner inconsistent with trade rules, EU commercial 
interests at the expense of those of its trading partners. The United 
States also has serious concern with the continued lack of a 
transparent and timely EU approval process for foodstuffs containing 
genetically modified organisms (GMOs). The United States hopes to work 
in coming weeks and months with the European Commission and EU Member 
States to address this problem, but will take action if the uncertainty 
and arbitrariness reflected in recent EU actions in this area continue 
to undermine U.S. exports.
    The United States also remains extremely concerned about the EU's 
failure to implement WTO dispute settlement rulings regarding its 
discriminatory bananas and beef hormones regimes. EU inaction 
undermines the credibility of the WTO dispute settlement mechanism and 
sends a disturbing message about the EU's willingness to abide by the 
commitments it has undertaken. In light of the five rulings in the past 
six years against the EU's banana import policy, most recently on April 
6, the United States expects the EU to implement a WTO-consistent 
banana program as soon as possible. The United States also expects the 
EU to lift its WTO-inconsistent ban on meat produced with growth 
hormones by the May 13 deadline granted to the EU to comply with the 
WTO panel findings against its hormones policy. The United States has 
engaged in discussions with the European Commission regarding 
implementation of the EU's WTO obligations in both instances.
6. Japan
    The United States attaches utmost importance to opening Japan's 
markets to U.S. goods and services. To this end, the Clinton 
Administration has consistently emphasized the need for major 
structural reform and deregulation to open Japan's economy to 
competition; monitoring and enforcing existing trade agreements 
covering key sectors; the negotiation of new trade agreements; and 
addressing concerns through regional and multilateral fora. The 
Administration remains determined to press Japan to take the necessary 
steps to dismantle the numerous trade and regulatory barriers that have 
sheltered the Japanese economy from foreign competition for far too 
long.
    Insurance: The United States and Japan concluded bilateral 
insurance agreements in 1994 and 1996 designed to open to competition 
the world's second largest insurance market, with annual premium 
revenues of $329 billion in JFY 1997. In December 1997, Japan agreed to 
bind certain key commitments from these agreements under the WTO 
Financial Services Agreement.
    The bilateral agreements have had some positive impact. For 
example, in September 1997 the Ministry of Finance granted the first 
ever license for direct marketing of risk-differentiated automobile 
insurance to a U.S. firm. Nevertheless, the Administration is seriously 
concerned that Japan has not fully implemented all of the specific 
deregulation actions called for under our bilateral insurance 
agreements, including reform of its rating organizations and timely 
approval of product applications. In addition, the United States is 
extremely concerned with the diminution of the ``third sector'' 
safeguards caused by increased activity on the part of Japanese 
insurance firms and subsidiaries in this market segment critical to 
U.S. insurers. Since all of the primary sector deregulation criteria 
had not yet been fulfilled, USTR announced on July 1, 1998, that the 
United States does not support the initiation of the two-and-one-half 
year clock regarding termination of the third sector safeguards. The 
Administration is prepared to utilize all of the tools at our disposal 
to ensure the full benefits to U.S. industry from our bilateral 
Insurance Agreement.
    The U.S. underscored its concerns regarding both primary and third 
sector issues at consultations with Japan under the bilateral 
agreements held on April 16 in Washington. These consultations also 
included a constructive regulator-to-regulator exchange between 
representatives of the National Association of Insurance Commissioners 
and select state insurance commissioners, and Japan's Financial 
Supervisory Agency. It is essential that both governments expeditiously 
resolve outstanding issues. The U.S. has proposed that the next 
insurance talks take place in Tokyo this summer.
    Autos and Auto Parts: The United States and Japan concluded an 
agreement in 1995 to eliminate market access barriers and significantly 
expand sales opportunities in the automotive sector. Although initial 
results in many areas were satisfactory, recent progress toward 
achieving the Agreement's key objectives has been disappointing. Sales 
in Japan of autos produced by the Big Three in North America declined 
34.5 percent in 1998, after declining 20 percent in 1997. Exports of 
U.S.-made auto parts to Japan fell 7.5 percent in 1998, the first drop 
since 1991, and the continued fall off in new orders of U.S. auto parts 
by Japanese manufacturers suggest that this decline is likely to 
continue. These trends are the result of a variety of factors, 
including Japan's recession, which has inhibited consumer spending and 
business investment and weakened the yen, and continuing market access 
and regulatory issues.
    To address these concerns, the U.S. Government presented Japan at 
the annual review of the Automotive Agreement in October 1998 with 11 
proposals, including measures to strengthen and improve access to 
dealerships, the main distribution channel to Japan's automotive 
market. The U.S. Government also urged Japan to eliminate unnecessary 
regulations in the auto parts aftermarket that limit the ability of 
independent garages to compete for high-profit vehicle inspection and 
repair business. While Japan has agreed to implement some of these 
proposals, the U.S. Government will continue to urge Japan at all 
levels to take concrete steps to achieve additional progress under the 
Agreement. In addition, the United States will continue to monitor 
developments regarding Japan's new fuel economy regulations to ensure 
that this rulemaking process is fully transparent and that foreign 
vehicle manufacturers receive treatment no less favorable than that 
offered to domestic manufacturers, recognizing the important 
environmental concerns that underlie these regulations.
    Flat Glass: The 1995 U.S.-Japan Flat Glass Agreement has helped 
American firms to a limited extent, but the basic problem remains the 
same: U.S. glass manufacturers still have a minuscule share of the 
Japanese flat glass market, despite the fact that Japanese companies 
and distributors readily acknowledge the competitiveness of U.S. glass. 
While Japan committed in the agreement to take measures to facilitate 
access by foreign companies to the Japanese glass

[[Page 24445]]

distribution system, major Japanese distributors still do not carry 
foreign glass in meaningful quantities. The three dominant Japanese 
producers continue to exert tight control of the domestic glass 
distribution system in many ways, including majority ownership of glass 
distributors, equity and financing ties, employee exchanges, and 
purchasing quotas. Indeed, there is evidence that their control is 
increasing, as they use Japan's tight credit market to impose closer 
financial ties on the most important glass distributors.
    Japan recently agreed with the United States to examine these 
issues in surveys of the sector by the Japan Fair Trade Commission 
(JFTC) and the Ministry of International Trade and Industry. The former 
will be particularly important in this regard, and it is therefore 
imperative that the JFTC scrutinize the core problems in a thorough and 
credible way. Japan has also agreed to U.S. proposals to hold 
government-industry consultations on access to and the state of Japan's 
flat glass market this Spring and to allow U.S. Government 
representatives to attend the Japanese Government's periodic meetings 
with flat glass distributors to remind them of the objectives and 
provisions of the agreement. This progress notwithstanding, the 
principal impediments to genuine market access in the flat glass sector 
remain. The United States will continue to urge Japan to take actions 
to remove these barriers.
7. Korea
    Korea is one of the United States' major trading partners but has 
been described as one of the toughest markets in the world for doing 
business. In response to its financial crisis, the Kim Dae Jung 
administration has implemented structural reforms aimed at putting the 
Korean economy on a more open, market-oriented basis. Resistance to key 
trade reforms remains, however, and many issues have arisen on Korea's 
compliance with its international obligations.
    The Administration is focused on eliminating Korean barriers to 
entry and distribution of U.S. products using U.S. trade law, WTO 
dispute settlement procedures, negotiation and enforcement of bilateral 
trade agreements, and close coordination with other countries. In 
addition, the Administration will, through an interagency process, 
closely monitor Korea's implementation of its trade-related 
stabilization commitments.
    Over the past year, the Administration has made solid progress 
toward opening the Korean market to U.S. goods. In October 1998, we 
successfully concluded a Memorandum of Understanding (MOU) with the 
Government of the Republic of Korea to improve market access for 
foreign motor vehicles. Under this MOU, Korea agreed to (1) bind in the 
WTO its 80 percent applied tariff rate at 8 percent; (2) lower some of 
its motor-vehicle-related taxes and to eliminate others; (3) adopt a 
self-certification system by 2002; (4) streamline its standards and 
certification procedures; (5) establish a new financing mechanism to 
make it easier to purchase motor vehicles in Korea; and (6) continue to 
actively and expeditiously address instances of anti-import activity 
and to promote actively a better understanding of free trade and open 
competition. This MOU was negotiated after Korea's motor vehicle trade 
barriers were named as a ``priority foreign country practice'' in the 
1997 Super 301 report and USTR initiated a section 301 investigation of 
such barriers. On October 20, 1998, with the conclusion of the MOU, the 
USTR decided to terminate this investigation and to monitor Korea's 
implementation of the measures in the MOU to eliminate those barriers. 
The first formal review of Korea's implementation of the 1998 MOU was 
held on April 29 and 30, 1999. The Administration will continue to work 
closely with the Korean Government to ensure that the provisions in the 
1998 MOU are fully and faithfully implemented in a manner that 
substantially increases market access for foreign motor vehicles in 
Korea and establishes conditions so that the Korean motor vehicle 
sector operates according to market principles.
    In addition, the Deputy U.S. Trade Representative concluded an 
exchange of letters in August 1998 on the operation and sale of Hanbo 
Steel, and the U.S. Government initiated comprehensive discussions with 
Korea on broader steel issues of concern to U.S. industry. In April 
1999, the Deputy U.S. Trade Representative concluded another letter 
exchange with the Korean Government to address issues of concern and 
interest to U.S. industry relating to POSCO, Hanbo, and competition in 
the Korean steel sector generally.
    In July 1998, a WTO dispute settlement panel ruled in favor of the 
United States and the European Communities (EC) by finding Korea's 
taxes on alcoholic beverages to be discriminatory. In January 1999, the 
WTO Appellate Body upheld this panel decision, and the panel and 
Appellate Body reports were adopted on February 17, 1999. The United 
States and the EC have requested arbitration to determine the length of 
the period within which Korea will come into compliance with the 
reports.
    Pharmaceuticals: One of the top trade expansion priorities on the 
U.S.-Korea trade agenda is Korea's treatment of foreign, research-based 
pharmaceuticals. Korea does not now provide imported drugs with 
national treatment with respect to listing and pricing on the Korean 
national health insurance reimbursement schedule, and the current 
reimbursement system discourages hospitals and other large end-users 
from buying imported drugs. Dispensers of imported products also must 
comply with additional administrative procedures for reimbursement. 
U.S. pharmaceutical producers face other market access barriers in 
Korea including non-science-based requirements for clinical testing. In 
addition, the United States has raised concerns about Korea's regime 
for protecting test data against unfair commercial use. Finally, lack 
of coordination between Korean health authorities and Korean IPR 
authorities allows manufacturers of patent infringing products to gain 
approval for the launch of their products into the Korean market to the 
commercial detriment of the holders of the patents.
    In response to high-level bilateral consultations and a letter from 
the Deputy U.S. Trade Representative, the Korean Government has 
indicated that it is taking steps to address some of the U.S. 
Government's and industry's concerns about treatment of foreign 
pharmaceuticals. The Administration will continue its active efforts to 
further advance progress on our pharmaceuticals trade issues until U.S. 
concerns are fully and satisfactorily addressed. Specifically, the U.S. 
Government will engage the Korean Government on U.S.-Korea 
pharmaceuticals-related trade issues and a Bilateral Investment Treaty 
(BIT), in an out-of-cycle Special 301 review on TRIPS consistency, and 
in other fora.
8. Mexico
    Since 1994, trade with Mexico has largely been governed by the 
North American Free Trade Agreement (NAFTA). Mexico is also a WTO 
Member. As a result, U.S. trade and investment relations with Mexico 
are subject to a set of comprehensive disciplines setting high 
standards of openness and providing for effective resolution of 
disputes covered by these agreements. By any measure, NAFTA has 
contributed to the increased trade between the United States and 
Mexico. During NAFTA's first five years, U.S.

[[Page 24446]]

merchandise exports to Mexico increased by 90 percent, with imports 
from Mexico increasing by 137 percent. As is to be expected from such a 
large trading relationship, the United States does continue to have 
concerns about Mexico's trade practices in some areas. The most 
important of these concern Mexico's enforcement of its intellectual 
property laws, telecommunications policy, and market access for high 
fructose corn syrup.
    Mexico has committed to implement and enforce advanced levels of 
intellectual property protection and has just enacted new legislation 
to this effect. However, as noted in USTR's Special 301 Report issued 
today, piracy and counterfeiting remain major problems, with current 
enforcement action inadequate to deter piracy. Mexico has been added to 
the Special 301 Watch List.
    Regarding telecommunications, the United States is concerned that 
ongoing regulatory processes are non-transparent and potentially 
ineffective. USTR's Section 1377 Report, released on March 30, 
expressed doubts about Mexico's implementation of its commitments under 
the WTO agreement with respect to international services and 
interconnection rates. The Mexican government has said it will review 
its international service and interconnection/universal service 
regulations in 1999. USTR will conduct an out-of-cycle examination by 
July 30 regarding the progress of Mexico's ongoing regulatory process, 
and expects that Mexico will respond favorably to the requests from all 
the new entrants to permit International Simple Resale (ISR) 
immediately. At that time USTR will take appropriate action including, 
if warranted, the initiation of WTO dispute settlement proceedings, to 
assure that new competitors in the market are treated fairly.
    The United States continues to raise its concerns regarding the 
Mexican Government's application of antidumping measures on U.S. 
exports of high fructose corn syrup (HFCS). A dispute settlement panel 
was established by the World Trade Organization in November 1998 and 
hearings were held in April 1999. A decision is expected late this 
year. U.S. exporters are also challenging Mexico's measure under the 
Chapter 19 provisions of the NAFTA and last year filed a Section 301 
petition with USTR, alleging that the policies and practices of the 
Government of Mexico are unreasonable and deny fair and equitable 
market opportunities for U.S. exporters. USTR accepted the petition for 
review on May 15, 1998.
9. Middle East
    Building upon our Free Trade Agreement with Israel, the United 
States has inaugurated a program that aims to bolster the peace 
process, while advancing American interests. Starting with a framework 
of bilateral trade and investment consultations in the region and a 
newly inaugurated industrial zones program, the United Sates will help 
the Middle Eastern countries work toward a shared goal of increased 
intra-regional trade. Most recently, the USTR expanded the first 
Jordan-Israel Qualifying Industrial Zone, designated another, and 
completed a Trade and Investment Framework Agreement with Jordan.
10. Western Hemisphere
    The Miami and Santiago Summits of the Americas called on us to 
complete work on a Free Trade Area of the Americas no later than the 
year 2005. This year, also in accordance with Summit directions, the 
United States intends to achieve concrete progress toward the FTAA in 
the work of our nine Negotiating Groups (market access, agriculture, 
services, investment, government procurement, intellectual property, 
anti-dumping and countervailing duties, competition policy, and dispute 
settlement) and through business facilitation measures. In addition, 
the FTAA has initiated a private sector-public sector experts group on 
electronic commerce to advise the ministers on how electronic commerce 
can benefit the countries of this hemisphere, especially in the context 
of the FTAA negotiations. The ministers also have established a 
government committee on the participation of civil society, which has 
solicited the views of the different sectors of society concerning the 
FTAA and will analyze them for the consideration by the ministers at 
the next FTAA ministerial in Toronto in November 1999.
    At the same time, the Clinton Administration will seek approval 
from Congress for an expanded and improved Caribbean Basin Initiative 
with duty-free treatment for products currently excluded from the 
program. The Administration seeks to use the program to promote the 
adoption by beneficiary countries of sound trade and investment policy 
reforms that will prepare them for the obligations and responsibilities 
of the FTAA.
Demetrios J. Marantis,
Assistant General Counsel, Section 301 Committee.
[FR Doc. 99-11413 Filed 5-5-99; 8:45 am]
BILLING CODE 3190-01-P