General Agreement on Tariffs and Trade: Uruguay Round Final Act Should
Produce Overall U.S. Economic Gains (Volume 2) (Chapter Report, 07/29/94,
GAO/GGD-94-83B).

The Final Act resulting from the Uruguay Round of negotiations of the
General Agreement on Tariffs and Trade was signed on April 15, 1994.
Because Congress will be considering legislation to implement the Final
Act for the United States, GAO reviewed the negotiating objectives for
the round, assessed what was accomplished, and analyzed the projected
impact the Final Act would have in a number of areas. This second of two
volumes is a reference document that (1) discusses the original trading
problems that led to the Uruguay Round negotiations; (2) identifies the
U.S.' specific negotiating objectives; (3) presents the results of
negotiations as provisions of the final agreement; (4) analyzes the
likely impact of the agreement, including whether it resolves the
original trading problems; and (5) discusses issues that remain in
contention and those that require further study. In GAO's view, the
Final Act could produce overall economic gains for the United States,
although some sectors of the U.S. economy would shoulder a
disproportionate burden as a result of foreign competition. For example,
four different studies have projected job losses, ranging from 72,000 to
255,000 over 10 years, for the textile and apparel industries under
complete trade liberalization. Because the Final Act is expected to
dislocate workers, their needs must be considered. Both deficit
reduction and liberalized trade are important to the long-term health of
the U.S. economy. Finding offsets to the five-year tariff revenue losses
as required by the Budget Enforcement Act would preserve the overall
economic gains of the Final Act and maintain deficit neutrality.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-94-83B
     TITLE:  General Agreement on Tariffs and Trade: Uruguay Round Final 
             Act Should Produce Overall U.S. Economic Gains
             (Volume 2)
      DATE:  07/29/94
   SUBJECT:  Restrictive trade practices
             Foreign trade agreements
             Foreign trade policies
             International trade
             International economic relations
             Tariffs
             International trade restriction
             International trade regulation
             Economic growth
             International organizations
IDENTIFIER:  NAFTA
             North American Free Trade Agreement
             Fair Trade in Financial Services Act
             DOL Economic Dislocation and Worker Adjustment Assistance 
             Program
             Trade Adjustment Assistance Program
             
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Cover
================================================================ COVER


Report to the Congress

July 1994

THE GENERAL AGREEMENT ON TARIFFS
AND TRADE - URUGUAY ROUND FINAL
ACT SHOULD PRODUCE OVERALL U.S. 
ECONOMIC GAINS

GAO/GGD-94-83b Volume 2

GAO/GGD-94-83b

Uruguay Round Final Act


Abbreviations
=============================================================== ABBREV

  ACTPN - Advisory Committee on Trade Policy and Negotiations
  AD - antidumping
  CEA - Council of Economic Advisers
  CFTA - Canadian Free Trade Agreement
  CAFE - Corporate Average Fuel Economy
  CRS - Congressional Research Service
  CVD - countervailing duty
  ECU - European Currency Unit
  EFTA - European Free Trade Association
  EPA - Environmental Protection Agency
  EPI - Economic Policy Institute
  ESI - Economic Strategy Institute
  EU - European Union
  FDI - foreign direct investment
  FOGS - Functioning of the GATT System
  G-7 - Group of Seven leading industrial nations
  GATS - General Agreement on Trade in Services
  GATT - General Agreement on Tariffs and Trade
  GNP - gross national product
  GDP - gross domestic product
  GSP - Generalized System of Preferences
  IBM - International Business Machines
  IFAC - Industry Functional Advisory Committee
  IIE - Institute for International Economics
  IMF - International Monetary Fund
  IPAC - Industry Policy Advisory Committee
  IPC - Intellectual Property Committee
  IPR - Intellectual Property Rights
  ISAC - Industry Sector Advisory Committee
  ITC - International Trade Commission
  ITO - International Trade Organization
  LCA - large civil aircraft
  MFA - Multi-Fiber Arrangement
  MFN - most favored nation
  MSA - Multilateral Steel Agreement
  NAFTA - North American Free Trade Agreement
  NAM - National Association of Manufacturers
  OECD - Organization for Economic Cooperation and Development
  TNC - Trade Negotiations Committee
  TRIMs - Trade-Related Investment Measures
  TRIPs - Trade-Related Aspects of Intellectual Property Rights
  U.N.  - United Nations
  UNCED - United Nations Conference on Economic Development
  UPOV - International Union for the Protection of New Varieties of
     Plants
  UR - Uruguay Round
  USDA - U.S.  Department of Agriculture
  USTR - U.S.  Trade Representative
  VRA - voluntary restraint agreement
  WIPO - World Intellectual Property Organization
  WTO - World Trade Organization

PREFACE
============================================================ Chapter 0

This volume of GAO's study of the General Agreement on Tariffs and
Trade's (GATT) 1994 Uruguay Round (UR) agreement is a reference
document assessing the major issues associated with the agreement. 
Our assessment (1) discusses the original trading problems that led
to the Uruguay Round negotiations; (2) identifies the U.S.' specific
negotiating objectives; (3) presents the results of negotiations as
provisions of the final agreement; (4) analyzes the likely impact of
the agreement, including whether it resolves the original trading
problems; and (5) discusses issues that remain in contention and
those that require further evaluation. 

We report information on the Uruguay Round's efforts to liberalize
trade and investment worldwide, the creation of the World Trade
Organization (WTO), the potential impact of the agreement, and in
appendix I future WTO issues evolving from the UR.  Specifically, we
address six major areas of the agreement: 

  the agreement's efforts to facilitate increased world wide trade in
     goods through reduction in tariffs (ch.  2);

  the agreement's creation of WTO and related revised dispute
     resolution procedures (ch.  3);

  the agreement's revision of multilateral trade rules provisions: 
     subsidies, antidumping, and safeguards (ch.  4);

  the agreement's expansion of coverage to new areas:  intellectual
     property, services, and trade-related investment (ch.  5);

  the agreement's further expansion in areas already covered by GATT: 
     agriculture, textiles and clothing, government procurement, and
     trade and the environment (ch.  6); and

  other negotiations linked to the Uruguay Round:  multilateral steel
     and aircraft subsidies negotiations (ch.  7). 

Any questions concerning this study can be addressed to Allan I. 
Mendelowitz, Managing Director, or JayEtta Z.  Hecker, Director,
International Trade, Finance, and Competitiveness, who may be reached
on (202) 512-5889. 

Charles A.  Bowsher
Comptroller General
of the United States


INTRODUCTION
============================================================ Chapter 1


   BACKGROUND
---------------------------------------------------------- Chapter 1:1

Meeting in Marrakesch, Morocco, on April 15, 1994, the leaders from
more than 117 countries signed the Final Act of the General Agreement
on Tariffs and Trade (GATT) Uruguay Round (UR) negotiations.  As the
most comprehensive and ambitious GATT agreement ever completed, the
UR agreement is expected to boost annual global income by $235
billion in the year 2005, according to estimates from the GATT
Secretariat. 

Implementation of the UR agreement is meant to further open markets
by reducing tariffs\1 worldwide by one-third; strengthen GATT as an
institution through the creation of a World Trade Organization (WTO)
and a revised multilateral dispute settlement mechanism; improve
"disciplines," or GATT procedures, over unfair trade practices;\2
broaden GATT coverage by including areas of trade in services,
intellectual property rights, and trade-related investment that
previously were not covered; and provide increased coverage to the
areas of agriculture, textiles and clothing, government procurement,
and trade and the environment.  Further, studies of the expected
impact of the UR agreement anticipate net gains to the United States
and world economies although estimates vary as to the size of the
gain. 

Nevertheless, concerns exist among some U.S.  industry sectors and
Members of Congress that (1) the U.S.' independence in conducting
trade policy could be affected by the new WTO and the revised dispute
settlement mechanisms, (2) the creation of permissible subsidies
under the UR agreement expressly for research and development could
promote a de facto industrial policy for the United States in which
the government actively supports selected industries, and (3) some
specific industries would suffer from the effects of increased
competition and resource reallocation. 


--------------------
\1 Tariffs are a tax on imported goods to raise revenues and protect
domestic industries from foreign competition. 

\2 Unfair trade practices include the dumping of an exported product
below the price charged for the same good in the "home" market of the
exporter, or the subsidizing of a product by a government. 
Throughout this volume, articles of the original 1947 GATT agreement
and subsequent rounds through the Kennedy Round are identified by
roman numerals, and the articles of the Tokyo and UR agreements are
identified by arabic numbers. 


      HISTORY OF GATT AND THE
      URUGUAY ROUND
-------------------------------------------------------- Chapter 1:1.1

The Uruguay Round of GATT has a long history.\3 Wanting to prevent a
return to the disastrous protectionistic measures of the 1930s, over
50 countries began work in 1947 on a draft Charter for an
International Trade Organization (ITO).  The draft covered not only
trade but also rules concerning employment, commodity agreements,
restrictive business practices, international investment, and
services.  ITO was seen as a complement to other international
institutions--the International Bank for Reconstruction and
Development (the World Bank) and the International Monetary fund
(IMF)--created to promote global economic recovery and development. 

Although the ITO charter was agreed to in a United Nations (U.N.)
conference in Havana, Cuba, in 1948, the U.S.  Congress did not
support creating the organization.  However, negotiations had
simultaneously begun among 23 nations--including the United
States--aimed at reducing tariff barriers, and these nations adopted
some of the trade rules contained in the draft ITO charter.  The
tariff concessions reached by the 23 nations, along with the rules
they adopted, were called the "General Agreement on Tariffs and
Trade," and they entered into force in January 1948.  Because a
permanent ITO was not created, GATT became a provisional arrangement,
and its members became "contracting parties." GATT has remained the
only multilateral instrument governing international trade, founded
on the belief that free trade would help the economies of all nations
grow. 

Before the UR, signatory countries had conducted seven prior rounds
of trade negotiations.  The first five rounds, completed between 1947
and 1962, concentrated on reducing tariff rates and eliminating
quantitative restrictions on trade in manufactured products.  The
sixth round, the Kennedy Round, lasted from 1962 to 1967.  Like the
first five rounds, it focused on tariff cuts, but it also addressed
for the first time certain nontariff barriers to trade, such as
antidumping practices. 

The seventh round, the Tokyo Round, lasted from 1973 to 1979.  In
addition to agreeing to further cuts in tariff rates, negotiators
developed a series of agreements, or codes of conduct, which set
rules for addressing nontariff barriers to trade.  The agreement on
tariffs reduced rates on trade in manufactured goods among major
developed countries by an average of about 34 percent.  Negotiators
in the Tokyo Round also developed new GATT rules for subsidies\4 and
countervailing measures,\5 technical barriers to trade, import
licensing procedures, government procurement, customs valuation, and
antidumping measures.\6


--------------------
\3 Portions of this section are based on Lenore Sek, Trade
Negotiations:  The Uruguay Round, Economic Division, Congressional
Research Service, Library of Congress (Washington, D.C.:  Feb.  8,
1994)

\4 Subsidies are generally considered to be a bounty or a grant
provided by a government that confers a benefit on the production,
manufacture, or distribution of a good.  (GATT rules would not
usually apply to government assistance for defense-related goods). 
Government subsidies include direct cash grants, concessionary
(below-market-interest rate) loans, loan guarantees, and tax credits. 

\5 Countervailing measures are defined as special customs duties
imposed by importing countries to offset the economic effect of a
subsidy and thus prevent injury to domestic industries caused by
subsidized imports. 

\6 Antidumping measures are defined as a duty or fee, imposed to
neutralize the injurious effect of unfair pricing practices. 


         URUGUAY ROUND
------------------------------------------------------ Chapter 1:1.1.1

Although past GATT negotiations had made significant accomplishments
in removing barriers to trade, many observers maintained that
important reforms were still needed to improve GATT rules and
procedures, to strengthen the codes negotiated in the Tokyo Round,
and to expand the coverage of GATT to new areas of international
trade in order to become more relevant to the new global trading
environment.  This new environment was characterized by the
integration of national economies into the world economy and by
increased international investment and trade in services. 

A conference in Punta del Este, Uruguay, in September 1986 launched a
new round of GATT negotiations--called the Uruguay Round.  The
ministerial declaration signed by trade ministers at the conclusion
of the conference set the agenda for the UR and called for the
completion of the UR within 4 years.  (The UR actually lasted more
than 7 years.) The declaration established a Trade Negotiations
Committee (TNC) that had oversight of the negotiations, and two
groups that reported to TNC:  a Group of Negotiations on Goods and a
Group of Negotiations on Services. 

In December 1988, a ministerial-level, midterm review of progress
began.  The review was intended to assess progress during the first
half of the UR and to establish framework agreements for negotiations
over the rest of the UR.  Of the 15 issues under negotiation,
framework agreements were reached on 11 issues.  The principal
unresolved issue was agriculture.  The entire package of agreements
was put on hold while the contracting parties (mainly the United
States and the European Community, now called the European Union)
continued negotiations on agriculture. 

In December 1990, trade ministers held a meeting in Brussels,
Belgium, with the intent of reaching a final trade agreement and
ending the UR.  However, the United States and the European Union
(EU) continued to argue over agriculture, and the meeting ended
without success.  After
2 months of intensive consultations with major parties, the GATT
Director General (then Arthur Dunkel) said that a basis for
continuing the talks had been reached, and he reconvened the
negotiators. 

In December 1991, Director General Dunkel proposed a 450-page draft
final text, and negotiators agreed to use the text as a basis for
their continuing talks.  This Dunkel text also set out much of the
structure and detail of the final Uruguay Round agreement that was
reached 2 years later.  After slow progress, a breakthrough came in
November 1992, when the United States and the EU resolved a major
agricultural trade dispute over EU subsidies for soybean production. 
As part of that settlement, which is referred to as the "Blair House
Accord," the two trading partners also resolved broader agricultural
trade problems that had been stalling the UR. 

During the first half of 1993, little progress was made in the talks,
partly because of leadership changes in the United States, the EU,
and GATT.  Headway occurred in July 1993, at the annual economic
summit of the seven leading industrial nations (the Group of
Seven--G-7),\7 when the United States, the EU, Japan, and Canada (the
Quad) reached a major agreement on industrial tariffs.  Under this
agreement on industrial goods, the Quad said they would reduce
tariffs to zero on eight products, harmonize tariffs on certain
chemical products, reduce peak tariffs on three groups of products,
and cut tariffs by an average of 33 percent on five product groups. 

Also in July 1993, Congress set new deadlines for fast-track
procedures to apply to a UR trade agreement.  Under Public Law (P.L.)
103-49, the President had to notify Congress no later than December
15, 1993, of his intent to enter into a trade agreement before April
15, 1994 (allowing a 120-day period for congressional review). 
Negotiators then targeted mid-December for conclusion of the UR. 

On December 15, 1993, GATT Director General Sutherland gaveled the UR
to an end, and President Clinton notified Congress that he intended
to enter into a UR trade agreement.  And, in April 1994, GATT
member-nation officials signed the UR "Final Act."


--------------------
\7 G-7 members include the United States, Canada, the United Kingdom,
Japan, Germany, France, and Italy. 


      OVERALL AND U.S.  URUGUAY
      ROUND OBJECTIVES GENERALLY
      ACHIEVED
-------------------------------------------------------- Chapter 1:1.2

The UR agreement generally achieved the objectives of the
negotiations, according to U.S.  Trade Representative (USTR)
officials.  These objectives, set out in the 1986 ministerial
declaration, were designed to bolster the multilateral trade regime
by (1) opening markets through reducing tariffs and eliminating
certain nontariff barriers\8 and subsidies; (2) strengthening
international disciplines and procedures dealing with unfair trade
practices; (3) broadening GATT principles to areas not previously
covered, such as trade in services, investment, and intellectual
property rights; and (4) extending more effective disciplines to
agricultural trade. 

Likewise, the United States was successful in achieving most of its
own goals for the UR as set out by Congress in the 1988 Omnibus Trade
and Competitiveness Act (19 U.S.C.  2901).  For example, in the 1988
act Congress sought to (1) achieve better access to foreign markets
for competitive U.S.  industries by reducing both tariff and
nontariff barriers; (2) adopt a more timely and effective dispute
resolution mechanism; (3) reduce trade-distorting and foreign
government subsidies and unfair trade practices in a variety of
sectors; (4) extend GATT coverage to services, a sector that yielded
about a $67-billion trade surplus for the United States in 1993; and
(5) increase protection against unauthorized use of patented and
copyrighted products. 

As discussed in volume 1, while generally both sets of negotiating
objectives were achieved, some provisions and potential effects of
the agreement are subject to a variety of interpretations and
concerns from a number of U.S.  industries and other sources.  Some
U.S.  industries are disappointed by what they perceived as
inadequate access to overseas markets, and some are concerned about
losing protection provided by U.S.  trade laws.  In addition, a
number of questions remain about the implementation of the agreement
that the United States should be mindful of so that U.S.  interests
are not compromised.  (See the following chapters of this report.)
And continued tracking by the United States of unfinished UR agenda
items is also essential.  For example, negotiations were postponed in
the telecommunications, financial services, audiovisual, and steel
sectors (see chs.  5 and 7). 


--------------------
\8 GATT has developed more than 40 categories of nontariff barriers. 
Most of them are measures used at the border to restrict the inflow
of foreign goods.  They can be classified into five groups: 
quantitative import restrictions such as quotas; voluntary export
restraints; price controls; tariff-type measures such as seasonal
tariffs; and monitoring measures. 


      ADVISORY COMMITTEES
      IMPORTANT IN FORMULATING
      U.S.  NEGOTIATING POSITION
-------------------------------------------------------- Chapter 1:1.3

According to USTR, private sector advisory committees were very
important in developing the U.S.' negotiating position in the UR. 
The U.S.' negotiating position, coordinated by USTR, was formulated
using extensive congressional and private sector consultations,
according to USTR.  In addition to holding briefings with trade
associations and private sector organizations throughout the country,
USTR relied heavily on its federally mandated private sector advisory
committees.  The private sector advisory system consists of almost 40
committees, with a total membership of approximately 1,000 advisers. 
The system is arranged in tiers:  the President's Advisory Committee
on Trade Policy and Negotiations (ACTPN); seven policy advisory
committees;\9 and more than 30 technical,\10 sectoral,\11 and
functional advisory committees.\12 By providing technical advice to
U.S.  negotiators, the industry sector and functional advisory
committees form the backbone of the advisory system.  These advisory
committees submitted advisory reports on the UR agreement to Congress
between January 12 and 15, 1994.  The results of these reports,
including support for and concerns about the UR agreement, are
reflected in the subsequent chapters of this report. 


--------------------
\9 The seven policy-level committees are the Agricultural, Defense,
Industry, Investment, Intergovernment, Labor, and Services Policy
Advisory Committees. 

\10 The agricultural technical advisory committees include the
Committee on Cotton, Dairy Products, Fruits and Vegetables, Grains
and Feed, Livestock and Livestock Products, Oilseed and Oilseed
Products, Poultry and Eggs, Tobacco, Sweeteners and Tropical
Products, and Processed Foods. 

\11 The industry sector advisory committees include the Committee on
Aerospace Equipment; Capital Goods; Chemicals and Allied Products;
Consumer Goods; Electronic and Instrumentation; Energy;, Ferrous Ores
and Metals; Building Products and Other Materials; Lumber and Wood
Products; Nonferrous Ores and Metals; Paper and Paper Products;
Services; Small and Minority Business; Textiles and Apparel;
Wholesaling and Retailing; Footwear, Leather and Leather Products;
and Transportation, Construction, and Agricultural Equipment. 

\12 The industry functional committees are the Customs Matters,
Standards, and Intellectual Property Rights Industry Functional
Advisory Committees. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:2

We prepared this report on the Uruguay Round agreement's major issues
to assist Congress in its deliberations on the agreement.  We focused
on six major issues of the UR--market access efforts, creation of
WTO, revision of GATT trade rules, expansion of GATT coverage to new
areas, further expansion of GATT in areas already covered, and the
status of other negotiations linked to the Uruguay Round.  For each
issue our objective was to obtain information on and assess (1) the
original trading problems that led to the negotiations, (2) the U.S.'
specific negotiating objectives, (3) the results of the negotiations
as reflected in provisions of the final agreement, (4) the possible
impact of the agreement including whether it resolves the original
trading problems, and (5) any issues that remain in contention or
require further evaluation by the United States.  (See app.  I for
future WTO issues.)

To obtain information on the trade problems that lead to the UR, the
U.S.' negotiating objectives, the results of the negotiations, the
possible impact of the agreement, and any issues that remain in
contention and/or require further evaluation, we reviewed government
and institutional documents and studies from the United States (i.e.,
the U.S.  International Trade Commission (ITC), USTR publications,
and the Congressional Research Service (CRS)), the EU, and the GATT
Secretariat.  In the United States, we interviewed negotiators and
other officials from the Office of the U.S.  Trade Representative;
the U.S.  Departments of Agriculture, Commerce, Labor, State, and the
Treasury; and ITC.  We also met with officials at the U.S.  Mission
to the EU in Brussels and at the U.S.  Mission to GATT in Geneva.  In
Brussels, we interviewed negotiators and officials at the Commission
of the European Union, and international trade attorneys.  In Geneva,
we interviewed GATT member-nation negotiators and officials, and
high-level GATT Secretariat officials. 

Information in this report interpreting the UR agreement's provisions
is drawn from a number of sources, including what U.S., EU, and
developing nations' negotiators and officials, and GATT Secretariat
officials provided in interviews and in written documentation.  We
also drew upon our previous reports. 

In order to provide additional perspective on the results and
potential impact of the UR agreement, we analyzed other reports and
studies, such as ACTPN, the Industry Policy Advisory Committee
(IPAC), and Industry Sector and Industry Functional Advisory
Committee (ISAC and IFAC) reports; studies by the Institute for
International Economics (IIE), the Economic Policy Institute (EPI),
and the Economic Strategy Institute (ESI); and articles published in
various private books and journals.  We did not verify the accuracy
of the information provided in these reports and studies. 

To obtain additional information on the UR agreement's potential
impact, we reviewed papers presented at various conferences on the
results of the UR.  We also interviewed representatives at the U.S. 
Council on Competitiveness, the U.S.  Chamber of Commerce, the
University of Michigan's Economics Department; at various
associations such as the National Association of Manufacturers, the
Motion Picture Association of America, the Pharmaceutical
Manufacturers Association; and at various U.S.  trade law firms,
think tanks, and consulting firms. 

We conducted our work between August 1993 June 1994 in accordance
with generally accepted government auditing standards. 

On July 13, 1994, we met with the Counselor to USTR, the Assistant
USTR for Economic Affairs, and the Deputy Assistant USTR for
Multilateral Trade Negotiations to obtain their comments on our
report.  The USTR officials agreed with the report's basic message
that the agreement is in the overall national economic interest and
felt it was balanced in its presentation of the issues. 
Specifically, they stated that our presentation of the issues
surrounding WTO, permissible subsidies, and GATT's budget
implications was accurate and fair, as was our discussion of
negotiating objectives achieved and the economic benefits and costs
of the Final Act. 

Regarding clarifying comments, USTR officials suggested that
additional balance would be added to the issue of job losses in the
U.S.  textile and apparel industry due to implementation of the Final
Act by including job loss figures on this issue from ITC's November
1993 study, The Economic Effects of Significant U.S.  Imports
Restraints.  We made the appropriate changes to the report based on
our review of the ITC study. 

In May 1994, we assured the technical accuracy of our report, through
discussions with

  USTR officials responsible for negotiating each of the various
     components of the UR agreement;

  GATT Secretariat officials administering various components of the
     UR negotiations, including agriculture, textiles, and
     intellectual property;

  Several program officials from the U.S.  Departments of Commerce,
     Agriculture, and the Treasury, such as Commerce Department
     Patent and Trademark officials, and Treasury Department
     International Investment officials; and

  Various private sector trade experts, including representatives of
     industries affected by the UR agreement,such as the motion
     picture, steel, textile, pharmaceutical, recording, banking, and
     telecommunications industry; and trade lawyers expert in
     antidumping, countervailing duties, and dispute settlement. 

We included their technical and clarifying comments where appropriate
in volumes 1 and 2. 


MARKET ACCESS ACHIEVEMENTS
============================================================ Chapter 2

The market access for goods agreement is a key part of the Uruguay
Round's overall goal of liberalizing international trade by further
opening markets among GATT countries.  It is essentially a set of
tariff schedules\1 which reflect the concessions agreed upon by the
GATT signatories.  As described in other chapters of this report, the
Uruguay Round addressed many issues and would reduce trade barriers
in agricultural products as well as services.  The main contribution
of the market access agreement, however, would be to significantly
lower, or eliminate, tariff and nontariff barriers and to expand the
extent of tariff bindings,\2 on industrial products among GATT
signatories.  The global economic impact of the market access
agreement, according to USTR, the GATT Secretariat, and two expert
studies, is expected to be considerable by the end of the decade and
into the next century. 


--------------------
\1 The initial GATT consisted of both schedules of tariff
commitments, one for each of the contracting parties, and a set of
rules drafted primarily to protect the evasion of tariff commitments. 
Tariff schedules are a long list of products containing various
tariff rates.  Each contracting party is committed not to raise its
tariffs above the duty level contained in the schedule. 

\2 When a country agrees to "bind" a tariff on a product at a certain
level, e.g., 15 percent, it commits itself not to increase the tariff
above that level (except by negotiation with compensation for
affected partners).  If a GATT signatory raises a tariff to a higher
level than its bound rate, the beneficiaries of the binding have a
right under GATT to retaliate against an equivalent value of the
offending country's exports, or to receive compensation, usually in
the form of reduced tariffs on other products they export to the
offending country. 


   BACKGROUND
---------------------------------------------------------- Chapter 2:1

From its inception in 1947, GATT had as one of its primary goals the
promotion of free trade internationally by reducing worldwide
tariffs.  From the beginning of the 19th century until the 1930s,
worldwide tariffs rose steadily, culminating with the U.S.  Tariff
Act of 1930 (as amended, codified as amended at various sections of
titles 6, 19, and 22, referred to as the Smoot-Hawley Tariff Act),
which raised U.S.  tariffs to record high levels.  In response, a
majority of U.S.  trading partners pushed their tariffs even higher,
and international trade was severely constricted.  In fact, the
severity of worldwide Depression of the 1930s was partly attributed
to the widespread imposition of very high tariffs. 

Before the creation of GATT, countries negotiated tariff levels
bilaterally.  For example, from 1934 to 1945, the United States
entered into mutual tariff reduction agreements with 29 countries. 
Despite such trade agreements, many countries continued to levy
significant tariffs on imports.  One reason was the lack of assurance
that tariff concessions granted would not be withdrawn or modified,
since under the bilateral approach two countries could modify their
bilateral tariff concessions, or one country could readily abrogate
the agreement without significant ramifications.  The advantage of a
multilateral approach like that of GATT was that concessions could
only be modified with the approval of all contracting parties. 

To ensure the predictability of tariff concessions, a long-standing
goal of GATT was to increase the number of tariff bindings of GATT
contracting parties.  In the Uruguay Round, some GATT signatories,
especially developing countries, had a low level of tariff bindings. 
Tariff bindings are significant for several reasons.  If a tariff
lowered during a GATT round could be raised again unilaterally a few
months later, that tariff concession would have little or no value to
foreign and domestic producers.  An exporting firm might hesitate to
pursue new markets if the products it intends to export face
uncertain treatment.  This is particularly true when lower tariffs
induce a firm to invest in a plant, equipment, and distribution
networks.  Such investments would become unprofitable should tariffs
raised back to their original levels.  Domestic producers counting on
imported inputs would also face damaging uncertainty should their
national government be able to, at any time, raise a previously
lowered tariff. 

Tariff reduction has been the major focus of the seven GATT
multilateral negotiating rounds, and tariffs have gone down from an
average level of 40 percent before GATT, to 3.9 percent after the
Uruguay Round.  However, during the Uruguay Round, problems, such as
tariff escalation\3 and tariff bindings, remained important subjects
of negotiation.  In addition, although developed countries' tariff
rates averaged 5 percent, developing countries had higher average
tariff rates.  According to a 1990 USTR report,\4

average tariff rates of over 50 percent were not rare in developing
countries.  For instance, India and Pakistan had average rates of
over 100 percent.  The report pointed out that even some developed
countries had relatively high tariff rates.  New Zealand and
Australia, for example, imposed average tariff rates of 20.8 percent
and 15.3 percent, respectively.  Finally, some developed countries
still maintained high tariffs on selected industrial or agricultural
products. 


--------------------
\3 Tariff escalation occurs whenever a country imposes substantially
higher duties on partially and fully processed goods than on their
underlying raw materials. 

\4 U.S.  Trade Rep., United States Proposal for Uruguay Round Market
Access Negotiations 6 (Mar.  15, 1990). 


   U.S.  NEGOTIATING OBJECTIVES
---------------------------------------------------------- Chapter 2:2

The 1986 ministerial declaration on the Uruguay Round clearly
reflected a consensus that tariffs should be reduced or eliminated: 

Negotiations shall aim, by appropriate methods, to reduce or, as
appropriate, eliminate tariffs including the reduction or elimination
of high tariffs and tariff escalation.  Emphasis shall be given to
the expansion of the scope of tariff concessions among all
participants. 

The Mid-Term Ministerial Meeting held in Montreal, Canada, in
December 1988, added to the 1986 Punta del Este Declaration a call
for tariff reductions of 33 percent on a trade-weighted basis,\5 and
the reduction or elimination of high tariffs, tariff peaks,(defined
as tariffs above 15 percent), tariff escalation, and low tariffs. 
The ministers further agreed that the scope of tariff bindings must
increase.  The Punta del Este and Montreal meetings also specified
that developing countries would not be required to make concessions
that were inconsistent with their developmental, financial, and trade
needs. 

A subject of debate at the first meetings of the tariff negotiating
group had been the issue of what base rate should be used for the
negotiations.  The dispute surrounding the base rates had dealt with
whether substantive tariff reduction negotiations should begin with
the tariff rates actually applied by member countries, or with the
rates at which the countries' rates were bound under prior GATT
agreements.  The developing countries, supported by the United
States, favored negotiating from bound rates, since in many
developing countries, bound rates were much higher than applied
rates.\6 On the other hand, several developed countries proposed that
negotiations start with rates actually applied. 

Significantly, the ministers at Montreal agreed to use bound tariff
rates rather than applied rates as the baseline in the negotiations. 
Thus, particularly in cases where the bound rate had been
significantly higher than the applied rate, the negotiation of a
large tariff reduction might in actuality be small, as the country
continues to charge the applied rate.  The reduction is significant
in that the new lower bound rate is guaranteed not to increase. 

The formal start of the Uruguay Round negotiations was delayed by a
debate over which method should be used to negotiate tariff levels. 
Countries realized that the outcome of the Uruguay Round, in
particular the extent of tariff reduction achieved, could be
significantly affected by the negotiating methodology.  For example,
the first five GATT rounds used the product-by-product request-offer
basis,\7 the Kennedy Round used the linear approach,\8 and the Tokyo
Round applied the harmonizing formula method.\9

The United States believed that the request-offer approach worked
best to allocate tariff reductions uniformly among GATT signatories,
while most other developed countries favored the harmonizing formula
method.  The United States claimed that under the harmonizing formula
approach used in the Tokyo Round, some countries chose not to apply
the agreed-upon formula to their own tariffs, yet still enjoyed the
benefits of other GATT members' tariff reductions due to the
Most-Favored-Nation (MFN) principle.\10 Furthermore, the United
States contended that the harmonizing formula method was less likely
to result in total elimination of tariffs for particular products. 
The majority of the developed countries, on the other hand, claimed
that a harmonizing formula approach would attain a more balanced
result by distributing tariff reductions across each country's set of
tariff schedules. 

The participants agreed in February 1990 that no single negotiation
method would meet all of their economic and political needs. 
Therefore, they said that each delegation should be free to follow
its own approach as long as the 33-percent tariff reduction and other
objectives agreed upon in Montreal were achieved. 

In an important step toward achieving the ministerial declaration to
"as appropriate, eliminate tariffs," the United States tabled a
proposal in March 1990 which sought "zero-for-zero" tariff treatment. 
The United States would permanently reduce tariffs to zero for a
number of product sectors on a reciprocal basis, through a
request-offer approach.  Reactions to the U.S.  proposal varied among
participants.  In December 1990, the developed countries agreed to
accept the U.S.  zero-for-zero tariff proposal on pharmaceuticals and
on some construction equipment.  Further progress on the tariff
negotiations was delayed shortly thereafter due to a breakdown in
agricultural talks, which centered on the level of domestic and
export crop support provided by countries.  (See ch.6 for a full
discussion of the agriculture section of the Uruguay Round
agreement.)

At the July 1993 G-7 Summit in Tokyo, the United States, Canada, the
EU, and Japan achieved what the U.S.  Trade Representative called "a
major breakthrough," agreeing to numerous changes (see ch.1, p.7). 
This informal agreement would eventually be the basis for the market
access agreement in the UR agreement. 


--------------------
\5 Under tariff reduction on a trade-weighted basis, the average
tariff is computed by weighing each tariff rate by the dollar value
of imports at that rate relative to the total value of imports. 

\6 Applied rates are the actual tariff rates member countries
currently apply to imports. 

\7 Under the request-offer approach, a contracting party submits
requests for concessions on tariff reductions from its trading
partner, which, in turn, submits its offer for concessions.  The
offers are then negotiated by the parties' representatives. 

\8 Under the linear formula, all rates in the tariff schedules are
reduced across the board by a specific formula, such as a certain
percentage. 

\9 The harmonizing formula applies a formula to cut high tariff
rates, termed "peak" tariffs, by a greater percentage than applied to
low tariffs.  Thus, the goal is to lower tariffs and to achieve more
consistent tariff levels among contracting parties. 

\10 An MFN provision is a promise in a treaty or agreement to extend
to the contracting nation the best trade privileges granted to any
other nation.  MFN is a commitment that a country will extend to
another country the lowest tariff rates it applies to any third
country.  All contracting parties undertake to apply such treatment
to one another under Article I of GATT.  When a country agrees to cut
tariffs on a particular product imported from one country, the tariff
reduction automatically applies to imports of this product from any
other country eligible for MFN treatment. 


   RESULTS OF THE URUGUAY ROUND
---------------------------------------------------------- Chapter 2:3

According to USTR, the United States achieved substantially all of
its major objectives in the market access negotiations for industrial
goods.  The tariff agreements reached during the negotiations are to
be reflected in the tariff schedules of the signatories.  GATT
members submitted final tariff schedules to GATT on March 25, 1994. 
The Uruguay Round agreement requires a country to annex its schedule
to the Protocol\11 in order to become a member of the World Trade
Organization, created to succeed GATT (see chap.  3). 

Generally, according to USTR, by reducing tariffs on specific items
of key interest to U.S.  exporters, the agreement would provide its
signatories significantly increased access to markets that represent
approximately 85 percent of world trade.  U.S.  tariffs would be
reduced by slightly more than one-third, with a matching reduction in
U.S.  trading partners' tariffs.\12

The primary provisions of the market access for industrial goods
agreement consist of several components.  Tariffs would be eliminated
or significantly reduced in certain sectors\13 in developed
industrial markets and significantly reduced or eliminated in many
major developing markets.  For example, the U.S.  cut in tariffs on
electronic items would be 81 percent, while U.S.  trading partners
agreed to make cuts from 50 to 100 percent in electronics items
(including semiconductors, computer parts, and semiconductor
manufacturing equipment).  Developed and major developing
countries\14 agreed to harmonize tariff rates in the chemicals sector
at low rates (0, 5.5, and 6.5 percent).  In addition, agreement for a
65 percent cut in scientific equipment tariffs was reached by major
U.S.  trading partners, including the EU, Japan, EFTA,\15 South
Korea, and Malaysia. 

According to the GATT Secretariat, tariff reductions will average 38
percent for developed economies, which currently constitute about
two-thirds of world imports of industrial products other than
petroleum products, bringing average tariffs down from 6.3 percent
before the UR to 3.9 percent.  Figure 2.1 shows average tariff rates
before and after the Uruguay Round for 11 product categories. 

   Figure 2.1:  Tariff Reductions
   of Developed Countries by
   Industrial Product Group
   (excluding petroleum products)

   (See figure in printed
   edition.)

Note:  Developed economies include the OECD countries.  Transition
economies include the central and eastern European countries,
non-European successor states of the former Soviet Union, and
Mongolia.  Developing economies include all of the remaining GATT
member countries. 

Source:  GATT Secretariat. 

Generally, most tariff reductions would be implemented in equal
annual increments over 5 years.  Some tariffs, particularly in
sectors where duties would fall to zero, would be eliminated when the
agreement enters into force (expected to be January 1995).  Other
tariffs, such as in sensitive sectors for the United States, would be
phased in over a period of up to 10 years. 

Another important aspect of the agreement would be the substantial
increase in tariff bindings.  USTR maintains that the vastly
increased scope of bindings at reasonable levels from developing
countries would ensure predictability and certainty for traders in
determining the amount of duty that would be assessed.  The GATT
Secretariat concludes that a major result of the Uruguay Round would
be an improvement in the security of market access in industrial
products through tariff bindings. 

Figure 2.2 shows the percentage of imports under bound tariff rates
before the Uruguay Round and the percentage that would be bound after
the Uruguay Round for three country groups.  The percentage of
imports under bound rates has risen pre-Uruguay Round to post-Uruguay
Round from 94 percent to 99 percent for developed economies, from 14
percent to 59 percent for developing economies, and from 74 percent
to 96 percent for transition economies.  Although the level of tariff
bindings is lower for developing and transition economies, the
increase in coverage would be most substantial for this group, where
the initial level of bindings was low.  It should be noted, however,
that reductions in bound tariff rates for developing economies or
regions would refer in many instances to reductions in "ceiling"
rates, which often exceed actual rates currently applied to imports. 

   Figure 2.2:  Pre- and
   Post-Uruguay Round Scope of
   Bindings for Industrial
   Products (excluding petroleum)

   (See figure in printed
   edition.)

Source:  GATT Secretariat. 


--------------------
\11 The Uruguay Round Protocol to the General Agreement on Tariffs
and Trade 1994 contained in the UR Agreement lays out how the GATT
signatories will add their new tariff schedules reflecting all
negotiated tariff concessions to GATT and how they are to implement
those schedules. 

\12 In line with GATT procedures, tariff cuts were calculated on the
basis of an agreed-upon base year.  For the United States, the base
year was 1989; for most other countries, it was 1988. 

\13 Sectors in which tariffs would be eliminated or significantly
reduced include construction equipment, agricultural equipment,
medical equipment, steel, beer, distilled spirits, pharmaceuticals,
paper, toys, and furniture. 

\14 Countries which would harmonize their tariff rates in the
chemical sector included the EU, Japan, the European Free Trade
Association (EFTA - see fn.  15), South Korea, Singapore, the Czech
Republic, the Slovak Republic, and Malaysia (partial participation). 

\15 EFTA is a regional trade group established in 1958 by the Treaty
of Stockholm and originally comprised of Denmark, Sweden, Norway, the
United Kingdom, Austria, Portugal, Switzerland, Finland, and Iceland. 
The United Kingdom, Portugal, and Denmark have since left EFTA to
join the EU.  Other EFTA members are also negotiating to join the EU. 
EFTA has mainly been concerned with the elimination of tariffs with
respect to manufactured goods originating in the EFTA countries and
traded among them. 


   POTENTIAL IMPACT OF THE
   AGREEMENT
---------------------------------------------------------- Chapter 2:4

According to USTR, by reducing barriers to global trade, the Uruguay
Round would enhance U.S.  economic efficiency.  Job creation and
capital investment would be further encouraged in the
export-producing sectors of the U.S.  economy.  USTR also maintains
that import growth from the UR would benefit the U.S.  economy by
keeping prices low and broadening consumer choice.  Expanded U.S. 
trade would boost average real wages, spending power, living
standards, and economic competitiveness.  Finally, according to USTR,
reduced barriers to trade and other provisions in the Uruguay Round
would expand investment opportunities in the United States.  In the
following section, we describe the results of two studies that
estimate the projected economic gains of increased market access
under the Uruguay Round agreement, and we provide some examples of
the market access agreement's impact on U.S.  industry as projected
by the Department of Commerce. 


      TWO STUDIES' CONCLUSIONS
-------------------------------------------------------- Chapter 2:4.1

USTR, working with the Council of Economic Advisers (CEA) and using
the results from an Australian study,\16 concluded that total
economic gains for the United States due to a one-third cut in tariff
and nontariff world trade barriers would be about $219 billion (in
1989 dollars) in the year 2000.\17 The $219 billion is equivalent to
a gain of 3 percent in the U.S.  gross national product (GNP) for
that year.  The one-third cut is assumed to be phased in over the
10-year period from 1991 to the year 2000.  The gains to U.S.  GNP in
the USTR/CEA study take into account both static\18 and dynamic
gains.\19 Of the 3 percent gain in U.S.  GNP in the year 2000,
approximately 2 percent would be dynamic gain, while 1 percent would
be static gain.  The USTR/CEA's estimate is the only one in our
review attempting to estimate dynamic economic gains for the Uruguay
Round.  These dynamic gains are still not well understood and cannot
be easily estimated.  This study did not take into account trade
liberalization in services and general rules changes from the UR. 

In a separate 1994 study by the GATT Secretariat,\20 estimates
prepared on the basis of partial data suggested that the overall
trade impact of the Uruguay Round could mean that the world's
merchandise trade would reach a level roughly $755 billion higher by
the year 2005 (at 1992 prices) than would otherwise have occurred
without the market openings agreed to in the Uruguay Round.  The GATT
Secretariat study projected the largest increases in trade would come
in the areas of textiles and clothing, agriculture, forestry and
fishery products, and processed food and beverages.  This study may
have underestimated the potential gains of the market access
agreement.  Although the analysis took into account important
repercussions of the tariff reductions across the sectors and through
world trade and income, it did not capture the dynamic gains.  Like
the USTR/CEA study, it did not reflect the expansion in trade in
services or the effect of changing rules and procedures. 


--------------------
\16 Andrew Stoeckel et al., Western Trade Blocs:  Game Set or Match
for Asia-pacific and the World Economy?  (Canberra, Australia: 
Centre for International Economics, 1990). 

\17 The February 1994 Economic Report of the President provided a
more conservative estimate, stating that the total gain 10 years
after implementation of the agreement begins will likely be within a
range of more than $100 billion but less than $200 billion. 

\18 Static gains from trade stem from the increased efficiency of
resource allocation and improved consumption possibilities. 
Additional gains from trade may result from increasing returns to
scale, and from increased product and input variety for consumers and
producers respectively.  Static gains imply a change in the amount of
aggregate output but not in its growth rate.  Therefore, static gains
from trade are relatively small as a percent of gross domestic
product (GDP) in empirical studies of trade liberalization. 

\19 Dynamic gains from trade increase the rate of economic growth. 
Even a small change in the growth rate can have a substantial
cumulative effect on GDP.  Thus, empirical assessment of the dynamic
effects of trade policy changes can yield substantially larger
estimates than those based on static models.  The growth effects of
trade liberalization can flow through a variety of channels, such as
improved access to specialized capital goods, enhanced human-capital
accumulation, increased learning by doing, better transfer of skills,
and new product introduction. 

\20 GATT Secretariat, An Analysis of the Proposed Uruguay Round
Agreement, with Particular Emphasis on Aspects of Interest to
Developing Economies (Geneva:  Nov.  29, 1993). 


      THE DEPARTMENT OF COMMERCE
      PREDICTIONS
-------------------------------------------------------- Chapter 2:4.2

In addition to the two studies' estimates, the Department of
Commerce\21 projects that the market access agreement would create
potential opportunities for U.S.  industry.  According to the
department, some examples include the following: 

  With the EU's nearly 80 percent reduction in tariffs, the
     opportunies for U.S.  computer exports to the EU, already the
     largest market for these U.S.  exports, should increase.  In
     1993, exports of computer equipment to the EU exceeded $10
     billion and accounted for 38 percent of U.S.  exports of
     computer equipment worldwide. 

  The virtual elimination of developed country tariffs on medical
     equipment, including those in the largest U.S.  export markets,
     should raise these U.S.  exports by $200 million-$300 million
     annually over the next several years, according to industry
     experts. 

  The tariff elimination for paper and allied products over a 10-year
     period would lead to a $2 billion increase per year in exports
     of U.S.  paper and allied products, according to U.S.  industry
     estimates. 

  Japan's 24.5 percent cut in fish duties would include all major
     fishery items of U.S.  interest and would cover over $2 billion
     of U.S.  exports. 


--------------------
\21 Uruguay Round, Opportunities for U.S.  Industries, Uruguay Round
Industry Sector Hightlights.  U.S.  Department of Commerce,
International Trade Administration. 


   ISSUES TO WATCH
---------------------------------------------------------- Chapter 2:5

According to USTR, the GATT market access negotiations concluded with
the signing of the final act embodying the results of the Uruguay
Round.  Any future tariff reduction negotiations would be done on a
bilateral basis or if countries declare another round of multilateral
negotiations.  Any monitoring would involve ensuring that tariff
concessions made under the market access agreement are honored and
that further tariff reductions, where needed, are facilitated through
bilateral means.  According to USTR, possible areas of future U.S. 
negotiations might include, but are not limited to, achieving
zero-for-zero tariff levels with Japan for white spirits and wood
products and negotiating with more countries to reduce tariffs in the
chemical sector. 


INSTITUTIONAL CHANGES FROM THE
URUGUAY ROUND:  CREATION OF WTO
AND STRENGTHENED DISPUTE
SETTLEMENT PROCEDURES
============================================================ Chapter 3

With the creation of WTO, member countries would, for the first time,
have a formal organization through which they could administer the
multilateral trading system.  The creation of WTO would likely
strengthen the currently fragmented GATT organizational structure. 
However, there is disagreement over the new WTO decision-making
procedures, which some experts believe may be used in ways
detrimental to U.S.  interests.  There is also disagreement over the
strengthened procedures for settling disputes, which some experts say
may restrict U.S.  ability to conduct international trade policy and
implement domestic policies that affect trade. 


   CONCERNS WITH GATT
   ORGANIZATIONAL STRUCTURE AND
   FUNCTIONING
---------------------------------------------------------- Chapter 3:1

Since January 1948, when GATT came into force, the signatories have,
by necessity, developed a provisional institutional structure for
administering the agreements.  This structure has several units that,
working together, exhibit many of the attributes and functions of an
international organization.  Yet, several members believed that, as
multilateral trade negotiations addressed increasingly complex and
sensitive areas (e.g., agriculture, textiles, trade-related
intellectual property rights, and services), GATT would need a
stronger organizational structure and improved decision-making and
dispute settlement procedures. 


      GATT ORGANIZATIONAL
      STRUCTURE
-------------------------------------------------------- Chapter 3:1.1

Strengthening GATT's organizational structure required addressing two
problems resulting from the Tokyo Round negotiations, which concluded
in 1979.  While all GATT members belong to the general agreement,
they are not required to adhere to all the codes resulting from the
Tokyo Round negotiations.  Instead, they could select only those
codes to which they wished to adhere.  Since each code is viewed as
being separate and distinct from the others, this process resulted in
organizational fragmentation which, in turn, caused two major
problems. 

1. The "free rider" problem.  Due to the GATT's MFN requirements,
member countries that adhere to a given code and provide concessions
in accordance with its obligations are required to accord the same
benefits to all GATT members,\1 including those countries that did
not adhere to the code and, thus, do not reciprocate. 

2. The inability to "cross-retaliate."\2 When a GATT member country
is authorized to impose sanctions against another member for
violating its obligations under a given code, it may only suspend
concessions provided under that code.  This restriction limits the
plaintiff country's options and may make it difficult for that
country to devise a sanction that is effective. 

Members also believed that the GATT organizational structure needed
to (1) improve coordination with other multilateral organizations
that influence the world economy, such as the World Bank and IMF; and
(2) develop a capacity to survey signatory countries' international
trade policies and practices and report on areas where improvements
might be needed. 


--------------------
\1 With the exception of the four "plurilateral" agreements, which
include the Agreement on Trade in Civil Aircraft, the Agreement on
Government Procurement, the International Dairy Arrangement, and the
Arrangement Regarding Bovine Meat. 

\2 The Agreement on Interpretation and Application of articles 6, 16,
and 23 of the General Agreement on Tariffs and Trade (the subsidies
and countervailing duties code) is an exception. 


      GATT DECISION-MAKING
      MECHANISMS
-------------------------------------------------------- Chapter 3:1.2

The GATT contracting parties--the only institution provided for in
the agreement--has sole decision-making authority.  This unit is made
up of representatives from GATT signatory countries, assembled either
at the ministerial level or, with lower-level officials, in the GATT
council.  It has exclusive authority to legislate, render judgments
on the conformity of trade policies with GATT obligations, and waive
members' rights and obligations.  Contracting parties' decisions are
made by consensus or, unless specifically provided otherwise, by a
better than 50 percent majority of the votes cast, with each member
country having one vote. 

All other GATT organizations exist and are empowered solely by
delegations of authority from the contracting parties.  These include
the GATT Secretariat, which provides technical support to other GATT
units; the Council of Representatives, which performs several
functions delegated by the contracting parties; working parties,
groups of GATT member countries that study important issues as they
arise; and various committees arranged along functional lines.  Among
the latter are the multilateral trade negotiations "code" committees
that administer the various agreements (or codes) resulting from the
Tokyo Round negotiations.  According to Terence Stewart, a trade
attorney, the committees and working parties play a very important
role in administering the GATT agreements.  He adds that "a large
part of the negotiations and conciliations of national interests
occurs at the level of the committees and working parties."\3

According to USTR officials, the United States supports the GATT
practice of making major decisions affecting all members by
consensus.  Consensus is reached through a process of negotiation and
compromise, with the tacit understanding that agreement from
countries with economic influence (e.g., the United States, the EU,
and Japan) is important and often necessary.  If a compromise cannot
be reached, the contracting parties simply continue discussions until
the positions of the members begin to coalesce, making agreement
possible.  Although voting procedures are not used, a USTR official
said that the possibility of a vote underlying all deliberations
persuades members, who are reluctant to risk losing a vote, to seek
compromise. 

Some trade experts had raised concerns that, because of the need for
consensus, GATT member countries depend heavily on extended
multilateral negotiating "rounds" to address problems in the world's
trading system.  In these rounds, GATT members seek to settle
differences regarding the interpretation of agreements, amend and
expand agreements, and extend coverage of GATT to new areas in
international trade.  These rounds permit decision-making by
consensus because participant countries can "trade off" their
positions on various issues.  That is, a country would seek to obtain
acceptance for its primary negotiating objectives in exchange for
agreeing to accept another country's priority negotiating objectives
in an area of less importance to the first country.  These
negotiations, involving scores of countries and varied negotiating
topics, became lengthy and expensive.  For example, the Uruguay Round
negotiations took 7-1/2 years to complete and involved 125 countries
negotiating 21 agreements, a protocol, and numerous ministerial
decisions and declarations. 


--------------------
\3 The GATT Uruguay Round:  A Negotiating History (1986-1992) Volume
II:  Commentary, ed.  Terence P.  Stewart (Cambridge, MA:  Kluwer Law
and Taxation Publishers, 1993), p.  190. 


      GATT DISPUTE SETTLEMENT
      PROCEDURES
-------------------------------------------------------- Chapter 3:1.3

The GATT dispute settlement mechanism aims to preserve the rights and
obligations of the GATT member countries and to clarify the existing
provisions of the agreements.  Requirements in effect at the
beginning of the UR negotiations stated that signatory countries
first seek to resolve differences through consultation and, only
after consultation has failed, initiate dispute settlement
procedures. 

As we previously reported, these procedures were seen as being
cumbersome and time-consuming,\4 and they gave participants numerous
opportunities for delay.  To initiate these procedures, the GATT
council needed to make a consensus decision to create a panel of
experts from signatory countries.\5 The panel was authorized to
conduct an investigation and make a "ruling," which outlined the
facts of the case and presented the panel's conclusions and, where
appropriate, recommendations for bringing a member's policies into
conformity with its GATT obligations.  For the ruling to have force
and effect, the GATT council (or relevant "code" committee in the
case of disputes involving the Tokyo Round agreements), has to make a
consensus decision to accept it.  A consensus decision by the GATT
council (or "code" committee) was also required to authorize a member
country to impose sanctions against another country unwilling to
implement a panel decision. 

While a complex pattern of GATT traditions and understandings seeks
to discourage members from obstructing dispute settlement procedures
for long periods, member countries have nonetheless done so for
months and, in some instances, years.  For instance, a country could
refuse to permit formation of a panel, continually reject panelists,
or delay the collection of information requested by the panel.  At
each step in the process, defendants could obstruct simply to buy
time or to exact some legal or procedural concession in advance. 
Even after panel decisions have been adopted, member countries have
delayed full implementation of panel recommendations. 

A country truly intent on avoiding a panel decision that, for
domestic reasons, would be difficult to implement could effectively
"block" adoption of the panel report by voting against it each time
it came before the GATT council.  According to Professor Robert
Hudec,\6 of the 57 legal rulings issued by GATT panels between 1975
and 1989, one can identify at least 17 cases in which the power to
block adoption of a panel ruling was used in a significant way.  In
three cases, the blockage was ultimately supported by the rest of the
GATT membership, and the ruling was set aside.  In six cases,
adoption of the ruling was blocked for several months or more before
it ultimately was accepted.  In eight cases, adoption of the ruling
was continually blocked, usually with some support from other
countries; in most of these cases, the dispute was eventually
settled, even though the ruling itself was not accepted. 

These problems have placed strains on the functioning of GATT.  On
September 26, 1985,\7 we testified that "[t]he continued existence of
unresolved disputes challenges not only the principles of the GATT
but also the value of the system itself." We further stated that
member countries lacked faith in their ability to resolve disputes
using GATT mechanisms and, as a result, "[took] unilateral actions
that violated the central non-discrimination principle of the GATT"
and "participat[ed] in bilateral understandings" that weakened the
multilateral trading system. 


--------------------
\4 See International Trade:  Combating Unfair Foreign Trade Practices
(GAO/NSIAD-87-100,
Mar.  17, 1987), and The International Agreement on Government
Procurement:  An Assessment of Its Commercial Value and U.S. 
Government Implementation (GAO/NSIAD-84-117, July 16, 1984). 

\5 According to a USTR official, since the Montreal midterm
ministerial meeting in December 1988, the decision to establish a
dispute settlement panel is automatic and no longer requires
consensus. 

\6 Robert E.  Hudec, "Dispute Settlement," in Completing the Uruguay
Round:  A Results-Oriented Approach to the GATT Trade Negotiations,
ed.  Jeffrey J.  Schott (Washington, D.C.:  Institute for
International Economics, 1988), pp.  183-4. 

\7 See United States Participation in the Multilateral Trading
System, statement of Allan I.  Mendelowitz, Associate Director,
National Security and International Affairs Division, before the
Subcommittee on International Economic Policy, Oceans and
Environment, Senate Committee on Foreign Relations. 


   U.S.  NEGOTIATING OBJECTIVES
---------------------------------------------------------- Chapter 3:2

The United States established its objectives for the UR negotiations
on institutional issues in three stages:  initially, with other GATT
members, through the 1986 Punta del Este ministerial declaration and,
subsequently, through the Omnibus Trade and Competitiveness Act of
1988 and the U.S.  response to the Dunkel text. 


      1986 MINISTERIAL DECLARATION
-------------------------------------------------------- Chapter 3:2.1

The United States joined with the other GATT member countries at the
GATT ministerial conference in Punta del Este, Uruguay, to establish
the negotiating framework for the upcoming round of negotiations. 
They jointly set broad objectives for each area of negotiation and
delegated responsibility for meeting these objectives to various
negotiating groups.  The ministerial declaration, containing the
results of these deliberations, identified two sets of negotiating
objectives with regard to the functioning of the GATT organizational
structure. 

1. The declaration directed the Functioning of the GATT System (FOGS)
negotiating group to develop agreements that would

  increase the contribution of GATT to achieving greater coherence in
     global economic policy-making through strengthening its
     relationship with other international organizations responsible
     for monetary and financial matters;

  enhance the surveillance under GATT to enable regular monitoring of
     trade policies and practices of contracting parties and their
     effect on the functioning of the multilateral trading system;
     and

  improve the overall effectiveness and decision-making of GATT as an
     institution through, among other things, enhancing involvement
     of ministers. 

2. The declaration also directed that the dispute settlement
negotiating group, in order to ensure prompt and effective resolution
of disputes to the benefit of all contracting parties, should

  aim to improve and strengthen the rules and the procedures of the
     dispute settlement process and

  include adequate arrangements for overseeing and monitoring the
     procedures that would facilitate compliance with adopted
     recommendations. 


      1988 OMNIBUS TRADE ACT
-------------------------------------------------------- Chapter 3:2.2

During the early stages of the negotiations, Congress passed the
Omnibus Trade and Competitiveness Act of 1988 which, among other
things, formally established broad U.S.  negotiating objectives for
the Uruguay Round.  This legislation identified U.S.  objectives for
improving GATT structure and mechanisms as (1) enhancing coordination
between GATT and multilateral monetary institutions and (2)
increasing the transparency (openness) of decision-making.  It also
identified U.S.  negotiating objectives with respect to dispute
settlement as developing more effective and expeditious dispute
settlement mechanisms and procedures that permit better resolution of
disputes and enable better enforcement of U.S.  rights. 

With the 1988 trade act, Congress also strengthened Section 301 of
the Trade Act of 1974, as amended (19 U.S.C.  2411) and enacted
additional authorities for addressing unfair foreign trade practices. 
Section 301 serves as the U.S.  government's principal mechanism for
addressing unfair foreign trade practices.  It gives USTR broad
authority to enforce U.S.  rights under bilateral and multilateral
trade agreements and to seek to eliminate certain acts, policies, or
practices of foreign governments that burden or restrict U.S. 
commerce. 

The United States had experienced frustration using Section 301 to
address GATT-related trade issues.  Using this trade remedy, the
United States employs GATT dispute settlement procedures to address
trade issues related to GATT obligations.  In a March 1987 report,\8
we found that "use of section 301 had limited success in achieving
the removal of unfair foreign trade practices," largely because the
process had been very lengthy, "particularly where complaints must
also go through the GATT dispute settlement process .  .  .  ."
Reflecting this frustration, Congress amended Section 301 and enacted
additional legislation that made it politically more difficult for
the administration not to act forcefully to address objectionable
foreign trade practices that injure U.S.  interests.  According to
Hudec, the new law's message was: 

     Congress had lost patience with the inefficacy of GATT rules and
     legal remedies, and had turned to threats of trade retaliation
     to protect what is regarded as legitimate U.S.  economic
     interests.\9


--------------------
\8 See GAO/NSIAD-87-100, March 17, 1987. 

\9 Hudec, "Dispute Settlement," p.  186. 


      RESPONSE TO THE DUNKEL TEXT
-------------------------------------------------------- Chapter 3:2.3

Toward the latter stages of the UR negotiations, the United States
also formulated a response to the 1991 Dunkel text--a draft UR
agreement that represented an effort by then GATT Director General
Dunkel to maintain momentum in the negotiations that had been ongoing
for 5 years.  The draft agreement contained provisions for creation
of a new international trade organization.  It also sought to
substantially change GATT dispute settlement procedures. 

The United States was at first ambivalent toward the Dunkel text's
proposal for a new international trade organization.  In response,
U.S.  negotiators submitted for consideration a UR protocol to GATT
that would have established a multilateral organizational structure,
but would not have endowed it with an independent legal standing. 
The United States continued work on this document until the end of
the negotiations.  It ultimately agreed to support a new organization
after having worked to include in its charter improved
decision-making procedures, such as several procedural safeguards, a
trade policy review mechanism, and improved coordination with other
multilateral institutions. 

The U.S.  reaction to the Dunkel text's proposed dispute settlement
procedures was largely positive.  The draft agreement contained
provisions reflecting major U.S.  negotiating objectives.  Notably,
the draft agreement sought to establish time limits for each step in
the dispute settlement process and effectively eliminate the ability
to block adoption of panel reports.  U.S.  negotiators continued to
work, however, to improve provisions affecting the transparency of
the dispute settlement process and the "standard of review"; that is,
the scope of dispute settlement panel reviews of member practices. 


   RESULTS OF THE URUGUAY ROUND
---------------------------------------------------------- Chapter 3:3

The April 1994 Final Act Embodying the Results of the Uruguay Round
of Multilateral Trade Negotiations contained a charter for the
creation of WTO to replace the provisional GATT organizational
structure.  WTO would largely adopt GATT decision-making procedures. 
However, it would create within WTO a new Dispute Settlement Body,
which would be comprised of representatives of the members, with
substantially revised rules for administering the settlement of
disputes. 

   Figure 3.1:  WTO Organization
   Chart

   (See figure in printed
   edition.)

Note:  Compiled largely from articles 4 and 6 of the Agreement
Establishing the World Trade Organization. 

\a The Ministerial Conference would meet at least once every 2 years,
and the General Council would convene as appropriate during the
intervals between Ministerial Conference meetings. 

\b The General Council would convene as the Dispute Settlement Body
and Trade Policy Review Body.  Each organization, however, would
select its own chairperson and establish rules of procedure. 

\c The Trade Policy Review Body would not have authority to make
substantive decisions that apply to the WTO members. 


      WTO STRUCTURE
-------------------------------------------------------- Chapter 3:3.1

The Agreement Establishing the World Trade Organization would, for
the first time, create a formal organization encompassing all GATT
disciplines.  WTO membership would be open only to countries that
agree to adhere to all of the UR agreements\10 (adherence to the four
"plurilateral" agreements would not be mandatory), and submit
schedules of market access commitments for industrial goods,
agricultural goods, and services.  As such, this agreement would
resolve the "free rider" problem and permit members to
"cross-retaliate" by suspending concessions under any of these
agreements when authorized to impose sanctions. 

The agreement also makes provision for improved cooperation with
other multilateral organizations with responsibilities and concerns
similar to WTO, such as the World Bank and IMF, as well as the
Organization for Economic Cooperation and Development.  It also would
establish within WTO a Trade Policy Review Body comprised of the
members.  This review body would examine, on a regular basis,
national trade policies and other economic policies affecting the
international trading environment. 


--------------------
\10 In the United States, these agreements are not "self-executing."
They do not become part of U.S.  law when the United States formally
adheres to the agreements.  Instead, the Omnibus Trade and
Competitiveness Act of 1988 requires that agreements enter into force
with respect to the United States "if (and only if)" the appropriate
implementing legislation is approved by both Houses of Congress. 
Even after approval by Congress, U.S.  law (19 U.S.C.  2504 (a) and
(d)) provides that such agreements do not override domestic law in
the event of a conflict, or create any "private right of action or
remedy" unless specifically provided for in legislation.  In
contrast, in the EU, the UR agreements are "self-executing" and take
precedence over national laws. 


      WTO DECISION-MAKING
      MECHANISMS
-------------------------------------------------------- Chapter 3:3.2

The WTO agreement also would establish a Ministerial Conference,
composed of representatives of all the members, that would govern the
organization.  The conference would be required to meet at least once
every 2 years.  In the interim, a General Council, also composed of
representatives of all the members, would govern by its own actions
and through a web of bodies, councils, and committees.  The WTO
agreement also provides for creation of a Secretariat with functions
and responsibilities to be approved by the General Council. 

Under the WTO agreement, the Ministerial Conference and General
Council would have exclusive authority to make decisions affecting
the rights and obligations of members.  They would use
decision-making procedures that are generally similar to those in the
original 1947 GATT agreement but, in some ways, more exacting.  For
example, the WTO agreement, for the first time, would expressly
require members to attempt to reach decisions by consensus before
invoking voting procedures.  Further, when voting procedures are
used, the WTO agreement would require majorities that are sometimes
larger than those required under the 1947 GATT agreement.  With each
member country having one vote, the following is specified: 

1. The Ministerial Conference and General Council would have
exclusive authority to adopt authoritative interpretations of the UR
agreements (provided that members cannot invoke these provisions to
amend the agreements).\11 If consensus cannot be reached, these
bodies may adopt an authoritative interpretation that would apply to
all members by a three-fourths majority vote of all the members. 

2. Only the Ministerial Conference or General Council would have
authority to amend provisions of the UR agreements.  According to
USTR, amendment procedures are detailed and consist of at least two
stages in each case.  In the first stage, members decide whether to
transmit a proposed amendment to their governments for ratification;
such action would require a two-thirds majority vote of all the
members.  Unless the amendment affects a "core" provision of the UR
agreements (i.e., the most-favored-nation, decision-making, and
amendment provisions, and the dispute settlement understanding), the
members must also decide whether it is procedural or substantive.  An
amendment is considered to be substantive unless it is designated to
be procedural by a three-fourths majority vote of all the members. 

In the second stage, the member countries decide whether to ratify
the amendment.  Amendments to core provisions of the Uruguay Round
agreements would enter into force only if accepted by all members.  A
procedural amendment would enter into force for all members\12 if
two-thirds of the members ratify it.  An amendment affecting the
substantive rights and obligations of members would also enter into
force after two-thirds of the members ratify it, but would apply only
to those countries that had accepted it.  The Ministerial Conference,
by a three-fourths majority vote of all the members, may require
members to accept amendments they did not support, withdraw from WTO
or, with the consent of the Ministerial Conference, remain a member
without accepting the amendment. 

3. Only the Ministerial Conference or General Council would have
authority to waive an obligation imposed on a member by a UR
agreement.  If a country has not implemented an obligation subject to
a transition period (such as the provision of patent protection under
the Trade-Related Intellectual Property Rights (TRIPs) agreement--see
ch.  5) a waiver can be granted only by consensus.  In other cases,
where consensus cannot be reached, a waiver can be granted by a
three-fourths majority vote of all the members. 


--------------------
\11 The WTO agreement clarifies that the reports of dispute
settlement panels, while applicable to the disputants (subject to
appeal), do not serve as authoritative interpretations of the
relevant agreements. 

\12 According to USTR, amendments to procedural provisions of the
Uruguay Round would be binding on all WTO members in order to avoid
the destabilizing effect that would result if different members were
subject to different procedural rules. 


      WTO DISPUTE SETTLEMENT
      PROCEDURES
-------------------------------------------------------- Chapter 3:3.3

The Uruguay Round Understanding on Rules and Procedures Governing the
Settlement of Disputes would create a new dispute settlement
mechanism that would add maximum time limits and "automaticity"
(i.e., procedures that automatically progress to the next stage) to
GATT dispute settlement procedures. 

1. The new procedures for the initial portion of the dispute
settlement process would include (1) the right to prompt creation of
a panel; (2) the rejection of panel members only for "compelling
reasons"; (3) the automatic adoption of panel reports, unless there
is consensus against adoption (i.e., decision by "negative consensus"
rules); (4) a new appeals process through which a WTO appellate body
would have authority to review and revise panel decisions; and (5)
the automatic adoption of appellate reports under negative consensus
rules if there is an appeal. 

2. Once the report has been adopted, the new procedures provide for
(1) time limits for when a member should bring its laws and practices
into conformity with panel rulings and recommendations; (2)
surveillance of the implementation of panel report recommendations;
(3) automatic approval, using negative consensus rules, for
imposition of sanctions (including cross-retaliation) if the member
does not conform to the panel recommendations or provide compensatory
trade benefits within an appropriate period of time; and (4)
expeditious arbitration of any disagreement about the amount or
duration of sanctions or the reasonable period of time given the
defendant to conform to the panel report recommendations. 

The understanding also addresses the transparency of the dispute
settlement process and the standard of review used by panels.  To
improve transparency, parties to a dispute would be required upon
request by a member to provide nonconfidential summaries of their
panel submissions that could be given to the public.  Parties also
would have authority to disclose to the public their submissions and
positions in their entirety at any time.  Under the standard of
review provisions, WTO panels would generally maintain authority to
conduct broad investigations of members' practices and procedures,
including both specific uses or applications of domestic laws and the
conformity of laws themselves with WTO obligations.  An exception
involves reviews of members' antidumping procedures;\13 in such
cases, panels would use a standard of review that acknowledges that
there may be more than one permissible interpretation of the
agreement or the facts, and requires panels to defer to permissible
interpretations by WTO members. 


--------------------
\13 Department of Commerce officials interpret a UR ministerial
declaration as supporting the idea that dispute settlement panels
would use the same standard of review for cases involving both
countervailing duty procedures and antidumping procedures. 


   POTENTIAL IMPACT OF THE
   AGREEMENTS
---------------------------------------------------------- Chapter 3:4

Trade experts expect the UR agreements to create a stronger
institutional structure for administering multilateral trading
relations.  Supporters of the UR agreements also believe that they
will strengthen the GATT's decision-making mechanisms and dispute
settlement procedures.  Still, certain international trade attorneys
and other trade experts we consulted raised concerns that other
countries may be able to use the new WTO (1) decision-making
procedures in a manner detrimental to U.S.  interests and (2) dispute
settlement procedures to reduce the effectiveness of U.S.  unilateral
trade efforts and subject U.S.  laws to unwanted foreign
interference. 


      WTO STRUCTURE
-------------------------------------------------------- Chapter 3:4.1

The United States would likely benefit from the replacement of the
provisional GATT institutional structure with the new WTO.  The
United States, which adhered to all but one of the Tokyo Round
codes,\14 would benefit from the elimination of the free rider
problem.  Under the UR agreements, it would no longer have to provide
trade concessions to other countries that do not reciprocate.  The
United States, as a user of dispute settlement procedures, would also
benefit from the potential for cross-retaliation.  Where sanctions
are authorized, the United States would no longer be limited to
suspending concessions within the GATT agreement that was violated,
but would have the authority to fashion a sanction from other UR
agreements. 

While USTR advisory groups expressed overall support for creation of
WTO, certain groups raised concerns about its potential operation. 
These groups said they are concerned that the WTO bureaucracy may
grow to become a factor in international trade relations separate and
distinct from the WTO members.  They urged the administration to
guard against such a development.  Administration officials said that
the United States sees this occurrence as highly unlikely but,
nevertheless, will act on this advice as appropriate. 


--------------------
\14 The United States is not a signatory to the Tokyo Round Agreement
on Dairy Products. 


      WTO DECISION-MAKING
      MECHANISMS
-------------------------------------------------------- Chapter 3:4.2

There was disagreement among the trade experts we consulted regarding
whether U.S.  ability to pursue its interests within the multilateral
trading system would remain unabated under the new WTO
decision-making procedures.  Despite the detailed voting procedures,
USTR officials believe that the United States would be able, as in
the past, to pursue its interests within the multilateral trading
system by building consensus in support of U.S.  positions.  The
National Association of Manufacturers believes that the WTO agreement
may even enhance U.S.  efforts by ".  .  .  provid[ing] a process of
amending GATT that may be less cumbersome than the current system of
negotiating rounds."\15

Certain international trade attorneys and other trade experts have
nonetheless expressed concern that blocs of WTO members--particularly
developing countries--may employ the new voting procedures in a
manner contrary to U.S.  interests.  They point out that developing
countries may represent as much as 80 percent of the WTO membership. 
While they are signatory to the 1947 GATT agreement, these countries
generally adhere to few of the GATT Tokyo Round agreements and, as a
result, are not members of the code committees that administer those
agreements.  As such, the requirement that all WTO members adhere to
all nonplurilateral UR agreements could substantially expand the
influence, as well as obligations, of developing countries in WTO. 
Certain commentators believe that, by virtue of their numbers, these
countries could use the voting procedures to change the
decision-making dynamic within the organization. 

For example, in one scenario, a WTO member may propose that, under
the UR agreements, member countries taking unilateral action on trade
issues, whether or not specifically covered by the UR agreements,
would be violating their obligations under the agreements.  The
United States would likely object.  Unable to reach consensus on the
issue, the other member may request a vote to establish an
authoritative interpretation of the UR agreements on this matter. 
Given their shared interest in limiting U.S.  use of Section 301, the
developing countries, possibly with support of other countries, may
be able to attain a three-fourths majority vote in support of the
original proposition. 

According to USTR officials, there is little likelihood of such an
occurrence.  Adequate safeguards have been built into the system to
ensure against use of the voting procedures in this manner.  In
addition, other WTO members would be very reluctant to alienate the
United States from the organization.  USTR officials specifically
point to the following: 

1. The WTO agreement contains provisions to ensure that member
countries cannot use the interpretation process to amend an agreement
or expand or diminish the rights and obligations of members.  If an
interpretation should come to a vote, USTR officials said they are
confident that, given the anticipated fluid nature of WTO
deliberations, the United States could generate enough support to
block adoption of any proposed interpretation that it opposed. 

2. If an amendment lacking U.S.  support is accepted by two-thirds of
all the members, the United States would not be bound by the change. 
Under the WTO agreement, a second vote, resulting in a three-fourths
majority, would be required to compel members to accept amendments
they did not support.  USTR believes it is highly unlikely that WTO
would vote to compel the United States to adopt an amendment it did
not support.  Unable to reach an accommodation with the United
States, WTO would risk losing it as a member.  According to USTR
officials, WTO members would be very reluctant to risk losing the
country with the world's strongest economy and largest market, thus
creating uncertainty and instability in the world trading system. 
They add that a similar 1947 GATT agreement provision, requiring only
a greater than 50-percent majority vote, has never been invoked. 

Having reviewed the available information, we believe that it would
be difficult to predict the decision-making dynamic that would govern
WTO deliberations.  The WTO agreement seeks to ensure that the new
organization continues the GATT practice of decision-making by
consensus.  In addition, U.S.  negotiators endeavored to include in
the WTO agreement safeguards against any misuse of voting procedures. 
Yet, several commentators have expressed concern that, despite these
safeguards, blocs of countries with newfound authority may be able to
use the voting procedures to affect the multilateral trading system
in a manner detrimental to U.S.  interests.  Should Congress ratify
the UR agreements, we believe WTO decision-making would warrant close
oversight to ensure that U.S.  interests are being served. 


--------------------
\15 Statement of the National Association of Manufacturers on the
Uruguay Round of Multilateral Trade Negotiations (Washington, D.C.: 
Feb.  5, 1994), p.  1. 


      WTO DISPUTE SETTLEMENT
      PROCEDURES
-------------------------------------------------------- Chapter 3:4.3

There was disagreement among the USTR advisory groups, international
trade attorneys, and other experts we consulted regarding the Uruguay
Round's dispute settlement procedures.  Administration officials,
along with several nongovernment experts, emphasized that these new
procedures would strengthen the U.S.  government's ability to remedy
violations of UR obligations, which would be substantially expanded
compared to present requirements under GATT.  Others, while agreeing
with this statement, expressed concerns that these procedures might
also

  reduce the effectiveness of the U.S.' ability to unilaterally
     address nonviolation trade issues (i.e., trade practices that
     the United States considers to be unfair and harmful to U.S. 
     interests but would not violate UR obligations) and

  permit WTO members to intrude upon U.S.  government policy-making
     in areas considered outside international trade policy. 


         U.S.  USE OF WTO DISPUTE
         SETTLEMENT TO ADDRESS
         VIOLATIONS
------------------------------------------------------ Chapter 3:4.3.1

USTR advisory groups, international trade attorneys, and other
experts we consulted agreed that, under the new procedures, the
United States would be in a stronger position to use WTO dispute
settlement to address unfair foreign trade practices that violate UR
agreements obligations.  They pointed out that, under the UR
agreements, these obligations would be substantially expanded, thus
extending the reach of dispute settlement.  The new time limits and
automaticity procedures would appear to strengthen a plaintiff's
ability to maintain the momentum of the dispute settlement process
because of the following: 

1. Where before defendants delayed procedures for months, the new
understanding contains strict time constraints that limit the
duration of procedures to 18 months from the date the panel was
established, even if there is an appeal. 

2. Where before countries blocked adoption of panel reports for
months, or even years, the new procedures call for acceptance of such
reports unless there is consensus to reject. 

The procedures also would require the Dispute Settlement Body to
establish a reasonable period of time during which a member must pay
compensation or bring its laws, regulations, or practices into
conformity with panel rulings and recommendations.  In the event of
noncompliance with the panel's decision and a failure to provide
compensation, the plaintiff would have an automatic right to
retaliate, including the potential for cross-retaliation. 


         U.S.  UNILATERAL ACTION
         OUTSIDE WTO DISPUTE
         SETTLEMENT
------------------------------------------------------ Chapter 3:4.3.2

Certain USTR advisory groups, international trade attorneys, and
other trade experts we consulted expressed concerns regarding the
extent to which the United States, under the UR agreements, would
maintain latitude to use Section 301 to unilaterally address
nonviolation trade issues.  At issue is whether the United States
would be required by the UR agreements to resolve all trade-related
disputes with WTO members using its dispute settlement mechanism,
including those that do not involve violations of UR obligations.  If
so, while the United States would retain the capacity to act
unilaterally, the new dispute settlement procedures would render
threats of such action less credible and, thereby, reduce the
leverage gained by the United States.  Such threats, in the past,
have been crucial to U.S.  efforts to address nonviolation trade
issues. 

While substantially broader than GATT, the UR agreements would not
address all trade practices that may be considered as unfair by the
United States.  U.S.  trading partners would continue to have
considerable latitude to restrict U.S.  exports without violating WTO
obligations.  The UR agreements contain only limited obligations in
several areas newly brought into or expanded under its disciplines. 
For example, WTO member countries would still have leeway to limit
access to domestic markets in such areas as agriculture, certain
services, and investment; and there are areas of intellectual
property protection (e.g., details of the patent examination systems)
that are not addressed by the TRIPs agreement.  In addition, the UR
agreements do not address several significant world trade issues,
such as anticompetitive practices, that may unfairly restrict U.S. 
exports. 

In response to these concerns, administration trade officials said
that, under the UR agreements, the United States would maintain its
current ability under GATT to unilaterally address nonviolation trade
issues.  This ability is based on article XXIII of the 1947 GATT
agreement, which governs settlement of disputes among member
countries.  This provision does not prohibit members from using GATT
dispute settlement procedures to address trade disputes.  It states
the following: 

     1. If any contracting party should consider that any benefit
     accruing to it directly or indirectly under this Agreement is
     being nullified or impaired or that the attainment of any
     objective of the Agreement is being impeded .  .  .  the
     contracting party may .  .  .  make written representations or
     proposals to the other contracting party or parties which it
     considers to be concerned. 

     2. [I]f no satisfactory adjustment is effected .  .  .  the
     matter may be referred to the CONTRACTING PARTIES [which] shall
     promptly investigate any matter so referred to them and .  .  . 
     give a ruling on the matter as appropriate.  (Underscoring
     provided.)

According to USTR, these provisions have never been interpreted to
require use of these procedures or prohibit outside action to address
nonviolation issues. 

Administration officials acknowledge, however, that the U.S. 
government, in taking unilateral action, must be careful not to
impose sanctions that violate U.S.  obligations, or are otherwise
actionable, under the UR agreements.  Use of such sanctions would
violate U.S.  obligations and give the offending country an
opportunity to use the new WTO dispute settlement procedures to
retaliate against the United States.  Consequently, the U.S. 
government would need to employ other types of leverage.  For
example, certain industry groups have suggested that the United
States could revoke tariff waivers granted under the Generalized
System of Preferences (GSP)\16 as leverage with WTO member developing
countries. 

Consistent with its position during the negotiations, the EU appears
to hold a contrary opinion on this matter.  According to Stewart,\17
passage of the 1988 Omnibus Trade Act increased foreign opposition to
U.S.  unilateral action.  Some GATT member countries saw the
amendments to Section 301 and additional legislation as another
example of the U.S.' "aggressive unilateralism" that put in question
the commitment of the United States to multilateralism and threatened
the overall operation of GATT.  The EU was particularly critical of
these amendments and switched its negotiating position virtually 180
degrees--from one that objected to strengthening GATT dispute
settlement to one that favored such changes, largely as a way to
"rein in" U.S.  unilateral action. 

The EU's new strategy was to overcome unilateralism by insisting that
WTO member governments commit not to use trade retaliation except as
authorized through the WTO legal system.  The EU appears to believe
that the UR negotiations attained that goal.  According to a European
Commission discussion of the results of the UR negotiations,

     the aim behind the WTO is that members agree to settle their
     trade disputes multilaterally through the WTO instead of
     bilaterally or even, in the case of Section 301 of the US Trade
     Act, unilaterally.  .  .  .  . 

     One of the central provisions of the agreement is that members
     shall not themselves make determination of violations, or
     suspend concessions, but shall make use of the new dispute
     settlement procedure. 

The European Commission concluded that the United States can no
longer "resort to .  .  .  arbitrary provisions of the kind used to
impose unilateral sanctions against its trading partners."\18

The difference between the U.S.  and EU positions centers on article
23 of the WTO dispute settlement understanding, which elaborates on
and modifies the original article XXIII of the 1947 GATT agreement. 
According to the IPAC report on the UR agreements, ".  .  .  article
23 [of the dispute settlement understanding] could be interpreted to
mean that virtually any dispute must be resolved using the
understanding's [dispute settlement] procedures." It states the
following: 

     1. When Members seek the redress of a violation of obligations
     or other nullification or impairment of benefits under the
     covered agreements or an impediment to the attainment of any
     objective of the covered agreements, they shall have recourse
     to, and abide by, the rules and procedures of this
     understanding. 

     2. In such cases, Members shall (a) not make a determination to
     the effect that a violation has occurred, that benefits have
     been nullified or impaired or that the attainment of any
     objective of the covered agreements has been impeded, except
     through recourse to dispute settlement in accordance with the
     rules and procedures of this understanding .  .  . 
     (Underscoring added.)

An EU official told us that he could think of no trade issue that
would not fall into one of the categories listed in the first
paragraph of this provision. 

Certain international trade attorneys and other trade experts we
consulted have raised the concern that, if the United States were
indeed required to use WTO dispute settlement in all cases involving
nonviolation trade issues, it could severely weaken the U.S.'
likelihood of success.  Trade experts with whom we spoke said that a
WTO member would have little chance of winning "on the merits" a
dispute settlement case that seeks to address nonviolation issues
caused by the limited obligations of UR agreements.  WTO dispute
settlement panels would be prohibited from permitting plaintiffs to
use dispute settlement to compel other member countries to strengthen
their practices beyond what the agreements require. 

In addition, according to a prominent trade attorney, article 26 of
the WTO dispute settlement understanding contains special procedures
for use in disputes involving nonviolation issues that appear to
lessen the likelihood that plaintiffs would be successful.  According
to USTR, these procedures and requirements are the same as those in
effect under the 1947 GATT agreement.  Under these provisions the
following would occur: 

1. Defendants would not be obligated to withdraw nonviolation
"measures" (i.e., specific government actions) that are found to
reduce benefits to other members.  Rather, the panel or appellate
body could only recommend that the defendant make an adjustment that
is "mutually satisfactory" to the disputants:  this adjustment may
include compensation.  Thus, since a plaintiff could not seek the
withdrawal of the nonviolation measure harming U.S.  interests,
efforts to assist a particular industry harmed by a foreign
government measure could very well result in no assistance to that
industry. 

2. Defendants would be authorized to block acceptance of panel
reports in cases involving nonviolation situations (e.g.,
anticompetitive practices) that are found to reduce benefits to other
members.  In such cases, the Dispute Settlement Body would use the
voting procedures contained in the April 12, 1989, decision of the
GATT Council of Representatives, which requires consensus acceptance
of panel reports.  Thus, a plaintiff that successfully argues its
case against a foreign nonviolation situation may be unable to obtain
relief for affected domestic industries because the defendant country
has blocked acceptance of the panel report. 

USTR officials said that the U.S.  government intends to proceed in
accordance with the U.S.  interpretation of the UR agreement and,
where appropriate, use Section 301 to take unilateral measures.  In
the event that other countries are able to use WTO dispute settlement
procedures to frustrate U.S.  government efforts to address
nonviolation trade issues, the United States, as a sovereign nation,
would reserve the right to take action inconsistent with U.S. 
obligations under WTO whenever such action is deemed to be in the
national interest. 

USTR officials acknowledged that with the UR agreement, such
unilateral action may have more definite, or at least more
transparent, costs.  They said that, in the past, the U.S. 
government could at times take action that was inconsistent with GATT
obligations, often without significant fear of retaliation.  With the
major exceptions of the EU, Japan, and Canada, no GATT member has the
economic strength to unilaterally retaliate against the United
States.  Should another country have used the pre-Uruguay Round
dispute settlement procedures to obtain worldwide support for
retaliation, the United States could have readily delayed the
proceedings and, if necessary, blocked acceptance of the panel report
for as long as was needed. 

Under the new dispute settlement procedures, the other member country
could use the new WTO automaticity procedures and strict time limits
to counter U.S.  sanctions.  Under these procedures, any U.S. 
unilateral trade action that violates WTO obligations could lead to a
panel finding adverse to the United States.  Unable to delay or block
the procedures, the United States could face a panel recommendation
that the U.S.  government either remove its sanction or pay
compensation.  Unless it complied, the United States could face
WTO-supported sanctions. 

USTR officials have indicated that, even in instances where the
United States faces WTO-supported sanctions, the United States may be
able to pursue its unilateral strategy.  They said that the United
States would be able to impose trade sanctions for the duration of
the dispute settlement proceedings, or longer if the Dispute
Settlement Body gives the United States some time to remove them.  In
addition, the United States may be able to pursue its objectives if
the other country is unwilling to jeopardize its overall relations
with the United States by retaliating against U.S.  sanctions or is
so small that its retaliation measures do not significantly harm U.S. 
interests. 


--------------------
\16 GSP is a program under which the United States grants duty-free
treatment on selected items to 144 designated developing countries
and territories. 

\17 Stuart, The GATT Uruguay Round, (1986-1992), ed., pp.  2760-3. 

\18 The Uruguay Round, European Commission Background Brief 20 (Mar. 
14, 1994), pp.  4 and 14-5. 


         THE UNITED STATES AS
         DEFENDANT
------------------------------------------------------ Chapter 3:4.3.3

The automaticity of the new dispute settlement rules also has
implications for the United States as a defendant.  In the past, the
United States has used GATT procedural delaying and blocking tactics
when they served the national interest.  Under the strengthened
procedures, however, the United States, along with all other WTO
member countries, would lose this ability.\19 Certain international
trade attorneys and other trade experts have expressed concern
regarding the loss of these procedural tactics. 

As is the case under the 1947 GATT agreement, WTO panels would have
authority to conduct broad investigations of members' practices and
procedures.  WTO panels would have an open-ended charge to examine
matters referred to them in light of the relevant provisions in the
covered agreement at issue, and to make such findings as will assist
the Dispute Settlement Body in making the recommendations or in
giving rulings provided for in that agreement.  With the exception of
cases involving antidumping procedures, panels are authorized to
question not only specific uses or applications of domestic law, but
also the conformity of the law itself with WTO obligations. 

Some trade attorneys and other experts we consulted raised concern
regarding the impact on U.S.  trade law.  For example, the IPAC
report on the UR agreements said

     We are particularly concerned by the empowerment of the Dispute
     Settlement Body panels to reverse the application of domestic
     trade laws.  More disturbing still is the prospect that such
     action is subject to no appeal to U.S.  courts. 

One recent example of this authority under GATT was the panel report
adverse to section 337 of the Tariff Act of 1930, as amended (19
U.S.C.  1337), a trade remedy used by U.S.  firms to protect
intellectual property rights (e.g., patents, trademarks, and
copyrights) from counterfeit and infringing imports.  The GATT panel
report recommended that the United States substantially change
section 337 to conform to U.S.  obligations under GATT.  The United
States blocked GATT council adoption of this report at seven GATT
councils before finally accepting it in 1989. 

Certain international trade attorneys and other trade experts that we
consulted said that, given the breadth of the UR agreements, future
WTO dispute settlement procedures may also intrude upon areas of
domestic policy previously outside the scope of U.S.  multilateral
trade relations.  These areas include environmental protection,
consumer safety regulations, and health standards, whose use could,
under certain circumstances, be viewed as constituting unfair trade
practices.  Already there have been several GATT dispute settlement
cases regarding U.S.  environmental protection standards.  For
example, there is a case pending on U.S.  government corporate
average fuel economy (CAFE) standards (which establish minimum
average miles per gallon for cars sold in the United States). 

In addition, the European Commission has identified\20 as potential
violations of U.S.  obligations under the UR agreements several U.S. 
federal and state laws and regulations on taxation; the environment;
and product standards, testing, labelling, and certification.  These
include

  the federal luxury excise tax, contained in the Omnibus Budget
     Reconciliation Act of 1990, which the Commission argues has a
     disproportionate effect on European-made automobiles;

  state glass recycling regulations, such as those promulgated under
     the Public Resources Code of California, which the Commission
     argues unnecessarily burdens European bottle makers; and

  several federal and state laws setting tolerance levels for the
     amount of lead in products (i.e., California's Safe Drinking
     Water and Toxic Enforcement Act), which the Commission sees as a
     "structural impediment" to European producers' access to the
     U.S.  market. 

Certain international trade attorneys and other commentators we
consulted have expressed concern about the United States subjecting
itself to the new WTO dispute settlement procedure.  Although GATT
dispute settlement procedures are judicial in character, they also
contain diplomatic and political elements, which is consistent with
the nature and basic philosophy of GATT.  In addition, panel
deliberations are not governed by stare decisis, the common-law
concept requiring judges to hand down decisions that are consistent
with judicial precedent.  Under the 1947 GATT agreement, while
panelists generally review, and often are influenced by, prior
decisions in cases similar to the one under consideration, they are
not bound to follow them. 

Like GATT panelists, WTO dispute settlement panelists would have
greater latitude in making rulings than do U.S.  judges.  This
situation has, in the past, created difficulties for the United
States.  While many GATT panels have rendered well-regarded
decisions, prior experience has shown that the U.S.  government may
find itself in the awkward position of having to implement panel
recommendations that contradict prior panel decisions, appear to lack
merit, or are difficult to carry out given the relationship between
the federal and state governments in the United States. 

The new appeals process may help to improve the quality of panel
decisions and ensure the integrity of the dispute settlement
mechanism.  Hudec has cautioned,\21 however, that the appellate
tribunal would likely confront a number of obstacles to making
high-quality legal decisions.  He said that finding appeals judges
with the requisite abilities may be problematic due to the limited
pool of prospective judges, who would continue to be needed for
primary panels.  This problem would be compounded if the selection
process becomes politicized.  These judges may also have difficulty
building a staff with the level of professional expertise they would
need, due to the short supply of individuals with the blend of skills
required to do high-quality legal work. 

The appellate tribunal may also experience difficulty keeping pace
with the demand for its services.  According to Hudec, the dispute
settlement workload could be significantly increased with the UR
agreements.  In addition, he said that the legal issues to be decided
would be more complex than before, and the short time frame allowed
for appellate decisions would increase the difficulty of producing
high-quality legal work.  This situation would be even more complex
if every case goes to appeal, increasing the strain on the appellate
tribunal's resources. 

According to USTR officials, the United States, as a sovereign
nation, would be able to choose to ignore adverse recommendations of
WTO dispute settlement panels and appellate tribunals.  Congressional
action would in all cases be required to change U.S.  law.  Should
the United States decide not to conform to the recommendations or pay
compensation, such a response would most likely expose the United
States to WTO-supported sanctions imposed by the member country that
initiated the complaint.  However, depending on its size and overall
relations with the United States, the plaintiff country may choose
not to impose sanctions, or the sanctions may not materially harm the
United States which, as a result, may continue the practice that gave
rise to the complaint. 

Certain international trade experts we consulted speculated that
repeated noncompliance with dispute settlement panel rulings however,
could possibly have serious implications for the entire multilateral
trading system.  They propose the following scenario: 

     A WTO member country disputes an appellate ruling and is
     unwilling or unable to implement the recommendations or pay
     compensation.  The plaintiff seeks, and receives, authority to
     impose sanctions.  The defendant country, bowing to domestic
     pressure, takes WTO-illegal action to protect or compensate
     those sectors of its domestic economy harmed by the sanctions. 
     The plaintiff, in turn, seeks additional authority to escalate
     the sanctions, causing the defendant to threaten additional
     WTO-illegal measures. 

While the potential for this eventuality may be remote, these experts
believe that it should not be completely discounted.  This type of
situation, multiplied many times with various countries, could reduce
benefits from world trade and endanger the viability of the
multilateral trading system. 

Having reviewed the available information, we believe that it would
be difficult to predict the nature of dispute settlement in WTO and
its potential impact on the United States.  Clearly, the new
procedures would strengthen U.S.  ability to address violations of
the UR agreements.  However, there is evidence that the dispute
settlement understanding may also lessen the effectiveness of the
U.S.' unilateral actions to address nonviolation trade issues and may
intrude on U.S.  domestic policies.  In response to these concerns,
USTR states that, where necessary, the United States would reserve
its right as a sovereign nation to violate its WTO obligations.  Such
action could result in WTO-supported sanctions being imposed against
the United States.  Should Congress ratify the UR agreements, we
believe WTO dispute settlement would warrant close oversight to
ensure that U.S.  interests are being served. 


--------------------
\19 Although the United States advocated elimination of delaying and
blocking tactics, as long as they were available the U.S.  government
made use of them when so doing was in the national interest.  For
example, the United States used delaying tactics in the GATT dispute
settlement procedure involving its domestic international sales
corporation program, which lasted from 1972 to 1984. 

\20 Report on United States Barriers to Trade and Investment, 1994,
Services of the European Commission, pp.  50-7. 

\21 Hudec, "Dispute Settlement," pp.  191-4; and comments by Hudec
before the OECD Workshop on the New World Trading System (Paris,
France:  Apr.  25-6, 1994). 


   ISSUES TO WATCH
---------------------------------------------------------- Chapter 3:5

To protect its interests should WTO be created, the United States may
want to focus attention on whether concerns raised prior to
ratification become evident in the functioning of WTO.  These
concerns include the following: 

  Blocs of WTO members consistently use the new decision-making
     procedures in a manner that harms U.S.  interests. 

  In response to WTO interpretations of or amendments to UR
     agreements, Congress, or state governments, are recurrently
     asked to make amendments to U.S.  laws that are not seen to be
     in the national interest. 

  WTP dispute settlement panels continually render rulings adverse to
     U.S.  use of unilateral actions to address nonviolation trade
     issues. 

  In response to adverse WTO dispute settlement rulings, the United
     States substantially limits its use of Section 301 as a
     unilateral measure to address nonviolation trade issues. 

  The WTO dispute settlement process generates rulings adverse to
     U.S.  positions that are inconsistent with prior rulings, lack
     merit, or contain recommendations that are not feasible for the
     United States to implement, given its form of government. 

One of the ministerial declarations\22 adopted in April 1994 invites
the Ministerial Conference to "complete a full review of dispute
settlement rules" within 4 years after the UR agreements enter into
force.  At that time, WTO ministers would decide whether to
"continue, modify, or terminate" the WTO dispute settlement rules and
procedures.  Unless there is a need to act sooner, the United States
could use this 4-year review as a vehicle for readjusting and
improving WTO dispute settlement procedures based on lessons learned
during the interim period. 


--------------------
\22 Uruguay Round:  Final Texts of the GATT Uruguay Round Agreements,
Including The Agreement Establishing The World Trade Organization As
Signed on April 15, 1994, Marrakech, Morocco, Office of the U.S. 
Trade Representative (Washington, D.C.:  U.S.  Government Printing
Office, 1994), p.  419. 


CHANGES TO TRADE RULES
============================================================ Chapter 4

The Uruguay Round agreements, if ratified, could profoundly affect
the rules governing the operation of the multilateral trading system. 
In particular, the agreements reached call for significant changes in
multilateral disciplines regarding unfair trade practices,
specifically government subsidies and "dumping." The administration
and the Uruguay Round supporters viewed these changes as benefiting
the United States.  Some industry advisory committees and members of
the international trade community have expressed reservations and
urged a fuller debate on the potential impact of these changes on
U.S.  trade and the multilateral trading system.  The Uruguay Round
safeguards agreement regarding emergency relief from import surges,
by contrast, would not have as great an impact and is generally
supported by the trade community. 


   PROVISIONS FOR SUBSIDIES AND
   COUNTERVAILING DUTIES
---------------------------------------------------------- Chapter 4:1


      BACKGROUND
-------------------------------------------------------- Chapter 4:1.1

Subsidies essentially lower a producer's costs or increase its
revenues.  As a result, producers may sell their products at lower
prices than their competitors from other countries.  Subsidies to
firms that produce or sell internationally traded products can
distort international trade flows. 

All governments, including the U.S.  government, maintain subsidy
programs of one type or another.  However, the United States has
historically provided fewer industrial subsidies than most countries. 
An OECD study found that in 1986 the United States provided the
lowest level of industrial subsidies of the developed countries.  For
the past several decades, the United States has sought to eliminate
trade-distorting subsidies provided by foreign governments. 


      COUNTERVAILING DUTY LAWS
-------------------------------------------------------- Chapter 4:1.2

Countervailing duty (CVD) laws can address some of the adverse
effects that subsidies can cause.  Countervailing duties are special
customs duties imposed to offset subsidies provided on the
manufacture, production, or export of a particular good. 

Under U.S.  CVD law, private parties can petition the Department of
Commerce to offset alleged material injury\1 caused by subsidized
imports with a countervailing duty on the imports in question.  In a
CVD investigation, Commerce determines whether a country (or a
person, corporation, or association within that country) is providing
a subsidy, either directly or indirectly.  If Commerce determines
that a subsidy exists, it will impose countervailing duties on the
subsidized imports if, as is required in most cases, ITC also finds
that injury was caused or threatened to be caused by the subsidized
imports.\2

Under U.S.  CVD law, there are two types of subsidies:  export
subsidies and domestic subsidies.  Export subsidies are those that
are tied to, or contingent upon, an industry's export performance. 
They typically consist of financial, tax, or other incentives to
foster exports.  Under U.S.  law, export subsidies would be subject
to countervailing duties. 

Unlike export subsidies, domestic subsidies are not directly tied to
exports; rather, they are provided to producers as a means of
reducing overall production costs.  Under U.S.  law, to be
countervailable, domestic subsidies must be "sector specific," that
is provided to a specific industry or group of industries.  Generally
available government programs would not be subject to countervailing
duties. 

The United States has been the foremost user of the CVD remedy to
address the problems posed by subsidies.  The United States was
particularly active in initiating CVD actions in the 1970s and 1980s. 
In the United States, from 1980 to 1986, for example, over 280 CVD
cases were initiated.  Although other countries, including Australia,
Canada, the EU, and Japan, have enacted CVD laws, they have filed
relatively few CVD actions; from 1980 to 1986, for example, these
countries together initiated a total of only 39 CVD cases.  Only one
CVD case was filed against the United States during this period. 


--------------------
\1 Under the Tariff Act of 1930, as amended [19 U.S.C.  1677 (7)
(A)], "material injury" is defined as "harm which is not
inconsequential, immaterial or unimportant."

\2 Unlike antidumping law, U.S.  CVD law does not always require a
material injury determination.  An ITC injury finding is only
required in cases involving countries that are signatories to the
subsidies code or that provide reciprocal benefits to the United
States.  In determining material injury, ITC considers domestic
consumption, U.S.  production capacity, shipments, inventories,
employment, and profitability. 


      TOKYO ROUND SUBSIDIES CODE
-------------------------------------------------------- Chapter 4:1.3

While the 1947 GATT agreement and the 1955 GATT amendments addressed
the problems of subsidies and cautioned against their use, they did
not specifically prohibit any type of subsidy.  In the time between
the signing of the 1947 GATT agreement and the start of the Tokyo
Round in 1974, there was a significant increase in the use of
government subsidies around the world. 

At the start of the Tokyo Round, it was decided that subsidies should
be brought under international disciplines.  In the 1974 Trade Act,
Congress noted that U.S.  interests would be served by an
international agreement to eliminate trade-distorting subsidies and
urged negotiation of international rules governing the use of
subsidies.  However, according to U.S.  government officials, while
the United States was interested in strengthening GATT rules
governing subsidies, most other GATT contracting parties were not. 
They were primarily concerned with disciplining the use of CVD laws
by the United States and with protecting certain forms of subsidies
from trade actions. 

The Tokyo Round negotiations on subsidies resulted in a 1979 GATT
subsidies code that was a separate agreement applicable only to those
GATT contracting parties that chose to sign it.  The code prohibited
signatories from granting export subsidies for nonprimary products,\3
except for certain exceptions for developing countries.  It permitted
export subsidies for primary products provided that the subsidizing
country would not capture more than an equitable share of world
export trade in such products or materially undercut the prices of
other suppliers.  In addition, the code did not prohibit domestic
subsidies; rather, it recognized that signatories use many different
domestic subsidies, including those to promote research, assist
disadvantaged regions, and advance the economic development of
developing countries.  The code, however, did seek to discipline the
use of domestic subsidies so as not to adversely affect the trade of
other signatories.  It specifically stated that when domestic
subsidies have undesirable effects on international trade, injured
countries can seek relief in the form of countervailing duties,
bilateral consultations or agreements, or multilateral conciliation. 

The 1979 code did not provide an explicit definition of a "subsidy."
Further, while the code stated that developing countries should try
to reduce or eliminate export subsidies, it did not require them to
do so.  The code also established consultation, conciliation, and
dispute settlement procedures for resolving signatories' conflicts
over the use of subsidies. 

In return for other countries' pledges to make progress toward
reducing trade-distorting subsidies in the 1979 code, the United
States agreed to other signatories' demands to use countervailing
duties only if it determined that subsidized imports were causing or
threatening to cause injury to a like U.S.  industry.  Before the
1979 code, the United States applied an "injury" test only in cases
involving duty-free imports from GATT contracting parties. 


--------------------
\3 A "primary product" includes farm, forest, and fishery products. 


         WEAKNESSES OF THE 1979
         SUBSIDIES CODE
------------------------------------------------------ Chapter 4:1.3.1

It is generally acknowledged that the 1979 subsidies code has been
largely ineffective in curbing the use of subsidies.  The
shortcomings of the subsidies code have included its

  unclear definition of a subsidy and the conditions necessary for a
     subsidy to be "actionable,"\4

  lack of coverage of agricultural and domestic subsidies,

  nonapplicability for developing countries, and

  ineffective dispute settlement mechanism. 

In addition, the code's utility was limited, as it has only 27
signatories. 

In a 1988 submission to the subsidies and countervailing measures
negotiating group during the Uruguay Round, the United States
summarized the weaknesses of the 1979 code, noting that

     [T]here appears to be little or no international consensus
     regarding the meaning of key GATT and Code rules.  Some rules,
     particularly those relating to agricultural, domestic, and
     developing country subsidies, are ineffective and impose
     inadequate levels of discipline with respect to subsidies that
     distort international trade flows.  Finally, because the dispute
     settlement provisions of the Code permit the losing party to
     block adverse panel reports, the Code has failed to resolve a
     single contested dispute.\5

In reviewing the benefits of the Tokyo Round subsidies code, our 1983
study found that the United States had met with little success in
using the code to get foreign governments to reduce the use of
trade-related subsidies.\6 Specifically, we found that the United
States had been unable to

  persuade developing countries to make commitments to reduce or
     eliminate subsidies,

  persuade signatories to report the subsidies they use, and

  use the agreement's conflict resolution procedures to help
     eliminate the effects of specific subsidy practices. 


--------------------
\4 Actionable subsidies are those that are not specifically
prohibited under the subsidies agreement, but against which GATT
remedies can be sought if they are found to distort trade. 

\5 June 1988 U.S.  Submission on Subsidies Code, as quoted in The
GATT Uruguay Round:  A Negotiating History (1986-1992), Vol.  I, ed. 
Terence P.  Stewart (Cambridge, MA:  Kluwer Law and Taxation
Publishers, 1993), p.  840. 

\6 See Benefits of International Agreement on Trade-Distorting
Subsidies Not Yet Realized (GAO/NSIAD-83-10, Aug.  15, 1983). 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 4:1.4

To remedy the weaknesses of the 1979 subsidies code, the U.S.' main
objective throughout the Uruguay Round was to (1) clarify and
strengthen GATT subsidy rules and disciplines and (2) broaden the
category of prohibited subsidies.  In addition, throughout the UR,
the United States sought to (1) bring developing countries under more
substantive obligations regarding the use of subsidies, (2)
strengthen enforcement of GATT subsidy rules by achieving a more
effective dispute settlement process, and (3) maintain the
effectiveness of U.S.  CVD laws.  Lastly, the United States sought to
extend subsidy disciplines to new areas.  These areas included
industrial targeting and distortive government practices within the
natural resources sector, such as Mexico's and other countries'
preferential pricing of natural resources. 

In the 1988 Omnibus Trade Act, Congress established the following
objectives regarding subsidies:  "to define, deter," and "discourage"
the use of subsidies and extend the application of disciplines to
unfair trade practices including resource input subsidies and export
targeting practices not covered by existing GATT rules.  In addition,
it sought to have similar rules regarding subsidies applied to the
treatment of primary and nonprimary products. 

In a 1989 meeting of the subsidies negotiating group, the United
States put forth more specific proposals regarding the subsidies
agreement, including prohibition of export subsidies and domestic
subsidies that exceed a certain percentage of a firm's sales. 
Further, the United States proposed a "benefit-to-recipient"
standard\7 for calculating subsidies in countervailing duty cases, as
is used by the Department of Commerce. 


--------------------
\7 A "benefit-to-recipient" standard is a methodological approach for
valuing subsidies by which the amount of the subsidy is determined in
reference to a comparable commercial benchmark that would otherwise
be available to the subsidy recipient within the jurisdiction in
question. 


      SHIFT IN NEGOTIATING
      OBJECTIVES REGARDING
      NONACTIONABLE SUBSIDIES
-------------------------------------------------------- Chapter 4:1.5

Throughout the Uruguay Round, most countries, including Canada, the
EU, India, and the Nordic countries, advocated the creation of a
category of nonactionable subsidies.  Although these countries
differed somewhat regarding the types of subsidies that should be
nonactionable, most of them proposed that this category include
subsidies for (1) research and development, (2) regional development,
(3) environmental compliance, and (4) structural adjustment. 

Throughout most of the subsidy negotiations, the United States
opposed the establishment of a nonactionable category of subsidies,
except for those involving government provision of basic services
including unemployment and other human resource assistance,
infrastructure aid, and national defense.  In a 1989 submission to
GATT, the United States noted that "...[g]iven the fungible nature of
money, it is not at all clear that any subsidies should be
nonactionable." At that time, the United States asserted that the
categorization of subsidies as nonactionable would encourage
countries to restructure their subsidy programs to fit the
nonactionable category. 

The Uruguay Round draft Final Act, or the Dunkel text issued in
December 1991, included a category of nonactionable subsidies that
represented a compromise between the views of the United States and
most other countries.  The text limited the category of nonactionable
subsidies to (1) assistance for industrial research and (2)
assistance for disadvantaged regions.  Within the research area, the
Dunkel text provided that government assistance of up to 50 percent
for basic research and 25 percent for applied research would be
nonactionable.  The Dunkel text also included a provision that
countries would have to notify GATT in advance of any research
subsidies for which they sought nonactionable status. 

In the final weeks of the UR negotiations, in response to concerns
expressed by the U.S.  science and technology community and Members
of Congress, the United States shifted its negotiating position
regarding nonactionable subsidies.  The United States sought changes
in the nonactionable subsidies category to expand the research and
development activities that would be nonactionable under the
agreement.  Specifically, the United States proposed (1) raising the
permissible levels of government assistance for research and
development, (2) changing and expanding the definitions of
nonactionable research and development, and (3) eliminating the
mandatory requirement for advance notification regarding proposed
research and development subsidies. 

According to officials from the Department of Commerce and USTR, the
United States shifted its position on research and development
subsidies to protect the nature and level of ongoing U.S.  technology
programs and to ensure that the firms participating in such programs
would not be subjected to trade harassment by U.S.  trading partners. 
At a March 9, 1994, congressional hearing, the Deputy U.S.  Trade
Representative stated that the United States sought to "protect the
type of technology programs the U.S.  currently has, while excluding
the type of development and production assistance which other
countries typically grant."


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 4:1.6

The final UR subsidies agreement would establish specific rules and
disciplines in the subsidies area.  It sets forth a definition of a
subsidy and the conditions that must exist in order for it to be
actionable.  It defines a subsidy as a "financial contribution"
provided directly or indirectly by a government or any public body,
and one that confers a benefit.  The financial contribution may take
the form of a grant, loan, equity infusion, loan guarantee,
forgiveness of taxes otherwise due, provision of goods and services
other than infrastructure, government purchase of goods, or income or
price supports to the benefit of a firm.  In addition, the agreement
extends the 1979 GATT subsidies code's list of prohibited subsidies
to include de facto export subsidies (subsidies that are in practice
contingent upon export performance) and subsidies contingent on the
use of local content. 

To be actionable under the agreement, subsidies must be "specific." A
subsidy is considered "specific" to a firm or an industry, or a group
of firms or industries, if the government limits access to the
assistance in law or in fact.  Generally available and widely used
subsidies provided by subnational governments are not considered
specific under the agreement.  However, central government subsidies
to a region are considered to be specific even if generally available
throughout the region (except where exempted by nonactionable
provisions discussed in the following section).  Setting or changing
generally applicable tax rates is not considered to be a subsidy. 

The agreement also would expand subsidies' disciplines to cover
domestic subsidies.  It lays out specific criteria for demonstrating
when a country's use of such subsidies has adversely affected another
country's trade interests through price or volume/market share
effects; it creates an obligation to withdraw the subsidy or remove
the adverse effects when they are identified.  In certain instances,
the nature or amount of domestic subsidies are presumed to cause
"serious prejudice," and the burden of proof is on the subsidizing
country to show that adverse effects have not been caused. 

Agriculture subsidies are primarily covered by the UR agreement on
agriculture, which has special rules regarding export subsidies.  The
agriculture agreement does not prohibit export subsidies.  Rather, it
provides that countries reduce expenditures on export subsidies by 36
percent (24 percent for developing countries) and the quantity of
subsidized exports by 21 percent (14 percent for developing
countries) over 6 years from the 1986-90 base period (see ch.  6). 


         DISPUTE SETTLEMENT
         PROVISIONS
------------------------------------------------------ Chapter 4:1.6.1

The agreement establishes procedures in the new Dispute Settlement
Body of WTO to determine (1) whether any form of trade-distorting
subsidies exist; and (2) whether adverse trade effects may result,
with specific time deadlines by which decisions must be reached.  If
a trade-distorting subsidy is suspected, a country affected by such a
subsidy may seek consultations with the subsidizing country.  If the
consultations fail to produce a satisfactory solution, the issue may
be brought before a WTO panel.  Should the panel find that a subsidy
has caused adverse trade effects, it may direct the subsidizing party
to remove the subsidy or the adverse effects.  In the case of
suspected injury from subsidized imports, a country may use its
national laws to conduct an investigation and impose countervailing
duties to offset the benefits of the subsidy, if one is found. 

Unlike the antidumping agreement discussed later in this chapter, the
subsidies agreement contains no provision governing the standard of
review\8 for WTO panels reviewing CVD cases.  However, a ministerial
declaration was adopted that recognized "the need for consistent
resolution of disputes arising from antidumping and countervailing
duty measures." According to the Department of Commerce, this
declaration could support the notion that the standard of review in
both antidumping and CVD disputes should be uniform. 

In addition, the agreement specifies that the committee on subsidies,
the WTO body that administers the subsidies agreement, review and act
on countries' requests for certain subsidies to be deemed
nonactionable (see the following discussion).  The committee also is
to review after 5 years the operation of the provisions regarding
presumed serious prejudice and nonactionable subsidies to determine
if they should remain in effect.  The provisions will be terminated
unless all committee members agree to keep them in effect. 

Under the new agreement, all WTO members would be required to adhere
to the subsidies agreement, causing a significant increase in
coverage from the 27 signatories of the 1979 subsidies code. 


--------------------
\8 The standard of review is the criterion that dispute panels use to
determine the merits of a given case.  The standard is used to define
the appropriate level of review given the issues involved in that
case. 


         THREE CATEGORIES OF
         SUBSIDIES
------------------------------------------------------ Chapter 4:1.6.2

The agreement would create for the first time three categories of
subsidies and remedies:  (1) prohibited subsidies (known as the "red
light" category); (2) actionable subsidies (known as the "yellow
light" category), e.g., permissible subsidies that are actionable
multilaterally and countervailable unilaterally if they cause adverse
trade effects; and (3) nonactionable subsidies (known as the "green
light" category).  The latter includes permissible subsidies that are
nonactionable and noncountervailable if they are structured according
to certain criteria. 

Prohibited subsidies, as previously noted, include subsidies to
encourage exports, including de facto export subsidies, and subsidies
contingent on the use of local content.  Countries would have 3 years
to bring inconsistent practices into conformity with the agreement
from the date the UR agreement goes into effect.  If prohibited
subsidies are found in a WTO subsidies investigation, they must be
removed. 

Actionable subsidies are domestic subsidies against which remedies
can be sought if they are shown to distort trade.  Trade distortion
occurs if (1) subsidized imports cause injury to a domestic industry
(e.g., depress prices or threaten to do so); (2) subsidies nullify or
impair benefits owed to another country under WTO (e.g., the benefits
of bound tariff concessions); or (3) subsidized products displace or
impede imports from another country or another country's exports to a
third-country market. 

There is also a special category of actionable subsidies that have a
high likelihood of being trade distorting.  These subsidies are
presumed to cause "serious prejudice" to the trade interests of other
countries when any of the following conditions are met:  (1) the
total ad valorem subsidization\9 of a product exceeds 5 percent of
the value of the firm's or industry's output of a product (calculated
on the basis of cost to the subsidizing government), (2) subsidies
are provided to forgive debts, or (3) subsidies cover a firm's or an
industry's operating losses.  In cases where serious prejudice is
presumed, the burden is on the subsidizing government to demonstrate
that serious prejudice did not result from the subsidy in question. 
As previously noted, the provision establishing a presumption of
serious prejudice would expire automatically 5 years after the
agreement enters into force unless the WTO subsidies committee
decides to extend it. 

Nonactionable subsidies include those that are not "specific" (i.e.,
not limited to an enterprise or industry or group of enterprises or
industries).  Subsidies also are nonactionable if they fall into
three classes:  (1) certain government assistance for research and
precompetitive development activity, (2) certain government
assistance for disadvantaged regions, and (3) certain government
assistance to adapt existing plants and equipment to new
environmental requirements. 

Government assistance for research and development would be
nonactionable if (1) the assistance for "industrial research" is
limited to 75 percent of eligible research costs and (2) assistance
for "precompetitive development activity" (applied research and
development through the creation of the first, noncommercial
prototype) is limited to 50 percent of eligible costs.  "Eligible
costs" are those that are exclusively related to the permissible
research and development.  For programs encompassing both industrial
research and precompetitive development activity, an average of these
percentages (62.5 percent) can be applied.  Fundamental research
activities independently conducted by universities or research
institutes are completely nonactionable. 

Government assistance for regional development would be nonactionable
to the extent that the assistance is provided within clearly
contiguous regions that are determined to be disadvantaged on the
basis of neutral and objective criteria.  These criteria must include
either per capita income or unemployment levels.  This assistance
would be nonactionable if it is not targeted to a specific industry
or group of recipients within the region. 

Government assistance to meet environmental requirements would be
nonactionable to the extent that it is limited to a onetime measure
equivalent to 20 percent of the costs of adapting existing facilities
to new standards and does not cover any manufacturing cost savings
that may be achieved. 

These subsidies would be nonactionable so long as the WTO subsidies
committee received notification of the subsidy program before
implementation.  Governments may opt not to notify the committee
about such assistance, but if they do not, these subsidies would be
actionable if they do not meet the nonactionable criteria.  Subsidy
programs that are determined by the subsidies committee to meet the
nonactionable criteria may neither be overturned in WTO nor offset
through the imposition of countervailing duties.  However, if a
program results in "serious adverse trade effects" to an industry in
another country, the subsidies committee may recommend that the
program be modified to remove these effects.  In addition, a country
may challenge another country's claim of a program's nonactionable
status in the subsidies committee and through binding arbitration. 

The nonactionable subsidy provisions would expire automatically 5
years after the agreement goes into effect unless the WTO subsidies
committee decides to continue them.  The provisions applicable to
research and development also would be subject to review 18 months
after the agreement goes into effect to determine whether any
modifications are necessary, including changes in the definitions of
the categories.  However, at the 18-month review, there must be a
consensus among members of the subsidies committee to make
modifications. 


--------------------
\9 Ad valorem subsidization is a percentage amount that is determined
by dividing the appropriately allocated and amortized financial value
of the subsidy by the sales of the product in question. 


         COUNTERVAILING DUTY RULES
------------------------------------------------------ Chapter 4:1.6.3

The subsidies agreement would require countries imposing CVDs to
follow certain rules of procedure and evidence.  For example, the
agreement specifies that CVDs are not to be imposed if subsidies are
less than 1 percent ad valorem.  It authorizes the practice of
"cumulation" in a CVD investigation to collectively assess injury
from several countries.  In addition, it permits use of a
"benefit-to-recipient" calculation methodology in CVD cases to
determine the benefit conferred.  Further, it requires the
termination of a CVD order not less than 5 years after it is imposed
unless such termination is "likely to lead to the continuation or
recurrence" of subsidization and injury.  It also clarifies the level
of domestic industry support needed in order to bring a CVD action. 


         SUBSIDY DISCIPLINES FOR
         DEVELOPING COUNTRIES AND
         THOSE IN TRANSITION FROM
         CENTRALLY PLANNED
         ECONOMIES
------------------------------------------------------ Chapter 4:1.6.4

The agreement would introduce subsidy disciplines for developing
countries, although subject to certain derogations (exceptions). 
Developing countries with an annual per capita GNP at or above $1,000
would have to progressively phase out all export subsidies over 8
years (unless extended by the WTO subsidies committee).  Export
subsidies used in a given product sector would have to be phased out
over 8 years for the least developed countries,\10 and 2 years for
other developing countries whenever the country's share of world
trade in that sector reaches 3.25 percent during 2 consecutive years. 
Regarding local content subsidies, developing countries would be
given a 5-year phase-out period, with the least developed countries
permitted up to 8 years. 

Developing countries would be exempt from presumptions of serious
prejudice.  They also would be exempt from multilateral (not CVD)
subsidy remedies for certain WTO-notified, time-limited subsidies
used to privatize state-owned firms.  In the context of CVD laws,
developing countries would benefit from special "negligible" import
rules in injury investigations and a de minimis subsidy level\11 of 2
percent (developed countries would receive only a 1 percent de
minimis level).  During the first 8 years of the agreement, a de
minimis level of 3 percent would apply for the least developed
countries and developing countries that eliminate export subsidies on
an expedited basis. 

Countries in transition from centrally planned economies would be
exempt from the prohibitions on local content and export subsidies
for 7 years. 


--------------------
\10 Under the agreement, "least developed countries" are those
designated as such by the United Nations that are members of WTO. 

\11 A de minimis subsidy level is the amount below which a subsidy is
considered to be negligible.  CVD cases are terminated in cases where
the amount of a subsidy is below the de minimis level. 


         AGREEMENT'S PROVISIONS
         REGARDING CIVIL AIRCRAFT
         SUBSIDIES
------------------------------------------------------ Chapter 4:1.6.5

Although government subsidies for civil aircraft would be covered
under the subsidies agreement, there would be certain exemptions for
this sector.  Civil aircraft, for example, is excluded from the
presumption of serious prejudice when there is a subsidy exceeding 5
percent ad valorem.  In addition, the agreement provides that there
is no presumption of serious prejudice by reason of debt forgiveness
merely because a subsidized aircraft company falls behind in royalty
payments to a government when the level of actual sales falls below
the level of forecast sales.  Lastly, the civil aircraft industry is
excluded from the nonactionable category for research and
development. 


      POTENTIAL IMPACT OF THE
      AGREEMENT
-------------------------------------------------------- Chapter 4:1.7

With the exception of not imposing specialized subsidy disciplines on
governments' industrial targeting practices and access to natural
resource inputs, the United States was able to meet most of its
negotiating objectives regarding subsidies and countervailing
measures.  The consensus of the trade community and the industry
advisory committees was that the new subsidies agreement would
overcome many of the weaknesses of the 1979 subsidies code.  However,
there was some concern that the benefits of the agreement may be
negated by the creation of a nonactionable subsidies category and
other aspects of the agreement. 


         BENEFITS OF THE NEW
         AGREEMENT
------------------------------------------------------ Chapter 4:1.7.1

The agreement met one of the most important U.S.  negotiating
objectives in that it better defines and strengthens subsidy
disciplines.  Unlike the 1979 code, the new agreement contains a
clear definition of a subsidy and the conditions that must exist for
a subsidy to be actionable.  Further, it extends and clarifies the
1979 code's list of prohibited subsidies to include de facto export
subsidies and those contingent on the use of local content. 
According to USTR, with these new provisions, countries would no
longer be able to argue that only those subsidies expressly linked to
exports in the text of a law are prohibited. 

Unlike the 1979 code, the new agreement would cover domestic
subsidies.  In particular, it specifies how a country can prove that
a domestic subsidy has adversely affected its trade interests
("serious prejudice") and creates an obligation for the subsidizing
country to withdraw the subsidy or remove the adverse effects. 
According to USTR, the absence of such a provision was one of the
greatest deficiencies of the 1979 code. 

Another achievement of the new agreement is that it would introduce
subsidy disciplines for developing countries, another key U.S. 
negotiating objective.  Developing countries were virtually exempt
from the 1979 code.  Although these countries would have up to 8
years to comply with the new disciplines, all countries that are WTO
members would eventually be brought under WTO subsidy disciplines
(although they would receive some preferential treatment as discussed
previously).  In sectors where developing countries achieve a
significant degree of export competitiveness, they would be compelled
to eliminate export subsidies on a more accelerated basis.  According
to the Department of Commerce, this requirement could prove to be "of
modest to significant benefit" to such industries as textiles and
steel. 

With the WTO's new binding dispute settlement mechanism, enforcement
of subsidy rules and disciplines would be strengthened significantly,
another major U.S.  negotiating objective.  Moreover, no country
would be able to join WTO without accepting the new agreement's
subsidy disciplines.  According to USTR, this change would help U.S. 
industries in that it would make subsidy remedies "significantly more
user-friendly than in the past."

Finally, the new agreement would make CVD rules more precise and
preserve most existing U.S.  CVD laws and practices, another U.S. 
negotiating objective.  The agreement includes definitions regarding
the identification and measurement of subsidies that are similar to
existing U.S.  standards.  For example, the agreement would accept
the "benefit-to-recipient" calculation methodology that the Commerce
Department uses in CVD cases to determine a subsidy's value (another
specific U.S.  negotiating objective).  It also would accept the U.S. 
approach in determining whether a subsidy is "specific" and thus
countervailable.  Further, according to the Commerce Department, the
addition of transparency (openness) and due process requirements
would help bring foreign CVD systems up to U.S.  standards.  This
development would benefit U.S.  exporters as more countries begin to
use CVD remedies. 

The agreement would require the United States to make some changes in
its CVD laws, including the imposition of a 5-year "sunset"
provision, an increase in the de minimis threshold from 0.5 to 1
percent ad valorem, and the exemption from U.S.  CVD laws of
subsidies in the nonactionable category.  According to USTR and the
Department of Commerce, these changes may make it harder for Commerce
to impose CVDs than in the past.  However, USTR's position is that
the benefits of the agreement outweigh the changes required in these
laws. 


         POTENTIAL DRAWBACKS OF
         THE AGREEMENT
------------------------------------------------------ Chapter 4:1.7.2

Although most industry advisory committees and members of the trade
community acknowledged that the new subsidies agreement has many
benefits in clarifying and strengthening subsidy disciplines,
concerns have been expressed about several potential weaknesses. 

Nonactionable Category.  The primary criticism of the agreement is
its creation of a nonactionable (or "green light") category of
subsidies.  Specifically, there is concern that some countries would
use this category as a subsidy "loophole," thus undermining the
agreement's strengthened subsidy disciplines.  Several industry
advisory committees and Members of Congress, in fact, have voiced
concern that foreign competitors will broadly apply subsidies in this
category to gain a competitive advantage over the United States. 
They maintained that given the fungible nature of money, other
countries may restructure their existing subsidy programs to fit the
nonactionable criteria.  Further, they maintained that any form of a
permissible subsidy amounts to a general subsidy for an industry.  In
addition, they pointed out that the nonactionable category could
hinder U.S.  companies wanting to bring CVD actions against foreign
companies. 

Some trade analysts and Members of Congress have raised particular
concerns about the nonactionable category for government assistance
for research and development.  They argued that this category would
(1) promote an industrial policy in which the government actively
supports selected industries; (2) require the United States to match
or exceed foreign research and development subsidies to compete with
other countries in a time of severe budget constraints; and (3) help
U.S.  competitors more than the United States since other nations,
particularly the EU, generally have larger development subsidies than
the United States.  The Department of Commerce and USTR have
contested these views, maintaining that the United States already
provides far greater funding for research and precompetitive
development activities than any other country. 

Some trade analysts and Members of Congress viewed the change in the
U.S.  position regarding this provision in the final weeks of the
negotiations as a signal of a major shift in U.S.  trade policy from
one that attempted to eliminate government subsidies to one that
attempts to expand them.  Moreover, they maintained that, contrary to
the administration's view, there was no need to expand the
definitions of nonactionable research and development to protect U.S. 
technology programs because foreign countries rarely bring CVD
actions.  They also pointed out that U.S.  research programs have
never before been challenged in GATT.  Further, they asserted that
the agreement's definitions of research and development are so vague
that almost any form of government assistance in this area would meet
the nonactionable criteria.  Finally, they maintained that the United
States should not have pushed to eliminate the mandatory
prenotification provision included in the Dunkel Text because the
United States could have used this provision to determine what types
of research and development subsidies other countries were planning. 
In their view, U.S.  research and development programs are currently
much more transparent than those of other countries. 

With regard to the nonactionable category for regional development,
some of the industry advisory committees have expressed concern that
in many countries, including Canada and the EU, most heavy
industries, such as steel, have plants in regions that would meet the
criteria for a disadvantaged region.  Although some of the advisory
committees acknowledged that the "specificity" provision of the
agreement (the provision that government subsidies limited to a
specific firm or industry are actionable) may be of use in
controlling these types of subsidies, they maintained that in many
cases these subsidies are generally available in a particular region,
which would make them nonspecific and thus not actionable.  Some
trade analysts believed that the agreement should have placed a cap
on the amount of regional assistance that would be nonactionable. 

Regarding the nonactionable category for environmental assistance,
some industry advisory committees and trade analysts believed that
the allowance of up to 20 percent of the costs of meeting new
environmental requirements can represent a fairly sizable government
subsidy to an industry.  Further, they maintained that although the
United States has more rigorous environmental laws than most other
countries, U.S.  firms are unlikely to benefit from domestic
subsidies.  Concerns have also been raised that some countries may
enact new environmental requirements every few years to permit
additional government subsidies to the same firm. 


         DEFINITION OF A SUBSIDY
         IN THE AGREEMENT
------------------------------------------------------ Chapter 4:1.7.3

Another criticism of the subsidies agreement is its definition of a
subsidy.  Some industry advisory committees and trade analysts have
voiced concern that the specific definition of a subsidy as a
"financial contribution by a government" may be too narrow.  They
believed the requirement that a subsidy have a financial component
would not cover various government benefits previously considered
actionable, including export restraints and preferential access to
credit.  One trade analyst cited at least two standing U.S.  CVD
orders involving cases in which foreign countries were found to have
subsidized industries without making a financial contribution.  In
one case, Argentina was found to have subsidized its leather industry
by restricting exports of raw hides thereby reducing the industry's
input costs.  In the other case, South Korea was found to have
subsidized its steel industry by directing government and commercial
banks to provide the industry preferential access to more favorable
credit.  According to USTR, it is unclear how the new definition of a
subsidy would affect these standing U.S.  CVD orders.  A few trade
analysts were also concerned that the agreement's specific definition
of a subsidy would enable countries to design new types of subsidies
to fall outside the definition. 


         OTHER CONCERNS REGARDING
         THE AGREEMENT
------------------------------------------------------ Chapter 4:1.7.4

A few of the industry advisory committees have raised concerns that
the agreement does not impose disciplines on industrial targeting
practices or distortive government practices within the natural
resource sector, such as two-tiered pricing\12 or access to natural
resource inputs.  Although the United States sought to extend subsidy
disciplines to cover these areas, it was unable to do so because of
lack of support from other countries. 

Concerns have also been raised about other aspects of the subsidies
agreement, including (1) the lengthy transition periods that
developing countries have to adhere to the subsidies disciplines and
(2) the lack of a specific provision governing the standard of review
for WTO panels reviewing subsidies and countervailing measures. 

Finally, some trade analysts believed that, although the United
States achieved most of what it sought in the subsidies agreement,
the agreement is of limited value because the sectors that have
traditionally received the largest amount of foreign government
subsidies, e.g., agriculture, steel, and aircraft, are either (1)
addressed separately in the UR (in the case of agriculture), (2) may
be addressed in a separate agreement in the future (in the case of
steel), or (3) excluded from parts of the agreement (in the case of
aircraft). 


--------------------
\12 Two-tiered pricing occurs when a government charges a higher
price for export sales of a natural resource input that is available
domestically but scarce internationally than it charges for domestic
sales, thereby providing a competitive advantage to a domestic
industry using this input. 


      IMPACT ON U.S.  STATE AND
      LOCAL SUBSIDIES
-------------------------------------------------------- Chapter 4:1.8

According to the Intergovernmental Policy Advisory Committee, the
subsidies agreement

     [m]ay affect many state and local development programs by making
     explicit that they may be subject to international discipline or
     may require changes to bring them into conformance with the new
     permissible category.\13

Some trade analysts, for example, noted that the definition of a
"specific" subsidy in the agreement may make actionable certain types
of state government programs, including those to attract investment
by specific foreign or domestic firms.  They pointed out, however,
that to be actionable, these programs would have to be found to
distort trade or cause serious prejudice to other countries' trade
interests. 


--------------------
\13 The Uruguay Round of Multilateral Trade Negotiations, Report of
the Intergovernmental Policy Advisory Committee, (Washington, D.C.: 
Jan.  1994), p.  21. 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 4:1.9

As previously noted, the two primary concerns that have been raised
regarding the subsidies agreement are (1) the establishment of a
nonactionable subsidies category, which some analysts viewed as
creating subsidy loopholes and (2) the specific definition of a
subsidy, which some analysts viewed as too narrow. 

In view of these concerns, the following issues would bear watching
when overseeing the subsidies agreement if it is implemented: 

  how foreign governments apply the nonactionable category of
     subsidies and how WTO panels and the WTO subsidies committee
     rule on such subsidies,

  how the Department of Commerce decides on the countervailability of
     foreign government activities that may relate to the
     nonactionable category in CVD actions, and

  how the new definition of a subsidy is interpreted by WTO panels
     and the WTO subsidies committee and affects standing U.S.  CVD
     orders and future U.S.  CVD cases. 


   PROVISIONS FOR ANTIDUMPING
---------------------------------------------------------- Chapter 4:2


      BACKGROUND
-------------------------------------------------------- Chapter 4:2.1

Dumping is generally considered to be the sale of an exported product
at a price lower than that charged for the same or a like product in
the "home" market of the exporter.  This practice is thought of as a
form of price discrimination that can potentially harm the importing
nation's competing industries.  Dumping may occur as a result of
exporter business strategies that include (1) trying to increase an
overseas market share, (2) temporarily distributing products in
overseas markets to offset slack demand in the home market, (3)
lowering unit costs by exploiting large-scale production, and (4)
attempting to maintain stable prices during periods of exchange rate
fluctuations. 

Historically, the dumping of goods has presented serious problems in
international trade.  As a result, the dumping of goods has led to
significant disagreements among countries and diverse views about its
harmfulness.  Views on the harm caused by dumping differ. 
International trade rules, as defined by GATT, take political as well
as economic concerns into account and view dumping and its potential
harm broadly.  Article VI of the GATT agreement notes that the
contracting parties recognize that dumping "is to be condemned if it
causes or threatens material injury to an established industry in the
territory of a contracting party or materially retards the
establishment of a domestic industry."\14 The rules allow for the
imposition of antidumping duties, or fees, to neutralize the
injurious effect of these pricing practices.  Some trade economists
view dumping as harmful only when it involves the use of "predatory"
practices that intentionally try to eliminate competition and gain
monopoly power in a market.  They believe that predatory dumping
rarely occurs and that antidumping enforcement is a protectionist
tool whose cost to consumers and import-using industries exceeds the
benefits to the industries receiving protection.  Moreover, they
believe that increased use of antidumping protection effectively
reduces the anticipated gains that trade liberalization through
tariff reduction will realize for the national economy. 

The United States has long recognized the problems associated with
dumping.  Congress first addressed this issue in the Antidumping Act
of 1916.\15 However, this act required that "predatory intent" be
demonstrated, which was difficult to prove using the rules of
evidence required by U.S.  courts, thus making the act insufficient
to protect U.S.  producers from dumped imports.  To supplement the
1916 act, Congress enacted the 1921 Antidumping Act, which provided
the statutory basis, until 1979, for an administrative investigation
by the Department of the Treasury of alleged dumping practices and
for imposition of antidumping duties.\16

In addition, the 1947 GATT agreement includes article VI, which
addresses dumping.  This article says that dumping "is to be
condemned if it causes or threatens material injury to an established
industry." However, the wording is far short of a binding obligation
to prevent dumping.\17 The article allows for a permitted response to
dumping in certain circumstances, i.e., it allows GATT contracting
parties to use antidumping duties to offset the margin of dumping. 
However, the 1947 GATT antidumping provisions were very broad and did
not specifically define how antidumping investigations were to be
conducted.  As a result, many signatories to the agreement applied
laws that were inconsistent and in conflict with each other, causing
dissension among GATT members.\18 Over time, some GATT members began
to view other countries' use of antidumping laws as creating a new
barrier to trade.  Subsequent rounds of GATT negotiations attempted
to resolve these problems by establishing a GATT antidumping (AD)
code. 

The antidumping code, first developed during the Kennedy Round of
GATT negotiations (1962-67), defined a series of rules elaborating on
the procedures and methodologies to be used in applying antidumping
duties.  These rules clarified terms and added more specific guidance
to the procedures and criteria for determining dumping and injury. 
During the Tokyo Round of GATT negotiations, the AD code was further
refined, and the rules governing dumping and injury became
increasingly specific.  Implementation of the AD code was limited in
that it was only binding on those GATT members that chose to become
signatories.\19 For example, our 1991 report\20 noted that as of
September 1990, there were only 24 signatories to the AD code,
representing 35\21 of the 97 GATT member countries. 

During the 1980s, Australia, the United States, Canada, and the EU,
respectively, were the major initiators of antidumping cases.  These
four signatories to the AD code accounted for 95 percent of the 1,456
antidumping cases reported to GATT from 1980 through 1989.  The
United States brought 395, or 27 percent, of the AD cases reported to
the GATT AD Committee during 1980-89.\22 Although the 1979 GATT Tokyo
Round's antidumping code established more detailed rules and
procedures governing antidumping, long-standing problems still
remained.  Specifically, the following concerns were raised by
signatories to the AD code: 

  continued lack of transparency and due process\23 in antidumping
     proceedings,

  limited participation by all contracting members,

  interpretations inconsistent with the agreement,

  lack of disciplines to prevent circumvention or evasion of
     antidumping orders, and

  lack of an effective dispute settlement mechanism. 

While these concerns remained at the start of the Uruguay Round in
1986, there were no plans to renegotiate the 1979 AD code.  As the UR
progressed, however, the views of some of the members began to change
and interest in addressing antidumping issues increased.  The reasons
cited for this change of view included (1) the expanded use of
antidumping laws by member countries; (2) the concerns over the
potential circumvention or avoidance of antidumping orders; (3) the
concerns about the fairness of the procedures used during dumping and
injury investigations; and (4) the development of separate, divergent
AD systems and practices by major signatories.  As a result, by 1987,
countries targeted by antidumping measures, added renegotiation of
the 1979 AD code to the Uruguay Round's agenda.  Only a minority of
code members, most notably the United States and the EU, did not
support adding renegotiation of the 1979 AD code to the agenda. 


--------------------
\14 While article VI of the GATT does not define "material injury,"
the Tariff Act of 1930 (46 Stat.  590), as amended (19 U.S.C. 
1677(7),), defines material injury as "harm that is not
inconsequential, immaterial, or unimportant," and provides that in
making a determination of "material injury," the ITC "shall" consider
the volume of imports involved, the effect of the imports on U.S. 
prices for "like products," and the impact of the imports on U.S. 
producers of "like products."

\15 The Revenue Act of 1916, ch.  463, sections 800-801, 39 Stat. 
798 (commonly referred to as the "Antidumping Act of 1916," 15 U.S.C
sec.  71). 

\16 The May 27, 1921, Antidumping Act, ch.14, 42 Stat.  11, 19 U.S.C. 
160 (now repealed)[current version, Tariff Act of 1930, title VII
sec.  731, as added July 26, 1979, P.  L.  96-39, title I, sec.  101,
93 Stat.  162, (19 U.S.C Sec.  1673)].  This act reflects a two-part
test (as required under international law), namely the determination
of "dumping," and then the determination of "injury." See The World
Trading System:  Law and Policy of International Economic Relations,
John H.  Jackson (Cambridge MA:  MIT Press, 1989), p.  228. 

\17 See The World Trading system:  Law and Policy of International
Economic Relations, John H.  Jackson (Cambridge MA:  MIT Press,
1989), p.  227. 

\18 Portions of this section are based on the antidumping discussion
in Stewart, ed., The GATT Uruguay Round:  A Negotiating History
(1986-1992), Vol.  II, pp.  1,383-1,710. 

\19 The Tokyo Round codes form an extension of GATT in that they
explicitly extend trade discipline to, or define more precisely
existing discipline and rules for specific nontariff barriers.  The
difference between the GATT approach and the codes approach is one of
degree.  In large part, the codes are used as an instrument because
amending GATT has proven difficult. 

\20 See International Trade:  Comparison of U.S.  and Foreign
Antidumping Practices (GAO/NSIAD-91-59, Nov.  7, 1990), p.  9. 

\21 EU members accounted for 12 of the 35 signatories to the AD code. 
Although there are only 24 signatories, this entity accounts for the
additional member countries bound by the code. 

\22 Major GATT trading partners initiated the following AD cases
between 1980 and 1989:  Australia - 421 (28.9 percent); Canada - 294
(20.2 percent); EU - 271 (18.6 percent); and Mexico - 30 (2.1
percent). 

\23 The term "due process" refers to fair, reasonable, and orderly
proceedings including proper notice, right to be heard, right to be
present before the tribunal that pronounces judgment, an opportunity
to enforce and protect one's rights, and the right of controverting,
by proof, every material fact that bears on the question or right in
the matter involved. 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 4:2.2

The United States initially identified three broad goals for the
Uruguay Round's antidumping negotiations.  First, in response to
concerns about the lack of openness that other countries exercised in
implementing their antidumping laws, the United States sought to
improve the transparency and due process procedures of antidumping
proceedings.  Second, the United States wanted effective disciplines
established to prevent circumvention or evasion of antidumping
orders.  Third, the United States sought to maintain the
effectiveness of domestic antidumping laws in order to keep them as a
useful tool against injurious dumping. 

According to a USTR official, the 1991 Uruguay Round draft Final Act,
or Dunkel text, did not adequately address the U.S.' antidumping
concerns and, in fact, raised several new concerns.  As a result, the
United States requested five changes to the text in December 1992,
and requested six addition changes in November 1993.  The United
States sought these changes because companies in import-sensitive
industries--those that traditionally use U.S.  antidumping
laws--expressed concern that the draft Final Act would force
unacceptable changes to U.S.  antidumping laws, thereby harming their
industries.  Also, importers, global-sourcing companies,\24 and
exporters complained that the agreement did not substantially reduce
protectionist barriers--which is how they view antidumping
laws--either in the United States or abroad. 

According to U.S.  negotiators, the first, and most critical, of the
changes proposed by the United States in December 1992 was the
establishment of a standard of review to be used in AD dispute
settlement cases.  The United States proposed a "reasonableness"
standard.  Second, the United States wanted the draft Final Act's
anticircumvention\25 provision either substantially revised or
completely removed.  The United States maintained that the
anticircumvention provision contained in the draft Final Act was
inadequate for addressing many of the problems associated with
circumvention.  Third, the United States sought modification of the
draft Final Act's strict sunset\26 provision, which the United States
claimed would have forced the "near automatic" termination of dumping
orders after 5 years.  Fourth, the United States sought a
clarification of "standing,"\27 relating to both the minimum level of
support needed to bring an action and the rights of employees and
unions to file complaints.  The United States was concerned that the
vagueness of definitions used to determine standing might lead to
unnecessary disputes in the future.  Finally, the United States
wanted a clear definition of how "cumulation"\28 was to be used
during dumping and injury determinations.  The United States wanted
the practice of cumulation defined in the agreement, because silence
on whether cumulation was to be considered in antidumping
investigations could be interpreted as a prohibition of its
consideration in investigations.  The United States wanted this
clarified so that its use of cumulation would not be declared GATT
illegal.  The United States is one of several countries that apply
cumulation in antidumping investigations. 

In November 1993, during the final weeks of the Uruguay Round
negotiations, the United States proposed six additional changes to
the AD text while continuing to push for its original five proposals. 
The United States made its acceptance of the final agreement
conditional on how all 11 of its proposed changes were addressed. 
The first change specified a universal condemnation of injurious
dumping.  The remaining five addressed changes in the methods used
for calculating when dumping has occurred and whether the domestic
industry has been injured as a result.  Specifically, the five
methodological changes requested (1) a different method for
calculating start-up costs in antidumping cases,\29 (2) a
clarification of how substantial below-cost sales are measured, (3) a
revised definition of when AD investigations should be terminated,
(4) a clarification of price comparisons used in making
price-averaging calculations,\30 and (5) a definition of the profit
margin used in constructed value\31 equations. 


--------------------
\24 Companies that use imported goods as inputs for production. 

\25 "Anticircumvention" laws seek to eliminate the ability of
exporters to evade or avoid antidumping duties by changing the sites
of assembly.  Circumvention of antidumping orders has resulted in
respondents having to bring repeat dumping cases against the same
defendants after they have moved their assembly operations to a new
site. 

\26 "Sunset" refers to the duration of antidumping duties. 

\27 "Standing" refers to whether a party "has a sufficient stake in
an otherwise justiciable controversy to obtain judicial resolution of
that controversy" (Black's Law Dictionary).  With regard to
antidumping proceedings under GATT article VI, standing refers to the
right of a party or parties in the importing country to petition for
relief under national AD laws. 

\28 Under the practice of cumulation, the effect of imports from
several sources are combined to determine the existence of injury to
a domestic industry.  Cumulative assessment of injury can occur when
imports from many sources compete simultaneously with each other in a
domestic industry and where all of the imports are subject to dumping
or countervailing duty investigations.  Over the years, virtually
every user--including the United States--has found the practice to be
practical or critical under certain circumstances when dumped imports
from multiple countries are believed to be collectively causing harm
to a domestic industry. 

\29 "Start-up costs" refer to the high per unit costs that are
incurred when beginning a new production line.  Costs will appear to
be high until normal production levels can be achieved.  For example,
the initial per unit cost of producing a semiconductor is high.  As
production increases and more units are produced, however, the cost
per unit drops. 

\30 Price averaging is used to compare the exporting country's home
market price for the subject merchandise to the export price for the
same merchandise.  This comparison may be based on (1) the weighted
average of the home market prices to the weighted average of the
export prices; (2) individual home market prices to individual export
prices; and (3) individual to weighted average prices, in cases where
it can be shown that spot dumping is occurring or where data are not
available. 

\31 "Constructed value" is a means of determining fair or foreign
market value when sales of such or similar merchandise do not exist
or, for various reasons, cannot be used for comparison purposes.  In
the United States antidumping law, the "constructed value" consists
of (1) the cost of materials and fabrication or other processing
employed in producing the merchandise, (2) the general expenses of
not less than 10 percent of material and fabrication costs, and (3) a
profit of not less than 8 percent of the sum of the production costs
and general expenses. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 4:2.3

At the completion of the UR, the United States had achieved most of
its negotiating objectives and resolved several of the problems
identified in the 1991 draft Final Act.  In fact, both government and
industry representatives with whom we spoke felt that, given the
strong opposition to any changes in the AD text, the negotiators had
accomplished a great deal.  According to United States and GATT
Secretariat officials, the new AD agreement would provide greater
specificity of methodological and procedural rules used to determine
dumping and assess injury.  According to USTR, the new definitions
would serve to increase predictability in all antidumping practices
and would protect member nations' AD practices that conform to GATT
standards from challenge by other GATT members. 

The new agreement incorporates improved requirements for transparency
and due process in AD cases, as suggested by the United States. 
Furthermore, dumping disputes between GATT members would be subject
to the newly established dispute settlement process.  The new dispute
settlement process would use an explicit standard of review,\32 which
according to a United States GATT antidumping negotiator, would make
it more difficult for GATT panels to second-guess U.S.  or other
countries' antidumping determinations.  The negotiator further stated
that such determinations would be sustained when they are based upon
proper and unbiased judgments of fact and permissible interpretations
of the agreement.  The negotiator further stated that this standard
would ensure that reasonable latitude would be granted to
investigating authorities in determining facts and applying the law. 
The negotiator concluded by stating that the new dispute settlement
system would preclude panels from imposing their own judgments of
fact or law on national antidumping authorities, when the authorities
have acted in a reasonable manner. 

The agreement would institute a sunset provision requiring a review
of existing dumping orders every 5 years.  This review is to confirm
that the antidumping duties that remain active after 5 years are
still warranted.  The United States was able to reduce the impact on
import-sensitive industries of the Dunkel drafts strict sunset
provision.  Although the United States had originally fought against
the imposition of any sunset provision, U.S.  exporters would benefit
from sunset provisions implemented in other countries. 

Under the new AD agreement, in order to initiate an antidumping
investigation, domestic producers in a given industry would need to
demonstrate more support for, than opposition to, the start of such
an investigation.  Further, the agreement contains a provision that
would recognize the rights of unions and workers to file and support
antidumping petitions.  Finally, the agreement would authorize the
practice of cumulation used by investigating authorities to determine
if dumping and injury have resulted from the combined imports of
several countries. 

Regarding the methods used for calculating when dumping has occurred,
the United States attained three of the five changes it sought.  It
was able to (1) change the criteria for defining the level of dumping
that would need to occur for an antidumping case to proceed, although
it was unsuccessful in getting a de minimis margin level of 0.5
percent, having to accept a level of 2.0 percent instead; (2) clarify
when products that are sold below cost in their home market are in
substantial quantities; and (3) clarify that average prices would be
calculated for only identical products. 

The United States did not achieve its objective concerning the
adoption of an anticircumvention provision.  However, a ministerial
declaration accompanying the AD agreement recognizes the need to
develop uniform rules in the future.  In addition, the United States
did not achieve its objective of having a universal condemnation of
injurious dumping.  Further, the United States did not obtain two of
the five methodological changes it sought.  Specifically, the United
States was unsuccessful in changing the methods used to calculate
start-up costs in antidumping cases.  The United States also was
unsuccessful in obtaining support for its proposal to add an
alternative methodology for calculating the profit that is used in
constructed value equations when determining if dumping exists. 


--------------------
\32 Under the standard adopted in the UR agreement (and proposed by
the United States), antidumping panels will have the task of
determining (1) whether the domestic authorities' establishment of
the facts is proper and (2) whether their evaluation of those facts
is unbiased and objective.  If the panel determines that these two
criteria were met, the evaluation will not be overturned, even though
the panel might have reached a different conclusion.  The panel would
be required to interpret the provisions of the agreement in
accordance with customary rules of interpretation of public
international law.  Where the panel finds that a provision is subject
to more than one permissible interpretation, the panel would be
expected to find the authorities' measure to be in conformity with
the agreement if it is based on one of those permissible
interpretations.  In the United States, the investigating authorities
are the International Trade Commission and the Department of
Commerce. 


      POTENTIAL IMPACT OF THE
      AGREEMENT
-------------------------------------------------------- Chapter 4:2.4

Unlike the 1979 AD code, the new AD agreement would apply to all
members of the new World Trade Organization, thus increasing the
uniformity of WTO members' antidumping provisions.  This change
should improve the conformity of members' antidumping regimes and
lead to fewer conflicts if implemented faithfully.  Also, improved
transparency and due process in antidumping cases should help
exporters and others who are exposed to AD laws.  Further, these
provisions should serve to reduce conflict among WTO members and
improve the overall functioning of members' antidumping provisions. 
Recognition of the practice of cumulation would allow the United
States and other contracting parties to continue using cumulation
during dumping investigations. 

Nevertheless, the lack of an anticircumvention provision could lead
to continued conflicts over the circumvention of antidumping orders. 
The unilateral use of anticircumvention laws by contracting members,
such as the United States, could be challenged in WTO dispute
settlement cases. 

Moreover, the agreement would require the United States to make a
number of changes in its antidumping laws including: 

  institution of a 5-year sunset provision on outstanding dumping
     orders;

  institution of procedures to determine whether an industry has
     sufficient support (i.e., standing) for the petition to warrant
     initiation of an investigation;

  use of average to average price comparisons in investigations;

  alteration of the de minimis dumping margin from 0.5 to 2 percent,
     when deciding whether to terminate an investigation; and

  alteration of the method used for determining the amount of profit
     used in devising constructed value equations. 

Although the agreement should serve to improve international
antidumping processes and procedures, the actual benefits are
difficult to assess.  For the United States, the agreement reflects a
balance that has been struck between the needs of U.S.  domestic
producers who utilize U.S.  antidumping laws, U.S.  importers who
source globally, and U.S.  exporters who face foreign antidumping
regimes.  The extent to which the United States would be able to
maintain the balance between these competing forces remains to be
seen. 


         INDUSTRY GROUPS' OPINIONS
------------------------------------------------------ Chapter 4:2.4.1

Regarding U.S.  industries' views on the AD agreement, there were
divergent assessments of its potential impact.  For example, members
of the Industry Policy Advisory Committee were divided in their
views.  In the antidumping portion of its January 1994 report\33 to
the U.S.  Trade Representative, IPAC presented two different
positions.  The first position was that of companies in
import-sensitive industries that used U.S.  antidumping laws.  Its
position was that these laws were in the industry's and the U.S.'
best interest.  In the IPAC Chairman's view, this opinion represented
the predominant position of IPAC members.  The second position
represented was that of importing or global-sourcing companies and
exporters that are exposed to antidumping laws and increasingly saw
the laws as nontariff barriers to trade.  Although both groups have
expressed support for the overall 1994 GATT agreement, they raised
concerns about individual provisions and U.S.  GATT-implementing
legislation. 


--------------------
\33 See The Uruguay Round of Multilateral Trade Negotiations, Report
of the Industry Policy Advisory Committee, U.S.  Department of
Commerce (Washington, D.C.:  Jan.  1994). 


         CONCERNS OF DOMESTIC
         USERS OF ANTIDUMPING LAWS
------------------------------------------------------ Chapter 4:2.4.2

Domestic users of U.S.  antidumping laws expressed concerns over
various provisions of the antidumping agreement.  They supported the
AD agreement where it adopts the concepts and procedures expressed in
U.S.  law, as well as where the primary negotiating objectives of
defining minimal procedural standards and improving transparency were
achieved.  However, they felt that many areas of the agreement would
"diminish" the benefits they receive from current U.S.  law.  For
example, they cited technical issues such as price averaging,
standing, and investigation initiation as having been resolved in
such a way as to diminish the AD trade remedy's usefulness to
domestic industries.  Domestic users also raised concerns that the
cost--in terms of time, effort, and monetary expense--of bringing an
antidumping case would rise because of the increased burden placed on
industries to meet the more specific requirements defined in the AD
agreement.  Furthermore, they expressed concern that major issues
such as circumvention, recidivism,\34 and third-country dumping\35
were not a part of the final AD agreement. 


--------------------
\34 The agreement contains no provision addressing repeat offenders
of the antidumping provisions. 

\35 Third-country dumping occurs when country X dumps its products in
country Y and causes injury to country Z's producers, who are
competing for the same market but at "fair" prices. 


         EXPORTERS AND
         GLOBAL-SOURCING COMPANIES
         SUPPORT THE AGREEMENT
------------------------------------------------------ Chapter 4:2.4.3

Exporters and global-sourcing companies were supportive of the
Uruguay Round agreement and believed that it would successfully
balance the interests of importers and exporters as well as the needs
of industries that traditionally use U.S.  antidumping laws.  They
cautioned that GATT-implementing legislation in the United States
should not change this balance.  They were particularly concerned
about altering this balance because both exporters and
global-sourcing companies saw the establishment of fair rules of
conduct in antidumping provisions as increasingly important.  For
example, exporters have become more and more alarmed at the expanding
number of countries that are passing antidumping laws.  According to
USTR, 36 countries currently have antidumping laws, and 16 other
countries are developing or considering AD statutes.  The adoption of
these laws overseas raised concern among U.S.  exporters who have
been subject to overseas antidumping cases.  Also, U.S. 
global-sourcing companies expressed concern that U.S.  domestic AD
law is often improperly applied resulting in the imposition of AD
duties on fairly traded imports in a number of cases.  In light of
these points, this group of IPAC members cautioned that U.S. 
GATT-implementing legislation on antidumping should not resort to
trade restrictions aimed at preserving the effectiveness of U.S. 
antidumping laws to the detriment of U.S.  importers and exporters. 
Instead, the group believed that the legislation should seek to
maintain the balance that was achieved in the 1994 GATT AD agreement. 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 4:2.5

Since various competing interests exist within the United States
regarding the usage of antidumping laws (e.g., U.S.  domestic
producers versus U.S.  exporters and global-sourcing companies), the
operation of the new AD code would need to be tracked closely to see
if, overall, the balance between these two competing U.S.  interests
is being maintained.  Therefore, the following issues would need to
be watched: 

  how WTO dispute settlement panel rulings on antidumping cases
     affect the balance between competing U.S.  interests in this
     area,

  whether WTO is developing an effective anticircumvention provision
     to address U.S.  concerns about the circumvention of its
     antidumping rulings,

  the effect of future WTO dispute settlement panel decisions on the
     viability of U.S.  anticircumvention laws,

  what impact the AD agreement's sunset provisions have on U.S. 
     domestic industries that use U.S.  dumping laws and what impact
     the agreement has on those U.S.  industries that are exposed to
     foreign antidumping laws, and

  whether the developing foreign AD laws and practices ensure
     adequate transparency and due process and do not become
     nontariff barriers to trade. 


   PROVISIONS FOR SAFEGUARDS
---------------------------------------------------------- Chapter 4:3


      BACKGROUND
-------------------------------------------------------- Chapter 4:3.1

A safeguard is a temporary import control or other trade restriction
a country imposes to prevent injury to domestic industry caused by
increased imports.  Article 19 of the current GATT agreement, known
as the "safeguard clause," allows contracting parties to obtain
emergency relief from import surges.  It is designed to help the
domestic industries adjust to an influx of fairly traded imports. 

Article 19 permits a country whose domestic industries or workers are
adversely affected by increased imports to (1) withdraw or modify
trade concessions it had earlier granted or (2) impose new import
restrictions if it can establish that a product is "being
imported...in such increased quantities...as to cause or threaten
serious injury to domestic producers...." The injury must be the
result of the imports in question. 

Under article 19, the countries involved must hold consultations
concerning the action to be taken.  If countries do not agree on the
action to be taken, the exporting country has the automatic right to
retaliate against a safeguard measure taken by an importing country. 
The exporting country may suspend substantially equivalent
concessions or other obligations that it has made under GATT.  To
prevent retaliation by the exporting country, the importing country
may have to offer compensation in the form of lower import barriers
for other goods. 

Article 19 of the current agreement is generally interpreted to mean
that import restrictions should be applied on a most-favored-nation
basis against all foreign suppliers, not just the countries that
appear to be the major cause of the problem.  The thinking behind
this approach is that when fairly traded imports cause injury, the
exporting country has not committed a "wrong" for which it should be
punished.  Rather, the protection is accorded to a domestic industry
that is unable to adjust to growing import competition without the
protection of temporary restrictions. 


      PROBLEMS WITH CURRENT GATT
      ARTICLE 19 SAFEGUARD RULES
-------------------------------------------------------- Chapter 4:3.2

GATT contracting parties have rarely used article 19, and then only
as a last resort.  The stringency of article 19 provisions,
particularly MFN application and automatic retaliation, have made it
potentially very costly to apply a safeguard measure.  USTR and
Commerce officials identified the automatic retaliation feature of
article 19 as the greatest deterrent to the use of GATT safeguard
rules.  Furthermore, countries have been less likely to use article
19 because of the potential demand for compensation and their
shrinking ability to pay this compensation because of reduced tariff
revenues. 

Rather than using article 19, countries have increasingly relied on a
plethora of "grey area measures," taken outside traditional safeguard
laws, to address import surges.  Such measures include voluntary
restraint agreements (VRA)\36 and quotas.  Countries have also
entered into (1) agreements to trade specific goods at specific
prices; or (2) industry-to-industry arrangements, which are often not
publicly disclosed and are hard to quantify.  (The United States and
Japan, for example, have entered into two arrangements regarding
trade in semiconductors since 1986.)\37

According to USTR, some countries have had certain grey area measures
in effect for up to 30 years.  The EU, in particular, has made
extensive use of grey area measures over the past several years; it
currently has VRAs on over 40 products.  Although the United States
has used grey area measures over the past several years, according to
USTR the United States has used them less frequently than the EU has. 
Grey area measures have been used most commonly in such industries as
steel, automobiles, machine tools, consumer electronics, and
textiles. 

For several reasons, grey area measures have been relatively easy to
initiate and maintain, particularly for countries with large markets. 
First, it is difficult for affected countries to challenge these
measures under GATT.  Second, since grey area actions do not have to
be reported to GATT, a country can protect a domestic industry
without first establishing injury or a causal link with imports. 
Further, a nation can single out only one or two countries for
restraint (referred to as a "selective safeguard") and impose quotas
or other restrictions for an indefinite period.  In addition, the
country or countries whose exports are restricted may benefit as its
producers get market share or volume certainty and higher prices for
their products.  These countries capture the economic "rents" or the
profit margin they realize from the higher prices to consumers that
are the result of artificially restricting supply. 

Despite the flexibility of and wide use of grey area measures, they
can lead to significant distortions in international trade.  For
example, such measures can (1) protect inefficient industries, (2)
prevent the entry of new suppliers, and (3) cause consumers to pay
higher prices.  Although some of these distortions might also result
from GATT article 19 actions, grey area measures are generally viewed
as more troublesome since they do not meet the standards established
under article 19 for taking import restraint actions such as the
provisions for transparency and nondiscrimination. 


--------------------
\36 Voluntary restraint agreements are agreements between countries
to limit trade in specific goods.  They are administered by an
exporter and may or may not be formally negotiated. 

\37 In June 1991, Japan and the United States concluded a new
"U.S.-Japan Semiconductor Arrangement" that replaced the 1986
Semiconductor Arrangement.  In this agreement, Japan affirmed it
would provide improved market access for U.S.  and foreign
semiconductors, with a goal of establishing more than a 20-percent
foreign market share of the Japanese market by the end of 1992. 


      U.S.  SAFEGUARD RULES
-------------------------------------------------------- Chapter 4:3.3

Section 201 of the Trade Act of 1974, commonly referred to as the
U.S.  "escape clause" law, is based on article 19 of GATT.  Under
section 201, in response to a petition for relief,\38 ITC conducts an
investigation to determine whether increased imports are a
substantial cause of or threaten serious injury to a domestic
industry.  If a majority of ITC commissioners finds neither serious
injury nor threat of serious injury, no further action is taken. 
When a majority of commissioners makes an affirmative injury
determination or they are equally divided in their decision, each
commissioner recommends to the President the type and amount of
import relief they believe necessary to prevent or remedy the injury. 
Commissioners can recommend relief in the form of new or increased
tariffs, quotas, trade adjustment assistance to workers, or a
combination of these measures.  The import relief granted by the
President cannot exceed a maximum of 8 years. 


--------------------
\38 A petition for import relief can be filed by a firm, trade
association, union, or other entity that is representative of a
domestic industry.  ITC can also initiate section 201 investigations
on its own or at the request of the President, USTR, the House
Committee on Ways and Means, or the Senate Committee on Finance. 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 4:3.4

According to USTR and Commerce officials, the U.S.' main objective
concerning safeguards in the Uruguay Round was to get other countries
to use GATT rules when applying safeguards rather than resorting to
grey area measures.  In addition, the United States sought to ensure
that other GATT contracting parties use more uniform standards and
procedures before resorting to safeguard relief to ensure that
affected parties receive fair treatment and adequate due process. 

Under the 1988 Trade Act, U.S.  negotiating objectives regarding
safeguards were to (1) improve and expand rules and procedures
covering safeguard measures; (2) ensure that safeguard measures are
transparent, temporary, degressive (i.e., liberalized over time), and
subject to review and termination when no longer necessary to remedy
injury and to facilitate adjustment; and (3) require notification of,
and monitor the use by, GATT contracting parties concerning import
relief actions. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 4:3.5

The new Safeguards Agreement would establish rules for the
application of safeguard measures by WTO contracting parties, which
would impose new discipline on the length and type of safeguard
actions that may be taken. 

The agreement would require that safeguard measures be limited to an
8-year period (10 years for developing countries).  It provides for
suspending the automatic right to retaliate to a safeguard measure
for the first 3 years.  It also requires that existing VRAs be phased
out within
4 years, but allows each country one "grandfathered" exception
through 1999 provided that the exception is mutually agreed upon by
the affected countries and approved by WTO.  However, it would
maintain the requirement that safeguards be applied on an MFN basis
rather than being applied selectively (applied to just the country or
countries causing injury to the domestic industry). 

The Safeguards Agreement, in addition, would require that the process
for making injury determinations before taking safeguard actions be
transparent.  It requires that an investigation be undertaken before
safeguard measures are applied; this action would include giving
public notice to all interested parties.  It also specifies that a
public hearing be held (or a comparable opportunity to present the
views of affected parties) and that a report be published, giving a
detailed analysis of the reasons for the decision.  Further, it
defines criteria to be used in injury determinations.  For example,
it requires that "serious injury" be defined as a "significant
overall impairment in the position of a domestic industry." The
agreement also would require a causal link between the significant
injury or threat of injury and the increased imports. 

The agreement would require that all safeguard measures taken be
degressive and subject to midterm review.  It also discourages repeat
applications of safeguards for the same product and recognize the
right to impose emergency safeguard actions on perishable products,
such as agricultural and horticultural goods.  Finally, the agreement
provides for the establishment of a Committee on Safeguards to
monitor the implementation of the new agreement and recommend
additional improvements. 


      POTENTIAL IMPACT OF THE
      AGREEMENT
-------------------------------------------------------- Chapter 4:3.6

The Safeguards Agreement meets the U.S.  negotiating objectives. 
First, it would clarify how safeguard measures are to be used by WTO
members, which would impose greater discipline on the use of grey
area measures while making multilateral safeguard rules less costly
to use.  Second, it provides for notification and monitoring of the
use of safeguard actions by WTO members.  Finally, it meets the U.S. 
objective of ensuring that safeguard measures are transparent,
temporary, degressive, and subject to review.  In addition, the
agreement incorporates many of the provisions included in U.S. 
safeguards law in ensuring that all affected parties receive adequate
due process and fair treatment.  Further, since the agreement only
disciplines measures that afford protection for domestic industry, it
does not preclude the United States from entering into arrangements
to open foreign markets like the 1991 U.S.-Japan Semiconductor
Arrangement. 

With the prohibition on retaliation for the first 3 years of a
safeguard measure, restrictions imposed on the length and type of
such measures, and the requirement for transparent procedures, the
Safeguards Agreement appears to contain incentives for countries to
use WTO safeguard rules rather than resorting to grey area measures. 
According to IPAC, the agreement "represents a significant step
toward eliminating the use of grey area measures."\39


--------------------
\39 The Uruguay Round of Multilateral Trade Negotiations, p.  54. 


         INDUSTRY CONCERNS ABOUT
         THE AGREEMENT
------------------------------------------------------ Chapter 4:3.6.1

Although most industry advisory committees and members of the trade
community believed that the Safeguards Agreement would succeed in
imposing new discipline on the use of safeguard measures, they have
expressed a few concerns about its potential drawbacks.  For example,
a few of the industry advisory committees expressed disappointment
that the agreement would prohibit countries from applying selective
safeguards.  Some of the industry advisory committees also were
disappointed that the agreement would not require safeguarded
industries to formulate a structural adjustment plan before applying
a safeguard measure.\40 Lastly, IPAC expressed concern that the
agreement does not offer any guidance as to what constitutes
liberalization of a safeguard action.  Specifically, IPAC was
concerned that the agreement could permit countries to liberalize a
safeguard action only marginally. 


--------------------
\40 The Safeguards Agreement would require that a country give
evidence that a safeguarded industry is adjusting only when the
country is seeking to extend an initial safeguard period. 


   ISSUES TO WATCH
---------------------------------------------------------- Chapter 4:4

As previously noted, the main concern regarding GATT safeguard rules
in the past has been countries' (1) reluctance to use the rules and
(2) reliance on grey area measures.  As a result, the following issue
bears watching when overseeing implementation of the
agreement--whether WTO members are using WTO rules when applying
safeguards. 


NEW AREAS ADDRESSED BY THE URUGUAY
ROUND
============================================================ Chapter 5

The Uruguay Round provided the United States with the opportunity to
press for the negotiation of new areas, not previously addressed in
GATT, that were of increasing economic importance to the country. 
These areas included trade-related aspects of intellectual property
rights (TRIPs), trade in services, and trade-related investment
measures (TRIMs).  While many, primarily developing, countries
resisted including these areas in the Uruguay Round, the United
States was successful in obtaining its negotiations objectives,
although with varying degrees of success. 


   AGREEMENT ON TRADE-RELATED
   ASPECTS OF INTELLECTUAL
   PROPERTY RIGHTS, INCLUDING
   TRADE IN COUNTERFEIT GOODS
---------------------------------------------------------- Chapter 5:1


      BACKGROUND
-------------------------------------------------------- Chapter 5:1.1

The U.S.  Constitution grants Congress the power "...to promote the
Progress of Science and useful Arts, by securing for limited Times to
Authors and Inventors the exclusive Right to their respective
Writings and Discoveries." The U.S.  government has an interest in
protecting these legal rights, falling within the area referred to as
intellectual property rights (IPR), because technological advance is
a major determinant of the growth of economic activity and living
standards.  Ensuring the protection of intellectual property
encourages the introduction of innovative products and creative works
to the public.  Protection is granted by guaranteeing proprietors
limited exclusive rights to whatever economic reward the market may
provide for their creations and products.  The primary forms of
intellectual property rights in worldwide use are copyrights,
patents, and trademarks. 

The World Intellectual Property Organization (WIPO), a U.N. 
specialized agency, is a world body whose mission is to (1) promote
the protection of intellectual property throughout the world through
cooperation among countries and, where appropriate, in collaboration
with international organizations; and (2) ensure administrative
cooperation among the intellectual property unions.  WIPO administers
a number of international agreements on intellectual property
protection, including in particular the Berne Convention for the
Protection of Literary and Artistic Works, which provides for
copyright protection;\1 and the Paris Convention for the Protection
of Industrial Property, which provides protection for patents,
trademarks, and industrial designs and the repression of unfair
competition. 

According to U.S.  officials, these conventions do not contain
specific commitments in important areas.  For example, the Paris
Convention does not contain a required minimum length of time for
patent protection nor specify the subject matter to be covered by
patents, and the Berne Convention does not provide copyright
protection for newer creations such as sound recordings.  Further,
they do not provide for meaningful enforcement measures, an area long
considered crucial by U.S.  interests; the Industry Functional
Advisory Committee on intellectual property rights has pointed out
that standards of protection are useless unless they are enforced. 

The negotiating opportunity provided by the Uruguay Round became
particularly important in the mid-1980s as prominent U.S.  industries
faced opposition overseas, primarily from developing countries, to
granting and/or enforcing IPR.  While developed countries generally
consider intellectual property a private right that should be
protected as tangible property rights are protected, some developing
countries have considered intellectual property a public good that
should be used to promote economic development.\2

U.S.  industries dominate the creation and export of intellectual
property, and piracy of U.S.  intellectual property in the developing
world was recognized as a serious problem for U.S.  interests by the
1980s.  For example, in a 1985 report by the International
Intellectual Property Alliance describing losses to U.S.  interests
stemming from ineffective copyright protection in 10 key developing
countries,\3 it was estimated that the movie industry was losing over
$130 million annually, the computer software industry was losing over
$125 million, the publishing industry was losing over $400 million,
and the recording and music industries were losing over $600 million. 

The most comprehensive investigation of U.S.  corporate losses to IPR
infringements was conducted by the U.S.  International Trade
Commission (ITC) in 1987 at the request of USTR.\4 ITC surveyed 736
U.S.  firms to estimate the effects of inadequate IPR protection in
1986.  The firms surveyed included all of the Fortune 500 companies,
selected members of the American Business Conference,\5 and smaller
firms in industries known to depend on intellectual property
royalties or sales protected by intellectual property. 

In the ITC survey, intellectual property was considered to be of more
than nominal importance for 269 of the 431 responding firms.  Of
these 269 firms, 167 provided estimates of intellectual property
revenue losses that totaled $23.8 billion, representing 2.2 percent
of total company sales and 2.7 percent of sales affected by IPR.\6
Domestic sales lost in the United States due to intellectual
property-infringing imports were estimated at $1.8 billion, while
reductions in U.S.  exports were $6.2 billion.  Respondents also
identified losses of $3.1 billion in royalties and fees that were not
paid as a result of inadequate intellectual property protection.\7

The international transfer of technology benefited the United States
in the past as it adopted European-developed technologies.\8 A
similar process of technology transfer now benefits the developing
world.  By not paying the creators of intellectual property in the
developed world, developing country producers can save the cost of
innovation and thus lower their production costs.  Consumers in
developing countries pay lower prices than they would if IPR were
protected and intellectual property creators in developed countries
reimbursed.\9 The United States objects to this lack of intellectual
property protection in developing nations.  The extension of IPR
throughout the world is clearly in the interest of intellectual
property creators in developed nations, and, according to a Patent
and Trademark Office official, strong protection would encourage
investment in industries that would provide jobs in the developing
world. 

The U.S.  government began taking actions in the mid-1980s to protect
U.S.  business interests.  Congress specifically made intellectual
property issues actionable in 1984 by amendment to Section 301 of the
Trade Act of 1974.  "Special 301" procedures specifically designed to
improve global intellectual property protection were created in the
1988 Omnibus Trade and Competitiveness Act.  Use of these provisions
has resulted in improved IPR in many countries since the late 1980s,
according to industry officials. 

Two U.S.  companies in particular were interested in having IPR
negotiated in the Uruguay Round:  Pfizer and International Business
Machines (IBM).  Pfizer was interested in obtaining product patent
protection for pharmaceuticals, and IBM was interested in solidifying
copyright protection for computer software under the Berne
Convention.  These companies, together with several others, joined
forces to create the Intellectual Property Committee (IPC) in 1986,
which worked with the U.S.  government to get IPR included in the new
round of GATT negotiations.  The United States was the driving force
behind the movement to include comprehensive IPR issues on the
negotiating agenda, and this effort was ultimately successful despite
developing country arguments that IPR was beyond GATT's authority. 


--------------------
\1 The Universal Copyright Convention, administered by the U.N. 
Educational, Scientific and Cultural Organization, also provides for
copyright protection. 

\2 While the debate on IPR has historically been focused on the
developed/developing country debate, the situation has become less
clear in recent years.  Developing countries have begun to adopt and
improve regimes for the protection of intellectual property, while
the United States is currently experiencing some increase in
intellectual property problems with developed countries.  See
Intellectual Property Rights:  U.S.  Companies' Patent Experiences in
Japan (GAO/GGD-93-126, July 12, 1993). 

\3 Brazil, Egypt, Indonesia, South Korea, Malaysia, Nigeria, the
Philippines, Singapore, Taiwan, and Thailand. 

\4 Foreign Protection of Intellectual Property Rights and the Effect
on U.S.  Industry and Trade, U.S.  International Trade Commission,
Publication 2065 (Washington, D.C.:  Feb.  1988). 

\5 The American Business Conference is comprised of chief executive
officers of midsize, high-growth companies.  The group concerns
itself with tax policy, regulatory reform, and international trade
issues. 

\6 Appendix H of the ITC study extrapolated the survey-identified
losses of $23.8 billion to the entire economy and presented a likely
range of aggregate losses:  $43 billion to $61 billion.  ITC warned
that although the range may be "reasonable," the "data collected by
the Commission's questionnaire could not be projected to U.S. 
industry as a whole with any statistical validity."

\7 ITC recognized that the economic impact of insufficient IPR is
difficult to capture in this kind of analysis, and that, in addition
to the possibility that the survey results were biased and
self-serving, it is difficult to link lost firm profits to IPR
infringement.  For the 45 respondents providing sufficient
information, ITC estimated that lost profits were 0.67 percent of
total company sales.  Company estimates of IPR job losses from 43
respondents totaled 5,374, while 72 respondents said no jobs were
lost due to IPR infringement. 

\8 See Nathan Rosenberg, "American Technology:  Imported or
Indigenous?" American Economic Review, Vol.  67, No.  1 (Feb.  1977),
pp.  21-6. 

\9 See Arvind Subramamanian, "TRIPs and the Paradigm of the GATT:  a
Tropical, Temperate View," The World Economy, Vol.  13, No.  4 (Dec. 
1990), pp.  509-21. 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 5:1.2

According to the 1986 Punta del Este declaration, the negotiating
objectives for intellectual property were to clarify GATT provisions
and elaborate, as appropriate, new rules and disciplines in this area
in order to (1) reduce distortions and impediments to international
trade, (2) promote effective and adequate protection of intellectual
property rights, and (3) ensure that measures and procedures to
enforce intellectual property do not become barriers to legitimate
trade.  Negotiations were aimed at developing a multilateral
framework of principles, rules, and disciplines dealing with
international trade in counterfeit goods.\10

The 1988 Omnibus Trade and Competitiveness Act set forth the
following negotiating objectives for the United States:  (1) the
enactment and effective enforcement by foreign countries of laws that
recognize and adequately protect intellectual property and provide
protection against unfair competition; and (2) the establishment of
obligations in GATT to implement adequate substantive standards based
on international agreements and national laws, to establish
procedures to enforce these standards both internally and at the
border, and to implement effective dispute settlement procedures. 
Further, the negotiations were to supplement and strengthen standards
for protection and enforcement in existing conventions on
international intellectual property administered by other
international organizations. 

In addition to those objectives, industry representatives focused on
specific negotiating priorities such as a provision for prompt and
effective civil and criminal enforcement of IPR, restrictions on
compulsory licensing practices for patents,\11 and the elimination of
derogations (exceptions) to national treatment\12 that discriminate
against certain U.S.  intellectual property owners. 


--------------------
\10 Counterfeiting refers to the unauthorized and deliberate
duplication of another's trademark. 

\11 A compulsory license is an authorization by a government that
permits someone, without the consent of the patent owner, to make,
use, or sell a patented product; or to use a patented process; or to
use, sell, or import the product produced by a patented process. 
Compulsory licenses are granted by governments for many reasons,
among them to permit local production of a product if the patent
owner is not "working," (i.e., manufacturing the product) the patent
in the country within a specified period of time or to allow the
holder of a patent to exploit the patent which, absent a license,
would infringe an earlier granted patent. 

\12 National treatment ensures nondiscrimination by requiring that
once foreign goods have entered a market, a country must treat these
goods no less favorably than equivalent domestically-produced goods. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 5:1.3

According to industry advisory committees, the TRIPs agreement
basically met U.S.  objectives, though with some noticeable
exceptions.  While the TRIPs agreement, if implemented, would provide
benefits for U.S.  interests, these benefits would not be realized
for several years with respect to the enactment of IPR commitments by
developing countries.  The TRIPs agreement would establish (1) MFN
status and (2) national treatment (with some exceptions) to each area
of intellectual property included in the agreement.  TRIPs would
mandate improved or new standards of intellectual property protection
and enforcement in the areas of copyrights, patents, trademarks,
trade secrets, layout-designs of integrated circuits, industrial
designs, and geographical indications.  Enforcement measures are
enumerated, and they would address administrative and judicial
procedures, civil and criminal penalties and procedures, and customs
regulations (border measures).  Further, the dispute settlement
understanding would apply to intellectual property matters. 


         STANDARDS FOR IPR
------------------------------------------------------ Chapter 5:1.3.1

Copyrights.  As defined in the Berne Convention, a copyright provides
protection for literary and artistic works such as books, musical
compositions, and cinematographic works (movies).  A copyright is a
property right in an original work of authorship that arises
automatically upon creation of such a work and belongs, in the first
instance, to the author.  A copyright owner (i.e., an author or
someone to whom an author has assigned a copyright) has the exclusive
right, subject to certain limited privileges afforded to users, to
(1) reproduce the work; (2) prepare translations, abridgements, or
other adaptations of the work; (3) distribute copies of the work (or
adaptations) to the public; and (4) publicly perform (in person or by
broadcasts and the like) the work.  Copyrights protect the expression
of ideas, but do not protect ideas, facts, methods of operation,
systems, or processes.  Copyright protection is for a specified
length of time, generally the life of the author plus 50 years. 

The TRIPs agreement obligates signatory countries to provide the
substantive copyright protection specified in the Berne Convention
(except for moral rights).\13 TRIPs also contains new provisions not
covered by the Berne Convention.  As a result, the copyright
protection provided in the TRIPs agreement is commonly referred to as
"Berne Plus." In this latter regard, TRIPs expressly requires that
computer software be protected as a literary work under Berne, and it
also protects databases as compilations.  The rights of performers,
producers of sound recordings, and broadcasting organizations are
also addressed under the TRIPs copyright section.  For example, TRIPs
would give performers the right to prevent bootleg recording of their
concerts and the sales of copies of such recordings. 

The term of protection mirrors that which is provided for copyrights
in the Berne Convention (life of the author plus 50 years, or 50
years from first publication).  For performers and producers of sound
recordings, the term of protection would be 50 years from the end of
the calendar year in which the recording was made or the performance
took place.  According to the intellectual property Industry
Functional Advisory Committee, this accomplishment was a major
objective of U.S.  industry and government.  For broadcasters, the
term would be 20 years from the end of the calendar year in which the
broadcast took place. 

Exclusive commercial rental rights are specifically addressed in
TRIPs.  Copyright holders of computer programs would have the right
to authorize or prohibit the commercial rental to the public of
originals or copies of their works.  While rental rights would be
granted for copyright holders of movies, member countries could be
excepted from this commitment under certain circumstances.  This
exception accommodates the United States since it does not provide
for exclusive rental rights for movies.  However, according to a U.S. 
copyright expert, if widespread copying of videocassettes for home
use were to occur, such rights would have to be created. 

Producers of sound recordings would also be granted rental rights,
although a provision was added to grandfather rental systems like
that of Japan into the TRIPs agreement.  While the Japanese system
provides 1 year of exclusive rental rights for sound recordings
followed by "equitable remuneration" to rights holders, the TRIPs
grandfathering exception would not require any period of exclusivity. 
For countries that had a system of equitable remuneration of rights
holders in place with respect to sound recording rentals as of April
15, 1994, such a system could be maintained under TRIPs provided that
the commercial rental of sound recordings was not giving rise to the
material impairment of the exclusive rights of reproduction of rights
holders. 

Patents.  A patent protects an invention by giving the inventor the
right to exclude others from making, using, or selling a new, useful,
nonobvious invention during a specific patent term.  Patents give
inventors the opportunity to obtain substantial economic benefits
from exclusive exploitation of their discoveries for a limited time. 
In return, they must disclose the details of their inventions so that
others can use the invention after the patent expires.  In addition,
others can use this information to build on the disclosed technology
during the term of the patent. 

Similar to the situation with copyrights, the TRIPs agreement builds
on the patent protection required by the Paris Convention and is
commonly referred to as "Paris Plus." The TRIPs text mandates that
virtually all types of inventions be patentable subject matter,
including pharmaceuticals and agricultural chemicals.\14 Plant
varieties would have to be protected "...either by patents or by an
effective sui generis [unique] system or by any combination
thereof."\15 Product, as well as process, patents would have to be
available, and the term of patent protection would be at least 20
years from the date of filing the patent application.  The exclusive
rights of patent holders are set forth for the first time in an
international treaty in the TRIPs agreement.  A product patent holder
would have the exclusive right to prevent others from making, using,
offering for sale, selling, or importing the patented product.  A
process patent holder would have the exclusive right to prevent
others from using the process; and using, offering for sale, selling,
or importing the product obtained directly by using that process. 

According to the agreement "...patents shall be available and patent
rights enjoyable without discrimination as to the place of invention,
the field of technology and whether products are imported or locally
produced." This last provision would require that importation satisfy
local "working" requirements for patents, thereby precluding
compulsory licensing for failure to locally manufacture the invention
(previously mentioned), a major objective of U.S.  industry. 

While compulsory licensing is allowed under TRIPs, numerous
restrictions would be placed upon such licensing.  For example,
compulsory licensing would be (1) permitted only if efforts to obtain
authorization from the rights holder on reasonable commercial terms
and conditions have not been successful, (2) nonexclusive, (3)
authorized predominantly for the supply of the domestic market, and
(4) accompanied by adequate remuneration for the right holder. 
Compulsory licensing of semiconductor technology (semiconductor
layout-designs as well as patents on semiconductor products and
processes) would be permitted only "for public non-commercial use or
to remedy a practice determined after judicial or administrative
process to be anti-competitive." This language was one of two changes
made to a draft TRIPs text that was created in 1991.  In the case of
dependent patent compulsory licensing (where compulsory licensing is
used to permit the exploitation of a patent--the "second
patent"--which cannot be exploited without infringing another
patent--the "first patent"), the second patent invention would have
to involve an important technical advance of considerable economic
significance in relation to the invention claimed in the first
patent. 

Pharmaceutical and agricultural chemical product patent protection
would not be required in developing countries for 10 years from the
date on which the agreement establishing WTO would come into force,
if such protection were not provided in a developing country on the
date of entry into force (see the discussion on transitional
arrangements on p.  98).  However, a system referred to as the "black
box" has been adopted in TRIPs under which countries would have to
accept filings for "new" patent applications for pharmaceutical and
agricultural chemical products upon the date of entry into force of
the agreement in these countries.  This system would protect the
future patentability of inventions that satisfy the criteria of
patentability upon the date they are filed in the black box.\16
Further, for those patent applications that would go through the
testing procedure rapidly and obtain authorization for marketing
before patent protection became available, "exclusive marketing
rights" (which would keep competitors off the market) would have to
be granted for 5 years after obtaining market approval in the country
where the application was on file, or until a product patent was
granted or rejected in that country, whichever period was shorter.\17

Trademarks.  Manufacturers or merchants use trademarks to identify
their goods and distinguish them from others.  Service marks perform
the same function for services and would be required to be
registrable for the first time in an international agreement through
the TRIPs agreement.  According to the TRIPs agreement, "Any sign, or
any combination of signs, capable of distinguishing the goods or
services of one undertaking from those of other undertakings, shall
be capable of constituting a trademark." TRIPs defines such signs as
including personal names, letters, numerals, figurative elements, and
combinations of colors, as well as any combination of such signs, and
provides that they shall be eligible for registration as trademarks. 

Registered trademark owners would have the exclusive right to prevent
others from "...using in the course of trade identical or similar
signs for goods or service (SIC) which are identical or similar to
those in respect of which the trademark is registered where such use
would result in a likelihood of confusion." The use of a trademark
would not be unjustifiably encumbered by special requirements, such
as dictated usage with another trademark ("linking"), use in a
special form, or use in a manner detrimental to its capability to
distinguish the goods or services of one undertaking from those of
other undertakings. 

While use of a trademark could not be a condition for filing an
application, registration could be made dependent upon use.  A
first-to-register or a first-to-use system could be employed. 
However, protection against the improper registration of well-known
trademarks and service marks would be enhanced by TRIPs' extension of
a Paris Convention provision that establishes protection for
well-known marks. 

TRIPs would require that initial registration, and each subsequent
renewal of the registration, be for a term of no less than 7 years. 
Registration of a trademark would be renewable indefinitely.  If use
were a requirement for maintaining a registration, the registration
could be canceled only after an uninterrupted period of at least 3
years of nonuse.  Compulsory licensing of trademarks would not be
permitted, and the owner of a trademark would have the right to
assign the trademark with or without the transfer of the business to
which the trademark belongs. 

Trade secrets (protection of undisclosed information).  Trade secrets
are proprietary information used in industry or commerce.  Trade
secret protection can encompass a broad range of manufacturing
processes, testing, materials, and other know-how making up the most
valuable resources a company has to license.  Trade secret protection
is regarded by U.S.  companies as vital to the coverage of new
technology, particularly technology that may not satisfy the rigorous
standards of patentability. 

TRIPs provides that trade secret holders could prevent their
information from being disclosed to, acquired by, or used by others
without their consent in a manner contrary to honest commercial
practices.\18 In addressing pharmaceutical and agricultural chemical
test data that are submitted by firms to governments to demonstrate
the safety and efficacy of pharmaceutical and agricultural chemical
products that utilize new chemical entities, the agreement would
require governments to protect the data against unfair commercial
use. 

Layout-designs (topographies) of integrated circuits.  Layout-designs
of semiconductor integrated circuits, also referred to as "mask
works," are the patterns on the surface of a semiconductor chip. 
Because the designs of computer chips are easily copied, most
developed countries have established a unique form of protection that
combines copyright and patent principles. 

The TRIPs agreement builds upon the WIPO Treaty on Intellectual
Property in Respect of Integrated Circuits ("Washington Chip Treaty")
by adding new provisions to raise the protection provided to the
level afforded under U.S.  law.  Under TRIPs, it would be unlawful to
import, sell, or otherwise distribute for commercial purposes "...a
protected layout-design, an integrated circuit in which a protected
layout-design is incorporated, or articles incorporating such an
integrated circuit only insofar as they continue to contain an
unlawfully reproduced layout-design" without the authorization of the
rights holder. 

No party would be considered to have violated the described
protection by using an integrated circuit incorporating an unlawfully
reproduced layout-design or any article incorporating such an
integrated circuit where the party did not know, and had no
reasonable grounds to know, that the layout-design was unlawfully
reproduced ("innocent infringer").  However, innocent infringers
would be required to pay a reasonable royalty for the disposition of
stock on hand after receiving notice of the infringement.  Compulsory
licensing of semiconductor layout-designs would be limited to the
terms previously enumerated on page 91.  The required term of
protection would be 10 years from the date of filing an application
for registration or the date of first commercial exploitation,
although a country could permit protection to lapse 15 years from the
creation of the layout-design. 

Industrial designs.  Industrial designs are the distinctive and
aesthetic aspects of product style and packaging.  TRIPs would
provide protection for independently created industrial designs that
are new or original but would allow countries to refuse protection if
the designs did not significantly differ from known designs.  With
respect to textile designs, countries would have to ensure that
requirements for securing protection, in particular in regard to any
cost, examination or publication, did not unreasonably impair the
opportunity to seek and obtain such protection.  Countries could meet
this obligation through industrial design law or through copyright
law. 

The agreement's industrial design protection would prevent third
parties from making, selling, or importing articles bearing a design
that was a copy, or substantially a copy, of the protected design,
when such acts were undertaken for commercial purposes.  The duration
of protection would be at least 10 years. 

Geographic indications.  The TRIPs agreement defines geographic
indications as indications that identify a good as originating in a
country's territory, or a region or locality in that territory, when
a given quality, reputation, or other characteristic of the good is
essentially attributable to its geographical origin.  Examples of
geographic indications include "roquefort" and "vidalia." Protection
would be provided to prevent the use of any means in the designation
or presentation of goods that would indicate or suggest that the good
originated in a geographical area other than the true place of origin
in a manner that would mislead the public about the geographical
origin of the good. 

Wines and spirits would receive special protection through the
prohibition of the use of geographical indications identifying them
even if accompanied by expressions such as "kind," "type," "style,"
"imitation" or the like, or even if, in addition, the true origin of
the goods were indicated.  However, previously used or registered
geographic indications and trademarks that had been used in good
faith before the date of application of the agreement, would be
"grandfathered" from such protection.  According to a U.S. 
negotiating official, geographic indications that have previously
been used or registered as trademarks, or that have become generic
through their use in designating types of wines such as champagne,
chablis, or burgundy, would not be affected by the provision
protecting geographic indications.  However, a GATT official pointed
out that countries would have to agree to enter into future
negotiations that could address the continued applicability of such
exceptions to protection. 


--------------------
\13 Copyright includes both economic rights and moral rights in many
countries (though not in the United States).  The former refers to an
author's right to exploit, sell, rent, etc., a protected work, while
the latter refers to an author's right to be identified as an author
and to maintain the integrity of the protected work.  Moral rights
are not transferable and, in many countries, following the civil law
tradition, cannot be waived.  Unless they are waivable, such rights
may impede the purchaser's right to exploit fully a legally obtained
license to acquire or use a copyrighted work.  For example, in many
countries a photographer could prevent a magazine from cropping a
photograph the magazine had purchased for publication if she or he
felt such an act would distort the work in a way that would be
prejudicial to her or his honor or reputation.  The United States
claimed that its federal and state laws, while not expressly
recognizing moral rights, met Berne's minimum requirements in this
area when it adhered to the Convention in 1989, and the exclusion of
moral rights in the TRIPS text was considered necessary for the
United States to avoid any possibility of these rights being
strengthened. 

\14 However, plants and animals other than microorganisms, and
biological processes for the production of plants or animals other
than nonbiological and microbiological processes, could be excluded
from patentability. 

\15 One such sui generis protection scheme would be the breeder's
rights provided under the International Conventions for the
Protection of New Varieties of Plants (1978 UPOV Convention and 1991
UPOV Convention). 

\16 According to a GATT document, "new" inventions would also include
inventions that had already been the subject of a patent application
in another country either because they benefited from a priority
period (normally 1 year) or because they had not been disclosed
(patent applications are typically not published for 18 months after
filing). 

\17 Market exclusivity would not be required unless, after entry into
force of the WTO agreement, a patent application had been filed and a
patent granted in another country, and marketing approval obtained in
that country. 

\18 A manner contrary to honest commercial practices means "...at
least practices such as breach of contract, breach of confidence and
inducement to breach, and includes the acquisition of undisclosed
information by third parties who knew, or were grossly negligent in
failing to know, that such practices were involved in the
acquisition."


         ENFORCEMENT
------------------------------------------------------ Chapter 5:1.3.2

International IPR agreements, such as the Berne and Paris
Conventions, contain little in the way of obligations for enforcement
of IPR.  However, the TRIPs agreement contains detailed enforcement
procedures.  The agreement states that countries must ensure that
enforcement procedures "...permit effective action against any act of
infringement of IPR covered by this agreement, including expeditious
remedies to prevent infringements and remedies which constitute a
deterrent to further infringement.  These procedures shall be applied
in such a manner as to avoid the creation of barriers to legitimate
trade and to provide for safeguards against their abuse." The
procedures would have to be fair and equitable, not unnecessarily
complicated or costly, and would not be able to entail unreasonable
time limits or unwarranted delays. 

The TRIPs agreement would establish minimum standards for due
process.\19 Procedures could be either judicial or administrative in
nature (although parties in a proceeding would have a right of
judicial review of final administrative decisions).  Decisions would
have to be available to the parties without undue delay and be based
on the evidence on which the parties were given an opportunity to be
heard. 

TRIPs would provide for civil and criminal enforcement.  With respect
to civil proceedings, the judicial authorities would have to have a
combination of specified procedures and remedies at their disposal. 
The court would have to have the authority to order cessation of an
infringement; stop importation; order payment of damages; order
remuneration of the rights holder's expenses, which could include an
appropriate attorney's fee; order the production of evidence (subject
to protection of confidential information); deal with refusals by a
party to allow access to relevant evidence without good reason; and
deal with rights holders who abuse the procedures. 

The TRIPs agreement mandates that judicial bodies would have the
authority to order prompt and effective provisional measures to
prevent infringement, to prevent entry of allegedly infringing goods
into commerce, and to preserve relevant evidence.  An applicant for
such provisional measures would have to provide sufficient evidence
to establish that the applicant was the rights holder and to persuade
the court that the infringement was occurring or was imminent.  The
courts would have to have the authority to require the rights holder
to post a bond (or give equivalent assurance) to protect the rights
of the defendant and to prevent abuse of the provisional relief
procedure.  The courts would have to be empowered to order
provisional measures in ex parte proceedings (i.e., where one party
appears initially), in particular where delay was likely to cause
irreparable harm or there was a demonstrable risk that evidence of
infringement might be destroyed. 

The TRIPs agreement also addresses enforcement at borders.  Countries
would have to adopt customs procedures to enable a rights holder who
had valid grounds for suspecting imminent importation of counterfeit
trademark goods or pirated copyright goods to present a written
application to the competent authorities (administrative or judicial)
so that customs authorities would suspend the release into free
circulation of such goods.  Goods that involved the infringement of
other types of intellectual property rights could also benefit from
these protections.  The party petitioning for customs enforcement
would be required to provide sufficient evidence to establish a prima
facie case for infringement and to supply a detailed description of
the infringing goods.  With respect to certain kinds of allegedly
infringing goods, the owner of the goods would have to have the right
to obtain their release from customs by posting a security bond
sufficient to compensate the rights holder, if infringement were
found.  The competent administrative authority would have to be
empowered, subject to judicial review, to order destruction or
disposal of such infringing goods. 

Countries would have to provide for criminal procedures and penalties
to be applied at least in cases of willful trademark counterfeiting
and copyright piracy on a commercial scale.  These criminal penalties
would have to include imprisonment, monetary fines, or both,
sufficient to deter infringement in comparison with other crimes of
corresponding gravity.  Countries could provide criminal penalties
for infringement other than copyright and trademark violations, if
the infringement were willful and on a commercial scale. 


--------------------
\19 The term "due process" refers to fair, reasonable, and orderly
proceedings, including proper notice, right to be heard, the right to
be present before the tribunal that pronounces judgment, an
opportunity to enforce and protect one's rights, and the right of
controverting, by proof, every material fact that bears on the
question or right in the matter involved. 


         DISPUTE PREVENTION AND
         SETTLEMENT
------------------------------------------------------ Chapter 5:1.3.3

Countries would be required to publish laws, regulations, and final
judicial or administrative rulings of general applicability to the
subject matter of the TRIPs agreement.  Countries would also have to
notify the Council for Trade-Related Aspects of Intellectual Property
of such laws and regulations.  The mechanisms of the Understanding on
Rules and Procedures Governing the Settlement of Disputes would apply
to the TRIPs agreement.  However, the provisions in the 1994 GATT
agreement related to "non-violation nullification and impairment"
cases\20 would not apply to the TRIPs agreement for 5 years.  This
was one of two changes made to the draft TRIPs text created in 1991. 


--------------------
\20 Cases in which a country considered that its benefits from the
agreement were being nullified or impaired, or the attainment of any
objective of the agreement was being impeded, due to (1) measures
applied by another country, whether or not they conflicted with the
provisions of the agreement, or (2) the existence of any other
situation.  Essentially a violation of TRIPs commitments "in spirit,"
but not "in letter."


         TRANSITIONAL ARRANGEMENTS
------------------------------------------------------ Chapter 5:1.3.4

All countries would have 1 year from the entry into force of WTO to
apply TRIPs provisions.  Developing countries and countries in the
process of transformation from a centrally planned economy into a
market, free-enterprise economy would be entitled to a delay for a
further period of 4 years, with the exception of the provisions
addressing national treatment and MFN treatment.  Developing
countries would have an additional 5 years to meet TRIPs patent
commitments in areas where they did not provide product patent
protection on the date of application of TRIPs (e.g., for
pharmaceuticals and agricultural chemicals in some developing
countries--see previous discussion on page 92).  Least developed
countries would have 10 years from the date of application to apply
TRIPs commitments (again except for those provisions concerning
national treatment and MFN treatment), and extensions could be
granted.  Because all countries would have at least 1 year to apply
TRIPs commitments, this time period would translate into an 11-year
total transition period for least developed countries. 


         INSTITUTIONAL
         ARRANGEMENTS
------------------------------------------------------ Chapter 5:1.3.5

A Council for Trade-Related Aspects of Intellectual Property Rights
would be established.  This council would monitor the operation of
the TRIPs agreement (in particular country compliance with TRIPs
commitments) and would be available for consulting countries on TRIPs
matters. 


      POTENTIAL IMPACT OF THE
      AGREEMENT
-------------------------------------------------------- Chapter 5:1.4

For the United States, the final TRIPs agreement should bring clear
gains to intellectual property creators and, ultimately, consumers. 
However, the magnitude of the gains is not known and will accrue over
time if the provisions of the TRIPs agreement are implemented.  Trade
in intellectual property takes place in several ways.  The revenue
from the sale of goods and services includes a return on any
incorporated intellectual property, including product loyalty,
technological sophistication, or reputation.  If production is in the
United States and the good is exported, the incorporated intellectual
property contributes to U.S.  employment.  If production occurs
through U.S.  direct investment abroad, the returns from the
transferred intellectual property are included in repatriated
profits.  Intellectual property may also be sold or rented separately
from the production of goods or services.  In these cases, U.S. 
intellectual property owners receive royalties or licensing fees. 
Thus, the impact of the TRIPs agreement on the United States would
depend in part on how U.S.  intellectual property owners structured
their trade in related goods. 

The ITC report mentioned on page 86 suggested that many U.S.  firms
that actively participated in international trade faced losses from
inadequate IPR in other nations.  The improvements in IPR achieved in
the GATT negotiations should benefit U.S.  firms by increasing
exports.  Nevertheless, it appears that the direct domestic impact of
improved IPR on employment would be small.  However, the benefits of
TRIPs could be understated if only the annual gains were estimated
since improved IPR could provide dynamic benefits to the U.S. 
economy through increased innovation and growth.\21 To the extent
that the TRIPs agreement would increase the rate of return on
investment related to intellectual property, firms should devote more
resources to developing intellectual property that could increase the
rate of U.S.  innovation and economic growth.  Likewise, increased
trade in ideas due to the TRIPs agreement could lead to faster
long-term worldwide growth.\22

In addition to the potential overall economic impact, the TRIPs
agreement has been considered beneficial due to its "groundbreaking"
nature.  The agreement is the first comprehensive intellectual
property agreement, i.e.  it deals with all the main categories of
intellectual property together and would be adhered to by over 100
countries. 

Further, the TRIPs agreement has met many specific U.S.  negotiating
objectives, according to private sector advisory groups and the
industry representatives we interviewed.  The agreement contains high
standards, often improvements of those in existing international
conventions, and enforcement provisions that should serve to reduce
piracy, counterfeiting, and other infringements of intellectual
property rights. 

Some commitments in particular are regarded as beneficial to U.S. 
interests.  The copyright section of TRIPs recognizes important
recent changes in technology by expressly requiring protection of
computer programs, a key U.S.  industry, as literary works under the
Berne Convention (the goal of the industry).  A representative of the
sound recording industry said that his industry is pleased that
provisions related to rental rights, reproduction, and the term of
protection for sound recordings are contained in the TRIPs agreement. 
The TRIPs agreement failed to provide that all rights related to the
protection of sound recordings would be subject to national
treatment--see page 102. 

Concerning patent protection, the pharmaceutical industry has praised
TRIPs as the first worldwide agreement that would provide protection
for pharmaceutical inventions.  Significantly, product and process
patents would be required under TRIPS, which was the industry's
primary goal in the negotiations.  This action has been viewed as an
important first step to protecting the sizable research and
development efforts of this industry; it is estimated that it takes
an average of $359 million (1990 dollars) to bring one new
pharmaceutical product to the market.  Further, representatives of
that industry (along with the semiconductor industry), said that the
restrictions on the practice of compulsory licensing would be
adequately strict and were pleased that compulsory licensing could
not discriminate against any particular field of technology.\23 The
provision that would require that importation be sufficient to
satisfy local working requirements was also viewed as a significant
advancement by industry representatives. 

Private sector advisory committee reports we reviewed supported the
enforcement measures in the TRIPs agreement.  For example, the
Industry Policy Advisory Committee report stated that border
measures, which are contained in the agreement, are important for
maintaining strong IPR enforcement.  A representative of U.S. 
copyright industries said that the mandatory enforcement provisions
(border measures and criminal penalties) would be strong enough to
deter piracy activities in other countries. 

Finally, the protection of new areas, such as trade secrets, has been
viewed as groundbreaking by government and industry officials.  A
U.S.  negotiator stated that protection for trade secrets is one of
the most significant achievements in the TRIPs agreement.  He also
pointed out that this protection is based on U.S.  standards as
contained in the U.S.  Uniform Trade Secrets Act. 

However, while the United States achieved many of its negotiating
objectives, some private sector advisory groups have expressed
concerns about what they view as inadequacies and omissions that
could limit the effectiveness of the TRIPs agreement.  For example,
industry groups believe the transition periods granted to developing
countries would be too long.  Many benefits provided in the agreement
might not be realized by U.S.  interests for 5 or 10 years.  A
representative of the sound recording industry stated that countries
do not need to develop a complicated infrastructure or specialized
organizations for the granting and administering of copyrights; the
right is created simply by virtue of the creation of the work. 
Therefore, in his opinion, 1 year would have been a sufficient
transition period.  Other noted problems with the TRIPs agreement
addressed the following specific issues: 

  Patent Issues.  Pharmaceutical interests, although pleased that
     their industry would be granted product patent protection for
     the first time in a worldwide agreement, were concerned about
     the 10-year transition period for their industry.  In
     congressional testimony, an industry official expressed concern
     over the discriminatory additional 5 years of transition for
     pharmaceuticals (and agricultural chemicals), which are one of
     the most competitive high-technology U.S.  manufacturing
     industries.  However, another pharmaceutical industry official
     indicated that while the discriminatory nature of the extension
     is disappointing, it is unclear what practical effects this
     10-year delay would have on the industry.  It normally takes
     10-12 years to get a product approved and on the market, which
     may mean that by the time the product is ready for the market,
     patent protection would be available.  This situation also calls
     into question the practical usefulness of the market-exclusivity
     provision, discussed under patent standards. 

The larger issue for the pharmaceutical industry may be the lack of
protection for products in the "pipeline." These items have been
patented but are not yet on the market because they are awaiting
regulatory approval.  Because TRIPs would only apply to inventions
for which applications are filed after the effective date of the
agreement (see fn.  16 for the situation regarding priority
applications), inventions that have already been patented in the
United States and other developed countries could not be patented in
those developing countries that would have to amend their laws to
meet the new standards.  According to an industry official, this
means that a whole generation of products would be "lost."

The permissible exclusion from patentable subject matter for plants
and animals other than microbiological products and processes was
considered by the biotechnology industry to be a failure in the
agreement because it would allow exclusions of important areas. 
Biotechnology is an emerging industry in which the United States is a
world leader.  According to the Pharmaceutical Research and
Manufacturers of America, of the 178 U.S.  biotechnology patents for
pharmaceuticals and healthcare products granted in 1992, 140 went to
U.S.  citizens or entities (companies, universities, etc.). 

  Copyright Issues.  The TRIPs agreement would not require strict
     adherence to the principle of national treatment.  Derogations
     to national treatment would be allowed under TRIPs as provided
     for in the Rome Convention for the Protection of Performers,
     Producers of Phonograms, and Broadcasting Organizations.  As a
     result, only those commitments explicitly mentioned in the text
     with respect to performers, producers of sound recordings, and
     broadcasting organizations would be guaranteed national
     treatment. 

Therefore, a discriminatory European practice that had been
criticized by U.S.  interests would not be corrected by the TRIPs
agreement.  European countries, such as France and Germany, have
imposed levies on blank video and audio cassettes to provide
compensation for the unauthorized copying of films and records on the
blank tapes.  According to a U.S.  negotiator, the U.S.  creative
community does not receive its fair share of these levies even though
much of what is being copied is of American origin.  He said that
while U.S.  authors and/or composers, who are covered under the
national treatment provisions of the Berne Convention, have been able
to collect from the levy funds, U.S.  performers, record companies,
and movie companies that are termed "producers" in Europe have not. 
France, for example, has stated that U.S.  performers are ineligible
for funds from its video tape levy because there is no reciprocity
(i.e., the United States does not have a similar levy system) and
because the United States is not a party to the Rome Convention. 

Another point raised by European countries in denying U.S.  film
companies access to the video levy funds has been that they are
classified as "videogram producers," and the rights of such
"producers" are not covered by the Berne Convention nor by any other
international convention, including the Rome Convention.  They have
also claimed that national treatment need not extend to "new" rights,
such as the right to be compensated for private copying.  U.S. 
interests are concerned that TRIPs is unclear on the scope of
national treatment in the "new" intellectual property areas such as
those based on new technologies. 

This lack of national treatment concerns the sound recording
industry.  A sound recording industry representative said that he was
disappointed that TRIPs does not directly address or prohibit
discriminatory treatment concerning the transmission of sound
recording material in digital media.  The digital transmission of
sound recordings (such as by cable or satellite) is expected to
become a principal means by which sound recordings will be made
available to the public.  Without national treatment, U.S.  record
companies could be denied payment for such uses by other countries. 

  Dispute Settlement Issues.  The 5-year moratorium against
     nonviolation nullification and impairment cases under TRIPs has
     caused concern among industry officials.  This moratorium would
     not allow, for example, the United States to take to a dispute
     panel any country that failed to permit royalty transfer
     payments derived from the commercial exploitation of an
     intellectual property right.  This provision would have been
     used against developed countries, as developing countries have
     at least 5 years to implement TRIPs provisions.  A
     pharmaceutical industry official stated that nonviolation issues
     may be the "nontariff barriers of the future for IPR" and was
     unhappy that this provision may limit early benefits from
     developed countries.  However, a U.S.  negotiator pointed out
     that only a handful of nonviolation cases have ever gone to GATT
     dispute settlement.  He further added that where a practice
     involved a denial of national treatment or MFN treatment, there
     would be no moratorium on bringing nonviolation cases under the
     1994 GATT agreement, if the circumstances were appropriate. 

  Continued Use of IPR-Related U.S.  Trade Law.  An additional issue
     raised by the Uruguay Round, unrelated to the TRIPs
     negotiations, concerned industries relying on strong
     intellectual property protection.  These industries have
     expressed concern as to how unilateral tools that are used to
     improve intellectual property protection in other nations (such
     as Section 301), and that are largely considered to be
     effective, would be utilized in the future for areas covered or
     specifically excluded by the TRIPs agreement (see dispute
     settlement section).  The United States has enacted legislation
     specifically to protect intellectual property, and the
     negotiation of the TRIPs agreement has made the use of these
     laws unclear to some.  For example, the biotechnology industry
     has expressed concern that its specific exclusion from the TRIPs
     agreement would preclude the United States from bringing Section
     301 actions against countries that declined to provide adequate
     protection for biotechnology inventions. 

Further, potential restrictions on U.S.  retaliation during the
transition periods are being questioned by industry.  Industry and
government officials are unsure how the United States would
unilaterally retaliate against a country that had expressly been
given 5 or 10 years under TRIPs to implement the agreement's
commitments.  Industry representatives have stated that the United
States would need to be clear in notifying other countries that areas
not bound by GATT would be considered for unilateral retaliation
against countries, during the transition periods and beyond, that did
not provide for the adequate and effective protection of intellectual
property.  Industry officials believed such areas could include the
Generalized System of Preferences or even nontrade areas such as
decisions on granting visas.  Further, industry representatives have
encouraged the U.S.  government to continue an invigorated strategy
of negotiating IPR bilaterally, which could be used to correct TRIPs'
weaknesses and reduce the transition periods. 


--------------------
\21 See Edwin Mansfield, "Intellectual Property, Technology and
Economic Growth," Intellectual Property Rights in Science,
Technology, and Economic Performance, eds.  Francis W.  Rushing and
Carole Ganz Brown (Boulder, CO:  Westview Press, 1990), pp.  17-30. 

\22 Luis A.  Rivera-Batiz and Danyang Xie, "GATT, Trade, and Growth,"
American Economic Review, Vol.  82, No.  2 (May 1992), pp.  422-7. 

\23 Canada and New Zealand had maintained discriminatory procedures
on compulsory licensing for pharmaceuticals, but both countries have
now dismantled their systems. 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 5:1.5

Because intellectual property has been included in GATT negotiations
for the first time, and as a result questions about future situations
are unclear, monitoring may be needed in the following areas if the
Final Act is implemented: 

  communication and implementation of a strategy by the
     administration to address inadequate and ineffective protection
     of IPR, during the transition periods and beyond, including the
     scope of IPR issues to be addressed, the extent to which the
     United States would fully use existing trade laws such as
     Section 301, and the possible targeted areas for retaliation;
     and

  actions that developing countries take during the transition
     periods to ensure that they meet TRIPs commitments once the
     transition periods are over. 


   AGREEMENT ON TRADE IN SERVICES
---------------------------------------------------------- Chapter 5:2


      BACKGROUND
-------------------------------------------------------- Chapter 5:2.1

Service industries dominate the U.S.  economy and are important
contributors to U.S.  exports.\24 In 1991, they constituted about 62
percent of U.S.  gross domestic product and nearly 57 percent of the
U.S.  civilian labor force.  Although many services are not tradable,
the service industry's share of U.S.  exports is increasing.  In
1980, private sector services constituted less than 15 percent of
U.S.  exports; by 1992, they accounted for about 28 percent.\25

The U.S.  service industry is also the world's largest exporter of
services, accounting for about 21 percent of the $960 billion world
trade in services market.  In 1992, U.S.  exports of private services
reached $168 billion and yielded a $61 billion trade surplus. 

International trade in services takes place through various channels,
including

  cross-border transactions, such as the transmission of voice,
     video, data, or other information and the transportation of
     goods and passengers from one country to another;

  travel of individual consumers to another country (e.g., services
     provided to nonresident tourists, students, and medical
     patients);

  sales of services (e.g., accounting, advertising, and insurance)
     through foreign branches or other affiliates established in the
     consuming country; and

  travel of individual producers to another country (e.g., services
     provided to foreign clients by business consultants, engineers,
     lawyers, etc.). 

Despite the importance of services to the U.S.  economy and to
international trade, the industry has operated almost entirely
without multilateral trade rules to ensure market access and fair
treatment for its services providers.  The Uruguay Round negotiations
marked the first attempt to address, through multilateral talks,
unfair trade practices in the services sector.  Until this round,
GATT talks had focused solely on removing measures that restricted
trade in goods. 

The United States led the effort to include trade in services in the
Uruguay Round negotiations.  Overall, the United States allows more
liberal access to its services markets than most of its trading
partners.  By way of comparison, governments of many other countries
have felt free to discriminate against U.S.  companies seeking access
to their markets.  By the early 1980s, the U.S.  government, strongly
supported by the U.S.  services industry, began pressing to include
services in multilateral trade talks.  Despite extreme reluctance on
the part of many developing countries to include services in these
talks, the United States prevailed.  In 1986, the Uruguay Round
opened with a mandate to address trade in services.  In 1989, the
United States submitted the first comprehensive proposal for a
services agreement. 


--------------------
\24 Services, as defined in the Trade and Tariff Act of 1984 (P.L. 
98-573, Oct.  30, 1984), consist of economic activities whose outputs
are other than tangible goods, including businesses such as
accounting, advertising, banking, engineering, insurance, management
consulting, retail, tourism, transportation, and wholesale trade. 
The following 1991 statistics exclude the output and employment of
government and government enterprises from the services sector. 

\25 Howard Murad, "U.S.  International Transactions, First Quarter
1993," Survey of Current Business, Vol.  73, No.  6 (June 1993). 


   U.S.  NEGOTIATING OBJECTIVES
---------------------------------------------------------- Chapter 5:3

In the Uruguay Round, the U.S.  negotiating objectives were
principally to give U.S.  services exporters the same market
opportunities overseas as U.S.  trading partners have in the United
States.  This goal was to be achieved by establishing multilateral
rules to govern trade in services and eliminating barriers to trade. 
While U.S.  negotiating objectives, as cited in the U.S.  Omnibus
Trade and Competitiveness Act of 1988 (P.L.  100-418, Aug.  23,
1988), are similar to those in the 1986 Punta del Este Declaration,
the 1988 Trade Act included the stated goal of eliminating foreign
trade barriers.  The 1986 declaration called for establishing a
multilateral framework of principles and rules for trade in services
and a "view to expansion of trade under conditions of transparency
and progressive liberalization." Specifically, the objectives of the
1988 Trade Act were to (1) develop internationally agreed-upon rules,
including dispute settlement procedures; and (2) reduce or eliminate
barriers to international trade in services, including barriers that
deny national treatment and place restrictions on establishment and
operation in such markets. 


   RESULTS OF URUGUAY ROUND
---------------------------------------------------------- Chapter 5:4

The United States achieved its objective of establishing
international rules governing trade and investment in the services
sector by gaining the General Agreement on Trade in Services (GATS). 
GATS is the first multilateral, legally enforceable agreement
covering trade and investment in the services sector.  For the first
time, services would be subject to many of the same rules that cover
trade in goods.  The GATS framework, however, is structured
differently from GATT itself.  For example, market access and
national treatment are not automatically provided for, as they are in
GATT.  These two principles would become binding commitments only in
services sectors that countries "schedule" in bilateral negotiations
under GATT's auspices. 

The United States achieved only partial success, however, in securing
improved market access and national treatment for U.S.  businesses. 
For example, while U.S.  negotiators obtained favorable market access
commitments from key countries in sectors such as business accounting
and management consulting, construction and engineering information
and computer services, enhanced telecommunications,\26 and travel and
tourism,\27 they were unable to obtain adequate commitments from key
countries in other important sectors.  These sectors include
financial, basic telecommunications, maritime,\28 and audiovisual
services.  In addition, many of the commitments obtained are
"standstills" (i.e., pledges by a country to maintain the degree of
market openness it had in place at the time of the negotiations and
not to impose any new trade restrictions).  While standstills are
important because they represent binding commitments, some industries
needed more market-opening commitments from their trading partners. 


--------------------
\26 Enhanced, or value-added, telecommunications includes services
such as E-mail, data processing, and "store and forward" services. 

\27 The travel and tourism industry includes businesses such as
travel agencies, tour operators, tourism management services, hotels,
restaurants, and sightseeing attractions. 

\28 In the maritime negotiations, the U.S.  maritime industries'
unwillingness to negotiate was also a factor in the United States not
obtaining improved market access commitments. 


      MULTILATERAL TRADE RULES
      WOULD COVER SERVICES
-------------------------------------------------------- Chapter 5:4.1

GATS is the first attempt to bring international trade in services
into the system of multilateral trade rules.  For the first time,
GATT countries would agree to extend multilateral rules to trade in
services.  Some of the most important rules would include those on
MFN, transparency, monopolies, and recognition of operating licenses
and qualifications. 

GATS would also guarantee to U.S.  firms the rights and benefits that
would come into force with the signing of the Uruguay Round.  For
example, GATT dispute settlement rules would provide procedures for
resolving disputes over services trade issues and enforcing binding
obligations under the services agreement.  Moreover, with the
inclusion of services in the WTO, GATT dispute settlement rules would
allow members to retaliate by putting restrictions on imports of
goods when other member countries have placed unfair trade
restrictions on services exports.  Since many countries, especially
those in the developing world, may not be large exporters of
services, the threat of retaliation against services alone may not be
an effective deterrent; placing restrictions on those nations'
merchandise exports may serve this purpose. 


      GATS INCLUDES THREE MAJOR
      COMPONENTS
-------------------------------------------------------- Chapter 5:4.2

GATS is comprised of three major parts:  (1) a framework agreement
that lays out a set of rules to govern trade in services; (2)
schedules of country-specific commitments to liberalize markets on a
sector-by-sector basis (without these scheduled commitments, market
access and national treatment would not be assured); and (3) several
annexes that interpret and would apply the rules of the general
agreement to the movement of people across borders and to financial,
telecommunications, and air transport services.  These annexes also
have ministerial decisions associated with them, that would provide
for further negotiations in several service sectors and a work
program on professional services. 

Only a few of the framework rules would automatically apply across
all services sectors.  For example, rules on transparency, economic
integration, and recognition of professional credentials would apply
to all GATS signatories whether or not specific sector commitments
have been scheduled.  The MFN rule would also apply across all
services sectors, although countries would be allowed to take a
onetime MFN exemption.  However, other rules, such as those on
domestic regulation, monopolies, and payments and transfers, would
affect only those sectors in which a country schedules a commitment. 
In addition, once a country makes commitments in a particular sector
or subsector, it would be bound automatically to the principles of
national treatment and market access unless it cites reservations to
these provisions (i.e., an unwillingness to abide by them) in its
schedules of commitments. 


      RESULTS VARY BY SECTOR
-------------------------------------------------------- Chapter 5:4.3

While most U.S.  service industries would derive overall benefits
from the establishment of multilateral trade rules for services, the
degree to which individual industry sectors would profit from the
final Uruguay Round agreement depends on (1) which GATS rules most
directly affect the industry, (2) whether key countries scheduled
commitments, and (3) what the quality of these commitments is.  For
example, the agreement's across-the-board rules, particularly those
on transparency, may be more important to small- and medium-sized
firms entering overseas markets for the first time than the
scheduling of sector-specific commitments by their trading partners. 
Transparency would help ensure that U.S.  firms have access to all
laws, regulations, and international agreements that affect services
sectors.  For other services sectors, simply getting countries to
schedule a sector-specific commitment, regardless of the degree of
trade liberalization offered, is critically important:  scheduling a
commitment would allow many of the substantive rules to come into
play.  In addition, securing a standstill sector-specific commitment
may be of considerable value to some industries because it would help
assure that an open market would remain open.  Standstills are
particularly important to firms conducting business with countries
that frequently change their domestic regulations and market access
provisions. 

However, other industries need, but did not get, sector-specific
commitments from countries to remove market access barriers and end
treatment that discriminates against foreign service providers.  In
the financial and basic telecommunications sectors, negotiations were
extended in the hope of achieving a more favorable outcome for U.S. 
companies.  Negotiations completely broke down between the United
States and the European Union in the audiovisual sector, and no
further negotiations are scheduled. 


         A RANGE OF INDUSTRIES
         GAINED SIGNIFICANT
         BENEFITS FROM THE URUGUAY
         ROUND AGREEMENT
------------------------------------------------------ Chapter 5:4.3.1

According to industry advisory groups, including the Industry Sector
Advisory Committee on Services (ISAC on services) and the Advisory
Committee on Trade Policy and Negotiations (ACTPN), many industries
within the business service sector, such as business accounting and
management consulting, would gain significant benefits from the
Uruguay Round agreement.  In addition, construction and engineering,
enhanced telecommunications, and travel and tourism service sectors,
among many others, would substantially benefit from GATS. 

Business Services.  Fifty-two countries, including the 12 member
states of the European Union, OECD countries, and 28 developed or
newly industrialized countries scheduled commitments on accounting
and auditing services.  These countries constituted over 90 percent
of the global market for these service sectors.  In addition, 49
countries scheduled commitments in the management consulting area. 

Because restrictions on cross-border payment of fees and other types
of remittances is a principal trade barrier facing accounting and
consulting firms, the GATS rule on payments and transfers, which
would apply only when a country schedules a commitment, is critical
to these firms.  The rule on domestic regulation, which would also
only affect those sectors in which countries schedule commitments, is
important to business service firms because it addresses
discrimination in professional qualification and licensing
requirements.  Because of these rules, the accounting industry would
benefit from any commitment a country may schedule, regardless of the
degree of trade liberalization it offers.  In addition, the ISAC
report on services noted that although most accounting commitments
would only be standstills, they are important because they would
ensure that countries maintain the degree of market openness they
have at the time the agreement is signed.  He explained that some
U.S.  trading partners have reversed favorable market conditions and
erected new trade barriers during the Uruguay Round negotiations. 

GATS also includes a Ministerial Decision Concerning Professional
Services, which would set an agenda for post-Uruguay Round work in
the accounting industry.  Accounting industry representatives believe
that without a definitive agenda, countries may not act quickly on
some GATS rules, such as those covering domestic regulation of the
industry and recognition of professional credentials.  The
ministerial decision, drafted by the accounting industry, would
mandate the establishment of a working party to

  develop multilateral rules to ensure that domestic regulations do
     not impede market access, but are based on objective and
     transparent criteria and are not so burdensome that they
     adversely affect the quality of service;

  facilitate the establishment of guidelines for the recognition of
     professional qualifications; and

  encourage the development and use of international standards. 

While the ministerial decision would not require the adoption of
international standards, it would raise the profile of the
international standards effort and encourage governments to work
toward developing international accounting standards in conjunction
with appropriate international professional groups. 

In 1992, revenues earned by accounting firms reached about $36
billion, and the industry employed approximately 525,000 Americans. 
In that same year, management consulting firms employed 620,000
people, and revenues grew to approximately $67 billion.  U.S.-based
accounting and management consulting firms operated more than 1,000
offices in over 100 countries.  According to USTR, U.S.  cross-border
sales of accounting services totaled $168 million in 1992, and
according to USTR, U.S.  firms were extremely competitive in all
major markets. 

Construction and Engineering.  About 24 countries scheduled
commitments in construction, and over half of all GATS signatories
made commitments in engineering services.  According to the ISAC
report on services, these commitments appear to include some degree
of trade liberalization in terms of market access and national
treatment of U.S.  firms.  However, the report noted that more work
needs to be done in construction and engineering industries to
"equalize the benefits to the United States of foreign market access
and national treatment." Overall, the GATS agreement is expected to
make it easier for U.S.  construction and related firms to compete
for nongovernment projects in a world market estimated at $3 trillion
annually. 

The construction business is becoming increasingly international, and
U.S.  contractors continue to be leaders in international
contracting.  In 1992, cross-border sales were $2 billion and
accounted for 1.2 percent of U.S.  services exports.  Foreign
billings by U.S.  designers (architects and engineers), including
billings by foreign subsidiaries of U.S.  firms, reached $4.6 billion
in 1991. 

Enhanced Telecommunications.  Over 30 major trading partners made
commitments to open their markets to foreign service providers of
enhanced telecommunications.  According to several industry advisory
groups, U.S.  trading partners offered liberalized market access
commitments that would help lay the foundation for further
liberalization in the enhanced telecommunications sector. 

Moreover, the Uruguay Round would address for the first time in an
international trade forum some of the longstanding problems that U.S. 
enhanced services providers face in trying to enter overseas markets. 
For example, foreign governments, wishing to protect a domestic
telecommunications monopoly, often refuse U.S.  enhanced service
providers access to their markets.  Furthermore, even when these
countries grant access, U.S.  company operators are often restricted
because they are denied access to the host country's own
telecommunications network.  U.S.  companies depend on in-country
networks to deliver their enhanced services to customers. 

Specifically, GATS includes a separately negotiated
Telecommunications Annex to ensure that enhanced and other services
providers would be able to use the host country's telecommunications
network.  The annex would allow foreign service operators use of all
available telecommunications services.  Services providers would also
be able to obtain and attach terminal equipment to the public
network.  Additionally, they would be able to use the
telecommunications network of the host country to establish a
communications network with the parent company and other branches and
subsidiaries worldwide.  Other U.S.  firms dependent on
telecommunications, such as banks, insurance, and travel firms, would
also benefit from these provisions. 

According to USTR, industry sources estimate that revenues for the
U.S.  domestic and international market would reach approximately $18
billion in 1994, or about 40 percent of the $45-billion worldwide
market.  In 1992, U.S.  cross-border sales of telecommunication
services were $3.3 billion, representing 2 percent of U.S.  services
exports. 

Travel and Tourism.  More than 30 countries scheduled commitments in
the travel and tourism sector.  However, according to the Travel
Industry Association, only a few of these commitments reflected
liberalized market access. 

According to the ISAC on services report, the U.S.  travel and
tourism industry would benefit from the overall global trade
liberalization achieved in the Uruguay Round.  For example, industry
representatives expect that tariff reductions and rules affecting
investment and services would spur international travel and, in turn,
create new opportunities for U.S.  travel-related companies. 

The travel and tourism industry is the largest services exporting
sector in the United States, with revenues reaching about $54 billion
in 1992 and accounting for 32 percent of U.S.  services exports. 
This sector provided approximately 6 million American jobs, with
900,000 such jobs directly related to international tourism. 


         NEGOTIATIONS EXTENDED IN
         FINANCIAL SERVICES, BASIC
         TELECOMMUNICATIONS, AND
         MARITIME
------------------------------------------------------ Chapter 5:4.3.2

GATS negotiations were extended in the financial services, basic
telecommunications, and maritime sectors.  Because these industries
are highly protected and/or regulated, significant liberalization
from U.S.  trading partners does not currently exist to ensure market
access opportunities for U.S.  businesses overseas. 

Financial Services.  In financial services, the United States
exercised its right of exemption from the GATS' MFN clause.\29 The
sector, which includes banking, securities, insurance, and
diversified finance companies (such as American Express), is one of
the most open and competitive U.S.  industries and contributes
greatly to the U.S.  economy.  According to USTR, 1992 cross-border
exports of financial services totaled $5.4 billion.  According to the
ISAC report on services, opening foreign markets for financial
services would "strengthen one of the most competitive U.S. 
industries...and bolster U.S.  economic growth."

U.S.  negotiators, with the support of the financial sector, opted to
take an MFN exemption when it became clear that key countries, such
as newly industrialized countries in Asia and Latin America, would
not make binding commitments to liberalize access to their banking
and securities markets.  According to industry representatives, most
market access offers constituted a standstill or an even more
restricted commitment offer.  Several financial service industry
representatives stated that standstill commitment offers are
insufficient as the basis for a financial services agreement. 

Although U.S.  industry representatives were disappointed that key
trading partners did not make adequate market commitments, they said
they believed that by taking an MFN exemption, the United States
would retain some leverage to prevent other countries from taking
advantage of open U.S.  markets while maintaining their own closed
markets.  Before the Uruguay Round agreement took effect, the MFN
exemption would allow the United States to use trade remedies that
are already law or to enact and use new trade laws.  If the agreement
is implemented, the MFN exemption would have to be suspended for 6
months.  During this period, MFN treatment would be applied, and the
United States would be prohibited from using any bilateral trade
tools against specific countries.  U.S.  trade negotiators would be
expected to enter bilateral trade discussions on market access and
national treatment when the MFN exemption was in place and during the
6-month suspension period.  If key countries do not commit to opening
their markets, U.S.  negotiators may opt to reinstate the MFN
exemption.  Industry officials hope that the U.S.  threat to seek a
more permanent MFN exemption would provide U.S.  officials with
leverage during these negotiations. 

The Fair Trade in Financial Services Act (S.  1527, 103rd Congress)
could also provide leverage for U.S.  negotiators.  Under this act,
which Congress is currently debating, the Secretary of the Treasury
would be authorized to identify the extent to which foreign countries
deny national treatment to U.S.  banking organizations.  If the
Secretary determines that the denial of national treatment has had a
significant adverse effect on U.S.  banking or securities
organizations, the Secretary could recommend that foreign financial
firms' applications for licenses be denied.  According to U.S. 
government officials and industry representatives, the threat of
action under this act could give U.S.  trading partners greater
incentive to open up their markets.  In addition, a USTR official
noted that some key countries are currently considering reforming
their domestic regulatory practices, which may lead to greater market
access in these countries.  However, he also said that because many
of the newly emerging countries are not interested in establishing
financial operations in the United States and are concerned that
their own financial sectors may be overwhelmed by U.S.  banks, there
is little incentive for them to open their markets to the United
States or other industrialized countries. 

Basic Telecommunications.  Government and quasigovernment monopolies
are the primary servers of basic telecommunications services in many
overseas markets.  According to a USTR official, no real incentive
existed for these countries to seriously negotiate in the area until
very recently, when they began making some changes in their
regulatory policies.  An industry official of a large multinational
U.S.  telecommunications firm noted that many foreign governments are
reluctant to open their markets to competition because they benefit
greatly from their lucrative telecommunications industries. 
According to USTR, U.S.  cross-border telecommunications exports were
$3.3 billion in 1992. 

Because of the U.S.  telecommunications industry's concern that the
U.S.  basically open telecommunications market would be bound by an
agreement, while other governments would do little to open their own
markets, negotiations in basic telecommunications did not begin until
1991.  According to a USTR official, the United States did not
receive adequate market access commitments from its major U.S. 
trading partners.  An industry official noted that although
telecommunications companies could gain some overall benefits from
inclusion in GATS, U.S.  firms need market-opening commitments from
their trading partners.  Without such commitments, U.S.  companies
would be unable to expand their overseas operations. 

With the strong support of the telecommunications industry, U.S. 
negotiators agreed to extend until April 1996 multilateral
negotiations on basic telecommunications.  Countries participating in
these negotiations include EU countries, Australia, Canada, Finland,
Hungary, Japan, South Korea, Mexico, New Zealand, Norway, Sweden,
Switzerland, and the United States. 

The U.S.  telecommunications industry was concerned, however, that
U.S.  trading partners would resist making any market access
concessions until the April 1996 deadline is imminent.  For this
reason, they urged the U.S.  government to use all means available to
liberalize basic telecommunications markets, including pursuing
bilateral arrangements.  They also encouraged the United States to
take an MFN exemption if significant liberalization is not achieved
by 1996.  Industry representatives were concerned that without an MFN
exemption, U.S.  trading partners would take advantage of the open
U.S.  market without liberalizing their own markets. 

The telecommunications industry hoped the extended negotiations would
achieve the following specific objectives:  (1) the establishment of
market access; (2) the presence of independent regulatory
institutions with fair, transparent procedures; (3) the establishment
of safeguards against unfair competition; and (4) the creation of
nondiscriminatory, cost-based\30 accounting rates. 

Maritime.  During the final weeks of the Uruguay Round talks, U.S. 
negotiators withdrew the U.S.  maritime offer because of the U.S. 
maritime industry's unwillingness to negotiate, and in response to
inadequate offers by other countries.  Japan and EU countries, among
others, also withdrew their offers and agreed to extend negotiations
on maritime market access and national treatment until June 1996. 

The U.S.  maritime industry strongly supported the U.S.  decision to
withdraw its offer.  In addition, the industry was pleased that the
United States made no commitments to limit the use of existing U.S. 
laws and programs promoting the U.S.-flag merchant marine.\31

The primary U.S.  negotiating objective is to "obtain a critical mass
of countries" that would open their markets to match the degree of
liberalization that exists in the United States.  According to
industry sources, the U.S.  international maritime commerce is one of
the most open and liberal in the world.  Almost all land-based
services are open to non-U.S.  investment and use, and about 96
percent of U.S.  ocean-borne export and import trade is carried by
non-U.S.  registered ships.  According to USTR, the United States
would make no commitments if other countries do not liberalize their
markets. 


--------------------
\29 The MFN exemption would affect only the banking and securities
sectors.  However, according to a U.S.  government official, the
exemption may be extended to cover insurance if more favorable
commitments are not obtained during the extended negotiations. 

\30 Cost-based accounting rates are rates set by regulatory bodies
that reflect the actual cost of services provided. 

\31 For example, these laws require that all shipments between U.S. 
ports be carried on U.S.  flag vessels, and provide preference to
U.S.  flag vessels for U.S.  government shipments. 


         OUTCOME IN AUDIOVISUAL
         SECTOR WAS A
         DISAPPOINTMENT
------------------------------------------------------ Chapter 5:4.3.3

The industry most disappointed in terms of the overall benefits it
received from GATS is the audiovisual sector.  While this sector
would benefit from the application of GATS rules, U.S.  negotiators
were unable to secure market access commitments from many key U.S. 
trading partners, most importantly the EU.  EU countries provided
more than half of the U.S.  entertainment industry's $8 billion in
foreign earnings.  According to USTR, U.S.  cross-border sales from
film and video rentals totaled $2.5 billion, and earnings from
intellectual property including broadcast and book rights amounted to
$1.5 billion. 

The dispute between the United States and the EU focused on a few key
issues, specifically the European Broadcast Directive and video
levies.  The directive requires EU countries to ensure, where
practical, that at least 51 percent of transmission time be reserved
for European television programming.  (This rule applies not only to
current programming, but also to future broadcasting, such as
pay-per-view programs and satellite transmission.) Moreover, the
directive imposes no ceiling on these domestic content quotas,
theoretically allowing member states to exclude most or all foreign
programming.  For example, France currently requires that 60 percent
of its broadcast time be reserved for European programming.  Other EU
countries, however, have not enacted the directive's quota
requirements. 

Two days before the conclusion of the Uruguay Round negotiations, the
EU rejected the final U.S.  proposal, which, according to the ISAC
report on services, represented a sharp scaling back of original U.S. 
demands.  The offer would have allowed the EU to completely maintain
its restrictions on both existing over-the-air broadcasting and
future pay-per-view and satellite technologies.  U.S.  negotiators,
however, wanted a change in the way the 51-percent European content
provision is implemented.  For example, the United States sought
assurances that the 51 percent quota would be enforced over a 24-hour
period, so that France and other European countries would not be able
to expressly exclude U.S.  programming from prime time hours.  In
addition, the United States wanted quotas on new transmission
technology, such as cable and satellite transmissions, to be
interpreted in such a way as not to exclude the establishment of
channels with purely American content. 

Another point of dissension between the United States and the EU
focused on EU taxes, or levies, on video rentals and sales of movie
tickets.  These levies, including those on sales of U.S.  videos and
movie tickets, are used to subsidize local European artists and
performers.  Initially, U.S.  negotiators insisted that the levies on
U.S.  videos and movies be distributed to the U.S.  entertainment
industry.  As the December 15, 1993, deadline drew closer, U.S. 
negotiators proposed that U.S.  companies receive the revenue from
these levies but use them to finance European-based productions,
rather than simply returning to the United States.  The EU rejected
this final proposal. 

U.S.  industry representatives also noted that access to these
markets is deteriorating.  For example, in December 1993, the Spanish
government adopted restrictions on movies that would drastically
reduce foreign access to the Spanish theatrical market.  In addition,
France recently became the first European government to extend the
local content quotas to radio, and Portugal recently passed a new
film law that allows it to move toward the Spanish model and add
local content quotas to the movie industry. 

Notwithstanding the inability to secure market access and national
treatment commitments from the EU, the agreement would provide some
significant benefits for the audiovisual sector.  For example, the
audiovisual sector would be covered by GATS rules on MFN, subsidies,
and progressive liberalization.\32 In addition, U.S.  negotiators
were able to ensure that, despite months of attempts by the EU to
change the GATS text, GATS covers the audiovisual sector without any
language regarding the role of culture in future negotiations on
subsidies or progressive liberalization.\33 The EU wanted language
stating that the objective of unconditional progressive
liberalization would not be appropriate for this sector, given its
cultural specificity. 

U.S.  negotiators were also able to secure market access commitments
and national treatment from 14 countries.  Although U.S.  negotiators
hoped to persuade more countries to schedule commitments, favorable
commitments were made by Japan, South Korea, Malaysia, and Singapore. 
The United States also partially achieved its objectives of removing
market barriers and improving intellectual property protection for
these industries.  No future negotiations were scheduled for this
sector, although the industry is urging the establishment of a
sectoral committee on trade in audiovisual services as part of GATS. 


--------------------
\32 Article 19 of GATS calls for countries to commit themselves to
subsequent rounds of negotiation "with a view to achieving a
progressively higher level of liberalization."

\33 The EU desired to amend the GATS text to include a reference to
the role of culture because of its position (1) that part of the EU's
audiovisual services market can be subsidized by national governments
in order to protect member nations' cultural identity and (2) that
unconditional liberalization of this sector is not appropriate due to
audiovisual services cultural importance. 


   POTENTIAL IMPACT OF AGREEMENT
---------------------------------------------------------- Chapter 5:5

Determining the economic impact of the services agreement is very
difficult.  Most economic modeling assessments of GATT focused only
on the effect that lower tariffs would have on U.S.  merchandise
trade and did not include trade in services.  (Trade barriers to
services are primarily nontariff barriers, such as domestic policies
and regulations, and therefore are difficult to quantify.) Since the
United States already has one of the most open markets for services,
the agreement would lead to relatively small changes in U.S. 
barriers to imports, and result in only modest increases in imports
as a result of those lower barriers. 

Our evaluation of GATS was also hampered by the lack of available and
adequate data on services.  USTR negotiators, the ISAC report on
services, and many economists noted that determining the economic
impact of the Uruguay Round on the services industry was virtually
impossible because complete and comprehensive data on services were
hard to obtain and because the available data lacked detail (e.g., on
specific services and international comparability).  Collection of
data was also difficult due to problems in separating domestic and
international service transactions that are combined with exports of
goods.  For example, exported telecommunications equipment may
include installation and maintenance services.  In addition, rapid
technological and organizational changes in the services industries
impeded efforts to define, classify, and measure the activities. 
Finally, similar transactions may not have been reported consistently
by all companies. 

U.S.  exporters, however, are in a position to benefit from the
multilateral trade rules covering services.  For example, GATS rules,
such as those on transparency and payment and transfer of fees, would
provide greater protection for U.S.  firms exporting services
worldwide.  And U.S.  services providers could use GATT dispute
settlement rules to help them address unfair trade practices.  In
addition, binding commitments by U.S.  trading partners would offer
U.S.  exporters a greater opportunity to expand their businesses in
many services sectors abroad.  For example, a recent Economic
Strategy Institute study estimated that U.S.  services' exports would
probably increase by $3 billion annually due to gains from the
Uruguay Round by 2003.  Finally, GATS would provide a workable
foundation for future negotiations on services. 


   ISSUES TO WATCH
---------------------------------------------------------- Chapter 5:6

Because services is an area that has never been covered before in
multilateral trade talks, the United States should be watchful of how

  major trading partners honor their scheduled commitments, including
     any specific market-opening measures;

  extended negotiations in the financial services, basic
     telecommunications, and maritime sectors evolve to ensure that
     countries commit to measures that liberalize their markets;

  the services working party (established by the Ministerial Decision
     Concerning Professional Services), develops rules related to
     domestic regulations, works toward international standards, and
     establishes guidelines for recognizing qualifications in the
     accounting industry; and

  deteriorating market access conditions in the audiovisual sector
     evolve, particularly in key countries such as those in the EU,
     and any future negotiations or talks develop in this sector. 


   AGREEMENT ON TRADE-RELATED
   INVESTMENT MEASURES
---------------------------------------------------------- Chapter 5:7


      BACKGROUND
-------------------------------------------------------- Chapter 5:7.1

Many, primarily developed, countries believe that foreign direct
investment (FDI) has a positive impact on the host country.  However,
while developed countries such as the United States believe that
foreign investment flows should be largely directed by private market
forces, developing countries have historically believed that FDI
should be closely regulated by government.  Because the multilateral
rules governing the treatment of FDI were lacking, developed
countries, particularly the United States, supported including
investment in the Uruguay Round negotiations.  Developing countries
opposed the investment negotiations. 

As a result of fundamental differences in outlook on whether or how
to include investment in the UR, a compromise was reached that the
focus of the investment negotiations would be narrow, addressing only
investment requirements that affect trade in goods.  Such
requirements can stipulate, for example, that foreign investors must
use local inputs in production or that imports for use in production
by the investor will be limited. 


         THE ROLE OF FOREIGN
         DIRECT INVESTMENT
------------------------------------------------------ Chapter 5:7.1.1

There is consensus among many, primarily developed, countries that
FDI can have a favorable effect on a host country's economy.  The
U.S.  Investment Policy Advisory Committee has pointed out that FDI
can, among other things, create jobs, increase tax revenues, and
introduce new technologies.  A recent OECD analysis found that FDI
increased host country wages and productivity and seemed to have a
net positive effect on the competitiveness of the host economy.\34

Recognizing the value of FDI and the importance of free markets, the
United States has historically imposed relatively few restraints on
inward investment.  According to a 1983 White House International
Investment Policy Statement, "...the United States believes that
international direct investment flows should be determined by private
market forces and should receive nondiscriminatory treatment
consistent with the national treatment principle." However, the UR
negotiations took place during a period of large increases in the
value of direct investment flowing into the United States.  The
annual inflow of direct investment into the United States reached an
all-time high of $67.7 billion in 1989.  As a result, the U.S. 
government has increased its oversight of FDI in recent years,\35
although U.S.  restraints that do exist on FDI are sectoral,
specialized, and generally related to national security concerns. 

The United States is an important source of and destination for FDI. 
FDI in the United States had an accumulated market value of $692
billion as of the end of 1992.  The stock of U.S.  direct investment
abroad is larger, reaching $776 billion in 1992.  In 1992, net FDI\36
inflows into the United States were only $2.4 billion, substantially
lower than the 1989 high of $67.7 billion previously mentioned.  U.S. 
net direct investment outflows in 1992 amounted to $34.8 billion,
down from the 1989 high of $36.8 billion. 

According to a Department of Commerce review of FDI,\37 firms choose
to expand their activities overseas for a variety of reasons.  These
reasons include a desire to (1) maintain profitability while reducing
prices when faced with lower competitors' prices; (2) maintain or
increase worldwide market share; (3) gain access to or retain access
in an overseas market, especially in periods when trade restrictions
are threatened; (4) exploit, and maintain control over, an advantage
specific to a company such as management, marketing, and/or
technology, or a comparative advantage in producing in the foreign
market; and (5) improve the company's ability to meet the overseas
market's needs by providing a special product design and/or service. 

In contrast to developed countries, many developing countries have
historically viewed FDI as something that should be closely
controlled.  According to a private sector publication detailing the
Uruguay Round negotiating history, these governments have justified
the regulation of FDI by a perceived need (1) to preserve
sovereignty; (2) to shelter the development of indigenous
enterprises; and (3) to maintain control over perceived outside
pressures on a country's economic condition, particularly its balance
of payments.  In past years developing countries viewed FDI with
suspicion, believing that it would create situations where a
developing country could be exploited by multinational corporations. 
However, during the late 1980s, many developing countries began
adopting a different philosophy and strategy toward FDI and developed
policies to attract it.  For example, according to a Treasury
official, countries such as Argentina, Bolivia, Chile, and India are
notable for the recent self-initiated actions they have taken to
loosen restrictions on FDI. 


--------------------
\34 "Foreign Investment Improves Industrial Performance of Host
Countries," OECD Letter, Vol.  3, No.  3 (Apr.  1994). 

\35 See, for example, the Omnibus Trade and Competitiveness Act of
1988, which grants the President the authority to suspend or prohibit
foreign investment in the United States due to national security
concerns.  See also the Foreign Direct Investment and International
Financial Data Improvement Act of 1990 (P.L.  101-533, Nov.  7,
1990), which improves U.S.  government coordination of FDI data. 

\36 Net FDI equals the value of any new FDI that enters the United
States in 1 year minus any reductions in FDI in the United States in
that year. 

\37 Foreign Direct Investment in the United States:  Review and
Analysis of Current Developments, U.S.  Department of Commerce,
Economics and Statistics Administration, Office of the Chief
Economist (Aug.  1991), p.  9. 


         DISAGREEMENT OVER WHETHER
         AND HOW TO INCLUDE
         INVESTMENT IN THE URUGUAY
         ROUND
------------------------------------------------------ Chapter 5:7.1.2

Developed countries (primarily the United States) were interested in
including investment issues in the UR negotiations.  This interest
was strengthened due to the fact that, despite the importance of FDI,
the existing multilateral rules governing its treatment were
lacking.\38 Developing countries, however, resisted including
investment in the Uruguay Round.  These countries argued that
investment issues (along with services and intellectual property)
went beyond GATT's traditional jurisdiction. 

A compromise was reached in 1989.  Since GATT specifically covers
trade issues, it was agreed that the investment negotiations would
focus very narrowly on FDI regulations that require specific investor
behavior that has an effect on trade.  Such "trade-related investment
measures" are referred to as TRIMs.\39 The United States had stated
in a 1988 document submitted to GATT entitled "TRIMs: 
Characteristics, Costs and Alternatives," that "...TRIMs have
economic effects that are comparable to those of traditional
instruments of commercial policy, such as quotas, tariffs and
subsidies, and should be subjected to some form of GATT disciplines
where not already covered."

As suggested by this U.S.  government position on TRIMs, the TRIMs
negotiations were unique.  Although investment was often referred to
as a "new area" for the negotiations, some TRIMs are already covered
by existing GATT articles.  An example would be a regulation that
restricts foreign investors from purchasing imports.  Because such a
regulation would favor domestic products over similar imported
products, it would violate GATT article 3, which obligates
contracting parties to accord national treatment to goods. 

The desired approach to the TRIMs negotiations differed between
developed and developing countries.  Developed countries pressed for
the express prohibition of certain TRIMs that violate GATT articles
such as the national treatment provision.  Developing countries,
however, favored a different approach.  Rather than outright
elimination of TRIMs, developing countries favored subjecting TRIMs
to an "effects test" discipline in which the distortive trade effects
of TRIMs would be remedied if demonstrable, leaving the actual TRIMs
intact.  In the end, the negotiations took the "preemptive" approach
of eliminating TRIMs, rather than remedying their effects on a
case-by-case basis. 


--------------------
\38 There are two existing OECD investment instruments:  (1) the
investment declaration and related decisions on national treatment,
international investment incentives and disincentives, and guidelines
for multinational enterprises; and (2) the Code of Liberalization of
Capital Movements.  Both are considered lacking, according to U.S. 
officials, because they apply only to OECD member countries (i.e.,
developed countries) and have no dispute settlement mechanism. 
Further, the investment declaration is not a binding agreement. 

\39 In addition to prohibiting TRIMs, NAFTA addressed broader
investment issues such as rights of establishment and transfer of
profits. 


         THE USE OF TRIMS
------------------------------------------------------ Chapter 5:7.1.3

TRIMs exist in many forms.  TRIMs include local content requirements
(obliging an investor to purchase or use a specified amount of inputs
from local suppliers).  Local content requirements are the most
common form of TRIM, and are used in an attempt to ensure that the
investment increases local employment and develops physical and human
capital.  TRIMs also include trade-balancing requirements.\40 TRIMs
are placed on FDI by governments in an effort to influence investment
decisions such as sourcing, production, and market locations; to
increase the likelihood that the host nation will capture the
benefits expected from the investment; and to redistribute the
investment benefits from the investor to the host country. 

TRIMs can be implemented in different ways.  TRIMs can be mandatory,
that is, enforceable under domestic law or administrative rulings. 
An example of this type of mandatory TRIM would be a law that states
that investors must include a certain percentage of local content in
their production.  In addition, TRIMs can be actions that are
necessary for an investor to undertake in order to obtain some type
of advantage (investment incentives)--a quid pro quo approach.  For
example, a host government might approach an investor with a proposal
that allows the investor to receive a tax exemption in return for
including a certain percentage of local content in the company's
production. 

According to a recent Department of Commerce Business America
article, TRIMs such as those previously mentioned are inefficient
because they skew market forces, reduce competition, result in the
misallocation of resources, and raise costs for consumers.  A 1991
U.N.  study\41 of the impact of TRIMs on trade and development found
that, although strategic trade theory suggests that governments can
intervene successfully to shift production location and trade
patterns to favor the home country, case studies of TRIMs showed both
successes and failures in doing so.  Additionally, the U.N.  study
found that if each host country independently pursued its own
self-interest, all countries could be damaged unless they exercised
mutual restraint. 

During the UR negotiations, the United States provided a detailed
discussion on the existing relationship (previously mentioned on p. 
122) between TRIMs and GATT articles, and the effects of using TRIMs. 
For example, in a 1989 submission to GATT, the United States
categorized TRIMs as those measures that have an adverse impact on
trade by (1) artificially reducing imports, (2) artificially inducing
or increasing exports, and (3) artificially reducing exports.  Within
each of these categories, the United States listed numerous, specific
TRIMs\42 and the extent to which various GATT articles address these
TRIMs.\43

In 1989, USTR identified 49 developing and developed countries that
used at least one TRIM and in which U.S.  FDI was comparatively high. 
While both developed and developing countries use TRIMs, a greater
number of developing countries implement them.  However, according to
a U.N.  compilation of 1989 USTR survey data, the amount of U.S. 
direct investment abroad covered by TRIMs regulations is heavily
weighted toward the developed world.  For example, the 20 developed
countries with the most extensive presence of TRIMs regulations were
the recipients of $230 billion in FDI from the United States; the
figure for the 20 developing countries with the most extensive
presence of TRIMs regulations was $30 billion.  The U.S.  industries
historically most affected by TRIMs include motor vehicles,
chemicals, pharmaceuticals, and high-technology goods. 


--------------------
\40 Trade-balancing requirements allow an investor to import goods
only up to a specified amount, which is determined by the investor's
locally produced exports.  Such requirements are used by governments
in an effort to maintain or achieve a favorable balance of trade. 

\41 The Impact of Trade-Related Investment Measures on Trade and
Development, United Nations Centre on Transnational Corporations and
United Nations Conference on Trade and Development, United Nations
(New York, 1991). 

\42 TRIMs listed that artificially reduce imports related to (1)
local content requirements, (2) trade-balancing requirements, (3)
manufacturing requirements or limitations, (4) foreign exchange
restrictions, (5) remittance restrictions, (6) technology transfer
requirements, (7) licensing requirements, and (8) local equity
requirements.

TRIMs listed that artificially induce or increase exports related to
(1) export requirements, (2) product-mandating requirements, (3)
trade-balancing requirements, (4) foreign exchange restrictions, (5)
remittance restrictions, (6) manufacturing requirements, (7)
technology transfer and licensing requirements, (8) local equity
requirements, and (9) incentives.

TRIMs listed that reduce exports related to (1) domestic sales
requirements and (2) manufacturing limitations. 

\43 Listed TRIMs were viewed as either (1) clearly inconsistent with
GATT articles or (2) not clearly inconsistent with GATT articles but
nevertheless having significant trade effects.  GATT articles listed
as relevant to TRIMs (whether clearly or not) were those related to
MFN treatment, national treatment, general elimination of
quantitative restrictions, antidumping and countervailing duties,
subsidies, and exchange restrictions. 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 5:7.2

The Punta del Este declaration of the Uruguay Round stated that
"[F]ollowing an examination of the operation of GATT Articles related
to the trade restrictive and distorting effects of investment
measures, negotiations should elaborate as appropriate, further
provisions that may be necessary to avoid such adverse effects on
trade."

The 1988 Omnibus Trade and Competitiveness Act called for the
following negotiating objectives for the United States:  (1) to
reduce or eliminate artificial trade-distorting barriers to foreign
direct investment; (2) to expand the principle of national treatment;
and (3) to reduce unreasonable barriers to investment establishment. 
The act also called for the development of internationally
agreed-upon rules, including dispute settlement procedures, that
would help to ensure a free flow of foreign direct investment and
reduce or eliminate the trade-distorting effects of certain
trade-related measures. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 5:7.3

According to private sector advisory groups, the TRIMs agreement
meets some U.S.  objectives.  The agreement, if implemented, would
eliminate some trade-distorting barriers to FDI.  It would not expand
the principle of national treatment with respect to investment, but
would explicitly prohibit specific TRIMs that are contrary to the
principle of according national treatment to goods, as noted below. 
A Treasury official said that the agreement does not address other
barriers pertinent to investment establishment such as limits on
foreign equity participation or bans on foreign acquisitions in
certain sectors.  Thus, the agreement does not contain standard
investment provisions, such as those contained in bilateral
investment treaties or NAFTA, that help to ensure a free flow of FDI. 

The TRIMs agreement would prohibit certain distortive TRIMs related
to trade in goods.  The agreement states that no country shall apply
a TRIM that is inconsistent with GATT articles III (national
treatment) and XI (general elimination of quantitative restrictions,
such as quotas). 

An annex to the TRIMs agreement provides an illustrative list of
TRIMs that are inconsistent with these two GATT articles and so would
be prohibited.  Measures listed as inconsistent with the GATT's
article III provision of national treatment are local content and
trade-balancing requirements, as previously discussed.  Measures
listed as inconsistent with the GATT's article XI prohibition of
quantitative restrictions are those that (1) require trade balancing,
(2) require foreign exchange balancing,\44 and (3) limit exports.\45
These TRIMs could not be used in either a mandatory or an incentive
form. 

Countries would be required to notify the Council for Trade in Goods,
within 90 days of the entry into force of WTO, of all TRIMs they are
applying that are not in conformity with the TRIMs agreement.  For
all TRIMs that are so reported, developed countries would be required
to eliminate them within 2 years, while developing countries would
have 5 years, and least developed countries would have 7 years.  With
the approval of the contracting parties, extensions could be granted
for developing and least developed countries. 

TRIMs that were not notified, or that were introduced 180 days before
the entry into force of WTO, would not benefit from these transition
periods and would be required to be eliminated immediately.  All
exceptions under the 1994 GATT agreement would apply, as appropriate. 
Developing countries would be allowed to deviate temporarily from
TRIMs agreement commitments for balance-of-payment reasons, though
only to the extent permitted in the 1994 GATT agreement. 

The TRIMs agreement contains a provision concerning "competitive
disadvantage." This provision would allow countries to apply existing
TRIMs to new investing firms for the duration of the transition
period when (1) the products of such investment were similar to the
products of the established enterprises and (2) it was necessary to
avoid distorting the conditions of competition between the new
investment and the established enterprises. 

The TRIMs agreement would ensure transparency, including (1) as
provided for in GATT, (2) with respect to notification of
publications in which TRIMs may be found, and (3) in considering
requests for information or consultations from other countries. 
Investment consultations and dispute settlements would come under the
new Understanding on Rules and Procedures Governing the Settlement of
Disputes.  Finally, a Committee on Trade-Related Investment Measures
would be established to monitor the operation and implementation of
the agreement and to report annually to the Council for Trade in
Goods.  The Council for Trade in Goods would be required to review
the operation of the agreement and consider proposals for amendments
to its text not later than 5 years after the entry into force of WTO. 
The council would also be required to consider whether to complement
the agreement by establishing provisions on investment policy and
competition policy. 


--------------------
\44 A foreign exchange balancing requirement restricts a company's
imports by limiting the company's access to foreign exchange to pay
for the goods to some proportion of the amount of foreign exchange
earned by the company. 

\45 An exporting restriction limits company exports, or sales for
export, by placing restrictions on particular products, a volume or
value of products, or a proportion of the volume or value of the
company's local production. 


      POTENTIAL IMPACT OF THE
      AGREEMENT
-------------------------------------------------------- Chapter 5:7.4

The potential impact of the TRIMs agreement on the United States can
be viewed from the standpoint of a U.S.  multinational corporation
and its shareholders or from the perspective of U.S.  labor or a U.S. 
domestic firm.  According to the Congressional Research Service, most
large corporations view investment liberalization as an important
goal for trade negotiations because at the margins it gives them
greater flexibility in locating their production facilities and the
opportunity for greater profits.  According to a Treasury official,
the agreement would allow companies to make more rational choices
regarding sourcing and exporting, rather than making such decisions
based on government mandate.  Thus, U.S.  multinational corporations
and their shareholders should benefit from the TRIMs agreement. 

The impact of the TRIMs agreement for U.S.  domestic business and
workers is somewhat uncertain.  If the TRIMs agreement led to
increases in U.S.  direct investment in foreign markets, it is
unclear to what extent this increase would have come at the expense
of investment and employment in the United States.  A similar
question was raised in the NAFTA debate. 

The U.S.  Department of the Treasury has analyzed the investment
effects of the overall GATT agreement.  The Treasury concluded that
investment in the United States would increase, including FDI, as
some industries expand.  In addition, U.S.  direct investment abroad
would increase due both to emerging markets and an improved
investment regulatory environment.  Further, the Treasury expected
global portfolio capital flows to increase as world income and
savings grow.  The magnitude of these capital outflows and inflows on
the U.S.  economy are not reported.  The Treasury found that the
Uruguay Round would result in increased levels of world output,
trade, real income, savings, investment, and consumption. 

The potential impact of TRIMs on U.S.  employment could be felt
through multiple channels.  A U.S.  Treasury negotiating official
said that U.S.  employment could potentially be bolstered as a result
of the TRIMs agreement for two reasons.  First, if restrictions on
investors are loosened, U.S.  companies may make investments that
they would not have made if the restrictions were in place, and in
doing so may increase U.S.  exports by drawing in U.S.  goods for use
in production.  Second, because the agreement would eliminate
requirements such as local content, U.S.  firms operating abroad
would be free to use U.S.  goods.  The Treasury official stated that
these two possibilities are based upon the tendency for U.S. 
subsidiaries abroad to rely upon and create U.S.  exports.\46

Empirical evidence that links U.S.  direct investment abroad with
increases in U.S.  exports and subsequent employment is limited. 
According to a Department of Commerce official, many studies have
tried, with inconclusive results, to determine the relationship
between foreign direct investment and exports from the home country. 
Moreover, for limits on the use of TRIMs abroad to have a significant
impact on the U.S.  economy, they must currently substantially affect
business behavior and trade flows.  If existing TRIMs have only a
limited impact on current trade flows and production, the agreement
to restrict TRIMs would have a limited effect on the U.S.  economy. 

During the 1980s, many developing countries unilaterally reduced
their use of TRIMs.  In those countries where TRIMs still exist, they
may have a limited impact on business decisions if they are
negotiable or discretionary.  Likewise, if TRIMs simply require
companies to do what they would have done in any event, a reduction
in their usage would have little effect on the U.S.  economy. 
Empirical evidence that TRIMs significantly distort trade flows is
limited and inconclusive, though their potential for distortion is
not disputed.\47 Additionally, case studies and surveys of firms
subject to TRIMs have mostly found that TRIMs have a minor impact on
business behavior.\48

The potential impact of the TRIMs agreement on U.S.  government
actions should also be noted.  One implication of the agreement is
that various congressional proposals in recent years to place
performance requirements on FDI would be prohibited.  These proposals
have included requirements that foreign investors manufacturing in
the United States use U.S.-produced parts or adhere to other
requirements for domestic sourcing and content.  (One U.S.  official
pointed out that such proposals were not successful.) A U.S. 
negotiating official pointed out that such restrictions have the
negative effect of distorting trade, thereby harming trade partners. 
The TRIMs agreement could lessen the U.S.  government's ability to
influence the operations of foreign based multinational corporations,
if the government should desire to do so in the future. 

While the potential overall economic impact of the TRIMs agreement is
uncertain, many observations have been made concerning the specific
strengths and weaknesses of the agreement's provisions.  The TRIMs
agreement is generally supported by U.S.  private sector advisory
groups who claimed that, although the agreement would only meet some
U.S.  objectives, U.S.  investors would be better off with the
agreement than without it. 

In identifying benefits of the agreement, U.S.  officials stated that
the prohibited TRIMs are still in use in many countries; thus, their
elimination would provide real benefits to investors.  For example,
according to Business America, Pakistan imposes a 75-percent local
content requirement for motor vehicles.  India imposes a requirement
on consumer goods and "nonpriority" industries that foreign exchange
inflows and outflows be balanced during the initial 7 years of the
investment.  A Treasury official said that the only TRIM that U.S. 
negotiators had realistically hoped might be included on the
illustrative list but that was not was export performance.  Export
performance requires investors to export a certain quantity or value
of their production.\49

In addition, the competitive disadvantage clause (discussed on p. 
126) is considered to be quite important to existing U.S.  investors
in other countries, particularly the U.S.  auto industry, that are
already subject to TRIMs and would have been harmed if new investors
had not been made subject to the same restrictions.  Further, the
prohibition of incentive TRIMs is considered a success for the United
States.  A U.S.  official pointed out that developing countries are
particularly unhappy with this prohibition. 

According to U.S.  officials, the greatest advantage of the TRIMs
agreement may be that it would be a "foot in the door" to address
investment in the multilateral GATT forum.  This would be the first
multilateral investment agreement to have "teeth" in that a formal
dispute settlement mechanism would be in place that would allow for
retaliatory action.  The list of prohibitions is "illustrative,"
which means that it does not list every TRIM that could violate GATT
articles III and XI, and, therefore, more TRIMs could potentially be
added to the list over time. 

In addition, U.S.  officials expressed hope that the scope of the
agreement could be expanded with the mandated review of the operation
of the agreement in 5 years.  This review could include broader
discussions on investment policy.\50 It was also considered necessary
by negotiators to work to eliminate TRIMs on a multilateral, rather
than a bilateral, basis.  A Commerce Department official explained
that in order to effectively eliminate TRIMs, all countries must
cooperate.  One country would be hesitant to stop offering incentives
if other countries continued to offer such incentives and thereby
attract foreign investment.  Further, taking individual countries to
dispute settlement to settle investment problems can be expensive and
require years of effort to resolve; under the TRIMs agreement, all
countries would be required to identify existing TRIMs and remove
them, with no action required on the part of the United States.  In
contrast, the U.S.  investment regime is largely in line with TRIMs
provisions and so would require few changes. 

While the agreement contains benefits, there has been concern over
the scope of the agreement's provisions.  The Investment Policy
Advisory Committee was disappointed that many distortive TRIMs would
be allowed to continue, and the Advisory Committee on Trade Policy
and Negotiations exhibited surprise that other countries continue to
support the use of TRIMs.  The final compromise TRIMs agreement would
eliminate only a few of the TRIMs that were raised by U.S.  officials
during the negotiations, and so the U.S.  attempt to address TRIMs on
a wide scale, was ultimately not successful.  According to the
Investment Policy Advisory Committee, "[T]he TRIMs negotiations were
an area where the United States attempted to take bold strides toward
a more open world investment system, and the rest of the world
unfortunately failed to follow."

The narrow focus of the final agreement was considered particularly
disappointing by private sector advisory groups because FDI
requirements related to areas such as equity ownership, export
performance, and technology transfer were prohibited in NAFTA
(although a U.S.  official responded that it is much easier to get 3
countries to agree than over 100).  In addition, while applying
national treatment to prohibit specific TRIMS, the agreement does not
provide for national treatment to be applied to foreign direct
investors in general.\51

According to its report, the Investment Policy Advisory Committee
does not oppose the Uruguay Round, but maintains that the TRIMs
agreement was not a major success.  It has proposed that, due to the
difficulties encountered during the TRIMs negotiations, the United
States concentrate its resources outside GATT in pursuing future
investment initiatives.  The Investment Policy Advisory Committee has
proposed that the United States (1) expand NAFTA, whose investment
provisions are considered excellent; (2) continue negotiating
bilateral investment treaties; and (3) use its membership in OECD to
foster improved treatment of foreign direct investment.  A GATT
official responded to the Investment Policy Advisory Committee's
proposal by stating that if the TRIMs negotiations were to take place
in today's more favorable environment for foreign investment, the
results would no doubt be more substantial.  Moreover, he added, the
GATS negotiations have shown that investment issues can be
productively addressed in the GATT/WTO framework. 


--------------------
\46 In 1991, 24 percent of total U.S.  exports of goods and services
went to foreign affiliates of U.S.  companies.  In the same year,
U.S.  content (U.S.  merchandise exports) accounted for 9 percent of
the total output of majority-owned foreign affiliates of U.S. 
companies. 

\47 Rachel McCulloch, "Investment Policies in the GATT," World
Economy, Vol.  13, No.  4 (Dec.  1990).  For a discussion of the
difficulties in conducting this empirical analysis, see Keith E. 
Maskus and Denise R.  Eby, "Developing New Rules and Disciplines on
Trade-Related Investment Measures," World Economy, Vol.  13, No.  4
(Dec.  1990). 

\48 These studies are summarized in The Impact of Trade-Related
Investment Measures on Trade and Development. 

\49 However, the subsidies agreement would prohibit the granting of
subsidies contingent upon export performance. 

\50 These future discussions could also include competition policy. 
This issue was a priority for developing countries.  These countries
want to prohibit multinational corporations from engaging in
restrictive business practices. 

\51 GATS, however, covers investment issues for service industries. 
Service providers, who must often have a commercial presence in the
country where the service is being provided, would be guaranteed some
investment rights.  These rights would include broad national
treatment and market access for service sectors in which countries
expressly chose to make commitments. 


AREAS RECEIVING GREATER COVERAGE
============================================================ Chapter 6

Four areas received greater coverage in the Uruguay Round than they
previously had:  agriculture, textiles and clothing, government
procurement, and trade and the environment.  Attempts to reform
agriculture in previous GATT rounds were neither as comprehensive nor
as successful as the agreement achieved in the Uruguay Round. 
Although textiles and apparel trade is governed by the Multi-Fiber
Arrangement under the GATT aegis, the Uruguay Round presents a plan
to fully integrate this industry into the GATT rules and procedures. 
Doing so, however, would also expose the U.S.  textile and apparel
industry to increased foreign competition, which could result in
significant job losses. 

The Government Procurement Code established during the Tokyo Round
would be broadened in the Uruguay Round to cover services,
construction, and more federal-level entities.  Although not part of
the Uruguay Round's original objectives, another issue receiving
greater attention was trade and the environment.  The relationship
between the GATT provisions and environmental protection has
increasingly come to the forefront as world policy makers pursued the
parallel goals of liberalizing international trade and preserving the
environment. 


   AGRICULTURE PROVISIONS OF THE
   URUGUAY ROUND
---------------------------------------------------------- Chapter 6:1


      BACKGROUND
-------------------------------------------------------- Chapter 6:1.1

Governments in the United States, Europe, and elsewhere have
supported and protected their agriculture sectors since the Great
Depression, primarily to ensure adequate food supplies, to provide
farmers sufficient income, and to stabilize domestic commodity
prices.  Over time, however, government intervention has undermined
the normal interaction of market forces in the agriculture
sector--domestic price and income supports encouraged excessive
production, surpluses had to be exported to world markets, and
oversupply depressed world prices.  Many governments protected
domestic producers by banning or controlling imports, measures that
further restricted trade. 

While farmers in many countries have benefited from government
support and protection, these policies have other undesirable
effects.  First, the increasing cost of government programs is a
burden on consumers and taxpayers.  According to OECD, the cost of
agricultural support in the industrialized countries has increased
significantly since the early 1980s.  OECD figures show that
agricultural support in 22 industrialized countries\1 rose from an
average of about $98 billion per year during the period 1979-1986 to
an estimated $163 billion in 1993.\2 Second, government intervention
by the developed countries has made it difficult for developing
countries to compete in agricultural trade--and yet, the economies of
many developing countries are based on agricultural products.\3
Finally, some economists have asserted that government policies
related to agriculture have generally impeded economic growth by
restricting trade. 

GATT has been an ineffective forum to address such policies because
agricultural trade is subject to special treatment.  GATT rules have
permitted a wide range of nontariff barriers in agricultural trade,
such as import quotas.  GATT rules have also permitted agricultural
export subsidies which are generally not permitted for trade in
manufactured products.\4 As a result, countries have maintained
domestic policies that adversely affected agricultural producers in
other countries, causing a proliferation of trade disputes.  However,
according to U.S.  trade officials, because the rules allowing more
lenient treatment of agricultural policies lack clarity, such
disputes have been extremely difficult to resolve. 

The Uruguay Round represented the first time that GATT contracting
parties undertook to substantially reform agricultural trade.\5 The
Punta del Este ministerial declaration recognized an urgent need to
stabilize the world agriculture market and liberalize trade by
reducing import barriers, disciplining the use of direct and indirect
subsidies that affect trade, and minimizing the adverse trade effects
of sanitary and phytosanitary regulations and barriers.\6 The
declaration recognized that other negotiating areas were likely to
improve agricultural trade as well, such as efforts to strengthen the
dispute resolution process. 

While most countries agreed that reforming agricultural trade was
important, their specific interests varied according to domestic
needs.  The United States, for example, faced decreasing exports,
increasing imports, and rising government expenditures on farm
programs during the early 1980s.  As the largest agricultural
exporter, the United States was interested in gaining more access to
other countries' markets and improving world competition by
curtailing subsidized exports of agricultural products.  The U.S. 
negotiating position was generally aligned with that of the Cairns
Group, a group of 14 countries whose governments generally do not
provide internal support or export subsidies.\7 The European Union, a
large importer and exporter of agricultural products, was generally
interested in protecting domestic producers and guarding its share of
world exports.  However, some EU member states wanted to reduce the
ever-increasing cost of EU farm programs.\8 Some countries, such as
Japan and South Korea, supported reform but did not want to lower the
market access restrictions that protect their domestic producers. 
Finally, developing countries that were net food importers were
concerned that reform would increase the cost of food. 


--------------------
\1 The countries reported on included Australia, Austria, Canada, the
EU, Finland, Japan, New Zealand, Norway, Sweden, Switzerland, and the
United States. 

\2 OECD uses the producer subsidy equivalent to measure the value of
the monetary transfers to producers from consumers of agricultural
products and from taxpayers resulting from a given set of
agricultural policies.  These figures were reported in Agricultural
Policies, Markets and Trade:  Monitoring and Outlook 1994, OECD,
Directorate for Food, Agriculture and Fisheries, Committee for
Agriculture (Paris:  June 1994). 

\3 According to OECD, agricultural production in developing countries
accounted for an average of 15 percent of their GDP, 57 percent of
employment, and a significant part of their merchandise exports.  See
Ian Goldin and Dominique van der Mensbrugghe, Trade Liberalization: 
What's At Stake?, OECD Development Centre, Policy Brief No.  5
(Paris:  1992). 

\4 GATT article 11 generally prohibits quantitative restrictions,
such as quotas and import or export licenses.  However, it allows
countries to maintain import restrictions on agricultural products to
enforce policies that restrict domestic production.  GATT article 16
generally prohibits the use of export subsidies.  However, this
article, in conjunction with the GATT subsidies code developed during
the Tokyo Round, has allowed export subsidies on agricultural
products provided such subsidies do not allow a country to acquire
more than an equitable share of world export trade in the subsidized
product. 

\5 Attempts were made to address agricultural trade in the Dillon
Round (1960-62), the Kennedy Round (1963-67), and the Tokyo Round
(1973-79).  While the scope of these efforts was not as broad as the
Uruguay Round negotiations on agriculture, they did provide limited
improvements in agricultural trade. 

\6 Sanitary and phytosanitary regulations and barriers are measures
taken to protect human, animal, or plant life or health. 

\7 The Cairns Group consists of 14 countries that are exporters of
agricultural products:  Argentina, Australia, Brazil, Canada, Chile,
Columbia, Fiji, Hungary, Indonesia, Malaysia, New Zealand, the
Philippines, Thailand, and Uruguay. 

\8 The EU supports farmers through the Common Agricultural Policy. 
In 1992, the Common Agricultural Policy cost 36 billion European
currency units (about $30 billion at the 1992 year-end exchange rate
of $1=1.19 European currency units) and accounted for almost 60
percent of the EU's 1992 budget. 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 6:1.2

The United States advocated substantial and meaningful agricultural
reform in the Uruguay Round.  Some countries agreed with the United
States and made their support of a new GATT agreement contingent on
achieving significant agricultural trade reform.  Others, notably the
EU, favored more gradual reform.  The fundamentally different
perspectives of the United States and the EU prolonged negotiations
and heavily influenced the ultimate structure and degree of reform. 
In the end, all countries' objectives were modified by compromises
and political considerations. 

Throughout the negotiations, the United States sought disciplines in
four major areas:  (1) market access, (2) export subsidies, (3)
internal support policies, and (4) rules governing sanitary and
phytosanitary measures.  The first U.S.  proposal, called ambitious
by many countries, recommended eliminating, over a 10-year period,
all market access restrictions and subsidies that distort trade and
harmonizing worldwide food health regulations.  According to some
U.S.  commodity and farm group representatives, the original U.S. 
proposal was probably not attainable as most GATT members were not
supportive of it.  Subsequent U.S.  proposals continued to recommend
specific measures in each of the four areas, but focused on
substantially reducing government support and protection rather than
eliminating it. 

U.S.  objectives differed significantly from those of the EU.  The
first EU proposal recommended short-term measures to stabilize
agricultural trade in certain commodities, followed by a gradual
reduction in government support.  The EU also proposed harmonizing
health and sanitary regulations pertaining to animals and plant
products.  A subsequent proposal indicated the EU was willing to make
modest reductions in internal support, but was not interested in
reducing market access restrictions and export subsidies. 

The objectives of other major parties generally lay between the U.S. 
and EU objectives.  The Cairns Group supported the United States and
proposed removing all trade-distorting policies, eliminating
nontariff barriers, allowing only very low tariffs, and strengthening
GATT rules and disciplines for agriculture.  Some countries proposed
reducing, but not eliminating, government support and protection. 
For example, Japan proposed removing only export subsidies and
improving the rules governing market access, and resisted agreeing to
any imports of rice for cultural and food security reasons. 
Developing countries that import food asked for special treatment to
meet their development, trade, and financial needs. 

Although agriculture negotiations affected many countries, the United
States, the EU, and the Cairns Group evolved as the key players.  As
the UR progressed, the two countries continued to disagree about how
to reform agriculture trade.  The UR was originally scheduled to
conclude in 1990; however, the lack of agreement on agriculture
prevented this event, and negotiations were temporarily suspended. 

Negotiations began again in 1991, when the GATT Director General
proposed an agreement for agricultural reform as part of the Dunkel
text.  The agreement contained specific commitments in the four major
areas, as advocated by the United States, but suggested less
substantial reductions in market access restrictions, export
subsidies, and internal support.  All countries accepted the Director
General's proposed agreement as the basis for further negotiations. 
The United States and the Cairns Group generally supported the text
as written; the EU, Japan, and others said the text was unacceptable
without certain changes. 

From 1991 to 1993, debate centered on several key issues: 

  Reducing market access restrictions.  The Director General proposed
     that countries convert all nontariff barriers to tariff
     equivalents--a process called "tariffication"--and reduce new
     and old tariffs by an average of 36 percent.  The United States
     and the EU differed on what methodology to use to calculate
     tariff equivalents and how reductions in tariffs would be
     implemented.  Japan and South Korea resisted converting their
     import bans on rice to tariffs.  Canada also resisted
     tariffication for certain commodities. 

  Reducing export subsidies.  The Director General proposed that
     countries reduce the volume of subsidized exports by 24 percent
     and budgetary expenditures on export subsidies by 36 percent. 
     The United States said both measures were necessary to achieve
     meaningful reform, but the EU opposed the volume-based
     reduction. 

  Reducing internal support.  The Director General proposed that
     countries reduce domestic support that affects trade by 20
     percent.  The EU wanted to exempt domestic support linked to
     production-limiting measures from this requirement. 

  Other issues.  The United States and the EU disagreed on many other
     issues, such as the base period from which reductions could be
     made, the implementation of reductions at an aggregate or
     commodity-specific level, and the question of whether countries
     should agree not to initiate trade disputes while the reform
     measures were being implemented. 

Other events were occurring simultaneously outside the Uruguay Round
that influenced U.S.  and EU negotiating positions.  The United
States wanted the EU to address the reports of two GATT panels that
found that EU policies negatively affected U.S.  exports of oilseeds
to the EU.\9 Meanwhile, EU member states were undertaking the
politically difficult task of reforming the EU's Common Agricultural
Policy.  The United States feared that Common Agricultural Policy
reform, finalized in June 1992, would dictate the outcome of the
Uruguay Round. 

According to U.S.  trade officials, the United States and the EU held
difficult bilateral negotiations in November 1992 and November 1993
to address their differences on the Director General's proposed
agreement (the Dunkel text), the GATT reports on oilseeds, and the
extent to which the EU's Common Agricultural Policy reform was
compatible with international agricultural reform.  As a result of
these meetings--called the "Blair House Accords"--the United States
and the EU agreed to make certain changes to the Dunkel text.  The
major changes included decreasing the percent by which export
subsidies would be reduced (from 24 to 21 percent), making internal
support reductions at an aggregate rather than a commodity specific
level, and exempting certain types of internal support from any
reductions.  While the other major parties did not agree with some of
these proposed changes, they accepted them for practical reasons--no
agreement on agricultural reform would be possible without the
support of the United States and the EU.  Additional changes were
made to accommodate the political needs of certain countries.  After
7 years, the UR negotiations on agricultural reform were completed. 


--------------------
\9 In 1989, a GATT panel review of the EU's oilseed support regime
found that the effect of such support nullified the EU's agreement in
a previous GATT round not to apply tariffs to oilseed imports.  After
the EU implemented its new oilseed support regime in 1991, a second
GATT panel found in March 1992 that the revised system also
effectively nullified the previously agreed-to tariff concessions. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 6:1.3

A variety of measures to liberalize agricultural trade would be
implemented as a result of the Uruguay Round.  First, the Agreement
on Agriculture would require countries to make specific reductions in
three types of support--market access restrictions, export subsidies,
and internal support--over a 6-year period beginning in 1995. 
Developing countries would be subject to more lenient treatment than
developed countries.  Second, the Agreement on the Application of
Sanitary and Phytosanitary Measures contains disciplines on the use
of measures to protect animal and plant health.  Third, countries
agreed to establish a Committee on Agriculture that would provide a
forum for discussing countries' agricultural policies.  Finally, to
demonstrate their commitment to agricultural reform, countries agreed
to enter a second phase of negotiations 1 year before the
implementation period would end. 

In the four major areas of interest to the United States, the Final
Act contains the following provisions. 


         MARKET ACCESS
         RESTRICTIONS
------------------------------------------------------ Chapter 6:1.3.1

Significant achievements in the area of market access restrictions
would include the conversion of all nontariff barriers to tariff
equivalents; the reduction of new and old tariffs; and a complete
binding, or freeze, on all agricultural tariffs.  Japan and South
Korea agreed to convert their rice import bans to tariffs, but would
be granted more time to complete the conversion; in exchange for this
leniency, they agreed to accept rice imports above the minimum that
would be required by the Final Act.  In addition, negotiations on
reductions in tariffs will provide new export opportunities for a
variety of U.S.  commodities. 

The Final Act contains the following provisions on market access
restrictions: 

  Countries shall convert nontariff barriers to tariff equivalents
     (called "tariffication"). 

  Countries shall reduce old and new tariffs by a simple average of
     36 percent, with a minimum 15-percent reduction in each tariff
     (24 percent average and 10-percent minimum cuts for developing
     countries). 

  Reductions in old tariffs will be measured from the 1986 level,
     while reductions in new tariffs will be measured from the
     average 1986-88 level.  Reductions will be made in equal
     installments over the 6-year implementation period (10 years for
     developing countries). 

  Countries shall bind (freeze) all tariffs at the end of the
     implementation period. 

  If imports of products subject to tariffication were less than 3
     percent of domestic consumption during 1986-88, countries shall
     provide market access opportunities of 3 percent of domestic
     consumption in 1995, rising to 5 percent of consumption by 2000. 

  If imports of products subject to tariffication were greater than 5
     percent of domestic consumption during 1986-88, countries shall
     provide market access opportunities at or above 1986-88 average
     annual import levels. 

  Countries could delay tariffication for 6 years (10 years for
     developing countries) under certain conditions but would be
     required to provide higher minimum access opportunities.\10

  Countries could invoke a special safeguard mechanism if imports of
     products subject to tariffication rise above a certain level or
     prices of such products fall below a certain level. 


--------------------
\10 Under this provision, Japan would delay tariffication of its rice
import ban for at least 6 years and, in exchange, would provide
minimum access of 4 percent of domestic rice consumption in 1995,
growing to 8 percent by 2000.  South Korea, which is treated as a
developing country in GATT, could delay tariffication of its rice
import ban for at least 10 years.  In exchange, it would provide
minimum access of 1 percent of domestic rice consumption in 1995,
growing to 4 percent over 10 years; it also offered additional market
access opportunities in other products.  The Philippines and Israel
would also delay tariffication on certain products. 


         EXPORT SUBSIDIES
------------------------------------------------------ Chapter 6:1.3.2

Significant achievements in the area of export subsidies would
include commitments to reduce both budgetary expenditures on export
subsidies and the quantity of subsidized exports.  Because the amount
of export subsidies paid in certain countries, notably the United
States and those belonging to the EU, has increased since 1986,
implementing the required reductions would have meant substantial
decreases in export subsidies in the first year of implementation. 
In order to allow more gradual reductions in areas where export
subsidies or the volume of subsidized exports have increased,
countries could start making reductions from either the 1986-90 or
1991-92 average but still would be required to achieve the extent of
reductions called for in the Final Act. 

While the agreement would require the United States to cut its export
subsidies by the same percentages as other developed countries, this
option would allow the United States to subsidize the export of an
additional 7.5 million metric tons of wheat and flour and 1.2 million
metric tons of vegetable oil during the implementation period. 
Similarly, the EU could subsidize the export of an additional 8
million metric tons of grain. 

The Final Act contains the following provisions on export subsidies: 

  The agreement identifies all government policies that are
     considered export subsidies. 

  All countries shall reduce budgetary expenditures on export
     subsidies by 36 percent (24 percent for developing countries)
     and the quantity of subsidized exports by 21 percent (14 percent
     for developing countries). 

  Reductions would be measured from the average 1986-90 level and
     made in equal installments over the 6-year implementation period
     (10 years for developing countries).  However, in cases where
     export subsidies have increased since the 1986-90 average,
     countries could initiate reductions from the 1991-92 average. 

  Reductions would be made at the individual commodity level. 

  Products not receiving export subsidies during 1986-90 could not
     receive them in the future. 


         INTERNAL SUPPORT
------------------------------------------------------ Chapter 6:1.3.3

The agreements reached on internal support would impose more modest
disciplines than those reached on market access restrictions and
export subsidies for several reasons.  While reductions would be
required in internal support, they would be made at an overall rather
than individual commodity level, providing countries with tremendous
flexibility in targeting areas for reduction.  The United States
would not be required to make any reductions in internal support
because the provisions contained in the 1990 Farm Bill\11 are
sufficient to comply with the agreement.  Also, the agreement would
exempt direct payments linked to production-limiting policies from
reductions, thereby affording special treatment to major internal
support programs in the EU and the United States.\12 Finally, the
agreement would authorize the continued use of a wide variety of
internal support policies that are not considered trade-distortive,
including income support not linked to production, and support for
research, marketing, disease control, and environmental programs. 

The Final Act contains the following provisions on internal support: 

  The agreement specifies what types of internal support shall be
     included in an aggregate measure of support. 

  Countries shall reduce their aggregate measure of support by 20
     percent (13 percent for developing countries). 

  Reductions would be measured from the average 1986-88 level and
     made in equal installments over the 6-year implementation period
     (10 years for developing countries). 

  Direct payments linked to production-limiting policies and policies
     that do not affect trade would be exempt from reductions. 
     Certain policies included in the aggregate measure of support
     would be exempt from reductions for developing countries. 

  Reductions would be made at an aggregate support level. 

  Countries would receive credit for reductions in support made since
     1986. 

  A country's aggregate measure of support could not exceed the level
     achieved at the end of the implementation period. 

  Domestic support measures that fully comply with the agreement
     would be exempt from certain GATT challenges from 1995 to 2003. 


--------------------
\11 Food, Agriculture, Conservation, and Trade Act of 1990 (P.L. 
101-624). 

\12 The EU and the United States make direct income payments to
farmers, respectively called "compensatory payments" and "deficiency
payments." In both cases, receipt of the payment is contingent upon
farmers removing a certain percentage of their land from production. 


         SANITARY AND
         PHYTOSANITARY MEASURES
------------------------------------------------------ Chapter 6:1.3.4

In the area of sanitary and phytosanitary measures, the Final Act
would allow countries to determine their own standards.  However, to
discourage their use as nontariff barriers, sanitary and
phytosanitary measures would have to be scientifically based. 

The Final Act provisions on sanitary and phytosanitary measures
include the following elements: 

  Countries could set their own standards governing food safety and
     animal and plant health, or they could use international
     standards.\13

  Standards shall be derived from scientifically based assessments of
     risk. 

  Standards that are stricter than international standards would have
     to be scientifically justified, if challenged. 

  Importing countries shall accept exporting countries' standards
     that differ from their own if the standards provide the same
     level of protection. 

  Countries shall make information about their standards available to
     interested parties and shall notify them of any changes that may
     affect trade. 


--------------------
\13 Three international scientific organizations are recognized for
their expertise in setting standards:  the Codex Alimentarius
Commission, the International Office of Epizootics, and the
International Plant Protection Convention. 


      ESTABLISHING A COMMITTEE ON
      AGRICULTURE
-------------------------------------------------------- Chapter 6:1.4

In addition to the four major areas of interest to the United States,
the Agreement on Agriculture requires that a Committee on Agriculture
be established as part of WTO.  While operating procedures have yet
to be drafted, the agreement assigns the committee numerous
responsibilities.  Among the most important, the committee is to
review countries' progress in implementing their Uruguay Round
commitments.  To facilitate this process, countries are to provide
the committee with information about (1) domestic measures taken as a
result of the UR and (2) any new or modified domestic support
measures deemed to be exempt from internal support reductions.  The
committee is to provide a forum for countries to discuss each others'
implementation of their commitments.  Countries are also to notify
the committee before implementing any of the safeguard measures or
export prohibitions allowed by the Agreement on Agriculture. 


      POTENTIAL IMPACT OF THE
      AGREEMENT
-------------------------------------------------------- Chapter 6:1.5

Analyzing the impact of the Agreement on Agriculture is complex. 
While the agreement is generally expected to increase global
agricultural trade, the extent to which individual countries and
commodity sectors would benefit from the agreement varies. 
Anticipated benefits include increases in trade, income, and
employment, and decreases in government expenditures.  One of the
most important gains would be the extent to which the agreement
influences future government policies related to agricultural trade. 
For example, the nature and extent of market access restrictions will
become more transparent and stable through tariffication of nontariff
barriers.  The agreement would also limit the extent to which
governments could support agriculture in the future by capping and
reducing the level of export subsidies and internal support, and
binding all tariffs. 

The depth of reform assented to in the Agreement on Agriculture is
less significant than that initially sought by the United States. 
However, USTR and GATT officials stated that the agreement represents
an important "first step" toward meaningful agricultural reform. 

Among the various economic studies of the Uruguay Round, a 1992 OECD
study analyzed the effect of partial liberalization--defined as a 30
percent reduction in agricultural and nonagricultural subsidies and
market access restrictions--on global income and agricultural
trade.\14 The authors believed that such a scenario closely
approximated the anticipated results of the Uruguay Round.  The
benefits of partial liberalization were not expected to accrue evenly
to developed and developing nations, agricultural exporters and
importers, or agricultural commodity sectors.  For example, the study
estimated that partial liberalization would increase annual global
income by $195 billion in the year 2002; developed nations' share of
this gain would be $104 billion, while developing nations' share
would be $91 billion.  Liberalization would cause world prices for
meats, coarse grains,\15 vegetable oils, sugar, and dairy products to
increase, while world prices for wheat would remain stable and world
prices for rice, coffee, and cocoa would drop.  Higher world prices
for some commodities would hurt countries that are net food
importers--usually the poorest developing countries. 

According to a GATT official, the most effective measures would be
the disciplines on market access restrictions and export subsidies,
rather than the more modest reductions in internal support.  However,
the full impact of these measures might not be seen immediately, as
countries would have several years to adjust their policies.  For
example, exports should increase slightly over the short term as
countries grant the required minimum market access opportunities,
with long-term increases linked to the gradual cuts in tariffs. 
Increased world demand due to trade liberalization combined with
decreases in subsidized exports should lead to higher prices. 
However, the flexibility that would allow more subsidized exports of
certain commodities during the implementation period might delay
anticipated price increases in those commodities. 

The U.S.  Department of Agriculture (USDA) estimated the economic
benefits of the Uruguay Round for the U.S.  agriculture sector in
March 1994.  Its analysis addressed the effect on exports, farm
income, export-related employment, and government revenues and
expenditures, and projected potential impact in each area to the
years 2000 and 2005.  USDA provided a range of figures for potential
impact in each area because it used two sets of assumptions about
income growth.\16 The value of annual agricultural exports was
expected to increase between $1.6 billion and $4.7 billion by the
year 2000, and between $4.7 billion and $8.7 billion by the year
2005.  Increased exports of grains, feeds, and animal products would
account for most of these gains.  Increased exports and higher world
prices were expected to raise net farm income by $1.1 billion to $1.3
billion and create 41,000 to 112,000 export-related jobs by the year
2000.  Finally, given that certain changes to U.S.  farm programs
would have to be implemented, USDA estimated that, by the year 2000,
tariff revenues will decrease by $275 million and government
expenditures for internal support and export subsidies will decrease
by $0.7 billion to $1.3 billion. 

Although USDA's study projected a positive effect for U.S. 
agriculture, the impact of the UR will vary by commodity sector. 
Because the agreement is designed to increase trade by lowering
market access restrictions, export-oriented sectors would be likely
to gain more than sectors traditionally protected from imports.  USDA
expects higher world income and reductions in other countries'
tariffs and export subsidies will allow the United States to increase
exports of coarse grains, cotton, dairy, meat, oilseeds and oilseed
products, rice, specialty crops like fruits and nuts, and wheat.  At
the same time, U.S.  export subsidies for dairy, coarse grains, meat,
oilseed products, and wheat will be reduced. 

A June 1994 ITC study\17 analyzing the impact of the Uruguay Round
agreements on the U.S.  economy and selected industries found that
the net effect of the Final Act on U.S.  agricultural sectors would
be generally positive, increasing the overall level of trade and
employment opportunities.  ITC found that because the Final Act would
increase both U.S.  agricultural exports and the level of
agricultural imports, the overall net effects would likely result in
small to modest gains for U.S.  agriculture sectors.  According to
the ITC study, there would likely be small increases--over 1 percent
to 5 percent--in certain U.S.  exports, including livestock and meat,
poultry and eggs, and tropical and specialty products.  The study
projected modest gains--over 5 percent to 15 percent--in U.S. 
exports of fruits and vegetables, grains, and tobacco and tobacco
products.  Finally, ITC projected sizable increases--over 15
percent--in exports of dairy products and beverages.  In addition,
ITC projected that there would likely be small increases--5 percent
or less--in agricultural employment. 

The ITC study also projected that some U.S.  agriculture sectors
would experience small negative effects in production and employment,
however, due to increased import competition as U.S.  nontariff
measures are liberalized.  These sectors include wood products,
peanut and vegetable oils, certain processed fruits and vegetables,
and oilseeds. 

To comply with the agreement, U.S.  laws that authorize quotas to
restrict imports, such as section 22 of the 1933 Agricultural
Adjustment Act, as amended (7 U.S.C.  624),\18 and the 1979 Meat
Import Law (P.L.  96-177), would have to be converted to tariff
equivalents.  Tariff equivalents would initially offer the same level
of protection as quotas, although they would have to be reduced over
the implementation period.  For import-sensitive commodities, the
United States offered the minimum 15-percent tariff reduction. 
Nonetheless, certain commodity sectors protected by section 22 will
face additional imports as a result of commitments to provide minimum
market access opportunities and subsequent tariff reductions. 

Perhaps the most significant effect of the UR would be its impact on
future government policies related to agricultural trade.  According
to a GATT official, among others, the Agreement on Agriculture would
require several fundamental changes in government support and provide
the basis from which future reforms could be made.  First,
tariffication of nontariff barriers would make the extent and cost of
import restrictions more transparent to consumers and other
countries.  Achieving commitments to reduce such restrictions in the
future should be easier.  Second, the agreement would cap support and
protection, whether offered through market access restrictions,
export subsidies, or internal support, at base period levels and
require subsequent reductions.  The end of the implementation period
would result in across-the-board bindings on all agricultural
tariffs, an achievement that has not yet been reached for industrial
goods.  Third, the various disciplines should make agricultural trade
more responsive to market forces.  Finally, several countries,
including those within the EU, undertook domestic agricultural reform
as a result of the Uruguay Round.  U.S.  officials said Common
Agricultural Policy reform might never have been achieved without
external pressure from the GATT negotiations. 


--------------------
\14 Goldin and van der Mensbrugghe, Trade Liberalization:  What's at
Stake? 

\15 Coarse grains include maize, rye, barley, oats, sorghum, millet,
and other grains. 

\16 USDA used both optimistic and conservative growth estimates. 
Optimistic estimates were developed by USTR and the Council of
Economic Advisers (CEA) which estimated that the Uruguay Round could
increase global income by as much as 5 percent and U.S.  income by as
much as 4 percent over a 10-year period.  Two-thirds of this growth
was attributed to dynamic gains that would come from higher
investment and technological innovation that would result from trade
liberalization and income growth.  Under this assumption, U.S.  GDP
would be 1.5 percent higher in the year 2000 and 4 percent higher in
2005 as a result of the Uruguay Round.  USDA, in conjunction with
USTR and CEA, also developed a less optimistic assumption whereby
U.S.  GDP would be 0.7 percent higher in the year 2000 and 1.8
percent higher in 2005 as a result of the Uruguay Round. 

\17 Potential Impact on the U.S.  Economy and Industries of the GATT
Uruguay Round Agreements. 

\18 Section 22 restricts imports of cotton, peanuts, and certain
sugar and dairy products. 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 6:1.6

Given that the Agreement on Agriculture is complex and would require
countries to make many changes to their agricultural policies,
several issues need to be monitored: 

  Changes to U.S.  agriculture policies.  In order to comply with the
     agreement, the United States would be required to reduce export
     subsidies, convert import quotas and other restrictions to
     tariffs, and reduce all tariffs.  These requirements have raised
     questions about the future structure of U.S.  agriculture
     policies.  For example, several U.S.  commodity groups were
     interested in how export subsidy programs, like the Export
     Enhancement Program, among others, could still be used in ways
     that comply with the agreement.  The impact of policy changes
     would also need to be monitored, for example, to ensure that
     changes in U.S.  laws would be consistent with new U.S. 
     obligations under the agreement related to the health and safety
     of animals and plants. 

  Changes in other countries' policies.  The Uruguay Round would
     require other countries to make a variety of changes and
     implement new policies.  The extent to which countries meet
     their obligations, either by reducing support or opening their
     markets, would affect U.S.  farmers.  Therefore, other
     countries' implementation of the agreement would need to be
     monitored. 

  Effectiveness of the Committee on Agriculture.  The agreement would
     require a Committee on Agriculture to be established but does
     not specify the committee's structure, role, or
     responsibilities.  The United States would like the committee to
     help monitor implementation, but some USDA officials said such a
     role is unlikely.  Discussions about this issue, which would
     occur in the months preceding implementation of the agreement,
     as well as operation of the committee once established, would
     need to be monitored. 

  Continuing the reform process.  The agreement would require
     negotiations about further agricultural reform to begin again in
     the year 2000.  Monitoring the effectiveness of the agreement's
     disciplines and their impact on U.S.  agriculture during the
     first 5 years of the implementation period is necessary in order
     to know what issues should be raised in future discussions. 


   THE INTEGRATION OF TEXTILES AND
   APPAREL INTO GATT
---------------------------------------------------------- Chapter 6:2


      BACKGROUND
-------------------------------------------------------- Chapter 6:2.1

Historically, the U.S.  textile and apparel (clothing) industry has
been particularly sensitive to trade liberalization agreements
because of intense foreign competition due to low foreign production
costs.  Thus, while the U.S.  economy as a whole might benefit from
an agreement to liberalize trade, the textile and apparel industry
could suffer significant job losses. 

During the 1960s, the United States maintained import restraints on
cotton under a long-term cotton agreement but became increasingly
concerned about the sharp growth in imports of textiles and apparel
of man-made fiber.  To reduce the growth in imports and the effect on
the domestic industry, Congress took steps, including passing several
restrictive quota bills, to control the problem.  Because these moves
worried major supplier countries, the Nixon administration pledged to
seek a solution to the problem.  Specifically, the United States
sought to negotiate a multilateral multi-fiber agreement.  In
December 1973, representatives of 50 nations met under the GATT's
aegis to conclude negotiations on the Multi-Fiber Arrangement (MFA). 
MFA went into effect in January 1974 and is still in effect. 

MFA provides a basis from which developed and developing countries
may negotiate bilateral agreements or impose unilateral restraints on
textile and apparel imports that disrupt domestic markets.  The
arrangement establishes standards for determining market disruption,
minimum levels of import restraints, and annual growth rates for
imports of specific products.  In practice, these restraints have
been used only by developed countries.  MFA also established in
Geneva a Textile Surveillance Body to supervise the arrangement and
examine the justifications for actions taken by MFA members.  The
Textile Surveillance Body is also involved in settling cases
involving textile disputes between MFA member countries. 

While MFA has been negotiated within the framework of GATT and
supervised by the GATT's Committee on Textiles, the arrangement is
inconsistent with several GATT articles.  MFA is an anomaly because
it is essentially a sector-specific agreement that runs counter to
GATT nondiscriminatory principles.  Further, the last decade has seen
the strengthening of MFA protectionist features.  As a result, some
of the bilateral agreements associated with MFA have become more
restrictive, with diminished annual import quota growth rates, more
controlled product categories, and reduced flexibility. 

The textile trade parameters\19 between many MFA members were
established through the bilateral agreements.  The United States has
maintained at any given time approximately 30 to 40 bilateral
restraint agreements that have controlled approximately two-thirds of
U.S.  textile and apparel imports.  While these agreements restrict
imports, they may also incorporate provisions allowing for trade
growth, flexibility to adjust specific import limits, and
consultations to resolve issues.  In general, the bilateral
agreements also set the quota "starting points" for GATT textile and
clothing agreement negotiations. 

The textile and apparel industry constitutes one of the largest
manufacturing sectors in the United States.  With 1.7 million workers
in 1993, the industry accounted for nearly 9 percent of the
manufacturing work force and was a large employer of women and
minorities.  However, industry employment declined 29 percent from
1973-1991, partly due to the increased share of imports in the
domestic market, and partly due to productivity increases in U.S. 
textile and apparel production.  Approximately 43 percent of the
volume of apparel consumed in the United States is now of foreign
origin, whereas only 10 percent of the volume of textiles consumed is
of foreign origin.  The U.S.  textile and apparel industry shipped
domestically and internationally $137 billion in products in 1993. 
However, only $10 billion of the $137 billion in U.S.  products were
exported while $40 billion were imported into the United States. 


--------------------
\19 The textile trade parameters established through U.S.  bilateral
agreements included specific restraints on one or more products. 
They may also have indicated the amount of trade growth allowed, the
market access opportunities made available, and the "aggregate"
ceilings set on total textile and apparel exports.  In addition each
agreement contains an equity clause assuring the bilateral partner
that its exports will not be restrained to the benefit of imports
from countries with which the United States does not have textile
agreements. 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 6:2.2

The overall U.S.  negotiating objective for textiles and apparel was
to formulate a process to eventually integrate the textile and
apparel sector into GATT on the basis of strengthened GATT rules. 
The United States sought (1) gradual integration to allow time for
industrial adjustment in the industry, (2) protection for the sector
in the event of damaging surges during the transition period, and (3)
greater openness of foreign markets to the textile and apparel trade
in order to benefit U.S.  producers and workers. 

The United States, as well as many other developed countries, linked
progress in the textile negotiating group to progress in several
other UR groups.  These developed countries said they could not give
up the special protections of MFA unless the standard GATT rules and
procedures gave reliable protection against unfair or disruptive
trade practices.  These protections included safeguards, antidumping
and countervailing duties, intellectual property rights, and market
access to several key competitors' markets.  (These issues are
discussed in chs.  4, 5, and 2, respectively.)


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 6:2.3

The Uruguay Round Agreement on Textiles and Clothing contains a
schedule for a 10-year phase-out of MFA to be accomplished in three
stages.  After this period, textile and apparel trade would be fully
integrated into GATT and its disciplines.  The integration of MFA
would be accomplished by (1) completely eliminating quotas on
selected products in each of the three stages and (2) increasing
quota growth rates on the remaining textile and apparel products in
each of the three stages.  At the end of 10 years, all bilateral
quotas would be removed.  Article 19 of the current GATT agreement,
known as the safeguard clause, (which allows GATT members to obtain
emergency relief from import surges) would be available in case of
serious injury to producers. 

The 10-year phase-out would be divided into three stages of varying
time periods:  3 years, 4 years, and then a final 3 years.  Each
stage would require a certain percentage of products to be integrated
entirely into GATT.  Quotas maintained under the UR agreement on
these products would be fully eliminated.  At the beginning of the
first stage, 16 percent of all products would be stripped of quotas. 
At the second stage, an additional 17 percent of the original total
would be phased out; and in the beginning of the final stage, 18
percent more would be phased out.  As a result, 51 percent of the
original total of all textile and apparel products would be
integrated by the time the final stage of the phase-out was
completed.  Then, on the first day of the 11th year, the remaining 49
percent of these products would be fully integrated. 

Each importing country could choose the products to be integrated at
each stage of the 10-year phase-out.  The least import-sensitive
textile and apparel products would most likely be integrated first
and the most import-sensitive products last.  In general, according
to USTR, the U.S.  products integrated into GATT during the first
stage would probably be those already quota free, or product
categories with low import-to-U.S.-production ratios, such as
textured filament yarn.  The products integrated in the last stage
would most likely be some fabrics, such as poplin and broadcloth, and
some apparel, like wool clothing items, that have a high
import-to-U.S.-production ratio.  Most apparel quotas are not
anticipated to be integrated until the end of the phase-out. 

While quotas on some products would be eliminated entirely in each
stage, growth rates for other products remaining under quota would be
increased over the phase-out period.  Those quota growth rates, which
would be in effect on "day 1" of the 3-year first stage, would
increase by 16 percent.  For example, the current MFA growth rate on
most cotton and man-made fiber categories is 6 percent, and on "day
1" of the new agreement the growth rate would become 6.96 percent (a
growth-rate increase of 16 percent).  In the 4-year second stage, the
growth rates on the quotas would increase 25 percent, with an
additional 27 percent in the 3-year third stage.  This
"growth-on-growth" method would result in, for example, an original
6-percent growth rate increasing to an 11-percent growth rate for the
third stage. 

Only those countries that become members of WTO would be eligible to
participate in the UR agreement's phase-out plan.  In addition, the
agreement states that all member countries would have to improve
market access through measures such as tariff reductions and
bindings, and by reducing or eliminating nontariff barriers.  The
United States has agreed to some modest cuts in textile and apparel
tariffs.  These tariff reductions are part of the market access
agreement (see ch.  2). 

During the phase-out, the textile agreement would provide a safeguard
process different from the current MFA's selective safeguard process. 
The textile agreement's process would provide for the setting of
quotas on uncontrolled trade and the protection of the market against
damaging import surges.  The safeguard process would permit an
importing country to establish restraints against all countries that
contribute to the cumulative damage to its domestic industry caused
by imports.  This process would differ from the current MFA process,
under which restraints can only be applied to imports from a single
country on the product that caused the market disruption.  The
textile agreement also contains stronger terms than MFA for dealing
with quota circumvention, such as illegal transshipments through
countries not subject to quotas.  The products already under quota
and those that have been integrated under the phase-out plan would
not be subject to this safeguard mechanism.  After the phase-out, the
standard safeguard mechanism of WTO would be available, whereby
restraints would be imposed on an Most-Favored-Nation basis. 
Countries outside WTO, such as China, would most likely be subject to
a selective safeguard mechanism. 

The textile agreement would replace the MFA's Textile Surveillance
Body with the Textile Monitoring Board, which would exist only during
the phase-out period.  The Textile Monitoring Board would supervise
the implementation of the textile agreement, examine all measures
taken under its provision, and hear disputes related to the
agreement's implementation before formal invocation of the dispute
settlement mechanism of WTO.  After the phase-out period, textile and
apparel disputes would be handled through the WTO's dispute
settlement process. 


      POTENTIAL IMPACT OF THE
      AGREEMENT
-------------------------------------------------------- Chapter 6:2.4

Estimates of the potential impact of the GATT's textile and clothing
agreement vary.  It is widely accepted that the U.S.  textile and
apparel industry would suffer losses in jobs and in domestic market
share.  It is also widely accepted that U.S.  consumers would gain
from this agreement due to lower prices and a greater selection of
goods.  Worker assistance programs may be used to address job losses
in textiles and apparel; however, as we have reported in the past,
there are shortcomings in the worker assistance programs including
delays in providing the help and limitations in the services
offered.\20

Several economic impact studies commissioned by the textile industry
indicated that significant job losses would likely occur in the
United States.  Because of these expected U.S.  job losses, the
unions representing textile and apparel workers are opposed to the
agreement.  A 1992 industry analysis by The WEFA Group\21 projected
that the textile and apparel industry would lose 392,000 jobs during
the 1993-2002 period due to increased productivity and the domestic
industries' competitive disadvantages without the GATT agreement, a
23 percent decline in the textile and apparel workforce over the
current level of employment.  Moreover, the WEFA Group also projected
that the industry would lose an additional 255,000 jobs directly and
indirectly with the full phase-out of the MFA, resulting in an
additional 15-percent decline in the textile and apparel workforce. 

A November 1993 ITC study\22 projected that if all restrictions on
textile and apparel trade were eliminated, 72,000 jobs would likely
be lost in the textiles and apparel industry . 

The Institute for International Economics estimated in a 1994
study\23 that 152,600 jobs would be lost in the apparel manufacturing
sector and 16,200 jobs lost in textiles as a result of liberalizing
MFA.  The study also said, however, that consumers have paid a high
price for protecting the textile and apparel industries.  Each
apparel job protected because of import restraints was estimated to
cost consumers approximately $139,000 in higher apparel prices in
1990.  If MFA is liberalized, the net gain to the country would be
approximately $53,000 for each protected textile or apparel job that
is lost.\24 According to the study, textiles and apparel accounted
for 75 percent of the total costs of special protection of the 21
sectors examined, making textiles and apparel two of the most highly
trade-protected industries in the United States. 

The ISAC on Textiles and Apparel was dissatisfied with several key
elements of the agreement.  It believed quotas should have been
phased out over a longer period.  It further believed the quota
growth rates would be too high.  Finally, it believed that the quota
phase-out should have been directly linked to effective market
opening by all GATT participants.  ISAC was also concerned about some
broader elements of the overall UR agreement that would affect the
textile and apparel industry.  The transition period for phasing out
export subsidies for most developing countries would allow these
countries to subsidize exports for up to 8 years, possibly causing
damage to the U.S.  industry without the United States having any
readily available countervailing duty remedy for that period (see ch. 
4).  In addition, ISAC was concerned that U.S.  trade laws would be
weakened because of new antidumping provisions (see ch.  4).  ISAC
also was concerned that WTO could potentially limit the U.S.' ability
to act unilaterally regarding trade policy (see ch.  3). 

The ISAC on Wholesaling and Retailing, however, strongly supported
the textile and clothing agreement.  It believed the agreement would
have a positive effect upon the retailing and wholesaling sectors and
would produce savings for U.S.  consumers.  Because wholesalers and
retailers would have greater access to foreign products at lower
costs, they believed they would be able to offer greater selection at
lower prices to consumers.  A representative of one large U.S. 
retailer said that MFA had created many problems for retailers
because high tariffs forced prices up, and quotas often blocked
delivery of needed merchandise. 

The majority of organizations representing textile and apparel
manufacturers opposed many elements of the agreement, particularly
the MFA's phase-out plan.  One apparel association representative
said his segment of the industry was already being "killed by
imports, and GATT will hurt it even more." He added, regarding the
textile and clothing agreement, that his segment would not only like
to be integrated into GATT last, but would like some government
assistance, including funds for retraining apparel workers dislocated
by the integration into GATT. 


--------------------
\20 See Multiple Employment Training Programs:  Major Overhaul Is
Needed (GAO/T-HEHS-94-109, Mar.  3, 1994), and Trade Adjustment
Assistance Program Flawed (GAO/T-HRD-94-4, Oct.  19, 1993). 

\21 The WEFA Group is a Bala Cynwyd, Pennsylvania-based economic
research and forecasting team that employs 250 people worldwide. 

\22 U.S.  International Trade Commission, The Economic Effects of
Significant U.S.  Imports Restraints, (Washington, D.C.:  Nov. 
1993), Publication 2699. 

\23 Gary Clyde Hufbauer and Kimberly Ann Elliot, Measuring the Costs
of Protection in the United States, Institute for International
Economics (Washington, D.C.:  Jan.  1994). 

\24 The net national welfare gain represents the gain to the consumer
from trade liberalization, minus the losses incurred by the protected
domestic producer due to lower prices and lost tariff revenue to the
government. 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 6:2.5

While the framework for change would be in place, many issues related
to the MFA's phase-out within the textile and clothing agreement have
yet to be resolved. 

  The linkage between a country's market access reforms and that
     country's full participation in the MFA's phase-out has not been
     clarified.  The agreement does not explicitly detail the
     criteria to be used to judge whether a country was complying
     with "market reforms" or whether an exporting country could be
     denied quota growth rates and product integration if it failed
     to meet its commitment to reform market access. 

  Since worker retraining has been problematic in the past, careful
     consideration is needed on how textile and apparel workers
     dislocated by the integration into the GATT can be effectively
     retrained. 


   GOVERNMENT PROCUREMENT CODE
   PROVISIONS
---------------------------------------------------------- Chapter 6:3


      BACKGROUND
-------------------------------------------------------- Chapter 6:3.1

Governments are the largest single purchasers of goods and services
in every major country, creating an annual world market potentially
worth hundreds of billions of dollars.  However, most of this vast
market has traditionally been closed to foreign goods and suppliers
due to formal and informal practices that discriminate in favor of
domestic firms. 

Government procurement is excluded from the GATT provisions for
"national treatment." Therefore, those countries wanting to eliminate
discriminatory practices in government procurement worked toward this
goal in the separate Agreement, or code, on Government Procurement. 
The code was negotiated during the 1973-79 Tokyo Round of
Multilateral Trade Negotiations.  Code signatories were committed to
not discriminate against other signatories' products in procurement
by agencies, or "entities," explicitly named in the agreement.  For
example, the commitment to nondiscrimination obligates the United
States to lift its Buy American price preferences when making
purchasing decisions for U.S.  entities covered by the code.\25

The United States was disappointed with the code's coverage after the
Tokyo Round, but hoped that future renegotiations provided for in the
original 1979 agreement would both expand coverage and remedy an
imbalance between U.S.  and foreign procurement opportunities.  We
reported that the value of code coverage had not met expectations of
generating over $20 billion in foreign sales opportunities and
covering roughly 10 percent of each country's total procurement. 
Instead, in 1981 the United States had opened $18 billion in
opportunities and gained access to $4 billion in foreign
opportunities.\26 The original code generally did not cover those
entities that purchased large amounts of telecommunications, heavy
electrical, and transportation equipment.\27 Also, the code did not
include the procurement of services, purchases costing less than a
minimum "threshold" value, military weapons, and purchases made by
state and local governments.  Both the "excluded sectors" and
services represented areas of great interest for U.S.  suppliers. 

A first phase of renegotiations was concluded in 1986, and it focused
on amendments that improved code procedures.  The amendments improved
the detailed rules on the way contracts should be awarded by
government entities; for example, the amendments strengthened the
rules covering the qualification of suppliers and requirements for
public notice.  Generally, the code requires signatories to maintain
open, transparent procedures and provide information to other
signatories on their procurement process.  The code only guarantees
procurement opportunities rather than actual sales.  The signatories
meet regularly to review the operations of the agreement and to
enforce signatories' obligations.  The code's enforcement procedures
include an independent dispute settlement process.  However, the
value of procurement covered under the code never lived up to its
expectations, and the balance between U.S.  and foreign opportunities
remained quite skewed, with the United States accounting for roughly
80 percent of all procurement opportunities under the code. 

Members of Congress, frustrated by continued foreign government
discrimination against U.S.  suppliers, enacted the Buy American Act
of 1988, which was title VII of the Omnibus Trade and Competitiveness
Act of 1988.  This act requires annual investigations that
specifically target discrimination by foreign governments in the
procurement of U.S.  products and services.  The potential for
imposing sanctions under the act creates a unilateral instrument for
the President to compel other code signatories to expand their
coverage and for nonsignatory countries to join the code.\28


--------------------
\25 In the United States, the original Buy American Act of 1933 (41
U.S.C.  10a, Mar.  3, 1933) required that, where applicable, only
U.S.-origin articles, materials, or supplies be acquired for public
use, unless such purchases were unreasonable in cost, inconsistent
with the public interest, or met other conditions.  This act did not
contain a similar requirement for acquiring services.  Executive
orders and regulations implementing this law and establishing when
the conditions are met created a price differential in favor of
domestic products that is to be applied by government decisionmakers. 
Other restrictions, sometimes known as "little Buy American acts,"
can be found in appropriating or authorizing legislation. 

\26 See The International Agreement on Government Procurement:  An
Assessment of Its Commercial Value and U.S.  Government
Implementation (GAO/NSIAD-84-117, July 16, 1984) and International
Government Procurement Issues (GAO/T-NSIAD-89-50, Sept.  27, 1989). 

\27 These entities, including government-owned utilities, were not
covered at the time because the European Community (now the European
Union) lacked jurisdiction over its member states' procurement in
these "excluded sectors."

\28 See Combating Foreign Use of Discriminatory Government
Procurement Practices (GAO/T-NSIAD-87-21, Mar.  25, 1987) and
International Procurement:  Problems Identifying Discrimination
Against U.S.  Companies (GAO/NSIAD-90-127, Apr.  5, 1990). 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 6:3.2

The second phase of renegotiations began in 1987 in conjunction with
the Uruguay Round, and it focused on broadening the code to cover
more of each signatory's procurement.  The U.S.' goals were to
achieve unfulfilled Tokyo Round expectations and to rectify the
imbalance in procurement opportunities.  To meet these goals, the
United States had three specific objectives; the first was to broaden
the code's coverage to the excluded sectors.  Negotiators hoped to
trade coverage of subcentral-level entities (e.g., state and local
governments' procurement) for access to other signatories' public
utilities, most notably telecommunications and heavy electrical
equipment.  The second objective was to broaden the code to include
service and construction contracts.  And the third objective was to
strengthen the code by further improving the procedures it requires
for the procurement it covers. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 6:3.3

A new GATT agreement on government procurement was reached in Geneva
on December 15, 1993.  A supplementary U.S.-EU bilateral agreement
was initialed in Morocco on April 15, 1994.  These new agreements
should, if approved, fulfill many of the objectives established in
the early 1980s.  While these procurement agreements may be a
significant advance over the Tokyo Round, some areas would still not
be covered. 

Under the December agreement reached in Geneva, each code signatory
offered to cover more central government procurement, subcentral
government procurement, and procurement by other
government-controlled entities, including utilities.  However, under
the new procurement agreement, signatories would extend code benefits
to each other only on a reciprocal basis, not a most-favored-nation
basis.  This arrangement is a departure from how other GATT
negotiations were conducted.  Thus, coverage was negotiated
bilaterally among all the parties. 

Generally, entities were added to each signatory's lists of coverage,
and thresholds were established for new areas of coverage.\29 A major
accomplishment of this agreement was that for the first time services
and construction would be covered under the code.  This coverage
could create significant additional foreign opportunities for U.S. 
suppliers.  The United States would maintain some general exclusions
from coverage, such as preference programs for small and minority
businesses.  It also excluded some sensitive service sectors from
coverage under the agreement, such as transportation, research and
development, and the federal research centers and laboratories. 

Procedural improvements to the code were also agreed to in December
1993.  The code would generally restrict "offsets."\30 Signatories
would have to provide a bid challenge mechanism for appealing their
government procurement decisions.  This provision would create legal
rights for foreign firms in each country under that country's
national law.\31 Signatories would be required to notify others when
they privatize government entities and remove them from code
coverage; they may have to provide compensation if there were
objections to this removal from coverage.  The code's dispute
settlement provisions would be brought into conformity with the new
UR dispute settlement procedures, but with some modifications (e.g.,
shorter time frames for dispute resolution.)

Despite these accomplishments, U.S.  negotiators were unable to reach
agreement on opening up some important areas with EU, Japanese, and
Canadian negotiators by the December 1993 deadline.  However,
last-minute negotiations between the EU and the United States were
successfully concluded on April 15, 1994, that would enhance the
December agreement.  Further agreement was not reached with Japan and
Canada. 

The U.S.-EU bilateral agreement that was initialed in Morocco would
extend code coverage beyond that agreed to in Geneva on December
1993.  The April agreement would give the EU access to the
procurement of goods, services, and construction by 37 U.S. 
states.\32 It also would give the United States access to the
procurement of goods (only) by all EU levels of government through
the code.  The agreement would also add procurement by
government-controlled entities.  In this category, the EU would grant
code coverage for the procurement of goods, services, and
construction by utilities and ports in return for access to certain
U.S.  federal electric utilities (e.g., the Tennessee Valley
Authority) and several port authorities (including their
airports).\33 The additional U.S.  (subcentral) coverage extended to
the EU under the April bilateral agreement is expected to be extended
to many other signatories once they reach agreement. 

Nevertheless, the United States would not gain access to some
important foreign markets.  The one major U.S.  objective not
achieved was coverage of EU government-controlled telecommunications. 
USTR estimates this market to be worth $15 billion annually.  Also,
the United States considered the Japanese and Canadian offers for
additional coverage insufficient.  Therefore, the United States would
only extend them additional access at the central government level;
USTR said it would withhold access to U.S.  subcentral procurement
until more Japanese construction services and Canadian provincial
procurement, including hydroelectric Crown Corporations, are covered
by the code. 

While USTR's negotiating strategy has led to the potential expansion
of each signatory's code coverage in the Uruguay Round and the
U.S.-EU bilateral procurement agreements, only a few countries have
joined the code as new signatories; only Israel, and Greece,
Portugal, and Spain (as new members of the EU) have joined the code
since the original Tokyo Round agreement.\34 Also, one new signatory,
South Korea, will join the code when the new agreement goes into
effect.  Offsetting these additions, Singapore and Hong Kong, both
original signatories to the code, did not join the new agreement. 


--------------------
\29 The code does not cover purchases costing less than a minimum
"threshold" value of 130,000 Special Drawing Rights, which is an
international reserve asset used as the IMF's official unit of
account.  Its value is based on a trade-weighted basket of major
currencies and was equal to about $182,000 in 1992 for central
government purchases of supplies and services.  The threshold for
state-level purchases would be about $500,000; for other
government-controlled entities, such as the Tennessee Valley
Authority, it would be about $560,000; and it would be about $7
million for construction contracts. 

\30 "Offsets" are various concessions sometimes required by a
purchaser.  They include requiring bidders to provide (1) local
content in the goods, (2) technology transfer to the purchaser, (3)
some investment in the country, or (4) trade in other areas. 

\31 A similar provision is part of NAFTA. 

\32 The United States also agreed to open procurement by some other
states and some cities to the EU outside of the code.  Therefore,
this procurement would not be subject to code procedures. 

\33 Procurement of goods and construction (not services) by
electrical utilities had already been covered by an earlier, but
temporary, bilateral memorandum of understanding between the United
States and the EU. 

\34 The original signatories to the code were the United States,
Austria, Canada, Finland, Hong Kong, Japan, Norway, Singapore,
Sweden, Switzerland, and, under the European Union, Belgium, Denmark,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, and the
United Kingdom. 


      IMPACT OF THE AGREEMENT
-------------------------------------------------------- Chapter 6:3.4

Together, the December and April agreements would broaden code
coverage significantly, primarily because of the inclusion of
services and construction, subcentral-level procurement, and
government-owned utilities.  U.S.  negotiators said they were
confident the imbalance between U.S.  and foreign procurement
opportunities would end.  The agreement would also add disciplines,
or provisions, that were designed to improve enforcement of the
code's procedures. 

However, we cannot with any certainty calculate the total benefit of
the new agreement for all signatories, nor can we say whether it
would correct the imbalance in code-covered opportunities between the
United States and other signatories.  Some estimates of new total
code coverage have been given, but they vary in reliability.  In
December 1993, GATT estimated that the December agreement would
broaden coverage tenfold annually, to $700 billion, but some
negotiators said they did not consider this figure accurate. 

USTR believes the most reliable figures available are based on an
independent study of procurement data associated with the U.S.-EU
bilateral negotiations.  This study estimated that the United States
would gain access to EU code-covered opportunities of $103 billion,
and the United States would open up comparable opportunities to the
EU.\35 Unfortunately, this study is limited to the United States and
the EU.  Estimates of potential U.S.  access to opportunities in
other countries, including Japan, Canada, and the Nordic countries,
were educated guesses and were not based on analysis of historical
procurement data. 

The new agreement, if approved, would enter into force at the
beginning of 1996.  Even so, it could take many years for the changes
to be implemented, new procurement opportunities to be created, and
actual purchases of U.S.  goods and services to be affected.  Over
time, the procedural improvements should help the code's enforcement
and eliminate market barriers.  For example, the creation of local
bid challenge mechanisms would allow suppliers to take individual
actions to enforce their rights directly in foreign countries.  In
addition, the restrictions on offsets would remove a burden placed on
U.S.  companies trying to enter foreign procurement markets. 

Representatives of the private sector generally supported the new
agreement.  No ISAC opposed the December 15, 1993, agreement, though
two reserved judgment pending further negotiations.\36 However, after
the April bilateral agreement, an industry association representing
U.S.  telecommunications equipment manufacturers told us their
members were very frustrated with the final outcome.  They felt that
5 years of difficult negotiations had brought them no benefit. 

Key issues between the U.S.  and EU negotiators on telecommunications
were unresolved.  The United States insisted that government-owned
European telephone companies be covered by the code.  The EU wanted
the United States to include the regional Bell operating companies;
the United States refused because regional Bell operating companies
are private companies, and their procurement decisions are
commercially driven and thus outside of government control. 
Alternatively, the EU offered to cover telecommunications if
federally mandated Buy American restrictions were eliminated for U.S. 
mass transit, airport, highway, and waste water projects.  In the
end, the two sides said they considered these areas too sensitive to
be included. 

As a result, the United States is continuing trade sanctions against
the EU for discrimination in its $15-billion telecommunications
procurement market.  These sanctions were put in place in May 1993,
after a title VII investigation in February 1992 found the EU
utilities directive to be a discriminatory procurement policy.\37 In
1992, USTR reported that these sanctions restricted EU access to U.S. 
contracts worth $20 million.  The EU responded by imposing sanctions
against the United States worth $15 million. 

Now that the Uruguay Round has ended and U.S.-EU bilateral agreements
have been reached, the EU has been given access to billions of
dollars in new U.S.  procurement opportunities.  Thus, despite using
sanctions, U.S.  negotiators have reduced leverage to compel the EU
to open its government-controlled telecommunications market.\38

USTR has stated that U.S.-EU negotiations on telecommunications will
continue.  Also, USTR hopes that future bilateral discussions with
Japan and Canada may resolve differences over limits on covering
construction procurement and provincial-level hydroelectric
corporations, respectively.  USTR said then, U.S.  subcentral and
government-owned utility procurement might be offered to these
countries as well.  While U.S.  negotiators said they hope that
future talks will address all of the mentioned omissions, they have
no immediate plans to restart negotiations. 


--------------------
\35 See European Union--Government of the United States Study of
Public Procurement Opportunities, Deloitt Touche Tohmatsu
International (Houston, Texas:  Mar.  22, 1994). 

\36 ISAC 5 (Electronics and Instrumentation) and ISAC 7 (Ferrous Ores
and Metals) reserved taking a position on the initial agreement. 

\37 USTR noted that Germany, Greece, Spain, and Portugal are not
included in the sanctions because they "do not discriminate against
the United States in this sector."

\38 See International Trade:  Efforts to Open Foreign Procurement
Markets (GAO/T-GGD-94-155, May 19, 1994). 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 6:3.5

The effectiveness of the expanded government procurement code will,
if approved, depend on how well it is implemented, both at home and
abroad.  We know from evaluating the implementation of the Tokyo
Round procurement agreement that implementation was problematic, so
similar problems might be expected if the code is broadened.  These
problems could arise as officials try to follow the code's detailed
purchasing rules because the code is to be extended into new areas,
namely services and construction, and would be applied by new levels
of government.  Furthermore, all areas and levels, including those
already covered by the code would be subject to new provisions, such
as local bid challenge mechanisms.  U.S.  and foreign government
problems implementing the code would remain subject to compensatory
action under the agreement's dispute settlement provisions. 

There are also unanswered questions about the new agreement.  For
example, U.S.  subcentral-level procurement was offered for code
coverage only after 37 state governors responded to a request from
USTR.  The governors were asked to volunteer entities for code
coverage.  USTR took this voluntary approach to address a concern
that the federal government might appear to be preempting states'
control of this area.  USTR officials told us that specific
legislation is not needed to formalize the governors' volunteer
commitments.  While such federal legislation was considered to ensure
consistency and stability in the states' commitments, there were
concerns about how to craft such legislation and avoid the preemption
issue.  Instead, USTR officials told us that overall congressional
approval of the GATT agreement would legally secure the state
governments' procurement for code coverage.  Nevertheless, a
representative of the National Conference of State Legislatures
expressed concern that the code might still preempt the states'
ability to legislate in this area and that there could be court
challenges to state laws that might conflict with the code. 

Another issue would be whether actual foreign procurement
opportunities for U.S.  businesses would meet expectations for code
coverage and whether these foreign opportunities would balance
opportunities for foreign businesses in the United States under the
new code.  If deficiencies persist, there would be at least two
methods to address problems and gain access to specific sectors or
countries not covered by the new agreement.  First, future
negotiations can seek access to markets having good potential for
U.S.  suppliers.  Second, discrimination in areas or countries not
covered by the code are subject to action under U.S.  trade laws,
such as title VII of the Omnibus Trade and Competitiveness Act of
1988. 

If the agreement is approved by Congress, the next challenges for the
administration would be implementing, enforcing, and further
broadening the agreement.  Some of the potential issues include: 

  how best to facilitate domestic implementation of the code by
     covered federal and state governments, and government-controlled
     entities for the procurement of goods, services, and
     construction to ensure that the United States is fulfilling its
     code obligations;

  how adequate is U.S.  monitoring of foreign signatories'
     implementation of the code to ensure that U.S.  goods and
     services receive fair treatment; then, if access to foreign
     markets is denied or discrimination takes place, what actions
     the U.S.  government should consider taking to remove these
     barriers and ensure that U.S.  rights under the code are
     enforced;

  what new initiatives are needed to achieve unfulfilled objectives,
     such as gaining access to EU telecommunications, Japanese
     construction, and Canadian hydroelectric procurement markets;
     and

  when, and with whom to initiate talks with nonsignatory countries
     on joining the code and opening their procurement markets to
     U.S.  goods and services. 


   TRADE AND THE ENVIRONMENT
---------------------------------------------------------- Chapter 6:4

Although not originally identified as a separate subject for
negotiation, the relationship between trade and the environment has
emerged as an important issue during the Uruguay Round.  One of the
GATT's primary objectives is to expand worldwide trade by further
opening markets to foreign competition.  Some environmental policy
groups, on the other hand, want to ensure that the economic benefits
of increased international trade do not lead to increased
environmental degradation.  Although environmental concerns were not
specifically mentioned in the Punta del Este declaration, the United
States pressed to put issues involving trade and the environment on
the agenda for the Uruguay Round.  For instance, the United States
sought to ensure that GATT provisions would not potentially limit
sovereign nations' ability to pass strong environmental laws, and to
clarify when GATT provisions allow countries to impose trade
restrictions to achieve environmental objectives.  The United States
also wanted to establish a dispute settlement mechanism for
environmental concerns and to create a standing committee on trade
and the environment within WTO.  The Final Act would achieve some
objectives, while others remain under consideration. 


      BACKGROUND
-------------------------------------------------------- Chapter 6:4.1

The relationship and potential conflict between the goal of
liberalizing international trade and concerns about protecting the
environment have received increasing attention in the last several
years.  The combination of the expansion of international trade and
the proliferation of national environmental laws and international
environmental agreements has meant that policies surrounding trade
and the environment are no longer mutually exclusive. 

For instance, negotiators strive to frame international environmental
agreements, which may restrict the import and export of certain
products deemed harmful to the environment, in a manner that does not
violate international trade laws.  Trade negotiators also try to
acknowledge environmental concerns by framing international trade
agreements so that they do not undermine environmental protection. 
At the national level, some countries want to preserve their ability
to implement stringent environmental laws without being accused of
erecting trade barriers.  Furthermore, countries endeavor to
determine when they can legitimately apply trade measures in order to
strengthen environmental practices beyond their borders. 

This trade-off between preserving the environment and achieving free
and open trade has become a part of recent multinational trade
negotiations.  NAFTA has been widely recognized as a landmark accord
for handling environmental issues in a trade agreement, as
environmental concerns were dealt with both within the agreement and
in side agreements crucial to NAFTA's passage into U.S.  law.\39

GATT has covered environmental issues throughout its history, through
working groups, in codes drafted during the Tokyo Round, and in
provisions of the Uruguay Round agreement signed in Marrakesh on
April 15, 1994.  In addition, article XX, "General Exceptions" to
GATT, one of the original provisions of GATT when it came into force
on Januray 1, 1948, has been invoked in cases affecting trade and the
environment.\40 The major provisions dealing directly or indirectly
with environmental concerns in the Uruguay Round agreement include
those contained in the Agreement on Technical Barriers to Trade, the
Agreement on Sanitary and Phytosanitary Measures, the Preamble to the
Agreement Establishing the World Trade Organization, the
Understanding on Rules and Procedures Governing the Settlement of
Disputes, aspects of the Agreement on Subsidies and Countervailing
Measures, and sections of both the Agreement on Trade-Related Aspects
of Intellectual Property Rights and the General Agreement on Trade in
Services.  The Decision on Trade and Environment calling for the
creation of a workplan to deal with unresolved environment and trade
issues was formally adopted on April 15, 1994. 


--------------------
\39 For a complete overview of NAFTA, see North American Free Trade
Agreement:  Assessment of Major Issues (GAO/GGD-93-137A&B, Sept.  9,
1993). 

\40 Article XX was not altered in the Uruguay Round, but has been
cited in current GATT dispute settlement cases, including one to be
discussed in this section of the report. 


         GATT WORKING GROUPS HAVE
         STUDIED TRADE/ENVIRONMENT
         ISSUES SINCE 1989
------------------------------------------------------ Chapter 6:4.1.1

In 1971, GATT parties realized that environmental policies and
practices varied among countries and that trade disputes could arise
out of these differences.  They also wished to anticipate possible
reports arising out of the U.N.  Conference on the Human Environment,
to be held in Stockholm in 1972.\41 In response, the GATT parties
established a Group on Environmental Measures and International
Trade.  However, the group did not meet during the next 20 years.  It
convened in 1991, as in 1972, in part to deal with issues arising out
of a U.N.  conference, namely the United Nations Conference on
Environment and Development (UNCED).\42 Later in 1991, it adopted an
agenda to concentrate on several issues, including the trade
provisions in existing international environmental agreements, the
transparency of national environmental regulations that are likely to
affect or limit trade, and the potential trade effects of packaging
and labelling requirements that aim to protect the environment. 

In July 1993, GATT contracting parties decided to expand the scope of
the Group on Environmental Measures and International Trade's work to
conduct a follow-up of matters raised in Agenda 21 of UNCED.  The
group met several times to discuss the UNCED follow-up, but agreed to
postpone intensive work on the issue until the Uruguay Round was
completed in April 1994.  The GATT Committee on Trade and
Environment, (described at the end of this section), will now be
reviewing Agenda 21.\43

According to the GATT Secretariat, Agenda 21 calls for, among other
things, the international economy to provide "a supportive
international climate for achieving environment and development goals
by promoting sustainable development through trade liberalization and
making trade and environment mutually supportive".  Agenda 21 also
calls for the development of principles to govern when trade measures
should be applied to enforce environmental policies. 

In July 1989, GATT established the Working Group on Export of
Domestically Prohibited Goods and Other Hazardous Substances.  GATT
ministers sought to bring under control the export of products
prohibited from being sold in the domestic markets of the exporting
countries because the products are harmful to human, animal, or plant
life, or health or the environment. 


--------------------
\41 The U.N.  Conference on the Human Environment, held in Stockholm
in early June 1972, was the first global conference on the
environment.  One hundred and fourteen governments sent delegations
to Stockholm.  The conference produced a Declaration on Human
Environment, an Action Plan for the Human Environment, and a
Resolution on Institutional and Financial Arrangements. 

\42 UNCED was established by U.N.  General Assembly Resolution
44/228, adopted in December 1989.  Dubbed the "Earth Summit," UNCED
was timed to occur on the 20th anniversary of the 1972 Stockholm
Conference on the Human Environment.  The resolution took up a wide
range of issues concerned with environment and sustainable
development in Rio De Janeiro, Brazil, in June 1992.  UNCED created a
new U.N.  body:  the Sustainable Development Commission. 

\43 Agenda 21 is an 800-page document setting out the objectives and
activities on 40 subject areas; and the non-legally binding statement
of forest principles. 


      ARTICLE XX HAS BEEN CITED IN
      ENVIRONMENT-RELATED MATTERS
-------------------------------------------------------- Chapter 6:4.2

Since the formation of GATT in 1947, article XX, "General Exceptions"
to GATT obligations has been referred to in cases involving
environmental issues, although the article does not specifically
mention the environment.  Article XX lists certain public policy
measures that may be imposed notwithstanding other GATT articles,
provided those measures are not "applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination
between countries where the same conditions prevail or a disguised
restriction on international trade." Two sections could be used to
justify exceptions to GATT to protect the environment.  Article XX
(b) exempts from GATT rules those measures "necessary to protect
human, animal or plant life or health;" while article XX (g) exempts
measures "relating to the conservation of exhaustible natural
resources if such measures are made effective in conjunction with
restrictions on domestic production or consumption."

Although article XX did not change in the Uruguay Round, GATT
signatories are calling for clarification of its provisions.  Dispute
settlement cases under GATT, in which countries have defended trade
measures, or sanctions, they imposed on environmental grounds, have
involved interpretations of the provisions of article XX. 

For example, recent consideration, under GATT, of complaints against
the United States may have significant implications for similar
future conflicts.  Pursuant to provisions of the Marine Mammal
Protection Act of 1972, P.L.  92-522, as amended, (16 U.S.C.  1361),
the United States banned tuna imports from Mexico because Mexico
exceeded U.S.  standards for dolphin mortality.  In February 1991,
Mexico requested a GATT ruling against the United States for actions
contrary to GATT rules.  In August 1991, a GATT dispute panel
concluded that GATT prohibits its members from imposing import
restrictions based on jurisdictional concerns, or from taking action
to dictate how other nations produce their export goods.  The GATT
report is only a recommendation from the dispute settlement panel to
the full GATT council, which must act if the recommendation is to go
into effect.  To date, Mexico has indicated that it will postpone
seeking a final GATT ruling on its complaint. 

In June 1992, the EU requested the GATT contracting parties to
establish a panel to examine under article XXIII:2, (DS29/2),
restrictions maintained by the United States on the importation of
certain tuna products.  In July, 1992, the Kingdom of the
Netherlands, on behalf of the Netherlands Antilles, requested to be
joined, as co-complainant, in the panel to be established pursuant to
the EU request.  The panel submitted its report to the parties in the
dispute on May 20, 1994.\44

Environental groups have expressed concern that such GATT panel
interpretations could limit a country's ability to influence
environmental quality beyond its borders and thus undermine U.S. 
laws aimed at protecting the global environment.  On the other hand,
the U.S.  action to ban tuna imports is seen by some countries as a
unilateral attempt to impose U.S.  environmental values on other
nations. 


--------------------
\44 The panel concluded "that the United States import prohibitions
on tuna and tuna products under Section 101 (a)(2) and Section 305
(a)(1) and (2) of the Marine Mammal Protection Act (the "primary
nation embargo") and under Section 101 (a)(2)(C) of the Marine Mammal
Protection Act (the "intermediary nation embargo") did not meet the
requirements of the Note ad (sic) Article III, were contrary to
Article XI:1, and were not covered by the exceptions in Article XX
(b), (g) or (d) of the General Agreement." The panel recommended
"that the CONTRACTING PARTIES request the United States to bring the
above measures into conformity with its obligations under the General
Agreement."


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 6:4.3

Under the Uruguay Round of GATT, environmental protection was not
originally identified as a U.S.  negotiating objective in the Omnibus
Trade and Competitiveness Act of 1988, which spelled out U.S.  goals. 
However, Congress stated in a provision of the High Seas Driftnet
Fisheries Enforcement Act,\45 enacted in the 102nd Congress, that the
President, in trade negotiations, should seek to, inter alia, "1)
address environmental issues related to the negotiations; 2) modify
articles of the General Agreement on Tariffs and Trade...to take into
consideration the national environmental laws of the GATT contracting
parties and international environmental treaties; 3) secure a working
party on trade and the environment within GATT as soon as possible;
4) take an active role in developing trade policies that make GATT
more responsive to national and international environmental concerns;
5) include Federal agencies with environmental expertise during the
negotiations to determine the impact of the proposed trade agreements
on national environmental law; and 6) periodically consult with
interested parties concerning the progress of the negotiations."

The UR agreement contains a number of provisions that specifically
address environmental concerns and the related issues of health and
safety.  The United States sought to ensure that the language in
those provisions struck a balance between international trade rules
and adequate protection of the environment.  The United States also
wanted to increase public disclosure and participation of
environmental interests in the dispute settlement mechanism and
strongly supported the formation of a permanent committee on trade
and the environment in WTO. 


--------------------
\45 Public Law 102-582, Nov.  2, 1992, sec.  203. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 6:4.4


      TECHNICAL BARRIERS TO TRADE
-------------------------------------------------------- Chapter 6:4.5

The perceived vagueness of the health and safety exception in article
XX and the general need for oversight of technical regulations and
standards led GATT parties during the Tokyo Round to establish the
GATT Agreement on Technical Barriers to Trade.  The Agreement on
Technical Barriers to Trade obligates GATT signatories to ensure that
technical regulations and standards, including packaging, labelling,
and marking requirements and methods of ensuring conformity with
technical regulations and standards, are not adopted or applied so as
to have the effect of creating unnecessary obstacles to trade.  The
UR agreement emphasizes this point by stating further that "technical
regulations shall not be more trade-restrictive than necessary to
fulfil a legitimate objective...." The agreement defines legitimate
objectives as "inter alia, national security requirements; the
prevention of deceptive practices; protection of human health or
safety, animal or plant life or health, or the environment."

The United States sought to clarify the "shall not be more
trade-restrictive than necessary" requirement.  Environmental groups
were concerned that the requirement could prompt more challenges to
countries' environmental rulings.  Conversely, business interests had
the opposite fear that the vagueness of the language may result in
fewer challenges to what they might view as trade-restrictive
practices. 

The United States was successful in negotiating the removal of a
footnote to the Agreement on Technical Barriers to Trade calling for
a "proportionality test" to help determine whether a standard was
legitimate.  Potentially, with this footnote, a GATT panel could have
ruled against a standard not because it was trade restrictive, but
because its economic impact might be disproportionate to the
standard's purpose. 


      SANITARY AND PHYTOSANITARY
      MEASURES
-------------------------------------------------------- Chapter 6:4.6

The UR Agreement on Sanitary and Phytosanitary Measures is a new
provision that would treat separately multilaterally recognized rules
and disciplines for the development and application of such measures,
including measures taken to protect human, animal, or plant life or
health in the areas of food safety and agriculture.  The Agreement on
Sanitary and Phytosanitary Measures recognizes and acknowledges the
right of each government to establish domestic food and safety laws
and would allow those laws to be at a higher level than international
standards, as long as there is scientific justification for the
standard and that a risk assessment has been carried out. 

Two provisions in Agreement on Sanitary and Phytosanitary Measures
would potentially affect trade and the environment.  As in the
Agreement on Technical Barriers to Trade, the Agreement on Sanitary
and Phytosanitary Measures contains the proviso that "when
establishing or maintaining sanitary or phytosanitary measures to
achieve the appropriate level of sanitary or phytosanitary
protection, Members shall ensure that such measures are not more
trade restrictive than required to achieve their appropriate level
of...protection,..." In another provision, the Agreement on Sanitary
and Phytosanitary Measures would require that members accept the
sanitary and phytosanitary measures of other members as equivalent,
"even if these measures differ from their own or from those used by
other Members trading in the same product, if the exporting Member
objectively demonstrates to the importing Member that its measures
achieve the importing Member's appropriate level of sanitary or
phytosanitary protection."

A principal negotiating objective of the United States was the
elimination of unjustified sanitary and phytosanitary restrictions on
agricultural trade, without impairing the right of the United States
or other states to establish and apply appropriate measures to
protect public health and control plant and animal pests and
diseases.  As in the Agreement on Technical Barriers to Trade, the
United States pressed for clarification of the language "not more
trade restrictive...."

In addition, U.S.  environmental groups believed that the importing
country should have the primary right to determine whether the
exporting country's "equivalent" standard is adequate.  The Agreement
on Sanitary and Phytosanitary Measures would leave it up to the
exporting country to objectively demonstrate to the importing country
authorities that this standard adequately exists.  However, the
United States did successfully negotiate the insertion of a footnote
to the Agreement on Sanitary and Phytosanitary Measures.  The
footnote would require a country challenging a sanitary or
phytosanitary measure as being overly restrictive to trade to show
that another measure that would achieve the same level of protection
is "reasonably available" and would be "significantly less
restrictive to trade."


      DISPUTE SETTLEMENT
-------------------------------------------------------- Chapter 6:4.7

Negotiators in the UR realized that trade disputes involving
environmental protection could not be resolved through trade policy
alone.  The debate centered on whether additional special procedures
were needed in the dispute settlement mechanism to resolve trade and
environmental issues and the extent to which there should be public
participation and openness in the dispute settlement process.  One
concern was that specialized scientific information might be needed
to assess the legitimacy of claims that trade restrictions were
necessary to protect environmental objectives, such as in the
tuna/dolphin case cited earlier. 

The United States pushed for GATT dispute panels being required to
hear such expert opinions regardless of whether the panel asked for
them.  The UR agreement would not require this, but would allow GATT
members to periodically suggest names of government and nongovernment
individuals to be added to a list\46 maintained by the Secretariat,
subject to the approval of the Dispute Settlement Body.  The United
States also pressed for allowing nongovernmental organizations to
provide information to GATT dispute panels and for the public to have
access to all dispute settlement submissions.  Neither of these
specific objectives was achieved, but the dispute settlement process
was opened up in other ways.  The UR agreement would not specify
"environmental experts," but would allow for the possibility of
environmental experts to serve as members of dispute resolution
panels.  In addition, parties to a dispute would be required, upon
request of a member, to prepare nonconfidential summaries of their
written submissions to a panel.  These submissions could then be made
available to the public by request of another GATT member.  (See ch. 
3 for a full discussion of dispute settlement). 


--------------------
\46 The list shall include "the roster of non-government panelists
that was established by the GATT CONTRACTING PARTIES on 30 November
1984 (BISD 31S/9), and other rosters and indicative lists established
under any of the covered agreements..."


      OTHER GATT MEASURES
      AFFECTING THE ENVIRONMENT
-------------------------------------------------------- Chapter 6:4.8

Other parts of the UR agreement that make reference to or affect
environmental policy include article 8.2 of the Agreement on
Subsidies and Countervailing Measures, the Preamble of the Agreement
Establishing WTO, and article 27 of the Agreement on Trade-Related
Aspects of Intellectual Property Rights.  In article 14 of the
General Agreement on Trade in Services, reference is made to
protecting human, animal, and plant life. 

A subsidy to industries to promote adaptation of existing facilities
to new environmental requirements would, under limited and specified
circumstances, be "nonactionable," that is, the subsidy could not be
challenged under WTO rules.  (See ch.  4 for a full discussion of the
subsidies agreement).  The Preamble to the Agreement Establishing WTO
recognizes, among other things, the objective of seeking to protect
and preserve the environment. 

According the GATT Secretariat, the main issue under the provisions
on intellectual property of relevance to the discussion on trade and
the environment relates to whether patents should be granted for
inventions of plant and animal varieties and for the biological
processes for the production of plants and animals.  Another issue is
whether plant varieties should be protected under patents or some
other system.  Article 27 of the Agreement on Trade-Related Aspects
of Intellectual Property Rights states:  "Members may exclude from
patentability inventions, the prevention within their territory of
the commercial exploitation of which is necessary to protect ordre
public or morality, including to protect human, animal or plant life
or health or to avoid serious prejudice to the environment...." (See
ch.  5 for a full discussion of intellectual property.) Finally,
article 14 of the General Agreement on Trade in Services states that
"nothing in this Agreement shall be construed to prevent the adoption
or enforcement by any Member of measures...necessary to protect
human, animal or plant life or health;" (see ch.  5 for a further
discussion of GATS). 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 6:4.9


      COMMITTEE ON TRADE AND
      ENVIRONMENT CREATED WITHIN
      WTO
------------------------------------------------------- Chapter 6:4.10

During the latter part of the UR negotiations, the United States and
the EU pushed for the creation of a permanent committee on trade and
environment in WTO.  The Preamble to Establishment of WTO sets out as
one of its goals allowing for the "optimal use of the world's
resources in accordance with the objective of sustainable
development, seeking both to protect and preserve the environment and
enhance the means for doing so in a manner consistent with their
respective needs and concerns at different levels of economic
development,..." The United States and nongovernment organizations
representing environmental interests believed a permanent committee
to be crucial to having WTO seriously carry out this mandate.  Views
were mixed among negotiators, however, on the need for such a
standing committee.  Developing countries originally did not support
the notion, due to a concern that the committee might promote
excessive environmental protection that would unduly restrict their
economic growth. 

On April 15, 1994, GATT ministers directed WTO to establish a
Committee on Trade and Environment.  The formation of the committee
would represent a major breakthrough for the environmental community
both symbolically and practically.  It would demonstrate GATT
ministers' commitment to considering the interrelationship between
international trade and environmental policy in WTO deliberations on
trade matters. 

How the committee would operate, and the nature of the issues on its
agenda would need to be watched as it carries out its
responsibilities for resolving important and challenging policy
questions.  The Decision on Trade and Environment calls for the
committee to "with the aim of making international trade and
environmental policies mutually supportive," address several issues. 
Some of the issues the decision lists include:  "the relationship
between the provisions of the multilateral trading system and trade
measures for environmental purposes, including those pursuant to
multilateral environmental agreements;...the relationship between the
dispute settlement mechanism in the multilateral trading system and
those found in multilateral environmental agreements...." According
to a GATT Secretariat official, the committee is to determine how WTO
should respond to environmental treaties and make appropriate
recommendations on whether modifications of the provisions of the
multilateral trading system are required, compatible with open,
equitable, and nondiscriminatory international trade.  The official
stated that the committee will forward its recommendations to the
ministers at their first biennial meeting, expected to take place in
1996. 


AREAS LINKED TO THE URUGUAY ROUND
============================================================ Chapter 7

During the Uruguay Round, two sector-specific negotiations, one on
steel and another on civil aircraft, began parallel to but outside of
the GATT process.  The negotiations, to reach a multilateral steel
agreement (MSA) and a new agreement on trade in civil aircraft,
included issues that were also being discussed in the broad GATT
negotiations, such as dispute settlement and subsidies and
countervailing duty provisions.  Both of these negotiations were
linked to the UR because of the overlap of issues and political
considerations in trying to reach agreement in these contentious
areas.  Despite this linkage, the parties failed to reach a
sector-specific agreement in either area.  Although both areas will
be affected by the results of the UR, the sector-specific talks are
expected to continue. 


   MULTILATERAL STEEL AGREEMENT
---------------------------------------------------------- Chapter 7:1


      BACKGROUND
-------------------------------------------------------- Chapter 7:1.1

In the early 1980s, the U.S.  steel industry began to suffer from
declining profitability, production, and employment.  For several
decades, the dependence of the U.S.  economy on steel mill products
had steadily decreased, and competition from foreign producers
increased.\1 The causes of the industry's competitive problems were
both internal and external.  Internal causes included, among others,
(1) slow productivity growth brought on, in part, by lagging
implementation of new technologies and little effort at research and
development; (2) disproportionally high U.S.  labor costs; (3) high
air pollution abatement costs; and (4) deterioration of the U.S. 
advantage in raw material costs.  External causes included (1) global
overcapacity, (2) foreign subsidies to competitors, and (3) falling
international shipping costs that made exporting to the United States
easier.  As foreign governments had sought to help their own troubled
steel industries, in part through greater exports and subsidization,
import competition in the U.S.  market increased. 

In 1992, U.S.  steel-producing companies employed about 176,000
people and produced about 93 million net tons of steel, as compared
to 243,000 people and 85 million tons of production in 1983. 

The severe economic recession in the early 1980s resulted in major
losses for the steel industry.  As recovery began, the substantial
rise in the value of the dollar put U.S.  producers at a competitive
disadvantage, causing a surge of steel imports.  After conducting an
investigation under section 201 of the Trade Act of 1974, as amended,
ITC concluded in 1984 that the U.S.  steel industry was being harmed
by imports and recommended a 5-year program of quotas and tariffs.\2
Emphasizing his desire to avoid protectionism, the President rejected
the ITC's recommendations and set forth his own program.  In 1984,
USTR began implementing this program by negotiating new voluntary
restraint agreements on exports of steel to the United States.  The
program made VRA protection contingent upon the industry's taking
certain steps to modernize and restructure.  Also, unfair foreign
trade cases were withdrawn by U.S.  producers in accordance with
these agreements.\3

In 1989, the President's Steel Trade Liberalization Program extended
the VRAs for another 2-1/2 years to permit the negotiation of an
international consensus to eliminate trade-distorting practices and
to provide more time for the industry to adjust and modernize.  USTR
was directed by the President to negotiate an international
consensus, consistent with U.S.  objectives in the Uruguay Round, to
provide effective disciplines over government aid and intervention in
the steel sector and to lower barriers to global trade in steel.  The
United States and the major steel-producing countries started
negotiating a MSA outside of the GATT talks.\4

The VRA program expired in 1992 without an agreement, but the parties
made efforts to continue these industry-specific talks.  Overall,
steel imports accounted for about 18 percent of the domestic market
that year, down from about 24 percent in 1986.  In June 1992, under
U.S.  trade laws, the industry filed over 80 petitions for protection
from dumped and subsidized imports of many steel products from a
number of countries.  Some of these cases have been decided, with
mixed results for the U.S.  industry, but many are still in
litigation before the U.S.  Court of International Trade. 

The MSA negotiations were formally linked to the Uruguay Round at the
Tokyo Summit in July 1993.  The parties set a coinciding deadline
(December 1993) and made any "zero-for-zero" Uruguay Round tariff
reductions on steel products conditional upon successful negotiation
of a MSA.  Similarly, some parties stated that successful completion
of the Uruguay Round was conditional on achieving an MSA that settled
U.S.  trade law actions against them. 


--------------------
\1 Large, integrated steel producers also faced competition in
certain products from domestic minimills.  Minimills are small,
nonintegrated steel plants, meaning they rely on scrap steel as a raw
material and do not convert iron ore into steel. 

\2 Government efforts to protect the U.S.  steel industry from
harmful import competition and from unfair trade practices have a
long history.  Tariffs on steel products existed before the 1960s. 
Import quotas were first negotiated bilaterally in 1968 and were used
for much of the following 25 years.  Antidumping and countervailing
duties to protect injured U.S.  industries from unfair trade
practices were applied in the late 1970s and early 1980s. 

\3 See International Trade:  The Health of the U.S.  Steel Industry
(GAO/NSIAD-89-193, July 12, 1989), and International Trade: 
Administration of Short Supply in Steel Import Restraint Agreements
(GAO/NSIAD-89-166, June 5, 1989). 

\4 Over 30 countries participated in the multilateral steel
negotiations, including the EU, Japan, South Korea, Brazil, Turkey,
and the Nordic countries. 


      U.S.  NEGOTIATING OBJECTIVES
      FOR AN MSA
-------------------------------------------------------- Chapter 7:1.2

The original 1989 U.S.  objectives for the MSA negotiations
established by the President's Steel Trade Liberalization Program
were to (1) achieve strong disciplines over trade-distorting
government subsidies, (2) lower tariff and nontariff trade barriers
so as to ensure market access, and (3) create enforcement measures to
deal with violations of the consensus obligations. 


      RESULTS OF THE MSA
      NEGOTIATIONS
-------------------------------------------------------- Chapter 7:1.3

The December 1993 deadline passed with no MSA, and these talks were
delinked from the Uruguay Round.  The world steel producers could not
overcome the impasse that has existed since March 1992.  For example,
while the U.S.  position was to accept no forms of subsidization,
other countries wanted some subsidies "green-lighted." While other
negotiating parties, including the EU, wanted to constrain the use of
dumping and countervailing duty actions against them, the United
States sought to preserve the right to use these laws in certain
circumstances.  Also, there was disagreement over whether to allow
waivers to or exemptions from any discipline on subsidies. 

USTR told us that the parties began follow-on talks in April 1994;
the parties asserted that they want to continue the MSA negotiations
because, while the UR should help the steel industry, not all the
issues particular to the steel sector were addressed in the new
agreement. 


      IMPACT OF THE URUGUAY ROUND
      AGREEMENT ON FUTURE MSA
      NEGOTIATIONS
-------------------------------------------------------- Chapter 7:1.4

The agreements reached within the UR would affect the steel industry
and trade in steel products.  Thus, the environment of future MSA
negotiations may be different than in the past if the Uruguay Round
changes take effect.  It is uncertain whether these changes would
create incentives for a future MSA or reduce the urgency for future
action. 

Some of the MSA negotiating objectives may be partially achieved if
the UR agreement is approved.  For example, the UR agreement would
add disciplines to subsidies and countervailing measures, and thus
could eliminate some subsidies going to foreign steel producers. 
Also, UR tariff reductions would include steel products, despite the
fact that the conditions established by the negotiating parties at
the Tokyo summit were not met with a MSA. 

The United States met its overall UR market access commitments by
including steel products.  According to the Department of Commerce,
the total elimination of tariffs for steel and certain other sectors
would collectively be a huge gain because U.S.  tariffs tended to be
much lower than foreign tariffs.  Thus, U.S.  officials believe that
overall they would gain more access than they would give up in
protection.  However, the specific impact of eliminating steel
tariffs on the steel industry could be different.  Moreover, the
impact could be different for various segments of the industry. 
"Zero-for-zero" steel tariffs could both increase import competition
from foreign steel in the U.S.  market and increase the
competitiveness of U.S.  steel exports in foreign markets.\5 Also,
U.S.  steel producers could indirectly benefit from their domestic
customers getting reduced tariffs in other sectors for their exported
products made of U.S.  steel. 

The U.S.  steel industry has had mixed reaction to the UR agreement. 
Antidumping, subsidies and countervailing measures, and dispute
settlement were all areas of concern to the U.S.  steel industry in
the UR negotiations.  ISAC 7, representing ferrous ores and metals,
reserved its support for the Uruguay Round's final agreement until
implementing legislation answers their continued concerns about
whether U.S.  trade laws would be weakened.  While most domestic
producers accepted the tariff reductions as part of the overall UR
agreement, some domestic producers voiced opposition because the loss
of tariffs would remove protection for certain steel products against
imports without the corresponding disciplines on trade-distorting
government actions being negotiated under the MSA.  Furthermore, if
the agreement is approved, the negotiating leverage these tariffs
provided to achieve other objectives will not be a factor in future
MSA talks.  Additionally, the industry is still concerned about the
future use of permitted subsidies by foreign governments. 


--------------------
\5 In 1992, the United States imported 17 million tons of steel and
exported 4 million tons of steel. 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 7:1.5

U.S.  negotiators believed they achieved substantial progress in the
MSA talks.  USTR told us that the MSA was envisioned as going further
than the UR on many issues.  USTR also said that none of the
undecided MSA issues would be settled by the new UR agreement. 
Nevertheless, all the issues still under negotiation may evolve as
the UR agreement affects world steel production and trade.  The
negotiating parties still disagree over whether to prohibit all
subsidies for steel, specifically those allowable under the new UR
subsidy provisions, and over limiting U.S.  trade actions against
subsidies not covered by the UR agreement.  Also, they disagree over
whether to allow temporary waivers from MSA disciplines.  Other
provisions to prevent anticompetitive trade practices (by private
companies) and to achieve effective MSA dispute settlement remain
under negotiation. 


   CIVIL AIRCRAFT
---------------------------------------------------------- Chapter 7:2


      BACKGROUND
-------------------------------------------------------- Chapter 7:2.1

Government support for the aircraft industry was not initially a
major issue under consideration in the Uruguay Round.\6 However, the
July 1992 Agreement Concerning the Application of the GATT Agreement
on Trade in Civil Aircraft (hereafter, bilateral aircraft agreement)
between the United States and the EU, which placed some constraints
on government support for large civil aircraft (LCA) manufacturers,\7
had called for the two parties to "multilateralize" the agreement at
the earliest possible date.  That is, the United States and the EU
were to propose that disciplines along the lines of those contained
in the bilateral agreement be incorporated into the 1979 GATT
Agreement on Trade in Civil Aircraft (hereafter, 1979 GATT aircraft
agreement).  The EU was interested in reaching a revised multilateral
aircraft agreement in conjunction with the scheduled completion of
the Uruguay Round.  Efforts to reach a new multilateral aircraft
agreement by December 15 proved futile, and so it was agreed to
continue negotiations with the goal of reaching agreement by the end
of 1994.  Nonetheless, GATT members did agree to the Agreement on
Subsidies and Countervailing Measures that would have implications
for the entire aircraft industry. 

The LCA industry is dominated by two U.S.  companies (Boeing and
McDonnell Douglas) and the Airbus consortium of four European
companies (Aï¿½rospatiale of France, Deutsche Aerospace of Germany,
British Aerospace of the United Kingdom, and Construcciones
Aeronï¿½uticas S.A.  of Spain), which was established in 1970. 

Despite the existence of the 1979 GATT aircraft agreement which
covered virtually all civil aircraft products, trade tensions between
the United States and the EU continued during the 1980s and early
1990s.  The United States alleged that the Airbus consortium members
had received billions of dollars in government support since it was
established in 1970.  For its part, the EU argued that the U.S.  LCA
industry had benefited from billions of dollars in indirect support
(through military and aerospace research, development, and
procurement) since the mid-1970s.  On several occasions, the United
States threatened to take trade action against the use of subsidies
by European governments to support Airbus member companies. 

In an effort to put greater disciplines on direct and indirect
government support for the research, development, and production of
LCA, the United States and the EU entered into a bilateral agreement
on July 17, 1992.  The bilateral agreement called for (1) a
prohibition on any future production support, (2) a 33-percent cap on
government support for development of new aircraft, and (3) limits on
benefits from indirect support resulting from government-funded
research.  The parties also agreed to encourage other countries to
adopt similar disciplines and to make an effort to expand coverage of
the agreement to include all products covered in the 1979 GATT
aircraft agreement. 


--------------------
\6 A forthcoming GAO report will discuss the U.S./EU bilateral
aircraft agreement as well as efforts to multilateralize it. 

\7 Large civil aircraft is defined as aircraft for 100 or more
passengers, or its equivalent cargo configuration. 


      U.S.  NEGOTIATING OBJECTIVES
-------------------------------------------------------- Chapter 7:2.2

A major objective of the U.S.  aerospace industry in the UR was to
ensure that the new Agreement on Subsidies and Countervailing
Measures would clearly cover aerospace products, including LCA.  In
addition, the industry strongly opposed several of the elements of a
revised multilateral aircraft agreement proposed by the Chairman of
the GATT Civil Aircraft Subcommittee in November 1993.  That
agreement would have (1) covered all civil aircraft products, not
just LCA, (2) imposed stronger disciplines on indirect support than
those contained in the bilateral agreement, and (3) exempted or
"grandfathered" all past Airbus supports. 

Both the United States and the EU wanted to expand the country
coverage of the bilateral agreement of July 17, 1992.  Other
signatories of the 1979 GATT aircraft agreement, such as Japan, and
some nonsignatories, such as Russia, China, Korea, and Taiwan, were
viewed as potential competitors to the United States and the EU over
the long term.  Thus, a multilateral agreement with disciplines
similar to those in the bilateral agreement was seen as being in the
long-term interest of both the United States and the EU. 

With respect to expanding the coverage of the bilateral agreement to
other products, however, the interests of the United States and the
EU differed somewhat.  U.S.  engine companies, in particular, clearly
did not want to be constrained by disciplines on indirect supports
that were an integral part of the bilateral agreement; the U.S. 
negotiating position reflected the industry's opposition.  EU
negotiators, on the other hand, publicly supported expanding the
coverage to other products.  However, the true objectives of EU
negotiators were somewhat unclear in this regard, given the fact that
one of the two major European engine companies has a partnership
arrangement with a U.S.  engine company. 

With respect to issues discussed in the Uruguay Round, the primary
concern of the U.S.  aerospace industry was ensuring that the new
Agreement on Subsidies and Countervailing Measures would apply to the
aerospace industry, including LCA.  A long-standing dispute between
the United States and the EU had concerned the venue or proper forum
for disputes with respect to subsidies to aircraft.  The U.S. 
position had been that the subsidies committee was the proper forum
for discussing a subsidies complaint.  The EU position had been that
the existence of the 1979 GATT aircraft agreement meant that the
proper forum for any dispute concerning aircraft was the aircraft
committee. 

During the negotiations to multilateralize the bilateral aircraft
agreement, the EU had talked about the revised GATT aircraft
agreement's being a "lex specialis," that is, a special law
applicable to the civil aircraft sector.  The EU proposal called for
a provision to be inserted into the UR Agreement on Subsidies and
Countervailing Measures (still under consideration at that time), to
the effect that, for signatories of the new aircraft agreement, the
new subsidies agreement would not apply to aircraft.  The United
States strongly opposed the EU position, stating that the new
subsidies agreement should apply to the civil aircraft sector, just
as the old subsidies agreement had applied. 


      RESULTS OF THE URUGUAY ROUND
-------------------------------------------------------- Chapter 7:2.3

At the conclusion of the Uruguay Round, the new Agreement on
Subsidies and Countervailing Measures clearly covered the aerospace
industry, including LCA.  As part of an overall compromise, a few
exceptions for aircraft were outlined in footnotes to the subsidies
agreement.  There was no new multilateral aircraft agreement, but
there was a commitment to try to conclude, within a year, a new
agreement based on the December 1993 revision of the GATT
subcommittee Chairman's November 1993 proposal and other proposals. 

To reflect some of the EU demands that civil aircraft be exempted
from disciplines in the new subsidies agreement, two footnotes were
inserted to article 6.1 of that agreement.\8 The first footnote
stated that "since it is anticipated that civil aircraft will be
subject to specific multilateral rules," the 5-percent threshold for
presumed serious prejudice would not apply to civil aircraft.  The
new subsidies agreement would establish, in the case of a complaint
against subsidies, a 5-percent ad valorem subsidization for
industrial goods as the threshold for determining when serious
prejudice to a trading partner's interest would be presumed to exist. 
The EU feared that the failure to obtain an exemption for civil
aircraft would increase the likelihood that the United States could
launch trade actions, since European support for the Airbus
consortium may be found to exceed the 5-percent level. 

The second footnote stated that "...where royalty-based financing for
a civil aircraft program is not being fully repaid due to the level
of actual sales falling below the level of forecast sales, this does
not in itself constitute serious prejudice." A provision in article
6.1 had stated that "direct forgiveness of debt" by a government was
one of the tests of serious prejudice.  The inclusion of this
footnote was significant because royalty-based financing, which is
the primary method of European government support for Airbus,
requires a company to pay back loans from the government based on the
sales of its products. 

The addition of the two footnotes to the subsidies agreement
represented a compromise between the United States and the EU.  The
United States had originally demanded that the aircraft sector be
covered by all the disciplines of the new subsidies agreement, while
the EU had sought a complete exemption of the sector from that
agreement. 

A third footnote to the subsidies agreement also concerned civil
aircraft.  A provision of article 8.2\9 would allow governments to
subsidize research and precompetitive development up to certain
thresholds without facing the threat of trade action.  However, the
footnote would exempt aircraft from the nonactionable or "green
light" subsidies category in research and development. 

U.S.  negotiators, and especially U.S.  industry, believed that U.S. 
objectives were substantially achieved with respect to the aerospace
industry.  Although pleased with the status quo, assuming the UR
agreement is ratified, U.S.  negotiators did commit themselves to try
to conclude a multilateral agreement within a year.  However, in a
May 2, 1994, letter to the U.S.  Trade Representative, the Aerospace
Industries Association,\10 the two major U.S.  LCA manufacturers, and
the two major U.S.  engine manufacturers, stated that negotiations
should be limited to the extension to other countries of the
disciplines contained in the bilateral agreement for LCA only.  The
chief USTR negotiator remains skeptical that a multilateral agreement
will be reached soon. 


--------------------
\8 Article 6.1 dealt with the determination of "serious prejudice."
See ch.  4 for a discussion of serious prejudice. 

\9 Article 8 dealt with the identification of nonactionable
subsidies. 

\10 The Aerospace Industries Association is the nonprofit trade
association representing U.S.  manufacturers of commercial, military,
and business aircraft, helicopters, aircraft engines, missiles,
spacecraft, and related components and equipment. 


      POTENTIAL IMPACT OF UR
      AGREEMENT
-------------------------------------------------------- Chapter 7:2.4

The United States is the world's leading producer of aerospace
products, and the new GATT UR agreement should not jeopardize this
position.  The section of the new agreement that would be most
important to the U.S.  aerospace industry is the Agreement on
Subsidies and Countervailing Measures.  Although this section has
been modified by three footnotes pertinent to this industry, only the
two footnotes pertaining to the determination of serious prejudice
would soften the constraints of the new code; the green-lighting
footnote would eliminate a potential loophole. 

The new features of the GATT agreement, such as the improved dispute
settlement procedure, the expansion of the list of prohibited export
subsidies, tightened rules on domestic subsidies, and the broader
country coverage, should enhance the U.S.  ability to counter foreign
government subsidies to the aerospace sector and their resulting
trade distortions. 


      ISSUES TO WATCH
-------------------------------------------------------- Chapter 7:2.5

The GATT aircraft subcommittee has agreed to try to conclude a new
multilateral agreement on civil aircraft before the end of 1994.  If
the negotiations result in a new agreement that potentially changes
the current international trade regime for civil aircraft, the issue
may warrant further attention from Congress. 


FUTURE WORLD TRADE ORGANIZATION
ISSUES
=========================================================== Appendix I


   NEW GLOBAL ECONOMY LINKS TRADE
   TO OTHER POLICY ISSUES
--------------------------------------------------------- Appendix I:1

Capital, goods, services, and information now flow more and more
easily across national frontiers, in part because of advances in
technology and transportation.  Businesses are increasingly spreading
operations among more than one country, so traditional assumptions
about the national origin of goods no longer apply.  And, as a recent
article in the OECD Observer pointed out, successive General
Agreement on Tariffs and Trade (GATT) rounds have reduced the
importance of border restrictions as trade-distorting impediments. 
Consequently, certain national domestic policies--implemented largely
through internal laws and regulations--received attention during the
negotiations of the Uruguay Round as potential barriers to
international commerce.  These issues included trade and the
environment, labor rights, and competition (antitrust) policies. 

Various complex questions have been raised in each area.  As noted,
we discussed trade and the environment in chapter 6.  Concerning
labor rights and competition policy issues, while we did not attempt
to analyze each one in depth, we have summarized in this appendix the
main ideas and concerns.  The United States and other countries have
already identified them as among the next order of topics for
negotiation under the future World Trade Organization (WTO). 


      LABOR RIGHTS SEEN AS NEEDING
      CONSIDERATION
------------------------------------------------------- Appendix I:1.1

In the last weeks of negotiations, the United States and other
nations raised concerns about how some nontrade issues should be
reconciled with trade policies in the new global economic
environment.  In public statements and legislative initiatives, U.S. 
administration and congressional leaders pressed for consideration of
labor rights policies in international trade in the new WTO and in
U.S.  law. 

The move by the United States, along with France, to include
consideration of the labor rights issue late in the negotiations met
considerable resistance at the April GATT signing.  But the ministers
decided that the preparatory committee set up to facilitate the
functioning of the new WTO when it comes into effect should examine
several critical issues, including the relationship between the
trading system and internationally recognized labor standards.  The
issue remains controversial among the GATT signatories. 


      COMPETITION POLICIES SEEN AS
      NEEDING CONSIDERATION
------------------------------------------------------- Appendix I:1.2

Another policy area linked by several parties to the Uruguay Round
late in the negotiations was competition policy.  Outlining U.S. 
concerns, the President identified antitrust and other competition
policies as one of the issues that needs to be explored after the
completion of the Uruguay Round.  A central concern is that foreign
business practices may be anticompetitive, even inconsistent with
U.S.  antitrust laws, and may place U.S.  firms at a disadvantage in
overseas markets.  Administration officials have publicly mentioned
trade associations in Japan and the linked relationships between
companies there as being problematic.  As we pointed out in our
August 1993 report on foreign business practices, different
historical experiences and government/business relations have led to
different perspectives on matters such as competition policy.\1 The
United States fears that such differences can further lead to
competitive advantages for countries that have less stringent
competition or antitrust policies and regimes. 

Another concern is the authority of national regulatory and
enforcement organizations to administer provisions of national law
against foreign entities or business activities in foreign markets. 
With multinational corporations conducting business worldwide, and
with the advent of international mergers, private firms' activities
transcend the jurisdiction of individual national governments. 
National authorities (such as the U.S.  Department of Justice and
similar foreign bodies) have recognized the need to be able to
determine a variety of issues in individual cases, such as which
authority should take action, or in what order they should take
action, against alleged violations. 

The Organization for Economic Cooperation and Development has been
analyzing the relationship between trade and competition policies as
part of its work program on trade issues of the 1990s.  In the United
States, an interagency working group has begun to analyze U.S.  trade
and competition policy interests that would be advanced through
multilateral negotiations. 

The Agreement on Trade-Related Investment Measures, signed as one of
the new round agreements, requires the new WTO's Council for Trade in
Goods to consider whether to complement the Trade-Related Investment
Measures agreement by establishing provisions on investment policy
and competition policy.  And the World Trade Organization's
preparatory committee previously cited is also supposed to examine
the issue of trade and competition policy, including rules on export
financing and restrictive business practices.  In addition,
administration officials have already stated the intention to act
unilaterally to target anticompetitive practices by employing U.S. 
antitrust law in foreign countries that harm U.S.  exports. 


--------------------
\1 See Competitiveness Issues:  The Business Environment in the
United States, Japan, and Germany (GAO/GGD-93-124, Aug.  9, 1993). 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

John R.  Schultz, Assistant Director
Elizabeth J.  Sirois, Assistant Director
Kurt W.  Kershow, Project Manager
Stanton J.  Rothouse, Senior Evaluator
Adam R.  Cowles, Senior Evaluator
Joseph J.  Natalicchio, Senior Evaluator
Nina Pfeiffer, Senior Evaluator
Elizabeth Morrison, Senior Evaluator
Leslie E.  Holen, Evaluator
Taylor E.  Winston, Evaluator
Kurt A.  Burgeson, Evaluator
David Genser, Evaluator
Laura Filipescu, Evaluator
Rona Mendelsohn, Evaluator (Communications Analyst)
Susan Westin, Senior Economist
Jane-Yu Li, Senior Economist
Emil Friberg, Senior Economist


   ACCOUNTING INFORMATION AND
   MANAGEMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:2

Susan Irving, Associate Director


   OFFICE OF THE CHIEF ECONOMIST,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:3

Loren Yager, Senior Economist


   OFFICE OF THE GENERAL COUNSEL,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:4

Sheila K.  Ratzenberger, Assistant General Counsel
Herbert I.  Dunn, Senior Attorney


   LOS ANGELES REGIONAL OFFICE
-------------------------------------------------------- Appendix II:5

Anthony Moran, Senior Evaluator


   EUROPEAN OFFICE
-------------------------------------------------------- Appendix II:6

Stephen M.  Lord, Senior Evaluator
Shirley A.  Brothwell, Senior Evaluator
Neyla Arnas, Evaluator


GLOSSARY
============================================================ Chapter 1


      ACCESSION
-------------------------------------------------------- Chapter 1:0.1

Accession is the process by which a country becomes a member of an
international agreement, such as the General Agreement on Tariffs and
Trade or the European Union.  Accession to GATT involves negotiations
to determine the specific obligations a nonmember country must
undertake before it will be entitled to full GATT membership
benefits. 


      ACTIONABLE SUBSIDIES
-------------------------------------------------------- Chapter 1:0.2

Those subsidies that are not specifically prohibited under the
subsidies agreement, but against which GATT remedies can be sought if
they are found to distort trade.  Trade distortion occurs if (1)
subsidized imports cause injury to a domestic industry (e.g., depress
prices or threaten to do so); (2) subsidies nullify or impair
benefits owed to another country under WTO; or (3) subsidized
products displace or impede imports from another country or another
country's exports to a third country market. 


      AD VALOREM SUBSIDIZATION
-------------------------------------------------------- Chapter 1:0.3

A percentage amount that is determined by dividing the appropriately
allocated and amortized financial value of the subsidy by the sales
of the product in question. 


      AD VALOREM
-------------------------------------------------------- Chapter 1:0.4

Any charge, tax, or duty that is applied as a percentage of value. 


      ADVISORY COMMITTEE ON TRADE
      POLICY AND NEGOTIATIONS
-------------------------------------------------------- Chapter 1:0.5

ACTPN is a group (membership of 45; 2-year terms) appointed by the
President to provide advice on matters of trade policy and related
issues, including trade agreements.  The 1974 Trade Act requires
ACTPN's establishment and its broad representation of key economic
sectors affected by trade. 


      AGGREGATE MEASURE OF SUPPORT
-------------------------------------------------------- Chapter 1:0.6

The sum of all domestic support measures provided in favor of
agricultural producers (including price support and direct payment to
producers), rather than on the basis of support to individual
commodities. 


      ANTICIRCUMVENTION LAWS
-------------------------------------------------------- Chapter 1:0.7

Laws that seek to eliminate the ability of exporters to evade or
avoid antidumping duties by changing the sites of assembly. 
Circumvention of antidumping orders has resulted in respondents
having to bring repeat dumping cases against the same defendants
after they have moved their assembly operations to a new site. 


      ANTIDUMPING MEASURES
-------------------------------------------------------- Chapter 1:0.8

A duty or fee, imposed to neutralize the injurious effect of unfair
pricing practices. 


      ANTIDUMPING LAWS
-------------------------------------------------------- Chapter 1:0.9

A system of laws to remedy dumping. 


      APPLIED TARIFF RATES
------------------------------------------------------- Chapter 1:0.10

An applied tariff rate is a rates that a GATT member country actually
applies to imports from its trading partners. 


      BENEFIT-TO-RECIPIENT
      STANDARD
------------------------------------------------------- Chapter 1:0.11

A "benefit-to-recipient" standard is a method for valuing subsidies
by which the amount of the subsidy is determined in reference to a
comparable commercial benchmark that would otherwise be available to
the subsidy recipient within the jurisdiction in question. 


      BILATERAL STEEL AGREEMENTS
------------------------------------------------------- Chapter 1:0.12

The United States has negotiated 10 bilateral steel agreements with
major steel trading partners.  Under BSAs, the governments agreed to
reduce or eliminate state intervention--that is, domestic subsidies
and market barriers. 


      BOUND TARIFF RATES
------------------------------------------------------- Chapter 1:0.13

Bound tariff rates are most-favored-nation tariff rates resulting
from GATT negotiations and thereafter incorporated as integral
provisions of a country's schedule of concessions.  The bound rate
may represent either a reduced rate or a commitment not to raise the
existing rate or a ceiling binding. 


      CAIRNS GROUP
------------------------------------------------------- Chapter 1:0.14

The Cairns Group, established in August 1986, is an informal
association of agricultural exporting countries.  The group's members
include Argentina, Australia, Brazil, Canada, Chile, Colombia,
Hungary, Indonesia, Malaysia, New Zealand, the Philippines, Thailand,
and Uruguay.  The Cairns Group countries account for one-third of
world farm exports. 


      COMPETITIVE DISADVANTAGE
------------------------------------------------------- Chapter 1:0.15

The TRIMs agreement contains a provision concerning "competitive
disadvantage." This provision would allow countries to apply existing
TRIMs to new investing firms for the duration of the transition
period when (1) the products of such investment were similar to the
products of the established enterprises and (2) it was necessary to
avoid distorting the conditions of competition between the new
investment and the established enterprises. 


      COMPULSORY LICENSING
------------------------------------------------------- Chapter 1:0.16

Compulsory licensing is an authorization by a government that permits
someone, without the consent of the patent owner, to make, use, or
sell a patented product; or to use a patented process; or to use,
sell, or import the product produced by a patented process. 
Compulsory licenses are granted by governments for many reasons,
among them to permit local production of a product if the patent
owner is not "working," (i.e., manufacturing the product) the patent
in the country within a specified period of time or to allow the
holder of a patent to exploit the patent which, absent a license,
would infringe on an earlier granted patent. 


      CONSTRUCTED VALUE
------------------------------------------------------- Chapter 1:0.17

Constructed value is a means of determining fair or foreign market
value when sales of the specific or the similar merchandise do not
exist or, for various reasons, cannot be used for comparison
purposes.  In U.S.  antidumping law, the "constructed value" consists
of (1) the cost of materials and fabrication or other processing
employed in producing the merchandise, (2) the general expenses of
not less than 10 percent of material and fabrication costs, and (3) a
profit of not less than 8 percent of the sum of the production costs
and general expenses. 


      CONTRACTING PARTIES
------------------------------------------------------- Chapter 1:0.18

Contracting parties are the signatory countries to GATT.  These
countries have accepted the specified obligations and privileges of
the GATT agreement. 


      COPYRIGHT
------------------------------------------------------- Chapter 1:0.19

A copyright is a property right in an original work of authorship
that arises automatically upon creation of such a work and belongs,
in the first instance, to the author.  A copyright owner has the
exclusive right, subject to certain limited privileges afforded to
users, to reproduce the work; to prepare translations, abridgements,
or other adaptations of the work; to distribute copies of the work
(or adaptations) to the public; and to publicly perform (in person or
by broadcasts and the like) the work. 


      COST OF PRODUCTION
------------------------------------------------------- Chapter 1:0.20

Cost of production is a term used to refer to the sum of the cost of
materials, fabrication, and/or other processing employed in producing
the merchandise sold in a home market or to a third country, together
with appropriate allocations of general administrative and selling
expenses.  The cost of production is based on the producer's actual
experience and does not include any mandatory minimum general expense
or profit as in "constructed value."


      COST-BASED ACCOUNTING RATES
------------------------------------------------------- Chapter 1:0.21

Cost-based accounting rates are rates set by regulatory bodies and
reflect the actual cost of the service provided. 


      COUNTERFEITING
------------------------------------------------------- Chapter 1:0.22

Counterfeiting refers to the unauthorized and deliberate duplication
of another's trademark. 


      COUNTERVAILING DUTY
------------------------------------------------------- Chapter 1:0.23

A countervailing duty is a special duty imposed by an importing
country to offset the economic effect of a subsidy and thus prevent
injury to a domestic industry caused by a subsidized import. 


      CUMULATION
------------------------------------------------------- Chapter 1:0.24

Under the practice of cumulation, the effects of imports from several
sources are combined to determine the existence of injury on a
domestic industry.  Cumulative assessment of injury can occur when
imports from many sources compete simultaneously with each other and
a domestic industry and where all of the imports are subject to
dumping or countervailing duty investigations.  Over the years,
virtually every user--including the United States--has found the
practice to be practical or critical under certain circumstances when
dumped imports from multiple countries are believed to be
collectively causing harm to a domestic industry. 


      DE MINIMIS DUMPING OR
      SUBSIDY LEVEL
------------------------------------------------------- Chapter 1:0.25

De minimus dumping is the level below which a dumping margin or
subsidy is considered to be negligible.  AD or Countervailing duty
actions are terminated in cases where the margin of dumping or level
of subsidy is below the de minimis level. 


      DIVERSIONARY DUMPING
------------------------------------------------------- Chapter 1:0.26

This occurs when foreign producers sell to a third country market at
less than fair value and the product is then further processed and
shipped to another country. 


      DUE PROCESS
------------------------------------------------------- Chapter 1:0.27

Due process involves fair, reasonable, and orderly proceedings'
including proper notice; the right to be heard; the right to be
present before the tribunal that pronounces judgment; the opportunity
to enforce and protect one's rights; and the right of controverting,
by proof, every material fact that bears on the question or right in
the matter involved. 


      DUMPING
------------------------------------------------------- Chapter 1:0.28

Dumping is the sale of a commodity in a foreign market at a lower
price than its fair market value.  Dumping is generally recognized as
unfair because the practice can disrupt markets and injure producers
of competitive products in an importing country.  Article VI of GATT
permits imposition of antidumping duties equal to the difference
between the price sought in the importing country and the normal
value of the product in the exporting country. 


      DUMPING MARGIN
------------------------------------------------------- Chapter 1:0.29

The dumping margin is the amount by which the imported merchandise is
sold in the United States below the home market or third-country
price or the constructed value (that is, at less than its "fair
value").  For example, if the U.S.  "purchase price" is $200 and the
fair value is $220, the dumping margin is $20.  This margin is
expressed as a percentage of the U.S.  price.  In this example, the
margin is 10 percent. 


      DUNKEL TEXT
------------------------------------------------------- Chapter 1:0.30

In December 1991, GATT Director General Arthur Dunkel proposed a
450-page draft final text, and negotiators agreed to use the text as
a basis for their continuing talks.  This Dunkel text also set out
much of the structure and detail of the final Uruguay Round agreement
that was reached 2 years later. 


      DUTY
------------------------------------------------------- Chapter 1:0.31

A duty is a tax imposed on imports by the customs authority of a
country.  Duties are generally based on the value of the goods (ad
valorem duties), some other factors such as weight or quantity
(specific duties), or a combination of value and other factors
(compound duties). 


      DYNAMIC GAINS
------------------------------------------------------- Chapter 1:0.32

These gains increase the rate of economic growth.  Even a small
change in the growth rate can lead to a substantial cumulative effect
on gross domestic product.  Thus, empirical assessment of the dynamic
effects of trade policy changes can yield substantially larger
estimates than those based on static models.  The growth effects of
trade liberalization can flow through a variety of channels, such as
improved access to specialized capital goods, human-capital
accumulation, learning-by-doing, transfer of skills, and new product
introduction. 


      EUROPEAN FREE TRADE
      AGREEMENT
------------------------------------------------------- Chapter 1:0.33

EFTA is a regional trade group established in 1958 by the Treaty of
Stockholm and originally comprised of Denmark, Sweden, Norway, the
United Kingdom, Austria, Portugal, Switzerland, Finland, and Iceland. 
The United Kingdom, Portugal, and Denmark have since left EFTA to
join the European Union.  EFTA has mainly been concerned with the
elimination of tariffs with respect to manufactured goods originating
in the EFTA countries and traded among them. 


      ENHANCED TELECOMMUNICATIONS
------------------------------------------------------- Chapter 1:0.34

Enhanced, or value-added, telecommunications includes services such
as E(electronic)-Mail, data processing, and "store and forward"
services. 


      EX PARTE PROCEEDINGS
------------------------------------------------------- Chapter 1:0.35

Ex parte proceedings are on one side only; by or for one party; or
done for, in behalf of, or on the application of, one party only.  A
judicial proceeding, order, injunction, etc., is said to be ex parte
when it is taken or granted at the instance and for the benefit of
one party only, and without notice to, or contestation by, any person
adversely interested.  "Ex parte," in the heading of a reported case,
signifies that what follows is that of the party upon whose
application the case is heard. 


      EXPORT SUBSIDY
------------------------------------------------------- Chapter 1:0.36

An export subsidy is generally a subsidy that is provided on the
basis of export performance. 


      EXPORTING RESTRICTION
------------------------------------------------------- Chapter 1:0.37

An exporting restriction limits company exports, or sales for export,
through placing a restriction on a particular product, a volume or
value of products, or a proportion of the volume or value of the
company's local production. 


      FOREIGN EXCHANGE BALANCING
------------------------------------------------------- Chapter 1:0.38

Foreign exchange balancing restricts a company's imports by limiting
the company's access to foreign exchange to pay for the goods to some
proportion of the amount of foreign exchange earned by the company. 


      FOREIGN DIRECT INVESTMENT
------------------------------------------------------- Chapter 1:0.39

Foreign direct investment implies that a person in one country has a
lasting interest in and a degree of influence over the management of
a business enterprise in another country.  In most countries, some
percentage of ownership of a foreign company is required.  In the
United States, foreign direct investment is the ownership or control,
directly or indirectly, by a single foreign person (an individual, or
related group of individuals, company, or government) of 10 percent
or more of the voting securities of an incorporated U.S.  business
enterprise or an equivalent interest in an unincorporated U.S. 
business enterprise, including real property.  Such a business is
referred to as a U.S.  affiliate of a foreign direct investor. 


      GENERAL AGREEMENT ON TRADE
      IN SERVICES
------------------------------------------------------- Chapter 1:0.40

International rules governing trade and investment in the services
sector.  GATS is the first multilateral, legally enforceable
agreement covering trade and investment in the services sector.  For
the first time, services would be subject to many of the same rules
that cover trade in goods.  The GATS framework, however, is
structured somewhat differently from GATT itself.  For example,
market access and national treatment are not automatically provided
for, as they are in GATT.  These two principles would become binding
commitments only in services sectors that countries schedule in
bilateral negotiations under the GATT's auspices. 


      GENERAL AGREEMENT ON TARIFFS
      AND TRADE
------------------------------------------------------- Chapter 1:0.41

GATT was created in 1947 as an interim measure pending the
establishment of the International Trade Organization, under the
Havana Charter.  The International Trade Organization was never
ratified by Congress.  Operating in the absence of an explicit
international organization, GATT has provided the legal framework for
international trade, with its primary mission being the reduction of
trade barriers. 


      GENERALIZED SYSTEM OF
      PREFERENCES
------------------------------------------------------- Chapter 1:0.42

GSP is a program under which the United States grants duty-free
treatment to selected imports from designated beneficiary developing
nations and territories.  The program began in 1976, when the United
States joined with 19 other members of the Organization for Economic
Cooperation and Development to promote the economic growth and
development of developing countries.  The central objective of the
GSP program is to promote the economic growth and development of
beneficiary developing countries. 


      GLOBAL SOURCING COMPANIES
------------------------------------------------------- Chapter 1:0.43

Global sourcing companies are firms that use imported goods as inputs
for production. 


      GREY AREA MEASURES
------------------------------------------------------- Chapter 1:0.44

Grey area measures involve actions countries take outside GATT
safeguard laws to address import surges.  Such measures include
voluntary restraint agreements, quotas, tariff increases, and
agreements among countries to trade specific goods at specific
prices. 


      HARMONIZED FORMULA APPROACH
------------------------------------------------------- Chapter 1:0.45

The harmonized formula applies a formula to cut high tariff rates,
called "peak" tariffs, by a greater percentage than applied to low
tariffs.  Thus, the goal is to lower tariffs and to achieve more
consistent tariff levels among contracting parties. 


      INDUSTRIAL POLICY
------------------------------------------------------- Chapter 1:0.46

Industrial policy consists primarily of the mechanisms used by a
government to attain various sectoral goals.  The basic focus of
industrial policy is microeconomic in that it directs attention to
specific industrial sectors and attempts to identify the best way to
encourage growth or adjustment to the decline of a particular sector. 
Various tools employed to encourage industry to grow or rationalize
include credit rationing, favorable access to investment funds and
foreign exchange, the use of rationalization cartels, joint research
and development programs, control over licensing of technology, use
of commercial policy (e.g., tariffs, quotas, export controls, etc.),
and administrative guidance. 


      INDUSTRIAL DESIGNS
------------------------------------------------------- Chapter 1:0.47

Industrial designs are the distinctive and aesthetic aspects of
product style and packaging.  TRIPs would provide protection for
independently created industrial designs that are new or original,
but would allow countries to refuse protection if the designs did not
significantly differ from known designs.  With respect to textile
designs, countries would have to ensure that requirements for
securing protection, in particular in regard to any cost,
examination, or publication, would not unreasonably impair the
opportunity to seek and obtain such protection.  Countries could meet
this obligation through industrial design law or through copyright
law. 


      INDUSTRY SECTOR ADVISORY
      COMMITTEES
------------------------------------------------------- Chapter 1:0.48

ISACs are a part of the Industry Consultations Program for Trade
Policy Matters, which is an advisory committee structure created by
the Trade Act of 1974; expanded by the Trade Agreements Act of 1979;
and amended by the Omnibus Trade and Competitiveness Act of 1988. 
The program is operated jointly by Commerce and the U.S.  Trade
Representative.  The present structure consists of 17 Industry Sector
Advisory Committees, which include committees on (1) aerospace
equipment; (2) capital goods; (3) chemicals and allied products; (4)
consumer goods; (5) electronics and instrumentation; (6) energy; (7)
ferrous ores and metals; (8) footwear, leather, and leather products;
(9) building products and other materials; (10) lumber and wood
products; (11) nonferrous ores and metals; (12) paper and paper
products; (13) services; (14) small and minority business; (15)
textiles and apparel; (16) transportation, construction, and
agricultural equipment; and (17) wholesaling and retailing. 


      INTELLECTUAL PROPERTY RIGHTS
------------------------------------------------------- Chapter 1:0.49

Patents, trademarks, and copyrights are the three primary forms of
intellectual property rights in worldwide use.  They encourage the
introduction of innovative products and creative works to the public
by guaranteeing their originators a limited exclusive right, usually
for a specified period of time, to whatever economic reward the
market may provide for their creations.  Other types of intellectual
property rights include trade secrets, "mask works," and industrial
designs (i.e., the ornamental aspect of a useful article). 


      INTERNATIONAL TRADE
      COMMISSION
------------------------------------------------------- Chapter 1:0.50

ITC is an independent federal government agency that conducts
statutory trade-related investigations and studies and reports on a
wide range of international trade and economic policy issues for the
President and Congress. 


      INVESTIGATION INITIATION
------------------------------------------------------- Chapter 1:0.51

Investigation initiation is the procedural action by which a GATT
member formally commences an investigation. 


      LARGE CIVIL AIRCRAFT
------------------------------------------------------- Chapter 1:0.52

Large civil aircraft is defined as aircraft for 100 or more
passengers, or its equivalent cargo configuration. 


      LAYOUT-DESIGNS
      (TOPOGRAPHIES) OF INTEGRATED
      CIRCUITS
------------------------------------------------------- Chapter 1:0.53

Layout-designs are the patterns on the surface of a semiconductor
chip.  They are also referred to as "mask works." Because the designs
of computer chips are easily copied, most developed countries have
established a unique form of protection that combines copyright and
patent principles. 


      LINEAR APPROACH
------------------------------------------------------- Chapter 1:0.54

Under the linear formula, all rates in the tariff schedules would be
reduced across the board by a specific formula, such as a certain
percentage. 


      LOCAL CONTENT REQUIREMENTS
------------------------------------------------------- Chapter 1:0.55

Local content requirements are the most common form of TRIM.  Local
content requirements oblige an investor to purchase or use a specific
amount of inputs from local suppliers.  Local content requirements
are used in an attempt to ensure that the investment increases local
employment and develops physical and human capital. 


      MARGIN OF DUMPING
------------------------------------------------------- Chapter 1:0.56

The margin of dumping is the percent by which the price charged for
the same or a like product in the home market of the exporter exceeds
the export price. 


      MASK WORKS
------------------------------------------------------- Chapter 1:0.57

Mask works are the patterns on the surface of a semiconductor chip. 


      MATERIAL INJURY
------------------------------------------------------- Chapter 1:0.58

Under the Tariff Act of 1930, as amended, "material injury" is
defined as "harm which is not inconsequential, immaterial or
unimportant." In determining material injury, ITC considers domestic
consumption, U.S.  production, capacity, capacity utilization,
shipments, inventories, employment, and profitability. 


      MATERIAL INJURY TEST
------------------------------------------------------- Chapter 1:0.59

In U.S.  countervailing duty investigations, ITC is responsible for
determining whether subsidized exports cause material injury to a
domestic industry of an importing country.  An affirmative material
injury determination is usually required when imposing countervailing
duties. 


      MOST-FAVORED-NATION
      TREATMENT
------------------------------------------------------- Chapter 1:0.60

MFN is a principle of nondiscrimination that commits all GATT
signatories to extend the same treatment for all other signatories. 


      NATIONAL TREATMENT
------------------------------------------------------- Chapter 1:0.61

National treatment is the act of treating a foreign product or
supplier no less favorably than domestic suppliers. 


      NET FOREIGN DIRECT
      INVESTMENT
------------------------------------------------------- Chapter 1:0.62

Net FDI equals the value of any new FDI that enters a country in 1
year minus any reduction in FDI in that country in that year. 


      NONACTIONABLE SUBSIDIES
------------------------------------------------------- Chapter 1:0.63

Nonactionable subsidies are permissible subsidies, against which GATT
remedies cannot be sought as long as they are structured according to
certain criteria. 


      NONTARIFF TRADE BARRIERS
------------------------------------------------------- Chapter 1:0.64

GATT has developed more than 40 categories of nontariff barriers. 
Most of them are measures used at the border to restrict the inflow
of foreign goods.  Major categories of nontariff barriers include
quantitative import restrictions such as quotas, voluntary export
restraints, and price controls. 


      OFFSETS
------------------------------------------------------- Chapter 1:0.65

Offsets are various concessions sometimes required by a purchaser. 
They include requiring bidders to provide (1) local content in goods,
(2) technology transfer to the purchaser, (3) some investment in the
country, or (4) trade in other areas. 


      PATENT
------------------------------------------------------- Chapter 1:0.66

A patent protects an invention by giving the inventor the right to
exclude others from making, using, or selling a new, useful,
nonobvious invention during a specific patent term. 


      PLURILATERAL AGREEMENTS
      (ANNEX IV AGREEMENTS)
------------------------------------------------------- Chapter 1:0.67

Plurilateral agreements are those Uruguay Round agreements not signed
by all WTO members.  These include the Agreement on Trade in Civil
Aircraft, the Agreement on Government Procurement, the International
Dairy Arrangement, and the Arrangement Regarding Bovine Meat. 


      PREDATORY DUMPING PRACTICES
------------------------------------------------------- Chapter 1:0.68

Predatory dumping practices involve large and economically powerful
firms using market leverage to drive small firms out of business,
thus reducing competition so the predatory larger firms can then
raise prices and reap monopoly profits. 


      PRICE-AVERAGING CALCULATIONS
------------------------------------------------------- Chapter 1:0.69

Price-averaging calculations are used in antidumping cases to compare
the exporting country's home market price for the subject merchandise
to the export price for the same merchandise.  This comparison may be
based on (1) the weighted average of the home market prices to the
weighted average of the export prices; and (2) individual to weighted
average prices, in cases where it can be shown that spot dumping is
occurring or where data are not available.  In addition, individual
home market prices may be compared to individual export prices. 


      PRIMARY PRODUCT
------------------------------------------------------- Chapter 1:0.70

A primary product is a farm, forest, or fishery product. 


      RECIDIVISM
------------------------------------------------------- Chapter 1:0.71

Recidivism is a tendency to relapse into a previous condition or
repeat a mode of behavior. 


      REQUEST-OFFER APPROACH
------------------------------------------------------- Chapter 1:0.72

Under the request-offer approach, a contracting party submits
requests for concessions on tariff reductions from its trading
partner which, in turn, submits its offer for concessions.  The
offers are tabled and negotiated by the parties' representatives. 


      SAFEGUARD
------------------------------------------------------- Chapter 1:0.73

A safeguard is a temporary import control or other trade restriction
that a country imposes to prevent injury to domestic industry from
increased imports.  It is designed to facilitate the adjustment of
domestic industries to the influx of fairly traded imports. 


      SANITARY AND PHYTOSANITARY
      REQUIREMENTS
------------------------------------------------------- Chapter 1:0.74

Sanitary and phytosanitary regulations and barriers are measures
taken to protect human, animal, or plant life or health. 


      SERIOUS PREJUDICE
------------------------------------------------------- Chapter 1:0.75

Under the proposed subsidies agreement, there would be a special
category of actionable subsidies that would have a high likelihood of
being trade distorting.  The proposed agreement lays out specific
criteria for demonstrating when a country's use of such subsidies
would have adversely affected another country's trade interests
through price or volume/market share effects (referred to in the
agreement as "serious prejudice").  The proposed agreement would
create an obligation to withdraw the subsidy or remove the adverse
effects when they are identified. 


      SERVICES
------------------------------------------------------- Chapter 1:0.76

Services, as defined in the Trade and Tariff Act of 1984, consist of
economic activities whose outputs are other than tangible goods,
including businesses such as accounting, advertising, banking,
engineering, insurance, management consulting, retail, tourism,
transportation, and wholesale trade. 


      SPECIFICITY PROVISION
------------------------------------------------------- Chapter 1:0.77

Under the proposed subsidies agreement, subsidies must be "specific"
in order to be actionable.  A subsidy is considered "specific" to a
firm or an industry, or a group of firms or industries, if the
government limits access to the assistance in law or in fact. 


      STANDARD OF REVIEW
------------------------------------------------------- Chapter 1:0.78

a standard of review refers to the criterion that dispute panels use
to determine the merits of a given case.  The standard is used to
define the appropriate level of review, given the issues involved in
that case. 


      STANDING
------------------------------------------------------- Chapter 1:0.79

Standing refers to whether a party "has a sufficient stake in an
otherwise justifiable controversy to obtain judicial resolution of
that controversy." With regard to antidumping proceedings under GATT
article VI, standing refers to the right of a party or parties in the
importing country to petition for relief under national AD laws or to
support a petition. 


      STANDSTILL COMMITMENT
------------------------------------------------------- Chapter 1:0.80

A standstill commitment involves a commitment of GATT contracting
parties not to impose new trade-restrictive measures during the
Uruguay Round negotiations. 


      STARE DECISIS
------------------------------------------------------- Chapter 1:0.81

Stare decisis is a U.S.  common law concept that requires judges to
hand down decisions that are consistent with judicial precedent. 


      START-UP COSTS
------------------------------------------------------- Chapter 1:0.82

Start-up costs refer to the high per unit costs that are incurred
when beginning a new production line.  Costs will appear to be high
until normal production levels can be achieved.  For example, the
initial per unit cost of producing a semiconductor is high.  As
production increases and more units are produced, however, the cost
per unit drops. 


      STATIC GAINS
------------------------------------------------------- Chapter 1:0.83

Static gains stem from the increased efficiency of resource
allocation and improved consumption possibilities.  Additional gains
from trade may result from increasing returns to scale, and from
increased product and input variety for consumers and producers. 
Static gains imply a change in the amount of aggregate output but not
its growth rate.  Static gains from trade are relatively small as a
percent of GDP in empirical studies of trade liberalization. 


      SUBSIDY
------------------------------------------------------- Chapter 1:0.84

A subsidy is generally considered to be a bounty or a grant provided
by a government that confers a financial benefit on the production,
manufacture, or distribution of goods or services.  Government
subsidies include direct cash grants, concessionary loans, loan
guarantees, and tax credits. 


      SUNSET
------------------------------------------------------- Chapter 1:0.85

"Sunset" refers to the duration of antidumping or countervailing duty
orders. 


      TARIFF
------------------------------------------------------- Chapter 1:0.86

A tariff is a tax placed on imported goods to raise revenues and
protect domestic industries from foreign competition. 


      TARIFF ESCALATION
------------------------------------------------------- Chapter 1:0.87

Tariff escalation occurs whenever a country imposes substantially
higher duties on partially and fully processed goods than on their
underlying raw materials. 


      TARIFF PEAKS
------------------------------------------------------- Chapter 1:0.88

Tariff peaks refer to tariffs above 15 percent. 


      TARIFF REDUCTION
------------------------------------------------------- Chapter 1:0.89

Tariff reduction occurs when tariffs are assigned relative weights
based on their value, and those weights are totaled and then averaged
to achieve a single overall reduction amount. 


      TARIFF SCHEDULES
------------------------------------------------------- Chapter 1:0.90

The initial GATT consisted both of schedules of tariff commitments,
one for each of the contracting parties, and a set of rules drafted
primarily to protect the evasion of tariff commitments.  Tariff
schedules are a long list of products containing various tariff
rates.  Each contracting party is committed not to raise its tariffs
above the duty level contained in the schedule. 


      TEXTILE TRADE PARAMETERS
------------------------------------------------------- Chapter 1:0.91

The textile trade parameters established through bilateral agreements
always include specific restraints on one or more products.  They may
also indicate the amount of trade growth allowed, the market access
opportunities made available, the "aggregate" ceilings set on total
textile and apparel imports, and the agreement made with the
bilateral partner that its exports will not be restrained to the
benefit of imports from countries with which the United States does
not have textile agreements. 


      THE GROUP OF SEVEN
------------------------------------------------------- Chapter 1:0.92

The Group of Seven includes the United States, Canada, the United
Kingdom, France, Germany, Italy, and Japan. 


      THE QUAD
------------------------------------------------------- Chapter 1:0.93

During the Uruguay Round, the Quad consisted of the United States,
Japan, the EU, and Canada. 


      THIRD-COUNTRY DUMPING
------------------------------------------------------- Chapter 1:0.94

Third-country dumping occurs when country X dumps its products in
country Y and causes injury to country Z's producers, who are
competing for the same market but at "fair" prices. 


      TOKYO ROUND CODES
------------------------------------------------------- Chapter 1:0.95

The Tokyo Round codes are an extension of GATT in that they
explicitly extend trade discipline in specific new areas, or define
more precisely existing discipline and rules.  The difference between
the GATT approach and the codes' approach is one of degree.  In large
part the codes are used as an instrument because amending GATT has
proven difficult. 


      TRADE RELATED INVESTMENT
      MEASURES
------------------------------------------------------- Chapter 1:0.96

Trade-related investment measures require specific behavior from
investors that has an effect on trade.  TRIMs are placed on foreign
direct investment by governments in an effort to influence investment
decisions such as sourcing, production, and market locations, and to
increase the likelihood that the host nation will capture the
benefits expected from the investment.  TRIMs can be either
mandatory, or can take an incentive form as actions that are
necessary for an investor to undertake in order to obtain some type
of advantage. 


      TRADE-WEIGHTED BASIS
------------------------------------------------------- Chapter 1:0.97

The trade-weighted basis is the average tariff computed by weighing
each tariff rate by the dollar value of imports at that rate relative
to the total value of imports.  Tariffs on individual commodities in
the UR agreement were reduced sufficiently such that the new tariff
schedule would result in a total trade-weighted tariff reduction of
33 percent.  Individual commodity tariffs were not equally affected,
however, as many would be reduced to zero, while others would be left
unchanged. 


      TRADE SECRET
------------------------------------------------------- Chapter 1:0.98

A trade secret is proprietary information that is used in industry or
commerce.  Trade secret protection can encompass a broad range of
manufacturing processes, testing, materials, and other know-how
making up the most valuable resources a company has to license.  This
protection is regarded as vital to the coverage of new technology,
particularly technology that may not satisfy the rigorous standards
of patentability. 


      TRADE-BALANCING REQUIREMENTS
------------------------------------------------------- Chapter 1:0.99

Trade-balancing requirements allow an investor to import goods only
up to a specified amount, which is determined by the investor's
locally produced exports.  Such requirements are used by governments
in an effort to maintain or achieve a favorable balance of trade. 


      TRADEMARK
------------------------------------------------------ Chapter 1:0.100

Manufacturers or merchants use trademarks to identify their goods and
distinguish them from others.  Service marks perform the same
function for services.  Examples of these marks include personal
names, letters, numerals, figurative elements, and combinations of
colors. 


      TRANSPARENCY
------------------------------------------------------ Chapter 1:0.101

Transparency refers to the extent to which laws, regulations,
agreements, and practices affecting international trade are open,
clear, measurable, and verifiable. 


      TWO-TIERED PRICING
------------------------------------------------------ Chapter 1:0.102

Two-tiered pricing occurs when a government charges a higher price
for export than for domestic sales of a scarce natural resource
input, thereby providing a competitive advantage to a domestic
industry using this input. 


      UNFAIR TRADE PRACTICES
------------------------------------------------------ Chapter 1:0.103

Unfair trade practices include the dumping of an exported product
below the price charged for the same good in the "home" market of the
exporter, or the subsidizing of a product by a government. 


      URUGUAY ROUND
------------------------------------------------------ Chapter 1:0.104

The Uruguay Round was the eighth and most recent round of
multilateral trade negotiations held under the auspices of the
General Agreement on Tariffs and Trade.  These negotiations were
initiated in Uruguay in September 1986 and concluded in April 1994. 


      VOLUNTARY RESTRAINT
      AGREEMENT
------------------------------------------------------ Chapter 1:0.105

A voluntary restraint agreement is an accord between countries to
limit trade in specific goods.  They are administered by the exporter
and may or may not be formally negotiated. 


      WORLD INTELLECTUAL PROPERTY
      ORGANIZATION
------------------------------------------------------ Chapter 1:0.106

WIPO is a specialized United Nations agency that promotes the
protection of intellectual property throughout the world through
cooperation among countries and ensures administrative cooperation
among the intellectual property Unions.  WIPO administers a number of
international agreements on intellectual property protection,
including the Berne Convention for the Protection of Literary and
Artistic Works and the Paris Convention for the Protection of
Industrial Property. 


      ZERO-FOR-ZERO TARIFFS
------------------------------------------------------ Chapter 1:0.107

The United States introduced the concept of zero-for-zero tariffs in
March 1990, when it tabled a proposal advancing the elimination of
tariffs in certain sectors through the request-offer approach. 

RELATED GAO PRODUCTS

International Trade:  Efforts to Open Foreign Procurement Markets
(GAO/T-GGD-94-155, May 19, 1994). 

International Trade:  Observations on the Uruguay Round Agreement
(GAO/T-GGD-94-98, Feb.  22, 1994). 

Measuring U.S.-Canada Trade:  Shifting Trade Winds May Threaten
Recent Progress (GAO/GGD-94-4, Jan.  9, 1994). 

North American Free Trade Agreement:  Assessment of Major Issues
(GAO/GGD-93-137A and B, Sept.  9, 1993). 

International Investment (GAO/GGD-93-53R, July 2, 1993). 

Intellectual Property Rights:  U.S.  Companies' Patent Experience in
Japan (GAO/GGD-93-126, July 12, 1993). 

NAFTA:  Issues Related to Textile/Apparel and Auto and Auto Parts
Industries (GAO/T-GGD-93-27, May 4, 1993). 

CFTA/NAFTA Agricultural Safeguards (GAO/GGD-93-14R, Mar.  18, 1993). 

Pesticides:  U.S.  and Mexican Fruit and Vegetable Pesticide Programs
Differ (GAO/T-RCED-93-9, Feb.  18, 1993). 

Dislocated Workers:  Comparison of Assistance Programs
(GAO/HRD-92-153BR, Sept.  10, 1992). 

Progress in GATT Negotiations (GAO/GGD-92-6R, July 31, 1992). 

Pesticides:  Comparison of U.S.  and Mexican Pesticide Standards and
Enforcement (GAO/RCED-92-140, June 17, 1992). 

U.S.-Mexico Trade:  Information on Environmental Regulations and
Enforcement (GAO/NSIAD-91-227, May 13, 1991). 

U.S.-Mexico Trade:  Information on Wages, Fringe Benefits, and
Workers' Rights (GAO/NSIAD-91-220, May 10, 1991). 

Occupational Safety and Health and Child Labor Policies of the United
States and Mexico (GAO/T-HRD-91-22, Apr.  30, 1991). 

U.S.-Mexico Trade:  Some U.S.  Wood Furniture Firms Relocated From
Los Angeles Area to Mexico (GAO/NSIAD-91-191, Apr.  24, 1991). 

U.S.-Mexico Trade:  Impact of Liberalization in the Agricultural
Sector (GAO/NSIAD-91-155, Mar.  29, 1991). 

Agricultural Trade Negotiations:  Stalemate in the Uruguay Round
(GAO/NSIAD-91-129, Feb.  1, 1991).