EPC MEETING, 17 JUNE ON PENDING TRADE DISPUTES AND BRAZIL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90G01353R000400410008-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 25
• Document Creation Date: December 27, 2016
• Document Release Date: August 12, 2013
• Sequence Number: 8
• Publication Date: June 20, 1988
• Content Type: MEMO

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CIA-RDP90G01353R000400410008-9
THE FOLLOWING DOCUMENTS
ARE ATTACHED:
(Please do not remove)
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SUBJECT:
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UNCLAS
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MSGNO 8 (STXX) *06/20/88* *03:06:06.7.5*
ZCZC 08:05:072 (ST)
EMI DTG : 88062002313683
< >

UNCLASSIFIED
STATE
ACTION: NONE INFO: FASTO, ODPB-B, ODPN-N, ODPS-S, OPCTR/EASA,
RF, FILE, NIO/EA, SOV/RP/ELA, (3/W)
88 9312609 SUO NC 9312609
TOR: 200632Z JUN 88 TOKYO 11090
00 RUEAIIB
ZNR UUUUU ZOC STATE ZZH
RPI7199
00 RUEHC
DE RUEHKO #1090/01 1730611
ZNR UUUUU ZZH ZZK
0 210609Z JUN 88 ZFF-4
FM AMEMBASSY TOKYO
TO RUEADWW/WHITE HOUSE WASHDC NIACT IMMEDIATE
RUEHC/SECSTATE WASHDC NIACT IMMEDIATE 7535
RUEHON/USDEL CANADA NIACT IMMEDIATE
RUEHIA/USIA WASHDC NIACT IMMEDIATE 7741
RUCLRFA/USDA WASHDC NIACT IMMEDIATE
BT
EZ1:
UNCLAS TOKYO 11090
EZ2:
WHITE HOUSE SITROOM, PLEASE FAX URGENTLY FROM
AMBASSADOR MICHAEL B. SMITH TO STEVE DANZANSKY AT
TORONTO ECONOMIC SUMMIT
STATE FOR EAP/J AND EAP/P
STATE FOR E FOR JCRODDY
STATE PASS USTR FOR ROGER BOLTON AND GARRY HOLMES
TORONTO ECONOMIC SUMMIT PLEASE PASS EAP ASST. SEC.
SIGUR
TORONTO ECONOMIC SUMMIT PLEASE PASS BILL BREER, EAP/J
TORONTO ECONOMIC SUMMIT PLEASE PASS USIA FOREIGN
PRESS, CAROL LUDWIG
USIS FOR P/PFF AND EA
E.0.12356: N/A
TAGS: EAGR, ETRD, GATT, JA
SUBJECT: PRESS GUIDANCE AND SUMMARY OF US-JAPAN BEEF
AND CITRUS AGREEMENT
REF: SMITH-DANZANSKY TELECON OF SUNDAY, JUNE 19, 2010
1. FOLLOWING IS THE TEXT OF FINAL PRESS RELEASE AND
SUMMARY OF PROVISIONS STATEMENTS RELEASED IN TOKYO
JUNE 20 IN CONJUNCTION WITH USTR YEUTTER'S PRESS
CONFERENCE ANNOUNCING SETTLEMENT OF US-JAPAN
BEEF/CITRUS ISSUE.
UNCLAS
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2. BEGIN TEXT:
PRESS RELEASE BY
UNITED STATES TRADE REPRESENTATIVE CLAYTON YEUTTER
- REPRESENTATIVES OF THE GOVERNMENTS OF THE UNITED
STATES AND JAPAN ANNOUNCED TODAY AN AD REFERENDUM
AGREEMENT WHICH CALLS FOR THE ELIMINATION OF JAPANESE
IMPORT QUOTAS ON BEEF AND CITRUS PRODUCTS. THE
AGREEMENT WAS REACHED BY UNITED STATES TRADE
REPRESENTATIVE CLAYTON YEUTTER AND JAPANESE MINISTER
OF AGRICULTURE SATO AS THE CULMINATION OF SEVERAL
MONTHS OF INTENSE NEGOTIATIONS. THE NEGOTIATIONS
BROKE DOWN AND HAD TO BE RE-STARTED TWICE BEFORE
AGREEMENT WAS FINALLY REACHED.
- "THE UNITED STATES IS PLEASED WITH THE OUTCOME,"
YEUTTER SAID FROM TOKYO, "THOUGH WE WOULD LIKE THESE
MARKETS TO OPEN SOONER THAN IS CONTEMPLATED. IT IS
REGRETTABLE THAT THE PROCESS OF MARKET LIBERALIZATION
WAS NOT BEGUN SEVERAL YEARS AGO. NEVERTHELESS, WE ARE
GRATEFUL THAT THE GOVERNMENT OF JAPAN IS NOW PREPARED
TO PHASE OUT ALL IMPORT QUOTAS ON THESE PRODUCTS."
- "WHAT JAPAN IS NOW PREPARED TO DO ON BEEF AND
CITRUS IS A RECOGNITION OF ITS RESPONSIBILITY AS A
MAJOR ECONOMIC POWER RUNNING A VERY LARGE TRADE
SURPLUS," ASSERTED YEUTTER. "AND IT IS ALSO WHAT
JAPAN MUST DO IN ORDER TO COMPLY WITH THE RULES OF THE
GENERAL AGREEMENT ON TARIFFS & TRADE (GATT)."
- "THIS NEW AGREEMENT," SAID YEUTTER, "WILL OPEN UP
EXCELLENT EXPORT OPPORTUNITIES FOR AMERICAN BEEF AND
CITRUS PRODUCERS. U.S. EXPORT SALES IN THESE PRODUCTS
SHOULD INCREASE SOON, AND THEY COULD EASILY EXCEED $1
BILLION ANNUALLY WHEN THE ACCORD IS FULLY IMPLEMENTED."
- THE AGREEMENT CALLS FOR A PHASE OUT OF IMPORT
QUOTAS ON BEEF PRODUCTS AND FRESH ORANGES OVER A THREE
YEAR PERIOD, AND QUOTAS ON ORANGE JUICES OVER FOUR
YEARS. JAPAN WILL HAVE THE PRIVILEGE OF TEMPORARILY
RAISING DUTIES ON BEEF PRODUCTS TO CERTAIN SPECIFIED
LEVELS DURING A SECOND THREE YEAR ADJUSTMENT PERIOD,
AT THE END OF WHICH THE JAPANESE BEEF MARKET WILL BE
FULLY LIBERALIZED.
- YEUTTER NOTED THAT SINCE THE QUOTAS WILL BE PHASED
OUT, RATHER THAN ELIMINATED IMMEDIATELY AS THE U.S.
HAD REQUESTED, THE GOVERNMENT OF JAPAN HAD AGREED NOT
ONLY TO SIGNIFICANT INCREASES IN MARKET ACCESS IN THE
INTERIM BUT ALSO TO CERTAIN OTHER ACTIONS, INCLUDING
DUTY REDUCTIONS ON SUCH PRODUCTS AS FRESH GRAPEFRUIT,
FRESH LEMONS, FROZEN PEACHES AND PEARS, WALNUTS,
PISTACHIOS, MACADAMIAS, PECANS, PET FOOD, BEEF JERKY,
SAUSAGE, AND PORK AND BEANS.
UNCLAS SECTION 02 OF 04 TOKYO 11090
WHITE HOUSE SITROOM, PLEASE FAX URGENTLY FROM
AMBASSADOR MICHAEL B. SMITH TO STEVE DANZANSKY AT
UNCLAS
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PAGE 0024
TORONTO ECONOMIC SUMMIT
STATE FOR EAP/J AND EAP/P
STATE FOR E FOR JCRODDY
STATE PASS USTR FOR ROGER BOLTON AND GARRY HOLMES
TORONTO ECONOMIC SUMMIT PLEASE PASS EAP ASST. SEC.
SIGUR
TORONTO ECONOMIC SUMMIT PLEASE PASS BILL BREER, EAP/J
TORONTO ECONOMIC SUMMIT PLEASE PASS USIA FOREIGN
PRESS, CAROL LUDWIG
USIS FOR P/PFF AND EA
E.0.12356: N/A
TAGS: EAGR, ETRD, GATT, JA
SUBJECT: PRESS GUIDANCE AND SUMMARY OF US-JAPAN BEEF
- THE AGREEMENT ALSO CALLS FOR A THREE YEAR PHASE OUT
OF THE IMPORT MANAGEMENT OPERATIONS OF JAPAN'S
LIVESTOCK INDUSTRY PROMOTION CORPORATION (LIPC), AND
FOR GREATER FLEXIBILITY IN THE ADMINISTRATION OF THE
IMPORT PROGRAMS FOR BOTH BEEF AND CITRUS PRODUCTS
DURING THEIR RESPECTIVE PHASE OUT PERIODS.
- "BOTH NEGOTIATING TEAMS WORKED EXTREMELY HARD ON
THIS DIFFICULT AND COMPLEX ISSUE, OVER A PERIOD OF
MANY WEEKS," ADDED YEUTTER. "THIS WAS ONE OF THE MOST
CHALLENGING BILATERAL NEGOTIATIONS WE'VE EVER
UNDERTAKEN. I WISH PARTICULARLY TO COMMEND THE
EFFORTS OF DEPUTY USTR MICHAEL B. SMITH, WHO LED THE
U.S. TEAM DURING MOST OF THE NEGOTIATIONS. I COMMEND
AS WELL THE JAPANESE TEAM FOR ITS POSITIVE AND
COURAGEOUS ATTITUDE THROUGHOUT, AND THE JAPANESE
GOVERNMENT FOR ITS WILLINGNESS TO TAKE THE RIGHT
COURSE IN THIS POLITICALLY SENSITIVE AREA."
END TEXT.
3. A SUMMARY OF THE AGREEMENT FOLLOWS.
--U.S.-JAPAN AD REF SETTLEMENT ON BEEF AND CITRUS
SUMMARY OF PROVISIONS
BEEF:
-- DURING JAPAN'S FISCAL YEARS 1988-90
(4/1/88-3/31/91), JAPAN'S MARKET FOR IMPORTED BEEF
WILL INCREASE 60,000 METRIC TONS PER YEAR, REACHING
394,000 MT IN JFY90. BY 1991, JAPAN'S BEEF IMPORTS
SHOULD NEARLY DOUBLE FROM CURRENT LEVELS. ONCE
JAPAN'S MARKET IS COMPLETELY LIBERALIZED, WE EXPECT
THE VALUE OF US BEEF EXPORTS TO DOUBLE AT LEAST TO
MORE THAN $1 BILLION PER YEAR.
-- JAPAN'S LIVESTOCK INDUSTRY PROMOTION CORPORATION
(LIPC) CURRENTLY CONTROLS MOST BEEF IMPORTS. LIPC
WILL PHASE OUT ITS INVOLVEMENT IN BEEF IMPORTS BY
UNCLAS
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3/31/91.
- LIPC SURCHARGES, ON TOP OF THE CURRENT 25 PCT AD
VALOREM TARIFF, NOW ARE EQUIVALENT TO AN AD VALOREM
TARIFF RATE OF 96 PCT. DURING THE JFY88-90 PERIOD,
LIPC SURCHARGES ARE EXPECTED TO DECREASE AND THE
TARIFF WILL REMAIN AT THE CURRENT LEVEL. ONCE LIPC
INVOLVEMENT WITH IMPORTED BEEF ENDS, JAPAN WILL SET A
TEMPORARY TARIFF OF 70 PCT. IN JFY91, DECLINING TO 60
PCT. IN JFY92, AND 50 PCT. IN JFY93 AND THEREAFTER.
JAPAN WILL NEGOTIATE FROM THIS LEVEL IN URUGUAY ROUND
TARIFF NEGOTIATIONS.
-- DURING THE JFY91-93 PERIOD, IF IMPORTS APPEAR
LIKELY TO EXCEED A LEVEL CALCULATED AT 120 PCT. OF THE
PREVIOUS YEAR'S IMPORTS OR IMPORT ALLOCATION
(WHICHEVER IS HIGHER), JAPAN MAY CONSULT WITH
BEEF-EXPORTING COUNTRIES ABOUT ACTIONS TO DISCOURAGE
DISRUPTIVE IMPORT LEVELS. IF IMPORTS EXCEED THE 120
PCT. LEVEL, JAPAN MAY UNILATERALLY IMPOSE AN
UNCLAS SECTION 03 OF 04 TOKYO 11090
WHITE HOUSE SITROOM, PLEASE FAX URGENTLY FROM
AMBASSADOR MICHAEL B. SMITH TO STEVE DANZANSKY AT
TORONTO ECONOMIC SUMMIT
STATE FOR EAP/J AND EAP/P
STATE FOR E FOR JCRODDY
STATE PASS USTR FOR ROGER BOLTON AND GARRY HOLMES
TORONTO ECONOMIC SUMMIT PLEASE PASS EAP
SIGUR
TORONTO ECONOMIC SUMMIT PLEASE PASS BILL
TORONTO ECONOMIC SUMMIT PLEASE PASS USIA
PRESS, CAROL LUDWIG
USIS FOR P/PFF AND EA
E.0.12356: N/A
TAGS: EAGR, ETRD, GATT, JA
SUBJECT: PRESS GUIDANCE AND SUMMARY OF US-JAPAN BEEF
ADDITIONAL 25 PCT. AD VALOREM TARIFF FOR THE REMAINDER
OF THAT FISCAL YEAR. AS OF 4/1/94, SAFEGUARD MEASURES
WILL BE LIMITED TO ONLY THOSE PERMITTED UNDER THE GATT.
-- DURING THE JFY88-90 TRANSITION PERIOD, THE
PROPORTION OF IMPORTED BEEF THAT WILL BE TRANSACTED
UNDER THE SIMULTANEOUS BUY-SELL (SBS) PROGRAM WILL
INCREASE FROM 10 PCT. OF THE TOTAL GENERAL QUANTITY
HANDLED BY LIPC IN JFY87, TO 30 PCT. IN JFY88, 45 PCT.
IN JFY89, AND 60 PCT. IN JFY90. REFORMS OF THE SBS TO
INCREASE THE TRANSPARENCY OF ITS OPERATIONS, ELIMINATE
ANY DISCRIMINATION BETWEEN THE TREATMENT OF GRAIN AND
GRASS-FED BEEF, AND FACILITATE THE PARTICIPATION OF
NEW MARKET ENTRANTS WILL BE UNDERTAKEN IMMEDIATELY.
THE SBS SYSTEM ALLOWS BUYERS AND SELLERS TO NEGOTIATE
CONTRACTS DIRECTLY.
-- MARKET ACCESS FOR HOTELS WILL BE EXPANDED TO 10,000
MT IN JFY88, 13,000 MT IN JFY89, AND 16,000 IN JFY90
(4,000 MT IN JFY87).
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BREER, EAP/J
FOREIGN
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-- JAPAN'S IMPORT RESTRICTIONS ON PREPARED AND
PRESERVED BEEF PRODUCTS WILL BE ELIMINATED WITHIN TWO
YEARS. THIS SETTLES ONE OF THE "GATT-12" PRODUCT
CATEGORIES.
FRESH ORANGES:
-- DURING THE JFY88-JFY90 PERIOD, MARKET ACCESS WILL
BE EXPANDED BY 22,000 MT ANNUALLY, REACHING 192,000 MT
IN JFY90 (JFY87 LEVEL: 126,000 MT; THE INCREASE THE
PREVIOUS FOUR YEARS WAS 11,000 MT/YR).
-- AS OF 4/1/91, IMPORTS OF FRESH ORANGES WILL BE
PERMITTED IN UNLIMITED QUANTITIES AND THE ONLY
RESTRICTION WILL BE THE CURRENT TARIFF (NOW BOUND AT
40 PCT. SEASON AND 20 PCT. OFF SEASON). US ANNUAL
EXPORTS OF FRESH ORANGES ARE EXPECTED TO INCREASE BY
MORE THAN 50 PCT. IN VOLUME AND $25 MILLION IN VALUE.
ORANGE JUICE:
-- MARKET ACCESS FOR ORANGE JUICE CONCENTRATE WILL BE
INCREASED FROM 8,500 MT IN JFY87 TO 15,000 MT IN
JFY88, 19,000 MT IN JFY89, 23,000 MT IN JFY90, AND
40,000 MT IN JFY91.
-- AS OF 4/1/92, IMPORTS OF ORANGE JUICE WILL BE
PERMITTED IN UNLIMITED QUANTITIES AND THE ONLY
RESTRICTION WILL BE THE CURRENT TARIFF (NOW SET
BETWEEN APPROXIMATELY 25 PCT. AND 35 PCT. DEPENDING ON
SUGAR CONTENT). US EXPORTERS WILL COMPETE IN AN
ESTIMATED $50 MILLION IMPORT MARKET.
-- SPECIAL ACCESS, NOT SUBJECT TO THE BLENDING
REQUIREMENT, WILL BE PROVIDED FOR IMPORTS OF
SINGLE-STRENGTH ORANGE JUICE AND ORANGE JUICE MIXTURES
AS FOLLOWS: 15,000 KL IN JFY88, 21,000 KL IN JFY89,
AND 27,000 KL IN JFY90. (IMPORTS OF THESE PRODUCTS
ARE NOW ESSENTIALLY BANNED.) AS OF 4/1/91, IMPORTS
WILL BE PERMITTED IN UNLIMITED QUANTITIES.
UNCLAS SECTION 04 OF 04 TOKYO 11090
WHITE HOUSE SITROOM, PLEASE FAX URGENTLY FROM
AMBASSADOR MICHAEL B. SMITH TO STEVE DANZANSKY AT
TORONTO ECONOMIC SUMMIT
STATE FOR EAP/J AND EAP/P
STATE FOR E FOR JCRODDY
STATE PASS USTR FOR ROGER BOLTON AND GARRY HOLMES
TORONTO ECONOMIC SUMMIT PLEASE PASS EAP ASST. SEC.
SIGUR
TORONTO ECONOMIC SUMMIT PLEASE PASS BILL BREER, EAP/J
TORONTO ECONOMIC SUMMIT PLEASE PASS USIA FOREIGN
PRESS, CAROL LUDWIG
USIS FOR P/PFF AND EA
UNCLAS
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E.0.12356: N/A
TAGS: EAGR, ETRD, GATT, JA
SUBJECT: PRESS GUIDANCE AND SUMMARY OF US-JAPAN BEEF
-- IMPORTS OF SINGLE-STRENGTH ORANGE JUICE IN SMALL
CONTAINERS FOR USE IN HOTELS WILL BE PERMITTED IN
UNLIMITED QUANTITIES THIS YEAR.
-- THE REQUIREMENT THAT IMPORTED ORANGE JUICE BE
BLENDED WITH MIKAN JUICE PRODUCED IN JAPAN WILL BE
LIFTED FOR 40 PCT. OF THE CONCENTRATED ORANGE JUICE
IMPORTED IN JFY88, 60 PCT. IN JFY89, AND COMPLETELY
ELIMINATED AS OF 4/1/90.
OTHER PRODUCTS:
-- THE GOVERNMENT OF JAPAN HAS AGREED TO THE FOLLOWING
TARIFF REDUCTIONS TO BE EFFECTIVE 4/1/89:
-- GRAPEFRUIT - FROM 25 PCT. IN SEASON AND 12 PCT. OFF
SEASON TO 15 PCT. IN SEASON AND 10 PCT. OFF SEASON.
-- LEMONS - FROM 5 PCT. TO 0 PCT.
-- FROZEN PEACHES/PEARS - FROM 20 PCT. TO 10 PCT.
-- PISTACHIOS - FROM 9 PCT. TO 0 PCT.
-- MACADAMIAS - FROM 9 PCT. TO 5 PCT.
-- PECANS - FROM 9 PCT. TO 5 PCT.
-- WALNUTS - FROM 16 PCT. TO 10 PCT.
-- BULK PET FOOD - FROM 15 PCT. TO 0 PCT.
-- PET FOOD IN RETAIL PACKS - FROM 12 PCT. TO 0 PCT.
-- BEEF JERKY - FROM 25 PCT. TO 10 PCT.
-- SAUSAGE - FROM 25 PCT. TO 10 PCT.
-- PORK AND BEANS - FROM 28 PCT. TO 14 PCT.
-- EFFECTIVE 4/1/90, THE GOVERNMENT OF JAPAN WILL
REDUCE THE TARIFF ON GRAPEFRUIT IN SEASON TO 10 PCT.
MANSFIELD
END OF MESSAGE UNCLASSIFIED
NNDD
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- ,
THE WHITE HOUSE 'a5',29x-rr
WASHINGTON
CABINET AFFAIRS STAFFING MEMORANDUM
Date: 06/16/88 Number: 490,753
Due By.
Subject: Economic Policy Council Meeting -- Friday, June 17, 1988
-- 9:00 a.m. -- Roosevelt Room
ALLCABINETMEMBERS
Vice President
State
Treasury
Defense
Justice
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Chief of Staff
OMB
UN
USTR
CEA
Action FYI,
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GSA
NASA
OPM
SBA
VA
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CEQ
OSTP
Action FYI
o 0
Powell
Cribb
Bauer
Dawson (For WH Staffing)
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Executive Secretary for:
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REMARKS:
RETURN TO:
The Economic Policy Council will meet on Friday,
June 17, 1988, at 9:00 a.m. in the Roosevelt Room.
The agenda and background materials are attached
for your review.
('Nancy J. Risque
Cabinet Secretary
456-2823
(Ground Floor, West Wing)
o Associate Director
Office of Cabinet Affairs
456-2800
(Room 235,0E0B)
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THE WHITE HOUSE
WASHINGTON
June 16, 1988
MEMORANDUM FOR THE ECONOMIC POLICY CQUNCIL
FROM: WILLIAM J. MARON
SUBJECT: Agenda and Papers fof June 17 Meeting
The agenda and papers for the June 17 meeting of the Economic
Policy Council are attached. The meeting is scheduled for
9:00 a.m. in the Roosevelt Room.
The first agenda item is a ,report by Ambassador Clayton Yeutter
on major pending bilateral trade disputes. The Trade Policy
Review Group (TPRG) has prepared a matrix of these cases that
explains the amount of trade involved, the status of each case,
and the anticipated timing for Cabinet-level decisions. The TPRG
overview recommends a list of priorities to guide the Council in
resolving these cases during the coming months.
The second agenda item is a specific trade dispute involving
Brazil's regulations on informatics imports. In February 1988,
the Administration decided to postpone sanctions against Brazil
pending U.S. review of Brazil's regulations. The review has now
been completed and the Council is asked to decide what, if any
action, it recommends to the President. Ambassador Yeutter will
present the Trade Policy Review Group's recommendations.
The third agenda item is an overview of the upcoming Toronto
Economic Summit. As you know, on June 7 the Council took part in
briefing the President on the trade and agriculture issues.
Tomorrow's Council meeting' will present an opportunity to discuss
the most recent Summit preparations and expectations. President
Reagan and several members of the Cabinet depart for the Summit
meeting on Saturday, June 18.
CONFIDENTIAL ATTACHMENTS
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THE WHITE HOUSE
WAS
ECONOMIC POLICY COUNCIL
June 17, 1988
9:00 a.m.
Roosevelt Room
AGENDA
1. Priorities for Resolving Pending Trade Disputes
2. Brazil Informatics Case
3. Overview of Upcoming Toronto Economic Summit;
June 19, 20
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OFFICE OF THE UNITED STATES UJiNt LiL 10
TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON
20506
June 15, 1988
To: Economic Policy Council
From: Trade Policy Review Committee
Subject: The Overall Context of Pending Trade Disputes
SUMMARY:
At the Economic Policy Council meeting of May 4, Ambassador
Yeutter reviewed trade disputes being addressed in the GATT
dispute settlement process or bilateral negotiations. The Council
agreed to try to devise an overall strategy regarding these disputes.
This memorandum sets out the factors that should be taken into
account, and stresses the need to continue our aggressive approach
in order to resolve as many problems as possible during the
Reagan Administration. The Council is asked to consider these
factors against which pending trade dispute cases will be examined
and options for action will be presented during the coming
months.
RECOMMENDATION:
Each trade dispute, as described in the attached matrix, must be
primarily dealt with on its own merits. Specific decisions on
the uses of retaliatory threats of actions, resort to the GATT
process, the terms of settlement, etc. cannot be predetermined.
Rather, they need to reflect a sense of timing and tactics and a
judicious appraisal of the likely impact both here and abroad of
retaliation threats or actions. But it is important that the
American public know that we will use our trade laws and economic
leverage to address specific complaints about foreign unfair trade
practices in a determined manner and that these interests will
not be casually sacrificed for geopolitical or broader trade
policy concerns.
The Economic Policy Council should enjoin the Trade Policy Review
Group to endeavor, to the maximum extent possible, to resolve as
many trade disputes as possible during the remainder of this
Administration. However much as we would prefer to resolve all
pending issues, it is unrealistic to think we could succeed. In
view of limitations on time, resources and the GATT dispute
settlement system, we must assign priorities to the pending
disputes that:
CLASSIFIED BY _Lb 'kl"(
DECLASSIFIED ON
CONFIDENTIAL
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1.uivrIUCI1 I IHL
2
o involve potential for expanding U.S. exports of goods and
services and increasing U.S. employment, or improving
conditions for investment or the adequate protection of
intellectual property rights;
o represent strong Congressional and private sector interests;
o involve important precedents, particularly for U.S. positions
in the Uruguay Round;
o were self-initiated cases;
o we won in the GATT;
o involve the blocking of GATT dispute settlement procedures
(i.e., repeated objections to creation of a panel or to
acceptance of a GATT panel's findings);
o meet the Section 301 criteria, with special emphasis on
cases that involve a violation of a trade agreement; or
o involve pending retaliation, following a Presidential
decision to retaliate.
BACKGROUND:
We have a large number of trade disputes pending some of which
may reach a flash point in the remainder of this year and require
decisive action. A list of outstanding issues is attached; it
should be noted that this list is not exhaustive nor does it
attempt to set priorities.
Any dispute that is not resolved satisfactorily by the end of
November is likely to fester until March or April 1989, while the
next administration charts its course on trade. Where we are the
complaining party, the "offending" trading partner may seek to
delay action during the remainder of the year, to test the winds
of a new administration. We should resist such spillovers
wherever possible.
To make maximum progress and conclude favorably as many disputes
as possible, we generally need to continue the aggressive approach
that the President adopted in September 1985. Trade is likely to
remain one of the most active responsibilities of this Administr-
ation, until the very end.
We also need to bear in mind the effects of these disputes on our
larger efforts in the Uruguay Round of multilateral trade negoti-
ations generally, and on the Mid-term Review particularly. We
should not agree to compromises of these disputes that undercut
our Uruguay Round negotiating positions.
CONFIDENTIAL
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Some foreign governments may argue that the Uruguay Round negot-
iations will provide the most appropriate forum for resolving
many of these trade problems. In fact, the United States has
argued that the escalating number of disputes is evidence of
still unresolved, serious, underlying problems in our international
trade system. But we cannot expect multilateral negotiations to
resolve bilateral trade disputes any time soon. Further, there
is a danger in attempting to resolve individual bilateral disputes
in the midst of negotiations on generic rules.
Our various disputes are currently at different stages of consid-
eration either within our own internal U.S. trade law processes
or within the GATT dispute settlement process. These processes
can be slow especially with respect to the GATT. Nonetheless,
this Administration has toiled to make the GATT rules work and
seeks to strengthen them. At other times, it has become clear
that the process has been "blocked" or prevented from working
toward solution. On those occasions, after exhausting all avenues
within the GATT, we have considered unilateral action.
CONFIDENT!
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OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON
20506
June 15, 1988
MEMORANDUM FOR: THE ECONOMIC POLICY COUNCIL
FROM: THE TRADE POLICY REVIEW GROUP
SUBJECT: Section 301 Unfair Trade Case Against
Brazil Informatics
ISSUE
Retaliation against Brazil was delayed on February 29, 1988
pending review of its software law implementing regulations. The
regulations were promulgated by Brazil in May 1988. The EPC must
decide what action, if any, to recommend to the President.
RECOMMENDATION
The software regulations are insufficiently detailed to determine
whether U.S. software firms will be assured of market access in
Brazil. Therefore, the TPRG recommends that we postpone sanctions
against Brazil while we monitor Brazil's actual administration of
the new law.
However, the TPRG also considered criteria for assessing Brazil's
performance. Sanctions may be triggered if Brazil denies market
access to one or several U.S. firms, or may be imposed after we
have considered the general quality and pattern of actions over the
next five months. The TPRG recommends that we retain the flexibility
to act under either circumstance. Consequently, sanctions could
be imposed on this issue or any related part of the section 301
case at any time.
In addition, the TPRG recommends that if it becomes necessary to
impose sanctions, that we review or revise both the amount of
sanctions ($105 million) and the list of possible retaliatory
product candidates that were published in the Federal Register
notice last November. This would require new public hearings.
If the EPC endorses the TPRG recommendation, USTR would issue a
press release which would (1) criticize the software regulations
as being insufficiently detailed to ensure market access,
(2) retain the option to impose sanctions while we monitor Brazil's
actual administration of the software law, and (3) indicate that
the list of retaliatory products will be revised, should sanctions
be imposed.
itfassific;
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HISTORY OF CASE
o In September 1985, the U.S. Trade Representative self-
initiated a section 301 unfair trade investigation against
Brazil's informatics policy. We cited the market reserve
policy, administrative burdens on imports, the prohibition
of foreign investment, and the lack of copyright protection
for computer software as the major grounds for our complaint.
o In December 1986, President Reagan suspended the market
reserve and administrative portions of the section 301 case
in light of Brazil's agreement not to extend market reserve
for computer hardware beyond 1992. (1992 is the year in
which the market reserve policy is scheduled to expire under
the informatics law.) In addition, Brazil presented a
limited list of products not covered by market reserve. The
President instructedUSTR to monitor developments in Brazil
that might abrogate that country's commitments.
o In June 1987, Brazil's Chamber of Deputies passed legislation
that would effectively extend market reserve to computer
software by prohibiting foreign firms from selling programs
for which there is a Brazilian "functional equivalent."
Although the USG objected to this provision, the legislation
also provided copyright protection for software. In light
of the Chamber's action to provide copyright protection, the
President suspended the intellectual property rights part of
the section 301 investigation and directed USTR to monitor the
bill's passage through the Brazilian legislature.
o In September 1987, Brazil rejected licensing agreements
between Microsoft and six Brazilian firms for the MS-DOS, one
of the world's leading operating systems. Brazil justified
its rejection on grounds that a national company produced a
similar, or "functionally equivalent" system that was "adequate
for the Brazilian maket place."
o At the same time, Brazil's legislature passed the legislation
that codified this concept into law. These actions contravened
earlier understandings with Brazil that U.S. software
companies would be able to obtain "reasonable market access"
to Brazil. In November 1987, President Reagan announced his
intention to impose sanctions against $105 million in
Brazilian exports, land to place prohibitive tariffs on
Brazilian informatics exports.
o The sanctions were delayed on February 29, 1988, in light of
a letter sent to Secretary Baker from Brazil's Finance
Minister which made several commitments. The most important
commitment was that Brazil would take into account our views
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in drafting the software law implementing regulations to
provide U.S. software firms "fair market access."
o We presented our suggestions in writing regarding the
software regulations to the Brazilians. Although we requested
consultations with the government prior to promulgation of
the regulations, the Brazilians declined. The regulations
were promulgated in final form on May 16, 1988.
o On May 25, 1988, the Brazilians offered to meet in Brasilia
with USG experts to discuss the regulations. Based on this
meeting and U.S. industry analysis of the regulations, we
concluded that they were insufficiently detailed to determine
whether U.S. software firms will be assured of market access
in Brazil.
o The EPC must now decide what action, if any, to recommend to
the President.
BRAZIL'S SOFTWARE IMPLEMENTING REGULATIONS
Under Brazil's new software law, computer software must be
"catalogued" by the Secretariat for Informatics (SEI) before a
firm can market the program or operating system. Permission to
commercialize is granted for three years. Foreign software will
be denied cataloguing if a similar or "functionally equivalent"
program can be shown to be catalogued and commercially available
or in development.
The implementing regulations were promulgated in May 1988. Only
general criteria for deciding whether a program is functionally
equivalent are included and some of the criteria are not defined
at all. Nor do the regulations state specifically how or if all
of these criteria will be used to determine functional equivalency.
Operational tests will only be performed under certain circumstances,
and SEI is not required to divulge test results and other technical
grounds for denying a cataloguing request or a renewal of this
request.
Of particular concern is the undefined criteria which permit SEI
to take into account "conditions of the national marketplace" in
deciding if there is a similar Brazilian product. According to
Brazilian officials, these criteria mean that SEI could prohibit
imports of a sophisticated software program on the grounds that
it is not needed in Brazil because the market is less developed
than the United States. This was the justification ultimately
invoked by SEI in its rejection of Microsoft's licensing agreements
for the MS-DOS operating system, after Microsoft submitted
extensive documentation to SEI demonstrating that its product was
technically different from the Brazilian system.
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However, SEI is still required under the new regulations to make
cataloguing decisions on "technical and legal grounds" and
identify the national similar or legal basis for rejection. The
regulations refer to an appeals process, but to date, no effective
appeals mechanism has been presented. Under the current system,
the Brazilian licensee must appeal the decision before CONIN, the
informatics council which was established to review informatics
policies. CONIN meets only twice a year, which is too infrequent
because often the commercial life of software is around three
years. SEI must also rule on a cataloguing request within 120
days from date of filing, or the application will be automatically
approved.
INDUSTRY VIEWS
The software industry appears to be taking a cautious view of the
301 case and is generally advocating a "wait and see" approach,
while at the same time keeping pressure on Brazil. Some firms
think that there are some provisions in the implementing regulations
which may reduce some of SEI's discretion to discriminate against
foreign suppliers. However, the companies agree that the regulations
are not sufficiently specific, that they leave a number of
questions unanswered regarding how policies will be implemented,
and in general have not improved the software law.
Companies now want to submit their registrations to the GOB to see
how the provisions will be implemented in practice. They are
concerned about the USG taking actions that might jeopardize
their chances of getting applications approved by SEI. Firms are
also concerned whether retaliation would be effective in changing
Brazil's informatics policies, or whether retaliation would
result in Brazilian countermeasures.
Therefore, the U.S. industry supports postponing sanctions while
we monitor Brazil's administration of the new law. However, they
emphasize that the USG "should not accept one more decision like
Microsoft" in Brazil.
DISCUSSION
Even though the software regulations are unsatisfactory, both the
TPRG and U.S. industry do not believe that sanctions in whole or
in part would change Brazilian policy at this point. Brazilian
officials believe that they have achieved a balance among competing
interests, including the local software publishing industry and
the U.S. Government. Brazilian exporters, who once actively
supported our position, are beginning to resent the repeated
threats of sanctions.
We believe our only alternative is to wait and see how Brazil
actually administers the new law. Under the law, SEI has 120 days
to approve or reject registration and cataloguing requests.
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CONFIDENTIAL
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According to the U.S. Embassy, there is currently a backlog of
over 8,000 cataloguing requests pending before SEI under the old
Normative Act 22. Some of these requests involve foreign software.
U.S. software industry representatives have told us that companies
intend to file similar requests to SEI, despite their dissatisfaction
with the law and the new regulations. Microsoft alone is planning
to submit applications for over fifty products.
If Brazil allows imported software, then favorable precedents
will be set for future imports. If Brazil rules against U.S.
firms, we will have solid evidence of Brazil's intention to close
its software market to foreign imports.
rilnlQnctimni
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June 13, 1988
WHITE HOUSE TALKING POINTS
TORONTO ECONOMIC SUMMIT
President Reagan will participate in his eighth Economic Summit
June 19-21 when he meets in Toronto with other leaders of the
free world's seven major industrialized nations. In addition to
the U.S., those nations are Japan, West Germany, France, the
United Kingdom, Italy and Canada. The European Community will
also be represented at the 'Toronto Summit.
MAJOR U.S. THEMES
President Reagan will pursue three major themes at the summit,
which is the 14th among the free world's economic powers.
1. The Past Eight Years -- Free Markets and Open Societies
There is increasing acceptance that free markets and open
societies are the only ways to promote enduring economic
growth and development. State planning, intervention and
control do not work. Over the past eight years, countries
with free economies and open societies have had impressive
rates of growth. The United States has been in the
forefront in promoting democracy and economic freedom around
the world.
2. International Cooperation and Shared Responsibilities
Consultation and coordination among Summit participants --
as well as nations that are members of the General Agreement
on Tariffs and Trade (GATT), the Organization for Economic
Cooperation and Development (OECD), and the North Atlantic
Treaty Organization (NATO) -- have dealt with economic
problems and threats to security. The United States
supports this approach, of shared responsibilities.
3. A Look Ahead -- Removing Barriers
The future belongs to Ithe flexible, to nations that take
advantage of the free ?exchange of ideas, goods and services.
The U.S. expects the Toronto Summit to give a major
political push to the Uruguay Round in order that global
barriers to the international flow of goods can be ended.
ECONOMIC GROWTH AMONG SUMMIT PARTICIPANTS
o Since 1981, economic summits have helped set out a
market-oriented strategy to bring down inflation and promote
recovery and economic growth.
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2.
WHITE HOUSE TALKING POINTS
o The seven summit nations have cooperated on economic policy;
resisted protectionism; launched a new round of trade
negotiations; and established a case-by-case strategy to
deal with the debt of developing countries.
o For each country attending the Toronto Summit, the rate of
growth in goods and services produced was significantly
higher in 1987 than in 1981.
The table below reports growth rates in real gross national
product (GNP) for the United States, Germany and Japan, and
in gross domestic product (GDP) for the other countries.
GDP reports production but excludes investment income earned
abroad.
Growth Rate of Real GNP
in percentages
1981
and GDP
1987
U.S.
1.9
2.9
Japan
3.7
4.2
West Germany
0.0
1.7
France
1.2
2.2
U.K.
-1.1
3.7
Italy
1.1
3.1
Canada
3.7
3.9
Summit-7
1.7
3.1
THE SUMMIT ISSUES
A number of specific issues are expected to arise during the
summit. Here is the U.S. position on these issues:
Coordinating Economic Policy
o President Reagan believes in coordinating economic policies
of the major industrial countries to promote a stronger
world economy and a more stable financial system. The
development of consistent and compatible policies and
economic performance will help improve growth, reduce trade
imbalances and provide greater exchange rate stability.
o Progress in coordination is being made:
At the Tokyo (1986) and Venice (1987) Summits, the
seven nations decided to make increased use of economic
indicators to survey their economies, and agreed on
economic goals for the future.
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WHITE HOUSE TALKING POINTS
In October 1987, the benefits of increased coordination
were demonstrated following the decline in the stock
market. The worldwide economy survived with little
damage.
o Among other things, the President is encouraging:
Continued step-by-step strengthening of the
coordination process to achieve a sound world economy
and stable financial markets.
Reduction of our own budget deficit. In fiscal year
1987, the U.S. reduced its budget deficit by $72
billion, from $221 billion to $149 billion. Under the
President's proposed budget for FY 1989, the deficit
would decline to $23 billion by FY 1993.
Stable exchange rates. Excessive fluctuation of those
rates, or a dramatic change in the value of the dollar,
could damage the prospect for growth in the world
economy. Furthermore, stable and consistent policies'
will contribute to exchange rate stability.
Reductions in subsidies to agriculture and other
industries, and steps to make labor more mobile.
A new index for commodity prices that would include
the price of gold as well as other commodities
such as wheat and oil. This would be an additional
instrument with which to examine global price trends.
A review of structural issues among the nations, such
as tax reform; measures to reduce government
interference in markets, including financial markets;
and deregulation to move the world to a market-oriented
economy.
Agriculture
o The goal of the Reagan Administration is the eventual
elimination of all subsidies and import restrictions to
allow all farmers to compete on a level playing field.
Assistance to farmers which is not linked to prices and
production could be substituted.
o The Administration has asked the members of GATT to phase
out over 10 years all agricultural programs which directly
or indirectly distort trade. A framework for worldwide
reform of agriculture should be completed when trade
ministers meet for the mid-term review of the GATT Uruguay
Round in December 1988.
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WHITE HOUSE TALKING POINTS
?
International Trade
? The President favors open markets and liberalized
international trade. This would include support among the
summit nations for a successful mid-term review of the
Uruguay Round.
o The President is seeking an endorsement of a framework
approach for negotiations on Uruguay Round issues. This
framework will lay out specific goals, a road map and a
timetable to the finish line. The U.S. would like the
summit leaders to urge their ministers toward agreements on
intellectual property, services, investment, the functioning
of the GATT system, and the integration of the newly
industrialized economies into the GATT.
International Debt
o Considerable progress is being made in supporting debtor
nations' efforts to achieve sustained growth, restore
investor confidence, and improve credit-worthiness.
Major debtors have placed increased emphasis on
market-based policies to increase economic efficiency.
p.
They are implementing reforms to promote growth, trade
and capital flows. These include privatizing public
sector enterprises, tax system reforms, trade
liberalization, removal of price controls and promotion
of realistic exchange and interest rates.
Eight of the major debtors achieved growth of 4 percent
or better last year, while debt service ratios have
fallen by one-fourth since 1982.
o At the Venice Summit in 1987, participants encouraged
efforts by commercial banks and debtor countries to develop
a "menu" of financing options to help debtor nations reform
their economies and help the banking community devise new
financing packages. The U.S. supports the case-by-case menu
approach.
? There is a continuing need for assistance to the low-income
economies, particulary sub-Saharan Africa, through enhanced
support from the summit countries and international
financial institutions.
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5.
WHITE HOUSE TALKING POINTS
o The U.S. is willing to support a number of different
approaches for the poorest countries. Creditor countries in
a position to do so could provide interest rate concessions
on a case-by-case basis. Other countries might consider a
broader range of initiatives.
Narcotics
o Illegal narcotics should never be part of international
trade. The President favors increased international
cooperation to prevent money laundering and the flow of
profits from illicit drugs to financial institutions around
the world.
Other Topics
Among other topics that could be discussed at the Toronto Summit
are these: East-West econOmic relations and implications for
allied security; regional issues; cooperation against terrorism;-'
and the environment.
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